Alcatel to Acquire Packet Engines, a High-Performance Internet Technology Provider.

PARIS and SPOKANE, Wash.--(BUSINESS WIRE)--Oct. 12, 1998--Alcatel (NYSE: ALA) and Packet Engines, Inc. today jointly announced that they have entered into a definitive agreement under which Alcatel will acquire Packet Engines, Inc. in a cash transaction. Packet Engines delivers one of the highest performance wire-speed routing and Gigabit Ethernet solutions available today. This acquisition is in line with Alcatel's previously stated strategy to enter the IP market with closely controlled technologies and to expand its presence in the U.S. Packet Engines' product lines will also complement Alcatel's current data and enterprise offering with high-end routers and Gigabit Ethernet LAN switches.

Packet Engines will immediately benefit from Alcatel's worldwide extensive presence on the enterprise and carrier markets. Packet Engines' products will be sold in conjunction with Alcatel solutions, such as SONET transmission systems, ADSL Internet hi-speed access systems, broadband switching systems and PBXs.

The transaction has an implied value of $315 million, which includes the equity purchase price as well as a Technology Development Incentive Plan. The Incentive Plan will leverage Packet Engines' outstanding IP know-how to develop new products broadening Alcatel's networking solutions.

Following the acquisition of Packet Engines, the company will retain its name and continue to be headquartered in the Spokane area. Krish Prabhu, who is currently President and CEO of Alcatel USA, Inc., will serve as Chairman of the company, while Bernard Daines, founder of Packet Engines, will remain CEO.

Krish Prabhu said: "Alcatel appreciates the importance of datacom and IP technologies in today's telecom networks. This acquisition also underscores our commitment to the US marketplace. We will integrate Packet Engines' technologies in our offerings as we work towards shaping the future of telecommunications networks."

"Packet Engines is excited to be a part of the Alcatel group. This relationship will enable us to accelerate the development of our products, and to better serve our customer base," commented Bernard Daines. "The Spokane area has proven to be a great home for Packet Engines, and the company is committed to continue growing its presence. We anticipate substantial growth in all areas of the company, especially engineering and sales."

Packet Engines, Inc. was founded in 1994 and is headquartered in Spokane, WA, where it employs 200 people. The company develops networking solutions for service provider, ISP and enterprise networks delivering gigabit performance and mission-critical reliability. The company provides a complete suite of high-performance gigabit networking solutions including the PowerRail family of Gigabit Ethernet switches, and G-NIC II network interface cards. The PowerRail family delivers Infinite Routing(TM), mission-critical reliability, and Application-Enabled Networking(TM). The PowerRail products began shipping in the second quarter of 1998. These products represent the industry's highest performance and most reliable suite of enterprise routing switches, and are specifically designed to meet the growing demands of enterprise network backbones and data centers.

Alcatel has significant worldwide positions in operator data networks and a leading position in European enterprise data networking integration.

Completion of the transaction is subject to approval by Packet Engines' shareholders, the expiration or termination of applicable waiting periods under the antitrust laws and other customary closing conditions. The transaction is expected to close in approximately two months.

A world leader in telecommunications systems and equipment, as well as related cables and components activities, Alcatel operates in over 130 countries. Alcatel provides complete solutions and services to operators, service providers, enterprises and consumers, ranging from backbone networks to user terminals. For further information on Alcatel, please visit Alcatel on Internet: www.alcatel.com or the US website at www.usa.alcatel.com

This document may include forward looking statements within the meaning of safe Harbor provisions of the U.S. federal securities laws. These statements are based on current expectations, estimates and projections about the general economy and Alcatel's and Packet Engines' lines of business and are generally identifiable by statements containing words such as "expects", "believes", "estimates" or similar expression. Statements related to future performance involve certain assumptions, risks and uncertainties, many of which are beyond the control of Alcatel or Packet Engines, and cannot be guaranteed. Important factors that could cause actual results to differ materially from those expectation include, among others, foreign and domestic product and price competition, cost effectiveness, changes in governmental regulations, general economic and market conditions in various geographic areas, interest rates and the availability of capital. Although Alcatel and Packet Engines believe that their respective expectations reflected in any such forward looking statements are based upon reasonable assumptions, they can give no assurance that those expectations will be achieved.