ADVANCED FIBRE COMMUNICATIONS INC, S-1/A, 1996-08-28

ADVANCED FIBRE COMMUNICATIONS INC
S-1/A, 1996-08-28
TELEPHONE & TELEGRAPH APPARATUS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1996

REGISTRATION NO. 333-8921

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------

AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------

ADVANCED FIBRE COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3661 68-0277743
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>

1445 MCDOWELL BOULEVARD NORTH
PETALUMA, CA 94954
(707) 794-7700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)

---------------------

DONALD GREEN
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ADVANCED FIBRE COMMUNICATIONS, INC.
1445 MCDOWELL BOULEVARD NORTH
PETALUMA, CA 94954
(707) 794-7700
(Name and address, including zip code, and telephone number, including area
code, of agent for service)

---------------------

COPIES TO:

<TABLE>
<S> <C>
SCOTT D. LESTER, ESQ. MARK A. BERTELSEN, ESQ.
KEITH M. ROBERTS, ESQ. KENNETH M. SIEGEL, ESQ.
BROBECK, PHLEGER & HARRISON LLP DAVID S. KIM, ESQ.
ONE MARKET WILSON, SONSINI, GOODRICH & ROSATI
SPEAR STREET TOWER PROFESSIONAL CORPORATION
SAN FRANCISCO, CA 94105 650 PAGE MILL ROAD
(415) 442-0900 PALO ALTO, CA 94304-1050
(415) 493-9300
</TABLE>

-------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

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, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of 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. / /

-------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of Common Stock being registered, other
than underwriting discounts and commissions. All amounts are estimates except
the Securities and Exchange Commission registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.

<TABLE>
<CAPTION>
AMOUNT
TO
BE PAID
----------
<S> <C>

Securities and Exchange Commission registration fee............................... $ 22,207
NASD filing fee................................................................... 6,940
Nasdaq National Market listing fee................................................ *
Printing and engraving expenses................................................... *
Legal fees and expenses........................................................... *
Accounting fees and expenses...................................................... *
Blue sky fees and expenses........................................................ *
Transfer agent and registrar fees................................................. *
Director and officer insurance premiums........................................... *
Miscellaneous expenses............................................................ *
----------
Total....................................................................... $ *
----------
----------
</TABLE>

- ---------
* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of the state of Delaware (the
``Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include 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, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was illegal. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his duty. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.

In accordance with the Delaware Law, the Certificate of Incorporation of the
Company contains a provision to limit the personal liability of the directors of
the Registrant for violations of their fiduciary duty. This provision eliminates
each director's liability to the Registrant or its stockholders for monetary
damages except (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware Law providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an

II-1
<PAGE>
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence.

Article five of the Bylaws of the Registrant provide for indemnification of
the officers and directors of the Registrant to the fullest extent permitted by
applicable law.

In connection with the incorporation of the Registrant in the State of
Delaware, the Registrant entered into indemnification agreements with each
director and certain officers, a form of which is attached as Exhibit 10.1
hereto and incorporated herein by reference. The Indemnification Agreements
provide indemnification to such directors and officers under certain
circumstances for acts or omissions which may not be covered by directors' and
officers' liability insurance. The Company intends to obtain directors and
officers liability insurance, which will insure against liabilities that
directors or officers of the Company may incur in such capacities. Reference is
also made to Section 7 of the Underwriting Agreement contained in Exhibit 1.1
hereto, indemnifying officers and directors of the Registrant against certain
liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since July 26, 1993, the Registrant has sold and issued the following
securities which were not registered under the Securities Act (all numbers take
into account the stock splits effected in September 1995 and August 1996):

(i) Since July 26, 1993, the Registrant has granted stock options to its
employees under its stock option plans covering an aggregate of 3,303,296 shares
of the Registrant's Common Stock, at exercise prices ranging from $0.025 to
$4.70 per share. The Registrant has issued 404,644 shares upon exercise of these
stock options.

(ii) In October 1993, the Registrant issued and sold an aggregate of
2,040,820 shares of Series B Preferred Stock (convertible into 2,237,882 shares
of Common Stock) at $2.50 per share to 26 investors, and warrants to purchase an
aggregate of 347,636 shares of Common Stock at $0.125 per share to six
investors.

(iii) In March and May 1994, the Registrant issued and sold an aggregate of
3,200,000 shares of Series C Preferred Stock (convertible into 3,508,992 shares
of Common Stock) at $2.50 per share to 31 investors, and warrants to purchase an
aggregate of 600,000 shares of Common Stock at $0.25 per share to three
investors, and warrants to purchase an aggregate of 5,019,520 shares of Common
Stock at $1.165 per share to 31 investors.

(iv) In October 1994, the Registrant issued and sold an aggregate of
2,080,000 shares of Series D Preferred Stock (convertible into 2,280,845 shares
of Common Stock) at $3.125 per share to 13 investors.

(v) In May 1995, the Registrant issued and sold an aggregate of 563,600
shares of Common Stock at $0.3125 per share to Donald Green, James Hoeck, Henri
Sulzer and John Webley pursuant to a restricted stock issuance program approved
by the Company's Board of Directors.

(vi) In September 1995, the Registrant issued and sold an aggregate of
2,193,540 shares of Series E Preferred Stock (convertible into 2,249,015 shares
of Common Stock) at $7.00 per share to 10 investors, and warrants to purchase an
aggregate of 30,068 shares of Common Stock at $7.00 per share to Hambrecht &
Quest and AFC Investors, L.P.

(vii) In April 1996, the Registrant issued and sold an aggregate of 220,000
shares of Series F Preferred Stock (convertible into 220,000 shares of Common
Stock) at an effective price of $7.00 per share to Elec and Eltek Communication
Holdings Limited. The Registrant purchased all of the stock of AFTEK-Hong Kong
that had not previously been owned by the Registrant in exchange for 220,000
Shares of such shares of Series F Preferred Stock and approximately $939,000 in
cash.

(viii) Between September 1993 and April 1996, the Registrant has issued and
sold 197,236 shares of Common Stock upon exercise of warrants to 9 individuals.

II-2
<PAGE>
(ix) Between May 1994 and February 1996, the Registrant has issued and sold
1,264,900 shares of Common Stock upon exercise of warrants to 10 individuals.

The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, or Regulation D promulgated thereunder,
or Rule 701 promulgated under Section 3(b) of the Securities Act, as
transactions by an issuer not involving any public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensations
as provided under Rule 701. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investments only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the securities
issued in such transactions. All recipients had adequate access, through their
relationships with the Company, to information about the Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.13 License, Joint Development, Supply and Authorized Manufacturing Agreement, dated September 25, 1992,
between the Registrant and Industrial Technology Research Institute of the Republic of China.+
10.14 Hangzhou Aftek Communication Registrant Ltd. Contract, dated June 18, 1994, between Advanced Fibre
Technology Communication (Hong Kong) Limited and Hangzhou Communication Equipment Factory of the MPT.,
HuaTong Branch.**+
10.15 1445 & 1455 McDowell Boulevard North Net Lease, dated February 1, 1993, between the Registrant and G &
W/ Redwood Associates Joint Venture, for the premises located at 1445 McDowell Boulevard North.**
10.16 Redwood Business Park Net Lease, dated July 9, 1995, between the Registrant and G & W/ Redwood
Associates Joint Venture, for the premises located at 1455 McDowell Boulevard North.**
10.17 Redwood Business Park Net Lease, dated July 10, 1995, between the Registrant and G & W/ Redwood
Associates Joint Venture, for the premises located at 1440 McDowell Boulevard North.**
10.18 Redwood Business Park Net Lease, dated June 3, 1996, between the Registrant and G & W/ Redwood
Associates Joint Venture, for the premises located at Buildings 1 & 9 of Willowbrook Court.**
10.19 Second Amended and Restated Loan and Security Agreement, dated December 7, 1995, between the Registrant
and Bank of the West.**
10.20 Form of Indemnification Agreement for Executive Officers and Directors of the Registrant.**
10.21 The Registrant's 1993 Stock Option/Stock Issuance Plan as amended (the ``1993 Plan").**
10.22 Form of Stock Option Agreement pertaining to the 1993 Plan.**
10.23 Form of Notice of Grant of Stock Option pertaining to the 1993 Plan.**
10.24 Form of Stock Purchase Agreement pertaining to the 1993 Plan.**
10.25 The Registrant's 1996 Stock Incentive Plan (the ``1996 Plan").
10.26 Form of Stock Option Agreement pertaining to the 1996 Plan.
10.26.1 Form of Automatic Stock Option Agreement pertaining to the 1996 Plan.
10.27 Form of Notice of Grant of Stock Option pertaining to the 1996 Plan.
10.27.1 Form of Notice of Grant of Non-Employee Director Automatic Stock Option pertaining to the 1996 Plan.
10.28 Form of Stock Issuance Agreement pertaining to the 1996 Plan.
10.29 The Registrant's Employee Stock Purchase Plan.
11.1 Statement regarding computation of per share earnings.**
21.1 Subsidiaries of the Registrant.**
23.1 Form of Consent of KPMG Peat Marwick LLP, Independent Auditors.**
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).*
24.1 Power of Attorney (see page II-6).**
</TABLE>

- ---------

* To be filed by amendment.

** Previously filed.

+ Portions of this Exhibit have been deleted pursuant to a Confidential
Treatment Request filed with the Commission.

(b) Financial Statement Schedules

Not applicable.

II-4
<PAGE>
ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of Registrant, Indemnification Agreements entered
into between the Registrant and its directors and certain of its officers,
Underwriting Agreement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange 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 Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant 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 hereunder, the Registrant 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.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus 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.

II-5
<PAGE>
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
PETALUMA, STATE OF CALIFORNIA ON THIS 28TH DAY OF AUGUST, 1996.

ADVANCED FIBRE COMMUNICATIONS, INC.

/s/ DAN E. STEIMLE

By
-----------------------------------------

Dan E. Steimle
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER,
TREASURER AND SECRETARY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ---------------------------------------------------------- ------------------

<S> <C> <C>
/s/ DONALD GREEN*
------------------------------- Chairman of the Board and Chief Executive Officer August 28, 1996
Donald Green (principal executive officer)

/s/ CARL J. GRIVNER*
------------------------------- President, Chief Operating Officer and Director August 28, 1996
Carl J. Grivner

/s/ DAN E. STEIMLE
------------------------------- Vice President, Chief Financial Officer, Treasurer and August 28, 1996
Dan E. Steimle Secretary (principal financial and accounting officer)

/s/ B.J. CASSIN*
------------------------------- Director August 28, 1996
B.J. Cassin

/s/ CLIFFORD H. HIGGERSON*
------------------------------- Director August 28, 1996
Clifford H. Higgerson

/s/ BRIAN JACKMAN*
------------------------------- Director August 28, 1996
Brian Jackman

/s/ DAN RASDAL*
------------------------------- Director August 28, 1996
Dan Rasdal

*By:/s/ DAN E. STEIMLE
Dan E. Steimle
ATTORNEY-IN-FACT
</TABLE>

II-6
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>

1.1 Form of Underwriting Agreement.*
3.1 Second Amended and Restated Certificate of Incorporation of the Registrant.**
3.2 Third Amended and Restated Certificate of Incorporation of the Registrant.
3.3 Form of Fourth Amended and Restated Certificate of Incorporation of the Registrant.
3.4 Bylaws of the Registrant.**
3.5 Form of Amended and Restated Bylaws of the Registrant.
4.1 Specimen Certificate of Common Stock.*
4.2 Series E Preferred Stock Purchase Agreement, dated September 29, 1995, between the Registrant and
certain purchasers of the Registrant's Series E Preferred Stock.**
4.3 Certificate of Incorporation of the Registrant (included in Exhibit 3.1).**
5.1 Opinion of Brobeck, Phleger & Harrison LLP.*
10.1 Form of Warrant Issued In Connection with the Sale of the Registrant's Series A Preferred Stock on
January 6, 1993.**
10.2 Form of Warrant Issued In Connection with the Sale of the Registrant's Series B Preferred Stock on
October 5, 1993.**
10.3 Form of Warrant Issued in Connection with the Sale of the Registrant's Series C Preferred Stock on March
16, 1994.**
10.4 Form of Performance Warrant Issued in Connection with the Sale of the Registrant's Series C Preferred
Stock on March 16, 1994 and May 4, 1994.**
10.4.1 Form of Amendment to Warrants and Performance Warrants.
10.5 Warrant Issued in Connection with the Sale of the Registrant's Series E Preferred Stock on September 29,
1995.**
10.6 Restricted Stock Issuance Agreement, dated May 19, 1995, between the Registrant, Donald Green and
Maureen Green.**
10.7 Compensation Agreement, dated May 19, 1995, between the Registrant and Donald Green.**
10.8 Promissory Note Secured by Pledge Agreement, dated May 31, 1995, by Donald Green in favor of the
Registrant.**
10.9 Stock Pledge Agreement, dated June 16, 1995, between the Registrant and Donald Green.**
10.10 Promissory Note issued by Carl Grivner, dated October 5, 1995, in favor of the Registrant.**
10.11 Shareholder and Joint Venture Agreement, dated December 28, 1995, between the Registrant and Harris
Corporation, acting for the purposes of the agreement through its Digital Telephone Systems Division.**+
10.12 Joint Venture & Partnership Agreement, dated April 11, 1994, between the Registrant and Tellabs
Operations, Inc.**+
10.13 License, Joint Development, Supply and Authorized Manufacturing Agreement, dated September 25, 1992,
between the Registrant and Industrial Technology Research Institute of the Republic of China.+
10.14 Hangzhou Aftek Communication Registrant Ltd. Contract, dated June 18, 1994, between Advanced Fibre
Technology Communication (Hong Kong) Limited and Hangzhou Communication Equipment Factory of the MPT.,
HuaTong Branch.**+
10.15 1445 & 1455 McDowell Boulevard North Net Lease, dated February 1, 1993, between the Registrant and G &
W/ Redwood Associates Joint Venture, for the premises located at 1445 McDowell Boulevard North.**
10.16 Redwood Business Park Net Lease, dated July 9, 1995, between the Registrant and G & W/ Redwood
Associates Joint Venture, for the premises located at 1455 McDowell Boulevard North.**
10.17 Redwood Business Park Net Lease, dated July 10, 1995, between the Registrant and G & W/ Redwood
Associates Joint Venture, for the premises located at 1440 McDowell Boulevard North.**
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.18 Redwood Business Park Net Lease, dated June 3, 1996, between the Registrant and G & W/ Redwood
Associates Joint Venture, for the premises located at Buildings 1 & 9 of Willowbrook Court.**
10.19 Second Amended and Restated Loan and Security Agreement, dated December 7, 1995, between the Registrant
and Bank of the West.**
10.20 Form of Indemnification Agreement for Executive Officers and Directors of the Registrant.**
10.21 The Registrant's 1993 Stock Option/Stock Issuance Plan as amended (the ``1993 Plan").**
10.22 Form of Stock Option Agreement pertaining to the 1993 Plan.**
10.23 Form of Notice of Grant of Stock Option pertaining to the 1993 Plan.**
10.24 Form of Stock Purchase Agreement pertaining to the 1993 Plan.**
10.25 The Registrant's 1996 Stock Incentive Plan (the ``1996 Plan").
10.26 Form of Stock Option Agreement pertaining to the 1996 Plan.
10.26.1 Form of Automatic Stock Option Agreement pertaining to the 1996 Plan.
10.27 Form of Notice of Grant of Stock Option pertaining to the 1996 Plan.
10.27.1 Form of Notice of Grant of Non-Employee Director Automatic Stock Option pertaining to the 1996 Plan.
10.28 Form of Stock Issuance Agreement pertaining to the 1996 Plan.
10.29 The Registrant's Employee Stock Purchase Plan.
11.1 Statement regarding computation of per share earnings.**
21.1 Subsidiaries of the Registrant.**
23.1 Form of Consent of KPMG Peat Marwick LLP, Independent Auditors.**
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).*
24.1 Power of Attorney (see page II-6).**
</TABLE>

- ---------

* To be filed by amendment.

** Previously filed.

+ Portions of this Exhibit have been deleted pursuant to a Confidential
Treatment Request filed with the Commission.

<PAGE>

EXHIBIT 3.2

THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ADVANCED FIBRE COMMUNICATIONS, INC.

The undersigned, Carl Grivner and Dan Steimle, hereby certify that:

ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.

TWO: The Certificate of Incorporation of said corporation was
originally filed in the Office of the Secretary of State of the State of
Delaware on July 20, 1995.

THREE: The Certificate of Incorporation of said corporation shall be
amended and restated to read in full as follows:

* * *

FIRST. The name of the Corporation is Advanced Fibre Communications,
Inc. (the "Corporation").

SECOND. The address of its registered office in the State of Delaware
is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805. The name of
its registered agent at such address is The Prentice-Hall Corporation System,
Inc.

THIRD. The nature of the business or 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.

FOURTH. A. CLASSES OF STOCK. This Corporation is authorized to
issue two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which this Corporation is
authorized to issue is 135,565,816 shares, of which 100,000,000 shares shall be
Common Stock and 35,565,816 shares shall be Preferred Stock. The Common Stock
and the Preferred Stock shall have a par value of $.01 per share.

B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock shall consist of eleven series, designated Series A Preferred
Stock, consisting of 8,112,088 shares, Series A-1 Preferred Stock, consisting of
8,112,088 shares, Series B Preferred Stock, consisting of 2,040,820 shares,
Series B-1 Preferred Stock, consisting of 2,040,820 shares, Series C Preferred
Stock, consisting of 3,200,000 shares, Series C-1 Preferred Stock, consisting of
3,200,000 shares, Series D Preferred Stock, consisting of 2,080,000 shares,
Series D-1 Preferred Stock, consisting of 2,080,000 shares, Series E Preferred
Stock, consisting of 2,240,000 shares, and Series E-1 Preferred Stock,
consisting

1.
<PAGE>

of 2,240,000 shares, and Series F Preferred Stock, consisting of 220,000 shares
(together, the "Preferred Stock"). The rights, preferences, privileges, and
restrictions granted to and imposed on the Preferred Stock are as set forth
below in this Article FOURTH (B).

(1) DIVIDEND PROVISIONS. The holders of shares of Series A, Series
A-1, Series B, Series B-1, Series C, Series C-1, Series D, Series D-1, Series E,
Series E-1 and Series F Preferred Stock shall be entitled to receive dividends,
out of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
Corporation) on the Common Stock of this Corporation. Dividends shall be
payable at a rate of $.04 per annum on each share of Series A and Series A-1
Preferred Stock, $.20 per annum on each share of Series B and Series B-1
Preferred Stock, $.20 per annum on each share of Series C and Series C-1
Preferred Stock, $.25 per annum on each share of Series D and Series D-1
Preferred Stock and $.56 per annum on each share of Series E, Series E-1 and
Series F Preferred Stock when and if declared by the Board of Directors.
Dividends may only be paid jointly on the Series A, Series A-1, Series B, Series
B-1, Series C, Series C-1, Series D, Series D-1, Series E, Series E-1 and Series
F Preferred Stock and may not be paid to one series of Preferred Stock without
making the appropriate payment to the other series of Preferred Stock
simultaneously based on the respective dividend preferences of the Preferred
Stock. Dividends shall not be cumulative. The Preferred Stock shall
participate in dividends declared on the Common Stock pro rata based on the
number of shares of Common Stock issuable upon conversion of such Preferred
Stock as of the record date for such dividend.

(2) LIQUIDATION PREFERENCE.

(a) In the event of any liquidation, dissolution or winding up
of this Corporation, either voluntary or involuntary, the holders of shares of
Series A, Series A-1, Series B, Series B-1, Series C, Series C-1, Series D,
Series D-1, Series E and Series E-1 Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of
this Corporation to the holders of Series F Preferred Stock or Common Stock by
reason of their ownership thereof, an amount per share equal to the sum of (i)
$.50 for each outstanding share of Series A and Series A-1 Preferred Stock (the
"Series A Preferred Issue Price"), $2.50 for each outstanding share of Series
B and Series B-1 Preferred Stock (the "Series B Preferred Issue Price"), $2.50
for each outstanding share of Series C and Series C-1 Preferred Stock (the
"Series C Preferred Issue Price"), $3.125 for each outstanding share of Series
D and Series D-1 Preferred Stock (the "Series D Preferred Issue Price") and
$7.00 for each outstanding share of Series E and Series E-1 Preferred Stock (the
"Series E Preferred Issue Price"), (ii) an amount equal to 8%, compounded
annually, of the Series A Preferred Issue Price, the Series B Preferred Issue
Price, the Series C Preferred Issue Price, the Series D Preferred Issue Price
and the Series E Preferred Issue Price for each outstanding share of Series A
and Series A-1 Preferred Stock, for each outstanding share of Series B and
Series B-1 Preferred Stock, for each outstanding share of Series C and
Series C-1 Preferred Stock, for each outstanding share of Series D and
Series D-1 Preferred Stock,

2.
<PAGE>

and for each outstanding share of Series E and Series E-1 Preferred Stock,
respectively, for each 12 months that has passed since the respective dates of
first issuance of the Series A, Series B, Series C, Series D and Series E
Preferred Stock, and (iii) any declared but unpaid dividends on such share. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series A, Series B, Series C, Series D and Series E Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of this
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A, Series B, Series C, Series D and Series E
Preferred Stock in proportion to the amount of the aggregate liquidation
preference of the stock owned by each such holder.

(b) After the distributions described in subsection (a) above
have been paid, the holders of shares of Series F Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of this Corporation to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to the sum of (i) $7.00 for each
outstanding share of Series F Preferred Stock (the "Series F Preferred Issue
Price"), (ii) an amount equal to 8%, compounded annually, of the Series F
Preferred Issue Price for each outstanding share of Series F Preferred Stock for
each 12 months that has passed since the date of first issuance of the Series F
Preferred Stock and (iii) any declared but unpaid dividends on such share. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series F Preferred Stock shall be insufficient to permit the
payment of the full aforesaid preferential amounts, then the entire assets and
funds of this Corporation legally available for distribution (following the
distributions described in subsection (a) above) shall be distributed ratably
among the holders of the Series F Preferred Stock in proportion to the amount of
the aggregate liquidation preference of the stock owned by each such holder.

(c) After the distributions described in subsections (a) and (b)
above have been paid, the remaining assets of this Corporation available for
distribution to stockholders shall be distributed among the holders of the
Series A, Series A-1, Series B, Series B-1, Series C, Series C-1, Series D,
Series D-1, Series E, Series E-1 and Series F Preferred Stock and Common Stock
pro rata based on the number of shares of Common Stock held by each (assuming
conversion into Common Stock of all such Preferred Stock).

(d) A sale, conveyance or disposition of all or substantially
all of the assets of this Corporation, or a consolidation or merger of this
Corporation with or into any other corporation or corporations or other similar
transaction or series of related similar transactions in which more than 50% of
the voting power of this Corporation is disposed of, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section 2.

3.
<PAGE>

(3) REDEMPTION.

(a) On or at any time after January 1, 2000, this Corporation
may at any time it may lawfully do so, at the option of the Board of Directors,
redeem in whole or in part the Preferred Stock by paying in cash therefor (i) to
the holders of Series A and Series A-1 Preferred Stock a sum per share equal to
$.50 plus an amount equal to 8%, compounded annually, of the Series A Preferred
Issue Price for each 12 months that has passed since the date of first issuance
of the Series A Preferred Stock together with all dividends declared, but
unpaid, with respect to such share to the date fixed for any redemption of
Preferred Stock (the "Redemption Date"); (ii) to the holders of Series B and
Series B-1 Preferred Stock a sum per share equal to $2.50 plus an amount equal
to 8%, compounded annually, of the Series B Preferred Issue Price for each 12
months that has passed since the date of first issuance of the Series B
Preferred Stock together with all dividends declared, but unpaid, with respect
to such share to the Redemption Date; (iii) to the holders of Series C and
Series C-1 Preferred Stock a sum per share equal to $2.50 plus an amount equal
to 8%, compounded annually, of the Series C Preferred Issue Price for each 12
months that has passed since the date of first issuance of the Series C
Preferred Stock together with all dividends declared, but unpaid, with respect
to such share to the Redemption Date; (iv) to the holders of Series D and Series
D-1 Preferred Stock a sum per share equal to $3.125 plus an amount equal to 8%,
compounded annually, of the Series D Preferred Issue Price for each 12 months
that has passed since the date of first issuance of the Series D Preferred Stock
together with all dividends declared, but unpaid, with respect to such share to
the Redemption Date and (v) to the holders of Series E, Series E-1 and Series F
Preferred Stock a sum per share equal to $7.00 plus an amount equal to 8%,
compounded annually, of the Series E and Series F Preferred Issue Price for each
12 months that has passed since the date of first issuance of the Series E and
Series F Preferred Stock, respectively, together with all dividends declared,
but unpaid, with respect to such share to the Redemption Date (collectively,
such total amount is hereinafter referred to as the "Redemption Price").

(b) On or at any time after January 1, 2000, within thirty (30)
days after the receipt by this Corporation of the written request of the holders
of not less than fifty percent (50%) of the then outstanding Preferred Stock
(the "Redemption Notification"), this Corporation shall redeem the percentage
of the Preferred Stock specified in such request (or, if less, the maximum
amount it may lawfully redeem) by paying in cash therefor a sum equal to the
Redemption Price for such shares; provided, however that this Corporation may,
at its sole option, redeem such Preferred Stock during the two-year period
commencing upon receipt of the Redemption Notification, in which case this
Corporation shall redeem fifty percent (50%) of the Preferred Stock to be
redeemed pursuant to the Redemption Notification in each year of the two-year
period. In connection with any redemption under this subsection 3(b) the
Company shall mail a Redemption Notice (as defined below) in accordance with
subsection 3(d) below, and the Redemption Date shall be the date which is thirty
(30) days after receipt by this corporation of the Redemption Notification or,
if this Corporation elects to redeem the Preferred stock over the two-year
period as provided in the previous sentence, the Redemption Dates shall be the
first and second anniversary of the date this Corporation receives the
Redemption Notification.

4.
<PAGE>

(c) In the event of any redemption of only a part of the then
outstanding Preferred Stock, this Corporation shall effect such redemption pro
rata among all outstanding series of Preferred Stock. The Corporation shall not
redeem any shares of the Series A, Series A-1, Series B, Series B-1, Series C,
Series C-1, Series D, Series D-1, Series E, Series E-1 or Series F Preferred
Stock without a proportionate redemption of the shares of the other series of
Preferred Stock, based on the number of shares of each series held by each
holder thereof.

(d) At least 20 but no more than 60 days prior to the Redemption
Date, written notice shall be mailed, first class postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of the Preferred Stock to be redeemed, at the
address last shown on the records of this Corporation for such holder or given
by the holder to this Corporation for the purpose of notice or if no such
address appears or is given at the place where the principal executive office of
this Corporation is located, notifying such holder of the redemption to be
effected, specifying the number of shares to be redeemed from such holder, the
Redemption Date, the Redemption Price applicable to the shares to be redeemed,
the place at which payment may be obtained and the date on which such holder's
Conversion Rights (as hereinafter defined) as to such shares terminate and
calling upon such holder to surrender to this Corporation, in the manner and at
the place designated, his certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in subsection 3(e),
on or after the Redemption Date, each holder of Preferred Stock to be redeemed
shall surrender to this Corporation the certificate or certificates representing
such shares, in the manner and at the place designated in the Redemption Notice,
and thereupon the Redemption Price applicable to the shares to be redeemed shall
be payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled. In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.

(e) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
such shares as holders of Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of this Corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of this Corporation
legally available for redemption of shares of Preferred Stock on any Redemption
Date are insufficient to redeem the total number of shares of Preferred Stock to
be redeemed on such date, those funds which are legally available will be used
to redeem the maximum possible number of such shares ratably among the holders
of such shares to be redeemed in accordance with Section 3(c). The shares of
Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein. At any time thereafter when additional
funds of this Corporation are legally available for the redemption of shares of
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares which this

5.
<PAGE>

Corporation has become obligated to redeem on any Redemption Date but which it
has not redeemed.

(4) CONVERSION. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):

(a) RIGHT TO CONVERT.

(i) Subject to subsection (c), each share of Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share and prior to the close of business on
any Redemption Date as may have been fixed in any Redemption Notice with respect
to such share, at the office of this Corporation or any transfer agent for the
Preferred Stock. Each share of Series A Preferred Stock and Series A-1
Preferred Stock shall be convertible into the number of fully paid and
nonassessable shares of Common Stock which results from dividing the Series A
Preferred Issue Price by the conversion price (the "Conversion Price") per
share in effect for the Series A Preferred Stock and the Series A-1 Preferred
Stock, respectively, at the time of conversion. Each share of Series B
Preferred Stock and Series B-1 Preferred Stock shall be convertible into the
number of fully paid and nonassessable shares of Common Stock which results from
dividing the Series B Preferred Issue Price by the Conversion Price per share in
effect for the Series B Preferred Stock and the Series B-1 Preferred Stock,
respectively, at the time of conversion. Each share of Series C Preferred Stock
and Series C-1 Preferred Stock shall be convertible into the number of fully
paid and nonassessable shares of Common Stock which results from dividing the
Series C Preferred Issue Price by the Conversion Price per share in effect for
the Series C Preferred Stock and the Series C-1 Preferred Stock, respectively,
at the time of conversion. Each share of Series D Preferred Stock and Series
D-1 Preferred Stock shall be convertible into the number of fully paid and
nonassessable shares of Common Stock which results from dividing the Series D
Preferred Issue Price by the Conversion Price per share in effect for the Series
D Preferred Stock and the Series D-1 Preferred Stock, respectively, at the time
of conversion. Each share of Series E Preferred Stock and Series E-1 Preferred
Stock shall be convertible into the number of fully paid and nonassessable
shares of Common Stock which results from dividing the Series E Preferred Issue
Price by the Conversion Price per share in effect for the Series E Preferred
Stock and the Series E-1 Preferred Stock, respectively, at the time of
conversion. Each share of Series F Preferred Stock shall be convertible into
the number of fully paid and nonassessable shares of Common Stock which results
from dividing the Series F Preferred Issue Price by the conversion price per
share in effect for the Series F Preferred Stock at the time of conversion. The
Conversion Price per share for shares of Series A Preferred Stock and Series A-1
Preferred Stock shall be $.45597, the Conversion Price per share for shares of
Series B Preferred Stock and Series B-1 Preferred Stock shall be $2.27985, the
Conversion Price per share for shares of Series C Preferred Stock and Series C-1
Preferred Stock shall be $2.27985, the Conversion Price per share for shares of
Series D Preferred Stock and Series D-1 Preferred Stock shall be $2.84982, the
Conversion Price per share for shares of Series E Preferred Stock and Series E-1
Preferred Stock shall be $6.82733 and the Conversion Price per share for shares
of Series F Preferred Stock shall be $7.00;

6.
<PAGE>

provided, however, that the Conversion Price for the Preferred Stock shall be
subject to adjustment from time to time as set forth in subsection 4(c).

(ii) In the event of a call for redemption of any shares of
Preferred Stock pursuant to Section 3 hereof, the Conversion Rights shall
terminate as to the shares designated for redemption at the close of business on
the Redemption Date, unless default is made in payment of the Redemption Price.

(iii) Each share of Preferred Stock shall automatically
be converted into shares of Common Stock at the Conversion Price at the time in
effect for such Preferred Stock immediately upon the earlier of (A) the
consummation of this Corporation's sale of its Common Stock in a bona fide, firm
commitment underwriting pursuant to a registration statement on Form S-1 under
the Securities Act of 1933, as amended, the public offering price of which is
not less than $7.50 per share (adjusted to reflect subsequent stock dividends,
stock splits or recapitalization) and $15,000,000 in the aggregate or (B) the
date upon which this Corporation obtains the consent of the holders of
two-thirds of the then outstanding shares of Preferred Stock.

(b) MECHANICS OF CONVERSION. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of this Corporation or of any transfer agent for the Preferred
Stock, and shall give written notice by mail, postage prepaid, to this
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offer of securities registered pursuant to the Securities
Act of 1933, the conversion may, at the option of any holder tendering Preferred
Stock for conversion, be conditioned upon the closing with the underwriter of
the sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock issuable upon such conversion of the
Preferred Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.

(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The
Conversion Price of each series of Preferred Stock shall be subject to
adjustment from time to time as follows:

(i) A. Upon each issuance by this Corporation of any
Additional Stock (as defined below), after the date upon which any shares
of

7.
<PAGE>

Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock were first
issued (the ``Purchase Date'' with respect to such series), without
consideration or for a consideration per share less than the Conversion
Price for such series in effect immediately prior to the issuance of such
Additional Stock, the Conversion Price for such series and only such series
in effect immediately prior to each such issuance shall forthwith (except
as otherwise provided in this clause (i)) be adjusted to a price determined
by dividing (X) an amount equal to the sum of (a) the product derived by
multiplying such Conversion Price in effect immediately prior to such issue
or sale times the number of shares of Common Stock Deemed Outstanding (as
hereinafter defined) immediately prior to such issue or sale, plus (b) the
consideration, if any, received or deemed to be received by this
Corporation upon such issue or sale, by (Y) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale.

The number of shares of ``Common Stock Deemed Outstanding'' shall
equal the sum of the number of shares of Common Stock then outstanding plus the
number of shares of Common Stock then obtainable pursuant to (i) options to
purchase or warrants or rights to subscribe for Common Stock, (ii) securities by
their terms convertible into or exchangeable for Common Stock and (iii) options
to purchase or warrants or rights to subscribe for such convertible or
exchangeable securities.

B. No adjustment of the Conversion Price for any
series of Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by
reason of this sentence shall be carried forward and shall be either taken
into account in any subsequent adjustment made prior to 3 years from the
date of the event giving rise to the adjustment being carried forward, or
shall be made at the end of 3 years from the date of the event giving rise
to the adjustment being carried forward. Except to the limited extent
provided for in subsections (E)(3) and (E)(4) and subsection 4(c)(iv), no
adjustment of such Conversion Price pursuant to this subsection 4(c)(i)
shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.

C. In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this Corporation for any underwriting
or otherwise in connection with the issuance and sale thereof.

D. In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.

E. In the case of the issuance of options to purchase
or rights to subscribe for Common Stock, securities by their terms

8.
<PAGE>

convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this subsection
4(c)(i) and subsection 4(c)(ii):

1. The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner
provided in subsections 4(c)(i)(C) and 4(c)(i)(D)), if any, received
by this Corporation upon the issuance of such options or rights plus
the exercise price provided in such options or rights for the Common
Stock covered thereby.

2. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof
shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration
equal to the consideration, if any, received by this Corporation for
any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus
the additional consideration, if any, to be received by this
Corporation upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each
case to be determined in the manner provided in subsections 4(c)(i)(C)
and 4(c)(i)(D)).

3. In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to
this Corporation upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable
securities, other than a change resulting from the antidilution
provisions thereof, the Conversion Price, to the extent in any way
affected by or computed using such options, rights or securities,
shall be recomputed to reflect such change, but no further adjustment
shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights
or the conversion or exchange of such securities.

4. Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price, to the extent in any
way affected by or computed using such options, rights or securities
or options or rights related to such securities, shall be recomputed
to reflect the

9.
<PAGE>

issuance of only the number of shares of Common Stock (and convertible
or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or
rights related to such securities.

5. The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to
subsections 4(c)(i)(E)(1) and (2) shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in
either subsection 4(c)(i)(E)(3) or (4).

(ii) ``Additional Stock'' shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(c)(i)(E))
by this Corporation after the Purchase Date other than:

A. shares of Common Stock issued pursuant to a
transaction described in subsection 4(c)(iii) hereof,

B. shares of Common Stock issuable or issued to
employees, consultants or directors of this Corporation directly or
pursuant to a stock option plan or restricted stock plan, in all cases,
whether direct or pursuant to a plan, approved by the Board of Directors of
this Corporation,

C. shares of Common Stock issued or issuable in a
public offering before or in connection with which all outstanding shares
of Preferred Stock will be converted to Common Stock,

D. shares of Common Stock issued or issuable upon
conversion of Preferred Stock,

E. warrants to purchase an aggregate of up to 600,000
shares of Common Stock and the shares of Common Stock issued or issuable
upon exercise thereof, which warrants were issued in connection with this
Corporation's sale of Series A Preferred Stock,

F. warrants to purchase an aggregate of up to 400,000
shares of Common Stock and the shares of Common Stock issued or issuable
upon exercise thereof, which warrants were issued in connection with this
Corporation's sale of Series B Preferred Stock,

G. warrants to purchase an aggregate of up to
5,619,520 shares of Common Stock and the shares of Common Stock issued or
issuable upon exercise thereof, which warrants were issued in connection
with this Corporation's sale of Series C Preferred Stock,

10.
<PAGE>

H. shares of Common Stock issuable or issued to
holders of shares of Preferred Stock in a single transaction or series of
related similar transactions pursuant to any indemnification arrangement or
plan approved by all of the directors elected by the holders of the shares
of Preferred Stock pursuant to Section 5(b) of Article FOURTH hereof,

I. warrants to purchase an aggregate of up to 44,000
shares of Series E Preferred Stock and the shares of Common Stock issued or
issuable upon conversion thereof, which warrants were issued in connection
with this Corporation's sale of Series E Preferred Stock.

(iii) In the event this Corporation should at any time
or from time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as ``Common Stock Equivalents'') without payment of any
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Prices of the Series A Preferred Stock, Series A-1
Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C
Preferred Stock, Series C-1 Preferred Stock, Series D Preferred Stock,
Series D-1 Preferred Stock, Series E Preferred Stock, Series E-1 Preferred Stock
and Series F Preferred Stock shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of each share of such series
shall be increased in proportion to such increase of the aggregate of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in subsection 4(c)(i)(E).

(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Prices for the Series A, Series A-1, Series B,
Series B-1, Series C, Series C-1, Series D, Series D-1, Series E, Series E-1 and
Series F Preferred Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be decreased in proportion to such decrease in outstanding shares.

(d) SHADOW PREFERRED.

(i) SPECIAL DEFINITIONS. For purposes of this Section
4(d), the following definitions shall apply:

11.
<PAGE>

A. ``DILUTIVE ISSUANCE'' with respect to the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock or Series E Preferred Stock shall mean an issuance of
Additional Stock for a consideration per share less than the Conversion
Price of such Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
respectively, in effect on the date of and immediately prior to such issue.

B. ``PARTICIPATING INVESTOR'' shall mean any holder
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock that purchases
at least its Pro Rata Share of a Dilutive Issuance.

C. ``NON-PARTICIPATING INVESTOR'' shall mean any
holder of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock that
is not a Participating Investor.

D. ``PRO RATA SHARE'' with respect to each holder of
Series A Preferred Stock shall mean that portion of the total dollar amount
of the Dilutive Issuance equal to (i) the amount of the Dilutive Issuance
actually offered to all holders of Series A Preferred Stock by this
Corporation pursuant to the Issuance Notice (as hereinafter defined) (ii)
multiplied by a fraction, the numerator of which is the number of shares of
Series A Preferred Stock then held by such holder, and the denominator of
which is the total number of shares of Series A Preferred Stock then
outstanding; and with respect to each holder of Series B Preferred Stock
shall mean that portion of the total dollar amount of the Dilutive Issuance
equal to (i) the amount of the Dilutive Issuance actually offered to all
holders of Series B Preferred Stock by this Corporation pursuant to the
Issuance Notice (ii) multiplied by a fraction, the numerator of which is
the number of shares of Series B Preferred Stock then held by such holder,
and the denominator of which is the total number of shares of Series B
Preferred Stock then outstanding; and with respect to each holder of Series
C Preferred Stock shall mean that portion of the total dollar amount of the
Dilutive Issuance equal to (i) the amount of the Dilutive Issuance actually
offered to all holders of Series C Preferred Stock by this Corporation
pursuant to the Issuance Notice (ii) multiplied by a fraction, the
numerator of which is the number of shares of Series C Preferred Stock then
held by such holder, and the denominator of which is the total number of
shares of Series C Preferred Stock then outstanding; and with respect to
each holder of Series D Preferred Stock shall mean that portion of the
total dollar amount of the Dilutive Issuance equal to (i) the amount of the
Dilutive Issuance actually offered to all holders of Series D Preferred
Stock by this Corporation pursuant to the Issuance Notice (ii) multiplied
by a fraction, the numerator of which is the number of shares of Series D
Preferred Stock then held by such holder, and the denominator of which is
the total number of shares of Series D Preferred Stock then outstanding;
and with respect to each holder of Series E Preferred Stock shall mean that
portion of the total dollar amount of the

12.
<PAGE>

Dilutive Issuance equal to (i) the amount of the Dilutive Issuance actually
offered to all holders of Series E Preferred Stock by this Corporation
pursuant to the Issuance Notice (ii) multiplied by a fraction, the
numerator of which is the number of shares of Series E Preferred Stock then
held by such holder, and the denominator of which is the total number of
shares of Series E Preferred Stock then outstanding.

(ii) In the event this Corporation proposes to undertake a
Dilutive Issuance, it shall give each holder of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock a written notice (the ``Issuance Notice'') of its
intention, describing the type of securities, the price and number of shares and
the general terms upon which this Corporation proposes to issue the same, at
least twenty (20) days prior to the date of such Dilutive Issuance. The
Issuance Notice shall also include the amount of the Dilutive Issuance offered
to all holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, as
applicable; provided, however, that in no event shall the amount of the Dilutive
Issuance offered pursuant to this Section 4(d) to all holders of a series of
Preferred Stock exceed the total dollar amount of the Dilutive Issuance
multiplied by a fraction, the numerator of which is the total number of shares
of such series of Preferred Stock then outstanding and the denominator of which
is the total number of shares of all series of Preferred Stock then outstanding.
Each holder of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the
case may be, may, within ten (10) days from the date of the Issuance Notice,
provide written notice to this Corporation that such holder agrees to become a
Participating Investor for the price and upon the terms specified in the
Issuance Notice. In the event that such holder fails to give such notice within
said ten-day period, or fails to actually purchase its Pro Rata Share of the
Dilutive Issuance (other than as a result of this Corporation refusing to allow
such holder to so purchase its Pro Rata Share), such holder shall be deemed to
be a Non-Participating Investor.

(iii) To the extent of the percentage of the Pro Rata
Share not purchased (the ``Refused Percentage'') by each Non-Participating
Investor, the number of outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, as the case may be, held by such Non-Participating Investor
determined by multiplying the number of such shares held by the Refused
Percentage shall be converted automatically on the date (the ``Closing Date'')
of the applicable Dilutive Issuance (provided that this Corporation gave the
Issuance Notice to such holder of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, as the case may be) into an equal number of fully paid and
non-assessable shares of Series A-1 Preferred Stock, Series B-1 Preferred Stock,
Series C-1 Preferred Stock, Series D-1 Preferred Stock or Series E-1 Preferred
Stock, as the case may be; provided, however, that prior to the Closing Date
each Non-Participating Investor shall have the right to convert such shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E

13.
<PAGE>

Preferred Stock, as the case may be, into shares of Common Stock at the
Conversion Price in effect for such series as of the date of such conversion.

(iv) Upon the conversion of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series
E Preferred Stock, held by a Non-Participating Investor into shares of
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock, Series D-1 Preferred Stock or Series E-1 Preferred Stock, respectively,
as set forth herein, such shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock shall no longer be outstanding on the books of this Corporation, and may
not be reissued and the Non-Participating Investor shall be treated for all
purposes as the record holder of such shares of Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock, Series D-1 Preferred
Stock or Series E-1 Preferred Stock, as the case may be, on the date of the
closing of the applicable Dilutive Issuance. No shares of Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock, Series D-1
Preferred Stock or Series E-1 Preferred Stock shall be issued except as set
forth in this Section 4(d) upon conversion of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock, respectively.

(v) No adjustment in the Conversion Price of the Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock, Series
D-1 Preferred Stock or Series E-1 Preferred Stock, shall be made in respect of
the issuance of Additional Stock, regardless of the issuance price of such
shares, except to the limited extent provided in subsections 4(c)(iii) and (iv)
and in Sections 4(e) and (f) hereof.

(e) OTHER DISTRIBUTIONS. In the event this Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(c)(iii), then,
in each such case for the purpose of this Section 4(e), the holders of the
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of this Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of this Corporation entitled to receive such distribution.

(f) RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4) provision shall be made so that the holders of the Preferred
Stock shall thereafter be entitled to receive upon conversion of the Preferred
Stock the number of shares of stock or other securities or property of this
Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of

14.
<PAGE>

the Conversion Price then in effect and the number of shares purchasable upon
conversion of the Preferred Stock) shall be applicable after that event as
nearly equivalent as may be practicable.

(g) NO IMPAIRMENT. This Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.

(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.

(i) No fractional shares shall be issued upon conversion of
the Preferred Stock and the number of shares of Common Stock to be issued shall
be rounded to the nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.

(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Preferred Stock pursuant to this Section 4, this
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Prices at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of Series A, Series A-1, Series B,
Series B-1, Series C, Series C-1, Series D, Series D-1, Series E, Series E-1 or
Series F Preferred Stock.

(i) NOTICES OF RECORD DATE. In the event of any taking by this
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Preferred Stock, at least 20 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.

15.
<PAGE>

(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, this Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.

(k) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
Corporation.

(5) VOTING RIGHTS.

(a) GENERAL. Except as otherwise required by law or in
subsection (b) below, the holder of each share of Preferred Stock shall have the
right to one vote for each share of Common Stock into which such Preferred Stock
could then be converted (with any fractional share determined on an aggregate
conversion basis being rounded to the nearest whole share), and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this Corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote.

(b) ELECTION OF DIRECTORS. The holders of shares of Series A
Preferred Stock and Series A-1 Preferred Stock, voting separately as a class,
shall have the right to elect two directors; provided that such right to elect
two directors separately as a class shall cease at such time as the number of
outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock is
less than twenty-five percent (25%) of the total number of shares of Series A
Preferred Stock and Series A-1 Preferred Stock issued by this Corporation. The
holders of shares of Series B Preferred Stock and Series B-1 Preferred Stock,
voting separately as a class, shall have the right to elect one director;
provided that such right to elect one director separately as a class shall cease
at such time as the number of outstanding shares of Series B Preferred Stock and
Series B-1 Preferred Stock is less than twenty-five percent (25%) of the total
number of shares of Series B Preferred Stock and Series B-1 Preferred Stock
issued by this Corporation. If a vacancy on the Board is to be filled by the
Board, only directors elected by the same class of stockholders as those who
would be entitled to vote to fill such vacancy shall vote to fill such vacancy.

16.
<PAGE>

(6) PROTECTIVE PROVISIONS. So long as shares of Series A,
Series A-1, Series B, Series B-1, Series C, Series C-1, Series D, Series D-1,
Series E or Series E-1 Preferred Stock are outstanding, this Corporation shall
not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then outstanding
shares of Series A, Series A-1, Series B, Series B-1, Series C, Series C-1
Series D, Series D-1, Series E and Series E-1 Preferred Stock, voting together
as a single class and in the case of subparagraphs (b) and (e), a majority of
the then outstanding shares of Series A Preferred Stock and Series A-1 Preferred
Stock voting separately as a class, a majority of the then outstanding shares of
Series B Preferred Stock and Series B-1 Preferred Stock voting separately as a
class, a majority of the then outstanding shares of Series C Preferred Stock and
Series C-1 Preferred Stock voting separately as a class, a majority of the then
outstanding shares of Series D Preferred Stock and Series D-1 Preferred Stock
voting separately as a class, and a majority of the then outstanding shares of
Series E Preferred Stock and Series E-1 Preferred Stock voting separately as a
class:

(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than 50%
of the voting power of this Corporation is disposed of; provided, however, that
any merger into or consolidation with any other corporation in which less than
50% of the voting power of this Corporation is disposed of and which adversely
affects the shares of one series of Preferred Stock in a different manner than
the shares of any of the other series of Preferred Stock shall require the
approval of a majority of the holders of the then outstanding shares of Series A
Preferred Stock and Series A-1 Preferred Stock voting separately as a class, a
majority of the then outstanding shares of Series B Preferred Stock and Series
B-1 Preferred Stock voting separately as a class, a majority of the then
outstanding shares of Series C Preferred Stock and Series C-1 Preferred Stock
voting separately as a class, a majority of the then outstanding shares of
Series D Preferred Stock and Series D-1 Preferred Stock voting separately as a
class, and a majority of the then outstanding shares of Series E Preferred Stock
and Series E-1 Preferred Stock voting separately as a class;

(b) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock, Series A-1 Preferred Stock, Series B
Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock,
Series C-1 Preferred Stock, Series D Preferred Stock, Series D-1 Preferred
Stock, Series E Preferred Stock or Series E-1 Preferred Stock so as to affect
such shares materially and adversely;

(c) increase the authorized number of shares of Preferred Stock;
provided, however, that if such increase shall adversely affect the shares of
one series of Preferred Stock in a different manner than the shares of any of
the other series of Preferred Stock, then such increase shall require the
approval of the holders of a majority of the then outstanding shares of Series A
Preferred Stock and Series A-1 Preferred Stock voting separately as a class, a
majority of the then outstanding shares of Series B Preferred Stock and Series
B-1 Preferred Stock voting separately as a class, a majority of the then
outstanding shares of Series C Preferred Stock and Series C-1

17.
<PAGE>

Preferred Stock voting separately as a class, a majority of the then outstanding
shares of Series D Preferred Stock and Series D-1 Preferred Stock voting
separately as a class, and a majority of the then outstanding shares of Series E
Preferred Stock and Series E-1 Preferred Stock voting separately as a class;

(d) create any new class or series of stock or any other
securities convertible into equity securities of this Corporation having a
preference over, or being on a parity with, the Series A, Series A-1, Series B,
Series B-1, Series C, Series C-1, Series D, Series D-1, Series E or Series E-1
Preferred Stock with respect to voting, dividends or upon liquidation; provided,
however, that if such creation of any new class or series of stock or any other
securities convertible into equity securities of this Corporation shall
adversely affect the shares of one of such series of Preferred Stock in a
different manner than the shares of any of the other of such series of Preferred
Stock, then such increase shall require the approval of the holders of a
majority of the then outstanding shares of Series A Preferred Stock and Series
A-1 Preferred Stock voting separately as a class, a majority of the then
outstanding shares of Series B Preferred Stock and Series B-1 Preferred Stock
voting separately as a class, a majority of the then outstanding shares of
Series C Preferred Stock and Series C-1 Preferred Stock voting separately as a
class, a majority of the then outstanding shares of Series D Preferred Stock and
Series D-1 Preferred Stock voting separately as a class, and a majority of the
then outstanding shares of Series E Preferred Stock and Series E-1 Preferred
Stock voting separately as a class;

(e) amend Section 5(b) of Article FOURTH; or

(f) increase the number of directors above five (5).

(7) STATUS OF CONVERTED OR REDEEMED STOCK. In the event any shares
of Preferred Stock shall be redeemed or converted pursuant to Section 3 or
Section 4 hereof, the shares so converted or redeemed shall be cancelled and
shall not be issuable by this Corporation. The Certificate of Incorporation of
this Corporation shall be appropriately amended to effect the corresponding
reduction in this Corporation's authorized capital stock.

C. COMMON STOCK.

(1) DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when, if and as
declared by the Board of Directors, out of any assets of this Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.

(2) LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding
up of this Corporation, the assets of this Corporation shall be distributed as
provided in Section 2 of Division (B) of this Article FOURTH.

(3) REDEMPTION. The Common Stock is not redeemable.

18.
<PAGE>

(4) VOTING RIGHTS. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.

FIFTH. Except as otherwise provided in this Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, amend
and rescind any or all of the Bylaws of the Corporation.

SIXTH. The number of directors of the Corporation shall be fixed from
time to time by the Bylaws or a bylaw amendment thereof duly adopted by the
Board of Directors or by the stockholders.

SEVENTH. Elections of directors need not be by written ballot unless
the Bylaws of the Corporation so provide.

EIGHTH. A Director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability (i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived any
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to authorize, with the approval of a corporation's stockholders, further
reductions in the liability of a corporation's directors for breach of fiduciary
duty, then a Director of the Corporation shall not be liable for any such breach
to the fullest extent permitted by the Delaware General Corporation Law as so
amended.

Any repeal or modification of the foregoing provisions of this Article
EIGHTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a Director of the Corporation existing at the time of
such repeal or modification.

NINTH. This Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.

* * *

FOUR: The foregoing amendment and restatement has been duly adopted
by the Corporation's Board of Directors and stockholders in accordance with the
applicable provisions of Sections 242 and 245 of the Delaware General
Corporation Law.

19.
<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this Third Amended
and Restated Certificate of Incorporation on August 15, 1996.

/s/ Carl Grivner
--------------------------------
Carl Grivner, President

/s/ Dan E. Steimle
--------------------------------
Dan E. Steimle, Secretary

The undersigned certify under penalty of perjury that they have read
the foregoing Certificate of Amendment to Certificate of Incorporation and know
the contents thereof, and that the statements therein are true.

Executed in Petaluma, California, on August 15, 1996.

/s/ Carl Grivner
--------------------------------
Carl Grivner, President

/s/ Dan E. Steimle
--------------------------------
Dan E. Steimle, Secretary

20.

<PAGE>

EXHIBIT 3.3

FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ADVANCED FIBRE COMMUNICATIONS, INC.

A Delaware corporation
(Pursuant to Sections 242 and 245
of the Delaware General Corporation Law)

Advanced Fibre Communications, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, hereby certifies as follows:

FIRST: That the name of the corporation is Advanced Fibre
Communications, Inc. and that the corporation was originally incorporated on
September 28, 1995, pursuant to the General Corporation Law.

SECOND: The Amended and Restated Certificate of Incorporation of
this corporation shall be restated to read in full as is set forth on Exhibit A
attached hereto.

THIRD: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and Section 245 of the General
Corporation Law by obtaining a majority vote of each of the Common Stock and
Preferred Stock, in favor of said amendment and restatement in the manner set
forth in Section 222 of the General Corporation Law.

IN WITNESS WHEREOF, Advanced Fibre Communications, Inc. has caused its
corporate seal to be hereunto affixed and this Fourth Amended and Restated
Certificate of Incorporation to be signed by its President and attested to by
its Secretary this ____ day of ___________________, 1996.

ADVANCED FIBRE
COMMUNICATIONS, INC.

----------------------------------------
Carl Grivner,
President

ATTEST

- -------------------------
Dan E. Steimle, Secretary

1.
<PAGE>

EXHIBIT A

FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ADVANCED FIBRE COMMUNICATIONS, INC.

FIRST. The name of the corporation is Advanced Fibre Communications, Inc.
(the "Corporation").

SECOND. The address of its registered office in the State of Delaware is
1013 Centre Road, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Prentice-Hall Corporation System.

THIRD. 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 Delaware.

FOURTH. (a) The Corporation is authorized to issue 105,000,000 shares of
capital stock, $0.01 par value. The shares shall be divided into two classes,
designated as follows:

Designation of Class Number of Shares Par Value
-------------------- ---------------- ---------

Common Stock 100,000,000 $0.01
Preferred Stock 5,000,000 $0.01
-----------

TOTAL: 105,000,000
-----------

(b) The Preferred Stock may be issued from time to time in one
or more series. The Board of Directors is expressly authorized, in the
resolution or resolutions providing for the issuance of any wholly unissued
series of Preferred Stock, to fix, state and express the powers, rights,
designations, preferences, qualifications, limitations and restrictions thereof,
including without limitation: the rate of dividends upon which and the times at
which dividends on shares of such series shall be payable and the preference, if
any, which such dividends shall have relative to dividends on shares of any
other class or classes or any other series of stock of the Corporation; whether
such dividends shall be cumulative or noncumulative, and if cumulative, the date
or dates from which dividends on shares of such series shall be cumulative; the
voting rights, if any, to be provided for shares of such series; the rights, if
any, which the holders of shares of such series shall have in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation; the rights, if any, which the holders of shares of such
series shall have to convert such shares into or exchange such shares for shares
of stock of the Corporation, and the terms and conditions, including price and
rate of exchange of such conversion or exchange; the redemption rights
(including sinking fund provisions), if any, for shares of such series; and such
other powers, rights, designations, preferences, qualifications, limitations and
restrictions as the Board of Directors may desire to so fix. The Board of
Directors is

1.
<PAGE>

also expressly authorized to fix the number of shares constituting such series
and to increase or decrease the number of shares of any series prior to the
issuance of shares of that series and to increase or decrease the number of
shares of any series subsequent to the issuance of shares of that series, but
not to decrease such number below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.

FIFTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is authorized to make, alter or repeal any or
all of the Bylaws of the Corporation; provided, however, that any Bylaw
amendment adopted by the Board of Directors increasing or reducing the
authorized number of Directors shall require the affirmative vote of a majority
of the total number of Directors which the Corporation would have if there were
no vacancies. In addition, new Bylaws may be adopted or the Bylaws may be
amended or repealed by the affirmative vote of at least 66-2/3% of the combined
voting power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 66-2/3% of the combined voting power
of all shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter,
change, amend, repeal or adopt any provision inconsistent with, this Article
FIFTH.

SIXTH. (a) Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing of such stockholders.

(b) Special meetings of stockholders of the Corporation may be
called only (i) by the Chairman of the Board of Directors, or (ii) by the
Chairman or the Secretary at the written request of a majority of the total
number of Directors which the Corporation would have if there were no vacancies
upon not fewer than 10 nor more than 60 days' written notice. Any request for a
special meeting of stockholders shall be sent to the Chairman and the Secretary
and shall state the purposes of the proposed meeting. Special meetings of
holders of the outstanding Preferred Stock may be called in the manner and for
the purposes provided in the resolutions of the Board of Directors providing for
the issue of such stock. Business transacted at special meetings shall be
confined to the purpose or purposes stated in the notice of meeting.

(c) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66-2/3% of the combined voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with, this Article SIXTH.

2.
<PAGE>

SEVENTH. (a) The number of Directors which shall constitute the whole
Board of Directors of this corporation shall be as specified in the Bylaws of
this corporation, subject to this Article SEVENTH.

(b) The Directors shall be classified with respect to the time
for which they severally hold office into three classes designated Class I,
Class II and Class III, as nearly equal in number as possible, as shall be
provided in the manner specified in the Bylaws of the Corporation. Each
Director shall serve for a term ending on the date of the third annual meeting
of stockholders following the annual meeting at which the Director was elected;
provided, however, that each initial Director in Class I shall hold office until
the annual meeting of stockholders in 1997, each initial Director in Class II
shall hold office until the annual meeting of stockholders in 1998 and each
initial Director in Class III shall hold office until the annual meeting of
stockholders in 1999. Notwithstanding the foregoing provisions of this Article
SEVENTH, each Director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal.

(c) In the event of any increase or decrease in the authorized
number of Directors, (i) each Director then serving as such shall nevertheless
continue as a Director of the class of which he is a member until the expiration
of his current term, or his early resignation, removal from office or death and
(ii) the newly created or eliminated directorship resulting from such increase
or decrease shall be apportioned by the Board of Directors among the three
classes of Directors so as to maintain such classes as nearly equally as
possible.

(d) Any Director or the entire Board of Directors may be removed
by the affirmative vote of the holders of at least 66-2/3% of the combined
voting power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.

(e) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66-2/3% of the combined voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with, this Article SEVENTH.

EIGHTH. (a) 1. In addition to any affirmative vote required by law,
any Business Combination (as hereinafter defined) shall require the affirmative
vote of at least 66-2/3% of the combined voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class (for purposes of this Article EIGHTH, the "Voting
Shares"). Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that some lesser percentage may be specified by
law or in any agreement with any national securities exchange or otherwise.

3.
<PAGE>

2. The term "Business Combination" as used in this
Article EIGHTH shall mean any transaction which is referred to in any one or
more of the following clauses (A) through (E):

(A) any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with or into (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation (whether or
not itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) or Associate (as
hereinafter defined) of an Interested Stockholder; or

(B) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of related
transactions) to or with, or proposed by or on behalf of, any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder, of any
assets of the Corporation or any Subsidiary constituting not less than five
percent of the total assets of the Corporation, as reported in the consolidated
balance sheet of the Corporation as of the end of the most recent quarter with
respect to which such balance sheet has been prepared; or

(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related transactions) of any
securities of the Corporation or any Subsidiary to, or proposed by or on behalf
of, any Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder in exchange for cash, securities or other property (or a combination
thereof) constituting not less than five percent of the total assets of the
Corporation, as reported in the consolidated balance sheet of the Corporation as
of the end of the most recent quarter with respect to which such balance sheet
has been prepared; or

(D) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation, or any spin-off or split-up of
any kind of the Corporation or any Subsidiary, proposed by or on behalf of an
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder; or

(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise involving an Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
percentage of the outstanding shares of (i) any class of equity securities of
the Corporation or any Subsidiary or (ii) any class of securities of the
Corporation or any Subsidiary convertible into equity securities of the
Corporation or any Subsidiary, represented by securities of such class which are
directly or indirectly owned by any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder.

(b) The provisions of section (a) of this Article EIGHTH shall
not be applicable to any particular Business Combination, and such Business
Combination shall

4.
<PAGE>

require only such affirmative vote as is required by law and any other provision
of this Certificate of Incorporation, if such Business Combination has been
approved by two-thirds of the whole Board of Directors.

1. A "person" shall mean any individual, firm,
corporation or other entity.

2. "Interested Stockholder" shall mean, in respect of
any Business Combination, any person (other than the Corporation or any
Subsidiary) who or which, as of the record date for the determination of
stockholders entitled to notice of and to vote on such Business Combination, or
immediately prior to the consummation of any such transaction

(A) is or was, at any time within two years prior
thereto, the beneficial owner, directly or indirectly, of 15% or more of the
then outstanding Voting Shares, or

(B) is an Affiliate or Associate of the Corporation
and at any time within two years prior thereto was the beneficial owner,
directly or indirectly, of 15% or more of the then outstanding Voting Shares, or

(C) is an assignee of or has otherwise succeeded to
any shares of capital stock of the Corporation which were at any time within two
years prior thereto beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of a transaction, or
series of transactions, not involving a public offering within the meaning of
the Securities Act of 1933, as amended.

3. A "person" shall be the "beneficial owner" of any
Voting Shares

(A) which such person or any of its Affiliates and
Associates (as hereinafter defined) beneficially own, directly or indirectly, or

(B) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to
any agreement, arrangement or understanding, or

(C) which are beneficially owned, directly or
indirectly, by any other person with which such first mentioned person or any of
its Affiliates or

5.
<PAGE>

Associates has any agreement, arrangement or understanding for the purposes of
acquiring, holding, voting or disposing of any shares of capital stock of the
Corporation.

4. The outstanding Voting Shares shall include shares
deemed owned through application of paragraph 3 above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise.

5. "Affiliate" and "Associate" shall have the
respective meanings given those terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on the date
of adoption of this Certificate of Incorporation (the "Exchange Act").

6. "Subsidiary" shall mean any corporation of which a
majority of any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Exchange Act) is owned, directly or
indirectly, by the Corporation; PROVIDED, HOWEVER, that for the purposes of the
definition of Interested Stockholder set forth in paragraph 2 of this section
(c) the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.

(d) A majority of the directors shall have the power and duty to
determine for the purposes of this Article EIGHTH on the basis of information
known to them, (1) whether a person is an Interested Stockholder, (2) the number
of Voting Shares beneficially owned by any person, (3) whether a person is an
Affiliate or Associate of another, (4) whether a person has an agreement,
arrangement or understanding with another as to the matters referred to in
paragraph 3 of section (c) or (5) whether the assets subject to any Business
Combination or the consideration received for the issuance or transfer of
securities by the Corporation or any Subsidiary constitutes not less than five
percent of the total assets of the Corporation.

(e) Nothing contained in this Article EIGHTH shall be construed
to relieve any Interested Stockholder from any fiduciary obligation imposed by
law.

(f) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66-2/3% of the combined voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with, this Article EIGHTH.

6.
<PAGE>

TENTH. A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, iii) under Section 174 of the General Corporation Law of
Delaware or iv) for any transaction from which the Director derived any improper
personal benefit. If the General Corporation Law of Delaware is hereafter
amended to authorize, with the approval of a corporation's stockholders, further
reductions in the liability of a corporation's directors for breach of fiduciary
duty, then a Director of the Corporation shall not be liable for any such breach
to the fullest extent permitted by the General Corporation Law of Delaware as so
amended. Any repeal or modification of the foregoing provisions of this Article
NINTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a Director of the Corporation existing at the time of
such repeal or modification.

<PAGE>

EXHIBIT 3.5

AMENDED AND RESTATED

BYLAWS

ADVANCED FIBRE COMMUNICATIONS, INC.

(A Delaware corporation)

<PAGE>

TABLE OF CONTENTS

Page
----

ARTICLE I - OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II - CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE III - MEETINGS OF STOCKHOLDERS AND VOTING RIGHTS . . . . . . . . . . 1
Section 4. Place of Meetings. . . . . . . . . . . . . . . . . . . . 1
Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Postponement of Annual Meeting . . . . . . . . . . . . . 2
Section 7. Special Meetings . . . . . . . . . . . . . . . . . . . . 2
Section 8. Notice of Meetings . . . . . . . . . . . . . . . . . . . 2
Section 9. Manner of Giving Notice. . . . . . . . . . . . . . . . . 3
Section 10. Quorum and Transaction of Business . . . . . . . . . . . 3
Section 11. Adjournment and Notice of Adjourned Meetings . . . . . . 5
Section 12. Waiver of Notice, Consent to Meeting or Approval of
Minutes. . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 13. Action by Written Consent Without a Meeting. . . . . . . 6
Section 14. Voting . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 15. Persons Entitled to Vote or Consent. . . . . . . . . . . 6
Section 16. Proxies. . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 17. Inspectors of Election . . . . . . . . . . . . . . . . . 7

ARTICLE IV - BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . 7
Section 18. Powers . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 19. Number of Directors. . . . . . . . . . . . . . . . . . . 7
Section 20. Election Of Directors, Term, Qualifications. . . . . . . 7
Section 21. Resignations . . . . . . . . . . . . . . . . . . . . . . 8
Section 22. Removal. . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 23. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 24. Regular Meetings . . . . . . . . . . . . . . . . . . . . 9
Section 25. Participation by Telephone . . . . . . . . . . . . . . . 9
Section 26. Special Meetings . . . . . . . . . . . . . . . . . . . . 9
Section 27. Notice of Meetings . . . . . . . . . . . . . . . . . . . 9
Section 28. Place of Meetings. . . . . . . . . . . . . . . . . . . . 10
Section 29. Action by Written Consent Without a Meeting. . . . . . . 10
Section 30. Quorum and Transaction of Business . . . . . . . . . . . 10

<PAGE>

Section 31. Adjournment. . . . . . . . . . . . . . . . . . . . . . . 10
Section 32. Organization . . . . . . . . . . . . . . . . . . . . . . 10
Section 33. Compensation . . . . . . . . . . . . . . . . . . . . . . 10
Section 34. Committees . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 35. Officers . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 36. Appointment. . . . . . . . . . . . . . . . . . . . . . . 11
Section 37. Inability to Act . . . . . . . . . . . . . . . . . . . . 12
Section 38. Resignation. . . . . . . . . . . . . . . . . . . . . . . 12
Section 40. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 41. Chairman of the Board. . . . . . . . . . . . . . . . . . 12
Section 42. President. . . . . . . . . . . . . . . . . . . . . . . . 13
Section 43. Vice Presidents. . . . . . . . . . . . . . . . . . . . . 13
Section 44. Secretary and Assistant Secretary. . . . . . . . . . . . 13
Section 45. Chief Financial Officer. . . . . . . . . . . . . . . . . 14
Section 46. Compensation . . . . . . . . . . . . . . . . . . . . . . 15

ARTICLE VI - CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS. . . . . . . 15
Section 47. Execution of Contracts and Other Instruments . . . . . . 15
Section 48. Loans. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 49. Bank Accounts. . . . . . . . . . . . . . . . . . . . . . 15
Section 50. Checks, Drafts, Etc. . . . . . . . . . . . . . . . . . . 16

ARTICLE VII - CERTIFICATES FOR STOCK AND THEIR TRANSFER. . . . . . . . . . . 16
Section 51. Certificate for Stock. . . . . . . . . . . . . . . . . . 16
Section 52. Transfer on the Books. . . . . . . . . . . . . . . . . . 17
Section 53. Lost, Destroyed and Stolen Certificates. . . . . . . . . 17
Section 54. Issuance, Transfer and Registration of Shares. . . . . . 17

ARTICLE VIII - INSPECTION OF CORPORATE RECORDS . . . . . . . . . . . . . . . 18
Section 55. Inspection by Directors. . . . . . . . . . . . . . . . . 18
Section 56. Inspection by Stockholders . . . . . . . . . . . . . . . 18
Section 57. Written Form . . . . . . . . . . . . . . . . . . . . . . 18

ARTICLE IX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 58. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . 19
Section 59. Annual Report. . . . . . . . . . . . . . . . . . . . . . 19
Section 60. Record Date. . . . . . . . . . . . . . . . . . . . . . . 19
Section 61. Bylaw Amendments . . . . . . . . . . . . . . . . . . . . 20
Section 62. Construction and Definition. . . . . . . . . . . . . . . 20
Section 63. Registered Stockholders. . . . . . . . . . . . . . . . . 20
Section 64. Dividends. . . . . . . . . . . . . . . . . . . . . . . . 20

ii.
<PAGE>

ARTICLE X - INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 65. Indemnification of Directors, Officers, Employees And
Other Agents . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE XI - RIGHT OF FIRST REFUSAL. . . . . . . . . . . . . . . . . . . . . 22
Section 66. Right of First Refusal . . . . . . . . . . . . . . . . . 22

ARTICLE XII - LOANS OF OFFICERS AND OTHERS . . . . . . . . . . . . . . . . . 25
Section 67. Certain Corporate Loans and Guaranties . . . . . . . . . 25

iii.
<PAGE>

AMENDED AND RESTATED

BYLAWS

ADVANCED FIBRE COMMUNICATIONS, INC.
(A Delaware corporation)

ARTICLE I
OFFICES

SECTION 1. REGISTERED OFFICE. The registered office shall be in
the City of Wilmington, County of New Castle, State of Delaware.

SECTION 2. OTHER OFFICES. Additional offices of the corporation
shall be located at such place or places, within or outside the State of
Delaware, as the Board of Directors may from time to time authorize or the
business of the corporation may require.

ARTICLE II
CORPORATE SEAL

SECTION 3. CORPORATE SEAL. The Board of Directors may adopt a
corporate seal having inscribed thereon the name of the corporation, the year of
its organization and the words "Corporate Seal, Delaware." If and when a seal
is adopted by the Board of Directors, such seal may be used by causing it or a
facsimile thereof to be engraved, lithographed, printed, stamped, impressed upon
or affixed to any contract, conveyance, certificate for stock or other
instrument executed by the corporation.

ARTICLE III
MEETINGS OF STOCKHOLDERS AND VOTING RIGHTS

SECTION 4. PLACE OF MEETINGS. All meetings of the stockholders
for the election of directors shall be held at such place as may be fixed from
time to time by the Board of Directors, or at such other place either within or
without the State of Delaware as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.

1.
<PAGE>

SECTION 5. ANNUAL MEETING. Annual meetings of stockholders,
commencing with the year 1997, shall be held at such date and time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. At such annual meeting, directors shall be elected and any
other business may be transacted which may properly come before the meeting.

SECTION 6. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors
and the President shall each have authority to hold at an earlier date and/or
time, or to postpone to a later date and/or time, the annual meeting of
stockholders.

SECTION 7. SPECIAL MEETINGS.

(a) Special meetings of the stockholders, for any purpose or
purposes, may be called by the Board of Directors, or the Chairman of the Board
of Directors.

(b) Upon written request to the Chairman of the Board of
Directors, the President, any vice president or the Secretary of the corporation
by any person or persons (other than the Board of Directors) entitled to call a
special meeting of the stockholders, such officer forthwith shall cause notice
to be given to the stockholders entitled to vote, that a meeting will be held at
a time requested by the person or persons calling the meeting, such time to be
not less than 10 nor more than 60 days after receipt of such request. If such
notice is not given within 20 days after receipt of such request, the person or
persons calling the meeting may give notice thereof in the manner provided by
law or in these bylaws. Nothing contained in this Section 7 shall be construed
as limiting, fixing or affecting the time or date when a meeting of stockholders
called by action of the Board of Directors may be held.

SECTION 8. NOTICE OF MEETINGS. Except as otherwise may be
required by law and subject to subsection 7(b) above, written notice of each
meeting of stockholders shall be given to each stockholder entitled to vote at
that meeting (see Section 15 below), by the Secretary, assistant secretary or
other person charged with that duty, not less than 10 nor more than 60 days
before such meeting.

Notice of any meeting of stockholders shall state the date, place and
hour of the meeting and,

(a) in the case of a special meeting, the general nature of the
business to be transacted;

(b) in the case of an annual meeting, the general nature of
matters which the Board of Directors, at the time the notice is given, intends
to present for action by the stockholders; and

2.
<PAGE>

(c) in the case of any meeting at which directors are to be
elected, the names of the nominees intended at the time of the notice to be
presented by management for election.

At a special meeting, notice of which has been given in accordance
with this Section, action may not be taken with respect to business, the general
nature of which has not been stated in such notice. At an annual meeting,
action may be taken with respect to business stated in the notice of such
meeting and any other business as may properly come before the meeting.

SECTION 9. MANNER OF GIVING NOTICE. Notice of any meeting of
stockholders shall be given either personally or by first-class mail,
telegraphic or other written communication, addressed to the stockholder at the
address of that stockholder appearing on the books of the corporation or given
by the stockholder to the corporation for the purpose of notice. If no such
address appears on the corporation's books or is given, notice shall be deemed
to have been given if sent to that stockholder by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.

If any notice addressed to a stockholder at the address of that
stockholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the stockholder
at that address, all future notices shall be deemed to have been duly given
without further mailing if these shall be available to the stockholder on
written demand by the stockholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice.

An affidavit of mailing of any notice or report in accordance with the
provisions of this Section 9, executed by the Secretary, Assistant Secretary or
any transfer agent, shall be prima facie evidence of the giving of the notice.

SECTION 10. QUORUM AND TRANSACTION OF BUSINESS.

(a) At any meeting of the stockholders, a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum.
If a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to vote on any matter shall be the act
of the stockholders, unless the vote of a greater number or voting by classes is
required by law or by the Certificate of Incorporation, and except as provided
in subsection (c) below.

3.
<PAGE>

(b) At any meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (1) pursuant to the
corporation's notice of meeting, (2) by or at the direction of the Board of
Directors or (3) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.

For business to be properly brought before any meeting by a
stockholder pursuant to clause (3) of this Section 10(b), the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not less than 20 days nor
more than 60 days prior to the date of the meeting. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the meeting (a) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, and the name and address of the
beneficial owner, if any, on whose behalf the proposal is made, (c) the class
and number of shares of the corporation which are owned beneficially and of
record by such stockholder of record and by the beneficial owner, if any, on
whose behalf of the proposal is made and (d) any material interest of such
stockholder of record and the beneficial owner, if any, on whose behalf the
proposal is made in such business.

Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at a meeting except in accordance with the
procedures set forth in this Section 10(b). The presiding officer of the
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in accordance with the
procedures prescribed by this Section 10(b), and if such person should so
determine, such person shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted. Notwithstanding
the foregoing provisions of this Section 10(b), a stockholder shall also comply
with all applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder with respect to the matters
set forth in this Section 10(b).

(c) The stockholders present at a duly called or held meeting of
the stockholders at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum, provided that any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.

(d) In the absence of a quorum, no business other than
adjournment may be transacted, except as described in subsection (c) above.

4.
<PAGE>

SECTION 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of stockholders may be adjourned from time to time, whether or not a
quorum is present, by the affirmative vote of a majority of shares represented
at such meeting either in person or by proxy and entitled to vote at such
meeting.

In the event any meeting is adjourned, it shall not be necessary to
give notice of the time and place of such adjourned meeting pursuant to Sections
8 and 9 of these bylaws; provided that if any of the following three events
occur, such notice must be given:

(1) announcement of the adjourned meeting's time and place is
not made at the original meeting which it continues or

(2) such meeting is adjourned for more than 30 days from the
date set for the original meeting or

(3) after the adjournment a new record date is fixed for the
adjourned meeting.

At the adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting.

SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF
MINUTES.

(a) Subject to subsection (b) of this Section, the transactions
of any meeting of stockholders, however called and noticed, and wherever held,
shall be as valid as though made at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the persons entitled to vote but not
present in person or by proxy signs a written waiver of notice or a consent to
holding of the meeting or an approval of the minutes thereof.

(b) A waiver of notice, consent to the holding of a meeting or
approval of the minutes thereof need not specify the business to be transacted
or transacted at nor the purpose of the meeting.

(c) All waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.

(d) A person's attendance at a meeting shall constitute waiver
of notice of and presence at such meeting, except when such person objects at
the beginning of the meeting to transaction of any business because the meeting
is not lawfully called or convened and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters which are
required by law or these bylaws to be in such notice (including those matters
described in subsection (d) of Section 8 of these bylaws), but are

5.
<PAGE>

not so included if such person expressly objects to consideration of such matter
or matters at any time during the meeting.

SECTION 13. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Effective
upon the closing of the corporation's initial public offering of securities
pursuant to a registration statement filed under the Securities Act of 1933, as
amended, the stockholders of the Corporation may not take action by written
consent without a meeting but must take any such actions at a duly called annual
or special meeting.

SECTION 14. VOTING. The stockholders entitled to vote at any
meeting of stockholders shall be determined in accordance with the provisions of
Section 15 of these bylaws.

Unless otherwise provided in the Certificate of Incorporation each
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such stockholder.

Any stockholder may vote part of such stockholder's shares in favor of
a proposal and refrain from voting the remaining shares or vote them against the
proposal, other than elections to office, but, if the stockholder fails to
specify the number of shares such stockholder is voting affirmatively, it will
be conclusively presumed that the stockholder's approving vote is with respect
to all shares such stockholder is entitled to vote.

SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT. The officer who
has charge of the stock ledger of the corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and 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 meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.

SECTION 16. PROXIES. Every person entitled to vote or execute
consents may do so either in person or by one or more agents authorized to act
by a written proxy executed by the person or such person's duly authorized agent
and filed with the Secretary of the corporation; provided that no such proxy
shall be valid after the expiration of three years from the date of its
execution, unless the proxy provides for a longer period. The manner of
execution, suspension, revocation, exercise and effect of proxies is governed by
law.

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SECTION 17. INSPECTORS OF ELECTION. Before any meeting of
stockholders, the Board of Directors may appoint any persons, other than
nominees for office, to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the chairman of the
meeting may, and on the request of any stockholder or a stockholder's proxy
shall, appoint inspectors of election at the meeting. The number of inspectors
shall be either one or three. If inspectors are appointed at a meeting on the
request of one or more stockholders or proxies, the majority of shares
represented in person or proxy shall determine whether one or three inspectors
are to be appointed. If any person appointed as inspector fails to appear or
fails or refuses to act, the chairman of the meeting may, and upon the request
of any stockholder or a stockholder's proxy shall, appoint a person to fill that
vacancy.

These inspectors shall: (a) determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity, and
effect of proxies; (b) receive votes, ballots, or consents; (c) hear and
determine all challenges and questions in any way arising in connection with
the right to vote; (d) count and tabulate all votes or consents;(e) determine
when the polls shall close; (f) determine the result; and (g) do any other
acts that may be proper to conduct the election or vote with fairness to all
stockholders.

ARTICLE IV
BOARD OF DIRECTORS

SECTION 18. POWERS. The business of the corporation shall be
managed by or under the direction of its board of directors which may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by statute or by the certificate of incorporation or by these bylaws
directed or required to be exercised or done by the stockholders.

SECTION 19. NUMBER OF DIRECTORS. The authorized number of
directors of this corporation shall be not less than a minimum of seven nor more
than a maximum of nine, and the number presently authorized is seven. The exact
number of directors shall be set within these limits from time to time by
resolution of the Board of Directors or by the stockholders at the annual
meeting of the stockholders. No reduction in the number of directors shall
remove any director prior to the expiration of such director's term of office.

SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The
directors shall be elected at each annual meeting of stockholders, in accordance
with the Certificate of Incorporation, to hold office until the next annual
meeting. Each director elected shall hold office until his or her successor is
elected and qualified, or until his death, resignation or removal.

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Nominations for election to the Board of Directors must be made by the
Board of Directors or by any stockholder of any outstanding class of capital
stock of the corporation entitled to vote for the election of directors.
Nominations, other than those made by the Board of Directors of the corporation,
must be preceded by notification in writing received by the Secretary of the
corporation not less than twenty (20) days nor more than 60 days prior to any
meeting of stockholders called for the election of directors. Such notification
shall contain the written consent of each proposed nominee to serve as a
director if so elected and the following information as to each proposed nominee
and as to each person, acting alone or in conjunction with one or more other
persons as a partnership, limited partnership, syndicate or other group, who
participates or is expected to participate in making such nomination or in
organizing, directing or financing such nomination or solicitation of proxies to
vote for the nominee:

(a) the name, age, residence, address, and business address of
each proposed nominee and of each such person;

(b) the principal occupation or employment, the name, type of
business and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such person;

(c) the amount of stock of the corporation owned beneficially,
either directly or indirectly, by each proposed nominee and each such person;
and

(d) a description of any arrangement or understanding of each
proposed nominee and of each such person with each other or any other person
regarding future employment or any future transaction to which the corporation
will or may be a party.

The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.

SECTION 21. RESIGNATIONS. Any director of the corporation may
resign effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation. If
the resignation specifies effectiveness at a future time, a successor may be
elected pursuant to Section 23 of these bylaws to take office on the date that
the resignation becomes effective.

SECTION 22. REMOVAL. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony. The entire Board of Directors or any
individual director may be

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removed from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal.

SECTION 23. VACANCIES. A vacancy or vacancies on the Board of
Directors shall be deemed to exist in case of the death, resignation or removal
of any director, or upon increase in the authorized number of directors or if
stockholders fail to elect the full authorized number of directors at an annual
meeting of stockholders or if, for whatever reason, there are fewer directors on
the Board of Directors, than the full number authorized. Such vacancy or
vacancies may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, and the directors so chosen
shall hold office until the next annual election and until their successors are
duly elected and qualified or until his earlier resignation or removal. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute.

SECTION 24. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times, places and dates as fixed in these bylaws
or by the Board of Directors; provided, however, that if the date for such a
meeting falls on a legal holiday, then the meeting shall be held at the same
time on the next succeeding full business day. Regular meetings of the Board of
Directors held pursuant to this Section 24 may be held without notice.

SECTION 25. PARTICIPATION BY TELEPHONE. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Such participation constitutes presence in person
at such meeting.

SECTION 26. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose may be called by the Chairman of the Board or the
President or any vice president or the Secretary of the corporation or any two
directors.

SECTION 27. NOTICE OF MEETINGS. Notice of the date, time and place
of all meetings of the Board of Directors, other than regular meetings held
pursuant to Section 24 above shall be delivered personally, orally or in
writing, or by telephone, telegraph or facsimile to each director, at least 48
hours before the meeting, or sent in writing to each director by first-class
mail, charges prepaid, at least four days before the meeting. Such notice may be
given by the Secretary of the corporation or by the person or persons who called
a meeting. Such notice need not specify the purpose of the meeting. Notice of
any meeting of the Board of Directors need not be given to any director who
signs a waiver of notice of such meeting, or a consent to holding the meeting or
an approval of the minutes thereof, either before or after the meeting, or who
attends the meeting without protesting prior thereto or at its commencement such
director's lack of notice. All such waivers, consents and approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.

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SECTION 28. PLACE OF MEETINGS. Meetings of the Board of Directors
may be held at any place within or without the state which has been designated
in the notice of the meeting or, if not stated in the notice or there is no
notice, designated in the bylaws or by resolution of the Board of Directors.

SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action required or permitted to be taken by the Board of Directors may be taken
without a meeting, if all members of the Board of Directors individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board of
Directors. Such action by written consent shall have the same force and effect
as a unanimous vote of such directors.

SECTION 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of the
authorized number of directors shall constitute a quorum for the transaction of
business. Every act or decision done or made by a majority of the authorized
number of directors present at a meeting duly held at which a quorum is present
shall be the act of the Board of Directors, unless the law, the Certificate of
Incorporation or these bylaws specifically require a greater number. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding withdrawal of directors, if any action taken is approved by at
least a majority of the number of directors constituting a quorum for such
meeting. In the absence of a quorum at any meeting of the Board of Directors, a
majority of the directors present may adjourn the meeting, as provided in
Section 31 of these bylaws.

SECTION 31. ADJOURNMENT. Any meeting of the Board of Directors,
whether or not a quorum is present, may be adjourned to another time and place
by the affirmative vote of a majority of the directors present. If the meeting
is adjourned for more than 24 hours, notice of such adjournment to another time
or place shall be given prior to the time of the adjourned meeting to the
directors who were not present at the time of the adjournment.

SECTION 32. ORGANIZATION. The Chairman of the Board shall preside
at every meeting of the Board of Directors, if present. If there is no Chairman
of the Board or if the Chairman is not present, a Chairman chosen by a majority
of the directors present shall act as chairman. The Secretary of the corporation
or, in the absence of the Secretary, any person appointed by the Chairman shall
act as secretary of the meeting.

SECTION 33. COMPENSATION. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.

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SECTION 34. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee.

In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.

Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority 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 that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.

Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.

ARTICLE V
OFFICERS

SECTION 35. OFFICERS. The officers of the corporation shall be a
President, Treasurer and a Secretary. The Board of Directors may elect from
among its members a Chairman of the Board and a Vice Chairman of the Board. The
Board of Directors may also choose one or more Vice-Presidents, Assistant
Secretaries and Assistant Treasurers. Any number of offices may be held by the
same person, unless the certificate of incorporation or these bylaws otherwise
provide.

SECTION 36. APPOINTMENT. All officers shall be chosen and
appointed by the Board of Directors. The Board of Directors at its first
meeting after each annual meeting of stockholders shall choose a President, a
Treasurer, and a Secretary and may choose Vice Presidents. The Board of
Directors may appoint such other officers and agents as it shall

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deem necessary who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time by
the board.

SECTION 37. INABILITY TO ACT. In the case of absence or inability
to act of any officer of the corporation or of any person authorized by these
bylaws to act in such officer's place, the Board of Directors may from time to
time delegate the powers or duties of such officer to any other officer, or any
director or other person whom it may select, for such period of time as the
Board of Directors deems necessary.

SECTION 38. RESIGNATION. Any officer may resign at any time upon
written notice to the corporation, without prejudice to the rights, if any, of
the corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary or the Board of Directors, unless a different time
is specified in the notice for effectiveness of such resignation. The acceptance
of any such resignation shall not be necessary to make it effective unless
otherwise specified in such notice.

SECTION 39. REMOVAL. Any officer may resign at any time upon
written notice to the corporation, without prejudice to the rights, if any, of
the corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary or the Board of Directors, unless a different time
is specified in the notice for effectiveness of such resignation. The acceptance
of any such resignation shall not be necessary to make it effective unless
otherwise specified in such notice.

Any officer may be removed from office at any time, with or without
cause, but subject to the rights, if any, of such officer under any contract of
employment, by the Board of Directors or by any committee to whom such power of
removal has been duly delegated, or, with regard to any officer who has been
appointed by the chief executive officer pursuant to Section 36 above, by the
chief executive officer or any other officer upon whom such power of removal may
be conferred by the Board of Directors.

SECTION 40. VACANCIES. A vacancy occurring in any office for
any cause may be filled by the Board of Directors, in the manner prescribed by
this Article of the bylaws for initial appointment to such office.

SECTION 41. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
any, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. He/she shall have and may exercise
such powers as are, from time to time, assigned to him by the Board and as may
be provided by law. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.

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SECTION 42. PRESIDENT. Subject to such powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the general manager and chief executive
officer of the corporation and shall have general supervision, direction, and
control over the business and affairs of the corporation, subject to the control
of the Board of Directors. The President may sign and execute, in the name of
the corporation, any instrument authorized by the Board of Directors, except
when the signing and execution thereof shall have been expressly delegated by
the Board of Directors or by these bylaws to some other officer or agent of the
corporation. The President shall have all the general powers and duties of
management usually vested in the president of a corporation, and shall have such
other powers and duties as may be prescribed from time to time by the Board of
Directors or these bylaws. The President shall have discretion to prescribe the
duties of other officers and employees of the corporation in a manner not
inconsistent with the provisions of these bylaws and the directions of the Board
of Directors.

SECTION 43. VICE PRESIDENTS. In the absence or disability of the
President, in the event of a vacancy in the office of President, or in the event
such officer refuses to act, the Vice President shall perform all the duties of
the President and, when so acting, shall have all the powers of, and be subject
to all the restrictions on, the President. If at any such time the corporation
has more than one vice president, the duties and powers of the President shall
pass to each vice president in order of such vice president's rank as fixed by
the Board of Directors or, if the vice presidents are not so ranked, to the vice
president designated by the Board of Directors. The vice presidents shall have
such other powers and perform such other duties as may be prescribed for them
from time to time by the Board of Directors or pursuant to Sections 35 and 36 of
these bylaws or otherwise pursuant to these bylaws.

SECTION 44. SECRETARY AND ASSISTANT SECRETARY. The Secretary
shall:

(a) Keep, or cause to be kept, minutes of all meetings of the
corporation's stockholders, Board of Directors, and committees of the Board of
Directors, if any. Such minutes shall be kept in written form.

(b) Keep, or cause to be kept, at the principal executive office
of the corporation, or at the office of its transfer agent or registrar, if any,
a record of the corporation's stockholders, showing the names and addresses of
all stockholders, and the number and classes of shares held by each. Such
records shall be kept in written form or any other form capable of being
converted into written form.

(d) Give, or cause to be given, notice of all meetings of
stockholders, directors and committees of the Board of Directors, as required by
law or by these bylaws.

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(e) Keep the seal of the corporation, if any, in safe custody.

(f) Exercise such powers and perform such duties as are usually
vested in the office of secretary of a corporation, and exercise such other
powers and perform such other duties as may be prescribed from time to time by
the Board of Directors or these bylaws.

If any assistant secretaries are appointed, the assistant secretary,
or one of the assistant secretaries in the order of their rank as fixed by the
Board of Directors or, if they are not so ranked, the assistant secretary
designated by the Board of Directors, in the absence or disability of the
Secretary or in the event of such officer's refusal to act or if a vacancy
exists in the office of Secretary, shall perform the duties and exercise the
powers of the Secretary and discharge such duties as may be assigned from time
to time pursuant to these bylaws or by the Board of Directors.

SECTION 45. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall:

(a) Be responsible for all functions and duties of the treasurer
of the corporation.

(b) Keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of account for the corporation.

(c) Receive or be responsible for receipt of all monies due and
payable to the corporation from any source whatsoever; have charge and custody
of, and be responsible for, all monies and other valuables of the corporation
and be responsible for deposit of all such monies in the name and to the credit
of the corporation with such depositaries as may be designated by the Board of
Directors or a duly appointed and authorized committee of the Board of
Directors.

(d) Disburse or be responsible for the disbursement of the funds
of the corporation as may be ordered by the Board of Directors or a duly
appointed and authorized committee of the Board of Directors.

(e) Render to the chief executive officer and the Board of
Directors a statement of the financial condition of the corporation if called
upon to do so.

(f) Exercise such powers and perform such duties as are usually
vested in the office of chief financial officer of a corporation, and exercise
such other powers and perform such other duties as may be prescribed by the
Board of Directors or these bylaws.

If any assistant financial officer is appointed, the assistant
financial officer, or one of the assistant financial officers, if there are more
than one, in the order of their rank

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as fixed by the Board of Directors or, if they are not so ranked, the assistant
financial officer designated by the Board of Directors, shall, in the absence or
disability of the Chief Financial Officer or in the event of such officer's
refusal to act, perform the duties and exercise the powers of the Chief
Financial Officer, and shall have such powers and discharge such duties as may
be assigned from time to time pursuant to these bylaws or by the Board of
Directors.

SECTION 46. COMPENSATION. The compensation of the officers shall
be fixed from time to time by the Board of Directors, and no officer shall be
prevented from receiving such compensation by reason of the fact that such
officer is also a director of the corporation.

ARTICLE VI
CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS

SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except
as these bylaws may otherwise provide, the Board of Directors or its duly
appointed and authorized committee may authorize any officer or officers, agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation, and such authorization may be
general or confined to specific instances. Except as so authorized or otherwise
expressly provided in these bylaws, no officer, agent, or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or in any amount.

SECTION 48. LOANS. No loans shall be contracted on behalf of the
corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors or its duly appointed and
authorized committee. When so authorized by the Board of Directors or such
committee, any officer or agent of the corporation may effect loans and advances
at any time for the corporation from any bank, trust company, or other
institution, or from any firms, corporation or individual, and for such loans
and advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the corporation and, when authorized as aforesaid,
may mortgage, pledge, hypothecate or transfer any and all stocks, securities and
other property, real or personal, at any time held by the corporation, and to
that end endorse, assign and deliver the same as security for the payment of any
and all loans, advances, indebtedness, and liabilities of the corporation. Such
authorization may be general or confined to specific instances.

SECTION 49. BANK ACCOUNTS. The Board of Directors or its duly
appointed and authorized committee from time to time may authorize the opening
and keeping of general and/or special bank accounts with such banks, trust
companies, or other depositaries as may be selected by the Board of Directors,
its duly appointed and authorized committee or by any officer or officers, agent
or agents, of the corporation to whom such power may

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be delegated from time to time by the Board of Directors. The Board of
Directors or its duly appointed and authorized committee may make such rules and
regulations with respect to said bank accounts, not inconsistent with the
provisions of these bylaws, as are deemed advisable.

SECTION 50. CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for the payment of money, notes, acceptances or other evidences of
indebtedness issued in the name of the corporation shall be signed by such
officer or officers, agent or agents, of the corporation, and in such manner, as
shall be determined from time to time by resolution of the Board of Directors or
its duly appointed and authorized committee. Endorsements for deposit to the
credit of the corporation in any of its duly authorized depositaries may be
made, without counter-signature by the President or any vice president or the
Chief Financial Officer or any assistant financial officer or by any other
officer or agent of the corporation to whom the Board of Directors or its duly
appointed and authorized committee, by resolution, shall have delegated such
power or by hand-stamped impression in the name of the corporation.

ARTICLE VII
CERTIFICATES FOR STOCK AND THEIR TRANSFER

SECTION 51. CERTIFICATE FOR STOCK. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Chief Financial Officer or an assistant financial
officer or by the Secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the stockholder. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.

In the event that the corporation shall issue any shares as only
partly paid, the certificate issued to represent such partly paid shares shall
have stated thereon the total consideration to be paid for such shares and the
amount paid thereon.

If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the

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corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, 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 and/or
rights.

SECTION 52. TRANSFER ON THE BOOKS. Upon surrender to the Secretary
or transfer agent (if any) of the corporation of a certificate for shares of the
corporation duly endorsed, with reasonable assurance that the endorsement is
genuine and effective, or accompanied by proper evidence of succession,
assignment or authority to transfer and upon compliance with applicable federal
and state securities laws and if the corporation has no statutory duty to
inquire into adverse claims or has discharged any such duty and if any
applicable law relating to the collection of taxes has been complied with, it
shall be the duty of the corporation, by its Secretary or transfer agent, to
cancel the old certificate, to issue a new certificate to the person entitled
thereto and to record the transaction on the books of the corporation.

SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of
any certificate for shares of the corporation alleged to have been lost,
destroyed or stolen shall notify the corporation by making a written affidavit
or affirmation of such fact. Upon receipt of said affidavit or affirmation the
Board of Directors, or its duly appointed and authorized committee or any
officer or officers authorized by the Board so to do, may order the issuance of
a new certificate for shares in the place of any certificate previously issued
by the corporation and which is alleged to have been lost, destroyed or stolen.
However, the Board of Directors or such authorized committee, officer or
officers may require the owner of the allegedly lost, destroyed or stolen
certificate, or such owner's legal representative, to give the corporation a
bond or other adequate security sufficient to indemnify the corporation and its
transfer agent and/or registrar, if any, against any claim that may be made
against it or them on account of such allegedly lost, destroyed or stolen
certificate or the replacement thereof. Said bond or other security shall be in
such amount, on such terms and conditions and, in the case of a bond, with such
surety or sureties as may be acceptable to the Board of Directors or to its duly
appointed and authorized committee or any officer or officers authorized by the
Board of Directors to determine the sufficiency thereof. The requirement of a
bond or other security may be waived in particular cases at the discretion of
the Board of Directors or its duly appointed and authorized committee or any
officer or officers authorized by the Board of Directors so to do.

SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The
Board of Directors may make such rules and regulations, not inconsistent with
law or with these bylaws, as it may deem advisable concerning the issuance,
transfer and registration of certificates for shares of the capital stock of the
corporation. The Board of Directors may appoint a transfer agent or registrar of
transfers, or both, and may require all certificates for shares of the
corporation to bear the signature of either or both.

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ARTICLE VIII
INSPECTION OF CORPORATE RECORDS

SECTION 55. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records,
and documents of every kind of the corporation and any of its subsidiaries and
to inspect the physical properties of the corporation and any of its
subsidiaries. Such inspection may be made by the director in person or by agent
or attorney, and the right of inspection includes the right to copy and make
extracts.

SECTION 56. INSPECTION BY STOCKHOLDERS.

(a) INSPECTION OF CORPORATE RECORDS. Any stockholder, in person
or by attorney or other agent, shall, upon written demand under oath stating the
purpose thereof, have the right during the usual hours for business to inspect
for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or
other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at is
registered office in the State of Delaware or at its principal place of
business.

(b) INSPECTION OF BYLAWS. The original or a copy of these
bylaws shall be kept as provided in Section 44 of these bylaws and shall be open
to inspection by the stockholders at all reasonable times during office hours.
A current copy of these bylaws shall be furnished to any stockholder upon
written request.

SECTION 57. WRITTEN FORM. If any record subject to inspection
pursuant to Section 56 above is not maintained in written form, a request for
inspection is not complied with unless and until the corporation at its expense
makes such record available in written form.

18.
<PAGE>

ARTICLE IX
MISCELLANEOUS

SECTION 58. FISCAL YEAR. Unless otherwise freed by resolution of
the Board of Directors, the fiscal year of the corporation shall end on the 31st
day of December in each calendar year.

SECTION 59. ANNUAL REPORT.

(a) Subject to the provisions of Section 59(b) below, the Board
of Directors shall cause an annual report to be sent to each stockholder of the
corporation in the manner provided in Section 9 of these bylaws not later than
120 days after the close of the corporation's fiscal year. Such report shall
include a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year,
accompanied by any report thereon of independent accountants or, if there is no
such report, the certificate of an authorized officer of the corporation that
such statements were prepared without audit from the books and records of the
corporation. Such report shall be sent to stockholders at least 15 (or, if sent
by third-class mail, 35) days prior to the next annual meeting of stockholders
after the end of the fiscal year to which it relates.

(b) If and so long as there are fewer than 100 holders of record
of the corporation's shares, the requirement of sending of an annual report to
the stockholders of the corporation is hereby expressly waived.

SECTION 60. RECORD DATE. The Board of Directors may fix a time in
the future as a record date for the determination of the stockholders entitled
to notice of or to vote at any 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 shares
or entitled to exercise any rights in respect of any other lawful action. The
record date so fixed shall not be more than 60 days nor less than 10 days prior
to the date of the meeting nor more than 60 days prior to any other action or
event for the purpose of which it is fixed. If no record date is fixed, the
provisions of Section 15 of these bylaws shall apply with respect to notice of
meetings, votes, and consents and the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolutions relating thereto, or the 60th day
prior to the date of such other action or event, whichever is later.

Only stockholders of record at the close of business on the record
date shall be entitled to notice and to vote or to receive the dividend,
distribution or allotment of rights or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date, except as otherwise provided in the Certificate of
Incorporation, by agreement or by law.

19.
<PAGE>

SECTION 61. BYLAW AMENDMENTS. Except as otherwise provided by law
or Section 19 of these bylaws, these bylaws may be amended or repealed by the
Board of Directors or by the affirmative vote of a majority of the outstanding
shares entitled to vote, including, if applicable, the affirmative vote of a
majority of the outstanding shares of each class or series entitled by law or
the Certificate of Incorporation to vote as a class or series on the amendment
or repeal or adoption of any bylaw or bylaws; provided, however, after issuance
of shares, a bylaw specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or vice
versa may only be adopted by approval of the outstanding shares as provided
herein.

SECTION 62. CONSTRUCTION AND DEFINITION. Unless the context
requires otherwise, the general provisions, rules of construction, and
definitions contained in the Delaware General Corporation Law shall govern the
construction of these bylaws. Without limiting the foregoing, "shall" is
mandatory and "may" is permissive.

SECTION 63. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.

SECTION 64. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.

Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.

20.
<PAGE>

ARTICLE X
INDEMNIFICATION

SECTION 65. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS. The corporation shall, to the fullest extent authorized under the
laws of the State of Delaware, as those laws may be amended and supplemented
from time to time, indemnify any director made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a predecessor
corporation or, at the corporation's request, a director or officer of another
corporation, provided, however, that the corporation shall indemnify any such
agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 65 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who has
ceased to be a director, and (iii) inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification under this Section 65 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.

Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) 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 to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.

The foregoing provisions of this Section 65 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.

21.
<PAGE>

The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.

To assure indemnification under this Section 65 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 65, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."

ARTICLE XI
RIGHT OF FIRST REFUSAL

SECTION 66. RIGHT OF FIRST REFUSAL. No stockholder shall sell,
assign, pledge, or in any manner transfer any of the shares of stock of the
corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets the
requirements hereinafter set forth in this bylaw:

(a) If the stockholder desires to sell or otherwise transfer any
of his shares of stock, then the stockholder shall first give written notice
thereof to the corporation. The notice shall name the proposed transferee and
state the number of shares to be transferred, the proposed consideration, and
all other terms and conditions of the proposed transfer.

(b) For 30 days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the stockholder, the
corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price for the shares, and that is not
otherwise exempted from the provisions of this Section 66, the price shall be
deemed to be the fair market value of the stock at such time as determined in
good faith by the Board of Directors. In the event the corporation elects to
purchase all of the shares or, with consent of the stockholder, a

22.
<PAGE>

lesser portion of the shares, it shall give written notice to the transferring
stockholder of its election and settlement for said shares shall be made as
provided below in paragraph (d).

(d) In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring stockholder as specified in said
transferring stockholder's notice, the Secretary of the corporation shall so
notify the transferring stockholder and settlement thereof shall be made in cash
within 30 days after the Secretary of the corporation receives said transferring
stockholder's notice; provided that if the terms of payment set forth in said
transferring stockholder's notice were other than cash against delivery, the
corporation and/or its assignee(s) shall pay for said shares on the same terms
and conditions set forth in said transferring stockholder's notice.

(e) In the event the corporation and/or its assignees(s) do not
elect to acquire all of the shares specified in the transferring stockholder's
notice, said transferring stockholder may, within the 60-day period following
the expiration of the option rights granted to the corporation and/or its
assignees(s) herein, transfer the shares specified in said transferring
stockholder's notice which were not acquired by the corporation and/or its
assignees(s) as specified in said transferring stockholder's notice. All shares
so sold by said transferring stockholder shall continue to be subject to the
provisions of this bylaw in the same manner as before said transfer.

(f) Anything to the contrary contained herein notwithstanding,
the following transactions shall be exempt from the provisions of this bylaw:

(1) A stockholder's transfer of any or all shares held
either during such stockholder's lifetime or on death by will or intestacy to
such stockholder's immediate family or to any custodian or trustee for the
account of such stockholder or such stockholder's immediate family. "Immediate
family" as used herein shall mean spouse, lineal descendant, father, mother,
brother, or sister of the stockholder making such transfer.

(2) A stockholder's bona fide pledge or mortgage of any
shares with a commercial lending institution, provided that any subsequent
transfer of said shares by said institution shall be conducted in the manner set
forth in this bylaw.

(3) A stockholder's transfer of any or all of such
stockholder's shares to the corporation or to any other stockholder of the
corporation.

(4) A stockholder's transfer of any or all of such
stockholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.

23.
<PAGE>

(5) A corporate stockholder's transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate stockholder.

(6) A corporate stockholder's transfer of any or all of its
shares to any or all of its stockholders.

(7) A transfer by a stockholder which is a limited or
general partnership to any or all of its partners or former partners.

In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this bylaw, and there
shall be no further transfer of such stock except in accord with this bylaw.

(g) The provisions of this bylaw may be waived with respect to
any transfer either by the corporation, upon duly authorized action of its Board
of Directors, or by the stockholders, upon the express written consent of the
owners of a majority of the voting power of the corporation (excluding the votes
represented by those shares to be transferred by the transferring stockholder).
This bylaw may be amended or repealed either by a duly authorized action of the
Board of Directors or by the stockholders, upon the express written consent of
the owners of a majority of the voting power of the corporation.

(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.

(i) The foregoing right of first refusal shall terminate on
either of the following dates, whichever shall first occur:

(1) On October 1, 2006; or

(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.

(j) The certificates representing shares of stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:

"The shares represented by this certificate are subject to a right of
first refusal option in favor of the corporation and/or its assignee(s), as
provided in the bylaws of the corporation."

24.
<PAGE>

ARTICLE XII
LOANS OF OFFICERS AND OTHERS

SECTION 67. CERTAIN CORPORATE LOANS AND GUARANTIES. If the
corporation has outstanding shares held of record by 100 or more persons on the
date of approval by the Board of Directors, the corporation may make loans of
money or property to, or guarantee the obligations of, any officer of the
corporation or its parent or any subsidiary, whether or not a director of the
corporation or its parent or any subsidiary, or adopt an employee benefit plan
or plans authorizing such loans or guaranties, upon the approval of the Board of
Directors alone, by a vote sufficient without counting the vote of any
interested director or directors, if the Board of Directors determines that such
a loan or guaranty or plan may reasonably be expected to benefit the
corporation. Notwithstanding the foregoing, the corporation shall have the power
to make loans permitted by the Delaware General Corporations Law.

25.
<PAGE>

CERTIFICATE OF SECRETARY

I hereby certify that:

I am the duly elected and acting Secretary of Advanced Fibre
Communications, Inc., a Delaware corporation (the "Company"); and

Attached hereto is a complete and accurate copy of the Bylaws of the
Company as duly adopted by the Board of Directors at a Meeting held on July 12,
1996 and said Bylaws are presently in effect.

IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of the Company this ___th day of _______, 1996.

-----------------------------------
Dan E. Steimle, Secretary

26.

<PAGE>

EXHIBIT 10.4.1

ADVANCED FIBRE COMMUNICATIONS

AMENDMENT
TO
WARRANTS AND PERFORMANCE WARRANTS

AMENDMENT (the "Amendment") to the warrants and performance warrants
(collectively, the "Warrants") of Advanced Fibre Communications (the "Company"),
dated as of October 27, 1994, between the Company and the holders of Warrants
(collectively, the "Warrant Holders") as listed on EXHIBIT A attached hereto.

WHEREAS, the California Department of Corporations (the "Department")
will refuse to qualify additional shares of Common Stock (beyond the 650,000
presently reserved and qualified) under the Company's 1993 Stock Option/Stock
Issuance Plan (the "Plan") if the total number of shares:

(i) issuable upon exercise of outstanding options,

(ii) issuable upon exercise of "non-exempt" warrants, and

(iii) called for under any Company stock plan

exceeds 30% of the then outstanding shares of the Company (the "30% Test");

WHEREAS, under Department rules, warrants issued in connection with
equity or debt financings will be exempt from the formula if certain
requirements are met, including in the case of equity financings the requirement
that the term of the warrants does not exceed five years;

WHEREAS, the Company issued Warrants to purchase shares of its Common
Stock in connection with the Company's bridge loans and Preferred Stock
financings;

WHEREAS, the current term of the Warrants is six years from the date
of issuance;

WHEREAS, the Company and the Warrant Holders desire to make the
Warrants exempt under the 30% Test by reducing the exercise term of the Warrants
from six years to five years in order to allow the Company to qualify additional
shares under the Company's Plan with the Department, and thereby provide
additional productivity incentives to the Company's employees; and

WHEREAS, the Company and the Warrant Holders acknowledge that
providing additional productivity incentives to the Company's employees will be
a benefit to both the Company and the Warrant Holders;

NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree to reduce the term of the Warrants listed on EXHIBIT A attached
hereto from six years to five years. Except as modified hereby and by that
certain "Amendment to Performance Warrants" of even date herewith, all terms and
conditions of the Warrants shall remain in full force and effect.

This Amendment may be executed in counterparts.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.

ADVANCED FIBRE COMMUNICATIONS

---------------------------------------
By: Donald Green
Title: President

---------------------------------------
WARRANT HOLDER

SIGNATURE PAGE TO AMENDMENT TO WARRANTS AND PERFORMANCE WARRANTS

<PAGE>
EXHIBIT A

ADVANCED FIBRE COMMUNICATIONS

SCHEDULE OF WARRANTS AND WARRANT HOLDERS

WARRANT NUMBER PRICE DATE OF CURRENT AMENDED
NUMBER NAME OF SHARES PER SHARE ISSUANCE TERMINATION DATE TERMINATION DATE
- ------ ---- --------- --------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
W-1 Vanguard IV, L.P. 1,618 $0.10 01/06/93 01/01/99 01/01/98

W-2 St. Paul Fire and Marine
Insurance Company 1,618 $0.10 01/06/93 01/01/99 01/01/98
W-4 Donald Green 63,829 $0.10 01/06/93 01/01/99 01/01/98

W-5 John Webley 11,413 $0.10 01/06/93 01/01/99 01/01/98

W-6 James Hoeck 11,413 $0.10 01/06/93 01/01/99 01/01/98

W-7 Henri Sulzer 3,445 $0.10 01/06/93 01/01/99 01/01/98

W-8 Alan Negrin 44,762 $0.10 01/06/93 01/01/99 01/01/98

W-9 Bryan Enterprises, Inc. 7,855 $0.10 01/06/93 01/01/99 01/01/98

W-10 B.J. Cassin 1,618 $0.10 01/06/93 01/01/99 01/01/98

W-12 Hambrecht & Quist Group 809 $0.10 01/06/93 01/01/99 01/01/98

W-13 B.J. Cassin 18,455 $0.50 10/05/93 10/04/99 10/04/98

W-15 Vanguard IV, L.P. 17,705 $0.50 10/05/93 10/04/99 10/04/98

W-16 St. Paul Fire and Marine
Insurance Company 15,815 $0.50 10/05/93 10/04/99 10/04/98

W-18 Donald Green 9,682 $0.50 10/05/93 10/04/99 10/04/98

W-19 Hambrecht & Quist Group 9,134 $0.50 10/05/93 10/04/99 10/04/98

W-20 Vanguard IV, L.P. 37,500 $1.00 03/16/94 03/15/2000 03/15/99

W-21 St. Paul Fire and Marine
Insurance Company 37,500 $1.00 03/16/94 03/15/2000 03/15/99

W-22 Tellabs, Inc. 75,000 $1.00 03/16/94 03/15/2000 03/15/99
-------

TOTAL 369,171

</TABLE>

<PAGE>

ADVANCED FIBRE COMMUNICATIONS

SCHEDULE OF PERFORMANCE WARRANTS AND PERFORMANCE WARRANT HOLDERS

WARRANT NUMBER PRICE DATE OF CURRENT AMENDED
NUMBER NAME OF SHARES PER SHARE ISSUANCE TERMINATION DATE TERMINATION DATE
- ------ ---- --------- --------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
PW-2 B.J. Cassin, Conservator for
Robert Cassin 10,845 $4.66 03/16/94 03/15/2000 03/15/99

PW-3 Yuval Almog 500 $4.66 03/16/94 03/15/2000 03/15/99

PW-4 Paul K. Joas 4,479 $4.66 03/16/94 03/15/2000 03/15/99

PW-5 Vanguard IV, L.P. 108,043 $4.66 03/16/94 03/15/2000 03/15/99

PW-6 St. Paul Fire and Marine
Insurance Company 153,037 $4.66 03/16/94 03/15/2000 03/15/99

PW-7 H&Q AFC Investors, L.P. 41,401 $4.66 03/16/94 03/15/2000 03/15/99

PW-8 Tellabs, Inc. 260,709 $4.66 03/16/94 03/15/2000 03/15/99

PW-9 Noel P. Rahn 10,808 $4.66 03/16/94 03/15/2000 03/15/99

PW-10 Coral Partners II 248,100 $4.66 03/16/94 03/15/2000 03/15/99

PW-11 Mark C. Headrick 150 $4.66 03/16/94 03/15/2000 03/15/99

PW-12 David Koehler 550 $4.66 03/16/94 03/15/2000 03/15/99

PW-13 Peter H. McNerney 500 $4.66 03/16/94 03/15/2000 03/15/99

PW-14 Linda L. Watchmaker 200 $4.66 03/16/94 03/15/2000 03/15/99

PW-15 The 555 Group 2,000 $4.66 03/16/94 03/15/2000 03/15/99

PW-16 Daniel E. Steimle 1,250 $4.66 03/16/94 03/15/2000 03/15/99

PW-17 Christopher McGill 2,000 $4.66 03/16/94 03/15/2000 03/15/99

PW-18 Lawrence Marshall 500 $4.66 03/16/94 03/15/2000 03/15/99

PW-19 Brian Jackman 2,500 $4.66 03/16/94 03/15/2000 03/15/99

<PAGE>

WARRANT NUMBER PRICE DATE OF CURRENT AMENDED
NUMBER NAME OF SHARES PER SHARE ISSUANCE TERMINATION DATE TERMINATION DATE
- ------ ---- --------- --------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
PW-20 Ronald Antipa 2,000 $4.66 05/05/94 05/04/2000 05/04/99

PW-21 Gerald C. Down 6,979 $4.66 05/05/94 05/04/2000 05/04/99

PW-22 Ellen Schwab 7,500 $4.66 05/05/94 05/04/2000 05/04/99

PW-23 Robert H. Jaeger 2,500 $4.66 05/05/94 05/04/2000 05/04/99

PW-24 John P. Kern and
Jeanette E. Kern TTEES
John P. Kern and
Jeanette E. Kern Living
Trust U/A DTD 02/21/91 5,000 $4.66 05/05/94 05/04/2000 05/04/99

PW-25 Joe S. Sheppard 5,000 $4.66 05/05/94 05/04/2000 05/04/99

PW-26 Richard M. Lucas Cancer
Foundation 5,000 $4.66 05/05/94 05/04/2000 05/04/99

PW-27 MOTETE Corporation 7,500 $4.66 05/05/94 05/04/2000 05/04/99

PW-28 Alberto Perez 7,500 $4.66 05/05/94 05/04/2000 05/04/99

PW-29 Ralph Horner 10,000 $4.66 05/05/94 05/04/2000 05/04/99

PW-30 Vanguard IV, L.P. 30,000 $4.66 05/05/94 05/04/2000 05/04/99

PW-31 Harris Corporation 200,000 $4.66 05/05/94 05/04/2000 05/04/99

PW-32 Jack Acosta 5,000 $4.66 05/05/94 05/04/2000 05/04/99

PW-33 Coral Partners II 59,270 $4.66 05/05/94 05/04/2000 05/04/99

PW-34 Coral Partners II 54,059 $4.66 08/05/94 03/15/2000 03/15/99
------

TOTAL 1,254,880

</TABLE>
5.

<PAGE>

LICENSE, JOINT DEVELOPMENT, SUPPLY AND
AUTHORIZED MANUFACTURING AGREEMENT

This Agreement ("AGREEMENT") is entered into this 25th day of September
1992 ("EFFECTIVE DATE") by and between the Industrial Technology Research
Institute ("ITRI") of the Republic of China having a place of business at 195
Chung Hsing Road, Section 4, Chutung, Hsin Chu, Taiwan, Republic of China, and
Access Products Corporation ("APC"), a corporation organized and existing under
the laws of the State of California, having a place of business at 1260-A Holm
Road, Petaluma, California, each of whom is sometimes referred to as a "PARTY"
or collectively as "PARTIES" as the case may be.

RECITALS

1. APC is in the business of designing and developing telecommunication
products.

2. Prior to the EFFECTIVE DATE of this contract, APC has invested
significant technical resources in the design and development of a modular and
flexible digital loop carrier system that serves approximately six (6) to one
hundred and eighty (180) customers known as the Universal Modular Carrier
("UMC"). The UMC utilizes a modular building block approach to provide service
in a variety of network topologies. A version of the UMC under development by
APC meets European Telecommunication Standards Institute (ETSI) specifications.

3. ITRI through its division the Computer and Communications Laboratory
("CCL") is in the business of carrying out applied research and product
development projects in the area of

<PAGE>

telecommunications sponsored by the government of the Republic of China as well
as other parties. The products resulting from the projects are generally
transferred to Taiwan companies which manufacture and sell the products.

4. ITRI desires to cooperate with APC in the development of products
based on the UMC, to acquire limited rights in the technology related to the
UMC, to improve the overall technical capability of ITRI with respect to this
type of technology, to be permitted to modify and enhance the UMC technology,
and to permit sublicensees of ITRI to manufacture and sell the UMC, all as set
forth in greater detail below.

Accordingly, the PARTIES hereto agree as follows:

1. DEFINITIONS

1.1 "UMC" means a universal modular subscriber loop carrier system
designed to meet the European Telecommunications Standards Institute (ETSI)
specifications, generally described in the Markets Requirements Document as set
forth on Schedule A hereto, and which APC is designing and developing. The UMC
shall include the BASIC PRODUCT (as described in Schedule B hereto). The UMC
shall also include MINOR MODIFICATIONS, MAJOR MODIFICATIONS, and all
enhancements, adaptations, variations and derivatives of the UMC.

1.2 "UMC TECHNOLOGY" means

a) the processes, trade secrets, ideas, know-how, concepts,
techniques, inventions, designs, flowcharts, models, technology and confidential
information related to the UMC

2
<PAGE>

including but not limited to works of authorship, copyrights, patents, and all
tangible embodiments of any of the foregoing.

b) UMC TECHNOLOGY specifically includes the following insofar as
they are related to the UMC: simulation tools, simulation service providers,
simulation results, block diagram analysis, functional descriptions, system
module specifications, design documents, circuit diagrams and schematics,
manufacturing documents, component sources, component specifications, software
including software identified in Schedule C and including source code and object
code, all information related to application specific integrated circuits
(ASIC's) used in the UMC including the ASIC's listed in Schedule D (except the
mask works utilized in the manufacture of the ASIC's), all other technical
information and data related to the development, adaption, modification,
enhancement, manufacture, sale, installation, and maintenance of the UMC.

1.3 "APC TECHNOLOGY" means

a) the portion of the UMC TECHNOLOGY conceived by or reduced to
practice by APC, or otherwise acquired by APC prior to the EFFECTIVE DATE of
this AGREEMENT or outside the scope of this AGREEMENT,

b) the portion of the UMC TECHNOLOGY conceived by or reduced to
practice by APC or any of its employees while engaged in tasks within the scope
of this AGREEMENT, but does not include JOINT TECHNOLOGY as defined below.

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<PAGE>

1.4 "ITRI TECHNOLOGY" means

a) the portion of the UMC TECHNOLOGY conceived by or reduced to
practice by ITRI, or otherwise acquired by ITRI prior to the EFFECTIVE DATE of
this AGREEMENT or outside the scope of this AGREEMENT,

b) the portion of the UMC TECHNOLOGY conceived by or reduced to
practice by ITRI or any of its employees while engaged in tasks within the scope
of this AGREEMENT, but does not include JOINT TECHNOLOGY as defined below.

1.5 "JOINT TECHNOLOGY" means technology conceived by or reduced to
practice or otherwise acquired jointly by both PARTIES while engaged in tasks
within the scope of this AGREEMENT.

1.6 "MINOR MODIFICATION" means those changes to the UMC which improve the
manufacturability, performance, margin, ease of use, and/or physical acceptance
to the user, but do not change the basic functionality or capability of the UMC.

1.7 "MAJOR MODIFICATION" means those changes to the UMC which change
the basic functionality or capability of the UMC.

1.8 "MEMBER COMPANY" means any TAIWANESE parent company and its worldwide
subsidiaries which becomes a sublicensee of ITRI pursuant to this AGREEMENT.

2. TECHNOLOGY TRANSFER OBLIGATIONS OF APC

2.1 APC shall deliver to ITRI the APC TECHNOLOGY in accordance with
Schedule E. APC shall deliver the APC TECHNOLOGY in the form that is normally
generated in the course of business and APC shall not be required to produce the
APC TECHNOLOGY in any

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<PAGE>

other form. ITRI shall treat all of the APC TECHNOLOGY as confidential subject
to the terms of Section 14 of this AGREEMENT except for the portions of the APC
TECHNOLOGY which are delivered as part of the UMC to end-users. All expenses in
connection with the delivery of the APC TECHNOLOGY to ITRI shall be borne by
APC.

2.2 APC shall deliver to ITRI a prototype of the BASIC PRODUCT (as
described in Schedule B) and the portions of the APC TECHNOLOGY related to the
BASIC PRODUCT on or before December 31, 1992.

2.3 APC shall deliver to ITRI manufacturing documentation for the BASIC
PRODUCT on or before December 31, 1992.

2.4 During the term of this AGREEMENT, APC shall deliver to ITRI all
future additions and improvements to the APC TECHNOLOGY including technology
related to the MAJOR and MINOR MODIFICATIONS to the UMC developed by APC within
a reasonable time after same are developed by APC.

2.5 APC shall provide at no cost to ITRI training programs as set forth
in Schedule F. Such training programs shall take place at ITRI facilities in
Hsin Chu, Taiwan, or at other locations designated by ITRI. APC shall send to
the ITRI facilities or other locations designated by ITRI engineers qualified
to carry out the training programs, their wages and travel and accommodation
expenses to be borne by APC. Additional technical assistance requested by
ITRI shall be supplied by APC subject to APC's manpower availability and
project workload. ITRI shall pay APC for such additional technical assistance
when performed outside of

5
<PAGE>

APC's facility in Petaluma, California, at the support rates specified in the
then-current APC customer support price list including travel time and travel
and accommodation expenses, to be agreed upon by the Parties. APC shall bill
ITRI monthly for such assistance and ITRI shall pay the amounts due within sixty
(60) days after APC's invoice date.

2.6 APC shall provide appropriate work facilities in Petaluma, California,
for ITRI engineers for the purpose of fulfilling ITRI's payment in kind
obligations specified in Sections 3.1 and 7.3, and to assist ITRI in
assimilating the APC TECHNOLOGY.

2.7 APC shall sell to ITRI's sublicensees the ASIC's described in Schedule
D under terms and conditions which are reasonable in the semiconductor industry
at the time of the sale. It is contemplated that APC will choose a manufacturer
for the ASIC's; and in so doing, APC shall give due consideration to selecting a
Taiwan-based manufacturer suggested by ITRI. When ASIC's described in Schedule D
are ordered by ITRI's sublicensees according to a firm, irrevocable, order for
which an acceptable letter of credit is opened in favor of APC, APC's price for
the ASIC's shall not exceed 1.15 times the price paid by APC for same.

2.8 APC shall use its best efforts to adhere to the dates set forth in
Schedules B, E, F, and Sections 2.2 and 2.3 but there will be no liability for
reasonable deviations.

6
<PAGE>

3. TECHNOLOGY TRANSFER OBLIGATIONS OF ITRI

3.1 ITRI shall participate in the development of the BASIC PRODUCT by
performing the tasks set forth in Schedule H in accordance with the dates set
forth in Schedule H. To the extent required to perform the tasks set forth in
Schedule H, ITRI shall use its best efforts to send qualified engineers to APC's
facility in Petaluma, California. In the event the PARTIES jointly agree that
any engineer sent by ITRI does not meet reasonable workplace performance
standards at APC facilities, ITRI will replace the engineer. Costs including
labor, travel and living expenses for ITRI engineers working at the APC Petaluma
facility to perform the tasks set forth in Schedule H shall be borne by ITRI. In
the event APC wishes ITRI to perform services for APC beyond the tasks
specified in Schedule H, ITRI will make the services available to APC under
reasonable terms and conditions to be agreed upon by the PARTIES.

3.2 ITRI shall deliver to APC ITRI TECHNOLOGY related to MINOR
MODIFICATIONS of the UMC developed by ITRI and MAJOR MODIFICATIONS of the UMC
developed by ITRI at ITRI's own expense pursuant to rights granted ITRI under
Section 5.1 within a reasonable time after the development of such MAJOR and
MINOR MODIFICATIONS. However, ITRI shall not be obligated to deliver to APC ITRI
TECHNOLOGY related to MAJOR MODIFICATIONS of the UMC made by ITRI but wherein a
significant portion of the development costs (i.e., in excess of 80%) is paid by
one or more of ITRI's MEMBER COMPANIES. To fulfill its obligation under this
Section, ITRI

7
<PAGE>

shall supply to APC all available information to enable APC to manufacture, sell
and maintain the UMC incorporating the ITRI TECHNOLOGY, including sufficient
documentation in the English language. APC shall treat all of the ITRI
TECHNOLOGY as confidential subject to the terms of Section 14 of this AGREEMENT
except the portions of the ITRI TECHNOLOGY which are delivered as part of the
UMC to end-users.

3.3 ITRI will use its best efforts to adhere to the dates set forth in
Schedule H and complete all of the tasks specified in Schedule H within twenty-
four (24) months of the EFFECTIVE DATE, but there will be no liability for
reasonable deviations.

4. OWNERSHIP RIGHTS

4.1 APC shall retain full ownership rights in any APC TECHNOLOGY it
delivers to ITRI under this AGREEMENT.

4.2 ITRI shall retain full ownership rights in any ITRI TECHNOLOGY it
delivers to APC under this AGREEMENT.

4.3 APC shall retain any and all rights to file at its sole discretion any
patent applications related to APC TECHNOLOGY.

4.4 ITRI shall retain any and all rights to file at its sole discretion
any patent applications related to ITRI TECHNOLOGY.

4.5 JOINT TECHNOLOGY shall be jointly owned by APC and ITRI. In the event
of a joint invention, the parties shall mutually agree which PARTY shall have
the primary responsibility for preparing and filing any patent application on
the invention, and the PARTIES agree to execute documents required for the
patent application and shall share equally the expenses associated with
obtaining and

8
<PAGE>

maintaining any patents issued thereon. In the event one PARTY elects not to
seek or maintain patent protection for any joint invention in any particular
country or not to share equally in the expenses thereof with the other PARTY,
the other PARTY shall have the right to apply for or maintain such patent
protection at its own expense in such country and shall have full control over
the prosecution and maintenance thereof, even though title to any patent
resulting therefrom shall be jointly owned.

4.6 APC and ITRI may agree to jointly fund a MAJOR MODIFICATION of the
UMC. The UMC TECHNOLOGY relating to a jointly funded MAJOR MODIFICATION shall
be part of the JOINT TECHNOLOGY.

4.7 At any time during the term of this AGREEMENT, ITRI may request APC to
develop a MAJOR MODIFICATION of the UMC at ITRI's expense. If APC declines to
develop the MAJOR MODIFICATION of the UMC, ITRI shall be free to undertake the
development and all of the UMC TECHNOLOGY related to such a MAJOR MODIFICATION,
including all of the UMC TECHNOLOGY related to the manufacture, sale,
installation, and maintenance of the UMC incorporating such MAJOR MODIFICATION,
shall be part of the ITRI TECHNOLOGY. If APC does develop a MAJOR MODIFICATION
at the expense of ITRI, all the UMC TECHNOLOGY related to the manufacture, sale,
installation and maintenance of the UMC incorporating such MAJOR MODIFICATION
shall also be part of the ITRI TECHNOLOGY.

4.8 APC intends to use the services of ITRI and/or the Member Companies to
participate in the design tasks identified in Schedule J, at terms and
conditions to be mutually agreed by the Parties.

9
<PAGE>

5. LICENSES TO ITRI

5.1 ITRI shall have the following rights under the UMC TECHNOLOGY

a) the exclusive right in the Republic of China to make, use,
develop, enhance, adapt, and modify the UMC TECHNOLOGY including the right to
develop MAJOR and MINOR MODIFICATIONS to the UMC, and the right to sublicense
this right to MEMBER COMPANIES, ITRI's right to develop MAJOR MODIFICATIONS
being subject, however, to paragraphs 4.6, 4.7 and 5.4.

b) the exclusive right in the Republic of China to manufacture and
have manufactured the UMC and portions, components, and sub-assemblies of the
UMC, and the right to sublicense this right to MEMBER COMPANIES, and

c) the non-exclusive right for all countries of the world, excluding
countries in the North American Continent including and north of Panama, to
sell, lease, install and maintain the UMC and portions, components, and sub-
assemblies thereof manufactured under the rights set forth in Section 5.1(b),
and the right to sublicense this right to MEMBER COMPANIES.

5.2 The rights granted to ITRI in Section 5.1 of this AGREEMENT are
subject to the cash payments specified in Section 7.2, the payment in kind
specified in Section 7.3, and the royalties payable to APC specified in Section
8.1.

5.3 This rights granted to ITRI in Section 5.1 of this AGREEMENT apply to
the portion of the UMC technology resulting from a jointly funded MAJOR
MODIFICATION as specified in Section 4.6.

10
<PAGE>

However, no royalties shall be payable to ITRI and its MEMBER COMPANIES to APC
as a result of the sale or lease of a UMC incorporating a MAJOR MODIFICATION of
the type specified in Section 4.7.

5.4 The rights granted to ITRI in Section 5.1 of this AGREEMENT apply to
the portion of the UMC TECHNOLOGY resulting from an ITRI funded MAJOR
MODIFICATION as specified in Section 4.7; provided that if ITRI has requested
APC to develop such a MAJOR MODIFICATION and APC has declined to do so, or if
APC has developed a MAJOR MODIFICATION at the expense of ITRI, no royalties
shall be payable by ITRI and its MEMBER COMPANIES to APC in connection with the
sale or lease of a UMC incorporating such a MAJOR MODIFICATION.

5.5 The MEMBER COMPANIES shall have the right to sub-contract the
manufacturing of the UMC or portions, components, or subassemblies thereof to
companies located in Southeast Asia. As used herein, the term sub-contract is
intended to include only manufacturing in a MEMBER COMPANY's own facilities in
Southeast Asia. In order to exercise their rights to sub-contract under this
Section 5.5, the MEMBER COMPANIES shall be free to deliver to the sub-contractor
only such information as is needed to carry out the manufacturing process of the
UMC or portions, components, or subassemblies thereof to be manufactured by that
particular subcontractor. The MEMBER COMPANIES shall require each subcontractor
to maintain the confidentiality of those portions of the APC TECHNOLOGY which
are delivered to it except those portions of the APC TECHNOLOGY which are
delivered as part of the UMC to end-

11
<PAGE>

users. A subcontractor shall not have the right to sell the UMC or portions,
components or assemblies thereof which the subcontractor manufactures to any
party other than the MEMBER COMPANY with which it subcontracts.

5.6 ITRI shall have the right to deliver the UMC TECHNOLOGY to its MEMBER
COMPANIES. However, ITRI shall require each of its MEMBER COMPANIES to maintain
the confidentiality of the APC TECHNOLOGY except for those portions of the APC
TECHNOLOGY which are delivered as part of the UMC to end-users.

5.7 Notwithstanding anything to the contrary in Section 5.6, ITRI shall
not deliver to any MEMBER COMPANY the source codes of the software identified in
Schedule C for a period of three (3) years from the EFFECTIVE DATE of this
AGREEMENT. However, after three (3) years from the EFFECTIVE DATE of this
AGREEMENT, ITRI may deliver the source code to the MEMBER COMPANIES, provided
that ITRI obtains the advance written approval of APC, which approval APC will
not unreasonably withhold.

5.8 The rights granted to ITRI in Section 5.1 do not include the right to
manufacture and sell the ASIC's identified in Schedule D. ITRI shall only
acquire the right to manufacture, have manufactured and sell or lease the ASIC's
to ITRI's MEMBER COMPANIES in the event that APC does not fulfill its
obligations to sell ASIC's to ITRI's MEMBER COMPANIES as set forth in Section
2.8. In such event, APC will deliver to ITRI all available technology
(including mask works) so that ITRI will be able to implement the rights granted
to ITRI under this Section of the AGREEMENT.

12
<PAGE>

However, ITRI shall have the right to sell or lease the ASIC's only to those
MEMBER COMPANIES who have fulfilled their obligations under Section 5.9 and 8.1.

5.9 MEMBER COMPANIES shall be required by ITRI to provide to APC rolling
(i.e., updated monthly) quarterly forecasts for the purchase of ASIC's that APC
is required to make available to the ITRI sublicensees under Section 2.7.

5.10. In any sub-licensing agreement between ITRI and a MEMBER COMPANY,
ITRI shall include a provision that the MEMBER COMPANY is not authorized to use
any logo or trademark of APC as set forth in Schedule G attached hereto, or any
mark confusingly similar thereto.

5.11 ITRI shall keep APC informed of the identity of its MEMBER COMPANIES.

5.12 To the extent known by ITRI, ITRI shall inform APC of the identity of
the manufacturers of assemblies, sub-assemblies, parts and components for ITRI's
MEMBER COMPANIES.

6. LICENSEES TO APC

6.1 APC shall have the right to exploit the UMC TECHNOLOGY in any manner
whatsoever including the right to license the UMC TECHNOLOGY to third parties so
long as such exploitation or any rights granted to third parties are not
inconsistent with the rights granted to ITRI under Section 5 of this AGREEMENT.
The rights granted to APC under this Section are subject to the payment of
royalties by APC to ITRI as specified in Section 9.

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<PAGE>

6.2 The rights granted to APC under Section 6.1 of this AGREEMENT also
apply to MINOR MODIFICATIONS to the UMC developed by ITRI. APC or its licensees
may sell or lease a UMC incorporating a MINOR MODIFICATION developed by ITRI
without the payment of any additional royalties in excess of the royalties that
would be paid to ITRI for a UMC not incorporating such a MINOR MODIFICATION.

6.3 The rights granted to APC under Section 6.1 of this AGREEMENT apply to
the portion of the UMC TECHNOLOGY resulting from a jointly funded MAJOR
MODIFICATION as specified in Section 4.6. However, no royalties shall be
payable by APC and its licensees to ITRI as a result of the sale or lease of a
UMC incorporating a MAJOR MODIFICATION of the type specified in Section 4.6.

6.4 The rights granted to APC in Section 6.1 of this AGREEMENT apply to
the portion of the UMC TECHNOLOGY resulting from a MAJOR MODIFICATION developed
by ITRI at its own expense or developed by APC at the expense of ITRI as
specified in Section 4.7. The royalty payable to ITRI as a result of a sale of
a UMC incorporating such an ITRI funded MAJOR MODIFICATION is specified in
Section 9.2. However, the rights granted to APC in Section 6.1 do not apply to
a MAJOR MODIFICATION developed by ITRI wherein a significant portion (i.e., in
excess of 80%) of the development costs are paid by one or more of ITRI's MEMBER
COMPANIES.

6.5 APC shall keep ITRI informed of the identity of its licensees.

6.6 APC shall require its licensees to maintain the confidentially of the
ITRI TECHNOLOGY except for those portions of

14
<PAGE>

the ITRI TECHNOLOGY which are delivered as part of the UMC to end-users.

7. PAYMENTS

7.1 In recognition of the significant technological investment made by APC
in the development of the UMC and in consideration of the rights acquired under
this AGREEMENT, ITRI shall pay [*]

[*] Confidential treatment requested.

15
<PAGE>

[*]

[*] Confidential treatment requested.

16
<PAGE>

8. ROYALTIES PAYABLE BY ITRI

8.1 Royalties shall be payable to APC at a rate of [*]

8.2 For purposes of computing the royalties due hereunder, [*]

8.3 ITRI shall use its best efforts to collect fees from the MEMBER
COMPANIES royalties owed to APC as a result of the sale or lease of the UMC by
the MEMBER COMPANIES to their customers. In the event ITRI is unable to collect
royalties from one or more MEMBER COMPANIES, [*]

[*] Confidential treatment requested.

17
<PAGE>

[*]

9. ROYALTIES PAYABLE BY APC

9.1 APC shall pay to ITRI [*]

9.2 For each UMC sold or leased by APC or a licensee of APC pursuant to
Section 6.4, APC shall pay to ITRI [*]

9.3 For purposes of computing the royalties due hereunder, [*]

[*] Confidential treatment requested.

18
<PAGE>

[*]. All royalties to be paid hereunder
by APC shall be paid in U.S. Dollars.

9.4 APC shall use its best efforts to collect from its licensees royalties
owed ITRI as a result of the sale or lease of the UMC by the licensees to their
customers. In the event APC is unable to collect royalties due under this
AGREEMENT from one or more of its licensees, [*]

10. REPORTS AND AUDIT RIGHTS

10.1 Within sixty (60) days after the end of each calendar quarter, the
PARTY having a royalty obligation shall provide to the other PARTY a report
showing the amount of royalty due to the other PARTY and it supporting data.
Each PARTY shall pay the royalty due to the other PARTY with each report.

10.2 Each PARTY shall have the right to have an accounting firm acceptable
to the other PARTY audit the other PARTY's

[*] Confidential treatment requested.

19
<PAGE>

compliance with this Section 10 upon reasonable notice to the PARTY being
audited. Such audits shall be conducted not more than once a year. The auditor
shall not disclose any financial information, but shall only state that the
remitted royalty payments were correct, or that a credit or additional amount is
due and owing by the audited PARTY. To enable such audits to be carried out,
each PARTY shall maintain and retain appropriate records for three (3) years
after the end of each accounting year.

10.3 APC shall not have audit rights with respect to the MEMBER COMPANIES
and ITRI shall not have audit rights with respect to APC's licensees. However,
in ITRI's agreement with a MEMBER company, ITRI shall retain for itself the
audit rights set forth in Section 10.2 with respect to that MEMBER COMPANY.
In APC's agreements with its licensees, APC shall retain for itself the audit
rights set forth in Section 10.2 with respect to the licensees. Each PARTY may
request once per year that the other PARTY exercise its audit rights with
respect to a MEMBER COMPANY or licensee.

11. PAYMENT TERMS

With respect to payment of all amounts due either PARTY hereunder, should
either PARTY fail to make such a payment to the other within [*] days of
the date specified in this AGREEMENT, the unpaid amount shall bear a late
charge, until payment is made, at a rate which is the lesser of [*]

[*] Confidential treatment requested.

20
<PAGE>

[*]

12. TAXES

ITRI shall apply for a waiver of the Republic of China ("ROC") taxes to
which the payments to APC specified in Section 7.2 and the royalties payable to
APC specified in Section 8 are normally subject. In the event ITRI cannot
obtain a waiver of the ROC taxes, ITRI shall bear the ROC taxes and shall not
withhold such taxes from payments and royalties due APC. However, ITRI shall
withhold such taxes from the payment and royalties due APC in the event APC is
able to take a credit for the ROC taxes against taxes owed to the U.S.
government in accordance with APC's U.S. tax return.

13. EXCLUSIVITY AND NON-COMPETITION

[*]

[*] Confidential treatment requested.

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<PAGE>

13.2 During a period of [*] from the EFFECTIVE DATE of this
AGREEMENT, the MEMBER COMPANIES shall not have the right to manufacture, sell,
distribute or lease any device or equipment which is designed or intended to
perform or in fact does perform the same basic functions as the UMC. [*]

14. CONFIDENTIALLY

14.1 As specified in Sections 2 and 3 of this AGREEMENT, each PARTY will
disclose confidential information needed to carry out the terms of this
AGREEMENT to the other PARTY. Confidential information may include trade
secrets, processes, computer programs, and other technical information and data.

14.2 Except as provided in Sections 5 and 6, each PARTY agrees to receive
and hold confidential information received from the other PARTY for a period of
ten (10) years after receipt of such information and shall exercise the same
degree of care in preventing the disclosure of such confidential information as
it does in protecting its own confidential information, which in any event shall
be no less than reasonable care. As a minimum protection, the receiving PARTY
shall limit disclosure of confidential information to its employees having a
need to know such information and shall not disclose the confidential
information to any third party, individual, corporation or other

[*] Confidential treatment requested.

22
<PAGE>

entity without the prior written consent of the disclosing PARTY or as otherwise
specified in this AGREEMENT.

14.3 The PARTIES agree that the following information shall not constitute
"CONFIDENTIAL INFORMATION" under this AGREEMENT:

(a) information available from public sources at any time before or
after it is disclosed to a PARTY under this AGREEMENT;

(b) information obtained from a third party not associated with
either PARTY who had not acquired the information directly or
indirectly from either PARTY;

15. PUBLICITY

Both parties agree that the details connected with this AGREEMENT shall not
be published or disclosed to any third party except MEMBER COMPANIES and
potential MEMBER COMPANIES and except as required by auditors or government
authorities. ITRI shall have the right to publicize the existence and general
nature of the AGREEMENT but only in Taiwan. APC shall have control of the
publicity of the AGREEMENT in all countries of the world other than Taiwan.

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<PAGE>

16. TRADENAMES AND TRADEMARKS

16.1 Each PARTY acknowledges that it will acquire no rights in and will
not use any trademark or trade name used or owned by the other PARTY by reason
of this AGREEMENT and shall take no action which violates this acknowledgement.

17. WARRANTIES AND LIMITATIONS OF LIABILITY

17.1 Each PARTY warrants that is has the right and authority to enter into
this AGREEMENT and that there are no outstanding assignments, grants, licenses,
encumbrances, obligations or agreements which would prevent it from performing
its obligations under the terms of this AGREEMENT.

17.2 Each PARTY warrants that nothing provided by that PARTY violates any
intellectual property right (including patent, copyright or trade secret right)
of any third party. A PARTY's liability to the other PARTY for breach of this
warranty shall be limited to [*]

17.3 EXCLUSION OF WARRANTIES. THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE AND ALL OTHER WARRANTIES EXPRESSED OR
IMPLIED, EXCEPT AS SET FORTH IN THIS WARRANTY ARE EXPLICITLY DISCLAIMED AND
SHALL NOT APPLY TO ANY SERVICE OR DELIVERABLE PROVIDED UNDER THIS AGREEMENT.
NEITHER

[*] Confidential treatment requested.

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<PAGE>

PARTY ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME ANY OTHER LIABILITIES IN
CONNECTION WITH THE DESIGN, MANUFACTURE, SALE OR USE OF PRODUCTS.

17.4 Limitation of liability. In no event shall either PARTY be liable for
any reprocurement costs, loss of profits, loss of use, or incidental,
consequential or special damages.

18. NO JOINT VENTURE

Performance by the PARTIES under this AGREEMENT shall be as independent
contractors. Nothing contained herein or done under the terms of this
AGREEMENT shall constitute the PARTIES entering into a joint venture or
partnership, nor shall either PARTY act as the agent of the other PARTY for any
purpose.

19. FORCE MAJEURE

Neither PARTY shall be responsible for its failure to perform due to causes
beyond its reasonable control, such as acts of God, fire, theft, war, riot,
embargoes or acts of civil or military authorities.

20. NOTICES

All payments, invoices, notices, requests, demands and other communications
hereunder shall be in writing and shall be in English and shall be deemed to
have been duly given at the time of delivery if delivered by hand or within
fifteen (15) days of the date of mailing by prepaid registered airmail, telex,
or telecopier with confirmation of its receipt (except for payments), addressed
to the party concerned at the following addresses:

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<PAGE>

If to ITRI: INDUSTRIAL TECHNOLOGY RESEARCH INSTITUTE
Computer & Communication Research Laboratories
B200, Bldg.14, 195 Sec. 4, Chung Hsing Road
Chutung, Hsinchu, Taiwan 310
Republic of China
ATTN: Communication Planning & Marketing Dept.

If to APC: APC CORPORATION
1260-A Holm Road
Petaluma, California 97975
U.S.A.
ATTN: The President

Either PARTY may from time to time give reasonable notice of the change of
the address at which it will receive notice, in which event the foregoing
address shall be deemed to have been changed accordingly upon the other PARTY's
actual receipt of written notice of such change of address.

21. SURVIVAL

It is agreed that the rights and obligations of the PARTIES hereto as
contained in Sections 4, 8, 9, 10, 11, 12, 14, 15, 16, 17, 24, 26, and 27 shall
survive and continue after any termination or cancellation of this AGREEMENT and
shall bind the PARTIES, their successors, their assigns and their legal
representatives.

22. ENTIRE AGREEMENT

This AGREEMENT is the entire understanding between APC and ITRI with
respect to the subject matter hereof and merges all prior agreements, dealings
and negotiations. No modification, alteration or amendment shall be effective
unless in writing and signed by both parties. No waiver of any breach shall be
held to be a waiver of any other or subsequent breaches.

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<PAGE>

23. ASSIGNMENT

Neither PARTY shall delegate any obligation under this AGREEMENT or assign
this AGREEMENT or any interest or right hereunder without the prior written
consent of the other PARTY and any such attempt shall be null and void. In the
event consent is given to delegate an obligation or to an assignment, the
delegating or assigning PARTY shall remain jointly and severally responsible.

24. GOVERNING LAW AND ARBITRATION

24.1 This AGREEMENT shall be governed by, enforced under, and construed
in accordance with, the laws of the State of California.

24.2 Any controversy or claim arising out of or relating to this AGREEMENT
shall be settled by arbitration conducted in accordance with the then-current
rules of the American Arbitration Association (the "Association") strictly in
accordance with the terms of this Agreement and the substantive law of the State
of California. The arbitration shall be held in San Francisco, California, and
shall be conducted by three (3) arbitrators. At least one (1) of the
arbitrators shall be chosen from a panel of persons knowledgeable in the
telecommunications business and at least one (1) of the arbitrators shall be an
attorney. Judgment on an award rendered by the arbitrators may be entered and
enforced in any court of competent jurisdiction. Neither party shall institute
a proceeding hereunder until that party has furnished to the other party, by
certified or registered mail, at least thirty (30) days prior written notice of
its intent to do so. IF EITHER PARTY DOES NOT COMPLY WITH THE FINAL AWARD,
SUCH PARTY SHALL BEAR ALL THE

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<PAGE>

RESULTING COSTS OF ENFORCING THE AWARD. IN ANY EVENT, THE WINNING PARTY SHALL
BE ENTITLED TO RECOVER ALL COSTS, EXPENSES, AND REASONABLE ATTORNEYS' FEES
RELATED TO THE ARBITRATION PROCEEDINGS FROM THE LOSING PARTY.

24.3 This Agreement is subject to the approval of the UMC Agreement by the
Ministry of Economic Affairs of the Republic of China. If this approval is not
granted on or before October 10, 1992, this Agreement shall be null and void.

25. ORDER OF PRECEDENCE

In the event of any contradiction between this AGREEMENT and a Schedule
attached hereto, the AGREEMENT shall control.

26. SEPARABILITY

All provisions of this Agreement are intended to be interpreted and
construed in a manner to make such provisions valid, legal, and enforceable.
The invalidity of unenforceability of any phrase or provision shall in no way
affect the validity or any other portion of this AGREEMENT, and such phrase or
provision shall be deemed modified, restricted, or omitted to the extent
necessary to make this AGREEMENT enforceable.

27. TERM AND TERMINATION

27.1 The term of this AGREEMENT shall be ten (10) years from the EFFECTIVE
DATE of this AGREEMENT, unless terminated sooner as provided below. At the end
of such ten (10) year period, both APC and ITRI shall have a worldwide, non-
exclusive, royalty-free, irrevocable license under the proprietary rights of the
other to exploit the UMC TECHNOLOGY as each deems appropriate; provided,

28
<PAGE>

however, that APC's and ITRI's obligations to make any payments due to the other
at the end of the ten (10) year period shall survive termination of this
AGREEMENT, and provided further that at the end of such ten (10) year period,
each PARTY shall continue to comply with the confidential provisions of Section
14 and shall return all materials belonging to the other PARTY, such as plans,
designs, memoranda, and other writings or things embodying or disclosing all or
any part of the UMC TECHNOLOGY.

27.2 In the event that either PARTY hereto fails to perform any material
term or condition of this AGREEMENT, and such failure has not been cured within
ninety (90) days after the other PARTY has notified the failing PARTY thereof in
writing, such other PARTY may terminate this AGREEMENT by delivering written
notice to that effect to the failing PARTY; provided, however, that should
either PARTY fail to make any payment under this AGREEMENT, the failing PARTY
shall have a period of only forty-five (45) days from the date of notice in
which to make the omitted payment together with the late charge specified in
Section 11. Any termination pursuant to this Section 27.2 shall be in addition
to any other rights that the terminating PARTY may have against the failing
PARTY.

27.3 Upon termination of this AGREEMENT pursuant to Section 27.2, the
ownership rights shall be as specified in Section 4, and the cross-licensees
specified in Section 27.1 shall not take effect; provided, however, in the event
of a breach by ITRI any portion of the ITRI TECHNOLOGY described in Section
1.4(b) which is developed as part of the Payment In Kind described in Section
7.3 shall be

29
<PAGE>

deemed to be part of the APC TECHNOLOGY specified in accordance with Section
1.3(b) and shall thereafter be retained and owned by APC (and not ITRI) in
accordance with Section 4.1, it being understood that in the event of a breach
by APC the ownership rights shall be as set forth in Section 4. Upon
termination of this AGREEMENT pursuant to Section 27.2, each PARTY shall return
materials belonging to the other PARTY, such as plans, designs, memoranda, and
other writings or things embodying all or any part of the UMC TECHNOLOGY, and
the confidentiality provisions of Section 14 shall remain in effect.

28. EXPORT CONTROL

APC has obtained an export license for transfer of the UMC TECHNOLOGY to
ITRI. ITRI shall notify APC each time it or a MEMBER COMPANY wishes to export
UMC TECHNOLOGY to a country not covered by an already obtained export license,
so that APC may apply to the United States Department of Commerce for an
appropriate export license. ITRI and APC understand and agree that such
transfers of the UMC TECHNOLOGY are dependent upon and subject to receipt of an
export license from the United States Department of Commerce. ITRI and its
sublicensees agree to provide to APC any information required by the United
States Department of Commerce to process said license application(s). Any fees
and related expenses of obtaining any required technology transfer licenses or
export licenses allowing transfer of the UMC TECHNOLOGY by ITRI or the MEMBER
COMPANIES shall be borne by ITRI and paid promptly, provided ITRI shall have
approved both the firm employed to obtain such

30
<PAGE>

license(s) and the estimated fee to be charged with respect thereto. Failure or
delay in obtaining any export licenses shall not result in any liability on the
part of APC. ITRI and the MEMBER COMPANIES agree to comply with all applicable
laws and regulations governing the export and import of the UMC. ITRI expressly
agrees to take all steps necessary to ensure that all "technical data", as
defined by the United States Department of Commerce, Office of Export
Administration, is not re-exported or transmitted, either orally or in written
form, to any destination prohibited by U.S. export control laws and regulations.

29. COUNTERPARTS

The AGREEMENT may be executed in counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
Agreement.

IN WITNESS WHEREOF, this AGREEMENT has been executed by the parties hereto
as of the date first above written.

APC ITRI

/s/ Donald Green /s/ Steven S. Cheng
- ------------------------- -------------------------

Donald Green Steven S. Cheng
- ------------------------- -------------------------
Printed Name Printed Name

Vice President and
President General Director, CCL
- ------------------------- -------------------------
Title Title

September 25, 1992 September 25, 1992
- ------------------------- -------------------------
Date Date

31
<PAGE>

LIST OF SCHEDULES

Schedule A: Markets Requirements Document

Schedule B: Description of Basic Product

Schedule C: Software

Schedule D: ASIC's Used in UMC

Schedule E: Description of APC Technology to be Delivered to ITRI

Schedule F: Description of Training Programs

Schedule H: Description of Tasks to be Performed by ITRI

Schedule G: List of APC Trademarks and Logos

Schedule I: Acceptance Test for Prototypes

Schedule J: Design Task Participation
<PAGE>

SCHEDULE A

UMC SYSTEM DESCRIPTION AND SPECIFICATION

MARKET REQUIREMENTS DOCUMENT

CEPT/ETSI VERSION

Attached
<PAGE>

SCHEDULE B

DEVELOPMENT SCHEDULE

BASIC PRODUCT

Part Number Description Completion date
- ----------- ----------- ---------------

9201-0001-1A 90 Line Shelf and Backplane (LET-CBA-90) 12/31/92
9101-0001-1A Central Processor Unit (CPU) 12/31/92
9101-0002-1A Power Supply Unit (PSU) (COT) 12/31/92
Power Supply Unit (PSU) (RT) 12/31/92
9110-0001-1A Local Exchange Channel Unit -
International (LI-POTS) 12/31/92
9110-0002-1A Remote Subscriber Channel Unit -
International (RI-POTS) 12/31/92
9110-0003-1A E1 Transceiver (E1-XCVR) with power 12/31/92
<PAGE>

SCHEDULE C

SOFTWARE DESCRIPTION

[*]

[*] Confidential treatment requested.

<PAGE>

SCHEDULE D

CUSTOM INTEGRATED CIRCUITS

[*]

[*] Confidential treatment requested.

<PAGE>

[*]

[*] Confidential treatment requested.

<PAGE>

SCHEDULE E

DOCUMENTATION

Attached is a list of documentation relative to the UMC at the date of execution
of this Agreement. Each documentation package includes all the necessary
drawings.

Each PC Assembly will have the following manufacturing documentation

- Bill of materials
- Component list with approved vendors
- PC board layout and manufacturing specifications
- PC board assembly drawings
- Performance and test specifications
- Test procedures

Each electro-mechanical assembly will have the following manufacturing
documentation

- Bill of materials
- Mechanical fabrication drawings
- Mechanical assembly drawings
- Cable assembly drawings
- Performance and test specifications
- Test procedures

All system level documents, test results, and computer simulations results
<PAGE>

SCHEDULE F

DESCRIPTION OF TRAINING PROGRAMS

Two training periods, conducted in Taiwan:
1. 1ST TRAINING PROGRAM:
Kick-off training session (3 days) covering:
System overview
Design concept (philosophy)
System architecture
Applications
Specifications and regulations.
(Timing - within six weeks of contract signing)

2. 2ND TRAINING PROGRAM (1 week)
Timed after Basic Product released
System overview
System architecture
Design philosophy
Reliability issues
Function block diagrams
Cautionary items when making modifications
Testing issues and procedures
Manufacturing
- Components (Sourcing, Selection guide, . . . etc.)
- Procedures
- Quality control
- Test fixtures
Operation and application issues
Operation limitations

The items above applies to hardware, software, ASIC & mechanical
design.

APC to pay for all costs associated with the APC person providing the
training course.
<PAGE>

SCHEDULE G

TRADEMARKS

1. ACCESS PRODUCTS CORPORATION

The company name

2. APC

Used as a trademark for the company and as a general indicator of the
source of goods produced by the company

3. UNIVERSAL MODULAR CARRIER SYSTEM (UMC)

Used as an indicator of a family of equipment produced by APC

4. APC LOGO

[LOGO]
<PAGE>

SCHEDULE H

PAYMENTS IN KIND

[*]

[*] Confidential treatment requested.

<PAGE>

SCHEDULE I

ACCEPTANCE TESTS FOR PROTOTYPES

Basic Product

Conformance to the relevant sections of CCITT G.711, G.703, G.704, O.122,
O.123, O.117, O.121, G.713, G.714, G.716, G732 and APC's system
specifications

<PAGE>

SCHEDULE J

DESIGN TASKS PARTICIPATION

ITRI and her Member Companies, can participate in, but not restricted to, the
following items:

Software: ADM Capability -- chain configuration
Automatic Protection Switch
Time slot Interchange
Fault Management
User Interface

Hardware: ASIC
MTU
Mini-Remote
PCB Board Review

Mechanical Design: Remote Cabinets

System Testing: Integrated DLC Design, Testing and Field Trial

<PAGE>

EXHIBIT 10.25

ADVANCED FIBRE COMMUNICATIONS, INC.
1996 STOCK INCENTIVE PLAN
--------------------------
(all share numbers have been adjusted to reflect a
two-for-one stock split effected in August 1996)

ARTICLE ONE

GENERAL PROVISIONS

I. PURPOSE OF THE PLAN

This 1996 Stock Incentive Plan is intended to promote the interests of
Advanced Fibre Communications, Inc., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.

Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.

II. STRUCTURE OF THE PLAN

A. The Plan shall be divided into five separate equity programs:

- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,

- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special below-market option grants,

- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary),

- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock, and

<PAGE>

- the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special below-market option
grant.

B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.

III. ADMINISTRATION OF THE PLAN

A. Prior to the Section 12 Registration Date, the Discretionary
Option Grant and Stock Issuance Programs shall be administered by the Board.
Beginning with the Section 12 Registration Date, the Primary Committee shall
have sole and exclusive authority to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to Section 16 Insiders and shall have
sole and exclusive authority to administer the Salary Investment Option Grant
Program with respect to all eligible individuals.

B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).

C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions
of any Secondary Committee and reassume all powers and authority previously
delegated to such committee.

D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant,
Salary Investment Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding options or stock issuances thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant, Salary
Investment Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.

<PAGE>

E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.

F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
that program, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.

IV. ELIGIBILITY

A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:

(i) Employees,

(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and

(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).

B. Only Section 16 Insiders and other highly compensated Employees
shall be eligible to participate in the Salary Investment Option Grant Program.

C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.

D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.

<PAGE>

E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members after June 30, 1996, whether through
appointment by the Board or election by the Corporation's stockholders, and
(ii) those individuals who continue to serve as non-employee Board members at
one or more Annual Stockholders Meetings held after the Underwriting Date. A
non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
option grant under the Automatic Option Grant Program at the time he or she
first becomes a non-employee Board member, but shall be eligible to receive
periodic option grants under the Automatic Option Grant Program while he or she
continues to serve as a non-employee Board member.

F. All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant Program.

V. STOCK SUBJECT TO THE PLAN

A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
7,175,676 shares. Such authorized share reserve is comprised of (i) the number
of shares which remain available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders,
including the shares subject to the outstanding options to be incorporated into
the Plan and the additional shares which would otherwise be available for future
grant,(1) plus (ii) an additional increase of 1,000,000 shares authorized by
the Board but subject to stockholder approval prior to the Section 12
Registration Date.

B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of each calendar
year during the term of the Plan, beginning with the 1997 calendar year, by an
amount equal to three percent (3.0%) of the shares of Common Stock outstanding
on the last trading day of the immediately preceding calendar year. No Incentive
Options may be granted on the basis of the additional shares of Common Stock
resulting from such annual increases.

C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 400,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1996 calendar year.

D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for

- ------------------------
(1) Estimated to be 6,175,676 shares of Common Stock as of June 30, 1996

<PAGE>

subsequent issuance under the Plan to the extent those options expire or
terminate for any reason prior to exercise in full. Unvested shares issued
under the Plan and subsequently cancelled or repurchased by the Corporation, at
the original issue price paid per share, pursuant to the Corporation's
repurchase rights under the Plan shall be added back to the number of shares of
Common Stock reserved for issuance under the Plan and shall accordingly be
available for reissuance through one or more subsequent option grants or direct
stock issuances under the Plan. However, should the exercise price of an option
under the Plan be paid with shares of Common Stock or should shares of Common
Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance. Shares of Common Stock
underlying one or more stock appreciation rights exercised under the
Discretionary Option Grant Program shall not be available for subsequent
issuance under the Plan.

E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under this Plan per calendar year, (iii) the number
and/or class of securities for which grants are subsequently to be made under
the Automatic Option Grant Program to new and continuing non-employee Board
members, (iv) the number and/or class of securities and the exercise price per
share in effect under each outstanding option under the Plan and (v) the number
and/or class of securities and price per share in effect under each outstanding
option incorporated into this Plan from the Predecessor Plan. Such adjustments
to the outstanding options are to be effected in a manner which shall preclude
the enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.

<PAGE>

ARTICLE TWO

DISCRETIONARY OPTION GRANT PROGRAM

I. OPTION TERMS

Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

A. EXERCISE PRICE.

1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.

2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Six and the documents evidencing the option, be payable in one or more
of the forms specified below:

(i) cash or check made payable to the Corporation,

(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or

(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.

Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

<PAGE>

B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.

C. EFFECT OF TERMINATION OF SERVICE.

1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:

(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.

(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.

(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.

(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.

2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:

(i) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service
from the limited exercise period otherwise in effect for that option
to such greater

<PAGE>

period of time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term, and/or

(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but
also with respect to one or more additional installments in which the
Optionee would have vested had the Optionee continued in Service.

D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.

E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the document evidencing
such repurchase right.

F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a
Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may
only be exercised by the person or persons who acquire a proprietary interest
in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.

II. INCENTIVE OPTIONS

The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall NOT be subject to the terms of this Section II.

A. ELIGIBILITY. Incentive Options may only be granted to Employees.

<PAGE>

B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent
the Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an outstanding option
shall not so accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof), (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
those option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
The determination of option comparability under clause (i) above shall be made
by the Plan Administrator, and its determination shall be final, binding and
conclusive.

B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such

<PAGE>

Corporate Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator at the time the repurchase right
is issued.

C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
PROVIDED the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.

E. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do not
otherwise accelerate. Any options so accelerated shall remain exercisable for
fully-vested shares until the EARLIER of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights with
respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.

F. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control. Each option so accelerated shall remain exercisable for
fully-vested shares until the EARLIER of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights with
respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.

10.

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G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.

H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

IV. CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.

V. STOCK APPRECIATION RIGHTS

A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.

B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:

(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish,
to elect between the exercise of the underlying option for shares of
Common Stock and the surrender of that option in exchange for a
distribution from the Corporation in an amount equal to the excess of
(a) the Fair Market Value (on the option surrender date) of the number
of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.

(ii) No such option surrender shall be effective unless
it is approved by the Plan Administrator, either at the time of the
actual option surrender or at any earlier time. If the surrender is
so approved, then the distribution to which the Optionee shall be
entitled may be made in shares of Common Stock valued at Fair Market
Value on the option

11.

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surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.

(iii) If the surrender of an option is not approved by
the Plan Administrator, then the Optionee shall retain whatever rights
the Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the LATER of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the
option is otherwise exercisable in accordance with the terms of the
documents evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the option grant date.

C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:

(i) One or more Section 16 Insiders may be granted
limited stock appreciation rights with respect to their outstanding
options.

(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for
a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the
option is at the time exercisable for vested shares of Common Stock.
In return for the surrendered option, the Optionee shall receive a
cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock which
are at the time vested under each surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for
such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date.

(iii) Neither the approval of the Plan Administrator nor
the consent of the Board shall be required in connection with such
option surrender and cash distribution.

(iv) The balance of the option (if any) shall remaining
outstanding and exercisable in accordance with the documents
evidencing such option.

D. The shares of Common Stock underlying any stock appreciation
rights exercised under this Section V shall NOT be available for subsequent
issuance under the Plan.

12.

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ARTICLE THREE

SALARY INVESTMENT OPTION GRANT PROGRAM

I. OPTION GRANTS

The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for those calendar year or years. Each
selected individual who elects to participate in the Salary Investment Option
Grant Program must, prior to the start of each calendar year of
participation, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by an amount not less than Ten Thousand Dollars
($10,000.00) nor more than Fifty Thousand Dollars ($50,000.00). The Primary
Committee shall have complete discretion to determine whether or not to
approve the filed authorization in whole or in part. To the extent the
Primary Committee approves the authorization, the individual who filed that
authorization shall be granted an option under the Salary Investment Grant
Program on or before the last trading day in January of the calendar year for
which the salary reduction is to be in effect. All grants under the Salary
Investment Option Grant Program shall be at the sole discretion of the
Primary Committee.

II. OPTION TERMS

Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; PROVIDED, however,
that each such document shall comply with the terms specified below.

A. EXERCISE PRICE.

1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.

2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

13.

<PAGE>

B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

X = A DIVIDED BY (B x 66-2/3%), where

X is the number of option shares,

A is the dollar amount of the approved reduction in the
Optionee's base salary for the calendar year, and

B is the Fair Market Value per share of Common Stock on the
option grant date.

C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.

D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the EARLIER of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
Such right of exercise shall lapse, and the option shall terminate, upon the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Service.
However, the option shall, immediately upon the Optionee's cessation of Service
for any reason, terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully

14.

<PAGE>

exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. Each such outstanding option shall be
assumed by the successor corporation (or parent thereof) in the Corporate
Transaction and shall remain exercisable for the fully-vested shares until the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the Optionee's
cessation of Service.

B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
The option shall remain so exercisable until the EARLIER or (i) the expiration
of the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.

C. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

III. REMAINING TERMS

The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

15.

<PAGE>

ARTICLE FOUR

STOCK ISSUANCE PROGRAM

I. STOCK ISSUANCE TERMS

Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.

A. PURCHASE PRICE.

1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.

2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

(i) cash or check made payable to the Corporation, or

(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).

B. VESTING PROVISIONS.

1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:

(i) the Service period to be completed by the
Participant or the performance objectives to be attained,

(ii) the number of installments in which the shares are
to vest,

16.

<PAGE>

(iii) the interval or intervals (if any) which are to
lapse between installments, and

(iv) the effect which death, Permanent Disability or
other event designated by the Plan Administrator is to have upon the
vesting schedule,

shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.

2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.

3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.

4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.

5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate

17.

<PAGE>

vesting of the Participant's interest in the shares as to which the waiver
applies. Such waiver may be effected at any time, whether before or after the
Participant's cessation of Service or the attainment or non-attainment of the
applicable performance objectives.

II. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. All of the Corporation's outstanding repurchase/cancellation
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
(i) those repurchase/cancellation rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed in the
Stock Issuance Agreement.

B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase/cancellation rights
are assigned to the successor corporation (or parent thereof).

C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.

III. SHARE ESCROW/LEGENDS

Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.

18.

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ARTICLE FIVE

AUTOMATIC OPTION GRANT PROGRAM

I. OPTION TERMS

A. GRANT DATES. Option grants shall be made on the dates specified
below:

1. Each individual who is first elected or appointed as a
non-employee Board member at any time after June 30, 1996 shall automatically be
granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase 20,000 shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or
Subsidiary.

2. On the date of each Annual Stockholders Meeting held after
the Underwriting Date, each individual who is to continue to serve as an
Eligible Director, whether or not that individual is standing for re-election to
the Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 6,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 6,000-share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who first joined the Board prior to
July 1, 1996 shall be eligible to receive one or more such annual option grants
over their period of continued Board service.

B. EXERCISE PRICE.

1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.

2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.

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D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's cessation
of Board service prior to vesting in those shares. Each grant shall vest, and
the Corporation's repurchase right shall lapse, as follows: (i) one-third of
the option shares shall vest upon the Optionee's completion of one (1) year of
Board service measured from the option grant date and (ii) the balance of the
option shares shall vest in a series of twenty-four (24) successive equal
monthly installments upon the Optionee's completion of each additional month of
Board service over the twenty-four (24)-month period measured from the first
anniversary of such grant date.

E. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:

(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.

(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares of Common Stock for which the option is exercisable
at the time of the Optionee's cessation of Board service.

(iii) Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all or any portion
of those shares as fully-vested shares of Common Stock.

(iv) In no event shall the option remain exercisable
after the expiration of the option term. Upon the expiration of the
twelve (12)-month exercise period or (if earlier) upon the expiration
of the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Board service for any reason other than death or
Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.

20.

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II. SPECIAL CORPORATE EVENTS

A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.

C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required in connection
with such option surrender and cash distribution.

E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

21.

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III. REMAINING TERMS

The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.

22.

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ARTICLE SIX

DIRECTOR FEE OPTION GRANT PROGRAM

I. OPTION GRANTS

Each non-employee Board member may elect to apply all or any portion
of the annual retainer fee otherwise payable in cash for his or her service on
the Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to the first day of the calendar year for which the
annual retainer fee which is the subject of that election is otherwise payable.
Each non-employee Board member who files such a timely election shall
automatically be granted an option under this Director Fee Option Grant Program
on the first trading day in January in the calendar year for which the annual
retainer fee which is the subject of that election would otherwise be payable.

II. OPTION TERMS

Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.

A. EXERCISE PRICE.

1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common
Stock on the option grant date.

B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

X = A DIVIDED BY (B x 66-2/3%), where

X is the number of option shares,

A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and

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B is the Fair Market Value per share of Common Stock on the
option grant date.

C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable for fifty percent (50%) of the option shares upon the Optionee's
completion of six (6) months of Board service in the calendar year for which his
or her election under this Director Fee Option Grant Program is in effect, and
the balance of the option shares shall become exercisable in a series of six (6)
successive equal monthly installments upon the Optionee's completion of each
additional month of Board service during that calendar year. Each option shall
have a maximum term of ten (10) years measured from the option grant date.

D. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.

E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as
a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the EARLIER of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.

Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. Such right of exercise shall lapse,
and the option shall terminate, upon the EARLIER of (i) the expiration of the
ten (10)-year option term or (ii) the three (3)-year period measured from the
date of the Optionee's cessation of Board service.

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<PAGE>

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the EARLIER of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service.

B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. The
option shall remain so exercisable until the EARLIER or (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.

C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
of his or her outstanding automatic option grants. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock
at the time subject to each surrendered option (whether or not the Optionee
is otherwise at the time vested in those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be
paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator
shall be required in connection with such option surrender and cash
distribution.

D. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

IV. REMAINING TERMS

The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

25.

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ARTICLE SEVEN

MISCELLANEOUS

I. FINANCING

The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.

II. TAX WITHHOLDING

A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.

B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options or the vesting of their
shares. Such right may be provided to any such holder in either or both of the
following formats:

STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.

STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise

26.

<PAGE>

or share vesting triggering the Taxes) with an aggregate Fair Market Value equal
to the percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.

III. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan shall become effective immediately upon the Plan
Effective Date. However, the Salary Investment Option Grant Program shall not
be implemented until such time as the Primary Committee may deem appropriate.
Options may be granted under the Discretionary Option Grant or Automatic Option
Grant Program at any time on or after the Plan Effective Date. However, no
options granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders.
If such stockholder approval is not obtained within twelve (12) months after the
Plan Effective Date, then all options previously granted under this Plan shall
terminate and cease to be outstanding, and no further options shall be granted
and no shares shall be issued under the Plan.

B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12(g) Registration Date. All options
outstanding under the Predecessor Plan on the Section 12(g) Registration Date
shall be incorporated into the Plan at that time and shall be treated as
outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.

C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.

D. The Plan shall terminate upon the EARLIEST of (i) June 30, 2006,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such plan
termination, all outstanding option grants and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.

27.

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IV. AMENDMENT OF THE PLAN

A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.

B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess shares actually issued under those
programs shall be held in escrow until there is obtained stockholder approval of
an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such stockholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.

V. USE OF PROCEEDS

Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.

VI. REGULATORY APPROVALS

A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.

B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of

28.

<PAGE>

the Form S-8 registration statement for the shares of Common Stock issuable
under the Plan, and all applicable listing requirements of any stock exchange
(or the Nasdaq National Market, if applicable) on which Common Stock is then
listed for trading.

VII. NO EMPLOYMENT/SERVICE RIGHTS

Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.

29.

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APPENDIX

The following definitions shall be in effect under the Plan:

A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.

B. BOARD shall mean the Corporation's Board of Directors.

C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:

(i) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, or

(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A)
have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.

D. CODE shall mean the Internal Revenue Code of 1986, as amended.

E. COMMON STOCK shall mean the Corporation's common stock.

F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or

A-1.

<PAGE>

(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.

G. CORPORATION shall mean Advanced Fibre Communications, Inc., a Delaware
corporation, and its successors.

H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock option
grant in effect for non-employee Board members under Article Six of the Plan.

I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
grant program in effect under the Plan.

J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.

K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

L. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.

M. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal to
the closing selling price per share of Common Stock on the date in
question, as such price is reported on the Nasdaq National Market or
any successor system. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.

(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator to
be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.

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(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.

(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the
Plan Administrator, after taking into account such factors as it deems
appropriate.

N. HOSTILE TAKE-OVER shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.

O. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.

P. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:

(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or

(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.

Q. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the

A-3

<PAGE>

dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).

R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.

S. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.

T. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.

U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

V. PARTICIPANT shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.

W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for purposes of the Automatic Option Grant and Director
Fee Option Grant Programs, Permanent Disability or Permanently Disabled shall
mean the inability of the non-employee Board member to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration of
twelve (12) months or more.

X. PLAN shall mean the Corporation's 1996 Stock Incentive Plan, as set
forth in this document.

Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.

Z. PLAN EFFECTIVE DATE shall mean July 12, 1996, the date on which the
Plan was adopted by the Board.

A-4

<PAGE>

AA. PREDECESSOR PLAN shall mean the Corporation's pre-existing Stock
Option Plan in effect immediately prior to the Plan Effective Date hereunder.

AB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders and to administer the Salary Investment Option Grant
Program with respect to all eligible individuals.

AC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary reduction
grant program in effect under the Plan.

AD. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.

AE. SECTION 12 REGISTRATION DATE shall mean the date on which the Common
Stock is first registered under Section 12(g) of Section 16 of the 1934 Act.

AF. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.

AG. SERVICE shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.

AH. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.

AI. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

AJ. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
under the Plan.

AK. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

A-5

<PAGE>

AL. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.

AM. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.

AN. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

AO. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

AP. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.

A-6

<PAGE>

EXHIBIT 10.26

ADVANCED FIBRE COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT

RECITALS

A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent
or Subsidiary).

B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.

C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.

NOW, THEREFORE, it is hereby agreed as follows:

1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from
time to time during the option term specified in Paragraph 2 at the Exercise
Price.

2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.

3. LIMITED TRANSFERABILITY. If this option is designated an
Incentive Option in the Grant Notice, then this option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised,
during Optionee's lifetime, only by Optionee. However, if this option is
designated a Non-Statutory Option in the Grant Notice, then this option may,
in connection with the Optionee's estate plan, be assigned in whole or in part
during Optionee's lifetime to one or more members of the Optionee's immediate
family or to a trust established for the exclusive benefit of one or more such
family members. The assigned portion shall be exercisable only by the person or
persons who acquire a proprietary interest in the option pursuant to such
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for this option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.

<PAGE>

4. DATES OF EXERCISE. This option shall become exercisable for
the Option Shares in one or more installments as specified in the Grant
Notice. As the option becomes exercisable for such installments, those
installments shall accumulate and the option shall remain exercisable for the
accumulated installments until the Expiration Date or sooner termination of
the option term under Paragraph 5 or 6.

5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:

(i) Should Optionee cease to remain in Service for any
reason (other than death, Permanent Disability or Misconduct) while
this option is outstanding, then Optionee shall have a period of three
(3) months (commencing with the date of such cessation of Service)
during which to exercise this option, but in no event shall this
option be exercisable at any time after the Expiration Date.

(ii) Should Optionee die while this option is
outstanding, then the personal representative of Optionee's estate or
the person or persons to whom the option is transferred pursuant to
Optionee's will or in accordance with the laws of descent and
distribution shall have the right to exercise this option. Such right
shall lapse, and this option shall cease to be outstanding, upon the
EARLIER of (A) the expiration of the twelve (12)- month period
measured from the date of Optionee's death or (B) the Expiration Date.

(iii) Should Optionee cease Service by reason of
Permanent Disability while this option is outstanding, then Optionee
shall have a period of twelve (12) months (commencing with the date of
such cessation of Service) during which to exercise this option. In
no event shall this option be exercisable at any time after the
Expiration Date.

(iv) During the limited period of post-Service
exercisability, this option may not be exercised in the aggregate for
more than the number of vested Option Shares for which the option is
exercisable at the time of Optionee's cessation of Service. Upon the
expiration of such limited exercise period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be
outstanding for any vested Option Shares for which the option has not
been exercised. However, this option shall, immediately upon
Optionee's cessation of Service for any reason, terminate and cease to
be outstanding with respect to any Option Shares in which Optionee is
not otherwise at that time vested or for which this option is not
otherwise at that time exercisable.

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<PAGE>

(v) Should Optionee's Service be terminated for
Misconduct, then this option shall terminate immediately and cease to
remain outstanding.

6. SPECIAL ACCELERATION OF OPTION.

(a) This option, to the extent outstanding at the time of a
Corporate Transaction but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of
the Option Shares at the time subject to this option and may be exercised for
any or all of those Option Shares as fully-vested shares of Common Stock. No
such acceleration of this option, however, shall occur if and to the extent:
(i) this option is, in connection with the Corporate Transaction, either to
be assumed by the successor corporation (or parent thereof) or to be replaced
with a comparable option to purchase shares of the capital stock of the
successor corporation (or parent thereof) or (ii) this option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the unvested Option Shares at the time of
the Corporate Transaction (the excess of the Fair Market Value of those
Option Shares over the aggregate Exercise Price payable for such shares) and
provides for subsequent pay-out in accordance with the option
exercise/vesting schedule set forth in the Grant Notice. The determination
of option comparability under clause (i) shall be made by the Plan
Administrator, and such determination shall be final, binding and conclusive.

(b) Immediately following the Corporate Transaction, this
option shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof) in connection with
the Corporate Transaction.

(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately
after such Corporate Transaction, to apply to the number and class of
securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, PROVIDED the aggregate Exercise Price shall remain the same.

(d) This Agreement shall not in any way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.

7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be

3
<PAGE>

made to (i) the total number and/or class of securities subject to this
option and (ii) the Exercise Price in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.

8. STOCKHOLDER RIGHTS. The holder of this option shall not have
any stockholder rights with respect to the Option Shares until such person
shall have exercised the option, paid the Exercise Price and become a holder
of record of the purchased shares.

9. MANNER OF EXERCISING OPTION.

(a) In order to exercise this option with respect to all or
any part of the Option Shares for which this option is at the time
exercisable, Optionee (or any other person or persons exercising the option)
must take the following actions:

(i) Execute and deliver to the Corporation a
Notice of Exercise for the Option Shares for which the option is
exercised.

(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:

(A) cash or check made payable to the
Corporation;

(B) a promissory note payable to the Corporation,
but only to the extent authorized by the Plan Administrator in
accordance with Paragraph 13;

(C) shares of Common Stock held by Optionee (or
any other person or persons exercising the option) for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date; or

(D) to the extent the option is exercised for
vested Option Shares, through a special sale and remittance
procedure pursuant to which Optionee (or any other person or
persons exercising the option) shall concurrently provide
irrevocable written instructions (I) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased shares plus
all applicable Federal, state and local income and employment
taxes

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<PAGE>

required to be withheld by the Corporation by reason of
such exercise and (II) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.

Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to
the Corporation in connection with the option exercise.

(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if
other than Optionee) have the right to exercise this option.

(iv) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all Federal, state and local income and
employment tax withholding requirements applicable to the option
exercise.

(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.

10. COMPLIANCE WITH LAWS AND REGULATIONS.

(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.

(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.

5
<PAGE>

11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.

12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee's signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.

13. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a full-recourse
promissory note payable to the Corporation. The terms of any such promissory
note (including the interest rate, the requirements for collateral and the terms
of repayment) shall be established by the Plan Administrator in its sole
discretion.

14. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.

15. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of Delaware without
resort to that State's conflict-of-laws rules.

16. EXCESS SHARES. If the Option Shares covered by this Agreement
exceed, as of the Grant Date, the number of shares of Common Stock which may
without stockholder approval be issued under the Plan, then this option shall be
void with respect to those excess shares, unless stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.

17. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:

- This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is
exercised for one or more Option Shares: (A) more than three (3)
months after the

6
<PAGE>

date Optionee ceases to be an Employee for any reason other than
death or Permanent Disability or (B) more than twelve (12) months
after the date Optionee ceases to be an Employee by reason of
Permanent Disability.

- No installment under this option shall qualify for
favorable tax treatment as an Incentive Option if (and to the extent)
the aggregate Fair Market Value (determined at the Grant Date) of the
Common Stock for which such installment first becomes exercisable
hereunder would, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock or other
securities for which this option or any other Incentive Options
granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary)
first become exercisable during the same calendar year, exceed One
Hundred Thousand Dollars ($100,000) in the aggregate. Should such One
Hundred Thousand Dollar ($100,000) limitation be exceeded in any
calendar year, this option shall nevertheless become exercisable for
the excess shares in such calendar year as a Non-Statutory Option.

- Should the exercisability of this option be accelerated
upon a Corporate Transaction, then this option shall qualify for
favorable tax treatment as an Incentive Option only to the extent the
aggregate Fair Market Value (determined at the Grant Date) of the
Common Stock for which this option first becomes exercisable in the
calendar year in which the Corporate Transaction occurs does not, when
added to the aggregate value (determined as of the respective date or
dates of grant) of the Common Stock or other securities for which this
option or one or more other Incentive Options granted to Optionee
prior to the Grant Date (whether under the Plan or any other option
plan of the Corporation or any Parent or Subsidiary) first become
exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. Should the applicable One
Hundred Thousand Dollar ($100,000) limitation be exceeded in the
calendar year of such Corporate Transaction, the option may
nevertheless be exercised for the excess shares in such calendar year
as a Non-Statutory Option.

- Should Optionee hold, in addition to this option, one
or more other options to purchase Common Stock which become
exercisable for the first time in the same calendar year as this
option, then the foregoing limitations on the exercisability of such
options as Incentive Options shall be applied on the basis of the
order in which such options are granted.

18. LEAVE OF ABSENCE. The following provisions shall apply upon the
Optionee's commencement of an authorized leave of absence:

7
<PAGE>

(a) The exercise schedule in effect under the Grant Notice
shall be frozen as of the first day of the authorized leave, and this
option shall not become exercisable for any additional installments of
the Option Shares during the period Optionee remains on such leave.

(b) Should Optionee resume active Employee status within
sixty (60) days after the start date of the authorized leave, Optionee
shall, for purposes of the exercise schedule set forth in the Grant
Notice, receive Service credit for the entire period of such leave.
If Optionee does not resume active Employee status within such sixty
(60)-day period, then no Service credit shall be given for the period
of such leave.

(c) If the option is designated as an Incentive Option in
the Grant Notice, then the following additional provision shall apply:

- If the leave of absence continues for more than
ninety (90) days, then this option shall automatically convert to
a Non-Statutory Option under the Federal tax laws on the ninety-first
(91st) day of such leave, unless the Optionee's reemployment rights
are guaranteed by statute or by written agreement. Following
any such conversion of the option, all subsequent exercises of
such option, whether effected before or after Optionee's return
to active Employee status, shall result in an immediate taxable
event, and the Corporation shall be required to collect from
Optionee the Federal, state and local income and employment
withholding taxes applicable to such exercise.

(d) In no event shall this option become exercisable for
any additional Option Shares or otherwise remain outstanding if
Optionee does not resume Employee status prior to the Expiration Date
of the option term.

8
<PAGE>

EXHIBIT I

NOTICE OF EXERCISE

I hereby notify Advanced Fibre Communications, Inc. (the
"Corporation") that I elect to purchase shares of the Corporation's
Common Stock (the "Purchased Shares") at the option exercise price of $
per share (the "Exercise Price") pursuant to that certain option (the
"Option") granted to me under the Corporation's 1996 Stock Incentive Plan on
, 199 .

Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a
condition for exercise. Alternatively, I may utilize the special
broker-dealer sale and remittance procedure specified in my agreement to
effect payment of the Exercise Price.

___________________, 199__
Date

---------------------------------
Optionee

Address:
------------------------

Print name in exact manner
it is to appear on the
stock certificate: ---------------------------------

Address to which certificate
is to be sent, if different
from address above: ---------------------------------

Social Security Number: ---------------------------------

Employee Number: ---------------------------------

<PAGE>

APPENDIX

The following definitions shall be in effect under the Agreement:

A. AGREEMENT shall mean this Stock Option Agreement.

B. BOARD shall mean the Corporation's Board of Directors.

C. CODE shall mean the Internal Revenue Code of 1986, as amended.

D. COMMON STOCK shall mean the Corporation's common stock.

E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction, or

(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.

F. CORPORATION shall mean Advanced Fibre Communications, Inc., a Delaware
corporation.

G. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

H. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.

I. EXERCISE PRICE shall mean the exercise price per share as specified in
the Grant Notice.

J. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.

K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

A-1
<PAGE>

(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
the price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.

(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.

L. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.

M. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.

N. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.

O. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive
of all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of Optionee or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).

P. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.

Q. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.

A-2
<PAGE>

R. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.

S. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.

T. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

U. PERMANENT DISABILITY shall mean the inability of Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.

V. PLAN shall mean the Corporation's 1996 Stock Incentive Plan.

W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its administrative capacity under the Plan.

X. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee,
a non-employee member of the board of directors or a consultant or independent
advisor.

Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.

Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

A-3

<PAGE>

ADDENDUM
TO
STOCK OPTION AGREEMENT

The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Option Agreement dated 2- (the "Option
Agreement") by and between Advanced Fibre Communications, Inc. (the
"Corporation") and 1- ("Optionee") evidencing the stock option (the "Option")
granted on such date to Optionee under the terms of the Corporation's 1996 Stock
Incentive Plan, and such provisions shall be effective immediately. All
capitalized terms in this Addendum, to the extent not otherwise defined herein,
shall have the meanings assigned to them in the Option Agreement.

INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION

1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed or replaced with a comparable option in accordance
with Paragraph 6 of the Option Agreement, the Option shall not accelerate upon
the occurrence of that Corporate Transaction, and the Option shall accordingly
continue, over Optionee's period of Service after the Corporate Transaction, to
become exercisable for the Option Shares in one or more installments in
accordance with the provisions of the Option Agreement. However, immediately
upon an Involuntary Termination of Optionee's Service within twelve (12) months
following such Corporate Transaction, the Option (or any replacement grant), to
the extent outstanding at the time but not otherwise fully exercisable, shall
automatically accelerate so that the Option shall become immediately exercisable
for all the Option Shares at the time subject to the Option and may be exercised
for any or all of those Option Shares as fully vested shares. The Option shall
remain so exercisable until the EARLIER of (i) the Expiration Date or (ii) the
expiration of the one (1)-year period measured from the date of the Involuntary
Termination.

2. For purposes of this Addendum, an INVOLUNTARY TERMINATION shall
mean the termination of Optionee's Service by reason of:

(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or

<PAGE>

(C) a relocation of Optionee's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is
effected by the Corporation without Optionee's consent.

3. The provisions of Paragraph 1 of this Addendum shall govern the
period for which the Option is to remain exercisable following the Involuntary
Termination of Optionee's Service within twelve (12) months after the Corporate
Transaction and shall supersede any provisions to the contrary in Paragraph 5 of
the Option Agreement.

IN WITNESS WHEREOF, Advanced Fibre Communications, Inc. has caused
this Addendum to be executed by its duly-authorized officer, and Optionee has
executed this Addendum, all as of the Effective Date specified below.

ADVANCED FIBRE
COMMUNICATIONS, INC.

By:
-----------------------------
Title:
--------------------------

---------------------------------
1-, OPTIONEE

EFFECTIVE DATE: , 199
--------- --

<PAGE>

ADDENDUM
TO
STOCK OPTION AGREEMENT

INVOLUNTARY TERMINATION FOLLOWING
CHANGE IN CONTROL

1. The Option shall not accelerate upon the occurrence of a Change
in Control, and the Option shall, over Optionee's continued period of Service
after the Change in Control, continue to become exercisable for the Option
Shares in accordance with the provisions of the Option Agreement. However,
immediately upon an Involuntary Termination of Optionee's Service within twelve
(12) months following the Change in Control, the Option, to the extent
outstanding at the time but not otherwise fully exercisable, shall automatically
accelerate so that the Option shall become immediately exercisable for all the
Option Shares at the time subject to the Option and may be exercised for any or
all of those Option Shares as fully vested shares. The Option shall remain so
exercisable until the EARLIER of (i) the Expiration Date or (ii) the expiration
of the one (1)-year period measured from the date of the Involuntary
Termination.

2. For purposes of this Addendum, a CHANGE IN CONTROL shall be
deemed to occur in the event of a change in ownership or control of the
Corporation effected through either of the following transactions:

(i) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934, as amended) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not recommend
such stockholders to accept, or

<PAGE>

beginning of such period or (B) have been elected or nominated for election as
Board members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time such election or
nomination was approved by the Board.

3. For purposes of this Addendum, an INVOLUNTARY TERMINATION shall
mean the termination of Optionee's Service by reason of:

(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or

(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces Optionee's level of responsibility, (B) a
reduction in Optionee's level of compensation (including base salary, fringe
benefits and participation in any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of Optionee's
place of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
Optionee's consent.

4. The provisions of Paragraph 1 of this Addendum shall govern the
period for which the Option is to remain exercisable following the Involuntary
Termination of Optionee's Service within twelve (12) months after the Change in
Control and shall supersede any provisions to the contrary in Paragraph 5 of the
Option Agreement.

ADVANCED FIBRE COMMUNICATIONS, INC.

By:
-----------------------------
Title:
--------------------------

---------------------------------
1-, OPTIONEE

EFFECTIVE DATE: , 199
--------- --

<PAGE>

ADDENDUM
TO
STOCK OPTION AGREEMENT

LIMITED STOCK APPRECIATION RIGHT

1. Optionee is hereby granted a limited stock appreciation right
exercisable upon the following terms and conditions:

- Optionee shall have the unconditional right (exercisable at
any time during the thirty (30)-day period immediately following a Hostile Take-
Over) to surrender the Option to the Corporation, to the extent the Option is at
the time exercisable for vested shares of Common Stock. In return for the
surrendered Option, Optionee shall receive a cash distribution from the
Corporation in an amount equal to the excess of (A) the Take-Over Price of the
shares of Common Stock which are at the time vested under the surrendered Option
(or surrendered portion) over (B) the aggregate Exercise Price payable for such
shares.

- To exercise this limited stock appreciation right, Optionee must,
during the applicable thirty (30)-day exercise period, provide the Corporation
with written notice of the option surrender in which there is specified the
number of Option Shares as to which the Option is being surrendered. Such
notice must be accompanied by the return of Optionee's copy of the Option
Agreement, together with any written amendments to such Agreement. The cash
distribution shall be paid to Optionee within five (5) days following such
delivery date, and neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option surrender
and cash distribution. Upon receipt of such cash distribution, the Option shall
be cancelled with respect to the Option Shares for which the Option has been
surrendered, and Optionee shall cease to have any further right to acquire those
Option Shares under the Option Agreement. The Option shall, however, remain
outstanding and exercisable for the balance of the Option Shares (if any) in
accordance with the terms of the Option Agreement, and the Corporation shall
issue a new stock option agreement (substantially in the same form of the
surrendered Option Agreement) for those remaining Option Shares.

<PAGE>

- In no event may this limited stock appreciation right be
exercised when there is not a positive spread between the Fair Market Value of
the Option Shares and the aggregate Exercise Price payable for such shares.
This limited stock appreciation right shall in all events terminate upon the
expiration or sooner termination of the option term and may not be assigned or
transferred by Optionee.

2. For purposes of this Addendum, the following definitions shall be
in effect:

- A HOSTILE TAKE-OVER shall be deemed to occur in the event
any person or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities pursuant
to a tender or exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept.

- The TAKE-OVER PRICE per share shall be deemed to be equal to
the GREATER of (A) the Fair Market Value per Option Share on the option
surrender date or (B) the highest reported price per share of Common Stock paid
by the tender offeror in effecting the Hostile Take-Over. However, if the
surrendered Option is designated as an Incentive Option in the Grant Notice,
then the Take-Over Price shall not exceed the clause (A) price per share.

ADVANCED FIBRE COMMUNICATIONS, INC.

By:
-----------------------------
Title:
--------------------------

---------------------------------
1-, OPTIONEE

EFFECTIVE DATE: , 199
--------- --

<PAGE>

EXHIBIT 10.26.1

ADVANCED FIBRE COMMUNICATIONS, INC.
AUTOMATIC STOCK OPTION AGREEMENT

RECITALS

A. The Corporation has implemented an automatic option grant program
under the Corporation's 1996 Stock Incentive Plan pursuant to which eligible
non-employee members of the Corporation's Board will automatically receive
special option grants at designated intervals over their period of Board service
in order to provide such individuals with a meaningful incentive to continue to
serve as a member of the Board.

B. Optionee is an eligible non-employee Board member, and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the Plan
in connection with the automatic grant of a stock option to purchase shares of
the Corporation's Common Stock under the Plan.

C. The granted option is intended to be a non-statutory option which does
NOT meet the requirements of Section 422 of the Internal Revenue Code.

D. All capitalized terms in this Agreement, to the extent not otherwise
defined in the Agreement, shall have the meaning assigned to them in the
attached Appendix.

NOW, THEREFORE, it is hereby agreed as follows:

1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
of the Grant Date, a Non-Statutory Option to purchase up to the number of Option
Shares specified in the Grant Notice. The Option Shares shall be purchasable
from time to time during the option term specified in Paragraph 2 at the
Exercise Price.

2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5, 6 or 7.

3. LIMITED TRANSFERABILITY. This option may, in connection with the
Optionee's estate plan, be assigned in whole or in part during Optionee's
lifetime to one or more members of the Optionee's immediate family or to a trust
established for the exclusive benefit of one or more such family members. The
assigned portion shall be exercisable only by the person or persons who acquire
a proprietary interest in the option pursuant to such assignment. The terms
applicable to the assigned portion shall be the same as those in effect for this
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Corporation may deem appropriate. Should
the

<PAGE>

Optionee die while holding this option, then this option shall be transferred in
accordance with Optionee's will or the laws of descent and distribution.

4. EXERCISABILITY/VESTING.

(a) This option shall be immediately exercisable for any or all
of the Option Shares, whether or not the Option Shares are vested in accordance
with the Vesting Schedule set forth in the Grant Notice, and shall remain so
exercisable until the Expiration Date or the sooner termination of the option
term under Paragraph 5, 6 or 7.

(b) Optionee shall, in accordance with the Vesting Schedule set
forth in the Grant Notice, vest in the Option Shares in a series of installments
over his or her period of Board service. Vesting in the Option Shares may be
accelerated pursuant to the provisions of Paragraph 5, 6 or 7. In no event,
however, shall any additional Option Shares vest following Optionee's cessation
of service as a Board member.

5. CESSATION OF BOARD SERVICE. Should Optionee's service as a Board
member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:

(i) Should Optionee cease to serve as a Board member for
any reason (other than death or Permanent Disability) while holding this
option, then the period for exercising this option shall be reduced to a
twelve (12)-month period commencing with the date of such cessation of
Board service, but in no event shall this option be exercisable at any time
after the Expiration Date. During such limited period of exercisability,
this option may not be exercised in the aggregate for more than the number
of Option Shares (if any) in which Optionee is vested on the date of his or
her cessation of Board service. Upon the EARLIER of (i) the expiration of
such twelve (12)-month period or (ii) the specified Expiration Date, the
option shall terminate and cease to be exercisable with respect to any
vested Option Shares for which the option has not been exercised.

(ii) Should Optionee die during the twelve (12)-month period
following his or her cessation of Board service, then the personal
representative of Optionee's estate or the person or persons to whom the
option is transferred pursuant to Optionee's will or in accordance with the
laws of descent and distribution shall have the right to exercise this
option for any or all of the Option Shares in which Optionee is vested at
the time of Optionee's cessation of Board service (less any Option Shares
purchased by Optionee after such cessation of Board service but prior to
death). Such right of exercise shall terminate, and this option shall
accordingly cease to be exercisable for such vested Option Shares, upon the
EARLIER of (i) the expiration of the twelve (12)-month period measured from
the date of

<PAGE>

Optionee's cessation of Board service or (ii) the specified Expiration
Date of the option term.

(iii) Should Optionee cease service as a Board member by
reason of death or Permanent Disability, then all Option Shares at the time
subject to this option but not otherwise vested shall immediately vest in
full so that Optionee (or the personal representative of Optionee's estate
or the person or persons to whom the option is transferred upon Optionee's
death) shall have the right to exercise this option for any or all of the
Option Shares as fully-vested shares of Common Stock at any time prior to
the EARLIER of (i) the expiration of the twelve (12)-month period measured
from the date of Optionee's cessation of Board service or (ii) the
specified Expiration Date.

(iv) Upon Optionee's cessation of Board service for any
reason other than death or Permanent Disability, this option shall
immediately terminate and cease to be outstanding with respect to any and
all Option Shares in which Optionee is not otherwise at that time vested in
accordance with the normal Vesting Schedule set forth in the Grant Notice
or the special vesting acceleration provisions of Paragraph 6 or 7 below.

6. CORPORATE TRANSACTION.

(a) In the event of a Corporate Transaction, all Option Shares
at the time subject to this option but not otherwise vested shall automatically
vest so that this option shall, immediately prior to the specified effective
date for the Corporate Transaction, become fully exercisable for all of the
Option Shares at the time subject to this option and may be exercised for all or
any portion of such shares as fully-vested shares of Common Stock. Immediately
following the consummation of the Corporate Transaction, this option shall
terminate and cease to be outstanding except to the extent assumed by the
successor corporation or its parent company.

(b) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, PROVIDED the aggregate Exercise Price shall remain the same.

7. CHANGE IN CONTROL/HOSTILE TAKE-OVER.

(a) All Option Shares subject to this option at the time of a
Change in Control but not otherwise vested shall automatically vest so that this
option shall, immediately prior to the effective date of such Change in Control,
become fully exercisable

<PAGE>

for all of the Option Shares at the time subject to this option and may be
exercised for all or any portion of such shares as fully-vested shares of Common
Stock. This option shall remain exercisable for such fully-vested Option Shares
until the EARLIEST to occur of (i) the specified Expiration Date, (ii) the
sooner termination of this option in accordance with Paragraph 5 or 6 or (iii)
the surrender of this option under Paragraph 7(b).

(b) Optionee shall have an unconditional right (exercisable
during the thirty (30)-day period immediately following the consummation of a
Hostile Take-Over) to surrender this option to the Corporation in exchange for a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the Option Shares at the time subject to the surrendered
option (whether or not those Option Shares are otherwise at the time vested)
over (ii) the aggregate Exercise Price payable for such shares. This Paragraph
7(b) limited stock appreciation right shall in all events terminate upon the
expiration or sooner termination of the option term and may not be assigned or
transferred by Optionee.

(c) To exercise the Paragraph 7(b) limited stock appreciation
right, Optionee must, during the applicable thirty (30)-day exercise period,
provide the Corporation with written notice of the option surrender in which
there is specified the number of Option Shares as to which the option is being
surrendered. Such notice must be accompanied by the return of Optionee's copy
of this Agreement, together with any written amendments to such Agreement. The
cash distribution shall be paid to Optionee within five (5) days following such
delivery date, and neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option surrender
and cash distribution. Upon receipt of such cash distribution, this option
shall be cancelled with respect to the shares subject to the surrendered option
(or the surrendered portion), and Optionee shall cease to have any further right
to acquire those Option Shares under this Agreement. The option shall, however,
remain outstanding for the balance of the Option Shares (if any) in accordance
with the terms and provisions of this Agreement, and the Corporation shall
accordingly issue a new stock option agreement (substantially in the same form
as this Agreement) for those remaining Option Shares.

8. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder; provided, however, that the aggregate Exercise Price shall
remain the same.

9. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.

<PAGE>

10. MANNER OF EXERCISING OPTION.

(a) In order to exercise this option for all or any part of the
Option Shares for which the option is at the time exercisable, Optionee or, in
the case of exercise after Optionee's death, Optionee's executor, administrator,
heir or legatee, as the case may be, must take the following actions:

(i) To the extent the option is exercised for vested
Option Shares, the Secretary of the Corporation shall be provided with
written notice of the option exercise (the "Exercise Notice") in
substantially the form of Exhibit I attached hereto, in which there is
specified the number of vested Option Shares to be purchased under the
exercised option. To the extent that the option is exercised for one or
more unvested Option Shares, Optionee (or other person exercising the
option) shall deliver to the Secretary of the Corporation a Purchase
Agreement for those unvested Option Shares.

(ii) The Exercise Price for the purchased shares shall
be paid in one or more of the following alternative forms:

- cash or check made payable to the Corporation's
order; or

- shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise
Date; or

- to the extent the option is exercised for vested
Option Shares, through a special sale and remittance procedure pursuant
to which Optionee shall provide irrevocable written instructions (A)
to a Corporation-designated brokerage firm to effect the immediate sale
of the vested shares purchased under the option and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Exercise Price payable for
those shares plus the applicable Federal, state and local income taxes
required to be withheld by the Corporation by reason of such exercise
and (B) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete
the sale.

<PAGE>

(iii) Appropriate documentation evidencing the
right to exercise this option shall be furnished the Corporation if the
person or persons exercising the option is other than Optionee.

(iv) Appropriate arrangement must be made with the
Corporation for the satisfaction of all Federal, state and local income tax
withholding requirements applicable to the option exercise.

(b) Except to the extent the sale and remittance procedure
specified above is utilized in connection with the exercise of the option for
vested Option Shares, payment of the Exercise Price for the purchased shares
must accompany the Exercise Notice or Purchase Agreement delivered to the
Corporation in connection with the option exercise.

(c) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate or certificates representing the
purchased Option Shares. To the extent any such Option Shares are unvested, the
certificates for those Option Shares shall be endorsed with an appropriate
legend evidencing the Corporation's repurchase rights and may be held in escrow
with the Corporation until such shares vest.

(d) In no event may this option be exercised for fractional
shares.

11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.

12. COMPLIANCE WITH LAWS AND REGULATIONS.

(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
However, the Corporation shall use its best efforts to obtain all such
applicable approvals.

<PAGE>

13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.

14. CONSTRUCTION/GOVERNING LAW. This Agreement and the option
evidenced hereby are made and granted pursuant to the automatic option grant
program in effect under the Plan and are in all respects limited by and subject
to the express terms and provisions of that program. The interpretation,
performance, and enforcement of this Agreement shall be governed by the laws of
the State of Delaware without resort to that State's conflict-of-laws rules.

15. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee's signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.

<PAGE>

EXHIBIT I

NOTICE OF EXERCISE

I hereby notify Advanced Fibre Communications, Inc. (the
"Corporation") that I elect to purchase shares of the Corporation's
Common Stock (the "Purchased Shares") at the option exercise price of $
per share (the "Exercise Price") pursuant to that certain option (the "Option")
granted to me pursuant to the automatic option grant program under the
Corporation's 1996 Stock Incentive Plan on , 199 .

Concurrently with the delivery of this Exercise Notice to the
Secretary of the Corporation, I shall hereby pay to the Corporation the Exercise
Price for the Purchased Shares in accordance with the provisions of my agreement
with the Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker/dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price for
any Purchased Shares in which I am vested at the time of exercise.

, 199
- --------------- ---
Date

---------------------------------------
Optionee

Address:
-------------------------------

---------------------------------------
Print name in exact manner
it is to appear on the
stock certificate:
---------------------------------------

Address to which certificate
is to be sent, if different
from address above:
---------------------------------------

---------------------------------------
Social Security Number:
---------------------------------------

<PAGE>

APPENDIX

The following definitions shall be in effect under the Agreement:

A. AGREEMENT shall mean this Automatic Stock Option Agreement.

B. BOARD shall mean the Corporation's Board of Directors.

C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:

(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept, or

(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.

D. CODE shall mean the Internal Revenue Code of 1986, as amended.

E. COMMON STOCK shall mean the Corporation's common stock.

F. CORPORATE TRANSACTION shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:

(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction, or

A-1.

<PAGE>

(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.

G. CORPORATION shall mean Advanced Fibre Communications, Inc., a Delaware
corporation.

H. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 10 of the Agreement.

I. EXERCISE PRICE shall mean the exercise price payable per share as
specified in the Grant Notice.

J. EXPIRATION DATE shall mean the date on which the option term expires
as specified in the Grant Notice.

K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as the price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.

(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.

L. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.

M. GRANT NOTICE shall mean the Notice of Grant of Automatic Stock Option
accompanying this Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.

A-2.

<PAGE>

O. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.

P. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.

Q. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option.

R. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.

S. PERMANENT DISABILITY shall mean the inability of Optionee to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.

T. PLAN shall mean the Corporation's 1996 Stock Incentive Plan.

U. PURCHASE AGREEMENT shall mean the stock purchase agreement (in form
and substance satisfactory to the Corporation) which must be executed at the
time the option is exercised for unvested Option Shares and which will
accordingly (i) grant the Corporation the right to repurchase, at the Exercise
Price, any and all of those Option Shares in which Optionee is not otherwise
vested at the time of his or her cessation of service as a Board member and (ii)
preclude the sale, transfer or other disposition of any of the Option Shares
purchased under such agreement while those Option Shares remain subject to the
repurchase right.

V. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.

W. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting the
Hostile Take-Over.

A-3.

<PAGE>

X. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice, pursuant to which Optionee will vest in the Option Shares in one
or more installments over his or her period of Board service, subject to
acceleration in accordance with the provisions of the Agreement.

A-4.

<PAGE>

EXHIBIT 10.27

ADVANCED FIBRE COMMUNICATIONS, INC.
NOTICE OF GRANT OF STOCK OPTION

Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Advanced Fibre Communications, Inc. (the
"Corporation"):

OPTIONEE:_____________________________________________________________

GRANT DATE:___________________________________________________________

VESTING COMMENCEMENT DATE: __________________________________________

EXERCISE PRICE: $ _________________________________________ per share

NUMBER OF OPTION SHARES: ______________________________________ shares

EXPIRATION DATE: ______________________________________________________

TYPE OF OPTION: ___ Incentive Stock Option
___ Non-Statutory Stock Option

EXERCISE SCHEDULE: The Option shall become exercisable with respect
to twenty five percent (25%) of the Option Shares upon Optionee's
completion of one (1) year of Service measured from the Vesting
Commencement Date and shall become exercisable for the balance of the
Option Shares in thirty-six (36) successive equal monthly installments
upon Optionee's completion of each additional month of Service over
the forty-eight (48) month period measured from the first anniversary
of the Vesting Commencement Date. In no event shall the Option become
exercisable for any additional Option Shares after Optionee's
cessation of Service.

Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the Advanced Fibre Communications, Inc. 1996
Stock Incentive Plan (the "Plan"). Optionee further agrees to be bound by the
terms of the Plan and the terms of the Option as set forth in the Stock Option
Agreement attached hereto as Exhibit A.

<PAGE>

Optionee hereby acknowledges receipt of a copy of the official
prospectus for the Plan in the form attached hereto as Exhibit B. A copy of the
Plan is available upon request made to the Corporate Secretary at the
Corporation's principal offices.

NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Notice or in the
attached Stock Option Agreement or in the Plan shall confer upon Optionee any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining Optionee) or of Optionee, which
rights are hereby expressly reserved by each, to terminate Optionee's Service at
any time for any reason, with or without cause.

DEFINITIONS. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.

DATED: ___________________, 199__

ADVANCED FIBRE
COMMUNICATIONS, INC.

By:________________________________________

Title:_____________________________________

-------------------------------------------
OPTIONEE

Address:___________________________________

-------------------------------------------

ATTACHMENTS
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS

2
<PAGE>

EXHIBIT A

STOCK OPTION AGREEMENT

<PAGE>

EXHIBIT B

PLAN SUMMARY AND PROSPECTUS

<PAGE>

EXHIBIT 10.27.1

INITIAL GRANT

ADVANCED FIBRE COMMUNICATIONS, INC.
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION

Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Advanced Fibre Communications, Inc. (the
"Corporation"):

OPTIONEE:_____________________________________________________________

GRANT DATE:___________________________________________________________

EXERCISE PRICE: $___________________________________________per share

NUMBER OF OPTION SHARES: 20,000 shares

EXPIRATION DATE:______________________________________________________

TYPE OF OPTION: Non-Statutory Stock Option

DATE EXERCISABLE: Immediately Exercisable

VESTING SCHEDULE: The Option Shares shall initially be unvested and
subject to repurchase by the Corporation at the Exercise Price paid
per share. Optionee shall acquire a vested interest in, and the
Corporation's repurchase right shall accordingly lapse with respect
to, the Option Shares as follows: (i) one third of the Option Shares
upon the Optionee's completion of one year of service as a member of
the Corporation's Board of Directors (the "Board") period measured
from the Grant Date and (ii) the balance of the Option Shares in a
series of twenty-four (24) successive equal monthly installments upon
the Optionee's completion of each additional month of Board service
over the twenty-four (24)-month period measured from the first
anniversary of the Grant Date. In no event shall any additional
Option Shares vest after Optionee's cessation of Board service.

Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the automatic option grant program under the
Advanced Fibre Communications, Inc. 1996 Stock Incentive Plan (the "Plan").
Optionee further agrees to be bound by the terms of the Plan and the terms of
the Option as set forth in the Automatic Stock Option Agreement attached hereto
as Exhibit A.

<PAGE>

REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION
SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERABLE AND
SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION, AT THE EXERCISE PRICE PAID
PER SHARE, UPON OPTIONEE'S TERMINATION OF SERVICE AS A MEMBER OF THE
CORPORATION'S BOARD OF DIRECTORS. THE TERMS AND CONDITIONS OF SUCH REPURCHASE
RIGHT SHALL BE SPECIFIED IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION
EXERCISE.

NO IMPAIRMENT OF RIGHTS. Nothing in this Notice or in the attached
Automatic Stock Option Agreement or the Plan shall interfere with or otherwise
restrict in any way the rights of the Corporation or the Corporation's
stockholders to remove Optionee from the Board at any time in accordance with
the provisions of applicable law.

DEFINITIONS. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.

DATED: ______________________, 199

ADVANCED FIBRE COMMUNICATIONS, INC.

By:_____________________________________

Title:__________________________________

__________________________________
OPTIONEE

Address:________________________________

ATTACHMENTS
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS

<PAGE>

EXHIBIT A

AUTOMATIC STOCK OPTION AGREEMENT

<PAGE>

EXHIBIT B

PLAN SUMMARY AND PROSPECTUS

<PAGE>

ANNUAL GRANT

ADVANCED FIBRE COMMUNICATIONS, INC.
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION

Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Advanced Fibre Communications, Inc. (the
"Corporation"):

OPTIONEE:_____________________________________________________________

GRANT DATE:___________________________________________________________

EXERCISE PRICE: $ _________________________________________ per share

NUMBER OF OPTION SHARES: 6,000 shares

EXPIRATION DATE:______________________________________________________

TYPE OF OPTION: Non-Statutory Stock Option

DATE EXERCISABLE: Immediately Exercisable

<PAGE>

DEFINITIONS. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.

DATED: _____________________, 199__

ADVANCED FIBRE COMMUNICATIONS, INC.

By:_____________________________________

Title:__________________________________

__________________________________
OPTIONEE

Address:________________________________

________________________________

ATTACHMENTS
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS

<PAGE>

EXHIBIT A

AUTOMATIC STOCK OPTION AGREEMENT

<PAGE>

EXHIBIT B

PLAN SUMMARY AND PROSPECTUS

<PAGE>

EXHIBIT 10.28

ADVANCED FIBRE COMMUNICATIONS, INC.

STOCK ISSUANCE AGREEMENT

AGREEMENT made as of this _____ day of __________________ 19 ___,
by and between Advanced Fibre Communications, Inc., a Delaware corporation,
and ________________________________, a Participant in the Corporation's 1996
Stock Incentive Plan.

All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.

I. PURCHASE OF SHARES

1. PURCHASE. Participant hereby purchases ____________ shares of
Common Stock (the "Purchased Shares") pursuant to the provisions of the Stock
Issuance Program at the purchase price of $______ per share (the "Purchase
Price").

2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Participant shall pay the Purchase Price for the Purchased
Shares in cash or check payable to the Corporation and shall deliver a
duly-executed blank Assignment Separate from Certificate (in the form
attached hereto as Exhibit I) with respect to the Purchased Shares.

3. STOCKHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right, Participant (or any successor in interest)
shall have all the rights of a stockholder (including voting, dividend and
liquidation rights) with respect to the Purchased Shares, subject, however,
to the transfer restrictions of this Agreement.

4. COMPLIANCE WITH LAW. Under no circumstances shall shares of
Common Stock or other assets be issued or delivered to Participant pursuant
to the provisions of this Agreement unless, in the opinion of counsel for the
Corporation or its successors, there shall have been compliance with all
applicable requirements of Federal and state securities laws, all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is at the time listed for trading and
all other requirements of law or of any regulatory bodies having jurisdiction
over such issuance and delivery.

<PAGE>

A. TRANSFER RESTRICTIONS

1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Participant shall not transfer, assign, encumber or otherwise dispose of any
of the Purchased Shares which are subject to the Repurchase Right.

2. RESTRICTIVE LEGEND. The stock certificate for the Purchased
Shares shall be endorsed with the following restrictive legend:

"The shares represented by this certificate are unvested and
subject to certain repurchase rights granted to the Corporation and
accordingly may not be sold, assigned, transferred, encumbered, or in
any manner disposed of except in conformity with the terms of a written
agreement dated ____________, 199__ between the Corporation and the
registered holder of the shares (or the predecessor in interest to the
shares). A copy of such agreement is maintained at the Corporation's
principal corporate offices."

3. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound
by the provisions of this Agreement and that the transferred shares are
subject to the Repurchase Right to the same extent such shares would be so
subject if retained by Participant.

B. REPURCHASE RIGHT

1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the ninety (90)-day
period following the date Participant ceases for any reason to remain in
Service, to repurchase at the Purchase Price all or any portion of the
Purchased Shares in which Participant is not, at the time of his or her
cessation of Service, vested in accordance with the Vesting Schedule (such
shares to be hereinafter referred to as the "Unvested Shares").

2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested
Shares prior to the expiration of the ninety (90)-day exercise period. The
notice shall indicate the number of Unvested Shares to be repurchased and the
date on which the repurchase is to be effected, such date to be not more than
thirty (30) days after the date of such notice. The certificates
representing the Unvested Shares to be repurchased shall be delivered to the
Corporation prior to the close of business on the date specified for the
repurchase. Concurrently with the receipt of such stock certificates, the
Corporation shall pay to Owner, in cash or cash

<PAGE>

equivalent (including the cancellation of any purchase-money indebtedness),
an amount equal to the Purchase Price previously paid for the Unvested Shares
to be repurchased from Owner.

3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not
timely exercised under Paragraph C.2. In addition, the Repurchase Right
shall terminate and cease to be exercisable with respect to any and all
Purchased Shares in which Participant vests in accordance with the following
Vesting Schedule:

(i) Upon Participant's completion of one (1) year of Service
measured from ______________, 199__, Participant shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to,
twenty-five percent (25%) of the Purchased Shares.

(ii) Participant shall acquire a vested interest in, and the
Repurchase Right shall lapse with respect to, the remaining Purchased
Shares in a series of thirty six (36) successive equal monthly
installments upon Participant's completion of each additional month
of Service over the thirty-six (36)-month period measured from the
initial vesting date under subparagraph (i) above.

4. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular
cash dividend) which is by reason of any Recapitalization distributed with
respect to the Purchased Shares shall be immediately subject to the
Repurchase Right, but only to the extent the Purchased Shares are at the time
covered by such right. Appropriate adjustments to reflect such distribution
shall be made to the number and/or class of securities subject to this
Agreement and to the price per share to be paid upon the exercise of the
Repurchase Right in order to reflect the effect of any such Recapitalization
upon the Corporation's capital structure; PROVIDED, however, that the
aggregate purchase price shall remain the same.

5. CORPORATE TRANSACTION.

(a) Immediately prior to the consummation of any Corporate
Transaction, the Repurchase Right shall automatically lapse in its entirety
and the Purchased Shares shall vest in full, except to the extent the
Repurchase Right is to be assigned to the successor corporation (or parent
thereof) in connection with the Corporate Transaction.

(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to the new capital
stock or other property (including any cash payments) received in exchange
for the Purchased Shares in consummation of the Corporate Transaction, but
only to the extent the Purchased Shares

<PAGE>

are at the time covered by such right. Appropriate adjustments shall be made
to the price per share payable upon exercise of the Repurchase Right to
reflect the effect of the Corporate Transaction upon the Corporation's
capital structure; PROVIDED, however, that the aggregate purchase price shall
remain the same.

C. SPECIAL TAX ELECTION

1. SECTION 83(B) ELECTION . Under Code Section 83, the excess of
the fair market value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For
this purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase
Right. Participant may elect under Code Section 83(b) to be taxed at the
time the Purchased Shares are acquired, rather than when and as such
Purchased Shares cease to be subject to such forfeiture restrictions. Such
election must be filed with the Internal Revenue Service within thirty (30)
days after the date of this Agreement. Even if the fair market value of the
Purchased Shares on the date of this Agreement equals the Purchase Price paid
(and thus no tax is payable), the election must be made to avoid adverse tax
consequences in the future. THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS
EXHIBIT II HERETO. PARTICIPANT UNDERSTANDS THAT FAILURE TO MAKE THIS FILING
WITHIN THE APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION
OF ORDINARY INCOME AS THE FORFEITURE RESTRICTIONS LAPSE.

2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A
TIMELY ELECTION UNDER CODE SECTION 83(B), EVEN IF PARTICIPANT REQUESTS THE
CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.

D. GENERAL PROVISIONS

1. ASSIGNMENT. The Corporation may assign the Repurchase Right to
any person or entity selected by the Board, including (without limitation)
one or more stockholders of the Corporation.

2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon Participant any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict
in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining Participant) or of Participant, which rights are
hereby expressly reserved by each, to terminate Participant's Service at any
time for any reason, with or without cause.

<PAGE>

3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, registered or certified, postage prepaid and
properly addressed to the party entitled to such notice at the address
indicated below such party's signature line on this Agreement or at such
other address as such party may designate by ten (10) days advance written
notice under this paragraph to all other parties to this Agreement.

4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right shall not constitute a waiver of any other
repurchase rights that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Participant. No
waiver of any breach or condition of this Agreement shall be deemed to be a
waiver of any other or subsequent breach or condition, whether of like or
different nature.

5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such
time, the person from whom such shares are to be repurchased shall no longer
have any rights as a holder of such shares (other than the right to receive
payment of such consideration in accordance with this Agreement). Such
shares shall be deemed purchased in accordance with the applicable provisions
hereof, and the Corporation shall be deemed the owner and holder of such
shares, whether or not the certificates therefor have been delivered as
required by this Agreement.

E. MISCELLANEOUS PROVISIONS

1. PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect
one or more of the obligations or restrictions imposed on either Participant
or the Purchased Shares pursuant to the provisions of this Agreement.

2. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and
shall in all respects be construed in conformity with the terms of the Plan.

3. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without
resort to that State's conflict-of-laws rules.

4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.

<PAGE>

5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Participant, Participant's assigns and the
legal representatives, heirs and legatees of Participant's estate, whether or
not any such person shall have become a party to this Agreement and have
agreed in writing to join herein and be bound by the terms hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.

ADVANCED FIBRE COMMUNICATIONS, INC.

By: ___________________________________________

Title: ________________________________________

Address: _______________________________________

________________________________________________

________________________________________________
PARTICIPANT

Address: _______________________________________

________________________________________________

<PAGE>

SPOUSAL ACKNOWLEDGMENT

The undersigned spouse of the Participant has read and hereby
approves the foregoing Stock Issuance Agreement. In consideration of the
Corporation's granting the Participant the right to acquire the Purchased
Shares in accordance with the terms of such Agreement, the undersigned hereby
agrees to be irrevocably bound by all the terms of such Agreement, including
(without limitation) the right of the Corporation (or its assigns) to
purchase any Purchased Shares in which the Participant is not vested at the
time of his or her termination of Service.

________________________________________________
PARTICIPANT'S SPOUSE

Address: ______________________________________

______________________________________

<PAGE>

EXHIBIT I

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED _________________________ hereby sell(s),
assign(s) and transfer(s) unto Advanced Fibre Communications, Inc. (the
"Corporation"), ____________________ (_______) shares of the Common Stock of
the Corporation standing in his or her name on the books of the Corporation
represented by Certificate No. ____________________ herewith and do(es)
hereby irrevocably constitute and appoint ______________________________
Attorney to transfer the said stock on the books of the Corporation with full
power of substitution in the premises.

Dated: _______________ , 199___.

Signature ___________________________________________

INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued
stock certificate. The purpose of this assignment is to enable the
Corporation to exercise the Repurchase Right without requiring additional
signatures on the part of Participant.

<PAGE>

EXHIBIT II

SECTION 83(B) TAX ELECTION

This statement is being made under Section 83(b) of the Internal Revenue
Code, pursuant to Treas. Reg. Section 1.83-2.

(1) The taxpayer who performed the services is:

Name:
Address:
Taxpayer Ident. No.:

(2) The property with respect to which the election is being made is
______________ shares of the common stock of Advanced Fibre
Communications, Inc.

(3) The property was issued on __________________ , 199___.

(4) The taxable year in which the election is being made is the calendar year
199___.

(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of
annual and monthly installments over a four (4)-year period ending
on ___________________________________.

(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $________________ per share.

(7) The amount paid for such property is $______________ per share.

(8) A copy of this statement was furnished to Advanced Fibre Communications,
Inc. for whom taxpayer rendered the services underlying the transfer
of property.

(9) This statement is executed on ________________________, 199__.

______________________________ _________________________________________
Spouse (if any) Taxpayer

THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE CENTER WITH
WHICH TAXPAYER FILES HIS OR HER FEDERAL INCOME TAX RETURNS AND MUST BE MADE
WITHIN THIRTY (30) DAYS AFTER THE EXECUTION DATE OF THE STOCK ISSUANCE
AGREEMENT. THIS FILING SHOULD BE MADE BY REGISTERED OR CERTIFIED MAIL,
RETURN RECEIPT REQUESTED. PARTICIPANT MUST RETAIN TWO (2) COPIES OF THE
COMPLETED FORM FOR FILING WITH HIS OR HER FEDERAL AND STATE TAX RETURNS FOR
THE CURRENT TAX YEAR AND AN ADDITIONAL COPY FOR HIS OR HER RECORDS.

<PAGE>

APPENDIX

The following definitions shall be in effect under the Agreement:

A. AGREEMENT shall mean this Stock Issuance Agreement.

B. BOARD shall mean the Corporation's Board of Directors.

C. CODE shall mean the Internal Revenue Code of 1986, as amended.

D. COMMON STOCK shall mean the Corporation's common stock.

E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions:

(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or

(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.

F. CORPORATION shall mean Advanced Fibre Communications, Inc., a
Delaware corporation.

G. OWNER shall mean Participant and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.

H. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

I. PARTICIPANT shall mean the person to whom the Purchased Shares are
issued under the Stock Issuance Program.

A-1.

<PAGE>

J. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, PROVIDED AND ONLY IF Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness
incurred by Participant in connection with the acquisition of the Purchased
Shares.

K. PLAN shall mean the Corporation's 1996 Stock Incentive Plan.

L. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its administrative capacity under the Plan.

M. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.

N. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.

O. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.

P. REORGANIZATION shall mean any of the following transactions:

(i) a merger or consolidation in which the Corporation is not
the surviving entity,

(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,

(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from the
persons holding those securities immediately prior to the merger, or

(iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company
structure.

Q. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article C.

A-2.

<PAGE>

R. SERVICE shall mean the Participant's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the
work to be performed and the manner and method of performance, a non-employee
member of the board of directors or a consultant.

S. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance Program under
the Plan.

T. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.

U. VESTING SCHEDULE shall mean the vesting schedule specified in
Paragraph C.3, subject to the acceleration provisions of Paragraph C.5.

V. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph C.1.

A-3.

<PAGE>

ADDENDUM
TO
STOCK ISSUANCE AGREEMENT

The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Issuance Agreement dated 2- (the "Issuance
Agreement") by and between Advanced Fibre Communications, Inc. (the
"Corporation") and 1- ("Participant") evidencing the stock issuance on such date
to Participant under the terms of the Corporation's 1996 Stock Incentive Plan,
and such provisions shall be effective immediately. All capitalized terms in
this Addendum, to the extent not otherwise defined herein, shall have the
meanings assigned to such terms in the Issuance Agreement.

INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION

1. To the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with a Corporate Transaction, no
accelerated vesting of the Purchased Shares shall occur upon such Corporate
Transaction, and the Repurchase Right shall continue to remain in full force and
effect in accordance with the provisions of the Issuance Agreement. The
Participant shall, over Participant's continued period of Service after the
Corporate Transaction, continue to vest in the Purchased Shares in accordance
with the provisions of the Issuance Agreement. However, immediately upon an
Involuntary Termination of Participant's Service within twelve (12) months
following the Corporate Transaction, the Repurchase Right shall terminate
automatically and all the Purchased Shares shall vest in full.

2. For purposes of this Addendum, the following definitions shall be
in effect:

An INVOLUNTARY TERMINATION shall mean the termination of
Participant's Service by reason of:

(i) Participant's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or

(ii) Participant's voluntary resignation following (A) a
change in Participant's position with the Corporation (or Parent or
Subsidiary employing Participant) which materially reduces Participant's
level of responsibility, (B) a reduction in Participant's level of
compensation (including base salary, fringe benefits and participation in
any corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of Participant's place of
employment by more than

<PAGE>

fifty (50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without Participant's consent.

MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Participant, any unauthorized use or disclosure by the
Participant of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by the
Participant adversely affecting the business or affairs of the Corporation (or
any Parent or Subsidiary) in a material manner. The foregoing definition shall
not be deemed to be inclusive of all the acts or omissions which the Corporation
(or any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of the Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).

IN WITNESS WHEREOF, Advanced Fibre Communications, Inc. has caused
this Addendum to be executed by its duly-authorized officer, and Participant has
executed this Addendum, all as of the Effective Date specified below.

ADVANCED FIBRE COMMUNICATIONS, INC.

By:
-----------------------------------------
Title:
--------------------------------------

---------------------------------------------
1- , PARTICIPANT

EFFECTIVE DATE: , 199
--------- --

<PAGE>

ADDENDUM
TO
STOCK ISSUANCE AGREEMENT

INVOLUNTARY TERMINATION FOLLOWING
CHANGE IN CONTROL

1. No accelerated vesting of the Purchased Shares shall occur upon a
Change in Control, and the Repurchase Right shall continue to remain in full
force and effect in accordance with the provisions of the Issuance Agreement.
The Participant shall, over Participant's continued period of Service after the
Change in Control, continue to vest in the Purchased Shares in accordance with
the provisions of the Issuance Agreement. However, immediately upon an
Involuntary Termination of Participant's Service within twelve (12) months
following the Change in Control, the Repurchase Right shall terminate
automatically and all the Purchased Shares shall vest in full.

2. For purposes of this Addendum, the following definitions shall be
in effect:

A CHANGE IN CONTROL shall be deemed to occur in the event of a
change in ownership or control of the Corporation effected through either of the
following transactions:

(i) the direct or indirect acquisition by any person
or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept, or

<PAGE>

(ii) a change in the composition of the Board over a period
of thirty-six (36) months or less such that a majority of the Board members
ceases by reason of one or more contested elections for Board membership,
to be comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.

An INVOLUNTARY TERMINATION shall mean the termination of
Participant's Service by reason of:

(i) Participant's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or

<PAGE>

ADVANCED FIBRE COMMUNICATIONS, INC.

By:
-----------------------------------------
Title:
--------------------------------------

---------------------------------------------
1- , PARTICIPANT

EFFECTIVE DATE: , 199
--------- --

<PAGE>

EXHIBIT 10.29

ADVANCED FIBRE COMMUNICATIONS, INC.
EMPLOYEE STOCK PURCHASE PLAN
(all share numbers have been adjusted to reflect
a two-for-one stock split effected in August 1996)

I. PURPOSE OF THE PLAN

This Employee Stock Purchase Plan is intended to promote the
interests of Advanced Fibre Communications, Inc. by providing eligible
employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.

Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.

II. ADMINISTRATION OF THE PLAN

The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with
the requirements of Code Section 423. Decisions of the Plan Administrator
shall be final and binding on all parties having an interest in the Plan.

III. STOCK SUBJECT TO PLAN

A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of
Common Stock purchased on the open market. The maximum number of shares of
Common Stock which may be issued over the term of the Plan shall not exceed
One Million Five Hundred Thousand (1,500,000) shares.

B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as
a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.

<PAGE>

IV. OFFERING PERIODS

A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.

B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date. The initial offering period shall commence at the Effective Time
and terminate on the last business day in July 1998. The next offering
period shall commence on the first business day in August 1998, and
subsequent offering periods shall commence as designated by the Plan
Administrator.

C. Each offering period shall be comprised of a series of one or
more successive Purchase Intervals. Purchase Intervals shall run from the
first business day in February each year to the last business day in July of
the same year and from the first business day in August each year to the last
business day in January of the following year. However, the initial Purchase
Interval in effect under the initial offering period shall commence at the
Effective Time and terminate on the last business day in January 1997.

D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value
per share of Common Stock on the start date of that offering period, then
that offering period shall automatically terminate with the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day. The new offering period shall have a
duration of twenty four (24) months, unless a shorter duration is established
by the Plan Administrator within five (5) business days following the start
date of that offering period.

V. ELIGIBILITY

A. Each individual who is an Eligible Employee on the start date
of any offering period under the Plan may enter that offering period on such
start date or on any subsequent Semi-Annual Entry Date within that offering
period, provided he or she remains an Eligible Employee.

B. Each individual who first becomes an Eligible Employee after
the start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or
she is an Eligible Employee.

C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.

<PAGE>

D. To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms prescribed by the
Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization) and file such forms with the Plan Administrator (or
its designate) on or before his or her scheduled Entry Date.

VI. PAYROLL DEDUCTIONS

A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Cash Earnings paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
ten percent (10%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:

(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with the
Plan Administrator. The Participant may not, however, effect more than
one (1) such reduction per Purchase Interval.

(ii) The Participant may, prior to the commencement of
any new Purchase Interval within the offering period, increase the
rate of his or her payroll deduction by filing the appropriate form
with the Plan Administrator. The new rate (which may not exceed the
ten percent (10%) maximum) shall become effective on the start date of
the first Purchase Interval following the filing of such form.

B. Payroll deductions shall begin on the first pay day following
the Participant's Entry Date into the offering period and shall (unless
sooner terminated by the Participant) continue through the pay day ending
with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account
under the Plan, but no interest shall be paid on the balance from time to
time outstanding in such account. The amounts collected from the Participant
shall not be held in any segregated account or trust fund and may be
commingled with the general assets of the Corporation and used for general
corporate purposes.

C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.

D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within
the same or a different offering period.

<PAGE>

VII. PURCHASE RIGHTS

A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the
right to purchase shares of Common Stock, in a series of successive
installments over the remainder of such offering period, upon the terms set
forth below. The Participant shall execute a stock purchase agreement
embodying such terms and such other provisions (not inconsistent with the
Plan) as the Plan Administrator may deem advisable.

Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of stock of
the Corporation or any Corporate Affiliate.

B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than Participants whose
payroll deductions have previously been refunded pursuant to the Termination
of Purchase Right provisions below) on each such Purchase Date. The purchase
shall be effected by applying the Participant's payroll deductions for the
Purchase Interval ending on such Purchase Date to the purchase of whole
shares of Common Stock at the purchase price in effect for the Participant
for that Purchase Date.

C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall not be less than eighty-five percent (85%)
of the LOWER of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date.

D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for
the Participant for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed One Thousand Five Hundred (1,500) shares, subject to
periodic adjustments in the event of certain changes in the Corporation's
capitalization.

E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied
to the purchase of shares of Common Stock on any Purchase Date because they
are not sufficient

<PAGE>

to purchase a whole share of Common Stock shall be held for the purchase of
Common Stock on the next Purchase Date. However, any payroll deductions not
applied to the purchase of Common Stock by reason of the limitation on the
maximum number of shares purchasable by the Participant on the Purchase Date
shall be promptly refunded.

F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:

(i) A Participant may, at any time prior to the next
scheduled Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the
Plan Administrator (or its designate), and no further payroll
deductions shall be collected from the Participant with respect to the
terminated purchase right. Any payroll deductions collected during
the Purchase Interval in which such termination occurs shall, at the
Participant's election, be immediately refunded or held for the
purchase of shares on the next Purchase Date. If no such election is
made at the time such purchase right is terminated, then the payroll
deductions collected with respect to the terminated right shall be
refunded as soon as possible.

(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted.
In order to resume participation in any subsequent offering period,
such individual must re-enroll in the Plan (by making a timely filing
of the prescribed enrollment forms) on or before his or her scheduled
Entry Date into that offering period.

(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in
status) while his or her purchase right remains outstanding, then that
purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the Purchase Interval in which
the purchase right so terminates shall be immediately refunded.
However, should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then the Participant
shall have the right, exercisable up until the last business day of
the Purchase Interval in which such leave commences, to (a) withdraw
all the payroll deductions collected to date on his or her behalf for
that Purchase Interval or (b) have such funds held for the purchase of
shares on his or her behalf on the next scheduled Purchase Date. In
no event, however, shall any further payroll deductions be collected
on the Participant's behalf during such leave. Upon the Participant's
return to active service, his or her payroll deductions under the Plan
shall automatically resume at the rate in effect at the time the leave
began, unless the Participant withdraws from the Plan prior to his or
her return.

<PAGE>

G. CORPORATE TRANSACTION. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Interval in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share not
less than eighty-five percent (85%) of the LOWER of (i) the Fair Market Value
per share of Common Stock on the Participant's Entry Date into the offering
period in which such Corporate Transaction occurs or (ii) the Fair Market
Value per share of Common Stock immediately prior to the effective date of
such Corporate Transaction. However, the applicable limitation on the number
of shares of Common Stock purchasable per Participant shall continue to apply
to any such purchase.

The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice,
have the right to terminate their outstanding purchase rights prior to the
effective date of the Corporate Transaction.

H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase
rights on any particular date exceed the number of shares then available for
issuance under the Plan, the Plan Administrator shall make a pro-rata
allocation of the available shares on a uniform and nondiscriminatory basis,
and the payroll deductions of each Participant, to the extent in excess of
the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.

I. ASSIGNABILITY. The purchase right shall be exercisable only by
the Participant and shall not be assignable or transferable by the
Participant.

J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.

VIII. ACCRUAL LIMITATIONS

A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if
and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan
and (ii) similar rights accrued under other employee stock purchase plans
(within the meaning of Code Section 423) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than
Twenty-Five Thousand Dollars ($25,000) worth of stock of the Corporation or
any Corporate Affiliate (determined on the basis of the Fair Market Value per
share on the date or dates such rights are granted) for each calendar year
such rights are at any time outstanding.

<PAGE>

B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:

(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on
each successive Purchase Date during the offering period on which such
right remains outstanding.

(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one (1) or more other purchase rights at a rate
equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the
date or dates of grant) for each calendar year such rights were at any
time outstanding.

C. If by reason of such accrual limitations, any purchase right of
a Participant does not accrue for a particular Purchase Interval, then the
payroll deductions which the Participant made during that Purchase Interval
with respect to such purchase right shall be promptly refunded.

D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.

IX. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan was adopted by the Board on July 12, 1996 and shall
become effective at the Effective Time, PROVIDED no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be
issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration
of the shares of Common Stock issuable under the Plan on a Form S-8
registration statement filed with the Securities and Exchange Commission),
all applicable listing requirements of any stock exchange (or the Nasdaq
National Market, if applicable) on which the Common Stock is listed for
trading and all other applicable requirements established by law or
regulation. In the event such stockholder approval is not obtained, or such
compliance is not effected, within twelve (12) months after the date on which
the Plan is adopted by the Board, the Plan shall terminate and have no
further force or effect, and all sums collected from Participants during the
initial offering period hereunder shall be refunded.

<PAGE>

B. Unless sooner terminated by the Board, the Plan shall terminate
upon the EARLIEST of (i) the last business day in July 2006, (ii) the date on
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.

X. AMENDMENT OF THE PLAN

The Board may alter, amend, suspend or discontinue the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Board may not, without the approval of the
Corporation's stockholders, (i) increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in
the event of certain changes in the Corporation's capitalization, (ii) alter
the purchase price formula so as to reduce the purchase price payable for the
shares of Common Stock purchasable under the Plan or (iii) modify the
eligibility requirements for participation in the Plan.

XI. GENERAL PROVISIONS

A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation.

B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for
any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing
such person) or of the Participant, which rights are hereby expressly
reserved by each, to terminate such person's employment at any time for any
reason, with or without cause.

C. The provisions of the Plan shall be governed by the laws of the
State of Delaware without resort to that State's conflict-of-laws rules.

<PAGE>

SCHEDULE A

CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME

Advanced Fibre Communications, Inc.

<PAGE>

APPENDIX

The following definitions shall be in effect under the Plan:

A. BOARD shall mean the Corporation's Board of Directors.

B. CASH EARNINGS shall mean the (i) regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus
(ii) any pre-tax contributions made by the Participant to any Code Section
401(k) salary deferral plan or any Code Section 125 cafeteria benefit program
now or hereafter established by the Corporation or any Corporate Affiliate
plus (iii) all overtime payments, bonuses, commissions, profit-sharing
distributions and other incentive-type payments. Cash Earnings, however,
shall NOT include any contributions (other than Code Section 401(k) or Code
Section 125 contributions) made on the Participant's behalf by the
Corporation or any Corporate Affiliate to any employee benefit or welfare
plan now or hereafter established.

C. CODE shall mean the Internal Revenue Code of 1986, as amended.

D. COMMON STOCK shall mean the Corporation's common stock.

E. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.

F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation.

G. CORPORATION shall mean Advanced Fibre Communications, Inc., a
Delaware corporation, and any corporate successor to all or substantially all
of the assets or voting stock of Advanced Fibre Communications, Inc. which
shall by appropriate action adopt the Plan.

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<PAGE>

H. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and finally priced. Any Corporate Affiliate which
becomes a Participating Corporation after such Effective Time shall designate
a subsequent Effective Time with respect to its employee-Participants.

I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly
expected to render more than twenty (20) hours of service per week for more
than five (5) months per calendar year for earnings considered wages under
Code Section 3401(a).

J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan.
The earliest Entry Date under the Plan shall be the Effective Time.

K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.

(iii) For purposes of the initial offering period which
begins at the Effective Time, the Fair Market Value shall be deemed to
be equal to the price per share at which the Common Stock is sold in
the initial public offering pursuant to the Underwriting Agreement.

L. 1933 ACT shall mean the Securities Act of 1933, as amended.

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<PAGE>

M. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.

N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by
the Board to extend the benefits of the Plan to their Eligible Employees.
The Participating Corporations in the Plan as of the Effective Time are
listed in attached Schedule A.

O. PLAN shall mean the Corporation's Employee Stock Purchase Plan,
as set forth in this document.

P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.

Q. PURCHASE DATE shall mean the last business day of each Purchase
Interval. The initial Purchase Date shall be January 30, 1997.

R. PURCHASE INTERVAL shall mean each successive six (6)-month
period within the offering period at the end of which there shall be
purchased shares of Common Stock on behalf of each Participant. The initial
Purchase Interval, however, shall end on January 31, 1997.

S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
February and August each year on which an Eligible Employee may first enter
an offering period.

T. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.

U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

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