<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1996
REGISTRATION NO. 333-8921
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 3
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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............................. $ 23,595
NASD filing fee................................................................. 7,343
Nasdaq National Market listing fee.............................................. 50,000
Printing and engraving expenses................................................. 225,000
Legal fees and expenses......................................................... 250,000
Accounting fees and expenses.................................................... 175,000
Blue sky fees and expenses...................................................... 10,000
Transfer agent and registrar fees............................................... 15,000
Director and officer insurance premiums......................................... 340,000
Miscellaneous expenses.......................................................... 104,062
------------
Total..................................................................... $ 1,200,000
------------
------------
</TABLE>
- ---------
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 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.
II-1
<PAGE>
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 10.20
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 September 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 September 1993, the Registrant has granted stock options to its
employees under its stock option plans covering an aggregate of 3,543,198 shares
of the Registrant's Common Stock, at exercise prices ranging from $0.025 to
$13.60 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 2,237,878 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 3,508,988 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 2,280,844 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 2,249,014 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 &
Quist, 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 July 1996, the Registrant has issued and
sold 224,284 shares of Common Stock upon exercise of warrants to 11 individuals.
(ix) Between May 1994 and July 1996, the Registrant has issued and sold
1,264,900 shares of Common Stock upon exercise of warrants to 10 individuals.
II-2
<PAGE>
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>
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.**+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
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 Consent of KPMG Peat Marwick LLP, Independent Auditors.**
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).**
23.3 Consent of Grant Thornton LLP, Independent Certified Public Accountants.**
24.1 Power of Attorney (see page II-6).**
</TABLE>
- ---------
** 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.
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
II-4
<PAGE>
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. 3 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 26TH DAY OF SEPTEMBER, 1996.
ADVANCED FIBRE COMMUNICATIONS, INC.
By /s/ DAN E. STEIMLE
--------------------------------------
Dan E. Steimle
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER,
TREASURER AND SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 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 September 26, 1996
Donald Green (principal executive officer)
/s/ CARL J. GRIVNER*
------------------------------- President, Chief Operating Officer and Director September 26, 1996
Carl J. Grivner
/s/ DAN E. STEIMLE Vice President, Chief Financial Officer, Treasurer and
------------------------------- Secretary (principal financial and accounting September 26, 1996
Dan E. Steimle officer)
/s/ B.J. CASSIN*
------------------------------- Director September 26, 1996
B.J. Cassin
/s/ CLIFFORD H. HIGGERSON*
------------------------------- Director September 26, 1996
Clifford H. Higgerson
/s/ BRIAN JACKMAN*
------------------------------- Director September 26, 1996
Brian Jackman
/s/ DAN RASDAL*
------------------------------- Director September 26, 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 Consent of KPMG Peat Marwick LLP, Independent Auditors.**
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).**
23.3 Consent of Grant Thornton LLP, Independent Certified Public Accountants.**
24.1 Power of Attorney (see page II-6).**
</TABLE>
- ---------
** Previously filed.
+ Portions of this Exhibit have been deleted pursuant to a Confidential
Treatment Request filed with the Commission.
<PAGE>
TELLABS CONTRACT NO.: JDL940399LEG-00
JOINT VENTURE AND PARTNERSHIP AGREEMENT
This Joint Venture and Partnership Agreement ("Agreement") is entered into as of
April 11, 1994 by and between Advanced Fibre Communications, a California
corporation located at 1445 McDowell Boulevard North, Petaluma, California 94975
("AFC") and Tellabs Operations, Inc. a Delaware corporation, located at 4951
Indiana Avenue, Lisle, Illinois 60532 ("Tellabs").
WHEREAS, both Tellabs and AFC are in the business of manufacturing, marketing
and distributing telecommunications products throughout the world;
WHEREAS, Tellabs, either directly or through a wholly-owned subsidiary, and AFC,
either directly or through a wholly-owned subsidiary, wish to enter into a joint
venture in the form of a general partnership to design, develop, manufacture and
distribute a product line and its derivatives, which will allow telephone
services to be provided over existing cable television ("CATV") installed
coaxial systems as well as other transmission media.
In consideration of the mutual promises and covenants set forth herein, AFC and
Tellabs agree as follows:
SECTION 1
DEFINITIONS
1.1 AFFILIATE
The term "Affiliate" shall mean an individual or entity that directly
or indirectly controls, is controlled by, or is under common control
with, the entity specified. For purposes of this definition, "control"
shall mean beneficial ownership of more than 50% of the voting stock
of, or more than 50% interest in the income of, such entity.
1.2 ALTERNATE PROVIDERS
The term "Alternate Providers" shall mean competitive access
providers, alternate local transport service providers, alternate
local access carriers, multiple system operators, or any company,
subsidiary, partnership, co-venture, or other entity providing
alternate telephony services. "Alternate Provider" does not include
wireless service providers except those affiliated with an Alternate
Provider entity ("Wireless Affiliates").
Page 1 of 30
- ----------------------
[*] INDICATES CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
TELLABS CONTRACT NO.: JDL940399LEG-00
1.3 BUSINESS PLAN
The term, "Business Plan" shall mean the business plan approved by the
Partners' Committee pursuant to Section 2.8 hereof including but not
limited to revenue and income projections, cash flow plans,
manufacturing plans, and high-level development plans. The Business
Plan shall detail the Company's activities during the development and
distribution of the Product and shall contain such other matters as
the Partners' Committee shall determine.
1.4 DESIGN COMMITTEE
The term "Design Committee" shall mean a Design Committee established
pursuant to Section 3.2 hereof.
1.5 DISTRIBUTOR
The term "Distributor" shall mean any person or entity who has been
granted the right to distribute any products of AFC or its
Affiliate(s) and/or Tellabs or its Affiliate(s), either directly by
such party or indirectly under authority granted by such party,
subject to the restrictions set forth in Section 6.1.
1.6 EFFECTIVE DATE
The term "Effective Date" shall mean the date first set forth above in
this Agreement.
1.7 END USER
The term "End User" shall mean any person or entity who has been
granted the right to use, but not to distribute, any products sold by
AFC and/or Tellabs, either directly by such party or indirectly under
authority granted by such party.
1.8 ENHANCEMENTS
The term "Enhancements" shall mean revisions to a product (Hardware
and/or Software) which materially alter and/or add to its architecture
or fundamental functionality.
1.9 ENGINEERING DESIGN PACKAGE
The term "Engineering Design Package" shall mean the set of
documentation for the design of the J.V. Product, and shall include,
but may not be limited to, engineering design specifications,
engineering test specifications, costed bill of materials, parts list,
board lay-outs and schematics. The Engineering Design Package shall
be designed to comply with the design standards set forth in the MRD,
and shall include, at a minimum, the same level and types of
documentation developed by AFC for the UMC 1000.
1.10 HARDWARE
The term "Hardware" shall mean equipment, modules, assemblies and
subassemblies but does not include Software.
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1.11 IMPROVEMENTS
The term "Improvements" shall mean fixes, corrections or work-arounds
to errors in a product as well as any other improvements in system
performance, modifications or revisions which do not materially alter
the original functional characteristics of such product.
1.12 INITIAL DESIGN AND DEVELOPMENT PHASE
The term "Initial Design and Development Phase" shall mean the period
of time beginning on the Effective Date and ending on the date that
the J.V. Product first becomes generally available, which is defined
as the validation review (VR) date.
1.13 J.V. COMPANY
The term "J.V. Company" shall mean the general partnership formed by
the Partners pursuant to the terms of this Agreement.
1.14 J.V. PRODUCT(S)
The term "J.V. Product(s)" shall mean product components (both
Hardware and Software) and their derivatives to be developed by the
J.V. Company. Without limiting the generality of the foregoing, J.V.
Products do not include UMC 1000 System Components with or without
minor modifications as referred to in Section 1.32.
1.15 J.V. PRODUCT TECHNOLOGY
The term "J.V. Product Technology" shall mean all technical
information and know-how developed by or for the J.V. Company and
embodied in the J.V. Product(s) including without limitation, Software
related thereto, together with all patents and applications for
patents throughout the world, all copyrights, all trade secrets, and
all other forms of intellectual property relating thereto. Unless
otherwise agreed in writing by the Partners, the J.V. Product
Technology does not include any other AFC or Tellabs technology
including but not limited to the UMC 1000 Technology developed by AFC.
1.16 LICENSED ENHANCEMENTS
The term "Licensed Enhancements" shall mean Enhancements to the UMC
1000 which are licensed to the J.V. Company hereunder.
1.17 MANUFACTURING RELEASE PACKAGE
The term "Manufacturing Release Package" shall mean the set of
documentation developed by or for the J.V. Company necessary and
sufficient to manufacture the J.V. Product, and shall include, but may
not be limited to, in-process manufacturing documentation and
manufacturing test specifications. The Manufacturing Release Package
shall be designed to comply with the manufacturability standards set
forth in the MRD, and shall include, at a minimum, the same level and
types of documentation used by other joint venture manufacturers of
the UMC 1000.
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1.18 MARKET STUDY
The term "Market Study" shall mean that market information which was
developed by Tellabs prior to the Effective Date relating to the J.V.
Product(s).
1.19 MRD
The term "MRD" shall mean the Marketing Requirements Document to be
developed pursuant to Section 3.1 hereof, as the same may be amended
from time to time. Deliverables to be specified in the MRD shall
include, at a minimum, an Engineering Design Package and a
Manufacturing Release Package.
1.20 NET CUMULATIVE REVENUE
The term "Net Cumulative Revenue" shall mean the aggregate Net Selling
Price for all UMC 1000 System Components sold by Tellabs or its
Affiliates.
1.21 NET SELLING PRICE
The term "Net Selling Price" shall mean invoice price less credits,
returns, shipping costs, taxes and discounts actually paid or allowed
but not less fees or commissions to agents, representatives or others,
and, where applicable, shall include license fees.
1.22 PARTNER(S)
The term "Partner" or "Partners" shall mean either Tellabs or AFC, or
a wholly-owned subsidiary designated by either or both of them.
1.23 PRE-EXISTING PRODUCT
The term "Pre-existing Product" shall mean the UMC 1000 product
developed by or for AFC as described in Exhibit A hereto. Exhibit A
will be agreed upon by the Partners' Committee and attached to this
Agreement by April 29, 1994, as provided in Section 3.1 hereof. The
Pre-existing Product shall also include those Enhancements listed on
Exhibit A, which AFC hereby agrees to develop.
1.24 PRE-EXISTING TECHNOLOGY
The term "Pre-existing Technology" shall mean all technical
information and know-how developed by or for AFC and embodied in the
Pre-existing Product (as defined in Section 1.23) whether developed
prior to or after the date thereof, including but not limited to
Software, together with all patents and applications for patents
throughout the world, all copyrights, all trade secrets, and all other
forms of intellectual property relating thereto. Without limiting the
generality of the foregoing, AFC shall be obligated to ensure that the
Pre-existing Technology includes documentation substantially
equivalent to that described in Sections 1.9 and 1.17, whether
available directly from AFC or a third party such as the manufacturer
thereof.
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1.25 PRODUCT(S)
The term "Product(s)" shall mean the complete system level product
(both Hardware and Software) and its derivatives sold pursuant to this
Agreement and shall include both J.V. Product(s) and UMC 1000 System
Components. The parties intend that the Product(s) will allow
telephone services to be provided over existing CATV installed coaxial
systems as well as other transmission media.
1.26 PRODUCT SUPPORT PLAN
The term "Product Support Plan" shall mean the product support plan
referred to in Section 7.2, as such plan may be amended from time to
time.
1.27 SOFTWARE
The term "Software" shall mean computer programs, procedures, rules
and associated documentation designed to make use of and extend the
capabilities of Hardware. Software includes, but is not limited to
source codes, object codes for control programs, operating system
programs, general application programs, special application programs,
programming aids, routines, subroutine translations, compilers,
diagnostics, firmware, proprietary VLSI devices, databases,
documentation to maintain, describe and use any of the foregoing, and
other related programs.
1.28 TERM
The term "Term" shall mean the term of this Agreement as set forth in
Section 11.
1.29 TRANSFER
The term "Transfer" shall mean to sell, transfer or otherwise assign.
1.30 UMC 1000
The term "UMC 1000" shall mean the AFC product which is currently
called the UMC 1000, including any Improvements and Licensed
Enhancements embodied therein during the Term of this Agreement.
1.31 UMC 1000 TECHNOLOGY
The term "UMC 1000 Technology" shall mean all technical information
and know-how owned by, licensed to, or developed by or for AFC
relating to the UMC 1000, including any Improvements and Licensed
Enhancements thereto developed during the Term hereof and offered to
and accepted by the J.V. Company, including without limitation,
Software related thereto, together with all patents and applications
for patent throughout the world, all copyrights, all trade secrets,
and all other forms of intellectual property relating thereto.
Without limiting the generality of the foregoing, the UMC Technology
shall include documentation substantially equivalent to that described
in Sections 1.9 and 1.17, whether available directly from AFC or a
third party such as the manufacturer thereof.
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1.32 UMC 1000 SYSTEM COMPONENTS
The term "UMC 1000 System Components" shall mean the modules, Software
and system assemblies and subassemblies which are substantially
identical to those in the UMC 1000, except for any minor
modifications, including but not limited to private labeling and
software modifications which do not substantially change or supplement
their functionality.
SECTION 2
FORMATION, ORGANIZATION AND MANAGEMENT OF THE J.V. COMPANY
2.1 FORMATION
Effective as of the Effective Date, the Partners hereby cause the J.V.
Company to be formed as a partnership. Each Partner shall own a 50%
interest in the J.V. Company.
2.2 CONTRIBUTIONS
The Partners agree to contribute the following consideration to the
J.V. Company:
a. Within [*] days of the Effective Date, Tellabs (or a wholly-
owned subsidiary which has been designated as the Partner) will
contribute [*] the J.V. Company, [*] of which will
be in the form of a cash contribution and the balance of which
will be [*].
b. Within [*] days of the Effective Date and subject to the
terms of the rights set forth in Section 4.1, AFC will make the
Pre-existing Technology (except those Licensed Enhancements not
yet available) available to the J.V. Company. The Pre-existing
Technology is valued at [*]. Thereafter, subject to
subsection (c) below, AFC will make available to the J.V. Company
(i) the Licensed Enhancements defined in Exhibit A as being part
of the Pre-existing Technology; (ii) all Improvements relating to
the UMC 1000 which become available during the Term hereof; and
(iii) such other Enhancements as are agreed upon by the Partners,
pursuant to subsection (c) below. In the event that a Software
release which contains Improvements for the UMC 1000 also
contains Enhancements which are not being licensed to the J.V.
Company, AFC agrees to provide a separate unbundled fully tested
release containing all such Improvements.
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c. The Partners intend that the basic functionality of the Product
be kept as close as possible to the basic functionality of the
UMC 1000. Accordingly, AFC will offer all other Enhancements to
the UMC 1000 to the J.V. Company subject to agreement by the
Partners' Committee as to (i) the valuation of such Enhancement
and; (ii) a mechanism for maintaining both Partners' equal
ownership rights in the J.V. Company.
2.3 MANAGEMENT
a. PARTNERS' COMMITTEE
The J.V. Company will be managed by a Partners' Committee
composed of four members. Each Partner shall appoint two (2)
members to the Partners' Committee. All Partners' Committee
decisions will require the approval of a majority of the members.
The number of members on the Partners' Committee shall not be
increased or decreased without the prior written consent of both
Tellabs and AFC. The J.V. Company shall bear all reasonable
travel expenses of any member attending a Partners' Committee
meeting.
The Partners will designate one Partners' Committee member as
Chairman of the Committee. The Chairman will be responsible for
calling and conducting meetings The Chairman shall change on a
semi-annual basis and shall be designated first by Tellabs, then
by AFC on an alternating basis.
Partners' Committee meetings shall be held at least quarterly
during the Initial Design and Development Phase at times and
places to be determined by the Partners' Committee, and notice of
such meetings (including agenda items to be discussed) shall be
given by the Chairman not less than 20 days in advance (which 20-
day period may be shortened by written waiver of the members or
actual attendance at a special committee meeting).
b. GENERAL MANAGER
If the Partners' Committee decides to hire a full-time general
manager for the J.V. Company, the Partners shall jointly agree
upon the individual selected. If agreed by both Partners, the
general manager may be added to the Partners' Committee of the
J.V. Company. In such an event, any decision requiring majority
approval of the Partners' Committee will require the vote of at
least one AFC appointed Partners' Committee member and one
Tellabs appointed member.
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c. MANAGEMENT STRUCTURE
The J.V. Company shall have managers with such responsibilities
and reporting relationships as shall be determined by the
Partners" Committee.
2.4 MATTERS SUBJECT TO PARTNERS' COMMITTEE APPROVAL
a. All decisions of the J.V. Company are subject to approval by the
Partners through the Partners' Committee unless expressly
delegated to the Design Committee pursuant to Section 3.2 hereof.
The Partners' Committee, by majority vote, shall have the power
to delegate to other managers of the J.V. Company any decisions
within the ordinary course of business of the J.V. Company.
Without limiting the generality of the foregoing, the following
actions require Partners' approval:
i. The distribution or reinvestment of profits or any
other payment of any kind with respect to the Partners,
subject to the terms of Section 2.4b below;
ii. The investment or allocation of surplus funds;
iii. The transfer of any amount to reserves;
iv. The organization of, or the acquisition or disposition
of any interest in the legal or beneficial ownership
of, any other company or business organization;
v. Except as expressly authorized in this Agreement, any
sale, assignment, transfer, license or other
disposition of any manufacturing rights, know-how,
technology, trademarks, trade secrets or good will, or
the grant of any license or sublicense to manufacture
the J.V. Product;
vi. Any agreement or transactions with any party hereto or
any of their Affiliates, other than purchases, licenses
or sales of product specifically authorized herein;
vii. The selection or change of the manufacturer for the
J.V. Products;
viii. The adoption or any material revision of the MRD;
ix. Any change in the transfer prices charged by the J.V.
Company;
x. The adoption of and amendments to the Product Support
Plan referred to in Section 7.2;
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xi. Any material change in the J.V. Company's organization
(including reorganizations of departments or
reallocation of responsibilities of key employees);
xii. Approval of any financial statements of the J.V.
Company;
xiii. Appointment of and any change in the J.V. Company's
public accounting firm/auditor;
xiv. Any material change in accounting principles or
procedures to be applied to the J.V. Company;
xv. Any acquisition, sale or lease of the J.V. Company's
assets or business or any capital improvement not
contemplated by the then current MRD;
xvi. Any purchase, sale or lease of real property;
xvii. The acquisition of any patent rights, technology,
know-how, trademarks, trade secrets or good will, or
of a license thereunder, except as specifically provided
in this Agreement;
xviii. Any establishment or material revisions of plans to
develop or commercialize new products or services, of
project priorities or of allocation of resources to
projects (including localization of software and
porting projects) other than as specified in the MRD;
xix. Borrowing of any funds or entry into any capital
leases;
xx. Adoption of and amendments to the Business Plan;
xxi. Any member of the Partners' Committee engaging in or
planning to enter into any of the following types of
transactions; (i) business that competes with the
business of the J.V. Company; (ii) transactions between
the J.V. Company and either the member or a third party
on whose behalf the member is acting, and (iii) any
other transaction between the J.V. Company and a third
party, in which the member has an interest contrary to
that of the J.V. Company; and
xxii. The adoption of and amendments to Exhibits A, B, C and
E to this Agreement.
[*]
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[*]
2.5 PUBLIC ACCOUNTING FIRM/AUDITOR/LEGAL
The J.V. Company shall have one auditor to be determined by the
Partners' Committee by May 15, 1994. Any changes to the auditor must
be approved by the Partners' Committee. In the event that the J.V.
Company requires legal services, the Partners' Committee shall select
an outside law firm, not currently representing either Partner.
2.6 FINANCIAL STATEMENTS AND ACCOUNTING RECORDS
During the Term, financial statements for the J.V. Company, including,
without limitation, a balance sheet and income statement, shall be
submitted by the J.V. Company to the Partners within twenty (20) days
after the end of each quarter and within thirty (30) days after the
end of the fiscal year for such year. Each of the annual statements
shall be audited and certified by the auditor retained by the J.V.
Company. Each of the quarterly statements shall be reviewed by the
auditor. Such quarterly and annual statements shall be prepared on an
accrual basis in accordance with U.S. generally accepted accounting
principles. Additionally, and in any event, the J.V. Company shall
provide monthly financial statements to the Partners as they may
request from time to time. Notwithstanding the foregoing, estimated
balance sheets and income statements for the J.V. Company shall be
made available to Tellabs as soon as possible after the end of each
Tellabs quarter, but no later than three (3) business days after the
end of each Tellabs quarter and four (4) business days after the end
of Tellabs' fiscal year.
2.7 RIGHT OF INSPECTION
Both Partners shall have full access to all properties, books and
account records and the like of the J.V. Company and the J.V. Company
shall furnish to each Partner all information concerning the same
which such Partner may reasonably require in connection with
completing an examination thereof, and each Partner shall have the
right to make copies from the books and records of the J.V. Company at
any reasonable time. Any information obtained through exercise of
said right of access shall (i) be used by such Partner only for
purposes which are consistent with its status as a partner in the J.V.
Company and not for the pursuit of business interest outside the J.V.
Company (except to the extent such Partner shall otherwise have rights
for access to such information or to the extent used to determine
compliance with this Agreement) and (ii) be subject to the
confidentiality provisions of Section 8.4 and 8.5.
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2.8 BUSINESS PLAN
Prior to the beginning of each calendar year during the Term, the
Partners' Committee shall determine and approve the Business Plan for
the J.V. Company, for such year. The Business Plan may be amended
only by the Partners' Committee.
2.9 FUTURE FINANCINGS
Unless the Partners otherwise agree in writing, if the Partners'
Committee determines that the J.V. Company requires financing in
excess of that provided pursuant to Section 2.2, the J.V. Company
shall seek to obtain additional funding in the following priorities:
a. loans by the Partners;
b. third party debt with or without guarantees by the Partners;
c. further equity investments by the Partners; or
d. equity investments by third parties.
If loans are made by the Partners, the interest rate will be a
competitive rate set by the Partners' Committee. For any loans by the
Partners during the first year, the rate shall be [*].
In the event that the Partners' Committee decides to require
additional equity investments by the Partners, the investment shall
take such form as is agreed upon by the Partners' Committee including
but not limited to cash, technology rights or royalty adjustments.
Unless the Partners otherwise agree in writing, all guarantees of debt
or equipment lease financings, loans or additional investments
provided by the Partners shall be provided in proportion to their
ownership interests in the J.V. Company. Each Partner shall be
entitled to purchase a pro rata share of any issuances of partnership
interests in the J.V. Company to retain its percentage interest
relative to the other Partner and the other Partner's Affiliates In
the event that the Partners' Committee approves the investment by any
third parties in the J.V. Company, the dilution caused thereby shall
be shared equally by the Partners. If the additional investment is
made by either Partner or an Affiliate of such Partner, the other
Partner shall be entitled to increase it; investment in order to
maintain its pro rata partnership interest.
2.10 PERMITTED TRANSFERS/ RIGHT OF FIRST REFUSAL
The Partners agree not to Transfer their rights or interests in the
J.V. Company except in accordance with each of the following
restrictions:
(a) Before January 1, 1997, neither Partner shall be permitted to
Transfer its ownership interest in the J.V. Company without the
prior written consent of the other Partner.
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(b) If a Partner wishes to Transfer its ownership interest on or
after January 1, 1997, the offering Partner shall first give
written notice to the other Partner stating its intention to
transfer, the name of the proposed transferee and the price,
terms and conditions of the proposed Transfer.
(c) The other, non-offering Partner shall have the right to purchase
all (but not less than all) of the ownership interest offered,
which right shall be exercisable by written notice to the
offering Partner not later than the expiration of thirty (30)
days after delivery of the written notice of intention to sell.
The price and terms shall be the price and terms stated in the
notice.
(d) If the (other Partner does not exercise its right to purchase all
of the offered interest within such thirty (30) day period, the
offering Partner may within Sixty (60) days after expiration of
such right, Transfer its interest to the transferee named in the
notice; provided that (i) such Transfer is not at a lower price
or on terms more favorable to the transferee than those specified
in the written notice; (ii) prior to such Transfer, such
transferee agrees in writing to undertake all the applicable
rights and obligations of the offering Partner under this
Agreement.
(e) The restrictions and other provisions of this Section 2.10 shall
apply to any other J.V. Company ownership interest (or options,
warrants or other rights to acquire the J.V. Company ownership
interest) acquired by a Partner during the Term.
(f) The right of first refusal provided by this Section 2.10 shall
not apply to a Transfer by both Partners to a third party pro
rata with respect to their respective interest in the J.V.
Company or to a transfer by a Partner to any Affiliate of the
Partner, provided that prior to such Transfer the Affiliate
agrees in writing to undertake all the rights and obligations of
the Partner under this Agreement.
2.11 CASH MANAGEMENT, DISBURSEMENT AND INVESTMENT POLICIES
All cash (including the initial cash contribution by Tellabs),
disbursements and investments of the J.V. Company shall be handled in
accordance with the terms of Exhibit F to this Agreement. Any
amendments to Exhibit F must be agreed upon by the Partners'
Committee.
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SECTION 3
DESIGN AND DEVELOPMENT PROGRAM
3.1 FINALIZATION OF MRD, INITIAL BUSINESS PLAN, AND EXHIBITS A, B, C AND E
By April 22, 1994, the MRD, the initial Business Plan and Exhibits A.
(as referred to in Section 1.23), B (as referred to in Section 3.4), C
(as referred to in Section 5.2) and E (as referred to in Section 7.1)
will be completed and submitted to the Partners' Committee for
approval. If the Partners" Committee has not approved the MRD, the
initial Business Plan and Exhibits A, B, C and E by April 29,1994 (as
such date may be extended by written agreement of the Partners) then,
at the option of either Partner, this Agreement shall be terminated
with the effect detailed in Section 13. 3(a) hereof.
3.2 DESIGN COMMITTEE
The Partners' Committee of the J.V. Company will establish a Design
Committee whose purpose will be to establish design and development
direction for the Product. This Design Committee will be comprised of
two individuals each from Tellabs and AFC, including one engineering/
design and one marketing person from each Partner. In addition,
Tellabs will assign a key program manager, who will reside in
Petaluma, California throughout the Initial Design and Development
Phase of the project, and will report to the Partners' Committee or
general manager of the J.V. Company as well as serve as the fifth
member of the Design Committee. The Design Committee will be
responsible for developing and reporting to the Partners' Committee,
for its approval (prior to any execution) any material changes to the
MRD relating to design definition, development plan, market plan and
budget for development of the Product.
3.3 DEVELOPMENT RESPONSIBILITIES
The J.V. Company shall develop the J.V. Product in accordance with the
MRD. Any material changes to the MRD which are identified by the
Design Committee will be submitted to the Partners' Committee and are
subject to Partners' Committee approval. AFC will provide general
architectural consulting for the UMC 1000. Both AFC and Tellabs will
design the architecture for the J.V. Product. Tellabs shall provide
the systems engineering and hardware and software design engineers to
perform the design and development. During the preliminary stages of
the development, AFC will provide, at no charge, reasonable technical
assistance to assist Tellabs" engineers in understanding the UMC 1000
Technology not to exceed 500 staff-hours unless agreed by AFC. Unless
otherwise agreed by the Partners, the development work during the
Initial Design and Development Phase will be conducted at AFC's
facilities in Petaluma, California.
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The J.V. Company will develop the Product as two distinct products
with unique features designed in to protect the individual market
rights of the respective Partners, as described in Section 6. These
features will include both physical and functional differences
designed to prevent the migration of the Product into markets for
which rights have not been granted.
3.4 COMPENSATION FOR RESOURCES PROVIDED BY PARTNERS
Tellabs and AFC shall be compensated by the J.V. Company for resources
provided by such Partner as set forth in Exhibit B to this Agreement,
as such exhibit may be amended from time to time. Exhibit B will be
agreed upon by the Partners' Committee and attached to this Agreement
by April 29, 1994, as provided in Section 3.1 hereof
SECTION 4
RIGHTS TO USE
4.1 RIGHT TO USE UMC 1000 TECHNOLOGY
Subject to the terms and conditions of this Agreement; AFC hereby
grants to the J.V. Company a non-exclusive, irrevocable, perpetual,
royalty-free, worldwide right to use the Pre-existing Technology for
the purpose of developing the J.V. Product and making Improvements and
Enhancements to the J.V. Product. The rights granted herein shall
also include the right to have the Product manufactured for the J.V.
Company, subject to the terms and conditions hereof. AFC shall offer
and grant to the J.V. Company equivalent rights (i) to an Improvements
to the UMC 1000 developed by AFC during the Term of this Agreement and
(ii) all Enhancements which are agreed upon pursuant to Section 2.2
hereof. The rights granted herein shall also include the right to
make minor modifications to the UMC 1000 System Components including
but not limited to private labeling and software modifications which
do not substantially change or supplement their functionality. Except
as set forth in Section 4.1 of Exhibit D hereto, during the Term of
this Agreement, AFC agrees not to grant a license or right to any
third party to use the UMC 1000 Technology to develop, have developed,
manufacture, have manufactured, sell, market or distribute a product
having functional characteristics and capacities which are similar to
the UMC 1000 and/or the J.V. Product unless such license or right
expressly prohibits the sale, marketing and distribution of such
product to Alternate Providers, both directly and indirectly. Prior
to entering into a relationship with any third party which involves
the license of or right to use the UMC 1000 Technology, AFC will
review the terms of such relationship with the Partners' Committee.
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4.2 RIGHTS TO MARKET STUDY
Subject to the terms and conditions of this Agreement, Tellabs hereby
grants to the J.V. Company a non-exclusive, irrevocable, perpetual,
royalty-free, worldwide right to use the Market Study for the purpose
of developing the J.V. Product and making decisions relating to future
features and markets for the Product.
SECTION 5
MANUFACTURING AND SUPPLY
5.1 MANUFACTURING RIGHTS
The J.V. Company will procure assemblies, subassemblies and final
system products for the Product from the most cost effective source,
provided, however, that Tellabs shall be given preference as the
manufacturer provided that its price and quality to the J.V. Company
for the Product is substantially competitive with alternate
manufacturers. AFC shall have the right to direct the J.V. Company to
subcontract the manufacture of AFC's requirements for the J.V. Product
to another party, provided that AFC demonstrates to the Partners'
Committee that the cost thereof is competitive with the then current
manufacturer and provided that AFC continues to purchase all of its
requirements for the J.V. Product from the J.V. Company. Proposed
manufacturers will be obligated to provide complete details on costs,
including materials, assembly, and overhead, for finished/tested
assemblies or product to allow for an effective evaluation and
selection of the lowest cost manufacturer.
5.2 TRANSFER PRICE
The Product(s) will be sold from the manufacturer to the J.V. Company
at an agreed upon price. Prices for the Product from the J.V. Company
shall be determined by the Partners' Committee and set forth on
Exhibit C to this Agreement by April 29, 1994, as provided in Section
3.1. Any amendments to Exhibit C shall be approved by the Partners'
Committee.
5.3 PURCHASE AND SALE OF PRODUCT
a. During the Term of this Agreement the J.V. Company will sell and
supply to Tellabs (and its Affiliates) and, Tellabs (and its
Affiliates) will be required to purchase from the J.V. Company,
all of its requirements for the Products, including any
Improvements and Licensed Enhancements thereto, on the terms and
conditions set forth in this Agreement.
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b. During the Term of this Agreement, the J.V. Company will also
sell and supply Products including any Improvements and Licensed
Enhancements thereto, to the AFC Partner, on terms and conditions
set forth in this Agreement. The AFC Partner will be required to
purchase only its requirements for the J.V. Product from the J.V.
Company.
5.4 PURCHASES FROM AFC'S THIRD PARTY MANUFACTURERS
Unless and until the J.V. Company selects another manufacturing
source, the J.V. Company shall have the right to purchase Products
(including UMC 1000 System Components) from AFC's third party
manufacturers. AFC will authorize such manufacturers to sell directly
to the J.V. Company at prices no higher than those offered to AFC for
the same components for the UMC 1000 at the same time. The J.V.
Company shall be responsible for any additional costs charged by the
manufacturers for changes made to the UMC 1000 System Components for
the J.V. Company.
SECTION 6
MARKETING RIGHTS
6.1 GENERAL
a. Each Partner will have exclusive rights to offer the complete
Product, the UMC 1000 system Components and/or the J.V. Product to
the markets defined in this Section 6. Except as provided in
Section 6.1 of Exhibit D, the respective Partners' marketing
rights as defined herein shall be exclusive and worldwide and
shall be granted for the Term of this Agreement. Within their
respective markets, the Partners are free to distribute the
Product, the UMC 1000 System Components and/or the J.V.
Product either directly to End Users or indirectly through
third party channels, such as Distributors or sales
representatives. Sales through such third party channels are
permissible only if the Partner has entered into a written
agreement with the third party which allows the Partner to
terminate the distribution rights if the third party
distributes the Product, the UMC System Components and/or the
J.V. Product outside such Partners' respective market(s).
Neither Partner shall be allowed to grant sublicenses or
assign its rights in its market without the express approval
of the Partners' Committee, unless otherwise expressly
authorized by this Agreement.
b. AFC represents and warrants that none of the agreements with
third parties referred to in Section 6.1 of Exhibit D will
prohibit the sale by the Tellabs Partner of the Product or the
J.V. Product into the Alternate Provider market in the
territories covered by such agreements. In addition, AFC
agrees to use its best efforts to amend each of the
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TELLABS CONTRACT NO.: JDL940399LEG-00
agreements referred to in Section 6.1 of Exhibit D
in order to prohibit sales and/or distribution of the UMC 1000
or its derivatives, including but not limited to the UMC
1000E, to the Alternate Provider market in such territories by
such third parties.
c. Except as provided in Section 6.1 of Exhibit D, any agreements
entered into by AFC from and after the Effective Date relating
to the sale or distribution of the UMC 1000 or its
derivatives, including but not limited to the UMC 1000E, will
contain a provision specifically prohibiting sale and/or
distribution of such products to the Alternate Provider market.
d. The parties acknowledge that it may be necessary to modify
the definition of Alternate Provider as it relates to markets
outside North America to take into account the specific market
in each individual country. Any such modification will be
agreed by the Partners in order to most closely effectuate the
intent of this Agreement.
6.2 TELLABS MARKETS
Subject to the terms of Section 8.6 and except as provided in
Section 6.1 of Exhibit D and in Section 6.1 above, Tellabs will have
the exclusive worldwide rights to market the Product(s), the UMC 1000
System Components and/or the J.V. Product to Alternate Providers.
6.3 AFC MARKETS
AFC will have exclusive worldwide rights to market the Product(s),
the UMC System Components and/or the J.V. Product to all other markets
not included in the definition of the Alternate Providers. AFC will
also have the right to purchase unique subassemblies from the J.V.
Company for eventual incorporation and distribution in the standard UMC
1000 product sold by AFC.
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TELLABS CONTRACT NO.: JDL940399LEG-00
SECTION 7
SERVICES
7.1 GENERAL SERVICES
AFC agrees to provide accounting, engineering services (CAD design,
etc.), personnel, manufacturing (MRP, sourcing, etc.), facilities and
general management/ administration services to the J.V. Company
pursuant to the terms of the Services Agreement to be agreed upon by
the Partners' Committee and attached as Exhibit E to this Agreement by
April 29, 1994, as provided in Section 3.1 hereof. Any amendments
to Exhibit E shall be agreed upon by the Partners' Committee. In the
event the Partners' Committee determines that certain of such
services will be provided by Tellabs, a similar Services Agreement
will be signed with Tellabs.
7.2. PRODUCT SUPPORT PLAN
As soon as possible following the Effective Date, the Partners will
jointly develop, and submit to the Partners' Committee for approval, a
Product Support Plan for handling responsibility for Product support,
including but not limited to sustaining engineering. Any amendments to
the Product Support Plan shall be agreed upon by the Partner's
Committee.
SECTION 8
INTELLECTUAL PROPERTY OWNERSHIP AND RIGHTS IN CONFIDENTIAL INFORMATION
8.1 OWNERSHIP OF J.V. PRODUCT TECHNOLOGY
Subject to the rights granted under this Agreement, all right, title
and interest in and to the proprietary rights in the J.V. Product
Technology including any Improvements and Enhancements thereto
developed by the J.V. Company, shall be vested in and shall remain in
the J.V. Company and both Partners will have joint ownership thereof,
subject to the various restrictions on use set forth herein.
8.2 OWNERSHIP OF UMC 1000 TECHNOLOGY
Subject to the rights granted by AFC under this Agreement and subject
to the matters disclosed in Section 8.2 of Exhibit D, all right, title
and interest in and to the proprietary rights in UMC 1000 Technology
shall be vested in and shall remain in AFC and/or its Affiliates.
Notwithstanding the foregoing, any minor modifications to the UMC 1000
Technology made by the J.V. Company including but not limited to
private labeling and software modifications which do not
substantially change or supplement its functionality, shall be deemed
to be
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owned by the J.V. Company and both Partners will have joint ownership
thereof, subject to the various restrictions on use set forth herein.
8.3 OWNERSHIP OF THE MARKET STUDY
Subject to the rights granted by Tellabs under this Agreement, all
right, title and interest in and to the proprietary rights in the
Market Study shall be vested in and shall remain in Tellabs and/or its
Affiliates.
8.4 TELLABS CONFIDENTIAL INFORMATION
AFC acknowledges that Tellabs claims that certain information to be
disclosed by Tellabs to AFC under this Agreement is confidential and
proprietary information of Tellabs ("Tellabs Confidential
Information"). No information shall be considered Tellabs
Confidential Information unless (a) for information disclosed in
writing, the writing is marked "confidential" or "proprietary," or
with words of similar import, at the time of disclosure to AFC, or (b)
for information disclosed orally, the confidential nature of the
information is indicated at the time of disclosure and the information
is summarized in a writing indicating its confidential nature that is
delivered to AFC within twenty (20) days after disclosure. AFC
agrees, during the term of this Agreement and for five (5) years after
its termination for any reason, to protect Tellabs Confidential
Information against disclosure or dissemination using the same
standard of care and procedures which it uses to protect its own
proprietary information of a similar nature. Information shall not be
considered to be Tellabs Confidential Information if it can be
demonstrated by written record that it (a) was already known by AFC
without restriction; (b) was or became publicly known through no
wrongful act of AEC; (c) was received from third parties subject to no
restriction of confidentiality; (d) was independently developed by
AFC; or (e) was disclosed by Tellabs to any third party without an
obligation of confidentiality. Nothing contained herein shall
prohibit AFC from disclosing Tellabs Confidential Information to the
extent (but only to the extent) such disclosure is required by law or
government regulation, provided that AFC shall use all reasonable
efforts to give Tellabs advance written notice of such mandated
disclosure. AFC has or will secure a written agreement containing
substantially these terms from each employee of AFC who will have
access to Tellabs Confidential Information.
8.5 AFC CONFIDENTIAL INFORMATION
Tellabs acknowledges that AFC claims that certain information to be
disclosed by AFC to Tellabs under this Agreement is confidential and
proprietary information of AFC ("AFC Confidential Information"). No
information shall be considered AFC Confidential Information unless
(a) for information disclosed in writing, the writing is marked
"confidential" or "proprietary," or with words of similar import, at
the time of disclosure to Tellabs, or (b) for information disclosed
orally, the confidential nature of the information is indicated at the
time of disclosure and the information is summarized in a writing
indicating its confidential nature that is delivered to Tellabs, within
twenty (20) days after
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disclosure. Tellabs agrees during the term of this Agreement and for
five (5) years after its termination for any reason, to protect AFC
Confidential Information against disclosure or dissemination using the
same standard of care and procedures which it uses to protect its own
proprietary information of a similar nature. Information shall not be
considered to be AFC Confidential Information if it can be
demonstrated by written record that it (a) was already known by
Tellabs without restriction; (b) was or became publicly known through
no wrongful act of Tellabs (c) was received from third parties subject
to no restriction of confidentiality; (d) was independently developed
by Tellabs; or (e) was disclosed by AFC to any third party without an
obligation of confidentiality. Nothing contained herein shall prohibit
Tellabs from disclosing AFC Confidential Information to the extent
(but only to the extent) such disclosure is required by law or
government regulation, provided that Tellabs shall use all reasonable
efforts to give AFC advance written notice of such mandated
disclosure. Tellabs has or will secure a written agreement containing
substantially these terms from each employee of Tellabs who will have
access to AFC Confidential Information.
8.6 INDEPENDENT DEVELOPMENT
Nothing contained in this Agreement shall be construed as a
restriction on either Partner's right independently to develop,
manufacture, acquire and sell or otherwise distribute, for itself or
others, any product whether or not it is similar in function to the
Product, the J.V. Product or the UMC 1000, provided that such
development, manufacture, acquisition, sale or other distribution does
not violate any of the provisions of this Agreement. No payment shall
be due to either party by reason of such independent development,
manufacture and/or sale or other distribution. Notwithstanding the
foregoing, if after the Effective Date hereof, Tellabs develops or
acquires a similar or functionally equivalent product and thereafter
sells such product in the Alternate Provider market in territories in
which Tellabs has exclusively for the Products, the J.V. Products and
the UMC 1000 System Components, the exclusivity provided for in
Section 6 for such territories will be deemed deleted. None of the
products being marketed by Tellabs or any of its Affiliates as of the
Effective Date, including any future Enhancements and Improvements
thereto, will be deemed to be "similar or functionally equivalent
products."
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TELLABS CONTRACT NO.: JDL940399LEG-00
SECTION 9
9.1 GENERAL
Tellabs agrees to pay royalties to AFC for all UMC System
Components sold, licensed or otherwise distributed by Tellabs [*] according
to the following schedule: [*]
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9.3 AUDIT
AFC shall be entitled to have an independent third party auditor,
reasonably acceptable to Tellabs, audit compliance with this Section 9
no more frequently than once each calendar year. In the event the
auditor finds that royalties have been underpaid by more than 10% of
the corrected total royalty for the period audited, Tellabs shall pay
the audit fees. Otherwise, AFC shall bear the cost of the audit.
SECTION 10
WARRANTY AND INDEMNIFICATION
10.1 OWNERSHIP WARRANTY AS TO UMC 1000 TECHNOLOGY
AFC represents and warrants to Tellabs and the J.V. Company that (i)
the UMC 1000 Technology is original with and is owned solely by AFC;
(ii) the UMC 1000 Technology does not infringe any patent, copyright,
trade secret or other proprietary rights of any third party; (iii) AFC
is the sole and exclusive developer of the UMC 1000 Technology; (iv)
AFC has not previously or otherwise granted any other right in UMC
1000 Technology to any third party which may conflict with the rights
granted herein to Tellabs; and (v) AFC has the full power to enter into
this Agreement, to carry out its obligations contained herein, and to
grant the rights in the UMC 1000 Technology granted herein to the J.V.
Company. The disclosures set forth in Section 8.2 of Exhibit D shall
in no way limit the warranties contained in this Section 10.1 or the
indemnification rights contained in Section 10.2.
10.2 INDEMNIFICATION FOR BREACHES OF OWNERSHIP WARRANTY
Notwithstanding any other provision contained in the Agreement, AFC
shall defend at its sole expense any claim, demand, or suit against
the J.V. Company, or Tellabs, its Affiliates, Distributors, or End
Users alleging a breach of any of the warranties set forth in the
preceding Section 10.1 and shall pay the full amount of any settlement
or judgment resulting from any such claim, demand or suit, including
reasonable costs and attorney's fee, provided that Tellabs promptly
informs AFC in writing of any such claim, demand or suit, and, at
AFC's request and expense, provides AFC with all reasonably available
information, assistance and authority to enable AFC to defend the
same. Tellabs shall not settle any such claim, demand or suit without
AFC's prior consent. In addition, following notice of a claim or
demand or a threatened or actual suit, AFC shall, at its own expense,
either procure for Tellabs, its Affiliates, Distributors and End Users
the right to continue full enjoyment of the rights and licenses
granted under this Agreement with respect to any licensed subject
matter that is subject to such claim, demand or suit, or replace or
modify the same to make them non-infringing. If AFC elects to replace
or modify such subject matter, the
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replacement or modification shall substantially meet the performance
specifications of the replaced material and shall be usable by
Tellabs, its Affiliates, Distributors, and End Users as a direct
replacement for the replaced material without any need for
modification thereof. AFC agrees further to pay all costs incurred by
Tellabs in connection with such replacement or modification. If
Tellabs reasonably concludes that AFC may not be able to satisfy a
potential judgment or that AFC is not adequately protecting Tellabs'
interests in such claim, demand or suit, Tellabs may control the
defense of such claim, demand or suit at AFC's expense. AFC agrees
that it will not enter into any settlement of such claim, demand or
suit without the consent of Tellabs, which consent will not be
unreasonably withheld. AFC shall have no liability hereunder to the
extent that such liability results from modifications to the UMC 1000
or the UMC 1000 Technology which were made by the J.V. Company,
Tellabs, or any of their agents or distributors.
10.3 LIMITATION OF LIABILITY
NEITHER PARTNER SHALL BE LIABLE TO THE OTHER OR TO THE J.V. COMPANY
FOR ANY LOST PROFITS, LOSS OF DATA OR FOR ANY OTHER INDIRECT, SPECIAL,
OR CONSEQUENTIAL DAMAGES, ARISING OUT OF THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, EVEN IF ADVISED OF THE POSSIBILITY
OR LIKELIHOOD OF SUCH DAMAGES, EXCEPT AS EXPRESSLY LIMITED BY LAW.
EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE PARTNERS DISCLAIM ANY AND ALL
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10.4 INSURANCE
Each of the Partners shall deliver to the other and to the J.V.
Company, and shall keep current at all times during the Term hereof,
Certificates of Insurance evidencing insurance coverages satisfactory
to the Partners' Committee.
10.5 PRODUCT LIABILITY, PERSONAL INJURY AND PROPERTY DAMAGE
Notwithstanding anything to the contrary herein, AFC shall indemnify
and save harmless Tellabs and the J.V. Company from any loss or
damages (including reasonable attorney's fees) incurred by Tellabs or
the J.V. Company because of claims, suits, or demands resulting from
personal injury or property damage, to the extent such loss or damage
is caused by or results from defects in the UMC 1000 Product or the
UMC 1000 Technology or the negligent or willful acts or omissions of
AFC or its employees or agents provided: (i) AFC is promptly notified
in writing of any suits, claims, or demands for which AFC is
responsible under this indemnity; (ii) AFC is given full opportunity
and authority to assume the sole defense of and settlement of such
suits; and (iii) AFC is furnished upon request, with all information
and reasonable assistance available to Tellabs and the J.V. Company
for defense against any such suit, claim or demand. To the extent
that the injury or damage results from the negligent or willful acts
or
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omissions of Tellabs or its employees or agents, Tellabs shall
indemnify and defend AFC and the J.V. Company in accordance with the
same terms. Nothwithstanding the foregoing to the extent that the
injury or damage results from (i) defects in the J.V. Product or J.V.
Product Technology, (ii) modifications to the UMC 1000 made by the
J.V. Company; or (iii) the integration of the J.V. Product with the
UMC 1000, the J.V. Company shall be liable therefor.
SECTION 11
TERM OF AGREEMENT
11.1 TERM
The Term of this Agreement shall be fifteen (15) years from the date
first set forth above, unless sooner terminated as provided herein.
11.2 TERMINATION
This Agreement and the J.V. Company created hereby shall be subject to
termination prior to the end of the Term for the reasons set forth in
Section 13.
SECTION 12
DEFAULT
12.1 DEFAULT OF TELLABS
Tellabs shall be deemed to be in material default under this Agreement
upon the occurrence of any of the following:
a. In the event that Tellabs fails to perform or comply with any
material term or condition of this Agreement and fails to cure
such failure within thirty (30) days after receipt of written
notice; provided, however, that an alleged default in making
payments hereunder shall not be deemed a material default if and
while Tellabs reasonably disputes the obligation to make such
payments or the amount due.
b. In the event that Tellabs or any of its Affiliates (i)attempts to
assign, mortgage, transfer, sublicense or otherwise encumber its
rights hereunder to the J.V. Product Technology (or any
Improvements thereof) or the UMC 1000 Technology (or any
Improvements thereto), or to grant rights to any third party
which are prohibited by the terms of this Agreement except in
each case, as expressly authorized hereby; and (ii) fails to cure
such default within thirty (30) days after receipt of written
notice thereof.
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c. In the event that Tellabs ceases to do business, becomes
insolvent, becomes subject to a receiver or trustee, becomes
subject to a voluntary or involuntary petition under the United
States Bankruptcy Laws, or attempts to make any assignment for
the benefit of creditors.
12.2 DEFAULT OF AFC
AFC shall be deemed to be in material default under this Agreement
upon the occurrence of any of the following:
a. In the event that AFC fails to perform or comply with any
material term or condition of this Agreement and fails to cure
such failure within thirty (30) days after receipt of written
notice; provided, however, that an alleged default in making
payments hereunder shall not be deemed a material default if and
while AFC reasonably disputes the obligation to make such
payments or the amount due.
b. In the event that AFC or any of its Affiliate (i) attempts to
assign, mortgage, transfer, sublicense or otherwise encumber its
rights hereunder to the J.V. Product Technology (or any
Improvements thereto), or to grant rights to any third party
which are prohibited by the terms of this Agreement except, in
each case, as expressly authorized hereby; and (ii) fails to cure
such default within thirty (30) days after receipt of written
notice thereof.
c. In the event that AFC ceases to do business, becomes insolvent,
becomes subject to a receiver or trustee, becomes subject to a
voluntary or involuntary petition under the United States
Bankruptcy Laws, or attempts to make any assignment for the
benefit of creditors.
12.3 DEFAULT REMEDIES
Upon a material default by either party hereunder, the other party
may, at its election, seek any remedies available to it, including
termination of this Agreement and the J.V. Company, as provided in
Section 13.
SECTION 13
TERMINATION
13.1 TERMINATION RIGHTS
This Agreement may be terminated:
a. Under the circumstances described in Section 3.1;
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b. If the Partners' Committee determines that the J.V. Product or
market concept is not achievable from either an economic or
technological perspective; and/or
c. By written notice for any event of material default specified in
Section 12.1 or Section 12.2.
13.2 SURVIVAL OF RIGHTS AND OBLIGATIONS
The rights and obligations of any of the provisions hereof which, by
their terms involve continuing obligations, shall be deemed to survive
termination or expiration of this Agreement, in accordance with their
terms.
13.3 EFFECT OF TERMINATION ON LICENSE RIGHTS
a. In the event that the Agreement is terminated as provided in
Sections 13.1(a) or (b) then, unless otherwise agreed, the
Partners agree to liquidate the J.V. Company first by having any
excess but not committed cash distributed back to Tellabs and AFC
in such proportions as such Partner's total cash contributions to
the J.V. Company bears to the total of all cash contribution made
to the J.V. Company by both Partners (up to the full amount of
such Partners cash contribution to the J.V. Company). Any
remaining cash shall be split equally and the remaining assets
distributed in a fair and equitable manner, and, in addition, all
licenses will terminate and each Partner shall receive back full
rights in the respective technology and/or market information
supplied by it.
b. In the event that the Agreement is terminated by one party due to
the material default of the other as provided in Section 13.1(c),
the licenses granted to the J.V. Company in Sections 4.1 and 4.2
will be convened to licenses to the non-defaulting party.
Furthermore, in such event, and subject only to the payment of
any applicable royalties pursuant to Section 9, the license shall
be unrestricted and shall not be subject to the market
restrictions set forth in Section 6. In order to secure the
rights hereunder, each Partner shall be entitled to maintain, at
its principal place of business and in the custody of its Legal
Department, one duplicate copy of all UMC 1000 Technology and
J.V. Product Technology, which shall be kept current at all
times. Such duplicate copies shall not be used unless and until
the rights under this subsection b are granted.
c. In the event of a termination, the Partners will be obligated to
agree upon terms and conditions which provide for continuing
support for each Partner's embedded customer base.
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SECTION 14
MISCELLANEOUS
14.1 GOVERNING LAW
This Agreement shall be governed by the law of the State of California
excluding its conflicts of laws provisions.
14.2 EXPORT
The parties acknowledge that the materials made available to them
hereunder and the direct product(s) produced through use thereof may
be subject to the Export Administration Regulations of the United
States Department of Commerce and other United States Government
regulations relating to the export of technical data and equipment and
product(s) produced therefrom. The parties are familiar with and
agree to comply with all such regulations, including any future
modifications thereof.
14.3 ENTIRE AGREEMENT
This Agreement, including the Exhibits hereto, which are hereby
expressly incorporated herein, and any other document incorporated by
reference herein, constitutes the complete, final and exclusive
understanding between Tellabs and AFC with respect to the subject
matter hereof and supersedes any prior negotiations, discussions or
agreements including but not limited to the Memorandum of
Understanding dated January 13,1994.
14.4 WAIVER AND AMENDMENT
No waiver, amendment or modification of any provision hereof shall be
effective unless in writing and signed by the party against whom such
waiver, amendment or modification is sought to be enforced. No
failure or delay by either party in exercising any right, power or
remedy hereunder shall operate as a waiver of any such right, power or
remedy.
14.5 NOTICES
All notices, demands or consents required or permitted hereunder shall
be in writing and shall be delivered by overnight delivery, facsimile
(with confirmation copy by mail) or mailed to the respective parties
at the addresses first set forth above or at such other address as
shall have been given to the other party in writing for the purposes
of its clause. Notices to AFC shall be sent to Attention: Daniel
Steimle (Fax: 707-794-7777), with a copy to Attention: Michael
Hatfield (Fax: 707-794-7777), at the same address. Notices to Tellabs
shall be sent to Attention: Jon C. Grimes (Fax: 708-378-6721), with a
copy to Attention: Legal Department (Fax: 708-512-7293), at the same
address. Such notices and other communications shall be deemed
effective upon the earliest to occur of (i) actual delivery, (ii) five
days after mailing, addressed and postage prepaid, return receipt
requested, as aforesaid, (iii) one (1) business day after transmission
by
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overnight delivery, or (iv) the day of receipt after transmission by
facsimile where receipt has been confirmed.
14.6 SEVERABILITY
In the event that any provision of this Agreement is held to be
unenforceable or illegal, such provision shall be severed; and the
entire Agreement shall not fail, but the balance of the Agreement
shall continue in full force and effect. In such event, the parties
agree to negotiate in good faith a substitute enforceable and legal
provision which most nearly effects the intent of the parties in
entering into this Agreement.
14.7 ASSIGNMENT/CHANGE IN CONTROL
Except as expressly permitted by the terms of this Agreement, neither
Tellabs nor AFC (or their Affiliates) shall be entitled to assign any
of their rights or obligations hereunder without the express prior
written consent of the other. In the event that either Tellabs or AFC
(or either Partner, if different) become subject to an actual or
potential change in ownership (or an actual or potential sale of
substantially all of such parties' assets) ("Change in Control"), the
party subject to such Change in Control shall be obligated to provide
written notice to the other and shall obtain the other party's prior
written consent to such Change in Control, which consent shall not be
unreasonably withheld.
14.8 LEGAL EXPENSES
The parties shall bear their own legal expenses and fees incurred on
their respective behalfs with respect to this Agreement and the
transactions contemplated hereby.
14.9 ATTORNEY'S FEES
The prevailing party in any action arising out of this Agreement or
the transactions contemplated hereby shall be entitled to recover its
costs and its reasonable attorney's fees incurred therein.
14.10 RIGHTS AND REMEDIES CUMULATIVE
The rights and remedies herein provided shall be cumulative and not
exclusive of any other rights or remedies provided by law or
otherwise.
14.11 PUBLICITY
The parties shall maintain the terms of this Agreement in confidence
and neither party may originate any publicity, news release or other
public announcement relating to this Agreement or die terms hereof
without the prior written approval of the other party, except as
otherwise required by law or governmental regulation (in which event
reasonable prior notice shall be given to the other party).
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14.12 TIME OF ESSENCE
Time is of the essence in all terms and conditions hereof. In
determining any time period herein, the day upon which action is taken
to start the period shall not be counted and the period shall end on
the last designated day of the period.
14.13 FORCE MAJEURE
Neither party shall be responsible for delays or failures in the
performance resulting from acts of God, labor strikes, acts of war of
civil disruption, governmental regulations imposed after the fact,
public utility failures, industry-wide shortages of labor or material
or natural disasters.
14.14 COMPLIANCE WITH LAWS
In performing under this Agreement, each party shall comply with all
federal, state, and local laws, ordinances, rules and regulations. A
party violating or alleged, to have violated any federal, state, or
local law, ordinance, rule or regulation shall defend and hold
harmless the other party and the other party's Affiliates,
Distributors, and End Users from any loss, damages or costs arising
from or caused in any way by any such violation or alleged violation.
14.15 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together
shall constitute but one instrument.
IN WITNESS WHEREOF, This Agreement has been duly executed and delivered by the
parties as of the date first above written.
ADVANCED FIBRE COMMUNICATIONS TELLABS OPERATIONS, INC.
By: /s/Donald Green By: /s/Brian J. Jackman
-------------------------- ---------------------
Name: Donald Green Name: Brian J. Jackman
------------------------ -------------------
Title: President & CEO Title: President
----------------------- ------------------
Date: 4/18/94 Date: 4/21/94
------------------------ -------------------
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EXHIBIT INDEX
Exhibit
A. Pre-existing Technology and Licensed Enhancements
B. Compensation for Resources
C. Formula for Determining Prices for the Product
D. Schedule of Exceptions
E. Services Agreement
F. Cash Management, Disbursement, and Investment Policies
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EXHIBIT D
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions is provided pursuant to the Joint Venture and
Partnership Agreement dated as of April 11, 1994, between Advanced Fibre
Communications ("AFC" or the "Company") and Tellabs Operations, Inc.
("Tellabs"). Unless otherwise indicated, defined terms used herein have the
same meaning as set forth in the Agreement The Section references below
correspond to the sections in the agreement modified hereby.
SECTION 4.1
1. The Company has been in discussions with Harris Corporation
which, in addition to other items, could result in Harris and AFC
entering into an agreement to develop a version of the UMC 1000
integrated with the Harris product known as the Harris 20/20
switch. AFC warrants that the Harris agreement will prohibit the
inclusion of integrated RF capability in any product developed
between Harris and AFC during the period under which AFC and
Tellabs are operating under the exclusivity of their agreement.
SECTION 6.1
1. The product noted in 1. above, if developed, would include
exclusive rights for Harris to market this product worldwide,
except for North America.
2. The Company is in the process of forming a joint venture in Hong
Kong with Elec & Eltek, a Hong Kong publicly traded company,
whose purpose will be for the manufacture and distribution of the
Company's product within the PRC. Subject to certain performance
milestones, this agreement provides the joint venture with
exclusive marketing rights for the UMC 1000E within the PRC for
an initial period of 18 months, with the right for 24 month
extensions.
3. The Company has signed an exclusive distribution agreement with
PT Diavox Nusantara relating to the distribution, marketing and
service of the Company's UMC 1000E in Indonesia. AFC reserved
the right to sell equipment into the territory to systems
engineering companies, end-users or OEM's. The agreement
requires that certain minimum performance levels be met.
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TELLABS CONTRACT NO.: JDL940399LEG-00
4. The Company has signed an exclusive distribution agreement with
Intelcom, S.A. de C.V. relating to the distribution, marketing and
service of the Company's UMC 1000E in Mexico. The agreement requires
that certain minimum performance levels be met.
5. The Company entered into two License, Joint Development, Supply and
Authorized Manufacturing Agreements with Industrial Technology
Research Institute ("ITRI") dated September 25, 1992 related to the
joint development of products based upon the Company's technology.
These agreements provide for the transfer of certain of the Company's
technology to ITRI.
6. The Company entered into an exclusive distribution agreement in
September 1993 with Amruss International Marketing Corporation to
market the UMC 1000E in the Commonwealth of Independent States. The
exclusive rights require certain minimum performance levels to be
met and allows for AFC to sell to systems engineering companies or
end-users not headquartered in the Territory.
7. The Company entered into an exclusive distribution agreement in March
1994 with Amtelcom KFT to market the UMC 1000E in Hungary. The
exclusive rights require certain minimum performance levels to be met
and allows for AFC to sell to systems engineering companies, OEM's or
end-users not headquartered in the Territory.
SECTION 8.2
1. On April 15,1993, Donald Green filed a complaint in the Superior Court
of the State of California in and for the County of Sonoma against DSC
Communications Corporation et al. alleging breach of contact. The
defendants answered the complaint on June 4, 1993 by generally denying
each allegation therein.
2. On July 20, 1993, DSC Communications Corporation ("DSC") and DSC
Technologies Corporation (collectively the "Plaintiffs") filed a
complaint against the Company, Alan Negrin, Henri Sulzer and Quadrium
Corporation in the United States District Court, Eastern District of
Texas, alleging, among other things, tortious interference with
contractual relations against the Company, tortious interference with
prospective contracts and business relationships against the Company,
and civil conspiracy against all the defendants (Civil Action No.
2-93CV126).
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TELLABS CONTRACT NO.: JDL940399LEG-00
On August 26, 1993, the Plaintiffs' filed a First Amended Complaint,
restating certain of the allegations in the original complaint and
also seeking a judicial declaration that, among other, things, the
Company's proprietary technology and products are property of
Plaintiffs. The complaint, as amended, also seeks an injunction
prohibiting the Company from using, transferring or disclosing certain
proprietary information, products and property that the Plaintiffs
allege belong to them. The complaint as amended, seeks punitive
damages and attorneys' fees.
Since August 26, 1993, numerous motions have been made, the defendants
have filed counterclaims, discovery has begun, a trial date has been
set, and an Offer of Judgement has been made to the Plaintiffs.
The Company vigorously denies the allegations made by the Plaintiffs
and intends to continue to contest the actions. In the opinion of
management the allegations contained in the complaints are without
merit, but the outcome of this litigation or the impact of such
outcome on the Company cannot be predicted at this time, other than
the impact from acceptance by the Offer of Judgement.
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EXHIBIT F.
CASH MANAGEMENT, DISBURSEMENT, AND INVESTMENT POLICIES
CASH MANAGEMENT AND DISBURSEMENT POLICIES
The partnership shall establish a main account and a zero disbursement account
at a bank approved by both parties.
An approved bank must satisfy the following minimum criteria:
- Minimum asset size of $3 billion.
- Satisfactory rating from Thompson's Bank Watch and an "A" rating or
better from Standard and Poor's.
The partnership will issue checks drawn against the zero disbursement account
which will be funded, on an as needed basis, by the main account.
Signature authority and approval limits with respect to partnership
disbursements are summarized below:
[*]
INVESTMENT POLICY
Cash investments are limited to investments satisfying the criteria per the
Tellabs Inc. Investment Policy, attached as Exhibit F.1.
The investment strategy shall be mutually agreed upon by Dan Steimle and Chris
Birck or Robert Settles on a quarterly basis prior to investing available cash.
<PAGE>
EXHIBIT F1
TELLABS, INC.
INVESTMENT POLICY
[*]
