-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LiABvTOltiTCeRJVQtKlE/mONxo5H5ejPLNlHOlkEi9oaFGkxWH9j9YgSm6l1Awf poWohswgRAyhsFt0SehV6Q== 0000950123-99-003169.txt : 19990413 0000950123-99-003169.hdr.sgml : 19990413 ACCESSION NUMBER: 0000950123-99-003169 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 14 REFERENCES 429: 333-39917 FILED AS OF DATE: 19990409 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCATEL CENTRAL INDEX KEY: 0000886125 STANDARD INDUSTRIAL CLASSIFICATION: 3661 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-3 SEC ACT: SEC FILE NUMBER: 333-76003 FILM NUMBER: 99590646 BUSINESS ADDRESS: STREET 1: 54 RUE LA BOETIE CITY: PARIS FRANCE 75008 STATE: I0 ZIP: 00000 BUSINESS PHONE: 33140761010 MAIL ADDRESS: STREET 1: 33 RUE EMERIAU CEDIX 15 CITY: PARIS FRANCE 75015 STATE: I0 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: ALCATEL ALSTHOM DATE OF NAME CHANGE: 19960619 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCATEL USA INC CENTRAL INDEX KEY: 0000316004 STANDARD INDUSTRIAL CLASSIFICATION: 3661 IRS NUMBER: 541025763 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-39917 FILM NUMBER: 99590647 BUSINESS ADDRESS: STREET 1: 1000 COIT RD CITY: PLANO STATE: TX ZIP: 75075 BUSINESS PHONE: 9725193000 MAIL ADDRESS: STREET 1: 1000 COIT ROAD CITY: PLANO STATE: TX ZIP: 75075-5813 FORMER COMPANY: FORMER CONFORMED NAME: DSC COMMUNICATIONS CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DIGITAL SWITCH CORP DATE OF NAME CHANGE: 19850425 F-3 1 ALCATEL 1 As filed with the Securities and Exchange Commission on April 9, 1999 Registration No. 333-39917 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ POST-EFFECTIVE AMENDMENT NO. 3 TO FORM S-3 FORM F-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ ALCATEL USA, INC. ALCATEL (formerly DSC COMMUNICATIONS CORPORATION) (Exact name of registrant (Exact name of registrant on Form S-3 as specified in its charter) on Form F-3 as specified in its charter)
DELAWARE 54-1025763 REPUBLIC OF FRANCE INAPPLICABLE (State or other jurisdiction of (I.R.S. Employer (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) incorporation or organization) Identification Number)
1000 COIT ROAD 54, RUE LA BOETIE PLANO, TEXAS, 75075 75008 PARIS (972) 519-3000 FRANCE 011-331-40-76-10-10
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------ GEORGE B. BRUNT, ESQ. ALCATEL USA, INC. 1000 COIT ROAD PLANO, TEXAS 75075 (972) 519-3000 (Name, address, including zip code, and telephone number, including area code, of agent for service) With copies to: DANIEL W. RABUN SERGE TCHURUK HUBERTUS V. SULKOWSKI BAKER & MCKENZIE CHAIRMAN OF THE BOARD AND CHIEF SHEARMAN & STERLING 2001 ROSS AVENUE, SUITE 4500 EXECUTIVE OFFICER 114, AVE. DES CHAMPS-ELYSEES DALLAS, TEXAS 75201 ALCATEL 75008 PARIS (214) 978-3000 54, RUE LA BOETIE FRANCE 75008 PARIS, FRANCE 011-331-53-89-70-00 011-331-40-76-10-10
------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _____________________________________ If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
==================================================================================================================================== Amount Proposed Maximum Proposed Maximum Amount of Title of Each Class of Shares to be Aggregate Aggregate Offering Registration to be Registered Registered Price Per Security (1) (2) Price (1) Fee - - ------------------------------------------------------------------------------------------------------------------------------------ 7% Convertible Subordinated Notes of Alcatel USA, Inc. $400,000,000 100% $400,000,000 $118,000 (3) - - ------------------------------------------------------------------------------------------------------------------------------------ Guaranty by Alcatel of the 7% Convertible Subordinated Notes (4) (--) (--) (--) None - - ------------------------------------------------------------------------------------------------------------------------------------ Ordinary shares of Alcatel, nominal value Euros 10 per share (5) 1,311,208 (6) Not Applicable Not Applicable Not Applicable (7) - - ------------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457 (i). (2) Exclusive of accrued interest, if any. (3) Of this fee $97,228 was paid in connection with the original filing of the Registration Statement on Form S-3, $10,546 was paid in connection with Amendment No. 1 to such Registration Statement and $10,227 was paid in connection with Amendment No. 2 to such Registration Statement. Therefore, no amount of this registration fee remains to be paid. (4) No separate consideration will be received for the Guaranty. (5) American Depositary Receipts evidencing American Depositary Shares delivered upon conversion of the Notes and representing ordinary shares of Alcatel registered hereby have been registered pursuant to a separate Registration Statement on Form F-6. Each American Depositary Share represents one-fifth of an ordinary share of Alcatel. (6) Such number represents the number of ordinary shares of Alcatel reflected by American Depositary Shares initially deliverable upon conversion of the Notes registered hereby and, pursuant to Rule 416 under the Securities Act of 1933, as amended, such indeterminate number of ordinary shares of Alcatel as may be reflected by American Depositary Shares delivered from time to time upon conversion of the Notes by reason of adjustment of the conversion price under certain circumstances outlined in the Prospectus. (7) The registration fee for the ordinary shares of Alcatel to be delivered (in the form of American Depositary Shares) upon conversion of the Notes was included in the registration fee paid by Alcatel upon filing a Registration Statement on Form F-4 (Registration No. 333-59985) on July 28, 1998, in connection with its tender offer for the outstanding common stock of DSC Communications Corporation. 2 PROSPECTUS $400,000,000 7% CONVERTIBLE SUBORDINATED NOTES DUE AUGUST 1, 2004 --------------------- ALCATEL USA, INC. (FORMERLY DSC COMMUNICATIONS CORPORATION) ALCATEL --------------------- The Notes are being OFFERED by: Certain holders of the Notes. The selling Noteholders will set the OFFERING PRICE for a particular offer at the time of sale. The Notes were ISSUED by: Alcatel USA, Inc. (formerly, DSC Communications Corporation) ("Alcatel USA" or the "Company"). The Company originally issued and sold the Notes in August 1997 in private transactions. The Notes are GUARANTEED by: Alcatel, a French corporation. Alcatel owns all the outstanding common stock of the Company. The Notes are CONVERTIBLE into: American Depositary Shares ("ADSs"). Each ADS represents one-fifth of an ordinary share of Alcatel. The ADSs are listed on the New York Stock Exchange under the symbol "ALA". Alcatel's shares are listed on the Paris Stock Exchange. at a CONVERSION RATE of: 16.3901 ADSs per $1,000 principal amount of Notes. The conversion rate represents a conversion price of $61.012 per ADS. On April 7, 1999, the last reported sale price on the New York Stock Exchange was $24.0 per ADS. The selling Noteholders may sell the Notes, or the ADSs delivered upon conversion, from time to time. The selling Noteholders may make such sales either directly or through dealers or underwriters. The Company and Alcatel will not receive any of the proceeds from the sale of the Notes. The Notes are not listed on any national securities exchange or the Nasdaq Stock Market. BEFORE YOU DECIDE TO PURCHASE THE NOTES, CAREFULLY READ THIS PROSPECTUS, ESPECIALLY THE RISK FACTORS BEGINNING ON PAGE 7. --------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense. The date of this Prospectus is April 9, 1999 3 TABLE OF CONTENTS
Page ---- Forward-Looking Statements.................................................. 3 U.S. Dollar/French Franc Exchange Rates..................................... 3 Prospectus Summary.......................................................... 4 The Companies ......................................................... 4 Certain Information Relating to the Notes, the Guarantee and the ADSs... 5 Ratio of Earnings to Fixed Charges...................................... 6 Risk Factors................................................................ 7 Risk Factors Related to Alcatel......................................... 7 Risk Factors Related to Alcatel USA .................................... 7 Use of Proceeds............................................................. 9 Selected Historical Unaudited Interim Financial Data for Alcatel............ 10 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 11 Description of Business..................................................... 18 Where You Can Find More Information......................................18 Enforceability of Civil Liabilities Against Foreign Persons............. 19 Description of Notes........................................................ 20 General; Guarantee...................................................... 20 Conversion Rights....................................................... 21 Subordination........................................................... 22 Redemption.............................................................. 24 Payment and Conversion.................................................. 24 Repurchase at Option of Holders upon a Change in Control................ 25 Mergers and Sales of Assets by the Company.............................. 26 Events of Default....................................................... 27 Meetings, Modification and Waiver....................................... 27 Registration Rights..................................................... 28 Transfer and Exchange................................................... 29 Purchase and Cancellation............................................... 29 Title................................................................... 29 Notices................................................................. 30 Replacement of Notes.................................................... 30 Payment of Stamp and Other Taxes........................................ 30 Governing Law........................................................... 30 The Trustee............................................................. 30 Taxation.................................................................... 31 Description of Registration Rights Agreement................................ 35 Selling Securityholders..................................................... 36 Plan of Distribution........................................................ 38 Legal Matters............................................................... 38 Experts..................................................................... 39 Index to Unaudited Interim Consolidated Financial Statements for Alcatel.... F-1
________________________ CONTENT OF PROSPECTUS You should rely only on the information contained in this document or in documents we filed with the Securities and Exchange Commission (the "Commission") that we have referred you to. We have not authorized anyone to provide you with different information. You should not assume that the information in the Prospectus is accurate as of any date other than the date on the front of this document. LIMITATIONS ON OFFERS OR SOLICITATIONS We do not intend this document to be an offer or solicitation: (1) if used in a jurisdiction in which such offer or solicitation is not authorized; (2) if the person making such offer or solicitation is not qualified to do so; or (3) if such offer or solicitation is made to anyone to whom it is unlawful to make such offer or solicitation. 2 4 FORWARD-LOOKING STATEMENTS This Prospectus includes forward-looking statements, including statements regarding anticipated savings in research and development expenses and growth in Alcatel's worldwide satellite business. We have based these forward-looking statements largely on our expectations. Forward-looking statements are subject to a number of risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated as a result of the factors described in "Risk Factors." We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this offering memorandum might not transpire. U.S. DOLLAR/FRENCH FRANC EXCHANGE RATES We have presented all financial information in this prospectus in U.S. dollars or French francs, except where we have noted otherwise. For your convenience, unless otherwise indicated, we have translated certain French franc amounts into U.S. dollars. For such translations, we used the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") on April 7, 1999, of 6.0827 francs per dollar. Since January 1, 1999, the franc is a subunit of the euro, and this Noon Buying Rate has been calculated by applying the fixed exchange rate of FF 6.55957 per euro to the Noon Buying Rate for euros. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations -- Introduction of the Euro." Fluctuations in the exchange rate between the dollar and the euro will affect the dollar equivalent of the euro price of shares of Alcatel. As a result, such fluctuations will also affect the market price of the ADSs. In addition, such fluctuations will affect the dollar amounts of dividends received by holders of ADSs, because such dividends are converted into dollars by the depositary for the ADSs. The following table sets forth the average, high, low and period-end Noon Buying Rates for dollars expressed in francs per dollar from 1994 through April 7, 1999, and in euros per dollar from January through April 7, 1999.
French Franc Euros ----------------------------------------- ------------------------------------------- Year/period Average Year/period Average end rate Rate(1) High Low end rate Rate(1) High Low ----------- -------- ---- --- ----------- ------- ---- ---- 1994............................ 5.34 5.51 5.98 5.11 ---- ---- -- -- 1995............................ 4.90 4.96 5.39 4.78 ---- ---- -- -- 1996............................ 5.19 5.12 5.29 4.90 ---- ---- -- -- 1997............................ 6.02 5.85 6.35 5.19 ---- ---- -- -- 1998............................ 5.59 5.90 6.21 5.38 ---- ---- -- -- 1999 (through April 7)(2)....... 6.08 5.97 6.13 5.55 0.93 0.91 0.93 0.85
__________________ (1) The average of the Noon Buying Rates on the last business day of each month (or portion thereof) during the relevant period. On April 7, 1999, the Noon Buying Rate was $1 = 0.9273 euros ($1.08 per euro). (2) The Federal Reserve Bank of New York stopped publishing Noon Buying Rates for the French franc on January 15, 1999. Noon buying Rates for French francs for periods subsequent to January 15, 1999 have been calculated by applying the fixed exchange rate of FF 6.55957 per euro to the Noon buying Rate for euros. 3 5 PROSPECTUS SUMMARY This summary highlights selected information from this Prospectus and may not contain all of the information that is important to you. To understand the terms of the securities, you should carefully read "Description of Notes" in this Prospectus. You should also read the documents we have referred you to in "Where You Can Find More Information" on page 18 for information on the Company and Alcatel and our financial statements. See "Risk Factors" for a discussion of certain risks you should consider before investing in the Securities. THE COMPANIES Alcatel Alcatel, together with its consolidated subsidiaries and associated companies, is a world leader in providing telecommunications equipment and systems. In 1997, Alcatel had consolidated net sales of FF 185.9 billion (approximately $31 billion). While Alcatel has operations in over 100 countries, it has a particularly strong market base in Europe, where it generated approximately two-thirds of its 1997 consolidated net sales. Alcatel was founded in France in 1898 and is headquartered in Paris. Alcatel's operations are currently organized by product lines into two principal segments: (1) Telecom and (2) Cables and Components. Each segment acts as a separate worldwide profit center with responsibility for strategy, research and development, manufacturing and marketing. The Telecom segment designs, produces, sells and services telecommunications equipment and systems for public network, business and residential use. The Cables and Components segment manufactures cables for telecommunications and power transmission applications, and batteries for telecommunications, industrial and advanced technology applications. Alcatel also owns approximately 44% of Framatome, which manufactures equipment for nuclear power stations and specialized electronic connectors. French state-owned entities hold a majority interest in Framatome. Alcatel's current organization reflects three major transactions carried out in 1998: - - -- May 1998: Alcatel sold substantially all of the business of Cegelec, the principal operations of its former Engineering and Systems segment, to ALSTOM. ALSTOM is a 50/50 joint venture between Alcatel and the General Electric Company, plc ("GEC"). The Engineering and Systems segment accounted for 14.1% of Alcatel's consolidated net sales in 1997; - - -- June 1998: Alcatel and GEC each sold a 26% interest in ALSTOM. ALSTOM conducted the operations of Alcatel's Energy and Transport segment and accounted for 18.4% of Alcatel's consolidated net sales in 1997. As a result of the sale, Alcatel currently owns approximately 24% of ALSTOM; and - - -- September 1998: Alcatel acquired the Company, as described below under Alcatel USA, Inc. (the "Merger"). Thomson-CSF. Alcatel has agreed with the French government to transfer its military telecommunications activities to Thomson-CSF, a military defense contractor owned by the French government. Alcatel's military telecommunications activities represented approximately FF 2.8 billion in Telecom sales in 1997. In exchange for the transfer, Alcatel would receive a portion of Thomson-CSF's equity capital. As part of the agreement, Alcatel and Thomson-CSF will share research and development efforts in the area of telecommunications and electronics. Management believes that such shared efforts should result in savings in Alcatel's research and development expenses in future years. Alcatel would also transfer its satellite activities to a new company formed with Thomson-CSF, with the new company being 51% owned by Alcatel. Alcatel's satellite activities represented approximately FF 5.0 billion in sales in 1997. The new company would combine the satellite platform products of Alcatel with the satellite launching products of Thomson-CSF. Management believes that the new company will provide Alcatel with sufficient size and a sufficiently broad product portfolio to compete in the worldwide satellite business. Alcatel USA, Inc. (formerly, DSC Communications Corporation) In September 1998, Alcatel acquired all the outstanding shares of common stock (the "Common Stock") of DSC Communications Corporation, a Delaware corporation, which was renamed Alcatel USA, Inc. ("Alcatel USA"). Alcatel USA develops, manufactures and markets digital switching, excess transport and private network system products for the worldwide telecommunications marketplace. Alcatel USA's products allow telecommunication service providers to build and upgrade their networks to support a wide range of voice, data and video services. Alcatel USA offers a comprehensive product line including digital switching systems, intelligent network products, cellular switching systems, digital loop carrier products, digital cross-connect products and optical transmission systems and related advanced network management systems. In 1997, Alcatel USA had revenues of approximately $1.6 billion. The acquisition of Alcatel USA makes the United States Alcatel's largest national telecom market. ________________________ Alcatel USA, Inc.'s principal executive offices are located at 1000 Coit Road, Plano, Texas 75075, and its telephone number is (972) 519-3000. Alcatel's principal executive offices are located at 54, rue La Boetie, 75008 Paris, France, and its telephone number is (33-1) 40-76-10-10. 4 6 CERTAIN INFORMATION RELATING TO THE NOTES, THE GUARANTY AND THE ADSs Amount of Notes Outstanding . . . . As of April 9, 1999, $400,000,000 principal amount of Notes was outstanding. Interest Payment Dates. . . . . . . . Interest is paid on February 1 and August 1 of each year. Issued by Alcatel USA, Inc. . . . . . Alcatel USA, Inc. (formerly, DSC Communications Corporation), a Delaware corporation, issued the Notes. Since September 4, 1998, Alcatel owns all the outstanding common stock of Alcatel USA, Inc. Guaranteed by Alcatel . . . . . . . . Alcatel, a limited liability corporation organized under the laws of France, has fully and unconditionally guaranteed the Notes (the "Guaranty"). See "Description of Notes -- General; Guaranty." Convertible into Alcatel ADSs . . . . You can convert the Notes into ADSs at any time prior to the close of business on August 1, 2004. Each ADS represents one-fifth of an ordinary share of Alcatel (an "Alcatel Share"). If the Company calls the Notes for redemption (see "Optional Redemption by the Company" below), you can convert them through, but not after, the close of business on the fifth Trading Day (as defined under "Description of Notes-- General; Guaranty") preceding the redemption date. If you deliver your Notes for repurchase by the Company (see "Repurchase by the Company at Option of Holders Upon a Change in Control"), you can convert them until the close of business on the second Trading Day preceding the repurchase date. For more information on how and when you can convert the Notes, see "Description of Notes--Conversion Rights." The Company will acquire the ADSs to be delivered upon conversion of the Notes through open-market purchases. Conversion Price . . . . . . . . . . . $61.012 per ADS, each ADS representing one-fifth of an ordinary share of Alcatel. The conversion price reflects a conversion rate of 16.3901 ADSs per $1,000 principal amount of Notes. The conversion price is subject to adjustment under certain circumstances. See "Description of Notes -- Conversion Rights." Tax Upon Conversion . . . . . . . . . The conversion of a Note will be treated as a taxable exchange. When you convert a Note, you will therefore recognize a taxable gain or loss equal to the difference between the fair market value of the ADSs you receive and your tax basis in the Notes. See "Taxation -- Taxation of U.S. Holders -- Notes -- Sale, Exchange or Redemption of Notes or Conversion of Notes for ADSs." Optional Redemption by the Company . . The Company may redeem the Notes, on or after August 1, 2000, at the prices set forth in this Prospectus, plus accrued interest to the redemption date. See "Description of Notes--Redemption." Repurchase by the Company at the Option of Holders Upon a Change in Control . . . . . . Upon a Change in Control (as defined under "Repurchase at Option of Holders Upon a Change in Control"), you will have the right, subject to certain conditions and restrictions, to require the Company to repurchase the Notes. The repurchase price will be 100% of the principal amount, plus accrued interest to the repurchase date. The Company may pay for the Notes in cash or ADSs (valued at 95% of the average closing prices of the ADSs for the five Trading Days ending on and including the third Trading Day preceding the repurchase date). See "Description of Notes--Repurchase at Option of Holders Upon a Change in Control."
5 7 Notes are Subordinated. . . . . . . The Notes are unsecured obligations of the Company, and they are subordinated in right of payment to all existing and future Senior Indebtedness (as defined under "Description of Notes--Subordination") of the Company. The Notes are also effectively subordinated in right of payment to all indebtedness and other liabilities of the subsidiaries of the Company. As of June 30, 1998, the aggregate amount of outstanding Senior Indebtedness of the Company was approximately $353.92 million. Such indebtedness includes indebtedness of the subsidiaries of the Company which has been guaranteed by the Company. The Company may incur additional Senior Indebtedness or other indebtedness, and the subsidiaries of the Company may incur additional indebtedness or other liabilities. See "Description of Notes--Subordination." Events of Default . . . . . . . . . Events of default include: (1) failure to pay principal or premium, on any Note when due; (2) failure to pay any interest on any Note when due, continuing for 30 days; (3) failure to perform, or the breach of, any other covenant of the Company in the Indenture, continuing for 60 days after written notice; (4) default by the Company in respect of any indebtedness for money borrowed in excess of $20,000,000, if such default constitutes a failure to pay such indebtedness at maturity or results in acceleration of such indebtedness. If such indebtedness is discharged, or such acceleration is rescinded or annulled, within 30 days after written notice, there will be no event of default; and (5) certain events of bankruptcy, insolvency or reorganization. See "Description of Notes--Events of Default." Registration Rights . . . . . . . . Pursuant to the Registration Rights Agreement, the Company agreed to file a Shelf Registration Statement (of which this Prospectus constitutes a part) in respect of the Notes and the ADSs deliverable upon conversion of the Notes. If the Company fails to comply with certain of its obligations under the Registration Rights Agreement, additional interest will be payable on the Notes. See "Description of Notes--Registration Rights" and "Description of Registration Rights Agreement." Listing of Notes and ADSs . . . . . The Notes are not listed on any national securities exchange or the Nasdaq Stock Market. The Notes are designated for trading on the PORTAL System of the National Association of Securities Dealers, Inc. The ADSs are listed for trading on the NYSE under the symbol "ALA." The Alcatel Shares represented by the ADSs are listed on the Paris Stock Exchange.
RATIO OF EARNINGS TO FIXED CHARGES The ratio of "earnings" to "fixed charges" for each of the Company and Alcatel for the periods indicated was:
Year Ended December 31, Six Months ------------------------------------------ Ended 1993 1994 1995 1996 1997 June 30, 1998 ------ ------ ------ ------ ------ ------------- The Company: 9.0 19.6 10.3 * 4.2 ** Alcatel: 2.63 1.93 *** 1.41 1.93 8.59
* Earnings were not sufficient to cover total fixed charges for the year ended December 31, 1996 by approximately $14.7 million. ** Earnings were not sufficient to cover fixed charges for the six-months ended June 30, 1998 by approximately $56.9 million. *** Earnings were not sufficient to cover fixed charges for the year ended December 31, 1995 by approximately FF25.7 billion. For purposes of the ratio, "earnings" means the sum of: - - -- pre-tax income, - - -- the pre-tax income of majority-owned subsidiaries, whether or not consolidated, - - -- the proportionate share of the income of any fifty-percent-owned companies, - - -- any income received from less-than-fifty-percent-owned companies, and - - -- fixed charges. "Fixed charges" means the sum of: - - -- the interest paid on borrowed funds, - - -- the preferred stock dividend requirements of our consolidated subsidiaries and trusts, - - -- the amount amortized for debt discount, premium and issuance expense, and - - -- the proportion of all rental expenses deemed representative of the interest factor. 6 8 RISK FACTORS You should carefully consider the following factors and other information in this Prospectus, including the information incorporated by reference, before deciding to invest in the Notes. RISK FACTORS RELATED TO ALCATEL NEED FOR SUCCESSFUL INTEGRATION OF THE COMPANY Alcatel expects that the merger with the Company will result in certain benefits to Alcatel. In order to achieve the benefits of the merger, Alcatel must integrate efficiently the businesses of the Company with Alcatel's existing businesses, including Alcatel Network Systems, Inc., Alcatel's major North American subsidiary. This integration will require substantial attention from, and pose challenges to, management. The integration process could interrupt or disrupt the companies' businesses. If management fails to integrate the Company successfully, Alcatel may not realize some or any of the anticipated benefits. RAPID TECHNOLOGICAL CHANGE IN THE TELECOMMUNICATIONS INDUSTRY; IMPACT OF REGULATION The telecommunications industry experiences rapid and significant changes in technology. Alcatel does not believe that these changes will materially affect its ability to acquire necessary technologies. However, Alcatel cannot predict with certainty the effect on its business of technological changes. In order to be successful in marketing its products to business and government customers, Alcatel must provide superior technological reliability, capacity and security. If Alcatel's products do not keep pace with significant technological advances, Alcatel's business would be materially adversely affected. In addition, Alcatel cannot predict the effect of the on-going concentration of the telecommunications industry on technological development. Alcatel derives substantial revenues by providing international telecommunications equipment and other services to customers in the United States and around the world. Changes in government regulations and telecommunications standards, licensing requirements and tariffs, taxes and other trade barriers can significantly affect the financial results of such operations. In addition, changes in the laws or administrative practices relating to Alcatel's business in the countries where it operates could have a material adverse effect on Alcatel's financial condition and results of operations. COMPETITION; INDUSTRY CONSOLIDATION Alcatel operates in a market which is highly competitive. Alcatel's competitors include other manufacturers and distributors as well as a large number of suppliers that develop their own products for sale directly to customers. Some of these competitors are larger and may have greater resources than Alcatel. Alcatel's arrangements with large customers generally do not provide Alcatel with guarantees that customer purchases will be maintained. In addition, certain of Alcatel's customers attempt to develop their own products and certain competitors manufacture products similar to those of Alcatel. These trends, together with further consolidations in the telecommunications industry involving Alcatel's customers, could lead such customers to reduce or end their use of Alcatel's products and services. YEAR 2000 RISKS Until recently, most computer programs contained coding that identified years using two digits instead of four (for example "98" rather than "1998"). This coding may prevent many of these programs from distinguishing the year 2000 from 1900. Computer systems which may be affected by this "Year 2000 issue" include, but are not limited to, computer systems embedded in production equipment, products containing computer systems, business data processing systems, production management and planning systems and personal computers. Systems that do not properly recognize such information could generate erroneous data or fail. The Year 2000 issue could have a material adverse impact on Alcatel's daily commercial activities and financial performance if not adequately addressed by Alcatel and significant customers and suppliers. For a discussion of our response to the Year 2000 issue, see "Management's Discussion and Analysis -- Year 2000 Readiness Disclosure." RISKS OF INTERNATIONAL OPERATIONS Alcatel conducts international operations in North and South America, Europe, the Far East, the Middle East and Africa. Alcatel may also expand into other international markets. In addition to the regulatory and competitive risks described above, international operations may be exposed to other risks. Such other risks include lack of complete operating control of independent local agents, lack of local business experience, difficulty in enforcing intellectual property rights and political and economic instability. EFFECT OF EXCHANGE RATE FLUCTUATIONS Alcatel earns revenues and incurs expenses in several international currencies. Alcatel's financial statements have been denominated in French francs and will be denominated in euros. Consequently, fluctuations in currency exchange rates could have an adverse effect on Alcatel's reported results. RISK FACTORS RELATED TO ALCATEL USA CUSTOMER CONCENTRATION The Company has a diversified customer base. However, a large portion of the Company's revenue is concentrated among several of the Company's larger customers. A material reduction in the purchases of the Company's products by any of the Company's significant customers could have a material adverse effect on the Company. PRODUCT OBSOLESCENCE AND IMPORTANCE OF NEW PRODUCTS The industry in which the Company operates is characterized by rapidly changing technological and market conditions. Such changes may shorten product life cycles. If the Company is unable to develop and produce new products to meet industry demands, or if substantial delays in the availability of new products occur, the Company may be materially adversely affected. TIMELY AND ADEQUATE SUPPLY OF MATERIALS The Company generally uses standard parts and components for its products. The Company believes that, in most cases, there are a number of alternative, qualified suppliers for most of those parts and components. The Company also purchases certain custom components and products from single suppliers. The Company believes that the manufacturers of the particular custom components and products should be able to meet expected future demands. However, an unanticipated interruption of the supply of adequate components could have a material adverse effect on the Company's revenues. In addition, certain of the Company's products contain a number of subsystems or components acquired from other manufacturers. These products are often available only from a limited number of manufacturers. In the event that such a product was no longer available from a current vendor, the Company would be required to find alternative sources, which could delay customer deliveries. Such delays could have a material adverse effect on the Company's revenues. COMPETITION The Company currently faces significant competition in its markets. The Company expects that the level of price and product competition will increase. In addition, as a result of both the trend toward global expansion by foreign and domestic competitors and technological and public policy changes, the Company anticipates that new and different competitors will enter its markets. Many of the Company's foreign and domestic competitors have more extensive engineering, manufacturing, marketing, financial and personnel resources than the Company. As a result, the Company's competitors pose a constant challenge to its ability to maintain or increase market share and profitability. 7 9 KEY PERSONNEL The Company is dependent upon the continued services and management experience of certain of its senior management personnel. If the Company were to lose the services of such senior management personnel, it could have a material adverse effect on the Company. 8 10 MULTI-YEAR AGREEMENTS As part of its ongoing operations, the Company periodically enters into multi-year agreements with customers. Certain of these agreements include requirements to develop new technologies, including hardware and software. Certain agreements also include requirements to provide installation of infrastructure systems, and some agreements contain performance criteria. If the company fails to fulfill its obligations under these agreements, it could be subject to substantial penalties, damages or non-payment, or such agreements could be terminated by the other party. NO PUBLIC MARKET FOR RESALE OF THE NOTES The Notes are not listed on any national securities exchange or the Nasdaq Stock Market, and the Company does not intend to apply for such a listing. Therefore, there is no public market for resale of the Notes. As a result, it is not clear that you will be able to resell the Notes, or at what price. Changes in prevailing interest rates, the market for securities similar to the Notes and the operating results of the Company and Alcatel will affect the price at which the Notes may be sold. USE OF PROCEEDS The Notes and ADSs (together, the "Securities") offered under this Prospectus are being offered by the holders of the Securities. The Company and Alcatel will therefore not receive any of the proceeds from the sale of the Securities. 9 11 SELECTED HISTORICAL UNAUDITED INTERIM FINANCIAL DATA FOR ALCATEL The following selected historical unaudited interim financial data for the six-month periods ending June 30, 1997 and 1998 are derived from the unaudited interim consolidated financial statements of Alcatel included elsewhere in this Prospectus. You should read the selected interim financial information together with such financial statements and the notes thereto. In management's opinion, such interim financial statements reflect all adjustments necessary for a fair presentation of the financial position and results of operations for these periods. However, such interim financial position does not necessarily reflect the results which will be achieved for the full year.
FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, ENDED DECEMBER 31, ------------------------ -------------------------------------------------------- 1998(1) 1998(2) 1997 1997(1) 1997 1996 1995 1994 1993 ------- ------- ---- ------- ---- ---- ---- ---- ---- U.S.$ FF FF U.S.$ FF FF FF FF FF (RESTATED)(3) (IN MILLIONS, EXCEPT PER SHARE AND PER ADS DATA) INCOME STATEMENT DATA: AMOUNTS IN ACCORDANCE WITH FRENCH GAAP Net sales ......................... 10,128 61,604 60,073 30,557 185,868 162,102 160,416 167,643 156,334 Income from operations ............ 378 2,302 1,986 1,315 8,000 2,903 634 8,042 11,559 Restructuring costs ............... (9) (55) (259) (200) (1,218) (466) (13,422) (2,898) (2,488) Amortization of goodwill .......... (163) (993) (418) (365) (2,222) (13,464) (2,557) (2,053) Other revenue (expense)(4) ........ 2,330 14,171 1,102 326 1,980 3,190 1,757 759 874 Gains on disposal of Alcatel Shares Owned by group subsidiaries (after tax) .......... -- -- -- 39 238 -- -- 5 75 Net income ........................ 2,500 15,205 1,489 767 4,665 2,725 (25,583) 3,620 7,062 EARNINGS PER SHARE: Net income--Basic(5) .............. 15.73 95.68 9.52 4.89 29.73 17.48 (177.79) 25.74 49.61 Net income--Diluted(6) ............ 14.51 88.23 9.42 4.79 29.13 17.45 (177.79) 25.74 48.88 Dividends per Share(7) ............ -- -- -- 1.89 11.50 10.00 8.00 15.00 15.00 Dividends per ADS(7) (8) .......... -- -- -- 0.38 2.30 2.00 1.60 3.00 3.00 APPROXIMATE AMOUNTS IN ACCORDANCE WITH U.S. GAAP (9): Net sales ......................... 10,128 61,604 60,073 30,557 185,868 162,636 160,525 167,496 156,307 Net income ........................ 3,030 18,431 1,809 481 2,924 (1,198) (21,352) 4,751 7,796 Basic earnings per Share: Income before extraordinary items 19.07 115.98 11.56 3.06 18.63 (7.68) (148.39) 35.54 49.15 Net income ...................... 19.07 115.98 11.56 3.06 18.63 (7.68) (148.39) 33.78 54.76 Diluted earnings per Share(6) Income before extraordinary items 17.57 106.86 11.44 3.03 18.42 -- -- 35.04 48.46 Net income ...................... 17.57 106.86 11.44 3.03 18.42 -- -- 33.42 53.75 Basic earnings per ADS(8): Income before extraordinary items 3.81 23.20 2.31 0.61 3.73 (1.54) (29.68) 7.11 9.83 Net income ...................... 3.81 23.20 2.31 0.61 3.73 (1.54) (29.68) 6.76 10.95 Diluted earnings per ADS (8): Income before extraordinary items 3.51 21.37 2.28 0.60 3.68 -- -- 7.01 9.69 Net income ...................... 3.51 21.37 2.28 0.60 3.68 -- -- 6.68 10.75 BALANCE SHEET DATA (AT PERIOD END):(10) AMOUNTS IN ACCORDANCE WITH FRENCH GAAP Total assets ...................... 31,040 188,810 244,103 41,391 251,772 248,265 255,675 273,942 260,071 Short-term investments and cash and cash equivalents ................ 4,620 28,105 22,701 4,573 27,819 29,331 34,940 39,558 41,782 Short-term debt ................... n.a. n.a. n.a. 2,927 17,805 19,055 26,804 20,294 24,218 Long-term debt .................... n.a. n.a. n.a. 3,603 21,916 23,422 28,125 31,377 24,813 Minority interests ................ 489 2,972 2,068 292 1,777 1,488 3,213 5,860 5,116 Shareholders' equity .............. 10,735 65,295 41,450 7,226 43,954 39,170 32,993 59,784 57,884 AMOUNTS IN ACCORDANCE WITH U.S. GAAP(9) Shareholders' equity .............. n.a. n.a. n.a. 9,110 55,413 51,788 49,525 72,712 68,653 Total assets(11) .................. n.a. n.a. n.a. 43,822 266,559 269,482 274,889 293,002 273,421 Long-term debt .................... n.a. n.a. n.a. 3,631 22,084 24,500 28,264 31,518 24,939
- - ----------------- (1) Translated solely for convenience into dollars at the Noon Buying Rate of FF 6.0827 on April 7, 1999, calculated by applying the fixed exchange rate of FF 6.55957 per euro to the Noon Buying Rate for euros on April 7, 1999. See "U.S. Dollar/French Franc Exchange Rates." (2) In preparing its June 30, 1998 data, Alcatel treats the disposals of Cegelec and ALSTOM as if they had occurred on January 1, 1998. Prior to the sales, Cegelec was fully consolidated and GEC ALSTHOM was consolidated on a proportional basis. Alcatel now accounts for its remaining interest in ALSTOM under the equity method. (3) In order to make comparisons easier, June 30, 1997 data has been restated to account for the "Engineering and Systems" and "Energy and Transport" sectors as equity affiliates. This restatement is explained in "Management's Discussion and Analysis of Financial Condition and Results of Operations." (4) Other revenue (expense) mainly includes net capital gains on disposal of previously consolidated and unconsolidated companies. (5) Based on the weighted average number of Shares issued after deduction of the weighted average number of Shares owned by consolidated subsidiaries, without adjustment for any share equivalent: 158,921,794 at June 30, 1998, 156,428,156 at June 30, 1997, 156,937,952 in 1997, 155,902,458 in 1996, 143,890,505 in 1995, 140,665,635 in 1994 and 142,357,809 in 1993. (6) Diluted earnings per share take into account share equivalents having a dilutive effect after deduction of the weighted average number of share equivalents owned by group subsidiaries. Net income is adjusted for after-tax interest expense of related 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: French GAAP: 173,122,559 at June 30, 1998, 158,852,572 at June 30, 1997, 171,489,939 in 1997, 157,431,310 in 1996, 143,890,505 in 1995, 140,665,635 in 1994 and 151,046,630 in 1993. US GAAP: 173,122,559 at June 30, 1998, 158,852,572 at June 30, 1997, 159,244,088 in 1997, 153,152,678 in 1994 and 151,046,630 in 1993. Not applicable in 1996 and 1995 due to loss position. (7) Year to which dividend relates. 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. (8) Adjusted for the one-to-five ratio of Shares to ADSs. The Company first issued Shares represented by ADSs in 1990. (9) For information concerning the differences between French GAAP and U.S. GAAP, see Note 4 to the unaudited condensed consolidated interim financial statements included elsewhere herein and Notes 30 and 31 of the Notes to Consolidated Financial Statements included in Alcatel's Annual Report for 1997. (10) June 30, 1998 and June 30, 1997 data are presented before appropriation of dividends. (11) Advance payments received from customers are not deducted from the amount of total assets. See Note 30(k) of the Notes to Consolidated Financial Statements included in Alcatel's Annual Report for 1997. 10 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We have based this discussion of Alcatel's financial condition and results of operations on Alcatel's unaudited interim financial statements for the six month periods ended June 30, 1998 and June 30, 1997, which are included at the end of this Prospectus. You should read the financial statements and the Notes to the financial statements for a more detailed description of Alcatel's financial results. The financial statements have been prepared in accordance with accounting principles generally accepted in France ("French GAAP"), which differ in certain significant ways from accounting principles generally accepted in the United States ("U.S. GAAP"). The most significant differences which affect the presentation of Alcatel's financial results relate to: (1) accounting for restructuring costs; (2) amortization of acquisition goodwill; (3) accounting for direct costs incidental to acquisitions and incurred by acquiring companies; and (4) accounting for gains on the sale of treasury stock. Note 4 to the unaudited interim financial statements quantifies these differences, and presents Alcatel's net income, earnings per share and shareholder's equity as if Alcatel's financial statements had been prepared in accordance with U.S. GAAP. You will find audited consolidated financial statements and discussions and analyses of the Company's and Alcatel's financial condition and results of operations for 1997 and 1996 in their Annual Reports for 1997. Those discussions present important historical information about both companies. In particular, the Management's Discussion and Analysis section of Alcatel's Annual Report for 1997 discusses in detail a Recovery Plan which Alcatel announced in September 1995. The Recovery Plan included efforts to reduce costs, in particular through accelerating earlier restructuring programs, revaluation of certain assets and divestiture of non-strategic assets, and measures aimed at positioning Alcatel in key growing markets, particularly in the Telecom segment. The Recovery Plan was completed at the end of 1998. The Alcatel Annual Report for 1997 also contains a detailed description of Alcatel's accounting policies. SIGNIFICANT REORGANIZATION In the first half of 1998, Alcatel significantly reorganized its businesses through (1) the sale to GEC ALSTHOM of Cegelec, which had conducted Alcatel's former Engineering and Systems segment, and (2) the subsequent public offering of approximately half of Alcatel's interest in GEC ALSTHOM (now called "ALSTOM"), which had conducted Alcatel's former Energy and Transport segment activities. These transactions and other significant 1998 transactions are described in the Prospectus Summary. For accounting purposes, Alcatel treats both of these sales as if they had occurred on January 1, 1998. Prior to the sales, Cegelec was fully consolidated and GEC ALSTHOM was consolidated on a proportional basis. Alcatel now accounts for its remaining interest in ALSTOM under the equity method. In order to make it easier for you to compare Alcatel's financial results for the first half of 1998 with the first half of 1997, Alcatel has restated its June 30, 1997 financial information to account for the Engineering and Systems segment and the Energy and Transport segment under the equity method. The financial information in "Results of Operations for the Six Months Ended June 30, 1998 and 1997" is presented on this restated basis. Where indicated, some information is also presented on a comparable basis. To calculate its results of operations on a comparable basis, Alcatel has excluded from its results of operations for the six months ended June 30, 1997 the effect of assets which were disposed of during the two years ended June 30, 1998. The principal exclusion affecting the six-month periods ended June 30, 1998 and 1997 reflects the deconsolidation of a South African subsidiary of Alcatel following the reduction of Alcatel's ownership below 50 percent. Alcatel has also included in its "comparable" results of operations for the six months ended June 30, 1997 the effect of previously unconsolidated assets which were newly consolidated during the two years ended June 30, 1998. Where indicated, some information is also presented on the basis of constant copper prices. Alcatel has prepared its information on this basis by recalculating financial data for the first six months of 1997 by using copper prices in effect during the first six months of 1998. Changes in the price of copper affect the cost of sales and sales price of products sold by the Cables and Components segment. Alcatel's sales contracts pass these price changes 11 13 on to customers. The average price of copper used by Alcatel in calculating its financial results during the first half of 1998 fell approximately 27% compared to the first half of 1997. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 Alcatel's total net sales for the six months ended June 30, 1998 were FF 61.6 billion, an increase of 2.5% compared to the same period for 1997. Alcatel's business in the United States continued to expand, offsetting declining sales in Southeast Asia. Order bookings increased 3.5% to FF 64.4 billion during the first half 1998 compared with the first half of 1997. On a comparable basis and at constant copper prices, orders increased by 5.8% compared to the corresponding period in 1997. Alcatel's income from operations increased by 15% to FF 2.3 billion in the first half of 1998, compared to FF 2.0 billion for the first half of 1997. Growth in income from operations was due principally to the Telecom segment, particularly by sales of terrestrial and submarine transmission systems. Growth was limited by a slowdown in Telecom sales in the second quarter of 1998 compared with the second quarter of 1997. The Telecom segment reported an exceptionally high level of sales in the second quarter of 1997 due to the digitalization program of German customers. The digitalization program was completed in 1997. Financial income increased by FF 939 million to FF 292 million in the first half of 1998 from a loss of FF 647 million during the corresponding period in 1997. This increase reflects principally FF 635 million in dividends received from unconsolidated companies, including principally a dividend received from Havas, as well as a FF 171 million premium received upon the conversion of convertible bonds. Net interest expense decreased by FF 329 million to FF 444 million due principally to the conversion of convertible bonds, the application of proceeds of the disposal of Cegelec, and a decrease in interest rates. Alcatel's restructuring costs fell to FF 55 million in the first half of 1998 compared to 259 million during the corresponding period in 1997, principally because Alcatel did not introduce any significant new restructuring plans in 1998. Amortization of goodwill for the first half of 1998 amounted to FF 993 million, an increase of FF 13 million compared with the first half of 1997. Other revenue amounted to FF 14.2 billion for the first half of 1998, compared with FF 1.1 billion for the first half of 1997. In the first half of 1998, Alcatel recorded FF 14.2 billion in net capital gains, of which 13.7 billion related to the disposals of Cegelec and ALSTOM. Income before taxes and share in net income of equity amounted to FF 15.7 billion for the first half of 1998 compared with FF 1.2 billion for the first half of 1997. This increase is principally due to net capital gains of FF 13.7 billion on the disposals of Cegelec and ALSTOM. Alcatel's income taxes for the first half of 1998 amounted to FF 1.1 billion, an increase of FF 840 million compared to the same period in 1997. The increase is attributable to taxes on net capital gains relating to the disposals of Cegelec and ALSTOM. Share in net income of equity affiliates decreased by FF 89 million to FF 656 million in the first half 1998 compared with FF 745 million in the first half of 1997 (restated to include the Engineering and Systems segment and the Energy and Transport segment as equity affiliates). This decline was due principally to a decline of net income of Framatome in the first half of 1998. Minority interests amounted to a charge of FF 27 million in the first half 1998, an increase of FF 104 million compared with the first half of 1997. Net income amounted to FF 15.2 billion compared with FF 1.5 billion in the first half of 1997. This figure includes an exceptional after-tax FF 13.2 billion net capital gain resulting from the disposals of Cegelec and ALSTOM. 12 14 TELECOM Net sales by the Telecom segment (including net sales to other segments) increased by 6% to FF 40.9 billion for the first half of 1998 compared with FF 38.6 billion for the first half of 1997, due principally to growth in sales by the terrestrial and submarine networks, business networks, and space communications operations. Net sales increased 6.5% on a comparable basis. Net sales by destination in Europe remained stable, while sales to North America and the rest of the world increased in the first half of 1998. Sales to Asia decreased in the first half of 1998 due principally to the region's financial crisis. Order bookings amounted to FF 44.1 billion in the first half of 1998 compared with FF 42.1 billion for the same period in 1997 and increased by 4.7% on a comparable basis. Order growth was strong in terrestrial and submarine transmission. However, it was weak in mobile communications, due in large measure to the negative impact on growth in Asia resulting from the Asian crisis, and in access systems, which were affected by the completion of the digitalization program in Germany. The Telecom segment's income from operations increased to FF 810 million compared with FF 591 million in the first half of 1997. Growth was sustained in terrestrial and submarine transmission systems. This partially offset the slowdown in switching and access due to the completion of the digitalization program in Germany. CABLES AND COMPONENTS The Cables and Components segment's net sales (including net sales to other segments) remained stable at FF 23.7 billion for the six months ended June 30, 1998, compared to FF 23.6 billion for the same period in 1997. On a comparable basis and at constant copper prices, the increase amounted to 8%. The sharp fall in prices with respect to telecommunications cables was offset by higher volumes in Europe, as well as by the emergence of "global" customers and new operators. Sales by the associated components sector were stable in most product lines, with the negative impact of the Asian crisis being compensated by a healthy market in Europe. The net sales of the power cable business has also remained relatively stable due to the increase in volume, which offset an industry-wide price decline due to the fall in copper prices. The Cables and Components segment's income from operations remained stable in the first half of 1998 and amounted to FF 1,310 million, compared with FF 1,269 for the first half of 1997. Significant pricing pressure, especially in fiber optic cables, was partially offset by productivity gains and growth in volume. LIQUIDITY AND CAPITAL RESOURCES Alcatel's main source of cash during the first six months of 1998 was cash proceeds, net of cash sold, from dispositions of previously consolidated and unconsolidated companies, principally Cegelec and ALSTOM, together with cash expenditures for acquisitions of consolidated companies, net of cash acquired, and unconsolidated companies which amounted to FF 19.9 billion during the first six months of 1998, compared with FF 4.1 billion during the first six months of 1997. Net cash used by operating activities amounted to FF 467 million for the first half of 1998, compared to FF 1.5 billion used in the first half of 1997. Proceeds from the disposals of Cegelec and ALSTOM, net of cash sold, accounted for FF 13.5 billion before taxes. Because Alcatel typically receives most of its net cash from operating activities during the second half of the year, net cash from operating activities during the first six months of 1998 and 1997 is not representative of full year results. Short term investments increased by FF 2.1 billion, amounting to FF 8.1 billion at June 30, 1998, compared to FF 6.0 billion at December 31, 1997, due principally to the application of the proceeds of the disposal of Cegelec. Proceeds from the disposal of fixed assets amounted to FF 176 million during the first half of 1998, compared to FF 428 million during the first half of 1997. Proceeds from the issuance of shares amounted to FF 309 million during the six-month period ended June 30, 1998, and mainly consisted of the issuance of shares in connection with capital increases reserved for employees and stock options for executive officers of Alcatel. Capital expenditures for new plant and equipment (including intangible assets but excluding goodwill) amounted to FF 2.4 billion during the first six months of 1998, compared with FF 3.0 billion in the first six months of 1997. In addition, cash expenditures for acquisitions, net of cash required, declined to FF 124 million during the first half of 1998, compared with FF 513 million in the earlier period. Net cash flow after investments amounted to FF 13.6 billion 13 15 for the first six months of 1998, compared with a negative net cash flow after investment of FF 1.4 billion for the first six months of 1997. The principal reason for the change in cash flow after investment is the increase in cash proceeds from the disposals of Cegelec and ALSTOM. Alcatel's cash and cash equivalents aggregated FF 20.0 billion at June 30, 1998, compared with FF 21.8 billion at the end of 1997. The net decrease in cash and cash equivalents amounted to FF 1.8 billion in the first six months of 1998, compared with a decrease of FF 1.9 billion in 1997. This reduction is due to payments on outstanding indebtedness and the payment of dividends on Alcatel shares. At June 30, 1998, Alcatel had approximately FF 13.4 billion in unused committed credit lines with numerous banks, denominated in francs and various other currencies. Total financial debt at June 30, 1998 decreased by FF 9.5 billion on December 31, 1997 to FF 30.3 billion. Alcatel's ratio of net debt (short-term and long-term debt, net of short-term investments and cash and cash equivalents) to shareholders' equity was 27.1%, 33.6% and 60.6% at December 31, 1997, 1996 and 1995, respectively and decreased to 3.0% at June 30, 1998. This decrease was due in part to an increase in shareholders' equity to FF 65.3 billion, compared to FF 44.0 billion at December 31, 1997. This increase is also due to the exceptional increase in Alcatel's net income from proceeds of the disposals of Cegelec and ALSTOM and also to the conversion of convertible bonds, which caused a decrease of approximately FF 4.0 billion in financial indebtedness and a corresponding increase of approximately FF 4.0 billion in equity. Accrued contract costs and other reserves, which includes reserves for restructuring and other reserves, amounted to FF 24.3 billion at June 30, 1998. Restructuring costs of FF 1.1 billion were expensed in the first six months of 1998, mainly for the Telecom segment, and to a lesser extent for the Cables and Components segment. Approximately 80% of restructuring reserves expensed have been in cash and are classified as net cash provided by operating activities. IMPACT OF ECONOMIC CRISES IN SOUTH EAST ASIA The economic crises of certain countries in South East Asia have had a negative impact on prices and demand for certain of the Company's products and services, due particularly to a significant decline in infrastructure investment in the region. Management believes that such impact has been relatively less significant with respect to investments in telecommunications infrastructure. Such developments have affected the results of operations of certain of the Company's businesses, particularly the mobile communications division, which experienced a significant decline in sales to Indonesia. Based on current information, management does not believe that the impact of such economic crises will be material for Alcatel on a consolidated basis. Net sales recorded by Alcatel in 1997 in Asia amounted to approximately FF 5.8 billion, or approximately 4.4% of the Group's consolidated net sales. YEAR 2000 READINESS DISCLOSURE Alcatel is working diligently to ensure that its products and information technology systems are Year 2000 ready. The Group has initiated a comprehensive global program to identify, prioritize and address potential problems in all products and systems which may arise because of the Year 2000 problem, and has put in place contingency plans and continues to develop, improve and put in place additional contingency plans to address problems which may arise in the event these programs fail to identify and correct any problems. The Group is addressing year 2000 issues in two priority areas: 1) product readiness and customer information programs and 2) internal information systems. Alcatel is also monitoring the state of Year 2000 readiness of its suppliers and customers in order to minimize the impact of any Year 2000 problems they may experience. Product readiness and customer information program The Group's programs for ensuring Year 2000 readiness for its products are managed by each operating sector and operating division. In addition, Alcatel has established a central task force in charge of coordinating and reviewing all Year 2000 activities. The corporate executive in charge of the task force reports directly to Alcatel's Executive Committee. Alcatel's Year 2000 program for product readiness consists of two major efforts: (1) an 14 16 assessment of Alcatel products to identify potential problems and create solutions and (2) a program designed to make information available to Alcatel customers regarding potential Year 2000 programs relating to Alcatel products and to propose solutions. Alcatel began its product assessment program in 1996, and expects to complete it during the first quarter of 1999. This internal review is designed to identify potential Year 2000 problems in hardware and software produced by Alcatel, and to develop software patches and other solutions to correct identified problems. Alcatel's customer information program consists of establishing an inventory of Alcatel products currently in use throughout the world and contacting identified customers to inform them of potential problems and to provide solutions. Alcatel's sales organization is primarily responsible for contacting customers, and solutions are generally developed and implemented in the context of systems updates which are carried out on a regular basis. Alcatel is also assisting customers in testing the effectiveness of these solutions. Alcatel estimates that it had substantially completed almost all of its inventory by December 31, 1998, and intends to complete implementation of its solutions at its customer locations by the end of the third quarter of 1999 or, based on customer requirements, at later times. Because the successful completion of the implementation program is dependent on the cooperation of Alcatel's customers, Alcatel may not complete implementation by its target date or in time to avoid Year 2000 problems for some of its customers. Alcatel has also established call centers and a Year 2000 page at its website (www.alcatel.com) to provide customers with information regarding Year 2000 problems and solutions. Because of the degree of complexity of most of Alcatel's products, Alcatel does not intend to publish a comprehensive list of its products indicating whether they are Year 2000 ready. It has, however, established such lists on its Year 2000 website with respect to certain standard consumer products and other more standardized products. Because the identification of Year 2000 product problems and implementation of solutions is generally carried out as part of regular systems updates, the cost of Alcatel's program is difficult to segregate from regular operating revenue and expenses. It is therefore difficult to quantify the costs of Alcatel's Year 2000 program for product readiness. Alcatel nevertheless estimates that the total cost of implementing Year 2000 solutions for Alcatel products will be approximately FF 900 million from the beginning of 1998, of which approximately one-third had been spent by December 31, 1998. These amounts cover costs of the Year 2000 readiness work for inventory, assessment, remediation, testing and deployment including fees and consultant fees. Alcatel has also hired limited numbers of external consultants, operating under Alcatel management, at certain sites to assist Alcatel in its Year 2000 program. Alcatel expects that most of these costs will be offset by additional revenue generated by upgrades carried out in the framework of standard processes for upgrades and maintenance. Insurance Alcatel has extended all of its group insurance policies beyond the Year 2000 without specific exclusions of Year 2000 risks. There can be no assurance, however, that any claims Alcatel may make under such policies with respect to any potential Year 2000 product liability will be paid promptly or at all. Internal Information Systems The Group's programs for ensuring Year 2000 readiness for its internal information systems are organized by country. Alcatel has completed its review of its internal information systems and identified those systems which require repair in order to ensure a smooth transition to the Year 2000. With respect to software systems developed by third party vendors, including Alcatel's financial reporting systems, Alcatel has upgraded or is in the process of upgrading these systems to versions or releases which are certified by their vendors as being Year 2000 ready. For those information systems which were developed internally, Alcatel's Information Systems staff has completed its review and has established the second quarter of 1999 as its target for completion of repair or replacement of its principal systems. Alcatel tests all systems prior to redeployment of upgraded systems into production, and expects to complete substantially all of such testing in the second quarter of 1999. A central team is monitoring progress of these activities to identify any potential difficulties which may prevent deployment by the second quarter of 1999 and to ensure remedial action where appropriate. Alcatel estimates that additional costs to update its internal information systems will be approximately FF 250 million, of which approximately two-thirds had been spent by December 31, 1998. Alcatel has not included in its calculation of the costs relating to its internal information systems program costs for previously planned updates and replacements of its systems, and has not attempted to determine if the implementation of such updates and replacements was accelerated due to the Year 2000. These cost estimates do not include previously contemplated updates and replacements of Alcatel's internal 15 17 information systems. It is also difficult for Alcatel to segregate costs which are borne directly to deal with the Year 2000 from costs which relate to the introduction of the euro or to the general need to implement more efficient internal information systems. Alcatel expects to fund such expenses through its operating cash flow. Facilities Alcatel is reviewing the Year 2000 readiness of its manufacturing facilities, principally through a decentralized program of inspection and remediation conducted by each operating division. In addition, Alcatel has established a centralized team to inspect its 19 principal manufacturing sites, which together account for over three-quarters of Alcatel's manufacturing capacity. Human Resources Alcatel has drawn from its existing engineering staff to create a team of experts to design and implement Year 2000 solutions. At December 31, 1998, approximately 3% of Alcatel's staff of approximately 20,000 software engineers was dedicated to the Year 2000 issue. In addition, identification of Year 2000 problems and implementation of solutions is a regular part of the duties of Alcatel's sales and engineering teams, in addition to their regular duties. Third Party Readiness The extent of Year 2000 readiness of third parties with whom Alcatel maintains a material relationship may affect its operations or financial performance. In order to ensure the continued supply of products and services suppled by third parties, Alcatel has sent questionnaires to its third party suppliers asking for a self-assessment of their Year 2000 readiness and has sought commitments from each one to take all necessary steps to minimize any effects of the Year 2000 issue on its dealings with Alcatel. Most of Alcatel's third party suppliers are currently engaged in their own Year 2000 programs and are unable or unwilling to provide such assessments and are unwilling to provide product guarantees specifically guaranteeing Year 2000 readiness. Alcatel cannot therefore certify that it will not experience interruptions in its third party supplies or that any such interruptions will not materially adversely affect its operations. In particular, Alcatel is currently in discussion with certain third party suppliers of software that is incorporated into Alcatel products regarding the refusal of such suppliers to guarantee the Year 2000 readiness of their products. In such cases, Alcatel is endeavouring to test independently such software as used in Alcatel product to resolve any identified problems. Alcatel has, as part of its standard industrial policy, established alternate sources for most of its supplies, and believes that this policy will reduce the risk of interruption of its operations. Where alternate sources of supply are unavailable, Alcatel has visited selected suppliers to independently assess their Year 2000 readiness. Worst Case Assessment In the event Alcatel fails to identify and solve Year 2000 problems in its products, telecommunication services for users of Alcatel telecommunications products could be interrupted for extended periods of time and purchasers of other Alcatel products could experience operational interruptions. A major failure in Alcatel products could adversely impact the operations of its customers and could cause Alcatel to incur significant costs and require it to dedicate significant resources to remedy such problems. In order to minimize this risk, Alcatel has developed a comprehensive program to identify and address Year 2000 problems. Third party experts have provided technical support and consultation to validate this program. Alcatel is also putting in place customized contingency response plans for major customers, which include having Alcatel engineers physically present at certain customer sites to respond immediately to problems which may arise at or immediately after January 1, 2000. Alcatel is also taking steps to ensure that sufficient staff is available at that time to ensure prompt attention to Year 2000 issues affecting all its customers. Although Alcatel believes that these contingency plans should be adequate to address any Year 2000 problems, there can be no assurance that Alcatel will be able to solve all problems which may arise. In the event Alcatel fails to identify and resolve Year 2000 problems with respect to its internal information systems, it could experience interruptions in manufacturing, customer billing, payroll, accounts payable, or other operational processes. Although Alcatel does not believe that any such interruptions would last for extended periods of time or would materially adversely affect its financial conditions or results of operations, there can be no assurance that this will be the case. If any third party suppliers with whom Alcatel maintains a material relationship fail to achieve substantial Year 2000 readiness, Alcatel could 16 18 experience interruptions in the supply of raw materials and components which could interrupt the manufacture and delivery of Alcatel products. The consequences of any such delays could have a material effect on Alcatel's business, results of operations or financial condition. No assurance can be given that all of Alcatel's customers or suppliers will have achieved Year 2000 readiness by January 1, 2000. Alcatel believes that it has established a detailed and comprehensive program to address the Year 2000 issue and believes that it will manage the transition to the Year 2000 without experiencing any material adverse effect on its financial condition or results of operations. Given the significance of the potential consequences of a failure to resolve Year 2000 problems, there cannot, however, be any assurance that any failure to address a particular Year 2000 problem will not have a material adverse effect on Alcatel's business or financial condition. The actual results of Alcatel's Year 2000 program will be affected by a variety of factors, not all of which are within the control of Alcatel. Such factors include the ability to identify and solve computer software and hardware problems, the ability of contractors and suppliers to adequately prepare for the Year 2000 and cooperation of customers. It is important to note that the description of Alcatel's efforts contains forward-looking statements which are subject to risks and uncertainties which could cause actual results to differ materially from those projected. This description necessarily involved estimates and projections with respect to activities required in the future. These estimates and projections are subject to change as work continues, and such changes may be substantial. INTRODUCTION OF THE EURO Prior to January 1, 1999, the franc was part of the European Monetary System ("EMS") exchange rate mechanism. Within the EMS, exchange rates fluctuated within permitted margins, fixed by central bank intervention. Under the provisions of the Treaty on European Union negotiated at Maastricht, The Netherlands, in 1991 (the "Maastricht Treaty") and signed by the then 12 European Union Member States in early 1992, a European Monetary Union ("EMU"), with a single European currency under the monetary control of the European Central Bank, superseded the EMS. On January 1, 1999, the last stage of EMU came into effect, with the creation of the euro and the replacement of the national currencies of the 11 participating countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain. The euro represents 6.55957 francs, and the franc is a subunit of the euro. In 1998, a substantial portion of Alcatel's net sales were denominated in francs and other currencies that have been replaced by the euro. The creation of the euro may have significant effect on the economies of the participant countries. Alcatel is currently assessing the competitive effects of the introduction of the euro. Alcatel believes that the introduction of the euro will facilitate its management of operating units located in the euro zone by enhancing comparability. Alcatel also believes that the elimination of exchange rate risk within the euro zone will reduce its costs with respect to hedging expenses. Alcatel is able to bill its customers in euros and to make purchases in euros. Since January 1, 1999, Alcatel's communications with the financial markets have been in euros and, in January 1999, Alcatel converted its share capital into euros. Based on available information, Alcatel does not believe that additional future costs incurred in connection with the introduction of the euro will have a material adverse effect on its financial condition or results of operations. 17 19 DESCRIPTION OF BUSINESS You will find a complete description of the Company's and Alcatel's businesses in their Annual Reports for 1997. Important recent events since the filing of the Annual Reports, including those mentioned in the "Prospectus Summary" above, are described in the quarterly and current reports filed by the Company and Alcatel. See "Where You Can Find More Information." WHERE YOU CAN FIND MORE INFORMATION Filings by the Company and Alcatel with the Commission. Prior to the acquisition of the Company by Alcatel in September 1998, the Company filed annual, quarterly and special reports and other information with the Commission. As a foreign private issuer, Alcatel files annual and special reports with the Commission. You may read and copy any document filed by the Company or Alcatel at the Commission's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. Documents which have been filed by the Company electronically with the Commission are also available to you at the Commission's web site at http://www.sec.gov. Alcatel has generally not filed documents electronically with the Commission. Filings by Alcatel with the New York Stock Exchange. Alcatel ADSs are listed on the New York Stock Exchange (the "NYSE"). As a result, the reports described above which were or continue to be filed with the Commission by Alcatel can also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Reports to Holders of Alcatel ADSs. The Bank of New York, as depositary for the Alcatel ADSs, mails to each holder registered on its books a copy of Alcatel's annual report. The Bank of New York also mails to each holder a copy of all notices of meetings of shareholders and other reports and communications that are distributed by Alcatel to its shareholders generally. Additional information in the Registration Statement. This Prospectus is part of a Registration Statement on Form S-3/Form F-3 which the Company and Alcatel have filed with the Commission. The Registration Statement contains certain information and exhibits which are not required to be included in the Prospectus. Certain of the information included in this Prospectus, such as the description of the terms of the Notes, is a summary of the exhibits which set forth such terms in full. Such summarized information is therefore not complete in every respect. If you wish to consult the complete versions of the documents which are summarized in the Prospectus, such documents may be read and copied at the Commission's facilities as set forth above. Documents incorporated by reference into the Prospectus. The Commission allows the Company and Alcatel to "incorporate by reference" certain information filed with the Commission. As a result, the Company and Alcatel can disclose important information to you by referring you to those documents that are considered part of this Prospectus. Information that the Company or Alcatel file later with the Commission will automatically update and supersede the previously filed information. The Company and Alcatel incorporate by reference the documents listed below, and any future filings made with the Commission under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, until this offering has been completed. For the Company (Commission File No. 0-10018), its: --------------------------------------------------- (1) Annual Report on Form 10-K for the year ended December 31, 1997. (2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. (3) Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. (4) Current Report on Form 8-K dated June 4, 1998. (5) Current Report on Form 8-K dated April 3, 1998. (6) Current Report on Form 8-K dated April 1, 1998. 18 20 For Alcatel (Commission File No. 1-11130), its: ----------------------------------------------- (1) Annual Report on Form 20-F for the year ended December 31, 1997. (2) Report of Foreign Private Issuer on Form 6-K dated June 8, 1998. (3) Report of Foreign Private Issuer on Form 6-K dated June 19, 1998. (4) Report of Foreign Private Issuer on Form 6-K dated July 29, 1998. (5) Report of Foreign Private Issuer on Form 6-K dated August 28, 1998. (6) Report of Foreign Private Issuer on Form 6-K dated September 9, 1998. (7) Report of Foreign Private Issuer on Form 6-K dated September 21, 1998 regarding first half results. (8) Report of Foreign Private Issuer on Form 6-K dated September 21, 1998 regarding the share buy-back program. (9) Report of Foreign Private Issuer on Form 6-K dated October 22, 1998. (10) Report of Foreign Private Issuer on Form 6-K dated December 9, 1998. (11) Report of Foreign Private Issuer on Form 6-K dated January 29, 1999. (12) Report of Foreign Private Issuer on Form 6-K dated February 5, 1999. (13) Report of Foreign Private Issuer on Form 6-K dated February 8, 1999. (14) Report of Foreign Private Issuer on Form 6-K dated March 4, 1999. (15) Report of Foreign Private Issuer on Form 6-K dated March 11, 1999. (16) The descriptions of the ordinary shares of Alcatel and the American Depositary Shares representing such shares as contained in Alcatel's Registration Statement on Form 8-A dated April 30, 1992, including all amendments and reports filed for the purpose of updating such descriptions. You may request copies of these filings at no cost by writing or telephoning us at the following address: Alcatel USA, Inc. 1000 Coit Road Plano, Texas 75075 Attention: General Counsel (972) 519-3000 Web sites for the Company and Alcatel. You can also obtain more information about the Company and Alcatel at their web sites: www.ans.alcatel.com for the Company, and www.alcatel.com for Alcatel. ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS Alcatel is a French societe anonyme organized under the laws of the Republic of France. Most of Alcatel's directors and officers, as well as certain of the experts named herein, are not residents of the United States, and a substantial portion of the assets of Alcatel and its directors and officers are located outside the United States. As a result, you may not be able to effect service of process within the United States upon such persons. You may also not be able to enforce upon such persons judgments of courts of the United States based upon civil liability provisions of the U.S. Federal securities laws. If you bring an original action in France, based solely upon the U.S. Federal securities laws, French courts may not have jurisdiction to grant the remedies sought. If you try to enforce in French courts judgments of U.S. courts which were rendered against French persons, such French persons may first have to waive their right under French law to be sued in France only. Alcatel believes that none of the French persons described above, including Alcatel, have waived such right with respect to actions based solely upon U.S. Federal securities laws. In addition, if you bring an action in the United States under the U.S. Federal securities laws, the French law of July 16, 1980, may preclude or restrict the obtaining of evidence in France or from French persons in connection with such action. 19 21 DESCRIPTION OF NOTES The Company issued the Notes under an Indenture, dated as of August 12, 1997, between the Company and The Bank of New York, as Trustee (the "Trustee"). The initial Indenture has been supplemented by the First Supplemental Indenture, dated as of September 4, 1998, between the Company and the Trustee, and by the Second Supplemental Indenture, dated as of April 1, 1999, between the Company and the Trustee (the initial Indenture together with the Supplemental Indentures, the "Indenture"). The Indenture is summarized below. Because it is a summary, it does not contain all of the information that may be important to you. A copy of the initial Indenture was filed as an exhibit to the Company's Current Report on Form 8-K dated, August 26, 1997. A copy of the First Supplemental Indenture was filed as an exhibit to Alcatel's Report of Foreign Private Issuer on Form 6-K dated September 9, 1998. A copy of the Second Supplemental Indenture was filed on April 9, 1999 as an exhibit to the Registration Statement of which this Prospectus forms a part. We suggest that you read those parts of the Indenture that are important to you. You especially need to read the Indenture to get a complete understanding of your rights and our obligations in connection with the conversion, redemption and repurchase of the Notes and in the event of the merger or sales of assets of the Company. GENERAL; GUARANTY In August 1997, the Company issued an aggregated principal amount of $400,000,000 of the Notes to the Initial Purchasers (as defined in the Indenture) pursuant to exemptions from the Securities Act of 1933, as amended (the "Securities Act"). The Notes were offered and sold by the Initial Purchasers to Qualified Institutional Buyers (as defined in the Indenture) in reliance on Rule 144A of the Securities Act and in offshore transactions to non-U.S. persons in reliance on Regulation S under the Securities Act. The Notes are unsecured subordinated obligations of the Company, and will mature on August 1, 2004. Payment in full of the principal amount of the Notes will be due August 1, 2004. The Notes bear interest at the rate of 7% per annum. The interest is payable semiannually on February 1 and August 1 of each year (each, an "Interest Payment Date"). Following Alcatel's acquisition of Alcatel USA in September 1998, Alcatel fully and unconditionally guaranteed the due and punctual payment of the principal of, premium, if any, and interest (including Liquidated Damages, as defined in the Indenture) on the Notes. In case of a failure of the Company to pay or cause to be paid punctually any such amounts in accordance with the terms of the Indenture, Alcatel will, upon written notice from the Trustee, pay or cause to be paid punctually such amounts when they become due and payable in accordance with the Guaranty. You can convert the Notes into ADSs. Each ADS represents one-fifth of an ordinary share of Alcatel. The conversion rate is 16.3901 ADSs per $1,000 principal amount of Notes (equivalent to a conversion price of $61.012 per ADS). The conversion price is subject to adjustment upon the occurrence of certain events described below under "--Conversion Rights." You may convert the Notes at any time prior to the close of business on August 1, 2004, unless the Notes have been previously redeemed or repurchased. In case of redemption or repurchase, you may convert the Notes until the close of business on the fifth Trading Day (as defined below) prior to the date of redemption or the second Trading Day prior to the date of repurchase. "Trading Days" means: (1) if the ADSs are listed or admitted for trading on any national securities exchange, days on which such national securities exchange is open for business; (2) if the ADSs are quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, days on which trades may be effected through such system; or (3) if the ADSs are not listed or admitted for trading on any national securities exchange or quoted on the Nasdaq National Market or any other system of automated dissemination of quotation of securities prices, days on which the ADSs are traded the regular way in the over-the-counter market and for which a closing bid and a closing asked price for the ADSs are available. 20 22 The Company may redeem the Notes on or after August 1, 2000, in whole or in part, at the redemption prices set forth below under "-- Redemption," plus accrued interest to the redemption date. CONVERSION RIGHTS General You will have the right to convert any portion of the principal amount of a Note that is an integral multiple of $1,000 (provided that the unconverted portion of such Note is an integral multiple of $1,000) into ADSs. Each ADS represents one-fifth of an ordinary share of Alcatel. You may convert the Notes at any time prior to the close of business on August 1, 2004, unless previously redeemed or purchased. The conversion price is $61.012 per ADS, subject to adjustment as described below. You may convert a Note called for redemption or delivered for repurchase until the close of business on the fifth Trading Day prior to the redemption date for such Note or the second Trading Day preceding the repurchase date, as the case may be. The Company will acquire the ADSs to be delivered upon conversion of the Notes through open-market purchases. The conversion of a Note will be treated as a taxable event. See "United States Taxation -- Taxation of U.S. Holders -- Notes -- United States Holders -- Sale, Exchange or Redemption of Notes or Conversion of Notes for ADSs." Procedure You may convert any Note by delivering the Note to the specified office of a Conversion Agent (as defined in the Indenture), accompanied by a duly signed and completed notice of conversion, a copy of which may be obtained from any Conversion Agent. The conversion date will be the date on which you deliver the Note and the duly signed and completed notice of conversion. As promptly as practicable on or after the conversion date, the Company will cause to be delivered to the Trustee an American Depositary Receipt ("ADR") evidencing the number of ADSs deliverable upon conversion. The Company will also deliver to the Trustee payment in cash, based on the market price of the ADSs at the close of business on the day of conversion, in lieu of any fraction of an ADS. Such ADR and payment will be sent to you by the Trustee. If you surrender a Note for conversion between the close of business on any Regular Record Date (as defined below) and the opening of business on the next succeeding Interest Payment Date, you must include payment of an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Notes being surrendered for conversion, except under certain conditions. Such payment must be in New York Clearing House funds or other funds acceptable to the Company. In general, if you surrender a Note for conversion on a date that is not an Interest Payment Date, you will not receive any interest for the period from the last Interest Payment Date to the date of conversion. You also will not be entitled to receive any dividends on ADSs delivered upon conversion if such dividends were payable to holders of ADSs on a record time before the close of business on the conversion date. "Regular Record Date" for interest payable in respect of any Note on any Interest Payment Date means the January 15 or July 15 (whether or not a Business Day as defined below), as the case may be, next preceding such Interest Payment Date. The Company will pay any taxes or duties on the delivery of ADSs on conversion of a Note, but only if the ADSs are delivered in the name of the holder of the Note. The Company will not deliver ADSs unless and until the person requesting such delivery has paid to the Company the amount of any tax or duty due on the delivery of the ADSs in the name of a person other than the holder of the Note. 21 23 The conversion price may be adjusted in certain events, including: (1) Alcatel pays dividends (and other distributions) in Alcatel Shares; (2) Alcatel issues to holders of its shares rights, options or warrants entitling them to subscribe for or purchase Alcatel Shares such that the price per ADS would be less than the then current market price (determined as provided in the Indenture) of ADSs; (3) Alcatel distributes to all holders of its shares evidences of indebtedness, shares of capital stock, or certain property; (4) Alcatel distributes to all holders of its shares cash (excluding any cash referred to in (3) above, or distributed upon a merger or consolidation to which the next paragraph applies) in an aggregate amount that, combined with (i) the aggregate amount of any other such all-cash distributions made within the preceding 12 months in respect of which no adjustment has been made and (ii) the aggregate amount of any cash and the fair market value of other consideration payable in respect of any tender offer by Alcatel or any of its subsidiaries for ADSs concluded within the preceding 12 months in respect of which no adjustment has been made, exceeds 12.5% of Alcatel's market capitalization on the record date for such distribution; and (5) Alcatel or any of its subsidiaries successfully completes a tender offer for shares of Alcatel which involves an aggregate consideration that, together with (i) the aggregate of cash and other consideration payable in a tender offer by Alcatel or any of its subsidiaries for shares of Alcatel expiring within the 12 months preceding the expiration of such tender offer in respect of which no adjustment has been made and (ii) the aggregate amount of any cash distributions to all holders of shares of Alcatel within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 12.5% of the Alcatel's market capitalization on the expiration of such tender offer. The Company may reduce the conversion price as it considers advisable in order to avoid or diminish any income tax to holders of ADSs or shares of Alcatel which may result from any dividend, distribution of stock or issuance of rights or warrants. The Company is not required to adjust the conversion price until the cumulative adjustments amount to 1.0% or more of the conversion price. The Company will compute any adjustments to the conversion price pursuant to this paragraph and will mail notice of any such adjustments to holders of the Notes. See "--Notices." In case Alcatel consolidates or merges with or into another Person (as defined in the Indenture), or another Person merges into Alcatel, or Alcatel sells or transfers all or substantially all of its assets, you will be able to convert a Note only into the kind and amount of securities, cash and other property which a holder of ADSs would have received upon such consolidation, merger, sale or transfer. If Alcatel makes a distribution of property to its stockholders that would be taxable to such stockholders as a dividend for federal income tax purposes (e.g., distributions of evidences of indebtedness or assets of Alcatel, but generally not stock dividends on shares of Alcatel or rights to subscribe for shares of Alcatel) and, as a result, the number of ADSs into which Notes are convertible is increased, such increase may be deemed for federal income tax purposes to be the payment of a taxable dividend to holders of Notes. See "Taxation--Taxation of U.S. Holders--ADSs and Alcatel Shares." SUBORDINATION As set forth in the Indenture, the Notes will be subordinated in right of payment to the prior payment of all Senior Indebtedness of the Company. "Senior Indebtedness" means the principal of (and premium, if any) and interest on, and all fees and other amounts payable in connection with: 22 24 (1) indebtedness of the Company evidenced by credit or loan agreements, notes, bonds, debentures or other written obligations; (2) all obligations of the Company for money borrowed; (3) all obligations of the Company evidenced by a note or similar instrument given in connection with the acquisition of any businesses, properties or assets of any kind; (4) obligations of the Company as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles; (5) obligations of the Company under interest rate and currency swaps, caps, floors, collars, hedge agreements, forward contracts or similar agreements or arrangements intended to protect the Company against fluctuations in interest or currency exchange rates; (6) all obligations of the type referred to in clauses (1) through (5) above and all dividends which the Company has assumed or guaranteed for another person, or for which the Company is responsible or liable, or which is secured by a lien on property of the Company; and (7) renewals, extensions, modifications, replacements, restatements and refundings of, or any indebtedness or obligation issued in exchange for, any indebtedness or obligation described in clauses (1) through (6). However, Senior Indebtedness shall not include the Notes or any such indebtedness or obligation: (1) if the terms of such indebtedness or obligation provide that such indebtedness or obligation is not superior in right of payment to the Notes; (2) if such indebtedness or obligation is non-recourse to the Company; or (3) if such indebtedness or obligation is a conditional sale contract or any account payable or any other indebtedness created or assumed by the Company in the ordinary course of business in connection with the obtaining of inventories or services. As a result of such subordination, holders of Senior Indebtedness may recover more from the Company, on a per dollar of principal basis, than you in the event of: (1) any payment or distribution of assets upon any liquidation, dissolution or winding up, or (2) the acceleration of the maturity of any Notes. Such subordination may result in less or no payments in such circumstances. In addition, the Company will make no payments of principal, premium or interest on the Notes if there shall have occurred and be continuing a default in any payment with respect to Senior Indebtedness, or an event of default with respect to any Senior Indebtedness permitting the holders thereof to accelerate maturity. As of June 30, 1998, the aggregate amount of Senior Indebtedness outstanding was approximately $353.92 million, which includes indebtedness of the subsidiaries of the Company guaranteed by the Company. In addition, the Notes will be effectively subordinated to all indebtedness and other liabilities (including trade payables and lease obligations) of the Company's subsidiaries, because any right of the Company to receive any assets of its subsidiaries upon their liquidation or reorganization (and the subsequent right of the holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that subsidiary's creditors. The Indenture does not limit the Company's ability to incur Senior Indebtedness or any other indebtedness. The Indenture also does not limit the ability of the Company's subsidiaries to incur additional indebtedness or other liabilities. 23 25 REDEMPTION The Company may redeem the Notes, in whole or in part, beginning August 1, 2000. The Company must give at least 30 days' and not more than 60 days' prior notice. The redemption price (expressed as a percentage of principal amount) for the 12-month periods beginning on August 1 of the following years are:
REDEMPTION YEAR PRICE ----- ---------- 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 104.0 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 103.0 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 102.0 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 101.0
The redemption price after such periods is 100% of the principal amount of the Notes. In addition, the redemption price will also always include accrued interest to the date of redemption. No sinking fund is provided for the Notes. PAYMENT AND CONVERSION The principal of the Notes will be payable in U.S. dollars. For payment of principal, you must surrender your Notes at the Corporate Trust Office of the Trustee in the Borough of Manhattan, The City of New York, or at such other office or agency of the Company designated by it for such purpose. The principal will be paid by U.S. dollar check, or by transfer to a U.S. dollar account (if you hold more than U.S.$2,000,000 in principal and furnish wire instructions in writing to the Trustee no later than 15 days prior to the relevant payment date) which you maintain with a bank in the Borough of Manhattan, The City of New York. Notes will bear interest at a rate of 7% per year from the most recent Interest Payment Date. Interest will be paid on February 1 and August 1 of each year to the Person in whose name the Note (or any predecessor Note) is registered at the close of business on the preceding January 15 or July 15, as the case may be. Interest will be paid by U.S. dollar check drawn on a bank in the Borough of Manhattan, The City of New York, mailed to your address as it appears in the Security Register (as defined in the Indenture). If you hold more than $2,000,000 in principal, you can also request in writing to the Security Registrar (as defined under -- "Transfer and Exchange"), not later than the relevant Record Date (as defined in the Indenture), that payments of interest be transferred to a U.S. dollar account which you maintain with a bank in the Borough of Manhattan, The City of New York. No transfer to a dollar account will be made unless the Trustee has received written wire instructions not less than 15 days prior to the relevant payment date. Any payment on the Notes due on any day which is not a Business Day is not required to be made on such day. Such payment may be made on the next succeeding Business Day with the same force and effect as if made on the initial due date. No interest shall accrue on such payment as a result of such delay. "Business Day," when used with respect to any place of payment, place of conversion or any other place, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in such place of payment, place of conversion or other place, are authorized or obligated by law or executive order to close. You may surrender Notes for conversion at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company. You must include with Notes surrendered for conversion appropriate notices and any payments in respect of interest or taxes, as applicable, as described above under "--Conversion Rights". 24 26 The Company has initially appointed the Trustee as Paying Agent (as defined in the Indenture) and Conversion Agent (as defined in the Indenture). The Company may at any time terminate the appointment of any Paying Agent or Conversion Agent and appoint additional or other Paying Agents and Conversion Agents. However, until the Notes have been delivered to the Trustee for cancellation, or monies sufficient to pay the principal of, premium, if any, and interest on the Notes have been made available for payment and either paid or returned to the Company as provided in the Indenture, the Company must maintain an office or agency in the Borough of Manhattan, The City of New York, for payments with respect to the Notes and for the surrender of Notes for conversion. The Company will give notice of any such termination or appointment and of any change in the office through which any Paying Agent or Conversion Agent will act in accordance with "--Notices" below. If you do not claim any monies deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of principal of, premium, if any, or interest on your Notes for two years after such payment has become due and payable, such monies will be paid to the Company. You will then be able to look only to the Company for payment. REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL If a Change in Control (as defined below) occurs, you shall have the right to require the Company to repurchase any portion of your Notes in a principal amount equal to $5,000 or any integral multiple of $1,000 in excess thereof. The Company will repurchase your Notes on the date (the "Repurchase Date") that is 45 days after the date of the Company Notice (as defined below). The price paid by the Company will be 100% of the principal amount of the Notes to be repurchased (the "Repurchase Price"), together with interest accrued to the Repurchase Date. The Company may choose to pay the Repurchase Price in ADSs instead of cash. In such event, the ADSs will be valued at 95% of the average of the closing prices of the ADSs for the five consecutive Trading Days ending on and including the third Trading Day preceding the Repurchase Date. No later than the 30th day after a Change in Control, the Company will give you notice (a "Company Notice"). To exercise your repurchase right, you must deliver to the Trustee or any Paying Agent, no later than the 30th day after the date of the Company Notice, irrevocable written notice of your exercise of the repurchase right. You must also deliver your Notes to be repurchased. At least two Trading Days prior to the Repurchase Date, the Company must publish a Company Notice specifying whether the Company will pay the Repurchase Price in cash or in ADSs. A "Change in Control" means: (1) the acquisition by any Person, directly or indirectly, of 50% or more of the total voting power of all shares of capital stock of the Company; or (2) any consolidation or merger of the Company with or into any other Person, any merger of another person with or into the Company, or any conveyance, sale, transfer or lease of all or substantially all of the assets of the Company to another Person. 25 27 However, a Change in Control shall not be deemed to have occurred if either: (1) the closing price per ADS for any five Trading Days during the 10 Trading Days ending immediately after the later of the Change in Control or the public announcement of the Change in Control (in the case of a Change in Control under clause (i) above), or the 10 Trading Days ending immediately prior to the date of the Change in Control (in the case of a Change in Control under clause (ii) above) shall be at least 105% of the conversion price of the Notes on each such Trading Day, or (2) in the event the Change in Control results from the acquisition of the common stock of Alcatel, all the consideration to be paid for the Alcatel common stock in the transaction constituting the Change in Control consists of shares of common stock traded on a national securities exchange or quoted on the Nasdaq National Market and, as a result of such transaction, the Notes become convertible solely into such common stock. If the Company fails to repurchase the Notes when required, such failure would result in an Event of Default. See "--Events of Default." The Company may at any time purchase Notes in the open market or by tender at any price or by private agreement. To the extent permitted by applicable law and subject to restrictions contained in the Purchase Agreement, dated August 7, 1997, between the Company and the Initial Purchasers, the Company may re-issue or resell any such Notes, or surrender them to the Trustee for cancellation. Any Notes so surrendered may not be re-issued or resold and will be canceled promptly. Despite the foregoing provisions, you will not necessarily be protected in the event of highly leveraged or other transactions involving the Company that may adversely affect you. MERGERS AND SALES OF ASSETS BY THE COMPANY Except as stated below, the Company may not consolidate with or merge into any other Person or convey, transfer or lease all its properties and assets substantially as an entirety to any Person. Similarly, the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease all or substantially all of its properties and assets to the Company. Such transactions would be permitted if: (1) the Person formed by such consolidation or into which the Company is merged, or the Person which acquires or leases the properties and assets of the Company, shall be a corporation, limited liability company, partnership or trust, organized and validly existing under the laws of the United States of America, which shall expressly assume, by a supplemental indenture, the payment of the Notes and the performance or observance of every covenant of the Indenture to be performed or observed by the Company and which shall provide for conversion rights in accordance with the Indenture; (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing; and (3) the Company has delivered to the Trustee an officer's certificate and an opinion of counsel, each stating that such consolidation, merger, conveyance, transfer or lease and supplemental indenture (if required) complies with, among other things, the requirements set forth in this paragraph. 26 28 EVENTS OF DEFAULT The following are Events of Default: (1) failure to pay principal of or premium, if any, on any Note at its maturity; (2) failure to pay any interest on any Note when due, continuing for 30 days; (3) failure to perform, or the breach of, any covenant or warranty of the Company in the Indenture, continuing for 60 days after written notice to the Company by the Trustee; (4) failure to pay when due the principal of, or acceleration of, any indebtedness for money borrowed by the Company in excess of $20,000,000 if such indebtedness is not discharged, or such acceleration is not annulled, within 30 days after written notice; and (5) certain events of bankruptcy, insolvency or reorganization. The Trustee is under no obligation to exercise any of its rights or powers under the Indenture at your request or direction unless you offer to the Trustee reasonable indemnity. Subject to such provisions for the indemnification of the Trustee, the holders of a majority in aggregate principal amount of the Outstanding Notes (as defined in the Indenture) will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee. If an Event of Default shall occur and be continuing, either the Trustee or the holders of at least 25% in principal amount of the Outstanding Notes may accelerate the maturity of all Notes. However, after such acceleration, but before a judgment or decree, the holders of a majority in aggregate principal amount of Outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal, have been cured or waived. For information as to waiver of defaults, see "--Meetings, Modification and Waiver." You will not have any right to institute any proceeding with respect to the Indenture unless you shall have previously given to the Trustee written notice of a continuing Event of Default. In addition, the holders of not less than 25% in principal amount of the Outstanding Notes must also have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as trustee. You also will not have any right to institute any proceeding if the Trustee has received from the holders of a majority in principal amount of the Outstanding Notes a direction inconsistent with such request, or if the Trustee shall have instituted such proceeding within 60 days. However, such limitations do not apply to you if you institute a suit (i) for the enforcement of payment of the principal of, premium, if any, or interest on any Note on or after the respective Stated Maturities (as defined in the Indenture) expressed in such Note or (ii) for the right to convert such Note in accordance with the Indenture. The Company must furnish the Trustee annually with a statement as to the performance by the Company of certain of its obligations under the Indenture and as to any default in such performance. MEETINGS, MODIFICATION AND WAIVER The Indenture contains provisions for convening meetings of the holders of Notes to consider matters affecting their interests. Modifications and amendments of the Indenture may be made, and certain past defaults by the Company may be waived, either: (1) with the written consent of the holders of a majority in aggregate principal amount of the Outstanding Notes or (2) by the adoption of a resolution, at a meeting of holders of the Notes at which a quorum is present, by the holders of at least 66 2/3% in aggregate principal amount represented at such meeting or by a majority in aggregate principal amount of the Outstanding Notes. However, no such modification or amendment may, without the consent of each holder: (a) change the Stated Maturity of the principal of, or any installment of interest on, any Note; (b) reduce the principal amount or the rate of interest payable on any Note; 27 29 \ (c) reduce the amount payable upon redemption or repurchase; (d) adversely modify the repurchase right; (e) change the currency for payment on any Note; (f) impair the right to institute suit for the enforcement of payment on or after the Stated Maturity, the redemption date or Repurchase Date; (g) modify the obligation of the Company to maintain an office or agency in New York City; (h) adversely modify the subordination provisions; (i) reduce the above-stated percentage of Notes necessary to modify or amend the Indenture; (j) reduce the percentage of aggregate principal amount of Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults; (k) reduce the percentage in aggregate principal amount of Notes required for the adoption of a resolution or the quorum required at any meeting of holders of Notes at which a resolution is adopted; (l) adversely affect the right to convert any Note except as permitted as described under "--Conversion Rights;" (m) modify the obligation of the Company to deliver information required under Rule 144A to permit resales of Notes and ADSs in the event the Company ceases to be subject to certain reporting requirements under the United States securities laws; (n) adversely modify the provisions described under "--Repurchase at Option of Holders Upon a Change in Control"; or (o) modify certain of the Company's obligations under the Registration Rights Agreement (as defined below) or its obligation to pay additional interest upon any failure to comply with such obligations. The quorum at any meeting called to adopt a resolution will be a majority in aggregate principal amount of the Notes. In the event a meeting is adjourned for lack of quorum and the meeting is reconvened, the quorum will be 25% of aggregate principal amount. The holders of a majority in aggregate principal amount of the Notes may waive compliance by the Company with certain restrictive provisions of the Indenture. The holders of (1) 66 2/3% in aggregate principal amount at a meeting or (2) a majority in aggregate principal amount of the Notes may waive any past default under the Indenture. However, such holders may not waive a default in the payment of principal, premium, if any, or interest, or a default with respect to a covenant or condition that may only be modified or amended with the consent of each holder. REGISTRATION RIGHTS This summary of certain provisions of the Registration Rights Agreement, dated as of August 12, 1997, by and between the Company and the Initial Purchasers (the "Registration Rights Agreement") does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement. In the Registration Rights Agreement the Company agreed, among other things, to (1) file with the Commission within 90 days after the date of original issuance of the Notes, a Registration Statement (the "Shelf Registration Statement"), of which this Prospectus is a part, covering resales of the Registrable Securities (as defined under "Description of Registration Rights Agreement") and (2) use its reasonable best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act within 90 calendar days after the date of such filing. See "Description of Registration Rights Agreement." The Company must keep the Shelf Registration Statement effective until the earliest of: (1) the expiration of two years from the time the Shelf Registration Statement is declared effective, (2) such time as all Registrable Securities have been sold pursuant to the Shelf Registration Statement, transferred pursuant to Rule 144 under the Securities Act or otherwise transferred in a manner that results in a new security not subject to transfer restrictions under the Securities Act being delivered pursuant to the Indenture and (3) such time as, in the opinion of counsel, all of the Registrable Securities held by non-affiliates of the Company are eligible for resale pursuant to Rule 144(k) under the Securities Act and the legends described have been removed from such Registrable Securities. In the event that, during the period that the Company is required to maintain the effectiveness of the Shelf Registration Statement, the Shelf Registration Statement ceases to be effective (or the holders are otherwise prevented or restricted by the Company from effecting sales pursuant thereto) for more than 60 days, whether or not consecutive, during any 12-month period (an "Effectiveness Failure"), then the interest rate borne by the Notes will increase by an additional one- half of one percent (0.50%) per annum from the 61st day of the applicable 12-month period such Shelf Registration Statement ceases to be effective (or the holders are otherwise prevented or restricted by the Company from effecting sales 28 30 pursuant thereto) until such time as the Effectiveness Failure is cured. For the purpose of determining an Effectiveness Failure, days on which the Company has been obligated to pay additional interest in accordance with the foregoing in respect of a prior Effectiveness Failure within the applicable 12-month period will not be included. The Registration Rights Agreement provides that the additional interest described in this paragraph with respect to a Registration Default will be the exclusive monetary remedy available to holders of Notes for such Registration Default (as defined in the Indenture). TRANSFER AND EXCHANGE Upon written request, you may exchange any Note at any time into an equal aggregate principal amount of Notes of different authorized denominations. You may present Notes for transfer (with the form of transfer endorsed thereon duly executed) or exchange, at the office of any transfer agent (the "Security Registrar"), without service charge. In the case of a transfer, you must pay any taxes and other governmental charges. The transfer agent or the Security Registrar will effect any registration of transfer or exchange once it is satisfied with the documents of title and identity of the person making the request. Notes may be transferred in whole or in part in authorized denominations. The Company has initially appointed the Trustee as Security Registrar and transfer agent. The Trustee acts through its Corporate Trust Office in the Borough of Manhattan, The City of New York. The Company reserves the right to vary or terminate the appointment of the Security Registrar or of any transfer agent or to appoint additional or other transfer agents or to approve any change in the office through which any Security Registrar or any transfer agent acts. However, the Company must maintain a Security Registrar and a transfer agent in the Borough of Manhattan, The City of New York. In the event the Company redeems any Notes for any of the reasons set forth under "--Redemption," the Company will not be required (1) to register the transfer or exchange of the Notes for a period of 15 days immediately preceding the date the Company gives notice identifying the Notes called for such redemption or (2) to register the transfer or exchange of any Note, or portion thereof, called for redemption. PURCHASE AND CANCELLATION The Company or any subsidiary may at any time and from time to time purchase Notes at any price in the open market or otherwise. All Securities surrendered for payment, redemption, repurchase, registration of transfer or exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee. The Trustee shall cancel promptly all Securities so delivered to the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in the Indenture. TITLE With respect to any Note, the Company, the Trustee, the Paying Agent and any other agent of the Company or the Trustee may treat the Person in whose name such Note is registered as the owner thereof. 29 31 NOTICES Notices to you will be mailed to your address as it appears in the Security Register. Such notices will be deemed to have been given when mailed. Notice of a redemption of Notes will be given at least once not less than 30 nor more than 60 days prior to the redemption date. Such notice will specify the redemption date. REPLACEMENT OF NOTES Notes that become mutilated, destroyed, stolen or lost will be replaced by the Company at your expense upon delivery to the Trustee of the mutilated Notes or evidence of their loss, theft or destruction. In the case of a lost, stolen or destroyed Note, you must cover the expense of an indemnity satisfactory to the Trustee and the Company before a replacement Note will be issued. PAYMENT OF STAMP AND OTHER TAXES The Company shall pay all stamp and other duties, if any, which may be imposed by the United States or any political subdivision thereof with respect to the issuance, transfer, exchange or conversion of the Notes. The Company will not be required to make any payment with respect to any other tax, assessment or governmental charge imposed by any government or any political subdivision. GOVERNING LAW The Indenture and the Notes are governed by and construed in accordance with the laws of the State of New York, United States of America. THE TRUSTEE In case an Event of Default shall occur (and shall not be cured), the Trustee will be required to use the degree of care of a prudent person in the conduct of his own affairs in the exercise of its powers. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the holders of Notes, unless they shall have offered to the Trustee reasonable security or indemnity. 30 32 TAXATION The following is a summary of certain French and United States tax considerations relating to the purchase, ownership and disposition of the Notes, of ADSs which may be delivered upon your conversion of the Notes, and of the underlying Alcatel Shares. This summary does not purport to be a complete analysis of all the potential tax considerations relating to the Notes, the ADSs or the Alcatel Shares. This summary discusses the tax considerations applicable to persons who purchase the Notes from the Selling Securityholders. It does not discuss the tax considerations applicable to subsequent purchasers of the Notes. This summary does not address tax considerations applicable to investors that may be subject to special tax rules, such as individual retirement or other tax-deferred accounts, banks, tax-exempt organizations, insurance companies, dealers in securities or currencies. It does not address tax considerations applicable to persons that will hold Notes as a part of a hedge, straddle, or "synthetic security" or other integrated investment (including a "conversion transaction") or situations in which the functional currency of the holder is not the U.S. dollar. This summary is based on current United States and French tax laws and regulations, and the Convention Between the United States of America and the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital of August 31, 1994 (the "Treaty") entered into force on December 30, 1995. All of these laws and agreements are subject to change, possibly with retroactive effect, or to different interpretations. This summary does not consider the effect of any applicable state, local or other tax laws. For purposes of the Treaty and the United States Internal Revenue Code of 1986 (the "Code") as amended, U.S. Holders of ADRs (as defined below) will be treated as the owners of ADSs evidenced by such ADRs and as owners of the Alcatel Shares represented by such ADSs. Persons considering the purchase of Notes should consult their own tax advisors with respect to the application of the French tax laws and United States federal income and estate tax laws to their particular situations. In addition, such persons should consult their tax advisors with respect to any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction or under any applicable tax treaty. As used in this Prospectus, the term "U.S. person" means any person that is, for United States federal income tax purposes: (1) an individual who is a citizen or resident of the United States; (2) a corporation, or one of certain other entities created or organized under the laws of the United States or political subdivision thereof; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust subject to the primary supervision of a United States court and the control of one or more United States persons. A "Non-U.S. person" is any person that is not a U.S. person. For purposes of the following discussion, a "U.S. Holder" is a U.S. person who is a beneficial owner of Notes, ADSs or Alcatel Shares. A "Non-U.S. Holder" is a Non-U.S. person that is a beneficial owner of Notes, ADSs or Alcatel Shares. TAXATION OF U.S. HOLDERS NOTES Payments of Interest U.S. Holders generally must include interest received on their Notes in their income as U.S.-source ordinary income at the time such holders receive or accrue such interest, in accordance with such U.S. Holder's method of accounting for United States federal income tax purposes. No withholding of French tax will be required with respect to any payment made by Alcatel under the Guaranty to a U.S. Holder. See "French Taxation -- Taxation of Payments Made Under the Guarantee." Market Discount, Acquisition Premium If a U.S. Holder acquires a Note for an amount that is less than its original issue price, the amount of the difference will be treated as "market discount," unless such difference is less than a specified de minimis amount. For these purposes the original issue price equals the first price to the public (excluding bond houses, brokers and similar persons or organization acting in the capacity of underwriters, placement agents or wholesalers) at which a substantial amount of the Notes was sold for money. Under the market discount rules of the Code, a U.S. Holder must treat any principal payment on, or any gain on the sale, exchange, retirement or other disposition (including a gift) of, a Note as ordinary income to the extent of any accrued market discount that has not previously been included in income. Market discount generally accrues on a straight-line basis over the remaining term of the Note, unless the U.S. Holder elects to accrue market discount on a constant interest method. A U.S. Holder is not allowed to deduct immediately all or a portion of the interest expense on any indebtedness incurred or continued to purchase or to carry such Note. A U.S. Holder may elect to include market discount in income currently as it accrues (either on a straight-line basis or, if the U.S. Holder so elects, on a constant-yield basis). In that case the interest deferral rule set forth in the preceding paragraph will not apply. Such an election will apply to all debt instruments that a U.S. Holder acquires on or after the first day of the first taxable year to which such election applies. The U.S. Holder may revoke such election only with the consent of the Internal Revenue Service (the "IRS"). If a U.S. Holder purchases a Note for an amount in excess of the sum of all amounts payable on the Note after the purchase date, the U.S. Holder may elect to treat such excess as amortizable bond premium. In that case the amount of interest required to be included in the U.S. Holder's income each year with respect to interest on the Note will be reduced by the amount of amortizable bond premium allocable (based on the Note's yield to maturity) to such year. Any election to amortize bond premium applies to all debt instruments acquired by the U.S. Holder on or after the first day of the first taxable year to which such election applies. The U.S. Holder may revoke such election only with the consent of the IRS. A U.S. Holder that does not elect to amortize bond premium generally will be entitled to treat the premium as a capital loss when the Note matures. Adjustments to Conversion Rate If at any time (1) Alcatel makes a distribution of cash or other property to its shareholders or purchases Alcatel Shares or ADSs and such distribution or purchase would be taxable to such shareholders as a dividend for United States federal income tax purposes (e.g., distributions of evidences of indebtedness or assets of Alcatel, but generally not stock dividends or rights to subscribe for Alcatel Shares or ADSs) and, pursuant to the antidilution provisions of the Indenture, the conversion rate of the Notes is increased, or (2) the Company or Alcatel decides to increase at its discretion the conversion rate of the Notes, such increase in conversion rate may be deemed to be the payment of a taxable dividend to holders of Notes. U.S. Holders of Notes could therefore have taxable income as a result of an event pursuant to which they received no cash or property. Sale, Exchange or Redemption of Notes or Conversion of Notes for ADSs Upon the sale, exchange, redemption or other disposition of a Note, including the conversion of a Note in exchange for ADSs, a U.S. Holder generally will recognize gain or loss equal to the difference between (1) the amount of cash proceeds and the fair market value of any property received on the sale, exchange or redemption and (2) such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a Note generally will equal the cost of the Note to such holder. Such gain or loss will be capital gain or loss except to the extent such amount is attributable to accrued interest income not previously included in income, which is taxable as ordinary income. See "-- Market Discount, Acquisition Premium." In the case of a U.S. Holder who is an individual, capital gains are generally subject to taxation at preferential rates if certain prescribed minimum holding periods are met. ADSs AND ALCATEL SHARES The following generally summarizes the material French and United States federal income tax consequences to U.S. Holders of ADSs or Alcatel Shares having all of the following characteristics: (1) they own, directly and indirectly, less than 10 percent of the capital of the Company; (2) they are entitled to Treaty benefits; (3) they hold the Alcatel Shares or ADSs as capital assets; and (4) their functional currency is the U.S. dollar. See also "French Taxation." Withholding-Avoir Fiscal Dividends will be paid out of after-tax income. Under French domestic law, dividends paid to non-residents are normally subject to a 25 percent French withholding tax. Also, non-residents generally are not eligible for the benefit of the avoir fiscal, which is a tax credit to which French tax residents are usually entitled. The avoir fiscal generally equals 45% of the dividend paid, unless it is being used by an individual, in which case it is equal to 50% of the dividend paid. However, under the Treaty, a U.S. Holder whose ownership of the ADSs or Alcatel Shares is not effectively connected with a permanent establishment or a fixed base in France can claim the benefit of a withholding tax at the reduced rate of 15 percent. An Eligible U.S. Holder (as defined below) would also be entitled to a payment equal to the avoir fiscal, i.e. of 45% or 50% of the dividend paid (depending on whether the user of such avoir fiscal is an individual or not) less a 15 percent withholding tax. As noted below, an Eligible U.S. Holder will not receive payment of the avoir fiscal until after the close of the calendar year in which the dividend was paid. Also, such payment will be made by the French tax authorities upon receipt of a claim made by the Eligible U.S. Holder for such payment. An Eligible U.S. Holder is a U.S. Holder whose ownership of ADSs or Alcatel Shares is not effectively connected with a permanent establishment or fixed base in France and who is: (1) an individual or other non-corporate holder that is a resident of the United States as defined pursuant to the provisions of the Treaty, (2) a United States corporation, other than a regulated investment company, (3) a United States corporation which is a regulated investment company only if less than 20 per cent. of its shares are beneficially owned by persons who are neither citizens nor residents of the United States, or (4) a partnership or trust that is treated as a resident of the United States as defined pursuant to the provisions of the Treaty, but only to the extent that its partners, beneficiaries or grantors would qualify under clause (1) or (2) above. In general, under the Treaty, an Eligible U.S. Holder may receive a payment of the avoir fiscal only if such holder (or its partners, beneficiaries or grantors, if the holder is a partnership or trust) attests that it is subject to United States federal income taxes on the payment of the avoir fiscal and the related dividend. However, certain tax-exempt "US Pension Funds", as defined below, and certain other tax-exempt entities (including certain governmental institutions, not-for-profit organisations and individuals with respect to dividends beneficially owned by such individuals and derived from an investment retirement account) ("Other Tax-Exempt Entities") that own, directly or indirectly, less than 10 percent of the capital of the Company, and that satisfy certain filing formalities specified in regulations issued by the French tax authorities (1) are entitled to a payment, subject to French withholding tax, equal to 30/85 of the gross avoir fiscal (the "partial avoir fiscal") and (2) are eligible for the reduced withholding tax rate of 15 percent. on dividends. A "US Pension Fund" includes the exempt pension funds subject to the provisions of Section 401(a) (qualified retirement plans), Section 403(b) (tax deferred annuity contracts) or Section 457 (deferred compensation plans) of the Code, established and managed in order to pay retirement benefits. 31 33 In order to benefit from the reduced rate of withholding tax and the payment of the avoir fiscal an Eligible US Holder must complete and file with the French tax authorities before the date of payment of the dividend: (1) French Treasury Form RF 1 A EU-NO. 5052 (the "Form") together with, if such Eligible US Holder is not an individual, an affidavit attesting that it is the beneficial owner of all the rights attached to the full ownership of the ADSs or Alcatel Shares, including but not limited to dividend rights; or (2) if completion of the Form is not possible prior to the payment of dividends, such holder duly completes and provides the French tax authorities with a simplified certificate (the "Certificate") stating that: (a) such holder is a U.S. resident under the Treaty; (b) such holder's ownership of the ADSs or Alcatel Shares is not effectively connected with a permanent establishment or fixed base in France; (c) such holder owns all the rights attached to the full ownership of the ADSs or Alcatel Shares, including but not limited to dividend rights; and (d) such holder meets all the requirements of the Treaty for obtaining the benefit of the reduced rate of withholding tax and the right to payment of the French avoir fiscal. Dividends paid to a U.S. Holder that is not entitled to the avoir fiscal (i.e., not an Eligible U.S. Holder) or to an Eligible U.S. Holder that has not filed a completed Form or Certificate before the dividend payment date will be subject to French withholding tax at the rate of 25 percent. Such holder may claim a refund of the excess withholding tax and an Eligible U.S. Holder may claim the avoir fiscal by completing and providing the French tax authorities with the Form before December 31 of the year following the end of the calendar year in which the dividend is paid. US Pension Funds and Other Tax-Exempt Entities may have to supply additional documentation to evidence their entitlement to the benefit of the reduced rate of withholding tax and of the partial avoir fiscal. Eligible U.S. Holders, U.S. Pension Funds and Other Tax-Exempt Entities must file the Form or certificate, when applicable, the affidavit in order to receive payment of the avoir fiscal or partial avoir fiscal (whichever is applicable. The avoir fiscal or partial avoir fiscal is generally paid within 12 months of filing the form, but not before January 15 following the end of the calendar year in which the related dividend is paid. Similarly, any French withholding tax refund is generally paid within the same delay. The Form or the Certificate, together with their respective instructions, will be provided by the Depositary to all holders of ADRs registered with the Depositary and are also available from the United States Internal Revenue Service. The Depositary will arrange for the filing with the French tax authorities of all Forms or Certificates that are returned to it in sufficient time. (See "Description of Depositary Arrangements -- Dividends, Other Distributions and Rights".) For United States federal income tax purposes, U.S. Holders must include the gross amount of a dividend and the amount of the avoir fiscal received, without deduction for any French withholding tax, in their gross income as dividend income on the date each such payment is received. No dividends received deduction will be allowed. Such dividends will generally constitute foreign source "passive" or (in the case of certain holders) "financial services" income for foreign tax credit purposes. The amount of any dividend paid in French francs, including the amount of any French taxes withheld therefrom, will be equal to the U.S. dollar value of the French francs on the date such dividend is included in income, regardless of whether the payment is in fact converted into U.S. dollars. A U.S. Holder will generally be required to recognise United States source ordinary income or loss upon the subsequent sale or disposition of French francs. Moreover, a U.S. Holder may be required to recognise foreign currency gain or loss, which will generally be United States source ordinary income or loss, upon the receipt of a refund of amounts, if any, withheld from a dividend in excess of the Treaty rate of 15 per cent. French withholding tax imposed at the Treaty rate of 15 per cent on dividends paid by the Company and on any related payment of the avoir fiscal is treated as payment of a foreign income tax. Subject to certain conditions and limitations, such tax may be taken as a credit against such US Holder's United States federal income tax liability. Alternatively, a U.S. Holder may claim the foreign taxes as an itemised deduction for the taxable year within which they are paid or accrued. A deduction does not reduce U.S. tax on a dollar-for-dollar basis like a tax credit. The deduction, however, is not subject to the limitations applicable to foreign tax credits. 32 34 If Alcatel Shares are sold on the monthly settlement market of the Paris Bourse during the month of and prior to a dividend payment date, the seller of the Alcatel Shares rather than the purchaser will generally be entitled to the avoir fiscal with respect to dividends paid on such Alcatel Shares on such date. Precompte Dividends distributed by French companies out of profits which have not been taxed at the ordinary corporate income tax rate or which have been earned and taxed more than five years before the distribution and which give rise to the avoir fiscal are subject to a precompte. The distributing company pays the precompte to the French tax authorities. The precompte is generally equal to one-half of the net dividend distributed before withholding tax. However, the precompte may be reduced to 45% in respect of dividends paid to holders that are entitled to use the avoir fiscal at the rate of 45% rather than the rate of 50%. However, the company must certify to have distributed such dividends to such beneficiaries. A U.S. Holder not entitled to the full avoir fiscal may generally obtain a refund from the French tax authorities of any precompte paid by the Company with respect to the dividends distributed. Pursuant to the Treaty, the amount of the precompte refunded to United States residents is reduced by the 15 per cent withholding tax applicable to dividends and the partial avoir fiscal, if any. A U.S. Holder is only entitled to a refund of precompte actually paid in cash by the Company and is not entitled to a refund of the precompte paid by the Company by off-setting French and/or foreign tax credits. A U.S. Holder entitled to the refund of the precompte must apply for such refund by filing a French Treasury form (RF 1 B EU-NO. 5053) before the end of the calendar year following the year in which the dividend was paid. The form and its instructions are available from the United States Internal Revenue Service or at the Centre des impots des non residents (9 rue d'Uzes, 75094 Paris Cedex 2, France). For United States federal income tax purposes, a U.S. Holder must include the amount of the precompte received in its gross income as dividend income in the year such payment is received. Sale or Other Disposition of ADSs or Alcatel Shares A U.S. Holder who is a resident of the United States (as defined pursuant to the Treaty) will not be subject to French tax on any capital gain from the sale or exchange of ADSs or Alcatel Shares unless these ADSs or Alcatel Shares form part of the business property of a permanent establishment or fixed base that the U.S. Holder has in France. Special rules apply to individuals who are residents of more than one country. A transfer of Alcatel Shares evidenced by a written agreement may be subject to French registration duty. See "French Taxation -- Taxation of Sale or Other Disposition of Alcatel Shares." In general, for United States federal income tax purposes, a U.S. Holder will recognize capital gain or loss on the sale or exchange of ADSs or Alcatel Shares in the same manner as on the sale or exchange of any other shares held as capital assets. Such gain, if any, will generally be United States source gain. U.S. Holders should consult their tax advisors regarding the source of any loss recognized upon the sale or other disposition of Shares. In the case of a U.S. Holder who is an individual, capital gains will generally be subject to U.S. federal income tax at preferential rates if specified minimum holding periods are met. French Estate and Gift Taxes Pursuant to The Convention Between the United States of America and the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates, Inheritance and Gifts, a transfer of ADSs or Alcatel Shares by gift or by reason of the death of a US Holder will not be subject to French gift or inheritance tax, unless (1) the donor or the transferor is domiciled in France at the time of making the gift or at the time of his or her death, or (2) the ADSs or Alcatel Shares were used in, or held for use in, the conduct of a business through a permanent establishment or fixed base in France. French Wealth tax The French wealth tax does not generally apply to the ADSs or Alcatel Shares owned by a U.S. Holder who is a resident of the United States as defined pursuant to the provisions of the Treaty. 33 35 TAXATION OF NON-U.S. HOLDERS NOTES Payments of Interest Payments of principal and interest on a Note to a Non-U.S. Holder will not be subject to United States federal withholding tax provided that: (1) the holder does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote; (2) the holder is not a controlled foreign corporation that is related directly or indirectly to the Company through stock ownership; (3) the holder is not a bank receiving interest described in Section 881(c)(3)(A) of the Code; and (4) either: (a) the beneficial owner of the Note, under penalties of perjury, provides the Company or its agent with its name and address and certifies that it is not a U.S. person; or (b) a securities clearing organization, bank, or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution") certifies to the Company or its agent, under penalties of perjury, that it or another financial institution has received such a statement from the beneficial owner by and furnishes to the Company or its agent a copy thereof (the "Portfolio Interest Exemption"). The gross amount of payments of interest to a Non-U.S. Holder that does not qualify for the Portfolio Interest Exemption and that is not effectively connected with a United States trade or business will be subject to United States federal income tax at the rate of 30%, unless a United States income tax treaty applies to reduce or eliminate withholding. A Non-U.S. Holder that is engaged in a trade or business in the United States will generally be subject to tax in the same manner as a U.S. person to the extent that such income is effectively connected with the conduct of such trade or business. Such effectively connected income received by a Non-U.S. Holder which is a corporation may in certain circumstances be subject to an additional "branch profits tax" at a 30% rate or, if applicable, a lower treaty rate. To claim the benefit of a tax treaty or to claim exemption from withholding because the income is effectively connected with a U.S. trade or business, the Non-U.S. Holder must provide a properly executed Form 1001 or 4224, as applicable, prior to the payment of interest. The Non-U.S. Holder must periodically update these forms. Finalized Treasury Regulations applicable to payments made after December 31, 1999, require Non-U.S. Holders or, under certain circumstances, a "qualified intermediary" to file a "withholding certificate" with the Company's withholding agent to obtain the benefit of an applicable tax treaty providing for a lower rate of withholding tax. Such certificate must contain, among other information, the name and address of the Non-U.S. Holder. Sale, Exchange or Redemption of Notes or Conversion of Notes for ADSs Subject to the discussion below on U.S. backup withholding, upon the sale, exchange, redemption or other disposition of a Note, including the conversion of a Note in exchange for ADSs, a non-U.S. Holder generally will not be subject to United States federal income tax or withholding tax unless (1) the holder is an individual who was present in the United States for 183 days or more during the taxable year and certain other conditions are met, or (2) the gain is effectively connected with the conduct of a trade or business of such holder in the United States. United States Estate Tax A Note held by an individual who is not a citizen or resident of the United States at the time of death will not be includable in the decedent's gross estate for United States estate tax purposes subject to the following, (1) such holder or beneficial owner did not at the time of death actually or constructively own 10% or more of the combined voting power of all classes of stock of the Company entitled to vote, and (2) at the time of death, payments with respect to such Note would not have been effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the United States. ADSs AND ALCATEL SHARES See "French Taxation" for a summary of French tax consequences to a Non-U.S. Holder of holding Alcatel Shares or ADSs. Subject to the discussion below entitled "United States Information Reporting and Backup Withholding," upon receipt of dividends paid on Alcatel Shares or ADSs or upon the sale, exchange or other disposition of Alcatel Shares or ADSs, a Non-U.S. Holder generally will not be subject to United States federal income tax or withholding tax unless (1) such holder is an individual who was present in the United States for 183 days or more during the taxable year and certain other conditions are met, or (2) the dividend or gain is effectively connected with the conduct of a trade or business of such holder in the United States. UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING In general, information reporting requirements will apply to payments of principal, premium, if any, and interest on a Note, payments of dividends on an ADS or Alcatel Share, and payments of the proceeds of the sale of a Note, ADS or Alcatel Share to certain non-corporate U.S. Holders. A 31% backup withholding tax may apply to such payment if the U.S. Holder: (1) fails to furnish or certify his correct taxpayer identification number ("TIN") to the payor in the manner required, (2) is notified by the IRS that he has failed to report payments of interest or dividends properly or (3) under certain circumstances, fails to certify that he has not been notified by the IRS that he is subject to backup withholding for failure to report interest or dividend payments. Information reporting requirements may apply to payments of interest or dividends to Non-U.S. Holders where such interest or dividends are subject to withholding or are exempt from United States withholding tax or eligible for a reduced rate pursuant to a tax treaty, or where such interest is exempt from United States tax under the Portfolio Interest Exemption. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. Treasury Regulations provide that backup withholding and information reporting will not apply to a Non-U.S. Holder if the Non-U.S. Holder certifies as to its status as a Non-U.S. Holder under penalties of perjury or otherwise establishes an exemption (provided that neither the Company nor its paying agent has actual knowledge that the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied). Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against such holder's United States federal income tax liability provided the required information is furnished to the IRS. Finalized Treasury Regulations have generally expanded the circumstances under which information reporting and backup withholding may apply for payments made after December 31, 1999. Holders of Notes should consult their tax advisors regarding the application of the information reporting and backup withholding rules, including such Treasury Regulations. 34 36 FRENCH TAXATION The following discussion is a general summary of the material French tax consequences of payments made under the Guarantee and of the ownership and disposition of Alcatel Shares by a holder that is not a resident of France and does not hold the Alcatel Shares in connection with a business conducted in France. This summary is based on current laws, and is subject to any change. This discussion is intended only as a descriptive summary and does not purport to be a complete analysis or list of all potential tax effects of the purchase or ownership of the Alcatel Shares. POTENTIAL PURCHASERS OF ALCATEL SHARES SHOULD CONSULT THEIR OWN TAX ADVISOR CONCERNING THE CONSEQUENCES OF OWNERSHIP AND DISPOSAL OF ALCATEL SHARES. Taxation of Payments Made Under the Guarantee Under current French law, no withholding of French tax will be required with respect to any payments made by Alcatel under the Guarantee to a holder of Notes that is not a resident of France for French tax purposes. Taxation on Sale or Other Disposition of Alcatel Shares Subject to more favorable provisions of any applicable tax treaty, persons who are not residents of France for the purpose of French taxation and who have held a maximum of 25 percent, directly or indirectly, of the dividend rights (benefices sociaux) of Alcatel at any time during the preceding five years, are not generally subject to any French income tax or capital gains tax on any sale or other disposition of Alcatel Shares. If a transfer of Alcatel Shares is evidenced by a written agreement, such share transfer agreement is, in principle, subject to registration formalities and to a one percent registration duty assessed on the higher of the purchase price and the market value of the Alcatel Shares (subject to a maximum assessment of FF 20,000 per transfer). Generally, no duty is due if the transfer is not evidenced by a written agreement or if such written agreement is executed outside France. In addition, non-French residents are not required to pay a stock exchange stamp tax on the sale of their Alcatel Shares. Taxation of Dividends Dividends will be paid out of after-tax income. Under French domestic law, dividends paid to non-residents are normally subject to a 25 percent French withholding tax. Also, non-residents generally are not eligible for the benefit of the avoir fiscal, which is a tax credit to which French tax residents are usually entitled. The avoir fiscal generally equals 45% of the dividend paid, unless it is being used by an individual, in which case it is equal to 50% of the dividend paid. Holders that are entitled to benefit under an applicable tax treaty, and that comply with the procedures for claiming such benefits, may be subject to a reduced rate of withholding tax, and may be entitled to receive a refund of the avoir fiscal, as described below. France has entered into treaties with the following jurisdictions under which qualifying residents are entitled to obtain from the French tax authorities a reduction (generally to a rate of 15 percent) of all or part of such withholding tax and a refund of the avoir fiscal (net of applicable withholding tax). German tax residents are entitled to a tax credit in an amount equal to the amount of the applicable avoir fiscal and the amount of the applicable withholding tax. Countries and Territories Australia Canada Israel Malta Pakistan Togo Austria Finland Italy Mauritius Senegal Turkey Belgium Gabon Ivory Coast Mexico Singapore United Kingdom Bolivia Germany Japan Netherlands South Korea United States of Brazil Ghana Luxembourg New Zealand Spain America Burkina Faso Iceland Malaysia Niger Sweden Venezuela Cameroun India Mali Norway Switzerland Territoires d'Outre-Mer and Other Mayotte New Caledonia Saint-Pierre et Miquelon Treaties with some of the countries and territories listed above provide special rules as to the circumstances in which corporate holders will be entitled to the avoir fiscal. Such treaties limit the rights to such a refund strictly to individual residents (as opposed to corporate entities). Except for the United States of America, none of the countries and territories listed above has treaties with France with provisions applicable to ADSs (as opposed to Shares) with respect to claiming benefits thereunder. Accordingly, the discussion of treaty benefits in this sub-section does not relate to holders of ADSs. Dividends paid to non-residents of France qualifying for the avoir fiscal in accordance with a tax treaty (other than German residents) will be subject, on the date of payment, to the withholding tax at the reduced rate provided for by such treaty (subject to certain filing formalities) rather than to the French withholding tax at the rate of 25 percent to be later reduced to the treaty rate. However such persons must establish their entitlement to the reduced rate of withholding tax before the date of payment. If a seller sells its Alcatel Shares in a trade executed on the monthly settlement market during the month of a dividend payment date, the seller rather than the purchaser will generally be entitled to the avoir fiscal with respect to dividends paid on those Alcatel Shares. Dividends distributed by French companies out of profits which have not been taxed at the ordinary corporate income tax rate or which have been earned and taxed more than five years before the distribution are subject to a precompte. The distributing company pays the precompte to the French tax authorities. The precompte is generally equal to one-half of the net dividend distributed before withholding tax. However, the precompte may be reduced to 45% in respect of dividends distributed as of January 1, 1999 to holders that are entitled to use the avoir fiscal at the rate of 45% rather than the rate of 50%. However the Company must attest to have distributed such dividends to such beneficiaries. When a tax treaty in force (1) does not provide for a refund of the avoir fiscal to a non-resident investor or (2) when the non-resident investor is not entitled to such refund but is otherwise entitled to the benefits of a tax treaty, such investor generally may obtain from the French tax authorities a refund of such precompte actually paid in cash by Alcatel, if any (net of applicable withholding tax). French Estate and Gift Tax France imposes estate and gift tax on securities of a French company acquired by inheritance or gift from a non-resident of France. France has entered into estate and gift tax treaties with a number of countries pursuant to which, assuming certain conditions are met, residents of the treaty countries may, under certain conditions, be exempted from such tax or obtain a tax credit. Prospective investors in Alcatel Shares should consult their own advisors concerning the applicability of French estate and gift tax to their shareholding in Alcatel and the availability of, and the conditions for claiming exemption under, any applicable treaty. French Wealth Tax The French wealth tax (impot de solidarite sur la fortune) does not apply to non-French resident individual investors owning directly or indirectly less than 10 percent of the share capital of Alcatel. DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT The following summary of certain provisions of the Registration Rights Agreement does not contain all of the information which may be important to you. A copy of the Registration Rights Agreement was filed in the Company's Current Report on Form 8-K on August 26, 1997, and is incorporated by reference herein. SHELF REGISTRATION STATEMENT The Registration Rights Agreement required the Company to file a Shelf Registration Statement, of which this Prospectus is a part, with the Commission within 90 days of August 12, 1997. Such filing was to be for the benefit of the holders of the Notes and the Common Stock issuable upon conversion of the Notes, or, in the event the Notes become convertible into securities other than Common Stock, of such other securities (collectively, the "Registrable Securities"). The Registration Rights Agreement also requires the Company to use its reasonable best efforts to have the Shelf Registration Statement declared effective within 90 days after such filing. The Company is obligated to keep the Shelf Registration Statement effective until the earliest of: (1) the expiration of two years from the time the Shelf Registration Statement is declared effective; (2) such time as all Registrable Securities have been sold pursuant to the Shelf Registration Statement, transferred pursuant to Rule 144 under the Securities Act or otherwise transferred in a manner that results in a new security not subject to transfer restrictions under the Securities Act being delivered pursuant to the Indenture; and (3) such time as, in the opinion of counsel, all of the Registrable Securities held by non-affiliates of the Company are eligible for resale pursuant to Rule 144(k) under the Securities Act and the legends described under "Notice to Investors" have been removed from such Registrable Securities. ADDITIONAL INTEREST If the Company fails to comply with certain of its obligations under the Registration Rights Agreement, additional interest is payable on the Notes as described under "Description of Notes--Registration Rights." UNDERWRITTEN OFFERING The Registration Rights Agreement provides that holders of 33 1/3% of the Registrable Securities may elect to have one underwritten offering. The managing underwriter(s) for any such offering must be selected by holders of 50% of the Registrable Securities to be included in the underwritten offering and must be reasonably acceptable to the Company. The Company has the right to defer any underwritten offering for up to 120 days for a valid business reason. FEES AND EXPENSES In the Registration Rights Agreement, the Company agreed to pay all fees and expenses incident to the filing of the Shelf Registration Statement and maintaining its effectiveness for resales of Registrable Securities. In addition, the Company agreed to pay up to a maximum of $85,000 for the fees and disbursements of a single counsel selected by holders of not less than 25% of the Registrable Securities to represent them in connection with the Shelf Registration Statement. Except as provided in the preceding sentence, the holders of Registrable Securities included in the Shelf Registration Statement 35 37 are responsible (on a pro rata basis based on the principal amount of Registrable Securities included therein) for the fees and disbursements of such counsel. In the case of an underwritten offering, the Company will pay up to a maximum of $200,000 for the fees and expenses in connection therewith (the fees and disbursements of one counsel for the holders participating in such offering being included in such fees and expenses). The holders participating in such offering will be responsible (on a pro rata basis based on the principal amount of Registrable Securities included in such offering) for all fees and expenses of such underwritten offering in excess of $200,000, including any fees and expenses of counsel to the holders, counsel to the Company and the Company's independent public accountants that may constitute part of such excess amount. In no event will the Company be responsible for underwriting discounts or commissions in connection with such underwritten offering. INDEMNIFICATION In the Registration Rights Agreement, the Company agreed to indemnify the holders of Registrable Securities against certain liabilities, including liabilities under the Securities Act, and each holder of Registrable Securities included in the Shelf Registration Statement is obligated to indemnify the Company and any other holder against any liability with respect to any information furnished by such holder in writing to the Company expressly for use in the Shelf Registration Statement. SELLING SECURITYHOLDERS The Notes were originally issued by the Company to Goldman, Sachs & Co. and NationsBanc Capital Markets, Inc. (the "Initial Purchasers") on August 12, 1997. Such issuance was made pursuant to an exemption from the registration requirements provided by Section 4(2) of the Securities Act. The Initial Purchasers simultaneously sold the Notes in transactions exempt from the registration requirements of the Securities Act pursuant to Rule 144A of the Securities Act or Regulation S of the Securities Act. An aggregate of $400,000,000 principal amount of Notes was issued and was outstanding as of April 9, 1999. This Prospectus relates to the offer and sale by each Selling Securityholder of the following securities (the "Resale Securities"): (1) the Notes that are set forth in the table below with respect to such Selling Securityholder (as such table may be amended from time to time by means of a supplement or amendment hereto), together with the related Guarantee, and (2) all ADSs that may be acquired by any Selling Securityholder upon conversion of any Note to which this Prospectus relates as described in the preceding clause. The "Selling Securityholders" include: (1) each person and entity that is identified as a Selling Securityholder in the table below (which may be supplemented or amended from time to time) and (2) any transferee, donee, pledgee or other successor of any such person or entity that acquires any of the Resale Securities in a transaction exempt from the registration requirements of the Securities Act and that is identified in a supplement or amendment to this Prospectus. Based upon information provided to the Company by each Selling Securityholder, the table below indicates with respect to each Selling Securityholder: (1) the aggregate principal amount of Notes beneficially owned by such Selling Securityholder and (2) the aggregate number of ADSs deliverable upon conversion of such Notes (rounded down to the nearest whole number) based upon the current per ADS conversion price. The table below also indicates by footnote reference any material relationship that a Selling Securityholder has had with the Company or Alcatel during the preceding three years. This Prospectus covers all Securities shown in the table below, and the Company may from time to time supplement or amend this Prospectus to reflect the required information concerning any additional Selling Securityholders. 36 38
NUMBER OF ADSs PRINCIPAL AMOUNT ISSUABLE UPON SELLING SECURITYHOLDER(1) OF NOTES OWNED CONVERSION OF NOTES(2) ------------------------------------------------------------ --------------------- ---------------------- Fidelity Securities Fund: Fidelity Growth & Income Portfolio 20,000,000 327,804 Natwest Securities Limited 12,792,000 209,664 Argent Classic Convertible Arbitrage Fund (Bermuda) L.P. 9,700,000 158,985 Investcorp SAM Limited 9,500,000 155,707 J.P. Morgan & Co. Incorporated 8,600,000 140,956 SMM Company B.V. 6,100,000 99,980 CFW-C, L.P. 6,000,000 98,341 BancAmerica Robertson Stephens 5,230,000 85,721 Capital Markets Transactions Inc. 5,000,000 81,951 Gryphon Domestic III, LLC 5,000,000 81,951 Oregon - Equity Fund 5,000,000 81,951 Silverton International Fund Limited 4,000,000 65,561 Travelers Indemnity Company 2,686,000 44,024 Smith Barney Inc. 2,545,000 41,713 Allstate Insurance Company 2,500,000 40,976 The Travelers Insurance Company 2,014,000 33,010 South Dakota Retirement System 2,000,000 32,780 HSBC Securities, Inc. 1,500,000 24,585 Rhapsody Fund, LP 1,500,000 24,585 PRIM Board 1,125,000 18,439 Arpeggio Fund, LP 1,000,000 16,390 CIBC Oppenheimer Corp. 1,000,000 16,390 Lazard Freres and Co., L.L.C. 1,000,000 16,390 Salomon Brothers Equity Arbitrage Finance Limited I 1,000,000 16,390 Stark International 1,000,000 16,390 Goldman, Sachs & Co., Bank Zurich 900,000 14,751 Salomon Brothers Diversified Arbitrage Strategies Finance Ltd 875,000 14,341 MIMLIC Asset Management Co. 865,000 14,178 The Minnesota Mutual Life Insurance Company 865,000 14,178 Halliburton Company Employee Benefit 820,000 13,440 Franklin Universal Trust 750,000 12,293 Castle Convertible Fund, Inc. 500,000 8,195 Franklin Investors Securities Trust 500,000 8,195 Franklin Multi-Income Trust 500,000 8,195 Franklin Strategic Income Fund 500,000 8,195 Swiss Bank Corporation - London Branch 500,000 8,195 Argent Classic Convertible Arbitrage Fund L.P. 300,000 4,917 Fairfax County Police Pension and Retirement Fund 295,000 4,835 Fairfax County URS Convertible Bonds 295,000 4,835 Lehman Brothers Inc. 235,000 3,852 Travelers Life Insurance Company, Separate Account TLAC 202,000 3,311 Robert Kirk 200,000 3,278 Kapiolani Medical 190,000 3,114 Woodson W. Fishback Trust 170,000 2,786 The Travelers Life & Annuity Company 167,000 2,737 Mildred Fishback Revocable Trust 130,000 2,131 ALCAN Corp. Master Retirement Trust 125,000 2,049 Hawaii Airlines Pilots Retirement Plan 125,000 2,049 Benjamin Moore & Co. Retirement Income 100,000 1,639 IBEW Local 292 Pension Fund 100,000 1,639 Travelers Series Trust Convertible Bond Portfolio 98,000 1,606 Hawaii Airlines - IAM 85,000 1,393 Nestle USA 45,000 738 AICPA Long Term Investment Fund 20,000 328 Halliburton Foundation, Inc. 20,000 328 Hawaii Airlines Salaried Emply. 20,000 328 AICPA Revised Staff Pension Plan 15,000 246 Holton Arms School Pooled Investment Fund 15,000 246 Inland Foundation, Inc. 10,000 164
________________ (1) Each Selling Securityholder is the beneficial owner of the indicated Notes. In certain cases, the indicated Notes may be held of record by a nominee or custodian for the account of the Selling Securityholder. (2) The per ADS conversion price and, therefore, the number of ADSs that may be deliverable upon conversion of the Notes is subject to adjustment as described under "Description of Notes--Conversion Rights." 37 39 PLAN OF DISTRIBUTION The Notes were issued in connection with a private placement. The Resale Securities, of which the Notes constitute a part, may be sold from time to time by the Selling Securityholders. The Selling Securityholders may from time to time sell all or a portion of the Resale Securities in transactions in the over-the-counter market, in negotiated transactions, or a combination of such methods of sale, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Resale Securities may be sold directly or through broker-dealers. If the Resale Securities are sold through broker-dealers, the Selling Securityholders may pay brokerage commissions and charges. The methods by which the Resale Securities may be sold include: (1) a block trade (which may involve crosses) in which the broker or dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; (2) by a broker or dealer as principal and resale by such broker or dealer for its own account pursuant to this Prospectus; (3) exchange distributions and/or secondary distributions; (4) ordinary brokerage transactions and transactions in which the broker solicits purchasers and (5) privately negotiated transactions. Pursuant to the provisions of the Registration Rights Agreement entered into by the Company and the Initial Purchaser, the Company will pay the costs and expenses incident to its registration and qualification of the Resale Securities offered hereby, including registration and filing fees. In addition, the Company has agreed to indemnify the Selling Securityholders against certain liabilities, including liabilities arising under the Securities Act. See "Description of Notes--Registration Rights Agreement." The holders of the Resale Securities are qualified institutional buyers within the meaning of Rule 144A of the Securities Act or non-U.S. persons within the meaning of Regulation S under the Securities Act. Prior to any use of this Prospectus for the resale of the Resale Securities, this Prospectus will be amended or supplemented to set forth the name of the Selling Securityholder, the amount of the Notes and/or the number of Alcatel Shares or ADSs beneficially owned by such Selling Securityholder, and the amount of the Notes and/or the number of ADSs to be offered for resale by such Selling Securityholder. The supplemented or amended Prospectus will also disclose whether any Selling Securityholder selling in connection with such supplemented or amended Prospectus has held any position or office with, been employed by or otherwise had a material relationship with, the Company, Alcatel or any of their affiliates during the three years prior to the date of the supplemented or amended Prospectus. The Selling Securityholders and any broker-dealer participating in the distribution of the Resale Securities may be deemed to be "underwriters" within the meaning of the Securities Act, and any profit and any commissions paid or any discounts or concessions allowed to any such broker-dealer may be deemed to be underwriting discounts and commissions under the Securities Act. The Selling Securityholders may indemnify any broker-dealer that participates in transactions involving the sale of Notes and the Common Stock against certain liabilities, including liabilities under the Securities Act. We cannot be certain that the Selling Securityholders will sell any or all of the Resale Securities offered by them under this Prospectus. The resale of the Resale Securities will be freely transferable in the hands of persons other than affiliates of the Company or Alcatel. The Company and Alcatel will receive none of the proceeds from the resale of the Resale Securities. LEGAL MATTERS The validity of the issuance of the Notes offered under this Prospectus will be passed upon for the Selling Securityholders by Baker & McKenzie, Dallas, Texas. The validity under French law of the issuance of the Guarantee and the Alcatel Shares registered under this Prospectus will be passed upon for the Selling Securityholders by Pascal Durand-Barthez, general counsel of Alcatel. The validity of the Guarantee under U.S. law will be passed upon for the Selling Securityholders by Shearman & Sterling. 38 40 EXPERTS The consolidated financial statements and schedule of the Company and its subsidiaries in the Company's Annual Report (Form 10-K) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon incorporated by reference therein and incorporated herein by reference. The consolidated financial statements of Alcatel and its subsidiaries in Alcatel's Annual Report (Form 20-F) for the year ended December 31, 1997, have been audited by Arthur Andersen LLP, independent auditors, as set forth in their report therein incorporated herein by reference. Such consolidated financial statements are incorporated in this Prospectus by reference in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. 39 41 42 ALCATEL INDEX TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated Income Statements for six month periods ended June 30, 1998 and 1997.......................................... F-2 Consolidated Balance Sheet at June 30, 1998 and December 31, 1997................................................. F-3 Consolidated Statements of Cash Flow for six month periods ended June 30, 1998 and 1997.......................................... F-5 Consolidated Statements of Changes in Shareholders' Equity for the year ended December 31, 1997 and the six month period ended June 30, 1998.............................. F-6 Notes to Consolidated Financial Statements................................. F-7 F-1 43 UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR ALCATEL CONSOLIDATED INCOME STATEMENTS
- - -------------------------------------------------------------------------------------------------------------------------- (in millions of French francs) SIX MONTH PERIOD ENDED JUNE 30, 1998 1997 1997 RESTATED * AS PUBLISHED - - -------------------------------------------------------------------------------------------------------------------------- NET SALES FF 61,604 FF 60,073 FF 86,828 Cost of sales (44,714) (44,394) (65,917) - - ----------------------------------------------------------------------------------------------------------------------- GROSS MARGIN 16,890 15,679 20,911 - - ----------------------------------------------------------------------------------------------------------------------- Administratives and selling expenses (9,121) (8,701) (12,154) R&D expenses (5,467) (4,992) (6,075) - - ----------------------------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 2,302 1,986 2,682 - - ----------------------------------------------------------------------------------------------------------------------- Financial income (loss) 292 (647) (297) Restructuring costs (55) (259) (759) Amortization of goodwill (993) (1,006) (1,091) Other revenue (expense) 14,171 1,102 1,332 - - ----------------------------------------------------------------------------------------------------------------------- INCOME BEFORE TAXES AND SHARE IN NET INCOME 15,717 1,176 1,867 OF EQUITY AFFILIATES - - ----------------------------------------------------------------------------------------------------------------------- Income tax (1,141) (301) (578) Share in net income of equity affiliates 656 745 366 Minority interests (27) (131) (166) - - ----------------------------------------------------------------------------------------------------------------------- NET INCOME 15,205 1,489 1,489 - - ----------------------------------------------------------------------------------------------------------------------- Net income per share (in French francs): - basic 95.68 9.52 9.52 - diluted 88.23 9.42 9.42 - - -----------------------------------------------------------------------------------------------------------------------
* In order to make comparisons easier, "Engineering and Systems" and "Energy and Transport" sectors have been accounted for under the equity method. F-2 44 CONSOLIDATED BALANCE SHEET
- - ------------------------------------------------------------------------------------------------ ASSETS 06/30/98 12/31/97 (in millions of French francs) * - - ------------------------------------------------------------------------------------------------ Goodwill, net value FF 27,562 FF 29,896 Other intangible assets 880 820 INTANGIBLE ASSETS, NET VALUE 28,442 30,716 - - ------------------------------------------------------------------------------------------------ Property, plant and equipment 62,567 77,901 Depreciation (40,714) (49,360) PROPERTY, PLANT AND EQUIPMENT, NET VALUE 21,853 28,541 - - ------------------------------------------------------------------------------------------------ Share in net assets of equity affiliates 6,569 4,718 Other investments and miscellaneous, net 13,618 13,229 INVESTMENTS AND OTHER NON-CURRENT ASSETS 20,187 17,947 - - ------------------------------------------------------------------------------------------------ TOTAL NON CURRENT ASSETS 70,482 77,204 - - ------------------------------------------------------------------------------------------------ INVENTORIES AND WORK IN PROGRESS 25,498 43,627 - - ------------------------------------------------------------------------------------------------ Trade receivables and related accounts 50,636 81,840 Other accounts receivable 14,089 21,282 ACCOUNTS RECEIVABLE 64,725 103,122 - - ------------------------------------------------------------------------------------------------ Short-term investments 8,121 5,984 Marketable securities, net value 2,308 3,242 Cash on hand 17,676 18,593 - - ------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS 19,984 21,835 - - ------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENT 28,105 27,819 - - ------------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 118,328 174,568 - - ------------------------------------------------------------------------------------------------ TOTAL ASSETS 188,810 251,772 - - ------------------------------------------------------------------------------------------------
* Long-term interest bearing receivables, previously included under "Other investments and miscellaneous, net" for the long-term portion and under "Other accounts receivable" for the short-term portion, have been reclassified as "Trade receivables." F-3 45
- - ---------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS'S EQUITY 06/30/98 12/31/1997 (in millions of French francs) BEFORE AFTER APPROPRIATION APPROPRIATION - - ---------------------------------------------------------------------------------------------------- Capital stock (FF 40 Nominal value; 169,270,712 shares Issued at June 30, 1998, 162,084,374 at June 30, 1997 And 163,199,080 at December 31, 1997) FF 6,771 FF 6,527 Additional paid-in capital 39,824 35,772 Retained earnings 11,397 9,846 Cumulative translation adjustments (5,318) (5,607) Net income 15,205 - Less treasury stock at cost (2,584) (2,584) SHAREHOLDERS' EQUITY 65,295 43,954 - - ----------------------------------------------------------------------------------------------- MINORITY INTERESTS 2,972 1,777 - - ----------------------------------------------------------------------------------------------- Accrued pension and retirement obligations 7,690 8,777 Accrued contract costs and other reserves 24,297 40,075 TOTAL RESERVES FOR LIABILITIES AND CHARGES 31,987 48,852 - - ----------------------------------------------------------------------------------------------- Bonds and notes issued 17,908 21,164 Other borrowings 12,343 18,557 TOTAL FINANCIAL DEBT 30,251 39,721 - - ----------------------------------------------------------------------------------------------- Customers' deposits and advances 12,127 50,304 Trade payables and related accounts 22,555 32,412 Other payables 23,623 34,752 TOTAL OTHER LIABILITIES 58,305 117,468 - - ----------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 188,810 251,772 - - -----------------------------------------------------------------------------------------------
F-4 46 CONSOLIDATED STATEMENTS OF CASH FLOW
- - ---------------------------------------------------------------------------------------------------------- (in millions of French francs) SIX MONTH PERIOD ENDED JUNE 30 1998 1997* - - ---------------------------------------------------------------------------------------------------------- CASH FLOW FROM OPERATING ACTIVITIES Net income FF 15,205 FF 1,489 Minority interests 27 164 Adjustments to reconcile income before minority interests to net cash provided by operating activities : - - - Depreciation, amortization, net 3,544 4,449 - - - Changes in reserves for pension obligations, net 274 247 - - - Changes in other reserves, net (1,245) (881) - - - Net (gain) loss on disposal of non-current assets (14,209) (1,266) - - - Share in net income of equity affiliates (net of dividends received) (251) (56) - - - Other WORKING CAPITAL PROVIDED BY OPERATIONS 3,345 4,146 - - ---------------------------------------------------------------------------------------------------------- Net change in current assets and liabilities : 3,812 (5,701) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (467) (1,555) - - ---------------------------------------------------------------------------------------------------------- CASH FLOW FROM INVESTING ACTIVITIES Proceeds from disposal of fixed assets 176 428 Capital expenditures (2,441) (2,959) Decrease (increase) in loans 185 (521) Cash expenditures for acquisition of consolidated companies, net of cash acquired, and for acquisition of unconsolidated companies (124) (513) Cash proceeds from sale of previously consolidated companies, net of cash sold, and from sale of unconsolidated companies 20,070 4,564 Decrease (increase) in short-term investments (3,736) (875) NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 14,130 124 - - ---------------------------------------------------------------------------------------------------------- NET CASH FLOW AFTER INVESTMENT 13,663 (1,431) - - ---------------------------------------------------------------------------------------------------------- CASH FLOW FROM FINANCING ACTIVITIES Increase (decrease) in short-term debt (18,278) (6,769) Proceeds from issuance of long-term debt 4,371 1,662 Proceeds from issuance of shares 309 191 Dividends paid (1,880) (1,648) NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (15,478) (6,564) - - ---------------------------------------------------------------------------------------------------------- Net effect of exchange rate change (36) 427 NET INCREASE (DECREASE) IN MARKETABLE SECURITIES AND CASH (1,851) (7,568) - - ---------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 21,835 23,721 - - ---------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR 19,984 16,153 - - ----------------------------------------------------------------------------------------------------------
* Changes in interest bearing receivables, previously included under "changes in loans" for the long-term portion have been reclassified as changes in "accounts receivable". F-5 47 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- - -------------------------------------------------------------------------------------------------------------------------------- (IN MILLIONS OF FRENCH FRANCS) NOTE NUMBER CAPITAL ADDI- RETAINED CUMULATIVE NET TREASURY SHARE- OF SHARES STOCK TIONAL EARNINGS TRANSLATION INCOME STOCK HOLDERS' OUTSTANDING PAID-IN ADJUSTMENTS OWNED BY EQUITY CAPITAL CONSOLIDATED SUBSIDIARIES - - -------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31,1997 FF 157,953,570 6,527 35,772 9,846 (5,607) 0 (2,584) 43,954 AFTER APPROPRIATION - - -------------------------------------------------------------------------------------------------------------------------------- Capital increase (17a) 6,071,632 244 4,052 4,296 Translation adjustment 288 288 Net change in treasury stock owned by consolidated subsidiaries 60 60 Other changes 1,491 * 1,491 Net income 15,205 15,205 - - -------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1998 FF 164,025,202 6,771 39,824 11,397 (5,319) 15,205 (2,584) 65,294 - - --------------------------------------------------------------------------------------------------------------------------------
* Of which FF 1,500 million related to Thomson CSF's stake in "Alcatel Space". F-6 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 FINANCIAL STATEMENTS The Unaudited Condensed Consolidated Interim Financial Statements and related notes have been prepared in accordance with French GAAP and do not necessarily include all disclosures required by such principles. However, in the opinion of the management of the Company, all adjustments necessary to present fairly the financial position as of June 30, 1998, results of operations and cash flows for the six-month period ended June 30, 1998 and 1997 have been made. NOTE 2 FINANCIAL INCOME
- - -------------------------------------------------------------------------------- in millions of French francs JUNE 30, JUNE 30, 1998 1997 - - -------------------------------------------------------------------------------- NET INTEREST (EXPENSE) INCOME (444) (773) Dividends * 783 148 Provisions for depreciation of investments** (15) 114 Net exchange gain (loss) (61) (58) Other financial items (net) 29 (78) - - -------------------------------------------------------------------------------- FINANCIAL INCOME (LOSS) 292 (647) - - --------------------------------------------------------------------------------
* received from unconsolidated companies (excluding equity affiliates). ** which includes FF 113 million in 1997 and for the first half 1997 related to Alcatel Alsthom Shares held on a long-term basis by subsidiaries. NOTE 3 CHANGE IN CONSOLIDATED COMPANIES Changes in the consolidated companies The main changes for the first half 1998 in the consolidated companies are as follows : - - - In March 1998, Alcatel sold to ALSTOM (previously GEC ALSTHOM NV) most of the Engineering and Systems Sector's activities. In order to allow easier comparisons, the activities disposed of, have been accounted for under the equity method from January 1, 1998 to March 31, 1998 (effective date of the transaction). - - - In June 1998, ALSTOM made an International Initial Public Offering of shares for a maximum 120.9 million of shares, of which 11.7 million new shares and 109.2 million shares previously held by General Electric company, p.l.c (GEC) and Alcatel and its 100% owned subsidiary Societe Immobiliere Kleber-Lauriston (SIKL). Following this offering, Alcatel retains a 24% stake in the capital at June 30, 1998. In order to allow easier comparisons, ALSTOM is accounted for under the equity method from January 1, 1998 and the accounting date for the disposal is on June 30, 1998. - - - In April 1998, Alcatel signed with Aerospatiale, Dassault Industries, Thomson CSF and Thomson SA a cooperation agreement for the purpose of creating a significant defence and electronics entity by grouping within Thomson CSF the electronic and defence activities of Alcatel Alsthom and Dassault Electronique and by F-7 49 grouping the satellite activities of Alcatel, Aerospatiale and Thomson CSF within a single new company - Alcatel Space. Following the transaction, Alcatel Alsthom holds a 15.84% stake in Thomson CSF and a 51% stake in Alcatel Space. In view of Alcatel's mandate regarding the management of Thomson CSF as outlined in the Shareholders Agreement and Alcatel's 15.84% share in Thomson CSF. Thomson CSF is consolidated under the equity method. The transactions are accounted for as of June 30, 1998 and have no impact on the first half year's income. NOTE 4 SUBSEQUENT EVENTS In September 1998, Alcatel acquired DSC Communications Corporation ("DSC"), a US company designing, developing, manufacturing and marketing switching and transmission and access products. At the effective time of the acquisition, each outstanding share of DSC was converted into 0.815 ADS. In connection with this acquisition, Alcatel registered 110,020,000 additional ADSs (22,004,000 shares), representing the maximum number of ADSs issuable upon consummation of the merger (including exercisable stock options and convertibles notes). Since September 18, 1998, class action lawsuits (the "Action") have been filed against the Company challenging the accuracy of certain public disclosures made by the Company regarding its financial condition during the first nine months of 1998. It is not possible at this early stage of the cases to predict the outcome with certainty. In the opinion of the Company, the actions lack merit and the Company intends to defend against them vigorously. Although Alcatel does not believe that the ultimate outcome of these proceedings will have a material adverse effect on its consolidated financial position or results of operations, no assurance may be given that these proceedings, if adversely determined, would not have such an effect. In December 1998, Alcatel acquired Packet Engines Corporation, a US company for $ 315 millions in cash. The acquisition allows Alcatel to increase its US presence in the Internet Protocole and data communications market. NOTE 5 SIGNIFICANT DIFFERENCES BETWEEN FRENCH AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The accompanying Unaudited Condensed Consolidated Interim Financial Statements have been prepared in accordance with French GAAP which differ in certain significant respects from those applicable in the United States (U.S. GAAP). These differences relate mainly to the following items, and the necessary adjustments are shown in the table set forth below (see Note 6). (A) ACCOUNTING FOR LONG-TERM CONTRACTS For the first six months ended June 30, 1997, revenue and margins of long-term contracts were recorded upon completion in the Engineering and Systems segment, and income on long-term contracts has been adjusted, using the percentage-of-completion method for material differences. For the first six months ended June 30, 1998, the Engineering and Systems segment recognized revenue and margins of long-term contracts using the percentage of completion method. (B) ACCOUNTING FOR GAINS ON SALES OF TREASURY STOCK Alcatel Alsthom includes gains on its own Shares sold by its subsidiaries in the determination of its income. Under U.S. GAAP, such gains are credited directly to equity. F-8 50 (C) AMORTIZATION OF ACQUISITION GOODWILL In France, goodwill is generally amortized over 20 years. Under U.S. GAAP, goodwill must be amortized against income over its estimated life not to exceed 40 years. The company has concluded that the goodwill has an indeterminate life and, as a result, has used a 40-year life in preparing the U.S. GAAP reconciliation. (D) FAIR VALUE ACCOUNTING FOR THE MERGERS WITH COMPAGNIE FINANCIERE ALCATEL, ALSTHOM AND GENERALE OCCIDENTALE Alcatel Alsthom accounted for the mergers with Compagnie Financiere Alcatel, Alsthom and Generale Occidentale, paid for with its own newly-issued Shares, on the basis of the historical value of the net assets transferred to the group. Under U.S. GAAP, the net assets acquired by issuing shares are recorded at the fair value of the shares issued using the purchase accounting method. Accordingly, additional goodwill amortization has been reflected in the U.S. GAAP reconciliation. (E) ACQUISITION GOODWILL CHARGED AGAINST SHAREHOLDERS' EQUITY A portion of the goodwill related to the acquisition of a majority interest in Telettra (1991), Alcatel SEL (1992) and of the 30% stake in Alcatel n.v. (1992) was directly charged against shareholders' equity. Under U.S. GAAP, acquisition goodwill is classified as an intangible asset. For reconciliation purposes, the Company has amortized acquisition goodwill over a 40-year life. (F) ACCOUNTING FOR MARKETABLE SECURITIES AND MARKETABLE EQUITY SECURITIES Alcatel Alsthom accounts for its investments at the lower of historical cost or fair value, assessed investment by investment. Under U.S. GAAP, certain investments in equity securities are stated at fair value. Changes in fair value related to trading securities are included in net income while those relating to available-for-sale securities are included directly in shareholders' equity. (G) LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFIT AND OTHER COSTS Alcatel Alsthom accounts for such liabilities when restructuring programs have been finalized and approved by group management. The group has applied EITF 94-3, SFAS 88 and SFAS 112 in preparing the U.S. GAAP reconciliation. Under such requirements, the conditions to be met in order to record a restructuring reserve in the balance sheet are more stringent than under Alcatel Alsthom's policy. (H) ACCOUNTING FOR CLOSING OF DUPLICATE FACILITIES OF ACQUIRING COMPANIES Under certain conditions, Alcatel Alsthom accounted for costs incurred to close duplicate facilities of acquiring companies as part of the cost of acquisition. Under U.S. GAAP, such costs are charged to income. (I) ACCOUNTING FOR THE ACQUISITION OF THE 30% STAKE IN ALCATEL N.V. In connection with this transaction, Alcatel Alsthom used forward exchange contracts to reduce its foreign currency exposure relative to the cash payments in 1993 and 1994. The premium on these contracts was charged to expenses in 1992 net income. Under U.S. GAAP, the premium should be included in net income over the life of the contracts. In addition, this investment was accounted for at the price contractually agreed which did not include any interest factor. Under U.S. GAAP, this investment would be recorded using the present value of the future payments. F-9 51 (J) INCOME TAXES Income taxes have been accounted for in accordance with the Financial Accounting Standard Board's Statement N(degree) 109 "Accounting for Income Taxes". The main reconciling differences arise from the recognition of more deferred tax assets (and subsequent adjustment to the valuation allowance) under U.S. GAAP than under French GAAP. (K) DISCONTINUED OPERATIONS In March 1998, Alcatel sold to ALSTOM (previously GEC ALSTHOM NV) most of the Engineering and Systems Sector's activities. In order to allow easier comparisons, the activities disposed of, have been accounted for under the equity method from January 1, 1998 to March 31, 1998 (effective date of the transaction). In June 1998, ALSTOM made an International Initial Public Offering of shares for a maximum 120.9 million of shares, of which 11.7 million new shares and 109.2 million shares previously held by General Electric company, p.l.c (GEC) and Alcatel and its 100% owned subsidiary Societe Immobiliere Kleber-Lauriston (SIKL). Following this offering, Alcatel retains a 24% stake in the capital at June 30, 1998. In order to allow easier comparisons, ALSTOM is accounted for under the equity method from January 1, 1998 and the accounting date for the disposal is on June 30, 1998. Under U.S. GAAP, operations of a segment that has been discontinued are reported separately as a component of income before extraordinary items. The presentation would have been as follows:
Six month period ended June 30 Discontinued operations: 1998 1997 ----------- ----------- Income from operations of discontinued segments FF 443 FF 390 Gain on disposal of discontinued segments FF 12,346 - (less applicable income taxes of FF 570)
The reconciliation to U.S. GAAP shows the reversal of the adjustments between French and US principles for the previous years. (L) ACCOUNTING FOR THOMSON CSF'S INVESTMENT The investment in Thomson CSF's shares has been accounted for as an exchange of a similar line of business and is recorded at carryover basis without impact in the income statement. Under U.S. GAAP, such transactions are recorded at fair value, with recognition of a gain based on the proportion of the business that is "sold". F-10 52 NOTE 6 RECONCILIATION TO U.S. GAAP (1) NET INCOME
SIX MONTH PERIOD ENDED JUNE 30, 1998 1997 ------------ ------------ (IN MILLIONS) NET INCOME AS REPORTED IN THE CONSOLIDATED INCOME STATEMENTS FF 15,205 FF 1,489 Accounting for long term contracts 15 Accounting for gains on sales of treasury stock (113) Amortization of acquisition goodwill 542 521 Fair value accounting for the mergers of Alcatel Alsthom with subsidiaries (amortization of acquisition goodwill) (40) (56) Acquisition goodwill charged against shareholders' equity (42) (42) Accounting for investments in securities 462 (2) Restructuring costs 64 971 Accounting for the acquisition of the 30% stake in Alcatel n.v. 5 5 Income taxes (596) (869) Accounting for disposal of Cegelec and GEC ALSTHOM (811) - Accounting for the investment in Thomson CSF 3,940 - Other adjustments (170) (74) Tax effect of the above adjustments (128) (36) ------------ ------------ NET INCOME ACCORDING TO U.S. GAAP FF 18,431 FF 1,809 ============ ============ Net income under U.S. GAAP per share (a) - basic 115.98 11.56 - diluted 106.86 11.44
- - ----------- * U.S. GAAP adjustments are presented after taking into consideration the impact on minority interests. F-11 53 (2) STATEMENT OF COMPREHENSIVE INCOME
SIX MONTH PERIOD ENDED JUNE 30, 1998 ------------------------------------ (IN MILLIONS) NET INCOME UNDER U.S. GAAP FF 18,431 Other comprehensive income - - - Under French Gaap Foreign currency translation adjustments 288 Net change in treasury stock owned by consolidated subsidiaries 60 Dilution in Alcatel Space related to Thomson CSF'S stake 1,500 Other comprehensive income (9) - - - Reconciliation to US Gaap Foreign currency translation adjustments (90) Unrealized gains on securities 3,258 Minimum pension liabilities adjustments 595 Tax effect on the above adjustments (1,028) ----------- COMPREHENSIVE INCOME ACCORDING TO U.S. GAAP FF 23,005
(3) SHAREHOLDERS' EQUITY
SIX MONTH PERIOD ENDED JUNE 30, 1998 ------------------------------------ (IN MILLIONS) SHAREHOLDERS' EQUITY AS REPORTED IN THE CONSOLIDATED INTERIM BALANCE SHEETS FF 65,295 Amortization of acquisition goodwill 2,480 Fair value accounting for the mergers of Alcatel Alsthom with subsidiaries (acquisition goodwill) 3,530 Acquisition goodwill charged against shareholders' equity 2,827 Accounting for investments in securities 6,566 Restructuring costs 1,778 Accounting for the acquisition of the 30% stake in Alcatel n.v. (306) Income taxes 420 Accounting for disposal of Cegelec and GEC ALSTHOM (811) Accounting for the investment in Thomson CSF 3,940 Other adjustments (924) Tax effect of the above adjustments (1,950) Minority interests (33) ---------- SHAREHOLDERS' EQUITY ACCORDING TO U.S. GAAP FF 82,812
F-12 54 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The table below sets forth the estimated expenses expected to be paid by the Company in connection with the issuance and distribution of the Resale Securities covered by this Registration Statement. For information concerning certain additional expenses that the Company and/or the Selling Securityholders may be required to pay in the event that there is an underwritten offering of the Resale Securities, see "Plan of Distribution." Securities and Exchange Commission Registration Fee........... $118,000 Printing and Engraving Expenses............................... 15,000 Legal Fees and Expenses (other than Blue Sky)................. 100,000 "Blue Sky" Fees and Expenses.................................. 1,000 Accounting Fees and Expenses.................................. 10,000 Miscellaneous................................................. 1,226 -------- Total................................................... $245,226 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the General Corporation Law of the State of Delaware provides that a director or officer of a corporation (i) shall be indemnified by the corporation for all expenses of litigation or other legal proceedings brought against such person by reason of the fact that such person is or was a director or an officer of the corporation when he is successful on the merits, (ii) may be indemnified by the corporation for the expenses, judgments, fines, and amounts paid in settlement of such litigation (other than a derivative suit) even if he is not successful on the merits if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation (and, in the case of a criminal proceeding, had no reason to believe his conduct was unlawful), and (iii) may be indemnified by the corporation for expenses of a derivative suit (a suit by a stockholder alleging a breach by a director or officer of a duty owed to the corporation), even if he is not successful on the merits, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, provided that no such indemnification may be made in accordance with this clause (iii) if the director or officer is adjudged liable to the corporation, unless a court determines that, despite such adjudication but in view of all circumstances, he is fairly and reasonably entitled to indemnification of such expenses. The indemnification described in clauses (ii) and (iii) above shall be made only upon order by a court or a determination by (a) a majority of directors who are not parties to such action, (b) a majority vote of a committee consisting of such disinterested directors, (c) independent legal counsel in a written opinion if no such disinterested directors exist, or if such disinterested directors so direct, or (d) the stockholders, that indemnification is proper because the applicable standard of conduct is met. Expenses incurred by a director or officer in defending an action may be advanced by the corporation prior to the final disposition of such action upon receipt of an undertaking by such director or officer to repay such expenses if it is ultimately determined that he is not entitled to be indemnified in connection with the proceeding to which the expenses relate. II-1 55 The Company maintains liability insurance for its directors and officers, including insurance against liabilities under the Securities Act. Alcatel maintains liability insurance for its directors and officers, including insurance against liabilities under the Securities Act. ITEM 16. EXHIBITS
EXHIBIT NUMBER DESCRIPTION - - ------- ----------- 4.1 Indenture, dated August 12, 1997, between the Company, Alcatel and The Bank of New York, as Trustee as supplemented by the First Supplemental Indenture, dated as of September 4, 1998, and as further supplemented by the Second Supplemental Indenture, dated as of April 1, 1999, restated as supplemented for informational purposes only *4.2 First Supplemental Indenture, dated as of September 4, 1998, between the Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 99.3 to Alcatel's Report of Foreign Private Issuer on Form 6-K dated September 9, 1998, Commission File No. 1-11130) 4.3 Second Supplemental Indenture, dated as of April 1, 1999, between the Company and The Bank of New York, as Trustee 4.4 Guaranty, dated September 17, 1998, by Alcatel *4.5 Registration Rights Agreement, dated as of August 12, 1997, among the Company, Goldman, Sachs & Co. and NationsBanc Capital Markets, Inc. (incorporated by reference to Exhibit No. 4.2 to the Company's Current Report on Form 8-K, Commission File No. 0-10018) 4.6 Form of Notes (included in Exhibit 4.1) 4.7 Amended and Restated Certificate of Incorporation of the Company, dated as of December 31, 1998 4.8 Amended and Restated Bylaws of the Company, dated as of December 31, 1998 *4.9 Amended and Restated Deposit Agreement, dated as of March 10, 1997, between Alcatel and The Bank of New York, as depositary (incorporated by reference to the Registration Statement on Form F-6, dated February 21, 1997, Commission File No. 333-6506) 4.10 Articles of Association and Bylaws of Alcatel, dated as of January 28, 1998 *5.1 Opinion of Baker & McKenzie 5.2 Opinion of Pascal Durand-Barthez 5.3 Opinion of Shearman & Sterling 8 Tax opinion of Shearman & Sterling 12.1 Computation of ratio of earnings to fixed charges of the Company 12.2 Computation of ratio of earnings to fixed charges of Alcatel 23.1 Consent of Ernst & Young LLP 23.2 Consent of Arthur Andersen LLP *23.3 Consent of Baker & McKenzie (included in Exhibit 5.1) 23.4 Consent of Pascal Durand-Barthez (included in Exhibit 5.2) 23.5 Consent of Shearman & Sterling (included in Exhibit 5.3) 24.1 Power of Attorney of the Company (see signature pages of Registration Statement) 24.2 Power of Attorney of Alcatel (see signature pages of Registration Statement) *25 Form T-1 Statement of Eligibility and Qualification of Trustee (bound separately)
- - --------------------------- * Previously filed II-2 56 ITEM 17. UNDERTAKINGS (a) The undersigned Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; (iii) To include any material information with respect to the Plan of Distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the Registration Statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrants hereby undertake that, for purposes of determining any liability under the Securities Act, each filing of the Registrants' respective annual reports pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrants of expenses incurred or paid by a director, officer or controlling person of the Registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-3 57 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, hereunto duly authorized, in the City of Plano, State of Texas, on April 9, 1999. ALCATEL USA, INC. By: /s/ Krish A. Prabhu ----------------------------------- Name: KRISH A. PRABHU Title: President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on April 9, 1999. Each person whose signature appears below hereby authorizes and appoints Serge Tchuruk, Jean-Pierre Halbron and Krish A. Prabhu, and each of them, any one of whom may act without joinder of the other, as his attorney-in-fact to sign on his behalf individually and in the capacity stated below all amendments and post-effective amendments to this Registration Statement as that attorney-in-fact may deem necessary or appropriate.
SIGNATURE TITLE --------- ----- /s/ Krish A. Prabhu Director, President and Chief - - ------------------------------------------ Executive Officer KRISH A. PRABHU /s/ Hubert de Pesquidoux Chief Financial Officer and - - ------------------------------------------ Chief Accounting Officer HUBERT DE PESQUIDOUX /s/ Jean-Pierre Halbron Director - - ------------------------------------------ JEAN-PIERRE HALBRON /s/ Helle Kristoffersen Director - - ------------------------------------------ HELLE KRISTOFFERSEN
II-4 58 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, hereunto duly authorized, in Paris, France, on April 9, 1999. ALCATEL By: /s/ Jean-Pierre Halbron ----------------------------------- Name: Jean-Pierre Halbron Title: Senior Executive Vice-President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on April 9, 1999. Each person whose signature appears below hereby authorizes and appoints Serge Tchuruk and Jean-Pierre Halbron, and each of them, either one of whom may act without joinder of the other, as his attorney-in-fact to sign on his behalf individually and in the capacity stated below all amendments and post-effective amendments to this Registration Statement as that attorney-in-fact may deem necessary or appropriate.
SIGNATURE TITLE --------- ----- /s/ Serge Tchuruk Chairman of the Board (Chief Executive - - ------------------------------------- Officer and Director) Serge Tchuruk /s/ Jean-Pierre Halbron Senior Executive Vice President - - ------------------------------------- (Principal Financial and Accounting Jean-Pierre Halbron Officer) Director - - ------------------------------------- Ambroise Roux /s/ Rand V. Araskog Director - - ------------------------------------- Rand V. Araskog /s/ Daniel Bernard Director - - ------------------------------------- Daniel Bernard /s/ Philippe Bissara Director - - ------------------------------------- Philippe Bissara Director - - ------------------------------------- Paolo Cantarella /s/ Guy Dejouany Director - - ------------------------------------- Guy Dejouany /s/ Jacques Friedmann Director - - ------------------------------------- Jacques Friedmann /s/ Noel Goutard Director - - ------------------------------------- Noel Goutard /s/ Francois de Laage de Meux Director - - ------------------------------------- Francois de Laage de Meux /s/ Thierry De Loppinot Director - - ------------------------------------- Thierry De Loppinot /s/ Pierre-Louis Lions Director - - ------------------------------------- Pierre-Louis Lions /s/ Bruno Vaillant Director - - ------------------------------------- Bruno Vaillant /s/ Marc Vienot Director - - ------------------------------------- Marc Vienot /s/ Helmut Werner Director - - ------------------------------------- Helmut Werner /s/ George B. Brunt Authorized Representative - - ------------------------------------- George B. Brunt
II-5 59 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - - ------- ----------- 4.1 Indenture, dated August 12, 1997, between the Company, Alcatel and The Bank of New York, as Trustee as supplemented by the First Supplemental Indenture, dated as of September 4, 1998, and as further supplemented by the Second Supplemental Indenture, dated as of April 1, 1999, restated as supplemented for informational purposes only *4.2 First Supplemental Indenture, dated as of September 4, 1998, between the Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 99.3 to Alcatel's Report of Foreign Private Issuer on Form 6-K dated September 9, 1998, Commission File No. 1-11130) 4.3 Second Supplemental Indenture, dated as of April 1, 1999, between the Company and The Bank of New York, as Trustee 4.4 Guaranty, dated September 17, 1998, by Alcatel *4.5 Registration Rights Agreement, dated as of August 12, 1997, among the Company, Goldman, Sachs & Co. and NationsBanc Capital Markets, Inc. (incorporated by reference to Exhibit No. 4.2 to the Company's Current Report on Form 8-K, Commission File No. 0-10018) 4.6 Form of Notes (included in Exhibit 4.1) 4.7 Amended and Restated Certificate of Incorporation of the Company, dated as of December 31, 1998 4.8 Amended and Restated Bylaws of the Company, dated as of December 31, 1998 *4.9 Amended and Restated Deposit Agreement dated as of March 10, 1997, between Alcatel and The Bank of New York, as depositary (incorporated by reference to the Registration Statement on Form F-6, dated February 21, 1997, Commission File No. 333-6506) 4.10 Articles of Association and Bylaws of Alcatel, dated as of January 28, 1998 *5.1 Opinion of Baker & McKenzie 5.2 Opinion of Pascal Durand-Barthez 5.3 Opinion of Shearman & Sterling 8 Tax opinion of Shearman & Sterling 12.1 Computation of ratio of earnings to fixed charges of the Company 12.2 Computation of ratio of earnings to fixed charges of Alcatel 23.1 Consent of Ernst & Young LLP 23.2 Consent of Arthur Andersen LLP *23.3 Consent of Baker & McKenzie (included in Exhibit 5.1) 23.4 Consent of Pascal Durand-Barthez (included in Exhibit 5.2) 23.5 Consent of Shearman & Sterling (included in Exhibit 5.3) 24.1 Power of Attorney of the Company (see signature pages of Registration Statement) 24.2 Power of Attorney of Alcatel (see signature pages of Registration Statement) *25 Form T-1 Statement of Eligibility and Qualification of Trustee (bound separately)
_________________________ * Previously filed EX-4.1 2 INDENTURE 1 EXHIBIT 4.1 ----------------------------------------------------------------------- ALCATEL USA, INC., ISSUER (FORMERLY, DSC COMMUNICATIONS CORPORATION) ALCATEL, GUARANTOR AND THE BANK OF NEW YORK, TRUSTEE ---------------- INDENTURE DATED AS OF AUGUST 12, 1997 AS SUPPLEMENTED BY THE FIRST SUPPLEMENTAL INDENTURE, DATED AS OF SEPTEMBER 4, 1998 AND AS FURTHER SUPPLEMENTED BY THE SECOND SUPPLEMENTAL INDENTURE, DATED AS OF APRIL 1, 1999 ---------------- U.S.$400,000,000 7% CONVERTIBLE SUBORDINATED NOTES DUE AUGUST 1, 2004 [RESTATED AS SUPPLEMENTED FOR INFORMATIONAL PURPOSES ONLY] ----------------------------------------------------------------------- 2 TABLE OF CONTENTS Page ---- RECITALS OF THE COMPANY......................................................... ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.......................................................... SECTION 1.1. Definitions...................................................... 1 Act.................................................................. 2 Affiliate............................................................ 2 Agent Member......................................................... 2 Alcatel.............................................................. 2 Alcatel ADSs......................................................... 2 Applicable Procedures................................................ 3 Authenticating Agent................................................. 3 Authorized Newspaper................................................. 3 Board of Directors................................................... 3 Board Resolution..................................................... 3 Business Day......................................................... 3 CEDEL................................................................ 3 Change in Control.................................................... 3 Closing Price Per Alcatel ADS........................................ 3 Code................................................................. 3 Commission........................................................... 4 Common Stock......................................................... 4 Common stock......................................................... 4 Company.............................................................. 4 Company Notice....................................................... 4 Company Request or Company Order..................................... 4 Constituent Person................................................... 4 Conversion Agent..................................................... 4 Conversion Price..................................................... 4 Conversion Rate...................................................... 4 Corporate Trust Office............................................... 4 Corporation.......................................................... 4 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. i 3 Page ---- Defaulted Interest................................................... 4 Depositary........................................................... 5 Dollar or U.S.$...................................................... 5 DTC.................................................................. 5 Euroclear............................................................ 5 Event of Default..................................................... 5 Exchange Act......................................................... 5 Exchange Date........................................................ 5 Global Security...................................................... 5 Holder............................................................... 5 Indenture............................................................ 5 Initial Purchasers................................................... 5 Interest Payment Date................................................ 5 Liquidated Damages................................................... 5 Maturity............................................................. 5 Non-electing Alcatel ADS............................................. 6 Notice of Default.................................................... 6 Officers' Certificate................................................ 6 Opinion of Counsel................................................... 6 Outstanding.......................................................... 6 Paying Agent......................................................... 7 Person............................................................... 7 Place of Conversion.................................................. 7 Place of Payment..................................................... 7 Predecessor Security................................................. 7 Purchase Agreement................................................... 7 Record Date.......................................................... 7 Record Date Period................................................... 7 Redemption Date...................................................... 7 Redemption Price..................................................... 7 Registered Security.................................................. 7 Registrable Securities............................................... 7 Regular Record Date.................................................. 8 Regulation S......................................................... 8 Regulation S Certificate............................................. 8 Regulation S Global Security......................................... 8 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. ii 4 Page ---- Regulation S Legend.................................................. 8 Regulation S Securities.............................................. 8 Repurchase Date...................................................... 8 Repurchase Price..................................................... 8 Responsible Officer.................................................. 8 Restricted Global Security........................................... 8 Restricted Period.................................................... 8 Restricted Securities................................................ 8 Restricted Securities Certificate.................................... 8 Restricted Securities Legend......................................... 9 Rule 144A............................................................ 9 Rule 144A Information................................................ 9 Rule 144A Securities................................................. 9 Securities........................................................... 9 Securities Act....................................................... 9 Securities Act Legend................................................ 9 Security Register and Security Registrar............................. 9 Senior Indebtedness.................................................. 9 Shelf Registration Statement........................................ 10 Special Record Date................................................. 10 Stated Maturity..................................................... 10 Subsidiary.......................................................... 10 Successor Security.................................................. 10 Surrender Certificate............................................... 10 Trading Days........................................................ 10 Trust Indenture Act................................................. 11 Trustee............................................................. 11 United States....................................................... 11 Unrestricted Securities Certificate................................. 11 Vice President...................................................... 11 SECTION 1.2. Compliance Certificates and Opinions................................ 11 SECTION 1.3. Form of Documents Delivered to the Trustee.......................... 12 SECTION 1.4. Acts of Holders of Securities....................................... 12 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. iii 5 Page ---- SECTION 1.5. Notices, Etc., to Trustee and Company............................... 14 SECTION 1.6. Notice to Holders of Securities; Waiver............................. 15 SECTION 1.7. Effect of Headings and Table of Contents............................ 15 SECTION 1.8. Successors and Assigns.............................................. 15 SECTION 1.9. Separability Clause................................................. 16 SECTION 1.10. Benefits of Indenture............................................... 16 SECTION 1.11. Governing Law....................................................... 16 SECTION 1.12. Legal Holidays...................................................... 16 SECTION 1.13. Conflict with Trust Indenture Act................................... 16 ARTICLE TWO SECURITY FORMS...................................................... 17 SECTION 2.1. Form Generally...................................................... 17 SECTION 2.2. Form................................................................ 18 SECTION 2.3. Form of Certificate of Authentication............................... 33 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. iv 6 Page ---- SECTION 2.4. Form of Conversion Notice........................................... 33 ARTICLE THREE THE SECURITIES...................................................... 35 SECTION 3.1. Title and Terms..................................................... 35 SECTION 3.2. Denominations....................................................... 35 SECTION 3.3. Execution, Authentication, Delivery and Dating...................... 36 SECTION 3.4. Global Securities................................................... 36 SECTION 3.5. Registration, Registration of Transfer and Exchange; Restrictions on Transfer....................................... 36 SECTION 3.6. Mutilated, Destroyed, Lost or Stolen Securities..................... 42 SECTION 3.7. Payment of Interest; Interest Rights Preserved...................... 42 SECTION 3.8. Persons Deemed Owners............................................... 44 SECTION 3.9. Cancellation........................................................ 44 SECTION 3.10. Computation of Interest............................................. 44 SECTION 3.11. [Reserved].......................................................... 44 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. v 7 Page ---- SECTION 3.12. CUSIP Numbers....................................................... 44 ARTICLE FOUR SATISFACTION AND DISCHARGE.......................................... 44 SECTION 4.1. Satisfaction and Discharge of Indenture............................. 44 SECTION 4.2. Application of Trust Money.......................................... 46 ARTICLE FIVE REMEDIES............................................................ 46 SECTION 5.1. Events of Default................................................... 46 SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.................. 47 SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee..... 48 SECTION 5.4. Trustee May File Proofs of Claim.................................... 49 SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities......... 50 SECTION 5.6. Application of Money Collected...................................... 50 SECTION 5.7. Limitation on Suits................................................. 51 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture vi 8 Page ---- SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert............................................. 51 SECTION 5.9. Restoration of Rights and Remedies.................................. 51 SECTION 5.10. Rights and Remedies Cumulative...................................... 52 SECTION 5.11. Delay or Omission Not Waiver........................................ 52 SECTION 5.12. Control by Holders of Securities.................................... 52 SECTION 5.13. Waiver of Past Defaults............................................. 52 SECTION 5.14. Undertaking for Costs............................................... 53 SECTION 5.15. Waiver of Stay, Usury or Extension Laws............................. 53 ARTICLE SIX THE TRUSTEE......................................................... 54 SECTION 6.1. Certain Duties and Responsibilities................................. 54 SECTION 6.2. Notice of Defaults.................................................. 55 SECTION 6.3. Certain Rights of Trustee........................................... 55 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture vii 9 Page ---- SECTION 6.4. Not Responsible for Recitals or Issuance of Securities.............. 56 SECTION 6.5. May Hold Securities, Act as Trustee Under Other Indentures.......... 56 SECTION 6.6. Money Held in Trust................................................. 57 SECTION 6.7. Compensation and Reimbursement...................................... 57 SECTION 6.8. Corporate Trustee Required; Eligibility............................. 57 SECTION 6.9. Resignation and Removal; Appointment of Successor................... 59 SECTION 6.10. Acceptance of Appointment by Successor.............................. 59 SECTION 6.11. Merger, Conversion, Consolidation or Succession to Business......... 59 SECTION 6.12. Authenticating Agents............................................... 60 SECTION 6.13. Disqualification; Conflicting Interests............................. 61 SECTION 6.14. Preferential Collection of Claims Against Company................... 61 ARTICLE SEVEN CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE................ 61 SECTION 7.1. Company May Consolidate, Etc., Only on Certain Terms................ 62 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture viii 10 Page ---- SECTION 7.2. Successor Substituted............................................... 62 ARTICLE EIGHT SUPPLEMENTAL INDENTURES............................................. 63 SECTION 8.1. Supplemental Indentures Without Consent of Holders of Securities... 63 SECTION 8.2. Supplemental Indentures With Consent of Holders of Securities....... 64 SECTION 8.3. Execution of Supplemental Indentures................................ 65 SECTION 8.4. Effect of Supplemental Indentures................................... 66 SECTION 8.5. Reference in Securities to Supplemental Indentures.................. 66 SECTION 8.6. Notice of Supplemental Indentures................................... 66 ARTICLE NINE MEETINGS OF HOLDERS OF SECURITIES................................... 66 SECTION 9.1. Purposes for Which Meetings May Be Called........................... 66 SECTION 9.2. Call, Notice and Place of Meetings.................................. 66 SECTION 9.3. Persons Entitled to Vote at Meetings................................ 66 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. ix 11 Page ---- SECTION 9.4. Quorum; Action...................................................... 66 SECTION 9.5. Determination of Voting Rights; Conduct and Adjournment of Meetings. 67 SECTION 9.6. Counting Votes and Recording Action of Meetings..................... 67 ARTICLE TEN COVENANTS........................................................... 68 SECTION 10.1. Payment of Principal, Premium and Interest.......................... 68 SECTION 10.2. Maintenance of Offices or Agencies.................................. 69 SECTION 10.3. Money for Security Payments To Be Held in Trust..................... 69 SECTION 10.4. [Reserved].......................................................... 70 SECTION 10.5. Existence........................................................... 71 SECTION 10.6. Maintenance of Properties........................................... 71 SECTION 10.7. Payment of Taxes and Other Claims................................... 71 SECTION 10.8. Registration and Listing............................................ 71 SECTION 10.9. Statement by Officers as to Default................................. 72 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. x 12 Page ---- SECTION 10.10. Delivery of Certain Information..................................... 72 SECTION 10.11. Resale of Certain Securities; Reporting Issuer...................... 73 SECTION 10.12. Registration Rights................................................. 73 SECTION 10.13. Waiver of Certain Covenants......................................... 74 ARTICLE ELEVEN REDEMPTION OF SECURITIES........................................... 75 SECTION 11.1. Right of Redemption................................................. 75 SECTION 11.2. Applicability of Article............................................ 75 SECTION 11.3. Election to Redeem; Notice to Trustee............................... 75 SECTION 11.4. Selection by Trustee of Securities To Be Redeemed................... 75 SECTION 11.5. Notice of Redemption................................................ 76 SECTION 11.6. Deposit of Redemption Price......................................... 77 SECTION 11.7. Securities Payable on Redemption Date............................... 77 SECTION 11.8. Securities Redeemed in Part......................................... 78 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. xi 13 Page ---- ARTICLE TWELVE CONVERSION OF SECURITIES............................................ 78 SECTION 12.1. Conversion Privilege and Conversion Price........................... 78 SECTION 12.2. Exercise of Conversion Privilege.................................... 78 SECTION 12.3. Fractions of Alcatel ADSs........................................... 80 SECTION 12.4. Adjustment of Conversion Price...................................... 80 SECTION 12.5. Notice of Adjustments of Conversion Price........................... 85 SECTION 12.6. Notice of Certain Corporate Action.................................. 85 SECTION 12.7. Company to Reserve Common Stock..................................... 86 SECTION 12.8. Taxes on Conversions................................................ 86 SECTION 12.9. Covenant as to Alcatel ADSs......................................... 86 SECTION 12.10. Cancellation of Converted Securities................................ 87 SECTION 12.11. Provision in Case of Consolidation, Merger or Sale of Assets........ 87 SECTION 12.12. Responsibility of Trustee for Conversion Provisions................. 88 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. xii 14 Page ---- ARTICLE THIRTEEN SUBORDINATION OF SECURITIES......................................... 81 SECTION 13.1. Securities Subordinate to Senior Indebtedness....................... 81 SECTION 13.2. Payment Over of Proceeds Upon Dissolution, Etc...................... 89 SECTION 13.3. No Payment When Senior Indebtedness in Default...................... 90 SECTION 13.4. Payment Permitted If No Default..................................... 90 SECTION 13.5. Subrogation to Rights of Holders of Senior Indebtedness............. 90 SECTION 13.6. Provisions Solely to Define Relative Rights......................... 91 SECTION 13.7. Trustee to Effectuate Subordination................................. 91 SECTION 13.8. No Waiver of Subordination Provisions............................... 91 SECTION 13.9. Notice to Trustee................................................... 92 SECTION 13.10. Reliance on Judicial Order or Certificate of Liquidating Agent...... 93 SECTION 13.11. Trustee Not Fiduciary for Holders of Senior Indebtedness............ 93 SECTION 13.12. Reliance by Holders of Senior Indebtedness on Subordination Provisions..................................................... 93 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. xiii 15 Page ---- SECTION 13.13. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights............................................ 93 SECTION 13.14. Article Applicable to Paying Agents................................. 93 SECTION 13.15. Certain Conversions and Repurchases Deemed Payment.................. 94 ARTICLE FOURTEEN REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A CHANGE IN CONTROL..................................... 94 SECTION 14.1. Right to Require Repurchase......................................... 94 SECTION 14.2. Conditions to the Company's Election to Pay the Repurchase Price in Alcatel ADSs................................................. 95 SECTION 14.3. Notices; Method of Exercising Repurchase Right, Etc................. 96 SECTION 14.4. Certain Definitions................................................. 99 ARTICLE FIFTEEN HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY; NON-RECOURSE....................................................... 100 SECTION 15.1. Company to Furnish Trustee Names and Addresses of Holders.......... 100 SECTION 15.2. Preservation of Information........................................ 100 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. xiv 16 Page ---- SECTION 15.3. No Recourse Against Others......................................... 101 SECTION 15.4. Reports by Trustee................................................. 101 SECTION 15.5. Reports by Company................................................. 101 ARTICLE SIXTEEN THE GUARANTY....................................................... 101 SECTION 16.1 Guaranty........................................................... 101 TESTIMONIUM........................................................ 102 SIGNATURES AND SEALS................................................ NA ACKNOWLEDGMENTS.................................................... ANNEX I............................................................ I-I ANNEX A............................................................ A-I ANNEX B............................................................ B-I ANNEX C............................................................ C-I ANNEX D............................................................ D-I Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. xv 17 This Indenture is dated as of August 12, 1997, between Alcatel USA, Inc., formerly DSC Communications Corporation, a Delaware corporation, having its principal office at 1000 Coit Road, Plano, Texas 75075 (herein called the "Company"); Alcatel, a French societe anonyme ("Alcatel" or the "Guarantor"); and The Bank of New York, a New York banking corporation as Trustee hereunder (herein called the "Trustee"). WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture, dated as of August 12, 1997 (the "Initial Indenture"), providing for the creation and issuance by the Company of 7% Convertible Subordinated Notes due August 1, 2004, which has been supplemented by the First Supplemental Indenture, dated as of September 4, 1998, between the Company and the Trustee (the "First Supplemental Indenture") and the Second Supplemental Indenture, dated as of April 1, 1999, between the Company, Alcatel and the Trustee (the "Second Supplemental Indenture", together with the Initial Indenture and the First Supplemental Indenture, the "Indenture"); WHEREAS, the Company, Alcatel and the Bank of New York have restated the original indenture for informational purposes only to reflect the modifications thereto resulting from the execution of the First Supplemental Indenture and the Second Supplemental Indenture (the "Amended and Restated Indenture" or the "Indenture"); RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its 7% Convertible Subordinated Notes due August 1, 2004 (herein called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when the Securities are executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. Further, all things necessary to duly authorize the delivery of the Alcatel ADSs deliverable upon the conversion of the Securities have been done. RECITALS OF ALCATEL Alcatel has duly executed and delivered the Guaranty dated as of September 17, 1998, a copy of which is attached hereto as Annex I (the "Guaranty"); NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: 18 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and (3) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder of a Security, has the meaning specified in Section 1.4. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Member" means any member of, or participant in, the Depositary. "Alcatel" means Alcatel, a company organized under the laws of the Republic of France, and the parent of the Company. "Alcatel ADSs" means the American depositary shares issued under the depositary agreement, dated as of March 1, 1991 and amended and restated as of March 15, 1992, as amended by Amendment No. 1 dated as of January 3, 1997 and as further amended and restated as of March 10, 1997, among Alcatel, The Bank of New York, as depositary, and holders of American depositary receipts evidencing such American depositary shares, each representing one-fifth of one ordinary share of Alcatel. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of Euroclear and 2 19 CEDEL, and of the Depositary for such Security, in each case to the extent applicable to such transaction and as in effect from time to time. "Authenticating Agent" means any Person authorized pursuant to Section 6.12 to act on behalf of the Trustee to authenticate Securities. "Authorized Newspaper" means a newspaper in the English language, customarily published on each Monday, Tuesday, Wednesday, Thursday and Friday, whether or not published on Saturdays, Sundays or holidays, and of general circulation in a Place of Payment. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board empowered to act for it with respect to this Indenture. "Board Resolution" means a resolution duly adopted by the Board of Directors, a copy of which, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, shall have been delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, Place of Conversion or any other place, as the case may be, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in such Place of Payment, Place of Conversion or other place, as the case may be, are authorized or obligated by law or executive order to close; provided, however, that a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to close shall not be a Business Day for purposes of Section 13.9; provided, further, that a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to close shall not be a Business Day for purposes of Section 11.6. "CEDEL" means Cedel Bank, S.A. (or any successor securities clearing agency). "Change in Control" has the meaning specified in Section 14.4(b). "Closing Price Per Alcatel ADS" means, with respect to the Alcatel ADSs, for any day, (i) the closing bid price regular way on the Nasdaq National Market or, (ii) if the Alcatel ADSs are not quoted on the Nasdaq National Market, the reported last sales price regular way per Alcatel ADS or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case, on the principal national securities exchange on which the Alcatel ADSs are listed or admitted to trading, or (iii) if the Alcatel ADSs are not quoted on the Nasdaq National Market or listed or admitted to trading on any national securities exchange, the average of the closing bid prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by Alcatel for that purpose. "Code" has the meaning specified in Section 2.1. 3 20 "Commission" means the United States Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock", unless otherwise stated, means the Common Stock of Alcatel, nominal value EUR 10 per share. "Common stock" includes any stock of any class of capital stock which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the issuer thereof and which is not subject to redemption by the issuer thereof. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Notice" has the meaning specified in Section 14.3. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its President or a Vice President, and by its principal financial officer, Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Constituent Person" has the meaning specified in Section 12.11. "Conversion Agent" means any Person authorized by the Company to convert Securities in accordance with Article Twelve. The Company has initially appointed the Trustee as its Conversion Agent in the Borough of Manhattan, The City of New York. "Conversion Price" has the meaning specified in Section 14.4(c). "Conversion Rate" has the meaning specified in Section 12.1. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered (which at the date of this Indenture is located at 101 Barclay St., Floor 21 West, New York, New York 10286). "Corporation" means a corporation or company, including without limitation a limited liability company, an association, joint-stock company or business trust. "Defaulted Interest" has the meaning specified in Section 3.7. 4 21 "Depositary" means, with respect to any Registered Securities, a clearing agency that is registered as such under the Exchange Act and is designated by the Company to act as Depositary for such Registered Securities (or any successor securities clearing agency so registered). "Dollar" or "U.S.$" means a dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts. "DTC" means The Depository Trust Company, a New York corporation. "Euroclear" means the Euroclear Clearance System (or any successor securities clearing agency). "Event of Default" has the meaning specified in Section 5.1. "Exchange Act" means the United States Securities Exchange Act of 1934 (or any successor statute), as amended from time to time. "Exchange Date" means the date and day on which the Restricted Period expires. "Global Security" means a Registered Security that is registered in the Security Register in the name of a Depositary or a nominee thereof. "Holder" means the Person in whose name the Security is registered in the Security Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Initial Purchasers" means Goldman, Sachs & Co., NationsBanc Capital Markets, Inc. and Goldman Sachs International, collectively. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Liquidated Damages" has the meaning specified in Section 10.12. "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, exercise of the repurchase right set forth in Article Fourteen or otherwise. 5 22 "Non-electing Alcatel ADS" has the meaning specified in Section 12.11. "Notice of Default" has the meaning specified in Section 5.1. "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the President or a Vice President and by the principal financial officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company and who shall be acceptable to the Trustee. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for the payment or redemption of which money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities, provided that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Securities which have been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities are present at a meeting of Holders of Securities for quorum purposes or have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such determination as to the presence of a quorum or upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. 6 23 "Paying Agent" means any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company and, except as otherwise specifically set forth herein, such term shall include the Company if it shall act as its own Paying Agent. The Company has initially appointed the Trustee as its Paying Agent in the Borough of Manhattan, The City of New York. "Person" means any individual, corporation, limited liability company, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Place of Conversion" has the meaning specified in Section 3.1. "Place of Payment" has the meaning specified in Section 3.1. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Purchase Agreement" means the Purchase Agreement, dated as of August 7, 1997, between the Company and the Initial Purchasers, as such agreement may be amended from time to time. "Record Date" means any Regular Record Date or Special Record Date. "Record Date Period" means the period from the close of business of any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Registered Security" means any Security issued in substantially the form set forth in Section 2.2 and registered in the Security Register. A Global Security is a Registered Security. "Registrable Securities" has the meaning specified in Section 10.12. "Registration Default" has the meaning specified in Section 10.12. "Registration Rights Agreement" has the meaning specified in Section 2.2. 7 24 "Regular Record Date" for interest payable in respect of any Registered Security on any Interest Payment Date means the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act (or any successor provision), as it may be amended from time to time. "Regulation S Certificate" means a certificate substantially in the form set forth in Annex A. "Regulation S Global Security" has the meaning specified in Section 2.1. "Regulation S Legend" means a legend substantially in the form of the legend required in the form of Security set forth in Section 2.2 to be placed upon a Regulation S Global Security. "Regulation S Securities" means all Securities required pursuant to Section 3.5(c) to bear a Regulation S Legend. Such term includes the Regulation S Global Security. "Repurchase Date" has the meaning specified in Section 14.1. "Repurchase Price" has the meaning specified in Section 14.1. "Responsible Officer", when used with respect to the Trustee, means any officer within the Corporate Trust Office of the Trustee including without limitation any vice president, assistant vice president, assistant treasurer, assistant secretary, corporate trust officer, assistant corporate trust officer or other employee of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge and familiarity with the particular subject. "Restricted Global Security" has the meaning specified in Section 2.1. "Restricted Period" means the period of 41 consecutive days beginning on and including the later of (i) the day on which Securities are first offered to persons other than distributors (as defined in Regulation S) in reliance on Regulation S and (ii) the last original issuance date of the Securities. "Restricted Securities" means all Securities required pursuant to Section 3.5(c) to bear any Restricted Securities Legend. Such term includes the Restricted Global Security. "Restricted Securities Certificate" means a certificate substantially in the form set forth in Annex B. 8 25 "Restricted Securities Legend" means, collectively, the legends substantially in the forms of the legends required in the form of Security set forth in Section 2.2 to be placed upon each Restricted Security. "Rule 144A" means Rule 144A under the Securities Act (or any successor provision), as it may be amended from time to time. "Rule 144A Information" has the meaning specified in Section 10.10. "Rule 144A Securities" means the Securities purchased by the Initial Purchaser from the Company pursuant to the Purchase Agreement and resold by the Initial Purchaser, other than the Regulation S Securities. "Securities" has the meaning ascribed to it in the first paragraph under the caption "Recitals of the Company". "Securities Act" means the United States Securities Act of 1933 (or any successor statute), as amended from time to time. "Securities Act Legend" means a Restricted Securities Legend or a Regulation S Legend. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.5. "Senior Indebtedness" means the principal of (and premium, if any) and interest (including all interest accruing subsequent to the filing of a petition initiating any proceeding under city, state, federal or foreign bankruptcy laws, whether or not allowable as a claim in any such proceeding) on, and all fees and other amounts payable in connection with, the following, whether absolute or contingent, secured or unsecured, due or to become due, outstanding on the date of the Indenture or thereafter created, incurred or assumed: (a) indebtedness of the Company evidenced by credit or loan agreements, notes, bonds, debentures, or other written obligations, including, but not limited to as of June 30, 1997 the Company's five-year, unsecured $160.0 million revolving credit facility with several banks, $168.8 million outstanding principal amount of the Company's 9.0% unsecured notes which mature from 1997 to 2003, $10.8 million outstanding principal amount of the Company's 8.75% unsecured notes which mature from 1997 to 2000 and $83.0 million outstanding principal amount of the Company's variable rate unsecured notes which mature from 1999 to 2011, (b) all obligations of the Company for money borrowed, (c) all obligations of the Company evidenced by a note or similar instrument given in connection with the acquisition of any businesses, properties or assets of any kind, (d) obligations of the Company as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles, (e) obligations of the Company under interest rate and currency swaps, caps, floors, collars, hedge agreements, forward contracts, or similar agreements or arrangements intended to protect the Company against fluctuations in interest 9 26 or currency exchange rates, (f) all obligations of the type referred to in clauses (a) through (e) above of another Person and all dividends of another Person, the payment of which, in either case, the Company has assumed or guaranteed, or for which the Company is responsible or liable, directly or indirectly, jointly or severally, as obligor, guarantor or otherwise, or which is secured by a lien on property of the Company, and (g) renewals, extensions, modifications, replacements, restatements and refundings of, or any indebtedness or obligation issued in exchange for, any such indebtedness or obligation described in clauses (a) through (f) of this paragraph; provided, however, that Senior Indebtedness shall not include the Securities or any such indebtedness or obligation (a) if the terms of such indebtedness or obligation (or the terms of the instrument under which, or pursuant to which it is issued) provide that such indebtedness or obligation is not superior in right of payment to the Securities, (b) if such indebtedness or obligation is non-recourse to the Company or (c) if such indebtedness or obligation is a conditional sale contract or any account payable or any other indebtedness created or assumed by the Company in the ordinary course of business in connection with the obtaining of inventories or services. "Shelf Registration Statement" has the meaning specified in Section 10.12. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Company pursuant to Section 3.7. "Stated Maturity", when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock or other similar interests in the corporation which ordinarily has or have voting power for the election of directors, or persons performing similar functions, whether at all times or only so long as no senior class of stock or other interests has or have such voting power by reason of any contingency. "Successor Security" of any particular Security means every Security issued after, and evidencing all or a portion of the same debt as that evidenced by, such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Surrender Certificate" means a certificate substantially in the form set forth in Annex D. "Trading Days" means (i) if the Alcatel ADSs are quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, days on which trades may be effected through such system; (ii) if the Alcatel ADSs are listed or admitted for trading on any national securities exchange, days on which such national 10 27 securities exchange is open for business; or (iii) if the Alcatel ADSs are not listed or admitted for trading on any national securities exchange or quoted on the Nasdaq National Market or any other system of automated dissemination of quotation of securities prices, days on which the Alcatel ADSs are traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Alcatel ADSs are available. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "United States" means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction (its "possessions" including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands). "Unrestricted Securities Certificate" means a certificate substantially in the form set forth in Annex C. "Vice President", when used with respect to the Company, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". SECTION 1.2. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (including certificates provided for in Section 10.9) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; 11 28 (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.3. Form of Documents Delivered to the Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or any other Person stating that the information with respect to such factual matters is in the possession of the Company or such other Person, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.4. Acts of Holders of Securities. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders of Securities may be embodied in and evidenced by (1) one or more instruments of substantially similar tenor signed by such Holders in person or by an agent or proxy duly appointed in writing by such Holders or (2) the record of Holders of Securities voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities duly called and held in accordance with the provisions of Article Nine. Such action shall become effective when such instrument or instruments or record is delivered to the Trustee and, where it is hereby expressly required, to the Company. The Trustee shall promptly deliver to the Company copies of all such instruments and records delivered to the Trustee. Such 12 29 instrument or instruments and record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders of Securities signing such instrument or instruments and so voting at such meeting. Proof of execution of any such instrument or of a writing appointing any such agent or proxy, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 9.6. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. (c) The principal amount and serial number of any Registered Security held by any Person, and the date of his holding the same, shall be proved by the Security Register. (d) The fact and date of execution of any such instrument or writing and the authority of the Person executing the same may also be proved in any other manner which the Trustee deems sufficient; and the Trustee may in any instance require further proof with respect to any of the matters referred to in this Section 1.4. (e) The Company may set any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted by this Indenture to be given or taken by Holders. Promptly and in any case not later than ten days after setting a record date, the Company shall notify the Trustee and the Holders of such record date. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 15.1) prior to such first solicitation or vote, as the case may be. With regard to any record date, the Holders on such date (or their duly appointed agents or proxies), and only such Persons, shall be entitled to give or take, or vote on, the relevant action, whether or not such Holders remain Holders after such record date. Notwithstanding the foregoing, the Company shall not set a record date for, and the provisions of this paragraph shall not apply with respect to, any notice, declaration or direction referred to in the next paragraph. Upon receipt by the Trustee from any Holder of (i) any notice of default or breach referred to in Section 5.1(4), if such default or breach has occurred and is continuing and the Trustee shall not have given such a notice to the Company, (ii) any declaration of acceleration referred to in Section 5.2, if an Event of Default has occurred and is continuing and the Trustee shall not have given such a declaration to the Company, or (iii) any direction referred to in Section 5.12, if the Trustee shall not have taken the action specified in such direction, 13 30 then, with respect to clauses (ii) and (iii), a record date shall automatically and without any action by the Company or the Trustee be set for determining the Holders entitled to join in such declaration or direction, which record date shall be the close of business on the tenth day (or, if such day is not a Business Day, the first Business Day thereafter) following the day on which the Trustee receives such declaration or direction, and, with respect to clause (i), the Trustee may set any day as a record date for the purpose of determining the Holders entitled to join in such notice of default. Promptly after such receipt by the Trustee of any such declaration or direction referred to in clause (ii) or (iii), and promptly after setting any record date with respect to clause (i), and as soon as practicable thereafter, the Trustee shall notify the Company and the Holders of any such record date so fixed. The Holders on such record date (or their duly appointed agents or proxies), and only such Persons, shall be entitled to join in such notice, declaration or direction, whether or not such Holders remain Holders after such record date; provided that, unless such notice, declaration or direction shall have become effective by virtue of Holders of the requisite principal amount of Securities on such record date (or their duly appointed agents or proxies) having joined therein on or prior to the 90th day after such record date, such notice, declaration or direction shall automatically and without any action by any Person be canceled and of no further effect. Nothing in this paragraph shall be construed to prevent a Holder (or a duly appointed agent or proxy thereof) from giving, before or after the expiration of such 90-day period, a notice, declaration or direction contrary to or different from, or, after the expiration of such period, identical to, the notice, declaration or direction to which such record date relates, in which event a new record date in respect thereof shall be set pursuant to this paragraph. In addition, nothing in this paragraph shall be construed to render ineffective any notice, declaration or direction of the type referred to in this paragraph given at any time to the Trustee and the Company by Holders (or their duly appointed agents or proxies) of the requisite principal amount of Securities on the date such notice, declaration or direction is so given. (f) Except as provided in Sections 5.12 and 5.13, any request, demand, authorization, direction, notice, consent, election, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (g) The provisions of this Section 1.4 are subject to the provisions of Section 9.5. SECTION 1.5. Notices, Etc., to Trustee, Company and Alcatel. Any request, demand, authorization, direction, notice, consent, election, waiver or other Act of Holders of Securities or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder of Securities or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee and received at its Corporate Trust Office, ATTENTION: CORPORATE TRUST ADMINISTRATION; facsimile no. (212) 815-5915. 14 31 (2) the Company or Alcatel by the Trustee or by any Holder of Securities shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing, mailed, first-class postage prepaid, or telecopied and confirmed by mail, first-class postage prepaid, or delivered by hand or overnight courier, addressed (i) if to the Company, to Alcatel USA, Inc. at 1000 Coit Road, Plano, Texas 75075, Attention: Treasurer; fascimile no. (972) 519-2688, or at any other address previously furnished in writing to the Trustee by the Company; and (ii) if to Alcatel, to Alcatel at 54, rue la Boetie, Paris, France, 75008, Attention: Chief Financial Officer; facsimile no. (331) 40.76.14.91. Any request, demand, authorization, direction, notice, consent, election or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. SECTION 1.6. Notice to Holders of Securities; Waiver. Except as otherwise expressly provided herein, where this Indenture provides for notice to Holders of Securities of any event, such notice shall be sufficiently given to Holders if in writing and mailed, first-class postage prepaid, to each Holder of a Security affected by such event, at the address of such Holder as it appears in the Security Register, not earlier than the earliest date and not later than the latest date prescribed for the giving of such notice. Neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Registered Security shall affect the sufficiency of such notice with respect to other Holders of Registered Securities. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification to Holders of Registered Securities as shall be made with the approval of the Trustee, which approval shall not be unreasonably withheld, shall constitute a sufficient notification to such Holders for every purpose hereunder. Such notice shall be deemed to have been given when such notice is mailed. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders of Securities shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.7. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.8. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. 15 32 SECTION 1.9. Separability Clause. In case any provision in this Indenture or the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.10. Benefits of Indenture. Except as provided in the next sentence, nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors and assigns hereunder and the Holders of Securities, any benefit or legal or equitable right, remedy or claim under this Indenture. The provisions of Article Thirteen are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness. SECTION 1.11. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA. SECTION 1.12. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Repurchase Date or Stated Maturity of any Security or the last day on which a Holder of a Security has a right to convert his Security shall not be a Business Day at a Place of Payment or Place of Conversion, as the case may be, then (notwithstanding any other provision of this Indenture or of the Securities) payment of principal of, premium, if any, or interest on, or the payment of the Repurchase Price (whether the same is payable in cash or in Alcatel ADSs) with respect to, or delivery for conversion of, such Security need not be made at such Place of Payment or Place of Conversion, as the case may be, on or by such day, but may be made on or by the next succeeding Business Day at such Place of Payment or Place of Conversion, as the case may be, with the same force and effect as if made on the Interest Payment Date, Redemption Date or Repurchase Date, or at the Stated Maturity or by such last day for conversion; provided, however, that in the case that payment is made on such succeeding Business Day, no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date, Repurchase Date, Stated Maturity or last day for conversion, as the case may be. SECTION 1.13. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Until such time as this Indenture shall be qualified under the Trust Indenture Act, this 16 33 Indenture, the Company and the Trustee shall be deemed for all purposes hereof to be subject to and governed by the Trust Indenture Act to the same extent as would be the case if this Indenture were so qualified on the date hereof. ARTICLE TWO SECURITY FORMS SECTION 2.1. Form Generally. The Securities shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange, the Internal Revenue Code of 1986, as amended, and regulations thereunder (the "Code"), or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. All Securities shall be Registered Securities. The Trustee's certificates of authentication shall be in substantially the form set forth in Section 2.3. Conversion notices shall be in substantially the form set forth in Section 2.5. Repurchase notices shall be substantially in the form set forth in Section 2.2. The Securities shall be printed, lithographed, typewritten or engraved or produced by any combination of these methods on steel engraved borders if so required by any securities exchange upon which the Securities may be listed, or may be produced in any other manner permitted by the rules of any such securities exchange, or, if the Securities are not listed on a securities exchange, in any other manner approved by the Company all as determined by the officers executing such Securities, as evidenced by their execution thereof. Upon their original issuance, Rule 144A Securities shall be issued in the form of one or more Global Securities without interest coupons and shall be registered in the name of DTC, as Depositary, or its nominee and deposited with the Trustee, as custodian for DTC, for credit by DTC to the respective accounts of beneficial owners of the Securities represented thereby (or such other accounts as they may direct). Such Global Security, together with its Successor Securities which are Global Securities other than the Regulation S Global Security, are collectively herein called the "Restricted Global Security". Upon their original issuance, Regulation S Securities shall be issued in the form of one or more Global Securities without interest coupons and shall be registered in the name of DTC, as Depositary, or its nominee and deposited with the Trustee, as custodian for DTC for credit to the respective accounts at DTC of the depositaries for Morgan Guaranty Trust 17 34 Company of New York, Brussels office, as operator of Euroclear, or CEDEL. Such Global Security, together with its Successor Securities which are Global Securities other than the Restricted Global Security, are collectively herein called the "Regulation S Global Security". SECTION 2.2. Form of Security [FORM OF FACE] [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH RESTRICTED SECURITY OTHER THAN ANY RESTRICTED GLOBAL SECURITY: THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS SECURITY AND ANY ALCATEL ADSs DELIVERABLE UPON ITS CONVERSION MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLI CABLE EXEMPTION THEREFROM. THIS SECURITY MAY ONLY BE SOLD IN ACCORDANCE WITH THE INDENTURE, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE CORPORATE TRUST OFFICE OF THE TRUSTEE. EACH PURCHASER OF THIS SECURITY WHICH IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF ALCATEL USA, INC. (THE "COMPANY") THAT (A) THIS SECURITY AND ANY ALCATEL ADSs DELIVERABLE UPON ITS CONVERSION MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (III) IN THE CASE OF ANY PURCHASER, OTHER THAN A PURCHASER WHO HAS OTHERWISE AGREED WITH THE COMPANY IN WRITING, TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (IF AVAILABLE), (IV) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN EACH OF CASES (I) THROUGH (V) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED STATES, AND THAT (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER OF THIS SECURITY OR ANY ALCATEL ADSs DELIVERABLE UPON ITS CONVERSION IS 18 35 REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY AND ANY ALCATEL ADSs DELIVERABLE UPON ITS CONVERSION FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. THIS SECURITY, ANY ALCATEL ADSs DELIVERABLE UPON ITS CONVERSION AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS SECURITY AND ANY SUCH ALCATEL ADSs TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS SECURITY AND ANY SUCH ALCATEL ADSs SHALL BE DEEMED BY THE ACCEPTANCE OF THIS SECURITY AND ANY SUCH ALCATEL ADSs TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.] [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH RESTRICTED GLOBAL SECURITY: THE SECURITIES EVIDENCED BY THIS GLOBAL SECURITY (OR ITS PREDECESSOR) WERE ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SUCH SECURITIES AND ANY ALCATEL ADSs DELIVERABLE UPON THEIR CONVERSION MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. SUCH SECURITIES MAY ONLY BE SOLD IN ACCORDANCE WITH THE INDENTURE, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE CORPORATE TRUST OFFICE OF THE TRUSTEE. EACH PURCHASER OF ANY BENEFICIAL INTEREST IN THE SECURITIES WHICH IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IS HEREBY NOTIFIED THAT THE SELLER OF SUCH BENEFICIAL INTEREST IN THE SECURITIES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. EACH BENEFICIAL OWNER OF AN INTEREST IN ANY OF THE SECURITIES EVIDENCED BY THIS RESTRICTED GLOBAL SECURITY (INCLUDING ANY PARTICIPANT IN THE DEPOSITARY HOLDING THE RESTRICTED GLOBAL SECURITY THAT IS SHOWN AS HOLDING SUCH AN INTEREST ON THE RECORDS OF SUCH DEPOSITARY AND EACH BENEFICIAL OWNER THAT HOLDS THROUGH ANY SUCH PARTICIPANT) AGREES FOR THE BENEFIT OF ALCATEL USA, INC. (THE "COMPANY") THAT (A) ANY BENEFICIAL INTEREST IN THE SECURITIES AND ANY ALCATEL ADSs DELIVERABLE UPON THEIR CONVERSION MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE 19 36 SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (III) IN THE CASE OF ANY PURCHASER, OTHER THAN A PURCHASER WHO HAS OTHERWISE AGREED WITH THE COMPANY IN WRITING, TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (IF AVAILABLE), (IV) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN EACH OF CASES (I) THROUGH (V) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED STATES, AND THAT (B) THE BENEFICIAL OWNER WILL, AND EACH SUBSEQUENT BENEFICIAL OWNER OF THIS SECURITY OR ANY ALCATEL ADSs DELIVERABLE UPON ITS CONVERSION IS REQUIRED TO, NOTIFY ANY PURCHASER OF ANY BENEFICIAL INTEREST IN THE SECURITIES AND ANY ALCATEL ADSs DELIVERABLE UPON ITS CONVERSION FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. THIS SECURITY, ANY ALCATEL ADSs DELIVERABLE UPON ITS CONVERSION AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS SECURITY AND ANY SUCH ALCATEL ADSs TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE HOLDER AND BENEFICIAL OWNERS OF AN INTEREST IN ANY OF THE SECURITIES EVIDENCED BY THIS GLOBAL SECURITY AND ANY SUCH ALCATEL ADSs SHALL BE DEEMED BY THE ACCEPTANCE OF THIS GLOBAL SECURITY AND THE BENEFICIAL INTERESTS THEREIN AND ANY SUCH ALCATEL ADSs TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.] [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH GLOBAL SECURITY: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.] [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH GLOBAL SECURITY FOR WHICH DTC IS TO BE THE DEPOSITARY: 20 37 UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ALCATEL USA, INC. OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN THE INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.] [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH REGULATION S GLOBAL SECURITY: THE SECURITIES EVIDENCED BY THIS GLOBAL SECURITY (OR ITS PREDECESSOR) WERE ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES LAWS. TERMS USED ABOVE HAVE THE MEANINGS GIVEN THEM IN REGULATION S UNDER THE SECURITIES ACT.] ALCATEL USA, INC. 7% CONVERTIBLE SUBORDINATED NOTE DUE AUGUST 1, 2004 No. _____________ U.S.$_____ [IF RESTRICTED GLOBAL SECURITY - CUSIP NO. ] [IF REGULATION S GLOBAL SECURITY - CUSIP NO. ] 21 38 ALCATEL USA, INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor Person under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to _______________, or registered assigns, the principal sum of _____________ United States Dollars (U.S.$ _____) [IF THIS SECURITY IS A GLOBAL SECURITY, THEN INSERT -- (which principal amount may from time to time be increased or decreased to such other principal amounts (which, taken together with the principal amounts of all other Outstanding Securities, shall not exceed $400,000,000 in the aggregate at any time) by adjustments made on the records of the Trustee hereinafter referred to in accordance with the Indenture)] on August 1, 2004 and to pay interest thereon, from August 12, 1997, or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, semi-annually in arrears on February 1 and August 1 in each year (each, an "Interest Payment Date"), commencing February 1, 1998, at the rate of 7% per annum, until the principal hereof is due, and at the rate of 7% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Except as otherwise provided in the Indenture, any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Company, notice whereof shall be given to Holders of Registered Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payments of principal shall be made upon the surrender of this Security at the option of the Holder at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company as may be designated by it for such purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, or at such other offices or agencies as the Company may designate, by United States Dollar check drawn on, or transfer to, a United States Dollar account (such a transfer to be made only to a Holder of an aggregate principal amount of Registered Securities in excess of U.S.$2,000,000, and only if such Holder shall have furnished wire instructions in writing to the Trustee no later than 15 days prior to the relevant payment date) maintained by the payee with a bank in the Borough of Manhattan, The City of New York. Payment of interest on this Security may be made by United States Dollar check drawn on a bank in the Borough of Manhattan, The City of New York mailed to the address of the Person entitled thereto as such address shall appear in the Security Register, or, upon written application by the Holder to the Security Registrar setting forth wire instructions not later than the relevant Record Date, by transfer to a United States Dollar account (such a transfer to be made only to a Holder of an aggregate principal amount of Registered Securities in excess of U.S.$2,000,000 and only if such Holder shall have furnished wire 22 39 instructions in writing to the Trustee no later than 15 days prior to the relevant payment date) maintained by the payee with a bank in the Borough of Manhattan, The City of New York. Except as specifically provided herein and in the Indenture, the Company shall not be required to make any payment with respect to any tax, assessment or other governmental charge imposed by any government or any political subdivision or taxing authority thereof or therein. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof or an Authenticating Agent by the manual signature of one of their respective authorized signatories, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this Security to be duly executed. ALCATEL USA, INC. By: ---------------------------------- Name: Title: [Certificate of Authentication] Dated: [Date of Authentication] 23 40 [FORM OF REVERSE] This Security is one of a duly authorized issue of securities of the Company designated as its "7% Convertible Subordinated Notes due August 1, 2004" (herein called the "Securities"), limited in aggregate principal amount to U.S.$400,000,000, issued and to be issued under an Indenture, dated as of August 12, 1997 (the "Initial Indenture"), as supplemented by the First Supplemental Indenture dated as of September 4, 1998, between the Company and The Bank of New York (the "First Supplemental Indenture") and the Second Supplemental Indenture dated as of April 1, 1999, between the Company, Alcatel and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture) (the "Second Supplemental Indenture", together with the Initial Indenture and the First Supplemental Indenture, the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Indebtedness and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. As provided in the Indenture and subject to certain limitations therein set forth, Registered Securities are exchangeable for a like aggregate principal amount of Registered Securities of any authorized denominations as requested by the Holder surrendering the same upon surrender of the Registered Security or Registered Securities to be exchanged, at the Corporate Trust Office of the Trustee. The Trustee upon such surrender by the Holder will issue the new Registered Securities in the requested denominations. No sinking fund is provided for the Securities. The Securities are subject to redemption at the option of the Company at any time on or after August 1, 2000, in whole or in part, upon not less than 30 nor more than 60 days' notice to the Holders prior to the Redemption Date at the following Redemption Prices (expressed as percentages of the principal amount) for the twelve-month period beginning on August 1 of the following years:
Year Redemption Price ---- ---------------- 2000 104.0% 2001 103.0% 2002 102.0% 2003 101.0%
and thereafter at a Redemption Price equal to 100% of the principal amount, together, in each case, with accrued interest to the Redemption Date; provided, however, that interest installments on Registered Securities whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. 24 41 In the event of a redemption of the Securities, the Company will not be required (a) to register the transfer or exchange of Registered Securities for a period of 15 days immediately preceding the date notice is given identifying the serial numbers of the Securities called for such redemption or (b) to register the transfer or exchange of any Registered Security, or portion thereof, called for redemption. Notice to the Holders will be given not less than 30 nor more than 60 days prior to the Redemption Date as provided in the Indenture. In any case where the due date for the payment of the principal of, premium, if any, interest, or Liquidated Damages on any Security or the last day on which a Holder of a Security has a right to convert his Security shall be, at any Place of Payment or Place of Conversion, as the case may be, a day on which banking institutions at such Place of Payment or Place of Conversion are authorized or obligated by law or executive order to close, then payment of principal, premium, if any, interest, or Liquidated Damages, or delivery for conversion of such Security need not be made on or by such date at such place but may be made on or by the next succeeding day at such place which is not a day on which banking institutions are authorized or obligated by law or executive order to close, with the same force and effect as if made on the date for such payment or the date fixed for redemption or repurchase, or by such last day for conversion, and no interest shall accrue on the amount so payable for the period after such date. Subject to and upon compliance with the provisions of the Indenture, the Holder of this Security is entitled, at his option, at any time on or after 90 days after the last original issue date of the Notes and on or before the close of business on August 1, 2004, or in case this Security or a portion hereof is called for redemption or the Holder hereof has exercised his right to require the Company to repurchase this Security or such portion hereof, then in respect of this Security until and including, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the fifth Trading Pay prior to Redemption Date or the second Trading Day prior to Repurchase Date, as the case may be, to convert this Security (or any portion of the principal amount hereof that is an integral multiple of U.S.$1,000, provided that the unconverted portion of such principal amount is U.S.$1,000 or any integral multiple of U.S.$1,000 in excess thereof) into Alcatel ADSs at an initial Conversion Price of U.S. $61.012 for each Alcatel ADS (or at the current adjusted Conversion Price if an adjustment has been made as provided in the Indenture) by surrender of this Security, duly endorsed or assigned to the Company or in blank and, in case such surrender shall be made during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (except if this Security has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date occurring, in either case, during such period and is surrendered for such conversion during such period), also accompanied by payment in New York Clearing House or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted, and also the conversion notice hereon duly executed, to the Company at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company, subject to any laws or 25 42 regulations applicable thereto and subject to the right of the Company to terminate the appointment of any Conversion Agent (as defined below) as may be designated by it for such purpose in the Borough of Manhattan, The City of New York, or at such other offices or agencies as the Company may designate (each a "Conversion Agent"), provided, further, that if this Security or portion hereof has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date occurring, in either case, during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such succeeding Interest Payment Date and is surrendered for conversion during such period, then the Holder of this Security who converts this Security or a portion hereof during such period will be entitled to receive the interest accruing hereon from the Interest Payment Date next preceding the date of such conversion to such succeeding Interest Payment Date and shall not be required to pay such interest upon surrender of this Security for conversion. Subject to the provisions of the preceding sentence and, in the case of a conversion after the close of business on the Regular Record Date next preceding any Interest Payment Date and on or before the close of business on such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security of record as of such Regular Record Date) to receive the related installment of interest to the extent and under the circumstances provided in the Indenture, no cash payment or adjustment is to be made on conversion for interest accrued hereon from the Interest Payment Date next preceding the day of conversion, or for dividends on the Alcatel ADSs issued on conversion hereof. The Company shall thereafter deliver to the Holder the fixed number of Alcatel ADSs (together with any cash adjustment, as provided in the Indenture) into which this Security is convertible and such delivery will be deemed to satisfy the Company's obligation to pay the principal amount of this Security. No fractions of Alcatel ADSs or scrip representing fractions of Alcatel ADSs will be delivered on conversion, but instead of any fractional interest (calculated to the nearest 1/100th of an Alcatel ADS) the Company shall pay a cash adjustment as provided in the Indenture. The Conversion Price is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations or mergers to which Alcatel is a party or the conveyance, transfer, sale or lease of all or substantially all of the property and assets of Alcatel, the Indenture shall be amended, without the consent of any Holders of Securities, so that this Security, if then Outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of the number of Alcatel ADSs into which this Security could have been converted immediately prior to such consolidation, merger, conveyance, transfer, sale or lease (assuming such holder of Alcatel ADSs is not a Constituent Person, failed to exercise any rights of election and received per Alcatel ADS the kind and amount received per Alcatel ADS by a plurality of Non-electing Alcatel ADSs and further assuming, if such consolidation, merger, conveyance, transfer, sale or lease occurs prior to 90 days following the last original issue date of the Securities, that the Security was convertible at the time of such occurrence at the Conversion Price specified above as adjusted from the issue date of such Security to such time as provided in the Indenture). No adjustment in the Conversion Price will be made until such adjustment would require an increase or decrease of at least one percent of such price, provided that any adjustment that would otherwise be made will be carried forward and taken into account in the computation of any subsequent adjustment. 26 43 Subject to certain limitations in the Indenture, at any time when the Company is not subject to Section 13 or 15(d) of the United States Securities Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted Security or the holder of Alcatel ADSs delivered upon conversion thereof, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder of Restricted Securities or such holder of Alcatel ADSs delivered upon conversion of Restricted Securities, or to a prospective purchaser of any such security designated by any such Holder or holder, as the case may be, to the extent required to permit compliance by such Holder or holder with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), in connection with the resale of any such security. "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto). If this Security is a Registrable Security, then the Holder of this Security [IF THIS SECURITY IS A GLOBAL SECURITY, THEN INSERT-- (including any Person that has a beneficial interest in this Security)] and the Alcatel ADSs deliverable upon conversion hereof is entitled to the benefits of a Registration Rights Agreement, dated as of August 7, 1997 (the "Registration Rights Agreement"), executed by the Company. Pursuant to the Registration Rights Agreement, the Company has agreed for the benefit of the Holders from time to time of Registered Securities and the Alcatel ADSs deliverable upon conversion thereof, in each case, that are Registrable Securities, at the Company's expense, (a) to file within 90 days after the first date of original issuance of the Securities, a shelf registration statement (the "Shelf Registration Statement") with the Commission with respect to resales of the Registrable Securities, (b) thereafter to use reasonable efforts to cause such Shelf Registration Statement to be declared effective by the Commission within 90 days after the filing of such Shelf Registration Statement, and (c) to use reasonable efforts to maintain such Shelf Registration Statement continuously effective under the Securities Act until a period of the two years from the last date of original issuance of the Securities or, if earlier, until (1) there are no outstanding Registrable Securities or (2) when, in the written opinion of independent counsel to the Company, all outstanding Registrable Securities held by persons that are not "affiliates" of the Company (as defined in Rule 144(a)(1) under the Securities Act) may be resold without registration under the Securities Act pursuant to Rule 144(k) under the Securities Act (or any successor provision thereto) and the Company has removed all legends from the Registrable Securities restricting the transfer thereof (other than any Registrable Security held by an affiliate). If (i) on or prior to 90 days following the date of original issuance of the Registered Securities, a Shelf Registration Statement has not been filed with the Commission, or (ii) on or prior to the 90th day following such filing, such Shelf Registration Statement is not declared effective (each, a "Registration Default"), additional interest ("Liquidated Damages") will accrue on this Security from and including the day following such Registration Default to but excluding the day on which such Registration Default has been cured. Liquidated Damages will be paid semi-annually in arrears, with the first semi-annual payment due on the first interest payment date in respect of the Registered Securities following the date on which such Liquidated Damages begin to accrue, and will accrue at a 27 44 rate per annum equal to an additional one-quarter of one percent (.25%) of the principal amount of the Registered Securities to and including the 90th day following such Registration Default and at a rate per annum equal to one-half of one percent (.50%) thereof from and after the 91st day following such Registration Default. In the event that the Shelf Registration Statement ceases to be effective (or the Holders are otherwise prevented or restricted by the Company from effecting sales pursuant thereto) prior to the third annual anniversary of the initial effective date of the Shelf Registration Statement or such earlier date as is provided in the Registration Rights Agreement for a period in excess of 60 days, whether or not consecutive, during any 12-month period (an "Effectiveness Failure"), then the interest rate borne by the Registered Securities shall increase by an additional one-half of one percent (.50%) per annum from the 61st day of the applicable 12-month period such Shelf Registration Statement ceases to be effective (or the Holders are otherwise prevented or restricted by the Company from effecting sales pursuant thereto) to but excluding the day on which the Effectiveness Failure is cured. For purposes of determining an Effectiveness Failure, days on which the Company has been obligated to pay Liquidated Damages in respect of a prior Effectiveness Failure within the applicable 12 month period will not be included. Whenever in this Security there is a reference, in any context, to the payment of the principal of, premium, if any, or interest on, or in respect of, any Security such mention shall be deemed to include mention of the payment of Liquidated Damages payable as described in the preceding paragraph to the extent that, in such context, Liquidated Damages are, were or would be payable in respect of this Security pursuant to such paragraph, and an express mention of the payment of Liquidated Damages (if applicable) in any provisions of this Security shall not be construed as excluding Liquidated Damages in those provisions of this Security where such express mention is not made. [If this Security is a Registrable Security and the Holder of this Security [IF THIS SECURITY IS A GLOBAL SECURITY, THEN INSERT-- (including any Person that has a beneficial interest in this Security)] elects to sell this Security pursuant to the Shelf Registration Statement then, by its acceptance hereof, such Holder of this Security agrees to be bound by the terms of the Registration Rights Agreement relating to the Registrable Securities which are the subject of such election.] If a Change in Control occurs, the Holder of this Security, at the Holder's option, shall have the right, in accordance with the provisions of the Indenture, to require the Company to repurchase this Security (or any portion of the principal amount hereof that is an integral multiple of $1,000, provided that the portion of the principal amount of this Security to be Outstanding after such repurchase is at least equal to U.S.$5,000) for cash at a Repurchase Price equal to 100% of the principal amount thereof plus interest accrued to the Repurchase Date. At the option of the Company, the Repurchase Price may be paid in cash or, subject to the conditions provided in the Indenture, by delivery of Alcatel ADSs having a fair market value equal to the Repurchase Price. For purposes of this paragraph, the fair market value of Alcatel ADSs shall be determined by the Company and shall be equal to 95% of the average of the Closing Prices Per Alcatel ADS for the five consecutive Trading Days ending on the third Trading Day immediately preceding the Repurchase Date. Whenever in this Security 28 45 there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Security shall not be construed as excluding the Repurchase Price so payable in those provisions of this Security when such express mention is not made; provided, however, that, for the purposes of the second succeeding paragraph, such reference shall be deemed to include reference to the Repurchase Price only to the extent the Repurchase Price is payable in cash. [THE FOLLOWING PARAGRAPH SHALL APPEAR IN EACH REGISTERED SECURITY THAT IS NOT A GLOBAL SECURITY: In the event of redemption, repurchase or conversion of this Security in part only, a new Registered Security or Registered Securities for the unredeemed, unrepurchased or unconverted portion hereof will be issued in the name of the Holder hereof.] [THE FOLLOWING PARAGRAPH SHALL APPEAR IN EACH GLOBAL SECURITY: In the event of a deposit or withdrawal of an interest in this Security, including an exchange, transfer, redemption, repurchase or conversion of this Security in part only, the Trustee, as custodian of the Depositary, shall make an adjustment on its records to reflect such deposit or withdrawal in accordance with the Applicable Procedures.] The indebtedness evidenced by this Security is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company, and this Security is issued subject to such provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. If an Event of Default shall occur and be continuing, the principal of all the Securities, together with accrued interest to the date of declaration, may be declared due and payable in the manner and with the effect provided in the Indenture. Upon payment (i) of the amount of principal so declared due and payable, together with accrued interest to the date of declaration, and (ii) of interest on any overdue principal and, to the extent permitted by applicable law, overdue interest, all of the Company's obligations in respect of the payment of the principal of and interest on the Securities shall terminate. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with either (a) the written consent of the Holders of a majority in principal amount of the Securities at the time Outstanding, or (b) by the adoption of a resolution, at a meeting of 29 46 Holders of the Outstanding Securities at which a quorum is present, by the Holders of (i) 66-2/3% in aggregate principal amount of the Outstanding Securities represented and entitled to vote at such meeting or (ii) a majority in principal amount of the Outstanding Securities. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security or such other Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default, the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of the Securities Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof, premium, if any, or interest hereon (including Liquidated Damages or additional interest) on or after the respective due dates expressed herein or for the enforcement of the right to convert this Security as provided in the Indenture. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on (including Liquidated Damages and additional interest) this Security at the times, places and rate, and in the coin or currency, herein prescribed or to convert this Security as provided in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of Registered Securities is registrable on the Security Register upon surrender of a Registered Security for registration of transfer at the Corporate Trust Office of the Trustee or at such other office or agency of the Company as may be designated by it for such purpose in the Borough of Manhattan, The City of New York, or at such other offices or agencies as the Company may designate, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing, and thereupon one or more new Registered Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees by the Registrar. No service charge shall be made for any such registration of transfer or exchange, but the Company may 30 47 require payment of a sum sufficient to recover any tax or other governmental charge payable in connection therewith. Prior to due presentation of a Registered Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Registered Security is registered, as the owner thereof for all purposes, whether or not such Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 31 48 ELECTION OF HOLDER TO REQUIRE REPURCHASE 1. Pursuant to Section 14.1 of the Indenture, the undersigned hereby elects to have this Security repurchased by the Company. 2. The undersigned hereby directs the Trustee or the Company to pay it or __________________ an amount in cash or, at the Company's election, Alcatel ADSs valued as set forth in the Indenture, equal to 100% of the principal amount to be repurchased (as set forth below), plus interest accrued to the Repurchase Date, as provided in the Indenture. Dated: --------------------------------------- --------------------------------------- Signature --------------------------------------- Signature Guaranteed Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the [Registrar], which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the [Registrar] in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. Principal amount to be repurchased (an integral multiple of U.S.$1,000): ______________________ Remaining principal amount following such repurchase (not less than U.S.$5,000): ______________________ NOTICE: The signature to the foregoing Election must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. 32 49 SECTION 2.3. Form of Certificate of Authentication. The Trustee's certificates of authentication shall be in substantially the following form: This is one of the Securities referred to in the within-mentioned Indenture. The Bank of New York as Trustee By: ______________________________________ Authorized Signature Dated: _________________________ SECTION 2.4. Form of Conversion Notice. CONVERSION NOTICE The undersigned Holder of this Security hereby irrevocably exercises the option to convert this Security, or any portion of the principal amount hereof (which is an integral multiple of U.S.$1,000, provided that the unconverted portion of such principal amount is U.S.$1,000 or any integral multiple of U.S.$1,000 in excess thereof) below designated, into Alcatel ADSs in accordance with the terms of the Indenture referred to in this Security, and directs that such Alcatel ADSs, together with a check in payment for any fractional Alcatel ADS and any Securities representing any unconverted principal amount hereof, be delivered to and be registered in the name of the undersigned unless a different name has been indicated below. If Alcatel ADSs or Securities are to be registered in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of interest accompanies this Security. Dated: _________________________ _________________________ Signature 33 50 If Alcatel ADSs or Registered Securities If only a portion of the Securities is to be are to be registered in the name of a Person converted, please indicate: other than the Holder, please print such Person's name and address: 1. Principal amount to be converted: U.S.$ ___________ ____________________________ Name 2. Principal amount and denomination of Registered Securities representing unconverted principal amount ____________________________ to be issued: Address Amount: U.S.$________ ____________________________ Denominations: Social Security or other U.S.$______ Taxpayer Identification Number, if any (any integral multiple of U.S.$1,000, provided that the unconverted portion of such principal amount is U.S. $1,000 or any integral multiple of U.S.$1,000 in excess thereof) __________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the [Registrar], which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the [Registrar] in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 34 51 ARTICLE THREE THE SECURITIES SECTION 3.1. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to U.S.$400,000,000, except for Securities authenticated and delivered in exchange for, or in lieu of, other Securities pursuant to Section 3.4, 3.5, 3.6, 8.5, 11.8, 12.2 or 14.3(f). The Securities shall be known and designated as the "7% Convertible Subordinated Notes due August 1, 2004" of the Company. Their Stated Maturity shall be August 1, 2004 and they shall bear interest on their principal amount from August 12, 1997, payable semi-annually in arrears on February 1 and August 1 in each year, commencing February 1, 1998, at the rate of 7% per annum until the principal thereof is due and at the rate of 7% per annum on any overdue principal and, to the extent permitted by law, on any overdue interest; provided, however, that payments shall only be made on Business Days as provided in Section 1.12. The principal of, premium, if any, and interest on the Securities shall be payable as provided in the form of Securities set forth in Section 2.2, and the Repurchase Price, whether payable in cash or in Alcatel ADSs, shall be payable at such places as are identified in the Company Notice given pursuant to Section 14.3 (any city in which any Paying Agent is located being herein called a "Place of Payment"). The Registrable Securities are entitled to the benefits of a Registration Rights Agreement as provided by Sections 2.2 and 10.12. The Securities are entitled to the payment of Liquidated Damages and additional interest as provided by Section 10.12. The Securities shall be redeemable at the option of the Company at any time on or after August 1, 2000, in whole or in part, as provided in Article Eleven and in the form of Securities set forth in Section 2.2. The Securities shall be convertible as provided in Article Twelve (any city in which any Conversion Agent is located being herein called a "Place of Conversion"). The Securities shall be subordinated in right of payment to Senior Indebtedness of the Company as provided in Article Thirteen. The Securities shall be subject to repurchase by the Company at the option of the Holders as provided in Article Fourteen. SECTION 3.2. Denominations. 35 52 The Securities shall be issuable only in registered form, without coupons, in denominations of U.S.$1,000 and integral multiples of U.S.$1,000 in excess thereof. SECTION 3.3. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its President, its Chief Financial Officer or one of its Vice Presidents. Any such signature may be manual or facsimile. Securities bearing the manual or facsimile signature of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee or to its order for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and make available for delivery such Securities as in this Indenture provided and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. SECTION 3.4. Global Securities. (a) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated by the Company for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (b) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (i) such Depositary (A) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (B) has ceased to be a clearing agency registered as such under the Exchange Act or announces an intention permanently to cease business or does in fact do so or (ii) there shall have occurred and be continuing an Event of Default with respect to such Global Security. 36 53 (c) If any Global Security is to be exchanged for other Securities or canceled in whole, it shall be surrendered by or on behalf of the Depositary or its nominee to the Trustee, as Security Registrar, for exchange or cancellation, as provided in this Article Three. If any Global Security is to be exchanged for other Securities or canceled in part, or if another Security is to be exchanged in whole or in part for a beneficial interest in any Global Security, in each case, as provided in Section 3.5, then either (i) such Global Security shall be so surrendered for exchange or cancellation, as provided in this Article Three, or (ii) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or canceled, or equal to the principal amount of such other Security to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate adjustment made on the records of the Trustee, as Security Registrar, whereupon the Trustee, in accordance with the Applicable Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon any such surrender or adjustment of a Global Security, the Trustee shall, subject to Section 3.5(c) and as otherwise provided in this Article Three, authenticate and deliver any Securities issuable in exchange for such Global Security (or any portion thereof) to or upon the order of, and registered in such names as may be directed by, the Depositary or its authorized representative. Upon the request of the Trustee in connection with the occurrence of any of the events specified in the preceding paragraph, the Company shall promptly make available to the Trustee a reasonable supply of Securities that are not in the form of Global Securities. The Trustee shall be entitled to rely upon any order, direction or request of the Depositary or its authorized representative which is given or made pursuant to this Article Three if such order, direction or request is given or made in accordance with the Applicable Procedures. (d) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Article Three or otherwise, shall be authenticated and delivered in the form of, and shall be, a registered Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof, in which case such Registered Security shall be authenticated and delivered in definitive, fully registered form, without interest coupons. (e) The Depositary or its nominee, as registered owner of a Global Security, shall be the Holder of such Global Security for all purposes under the Indenture and the Registered Securities, and owners of beneficial interests in a Global Security shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner's beneficial interest in a Global Security will be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Agent Members and such owners of beneficial interests in a Global Security will not be considered the owners or holders thereof. SECTION 3.5. Registration, Registration of Transfer and Exchange; Restrictions on Transfer. 37 54 (a) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 10.2 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Registered Securities and of transfers of Registered Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Registered Securities and transfers and exchanges of Registered Securities as herein provided. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.2 for such purpose, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. At the option of the Holder, and subject to the other provisions of this Section 3.5, Securities may be exchanged for other Securities of any authorized denomination and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at any such office or agency. Whenever any Securities are so surrendered for exchange, and subject to the other provisions of this Section 3.5, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and subject to the other provisions of this Section 3.5, entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. No service charge shall be made for any registration of transfer or exchange of Securities except as provided in Section 3.6, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 8.5, 11.8, 12.2 or 14.3 (other than where Alcatel ADSs are to be delivered in a name other than that of the Holder of the Security) not involving any transfer and other than any stamp and other duties, if any, which may be imposed in connection with any such transfer or exchange by the United States or any political subdivision thereof or therein, which shall be paid by the Company. In the event of a redemption of the Securities, the Company will not be required (a) to register the transfer of or exchange Securities for a period of 15 days immediately preceding the date notice is given identifying the serial numbers of the Securities called for such 38 55 redemption or (b) to register the transfer of or exchange any Security, or portion thereof, called for redemption. (b) Certain Transfers and Exchanges. Notwithstanding any other provision of this Indenture or the Securities, transfers and exchanges of Securities and beneficial interests in a Global Security of the kinds specified in this Section 3.5(b) shall be made only in accordance with this Section 3.5(b). (i) Restricted Global Security to Regulation S Global Security. If the owner of a beneficial interest in the Restricted Global Security wishes at any time to transfer such interest to a Person who wishes to acquire the same in the form of a beneficial interest in the Regulation S Global Security, such transfer may be effected only in accordance with the provisions of this Clause (b)(i) and Clause (b)(v) below and subject to the Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) an order given by the Depositary or its authorized representative directing that a beneficial interest in the Regulation S Global Security in a specified principal amount be credited to a specified Agent Member's account and that a beneficial interest in the Restricted Global Security in an equal principal amount be debited from another specified Agent Member's account and (B) a Regulation S Certificate, satisfactory to the Trustee and duly executed by the owner of such beneficial interest in the Restricted Global Security or his attorney duly authorized in writing, then the Trustee, as Security Registrar but subject to Clause (b)(v) below, shall reduce the principal amount of the Restricted Global Security and increase the principal amount of the Regulation S Global Security by such specified principal amount as provided in Section 3.4(A)(c). (ii) Regulation S Global Security to Restricted Global Security. If the owner of a beneficial interest in the Regulation S Global Security wishes at any time to transfer such interest to a Person who wishes to acquire the same in the form of a beneficial interest in the Restricted Global Security, such transfer may be effected only in accordance with this Clause (b)(ii) and subject to the Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) an order given by the depositary or its authorized representative directing that a beneficial interest in the Restricted Global Security in a specified principal amount be credited to a specified Agent Member's account and that a beneficial interest in the Regulation S Global Security in an equal principal amount be debited from another specified Agent Member's account and (B) if such transfer is to occur during the Restricted Period, a Restricted Securities Certificate, satisfactory to the Trustee and duly executed by the owner of such beneficial interest in the Regulation S Global Security or his attorney duly authorized in writing, then the Trustee, as Security Registrar, shall reduce the principal amount of the Regulation S Global Security and increase the principal amount of the Restricted Global Security by such specified principal amount as provided in Section 3.4(A)(c). (iii) Restricted Non-Global Security to Restricted Global Security or Regulation S Global Security. If the Holder of a Restricted Security (other than a Global Security) wishes at any time to transfer all or any portion of such Restricted Security to a Person who wishes to take delivery thereof in the form of a beneficial interest in the Restricted Global Security or the Regulation S Global Security, such transfer may be effected only in accordance with the 39 56 provisions of this Clause (b)(iii) and Clause (b)(v) below and subject to the Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) such Restricted Security as provided in Section 3.5(a) and instructions satisfactory to the Trustee directing that a beneficial interest in the Restricted Global Security or Regulation S Global Security in a specified principal amount not greater than the principal amount of such Security be credited to a specified Agent Member's account and (B) a Restricted Securities Certificate, if the specified account is to be credited with a beneficial interest in the Restricted Global Security, or a Regulation S Certificate, if the specified account is to be credited with a beneficial interest in the Regulation S Global Security, in either case satisfactory to theTrustee and duly executed by such Holder or his attorney duly authorized in writing, then the Trustee, as Security Registrar but subject to Clause (b)(v) below, shall cancel such Restricted Security (and issue a new Restricted Security in respect of any untransferred portion thereof) as provided in Section 3.5(a) and increase the principal amount of the Restricted Global Security or the Regulation S Global Security, as the case may be, by the specified principal amount as provided in Section 3.4(c). (iv) Exchanges between Global Security and Non-Global Security. A beneficial interest in a Global Security may be exchanged for a Security that is not a Global Security as provided in Section 3.4, provided that, if such interest is a beneficial interest in the Restricted Global Security, or if such interest is a beneficial interest in the Regulation S Global Security and such exchange is to occur during the Restricted Period, then such interest shall be exchanged for a Restricted Security (subject in each case to Section 3.5(c)). A Security that is not a Global Security may be exchanged for a beneficial interest in a Global Security only if (A) such exchange occurs in connection with a transfer effected in accordance with Clause (b)(iii) above. (v) Regulation S Global Security to be Held Through Euroclear or CEDEL during Restricted Period. The Company shall use its best efforts to cause the Depositary to ensure that, until the expiration of the Restricted Period, beneficial interests in the Regulation S Global Security may be held only in or through accounts maintained at the Depositary by Euroclear or CEDEL (or by Agent Members acting for the account thereof), and no person shall be entitled to effect any transfer or exchange that would result in any such interest being held otherwise than in or through such an account; provided that this Clause (b)(v) shall not prohibit any transfer or exchange of such an interest in accordance with Clause (b)(ii) or (iv) above. (c) Securities Act Legends. Rule 144A Securities, Regulation D Securities and their respective Successor Securities shall bear the applicable Restricted Securities Legend, and the Regulation S Securities and their Successor Securities shall bear a Regulation S Legend, subject to the following: (i) subject to the following Clauses of this Section 3.5(c), a Security or any portion thereof which is exchanged, upon transfer or otherwise, for a Global Security or any portion thereof shall bear the Securities Act Legend borne by such Global Security while represented thereby; 40 57 (ii) subject to the following Clauses of this Section 3.5(c), a new Security which is not a Global Security and is issued in exchange for another Security (including a Global Security) or any portion thereof, upon transfer or otherwise, shall bear the Securities Act Legend borne by such other Security, provided that, if such new Security is required pursuant to Section 3.5(b)(iv) to be issued in the form of a Restricted Security, it shall bear a Restricted Securities Legend and, if such new Security is so required to be issued in the form of a Regulation S Security, it shall bear a Regulation S Legend; (iii) any Securities which are sold or otherwise disposed of pursuant to an effective registration statement under the Securities Act (including the Shelf Registration Statement), together with their Successor Securities shall not bear a Securities Act Legend; the Company shall inform the Trustee in writing of the effective date of any such registration statement registering the Securities under the Securities Act and shall notify the Trustee at any time when prospectuses may not be delivered with respect to Securities to be sold pursuant to such registration statement. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the aforementioned registration statement; (iv) at any time after the Securities may be freely transferred without registration under the Securities Act or without being subject to transfer restrictions pursuant to the Securities Act, a new Security which does not bear a Securities Act Legend may be issued in exchange for or in lieu of a Security (other than a Global Security) or any portion thereof which bears such a legend if the Trustee has received an Unrestricted Securities Certificate, satisfactory to the Trustee and duly executed by the Holder of such legended Security or his attorney duly authorized in writing, and after such date and receipt of such certificate, the Trustee shall authenticate and deliver such a new Security in exchange for or in lieu of such other Security as provided in this Article Three; (v) a new Security which does not bear a Securities Act Legend may be issued in exchange for or in lieu of a Security (other than a Global Security) or any portion thereof which bears such a legend if, in the Company's judgment, placing such a legend upon such new Security is not necessary to ensure compliance with the registration requirements of the Securities Act, and the Trustee, at the direction of the Company, shall authenticate and deliver such a new Security as provided in this Article Three; and (vi) notwithstanding the foregoing provisions of this Section 3.5(c), a Successor Security of a Security that does not bear a particular form of Securities Act Legend shall not bear such form of legend unless the Company has reasonable cause to believe that such Successor Security is a "restricted security" within the meaning of Rule 144, in which case the Trustee, at the direction of the Company, shall authenticate and deliver a new Security bearing a Restricted Securities Legend in exchange for such Successor Security as provided in this Article Three. (d) Neither the Trustee, the Paying Agent nor any of their agents shall (1) have any duty to monitor compliance with or with respect to any federal or state or other securities or tax laws or (2) have any duty to obtain documentation on any transfers or exchanges other than as specifically required hereunder. 41 58 SECTION 3.6. Mutilated, Destroyed, Lost or Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there be delivered to the Company and to the Trustee: (1) evidence to their satisfaction of the destruction, loss or theft of any Security, and (2) such security or indemnity as may be satisfactory to the Company and the Trustee to save each of them and any agent of either of them harmless, then, in the absence of actual notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion, but subject to any conversion rights, may, instead of issuing a new Security, pay such Security, upon satisfaction of the conditions set forth in the preceding paragraph. Upon the issuance of any new Security under this Section 3.6, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto (other than any stamp and other duties, if any, which may be imposed in connection therewith by the United States or any political subdivision thereof or therein, which shall be paid by the Company) and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section 3.6 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and such new Security shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 3.6 are exclusive and shall preclude (to the extent lawful) all other rights and remedies of any Holder with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.7. Payment of Interest; Interest Rights Preserved. 42 59 Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security, the date of the proposed payment and the Special Record Date, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. The Special Record Date for the payment of such Defaulted Interest shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at such Holder's address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section and Section 3.5, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. 43 60 Interest on any Security which is converted in accordance with Section 12.2 during a Record Date Period shall be payable in accordance with the provisions of Section 12.2. SECTION 3.8. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 3.7) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.9. Cancellation. All Securities surrendered for payment, redemption, repurchase, registration of transfer or exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee. All Securities so delivered to the Trustee shall be canceled promptly by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section 3.9. The Trustee shall return all canceled Securities to the Company. SECTION 3.10. Computation of Interest. Interest on the Securities (including any Liquidated Damages and additional interest) shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 3.11. [Reserved]. SECTION 3.12. CUSIP Numbers. The Company in issuing Securities may use "CUSIP" numbers (if then generally in use) in addition to serial numbers, in which case the Trustee shall use such CUSIP numbers in addition to serial numbers in notices of redemption and repurchase as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such CUSIP numbers either as printed on the Securities or as contained in any notice of a redemption or repurchase and that reliance may be placed only on the serial or other identification numbers printed on the Securities, and any such redemption or repurchase shall not be affected by any defect in or omission of such CUSIP numbers. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 4.1. Satisfaction and Discharge of Indenture. 44 61 This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of conversion, or registration of transfer or exchange, or replacement of Securities herein expressly provided for and any right to receive Liquidated Damages as provided in the form of Securities set forth in Section 2.2 and the Company's obligations to the Trustee pursuant to Section 6.7), and the Trustee, at the expense of the Company, shall execute proper instruments in form and substance satisfactory to the Trustee acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee or its agent for cancellation (other than Securities referred to in clauses (i) and (ii) of clause (1)(A) above) (i) have become due and payable, or (ii) will have become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of clause (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds (immediately available to the Holders in the case of clause (i) in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal, premium, if any, and interest (including any Liquidated Damages) to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7, the obligations of the Company to any Authenticating Agent under Section 6.12, the obligation of the Company to pay Liquidated Damages, if money shall have been deposited with the Trustee pursuant to clause (1)(B) of this Section 4.1, the obligations of the Trustee under Section 4.2 and the last paragraph of 45 62 Section 10.3 and the obligations of the Company and the Trustee under Section 3.5 and Article Twelve shall survive. Funds held in trust pursuant to this Section are not subject to the provisions of Article Thirteen. SECTION 4.2. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), to the Persons entitled thereto, of the principal, premium, if any, and interest for whose payment such money has been deposited with the Trustee. All monies deposited with the Trustee pursuant to Section 4.1 (and held by it or any Paying Agent) for the payment of Securities subsequently converted shall be returned to the Company upon Company Request. ARTICLE FIVE REMEDIES SECTION 5.1. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article Thirteen or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of the principal of or premium, if any, on any Security at its Maturity; or (2) default in the payment of any interest (including any Liquidated Damages) upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days; or (3) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in the performance or breach of which is specifically dealt with elsewhere in this Section), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or 46 63 (4) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company with a principal amount then outstanding in excess of U.S.$20,000,000, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 30 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Securities a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such default to be cured or waived or such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; or (5) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (6) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or similar relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action. SECTION 5.2. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.1(5) or 5.1(6)) occurs and is continuing, then in every such case the Trustee or the Holders of not less 47 64 than 25% in principal amount of the Outstanding Securities may, subject to the provisions of Article Thirteen, declare the principal of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable. If an Event of Default specified in Section 5.1(5) or 5.1(6) occurs, the principal of, and accrued interest on, all the Securities shall, subject to the provisions of Article Thirteen, ipso facto become immediately due and payable without any declaration or other Act of the Holder or any act on the part of the Trustee. At any time after such declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article Five provided, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Securities, (B) the principal of and premium, if any, on any Securities which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate borne by the Securities, (C) to the extent permitted by applicable law, interest upon overdue interest at a rate of 7% per annum, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the nonpayment of the principal of, and any premium and interest on, Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No rescission or annulment referred to above shall affect any subsequent default or impair any right consequent thereon. SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest (including any Liquidated Damages) on any Security when it becomes due and payable and such default continues for a period of 30 days, or 48 65 (2) default is made in the payment of the principal of or premium, if any, on any Security at the Maturity thereof, the Company will, upon demand of the Trustee but subject to the provisions of Article Thirteen, pay to it, for the benefit of the Holders of such Securities the whole amount then due and payable on such Securities for principal and interest (including any Liquidated Damages) and interest on any overdue principal and premium, if any, and, to the extent permitted by applicable law, on any overdue interest (including any Liquidated Damages), at a rate of 7% per annum, and in addition thereto, such further amount as shall be sufficient to cover the reasonable costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.4. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or the creditors of either, the Trustee (irrespective of whether the principal of, and any interest on, the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (1) to file and prove a claim for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Securities and take such other actions, including participating as a member, voting or otherwise, of any official committee of creditors appointed in such matter, and to file such other papers or documents, in each of the foregoing cases, as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the 49 66 Trustee, its agents and counsel) and of the Holders of Securities allowed in such judicial proceeding, and (2) to collect and receive any monies or other property payable or deliverable on any such claim and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder of Securities to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder of a Security in any such proceeding; provided, however, that the Trustee may, on behalf of such Holders, vote for the election of a trustee in bankruptcy or similar official. SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which judgment has been recovered. SECTION 5.6. Application of Money Collected. Subject to Article Thirteen, any money collected by the Trustee pursuant to this Article Five shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium, if any, or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.7; SECOND: To the payment of the amounts then due and unpaid for principal of, premium, if any, or interest on, the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal, premium, if any, and interest, respectively; and THIRD: Any remaining amounts shall be repaid to the Company. 50 67 SECTION 5.7. Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert. Notwithstanding any other provision in this Indenture, but subject to the provisions of Article Thirteen, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of, premium, if any, and (subject to Section 3.7) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on the Redemption Date or Repurchase Date, as the case may be), and to convert such Security in accordance with Article Twelve, and to institute suit for the enforcement of any such payment and right to convert, and such rights shall not be impaired without the consent of such Holder. SECTION 5.9. Restoration of Rights and Remedies. If the Trustee or any Holder of a Security has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, 51 68 the Trustee and the Holders of Securities shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and such Holders shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article Five or by law to the Trustee or to the Holders of Securities may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or (subject to the limitations contained in this Indenture) by the Holders of Securities as the case may be. SECTION 5.12. Control by Holders of Securities. The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.13. Waiver of Past Defaults. The Holders, either (a) through the written consent of not less than a majority in principal amount of the Outstanding Securities, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of (i) at least 66-2/3% in principal amount of the Outstanding Securities represented at such meeting or (ii) a majority in principal amount of the Outstanding Securities, may on 52 69 behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of, premium, if any, or interest on any Security (including any Liquidated Damages), or (2) in respect of a covenant or provision hereof which under Article Eight cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.14 shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder of any Security for the enforcement of the payment of the principal of, premium, if any, or interest on any Security on or after the respective Stated Maturity or Maturities expressed in such Security (or, in the case of redemption or repurchase, on or after the Redemption Date or Repurchase Date, as the case may be) or for the enforcement of the right to convert any Security in accordance with Article Twelve. SECTION 5.15. Waiver of Stay, Usury or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, usury or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede by reason of such law the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. The Company acknowledges and agrees that the Liquidated Damages and the other additional interest contemplated by Section 10.12 are a reasonable estimate of the economic harm that would be suffered by Holders of Securities as a result of the Company's failure to comply with its obligations as set forth in The Registration Rights Agreement and do not constitute a penalty. The Company further agrees, to the extent permitted by law, to waive, and not assert, any claim that the Liquidated Damages or other additional interest is a penalty. 53 70 ARTICLE SIX THE TRUSTEE SECTION 6.1. Certain Duties and Responsibilities. (a) The duties and responsibilities of the Trustee shall be as provided by this Indenture and the Trust Indenture Act. (b) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture, but not to verify the contents thereof. (c) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (d) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that (1) this paragraph (d) shall not be construed to limit the effect of paragraph (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and 54 71 (4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 6.2. Notice of Defaults. Within 90 days after the occurrence of any default hereunder as to which the Trustee has received written notice, the Trustee shall give to all Holders of Securities, in the manner provided in Section 1.6, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders; and provided, further, that in the case of any default of the character specified in Section 5.1(3), no such notice to Holders of Securities shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 6.3. Certain Rights of Trustee. Subject to the provisions of Section 6.1: (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in 55 72 respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document, but the Trustee may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the permissive right of the Trustee to take or refrain from taking any actions enumerated in this Indenture shall not be construed as a duty and the Trustee shall not be answerable in such actions other than for its own negligence or willful misconduct; and (9) the Trustee shall not be liable for any action taken, suffered or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture. SECTION 6.4. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities (except the Trustee's certificates of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture, of the Securities or of the Alcatel ADSs deliverable upon the conversion of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.5. May Hold Securities, Act as Trustee Under Other Indentures. The Trustee, any Authenticating Agent, any Paying Agent, any Conversion Agent or any other agent of the Company or the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Conversion Agent or such other agent. 56 73 The Trustee may become and act as trustee under other indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding in the same manner as if it were not Trustee hereunder. SECTION 6.6. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 6.7. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee (and its directors, officers, employees and agents) for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs, expenses and reasonable attorneys' fees of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(5) or Section 5.1(6), the expenses (including the reasonable charges of its counsel) and the compensation for the services are intended to constitute expenses of the administration under any applicable Federal or state bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the termination of this Indenture or the earlier resignation or removal of the Trustee. SECTION 6.8. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such, having a combined capital and surplus of at least U.S.$10,000,000 in the case of the initial Trustee hereunder and US$50,000,000 in the 57 74 case of any successor Trustee, subject to supervision or examination by federal or state authority, in good standing and having an established place of business in the Borough of Manhattan, The City of New York. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article and a successor shall be appointed pursuant to Section 6.9. SECTION 6.9. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.10. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and the Company. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the removed Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (d) If at any time: (1) the Trustee shall cease to be eligible under Section 6.8 and shall fail to resign after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 5.14, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board 58 75 Resolution, shall promptly appoint a successor Trustee and shall comply with the applicable requirements of this Section and Section 6.10. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.10, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner required by this Section and Section 6.10, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders of Securities in the manner provided in Section 1.6. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 6.10. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be eligible under this Article. SECTION 6.11. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee 59 76 then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.12. Authenticating Agents. The Trustee may, with the consent of the Company, appoint an Authenticating Agent or Agents acceptable to the Company with respect to the Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon exchange or substitution pursuant to this Indenture. Securities authenticated by an Authenticating Agent shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder, and every reference in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be subject to acceptance by the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent and subject to supervision or examination by government or other fiscal authority. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.12, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section 6.12. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section 6.12, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.12, the Trustee may appoint a successor Authenticating Agent which shall be subject to acceptance by the Company. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section 6.12. 60 77 The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 6.12. If an Authenticating Agent is appointed with respect to the Securities pursuant to this Section 6.12, the Securities may have endorsed thereon, in addition to or in lieu of the Trustee's certification of authentication, an alternative certificate of authentication in the following form: This is one of the Securities referred to in the within-mentioned Indenture. The Bank of New York, as Trustee By [Authenticating Agent], as Authenticating Agent By ______________________________________ Authorized Signature Dated: __________________________________ SECTION 6.13. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.14. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). ARTICLE SEVEN CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE 61 78 SECTION 7.1. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease all its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease all or substantially all of its properties and assets to the Company, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged, or the Person which acquires by conveyance or transfer, or which leases the properties and assets of the Company substantially as an entirety, shall be a corporation, limited liability company, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of, premium, if any, and interest (including Liquidated Damages, if any, payable pursuant to Section 10.12) on all of the Securities as applicable, and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Article Twelve; (2) immediately after giving effect to such transaction, no Event of Default, and no event that after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with, together with any documents required under Section 8.3. SECTION 7.2. Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into any other Person or any conveyance, transfer or lease of all or substantially all the properties and assets of the Company in accordance with Section 7.1, the successor Person formed by such consolidation or into or with which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE EIGHT 62 79 SUPPLEMENTAL INDENTURES SECTION 8.1. Supplemental Indentures Without Consent of Holders of Securities. Without the consent of any Holders of Securities the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants and obligations of the Company herein and in the Securities as permitted by this Indenture; or (2) to add to the covenants of the Company for the benefit of the Holders of Securities or to surrender any right or power herein conferred upon the Company; or (3) to secure the Securities; or (4) to make provision with respect to the conversion rights of Holders of Securities pursuant to Section 12.11; or (5) to make any changes or modifications to this Indenture necessary in connection with the registration of any Registrable Securities under the Securities Act as contemplated by Section 10.12, provided, such action pursuant to this clause (5) shall not adversely affect the interests of the Holders of Securities; or (6) to comply with the requirements of the Trust Indenture Act or the rules and regulations of the Commission thereunder in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act, as contemplated by this Indenture or otherwise; or (7) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee; or (8) to make any change in Article Thirteen that would limit or terminate the benefits available to any holder of Senior Indebtedness under such Article; or (9) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein or which is otherwise defective, or to make any other provisions with respect to matters or questions arising under this Indenture as the Company and the Trustee may deem necessary or desirable, provided such action pursuant to this clause (9) shall not adversely affect the interests of the Holders of Securities in any material respect. Upon Company Request, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and subject to and upon receipt by the Trustee 63 80 of the documents described in Section 8.3 hereof, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained. SECTION 8.2. Supplemental Indentures With Consent of Holders of Securities. With either (a) the written consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by the Act of said Holders delivered to the Company and the Trustee, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of (i) 66-2/3% in principal amount of the outstanding Securities represented at such meeting or (ii) a majority in principal amount of the Outstanding Securities, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities under this Indenture; provided, however, that no such supplemental indenture shall, without the consent or affirmative vote of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount or the rate of interest payable thereon or any premium payable upon redemption or mandatory repurchase thereof, or change the obligation of the Company to pay Liquidated Damages pursuant to Section 10.12 in a manner adverse to the Holders, or change the coin or currency in which any Security or the interest or any premium thereon or any other amount in respect thereof is payable, or impair the right to institute suit for the enforcement of any payment in respect of any Security on or after the Stated Maturity thereof (or, in the case of redemption or any repurchase, on or after the Redemption Date or Repurchase Date, as the case may be) or, except as permitted by Section 12.11, adversely affect the right to convert any Security as provided in Article Twelve, or modify the provisions of this Indenture with respect to the subordination of the Securities in a manner adverse to the Holders of Securities; or (2) reduce the requirements of Section 9.4 for quorum or voting, or reduce the percentage in principal amount of the Outstanding Securities the consent of whose Holders is required for any such supplemental indenture or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture; or (3) modify the obligation of the Company to maintain an office or agency in the Borough of Manhattan, The City of New York, pursuant to Section 10.2; or (4) modify any of the provisions of this Section or Section 5.13 or 10.13, except to increase any percentage contained herein or therein or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; or 64 81 (5) modify the provisions of Article Fourteen in a manner adverse to the Holders; or (6) modify any of the provisions of Section 10.10 or 10.11. It shall not be necessary for any Act of Holders of Securities under this Section to approve the particular form of any proposed supplemental Indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 8.3. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Sections 6.1 and 6.3) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, and that such supplemental indenture has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 8.4. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder appertaining thereto shall be bound thereby. SECTION 8.5. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Company and the Trustee, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 8.6. Notice of Supplemental Indentures. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 8.2, the Company shall give notice to all Holders of Securities of such fact, setting forth in general terms the substance of such supplemental indenture, in the manner provided in Section 1.6. Any failure of the Company to give such notice, or any defect therein, shall not in any way impair or affect the validity of any such supplemental indenture. 65 82 ARTICLE NINE MEETINGS OF HOLDERS OF SECURITIES SECTION 9.1. Purposes for Which Meetings May Be Called. A meeting of Holders of Securities may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities. SECTION 9.2. Call, Notice and Place of Meetings. (a) The Trustee may at any time call a meeting of Holders of Securities for any purpose specified in Section 9.1, to be held at such time and at such place in the Borough of Manhattan, The City of New York, as the Trustee shall determine. Notice of every meeting of Holders of Securities, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 1.6, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (b) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 10% in principal amount of the Outstanding Securities shall have requested the Trustee to call a meeting of the Holders of Securities for any purpose specified in Section 9.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities in the amount specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York, for such meeting and may call such meeting for such purposes by giving notice thereof as provided in paragraph (a) of this Section. SECTION 9.3. Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Holders of Securities, a Person shall be (a) a Holder of one or more Outstanding Securities, or (b) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 9.4. Quorum; Action. The Persons entitled to vote a majority in principal amount of the Outstanding Securities shall constitute a quorum. In the absence of a quorum within 30 minutes of the 66 83 time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities, be dissolved. In any other case, the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting (subject to repeated applications of this sentence). Notice of the reconvening of any adjourned meeting shall be given as provided in Section 9.2(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage of the principal amount of the Outstanding Securities which shall constitute a quorum. Subject to the foregoing, at the reconvening of any meeting adjourned for a lack of a quorum, the Persons entitled to vote 25% in principal amount of the Outstanding Securities at the time shall constitute a quorum for the taking of any action set forth in the notice of the original meeting. At a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid, any resolution and all matters (except as limited by the proviso to Section 8.2 and except to the extent Section 10.13 requires a different vote) shall be effectively passed and decided if passed or decided by the Persons entitled to vote not less than 66-2/3% in principal amount of Outstanding Securities represented and entitled to vote at such meeting. Any resolution passed or decisions taken at any meeting of Holders of Securities duly held in accordance with this Section shall be binding on all the Holders of Securities whether or not present or represented at the meeting. The Trustee shall, in the name and at the expense of the Company, notify all the Holders of Securities of any such resolutions or decisions pursuant to Section 1.6. SECTION 9.5. Determination of Voting Rights; Conduct and Adjournment of Meetings. (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities in regard to proof of the holding of Securities and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 1.4 and the appointment of any proxy shall be proved in the manner specified in Section 1.4 or by having the signature of the Person executing the proxy guaranteed by any bank, broker or other eligible institution participating in a recognized medallion signature guarantee program. 67 84 (b) The Trustee shall, by an instrument in writing, appoint a temporary chairman (which may be the Trustee) of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 9.2(b), in which case the Company or the Holders of Securities calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting. (c) At any meeting, each Holder of a Security or proxy shall be entitled to one vote for each U.S.$1,000 principal amount of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security or proxy. (d) Any meeting of Holders of Securities duly called pursuant to Section 9.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting, and the meeting may be held as so adjourned without further notice. SECTION 9.6. Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Holders of Securities shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amounts at Stated Maturity and serial numbers of the Outstanding Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 9.2 and, if applicable, Section 9.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE TEN COVENANTS SECTION 10.1. Payment of Principal, Premium and Interest. 68 85 The Company covenants and agrees that it will duly and punctually pay the principal of and premium, if any, and interest on the Securities in accordance with the terms of the Securities and this Indenture. The Company will deposit or cause to be deposited with the Trustee, no later than one Business Day prior to the date of the Stated Maturity of any Security or no later than one Business Day prior to the due date for any installment of interest, all payments so due, which payments shall be in immediately available funds on the date of such Stated Maturity or due date, as the case may be. SECTION 10.2. Maintenance of Offices or Agencies. The Company hereby appoints the Corporate Trust Office of the Trustee as its agent in the Borough of Manhattan, The City of New York, where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where Securities may be surrendered for conversion, and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company may at any time and from time to time vary or terminate the appointment of any such agent or appoint any additional agents for any or all of such purposes; provided, however, that until all of the Securities have been delivered to the Trustee for cancellation, or monies sufficient to pay the principal of, premium, if any, and interest on the Securities have been made available for payment and either paid or returned to the Company pursuant to the provisions of Section 10.3, the Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment and conversion, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee, and notice to the Holders in accordance with Section 1.6, of the appointment or termination of any such agents and of the location and any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency, or shall fail to furnish the Trustee with the address thereof, presentations and surrenders may be made and notices and demands may be served on the Corporate Trust Office of the Trustee. SECTION 10.3. Money for Security Payments To Be Held in Trust. If the Company shall act as its own Paying Agent, it will, on or before each due date of the principal of, premium, if any, or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal, premium, if any, or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and the Company will promptly notify the Trustee of its action or failure so to act. 69 86 Whenever the Company shall have one or more Paying Agents, it will, no later than one Business Day prior to each due date of the principal of, premium, if any, or interest on any Securities, deposit with the Trustee a sum sufficient to pay the principal, premium, if any, or interest so becoming due, such sum to be held for the benefit of the Persons entitled to such principal, premium, if any, or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of any failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of, premium, if any, or interest on Securities for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper in each Place of Payment, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.4. [Reserved]. 70 87 SECTION 10.5. Existence. Subject to Article Seven, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and corporate power and authority; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.6. Maintenance of Properties. The Company will cause all material properties used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 10.7. Payment of Taxes and Other Claims. The Company will pay or discharge, or cause to be paid or discharged, before the same may become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, (2) all claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon the property of the Company or any Subsidiary, and (3) all stamps and other duties, if any, which may be imposed by the United States or any political subdivision thereof or therein in connection with the issuance, transfer, exchange or conversion of any Securities or with respect to this Indenture; provided, however, that, in the case of clauses (1) and (2), the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (a) if the failure to do so will not, in the aggregate, have a material adverse impact on the Company, or (b) if the amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.8. Registration and Listing. Prior to the Exchange Date, the Company (i) will effect all registrations with, and obtain all approvals by, all governmental authorities that may be necessary under any United States Federal or state law (including the Securities Act, the Exchange Act and state securities and Blue Sky laws) before the Alcatel ADSs deliverable upon conversion of Securities may be lawfully delivered, and qualified or listed as contemplated by clause (ii) (it being understood that the Company shall not be required to register the Securities under the 71 88 Securities Act, except pursuant to the Registration Rights Agreement referred to in Section 10.12); and (ii) will qualify the Alcatel ADSs required to be delivered upon conversion of Securities, prior to such delivery, for quotation on the Nasdaq National Market or, if the Alcatel ADSs are not then quoted on the Nasdaq National Market, list the Alcatel ADSs on each national securities exchange on which outstanding Alcatel ADSs are listed or quoted at the time of such delivery. Nothing in this Section 10.8 will limit the application of Section 10.12. SECTION 10.9. Statement by Officers as to Default. The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. The Company will deliver to the Trustee, forthwith upon becoming aware of any default in the performance or observance of any covenant, agreement or condition contained in this Indenture, or any Event of Default, an Officers' Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto. Any notice required to be given under this Section 10.9 shall be delivered to the Trustee at its Corporate Trust Office. SECTION 10.10. Delivery of Certain Information. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a Holder of a Restricted Security or the holder of Alcatel ADSs delivered upon conversion thereof, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder of Restricted Securities or such holder of Alcatel ADSs delivered upon conversion of Restricted Securities, or to a prospective purchaser of any such security designated by any such Holder or holder, as the case may be, to the extent required to permit compliance by such Holder or holder with Rule 144A under the Securities Act (or any successor provision thereto) in connection with the resale of any such security; provided, however, that the Company shall not be required to furnish such information in connection with any request made on or after the date which is two years from the later of (i) the date such a security (or any such predecessor security) was last acquired from the Company or (ii) the date such a security (or any such predecessor security) was last acquired from an "affiliate" of the Company within the meaning of Rule 144 under the Securities Act (or any successor provision thereto). "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto). 72 89 SECTION 10.11. Resale of Certain Securities; Reporting Issuer. During the period beginning on the last date of original issuance of the Securities and ending on the date that is two years from such date, the Company will not, and will not permit any of its subsidiaries or other "affiliates" (as defined under Rule 144 under the Securities Act or any successor provision thereto) controlled by it to, resell (x) any Securities which constitute "restricted securities" under Rule 144 or (y) any securities into which the Securities have been converted under this Indenture which constitute "restricted securities" under Rule 144, that in either case have been reacquired by any of them. The Trustee shall have no responsibility in respect of the Company's performance of its agreement in the preceding sentence. SECTION 10.12. Registration Rights. The Company agrees that the Holders from time to time of Registrable Securities (as defined below) are entitled to the benefits of a Registration Rights Agreement, dated as of August 7, 1997 (the "Registration Rights Agreement"), executed by the Company. Pursuant to the Registration Rights Agreement, the Company has agreed for the benefit of the Holders from time to time of Registrable Securities, at the Company's expense, (i) to file within 90 calendar days after the first date of original issuance of the Securities, a shelf registration statement (the "Shelf Registration Statement") with the Commission with respect to resales of the Registrable Securities, (ii) thereafter use reasonable efforts to cause such Shelf Registration Statement to be declared effective by the Commission within 90 days after the filing of such Shelf Registration Statement, and (iii) to use reasonable efforts to maintain such Shelf Registration Statement continuously effective under the Securities Act of 1933, as amended, until a period of two years from the last date of original issuance of the Securities or, if earlier, until (1) there are no outstanding Registrable Securities or (2) when, in the written opinion of independent counsel to the Company, all outstanding Registrable Securities held by persons that are not "affiliates" of the Company (as defined in Rule 144(a)(1) under the Securities Act) may be resold without registration under the Securities Act pursuant to Rule 144(k) under the Securities Act (or any successor provision thereto) and the Company has removed all legends from the Registrable Securities restricting the transfer thereof (other than any Registrable Security held by an affiliate). If (i) on or prior to 90 days following the date of original issuance of the Registered Securities, a Shelf Registration Statement has not been filed with the Commission, or (ii) on or prior to the 90th day following such filing, such Shelf Registration Statement is not declared effective (each, a "Registration Default"), additional interest ("Liquidated Damages") will accrue on the Registered Securities from and including the day following such Registration Default to but excluding the day on which such Registration Default has been cured. Liquidated Damages will be paid semi-annually in arrears, with the first semi-annual payment due on the first Interest Payment Date in respect of the Registered Securities following the date on which such Liquidated Damages begin to accrue, and will accrue at a rate per annum equal to an additional one-quarter of one percent (.25%) of the principal amount of the Registered Securities to and including the 90th day following such Registration Default and at a rate per annum equal to one-half of one percent (.50%) thereof 73 90 from and after the 91st day following such Registration Default. In the event that the Shelf Registration Statement ceases to be effective (or the Holders are otherwise prevented or restricted by the Company from effecting sales pursuant thereto) prior to the third annual anniversary of the initial effective date of the Shelf Registration Statement or such earlier date as is provided in the Registration Rights Agreement for a period in excess of 60 days, whether or not consecutive, during any 12-month period (an "Effectiveness Failure"), then the interest rate borne by the Registered Securities shall increase by an additional one-half of one percent (.50%) per annum on the 61st day of the applicable 12-month period such Shelf Registration Statement ceases to be effective (or the Holders are otherwise prevented or restricted by the Company from effecting sales pursuant thereto) to but excluding the day on which the Effectiveness Failure is cured. For the purposes of determining an Effectiveness Failure, days on which the Company has been obligated to pay Liquidated Damages in respect of a prior Effectiveness Failure within the applicable 12 month period will not be included. Whenever in this Indenture there is mentioned, in any context, the payment of the principal of, premium, if any, or interest on, or in respect of, any Registered Security, such mention shall be deemed to include mention of the payment of Liquidated Damages provided for in this Section to the extent that, in such context, Liquidated Damages are, were or would be payable in respect thereof pursuant to the provisions of this Section, and express mention of the payment of Liquidated Damages (if applicable) in any provisions hereof shall not be construed as excluding Liquidated Damages in those provisions hereof where such express mention is not made. For the purposes of the Registration Rights Agreement, "Registrable Securities" means all or any portion of the Registered Securities issued from time to time under this Indenture and the Alcatel ADSs deliverable upon conversion of such Securities provided, however, that a Security or the Alcatel ADSs deliverable upon conversion of a Security ceases to be a Registrable Security when it (i) has been effectively registered under the Securities Act and sold in a manner contemplated by the Shelf Registration Statement or (ii) has been transferred in compliance with Rule 144 under the Securities Act (or any successor provisions thereto). If a Security, or the Alcatel ADSs deliverable upon conversion of a Security, is a Registrable Security, and the Holder thereof elects to sell such Registrable Security pursuant to the Shelf Registration Statement then, by its acceptance thereof, the Holder of such Registrable Security will have agreed to be bound by the terms of the Registration Rights Agreement relating to the Registrable Securities which are the subject of such election. For the purposes of the Registration Rights Agreement, the term "Holder" includes any Person that has a beneficial interest in any Global Security or any beneficial interest in a global security representing Alcatel ADSs deliverable upon conversion of a Security. SECTION 10.13. Waiver of Certain Covenants. 74 91 The Company may omit in any particular instance to comply with any covenant or conditions set forth in Sections 10.5 to 10.7, inclusive (other than a covenant or condition which under Article Eight cannot be modified or amended without the consent of the Holder of each Outstanding Security affected), if before the time for such compliance the Holders shall, through the written consent of, or the adoption of a resolution at a meeting of Holders of the Outstanding Securities at which a quorum is present by, not less than a majority in principal amount of the Outstanding Securities, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee or any Paying or Conversion Agent in respect of any such covenant or condition shall remain in full force and effect. ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 11.1. Right of Redemption. The Securities may be redeemed in accordance with the provisions of the forms of Securities set forth in Section 2.2. SECTION 11.2. Applicability of Article. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of the Securities or this Indenture (other than a redemption upon a Change in Control), shall be made in accordance with such provision and this Article Eleven. SECTION 11.3. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of any of the Securities, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee in writing of such Redemption Date. If the Securities are to be redeemed pursuant to an election of the Company which is subject to a condition specified in the form of Securities set forth in Section 2.2, the Company shall furnish the Trustee with an Officers' Certificate stating that the Company is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Company so to redeem have occurred. SECTION 11.4. Selection by Trustee of Securities To Be Redeemed. 75 92 If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected by the Trustee within two Business Days after it receives the notice described in 11.3, from the Outstanding Securities not previously called for redemption by such method as the Trustee may deem fair and appropriate. If any Registered Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed may be treated by the Trustee as Outstanding for the purpose of such selection. The Trustee shall promptly notify the Company and each Security Registrar in writing of the securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 11.5. Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 1.6 to the Holders of Securities to be redeemed not less than 30 nor more than 60 days prior to the Redemption Date, and such notice shall be irrevocable. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, and accrued interest, if any, (3) if less than all Outstanding Securities are to be redeemed, the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities which will be outstanding after such partial redemption, (4) that on the Redemption Date the Redemption Price, and accrued interest, if any, will become due and payable upon each such Security to be redeemed, and that interest thereon shall cease to accrue on and after said date, (5) the Conversion Price, the date on which the right to convert the Securities to be redeemed will terminate and the places where such Securities, may be surrendered for conversion, and (6) the place or places where such Securities, are to be surrendered for payment of the Redemption Price and accrued interest, if any. 76 93 In case of a partial redemption, the first notice given shall specify the last date on which exchanges or transfers of Securities may be made pursuant to Section 3.5 and the second notice shall specify the serial and CUSIP numbers (if any) and the portions thereof called for redemption. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name of and at the expense of the Company. Notice of redemption of Securities to be redeemed at the election of the Company received by the Trustee shall be given by the Trustee to each Paying Agent in the name of and at the expense of the Company. SECTION 11.6. Deposit of Redemption Price. Not less than one Business Day prior to any Redemption Date, the Company shall deposit with the Trustee (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money (which shall be in immediately available funds on such Redemption Date) sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date other than any Securities called for redemption on that date which have been converted prior to the date of such deposit. If any Security called for redemption is converted, any money deposited with the Trustee or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any Predecessor Security to receive interest as provided in the last paragraph of Section 3.7) be paid to the Company on Company Request or, if then held by the Company, shall be discharged from such trust. SECTION 11.7. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price, including accrued interest) such Securities shall cease to bear interest. Upon surrender of any Security for redemption in accordance with said notice such Security shall be paid by the Company at the Redemption Price together with accrued and unpaid interest to the Redemption Date; provided, however, that installments of interest on Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 3.7. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal amount of, premium, if any, and, to the extent permitted by applicable law, accrued interest on such Security shall, until paid, bear interest from the Redemption Date at a rate of 7% per annum and such Security shall remain convertible until the principal of such Security (or portion thereof, as the case may be) shall have been paid or duly provided for. 77 94 SECTION 11.8. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 10.2 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Registered Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE TWELVE CONVERSION OF SECURITIES SECTION 12.1. Conversion Privilege and Conversion Price. Subject to and upon compliance with the provisions of this Article, at the option of the Holder thereof, any Security may be converted into Alcatel ADSs (calculated as to each conversion to the nearest 1/100th of an Alcatel ADS) at the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall commence on the 90th day after the last original issue date of the Notes and expire at the close of business on August 1, 2004, subject, in the case of conversion of any Global Security, to any Applicable Procedures. In case a Security or portion thereof is called for redemption at the election of the Company or the Holder thereof exercises his right to require the Company to repurchase the Security, such conversion right in respect of the Security, or portion thereof so called, shall expire at the close of business on the fifth Trading Day preceding the Redemption Date or the second Trading Day preceding the Repurchase Date, as the case may be, unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be (in each case subject as aforesaid to any Applicable Procedures with respect to any Global Security). The price at which Alcatel ADSs shall be delivered upon conversion (herein called the "Conversion Price") shall be initially U.S.$61.012 per Alcatel ADS. The Conversion Price shall be adjusted in certain instances as provided in this Article Twelve. SECTION 12.2. Exercise of Conversion Privilege. In order to exercise the conversion privilege, the Holder of any Security to be converted shall surrender such Security, duly endorsed or assigned to the Company or in blank, at any office or agency of the Company maintained for that purpose pursuant to Section 10.2, accompanied by a duly signed conversion notice substantially in the form set forth in Section 2.5 stating that the Holder elects to convert such Security or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted. Each Security surrendered for conversion (in whole or in part) during the period from the close of 78 95 business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall (except in the case of any Security or portion thereof which has been called for redemption or is to be repurchased and, as a result, the right to convert such Security would terminate during such period) be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Security (or part thereof, as the case may be) being surrendered for conversion. The interest so payable on such Interest Payment Date with respect to any Security (or portion thereof, if applicable) which has been called for redemption, or is to be repurchased, and as a result the right to convert such Security (or portion thereof, if applicable) would terminate during the period from the close of business on any Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date, which Security (or portion thereof, if applicable) is surrendered for conversion during such period, shall be paid to the Holder of such Security being converted in an amount equal to the interest that would have been payable on such Security if such Security had been converted as of the close of business on such Interest Payment Date. The interest so payable on such Interest Payment Date in respect of any Security (or portion thereof, as the case may be) which has not been called for redemption on a Redemption Date, or is not eligible for repurchase on a Repurchase Date, that, in either case, would cause the right to convert such Security to terminate during the period from the close of business on any Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date, which Security (or portion thereof, as the case may be) is surrendered for conversion during such period, shall be paid to the Holder of such Security as of such Regular Record Date. Interest payable in respect of any Security surrendered for conversion on or after an Interest Payment Date shall be paid to the Holder of such Security as of the next preceding Regular Record Date, notwithstanding the exercise of the right of conversion. Except as provided in this paragraph and subject to the last paragraph of Section 3.7, no cash payment or adjustment shall be made upon any conversion on account of any interest accrued from the Interest Payment Date next preceding the conversion date, in respect of any Security (or part thereof, as the case may be) surrendered for conversion, or on account of any dividends on the Alcatel ADSs delivered upon conversion. The Company's delivery to the Holder of the number of Alcatel ADSs (and cash in lieu of fractions thereof, as provided in this Indenture) into which a Security is convertible will be deemed to satisfy the Company's obligation to pay the principal amount of the Security. Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the Alcatel ADSs deliverable upon conversion shall be treated for all purposes as the record holder or holders of such Alcatel ADSs at such time. As promptly as practicable on or after the conversion date, the Company shall issue and deliver to the Trustee, for delivery to the Holder, a certificate or certificates for the number of full Alcatel ADSs deliverable upon conversion, together with payment in lieu of any fraction of an Alcatel ADS, as provided in Section 12.3. 79 96 All Alcatel ADSs delivered upon such conversion of Restricted Securities shall bear restrictive legends substantially in the form of the legends required to be set forth on the Restricted Securities pursuant to Section 3.5 and shall be subject to the restrictions on transfer provided in such legends. Neither the Trustee nor any agent maintained for the purpose of such conversion shall have any responsibility for the inclusion or content of any such restrictive legends on such Alcatel ADSs; provided, however, that the Trustee or any agent maintained for the purpose of such conversion shall have provided, to the Company or to the Company's transfer agent for such Alcatel ADSs, prior to or concurrently with a request to the Company to deliver such Alcatel ADSs, written notice that the Securities delivered for conversion are Restricted Securities. In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Registered Security or Securities of authorized denominations in an aggregate principal amount equal to the unconverted portion of the principal amount of such Security. A Security may be converted in part, but only if the principal amount of such Security to be converted is any integral multiple of U.S.$1,000 and the principal amount of such security to remain Outstanding after such conversion is equal to U.S.$1,000 or any integral multiple of $1,000 in excess thereof. If Alcatel ADSs to be delivered upon conversion of a Restricted Security, or Registered Securities to be issued upon conversion of a Restricted Security in part only, are to be registered in a name other than that of the beneficial owner of such Restricted Security, then such Holder must deliver to the Conversion Agent a Surrender Certificate, dated the date of surrender of such Restricted Security and signed by such beneficial owner, as to compliance with the restrictions on transfer applicable to such Restricted Security. Neither the Trustee nor any Conversion Agent, Registrar or Transfer Agent shall be required to register in a name other than that of the beneficial owner, Alcatel ADSs or Securities delivered upon conversion of any such Restricted Security not so accompanied by a properly completed Surrender Certificate. SECTION 12.3. Fractions of Alcatel ADSs. No fractional Alcatel ADSs shall be delivered upon conversion of any Security or Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full Alcatel ADSs which shall be deliverable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof) so surrendered. Instead of any fractional Alcatel ADSs which would otherwise be deliverable upon conversion of any Security or Securities (or specified portions thereof), the Company shall calculate and pay a cash adjustment in respect of such fraction (calculated to the nearest 1/100th of an Alcatel ADS) in an amount equal to the same fraction of the Closing Price Per Alcatel ADS at the close of business on the day of conversion. SECTION 12.4. Adjustment of Conversion Price. 80 97 The Conversion Price shall be subject to adjustments from time to time as follows: (1) In case Alcatel shall pay or make a dividend or other distribution on any class of capital stock of Alcatel payable in shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. If, after any such date fixed for determination, any dividend or distribution is not in fact paid, the Conversion Price shall be immediately readjusted, effective as of the date the determination is made not to pay such dividend or distribution, to the Conversion Price that would have been in effect if such determination date had not been fixed. For the purposes of this paragraph (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of Alcatel but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of such shares. Alcatel will not pay any dividend or make any distribution on shares held in the treasury of Alcatel. (2) In case Alcatel shall issue rights, options or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock such that the price per Alcatel ADS would be less than the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) on the date fixed for the determination of stockholders entitled to receive such rights, options or warrants (other than any rights, options or warrants that by their terms will also be issued to any Holder upon conversion of a Security into Alcatel ADSs without any action required by the Company or any other Person), the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. If, after any such date fixed for determination, any such rights, options or warrants are not in fact issued, the Conversion Price shall be immediately readjusted, effective as of the date the determination is made not to issue such rights, options or warrants, to the Conversion Price that would have been in effect if such determination date had not been fixed. For the purposes of this paragraph (2), the number of shares of Common 81 98 Stock at any time outstanding shall not include shares held in the treasury of Alcatel but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. Alcatel will not issue any rights, options or warrants in respect of shares of Common Stock held in the treasury of Alcatel. (3) In case the ratio of Alcatel ADSs to shares of Common Stock shall be modified such that each Alcatel ADS no longer represents one-fifth of one ordinary share of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such modification becomes effective shall be proportionally adjusted, such adjustment to become effective immediately after the opening of business on the day following the day upon which such modification becomes effective. (4) In case Alcatel shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class of capital stock, or other property (including securities, but excluding (i) any rights, options or warrants referred to in paragraph (2) of this Section, (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section and (iv) any merger or consolidation to which Section 12.11 applies), the Conversion Price shall be adjusted so that the same shall equal the price determined by dividing the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) on the date fixed for such determination less the then fair market value (as determined by the authorized officer of Alcatel, whose determination shall be conclusive and filed with the Trustee) of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one Alcatel ADS and the denominator shall be such current market price per Alcatel ADS, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. If, after any such date fixed for determination, any such distribution is not in fact made, the Conversion Price shall be immediately readjusted, effective as of the date the determination is made not to make such distribution, to the Conversion Price that would have been in effect if such determination date had not been fixed. (5) In case Alcatel shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 12.11 applies or as part of a distribution referred to in paragraph (4) of this Section) in an aggregate amount that, combined together with (I) the aggregate amount of any other cash distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (5) has been made and (II) the aggregate of any cash plus the fair market value (as determined by the authorized officer of Alcatel, whose determination shall be conclusive) of consideration payable in respect of any tender offer by Alcatel or any 82 99 of its subsidiaries for all or any portion of the Alcatel ADSs concluded within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to paragraph (6) of this Section 12.4 has been made (the "combined cash and tender amount") exceeds 12.5% of the product of the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) on the date for the determination of holders of shares of Common Stock entitled to receive such distribution times the number of Alcatel ADSs which would have to be issued to reflect all shares of Common Stock outstanding on such date (the "aggregate current market price"), then, and in each such case, immediately after the close of business on such date for determination, the Conversion Price shall be adjusted so that the same shall equal the price determined by dividing the Conversion Price in effect immediately prior to the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section) on the date fixed for such determination less an amount equal to the quotient of (x) the excess of such combined cash and tender amount over such aggregate current market price divided by (y) the number of Alcatel ADSs which would have to be issued to reflect all shares of Common Stock outstanding on such date for determination and (ii) the denominator of which shall be equal to the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) on such date for determination. (6) In case a tender offer made by Alcatel or any Subsidiary for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the authorized officer of Alcatel, whose determination shall be conclusive) that combined together with (I) the aggregate of the cash plus the fair market value (as determined by the authorized officer of Alcatel, whose determination shall be conclusive), as of the expiration of such tender offer, of consideration payable in respect of any other tender offer by Alcatel or any Subsidiary for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this paragraph (6) has been made and (II) the aggregate amount of any cash distributions to all holders of Alcatel's Common Stock within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to paragraph (5) of this Section has been made (the "combined tender and cash amount") exceeds 12.5% of the product of the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of Alcatel ADSs which would have to be issued to reflect all shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by dividing the Conversion Price 83 100 immediately prior to close of business on the date of the Expiration Time by a fraction (i) the numerator of which shall be equal to (A) the product of (I) the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) on the date of the Expiration Time multiplied by (II) the number of Alcatel ADSs which would have to be issued to reflect all shares of Common Stock outstanding (including any tendered shares) on the Expiration Time less (B) the combined tender and cash amount, and (ii) the denominator of which shall be equal to the product of (A) the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) as of the Expiration Time multiplied by (B) the number of Alcatel ADSs which would have to be issued to reflect all shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time less the number of Alcatel ADSs which would have to be issued to represent all shares of Common Stock validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares"). (7) The reclassification of Common Stock into securities other than Common Stock (other than a reclassification upon a consolidation or merger to which Section 12.11 applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and "the date fixed for such determination" within the meaning of paragraph (4) of this Section), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 12.4). (8) For the purpose of any computation under paragraphs (2), (4), (5) or (6) of this Section 12.4, the current market price per Alcatel ADS on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Prices Per Alcatel ADS for the five consecutive Trading Days selected by the Company commencing not more than 10 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex" date with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "'ex' date", when used with respect to any issuance or distribution, means the first date on which the Alcatel ADSs trade in a regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution. (9) No adjustment in the Conversion Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such rate; 84 101 provided, however, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article shall be made to the nearest cent or to the nearest one-hundredth of an Alcatel ADS or share, as the case may be. (10) The Company may make such reductions in the Conversion Price, for the remaining term of the Securities or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 12.4, as it considers to be advisable in order to avoid or diminish any income tax to any holders of Alcatel ADSs resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes. The Company shall have the power to resolve any ambiguity or correct any error in this paragraph (10) and its actions in so doing shall, absent manifest error, be final and conclusive. SECTION 12.5. Notice of Adjustments of Conversion Price. Whenever the Conversion Price is adjusted as herein provided: (1) The Company shall compute the adjusted Conversion Price in accordance with Section 12.4 and shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall promptly be filed with the Trustee and with each Conversion Agent; and (2) upon each such adjustment, a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall be required, and as soon as practicable after it is required, such notice shall be provided by the Company to all Holders in accordance with Section 1.6. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate or the information and calculations contained therein, except to exhibit the same to any Holder of Securities desiring inspection thereof at its office during normal business hours. SECTION 12.6. Notice of Certain Corporate Action. In case: (a) Alcatel shall declare a dividend (or any other distribution) on its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 12.4; or (b) Alcatel shall authorize the granting to the holders of its Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (c) of any reclassification of the Common Stock of Alcatel, or of any consolidation, merger or share exchange to which Alcatel is a party and for which approval of any 85 102 stockholders of Alcatel is required, or of the conveyance, sale, transfer or lease of all or substantially all of the assets of Alcatel; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of Alcatel ; then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 10.2, and shall cause to be provided to all Holders in accordance with Section 1.6, at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. Neither the failure to give such notice or the notice referred to in the following paragraph nor any defect therein shall affect the legality or validity of the proceedings described in clauses (a) through (d) of this Section 12.6. If at the time the Trustee shall not be the conversion agent, a copy of such notice shall also forthwith be filed by the Company with the Trustee. The Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 10.2, and shall cause to be provided to all Holders in accordance with Section 1.6, notice of any tender offer by Alcatel or any Subsidiary for all or any portion of the Common Stock at or about the time that such notice of tender offer is provided to the public generally. SECTION 12.7. Company to Reserve Common Stock. [Deleted Intentionally] SECTION 12.8. Taxes on Conversions. Except as provided in the next sentence, the Company will pay any and all taxes and duties that may be payable in respect of the delivery of Alcatel ADSs on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of any transfer involved in the delivery of Alcatel ADSs in a name other than that of the Holder of the Security or Securities to be converted, and no such delivery shall be made unless and until the Person requesting such delivery has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. SECTION 12.9. Covenant as to Alcatel ADSs 86 103 The Company agrees that all Alcatel ADSs which may be delivered upon conversion of Securities will have been duly purchased on the open market and, except as provided in Section 12.8, the Company will pay all taxes, liens and charges with respect to the delivery thereof. SECTION 12.10. Cancellation of Converted Securities. All Securities delivered for conversion shall be delivered to the Trustee or its agent to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 3.9. SECTION 12.11. Provision in Case of Consolidation, Merger or Sale of Assets. In case of any consolidation or merger of Alcatel with or into any other Person, any merger of another Person with or into Alcatel (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of Alcatel) or any conveyance, sale, transfer or lease of all or substantially all of the assets of Alcatel, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then Outstanding shall have the right thereafter, during the period such Security shall be convertible as specified in Section 12.1, to convert such Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by a holder of the number of Alcatel ADSs into which such Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Alcatel ADSs (i) is not a Person with which Alcatel consolidated or merged with or into or which merger into or with Alcatel or to which such conveyance, sale, transfer or lease was made, as the case may be ("Constituent Person"), or an Affiliate of a Constituent Person and (ii) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease is not the same for each Alcatel ADS held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Alcatel ADSs"), then for the purpose of this Section 12.11 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non-electing Alcatel ADS shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-electing Alcatel ADSs), and further assuming, if such consolidation, merger, conveyance, transfer, sale or lease occurs prior to the 90th day following the last original issue date of the Securities, that the Security was convertible at the time of such occurrence at the Conversion Rate specified in Section 12.1 as adjusted from the issue date of such Security to such time as provided in this Article Twelve. Such supplemental indenture shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The 87 104 above provisions of this Section 12.11 shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. Notice of the execution of such a supplemental indenture shall be given by the Company to the Holder of each Security as provided in Section 1.6 promptly upon such execution. Neither the Trustee nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any such supplemental indenture relating either to the kind or amount of shares of stock or other securities or property or cash receivable by Holders of Securities upon the conversion of their Securities after any such consolidation, merger, conveyance, transfer, sale or lease or to any such adjustment, but may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, an Opinion of Counsel with respect thereto, which the Company shall cause to be furnished to the Trustee upon request. SECTION 12.12. Responsibility of Trustee for Conversion Provisions. The Trustee, subject to the provisions of Section 6.1, and any Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the Conversion Rate, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same, or whether a supplemental indenture need be entered into. Neither the Trustee, subject to the provisions of Section 6.1, nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind or amount) of any Alcatel ADSs, or of any other securities or property or cash, which may at any time be delivered upon the conversion of any Security; and it or they do not make any representation with respect thereto. Neither the Trustee, subject to the provisions of Section 6.1, nor any Conversion Agent shall be responsible for any failure of the Company to make or calculate any cash payment or to issue, transfer or deliver any Alcatel ADSs or Alcatel ADS certificates or other securities or property or cash upon the surrender of any Security for the purpose of conversion; and the Trustee, subject to the provisions of Section 6.1, and any Conversion Agent shall not be responsible for any failure of the Company to comply with any of the covenants of the Company contained in this Article. ARTICLE THIRTEEN SUBORDINATION OF SECURITIES SECTION 13.1. Securities Subordinate to Senior Indebtedness. The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article (subject to the provisions of Article Four), the indebtedness represented by the Securities and the payment of the principal of (and premium, if any) and interest on, 88 105 and any payment of the Repurchase Price with respect to, each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness. SECTION 13.2. Payment Over of Proceeds Upon Dissolution, Etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of the Company, then and in any such event the holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness in cash before the Holders of the Securities are entitled to receive any payment on account of principal of (or premium, if any) or interest (including any Liquidated Damages) on the Securities or on account of the purchase, redemption or other acquisition of Securities, and to that end the holders of Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, which may be payable or deliverable in respect of the Securities in any such case, proceeding, dissolution, liquidation or other winding up or event. In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, securities or other property, before all Senior Indebtedness is paid in full, and if such fact shall, at or prior to the time of such payment or distribution, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. For purposes of this Article only, the words "cash, securities or other property" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, which shares of stock or securities are subordinated in right of payment to all then outstanding Senior Indebtedness to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article Seven shall not be deemed a dissolution, winding up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Section if the Person formed by such consolidation or into which the 89 106 Company is merged or which acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article Seven. SECTION 13.3. No Payment When Senior Indebtedness in Default. (a) In the event and during the continuation of any default in the payment of principal of (or premium, if any) or interest on (including a default under any redemption or repurchase obligation with respect to) any Senior Indebtedness beyond any applicable grace period with respect thereto or in the event that any other event of default with respect to any Senior Indebtedness shall have occurred and be continuing which would then permit the holders of such Senior Indebtedness to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise have become due and payable, unless and until such event of default shall have been cured or waived or shall have ceased to exist after written notice to the Company and the Trustee by any holder of such Senior Indebtedness, or any trustee, agent or representative therefor or (b) in the event any judicial proceeding shall be pending with respect to any such default in payment or event of default, then no payment shall be made by the Company on account of principal of (or premium, if any) or interest (including Liquidated Damages) on the Securities or on account of the purchase, redemption or other acquisition of Securities. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company, in the case of the Trustee, or the Trustee, in the case of such Holder. The provisions of this Section shall not apply to any payment with respect to which Section 13.2 would be applicable. SECTION 13.4. Payment Permitted If No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except during the pendency of any case, proceeding, dissolution, liquidation or other winding up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Company referred to in Section 13.2 or under the conditions described in Section 13.3, from making payments at any time of principal of (and premium, if any) or interest on the Securities, or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of (and premium, if any) or interest on the Securities or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment would have been prohibited by the provisions of this Article. SECTION 13.5. Subrogation to Rights of Holders of Senior Indebtedness. 90 107 Subject to the payment in full of all Senior Indebtedness, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. SECTION 13.6. Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of (and premium, if any) and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 13.7. Trustee to Effectuate Subordination. Each holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 13.8. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder of any Senior Indebtedness, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. 91 108 Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 13.9. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from any trustee, agent or representative therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 6.1, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 13.9 prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Subject to the provisions of Section 6.1, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee, agent or representative therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee, agent or representative therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. 92 109 SECTION 13.10. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 6.1, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 13.11. Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. SECTION 13.12. Reliance by Holders of Senior Indebtedness on Subordination Provisions. Each Holder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. SECTION 13.13. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.7. SECTION 13.14. Article Applicable to Paying Agents. 93 110 In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 13.13 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION 13.15. Certain Conversions and Repurchases Deemed Payment. For the purposes of this Article only, (1) the issuance and delivery of junior securities upon conversion of Securities in accordance with Article Twelve or upon the repurchase of Securities in accordance with Article Fourteen shall not be deemed to constitute a payment or distribution on account of the principal of or premium or interest on Securities or on account of the purchase or other acquisition of Securities, and (2) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal of such Security. For the purposes of this Section, the term "junior securities" means (a) Alcatel ADSs and any cash, property or securities into which the Securities are convertible pursuant to Article Twelve and (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article Twelve or to exchange such Security for Alcatel ADSs in accordance with Article Fourteen if the Company elects to satisfy the obligations under Article Fourteen by the delivery of Alcatel ADSs. ARTICLE FOURTEEN REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A CHANGE IN CONTROL SECTION 14.1. Right to Require Repurchase. In the event that a Change in Control (as hereinafter defined) shall occur, then each Holder shall have the right, at the Holder's option, but subject to the provisions of Section 14.2, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such Holder's Securities not theretofore called for redemption, or any portion of the principal amount thereof that is equal to U.S.$5,000 or any integral multiple of U.S.$1,000 in excess thereof (provided that no single Security may be repurchased in part unless the portion of the principal amount of such Security to be Outstanding after such repurchase is equal to U.S.$5,000 or integral multiples of U.S.$1,000 in excess thereof), on the date (the "Repurchase Date") that is 45 days after the date of the Company Notice (as 94 111 defined in Section 14.3) at a purchase price equal to 100% of the principal amount of the Securities to be repurchased plus interest accrued to the Repurchase Date (the "Repurchase Price"); provided, however, that installments of interest on Securities whose Stated Maturity is on or prior to the Repurchase Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 3.7. Such right to require the repurchase of the Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article Four, unless a Change in Control shall have occurred prior to such discharge. At the option of the Company, the Repurchase Price may be paid in cash or, subject to the fulfillment by the Company of the conditions set forth in Section 14.2, by delivery of Alcatel ADSs having a fair market value equal to the Repurchase Price. Whenever in this Indenture (including Sections 2.2, 3.1, 5.1(1) and 5.8) there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Indenture shall not be construed as excluding the Repurchase Price in those provisions of this Indenture when such express mention is not made; provided, however, that for the purposes of Article Thirteen such reference shall be deemed to include reference to the Repurchase Price only to the extent the Repurchase Price is payable in cash. SECTION 14.2. Conditions to the Company's Election to Pay the Repurchase Price in Alcatel ADSs. The Company may elect to pay the Repurchase Price by delivery of Alcatel ADSs pursuant to Section 14.1 if and only if the following conditions shall have been satisfied: (a) The Alcatel ADSs deliverable in payment of the Repurchase Price shall have a fair market value as of the Repurchase Date of not less than the Repurchase Price. For purposes of Section 14.1 and this Section 14.2, the fair market value of Alcatel ADSs shall be determined by the Company and shall be equal to 95% of the average of the Closing Prices Per Alcatel ADS for the five consecutive Trading Days immediately preceding the second Trading Day prior to the Repurchase Date; (b) The Repurchase Price shall be paid only in cash in the event Alcatel ADS to be delivered upon repurchase of Securities hereunder (i) require registration under any federal securities law before such shares may be freely transferrable without being subject to any transfer restrictions under the Securities Act upon repurchase and if such registration is not completed or does not become effective prior to the Repurchase Date, and/or (ii) require registration with or approval of any governmental authority under any state law or any other federal law before such Alcatel ADSs may be validly delivered upon repurchase and if such registration is not completed or does not become effective or such approval is not obtained prior to the Repurchase Date; 95 112 (c) Payment of the Repurchase Price may not be made in Alcatel ADSs unless such Alcatel ADSs are, or shall have been, approved for quotation on the Nasdaq National Market or listed on a national securities exchange, in either case, prior to the Repurchase Date; and (d) All Alcatel ADSs which may be delivered upon repurchase of Securities will be purchased by the Company on the open market. If all of the conditions set forth in this Section 14.2 are not satisfied in accordance with the terms thereof, the Repurchase Price shall be paid by the Company only in cash. SECTION 14.3. Notices; Method of Exercising Repurchase Right, Etc. (a) Unless the Company shall have theretofore called for redemption all of the Outstanding Securities, on or before the 30th day after the occurrence of a Change in Control, the Company or, at the request and expense of the Company on or before the 15th day after such occurrence, the Trustee, shall give to all Holders of Securities, in the manner provided in Section 1.6, notice (the "Company Notice") of the occurrence of the Change of Control and of the repurchase right set forth herein arising as a result thereof. The Company shall also deliver a copy of such notice of a repurchase right to the Trustee. Each notice of a repurchase right shall state: (1) the Repurchase Date, (2) the date by which the repurchase right must be exercised, (3) the Repurchase Price, and whether the Repurchase Price shall be paid by the Company in cash or by delivery of Alcatel ADSs, (4) a description of the procedure which a Holder must follow to exercise a repurchase right, and the place or places where such Securities, are to be surrendered for payment of the Repurchase Price and accrued interest, if any, (5) that on the Repurchase Date the Repurchase Price, and accrued interest, if any, will become due and payable upon each such Security designated by the Holder to be repurchased, and that interest thereon shall cease to accrue on and after said date, (6) the Conversion Rate then in effect, the date on which the right to convert the principal amount of the Securities to be repurchased will terminate and the place or places where such Securities may be surrendered for conversion, and (7) the place or places that the certificate required by Section 2.2 shall be delivered, and the form of such certificate and the place or places that the Surrender Certificate required by Section 14.3(i) shall be delivered. 96 113 In addition, at least two Business Days preceding the Repurchase Date, the Company shall give to all Holders of the Securities, in the manner provided in Section 1.6, notice specifying whether the Repurchase Price will be payable in cash or Alcatel ADSs and shall deliver a copy of such notice to the Trustee. No failure of the Company to give the foregoing notices or defect therein shall limit any Holder's right to exercise a repurchase right or affect the validity of the proceedings for the repurchase of Securities. If any of the foregoing provisions or other provisions of this Article Fourteen are inconsistent with applicable law, such law shall govern. (b) To exercise a repurchase right, a Holder shall deliver to the Trustee on or before the 30th day after the date of the Company Notice (i) written notice of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of the Securities to be repurchased (and, if any Security is to repurchased in part, the serial number thereof, the portion of the principal amount thereof to be repurchased and the name of the Person in which the portion thereof to remain Outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby, and, in the event that the Repurchase Price shall be paid in Alcatel ADSs, the name or names (with addresses) in which the certificate or certificates for Alcatel ADSs shall be issued, and (ii) the Securities with respect to which the repurchase right is being exercised. Such written notice shall be irrevocable, except that the right of the Holder to convert the Securities with respect to which the repurchase right is being exercised shall continue until the close of business on the Repurchase Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the Trustee the Repurchase Price in cash or Alcatel ADSs, as provided above, for payment to the Holder on the Repurchase Date or, if Alcatel ADSs are to be paid, as promptly after the Repurchase Date as practicable, together with accrued and unpaid interest to the Repurchase Date payable with respect to the Securities as to which the purchase right has been exercised; provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Regular Record Date. (d) If any Security (or portion thereof) surrendered for repurchase shall not be so paid on the Repurchase Date, the principal amount of such Security (or portion thereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate of 7% per annum, and each Security shall remain convertible into Alcatel ADSs until the principal of such Security (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) Any Security which is to be repurchased only in part shall be surrendered to the Trustee (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, 97 114 the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (f) Any delivery of Alcatel ADSs in respect of the Repurchase Price shall be deemed to have been effected immediately prior to the close of business on the Repurchase Date and the Person or Persons in whose name or names any certificate or certificates for Alcatel ADSs shall be issuable upon such repurchase shall be deemed to have become on the Repurchase Date the holder or holders of record of the Alcatel ADSs represented thereby; provided, however, that any surrender for repurchase on a date when the stock transfer books of the Company shall be closed shall constitute the Person or Persons in whose name or names the certificate or certificates for such Alcatel ADSs are to be issued as the record holder or holders thereof for all purposes at the opening of business on the next succeeding day on which such stock transfer books are open. No payment or adjustment shall be made for dividends or distributions on any Alcatel ADSs delivered upon repurchase of any Security declared prior to the Repurchase Date. (g) No fractions of Alcatel ADSs shall be delivered upon repurchase of Securities. If more than one Security shall be repurchased from the same Holder and the Repurchase Price shall be payable in Alcatel ADSs, the number of full Alcatel ADSs which shall be deliverable upon such repurchase shall be computed on the basis of the aggregate principal amount of the Securities so repurchased. Instead of any fractional Alcatel ADSs which would otherwise be deliverable on the repurchase of any Security or Securities, the Company will deliver to the applicable Holder its check for the current market value of such fractional Alcatel ADSs . The current market value of a fraction of an Alcatel ADS is determined by multiplying the current market price of a full Alcatel ADS by the fraction, and rounding the result to the nearest cent. For purposes of this Section, the current market price of an Alcatel ADS is the Closing Price Per Alcatel ADS on the Trading Day immediately preceding the Repurchase Date. (h) Any issuance and delivery of certificates for Alcatel ADSs on repurchase of Securities shall be made without charge to the Holder of Securities being repurchased for such certificates or for any tax or duty in respect of the issuance or delivery of such certificates or the securities represented thereby; provided, however, that the Company shall not be required to pay any tax or duty which may be payable in respect of (i) income of the Holder or (ii) any transfer involved in the issuance or delivery of certificates for Alcatel ADSs in a name other than that of the Holder of the Securities being repurchased, and no such issuance or delivery shall be made unless and until the Person requesting such issuance or delivery has paid to the Company the amount of any such tax or duty or has established, to the satisfaction of the Company, that such tax or duty has been paid. (i) If Alcatel ADSs to be delivered upon repurchase of a Security are to be registered in a name other than that of the beneficial owner of such Security, then such Holder must deliver to the Trustee a Surrender Certificate, dated the date of surrender of such Restricted Security and signed by such beneficial owner, as to compliance with the restrictions on 98 115 transfer applicable to such Restricted Security. Neither the Trustee nor any Registrar or Transfer Agent or other agents shall be required to register in a name other than that of the beneficial owner of Alcatel ADSs delivered upon repurchase of any such Restricted Security not so accompanied by a properly completed Surrender Certificate. (j) All Securities delivered for repurchase shall be delivered to the Trustee to be canceled at the direction of the Trustee, which shall dispose of the same as provided in Section 3.9. SECTION 14.4. Certain Definitions. For purposes of this Article Fourteen, (a) the term "beneficial owner" shall be determined in accordance with Rule 13d-3, as in effect on the date of the original execution of this Indenture, promulgated by the Commission pursuant to the Exchange Act; (b) a "Change in Control" shall be deemed to have occurred at the time, after the original issuance of the Securities, of: (i) the acquisition by any person of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the elections of directors (any shares of voting stock of which such person or group is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage), other than any such acquisition by the Company or Alcatel, any Subsidiary of the Company or Alcatel or any employee benefit plan of the Company or Alcatel existing on the date of this Indenture; or (ii) any consolidation or merger of the Company with or into, any other person, any merger of another person with or into the Company, or any conveyance, sale, transfer or lease of all or substantially all of the assets of the Company to another person (other than (a) any such transaction (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common stock of the Company or (y) pursuant to which holders of Common stock of the Company immediately prior to such transaction have the entitlement to exercise, directly or indirectly, 50% or more of the total voting power of all shares of capital stock entitled to vote generally in the election of directors of the continuing or surviving person immediately after such transaction and (b) any merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common stock of the Company into solely shares of Common stock); Provided, however, that a Change in Control shall not be deemed to have occurred if either (x) the Closing Price Per Alcatel ADS on any five Trading Days within the period of 10 consecutive Trading Days ending immediately after the later of the date of the Change in 99 116 Control or the date of the public announcement of the Change in Control (in the case of a Change in Control under Clause (i) above) or the period of 10 consecutive Trading Days ending immediately prior to the date of the Change in Control (in the case of a Change in Control under Clause (ii) above) shall equal or exceed 105% of the Conversion Price of the Securities in effect on each such Trading Day or (y) in the event that the Change of Control is effected through the acquisition of the Common Stock of Alcatel, all the consideration (excluding cash payments for fractional shares) to be paid for the Common Stock in the transaction or transactions constituting the change in Control consists of shares of common stock traded on a national securities exchange or quoted on the Nasdaq National Market and as a result of such transaction or transactions the Securities become convertible solely into such common stock; and (c) for purposes of Section 14.4(b)(i), the term "person" shall include any syndicate or group which would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act, as in effect on the date of the original execution of this Indenture. ARTICLE FIFTEEN HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY; NON-RECOURSE SECTION 15.1. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not more than 15 days after the Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities as of such Regular Record Date, and (b) at such other times as the Trustee may reasonably request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar. SECTION 15.2. Preservation of Information. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 15.1 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 15.1 upon receipt of a new list so furnished. (b) After this Indenture has been qualified under the Trust Indenture Act, the rights of Holders to communicate with other Holders with respect to their rights under this Indenture 100 117 or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 15.3. No Recourse Against Others. An incorporator or any past, present or future director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Holder shall waive and release all such liability. Such waiver and release shall be part of the consideration for the issue of the Securities. SECTION 15.4. Reports by Trustee. (a) After this Indenture has been qualified under the Trust Indenture Act, the Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) After this Indenture has been qualified under the Trust Indenture Act, a copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange. SECTION 15.5. Reports by Company. After this Indenture has been qualified under the Trust Indenture Act, the Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE 16 THE GUARANTY SECTION 16.1. Guaranty. 101 118 Alcatel has, pursuant to the Guaranty dated as of September 17, 1998, a copy of which is attached hereto as Exhibit I, fully and unconditionally guaranteed the due and punctual payment of the principal of, premium, if any, and interest (including Liquidated Damages) on the Securities. In case of a failure of the Company to pay or cause to be paid punctually any such amounts in accordance with the terms of this Indenture, Alcatel hereby agrees, upon written notice from the Trustee, to pay or cause to be paid punctually any such amounts when and as the same become due and payable in accordance with the Guaranty. --------------------- This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 102 119 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, as of the day and year first above written. Alcatel USA, Inc. THE BANK OF NEW YORK, Trustee As Guarantor, ALCATEL 103 120 ANNEX A -- Form of Regulation S Certificate REGULATION S CERTIFICATE (For transfers pursuant to ss. 3.5(b)(i), (iii) and (v) of the Indenture) The Bank of New York as Trustee 101 Barclay St., Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration Re: 7% Convertible Subordinated Notes due August 1, 2004 of Alcatel USA, Inc. (the "Securities") Reference is made to the Indenture, dated as of August 12, 1997 (the "Initial Indenture"), as supplemented by the First Supplemental Indenture dated as of September 4, 1998, between the Company and The Bank of New York (the "First Supplemental Indenture") and the Second Supplemental Indenture dated as of April 1, 1999, between the Company, Alcatel and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture) (the "Second Supplemental Indenture", together with the Initial Indenture and the First Supplemental Indenture, the "Indenture"). Terms used herein and defined in the Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Regulation S Security. In connection with such transfer, the Owner hereby certifies that, unless such transfer is being effected pursuant to an effective registration statement under the Securities Act, it is being effected in accordance with Rule 904 or Rule 144 under the Securities Act and with all applicable A-1 121 securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: (1) Rule 904 Transfers. If the transfer is being effected in accordance with Rule 904: (A) the Owner is not a distributor of the Securities, an affiliate of the Company or any such distributor or a person acting on behalf of any of the foregoing; (B) the offer of the Specified Securities was not made to a person in the United States; (C) either: (i) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States, or (ii) the transaction is being executed in, on or through the facilities of the Eurobond market, as regulated by the Association of International Bond Dealers, or another designated offshore securities market and neither the Owner nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; (D) no directed selling efforts have been made in the United States by or on behalf of the Owner or any affiliate thereof; (E) if the Owner is a dealer in securities or has received a selling concession, fee or other remuneration in respect of the Specified Securities, and the transfer is to occur during the Restricted Period, then the requirements of Rule 904(c)(1) have been satisfied; and (F) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. (2) Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (A) the transfer is occurring after a holding period of at least two years (computed in accordance with paragraph (d) of Rule 144) has elapsed since the date the Specified Securities were acquired from the Company or from an affiliate (as such term is defined in Rule 144) of the Company, whichever is later, and is being effected in accordance with the applicable amount, manner of sale and notice requirements of paragraphs (e), (f) and (h) of Rule 144; or (B) the transfer is occurring after a period of at least three years has elapsed since the date the Specified Securities were acquired from the Company or from an affiliate (as such term is defined in Rule 144) of the Company, whichever is later, and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. A-2 122 This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchaser. Dated: _________________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: _________________________________________________ Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) _________________________________________________ Signature Guaranteed Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the [Registrar], which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the [Registrar] in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-3 123 ANNEX B -- Form of Restricted Securities Certificate RESTRICTED SECURITIES CERTIFICATE (For transfers pursuant to ss. 3.5(b)(ii), (iii), (iv) and (v) of the Indenture) The Bank of New York as Trustee 101 Barclay St., Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration Re: 7% Convertible Subordinated Notes due August 1, 2004 of Alcatel USA, Inc. (the "Securities") Reference is made to the Indenture, dated as of August 12, 1997 (the "Initial Indenture"), as supplemented by the First Supplemental Indenture dated as of September 4, 1998, between the Company and The Bank of New York (the "First Supplemental Indenture") and the Second Supplemental Indenture dated as of April 1, 1999, between the Company, Alcatel and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture) (the "Second Supplemental Indenture", together with the Initial Indenture and the First Supplemental Indenture, the "Indenture"). Terms used herein and defined in the Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $_____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. B-1 124 Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Restricted Security. In connection with such transfer, the Owner hereby certifies that, unless such transfer is being effected pursuant to an effective registration statement under the Securities Act, it is being effected in accordance with Rule 144A or Rule 144 under the Securities Act and all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as: (1) Rule 144A Transfers. If the transfer is being effected in accordance with Rule 144A: (A) the Specified Securities are being transferred to a person that the Owner and any person acting on its behalf reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A, acquiring for its own account or for the account of a qualified institutional buyer; and (B) the Owner and any person acting on its behalf have taken reasonable steps to ensure that the Transferee is aware that the Owner may be relying on Rule 144A in connection with the transfer; and (2) Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (A) the transfer is occurring after a holding period of at least two years (computed in accordance with paragraph (d) of Rule 144) has elapsed since the date the Specified Securities were acquired from the Company or from an affiliate (as such term is defined in Rule 144) of the Company, whichever is later, and is being effected in accordance with the applicable amount, manner of sale and notice requirements of paragraphs (e), (f) and (h) of Rule 144; or (B) the transfer is occurring after a period of at least two years has elapsed since the date the Specified Securities were acquired from the Company or from an affiliate (as such term is defined in Rule 144) of the Company, whichever is later, and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. B-2 125 This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchaser. Dated: _________________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: _____________________________________________ Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) _________________________________________________ Signature Guaranteed Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the [Registrar], which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the [Registrar] in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. B-3 126 ANNEX C -- Form of Unrestricted Securities Certificate UNRESTRICTED SECURITIES CERTIFICATE For removal of Securities Act Legends pursuant to ss. 3.5(c)) The Bank of New York as Trustee 101 Barclay St., Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration Re: 7% Convertible Subordinated Notes due August 1, 2004 of Alcatel USA, Inc. (the "Securities") Reference is made to the Indenture, dated as of August 12, 1997 (the "Initial Indenture"), as supplemented by the First Supplemental Indenture dated as of September 4, 1998, between the Company and The Bank of New York (the "First Supplemental Indenture") and the Second Supplemental Indenture dated as of April 1, 1999, between the Company, Alcatel and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture) (the "Second Supplemental Indenture", together with the Initial Indenture and the First Supplemental Indenture, the "Indenture"). Terms used herein and defined in the Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $_____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. C-1 127 The Owner has requested that the Specified Securities be exchanged for Securities bearing no Securities Act Legend pursuant to Section 3.5(c) of the Indenture. In connection with such exchange, the Owner hereby certifies that the exchange is occurring after a period of at least two years has elapsed since the date the Specified Securities were acquired from the Company or from an affiliate (as such term is defined in Rule 144) of the Company, whichever is later, and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. The Owner also acknowledges that any future transfers of the Specified Securities must comply with all applicable securities laws of the states of the United States and other jurisdictions. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchaser. Dated: _________________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: _____________________________________________ Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) _________________________________________________ Signature Guaranteed Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the [Registrar], which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the [Registrar] in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. C-2 128 ANNEX D - Form of Surrender Certificate In connection with the certification contemplated by Section 12.2 or 14.3(i) relating to compliance with certain restrictions relating to transfers of Restricted Securities, such certification shall be provided substantially in the form of the following certificate, with only such changes thereto as shall be approved by the Company and Goldman, Sachs & Co.: CERTIFICATE ALCATEL USA, INC. 7% CONVERTIBLE SUBORDINATED NOTES DUE AUGUST 1, 2004 This is to certify that as of the date hereof with respect to U.S.$________ principal amount (as defined in the Indenture) of the above-captioned securities surrendered on the date hereof (the "Surrendered Securities") for registration of transfer, or for conversion or repurchase where the securities issuable upon such conversion or repurchase are to be registered in a name other than that of the undersigned Holder (each such transaction being a "transfer"), the undersigned Holder (as defined in the Indenture) certifies that the transfer of Surrendered Securities associated with such transfer complies with the restrictive legend set forth on the face of the Surrendered Securities for the reason checked below: ________ The transfer of the Surrendered Securities complies with Rule 144 under the United States Securities Act of 1933, as amended (the "Securities Act"); or ________ The transfer of the Surrendered Securities complies with Rule 144A under the Securities Act; or ________ The transfer of the Surrendered Securities complies with Rule 904 under the Securities Act. ________ The transfer of the Surrendered Securities has been made to an institution that is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act in a transaction exempt from the registration requirements of the Securities Act. [Name of Holder] _________________________________________________ Dated: ____________, ____ To be dated the date of surrender D-1 EX-4.3 3 SECOND SUPPLEMENTAL INDENTURE 1 Exhibit 4.3 - - ------------------------------------------------------------------------------- ALCATEL USA, INC., Issuer, (formerly, DSC Communications Corporation) ALCATEL, Guarantor and THE BANK OF NEW YORK, Trustee ------------------------ SECOND SUPPLEMENTAL INDENTURE Dated as of April 1, 1999 Supplementing the Indenture dated as of August 12, 1997, as supplemented by the First Supplemental Indenture dated as of September 4, 1998 ------------------------ U.S.$400,000,000 7% Convertible Subordinated Notes due August 1, 2004 - - ------------------------------------------------------------------------------- 2 SECOND SUPPLEMENTAL INDENTURE, dated as of April 1, 1999 (this "Second Supplemental Indenture"), between ALCATEL USA, INC., formerly DSC COMMUNICATIONS CORPORATION, a Delaware corporation (the "Company"), ALCATEL, a French societe anonyme ("Alcatel" or the "Guarantor"), and THE BANK OF NEW YORK, a New York banking corporation, as Trustee (the "Trustee"). WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture, dated as of August 12, 1997 (the "Initial Indenture"), providing for the creation and issuance by the Company of 7% Convertible Subordinated Notes due August 1, 2004 (the "Securities" or "Security"), which has been supplemented by the First Supplemental Indenture, dated as of September 4, 1998, between the Company and the Trustee (the "First Supplemental Indenture", together with the Initial Indenture, the "Indenture"); WHEREAS, following the acquisition of 100% of the outstanding shares of common stock of the Company by Alcatel through a merger in September 1998, Alcatel provided the Guaranty, dated as of September 17, 1998, a copy of which is attached hereto as Annex I (the "Guaranty"); WHEREAS, in addition to the modification of the conversion rights provided for in Article Two of the First Supplemental Indenture, the parties hereto wish to make certain further modifications to the Initial Indenture to reflect the convertibility of the Securities into Alcatel ADSs and to reflect the Guaranty; WHEREAS, Section 8.1(4) of the Initial Indenture provides that the parties hereto may execute this Second Supplemental Indenture without the consent of Holders of Securities; NOW, THEREFORE, the Company and the Trustee, acting for itself and the Holders, agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Relation to Indenture This Second Supplemental Indenture constitutes part of the Indenture for all purposes. SECTION 1.02. Definitions In this Second Supplemental Indenture, unless the context otherwise requires: (i) terms defined in the Indenture have the same meaning when used in this Second Supplemental Indenture unless otherwise defined in this Second Supplemental Indenture; and 3 (ii) all references to "the Second Supplemental Indenture" or "this Second Supplemental Indenture" are to this Second Supplemental Indenture as modified, supplemented or amended from time to time. ARTICLE 2 AMENDMENTS Upon the execution hereof, without further agreement, the Indenture shall be amended as follows: SECTION 2.01. Substitution of "Alcatel USA, Inc." for "DSC Communications Corporation" At each place in the Indenture where the name "DSC Communications Corporation" appears, such name shall be deleted and replaced with "Alcatel USA, Inc.". SECTION 2.02. Definition of Alcatel and Alcatel ADSs The following definitions shall be added to Section 1.1 of the Indenture: (i) "Alcatel" means Alcatel, a company organized under the laws of the Republic of France, and the parent of the Company. (ii) "Alcatel ADSs" means the American depositary shares issued under the depositary agreement, dated as of March 1, 1991 and amended and restated as of March 15, 1992, as amended by Amendment No. 1 dated as of January 3, 1997 and as further amended and restated as of March 10, 1997, among Alcatel, The Bank of New York, as depositary, and holders of American depositary receipts evidencing such American depositary shares, each representing one-fifth of one ordinary share of Alcatel. SECTION 2.03. Definition of Common Stock The definition of "Common Stock" in Section 1.1 shall be deleted and replaced in its entirety by the text below: "Common Stock", unless otherwise stated, means the Common Stock of Alcatel, nominal value EUR 10 per share. SECTION 2.04. Substitution of "Alcatel" for "the Company" At each place in the Indenture listed below, unless otherwise stated in this Second Supplemental Indenture, the words "the Company" shall be deleted and replaced with "Alcatel": (i) SECTION 1.1: in the definition of "Closing Price Per Share"; 2 4 (ii) The second to last sentence of sixth paragraph of the Form of Reverse under Section 2.2, which begins: "In addition, the Indenture provides that in the case of certain consolidations or mergers". (iii) SECTION 12.6(a), (b), (c) and (d) and the second mention of "the Company" in the last paragraph of Section 12.6. SECTION 2.05. Substitution of "Alcatel ADSs" for "Share", "Common Stock" and "Common Stock of the Company" At each place in the Indenture listed below, unless otherwise stated in this Second Supplemental Indenture, the words "Share", "Common Stock", "share of Common Stock", "Common Stock of the Company", "fully paid and non-assessable shares of Common Stock of the Company" and words of similar import, as the context may require, shall be deleted and replaced with "Alcatel ADS" or "Alcatel ADSs", as the case may be, and the words "share certificate" shall be deleted and replaced with "American Depositary Receipt evidencing American Depositary Shares". (i) SECTION 1.1: in the definitions of "Closing Price Per Share", "Non-electing Shares" and "Trading Days", 1.12; (ii) SECTIONS 2.2, 2.4; (iii) SECTION 3.1; (iv) SECTION 10.8; (v) SECTIONS 12.1, 12.2, 12.3, 12.9, 12.12; (vi) SECTION 13.15; (vii) SECTION 14.1, 14.2, 14.3 and clause (x) of the proviso at the end of Section 14.4(b). SECTION 2.06. Substitution of "Alcatel ADSs deliverable" for "Shares of Common Stock issuable" At each place in the Indenture where reference is made to the issuance and/or delivery of Common Stock (including, for illustrative purposes only and without limitation, references to shares of Common Stock "issuable", "issued" or "required to be issued and delivered") such reference shall be deleted and replaced with a reference to the delivery of Alcatel ADSs (including for illustrative purposes only and without limitation, references to Alcatel ADSs "deliverable", "delivered" or "required to be delivered"). 3 5 SECTION 2.07. Notices, Etc., to Trustee and Company (i) The heading shall be modified to read "Notices, Etc., to Trustee, Company and Alcatel". (ii) Section 1.5(1) shall be modified by inserting the following text at the end of the paragraph: "facsimile no. (212) 815-5915". (iii) Section 1.5(2) shall be deleted and replaced in its entirety by the text below: (2) the Company or Alcatel by the Trustee or by any Holder of Securities shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing, mailed, first-class postage prepaid, or telecopied and confirmed by mail, first-class postage prepaid, or delivered by hand or overnight courier, addressed (i) if to the Company, to Alcatel USA, Inc. at 1000 Coit Road, Plano, Texas 75075, Attention: Treasurer; facsimile no. (972) 519-2688, or at any other address previously furnished in writing to the Trustee by the Company; and (ii) if to Alcatel, to Alcatel at 54, rue la Boetie, Paris, France, 75008, Attention: Chief Financial Officer; facsimile no. (331) 40.76.14.91. SECTION 2.08. Form of Security The first sentence of the Form of Reverse under Section 2.2, and Annexes A, B and C, shall be modified by replacing the reference to the Indenture, dated as of August 12, 1997, with the following text: "Indenture, dated as of August 12, 1997 (the "Initial Indenture"), as supplemented by the First Supplemental Indenture dated as of September 4, 1998, between the Company and The Bank of New York (the "First Supplemental Indenture") and the Second Supplemental Indenture dated as of April 1, 1999, between the Company, Alcatel and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture) (the "Second Supplemental Indenture", together with the Initial Indenture and the First Supplemental Indenture, the "Indenture")". SECTION 2.09. No Reserve of Common Stock to be held by the Company Section 12.7 of the Indenture shall be deleted in its entirety and replaced by the words "Deleted Intentionally". SECTION 2.10. Conversion Price In Sections 2.2 and 12.1 of the Indenture, the Conversion Price of "U.S.$ 49.725" shall be deleted and replaced by "U.S.$ 61.012". SECTION 2.11. Adjustment of Conversion Price Section 12.4 of the Indenture shall be deleted and replaced in its entirety by the text below. 4 6 The Conversion Price shall be subject to adjustments from time to time as follows: (1) In case Alcatel shall pay or make a dividend or other distribution on any class of capital stock of Alcatel payable in shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. If, after any such date fixed for determination, any dividend or distribution is not in fact paid, the Conversion Price shall be immediately readjusted, effective as of the date the determination is made not to pay such dividend or distribution, to the Conversion Price that would have been in effect if such determination date had not been fixed. For the purposes of this paragraph (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of Alcatel but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of such shares. Alcatel will not pay any dividend or make any distribution on shares held in the treasury of Alcatel. (2) In case Alcatel shall issue rights, options or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock such that the price per Alcatel ADS would be less than the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) on the date fixed for the determination of stockholders entitled to receive such rights, options or warrants (other than any rights, options or warrants that by their terms will also be issued to any Holder upon conversion of a Security into Alcatel ADSs without any action required by the Company or any other Person), the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. If, after any such date fixed for determination, any such rights, options or warrants are not in fact issued, the Conversion Price shall be immediately readjusted, effective as of the date the determination is made not to issue such rights, options or warrants, to the Conversion Price that would have been in effect if such determination date had not been fixed. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of Alcatel but shall include shares issuable in respect of scrip certificates issued in lieu of 5 7 fractions of shares of Common Stock. Alcatel will not issue any rights, options or warrants in respect of shares of Common Stock held in the treasury of Alcatel. (3) In case the ratio of Alcatel ADSs to shares of Common Stock shall be modified such that each Alcatel ADS no longer represents one-fifth of one ordinary share of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such modification becomes effective shall be proportionally adjusted, such adjustment to become effective immediately after the opening of business on the day following the day upon which such modification becomes effective. (4) In case Alcatel shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class of capital stock, or other property (including securities, but excluding (i) any rights, options or warrants referred to in paragraph (2) of this Section, (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section and (iv) any merger or consolidation to which Section 12.11 applies), the Conversion Price shall be adjusted so that the same shall equal the price determined by dividing the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) on the date fixed for such determination less the then fair market value (as determined by the authorized officer of Alcatel, whose determination shall be conclusive and filed with the Trustee) of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one Alcatel ADS and the denominator shall be such current market price per Alcatel ADS, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. If, after any such date fixed for determination, any such distribution is not in fact made, the Conversion Price shall be immediately readjusted, effective as of the date the determination is made not to make such distribution, to the Conversion Price that would have been in effect if such determination date had not been fixed. (5) In case Alcatel shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 12.11 applies or as part of a distribution referred to in paragraph (4) of this Section) in an aggregate amount that, combined together with (I) the aggregate amount of any other cash distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (5) has been made and (II) the aggregate of any cash plus the fair market value (as determined by the authorized officer of Alcatel, whose determination shall be conclusive) of consideration payable in respect of any tender offer by Alcatel or any of its subsidiaries for all or any portion of the Alcatel ADSs concluded within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to paragraph (6) of this Section 12.4 has been made (the "combined cash and tender amount") exceeds 12.5% of the product of the current market price per Alcatel ADS (determined as 6 8 provided in paragraph (8) of this Section 12.4) on the date for the determination of holders of shares of Common Stock entitled to receive such distribution times the number of Alcatel ADSs which would have to be issued to reflect all shares of Common Stock outstanding on such date (the "aggregate current market price"), then, and in each such case, immediately after the close of business on such date for determination, the Conversion Price shall be adjusted so that the same shall equal the price determined by dividing the Conversion Price in effect immediately prior to the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section) on the date fixed for such determination less an amount equal to the quotient of (x) the excess of such combined cash and tender amount over such aggregate current market price divided by (y) the number of Alcatel ADSs which would have to be issued to reflect all shares of Common Stock outstanding on such date for determination and (ii) the denominator of which shall be equal to the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) on such date for determination. (6) In case a tender offer made by Alcatel or any Subsidiary for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the authorized officer of Alcatel, whose determination shall be conclusive) that combined together with (I) the aggregate of the cash plus the fair market value (as determined by the authorized officer of Alcatel, whose determination shall be conclusive), as of the expiration of such tender offer, of consideration payable in respect of any other tender offer by Alcatel or any Subsidiary for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this paragraph (6) has been made and (II) the aggregate amount of any cash distributions to all holders of Alcatel's Common Stock within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to paragraph (5) of this Section has been made (the "combined tender and cash amount") exceeds 12.5% of the product of the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of Alcatel ADSs which would have to be issued to reflect all shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by dividing the Conversion Price immediately prior to close of business on the date of the Expiration Time by a fraction (i) the numerator of which shall be equal to (A) the product of (I) the current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) on the date of the Expiration Time multiplied by (II) the number of Alcatel ADSs which would have to be issued to reflect all shares of Common Stock outstanding (including any tendered shares) on the Expiration Time less (B) the combined tender and cash amount, and (ii) the denominator of which shall be equal to the product of (A) the 7 9 current market price per Alcatel ADS (determined as provided in paragraph (8) of this Section 12.4) as of the Expiration Time multiplied by (B) the number of Alcatel ADSs which would have to be issued to reflect all shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time less the number of Alcatel ADSs which would have to be issued to represent all shares of Common Stock validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares"). (7) The reclassification of Common Stock into securities other than Common Stock (other than a reclassification upon a consolidation or merger to which Section 12.11 applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and "the date fixed for such determination" within the meaning of paragraph (4) of this Section), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 12.4). (8) For the purpose of any computation under paragraphs (2), (4), (5) or (6) of this Section 12.4, the current market price per Alcatel ADS on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Prices Per Alcatel ADS for the five consecutive Trading Days selected by the Company commencing not more than 10 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex" date with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "ex date", when used with respect to any issuance or distribution, means the first date on which the Alcatel ADSs trade in a regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution. (9) No adjustment in the Conversion Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such rate; provided, however, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article shall be made to the nearest cent or to the nearest one-hundredth of an Alcatel ADS or share, as the case may be. (10) The Company may make such reductions in the Conversion Price, for the remaining term of the Securities or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 12.4, as it considers to be advisable in order to avoid or diminish any income tax to any holders of Alcatel ADSs resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase 8 10 or subscribe for stock or from any event treated as such for income tax purposes. The Company shall have the power to resolve any ambiguity or correct any error in this paragraph (10) and its actions in so doing shall, absent manifest error, be final and conclusive. SECTION 2.12. Covenant as to Alcatel ADSs Section 12.9 of the Indenture shall be deleted and replaced in its entirety by the text below. The Company agrees that all Alcatel ADSs which may be delivered upon conversion of Securities will have been duly purchased on the open market and, except as provided in Section 12.8, the Company will pay all taxes, liens and charges with respect to the delivery thereof. SECTION 2.13. Provision in Case of Consolidation, Merger or Sale of Assets Section 12.11 of the Indenture shall be deleted and replaced in its entirety by the text below. In case of any consolidation or merger of Alcatel with or into any other Person, any merger of another Person with or into Alcatel (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of Alcatel) or any conveyance, sale, transfer or lease of all or substantially all of the assets of Alcatel, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then Outstanding shall have the right thereafter, during the period such Security shall be convertible as specified in Section 12.1, to convert such Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by a holder of the number of Alcatel ADSs into which such Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Alcatel ADSs (i) is not a Person with which Alcatel consolidated or merged with or into or which merger into or with Alcatel or to which such conveyance, sale, transfer or lease was made, as the case may be ("Constituent Person"), or an Affiliate of a Constituent Person and (ii) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease is not the same for each Alcatel ADS held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Alcatel ADSs"), then for the purpose of this Section 12.11 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non- electing Alcatel ADS shall be deemed to be the kind and amount so receivable per share 9 11 by a plurality of the Non-electing Alcatel ADSs), and further assuming, if such consolidation, merger, conveyance, transfer, sale or lease occurs prior to the 90th day following the last original issue date of the Securities, that the Security was convertible at the time of such occurrence at the Conversion Rate specified in Section 12.1 as adjusted from the issue date of such Security to such time as provided in this Article Twelve. Such supplemental indenture shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section 12.11 shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. Notice of the execution of such a supplemental indenture shall be given by the Company to the Holder of each Security as provided in Section 1.6 promptly upon such execution. Neither the Trustee nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any such supplemental indenture relating either to the kind or amount of shares of stock or other securities or property or cash receivable by Holders of Securities upon the conversion of their Securities after any such consolidation, merger, conveyance, transfer, sale or lease or to any such adjustment, but may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, an Opinion of Counsel with respect thereto, which the Company shall cause to be furnished to the Trustee upon request. SECTION 2.14. Conditions to the Company's Election to Pay the Repurchase Price in Alcatel ADSs Section 14.2(d) of the Indenture shall be deleted and replaced in its entirety by the text below. 14.2. (d) All Alcatel ADSs which may be delivered upon repurchase of Securities will be purchased by the Company on the open market. SECTION 2.15. Certain Definitions (i) Section 14.4(b)(i) shall be modified by inserting the words "or Alcatel" directly after the last three mentions of "the Company"; (ii) Section 14.4(b)(ii) shall be modified by replacing the words "Common Stock" with "common stock of the Company"; (iii) The proviso at the end of Section 14.4(b) of the Indenture shall be modified by inserting the following text at the beginning of clause (y): "in the event that the Change of Control is effected through the acquisition of the Common Stock of Alcatel,". SECTION 2.16. Guaranty 10 12 The text below shall be inserted immediately following Section 15.5 of the Indenture. ARTICLE 16 THE GUARANTY SECTION 16.1. Guaranty. Alcatel has, pursuant to the Guaranty dated as of September 17, 1998, a copy of which is attached hereto as Annex I, fully and unconditionally guaranteed the due and punctual payment of the principal of, premium, if any, and interest (including Liquidated Damages) on the Securities. In case of a failure of the Company to pay or cause to be paid punctually any such amounts in accordance with the terms of this Indenture, Alcatel hereby agrees, upon written notice from the Trustee, to pay or cause to be paid punctually any such amounts when and as the same become due and payable in accordance with the Guaranty. ARTICLE 3 MISCELLANEOUS SECTION 3.01. Ratification of Indenture Except as expressly modified or amended by this Second Supplemental Indenture, the Indenture continues in full force and effect and is in all respects confirmed and preserved. SECTION 3.02. Headings Headings of the Articles and Sections in this Second Supplemental Indenture are for convenience of reference only and do no affect interpretation. SECTION 3.03. Severability Clause In case any provision in this Second Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 3.04. Benefits of Supplemental Indenture: Binding Effect Nothing in this Second Supplemental Indenture, express or implied, shall give any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders, any benefit of any legal or equitable right, remedy, or claim under this Second Supplemental Indenture. This Second Supplemental Indenture shall be binding upon the successors of the Company and the Trustee and on each Holder. SECTION 3.05. Governing Law This Second Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York. 11 13 14 SECTION 3.06. Counterparts This instrument may be executed in any number of counterparts, each of which so executed shall be deemed an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, as of the day and year first above written. ALCATEL USA, INC. By: /s/ George B. Brunt __________________________________ Name: George B. Brunt Title: Senior Vice President, General Counsel and Secretary Attest: /s/ Christopher A. Cole ___________________________________ Name: Christopher A. Cole Title: Assistant Secretary THE BANK OF NEW YORK, Trustee By /s/ Van K. Brown ___________________________________ Name: Van K. Brown Title: Assistant Vice-President 12 15 STATE OF TEXAS) ):ss.: COUNTY OF COLIN ) On the 8th of January 1999, before me personally came George B. Brunt, to me known, who, being by me duly sworn, did depose and say that he is the Sr. Vice President, General Counsel and Secy of Alcatel USA, Inc., one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. /s/ Margie D. Schwartz _______________________________________ Margie D. Schwartz Notary Public 13 16 As Guarantor, ALCATEL By: /s/ Jean-Pierre Halbron ___________________________________ Name: Jean-Pierre Halbron Title: Senior Executive Vice President 17 Annex I GUARANTY, dated as of September 17, 1998, made by Alcatel, a corporation organized under the laws of the Republic of France (the "Guarantor"), in favor of DSC Communications Corporation, a Delaware corporation ("DSC"). WITNESSETH WHEREAS, The Bank of New York (the "Trustee"), and DSC are parties to the Indenture, dated as of August 12, 1997 (as amended, supplemented or otherwise modified from time to time, the "Indenture"), providing for the creation and issuance by DSC of 7% Convertible Subordinated Notes due August 1, 2004 (the "Securities"). WHEREAS, DSC has entered into an Agreement and Plan of Merger, dated as of June 3, 1998, as amended, with the Guarantor and Net Acquisition, Inc., a Delaware corporation and direct subsidiary of Alcatel ("Newco") pursuant to which Newco will be merged with and into DSC, and DSC will continue as the surviving corporation and wholly owned subsidiary of the Guarantor; NOW, THEREFORE, in consideration of the agreements herein, the Guarantor hereby agrees with DSC as follows: SECTION 1. DEFINITIONS. Reference is hereby made to the Indenture for a statement of the terms thereof. All terms used in this Guaranty which are defined therein and not otherwise defined herein shall have the same meanings herein as set forth herein. SECTION 2. GUARANTY. The Guarantor shall fully and unconditionally guarantee the due and punctual payment of the principal of, premium, if any, and interest (including Liquidated Damages) on the Securities (the "Obligations"). SECTION 3. GUARANTOR'S OBLIGATIONS. This guaranty is a continuing guaranty and shall remain in full force and effect until such date on which all of the Obligations shall have been satisfied in full. SECTION 4. SUBROGATION. The Guarantor hereby agrees it will not exercise any rights which it may acquire by way of subrogation, reimbursement, exoneration, contribution and/or indemnity hereunder, by operation of law or otherwise, by any payment made by it hereunder or otherwise, until the Obligations shall have been satisfied in full. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents and warrants as follows: (a) The Guarantor (i) a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation as set forth on the first page hereof, (ii) is qualified to do business, and is in good standing, in the Republic of France, and (iii) has all requisite power and authority to execute, deliver and perform this Guaranty. 18 (b) The execution, delivery and performance by the Guarantor of this Guaranty (i) have been duly authorized by all the necessary corporate action, (ii) do not and will not contravene its by-laws or any applicable law or any material contractual restriction binding on or otherwise affecting the Guarantor or any of its properties, and (iii) do not and will result in or require the creation of any lien upon or with respect to any of its properties, and (iv) do not and will not result in any suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to its operations or any of its properties except where such suspension, revocation, impairment, forfeiture or nonrenewal is not reasonably likely to have a material adverse effect upon the business, operations, properties, assets, prospects or condition (financial or otherwise) of the Guarantor. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or other regulatory body is required in connection with the due execution, delivery and performance by the Guarantor of this Guaranty. (d) This Guaranty is a legal, valid and binding obligation of the Guarantor in accordance with its terms, except to the extent that the enforceability thereof may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect affecting generally enforcement of creditors' rights and by general principles of equity. (e) There is no pending or, to the best knowledge of the Guarantor, threatened action, suit or proceeding against the Guarantor is subject, before any court or other governmental authority or any arbitrator (i) which challenges the validity or enforceability of this Guaranty, or (ii) in which there is a reasonable possibility of an adverse decision which may have a material adverse effect upon the business, operations, properties, assets, prospects or condition (financial or otherwise) of the Guarantor. SECTION 6. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing and shall be mailed (by certified mail, postage prepaid and return receipt requested), telecopied, telegraphed, teletexed or delivered, if to the Guarantor, to it at its address at 56 rue La Boetie, Paris, France 75008; if to DSC, to it at its address set forth in the Indenture, or, to such other address as shall be designated by any party in a written notice to the other party hereto complying as to delivery with the terms of this Section 6. SECTION 7. GOVERNING LAW. This Guaranty shall be governed by, and construed in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed by an officer thereunto duly authorized, as of the date first above written. ALCATEL By: /s/ Serge Tchuruk ----------------------- Name: Serge Tchuruk Title: Chairman & Chief Executive Officer -2- EX-4.4 4 GUARANTY 1 Exhibit 4.4 ALCATEL GUARANTY, dated as of September 17, 1998, made by Alcatel, a corporation organized under the laws of the Republic of France (the "Guarantor"), in favor of DSC Communications Corporation, a Delaware corporation ("DSC"). WITNESSETH WHEREAS, The Bank of New York (the "Trustee"), and DSC are parties to the Indenture, dated as of August 12, 1997 (as amended, supplemented or otherwise modified from time to time, the "Indenture"), providing for the creation and issuance by DSC of 7% Convertible Subordinated Notes due August 1, 2004 (the "Securities"). WHEREAS, DSC has entered into an Agreement and Plan of Merger, dated as of June 3, 1998, as amended, with the Guarantor and Net Acquisition, Inc., a Delaware corporation and direct subsidiary of Alcatel ("Newco") pursuant to which Newco will be merged with and into DSC, and DSC will continue as the surviving corporation and wholly owned subsidiary of the Guarantor; NOW, THEREFORE, in consideration of the agreements herein, the Guarantor hereby agrees with DSC as follows: SECTION 1. DEFINITIONS. Reference is hereby made to the Indenture for a statement of the terms thereof. All terms used in this Guaranty which are defined therein and not otherwise defined herein shall have the same meanings herein as set forth herein. SECTION 2. GUARANTY. The Guarantor shall fully and unconditionally guarantee the due and punctual payment of the principal of, premium, if any, and interest (including Liquidated Damages) on the Securities (the "Obligations"). SECTION 3. GUARANTOR'S OBLIGATIONS. This guaranty is a continuing guaranty and shall remain in full force and effect until such date on which all of the Obligations shall have been satisfied in full. SECTION 4. SUBROGATION. The Guarantor hereby agrees it will not exercise any rights which it may acquire by way of subrogation, reimbursement, exoneration, contribution and/or indemnity hereunder, by operation of law or otherwise, by any payment made by it hereunder or otherwise, until the Obligations shall have been satisfied in full. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents and warrants as follows: (a) The Guarantor (i) a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation as set forth on the first page hereof, (ii) is qualified to do business, and is in good standing, in the Republic of France, and (iii) has all requisite power and authority to execute, deliver and perform this Guaranty. 2 (b) The execution, delivery and performance by the Guarantor of this Guaranty (i) have been duly authorized by all the necessary corporate action, (ii) do not and will not contravene its by-laws or any applicable law or any material contractual restriction binding on or otherwise affecting the Guarantor or any of its properties, and (iii) do not and will result in or require the creation of any lien upon or with respect to any of its properties, and (iv) do not and will not result in any suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to its operations or any of its properties except where such suspension, revocation, impairment, forfeiture or nonrenewal is not reasonably likely to have a material adverse effect upon the business, operations, properties, assets, prospects or condition (financial or otherwise) of the Guarantor. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or other regulatory body is required in connection with the due execution, delivery and performance by the Guarantor of this Guaranty. (d) This Guaranty is a legal, valid and binding obligation of the Guarantor in accordance with its terms, except to the extent that the enforceability thereof may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect affecting generally enforcement of creditors' rights and by general principles of equity. (e) There is no pending or, to the best knowledge of the Guarantor, threatened action, suit or proceeding against the Guarantor is subject, before any court or other governmental authority or any arbitrator (i) which challenges the validity or enforceability of this Guaranty, or (ii) in which there is a reasonable possibility of an adverse decision which may have a material adverse effect upon the business, operations, properties, assets, prospects or condition (financial or otherwise) of the Guarantor. SECTION 6. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing and shall be mailed (by certified mail, postage prepaid and return receipt requested), telecopied, telegraphed, telexed or delivered, if to the Guarantor, to it at its address at 56 rue La Boetie, Paris, France 75008; if to DSC, to it at its address set forth in the Indenture, or, to such other address as shall be designated by any party in a written notice to the other party hereto complying as to delivery with the terms of this Section 6. SECTION 7. GOVERNING LAW. This Guaranty shall be governed by, and construed in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed by an officer thereunto duly authorized, as of the date first above written. ALCATEL By: /s/ Serge Tchuruk ----------------------- Name: Serge Tchuruk Title: Chairman and Chief Executive Officer -2- EX-4.7 5 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 4.7 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ALCATEL USA, INC. Alcatel USA, Inc., a Delaware corporation (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is Alcatel USA, Inc. 2. The Corporation was originally incorporated under the name Digital Switch Corporation on September 20, 1976. 3. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 and all other applicable provisions of the General Corporation Law of the State of Delaware (the "DGCL"). 4. The certificate of incorporation of the Corporation is hereby amended and restated to read in its entirety as set forth in Exhibit A attached hereto. 5. All of the shares of the Common Stock, par value $0.01 per share, of the Corporation issued and outstanding immediately prior to the time when this Amended and Restated Certificate of Incorporation becomes effective in accordance with the DGCL are hereby reclassified and converted into 100,000 shares, in the aggregate, of the Class A Common Stock, par value $0.01 per share, of the Corporation, without any action by any holder thereof. This Amended and Restated Certificate of Incorporation shall become effective at 11:50 p.m. (Delaware time) on December 31, 1998. 2 IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by the Corporation on December 18, 1998. ALCATEL USA, INC. By: /s/ Krish A. Prabhu --------------------------- Krish A. Prabhu, President 2 3 Exhibit A AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ALCATEL USA, INC. ARTICLE I NAME The name of the Corporation is Alcatel USA, Inc. ARTICLE II REGISTERED OFFICE AND AGENT The address of the Corporation's registered office in the State of Delaware is The Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is The Corporation Trust Company. ARTICLE III PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "DGCL"). ARTICLE IV STOCK Section 1. Authorized Stock. The total number of shares of stock which the Corporation shall have authority to issue is 200,000 shares, 100,000 of which shall be Class A Common Stock, the par value of each of which is $0.01 ("Class A Common Stock"), and 100,000 of which shall be Class B Common Stock, the par value of each of which is $0.01 ("Class B Common Stock"). Section 2. Voting Rights. (a) Each share of Class A Common Stock shall be entitled to one vote with respect to all matters on which stockholders of the Corporation are entitled to vote under the DGCL. (b) Each share of Class B Common Stock shall be entitled to 1/5th of one vote with respect to all matters on which stockholders of the Corporation are entitled to vote under the 4 DGCL, provided, however, that (i) such shares, voting as a class, shall have the right to elect one director of the Corporation, and (ii) no such shares shall have any right to vote on the election of any other director of the Corporation. Section 3. Other Powers, Preferences and Rights. Except as provided in Section 2 of this Article IV, each share of Class A Common Stock and each share of Class B Common Stock shall have identical powers, preferences and rights, including without limitation dividend rights and rights on liquidation or dissolution of the Corporation. ARTICLE V BOARD OF DIRECTORS The business of the Corporation shall be managed by or under the direction of a board of directors (the "Board of Directors"). The number of directors comprising the Board of Directors shall not be less than five, and each of such directors shall (a) exercise those powers that are traditionally exercised by boards of directors of corporations organized under the DGCL and (b) have equal voting rights on all matters that the Board of Directors may consider. Hereafter, within such limits, the number of directors shall be fixed by the bylaws of the Corporation (the "Bylaws"), and such number may from time to time be increased or decreased in such manner as is provided by the Bylaws. The number of directors comprising the current Board of Directors shall be five. ARTICLE VI BYLAWS The Board of Directors shall have the power to adopt, amend and repeal any Bylaw, provided, however, that the stockholders of the Corporation shall have the power to amend or repeal any Bylaw adopted by the Board of Directors. ARTICLE VII LIABILITY OF DIRECTORS No director of the Corporation shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any transaction from which the director derived an improper personal benefit. 2 5 ARTICLE VIII AMENDMENT The Corporation reserves the right to amend or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by the DGCL, any other applicable statute or the certificate of incorporation of the Corporation, and all rights conferred upon stockholders herein are granted subject to this reservation. 3 EX-4.8 6 AMENDED AND RESTATED BYLAWS 1 Exhibit 4.8 - - ------------------------------------------------------------------------------- AMENDED AND RESTATED BYLAWS OF ALCATEL USA, INC. (a Delaware corporation) December 31, 1998 - - ------------------------------------------------------------------------------- 2 TABLE OF CONTENTS ARTICLE I OFFICES 1.1. Registered Office...................................................1 1.2. Other Offices.......................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS 2.1. Annual Meetings.....................................................1 2.2. Special Meetings....................................................1 2.3. Notices.............................................................2 2.4. Record Date.........................................................2 2.5. Stock Ledger........................................................2 2.6. Quorum and Adjournments.............................................2 2.7 Organization........................................................3 2.8 Vote................................................................3 2.9. Proxies.............................................................3 2.10. Action Without Meeting..............................................4 ARTICLE III DIRECTORS 3.1. Election............................................................4 3.2. Chairman of the Board...............................................4 3.3. Powers..............................................................5 3.4. First Meeting.......................................................5 3.5. Regular Meetings....................................................5 3.6. Special Meetings....................................................5 3.7. Quorum..............................................................5 3.8. Organization........................................................5 3.9. Meeting by Conference Telephone.....................................5 3.10. Action Without Meeting..............................................6 3.11. Compensation........................................................6 ARTICLE IV COMMITTEES 4.1. Designation.........................................................6 4.2. Members.............................................................6 4.3. Powers..............................................................6 3 4.4. Rules...............................................................7 4.5. Minutes.............................................................7 4.6. Action Without Meeting..............................................7 4.7. Compensation........................................................7 ARTICLE V NOTICES 5.1. Method..............................................................7 5.2. Waiver..............................................................7 ARTICLE VI OFFICERS 6.1. Election............................................................8 6.2. President...........................................................8 6.3. Vice Presidents.....................................................8 6.4. Treasurer...........................................................9 6.5. Assistant Treasurers................................................9 6.6 Secretary...........................................................9 6.7. Assistant Secretaries...............................................9 6.8. Compensation........................................................9 ARTICLE VII CERTIFICATES OF STOCK 7.1. Certificates.......................................................10 7.2. Facsimile Signatures...............................................10 7.3. Lost Certificates..................................................10 7.4. Transfers of Stock.................................................10 7.5. Closing of Transfer Books..........................................11 7.6. Registered Stockholders............................................11 ARTICLE VIII INDEMNIFICATION 8.1. Power..............................................................11 8.2. Authorization......................................................12 8.3. Good Faith.........................................................12 8.4. Indemnification by a Court.........................................13 8.5. Payment in Advance.................................................13 8.6. Non-exclusivity....................................................13 8.7. Insurance..........................................................13 ii 4 8.8. Certain Definitions................................................14 8.9. Survival...........................................................14 8.10. Limitations........................................................14 8.11. Employees and Agents...............................................14 ARTICLE IX MISCELLANEOUS 9.1. Dividends..........................................................14 9.2. Reserves...........................................................15 9.3. Books and Records..................................................15 9.4. Fiscal Year........................................................15 9.5. Seal...............................................................15 9.6. Amendments.........................................................15 iii 5 AMENDED AND RESTATED BYLAWS OF ALCATEL USA, INC. These Amended and Restated Bylaws (these "Bylaws") of Alcatel USA, Inc., a Delaware corporation (the "Corporation"), have been adopted by the Corporation effective as of the date set forth on the cover page hereof and are subject to the applicable provisions of the certificate of incorporation of the Corporation, as in effect from time to time (the "Certificate of Incorporation"), and the General Corporation Law of the State of Delaware (the "DGCL"). ARTICLE I OFFICES 1.1. Registered Office. The registered office of the Corporation in the State of Delaware shall be designated from time to time by the board of directors of the Corporation (the "Board of Directors"). 1.2. Other Offices. The Corporation may maintain offices other than its registered office at such places, within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1. Annual Meetings. An annual meeting of the stockholders of the Corporation (the "Stockholders") shall be held (a) on the second Tuesday in the month of February at 9:00 a.m. at the principal place of business of the Corporation or (b) on such other date and at such other time and place, within or without the State of Delaware, as shall be stated in the notice of such meeting or in a duly executed waiver of notice thereof. At each annual meeting of the Stockholders, the Stockholders shall elect the Board of Directors and transact such other business as may properly be brought before such meeting. 2.2. Special Meetings. Special meetings of the Stockholders, for any purpose or purposes, (a) may be called by the Chief Executive Officer and (b) shall be called by the Secretary upon the receipt of a written request stating the purpose or purposes of such meeting from (i) a majority of the Board of Directors or (ii) the Stockholders that own a majority of the shares of the stock of the Corporation issued and outstanding and entitled to vote thereon. Business transacted at any special meeting of the Stockholders shall be limited to the purpose or purposes stated in the notice of such meeting. Any special meeting of the Stockholders may be held on such date and at such time and place, within or without the State of Delaware, as shall be stated in the notice of such meeting or in a duly executed waiver of notice thereof. 6 2.3. Notices. (a) Written notice of the annual meeting of the Stockholders stating the date, time and place thereof shall be given to each Stockholder entitled to vote thereat at least 10 days but not more than 60 days before the date of such meeting. (b) Written notice of a special meeting of the Stockholders stating the date, time, place and purpose thereof, shall be given to each Stockholder entitled to vote thereat at least 10 days but not more than 60 days before the date of such meeting. If such notice is mailed, then such notice shall be deemed to be given to any Stockholder when deposited in the mail, postage prepaid, directed to such Stockholder at such Stockholder's address as it appears on the records of the Corporation. 2.4. Record Date. In order that the Corporation may determine the Stockholders entitled to notice of, or to vote at, any meeting of the Stockholders or any adjournment thereof, or to express written consent to corporate action without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be (a) more than 60 nor less than 10 days before the date of such meeting or (b) more than 60 days prior to any other action. If no record date is fixed, then (a) the record date for determining the Stockholders entitled to notice of, or to vote at, any meeting of the Stockholders shall be (i) at the close of business on the day next preceding the day on which notice is given or (ii) if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and (b) the record date for determining the Stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of the Stockholders of record entitled to notice of, or to vote at, any meeting of the Stockholders shall apply to any adjournment of such meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 2.5. Stock Ledger. The Secretary shall prepare and make, at least 10 days before every meeting of the Stockholders, a complete list of the Stockholders entitled to vote at such meeting, arranged in alphabetical order, showing the address of each Stockholder and the number of shares registered in the name of each Stockholder. Such list shall be open to the examination of any Stockholder for any purpose germane to the relevant meeting during ordinary business hours for a period of at least 10 days prior to such meeting either (a) at a place within the city where such meeting is to be held and which place shall be specified in the notice of such meeting or (b) if not specified, at the place where such meeting is to be held. Such list shall also be produced and kept at the time and place of the relevant meeting during the whole time thereof and may be inspected by any Stockholder who is present. The stock ledger shall be the only evidence as to the identity of the Stockholders entitled to examine the stock ledger, the list of the Stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of the Stockholders. 2 7 2.6. Quorum and Adjournments. The holders of a majority of the shares of the stock of the Corporation issued and outstanding and entitled to vote at any meeting of the Stockholders, present in person or represented by proxy, shall constitute a quorum at such meeting for the transaction of business, except as otherwise provided by the Certificate of Incorporation or the DGCL. If, however, such quorum shall not be present or represented at any meeting of the Stockholders, then the Stockholders entitled to vote thereat, present in person or represented by proxy, shall have power by majority vote to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. Shares of the stock of the Corporation that are held by the Corporation or any affiliate of the Corporation shall not be entitled to vote or be counted for the purposes of determining a quorum. At any adjourned meeting at which a quorum is present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If any adjournment is for more than 30 days, or if after any adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at such meeting. 2.7. Organization. Each meeting of the Stockholders shall be presided over by (a) the Chairman of the Board, if any, (b) the President, in the absence of the Chairman of the Board, (c) a chairman designated by the Board of Directors, in the absence of the Chairman of the Board and the President, or (d) a chairman chosen at such meeting, in the absence of the Chairman of the Board, the President and such designation. The Secretary, or any Assistant Secretary, in the absence of the Secretary, shall act as the secretary of each meeting of the Stockholders; provided, however, that if the Secretary and all Assistant Secretaries are absent, then the chairman of such meeting may appoint any person to act as the secretary of such meeting. 2.8. Vote. Each Stockholder entitled to vote at any meeting of the Stockholders shall be entitled to one vote for each share of stock held by such Stockholder which has voting power upon the matter in question. Voting at meetings of the Stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the shares of all classes of stock of the Corporation issued and outstanding and entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of the Stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect any director. All other elections and questions shall, unless otherwise provided by the Certificate of Incorporation, the DGCL or these Bylaws, be decided by the vote of the holders of majority of the shares of stock of the Corporation issued and outstanding and entitled to vote thereon, present in person or represented by proxy, at the meeting; provided, however, that (except as otherwise required by the Certificate of Incorporation or the DGCL) the Board of Directors may require a larger vote upon any election or question. 2.9. Proxies. Each Stockholder entitled to vote at any meeting of the Stockholders may authorize another person or persons to act for such Stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless such proxy provides for a longer period of effectiveness. A duly executed proxy shall be irrevocable if it states that it is 3 8 irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. Any Stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing with the Secretary an instrument in writing revoking the proxy or another duly executed proxy bearing a later date. 2.10. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Stockholders may be taken without a meeting, without prior notice and without a vote, if a written consent thereto is signed by the holders of the shares of the stock of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of the stock of the Corporation issued and outstanding and entitled to vote thereon were present and voted. Prompt notice of the taking of any action without a meeting by less than unanimous written consent shall be given to those Stockholders who have not consented to such action in writing. ARTICLE III DIRECTORS 3.1. Election. (a) The number of directors comprising the Board of Directors shall not be less than five or more than 10. The number of directors comprising the current Board of Directors shall be five. Hereafter, within such limits, the number of directors shall be determined by the Board of Directors. (b) The directors shall be elected at the annual meeting of the Stockholders, except as provided in Section 3.1(c), and each director elected by such Stockholders shall hold office, at the discretion of the Stockholders, until the earlier of (i) such director's resignation, removal or death or (ii) the due election and qualification of such director's successor. Directors need not be Stockholders. Any director or the entire Board of Directors may be removed, with or without cause, at any time by the holders of a majority of the shares of the stock of the Corporation issued and outstanding and entitled to vote thereon. (c) Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office (even though the number of such directors may be less than a quorum), by the sole remaining director, or by the Stockholders at any meeting. Each director so elected shall hold office, at the discretion of the Stockholders, until the earlier of (i) such director's resignation, removal or death or (ii) the due election and qualification of such director's successor. If, at any time, there are no directors in office, then an election of directors may be held in the manner provided by the DGCL. 3.2. Chairman of the Board. There may be a chairman of the Board of Directors (the "Chairman of the Board") elected by the Board of Directors from their members at any meeting of the Board of Directors. The Chairman of the Board shall preside at all meetings of the Board of Directors and perform such other duties as may be directed by the Board of Directors. 4 9 3.3. Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not required by the Certificate of Incorporation, the DGCL or these Bylaws to be exercised or done by the Stockholders. 3.4. First Meeting. The first meeting of each newly elected Board of Directors shall be held promptly after and at the same place as the annual meeting of the Stockholders, and any such meeting may be held without notice to any director. At the first meeting of each newly elected Board of Directors, the Board of Directors shall elect the officers of the Corporation and transact such other business as may properly be brought before such meeting. 3.5. Regular Meetings. Regular meetings of the Board of Directors may be held, without notice, on such date and at such time and place, within or without the State of Delaware, as shall be determined by the Board of Directors. 3.6. Special Meetings. Special meetings of the Board of Directors (a) may be called by the President on not less than two, or, in the case of notice given by mail, not less than three, days' notice to each director and (b) shall be called by the Secretary on like notice on the written request of two directors, unless the Board of Directors consists of only one director, in which case special meetings shall be called by the Secretary on like notice on the written request of the sole director. Any special meeting of the Board of Directors may be held on such date and at such time and place, within or without the State of Delaware, as shall be stated in the notice of such meeting or in a duly executed waiver of notice thereof. 3.7. Quorum. At all meetings of the Board of Directors, a majority of the directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by the Certificate of Incorporation or the DGCL. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 3.8. Organization. Each meeting of the Board of Directors shall be presided over by (a) the Chairman of the Board, if any, (b) the President, in the absence of the Chairman of the Board, or (c) a chairman chosen at such meeting, in the absence of the Chairman of the Board and the President. The Secretary, or any Assistant Secretary, in the absence of the Secretary, shall act as the secretary of each meeting of the Board of Directors; provided, however, if the Secretary and all Assistant Secretaries are absent, then the chairman of such meeting may appoint any person to act as the secretary of such meeting. 3.9. Meeting by Conference Telephone. Unless otherwise restricted by the Certificate of Incorporation, directors may participate in any meeting of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons 5 10 participating in such meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. 3.10. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a written consent thereto is signed by all of the directors, and such written consent is filed with the minutes of the proceeding of the Board of Directors. 3.11. Compensation. The Board of Directors may fix the compensation, including fees and reimbursement of expenses, paid to directors for attendance at regular or special meetings of the Board of Directors. ARTICLE IV COMMITTEES 4.1. Designation. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees of the Board of Directors (a "Committee"). Each Committee shall have such name as may be determined from time to time by the Board of Directors. 4.2. Members. Each Committee shall consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any Committee, who may replace any absent or disqualified member at any meeting of such Committee. In the absence or disqualification of any member of any Committee, the member or members of such Committee present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at such meeting in place of any such absent or disqualified member. 4.3. Powers. To the extent provided in the relevant resolution, any Committee shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that (a) no Committee shall have power or authority in reference of (i) amending the Certificate of Incorporation (except that any Committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the DGCL, fix the designations and any of the preferences or rights of such shares relating to dividends, redemptions, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (ii) adopting an agreement of merger or consolidation of the Corporation under Section 251 or 252 of the DGCL, (iii) recommending to the Stockholders the sale, lease or exchange of all or substantially all of 6 11 the Corporation's property and assets, (iv) recommending to the Stockholders a dissolution of the Corporation or a revocation of dissolution or (v) amending these Bylaws, and (b) unless the resolution expressly so provides, no Committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. 4.4. Rules. Unless the Board of Directors otherwise provides, each Committee may adopt, amend or repeal rules for the conduct of its business. In the absence of such rules, each Committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these Bylaws. 4.5. Minutes. Each Committee shall keep regular minutes of its meetings and report such minutes to the Board of Directors when required. 4.6. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of any Committee may be taken without a meeting if a written consent thereto is signed by all of the members of such Committee, and such written consent is filed with the minutes of the proceeding of such Committee. 4.7. Compensation. The Board of Directors may fix the compensation, including fees and reimbursement of expenses, paid to directors for attendance at meetings of any Committee. ARTICLE V NOTICES 5.1. Method. Notices to directors and Stockholders shall be in writing and delivered personally or mailed to the directors or Stockholders at their respective addresses as they appear on the records of the Corporation. Notice to directors may also be given by telephone or facsimile. 5.2. Waiver. Whenever any notice is required to be given under any provision of the Certificate of Incorporation, the DGCL or these Bylaws, a written waiver thereof, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except when such person attends any meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because such meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of any regular or special meeting of the Stockholders, directors or members of any Committee need be specified in any written waiver of notice. 7 12 ARTICLE VI OFFICERS 6.1. Election. (a) The officers of the Corporation shall be elected by the Board of Directors, shall include a president (the "President"), a treasurer (the "Treasurer") and a secretary (the "Secretary") and may include one or more vice presidents (the "Vice Presidents"), assistant treasurers (the "Assistant Treasurers") or assistant secretaries (the "Assistant Secretaries"). Two or more offices may be held by the same person. The Board of Directors may elect such other officers of the Corporation as the Board of Directors may deem necessary, desirable or appropriate, and of such officers shall hold office for such term and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. (b) Each officer of the Corporation shall hold office, at the discretion of the Board of Directors, until the earlier of (i) such officer's resignation, removal or death or (ii) the due election and qualification of such officer's successor. Any officer may be removed, with or without cause, at any time by a majority of the Board of Directors; provided, however, that no such removal shall prejudice the contractual rights of such officer, if any, with the Corporation. (c) Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors or by appointment of the President. 6.2. President. (a) The President shall be the chief executive officer of the Corporation and may be designated by the Board of Directors as the "Chief Executive Officer" of the Corporation. The President shall, under the direction of the Board of Directors, be responsible for the management of the business of the Corporation. The President shall, in the absence of the Chairman of the Board, if any, preside at all meetings of the Stockholders and the Board of Directors, and have the powers and duties assigned to the President in the DGCL and these Bylaws and such other powers and duties as may be assigned to the President from time to time by the Board of Directors. (b) The President may, on behalf of the Corporation, execute and deliver such agreements, instruments and documents, and take such other actions, as the President may deem necessary, desirable or appropriate to effect any transaction authorized by the Board of Directors. 6.3. Vice Presidents. (a) Each Vice President shall, in the absence of the President and in the order of seniority determined by the Board of Directors, have the powers and duties of the President. Any Vice President shall have such powers and duties as may be assigned to such Vice President from time to time by the Board of Directors or the President. (b) If any Vice President is designated by the Board of Directors as the "Chief Operating Officer" of the Corporation, then such Vice President shall be deemed to be the most senior Vice President of the Corporation. If any Vice President is designated by the Board of 8 13 Directors as the "Chief Financial Officer" of the Corporation, then such Vice President shall, in the absence of the Chief Operating Officer of the Corporation, if any, be deemed to be the most senior Vice President of the Corporation. 6.4. Treasurer. The Treasurer shall, in the absence of any Vice President designated as the Chief Financial Officer of the Corporation, be the chief financial officer of the Corporation. The Treasurer shall (a) maintain custody of the funds and securities of the Corporation, (b) keep full and accurate accounts of receipts and disbursements in the records of the Corporation and (c) deposit all funds and other valuable effects of the Corporation in the name and for the benefit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall have the powers and duties assigned to the Treasurer in the DGCL and these Bylaws and such other powers and duties as may be assigned to the Treasurer from time to time by the Board of Directors, the President or any Vice President. 6.5. Assistant Treasurers. Each Assistant Treasurer shall, in the absence of the Treasurer and in the order of seniority determined by the Board of Directors, have the powers and duties of the Treasurer. Any Assistant Treasurer shall have such powers and duties as may be assigned to such Assistant Treasurer from time to time by the Board of Directors, the President, any Vice President or the Treasurer. 6.6. Secretary. The Secretary shall keep the seal of the Corporation in safe custody and, when authorized by the Board of Directors, affix such seal to any agreement, instrument or document that requires it. The Secretary shall have the powers and duties assigned to the Secretary in the DGCL and these Bylaws and such other powers and duties as may be assigned to the Secretary from time to time by the Board of Directors, the President or any Vice President. (b) The Secretary may, on behalf of the Corporation, execute and deliver such certificates as the Secretary may deem necessary, desirable or appropriate to certify any record of the Corporation in connection with any transaction authorized by the Board of Directors. 6.7. Assistant Secretaries. Each Assistant Secretary shall, in the absence of the Secretary and in the order of seniority determined by the Board of Directors, have the powers and duties of the Secretary. Any Assistant Secretary shall have such powers and duties as may be assigned to such Assistant Secretary from time to time by the Board of Directors, the President, any Vice President or the Secretary. 6.8. Compensation. The Board of Directors may fix the compensation paid to each officer of the Corporation or delegate the power to fix such compensation to the President. 9 14 ARTICLE VII CERTIFICATES OF STOCK 7.1. Certificates. Every Stockholder shall be entitled to have a certificate, signed by the President or any Vice President and the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant Secretary, certifying the number of shares of the stock of the Corporation owned by such Stockholder (a "Certificate"). If the Corporation is authorized to issue more than one class of stock, or more than one series of any class, the designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences or rights shall be set forth in full or summarized on the face or back of each Certificate that the Corporation shall issue to represent such class of stock; provided, however, that except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of such Certificate a statement that the Corporation will furnish without charge to each Stockholder who so requests the designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences or rights. 7.2. Facsimile Signatures. If any Certificate is signed by any transfer agent or any assistant transfer agent or by any transfer clerk acting on behalf of the Corporation and any registrar, then the signature on such Certificate of the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or Assistant Secretary may be a facsimile signature. If any officer of the Corporation who has signed, or whose facsimile signature has been used on, any Certificate shall cease to be an officer of the Corporation before such Certificate has been delivered by the Corporation, then such Certificate may nevertheless be adopted by the Corporation and be issued and delivered as though the person who signed such Certificate or whose facsimile signature has been used thereon had not ceased to be an officer of the Corporation. 7.3. Lost Certificates. The Board of Directors may direct that a new Certificate be issued in place of any Certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of such fact by the person claiming the Certificate to be lost, stolen or destroyed. When authorizing the issue of such a new Certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the holder of such lost, stolen or destroyed Certificate, or such holder's legal representative, to advertise such fact in such manner as the Board of Directors may require or to give the Corporation a bond in such sum as the Board of Directors may direct as indemnity against any claim that may be made against the Corporation with respect to such lost, stolen or destroyed Certificate or the issuance of such new Certificate. 7.4. Transfers of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of any Certificate duly endorsed or accompanied by proper evidence of succession, 10 15 assignment or authority to transfer, the Corporation shall issue a new Certificate to the person entitled thereto, cancel the old Certificate and record the transaction upon the records of the Corporation. 7.5. Closing of Transfer Books. The Board of Directors may close the stock transfer books of the Corporation (a) for a period of not more than 60 nor less than 10 days preceding (i) the date of any meeting of the Stockholders, (ii) the date for payment of any dividend, (iii) the date for the allotment of rights or (iv) the date when any change or conversion or exchange of stock shall go into effect or (b) for a period of not more than 60 nor less than 10 days in connection with obtaining the consent of the Stockholders for any purpose. 7.6. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of any person registered on the records of the Corporation as the owner of shares of the stock of the Corporation (a) to receive dividends, (b) to vote as such owner and (c) to hold liable for calls and assessments. The Corporation shall not be bound to recognize any equitable or other claim to or interest in any such share on the part of any other person, whether or not the Corporation shall have any notice thereof, except as otherwise provided by the DGCL. ARTICLE VIII INDEMNIFICATION 8.1. Power. (a) Subject to Section 8.2, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person (i) acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and (ii) with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that any person (i) did not act in good faith or in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation or (ii) with respect to any criminal action or proceeding had reasonable cause to believe that such person's conduct was unlawful. (b) Subject to Section 8.2, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of 11 16 the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. 8.2. Authorization. Any indemnification under this Article VIII (unless ordered by any court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the relevant director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 8.1. Such determination shall be made, with respect to any person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, (ii) by a Committee of such directors designated by a majority vote of such directors, even though less than a quorum, (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the Stockholders. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case. 8.3. Good Faith. For purposes of any determination under Section 8.2, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person's conduct was unlawful, if such person's action is based on (a) the records or books of account of the Corporation or another enterprise, (b) information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, (c) the advice of legal counsel for the Corporation or another enterprise or (d) information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant, an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 8.3 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this 12 17 Section 8.3 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 8.1. 8.4. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 8.2, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under Section 8.1. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 8.1. Neither a contrary determination in the specific case under Section 8.2 nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 8.4 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. 8.5. Payment in Advance. Expenses incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director of officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII. 8.6. Non-exclusivity. The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any Bylaw, agreement, vote of the Stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Section 8.1 shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 8.1 but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL or otherwise. 8.7. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII. 13 18 8.8. Certain Definitions. For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, (a) references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan, (b) references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries, and (c) a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII. 8.9. Survival. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. 8.10. Limitations. Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 8.4 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors. 8.11. Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation. ARTICLE IX MISCELLANEOUS 9.1. Dividends. Subject to the provisions of the Certificate of Incorporation and the DGCL, (a) the Board of Directors may declare dividends upon the stock of the Corporation at any regular or special meeting of the Board of Directors, and (b) dividends may be paid in cash, property or shares of the stock of the Corporation. 14 19 9.2. Reserves. The Board of Directors may set aside out of any funds of the Corporation legally available therefor such reserves as the Board of Directors, in its discretion, may consider necessary, desirable or appropriate (a) to meet contingencies, (b) for equalizing dividends, (c) for repairing or maintaining any property of the Corporation or (d) for such other purposes as the Board of Directors may deem necessary, advisable or appropriate. The Board of Directors may modify or abolish any such reserves in the manner in which such reserves were created. 9.3. Books and Records. The Corporation shall keep, at the principal place of business of the Corporation or such other office of the Corporation as the Board of Directors may deem necessary, desirable or appropriate, correct and complete books and records of account, minutes of the proceedings of meetings of the Stockholders, the Board of Directors and each Committee, if any, and the names and addresses of the Stockholders. 9.4. Fiscal Year. The fiscal year of the Corporation shall be the calendar year unless otherwise fixed by the Board of Directors. 9.5. Seal. The seal of the Corporation shall be fixed by the Board of Directors. Such seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 9.6. Amendments. The Board of Directors may amend or repeal any of these Bylaws at any regular or special meeting of the Board of Directors, and the Stockholders may amend or repeal any of these Bylaws at any annual or special meeting of the Stockholders. 15 EX-4.10 7 ARTICLES OF ASSOCIATION 1 Exhibit 4.10 (Unofficial English translation) ALCATEL ARTICLES OF ASSOCIATION AND BY-LAWS PART I FORMATION OF THE COMPANY PURPOSE - COMPANY NAME - REGISTERED OFFICE - TERM ARTICLE 1 The Company, made up of holders of existing shares and shares that may be issued in the future, is a societe anonyme governed by the provisions of the law of July 24, 1966, all other statutory provisions in effect and the present articles of association and bylaws. ARTICLE 2 The purpose of the Company in France and all other countries shall be: To carry out all activities in the electrical, electronic and related industries, provide all services and pursue all activities which for technical, industrial or commercial reasons may relate to the above mentioned industries or services or contribute to their development. Within the sphere of activity defined above, the Company may in particular carry on activities of all kinds regarding: raw materials, prepared materials, components and units, parts and semi finished products, finished products and devices, group of devices, all types and sizes of assembly incorporating groups of devices, all works, all techniques, all services. The Company may carry out indirectly operations related to its technical, industrial, commercial or service activities. To this end, the Company may create all companies, associations, partnerships or other companies, acquire interests in all companies limited by shares or private companies, make all contributions and subscriptions, make all purchases or sales of securities, equity interests or corporate rights. In general, the Company may carry out all industrial, commercial, financial, real estate or other operations directly or indirectly related to such activities. 2 The Company may also acquire an interest of any form whatsoever in all French or foreign undertakings or organizations. ARTICLE 3 The Company name is: ALCATEL ARTICLE 4 The registered office shall be situated at 54, rue la Boetie, 75008 Paris. The Board of Directors may transfer the registered office within the same town or to a neighbouring department subject to ratification by the next ordinary Shareholders' meeting. The transfer of the registered office to any other place may only be decided by the extraordinary Shareholders' meeting. ARTICLE 5 The term of the Company shall be ninety years as of July 1, 1987. PART II SHARE CAPITAL - SHARES - PAYMENT ARTICLE 6 The share capital is set at EUR 1,987,145,960. It is made up of 198,714,596 shares with a nominal value of EUR 10 each. ARTICLE 7 The share capital may be increased on one or more occasions through the creation of new shares by contribution in kind, incorporation of company reserves, premiums of profits or cash contribution pursuant to a resolution of an extraordinary Shareholders' meeting deliberating under the statutory quorum and majority conditions for such meetings. However, any decision to create new shares following a capital increase by incorporation of reserves, profits or issue premiums shall be made by the extraordinary Shareholders' meeting under the statutory quorum and majority conditions for ordinary Shareholders' meeting. Such 2 3 meetings shall set the issue terms for new shares as required by law and to this end shall grant the Board of Directors such powers as it may deem necessary. The extraordinary Shareholders' meeting may also resolve to increase the share capital by issuing transferable securities giving entitlement to receive securities representing a portion of the company's share capital under the terms set out in Article 16. The ordinary Shareholders' meeting may also resolve a capital increase following payment of dividend in shares under the terms of Article 36. Such meetings shall set the issue terms for the transferable securities as required by law and to this end shall grant the Board of Directors such powers as it may deem necessary. In the event of a capital increase by issue of cash shares or of transferable securities giving entitlement to receive securities representing a portion of the share capital, existing shareholders who have made the required payments shall have an irreducible preferential subscription right to such new shares or transferable securities in proportion to the nominal value of their shares, except where the competent Shareholders' meetings decide otherwise under the conditions laid down by law. ARTICLE 8 Unless the Shareholders' meeting, or Board of Directors as the case may be, decides otherwise, cash shares issued pursuant to a capital increase shall be paid as follows: upon subscription, at least one quarter of the nominal value and, where relevant, the entire issue premium the remainder, within the statutory time limit, at such dates and in such proportions as the Board of Directors shall decide. Calls to pay in capital shall be published in one of the Paris journals of legal notices at least ten days in advance. ARTICLE 9 Late payment shall as of right incur interest of ten per cent per annum in favour of the Company as of the due date without legal action being necessary. ARTICLE 10 Shares shall be registered until fully paid up. Fully paid up shares shall be registered or bearer shares as the shareholder chooses, subject to the provisions of (2) below. Further to the statutory requirement to notify the Company of certain percentage share holdings, any shareholder, natural or legal person holding a number of Company shares equal to or in excess of: (1) 0.5% of the total number of shares must, within 15 days of passing such threshold, notify the Company by letter, fax or telex of the total number of shares owned. This requirement applies to each successive 0.5% threshold up to 2.5% inclusive. 3 4 (2) 3% of total shares must, within five trading days of reaching such threshold, apply to register all his shares. This registration requirement applies to all shares already held and to such shares as may be acquired subsequently in excess of the above mentioned threshold. A copy of the registration application sent to the Company by letter or fax within fifteen days of passing such threshold shall be deemed equivalent to a declaration that the statutory threshold has been reached. The same procedure shall be followed each time a further 0.5% threshold is passed up to a maximum of 50%. Calculation of the thresholds in (1) and (2) above shall include indirectly held shares and shares equivalent to existing shares as defined in Article 356-1 and seq. of the law on companies. Shareholders must certify that all securities owned or held as defined in the preceding paragraph are included in each such declaration and must also indicate the date(s) of acquisition. Should shareholders not comply with the provisions set forth in (1) and (2) above, voting rights for shares exceeding the declarable thresholds shall, at the request of one or more shareholders holding at least 3% of share capital, be withdrawn under the conditions and within the limits laid down by law. Shareholders whose share holding falls below one of the thresholds provided in (1) and (2) above must also notify the Company within fifteen days and under the same terms. Shares shall be materialized by registration in the owner's name in the books of the issuing Company or of an authorized intermediary. Transfers of registered securities shall be made from one account to another. The registration, transfer and disposal of securities shall be carried out in accordance with the laws and regulations in force. Where the parties are not exempted from such formalities by law, the Company may require certification of signed declarations, transfer or assignment orders in accordance with the laws and regulations in force. The Company may, in accordance with the laws and regulations in force, request from all organizations or authorized intermediaries any information concerning shareholders or holders of securities with immediate or future voting rights, their identity and the number of securities they hold. ARTICLE 11 Each share shall give entitlement to company assets and distribution of profits in the proportions set out in Articles 35 and 39 below, with the exception of rights attached to shares of different categories that may be created. Tax charges shall be levied as a whole on all shares without distinction, such that each share in a same category shall give entitlement to payment of the same net amount on any distribution or reimbursement made during the Company's term or on liquidation. 4 5 Shareholders shall be liable only up to the nominal amount of each share held. Any call to pay in capital in excess of such amount is prohibited. ARTICLE 12 Dividends and income from shares issued by the Company shall be paid under the conditions authorized or provided for by the regulations in force and in such a way as the Shareholders' meeting or, failing that, the Board of Directors, shall decide. ARTICLE 13 Rights and obligations shall remain attached to a share regardless of who holds the share. Ownership of a share entails as of right acceptance of the Company articles of association and bylaws and of resolutions of the Shareholders' meeting. ARTICLE 14 Shares are indivisible with regard to the Company: joint owners of shares must be represented by a single person. Shares with usufruct must be identified as such in the share registration. ARTICLE 15 Creditors of a shareholder may not, by whatsoever means, cause the goods or assets of the Company to be placed under seal, divided or sold by auction and may not interfere in any way with the Company's management. In the exercise of their rights they must rely on company records and resolutions of Shareholders' meeting. PART III COMPOSITE AND NON-COMPOSITE BONDS, WARRANTS, AND SECURITIES ARTICLE 16 The Company may contract loans according to its needs by issuing short, medium or long term bonds or warrants. Except where by law particular financial products require the express decision or authorization of the Shareholders' meeting, the decision shall be made by the ordinary Shareholders' meeting or Board of Directors. However, the Board of Directors, authorized by the Shareholders' meeting, may be given the necessary powers to issue bonds on one or more occasions within a five year period, to set the terms and conditions of issue, interest rate, remuneration method, maturity and repayment amount of the bonds. Where relevant, the Board shall grant all mortgage or other guarantees and shall carry out issues in the best interests of the Company. 5 6 The Board of Directors, duly authorized by the extraordinary Shareholders' meeting, may be given the necessary powers to issue transferable securities giving entitlement by conversion, exchange, reimbursement, presentation of a warrant or by any other means to receive, at any time or at a given date, securities representing a portion of share capital issued for that purpose. Unless the Board of Directors or Shareholders' meeting decides otherwise, the rules concerning the form and transfer of shares set out above shall apply to all transferable securities of whatever kind issued by the Company with the exception of securities redeemable by drawing of lots issues before November 3, 1984. PART IV COMPANY MANAGEMENT ARTICLE 17 The Company shall be managed by a Board of Directors consisting of no less than six and no more than eighteen members except where this number is exceeded as in the event of a merger under the terms laid down by law. The Shareholders' meeting shall appoint and dismiss Directors. The Shareholders' meeting shall set the Directors' terms in such a way that Board membership is renewed as far as possible in similar proportions. Directors' terms may not exceed six years. Without prejudice to statutory conditions pertaining to percentages of seats on the Board and valid employment contracts, two of the Directors must at the time of their appointment be both salaried employees of the Company or of an affiliate and members of a mutual fund in accordance with the conditions set out below. All mutual funds meeting the conditions below may nominate candidates for appointment to the Board of Directors. With regard to the above provisions: (1) An affiliate of the CGE Group shall be defined as any company in which CGE directly or indirectly holds at least half of the voting rights or any company in which a CGE affiliate directly or indirectly holds at least half of the voting rights. (2) The mutual funds referred to above are those formed as a result of a company share holding scheme in which the Company or an affiliate is a participant and having at least 75% of its portfolio in Company shares. If for any reason one of the Directors appointed by the Shareholders' meeting as provided above should no longer meet the joint conditions defined above (employee of the Group or an affiliate and member of a mutual fund), he shall automatically be deemed to have retired one calendar month after the joint conditions are no longer met. 6 7 Should the number of Directors meeting the joint conditions as defined above (employment in the Group and membership of a mutual fund) fall below the number set in the present article for any reason whatsoever, the Board of Directors must make up its numbers within three months either by cooption or by calling a Shareholders' meeting to appoint a Director meeting the required conditions. Each Director must hold at least 10 Company shares. ARTICLE 18 Directors may be re elected subject to the conditions below. The maximum age for holding a directorship shall be 70. This age limit does not apply if less than one third, rounded up to the nearest whole number, of serving Directors have reached the age of 70. No Director over 70 may be appointed if as a result more than one third of the serving Directors rounded up as defined above, are over 70. If for any reason whatsoever the number of serving Directors over 70 should exceed one third as defined above, the oldest Director(s) shall automatically be deemed to have retired at the ordinary Shareholders' meeting called to approve the accounts of the financial year in which the proportion of Directors over 70 years was exceeded, unless the proportion was re-established in the interim. Directors representing legal persons shall be taken into account when calculating the number of Directors to which the age limit does not apply. Directors representing legal persons must replace any 70 year old representative at the latest at the ordinary Shareholders' meeting called to approve the accounts of financial year in which such representative reached the age of 70. ARTICLE 19 A) DIRECTORS Should one or more seats on the Board become vacant as a result of death or resignation the Board may, subject to the provisions of Article 17, make provisional appointments between two Shareholders' meetings up to the maximum number of Directors set in Article 17. A Director appointed to replace another Director shall hold office only for the remainder of his predecessor's term of office. Should the number of Directors fall below the statutory minimum the Directors must immediately call an ordinary Shareholders' meeting to make up the number of Directors on the Board. 7 8 Should the number of Directors fall below the minimum defined in the Bylaws but not below the statutory minimum the Board of Directors must make provisional appointments to make up the number of Directors on the Board within three months of the vacancy arising. Appointments made by the Board pursuant to paragraphs 1 and 4 above shall be submitted to the next ordinary Shareholders' meeting for ratification. If ratification is withheld, the Board's previous acts and resolutions shall nevertheless remain valid. B) NON VOTING OBSERVERS On the Chairman's recommendation, the Board of Directors may appoint one or two observers. The auditors shall be called to meetings of the Board of Directors and shall participate in a consultative capacity. They shall be appointed for a six year term which may be renewed or revoked at any time. They may or may not be shareholders and may receive a remuneration set annually by the Board of Directors. ARTICLE 20 The Board of Directors shall appoint from among its members a Chairman and, if it so wishes, one or more Deputy Chairman who may be re-elected, and shall set their term of office which may not exceed their term as Director. Regardless of the appointed term, the Chairman's office shall terminate as of right at the ordinary Shareholders' meeting called to approve the accounts for the financial year in which he reaches the age of 68. Should the Chairman and Deputy Chairman(men) be indisposed the Chairman or, in his absence, the Board shall appoint a Director to chair the meeting. The Board shall appoint a Secretary and may also appoint a Deputy Secretary under the same terms. The Board shall meet as often as the interests of the Company shall require at the registered office or at such other place as the Chairman shall decide. The Chairman shall call Board meetings by ordinary or recommended letter sent to each Director at least 7 days in advance. In an emergency a Board meeting may be called by any convenient means: telegram, telex, ordinary letter or verbally. In such a case, the above time limit need not be respected. Directors representing at least one third of the Board may call a Board meeting, issuing the agenda, if the Board has not met for more than two months. 8 9 An agenda clearly stating matters to be discussed shall be attached to each notice of meeting. Any Director, whether a natural person or the standing representative of a legal person, may give another Director power of attorney to represent him at a Board meeting; the authorized agent must show proof of his power of attorney at the start of the meeting. Directors may hold only one power of attorney per meeting which shall be valid for a specific meeting only. At least half of the serving Directors must be present for the meeting to be quorate. Resolutions shall be adopted by majority vote. In the event of a tie, the Chairman or the Director acting as Chairman shall have the casting vote. Resolutions shall be recorded in minutes drawn up and kept as required by law. Copies or extracts of the minutes may be validly certified by the Chairman of the Board of Directors, a Chief Executive, a Director temporarily acting as Chairman or a person with the appropriate official authorization. Directors attending the Board of Directors' meeting shall sign the attendance register. The names of the Directors present, represented or absent recorded in the minutes or extracts of minutes of each meeting shall be deemed sufficient proof with regard to third parties of the number of serving Directors and of their appointment. Company executives may attend Board meetings at the Chairman's request. ARTICLE 21 The Board of Directors shall have the widest powers without restriction or reserve to act in all circumstances on the Company's behalf. The Board shall exercise such powers within the limits of the purpose of the Company and without prejudice to the powers expressly invested in shareholders meetings by law. ARTICLE 22 The duties of the Chairman and Chief Executive shall be carried out as required by law. Without prejudice to the powers expressly invested in Shareholders' meetings by law and the powers specifically invested in the Board of Directors by law and within the limits of the purpose of the Company, the Chairman is invested as of right with the fullest powers to act in all circumstances on the Company's behalf. The person or persons delegated to carry out the duties of Chief Executive shall be appointed by the Board of Directors on the Chairman's recommendation. In all events, the Chief Executive's term of office shall end at the end of the ordinary Shareholders' meeting called to approve the accounts of the financial year in which the person concerned reaches 65 years of age. 9 10 The Board of Directors, with the Chairman's agreement, shall determine the scope and duration of the powers of the Chief Executive(s). The Chief Executive(s) shall have the same powers with regard to third persons as the Chairman. The Chairman and Chief Executive(s) may be authorized to grant powers of attorney. If the Chairman dies or is temporarily indisposed, the Board of Directors may delegate a Director to carry out the Chairman's duties. If the Chairman is temporarily indisposed, such delegation is made for a limited period and may be renewed. If the Chairman dies, it shall be valid until a new Chairman is elected. The Board of Directors on the Chairman's recommendation or the Chairman himself may, within the limits set by law, delegate such powers as they or he deem fit, either for the management or conduct of the Company's business or for one or more specific purposes, to all authorized agents, whether members of the Board or not or member of the Company or not, individually or as committees. Such powers may be standing or temporary and may or may not be delegated to deputies. All or some of such authorized agents may also be authorized to authenticate all copies or extracts of all documents for which certification procedures are not laid down by law, and in particular all powers of attorney, company accounts and bylaws, and to issue all certificates pertaining thereto. Powers of attorney granted by the Board or Directors or Chairman pursuant to the present By-laws shall remain effective should the terms of office of the Chairman or Directors expire at the time such powers of attorney were granted. Should the Chairman die, resign or be dismissed, and unless the Board of Directors should decide otherwise, the Chief Executive(s) shall continue in their duties and in their office until the appointment of a new Chairman. ARTICLE 23 Notwithstanding statutory provisions, particularly those concerning the Chairman of the Board of Directors, Directors do not in the exercise of their management enter into any personal or joint undertaking with regard to the Company's commitments; within the limits set by the laws in force, they shall only be liable for performance of their appointed duties. Any agreements between the Company and one of its Directors or Chief Executives or between the Company and another undertaking if a Company, Director or Chief Executive is the owner, partner with unlimited liability, manager, Director, Chief Executive, member of the Management Committee or Supervisory Board of said undertaking shall be subject to the authorizations and approvals required by law. ARTICLE 24 The Shareholders' meeting may award and set Directors' fees which shall remain unchanged until amended by a new resolution. 10 11 The Board shall distribute said amount among the Directors as it sees fit and as required by law. Directors may not receive any standing or temporary remuneration from the Company other than as provided by law or not contrary to law. PART V STATUTORY AUDITORS ARTICLE 25 The ordinary Shareholders' meeting shall appoint at least two statutory auditors to undertake the duties required by law. They shall be appointed for six financial years. The Auditors may be reappointed. The Shareholders' meeting shall appoint as many deputy auditors as statutory auditors pursuant to paragraph 1 above. The Auditors shall be called to the meeting of the Board of Directors closing the accounts for the previous year and to all Shareholders' meetings. The Auditors shall be entitled to remuneration in an amount set under the conditions laid down by law. PART VI SHAREHOLDERS' MEETING ARTICLE 26 Ordinary and extraordinary Shareholders' meetings deliberating under the quorum and majority conditions laid down by law shall exercise the powers invested in them by law. Meetings shall be called according to the rules and procedures laid down by law. Meetings shall take place at the registered office or at any other place specified by the Board of Directors within the department where the registered office is located or in any other place on the territory of the French Republic. The agenda for Shareholders' meetings shall be drawn up by the Board of Directors if the Board calls the meeting, or by the person calling the meeting in other cases. However, one or more shareholders meeting the conditions laid down by law may require draft motions to be included on the agenda. The Shareholders' meeting may not consider a motion that is not on the agenda. 11 12 ARTICLE 27 An ordinary Shareholders' meeting shall be held annually during the first six months of the year. Shareholders' meetings, whether ordinary or extraordinary, shall consist of all shareholders without distinction. Owners of registered shares are entitled to attend any Shareholders' meeting provided that the shares have been registered in their name at the latest five days before the date of the meeting. Owners of bearer shares must, at least five days before the date of the meeting, prove that their shares have been deposited as required by law or produce one of the certificates referred to in Article 136 of the decree of March 23, 1967. These periods may be curtailed by a decision of the Board of Directors. A shareholder may be represented by another shareholder or by his or her spouse. Shareholders may vote by post at a Shareholders' meeting under the conditions laid down by law. ARTICLE 28 Shareholders' meetings shall be chaired either by the Chairman or a Deputy Chairman of the Board of Directors, or by a Director appointed by the Board of Directors or by the Chairman. The tellers shall be the two members of the meeting representing the largest number of votes or, should they refuse, those who come after them in descending order until the duties are accepted. The officers of the meeting shall appoint a Secretary, who need not be a shareholder. ARTICLE 29 Without prejudice to the following provisions, each member of the Shareholders' meeting has as many votes as shares that he owns or represents. However, double voting rights are attached to all fully paid up registered shares, registered in the name of the same holder for at least three years. Double voting rights shall be cancelled as of right for any share that is converted into a bearer share or whose ownership is transferred. However, the period set here above shall not be interrupted, nor existing rights cancelled, where ownership is transferred, the shares remaining in registered form, as a result of intestate or testamentary succession, the division between spouses of a common estate, or donation inter vivos in favour of a spouse or heirs. Whatever number of shares a shareholder possesses, directly and/or indirectly, he may not cast, as single votes in his own name or as a proxy, more than 8% of the votes attached to the shares present or represented when any motion at a Shareholders' meeting is put to the vote. This limit 12 13 may be exceeded if such shareholder is further entitled to double votes, in his own name or as a proxy, taking into account such additional voting rights only. However, the total number of votes cast may not under any circumstances whatsoever exceed 16% of the votes attached to the shares present or represented. Indirectly held shares and shares treated in the same way as owned shares as defined by the provisions of Article 356.1 and seq. of the law on companies shall be taken into account when applying the above mentioned limit. The limitation instituted in the preceding paragraph automatically becomes null and void from that time when an individual or a legal entity, acting alone or in concert with one or more individuals or legal entities, comes to hold at least 66,66% of the total number of the company's shares, as the result of a public offering to purchase or exchange relating to all of the company's shares. The Board of Directors agrees that at the announcement of such offerings, such invalidation will take effect. The limitation instituted in paragraph four above does not apply to the chairman of the Shareholders' meeting casting a vote pursuant to proxies received in accordance with the legal obligation deriving from Article 161(4) of the law of July 24, 1966 on commercial companies. Voting rights in all ordinary, extraordinary or special Shareholders' meeting belong to the usufructuary. ARTICLE 30 The proceedings of the Shareholders' meeting shall be recorded in minutes drawn up and kept as required by law. An attendance register shall be kept in which shall be recorded the name, first name and address of shareholders attending the meeting or voting by post or proxy, the name, first name and address of the proxies themselves, the number of shares and the number of votes attached to them. The register, duly signed by the shareholders present or their proxies, shall be declared accurate by the officers of the meeting and filed at the registered office. The register shall be made available to any shareholder as required by law. ARTICLE 31 Copies or extracts of the minutes may be authenticated by the chair of the Board of Directors, the secretary of the Shareholders' meeting or the Director appointed to chair the meeting. ARTICLE 32 The duty constituted Shareholders' meeting shall represent all the shareholders. Its decisions are binding on all shareholders, including those not present or dissenting. 13 14 PART VII FINANCIAL YEAR - INVENTORY ARTICLE 33 The financial year shall begin on January 1 and end on December 31. ARTICLE 34 At the end of each financial year, the Board of Directors shall draw up an inventory of assets and liabilities existing at the date, and accounts for the year pursuant to the provisions of Section 2, Book One of the Commercial Code. As required by law, the Board shall also draw up a report on the management of the company and the activity of its subsidiaries during the previous financial year and, where relevant, consolidated accounts. The inventory, balance sheet, profit and loss account and notes to the annual accounts, annual report and consolidated accounts shall be made available to the Auditors at the registered office within the time laid down by law. Shareholders are entitled, under the conditions laid down by law, to exercise their statutory right to information. PART VIII DEPRECIATION - PROVISION - LEGAL RESERVES APPROPRIATION AND DISTRIBUTION OF PROFITS ARTICLE 35 The proceeds of the financial year, after deduction of overheads, employers' contributions, interest on previously issued bonds or participating securities, depreciation and amortisation of corporate assets and all provisions for commercial, industrial or other risks that the Board of Directors should deem necessary, shall constitute the profits for the financial year. The distributable profits shall be the profits for the financial year minus previous losses and sums allocated to reserves as provided for by law and in the Articles of Association plus income carried over. Distributable profits shall be appropriated as follows: 1) The Shareholders' meeting, on a proposal of the Board, may decide to carry over or allocate to reserves some or all the distributable profits, particularly in application of tax regulations. 2) From the remainder, if any, shall be deducted the sum necessary to pay the shareholders, as an initial dividend, 5% per annum of the amount in which their shares are paid up and 14 15 not redeemed. However, if year end profits are insufficient to make such payment, a retroactive right may be exercised on the profits of subsequent years. 3) From the remainder the Shareholders' meeting may, on a proposal of the Board, deduct such sums as it deems fit and allocate them to reserves of whatever kind or to a special fund for the redemption or reduction of the share capital by reimbursement or purchase of company shares, or carry them over. The profit balance shall be divided between the shareholders in proportion to the nominal amount of their shares. ARTICLE 36 The dividend shall be paid, within the statutory time limit, on dates set by the Shareholders' meeting or, failing that, by the Board of Directors which may, without waiting for the Shareholders' meeting to approve the accounts, distribute an interim dividend under the terms and conditions laid down by law. The ordinary Shareholders' meeting is authorized to grant each shareholder the option to receive payment of the dividend or interim dividend in shares under the terms and conditions laid down by law. PART IX DISSOLUTION - LIQUIDATION ARTICLE 37 The Shareholders' meeting, deliberating under the conditions required by law, may at any time and for whatever reason decide to dissolve the Company before its due date. ARTICLE 38 If as a result of losses shown in accounting records, the Shareholders' equity should fall to below half of the Capital Stock the Board of Directors is required, within four months of approval of the accounts showing such loss, to call an extraordinary Shareholders' meeting to decide whether the Company should be dissolved. If the Shareholders' meeting decides not to dissolve the Company, the Company is required, at the latest by the end of the second financial year following the financial year in which the losses were recorded, to reduce its capital by an amount equal to the amount of losses that could not be charged to reserves if, during such period, Shareholders' equity has not been reconstituted to a value equal to at least half the share capital. In both cases the resolution adopted by the Shareholders' meeting shall be published as required by law. 15 16 ARTICLE 39 When the Company reaches its due date, or in the event of early dissolution, the Shareholders' meeting shall decide the manner of liquidation, appoint one or more liquidators and set their remuneration. In the event of the death, resignation or indisposition of the liquidators the ordinary Shareholders' meeting, called under the condition laid down by law, shall take steps to replace them. The Shareholders' meeting shall retain the same powers during liquidation as in the Company's course of business. On completion of the liquidation the shareholders shall be called to approve the liquidator's accounts and discharge him and to record the closing of the liquidation. The liquidator(s) shall carry out their duties under the conditions laid down by law. In particular, they shall realize all the Company's movable and fixed assets, including by private treaty, and extinguish all its liabilities. They may also, with the authorization of the extraordinary Shareholders' meeting, transfer the Company's entire assets or contribute them to another company, in particular by way of a merger. Assets remaining after all liabilities have been extinguished shall first be used to pay shareholders a sum equal to the paid up and non redeemed capital. Any surplus shall constitute profits and shall be divided between all the shares in proportion to their nominal amount subject to the provisions of Article 11 above. PART X DISPUTES ARTICLE 40 Any disputes that may arise during the Company's term or at its liquidation, whether between shareholders and the Company or between shareholders themselves where they concern company matters, shall be subject to the jurisdiction of the competent courts. PART XI NOTIFICATION ARTICLE 41 Notification formalities for acts and amendments to the Articles of Association and By-laws shall be carried out as required by law. All powers are given to the bearers of documents to file them as required by law. 16 EX-5.2 8 OPINION RE LEGALITY 1 Exhibit 5.2 [Letterhead of Alcatel] April 9, 1999 Ladies and Gentlemen: I am General Counsel of Alcatel (the "Company"), a societe anonyme organized under the laws of the Republic of France. Reference is made to the Company's Registration Statement on Form F-3 (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") on April 9, 1999, under the Securities Act of 1933, as amended (the "Act"), and to the prospectus contained in the Registration Statement, covering the registration under the Act of (i) 1,311,208 ordinary shares, nominal value EUR 10 per share, of the Company (the "Shares"), in the form of Shares or American Depositary Receipts evidencing American Depositary Shares, each representing one-fifth of a Share, (ii) the Guaranty (the "Guaranty") by the Company in respect of the 7% Convertible Subordinated Notes (the "Notes") issued by Alcatel USA, Inc. (formerly, DSC Communications Corporation), a wholly-owned subsidiary of the Company, and (iii) the Notes. In connection with the foregoing, I have examined the originals, or copies identified to my satisfaction, of such corporate records of the Company, certificates of public officials, officers of the Company and other persons, and such other documents, agreements and instruments, as I have deemed necessary as a basis for the opinion hereinafter expressed. In my examination, I have assumed the genuineness of all signatures, the authenticity of all documents presented to me as originals and the conformity with the originals of all documents submitted to me as copies. In rendering the opinion expressed below, I have relied as to certain matters on information obtained from officers of the Company and public officials. My opinion set forth below is limited to the laws of the Republic of France, and I do not express any opinion herein concerning any other laws. Based upon the foregoing and having regard for such legal considerations as I deemed relevant, I am of the opinion that (i) the Shares which may be offered pursuant to the Registration Statement have been duly authorized and validly issued by the Company and are fully-paid and non-assessable, and (ii) the Guaranty, assuming its validity under the laws of the State of New York, constitutes a legal, valid and binding obligation of the Company, except as enforcement thereof may be limited by bankruptcy, insolvency (including without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). I hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the use of my name under the caption "Legal Matters" in the Prospectus constituting part of the Registration Statement. In giving such consent, I do not concede that I am within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder. This opinion is being delivered in connection with the Registration Statement and is not to be used for any other purpose without my prior authorization. Very truly yours, /s/ Pascal Durand-Barthez -------------------------- Pascal Durand-Barthez General Counsel EX-5.3 9 OPINION RE LEGALITY 1 Exhibit 5.3 [Letterhead of Shearman & Sterling] April 9, 1999 Ladies and Gentlemen: We are acting as U.S. counsel for Alcatel (the "Company"), a societe anonyme organized under the laws of the Republic of France, in connection with the Company's Registration Statement on Form F-3, combined with the post-effective amendment to the Registration Statement on Form S-3 of Alcatel USA, Inc. ("Alcatel USA"), a wholly-owned subsidiary of the Company, (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") on April 9, 1999, under the Securities Act of 1933, as amended (the "Act"), covering the registration under the Act of (i) 1,311,208 ordinary shares, nominal value EUR 10 per share, of the Company (the "Shares"), in the form of Shares or American Depositary Receipts evidencing American Depositary Shares, each representing one-fifth of a Share, (ii) the Guaranty (the "Guaranty") by the Company in respect of the 7% Convertible Subordinated Notes (the "Notes") issued by Alcatel USA and (iii) the Notes. In connection with the foregoing, we have examined the Registration Statement and the Guaranty. We have also examined the originals, or copies identified to our satisfaction, of such corporate records of the Company, certificates of public officials, officers of the Company and other persons, and such other documents, agreements and instruments, as we have deemed necessary as a basis for the opinion hereinafter expressed. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents presented to us as originals and the conformity with the originals of all documents submitted to us as copies. In rendering the opinion expressed below, we have relied as to certain matters on information obtained from officers of the Company and public officials. Our opinion set forth below is limited to the laws of the State of New York, and we do not express any opinion herein concerning any other laws. Based upon the foregoing and having regard for such legal considerations as we deemed relevant, we are of the opinion that the Guaranty, assuming its validity under the laws of the Republic of France, constitutes a legal, valid and binding obligation of the Company, except as enforcement thereof may be limited by bankruptcy, insolvency (including without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Prospectus constituting part of the Registration Statement. In giving such consent, we do not concede that we are within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder. This opinion is being delivered in connection with the Registration Statement and is not to be used for any other purpose without our prior authorization. Very truly yours, /s/ Shearman & Sterling ________________________________ Shearman & Sterling EX-8 10 OPINION RE TAX MATTERS 1 EXHIBIT 8 [Letterhead of Shearman & Sterling] April 9, 1999 Ladies and Gentlemen: We are acting as U.S. counsel for Alcatel (the "Company"), a societe anonyme organized under the laws of the Republic of France, in connection with the Company's Registration Statement on Form F-3, combined with the post-effective amendment to the Registration Statement on Form S-3 of Alcatel USA, Inc. ("Alcatel USA"), a wholly-owned subsidiary of the Company, (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") on April 9, 1999, under the Securities Act of 1933, as amended (the "Act"), covering the registration under the Act of (i) 1,311,208 ordinary shares, nominal value EUR 10 per share, of the Company (the "Shares"), in the form of Shares or American Depositary Receipts evidencing American Depositary Shares, each representing one-fifth of a Share, (ii) the Guaranty (the "Guaranty") by the Company in respect of the 7% Convertible Subordinated Notes (the "Notes") issued by Alcatel USA and (iii) the Notes. We are of the opinion that the material United States federal income tax consequences to United States persons of the purchase, ownership and disposition of Notes are as set forth under the caption "Taxation of U.S. Holders" in the Prospectus constituting part of the Registration Statement. The foregoing opinion is based upon the Internal Revenue Code of 1986, as amended, Treasury regulations (including proposed regulations) promulgated thereunder, rulings, official pronouncements and judicial decisions, all as in effect today and all of which are subject to change, possibly with retroactive effect, or different interpretations. We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement. In giving such consent, we do not concede that we are within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder. Very truly yours, /s/ Shearman & Sterling -------------------------- Shearman & Sterling EX-12.1 11 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 Exhibit 12.1 Computation of ratio of earnings to fixed charges of the Company (in thousands of $, except ratio)
Six months ending June 1993 1994 1995 1996(1) 1997(2) 30, 1998 (3) -------- -------- ------- ------- ------- ------------ Income before taxes 109,456 223,190 289,950 (12,186) 162,166 (55,230) Fixed charges (less capitalized interest) 12,742 10,299 28,454 35,837 45,749 33,696 Adjusted income 122,198 233,489 318,404 23,651 207,915 (21,534) -------- -------- -------- -------- -------- ------- Ratio of earnings to fixed charges 9.0 19.6 10.3 -- 4.2 -- -------- -------- -------- -------- -------- ------- Fixed charges: Interest expense 6,256 2,075 18,599 26,356 34,068 26,701 Capitalized interest 895 1,640 2,557 2,492 3,767 1,716 Amortization of debt issuance costs 86 124 255 282 881 895 Rent expense 19,268 24,705 28,891 27,529 32,515 18,464 Approximately one third of rent expense 6,400 8,100 9,600 9,200 10,800 6,100 -------- -------- -------- -------- -------- ------- Total 13,637 11,939 31,011 38,329 49,516 35,412
(1) Earnings were not sufficient to cover fixed charges for the year ended December 31, 1996 by approximately $14.7 million. (2) Includes in process R&D write-off of $135.0 million related to Celcore acquisition, the asset write-down related to Airspan of $22.0 million and litigation settlements of $161.5 million. (3) Includes the second quarter 1998 gain for the sale of the interest in Airspan Communications of $10.0 million. Earnings were not sufficient to cover fixed charges for the six months ended June 30, 1998 by approximately $56.9 million. EX-12.2 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.2. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES OF ALCATEL
RATIO OF EARNINGS TO FIXED CHARGES Six months ended June 30, 1993 1994 1995(1) 1996 1997 1998(2) ------- -------- -------- ------- ------- ----------- Pre tax income before income in equity(a) 9,034 3,219 (26,048) 2,714 5,594 15,717 Distributed income of equity(b) 454 440 308 366 252 405 Fixed charges(c) 5,287 3,339 4,292 6,902 5,675 1,901 Rental expenses(d) 540 588 661 633 605 223 Pretax income+fixed charges (e)=(a)+(b)+(c)+(d) 15,315 7,586 (20,787) 10,615 12,126 18,246 Fixed charges (included rental expenses)(f)=(c)+(d) 5,827 3,927 4,953 7,535 6,280 2,124 Ratio(e)(f) 2.63 1.93 -- 1.41 1.93 8.59
(1) Earnings were not sufficient to cover fixed charges for the year ended December 31, 1995 by approximately FF25.7 billion (2) Includes a FF13.7 billion gain from the disposal of non-core assets (Cegelec and GEC ALSTHOM) EX-23.1 13 CONSENT OF ERNST AND YOUNG LLP 1 Exhibit 23.1 We consent to the reference to our firm under the caption "Experts" and to the incorporation by reference therein of our report dated January 26, 1998, with respect to the consolidated financial statements and schedule of Alcatel USA, Inc. (formerly DSC Communications Corporation) incorporated by reference in its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the Securities and Exchange Commission and in the Registration Statement (post-effective amendment No. 3 to Form S-3) and related Prospectus of Alcatel USA, Inc. and Alcatel for the registration of 7% Convertible Subordinated Notes of DSC Communications corporation and ordinary shares of Alcatel. /s/ Ernst & Young LLP ___________________________________ Ernst & Young LLP Dallas, Texas April 8, 1999 EX-23.2 14 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.2 ALCATEL Registration Statement, Form S-3/F-3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Registration Statement on Form S-3/F-3 filed by Alcatel of our report dated March 19, 1998 included or incorporated by reference in Alcatel's Annual Report on Form 20-F for the fiscal year ended December 31, 1997 as filed with the Securities and Exchange Commission. /s/ Arthur Andersen LLP ____________________________ ARTHUR ANDERSEN LLP Paris, France April 8, 1999 -----END PRIVACY-ENHANCED MESSAGE-----