<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1997
REGISTRATION NO. 333-20369
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2
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. KENNETH M. SIEGEL, ESQ.
DAVID R. GILBERT, ESQ. TAMARA G. MATTISON, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON SONSINI GOODRICH & ROSATI
ONE MARKET PROFESSIONAL CORPORATION
SPEAR STREET TOWER 650 PAGE MILL ROAD
SAN FRANCISCO, CA 94105 PALO ALTO, CA 94304-1050
(415) 442-0900 (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............................. $ 47,002
NASD filing fee................................................................. 16,011
Nasdaq National Market listing fee.............................................. 4,000
Printing and engraving expenses................................................. 85,000
Legal fees and expenses......................................................... 125,000
Accounting fees and expenses.................................................... 75,000
Blue sky fees and expenses...................................................... 3,000
Transfer agent and registrar fees............................................... 5,000
Miscellaneous expenses.......................................................... 89,987
------------
Total..................................................................... $ 450,000
------------
------------
</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 8 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 January 1994, 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 January 1994, the Registrant has granted stock options to its
employees under its stock option plans covering an aggregate of 3,942,006 shares
of the Registrant's Common Stock, at exercise prices ranging from $0.25 to
$59.625 per share. The Registrant has issued 264,565 shares upon exercise of
these stock options.
(ii) 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.
(iii) 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.
(iv) 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.
(v) 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.
(vi) 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.
(vii) Since January 1994, the Registrant has issued and sold 4,311,920 shares
of Common Stock upon exercise of warrants to 43 individuals.
(viii) Since January 1994, the Registrant has issued and sold 23,685 shares of
Common Stock under its Employee Stock Purchase Plan at $21.25 per share to 364
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.**
3.3 Fourth Amended and Restated Certificate of Incorporation of the Registrant.*
3.5 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 3.3).*
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.*+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
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.*
10.30 Termination Agreement of Joint Venture and Partnership Agreement, dated December 23, 1996, between the
Registrant and Tellabs Operations, Inc.**
10.31 License and Marketing Agreement, dated December 23, 1996, between the Registrant and Tellabs Operations,
Inc.
10.32 OEM Agreement, dated December 23, 1996, between the Registrant and Tellabs Operations, Inc.**
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).**
24.1 Power of Attorney (see page II-6).**
27.1 Financial Data Schedule.**
</TABLE>
- ---------
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (no. 333-8921) filed with the Securities and Exchange Commission on
July 26, 1996, as amended, and declared effective September 30, 1996.
** Previously filed.
+ Portions of this Exhibit have been granted Confidential Treatment.
(b) Financial Statement Schedules
None.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the certificate of
incorporation or the bylaws of Registrant, Indemnification Agreements entered
into between the Registrant and its directors and certain of its officers,
Underwriting Agreement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 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 10TH DAY OF FEBRUARY, 1997.
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. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ------------------------------------------------------ ----------------------
<C> <S> <C>
/s/ DONALD GREEN*
------------------------------- Chairman of the Board and Chief Executive Officer February 10, 1997
Donald Green (principal executive officer)
/s/ CARL J. GRIVNER*
------------------------------- President, Chief Operating Officer and Director February 10, 1997
Carl J. Grivner
/s/ DAN E. STEIMLE Vice President, Chief Financial Officer, Treasurer and
------------------------------- Secretary (principal financial and accounting February 10, 1997
Dan E. Steimle officer)
/s/ B.J. CASSIN*
------------------------------- Director February 10, 1997
B.J. Cassin
/s/ CLIFFORD H. HIGGERSON*
------------------------------- Director February 10, 1997
Clifford H. Higgerson
/s/ BRIAN JACKMAN*
------------------------------- Director February 10, 1997
Brian Jackman
/s/ DAN RASDAL*
------------------------------- Director February 10, 1997
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.**
3.3 Fourth Amended and Restated Certificate of Incorporation of the Registrant.*
3.5 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 3.3).*
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.*
10.30 Termination Agreement of Joint Venture and Partnership Agreement, dated December 23, 1996, between the
Registrant and Tellabs Operations, Inc.**
10.31 License and Marketing Agreement, dated December 23, 1996, between the Registrant and Tellabs Operations,
Inc.
10.32 OEM Agreement, dated December 23, 1996, between the Registrant and Tellabs Operations, Inc.**
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).**
24.1 Power of Attorney (see page II-6).**
27.1 Financial Data Schedule.**
</TABLE>
- ---------
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (no. 333-8921) filed with the Securities and Exchange Commission on
July 26, 1996, as amended, and declared effective September 30, 1996.
** Previously filed.
+ Portions of this Exhibit have been granted Confidential Treatment.
(b) Financial Statement Schedules
None.
<PAGE>
Exhibit 10.31
LICENSE AND MARKETING AGREEMENT
BETWEEN
ADVANCED FIBRE COMMUNICATIONS, INC.
AND
TELLABS OPERATIONS, INC.
This License and Marketing Agreement ("Agreement") is entered into effective as
of December 23, 1996 ("Effective Date") between Advanced Fibre Communications,
Inc., a Delaware corporation located at 1445 McDowell Boulevard North, Petaluma,
CA 94975 ("AFC"), and Tellabs Operations, Inc., a Delaware corporation located
at 4951 Indiana Avenue, Lisle, IL 60532 ("Tellabs").
RECITALS
WHEREAS, AFC manufactures and sells or licenses certain telecommunications
hardware and software products;
WHEREAS, Tellabs is in the business of manufacturing, marketing and distributing
telecommunications products throughout the world;
WHEREAS, Tellabs and AFC were parties to a Joint Venture and Partnership
Agreement dated April 11, 1994 ("J.V. Agreement");
WHEREAS, Tellabs and AFC entered into a Memorandum of Understanding dated April
3, 1996 ("MOU") pursuant to which they agreed to terminate the J.V. Agreement;
WHEREAS, Tellabs and AFC have terminated the J.V. Agreement by entering into a
Termination Agreement contemporaneously herewith ("Termination Agreement");
WHEREAS, AFC wishes to grant to Tellabs, as provided herein, a development
license to modify certain of AFC's technology on a restricted basis for sale of
products by Tellabs, and further, upon completion of such modifications, Tellabs
desires to grant AFC the option to purchase such products from Tellabs on the
terms and conditions set forth in this Agreement and in a separate OEM Agreement
to be entered into contemporaneously herewith ("OEM Agreement");
- -------------------------------------------------------------------------------
12/23/96 Page 1 of 42
<PAGE>
WHEREAS, AFC may make certain developments to its UMC 1000 Products (as defined
below) and desires to grant to Tellabs, as provided herein, an option to fund
additional developments or to accelerate AFC planned developments on the terms
and conditions set forth in this Agreement as well as the option to purchase the
UMC 1000 Products from AFC on the terms and conditions set forth in this
Agreement and in the OEM Agreement;
WHEREAS, the parties wish to grant certain manufacturing rights to one another
for certain of their respective products; and
WHEREAS, AFC and Tellabs wish to provide for certain marketing and sales
activities on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
parties agree as follows:
1. DEFINITIONS
1.1 CROSS REFERENCE TABLE
The following terms defined elsewhere in this Agreement in the
sections set forth below, shall have the respective meanings therein
defined:
Section
-------
"Annual Revenue" 7.3.2
"CAPs" 7.1.1
"Competitive DLC Product" 5.5.1
"Competitive HFC Product" 5.5.2
"Current Bus" 3.1.1
"Development License Breach" 2.8
"Domestic Alternate Provider" 7.1.1
"Entities" 7.3
"Foreign Alternate Provider" 7.2.1
"Holding Company" 7.3.1
"J.V. Agreement" Preamble
"MOU" Preamble
"MSO" 7.1.1.1
"OEM Agreement" Preamble
"Specifications" 3.2.2
"Statement of Work" 3.2.1
"Tellabs Funded Development" 3.2
- -------------------------------------------------------------------------------
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<PAGE>
"Terminated Party" 13.3
"Terminating Party" 13.3
"Termination Agreement" Preamble
"Unauthorized Development" 2.8
1.2 "AFC COMPETITOR" shall mean a company engaged in the business of
development and marketing of a Competitive DLC Product.
1.3 "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 such entity.
1.4 "CPU SYSTEM SOFTWARE" means any software, including firmware,
developed by or for AFC, which is imbedded or incorporated in or used
in connection with the CPU for the UMC 1000 Products.
1.5 "DISTRIBUTOR" shall mean any person or entity who has been granted the
right to distribute or re-sell 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 7.4 hereof.
1.6 "EMS INTERFACE" means the Software for an SNMP and/or Q3 MIB that is
loaded on the DLP module which is part of the UMC 1000 Product.
1.7 "END USER" shall mean any person or entity who has been granted the
right to use, but not to distribute or re-sell, any products sold by
AFC and/or Tellabs, either directly by such party or indirectly under
authority granted by such party.
1.8 "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 "DESIGN PACKAGE" shall mean the set of documentation for the design of
the applicable product, and shall include, but shall not be limited
to, engineering design specifications, engineering test
specifications, costed bill of materials, parts list, board lay-outs
and schematics. The Design Package shall include, at a minimum, the
same level and types of documentation developed by AFC for the UMC
1000 Products.
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1.10 "HARDWARE" shall mean equipment, modules, assemblies and subassemblies
but does not include Software.
1.11 "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 "JOINT TECHNOLOGY" means the technology relating to the upconverter,
direct down converter, LUU-VIC burst receiver and QPSK clock recovery
circuits for the product developed under the J.V. Agreement and now
owned equally by Tellabs and AFC, as provided in the Termination
Agreement, as well as any Improvements or Enhancements to the LUU-VIC
burst receiver which are or have been contributed to by Victor Ivashin
after the Effective Date.
1.13 "J.V. Product" means the products developed pursuant to the terms of
the J.V. Agreement, whether developed by the J.V. Company, AFC or
Tellabs or jointly, including any Enhancements and Improvements
thereto.
1.14 "J.V. PRODUCT TECHNOLOGY" means the technology embodied in the J.V.
Product including, without limitation, design documentation, board
schematics, software, firmware, object and source code, designs,
technology, ideas, know-how, processes, formulas, data, techniques,
improvements, modifications, inventions (whether patentable or not),
works of authorship, derivative works, circuits, mask works, layouts,
algorithms, and computer programs relating thereto, and all patents,
patent rights, copyrights, mask work rights, trade secret rights and
other intellectual property and proprietary rights therein anywhere in
the world.
1.15 "MANUFACTURING DOCUMENTATION" shall mean the set of documentation for
the manufacture of the applicable product, which shall include those
documents referred to in Attachment A hereto, if available, but which
shall, in any event, be at least as detailed as the information
provided to the providing party's other manufacturing organizations,
both internal and external.
1.16 "NET REVENUE" shall mean a party's actual revenue received from the
distribution of the applicable product(s) hereunder (not including
taxes, freight, shipping, transport, handling, packaging, insurance,
export fees, duties, commissions and similar charges), less deductions
for returns.
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1.17 "RF ACCESS PRODUCTS" means (a) the Hardware, Software and mechanical
aspects of a family of stand-alone coax RF access products; and (b)
the Software additions and modifications to the CPU System Software
solely for the purpose of supporting such RF Access Products (namely,
CUI provisioning screens, building a CPU load for Tellabs' name, logo,
and part numbers and database entries to support new RF card types),
where the maximum drop bandwidth is twelve (12) DSOs of capacity for
voice services (but no maximum drop bandwidth limitations for data).
1.18 "RF TRANSCEIVERS" means (a) the RF modem hardware (clock, data and
control) needed to interconnect into the AFC owned and controlled
backplane ASICs (e.g., WBGA) and the micro complex; (b) the software
or firmware loaded onto RF Transceiver boards; and (c) the software
additions to the CPU System Software solely for the purpose of
supporting the RF Transceivers (namely, CUI provisioning screens,
building a CPU load for Tellabs' name, logo, and part numbers and
database entries to support new RF card types).
1.19 "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.
1.20 "TELLABS" shall mean Tellabs Operations, Inc. and its Affiliates.
1.21 "TELLABS COMPETITOR" shall mean a company engaged in the business of
development and marketing of a Competitive HFC Product.
1.22 "TELLABS DEVELOPMENTS" means, collectively, the (i) J.V. Product; and
(ii) the EMS Interface, the RF Access Products and the RF Transceivers
and any Enhancements and Improvements to the EMS Interface, the RF
Access Products and RF Transceivers, developed by Tellabs after the
Effective Date.
1.23 "TELLABS TECHNOLOGY" means the technology embodied in the Tellabs
Developments and any other products and technology developed by
Tellabs (and any Enhancements and Improvements to any of the foregoing
developed by Tellabs after the Effective Date) including,
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<PAGE>
without limitation, design documentation, board schematics, software,
firmware, object and source code, designs, technology, ideas, know-how,
processes, formulas, data, techniques, improvements, modifications,
inventions (whether patentable or not), works of authorship, derivative
works, circuits, mask works, layouts, algorithms, and computer programs
relating thereto, and all patents, patent rights, copyrights, mask work
rights, trade secret rights and other intellectual property and proprietary
rights therein anywhere in the world. "Tellabs Technology" specifically
excludes the UMC 1000 Licensed Technology and any modifications and
additions made by Tellabs to the CPU System Software, which shall be owned
by AFC.
1.24 "UMC 1000 LICENSED TECHNOLOGY" means technology developed by or
for, or licensed to AFC for the CPU, DLP, shelves and backplane of
the UMC 1000 Products existing as of the Effective Date of this
Agreement (and any Enhancements and Improvements to the foregoing
developed by AFC after the Effective Date which are licensed to
Tellabs pursuant to Section 3.1 below), including, without
limitation, design documentation, board schematics, software,
firmware, object and source code, designs, technology, ideas, know-
how, processes, formulas, data, techniques, improvements,
modifications, inventions, (whether patentable or not), works of
authorship, derivative works, circuits, mask works, layouts,
algorithms, and computer programs relating thereto, and all
patents, patent rights, copyrights, mask work rights, trade secret
rights and other intellectual property and proprietary rights
therein anywhere in the world.
1.25 "UMC 1000 PRODUCTS" mean those products currently constituted of
the AFC UMC 1000 product line as it exists as of the Effective Date
plus all Enhancements and Improvements thereto developed by or for
AFC during the term of this Agreement, whether or not carrying the
"UMC 1000" name, which are licensed to or otherwise made available
to Tellabs pursuant to the terms of this Agreement.
1.26 "UMC 1000 TECHNOLOGY" means the technology embodied in the UMC 1000
Products, including, without limitation, design documentation,
board schematics, software, firmware, object and source code,
designs, technology, ideas, know-how, processes, formulas, data,
techniques, improvements, modifications, inventions, (whether
patentable or not), works of authorship, derivative works,
circuits, mask works, layouts, algorithms, and computer programs
relating thereto, and all patents, patent rights, copyrights, mask
work rights, trade secret rights and other
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intellectual property and proprietary rights therein anywhere in the world.
2. DEVELOPMENT LICENSE FOR UMC 1000 LICENSED TECHNOLOGY
2.1 Subject to the terms and conditions of this Agreement, AFC hereby
grants Tellabs a limited, nontransferable, nonsublicensable,
nonexclusive, perpetual, irrevocable, worldwide license and right
to use the UMC 1000 Licensed Technology subject to the restrictions
herein and only for the purpose of developing, having developed,
manufacturing, having manufactured, maintaining, enhancing and
modifying and distributing:
2.1.1 Coax RF Transceivers which plug into any current or future
AFC shelf/assemblies;
2.1.2 An EMS Interface based upon SNMP and/or Q3 for network
management provided, however, that AFC shall be obligated to
make the Hardware modifications to the DLP and CPU System
Software changes to support Tellabs' requirements for the
EMS Interface;
2.1.3 RF Access Products that communicate with the RF Transceivers
referenced in Section 2.1.1 above. Such RF Access Products
will have a coax RF modem as the transceiver interface to
the UMC 1000 Products. The data interfaces on the RF Access
Products cannot be used as a transceiver to any additional
digital loop carrier equipment or any equipment used by the
service provider to derive voice services; and
2.1.4 Any mechanical products or designs outside of the UMC 1000
Product plug-in cards, shelf and/or backplane.
2.2 Tellabs shall have sole responsibility for funding the developments
listed in Section 2.1 and such developments will be deemed Tellabs
Technology hereunder, with the exception of any UMC 1000 Licensed
Technology incorporated or contained therein.
2.3 The license described in this Section 2 does not give Tellabs the
right to develop or have developed a copper, fiber or wireless
transceiver interface that communicates with the UMC 1000
Products. Such products are considered part of the UMC 1000
Products and will be developed and owned by AFC. Notwithstanding
the foregoing, nothing contained herein shall prohibit Tellabs
from using standard network interfaces to connect
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with the UMC 1000 Products. Standard network interfaces do not
include any proprietary communication protocols.
2.4 AFC will maintain software locks between the UMC 1000 Products and
the Tellabs versions for such products. Tellabs will provide AFC
with all information reasonably required by AFC to maintain such
locks.
2.5 Tellabs will have no rights to sell, transfer, license or assign
the UMC 1000 Licensed Technology to any third party.
2.6 AFC shall control the CPU System Software. The license rights
granted pursuant to Sections 2.1.1 and 2.1.3 shall include the
right to make necessary changes to the CPU System Software. Except
as expressly permitted in this Agreement, Tellabs shall not be
allowed to modify the CPU System Software to alter or to modify the
basic UMC 1000 Product functionality, including, but not limited
to, call control, database structures, and interprocessor
communication. Any changes desired in these areas, will be made
only by AFC, as reasonably requested by Tellabs, at charges
calculated using the formula in Section 3.2.4. The changes made
pursuant to this Section 2.6 will be deemed a Tellabs Funded
Development under Section 3, provided however, that the payments
made by Tellabs will not be treated as advances on royalties under
Section 3.4.
2.7 AFC shall have the right, by written notice, to terminate
immediately the development license granted to Tellabs in Section
2.1 under the circumstances set forth in Section 2.8 below. If the
Section 2.1 license is terminated pursuant to this section, Tellabs
shall be required to turn over to AFC any designs which violate the
restrictions and remove any product containing such designs from
any customer locations. AFC shall not be entitled to use any such
designs but will retain all rights to the underlying UMC 1000
Licensed Technology.
2.8 Tellabs will be deemed to have committed a "Development License
Breach" if; (i) Tellabs violates the development license in Section
2.1 by developing a product, a feature or a fix outside the scope
of the license granted pursuant to Section 2.1 ("Unauthorized
Development"), and (ii) such Unauthorized Development is actually
incorporated in a product which is sold by Tellabs to a Customer.
If Tellabs commits a single Development License Breach during the
course of any consecutive twelve-month period, Tellabs shall be
entitled to cure such breach by: (i) removing the Unauthorized
Development from any
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customer locations; and (ii) restoring the product design to its
original condition, prior to the Unauthorized Development. If
Tellabs either: (i) fails to cure the Development License Breach;
or (ii) commits a second Development License Breach during any
consecutive twelve-month period, AFC shall be entitled to exercise
the rights as set forth in Section 2.7 above. The remedy set forth
in Sections 2.7 and 2.8 shall be AFC's sole remedies for Tellabs'
breach of the development license provided, however, that is after
termination of the development license, Tellabs thereafter commits
another Development License Breach, AFC shall be entitled to
exercise the rights set forth in Sections 13 and 14 of this
Agreement.
3. UMC 1000 FUTURE DEVELOPMENTS
3.1 Tellabs shall be entitled to have access to Enhancements and
Improvements to the UMC 1000 Products developed by AFC after the
Effective Date (whether or not a Tellabs Funded Development), as
provided in this Section 3.1.
3.1.1 The development license granted pursuant to Section 2 shall
extend to all Improvements and Enhancements to the UMC 1000
Licensed Technology relating to developments which are
designed to fit into the 98 megabit backplane bus for the
UMC 1000 Products as it exists on the Effective Date
("Current Bus"). AFC shall deliver the Design Package
within ten (10) days of commencement of beta trial for each
such Improvement or Enhancement.
3.1.2 The manufacturing rights granted pursuant to Section 5 shall
extend to all Enhancements and Improvements to the UMC 1000
Products which fit into the Current Bus.
3.1.3 The Enhancements and Improvements referred to in Sections
3.1.1 and 3.1.2, as well as any other Enhancement or
Improvement which operates with both the Current Bus and a
new backplane bus, including but no limited to the new high-
speed bus for the next version of the UMC 1000 Products,
will be made available to Tellabs on an OEM basis under the
terms and conditions set forth in the OEM Agreement and in
Section 5 of this Agreement. AFC agrees that the design for
the new high-speed bus backplane will allow the Tellabs
Developments for the Current Bus to plug into and operate
with Current Bus on the new backplane.
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3.1.4 AFC agrees to grant Tellabs manufacturing rights for any
Enhancement or Improvement to the UMC 1000 Products which
operate with both the Current Bus and a new backplane bus,
on commercially reasonable terms and conditions to be agreed
upon by the parties.
3.2 Tellabs has an option to fund additional Enhancements and
Improvements to the UMC 1000 Products (including but not limited to
the UMC 1000 Licensed Technology), or to accelerate, to the extent
reasonable and feasible, AFC-planned Enhancements and Improvements
to the UMC 1000 Products as Tellabs deems necessary for its markets
(collectively "Tellabs Funded Developments"). Any additional
Enhancements or Improvements to the UMC 1000 Licensed Technology
developed by AFC pursuant to this Section 3.2 shall be made
available to Tellabs under the license and subject to the
restrictions in Section 2 above. The following provisions will
apply to any Tellabs Funded Developments:
3.2.1 PREPARATION OF STATEMENT OF WORK. The parties shall jointly
prepare a mutually agreed upon written statement of work
("Statement of Work") setting forth the development
activities and obligations of AFC with respect to
specifications for the Tellabs Funded Development and a
milestone schedule and estimated resource allocations for
the completion of such activities and obligations. The
parties understand and agree that the Statement of Work may
be modified, from time to time, but only if such
modification is in writing and signed by both parties.
3.2.2 SPECIFICATIONS. All work and performance under the
Statement of Work shall be pursuant to one or more
specifications setting forth the functional description for
the Tellabs Funded Development ("Specification(s)")
developed by the parties, each of which shall be in writing
and become effective only when signed by both parties.
Changes in any Specification shall be effective only when a
written change request is signed by both parties.
3.2.3 DEVELOPMENT OBLIGATIONS. AFC will develop the Tellabs
Funded Developments in accordance with the Statement of Work
and Specifications. Unless otherwise agreed to by Tellabs,
AFC will not be allowed to reassign resources designated by
the Statement of Work to other developments until AFC has
completed its development of the Tellabs Funded Development.
Reassignment of such specifically committed resources by AFC
will be considered a breach of this Section 3.2.3 and will
allow Tellabs to manage the
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<PAGE>
development resources at AFC assigned to the applicable
Statement(s) of Work as provided in Section 3.5.
3.2.4 FUNDING. Funding level estimates for these Tellabs Funded
Developments will be determined per project based on a set
criteria mutually agreed to by the two companies. Tellabs may
fully participate in the progress of these developments which
includes but is not limited to inspecting development schedules,
attending formal design review(s), receiving copies of design
specifications and test results, and the right to participate in
the formulation of plans to keep projects on track. Tellabs will
provide the cash funding for these developments based upon the
actual salaries of the developers, plus 24.2% for benefits of
the recorded staff hours for the Tellabs Funded Developments
(provided that no benefit amount shall be charged if
consultants or outside contracted engineering are used to the
extent AFC is not responsible for benefit amounts). In addition,
Tellabs also will provide cash funding for facilities and
equipment allocations for any developers over an FTE (full-time
equivalent) of five (5). This amount will be paid on a monthly
basis within thirty (30) days after receipt of a valid invoice.
To receive payment, AFC must submit a formal invoice no later
than thirty (30) days after the end of the billing period,
including name, hours worked, actual salary rate and benefit
amount, if applicable. Tellabs will have no obligation to pay
invoices which are late (by more than sixty (60) days beyond
the thirty (30) day period in the prior sentence) or which do
not contain the information required by the previous sentence.
3.2.5 OWNERSHIP. AFC will own any and all CPU System Software
modifications and pre-existing UMC 1000 Technology which is
contained in a Tellabs Funded Development. Tellabs and AFC will
jointly own (and have equal rights to) all other technology
relating to a Tellabs Funded Development, including but not
limited to new Software code resident on a plug-in card that
controls the new circuit designs provided that Tellabs has
provided one hundred percent (100%) of the funding, otherwise
AFC will own such technology. Prior to commencing development,
the parties will jointly agree upon the level of ownership and
the funding allocation for each portion of the development,
subject to the foregoing terms. Tellabs agrees not to sell,
transfer or assign the jointly-owned technology to an AFC
Competitor. AFC agrees that the jointly owned technology will be
subject to all rights and restrictions relating to other UMC
1000 Technology.
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3.3 AFC agrees to use its best efforts to complete developments in a
timely fashion and to keep Tellabs fully informed as to the
status of all UMC 1000 Product developments. AFC agrees to
distribute to Tellabs on a regular basis no less frequently than
monthly, a copy of the UMC Product roll-out plans, product
definitions, and development schedules for all planned
Enhancements and Improvements to the UMC 1000 Product.
3.4 If Tellabs funds a Tellabs Funded Development, such funds will
be considered a non-refundable advance against any royalties
Tellabs will be obligated to pay AFC for sales of each
particular development, which will be recouped against any such
royalties that accrue for such development until such time as
that project's development cost has been completely recouped
except for Tellabs Funded Developments under Section 2.6. At
such time as the development funds have been recouped, Tellabs
shall resume normal royalty payments on that particular
development. In the case of Tellabs Funded Developments
involving CPU System Software developments, a percent of the
overall system selling price will be used to determine the sales
value of the waived royalty amount.
3.5 If AFC (i) refuses to undertake development of a Tellabs Funded
Development, or (ii) fails to undertake any of its development
obligations under Section 2.1.2 and/or 2.6 hereof, AFC will be
considered in breach of its development commitment to Tellabs
and subject to a $100,000 penalty payable to Tellabs for each
such failure. Tellabs cannot accelerate an AFC-planned feature
that is within three (3) months of the date requested by
Tellabs. In addition, if AFC begins a Tellabs Funded
Development, or any development under Section 2.1.2 or 2.6, and
if that development is more than three (3) months late based
upon the key milestones as originally outlined in the plan for
the project mutually agreed to by both companies (or as amended
by mutual agreement), or, under the circumstances referred to in
Section 3.2.3, then Tellabs at its option can elect to take over
the management of this specific development project and the
resources which had been agreed upon as assigned to perform that
development at AFC's location. Unless otherwise agreed, Tellabs
shall not have the right to assign additional AFC resources to
this specific development; Tellabs' only right shall be to
manage AFC development resources assigned to the project and, if
necessary, to add Tellabs' resources provided that those
resources must perform their work in Petaluma, CA.
4. OWNERSHIP
4.1 AFC shall retain and own all title and, except as expressly
licensed herein, all rights and interests (including patent
rights, copyrights, trade secret
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<PAGE>
rights, know-how and other intellectual property and proprietary
rights throughout the world) in and to (i) the UMC 1000
Technology including, without limitation, the UMC 1000 Licensed
Technology and CPU System Software (including without limitation
all Software and firmware related to the foregoing); (ii) any
additional UMC 1000 Enhancements and Improvements developed by
AFC pursuant to Section 3 (including without limitation, to the
extent applicable thereto): (a) CPU System Software developments,
modifications or derivatives thereof and any existing AFC
technology/circuit designs on the UMC 1000 Product plug-in cards
that are reused in new UMC 1000 Enhancements or Improvements,
and (b) new technology/circuit designs of UMC 1000 Product
plug-in cards and the new software code which resides in such
plug-in cards and controls such new circuit designs); and (iii)
any and all portions of the foregoing which are contained or
embodied in the Tellabs Technology, discoveries, inventions,
works of authorship, ideas or information used or otherwise
created by or for Tellabs in the course of its performance under
this Agreement.
4.2 Tellabs shall retain and own all title and, except as expressly
licensed herein, all rights and interests (including patent
rights, copyrights, trade secret rights, know-how and other
intellectual property and proprietary rights throughout the
world) in and to the Tellabs Technology.
4.3 Ownership of Tellabs Funded Developments shall be as set forth
in Section 3.2.5 hereof.
4.4 Each party will execute any documentation reasonably requested
by the other party to evidence, record and perfect the
assignment and to apply for and obtain recordation of such
proprietary rights.
5. MANUFACTURING RIGHTS AND OEM PRODUCT PURCHASE
5.1 TELLABS' MANUFACTURING RIGHTS.
AFC grants Tellabs the right to sell all UMC 1000 Products in
Tellabs colors and software, either as provided in the OEM
arrangement under Section 5.2 or by exercise of Tellabs'
manufacturing rights under this Section 5.1., at Tellabs'
option, and subject to Tellabs' marketing rights under Section 7
of this Agreement,.
5.1.1 Subject to all of the terms and conditions of this
Agreement, AFC grants to Tellabs a non-exclusive,
irrevocable, perpetual, worldwide (except as provided
in Section 5.1.2) right and license to manufacture,
have manufactured, distribute, maintain, service and
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repair UMC 1000 Products as they exist on the Effective
Date, as well as all Enhancements and Improvements
thereto referred to in Section 3.1.2, for the sole
purpose of enabling manufacture of the Tellabs version
of the UMC 1000 Product(s) for sale to Tellabs'
customers within the scope of Tellabs' marketing rights
under Section 7 of this Agreement.
5.1.2 Notwithstanding the language in Section 5.1.1, Tellabs
may not exercise its manufacturing rights in China and
India. If AFC has a local manufacturing partner in
China and/or India, AFC agrees to sell the UMC 1000
Product to Tellabs in that territory using the
local manufacturer at the same prices specified in this
Agreement, plus applicable taxes and duties if so
assessed to AFC.
5.1.3 If Tellabs decides to exercise its manufacturing rights
granted under Section 5.1.1, AFC agrees to provide
Tellabs with the Manufacturing Documentation to enable
Tellabs to purchase, manufacture and test the UMC 1000
Products. The level of information and support provided
to Tellabs shall be at least as detailed as the
information and support AFC provides other AFC
manufacturing organizations, both internal and
external. AFC will, at no charge, provide Tellabs with
the functional test software to allow Tellabs to test
the UMC 1000 Products. AFC also agrees to provide
Tellabs with certain proprietary components for which
AFC will charge Tellabs an amount equal to what AFC
pays for such proprietary components plus a small
handling fee not to exceed fifteen percent (15%) of
AFC's cost. AFC will lower this percentage mark-up
(with an objective of reaching 3%) when and as
permitted by its pre-existing pricing arrangements with
other parties. AFC will update the Manufacturing
Documentation and the functional test software at
all times during the term hereof, as necessary to keep
it current. If requested by Tellabs, AFC will place in
escrow, all technology relating to the proprietary
components, which escrow will be released to Tellabs
for use in exercising its manufacturing rights in the
event AFC ceases to make such proprietary components
available to Tellabs either, (i) due to bankruptcy or
otherwise due to AFC's ceasing to do business, or (ii)
due to AFC's material breach of its obligations to
provide proprietary components. The definition of
"material breach" for purposes of this section will be
agreed at the time the escrow is established.
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5.2 TELLABS' OEM ARRANGEMENT OPTION.
5.2.1 If Tellabs decides not to exercise its manufacturing
rights referenced in Section 5.1.1, in whole or in
part, AFC agrees to sell to Tellabs the UMC 1000
Products in the Tellabs version under the terms of this
Agreement and the OEM Agreement. In addition, AFC
agrees to sell to Tellabs the UMC 1000 Products
Enhancements and Improvements referred to in Section
3.1.3 of this Agreement in the Tellabs version under
the terms of this Agreement and the OEM Agreement.
5.2.2 The purchase price for any product purchased by Tellabs
under the OEM Agreement shall be the higher of (i) the
manufacturing cost plus five percent (5%) or (ii)
twenty percent (20%) off the U.S. list price.
Notwithstanding the foregoing, Tellabs shall be
entitled to a discount off its purchase price based on
the volume of its purchases, if such discounted price
is lower than the price referred to in the preceding
sentence. AFC's current volume discount is set forth in
Attachment B. If AFC subsequently establishes a more
favorable standard volume discount structure, Tellabs
shall be entitled to the discounts contained therein.
5.2.3 Product shipments, forecasting, warranty, support,
repair and return, and the like, will be as set forth
in the OEM Agreement. Tellabs is responsible for
developing its own product documentation, however, AFC
agrees to share its customer documentation with
Tellabs, and to allow Tellabs to use, copy and modify
that documentation for its product as needed, at no
charge.
5.3 AFC'S MANUFACTURING RIGHTS.
5.3.1 Tellabs Developments will be made available to AFC for
sale in AFC's colors and software, either as provided
in the OEM Agreement, as permitted by Section 5.4 below
or by exercise of AFC's manufacturing rights under this
Section 5.3., at AFC's option, subject to AFC's
marketing rights under Section 7. Subject to the terms
of this Agreement, Tellabs grants to AFC the option to
manufacture the Tellabs Developments for the sole
purpose of manufacturing the UMC 1000 version of such
Tellabs Developments for shipment to its customers,
within the scope of its marketing rights under Section 7
below. Other products which are developed by Tellabs
using the J.V. Product Technology will be made
available to AFC on an OEM basis, on commercially
reasonable terms and conditions to be agreed. AFC will
have no
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rights to sell, transfer, license or assign the Tellabs
Technology to any third party.
5.3.2 If AFC decides to exercise its manufacturing rights granted
under Section 5.3.1, Tellabs agrees to provide AFC with the
Manufacturing Documentation to enable AFC to purchase,
manufacture and test the Tellabs Developments which are to
be manufactured by AFC. The level of information and
support provided to AFC shall be at least as detailed as the
information and support Tellabs provides other Tellabs
manufacturing organizations, both internal and external.
Tellabs also agrees to provide AFC with certain proprietary
components which Tellabs will charge AFC an amount equal to
what Tellabs pays for such proprietary components plus a
small handling fee, not to exceed fifteen percent (15%) of
Tellabs' cost. This percentage mark-up will be lowered when
and as the mark-up in Section 5.1.3 is lowered. Tellabs
agrees to provide AFC with updates to the Manufacturing
Documentation as necessary to keep it current during the
Term hereof. If requested by AFC, Tellabs will place in
escrow, all technology relating to the proprietary
components, which escrow will be released to AFC for use in
exercising its manufacturing rights in the event Tellabs
ceases to make such proprietary components available to AFC
either, (i) due to bankruptcy or otherwise due to Tellabs
ceasing to do business, or (ii) due to Tellabs' material
breach of its obligations to provide proprietary components.
The definition of "material breach" for purposes of this
section will be agreed at the time the escrow is
established.
5.4 AFC'S OEM ARRANGEMENT OPTION.
5.4.1 If AFC decides not to exercise its manufacturing rights
referenced in Section 5.3.1., in whole or in part, Tellabs
agrees to sell to AFC the AFC version of the Tellabs
Developments under the terms of the OEM Agreement and this
Agreement.
5.4.2 If AFC elects to purchase the Tellabs Developments pursuant
to the OEM Agreement, the amount AFC will pay for the
Tellabs Developments shall be the higher of (i) the
manufacturing cost plus five percent (5%) or (ii) twenty
percent (20%) off the U.S. list price. Notwithstanding the
foregoing, AFC shall be entitled to a discount off its
purchase price based on the volume of its purchases if such
discounted price is lower than the price referred to in the
preceding sentence. Tellabs' current volume discount
structure is set forth in Attachment B. If Tellabs
subsequently establishes a more favorable
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<PAGE>
standard volume discount structure, AFC shall be entitled to
the discounts contained therein.
5.4.3 Product shipments, forecasting, warranty, support, repair
and return and the like, will be as set forth in the OEM
Agreement between the parties. AFC is responsible for
developing its own product documentation, however, Tellabs
agrees to share its customer documentation with AFC, and to
allow AFC to use, copy and modify that documentation for its
product as needed, at no charge.
5.5 COMPETITIVE PRODUCTS.
5.5.1 If (i) Tellabs licenses or sells Tellabs Technology to an
AFC Competitor under terms and conditions which would permit
the use of the Tellabs Technology with a digital loop
carrier product which is competitive with the UMC 1000
Product ("Competitive DLC Product"), or if (ii) Tellabs
acquires or develops a Competitive DLC Product and ships
that product to one or more Alternate Provider(s) in both of
the market segments defined below, then, the license granted
in Section 2 and the exclusive market rights provided in
Section 7, shall immediately terminate (and AFC will
immediately be able to sell UMC 1000 Products and Tellabs
Developments to Alternate Provider(s) in those market
segments) and Tellabs will thereafter have no rights to sell
the UMC 1000 Products to new customers. In such a case, the
manufacturing rights and OEM rights granted in Section 3
will continue for a period of two (2) years, and thereafter
Tellabs will be entitled to continue to purchase the UMC
1000 Products under the OEM Agreement for one (1) additional
year, in order to continue to support Tellabs' installed
base for a total of three (3) years from the time the
license is terminated. Tellabs' royalty obligations will
continue during this period. In addition, in such a case,
Tellabs would be required to return to AFC all information
relating to the UMC 1000 Licensed Technology, except such
information required to manufacture the UMC 1000 Products
for support of the installed base.
If Tellabs acquires or develops a Competitive DLC Product
and ships that product to one or more Alternate Provider(s)
in only one of the market segments defined below, then
Tellabs will immediately lose its market rights for sales to
new customers within that market segment only and AFC will
immediately be able to sell UMC 1000 Products and Tellabs
Developments to Alternate
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<PAGE>
Providers in that market segment. Tellabs will continue to
have manufacturing and OEM rights in accordance with the
preceding paragraphs, in order to support existing customers
in that market segment for a period of three (3) years.
Tellabs' royalty obligations will continue during this
period. All rights with respect to the other market segment
will remain in full force and effect.
For the purposes of Sections 5.5.1 and 5.5.2, (i) the term
"Alternate Provider" includes both "Domestic Alternate
Providers" or "Foreign Alternate Providers" and (ii) there
are two major market segments (1) an ANSI-based product
(T1/SONET) and (2) a CEPT-based product (E1/SDH). The
restrictions set forth in this Section 5.5.1 only apply for
international countries into which Tellabs has been granted
marketing rights to sell UMC 1000 Products under Section 7
below. Tellabs shall be entitled to acquire, distribute, or
perform an independent development and sell and/or
distribute any products, including, but not limited to
Competitive DLC Products in those countries listed on
Attachment E, without losing any rights provided for in this
Agreement.
5.5.2 If (i) AFC makes UMC 1000 Products available to a Tellabs
Competitor, or if (ii) AFC acquires or develops a hybrid
fiber coax product ("Competitive HFC Product") and ships and
sells that product to one or more Alternate Provider(s) in
both market segments defined in Section 5.5.1, then AFC will
immediately lose its rights as provided in Section 7.1.2 to
sell the Tellabs Developments to new customers in both
market segments and Tellabs will immediately be able to sell
the Tellabs Developments and the UMC 1000 Products (but only
in conjunction with sales of Tellabs Developments) to AFC's
customers in those market segments. In such a case, the
manufacturing rights granted in Section 3 will continue for
a period of two (2) years, and thereafter, AFC will be
entitled to continue to purchase the Tellabs Developments
under the OEM Agreement for one (1) additional year, in
order to continue to support AFC's installed base for the
Tellabs Developments for a total period of three (3) years
from the period AFC lost its rights to sell the Tellabs
Developments to new customers. AFC's royalty obligations
will continue during this period.
If AFC acquires or develops a Competitive HFC Product and
ships and sells such product to one or more of the Alternate
Provider(s) markets in only one of the market segments
defined in Section
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<PAGE>
5.5.1, then AFC will immediately lose its market rights for
sales to new customers of Tellabs Developments within that
market segment only and Tellabs will immediately be able to
sell the Tellabs Developments and the UMC 1000 Products (but
only in conjunction with sales of Tellabs Developments) to
AFC's customers in that market segment only. AFC will
continue to have manufacturing and OEM rights in accordance
with the preceding paragraphs, in order to support existing
customers in that market for a period of three (3) years.
AFC's royalty obligations will continue during this period.
All AFC rights with respect to Tellabs Developments for the
other market segment will remain in full force and effect.
5.5.3 The rights and remedies granted in Section 5.5 shall be the
parties' exclusive remedy in the event that; (i) Tellabs
licenses or sells Tellabs Technology to an AFC Competitor;
(ii) AFC makes UMC 1000 Products available to a Tellabs
Competitor; or (iii) the other party develops or acquires a
Competitive DLC Product or Competitive HFC Product.
6. ROYALTY PAYMENTS
6.1 TELLABS' ROYALTY OBLIGATIONS. Tellabs agrees to pay AFC the
following royalties:
a. Six percent (6%) of Net Revenue
from shelves/assemblies, DLP, T1X, E1X, L-PSU, ELU,
EBC, and CPU UMC 1000 Products manufactured by Tellabs
until cumulative Net Revenue of all UMC 1000 Products
and all Tellabs Developments sold by Tellabs since
April 1, 1996, reach $100 million.
b. After cumulative Net Revenue for
all UMC 1000 Products and all Tellabs Developments sold
by Tellabs since April 1, 1996, exceeds $100 million,
the royalty will be twelve percent (12%) of the greater
of either: (i) Net Revenue or (ii) Tellabs' list price
less thirty-five percent (35%) for CBA(s), DLP, T1X,
E1X, L-PSU, ELU, EBC, and CPU UMC 1000 Products
manufactured by Tellabs.
c. Tellabs will pay AFC a royalty
equal to fifteen percent (15%) of the greater of
either: (i) Net Revenue or (ii) Tellabs' list price
less thirty-five percent (35%), for
Tellabs-manufactured UMC 1000 Products containing
Wireless Enhancements.
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<PAGE>
d. Two percent (2%) of Net Revenue for
all Tellabs Developments that are sold by Tellabs to
AT&T; otherwise, no royalties are due for any other
sales by Tellabs of Tellabs Developments.
e. For all other UMC 1000 Products
manufactured by Tellabs hereunder (other than the
Wireless Enhancements and the products referred to in
sub-sections a., b., and c. above), the royalty will be
twelve percent (12%) of the greater of either: (i) Net
Revenue or (ii) Tellabs' published list price (existing
on the Effective Date) less thirty-five percent (35%)
of such other UMC 1000 Products (regardless of
CableSpan sales volumes).
6.2 AFC'S ROYALTY OBLIGATIONS. AFC agrees to pay
Tellabs a royalty of twelve percent (12%) of the greater of:
(i) Net Revenue or (ii) AFC's published list price of the AFC
version of the Tellabs Developments less thirty-five percent
(35%), for all Tellabs Developments manufactured by AFC or its
subcontractors. If AFC acquires or develops any RF coax
transceiver and/or any one to twelve line product with
integrated RF coax transceivers for sale into an AFC exclusive
market, then AFC will pay Tellabs a royalty equal to two
percent (2%) of the greater of: (i) Net Revenue or (ii) the AFC
published list price (existing on the Effective Date) less
thirty-five percent (35%) of the competing product elements for
sales by AFC of the competing product in AFC's exclusive
markets. The royalties payable pursuant to this section shall
continue as long as Tellabs is precluded from selling the
Tellabs Developments into AFC's exclusive markets.
6.3 If either party develops an independent product not incorporating
the other's party's technology or proprietary rights (as
permitted by Section 12), no royalties shall be due for the
shipment of such independent product(s), except as provided
in Section 6.2.
6.4 Either party shall be entitled to have an independent third party
auditor, reasonably acceptable to the other party, audit compliance
with this Section 6 no more frequently than once each calendar
year. In the event the auditor finds that royalties have been
underpaid by more than ten percent (10%) of the corrected total
royalty for the period audited, the audited party shall pay the
audit fees. Otherwise, the party requesting the audit shall bear
the cost of the audit.
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<PAGE>
7. MARKET RIGHTS
7.1 DOMESTIC MARKETING RIGHTS.
7.1.1 TELLABS MARKETING RIGHTS. Except as set forth in the
third paragraph of this Section 7.1.1, Tellabs will have
exclusive rights to market, sell and otherwise distribute
the Tellabs Developments and/or the UMC 1000 Products,
directly and indirectly through Distributors to the
"Domestic Alternate Provider" market as defined herein,
and AFC shall be prohibited from marketing, selling or
distributing such products, in such market, either
directly or indirectly, through Distributors. The term
"Domestic Alternate Provider" shall mean competitive
access providers (CAPs), alternative local transport
service providers, alternative local access carriers,
multiple system operators (MSOs), or any company,
subsidiary, partnership, co-venture, or other entity
providing alternative telephony services in the United
States. "Domestic Alternate Provider" also includes:
a) AT&T and its Affiliates as of the Effective Date, and
b) the US West Media Group, including, but not limited to
US West International and US West Media One.
The term "Domestic Alternate Provider" does not include
(a) wireless service providers except those which are
affiliated with a Domestic Alternate Provider on the
Effective Date; (b) interexchange carrier companies and
their Affiliates as of the Effective Date; (except AT&T
and its Affiliates as of the Effective Date); (c)
telephone companies in the U.S. that operate within their
designated franchise; or d) telephone companies in the
U.S. which operate outside of their designated franchise
territory and build brand new wireline distribution
network(s) (upgrades to an existing cable (coax) network
purchased by a U.S. telephone company outside its
designated franchise territory is not considered a new
network and is therefore a Domestic Alternate Provider).
Exceptions to this Tellabs exclusive market right are:
7.1.1.1 Tellabs and AFC will both be entitled to sell
into the CAP market, each having an exclusive
customer segment. Subject to subsection 7.1.1.2
below, Tellabs shall have the exclusive
marketing right to CAPs that are majority owned
by the multiple system operators ("MSOs") as
of April 1, 1996, and to the customers listed in
Attachment C. Subject to
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<PAGE>
subsection 7.1.1.3 below, marketing rights to
all other CAPs will belong to AFC.
7.1.1.2 In order for Tellabs to retain exclusive
marketing rights to the CAPs listed in
Attachment C, Tellabs must generate at least $12
million in Net Revenue of Tellabs Developments
and UMC 1000 Products from the customers listed
on Attachment C, over the next two (2) years
dating from April 1, 1996. If Tellabs fails to
meet this objective, then Tellabs will lose its
exclusivity in the CAP accounts in Attachment C.
Notwithstanding the foregoing, Tellabs can
maintain exclusivity by paying the royalty
equivalent (calculated pursuant to Section 6)
due on the difference between Net Revenue
actually achieved from such customers and $12
million. If Tellabs achieves the $12 million
minimum, AFC and Tellabs will reset new minimums
for succeeding years. Such new minimums will be
no less than $6 million per year and shall be
subject to the other terms of this subsection.
7.1.1.3 If, after the Effective Date, a Domestic
Alternate Provider is acquired by a company for
which AFC has exclusive market rights as defined
in Section 7.1.2, Tellabs shall retain exclusive
rights to the business segment of the acquired
entity (regardless of whether that entity
remains a separate business unit). If the
acquiring company wants to consolidate
purchasing, AFC must inform the Customer that
Tellabs has the exclusive marketing rights to
sell to the acquired entity of the business for
two (2) years from the Effective Date. After the
two year period, if the Customer still wants to
consolidate, Tellabs shall be entitled to
negotiate continued sales of the Tellabs
Developments and the UMC 1000 Products to the
acquired entity. If Tellabs is successful in
convincing the customer not to consolidate,
Tellabs will continue to sell to the acquired
entity. Tellabs will be given sixty (60) days to
convince the customer not to consolidate. If
after the sixty-day period Tellabs has failed to
convince the customer not to consolidate, then
AFC will be entitled to sell to the acquired
entity on an exclusive basis and will pay
a royalty of thirteen percent (13%) to Tellabs on
all Net Revenue from sales to that acquired
entity of Tellabs Developments manufactured by
AFC and any product being sold by AFC, which is
competitive with any Tellabs Development. For
purposes of this Section 7.1.1.3 and for
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<PAGE>
purposes of Section 7.1.2, "acquisition" or
"acquir(ed)" means the acquisition of greater
than fifty percent (50%) of the equity of a
company.
7.1.2 AFC MARKETING RIGHTS.
Except as provided in Section 7.1.1, AFC will have
exclusive rights to market, sell and otherwise distribute
UMC 1000 Products and the Tellabs Developments to all
other customers in the United States, and Tellabs shall
be prohibited from marketing, selling or distributing
such products, to any such customers, either directly or
indirectly.
If, after the Effective Date, a company for which AFC has
exclusive marketing rights is acquired by a Domestic
Alternate Provider or a company listed on Attachment D,
then AFC shall retain exclusive rights to the business
segment of the acquired entity (regardless of whether
that entity remains a separate business unit). If the
acquiring company wants to consolidate purchasing,
Tellabs must inform the customer that AFC has the
exclusive marketing rights to sell to the acquired entity
for two years from the Effective Date. After the two year
period, if the customer still wants to consolidate, AFC
shall be entitled to negotiate continued sales of the
Tellabs Developments and UMC 1000 Products to the
acquired entity. If AFC is successful in convincing the
customer not to consolidate, AFC will continue to sell to
the acquired entity. AFC will be given sixty (60) days to
convince the customer not to consolidate. If after the
sixty-day period AFC has failed to convince the customer
not to consolidate, then Tellabs will be entitled to sell
to the acquired entity on an exclusive basis and pay an
additional royalty of two percent (2%) to AFC on all Net
Revenue from sales to that acquired entity of UMC 1000
Products manufactured by Tellabs.
7.2 INTERNATIONAL MARKETING RIGHTS.
7.2.1 TELLABS MARKETING RIGHTS. Except as set forth in the
third paragraph of this Section 7.2.1, Tellabs will have
exclusive rights to market, sell and distribute the
Tellabs Developments and/or the UMC 1000 Products,
directly and indirectly through Distributors to Foreign
Alternate Providers in the following countries:
The United Kingdom, Australia, Japan,
France, Germany, Spain, Portugal, Italy,
Switzerland, Austria, Luxembourg, Belgium,
The Netherlands,
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<PAGE>
Denmark, Ireland, Sweden, Finland, Norway,
Greece, New Zealand, Saudi Arabia, Hong
Kong, Singapore, Canada, Israel and Korea.
The term "Foreign Alternate Provider" shall mean
competitive access providers ("CAPs"), alternative local
transport service providers, alternative local access
carriers, multiple system operators ("MSO"), or any
company, subsidiary, partnership, co-venture, or other
entity providing alternative telephony services outside
of the United States. This also includes but is not
limited to consortiums, joint ventures, partnerships,
private companies, and/or other government agencies that
compete with the local PTT for telephone service in a
given territory. "Foreign Alternate Provider" does not
include wireless service providers except those
affiliated with a Foreign Alternate Provider.
Exceptions to this Tellabs exclusive market right are:
7.2.1.1 In order for Tellabs to retain exclusivity to
the Foreign Alternate Provider market in a given
country, Tellabs will be required to meet
minimum Net Revenues of Tellabs Developments and
UMC 1000 Products for such country. The starting
time period required to obtain these minimum
sales revenues will begin on the later to occur
of: (i) the first date that any Foreign
Alternate Provider in that country has provided
residential dial tone (i.e., a competitive
market exists), and (ii) the date on which UMC
1000 Product meets the market requirements for
that Foreign Alternate Provider market segment.
The UMC 1000 Product will be deemed to meet the
market requirements for an Foreign Alternate
Provider market when the UMC 1000 Product has a
released V5.1/2 digital switch interface for the
switch vendor used by the Foreign Alternate
Provider, channel cards with the proper
impedance, and regulatory compliance for that
market/country. Once these two criteria are met
for each country, a minimum of $2,000,000 in
cumulative Net Revenue of Tellabs Developments
and UMC 1000 Products is required for the first
three (3) years per country. Thereafter, a
minimum of US $2,000,000 per year in Net Revenue
of Tellabs Developments and UMC 1000 Products is
required. Failure to make these Net Revenue
targets within these timeframes in a particular
country will remove the exclusivity in that
country for Tellabs and Tellabs will hereafter
have non-exclusive rights in that country. The
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<PAGE>
non-exclusive rights are subject to termination
under the circumstances set forth in Section 5.5
and Section 14.
7.2.1.2 If, after the Effective Date, a Foreign
Alternate Provider is acquired by a company for
which AFC has exclusive market rights as defined
in Section 7.2.2, Tellabs shall retain exclusive
rights to the business segment of the acquired
entity (regardless of whether that entity
remains a separate business unit). If the
acquiring company wants to consolidate
purchasing, AFC must inform the customer that
Tellabs has the exclusive marketing rights to
sell to the acquired entity of the business for
two years from the Effective Date. After the two
year period, if the customer still wants to
consolidate, Tellabs shall be entitled to
negotiate continued sales of the Tellabs
Developments and the UMC 1000 Products to the
acquired entity. If Tellabs is successful in
convincing the customer not to consolidate,
Tellabs will continue to sell to the acquired
entity. Tellabs will be given sixty (60) days to
convince the customer not to consolidate. If
after the sixty-day period Tellabs has failed to
convince the customer not to consolidate, then
AFC will be entitled to sell to the acquired
entity on an exclusive basis and will pay a
royalty of thirteen percent (13%) to Tellabs on
all Net Revenue from sales to that acquired
entity of Tellabs Developments manufactured by
AFC and any product being sold by AFC, which is
competitive with any Tellabs Development.
Tellabs will have non-exclusive rights to sell the
Tellabs Developments and/or the UMC 1000 Products to
Foreign Alternate Providers in all other countries.
Notwithstanding the foregoing, AFC shall be entitled to
continue to exercise its rights under the existing AFC
agreements listed in Attachment E. In these countries,
Tellabs will have only a non-exclusive right to sell the
UMC 1000 Products if they are sold in conjunction with
Tellabs Developments. AFC agrees to use its best efforts
to amend each of these existing agreements to allow
Tellabs to sell the UMC 1000 Products into the Attachment
E countries.
7.2.2 AFC MARKETING RIGHTS
Except as provided in Section 7.2.1, AFC will have
exclusive rights to market, sell and otherwise distribute
UMC 1000 Products and
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<PAGE>
the Tellabs Developments to all other customers outside the
United States, and Tellabs shall be prohibited from
marketing, selling or distributing such products, to any
such customers, either directly or indirectly.
If, after the Effective Date, a company for which AFC has
exclusive marketing rights is purchased by a Foreign
Alternate Provider, then AFC shall retain exclusive rights
to the business segment of the acquired entity (regardless
of whether that entity remains at separate business unit).
If the acquiring company wants to consolidate purchasing,
Tellabs must inform the customer that AFC has the exclusive
marketing rights to sell to the acquired entity for two
years from the Effective Date. After the two year period,
if the customer still wants to consolidate, AFC shall be
entitled to negotiate continued sales of the Tellabs
Developments and UMC 1000 Products to the acquired entity.
If AFC is successful in convincing the customer not to
consolidate, AFC will continue to sell to the acquired
entity. AFC will be given sixty 960) days to convince the
customer not to consolidate. If after the sixty-day period
AFC has failed to convince the customer not to consolidate,
then Tellabs will be entitled to sell to the acquired entity
on an exclusive basis and pay an additional royalty of two
percent (2%) to AFC on all Net Revenue from sales to that
acquired entity of UMC 1000 Product manufactured by Tellabs.
Nothing contained herein shall be construed as granting any
rights to AFC in connection with any other products
developed using the Tellabs Technology (except as expressly
stated in Section 5.3.1).
7.3 HOLDING COMPANIES.
7.3.1 For purposes of this section, the term "Holding Company"
shall mean cable or telephone holding companies, joint
ventures, partnerships or other organizations with
affiliates, partners or members ("Entities") consisting of
both (i) Entities for which Tellabs has exclusive market
rights, and (ii) Entities for which AFC has exclusive market
rights, whether domestic or international. In order to be
considered an Entity hereunder, the affiliate, partner
and/or member must be more than fifty percent (50%) owned by
another Entity. Except under the circumstances described in
Section 7.3.3 below, each party will retain its market
rights to sell the UMC 1000 Products and/or the Tellabs
Developments to their respective accounts within a Holding
Company.
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7.3.2 A Holding Company shall be defined as an Alternate Provider
if more of its combined annual revenue for the most recently
completed fiscal year ("Annual Revenue") is derived from
Foreign and/or Domestic Alternate Provider Entities within
the Holding Company than from Entities within AFC's
exclusive market segment. Attachment D identifies the
Holding Companies that Tellabs has identified as being
Alternate Providers as of April 1, 1996. Tellabs will hold
exclusive market rights to these companies under the
circumstances set forth in Section 7.3.3 On a going forward
basis, any Holding Company which has not been identified by
Tellabs on Attachment D or which did not exist as of April
1, 1996, shall be determined as follows:
7.3.2.1 If the Holding Company is not listed on Attachment
D, the first question is whether the Holding
Company was in existence on April 1, 1996. If the
Holding Company existed on April 1, 1996, and
Tellabs shows that more of such company's Annual
Revenue as of April 1, 1996 was derived from
Entities which were Foreign and/ or Domestic
Alternate Provider's Entities than from within
AFC's exclusive market segment, then the Holding
company will be added to the list on Attachment D
and Tellabs will have exclusive market rights
therein under the circumstances set forth in
Section 7.3.3. If Tellabs is unable to prove
this, then AFC will have exclusive market rights
for the Holding Company, under the circumstances
in Section 7.3.3.
7.3.2.2 If a Holding Company came/comes into existence
after April 1, 1996, and Tellabs can show that at
the time the Holding Company came into existence,
more of its Annual Revenue was derived from
Foreign and/ or Domestic Alternate Provider
Entities than from Entities within AFC's exclusive
market segments, then the Holding Company will be
added to the list on Attachment D. Similarly, if
AFC can show that at the time the Holding Company
came into existence, more of its Annual Revenue
was derived from Entities within AFC's exclusive
market segments than from Entities with Tellabs'
exclusive market segments, then AFC will have the
exclusive market rights for such Holding Company
under the circumstances set forth in Section
7.3.3. If neither company has made the showing
required by the prior two sentences, the Holding
Company will continue as unidentified until either
Tellabs or AFC decides it wants to
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<PAGE>
sell to the Holding Company. At such time, both
Tellabs and AFC shall meet to determine whether or
not the Holding Company is an Alternate Provider
which will be added to Attachment D and will
therefore be Tellabs' exclusive customer under the
circumstances set forth in Section 7.3.3. In
making that determination, the parties will first
attempt to calculate whether the Holding Company
was an Alternate Provider (as defined above) on
the date it came into existence. If they are
unable to reasonably make that determination, they
will make such assessment as of the date on which
the determination is being made.
7.3.3 Under the circumstances set forth in the remainder of this
section below, Tellabs will be granted exclusive market
rights to Holding Companies which have been deemed
"Alternate Providers" and AFC will be deemed to have
exclusive market rights to any other Holding Company. If any
Holding Company wants to consolidate its purchasing, neither
party shall have the right to will UMC 1000 Products and
Tellabs Developments into the other party's accounts within
a Holding Company for two (2) years form April 1, 1996.
After the two-year period, if such Holding Company still
wants to consolidate, the party that does not have exclusive
market rights (as determined pursuant to Section 7.3.2) has
the right to negotiate continued sales with that customer
in its market segment only. If that party is successful
in convincing the organization not to consolidate, that
party will continue to sell into its market/customer
segment. Such party will be given sixty (60) days to
convince the organization not to consolidate. If after
the sixty (60) day period the party fails to convince the
organization not to consolidate, then the other party
will assume this market right and pay royalties to the
other party pursuant to either Section 7.2.1.2 or 7.2.2,
as applicable.
7.4 With their respective markets, the parties are free to distribute
their respective products 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 party has entered into a written agreement
with the third party which allows the party to terminate the
distribution rights if the third party if the third party
distributes the product outside such party's respective
markets(s). Both parties shall take all reasonable steps to
enforce these rights, including but not limited to terminating
the Distribution Agreement and/or refusing to ship products
unless prohibited from doing so by court or government order.
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8. WARRANTY AND INDEMNIFICATION
8.1 OWNERSHIP WARRANTY AS TO UMC 1000 TECHNOLOGY.
AFC represents and warrants to Tellabs that (i) the UMC 1000
Technology is original with and is owned solely by AFC; (ii)
neither the UMC 1000 Technology nor any AFC Products sold under the
OEM Agreement 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 or has the right to
grant the rights granted under this License Agreement; (iv) AFC has
not previously or otherwise granted any other right in the 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 Tellabs.
8.2 OWNERSHIP WARRANTY AS TO TELLABS TECHNOLOGY.
Tellabs represents and warrants to AFC that (i) the Tellabs
Technology is original with and is owned solely by Tellabs; (ii)
neither the Tellabs Technology nor any Tellabs Products sold under
the OEM Agreement infringe any patent, copyright, trade secret or
other proprietary rights of any third party; (iii) Tellabs is the
sole and exclusive developer of the Tellabs Technology or has
the right to grant the rights granted under this License
Agreement; (iv) Tellabs has not previously or otherwise granted
any other right in Tellabs Technology to any third party which
may conflict with the rights granted herein to AFC; and (v)
Tellabs has the full power to enter into this Agreement, to
carry out its obligations contained herein, and to grant the
rights in the Tellabs Technology granted herein to AFC.
8.3 JOINTLY-OWNED TECHNOLOGY
Except as expressly stated in this Section 8, neither party shall
have any obligations to the other party with respect to the
ownership and/or rights of the Joint Technology or with respect to
jointly-owned technology pursuant to Section 3.2 of this Agreement.
Each party shall bear sole responsibility for any indemnification
with respect to their respective customers relating to the Joint
Technology and any jointly-owned technology pursuant to Section
3.2, and each party shall indemnify the other party (pursuant to
Section 8.4 below) for any claims made by such customers and/or
other third parties who derive their rights from such party.
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8.4 INFRINGEMENT. Each party ("Indemnifying Party") shall hold the
other party ("Indemnified Party") and its officers, directors
agents and employees harmless from liability resulting from breach
of the warranty contained in Sections 8.1 and 8.2, respectively,
and from third parties' claims relating to the Joint Technology and
any jointly-owned technology pursuant to Section 3.2, as provided
in Section 8.3, provided that: (i) the Indemnifying Party is
promptly notified of any and all threats, claims and proceeding
related thereto, (ii) the Indemnifying Party shall have sole
control of the defense and/or settlement thereof, (iii) the
Indemnified Party furnishes to the Indemnifying Party, upon
request, information available to the Indemnified Party for such
defense, and (iv) the Indemnified Party provides the Indemnifying
Party with reasonable assistance. This obligation of the
Indemnifying Party does not apply with respect to the UMC 1000
Products or the Tellabs Developments (as applicable), or portions
or components of the foregoing (a) not supplied by the Indemnifying
Party, (b) made in whole or in part in accordance to the
Indemnified Party's specifications, (c) that are modified after
delivery by the Indemnifying Party, if the alleged infringement
relates to such modification, (d) combined with other products,
processes or materials where the alleged infringement relates to
such combination, (e) where the Indemnified Party continues
allegedly infringing activity after being notified thereof or after
being informed of modifications that would have avoided the alleged
infringement, or (f) where the Indemnified Party's use of the
foregoing is not strictly in accordance with the license granted
under this Agreement. Should any of the products furnished and/or
in purchase orders placed under the OEM Agreement, or in the
operation thereof, become the subject of a claim of any
infringement of a United States or foreign patent, trademark,
copyright, trade secret or other proprietary interest, the
Indemnifying Party shall, at its expense and at its option, either
procure for the Indemnified Party the right to continue using the
Products, replace or modify the same so that they become non-
infringing, or, if replacement or modification is not possible,
refund the full purchase price of the infringing items.
9. LIMITATION OF LIABILITY
NEITHER PARTY SHALL BE LIABLE TO THE OTHER 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 AND
EXCEPT FOR DAMAGES UNDER SECTION 8.4 EXCEPT AS EXPRESSLY PROVIDED
HEREIN, THE PARTIES
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<PAGE>
DISCLAIM ANY AND ALL WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
10. CONFIDENTIALITY
10.1 Each party ("disclosing party") may, from time to time, in
connection with performance under this Agreement, disclose
confidential information to the other party ("receiving party").
The receiving party agrees not to use (other than for purposes
contemplated by this Agreement), and will use reasonable efforts
to prevent the disclosure to third parties of, any of the
disclosing party's confidential information that is identified as
confidential at the time of disclosure and is provided in tangible
form marked "confidential" or "proprietary" (or is reduced to such
form within thirty (30) days after oral disclosure). All UMC 1000
Technology, UMC 1000 CPU System Software (including, without
limitation, the source code thereof, and except the object code and
end user documentation) and all AFC product roll-out plans, product
definitions, development schedules and other business, marketing or
technical information provided to Tellabs pursuant to this
Agreement or otherwise, are hereby identified and marked as AFC's
confidential information, and Tellabs so acknowledges. All Tellabs
Technology and all Tellabs product roll-out (including, without
limitation, the source code thereof, and except the object code and
end user documentation) and all Tellabs Technology and all Tellabs
product roll-out plans, product definitions, development schedules
and other business, marketing or technical information provided to
Tellabs pursuant to this Agreement or otherwise, are hereby
identified and marked as Tellabs' confidential information, and AFC
so acknowledges. Each of the parties further acknowledge that they
are aware and will advise their employees who have access to
confidential information of the other party of the restrictions
imposed by the United States securities laws on the purchase or
sale of securities by any person who has received material, non-
public information from the issuer of such securities and on the
communication of such information to any other person when it is
reasonably foreseeable that such other person is likely to purchase
or sell such securities in reliance upon such information. The
receiving party's confidentiality obligation hereunder shall not
apply to information that the receiving party can document:
(i) was in the receiving party's possession or known by it prior
to receipt from the disclosing party;
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(ii) is or (through no fault of the receiving party) becomes
generally available to the public;
(iii) is rightfully disclosed to the receiving party by a third
party having no obligations of confidentiality to the
disclosing party, provided the receiving party complies with
any restrictions imposed by the third party; or
(iv) is required by law or regulation to be disclosed (including,
without limitation, in connection with SEC filings),
provided that the receiving party uses reasonable efforts to
restrict disclosure and to obtain confidential treatment
therefor.
10.2 Each receiving party acknowledges and agrees that due to the
unique nature of the disclosing party's confidential information,
there can be no adequate remedy at law for any breach of its
obligations hereunder, that any such breach may allow the receiving
party or third parties to unfairly compete with the disclosing
party resulting in irreparable harm to the disclosing party and,
therefore, that upon any such breach or threat thereof, the
disclosing party shall be entitled to injunctive relief and other
appropriate equitable relief in addition to whatever remedies it
may have at law, and to be indemnified by the receiving party from
any loss or harm (including, without limitation, attorneys' fees)
in connection with any breach or enforcement of the receiving
party's obligations hereunder or the unauthorized use or release of
any confidential information. The receiving party will notify the
disclosing party in writing immediately upon the occurrence of any
such unauthorized release or other breach of which it is aware.
10.3 Tellabs acknowledges that the UMC 1000 Licensed Technology and UMC
1000 CPU System Software are the exclusive property of AFC, and
contain valuable trade secrets containing proprietary and
confidential information. Tellabs agrees to protect the
confidentiality of the UMC 1000 Licensed Technology and UMC 1000
CPU System Software as follows: Tellabs shall limit use of, and
access to, the UMC 1000 Licensed Technology and UMC 1000 CPU System
Software to those of its employees, subcontractors and agents who
are directly involved in implementing the permitted use of the UMC
1000 Licensed Technology and UMC 1000 CPU System Software under
this Agreement; who have a need to know the contents of the UMC
1000 Licensed Technology and UMC 1000 CPU System Software for the
performance of their duties in connection with such use; and who
have entered into confidentiality agreements with Tellabs. Tellabs
shall implement such internal
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<PAGE>
procedures, and take such precautions, as are necessary to protect
the confidentiality of the UMC 1000 Licensed Technology and UMC
1000 CPU System Software. In no event shall Tellabs implement
procedures or take precautions to protect the UMC 1000 Licensed
Technology and UMC 1000 CPU System Software which are less rigorous
than procedures established to protect its own confidential
technology and other highly confidential information.
10.4 AFC acknowledges that the Tellabs Technology and the Licensed J.V.
Products are the exclusive property of Tellabs, and contain
valuable trade secrets containing proprietary and confidential
information. AFC agrees to protect the confidentiality of the
Tellabs Technology and the Licensed J.V. Products are as follows:
AFC shall limit use of, and access to, the Tellabs Technology and
the Licensed J.V. Products to those of its employee subcontractors
and agents who are directly involved in implementing the permitted
use of the Tellabs Technology and the Licensed J.V. Products under
this Agreement; who have a need to know the contents of the Tellabs
Technology and the Licensed J.V. Products for the performance of
their duties in connection with such use; and who have entered
into confidentiality agreements with AFC. AFC shall implement such
internal procedures, and take such precautions, as are necessary to
protect the confidentiality of the Tellabs Technology and the
Licensed J.V. Products. In no event shall AFC implement procedures
or take precautions to protect the Tellabs Technology and the
Licensed J.V. Products which are less rigorous than procedures
established to protect its own confidential technology and other
highly confidential information.
11. THIRD PARTY MATTERS
11.1 DISCLOSURE TO OTHER PARTIES.
Each party shall have the right to disclose to third parties
certain technical Confidential Information relating to
interoperability and network management, and certain non-technical
Confidential Information relating to the status and terms of the
relationship between Tellabs and AFC; provided, however, that such
third parties agree to confidentiality and nondisclosure provisions
substantially similar to those set forth in Section 10
(Confidentiality) hereof.
11.2 THIRD PARTY SOFTWARE
Certain third party software may be incorporated by the parties
from time to time into the products and/or technology licensed
pursuant to this Agreement. Each party shall (a) identify all such
third party software which is incorporated into such party's
products or technology licensed to
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<PAGE>
the other party pursuant to this Agreement, (b) comply fully with
all terms and conditions applicable to the sublicensing,
disclosures or copying of such third party software, and (c)
provide reasonable assistance to the other party in securing
necessary and appropriate license rights in such third party
software; provided, however, that all costs incurred in connection
with the transfer of any license rights to the third party software
shall be borne by the party acquiring such license rights.
12. INDEPENDENT DEVELOPMENT
Nothing contained in this Agreement shall be construed as a restriction on
either party'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 UMC 1000 Product(s) or the Tellabs
Developments, provided that such development, manufacture, acquisition,
sale or other distribution does not violate any of the provisions of this
Agreement. Except as provided in Section 7.2, no payment shall be due to
either party by reason of such independent development, manufacture and/or
sale or other distribution.
13. DEFAULT
13.1 DEFAULT OF TELLABS
Tellabs shall be deemed to be in material default under this
Agreement upon the occurrence of any of the following:
13.1.1 In the event that Tellabs violates the terms of Section 10
(Confidentiality) (other than violations which are
immaterial).
13.1.2 In the event that Tellabs fails to perform or comply with
any other material term or condition of this Agreement and
fails to cure such failure within thirty (30) days after
receipt of written notice from AFC; provided, however, that
an alleged default in making payments hereunder shall not
afford AFC right to terminate if and while Tellabs
reasonably disputes the obligation to make such payments or
the amount due.
13.2 DEFAULT OF AFC
AFC shall be deemed to be in material default under this Agreement
upon the occurrence of any of the following:
13.2.1 In the event that AFC violates the terms of Section 10
(Confidentiality) (other than violations which are
immaterial).
13.2.2 In the event that AFC fails to perform or comply with any
other material term or condition of this Agreement and fails
to cure such
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<PAGE>
failure within thirty (30) days after receipt of written
notice from Tellabs; provided, however, that an alleged
default in making payments hereunder shall not afford
Tellabs a right to terminate if and while AFC reasonably
disputes the obligation to make such payments or the amount
due.
13.3 DEFAULT REMEDIES
Upon a material default by either party hereunder, as specified in
Sections 13.1 and 13.2 above, the non-defaulting party may seek any
remedies available to it in law and equity, including termination
of this Agreement under Section 14.1 or 14.2 (except as expressly
provided otherwise in Sections 2.8 and 5.3.3 of this Agreement).
For purposes of Sections 13 and 14 hereof, the party electing to
terminate this Agreement will be deemed to be the "Terminating
Party" and the other party shall be deemed to be the "Terminated
Party." Notwithstanding the foregoing, except where a party
reasonably believes irreparable harm may occur and brings an action
for injunctive relief, the parties shall follow the dispute
resolution procedures specified in Section 16.5 before commencing
litigation arising out of a default hereunder.
14. TERM, EXPIRATION AND TERMINATION
14.1 TERM.
Unless terminated earlier as provided herein, this Agreement shall
have an initial term of ten (10) years commencing on the Effective
Date, and shall be automatically renewed for successive one (1)
year terms unless either of the parties hereto gives to the other
party written notice of its election to terminate this Agreement at
least sixty (60) days prior to the expiration of the then current
term.
14.2 EFFECT OF EXPIRATION
Unless this Agreement is renewed by mutual agreement of the
parties, upon the expiration of the term referred to in Section
14.1, as may be extended, the following consequences shall ensue:
14.2.1 The parties agree to negotiate in good faith the terms and
conditions covering the winding down of this Agreement,
including the completion of any Enhancements and
Improvements then in process.
14.2.2 It is the intention of the parties that except as provided
in subsection 14.2.3 below, the technology license rights
and manufacturing rights (including accompanying royalty
obligations)
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<PAGE>
described in this Agreement will survive the expiration of
this Agreement; provided, however, that any such license or
manufacturing rights (and the accompanying royalty
obligations) shall thereafter be subject to termination
under the circumstances described in Sections 14.3 and 14.4
of this Agreement.
14.2.3 The parties' obligations to provide continuing updates to
technology under Sections 2 and 3 shall terminate.
14.2.4 The following sections of this Agreement will be deemed to
survive such expiration: 1, 2, 3.2.5, 4, 5.1, 5.3, 5.5, 6,
7, 8, 9, 10, 11, 12, 13, 14, 15 and 16, as well as any
provisions hereof which by their terms involve obligations
which survive expiration of this Agreement.
14.3 TERMINATION OF ENTIRE AGREEMENT.
This Agreement may be terminated in its entirety (subject only to
the survival of specific sections specified in Section 14.6 hereof)
under the circumstances specified in 13.3 hereof.
14.4 PARTIAL TERMINATION.
Notwithstanding anything to the contrary herein contained, a
Terminating Party entitled to terminate this Agreement pursuant to
Section 13.3 may, at its election, only partially terminate this
Agreement by terminating all revocable (as provided in Section
14.5) license rights of the Terminated Party, while not terminating
its own license and manufacturing rights, with the effect set forth
in Section 14.5 below. In such a case, this Agreement shall remain
in partial force and effect, and the Terminated Party for the
remainder of the Term of this Agreement (unless the Terminated
Party terminates this Agreement in accordance with the terms of
this Section 14). Notwithstanding the foregoing, the Terminating
Party may, at any time prior to the end of the Term, elect to
terminate this Agreement in its entirety, with the effect set forth
in Section 14.5 below.
14.5 EFFECT OF TERMINATION
14.5.1 TERMINATION BY EITHER PARTY
In the event that this Agreement is terminated by either
party, in whole or in part, as provided in Sections 14.3 or
14.4:
14.5.1.1 It is the intention of the parties that except in
the circumstances described in Section 14.5.1.2
below, all technology license rights and
manufacturing rights described in this Agreement
will survive the
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<PAGE>
termination of this Agreement; provided, however,
that any such license or manufacturing rights
shall be subject to termination under the
circumstances described in Section 14.5.1.2 below.
The parties agree that except as expressly
provided in this Section 14.5, royalty obligations
of the parties in effect immediately prior to the
termination shall remain in full force and effect
after termination.
14.5.1.2 In the event of whole or partial termination due
to a material breach of any of the clauses
specifically referenced below, the Terminating
Party also shall have the option to terminate
certain of the Terminated Party's license rights
under the limited circumstances described below:
(A) In the event of a breach by AFC of those
obligations referenced in Sections 3.1, 5.1,
5.2, 6.2, 7.1.1, 7.2.1, 7.3, 7.4, 10, 11 and
12 hereof, then Tellabs shall have the option
to terminate effective immediately, all of
AFC's rights to Tellabs Technology as set
forth in Sections 5 and 7.
(B) In the event of a breach by Tellabs of those
obligations referenced in Sections 2, 5.3,
5.4, 6.1, 7.1.2, 7.2.2, 7.3, 7.4, 10, 11, 12,
and except as provided in Section 2.8, then
AFC shall have the option to terminate,
effective immediately, all of Tellabs'
license rights to UMC 1000 Licensed
Technology as set forth in Sections 2, 3, 5
and 7 hereof;
14.5.1.3 The parties will be obligated to agree upon terms
and conditions which provide for continuing
support for both parties' embedded customer bases
for the products. Unless otherwise agreed, the
Terminating Party will, at its option, either take
over such continuing support obligations, or grant
the Terminated Party sufficient rights to enable
that party to continue to provide such support.
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<PAGE>
14.5.1.4 Upon the request of the Terminating Party, the
Terminated Party shall promptly return all
Confidential Information of the other party,
except the technology reasonably required to fully
exercise the Terminated Party's ongoing
manufacturing, support and license rights, if any,
in the technology of the Terminating Party.
14.5.1.5 Upon the request of the Terminating Party,
the Terminated Party shall provide a written
certification that, through the Terminated
Party's best efforts and to the best of its
knowledge, the Terminated Party has complied
with all of its obligations under subsection
15.5.1.4 above.
14.6 SURVIVAL UPON TERMINATION
In the event that this Agreement is terminated by either
party either in whole or in part, for any of the reasons set
forth in Section 14.3, the following sections of this
Agreement will be deemed to survive such termination: 4, 8,
9, 10, 12, 16.5, 16.9 and 16.12 (including any Attachments
referred to therein), as well as any provisions hereof which
by their terms involve obligations which survive termination
of this Agreement.
Tellabs' rights and remedies pursuant to Section 5.5.2 shall
continue for as long as Tellabs has exclusive marketing
rights pursuant to Section 7 of this Agreement. AFC's
rights and remedies pursuant to Section 5.5.1 shall continue
for as long as AFC has exclusive market rights pursuant to
Section 7.
15. EXPORT RESTRICTIONS
Each party agrees to comply with all export laws, restrictions and
regulations of the Department of Commerce or other United States or
foreign agency or authority, and not to export, or allow the export
or reexport of, the technology, software or confidential
information of a party or any direct product of the foregoing in
violation of any such laws, restriction or regulations, or, if
prohibited pursuant to any governmental restriction or regulation,
to Afghanistan, the People's Republic of China or any Group Q, S,
W, Y or Z country specified in the then current Supplement No. 1 to
Section 770 of the U.S. Export Administration Regulations (or any
successor supplement or regulations).
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<PAGE>
16. GENERAL PROVISION
16.1 RELATIONSHIP OF THE PARTIES.
Notwithstanding any provision hereof, for all purposes of this
Agreement each party shall be and act as an independent contractor
and not as partner, joint venturer, or agent of the other and shall
not bind nor attempt to bind the other to any contract.
16.2 ASSIGNMENT.
Neither party shall have any right or ability to assign, transfer,
or sublicense any obligations or benefit under this Agreement
without the written consent of the other except that either party
may assign and transfer this Agreement and its rights and
obligations hereunder to any third party who succeeds to
substantially all its business, stock or assets whether by merger,
sale, acquisition or otherwise.
16.3 ENTIRE AGREEMENT; AMENDMENT.
This Agreement (and all Attachments hereto) and the OEM and
Termination Agreements constitute the entire and only agreement
between the parties relating to the subject matter hereof, and all
other prior negotiations, representations, understandings and
agreements including but not limited to the Memorandum of
Understanding dated April 3, 1996, are superseded hereby. No
agreements amending or supplementing the terms hereof shall be
effective except by means of a written document signed by the duly
authorized representatives of both parties.
16.4 NOTICES.
All notices, consents or approvals required by this Agreement shall
be in writing and shall be deemed given five (5) days after being
sent by certified or registered air mail, postage prepaid, or when
received after being sent by facsimile (confirmed by such certified
or registered mail) or by commercial overnight courier service with
tracking capabilities, to the parties at the addresses set forth
above or such other addresses as may be designated in writing by
the respective parties pursuant to the terms of this notice
provision.
16.5 DISPUTES.
16.5.1 In the event that the parties after diligent good faith
efforts, cannot resolve an issue, then the parties agree
to convene a meeting of their Presidents an effort to
reach an appropriate resolution, settlement or compromise.
If after diligent good faith efforts the Presidents are
unable to resolve the dispute, then the parties agree to
retain an impartial qualified mediator to assist in
reaching a
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<PAGE>
mutually agreeable resolution to the dispute. The costs
of any such mediation shall be shared equally by the
parties. Except where a party reasonably believes that
irreparable harm may occur and brings an action for
injunctive relief, the parties shall follow the foregoing
dispute resolution procedures prior to commencing
litigation. In connection with any such dispute or
litigation, the provisions of the following paragraph will
apply.
16.5.2 Prior to initiating any action hereunder (except for
actions for injunctive relief), the aggrieved party will
provide written notice to the other party and the parties
will make diligent good faith efforts to negotiate and
resolve such dispute in accordance with the foregoing
dispute resolution procedures. The parties agree that
in the event that it becomes necessary to initiate any
action hereunder (except for actions in equity where an
alternative forum is required for immediate injunctive
relief), the appropriate forum shall be (a) for claims
commenced by AFC, in a state or federal court located in
Cook County or DuPage County, Illinois or (b) for claims
commenced by Tellabs, in a state or federal court located
in Sonoma County, California.
16.6 WAIVER.
The failure of AFC or Tellabs to enforce a right under this
Agreement shall not act as a waiver of that right or the
ability to assert that right relative to the particular
situation involved. The waiver by either party of a breach of
any provisions contained in this Agreement shall be effective
only if set forth in a writing signed by both parties and shall
in no way be construed as a waiver of any succeeding breach of
such provision or the waiver of the provision itself.
16.7 HEADINGS.
Headings included herein are for convenience only and shall not
be used to interpret or construe this Agreement.
16.8 SEVERABILITY.
If any provision of this Agreement shall be held void, invalid,
illegal or unenforceable, that provision shall be limited or
eliminated to the minimum extent necessary so that this
Agreement shall otherwise remain in full force and effect and
enforceable.
16.9 REMEDIES; INJUNCTIVE RELIEF.
Except as expressly provided with respect to particular
remedies, the rights and remedies of a party set forth herein
with respect to failure of
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<PAGE>
the other party to comply with the terms of this Agreement are not
exclusive, the exercise thereof shall not constitute an election of
remedies and the aggrieved party shall in all events be entitled to
seek whatever additional remedies may be available in law or in
equity (including, without limitation, appropriate injunctive
relief).
16.10 AGREEMENT CONTROLS.
The terms of this Agreement shall control over any contrary or
inconsistent terms in any Attachment, Statement of Work or
Specification related hereto unless this Agreement is specifically
superseded in a written agreement signed by both parties.
16.11 SUCCESSORS AND ASSIGNS.
The provisions of this Agreement shall inure to the benefit of, and
be binding upon, AFC and Tellabs and their respective successors
and permitted assigns.
16.12 PUBLICITY.
The parties agree to maintain the terms of this Agreement in
confidence. Neither party shall directly or indirectly issue or
permit the issuance of any publicity, news release or other public
statement concerning this Agreement or the terms hereof without the
prior written approval of the other party; provided, however, that
each party may make public disclosures as required by law or
governmental regulation with reasonable prior notice to the other
party. Notwithstanding the foregoing, both parties shall be free
to disclose the nature and substance of this Agreement, as
necessary, in connection with its annual report and SEC filings on
Form 10-K and 10-Q.
16.13 COMPLIANCE WITH LAWS.
Each party further agrees to indemnify the other for any losses,
fines, or other penalties which may be incurred or assessed,
including reasonable attorney's fees, due to such party's failure
to comply with the provisions of this Section.
16.14 COUNTERPARTS.
The 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.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement as of the date first set forth above.
ADVANCED FIBRE COMMUNICATIONS, INC. TELLABS OPERATIONS, INC.
By: /s/ Carl J. Grivner By: /s/ Brian J. Jackman
--------------------------- ---------------------------
Name: Carl J. Grivner Name: Brian J. Jackman
------------------------- -------------------------
Title: President Title: President
------------------------ ------------------------
Date: December 30, 1996 Date: December 23, 1996
------------------------- -------------------------
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<PAGE>
TELLABS CONTRACT NO. CON AFC 009 LIC 96 09
Attachment A
MANUFACTURING INFORMATION
ITEMS NEEDED FOR MANUFACTURING RIGHTS
(These will be made available for any items already existing, but will not be
created solely for the purpose of this Agreement.)
1. Bill(s) of Material
2. Hardware Requirements/Description
3. Software Requirements/Description
4. Schematic(s)
5. Fabrication Drawing(s)
6. Mechanical Drawing(s)
7. Test Specification(s)
8. Test Plans/Descriptions/Procedures
9. Test Equipment Documentation
10. Interface Schematics from the Unit Under Test (UUT) to the Test Equipment
11. Object Code for Testing
12. Placement Files (ASCII Text Files)
13. Net List (ASCII Text Files)
14. Circuit Description/Topology File (ASCII)
15. Qualified Sample(s)
16. Approved Vendor List
17. Qualified Parts List
18. Design Engineering Support
19. Enforceable Escalation and Product Change Procedure
20. Training as Required
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<PAGE>
Attachment B
AFC CURRENT STANDARD VOLUME DISCOUNTS
UMC 1000 VOLUME DISCOUNT INFORMATION
The following discounts are available for commitment purchases of UMC 1000
equipment on an annual basis. A signed letter of commitment or purchase order
at the beginning of the calendar year is required to qualify for these discounts
throughout a given year.
Discounts may also be given on a moving forward basis during the year (without a
volume commitment) exceeding the baseline volumes shown in the table below.
Amount in U.S. Dollars Discount Percentage *
$0 - $500,000 0%
$500,001 - $1,000,000 2%
$1,000,001 - $1,500,000 4%
$1,500,001 - $2,000,000 6%
$2,000,001 - $2,500,000 8%
$2,500,001 and up 10%
Greater discounts may be negotiated with your AFC regional Sales Manager
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<PAGE>
Tellabs Volume Discounts
CABLESPAN Volume Discount Information:
The following discounts are available for commitment purchases of CABLESPAN
equipment on an annual basis. A signed letter of commitment or purchase order
at the beginning of the calendar year is required to qualify for these discounts
throughtout a given year.
Discounts may be also given on a moving forward basis during the year (without a
volume commitment) exceeding the baseline volumes shown in the tables below.
<TABLE>
<CAPTION>
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Year 1996 1997
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Module RSU/1 RSU/2 MRF/FRF/RRF RSU/1 RSU/2 RSU/M MRF/FRF/RRF
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Number of Lines $ Net $ Net Disc off List $ Net $ Net $ Net Disc off List
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<S> <C> <C> <C> <C> <C> <C> <C>
0 - 10,000 $500 $600 0% $480 $580 $2,640 0%
10,001 - 25,000 $490 $580 0% $470 $560 $2,500 2%
25,001 - 50,000 $475 $550 2% $455 $530 $2,400 5%
50,001 - 100,000 $460 $520 5% $440 $500 $2,200 10%
100,001 - 250,000 $430 $480 10% $410 $460 $2,200 12%
250,001 - 500,000 $410 $460 12% $390 $440 $2,100 15%
500,001 - 1,000,000 $390 $440 15% $380 $430 $2,000 20%
1,000,001+ $380 $430 20% $370 $420 $2,000 25%
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Year 1998 1999
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Module RSU/1 RSU/2 RSU/M MRF/FRF/RRF RSU/1 RSU/2 RSU/M MRF/FRF/RRF
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Number of Lines $ Net $ Net $ Net Disc off List $ Net $ Net $ Net Disc off List
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 10,000 $470 $560 $2,535 2% $440 $540 $2,430 2%
10,001 - 25,000 $460 $540 $2,435 5% $430 $520 $2,330 5%
25,001 - 50,000 $445 $510 $2,300 10% $415 $490 $2,200 10%
50,001 - 100,000 $430 $480 $2,100 12% $400 $460 $2,000 12%
100,001 - 250,000 $400 $440 $2,100 15% $390 $430 $2,000 15%
250,001 - 500,000 $380 $430 $2,000 20% $370 $420 $1,900 20%
500,001 - 1,000,000 $370 $420 $1,950 25% $360 $410 $1,850 25%
1,000,001+ $360 $410 $1,925 25% $350 $400 $1,800 30%
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</TABLE>
<PAGE>
Attachment C
"CAP" Customer List
ACC Corp.
Advantis
Brooks Fiber Properties, Inc.
Cablevision Lightpath, Inc.
CTEC, Inc.
Cox Fibernet
Dukenet
Eastern Telelogic Corp., Inc.
Electric Lightwave, Inc.
FiberNet USA, Inc.
GST Telecom, Inc.
Hyperion Telecommunications, Inc.
Intelcom Group, Inc. (ICG)
Intermedia Communications, Inc.
Kamine Multimedia Corp.
Linkatel Communications, Inc.
Metro Access Networks, Inc.
MFS Communications, Inc.
MWR Telecom, Inc.
NEXTLINK
Northeast Networks, Inc.
Rogers Network Services
Teleport Communications, Inc.
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<PAGE>
Attachment D
TELLABS "ALTERNATE PROVIDER HOLDING COMPANIES"
[NONE]
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<PAGE>
Attachment E
EXISTING AFC AGREEMENTS - AFC RESERVED MARKETING RIGHTS
AFC agrees that this Attachment E consists of only those countries,
partnerships, and/or agreements listed in the J.V. Agreement as defined in
Exhibit D thereto, "Schedule of Exceptions" and as set forth below. AFC also
agrees to review the performance of each distributor listed below on any ongoing
basis and will use its best efforts to amend each of these agreements to allow
Tellabs to sell the full capabilities of the CABLESPAN product into the
Alternate Provider market on a non-exclusive basis. Also, AFC will use its best
efforts to allow Tellabs to sell the full capabilities of the CABLESPAN product
into the Alternate Provider market within the PRC on a non-exclusive basis.
The following provisions from Section 6.1 and Exhibit D to the J.V. Agreement
(as modified herein to reflect changes since the date of the J.V. Agreement)
are incorporated herein by reference:
Section 6.1 of the J.V. Agreement:
1. "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
agreements referred to in Section 6.1 of Exhibit D in order to prohibit
sales and/or distribution of the UMC 1000 Products or its derivatives,
including but not limited to the UMC 1000E, to the Alternate Provider
market in such territories by such third parties.
2. Except as provided in Section 6.1 of Exhibit D, any agreements entered into
by AFC from and after the Effective Date of the J.V. Agreement relating to
the sale or distribution of the UMC 1000 Products 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.
3. 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."
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<PAGE>
Section 6.1 to Exhibit D to J.V. Agreement:
1. "The product noted in 1 above [a version of the UMC 1000 integrated with
the Harris product known as the Harris 20/20 switch], 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 eighteen (18) months, with the right for
twenty-four (24) month extensions. [The joint venture with Elec & Eltek was
subsequently terminated, but AFC continues to be bound by exclusivity
provisions which were entered into prior to the date of termination. AFC
agrees not to enter into any further exclusive relationships for the PRC
and will use best efforts to amend the current agreements to prohibit sale
and/or distribution to the Alternate Provider market.]
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.
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
Institutes ("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.
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<PAGE>
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."
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