<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-23698
APPLIED DIGITAL ACCESS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 68-0132939
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
9855 SCRANTON ROAD, SAN DIEGO, CALIFORNIA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
(619) 623-2200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 12,513,195 shares of the registrant's Common Stock, no par value,
outstanding as of July 31, 1997.
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APPLIED DIGITAL ACCESS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1997 and December 31, 1996......................................................... 3
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 1997 and June 30, 1996.................................. 4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and June 30, 1996................................................ 5
Notes to Condensed Consolidated Financial Statements........................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................... 7-10
Risks and Uncertainties..................................................................... 10-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 14
Item 2. Changes in Securities....................................................................... 14
Item 3. Defaults Upon Senior Securities............................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders........................................ 14
Item 5. Other Information........................................................................... 14
Item 6. Exhibits and Reports on Form 8-K............................................................ 15
SIGNATURES ............................................................................................ 16
</TABLE>
2
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PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
APPLIED DIGITAL ACCESS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,221 $ 1,504
Investments - current 15,874 19,957
Accounts receivable, net 9,691 6,798
Inventory, net 7,107 7,363
Deferred income taxes 130 130
Prepaid expenses and other current assets 1,203 1,089
----------- -----------
Total current assets 37,226 36,841
Property and equipment, net 5,666 4,936
Deferred income taxes 1,372 1,372
Other, net 3,389 2,823
----------- -----------
$ 47,653 $ 45,972
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,112 $ 2,120
Acquisition payments due to licensor 2,600 --
Accrued expenses 1,573 1,507
Accrued warranty 1,374 1,398
Deferred revenue 980 587
----------- -----------
Total current liabilities 10,639 5,612
Obligations under capital leases, net of
current portion 24 33
----------- -----------
Total liabilities 10,663 5,645
----------- -----------
Shareholders' equity:
Preferred stock, no par value, 7,500,000
shares authorized, no shares issued -- --
Common stock, no par value, 30,000,000 shares
authorized, 12,498,449 and 12,255,334 shares
issued and outstanding at June 30, 1997 and
December 31, 1996, respectively 51,078 50,631
Additional paid-in capital 2,530 2,492
Unrealized gain on investments -- 25
Deferred compensation (24) (50)
Accumulated deficit (16,594) (12,771)
----------- -----------
Total shareholders' equity 36,990 40,327
----------- -----------
$ 47,653 $ 45,972
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
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APPLIED DIGITAL ACCESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS (AMOUNTS IN THOUSANDS
EXCEPT PER SHARE AMOUNT) EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C>
Revenue $ 8,164 $ 4,516 $ 14,552 $ 11,153
Cost of revenue 3,711 2,047 6,922 5,067
-------- -------- -------- --------
Gross profit 4,453 2,469 7,630 6,086
Operating expenses:
Research and development 2,534 1,905 4,535 3,572
In-process research and
development related to
asset acquisition 1,578 -- 1,578 1,186
Sales and marketing 1,902 1,760 3,360 3,201
General and administrative 1,082 750 2,437 1,430
-------- -------- -------- --------
Total operating expenses 7,096 4,415 11,910 9,389
======== ======== ======== ========
Operating loss (2,643) (1,946) (4,280) (3,303)
Interest income 268 479 510 953
Other income (expense), net 14 27 11 42
======== ======== ========= ========
Loss before income taxes (2,361) (1,440) (3,759) (2,308)
Provision for income taxes 13 -- 64 --
-------- -------- -------- --------
Net loss ($ 2,374) ($ 1,440) ($ 3,823) ($ 2,308)
======== ======== ======== ========
Net loss per share ($ 0.19) ($ 0.12) ($ 0.31) ($ 0.19)
======== ======== ======== ========
Number of shares used in per share
computations 12,452 11,983 12,381 11,961
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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APPLIED DIGITAL ACCESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 3,823) ($ 2,308)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
In-process research and development related to
asset acquisition 1,578 1,186
Depreciation and amortization 1,335 630
Other (116) 25
Changes in assets and liabilities:
Accounts receivable (2,893) 1,947
Inventory 256 (869)
Prepaid expenses and other current assets (114) (350)
Accounts payable 1,992 (96)
Acquisition payments due licensor 2,600 --
Accrued expenses 64 257
Accrued warranty (24) 63
Deferred revenue 393 253
-------- --------
Net cash provided by operating activities 1,248 738
-------- --------
Cash flows from investing activities:
Purchases of investments (9,778) (12,026)
Maturities of investments 14,017 13,935
Purchases of property and equipment (826) (838)
Purchase costs related to asset acquisitions (3,383) (1,900)
-------- --------
Net cash provided (used) by investing activities 30 (829)
-------- --------
Cash flows from financing activities:
Principal payments on capital leases (8) (17)
Proceeds from the issuance of common
stock under stock option plans 447 318
-------- --------
Net cash provided by financing activities 439 301
-------- --------
Net increase in cash and cash equivalents 1,717 210
Cash and cash equivalents, beginning of period 1,504 1,673
-------- --------
Cash and cash equivalents, end of period $ 3,221 $ 1,883
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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APPLIED DIGITAL ACCESS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 1997
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of Applied Digital Access, Inc. ("the Company" or
"ADA") and its wholly-owned subsidiary, Applied Digital Access - Canada,
Inc. All significant intercompany balances and transactions have been
eliminated in consolidation. These financial statements have been prepared
in accordance with the interim reporting requirements of Form 10-Q, pursuant
to the rules and regulations of the Securities and Exchange Commission
("SEC"). Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended
June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. These financial statements
should be read in conjunction with the Company's audited financial
statements and notes thereto, together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Risks and
Uncertainties," contained in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 filed with the SEC.
2. Inventory
Inventory is valued at the lower of cost (determined using the first-in,
first-out method) or market. Inventory was as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Raw materials $ 3,143 $ 4,211
Work-in-process 3,050 2,558
Finished goods 1,433 1,063
------- -------
7,626 7,832
Less inventory reserve (519) (469)
------- -------
$ 7,107 $ 7,363
======= =======
</TABLE>
3. Per Share Information
Per share information is computed using the weighted average number of
common shares and common equivalent shares (when the effect is dilutive)
outstanding during the periods presented. Common equivalent shares result
from outstanding options and warrants to purchase common stock.
4. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 Earnings per Share
("SFAS No. 128"). SFAS No. 128 requires dual presentation of newly defined
basic and diluted earnings per share on the face of the income statement for
all entities with a complex capital structure. SFAS No. 128 is effective for
fiscal years ending after December 15, 1997, including interim periods. The
Company does not believe that the adoption of SFAS No. 128 will have a
material impact on the computation of its earning per share in future
periods.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 "Comprehensive Income" ("SFAS No. 130") and Statement of Financial
Accounting Standards No. 131 "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. Comprehensive income is
defined as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from nonowner sources.
SFAS No. 131 requires publicly-held companies to report financial and other
information about key revenue-producing segments of the entity for which
such information is available and is utilized by the chief operation
decision maker. Specific information to be reported for individual segments
includes profit or loss, certain revenue and expense items and total assets.
The impact of adopting SFAS No. 130 and SFAS No. 131, both effective for the
Company in 1998, has not yet been determined.
5. License Acquisition
On June 27, 1997, the Company acquired an exclusive worldwide license to
Nortel's Digital Support System II (TM) ("DSS II") operations system software
product, subject to certain residual rights retained by Nortel. The Company
acquired the license and certain assets related to the DSSII product for a net
amount of $3.1 million, $0.5 million of which is payable by the Company in cash
and the remainder of which is payable in cash and/or stock at the Company's
option in three equal quarterly installments beginning July 15, 1997. The first
installment payment of approximately $.9 million was paid in cash. The Company
recorded a charge of approximately $1.6 million for purchased research and
development associated with the acquisition of the license and assets. As
part of the transaction, the Company also issued Nortel a warrant to purchase
150,000 shares of the Company's common stock at an exercise
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price of $12 per share. The warrant has a three year term. Nortel retains the
right to and will continue to support its current DSS II customer base outside
of North America as part of its integrated Network Management (NM) portfolio
for Broadbank Network solutions. The Company has obtained exclusive worldwide
rights to market and sell the DSS II product under the new name, . Provisioner,
and has acquired substantially all of Nortel's North American DSS II customer
relationships.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Except for the historical information contained herein, the matters discussed in
this Form 10-Q may contain forward-looking statements which involve risk and
uncertainties. Factors that may affect the Company's results of operations
include but are not limited to concentration of major customers, telephone
company qualification requirements, high dependence on two product lines,
competition, management of changing business, mergers, rapid technological
change and dependence on new products, dependence on suppliers and
subcontractors, product recall, government regulation, proprietary technology,
dependence on key personnel, and volatility of stock price. The Company believes
that deregulation and the resulting increased number of competitors providing
telecommunications services could result in an expansion of the Company's
customer base and increased competition with regard to service levels and costs,
which may result in increased demand for the Company's products. However,
additional delays in the deployment of the Company's products and continued
uncertainty surrounding the telecommunications industry may have a material
adverse impact on the Company's business, operating results and financial
condition. As a result of the uncertainties faced by the Company's customers,
the Company continues to have limited visibility with regard to future customer
orders and the timing of such orders. Customers have been placing orders
quarterly and the Company has been operating in a book and ship mode. With a
small customer base and fluctuating order size, this trend has resulted in
quarter-to-quarter revenue fluctuations that are likely to continue for the
foreseeable future.
The following should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Risks and
Uncertainties", contained in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed with the SEC.
Overview
ADA is a leading provider of network performance management products that
include systems, software, and services used to manage the quality, performance,
availability and reliability of telecommunications service providers' networks.
ADA's products are designed to enable service providers to improve their quality
of service, to increase productivity, to lower operating expenses and to
effectively deploy new services. ADA has positioned its business to assist
service providers in addressing the rapidly increasing demand for new services,
higher bandwidth and access to the Internet. ADA's systems and software provide
network management functions such as provisioning, configuration management,
performance management, testing and traffic management. ADA has approached the
industry demand for network management products with a three-faceted approach:
(1) Network Systems and Sensors that provide testing and performance monitoring
functions as well as selected transport functions; (2) Network Management
software that enables service providers to manage their network operations; and
(3) Services that are customized to meet the evolving needs of the service
provider market. In 1996, the Company formed two strategic business units: the
Network Systems and Sensors business unit and the Network Management business
unit. The business units are synergistic with the evolution of the Company from
a single product line to multiple product lines. The Network Systems and Sensors
business unit is built around the Company's T3AS products and services including
its T3AS system, Centralized Test System ("CTS") and Protocol Analysis Access
System ("PAAS"), and the Remote Module, a DS1 network interface unit ("NIU").
The Network Management business unit focuses on Operations Systems ("OS")
software products including the Traffic Data Collection and Engineering System
("TDC&E"), the Fault Management System ("FMS"), .Provisioner, a circuit and node
provisioning system formerly known as Nortel's DSS II product, and OS design
services all acquired through acquisitions, as well as Sectionalizer and
Graphical Test Assistant ("GTA").
Recent Developments
On June 27, 1997, the Company acquired an exclusive worldwide license to
Nortel's DSS II OS software product, subject to certain residual rights retained
by Nortel. The Company acquired the license and certain assets related to the
DSSII product for a net amount of $3.1 million, $0.5 million of which is payable
by the Company in cash and the remainder of which is payable in cash and/or
stock at the Company's option in three equal quarterly installments beginning
July 15, 1997. The first installment payment of approximately $.9 million was
paid in cash. The Company recorded a charge of approximately $1.6 million for
purchased research and development associated with the acquisition of the
license and assets. As part of the transaction, the
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Company also issued Nortel a warrant to purchase 150,000 shares of the Company's
common stock at an exercise price of $12 per share. The warrant has a three year
term. Nortel retains the right to and will continue to support its current DSS
II customer base outside of North America as part of its integrated Network
Management (NM) portfolio for Broadband Network solutions. The Company has
obtained exclusive worldwide rights to market and sell the DSS II product under
the new name, .Provisioner, and has acquired substantially all of Nortel's North
American DSS II customer relationships.
The acquisition relates to the Company's objective to acquire software
development capability in the telecommunications carrier OS software arena and
convert that capability to a product-based business. The first part of the plan
involved the acquisition by the Company of its Vancouver based development team
known as British Columbia Group ("BCG") from MPR Teltech, Ltd., a subsidiary of
BC TELECOM, Inc., in July 1996. BCG has been responsible for design,
development, and maintenance of DSS II and its predecessor DSS since 1986, most
recently under contract to Nortel's Network Services Management Division.
In June, the Company signed a three year supply contract with MCI
Telecommunications Corporation ("MCI") for the Company's systems, software and
services products. This contract is a standard supply contract which specifies
the terms and conditions under which MCI will order and the Company will supply
products and services. The contract is not a commitment contract and does not
guarantee any purchases of products and services or any level of purchases.
Although MCI has purchased certain products of the Company under the terms of
this contract, the Company is uncertain whether this contract will result in any
future orders for the Company's products, or if it does, whether the orders will
result in significant revenue.
Results of Operations
Revenue totaled $8,164,000 for the three months ended June 30, 1997, an 81%
increase from revenue of $4,516,000 for the three months ended June 30, 1996.
For the six months ended June 30, 1997, revenue totaled $14,552,000, a 30%
increase from $11,153,000 in the same period last year. The increases were
mostly due to increased OS software design services generated from the BCG
operations acquired in July 1996.
For the three and six months ended June 30, 1997, revenue from T3AS products,
services and sensors totaled $4.4 million and $7.2 million, respectively,
compared to $3.7 million and $10.4 million, respectively, for the same periods
last year. The quarter-over-quarter revenue increase was due to an increase in
Remote Module product sales resulting from the purchases of the Company's NIU
product by BellSouth. The decrease in T3AS sales for the six months ended June
30, 1997 was primarily the result of decreased engineering and installation
("E&I") services provided to customers for the installation of T3AS products.
For the six months ended June 30, 1996, E&I revenue totaled $2.6 million, the
majority of which was provided to one RBOC customer compared to $24,000 for the
six months ended June 30, 1997. E&I services fluctuate significantly quarter to
quarter and while the Company intends to continue to offer E&I services to its
customers, future E&I services, if any, cannot be determined. For the three and
six months ended June 30, 1997, OS revenue totaled $3.7 million and $7.4
million, respectively, compared to $.8 million for the same periods last year.
The increase in OS revenue was primarily the result of increased software design
services. Included in OS revenue for the three and six months ended June 30,
1997 is $1.7 million for the completion and wind down of the OS software design
services agreement with Nortel for support of the DSS II product. These support
services were provided to Nortel pursuant to an agreement between the Company
and Nortel dated July 17, 1996 which was terminated on June 25, 1997. The
Company will continue to market the design services business in the future.
Nortel has indicated that it intends to continue to purchase software design
services from the Company although at levels significantly lower than in the
past.
The Company has acquired from Nortel a license to the DSSII product and
technology which it expects to market and enhance under the new name
.Provisioner. The Company also expects to integrate the licensed technology into
new product development. The acquisition has generated a shift in the Company's
BCG operations from a software design services business to a product business.
To date, the Company's BCG OS revenue has been generated from OS software design
services provided to Nortel for which revenue has been recognized as the
services were performed. Although the Company believes it will be successful in
transitioning the majority of its BCG operations from a design services business
to a product business, there can be no assurance the Company will be able to
maintain the historical BCG revenue levels in the future. As a result, the
Company may experience quarterly revenue fluctuations in the future that could
have a material adverse effect on the Company's business, operating results and
financial condition. The Company expects that revenue from sales of the T3AS
product family and OS products and services will account for a majority of the
Company's revenue for the foreseeable future.
Gross profit was $4,453,000 for the three months ended June 30, 1997, an
increase of 80% from $2,469,000 in the second quarter of 1996. Gross profit as a
percent of revenue was 55% for the three months ended June 30, 1997, unchanged
from the same period last year. The increase in gross profit for the second
quarter was primarily due to increased revenue from OS software design services.
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Gross profit totaled $7,630,000 for the six months ended June 30, 1997, an
increase of 25% from $6,086,000 for the same period last year. Gross profit as a
percent of revenue was 52% for the six months ended June 30, 1997 compared to
55% for the same period last year. The increase in gross profit for the six
months ended June 30, 1997 was also the result of increased revenue from OS
software design services partially offset by decreased sales of T3AS products
and services and a change in product mix for T3AS products and services. In
1997, sales of the Company's T3AS products have been weighted toward the
Company's CTS and Remote Module NIU products which carry lower product margins
as compared to its T3AS system. The highly competitive CTS and NIU markets are
subject to severe pricing pressures which have contributed to lower overall
gross profits on these products. There can be no assurance that the Company will
be able to maintain current gross profit or gross profit as a percent of revenue
levels. Factors which may materially and adversely affect the Company's gross
profit in the future include its level of revenue, competitive pricing pressure
in the telecommunication network management market, new product introductions by
the Company or its competitors, potential inventory obsolescence and scrap,
possible recalls, production or quality problems, timing of development
expenditures, changes in material cost, disruptions in sources of supply,
regulatory changes, seasonal patterns of bookings, capital spending, and changes
in general economic conditions.
Research and development expenses totaled $2,534,000 for the three months ended
June 30, 1997, a 33% increase from $1,905,000 for the three months ended June
30, 1996. Research and development expenses totaled $4,535,000 for the six
months ended June 30, 1997, a 27% increase from $3,572,000 for the six months
ended June 30, 1996. The majority of the increases was attributable to the
addition of research and development personnel related to the ACD acquisition
and the shift in the BCG OS business toward product development as a result of
the DSS II license acquisition. The Company believes that its future success
depends on its ability to maintain its technological leadership through
enhancement of its existing products and development of innovative new products
and services that meet customer needs. Therefore, the Company intends to
continue to make significant investments in research and product development in
association with planned development projects.
In the three months ended June 30, 1997 the Company recorded a charge of
approximately $1.6 million for purchased research and development costs related
to the acquisition of the DSS II license and related assets from Nortel.
Sales and marketing expenses were $1,902,000 for the three months ended June 30,
1997, an 8% increase from $1,760,000 in the same period last year. For the six
months ended June 30, 1997, sales and marketing expenses totaled $3,360,000, a
5% increase from $3,201,000 in the same period last year. The increases were
due to additional customer support and marketing personnel expenses required to
support the OS business. The Company expects that sales and marketing expenses
will continue to increase in absolute dollars as the Company continues to hire
additional sales, marketing and technical support personnel to support planned
product introductions in both network systems and network management business
areas.
General and administrative expenses totaled $1,082,000 for the three months
ended June 30, 1997, a 44% increase from $750,000 in the same period last year.
For the six months ended June 30, 1997, general and administrative expenses
totaled $2,437,000 a 70% increase from $1,430,000 in the same period last year.
The majority of the increase was due to the amortization of goodwill and
intangible assets associated with the acquisition of the BCG operations
completed in the third quarter of 1996 and additional personnel expenses related
to the 1996 acquisitions. The Company expects that general and administrative
expenses will increase in absolute dollars as the administrative support needs
of the Company increase.
Interest income totaled $268,000 for the second quarter of 1997, a 44% decrease
from $479,000 in the same quarter a year ago. Interest income totaled $510,000
for the first half of 1997, a 46% decrease from $953,000 in the same period in
1996. This decrease is mostly the result of decreased cash investments compared
to the same period last year.
For the three and six months ended June 30, 1997 the Company provided for income
taxes related to the operations of the Company's Canadian subsidiary, based on
an annual effective Canadian tax rate of 46%. The Company did not provide for
U.S. income taxes for the three and six months ended June 30, 1997 or June 30,
1996 due to net losses. The Company expects to provide for foreign, federal and
state income taxes for 1997 at applicable statutory rates, after giving effect
to net operating losses, remaining available net operating loss carryforwards,
and any available tax credits.
As a result of the factors discussed above, the Company incurred a net loss of
$2,374,000, or $.19 per share, for the three months ended June 30, 1997 compared
to a net loss of $1,440,000, or $.12 per share, for the three months ended June
30, 1996. Excluding the $1.6 million charge for purchased research and
development associated with the purchase of the DSS II license, the Company
would have recorded a net loss of $796,000, or $.06 per share, for the three
months ended June 30, 1997. The Company incurred a net loss of $3,823,000, or
$.31 per share, for the six months ended June 30, 1997 compared to a net loss of
$2,308,000, or $.19 per share, for the
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same period last year. Excluding the above referenced $1.6 million charge and
the $1.2 million charge for purchased research and development associated with
the ACD acquisition in the first quarter of 1996, the Company would have
recorded a net loss of $2,245,000, or $.18 per share, for the six months ended
June 30, 1997 and a net loss of $1,122,000, or $.09 per share, for the six
months ended June 30, 1996.
Liquidity and Capital Resources
At June 30, 1997 the Company had approximately $19,095,000 in cash and
investments, compared to $21,461,000 at December 31, 1996. The decrease in cash
and investments is primarily due to cash payments associated with the
acquisition of the DSS II license and related assets, and purchases of capital
equipment.
Working capital decreased approximately 15% or $4,642,000 from $31,229,000 at
December 31, 1996 to $26,587,000 at June 30, 1997. The decrease in working
capital was primarily the result of an increase in accounts payable due to the
timing of inventory receipts and an increase in accrued payments related to the
DSSII license acquisition.
For the six months ended June 30, 1997 the Company's operating activities
provided $1,248,000 in cash, primarily as a result of an increase in accounts
payable and accrued payments related to the DSSII license acquisition offset by
an increase in accounts receivable, compared to $738,000 provided by operating
activities for the six months ended June 30, 1996.
For the six months ended June 30, 1997 cash used for capital expenditures
totaled approximately $826,000 compared to $838,000 for the six months ended
June 30, 1996. Most of the capital equipment additions were related to the
purchase of computer and lab equipment to support the Company's expanded
research and development efforts and the BCG operations moving to a new
location. The Company expects the level of capital expenditures will increase in
1997 as a result of increased research and development efforts.
Assuming no material changes in the Company's current operating plans, the
Company believes that cash generated from operations, and the total of its cash
and investments, will be sufficient to meet its working capital and capital
expenditure requirements for at least the next twelve months. Significant
additional capital resources, however, may be required to fund acquisitions of
complementary businesses, products or technologies. Alternatively, the Company
may need to issue additional shares of its capital stock or incur indebtedness
in connection with any such acquisitions. At present, the Company does not have
any agreements or commitments with respect to any such acquisitions.
The Company believes the impact of inflation on its business activities has not
been significant to date.
RISKS AND UNCERTAINTIES
Concentration of Major Customers; Telephone Company Qualification Requirements.
The market for the Company's products currently consists of the seven RBOCs,
other local telephone companies, Competitive Access Providers ("CAPs") and long
distance telephone companies. The Company's marketing efforts to date have
focused on the RBOCs which accounted for 73% of the Company's revenue in 1996
and 29% of the Company's revenue in the first six months of 1997. Accordingly,
at present the Company's customer base is highly concentrated and there can be
no assurance that its customer base will become less concentrated. Further, the
Company's customers are significantly larger than the Company and may be able to
exert a high degree of influence over the Company. The loss of one or more of
the Company's major customers, the reduction of orders, or a delay in deployment
of the Company's products could materially and adversely affect the Company's
business, operating results and financial condition. Prior to selling products
to a telephone company, a vendor must first undergo a product qualification
process with the telephone company for its products. Although the qualification
process for a new product varies somewhat among these prospective customers, the
Company's experience is that the process often takes a year or more. Currently,
six of the seven RBOCs have qualified and deployed the Company's T3AS products.
Any failure on the part of any of the RBOCs or other telephone companies to
maintain their qualification of the Company's T3AS products, failure of any of
the RBOCs or other telephone companies to deploy the Company's T3AS products, or
any attempt by any of the RBOCs or other telephone companies to seek out
alternative suppliers could have a material adverse effect on the Company's
business, operating results and financial condition. BellSouth, Ameritech,
Southwestern Bell, U S West and MCI have entered into purchase contracts with
the Company. Other RBOCs, independent telephone companies, and other telephone
service providers purchase the Company's T3AS products under standard purchase
orders. Since the RBOC and MCI contracts may be terminated at the convenience of
the RBOC or MCI, the Company believes that the purchase contracts are not
materially different than purchasing under purchase orders. There can be no
assurance that the Company's products will be qualified by new customers, or
that such qualification will not be significantly delayed. Furthermore,
telephone company work force reductions and staff reassignments have in the
past
10
<PAGE> 11
delayed the product qualification process, and the Company expects such
reductions and reassignments to continue in the future. There can be no
assurance that such reductions and reassignments will not have a material
adverse effect on the Company's business, operating results and financial
condition.
High Dependence on Two Product Lines. Historically, the majority of the
Company's revenue to date has been derived from the sale of T3AS products and
services. However, the Company expects that its future revenue will be derived
from both T3AS products and services and OS software products and services. The
Company is investing in the expansion of its product lines through the
enhancement, development and marketing of its NIU, CTS, PAAS, and OS products.
Failure by the Company to enhance either its existing T3AS products and services
including CTS and PAAS, or its NIU and OS products, and to develop new product
lines and new markets could materially and adversely affect the Company's
business, operating results and financial condition. There is no assurance that
the Company will be able to develop and market new products and technology or
otherwise diversify its source of revenue.
Competition. The Company believes there are currently no competitors that
provide an integrated comprehensive solution to performance monitoring and
testing of the DS3 circuit as does the Company's T3AS system. The Company
believes the principal competitive factors in this market are conformance with
Bellcore and other industry transmission standards and specifications; product
features, including price, performance and reliability; technical support; and
the maintenance of close working relationships with customers. There can be no
assurance that the Company will compete successfully in the future with respect
to these factors and others that may arise. Although the Company believes that
there are fewer than 10 current competitors that provide partial solutions to
either performance monitoring or testing of the DS1 or DS0 circuits that make up
the DS3 circuit, this market is fiercely competitive. Such competitors and
prospective competitors include a number of companies, such as manufacturers of
DS1 test and monitoring equipment, manufacturers of NIUs, manufacturers of
digital cross-connect test and performance monitoring equipment and
manufacturers of large transmission equipment. Many of these companies
manufacture products that are directly competitive with the Company's Low-Speed
Subsystems, T3AS Centralized Test Systems and Remote Module, and many of these
competitors have significantly greater technical, financial, manufacturing and
marketing resources than the Company. In addition, the Company believes that
there are an increasing number of current competitors in the OS market that
provide OS applications for testing, surveillance, performance monitoring and
traffic management of telecommunications functions. In each of the NIU, CTS and
OS markets, competition is expected to increase significantly in the future. For
instance, the NIU market is fiercely competitive with respect to price, product
features, established supplier, and conformance with industry standards, and in
the OS market, improved technologies and tool sets have made the barriers to
entry in this market relatively small. Additionally, several of the Company's
competitors have long-established relationships with the Company's current
prospective customers. In addition, product price reductions resulting from
market share penetration initiatives or competitive pricing pressures could have
a material and adverse effect on the Company's business, operating results, and
financial condition. There can be no assurance that the Company will have the
financial resources, technical expertise or manufacturing, marketing,
distribution and support capabilities to compete successfully in the future.
Management of Changing Business. As a result of acquisitions in 1996, the
Company obtained additional office space and hired additional personnel in both
Terre Haute, Indiana and British Columbia, Canada to support the business
operations of the new products, services and technologies acquired. The Company
faces significant management challenges related to the integration of the
business operations of the new products, services and technologies acquired. In
1996, the Company formed two strategic business units: the Network Systems and
Sensors business unit and the Network Management business unit. The business
units are synergistic with the evolution of the Company from a single product
line to multiple product lines. The Network Systems and Sensors business unit is
built around the Company's T3AS products and services including CTS and PAAS, as
well as the Remote Module product. The Network Management business unit focuses
on Operations Systems ("OS") software products including the Traffic Data
Collection and Engineering System ("TDC&E"), the Fault Management System
("FMS"), the circuit and node provisioning system, .Provisioner, and OS design
services all acquired through acquisitions, as well as Graphical Test Assistant
("GTA") and Sectionalizer. There can be no assurance that the Company will be
successful in managing its new business unit structure. The Company is currently
transitioning portions of the OS design service business to a product-oriented
business. This transition will likely place a significant strain on the
Company's management, information systems and operations and there can be no
assurance that such a transition can be successfully managed. The acquisitions
and resultant growth in the Company's infrastructure have placed, and are
expected to continue to place, a significant strain on the Company's management,
information systems and operations. The strain experienced to date has chiefly
been in hiring sufficient numbers of qualified personnel to support the
expansion of the business. The Company is not able to forecast additional
strains that may be placed on the Company's management, information systems and
operations as a result of the acquisitions or in the future. The Company's
potential inability to manage its changing business effectively could have a
material adverse effect on the Company's business, operating results, and
financial condition.
11
<PAGE> 12
Mergers. Of the eight major Telephone Service Providers ("TSPs") currently
involved in or that have recently completed merger transactions, six are
customers of the Company. Several of the mergers involve companies that purchase
network systems, software and services from the Company's competitors.
Consequently, the completion of certain of these mergers may result in the loss
of business and customers for the Company. Additionally, the impact of capital
spending constraints during the merger transitions could have a material adverse
effect on the Company's business, operating results and financial condition.
Rapid Technological Change and Dependence on New Products. The market for
the Company's products is characterized by rapid technological advances,
evolving industry standards, changing regulatory environments, changes in
customer requirements, and frequent new product introductions and enhancements.
The introduction of telephone network test and performance-monitoring products
involving superior technologies or the evolution of alternative technologies or
new industry transmission standards, such as Asynchronous Transfer Mode ("ATM"),
Frame Relay and Synchronous Optical Network ("SONET"), could render the
Company's existing products, as well as products currently under development,
obsolete and unmarketable. The Company believes its future success will depend
in part upon its ability, on a cost-effective and timely basis, to continue to
enhance its current products, to develop and introduce new products for the
telephone network test and performance-monitoring market, the OS market, and
other markets, to address new industry transmission standards and changing
customer needs, and to achieve broad market acceptance for its products. In
particular, the Company anticipates that the SONET and Synchronous Digital
Hierarchy ("SDH") optical transmission standards will become the industry
transmission standards over the coming years for the North American and
international networks, respectively. The Company's current T3AS products do not
address either the SONET or SDH transmission standards. The Company intends to
extend its current products and develop new products to accommodate such new
transmission standards, as they evolve. The widespread adoption of SONET and/or
SDH as industry transmission standards before the Company is able to
successfully develop a product which addresses such transmission standards could
adversely affect the sale and deployment of the Company's T3AS products. Any
failure by the Company to anticipate or respond on a cost-effective and timely
basis to technological developments, changes in industry transmission standards
or customer requirements, or any significant delays in product development or
introduction could have a material adverse effect on the Company's business.
There can be no assurance that the Company will be able to successfully develop
new products to meet customer requirements, to address new industry transmission
standards and technological changes or to respond to new product announcements
by others, or that such products will achieve market acceptance.
Dependence on Suppliers and Subcontractors; Need to Make Advance Purchase
Commitments. Certain components used in the Company's T3AS products and Remote
Module product, including its VLSI Application Specific Integrated Circuits
("ASICs") and other components, are available from a single source. The Company
has no supply agreements and generally makes its purchases with purchase orders.
Further, certain components require an order lead time of up to one year. Other
components that currently are readily available may become difficult to obtain
in the future. Failure of the Company to order sufficient quantities of these
components in advance could prevent the Company from increasing production in
response to customer orders in excess of amounts projected by the Company. In
the past, the Company has experienced delays in the receipt of certain of its
key components, which have resulted in delays in product deliveries. There can
be no assurance that delays in key component and part deliveries will not occur
in the future. The inability to obtain sufficient key components as required or
to develop alternative sources if and as required in the future could result in
delays or reductions in product shipments, which in turn could have a material
adverse effect on the Company's customer relationships and operating results.
Additionally, the Company uses third-party subcontractors for the manufacture of
its subassemblies. This reliance on third-party subcontractors involves several
risks, including the potential absence of adequate capacity, the unavailability
of or interruption in access to certain process technologies, and reduced
control over product quality, delivery schedules, manufacturing yields and
costs. Shortages of raw materials or production capacity constraints at the
Company's subcontractors could negatively affect the Company's ability to meet
its production obligations and could result in increased prices for affected
parts. To procure adequate supplies of certain components, the Company must make
advance commitments to purchase relatively large quantities of such components
in a number of circumstances. A large portion of the Company's purchase
commitments consists of custom parts, some of which are sole-source such as VLSI
ASICs, for which there is no alternative use or application. The inability of
the Company to incorporate such components in its products could have a material
adverse effect on the Company's business, operating results and financial
condition.
Product Recall. Producers of telephone network equipment, including test
access and performance monitoring systems such as those being marketed by the
Company, are often required to meet rigorous standards imposed by Bellcore, the
research and development entity created following the divestiture of AT&T to
provide ongoing engineering support to the RBOCs. In addition, the Company must
meet specialized standards imposed by its customers. The Company's systems are
also required to interface in a complex and changing environment with
telecommunication network equipment made by numerous suppliers. In the event
there are material deficiencies or defects in the design or manufacture of the
Company's systems, or if the Company's systems become incompatible with existing
third-party network equipment, the affected products could be subject to a
recall. The Company has
12
<PAGE> 13
experienced two significant product recalls in its history and there can be no
assurance that the Company will not experience any product recalls in the
future. The cost of any subsequent product recall and associated negative
publicity could have a material adverse effect on the Company's business,
operating results and financial condition.
Government Regulation. The majority of the Company's customers operate
within the telecommunications industry which is subject to regulation in the
United States and other countries. Most of the Company's customers must receive
regulatory approvals in conducting their businesses. Although the
telecommunications industry has recently experienced government deregulation,
there is no assurance this trend will continue. In fact, recent regulatory
rulings have affected the ability of the Company's customers to enter new
markets and deliver new services which could impact their ability to make
significant capital expenditures. The effect of regulatory rulings by federal
and state agencies on the Company's customers may adversely impact the Company's
business, operating results and financial condition.
Proprietary Technology. The Company relies on a combination of technical
leadership, trade secret, copyright and trademark protection and non-disclosure
agreements to protect its proprietary rights. Although the Company has pursued
and intends to continue to pursue patent protection of inventions that it
considers important and for which such protection is available, the Company
believes its success will be largely dependent on its reputation for technology,
product innovation, affordability, marketing ability and response to customer's
needs. Currently, the Company has nine U.S. patents granted and two U.S. patent
applications allowed. One of the granted patents relates to the Company's Remote
Module product. Additionally, the Company has nine pending U.S. patent
applications and two international (Patent Cooperation Treaty) applications on
file covering various circuit and system aspects of its products. There can be
no assurance that the Company will be granted additional patents or that, if any
patents are granted, they will provide the Company's products with significant
protection or will not be challenged. As part of its confidentiality procedures,
the Company generally enters into non-disclosure agreements with its employees
and suppliers, and limits access to and distribution of its proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the Company's technology without authorization.
Accordingly, there can be no assurance that the Company will be successful in
protecting its proprietary technology or that ADA's proprietary rights will
preclude competitors from developing products or technology equivalent or
superior to that of the Company. The telecommunications industry is
characterized by the existence of a large number of patents and frequent
litigation based on allegations of patent infringement. The Company is not aware
of infringement by its products or technology of the proprietary rights of
others. There can be no assurance that third parties will not assert
infringement claims against the Company in the future or that any such
assertions will not result in costly litigation or require the Company to obtain
a license to intellectual property rights of such parties. There can be no
assurance that any such licenses would be available on terms acceptable to the
Company, if at all. Further, litigation, regardless of outcome, could result in
substantial cost to and diversion of efforts by the Company. Any infringement
claims or litigation against the Company could materially and adversely affect
the Company's business, operating results and financial condition. Moreover, the
laws of some foreign countries do not protect the Company's proprietary rights
in the products to the same extent as do the laws of the United States.
Dependence on Key Personnel. The success of the Company is dependent, in
part, on its ability to attract and retain highly qualified personnel.
Competition for such personnel is intense and the inability to attract and
retain additional key employees or the loss of one or more current key employees
could adversely affect the Company. There can be no assurance that the Company
will be successful in hiring or retaining requisite personnel.
Volatility of Stock Price. The Company's future earnings and stock price may
be subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by public market analysts
and investors could have an immediate and significant adverse effect on the
trading price of the Company's common stock. Fluctuation in the Company's stock
price may also have an effect on customer decisions to purchase the Company's
products which could have a material adverse effect on the Company's business,
operating results and financial condition.
13
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, ADA may be involved in litigation relating to claims
arising out of its operations in the normal course of business. As of
the date of this Quarterly Report, the Company is not a party to any
legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders was held on May 20, 1997 and was
adjourned solely with respect to the Delaware reincorporation proposal
until May 30, 1997 and again to June 13, 1997, on which date the
proposal was adopted. At the meeting, the shareholders elected Kenneth
E. Olson, Christopher B. Paisley, Peter P. Savage and Edward F. Tuck as
directors of the Company for the ensuing year and until their
respective successors are elected. The following tables sets forth the
results of voting in this election:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C> <C>
Kenneth E. Olson 10,779,651 - 493,579
Christopher B. Paisley 10,675,451 - 597,779
Peter P. Savage 10,774,827 - 498,403
Edward F. Tuck 10,782,151 - 491,079
</TABLE>
In addition, the shareholders voted on the following proposals:
(a) To approve the Company's reincorporation in Delaware, through the
merger of Applied Digital Access, Inc., a California corporation, with
and into a wholly-owned Delaware subsidiary of Applied Digital Access,
Inc.:
For Against Abstain Broker Non-Votes
------------------------------------------------------------------
6,237,368 2,064,125 28,080 2,991,162
This proposal was approved.
(b) To ratify the appointment of Coopers and Lybrand L.L.P. as the
Company's independent public accountants for the fiscal year ending
December 31, 1997:
For Against Abstain
------------------------------------------
11,228,320 23,927 20,883
This proposal was approved.
ITEM 5. OTHER INFORMATION.
None.
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1* Asset Purchase Agreement between Applied Digital
Access, Inc. and Northern Telecom Limited dated June
27, 1997 ("the Asset Purchase Agreement"). Schedules
A, C, E, G, I and K to the Asset Purchase Agreement
have been omitted because they contain information
that is not material to an investment decision and is
otherwise discussed in the agreement (pursuant to Item
601.(b)(2) of Regulation S-K of the Securities
Exchange Act of 1934, as amended). Schedules B, D, F
and H of the Asset Purchase Agreement are included in
this Form 10-Q as or as part of Exhibits 10.1, 10.2,
10.3 and 10.3, respectively. The Company agrees to
furnish supplementally a copy of any omitted schedule
to the Commission upon request.
10.1* License Agreement between Northern Telecom Ltd. and
Applied Digital Access, Inc. dated as of June 27, 1997
10.2 Applied Digital Access, Inc. 1997 Registration Rights
Agreement between Applied Digital Access, Inc. and
Northern Telecom Limited dated as of June 27, 1997
10.3 Stock and Warrant Purchase Agreement between Applied
Digital Access, Inc. and Northern Telecom dated as of
June 27, 1997
10.4* Master Purchase Agreement between MCI
Telecommunications Corporation and Applied Digital
Access, Inc. dated June 16, 1997
10.5* Master Agreement between Northern Telecom Limited and
Applied Digital Access, Inc. dated as of June 26, 1997
11.1 Statement regarding computation of net income (loss)
per share.
27.1 Financial Data Schedule.
</TABLE>
* Certain confidential portions of this Exhibit were omitted by
means of blacking out the text (the "Mark"). This Exhibit has
been filed separately with the Secretary of the Commission
without the Mark pursuant to the Company's Application
Requesting Confidential Treatment under Rule 24b-2 under the
Securities Exchange Act of 1934.
(b) Reports on Form 8-K.
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Applied Digital Access, Inc.
Date: August 14, 1997 /s/ PETER P. SAVAGE
-----------------------------------------
Peter P. Savage
Director
President and Chief Executive Officer
Date: August 14, 1997 /s/ JAMES L. KEEFE
-----------------------------------------
James L. Keefe
Vice President Finance and
Administration and Chief
Financial Officer
16
<PAGE> 1
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
Between
APPLIED DIGITAL ACCESS, INC.
and
NORTHERN TELECOM LIMITED
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. INTERPRETATION 2
1.1 Definitions 2
1.2 Interpretation 4
1.3 Schedules 5
2. PURCHASE AND SALE 5
2.1 Purchase of Purchased Assets 5
2.2 Excluded Assets 5
2.3 Assumed Liabilities 6
2.4 No Assumption of Liabilities 6
2.5 Purchase Price 6
2.6 Manner of Payment 7
2.7 Issuance of Stock and Warrants; Registration Rights 7
2.8 Allocation of Purchase Price. 8
2.9 Expenses and Taxes 8
2.10 Title 8
2.11 Election 8
2.12 Contingent Payments 8
3. NORTEL'S REPRESENTATIONS AND WARRANTIES 10
3.1 Representations and Warranties 10
3.2 Purchased Assets "AS IS, WHERE IS" 12
3.3 Purchaser's Sole Remedy 12
3.4 Survival of Nortel's Representations and Covenants 12
3.5 Nortel's Liability 12
3.6 Conditions for Indemnification 13
3.7 Limitation of Nortel's Indemnification 13
4. PURCHASER'S REPRESENTATIONS AND WARRANTIES 14
4.1 Representations and Warranties 14
4.2 Nortel's Sole Remedy 15
4.3 Survival of Purchaser's Representations and Covenants 15
4.4 Purchaser's Liability 15
4.5 Conditions for Indemnification 16
5. CONDITIONS TO CLOSING 16
5.1 Conditions for Purchaser's Benefit 16
5.2 Conditions for Nortel's Benefit 17
5.3 Non-Fulfillment of Conditions 17
5.4 No Prejudice to Other Rights 17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6. CLOSING 18
6.1 Time and Place of Closing 18
6.2 Nortel's Obligations on Closing 18
6.3 Purchaser's Obligations on Closing 18
7. POST-CLOSING MATTERS 19
7.1 Nortel to Provide Access and Facilities 19
7.2 Post-Closing Access to Books and Records 19
7.3 Accounts Receivable 19
8. CONFIDENTIAL INFORMATION 19
8.1 Confidentiality 19
8.2 Publicity 19
9. GENERAL PROVISIONS 20
9.1 Assignment 20
9.2 Counterparts; Facsimile 20
9.3 Conflict in Terms 20
9.4 Costs and Expenses 20
9.5 Entire Agreement 20
9.6 Finder's Fee 21
9.7 Further Assurances 21
9.8 Governing Law 21
9.9 Notice 21
9.10 No Consequential Losses 22
9.11 No Waiver 22
9.12 Severability 22
Schedule A - Purchased Assets
Schedule B - License Agreement
Schedule C - Assumed Liabilities
Schedule D - Registration Rights Agreement
Schedule E - Services Agreement
Schedule F - Stock and Warrant Purchase Agreement
Schedule G - Transition Plan
Schedule H - Warrants
Schedule I - Allocation of Purchase Price
Schedule J - [Intentionally Left Blank]
Schedule K - Bill of Sale
</TABLE>
ii
<PAGE> 4
ASSET PURCHASE AGREEMENT
THIS AGREEMENT dated for reference the 27th day of June, 1997
BETWEEN:
APPLIED DIGITAL ACCESS, INC., a corporation duly incorporated
under the laws of the State of California and having an office
at 9855 Scranton Road, San Diego, California, U.S.A. 92121
(hereinafter referred to as "Purchaser")
OF THE FIRST PART
AND:
NORTHERN TELECOM LIMITED, a corporation duly incorporated
under the laws of Canada and having an office at 8200 Dixie
Road, Brampton, Ontario, Canada L6T 5P6
(hereinafter referred to as "Nortel")
OF THE SECOND PART
WHEREAS:
Nortel is a company which provides advanced telecommunications systems
and products to telecommunications carriers, vendors and users;
Nortel's operations include its DSS II Business (as hereinafter
defined) which focuses on developing software-intensive communications
products for Nortel's Customers (as hereinafter defined);
Purchaser and Nortel have entered into a Letter of Intent (as
hereinafter defined) pursuant to which Purchaser has expressed an
interest in purchasing certain assets of the DSS II Business; and
Purchaser wishes to buy, and Nortel wishes to sell on the terms and
conditions set out in this Agreement, certain assets of the DSS II
Business;
NOW THEREFORE in consideration of the premises and covenants contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1
<PAGE> 5
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. In this Agreement (including the recitals, this
Article and each Schedule), unless there is something in the subject matter or
context inconsistent therewith or unless otherwise expressly provided, the
following words and expressions shall have the following meanings:
"ADA" means ADA Canada, Inc., a company incorporated pursuant to the
laws of The Yukon Territory;
"Affiliate" means any person or entity controlling, controlled by or
under common control with a party hereunder (with control, together
with its correlative meaning "controlled by," meaning the possession,
directly or indirectly, of the power to direct or cause the direction
of the management or policies of such person or entity whether through
ownership of voting securities by agreement or otherwise);
"Closing" means the completion of the sale to and the purchase by
Purchaser of the Purchased Assets in accordance with Article 2;
"Closing Date" means the date for the Closing as specified in Section
6.1;
"Closing Price" means the weighted average closing price of a share of
Purchaser Common Stock as reported on the Nasdaq National Market for
all of the trading days of a calendar quarter;
"Confidential Information" means any proprietary, scientific,
technical, planning, business, marketing, product or financial
information (including DSS II Information), formulas, patterns,
compilations, programs, devices, methods, techniques, processes, data,
trade secrets or know-how ("Information") of one of the parties hereto
or its Affiliates which is designated as confidential or similar
designation at the time of disclosure or that would be understood by
the party receiving such Information at the time of disclosure,
exercising reasonable business judgment, to be confidential;
"Contingent Payment" means the payments as specified in Section 2.12;
"Customers" means the DSS II Business' customers as of the Time of
Closing, with the exception ofAmeritech Communications Inc./Ameritech
Services, Inc., Energis Communications Limited, Bell Cablemedia
Management Limited, Avantel, S.A., Clear Communications Limited and
Netherlands Armed Forces Integrated Network/The Kingdom of the
Netherlands;
2
<PAGE> 6
"DSS II Business" means the business unit of Nortel that designs,
develops, markets and licenses the DSS II Products;
"DSS II Information" means all design documentation, customer product
documentation (including training and operations), installation and
maintenance documentation, marketing materials developed for general
use, test specifications, Nortel proprietary utilities and tools,
command files for software development and testing, and everything
currently used by Nortel as of the Closing Date to develop, modify,
enhance and support the DDS II Products to the extent available in
accordance with Article 3 and 4 of the License Agreement (as
hereinafter defined);
"DSS II Intellectual Property" means any Nortel invention, patent,
utility model, copyright, industrial design, mask work or integrated
circuit topography right, or any Nortel right of whatsoever nature in
processes, techniques, improvements, modifications, computer software
and data, Confidential Information, trade secrets or know-how, or any
intangible right or privilege of a nature similar to any of the
foregoing which is incorporated in or infringed by the DSS II Software
or the DSS II Information;
"DSS II Products" means the DSS II products (including DSS II Software
and DSS II Information) which are comprised of software proprietary to
BC TEL, Microtel Limited and Nortel;
"DSS II Software" means all of the source code, object code and machine
code for the DSS II Products as of the Closing Date as described in
Schedule A to the License Agreement;
"Encumbrance" means a security interest, adverse claim (including right
of first purchase, option, first refusal or pre-emption), burden,
charge or other interest attaching to the Purchased Assets and created
by, through or under Nortel;
"Letter of Intent" means the Letter of Intent executed by Purchaser,
ADA and Nortel and dated April 15, 1997;
"License Agreement" means the License Agreement to be entered into by
Purchaser and Nortel pursuant to which rights and licenses are to be
granted to Purchaser to design, produce and market certain products or
software programs based upon DSS II Information and DSS II Software,
and attached hereto as Schedule B to this Agreement;
"Losses" means all actions, liabilities, fines, penalties, costs,
interest or damages suffered or incurred by a party, including
reasonable attorney's fees and disbursements;
3
<PAGE> 7
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature;
"Purchased Assets" means the assets set out in Schedule A to this
Agreement, but excluding the Excluded Assets;
"Purchaser Common Stock" means the common stock of Purchaser, no par
value;
"Registration Rights Agreement" means the Registration Rights Agreement
to be entered into in connection with the issuance of shares of
Purchaser Common Stock and the Warrants as set forth in Section 2.5 of
this Agreement, a form of which is attached hereto as Schedule D;
"Services Agreement" means the Services Agreement to be entered into by
Purchaser and Nortel pursuant to which Nortel will provide to Purchaser
certain services related to the DSS II Business, and attached hereto as
Schedule E to this Agreement;
"Stock and Warrant Purchase Agreement" means the Stock and Warrant
Purchase Agreement to be entered into in connection with the partial
payment of the Purchase Price as set forth in Section 2.5 of this
Agreement, a form of which is attached hereto as Schedule F;
"Time of Closing" means the time on the Closing Date specified in
Section 6.1;
"Transaction Agreements" means the License Agreement, the Stock and
Warrant Purchase Agreement, the Registration Rights Agreement, the
Transaction Plan and the Services Agreement.
"Transition Period" means that 120 day period following the Closing
Date;
"Transaction Plan" means the document attached hereto as Schedule G;
and
"Warrants" means those warrants exercisable into 150,000 shares of
Purchaser Common Stock, in the form attached hereto as Schedule H.
1.2 INTERPRETATION. For purposes of this Agreement, except as otherwise
expressly provided:
a) "this Agreement" means this agreement, including the Schedules
hereto, as may from time to time be supplemented or amended and in
effect;
b) all references in this Agreement to a designated "Article,"
"Section," "Subsection" or other subdivision or to a Schedule are
to the designated
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<PAGE> 8
Article, Section, Subsection or other subdivision of, or Schedule
to, this Agreement;
c) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section, Subsection or other subdivision or
Schedule;
d) the headings in this Agreement are for convenience only and do not
form a part of this Agreement and are not intended to interpret,
define or limit the scope, extent or intent of this Agreement or
any provision hereof;
e) unless expressed to be in some other currency, all references to
currency refer to lawful money of the United States of America.
The references to currency in the Schedules, excluding Schedule I,
refer to Canadian currency; and
f) words importing the masculine gender include the feminine or
neuter gender and words in the singular include the plural and
vice versa.
1.3 SCHEDULES. The following Schedules are attached to and form a part
of this Agreement:
a) Schedule A - Purchased Assets;
b) Schedule B - License Agreement
c) Schedule C - Assumed Liabilities
d) Schedule D - Registration Rights Agreement;
e) Schedule E - Services Agreement;
f) Schedule F - Stock and Warrant Purchase Agreement;
g) Schedule G - Transition Plan;
h) Schedule H - Warrants;
i) Schedule I - Allocation of Purchase Price;
j) Schedule J - [Intentionally Left Blank]; and
k) Schedule K - Bill of Sale
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE OF PURCHASED ASSETS. Upon the terms and subject to the
conditions herein contained, Nortel shall transfer, sell, assign and convey the
Purchased Assets to Purchaser or ADA as designated by Purchaser, and Purchaser
and ADA shall purchase and receive from Nortel all of Nortel's right, title and
interest in and to the Purchased Assets.
2.2 EXCLUDED ASSETS. Notwithstanding anything to the contrary contained
in Section 2.1 above, the following shall not be included in the Purchased
Assets and shall not be sold by Nortel to Purchaser hereunder (the "Excluded
Assets"):
a) all cash and cash equivalents;
b) all accounts receivable;
5
<PAGE> 9
c) all contracts and leases of equipment or other property not
assigned to and assumed by Purchaser as part of the Purchased
Assets or as otherwise contemplated by this Agreement;
d) all real estate and all leases of real property;
e) all prepaid expenses and deposits;
f) all causes of actions and litigation against third parties;
g) all tax returns of Nortel and all tax refunds due Nortel from any
governmental agency; and
h) any solvents or chemicals which are identified by Purchaser on or
before the Closing Date.
Purchaser shall have no control over, interest in or liability or
responsibility of any kind whatsoever for the Excluded Assets and/or Nortel's
use or possession of same, whether before or after the Time of Closing, except
as otherwise provided in the Services Agreement.
2.3 ASSUMED LIABILITIES. As of the Closing Date and subject to Section
2.4 below, Purchaser hereby agrees to assume, satisfy or perform when due those
liabilities and obligations of Nortel set forth in Schedule C attached hereto
(the "Assumed Liabilities"). Nortel acknowledges and agrees that all of the
Assumed Liabilities will be assumed by Purchaser as of the Closing Date.
2.4 NO ASSUMPTION OF LIABILITIES. Purchaser shall not assume and shall
not be liable for any liabilities of Nortel of whatever type or nature
whatsoever not specifically included in the Assumed Liabilities, including for
all employee accruals for unpaid vacation pay, premiums for unemployment
insurance, health premiums, Canada Pension Plan premiums, accrued wages,
salaries and commissions and employment benefit plan payments (collectively, the
"Retained Liabilities") and Nortel assumes full responsibility with respect to
all such employee accruals referred to in this subparagraph and all other
Retained Liabilities.
2.5 PURCHASE PRICE. In full consideration for the purchase by Purchaser
of the Purchased Assets and for the transactions contemplated in this Agreement,
Purchaser shall pay to Nortel the aggregate purchase price of US Three Million
Five Hundred Ninety-Nine Thousand Nine Hundred Ninety-Eight Dollars
(US$3,599,998) and the Warrants, as adjusted pursuant to Section 2.12 below (the
"Purchase Price"), in the following manner and subject to the following
conditions:
a) Purchaser shall pay to Nortel US One Million Dollars
(US$1,000,000) in cash at the Time of Closing;
b) Purchaser shall issue to Nortel the Warrants at the Time of
Closing;
c) Purchaser shall pay Nortel US Eight Hundred Sixty-Six Thousand Six
Hundred Sixty-Six Dollars (US$866,666) in shares of Purchaser
Common Stock, in cash or in a combination of cash and shares of
Purchaser Common Stock, at Purchaser's sole discretion, per
quarter, commencing
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<PAGE> 10
July 15, 1997 for a period of three (3) consecutive quarters, for
an aggregate payment of US Two Million Five Hundred Ninety-Nine
Thousand Nine Hundred Ninety-Eight Dollars (US$2,599,998). Such
payment shall be made as described in Section 2.6 below and shall
be subject to offset as described in Subsection 2.5(d) below; and
d) Purchaser may, in addition to and without in any way waiving its
other remedies under this Agreement or otherwise, withhold
installment payments of the Purchase Price as set out in
Subsection 2.5(c) to cover legal expenses reasonably incurred by
Purchaser in defending against infringement litigation and to
offset any payment of damages, settlements or royalties to third
parties in the event that sales of any of the DSS II Business
products that are acquired by Purchaser pursuant to this Agreement
are claimed to infringe patents or other intellectual property of
any third party and such claims become the subject of litigation.
It is a condition precedent to Purchaser's right to so withhold
payment and to so offset that, upon the filing of any such suit,
Purchaser and ADA shall cease to sell that portion of the DSS II
Business product or products which is the subject of such
litigation.
2.6 MANNER OF PAYMENT. In partial payment of the Purchase Price,
Purchaser and ADA, if designated by Purchaser, shall pay the sum set out in
Subsection 2.5(a) to Nortel at the Time of Closing by wire transfer in
immediately available funds to *. Any sums which Purchaser determines to pay, in
Purchaser's sole discretion, pursuant to Subsection 2.5(c) to Nortel in cash
shall be paid by wire transfer in immediately available funds to * in three
equal installments as follows: the first on or before July 15, 1997, the second
on or before October 15, 1997 and the third on or before January 15, 1998.
2.7 ISSUANCE OF STOCK AND WARRANTS; REGISTRATION RIGHTS. The issuance
of the Warrants and the shares of Purchaser Common Stock in partial payment of
the Purchase Price, if any, as set out in Subsections 2.5(b) and 2.5(c) shall be
governed by the Stock and Warrant Purchase Agreement. In the event that
Purchaser determines to pay, in Purchaser's sole discretion, pursuant to
Subsection 2.5(c) any sums in shares of Purchaser Common Stock, the number of
shares of Purchaser Common Stock, if any, to be issued to Nortel on the
following dates shall be equal to the amount of the payment to be made by
Purchaser in Purchaser Common Stock divided by the Closing Price for the quarter
ending immediately prior to the date of payment. Such shares issued to Nortel,
if any, shall be issued in three installments as follows: the first on or before
July 15, 1997, the second on or before October 15, 1997 and the third on or
before January 15, 1998. The shares of Purchaser Common Stock issuable upon
exercise of the Warrants and the shares of Purchaser Common Stock issued in
partial payment of the Purchase Price, if any, shall be entitled to those
certain rights to register the shares for resale in the United States public
market pursuant to the Registration Rights Agreement.
2.8 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
as set out in Schedule I.
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
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<PAGE> 11
2.9 EXPENSES AND TAXES. The parties to this Agreement shall be solely
responsible for their respective legal, accounting, taxes and other fees and
costs with respect to the transactions that are the subject of this Agreement.
Purchaser shall be liable for and pay all taxes, duties and like charges
properly payable upon and in connection with the conveyance of the Purchased
Assets and the grant of the license to the DSSII Products.
2.10 TITLE. Title to the Purchased Assets shall pass to Purchaser or
ADA as designated by Purchaser at the Time of Closing and the Purchased Assets
shall be at the risk of Nortel prior to Closing. Nortel and Purchaser
acknowledge that it is intended that Nortel shall be entitled to the benefit of
all revenues arising from the DSS II Business up to the Closing and shall be
responsible for all expenses incurred by the DSS II Business up to the Closing.
2.11 ELECTION. Nortel and the Purchaser shall elect jointly under
Subsection 167(1) of the Excise Tax Act (Canada), in the form prescribed for the
purposes of that subsection, in respect of the sale and transfer of the
Purchased Assets hereunder, and Nortel shall file such election in its GST
return for its reporting period that includes the Closing Date. Nortel
represents that its GST Registration Number is *.
2.12 CONTINGENT PAYMENTS. Nortel shall pay to Purchaser the following
payments (the "Contingent Payments") in order to establish a quality support
incentive for Purchaser and to allow Purchaser to resource customer service and
support functions to * the *, in the following manner, subject to the following
conditions and as adjusted pursuant to this Section 2.12:
a) On that date which is six months following the Closing, Nortel
shall pay to Purchaser US Five Hundred Thousand Dollars
(US$500,000) by certified cheque or bank draft drawn on the bank
of Nortel payable to or to the order of Purchaser or ADA, as
designated by Purchaser, in immediately available funds; and
b) On that date which is one (1) year following the Closing, Nortel
shall pay to Purchaser US Five Hundred Thousand Dollars
(US$500,000) by certified cheque or bank draft drawn on the bank
of Nortel payable to or to the order of Purchaser or ADA, as
designated by Purchaser, in immediately available funds.
The payment in Subsection 2.12(b) is conditional upon Purchaser * a * as of the
date which is one (1) year following the Closing as follows: (i) no * shall * an
* or * a * as a result of Purchaser's * under a purchase agreement; and (ii) no
* shall have been issued by * to the * or * in * to * of Nortel, at or above the
*, for Purchaser's * to * of the * of * as of the Closing Date. Nortel hereby
agrees that it shall * the terms and conditions of this provision.
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
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<PAGE> 12
Nortel agrees to use its best judgment in *, recognizing that some * of this
portion of this Agreement to * Purchaser's * or other aspects of a *. Nortel
acknowledges that Purchaser's * with * is *, and may not be * of * Purchaser. To
the extent that * of Purchaser results in a *, Nortel agrees to * in view of
this *. Notwithstanding the foregoing, Nortel's decision as to whether the
foregoing conditions have been satisfied shall be made in Nortel's sole
discretion, acting reasonably.
In the event the payment in Subsection 2.12(b) is required as set forth above,
such payment shall be reduced by the amount equal to the aggregate amounts
calculated as of each date of issuance of Purchaser Common Stock pursuant to
Subsection 2.5(c) as follows, up to a maximum reduction of US $500,000: the
product of (I) that amount that the reported closing price of a share of
Purchaser Common Stock on the Nasdaq National Market on the date which is one
day before the date which is one (1) year following the Closing is less than the
Closing Price on the date such Purchaser Common Stock was issued to Nortel
pursuant to Subsection 2.5(c) multiplied by (II) the number of shares of
Purchaser Common Stock issued on such date. For example, assume (A) shares of
Purchaser Common Stock are issued to Nortel pursuant to Subsection 2.5(c) only
on July 15, 1997, (B) that on the date which is one day before the date which is
one year following the Closing, the reported closing price of a share of
Purchaser Common Stock is US$10, (C) the Closing Price for the July 15, 1997
payment was US$5 and (D) 173,333 shares of Purchaser Common Stock are issued to
Nortel on July 15, 1997. No reduction in the payment due under Subsection
2.12(b) will be allowed. However, assume (W) shares of Purchaser Common Stock
are issued to Nortel pursuant to Subsection 2.5(c) only on July 15, 1997, (X)
that on the date which is one day before the date which is one year following
the Closing, the reported closing price of a share of Purchaser Common Stock is
US$4, (Y) the Closing Price for the July 15, 1997 payment was US$5 and (Z)
173,333 shares of Purchaser Common Stock are issued to Nortel on July 15, 1997.
The payment due under Subsection 2.12(b) would be reduced by US$173,333 and
Nortel would be required to pay to Purchaser US$326,667.
Nortel may, in addition to and without in any way waiving its other remedies
under this Agreement or otherwise, withhold the payment of any portion of the
Contingent Payment set forth in Section 2.12(b) above to offset against accrued
Losses incurred by Nortel in defending against litigation for breach of Nortel's
obligations to any Customers, which litigation arises directly from Purchaser's
performance of any such obligation, whether as a subcontractor or otherwise or
for any other litigation arising directly from Purchaser's performance of its
obligations under the Assumed Liabilities.
ARTICLE 3
NORTEL'S REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES. Nortel represents and warrants to
Purchaser, as warranties and representations that are true at the date hereof
and at the Time of Closing as if such warranties and representations were made
at such time that:
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
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<PAGE> 13
a) Nortel is a corporation duly organized and validly existing under
the laws of Canada, and has all requisite corporate power and
authority to carry on the business of the DSS II Business as now
conducted;
b) Nortel has all requisite corporate power and authority (i) to
execute, deliver and perform its obligations under the Transaction
Agreements and this Agreement, and (ii) to execute, deliver and
perform its obligations under all other agreements and instruments
executed and delivered by it pursuant to or in connection with
this Agreement. All proceedings or corporate action on the part of
Nortel, its officers, directors and shareholders required and
necessary for the authorization, execution and delivery of this
Agreement and the Transaction Agreements and the performance of
all obligations of Nortel hereunder and thereunder has been taken
or will be taken prior to the Closing, and each of this Agreement
and the Transaction Agreements constitutes valid and legally
binding obligations of Nortel, enforceable in accordance with
their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability
of specific performance, injunctive relief or other equitable
remedies;
c) the execution and delivery of this Agreement and the Transaction
Agreements by Nortel and the consummation of the transactions
herein and therein provided for will not, with or without the
giving of notice or the passage of time, or both, result in:
i) the breach or violation of any of the provisions of, or
constitute default under, or conflict with or cause the
acceleration of any obligation of Nortel under
A) any contract related to the Purchased Assets to which
Nortel is a party or by which it or the Purchased Assets
is or its properties are bound, including, without
limitation, the Services Agreement and the License
Agreement,
B) any provision of the constating documents or by-laws or
resolutions or articles of the board of directors or
shareholders of Nortel,
C) any judgment, decree, order or award of any court,
governmental body or arbitrator having jurisdiction over
Nortel,
D) any license, permit, approval, consent or authorization
held by Nortel and related to the Purchased Assets, or
E) any applicable, statute, ordinance, regulation or rule;
or
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<PAGE> 14
ii) the creation or imposition of any encumbrance on any of the
Purchased Assets;
which breach, violation or encumbrance would affect the Purchased
Assets or Purchaser's rights thereto or enjoyment thereof after
Closing;
d) no consent, authorization, order or approval of, or filing or
registration with, any governmental authority or other person or
entity is required for the execution and delivery by Nortel of
this Agreement or any Transaction Agreement and the consummation
by Nortel of the transactions contemplated by such agreements;
e) subject to the rights of third parties set out in Section 2 of
Schedule A, the Purchased Assets are owned by Nortel free and
clear of all liens and encumbrances;
f) Nortel's financial statements for the most recently completed
fiscal period present fairly the assets and liabilities of the DSS
II Business and its financial condition as of the dates of such
financial records and fairly present the results of operations of
the DSS II Business for the periods reflected in the financial
records in accordance with generally accepted accounting
principles consistently applied (except as may be indicated in the
notes thereto and subject to normal year-end adjustments in the
case of any interim financial statements);
g) there are no claims, proceedings, actions, or lawsuits in
existence, or, to the best of Nortel's knowledge, threatened or
asserted against or with respect to the Purchased Assets which
would have a material adverse effect on the Purchased Assets or
the value thereof;
h) there are no material agreements entered into by Nortel in respect
of the purchase of the DSS II Business or the Purchased Assets,
other than this Agreement and the Transaction Agreements; i) to
the best of Nortel's knowledge, Nortel has complied in all
material respects with all existing laws, rules, regulations and
orders and has obtained all permits and licenses required to
operate the DSS II Business, and the present use by Nortel of the
Purchased Assets in the operation of the DSS II Business does not
violate any laws, rules, regulations or orders;
j) to the best of Nortel's knowledge, there are no licenses, permit
registrations or governmental approvals, agreements or consents
applied for, pending by, issued or given to Nortel which would
have a material adverse effect on the DSS II Business, and no
agreements with governmental authorities (provincial, state, local
or foreign) entered into by Nortel which would have a material
adverse effect on the DSS II Business are in effect or have been
applied for or are pending.
3.2 AS IS WHERE IS. THE PURCHASED ASSETS ARE SOLD ON AN AS IS WHERE IS
BASIS IN THEIR CONDITION ON THE CLOSING DATE. EXCEPT AS
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<PAGE> 15
SET FORTH IN SECTION 3.1(c) ABOVE, THERE ARE NO OTHER WARRANTIES,
REPRESENTATIONS, CONDITIONS OR GUARANTEES OF ANY KIND WHATSOEVER, EITHER EXPRESS
OR IMPLIED, WHETHER ARISING BY STATUTE, CONTRACT, TORT, PRODUCT LIABILITY OR
OTHERWISE, REGARDING THE PURCHASED ASSETS, INCLUDING BUT NOT LIMITED TO,
WARRANTIES, REPRESENTATIONS, CONDITIONS AND GUARANTEES AS TO MERCHANTABILITY,
FITNESS FOR A SPECIFIC PURPOSE, DESIGN, CONDITION OR QUALITY OF THE PURCHASED
ASSETS.
3.3 PURCHASER'S SOLE REMEDY. PURCHASER'S SOLE REMEDY FOR BREACH OF THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE 3 SHALL BE LIMITED TO
THE INDEMNITY SET OUT IN SECTION 3.5.
3.4 SURVIVAL OF NORTEL'S REPRESENTATIONS AND COVENANTS. Each
representation, warranty, covenant and agreement of Nortel contained herein
shall survive the execution and delivery of this Agreement and the Closing, and
shall expire * after the Closing Date unless, on or before such expiry date,
Purchaser has delivered to Nortel written notice of a claim relating to such
representation, warranty, covenant or agreement.
3.5 NORTEL'S LIABILITY. Subject to Section 3.4, and except as otherwise
expressly provided for in this Agreement, Nortel shall be liable to Purchaser
for, and shall indemnify and save harmless Purchaser from and against Losses
sustained or incurred by Purchaser which arise out of, are based on, or are the
result of:
a) any misrepresentation or breach of representation, breach of
warranty, nonfulfillment of covenant or agreement made by Nortel
herein or in any certificate or other document delivered by or on
behalf of Nortel pursuant hereto; or
b) any failure of Nortel to comply with, or any breach by Nortel of,
any of the covenants or agreements in this Agreement to be
performed by Nortel, excluding in any event (with respect to both
Sections 3.5(a) and 3.5(b))
(iii) anything for which Nortel is indemnified pursuant to
Section 4.4, and
(iv) anything for which liability is disclaimed pursuant to
Section 3.6;
excepting in each case any Losses to the extent that the same are caused by the
negligence or willful misconduct of Purchaser. No claim shall be made by
Purchaser hereunder unless written notice of such claim is delivered to Nortel
within the time stipulated in Section 3.4 and such claim, together with any
prior claims by Purchaser, exceeds *. In no event shall Nortel's cumulative
liability under this Section 3.5 exceed *. It is agreed that if a
misrepresentation or breach of warranty or covenant is discovered by Purchaser
after
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
12
<PAGE> 16
Closing, Purchaser's remedy shall be limited to indemnification as set forth
herein and Purchaser shall not be entitled to rescission of this Agreement.
3.6 CONDITIONS FOR INDEMNIFICATION. The indemnity contained in Section
3.5 shall apply only where the following conditions are satisfied:
a) Nortel shall have sole conduct of all proceedings and negotiations
connected with such claims;
b) Purchaser (i) will promptly notify Nortel within twenty (20)
calendar days of its receipt of a written notice of any such
claims, (ii) will furnish Nortel within thirty (30) calendar days
of its receipt of such notice with copies of any pleadings,
correspondence or other documents relating to such claims that are
in Purchaser's possession, and (iii) will not make any admissions
regarding such claims;
c) Purchaser will provide Nortel with reasonable assistance and
authority in connection with such claims.
3.7 LIMITATION OF NORTEL'S INDEMNIFICATION. Notwithstanding anything to
the contrary contained in this Agreement, Nortel shall not be liable under the
indemnification provisions of this Agreement or otherwise have any liability for
any misrepresentation or breach of warranty or covenant to the extent that such
misrepresentation or breach of warranty or covenant by Nortel is disclosed in
any due diligence materials requested by and delivered to Purchaser prior to
Closing; provided, however, that any failure of Purchaser to discover such
misrepresentation or breach of warranty or covenant is not caused by the willful
misconduct of Nortel.
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<PAGE> 17
ARTICLE 4
PURCHASER'S REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES. Purchaser hereby represents and
warrants to Nortel, as warranties and representations that are true at the date
hereof and at the Time of Closing as if such warranties and representations were
made at such time, that:
a) Purchaser is a corporation duly organized and validly existing
under the laws of the State of California and has all requisite
corporate power and authority to carry on its business as now
conducted and as proposed to be conducted. Purchaser is duly
qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would be
reasonably expected to have a material adverse effect on the
business, operations, properties, assets, prospects or condition
(financial or otherwise) of Purchaser, taken as a whole. Except as
disclosed in Purchaser's filings with the United States Securities
and Exchange Commission, Purchaser has no subsidiaries;
b) Purchaser has all requisite corporate power and authority (i) to
execute, deliver and perform its obligations under this Agreement,
the Transaction Agreements and the Warrants and (ii) to execute,
deliver and perform its obligations under all other agreements and
instruments executed and delivered by it pursuant to or in
connection with this Agreement. All proceedings or corporate
action on the part of Purchaser, its officers, directors and
shareholders required and necessary for the authorization,
execution and delivery of this Agreement, the Transaction
Agreements and the Warrants and the performance of all obligations
of Purchaser hereunder and thereunder has been taken or will be
taken prior to the Closing, and each of this Agreement, the
Transaction Agreements and the Warrants constitutes valid and
legally binding obligations of Purchaser, enforceable in
accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of
creditor's rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or
other equitable remedies;
c) the execution and delivery of this Agreement, the Transaction
Agreements, and the Warrants by Purchaser and the consummation of
the transactions contemplated herein and therein provided for will
not, with or without the giving of notice or passage of time, or
both, violate, nor be in conflict with, nor result in a breach or
violation of any of the provisions of, or constitute default
under, or cause the acceleration of any obligation of Purchaser
under the provisions of any agreement or instrument to which
Purchaser is a party or by which Purchaser is bound, or any
judgment, decree, order or award of any court, governmental body
or arbitrator having jurisdiction over
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<PAGE> 18
Purchaser, any applicable statute, ordinance, regulation or rule,
or any provision of Purchaser's by-laws, or resolutions or
articles of the board of directors or shareholders of Purchaser;
d) as of the date of this Agreement, Purchaser is able to pay the
cash portion of the Purchase Price in cash;
e) all shares of Purchaser Common Stock to be issued to Nortel in
partial payment of the Purchase Price, if any, and the Warrants
shall be issued in a private transaction under the terms and
conditions of the Stock and Warrant Purchase Agreement and
Nortel's rights thereunder shall be governed by the terms and
conditions of the Stock and Warrant Purchase Agreement;
f) the financial statements of Purchaser present fairly the assets
and liabilities of Purchaser and its financial condition as of the
dates of such financial statements and fairly present the results
of operations of Purchaser for the periods reflected in the
financial statements in accordance with generally accepted
accounting principles consistently applied (except as may be
indicated in the notes thereto and subject to normal year-end
adjustments in the case of any interim financial statements); and
g) Purchaser is an American-controlled entity within the meaning and
for the purposes of the Investment Canada Act, and will give
notice of its acquisition of the Purchased Assets to Investment
Canada in accordance with that Act.
4.2 NORTEL'S SOLE REMEDY. NORTEL'S SOLE REMEDY FOR BREACH OF THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE 4 SHALL BE LIMITED TO
THE INDEMNITY SET OUT IN SECTION 4.4.
4.3 SURVIVAL OF PURCHASER'S REPRESENTATIONS AND COVENANTS. Each
representation, warranty, covenant and agreement of Purchaser contained herein
shall survive the execution and delivery of this Agreement and the Closing, and
shall expire * after the Closing Date unless, on or before such expiry date,
Nortel has delivered to Purchaser written notice of a claim relating to such
representation, warranty, covenant or agreement.
4.4 PURCHASER'S LIABILITY. Subject to Section 4.3 and except as
otherwise expressly provided for in this Agreement, Purchaser shall be liable to
Nortel for, and shall indemnify and save harmless Nortel from and against all
Losses sustained or incurred by Nortel which arise out of, are based on, or are
the result of:
a) any misrepresentation or breach of representation, breach of
warranty, nonfulfillment of covenant or agreement made by
Purchaser herein or in any certificate or other document delivered
by or on behalf of Purchaser pursuant hereto; or
b) any failure of Purchaser to comply with, or any breach by
Purchaser of, any of the covenants or agreements in this Agreement
to be performed by Purchaser; or
c) Purchaser's performance or non-performance of the Assumed
Liabilities;
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
15
<PAGE> 19
excepting in each case any Losses to the extent that the same are caused by the
negligence or willful misconduct of Nortel. No claim shall be made by Nortel
hereunder unless written notice of such claim is delivered to Purchaser within
the time stipulated in Section 4.3 and such claim, together with any prior
claims by Nortel, exceeds *. In no event shall Purchaser's cumulative liability
under this Section 4.4 exceed *.
4.5 CONDITIONS FOR INDEMNIFICATION. The indemnity contained in Section
4.4 shall apply only where the following conditions are satisfied:
a) Purchaser shall have sole conduct of all proceedings and
negotiations connected with such claims;
b) Nortel (i) will promptly notify Purchaser within twenty (20)
calendar days of its receipt of a written notice of any such
claims, (ii) will furnish Purchaser within thirty (30) calendar
days of its receipt of such notice with copies of any pleadings,
correspondence or other documents relating to such claims that are
in Nortel's possession, and (iii) will not make any admissions
regarding such claims;
c) Nortel will provide Purchaser with reasonable assistance and
authority in connection with such claims.
ARTICLE 5
CONDITIONS TO CLOSING
5.1 CONDITIONS FOR PURCHASER'S BENEFIT. The obligations of Purchaser
under this Agreement shall be subject to the satisfaction at or prior to the
Closing of the following conditions (each of which is for the exclusive benefit
of Purchaser and may be waived in writing by Purchaser):
a) all actions on the part of Nortel necessary to authorize the
execution, delivery and performance of this Agreement and the
other agreements provided for herein, and the consummation of the
transactions contemplated herein and therein, shall have been duly
and validly taken by Nortel;
b) all of Nortel's representations and warranties contained in this
Agreement and in the Transaction Agreements shall be true in all
material respects at and as of the Time of Closing and Nortel
shall have performed and satisfied in all respects all covenants
and agreements required by this Agreement to be performed and
satisfied by Nortel at or prior to the Closing;
c) Nortel shall have executed and delivered to Purchaser the Stock
and Warrant Purchase Agreement;
d) Nortel shall have executed and delivered to Purchaser the
Registration Rights Agreement;
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
16
<PAGE> 20
e) Nortel shall have executed and delivered to Purchaser the Services
Agreement; and
f) Nortel shall have executed and delivered to Purchaser the License
Agreement.
5.2 CONDITIONS FOR NORTEL'S BENEFIT. The obligations of Nortel under
this Agreement shall be subject to the satisfaction at or prior to the Closing
of the following conditions (each of which is for the exclusive benefit of
Nortel and may be waived in writing by Nortel):
a) all actions on the part of Purchaser necessary to authorize the
execution, delivery and performance of this Agreement and the
other agreements provided for herein, and the consummation of the
transactions contemplated herein and therein, shall have been duly
and validly taken by Purchaser;
b) all representations and warranties of Purchaser contained in this
Agreement and in the Transaction Agreements shall be true in all
material respects at and as of the Time of Closing and Purchaser
shall have performed and satisfied in all respects all covenants
and agreements required by this Agreement to be performed and
satisfied by Purchaser at or prior to the Closing;
c) Purchaser shall have executed and delivered to Nortel the Stock
and Warrant Purchase Agreement;
d) Purchaser shall have executed and delivered to Nortel the
Registration Rights Agreement;
e) Purchaser shall have executed and delivered to Nortel the Services
Agreement;
f) Purchaser shall have executed and delivered to Nortel the License
Agreement.
5.3 NON-FULFILLMENT OF CONDITIONS. If any of the conditions referred to
in Sections 5.1 or 5.2 shall not be fully satisfied at or before the Closing,
then the party for whose benefit such condition has been included in this
Agreement may, at its option, either:
a) complete the transactions contemplated by this Agreement, in which
event such party shall be deemed to have waived such condition; or
b) elect not to complete the transactions contemplated by this
Agreement.
5.4 NO PREJUDICE TO OTHER RIGHTS. No waiver by either party of the
conditions set forth in Sections 5.1 or 5.2 in whole or in part shall in any way
prejudice +or limit the rights and remedies of either party to claim or recover
damages and compensation from the other party in respect of any inaccuracy in
any representation or warranty that is not the subject of the waiver, or in
respect of any breach or non-performance of any covenant or agreement of the
other party contained in this Agreement that is not the subject of such waiver.
No election by either party not to complete the transactions contemplated by
this Agreement as a result of any breach or non-performance by the other party
of any covenant or agreement contained in this Agreement, which breach or
non-performance has resulted in a condition set forth in
17
<PAGE> 21
in Sections 5.1 or 5.2 failing to be satisfied at or before the Closing, shall
in any way prejudice or limit the rights of the party electing not to complete
in respect of such breach or non-performance by the other party.
ARTICLE 6
CLOSING
6.1 TIME AND PLACE OF CLOSING. The Closing shall take place by way of
courier or facsimile transmission commencing at 10:00 a.m. San Diego, California
time, on the 27th day of June, 1997, or by such other manner at such other time
as the parties may agree.
6.2 NORTEL'S OBLIGATIONS ON CLOSING. At the Closing, Nortel shall
deliver to Purchaser:
a) a bill of sale in respect of the Purchased Assets, in the form
attached hereto as Schedule K;
b) a copy of the Stock and Warrant Purchase Agreement, executed on
behalf of Nortel;
c) a copy of the Registration Rights Agreement, executed on behalf of
Nortel;
d) a copy of the License Agreement, executed on behalf of Nortel;
e) a copy of the Services Agreement, executed on behalf of Nortel;
f) the prescribed form electing to have Section 167 of the Excise Tax
Act (Canada) apply to the transfer of the Purchased Assets, duly
executed by each of Nortel and ADA; and
g) such other closing certificates as may be reasonably requested by
Purchaser.
6.3 PURCHASER'S OBLIGATIONS ON CLOSING. At the Closing, Purchaser shall
deliver to Nortel:
a) certified cheques or bank drafts payable to "Northern Telecom
Limited" in the amount of US One Million Dollars (US$1,000,000)
and any applicable taxes;
b) the Warrants in the name of "Northern Telecom Limited";
c) a certified copy of a resolution of the Boards of Directors of
Purchaser and ADA, if applicable, authorizing the purchase of the
Purchased Assets and the execution and delivery of this Agreement
and all agreements contemplated under this Agreement;
d) a copy of the Stock and Warrant Purchase Agreement, executed on
behalf of Purchaser;
e) a copy of the Registration Rights Agreement, executed on behalf of
Purchaser;
f) a copy of the License Agreement, executed on behalf of Purchaser;
g) a copy of the Services Agreement, executed on behalf of Purchaser;
18
<PAGE> 22
h) the prescribed form electing to have Section 167 of the Excise Tax
Act (Canada) apply to the transfer of the Purchased Assets,
executed on behalf of Purchaser; and
i) such other closing certificates as may be reasonably requested by
Nortel.
ARTICLE 7
POST-CLOSING MATTERS
7.1 NORTEL TO PROVIDE ACCESS AND FACILITIES. After the Time of Closing
and until such time as Purchaser can move the Purchased Assets to the
Purchaser's premises, such move to be completed as soon as practicable but no
later than December 31, 1997, or such earlier date of which Purchaser gives
Nortel notice, Nortel shall provide access in accordance with the Transition
Plan.
7.2 POST-CLOSING ACCESS TO BOOKS AND RECORDS. Purchaser and Nortel
agree that, subsequent to the Closing Date, they will grant to each other and
each other's agents reasonable access during normal business hours to any books
and records then in their possession or in the possession of their respective
affiliates solely to the extent of information contained in such books and
records that relates to Nortel's operation of the DSS II Business prior to the
Closing Date and is shown to be needed for tax, accounting, operations or other
reasonable business purposes.
7.3 ACCOUNTS RECEIVABLE. Purchaser shall provide all reasonable
assistance to Nortel with respect to the collection from Customers by Nortel of
any accounts receivable which relate to the Purchased Assets and which accrued
prior to the Closing. If Purchaser receives payment of any such accounts
receivable, such payment shall be received in trust for Nortel and shall
forthwith be paid by Purchaser to Nortel. Purchaser shall provide Nortel with
reasonable details of any payment received by Purchaser and paid over to Nortel
pursuant to this Section, and, if requested by Nortel, a full accounting of all
such payments received by Purchaser.
ARTICLE 8
CONFIDENTIAL INFORMATION
8.1 CONFIDENTIALITY. Except as required by law, all information
provided to Purchaser in contemplation of and pursuant to this Agreement and the
terms and conditions of this Agreement shall be kept confidential by Purchaser
in accordance with the terms of the Non-Disclosure Agreement dated January 8,
1997 between Nortel and Purchaser.
8.2 PUBLICITY. No party to this Agreement shall make any public
disclosure or publicity release or disclose the existence of or the terms and
conditions of this Agreement to any other person without the prior written
consent of the other party, except
19
<PAGE> 23
that either party may disclose the existence of this agreement to: (i) its
agents, representatives or others who will assist such party in conducting,
evaluating or facilitating each party's due diligence review; (ii) its lenders
or investors; and (iii) governmental agencies, where counsel deem such
disclosure necessary to comply with applicable laws; provided that the foregoing
shall not be deemed to prevent either Nortel or Purchaser from making any public
announcement which may be required by the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder or the rules and regulations
of any securities exchange upon which the securities of Nortel or Purchaser are
traded.
ARTICLE 9
GENERAL PROVISIONS
9.1 ASSIGNMENT. Purchaser may assign all or any part of this Agreement
to (i) an Affiliate, (ii) a non-Affiliate third party in connection with any
merger or acquisition activity to which Purchaser is a party and (iii) a
non-Affiliate third party subcontractor; provided, however, that Purchaser
cannot make such subcontractor assignment without the prior written consent of
Nortel and unless the duties assigned to such subcontractor will be performed
under the management and direction of Purchaser, and Purchaser shall remain
liable for the performance and obligations of such subcontractor assignee.
9.2 COUNTERPARTS; FACSIMILE. This Agreement may be executed in
counterparts with the same effect as if both parties had signed the same
document. All counterparts shall be construed together and shall constitute one
and the same agreement. This Agreement may be executed by the parties and
transmitted by facsimile transmission and if so executed and transmitted, this
Agreement shall be for all purposes as effective as if the parties had delivered
an executed original Agreement.
9.3 CONFLICT IN TERMS. Wherever any provision of any Schedule to this
Agreement conflicts with any provision in the body of this Agreement, the
provisions of the body of this Agreement shall prevail. All documents executed
and delivered pursuant to this Agreement are subordinate to the provisions of
this Agreement and, except as otherwise expressly provided, the provisions of
this Agreement shall govern and prevail in the event of a conflict between the
provisions of any such document and the provisions of this Agreement.
9.4 COSTS AND EXPENSES. Each party shall be responsible for and shall
pay its own costs and expenses incidental to the preparation of and carrying out
of this Agreement and the documents and agreements contemplated hereunder.
9.5 ENTIRE AGREEMENT. This Agreement, including the Schedules thereto,
states and comprises the entire agreement between the parties and shall
supersede and replace any and all prior agreements between the parties and may
be amended only by written instrument signed by both parties.
20
<PAGE> 24
9.6 FINDER'S FEE. Each party represents that it neither is nor will be
obligated for any finder's fee or commission to any broker, finder or any other
third party in connection with this transaction. Each party agrees to indemnify
and hold harmless the other from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which the
indemnifying party or any of its officers, partners, employees or
representatives is responsible.
9.7 FURTHER ASSURANCES. At Closing and thereafter as may be necessary
or desirable, and without further consideration, each of the parties shall
execute, acknowledge and deliver such other documents, including, without
limitation, assignments of the DSS II Products included in the Purchased Assets
and shall take or refrain from taking such action as the other party may
reasonably require to evidence, carry out and give full effect to the terms,
conditions, intent and meaning of this Agreement and to assure the completion of
the transactions contemplated hereby.
9.8 GOVERNING LAW. This Agreement shall governed by and construed in
accordance with the laws of the Province of British Columbia, Canada and the
courts of the Province of British Columbia and appellate courts therefrom shall
have non-exclusive jurisdiction to determine all matters in dispute hereunder
and the parties hereby attorn to the non-exclusive jurisdiction of such courts.
9.9 NOTICE. Any notice, direction or other instrument required or
permitted to be given hereunder shall be in writing and may be given by
facsimile transmission or by delivery, addressed as follows:
To Nortel: Northern Telecom Limited
8200 Dixie Road, Suite 100
Brampton, Ontario
L6T 5P6
Attention: ________________, _________
Telephone No.:(___) ___-____
Facsimile No.:(___) ___-____
With a copy to: Office of General Counsel
21
<PAGE> 25
To Purchaser: Applied Digital Access, Inc.
9855 Scranton Road
San Diego, California
U.S.A. 92121
Attention: President
Telephone No.:(619) 623-2200
Facsimile No.:(619) 623-2208
With a copy to: Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California
U.S.A. 92101
Attention: Faye H. Russell, Esq.
Telephone No.:(619) 234-1966
Facsimile No.:(619) 234-3948
Either of the parties may from time to time change its address for service
herein by giving written notice to the other party. Any notice may be served by
personal service upon a party or by facsimile to the number for notice
hereunder. Any notice given by service upon a party and any notice given by
facsimile shall respectively be deemed to be given to and received by the
addressee on the day (except Saturdays, Sundays, and statutory holidays) of
service or the day of receipt.
9.10 NO CONSEQUENTIAL LOSSES. IN NO EVENT SHALL EITHER PARTY BE LIABLE
TO THE OTHER PARTY IN CONTRACT OR IN TORT OR UNDER ANY OTHER LEGAL THEORY FOR
DAMAGES FOR LOST PROFITS, LOST SAVINGS, OR INCIDENTAL, INDIRECT, CONSEQUENTIAL,
PUNITIVE OR SPECIAL DAMAGES IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTION
DOCUMENTS OR THE LICENSE AGREEMENT, EVEN IF CAUSED BY SUCH PARTY'S NEGLIGENCE
AND EVEN IF SUCH PARTY HAS KNOWLEDGE OF THE POSSIBILITY OF SUCH POTENTIAL LOSS
OR DAMAGE.
9.11 NO WAIVER. No failure on the part of either party to exercise any
right or remedy in respect of this Agreement shall operate as a waiver thereof,
unless it is in writing and signed by such party. Unless expressly provided for
therein, such waiver shall not limit or affect the rights of the party with
respect to any other or subsequent breach of the same or any other provision. No
single or partial exercise of any right or remedy in respect of this Agreement
shall preclude any other or further exercise thereof or the exercise of any
right or remedy at law or in equity or by statute or otherwise conferred.
22
<PAGE> 26
9.12 SEVERABILITY. In the event that any particular provision or
provisions of this Agreement is or are determined to be invalid, illegal or
unenforceable in any respect, then the particular provision or provisions shall
be deemed to be severed from the remainder of this Agreement and the validity,
legality or enforceability of the remaining provisions contained in this
Agreement shall not in any way be affected or impaired, unless as a result of
any such determination this Agreement would fail in its essential purpose.
23
<PAGE> 27
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
APPLIED DIGITAL ACCESS, INC.
by its authorized signatory:
Per:
--------------------------------
Name:
Title:
NORTHERN TELECOM LIMITED
by its authorized signatory:
Per:
--------------------------------
Name:
Title:
Per:
--------------------------------
Name:
Title:
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
24
<PAGE> 1
EXHIBIT 10.1
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
CONFIDENTIAL TREATMENT REQUESTED
LICENSE AGREEMENT
This License Agreement (the "Agreement") is made and entered into as of the 27th
day of June, 1997 (the "Effective Date").
BY AND BETWEEN: NORTHERN TELECOM LIMITED,
a corporation incorporated under the laws of Canada, having an
office at 8200 Dixie Road, Brampton, Ontario, Canada L6T 5P6,
on behalf of itself and its Subsidiaries and Affiliates
("Nortel")
AND: APPLIED DIGITAL ACCESS, INC.,
a corporation incorporated under the laws of California and
having an office at 9855 Scranton Road, San Diego, California,
U.S.A. 92121
("Licensee")
WHEREAS Nortel designs (or causes to be designed), produces and markets DSS II
Products and is in possession of certain proprietary rights in the technology
related to such products (the "DSS II Technology"); and
WHEREAS Licensee wishes to use, design, produce, market, sublicense, distribute
and support DSS II Products and certain products or software programs based upon
DSS II Technology; and
WHEREAS Nortel and Licensee have entered into a Letter of Intent pursuant to
which Licensee has expressed an interest in purchasing certain assets and
obtaining licenses in respect of the DSS II Technology; and
WHEREAS Licensee wishes to buy, and Nortel wishes to sell certain portions of
the DSS II Business as set out in the Asset Purchase Agreement; and
WHEREAS Nortel is willing to grant licenses in respect of the DSS II Technology
subject to certain obligations, as set forth in this Agreement, and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged by each of Nortel and Licensee, and Licensee wishes to obtain such
rights and undertake such obligations.
NOW THEREFORE in consideration of the mutual promises set forth in this
Agreement and the Asset Purchase Agreement, and other good and valuable
consideration, the receipt
<PAGE> 2
and adequacy of which is hereby acknowledged by each of Nortel and Licensee, the
Parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 As used in this Agreement:
(a) "Affiliate" means any corporation or company which Nortel or
Licensee effectively owns or controls, directly or indirectly,
other than a Subsidiary, through the ownership or control of
shares in such corporation or company;
(b) "Agreement" has the meaning specified in the preamble;
(c) "Asset Purchase Agreement" means the agreement between Nortel and
Licensee, executed on even date to this Agreement, concerning the
sale of the DSS II Business;
(d) "Confidential Information" means any proprietary, scientific,
technical, planning, business, marketing, product or financial
information (including DSS II Information), formulas, patterns,
compilations, programs, devices, methods, techniques, processes,
data, trade secrets or know-how ("Information") of one of the
Parties or its Subsidiaries or Affiliates which is designated as
confidential or similar designation at the time of disclosure or
that would be understood by the Party receiving such Information
at the time of disclosure, exercising reasonable business
judgment, to be confidential;
(e) "Contractor" means a third party (including any subcontractors of
such third-party) contracted by a Party or a by a Subsidiary or
Affiliate of a Party to support or develop or assist in supporting
or developing a Nortel Authorized Product or a Licensee Product;
(f) "Customers" means all DSS II Business' customers as of the
Effective Date, with the exception of the Excluded Customers;
(g) "Derivative Works" means: (i) for material subject to copyright,
integrated circuit topography, or mask work protection, any work
which is based upon the DSS II Software or the DSS II Information,
such as a revision, modification, translation, abridgment,
condensation, expansion, collection, compilation or any other form
in which such pre-existing works may be recast, transformed or
adapted, (ii) for patentable or patented materials, any
adaptation, subset, addition, improvement or combination of the
DSS II
2
<PAGE> 3
Software or the DSS II Information, and (iii) for material subject
to trade secret protection, any new material, information or data
relating to and derived from the DSS II Software or the DSS II
Information, including new material which may be protectable by
copyright, patent or other proprietary rights, and with respect to
each of the above, the preparation, use and/or distribution of
which, in the absence of this Agreement or other authorization
from the owner, would constitute infringement or misappropriation
under applicable law;
(h) "Distributor" means a third party which enters into a distribution
agreement with a Party, or a Subsidiary or Affiliate of a Party,
or another Distributor, to license or distribute Licensed Products
or Nortel Authorized Products, as the case may be;
(i) "DSS II Business" means the business unit of Nortel that designs,
develops, markets and licenses the DSS II Products;
(j) "DSS II Intellectual Property" means any Nortel invention, patent,
utility model, copyright, industrial design, mask work or
integrated circuit topography right, or any Nortel right of
whatsoever nature in processes, techniques, improvements,
modifications, computer software and data, Confidential
Information, trade secrets or know-how, or any intangible right or
privilege of a nature similar to any of the foregoing which is
incorporated in or infringed by the DSS II Software or the DSS II
Information;
(k) "DSS II Products" means the DSS II products (including DSS II
Software and DSS II Information) which are comprised of software
proprietary to BC TEL, Microtel Limited and Nortel;
(l) "DSS II Information" means all design documentation, customer
product documentation (including training and operations),
installation and maintenance documentation, marketing materials
developed for general use, test specifications, Nortel proprietary
utilities and tools, command files for software development and
testing, and everything currently used by Nortel as of the
Effective Date to develop, modify, enhance and support the DSS II
Products to the extent available in accordance with Articles 3 and
4 hereof;
(m) "DSS II Software" means all of the source code, object code and
machine code for the DSS II Products as of the Effective Date as
described in Schedule "A" attached hereto;
3
<PAGE> 4
(n) "Effective Date" means the date set out in the preamble of this
Agreement;
(o) "End User" means a third party or parties licensed to use a
Licensed Product or a Nortel Authorized Product;
(p) "Enhancement" means any minor extensions of the features and/or
capabilities which are contained in the Licensed Materials as they
exist as of the Effective Date of this Agreement;
(q) "Excluded Customers" means the customers (including subsidiaries
and affiliates thereof) listed in Schedule "C" attached hereto;
(r) "Joint Venture" means a cooperative business enterprise formed
between Nortel and one or more other autonomous entities to
address more effectively certain mutual business interests and
opportunities;
(s) "Licensed Materials" means the DSS II Software and DSS II
Information;
(t) "Licensed Products" means the DSS II Software in source or object
code form, the DSS II Information, and any Derivative Works of the
DSS II Software and the DSS II Information developed by or on
behalf of Licensee (including Modifications and Enhancements);
(u) "Manufacturing Licensee" means a third party entity which has
entered into an agreement with Nortel to manufacture, in modified
or unmodified form, Nortel products and directly or indirectly
through Distributors, to sublicense and distribute Nortel products
under the brand name of Nortel or the Manufacturing Licensee;
(v) "Modifications" means any minor changes such as, but not limited
to, bug fixes, to the features and/or capabilities of the Licensed
Materials as they exist as of the Effective Date of this
Agreement;
(w) "Network Bid" means any Nortel bid or sale (including bids or
sales under multiple invoices) in which Nortel contracts with a
third party to sell or license equipment which consists primarily
of Nortel manufactured and/or designed products, and, which may
include OEM products or other non-Nortel products or any
combination thereof, and which also includes Nortel Authorized
Products, provided that such Nortel Authorized Products are used
to provide network management services for the OEM products or
other non-Nortel products in the bid or sale, and further provided
that all of the equipment in the bid or sale can be reasonably
construed as representing either a new and/or significant
extension of a communications
4
<PAGE> 5
network. Such a network can consist of hardware and/or software
configured in a manner as defined by either the customer or
Nortel. A bid or sale in which Nortel Authorized Products are
considered the primary element of the transaction and/or is the
primary basis for the transaction will not be considered a Network
Bid;
(x) "Nortel Authorized Products" means the DSS II Software in source
or object code form, the DSS II Information, and any Derivative
Works of the DSS II Software and the DSS II Information developed
by or on behalf of Nortel Companies (including Modifications and
Enhancements);
(y) "Nortel Companies" means Northern Telecom Limited and its
Subsidiaries, Affiliates, Joint Ventures and Manufacturing
Licensees;
(z) "Nortel Company" means one of the Nortel Companies;
(aa) "Party" means Nortel or Licensee;
(bb) "Parties" means Nortel and Licensee;
(cc) "Purchase Price" has the meaning ascribed to that term in the
Asset Purchase Agreement;
(dd) "Sublicense Agreement" means an agreement containing terms and
conditions which are the same as, or substantially similar to, the
terms and conditions contained in Schedule B;
(ee) "Subsidiary" means a corporation or company in which a Party
hereto effectively owns or controls, and continues to own or
control, directly or indirectly, more than fifty percent (50%) of
the voting stock or shares.
ARTICLE 2
GRANT OF RIGHTS
2.1 Nortel, to the extent of its legal right to do so, hereby grants to Licensee
(including its Subsidiaries and Affiliates, successors and assigns), subject
to the terms and conditions of this Agreement a perpetual, irrevocable,
worldwide, fully paid-up, transferable and assignable:
(a) exclusive license to:
5
<PAGE> 6
(i) use, copy, modify, have modified, and translate, directly
and indirectly, Licensed Products, including the right to
sublicense such rights to End Users at ADA's sole
discretion (provided that such sublicenses include usage
and confidentiality provisions at least as strict as those
imposed upon Licensee in this Agreement);
(ii) sublicense End Users (directly or indirectly), pursuant to
Sublicense Agreements, the right to use Licensed Products
in object code format only;
(iii) distribute (including through multiple layers of
distribution) Licensed Products; and
(iv) maintain, support and provide services, directly and
indirectly, in respect of Licensed Products;
(b) non-exclusive right under the DSS II Intellectual Property to the
extent necessary for Licensee and its sublicensees to exercise the
rights granted in 2.1(a).
The rights granted to Licensee in this section shall be non-exclusive with
respect to, (i) * and * and its existing and future sublicensees in * and *
only, (ii) the rights granted to * and * under the license to Prism Systems,
Inc. and under a source code escrow agreement, and, (iii) any rights granted by
Nortel (including its Subsidiaries, Affiliates, Manufacturing Licensees and
Joint Ventures) to existing Customers in accordance with its usual terms prior
to the Effective Date. Licensee is granted no rights in respect of the Licensed
Materials for *. Licensee acknowledges that * has exclusive rights in respect of
the Licensed Materials for *.
2.2 Nortel shall retain, and Licensee's licenses shall be subject to, only the
following rights:
(a) Nortel Companies shall have the right to license, distribute
(including through multiple layers of distribution) Nortel
Authorized Products, and provide services in respect of such
Nortel Authorized Products, to Excluded Customers. Licensee shall
have no right to license or distribute Licensed Products, or
provide services in respect of Licensed Products, to Excluded
Customers without the prior written consent of an officer of
Nortel at the senior vice president level or higher;
(b) Nortel Companies shall have the right to license and distribute
(including through multiple layers of distribution) Nortel
Authorized Products in Network Bids. Nortel Companies shall also
have the right to provide
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
6
<PAGE> 7
services in respect of any Nortel Authorized Products licensed or
distributed pursuant to any such Network Bids. Nortel shall not
license or distribute Nortel Authorized Products on a stand-alone
basis with the exception of the Excluded Customers as defined in
this Agreement;
(c) For a period of * months following the Effective Date, Nortel
shall have the * to the DSS II Product * set out in Schedule E
(including subsidiaries and affiliates *), only upon *, a *.
Nortel shall only be entitled * in the event that Nortel, in its
reasonable judgment, determines * would materially adversely
affect * or result in a * or * to Nortel, and further provided
that * is based solely upon * and is not based upon a * provided
that * was willing * with such * on * which would be considered
reasonable having regard to standard industry practice. Except in
accordance with a * under this provision, Nortel shall not * this
provision. Licensee acknowledges that Nortel has *, or will be *
an * and its subsidiaries and affiliates *. In the event that *
with * is not * prior to the Effective Date, Nortel shall have the
right * after the Effective Date. Such * shall be in a * to the *
between * prior to the Effective Date;
(d) Nortel Companies shall have the right to license, distribute
(including through multiple layers of distribution) and provide
services in respect of Nortel products (other than Nortel
Authorized Products) which incorporate insignificant portions of
the Licensed Materials;
(e) Nortel Companies shall have the right to use, modify, have
modified, license and distribute (including through multiple
layers of distribution) and provide services in respect of the
Licensed Materials provided that any such use is in a Nortel
product that is not competitive or in competition with the
Licensed Products; and
(f) Nortel Companies shall have the right to use, modify, have
modified, license and distribute (including through multiple
layers of distribution) and provide services in respect of the
Licensed Materials provided that such use is for a purpose or
purposes other than for providing network management software or
services.
Nortel shall have the right to use, modify, have modified the Licensed Materials
as may be necessary for Nortel to exercise its rights under the exceptions
described above. Nortel shall not license, sublicense, use or provide services
or support in respect of the Licensed Materials other than as set forth in this
Section 2.2, except pursuant to a license obtained from Licensee or by other
written agreement between the Parties.
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
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<PAGE> 8
2.3 In the event that Licensee does not wish to license, distribute or provide
services in respect of Licensed Products to a given customer, Nortel and
Licensee shall negotiate in good faith the terms and conditions under which
Nortel may license, distribute and/or provide services in respect of Licensed
Products to any such customer. Such terms and conditions shall include a
reasonable royalty to be paid to Licensee for such Licensed Products. In the
event that Nortel licenses, distributes or provides services in respect of
Licensed Products to such a customer, Nortel shall have the right to modify such
Licensed Products as necessary to meet such customer's requirements. The
provisions of this Section 2.3 shall not in any way restrict Nortel's right to
license, distribute or provide support in respect of Nortel Authorized Products
pursuant to Network Bids as provided in Section 2.2(b).
2.4.1 Licensee may provide Licensed Products and Licensed Materials (including
Modifications and Enhancements) to Contractors to assist in the development or
support of Licensed Products. Prior to, or at the time of providing the Licensed
Materials or Licensed Products to a Contractor, Licensee shall enter into a
written agreement with the Contractor which requires that:
(a) the Contractor use the Licensed Materials and Licensed Products
exclusively for the benefit of Licensee;
(b) the Contractor incur the same obligations with respect to the use
of Licensed Materials and Licensed Products as those incurred by
Licensee under this Agreement; and
(c) all copies of the Licensed Materials and Licensed Products
provided to or made by the Contractor be returned to Licensee or
destroyed, including all copies stored in computer memories or
storage media, upon completion of its work for Licensee.
2.4.2 Nortel may provide the Licensed Materials and Nortel Authorized Products
(including Modifications and Enhancements) to Contractors to assist in the
development or support of Nortel Authorized Products. Prior to, or at the time
of providing the Licensed Materials or Nortel Authorized Products to a
Contractor, Nortel shall enter into a written agreement with the Contractor
which requires that:
(a) the Contractor use the Licensed Materials and Nortel Authorized
Products exclusively for the benefit of Nortel;
(b) the Contractor incur the same obligations with respect to the use
of Licensed Materials and Nortel Authorized Products as those
incurred by Nortel under this Agreement; and
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<PAGE> 9
(c) all copies of the Licensed Materials and Nortel Authorized
Products provided to or made by the Contractor be returned to
Nortel or destroyed, including all copies stored in computer
memories or storage media, upon completion of its work for Nortel.
2.5 The aforesaid rights shall include the right to communicate to End Users
such portions of the DSS II Information as are reasonably needed by such End
Users to use the Licensed Products or Nortel Authorized Products, provided,
however, that, to the extent that Confidential Information of either Party is
being communicated, the recipients of such Confidential Information shall be
advised by the disclosing Party in writing at the time, or before such
communication, that Confidential Information is being communicated and further
provided that such recipients undertake, in writing, to keep such Confidential
Information confidential and not to use such Confidential Information except as
expressly permitted.
2.6 Licensee shall have no right to use the Licensed Materials or DSS II
Intellectual Property other than as set forth in this Agreement. Nothing herein
shall limit Nortel's right to grant licenses for activities other than those for
which the Licensee is granted an exclusive license hereunder. For greater
certainty, the exclusive rights granted hereunder shall not prejudice Nortel's
patent cross licenses or any other rights granted prior to the Effective Date.
Nothing in this Agreement shall preclude Nortel from independently developing
software with functionality which is the same as or similar to that in the
Licensed Materials or the Licensed Products, provided that none of the Licensed
Materials or Licensed Products are directly incorporated into such software.
2.7 Licensee grants to Nortel Companies a perpetual, non-exclusive,
royalty-free, worldwide right to make, use, copy, modify, license, distribute
(including through multiple layers of distribution) and provide support in
respect of all Modifications and Enhancements which Licensee may develop or have
developed during the term of this Agreement in connection with the Licensed
Materials. Nortel grants to Licensee and its Subsidiaries and Affiliates a
perpetual, non-exclusive, royalty-free, worldwide right to make, use, copy,
modify, license, distribute (including through multiple layers of distribution),
and provide support in respect of all Modifications and Enhancements which
Nortel may develop or have developed during the term of this Agreement in
connection with the Licensed Materials. All Enhancements and Modifications shall
be provided on an "AS IS" basis without any representations, warranties or
conditions.
2.8 Within thirty (30) days of the end of each calendar quarter, each of Nortel
and Licensee shall provide the other with a copy of all Modifications and
Enhancements developed during such preceding quarter together with all
applicable documentation, or, if applicable, written notice that no new
Modifications and Enhancements have been developed during such preceding
quarter.
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<PAGE> 10
2.9 The parties may, from time to time, upon mutual agreement, amend Schedule C
to add additional entities. Nortel in its sole discretion, upon notice to
Licensee, may delete an entity or entities from Schedule C.
ARTICLE 3
THIRD PARTY SOFTWARE
3.1 Licensee acknowledges that the Licensed Materials contain certain
third-party software as further described in Schedule "D". Licensee further
acknowledges that Nortel does not have the right to grant sublicenses to such
third-party software. Licensee shall, prior to use of the Licensed Materials in
any manner, obtain the necessary licenses from the vendors of such third-party
software.
ARTICLE 4
PROVISION OF LICENSED MATERIALS
4.1 Nortel shall, to the extent of its legal right to do so, promptly provide to
Licensee the Licensed Materials. Nortel shall only be obliged to provide
Licensed Materials available to it or its Subsidiaries without any third-party
restrictions on transfer, and shall not be obligated to develop or produce,
except as expressly set forth herein, any new or unavailable Licensed Materials.
4.2 Nortel shall supply the Licensed Materials as soon as reasonably possible
after: (a) execution of this Agreement, and (b) receipt from Licensee of the
initial payment as set forth in the Asset Purchase Agreement. Nortel shall
substantially complete such supply within thirty (30) days thereafter.
4.3 Licensed Materials provided hereunder shall be deemed delivered upon
delivery to the common carrier chosen by Nortel, at the relevant facility of
Nortel or upon sending by Nortel if such Licensed Materials are delivered by
electronic means.
4.4 That portion of the Licensed Materials provided by Nortel to Licensee
pursuant to any prior licenses, confidentiality or non-disclosure agreements
shall be considered provided pursuant solely to this Agreement and subject only
to the terms and conditions hereof.
ARTICLE 5
TECHNICAL ASSISTANCE OBLIGATIONS
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5.1 Licensee shall perform all technical assistance or support obligations for
Customers of the DSS II Business as of the Effective Date. Failure of Licensee
to perform all such technical assistance or support obligations shall constitute
a material breach of this Agreement.
5.2 Licensee shall offer to license any of its Licensed Products and to provide
services (including technical support and assistance) in respect of such
Licensed Products to all Customers of the DSS II Business as of the Effective
Date. Failure of Licensee to offer such Licensed Products or services to any
such Customers shall constitute a material breach of this Agreement.
ARTICLE 6
ESCROW
6.1 Licensee shall be entitled to place the Licensed Materials and Licensed
Products in escrow with an escrow agent for the benefit of End Users.
6.2 In the event that Licensee:
(i) becomes insolvent or files an assignment in bankruptcy or fails to
have dismissed any petition seeking to have it declared bankrupt
within thirty (30) days after the filing thereof, or
(ii) after using its best efforts to support Licensed Products, ceases
all support of Licensed Products,
Licensee shall be entitled to grant an End User, pursuant to an escrow
agreement, the right to have access to the Licensed Materials and Licensed
Products in source code form, solely for internal use to support Licensed
Products sublicensed to such End User.
ARTICLE 7
CONFIDENTIALITY
7.1 Any Confidential Information (including "DSS II Information") provided by
one Party to another hereunder shall remain the property of the disclosing
Party, and the receiving Party shall be authorized to use such information or
materials only within the scope of the rights and licenses granted herein.
7.2 Any Confidential Information received by a Party shall be retained in
confidence and shall be used, disclosed, and copied solely for the purposes of,
and in accordance with, this Agreement. The receiving Party shall use the same
degree of care as it uses to protect
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<PAGE> 12
its own confidential information of a similar nature, but no less than
reasonable care, to prevent the unauthorized use, disclosure or copying of the
Confidential Information.
7.3 Neither Party shall be bound by obligations set forth in this Agreement, or
any part thereof, restricting the disclosure, use or copying of Confidential
Information, if such Confidential Information:
(a) was known by the receiving Party prior to disclosure without
obligation of confidence;
(b) was lawfully in the public domain prior to its disclosure, or
becomes publicly available other than through a breach of this
Agreement;
(c) was disclosed to the receiving Party by a third party provided
such third party, or any other party from whom such third party
received such information, is not in breach of any confidentiality
obligation in respect of such information;
(d) is independently developed by the receiving Party, as evidenced by
its business records; or
(e) is disclosed when such disclosure is compelled pursuant to legal,
judicial, or administrative proceeding, or otherwise required by
.5 The specific terms and conditions of this Agreement shall be
held in confidence by both Parties and only disclosed as may be
agreed by both Parties, which agreement shall not be unreasonably
withheld by either Party.
7.4 All technical and other information provided or made available to a
Party prior to the execution of this Agreement which would have been covered by
the definition of Confidential Information had it been delivered pursuant to
this Agreement shall be deemed to be Confidential Information and to be subject
to the provisions of this Agreement.
7.5 The specific terms and conditions of this Agreement shall be held in
confidence by both Parties and only disclosed as may be agreed by both Parties,
which agreement shall not be unreasonably withheld by either Party.
ARTICLE 8
REPRESENTATIONS
8.1 Nortel makes no representations and gives no warranties or conditions in
respect of the Licensed Materials or Licensed Products except as set out in this
Agreement.
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<PAGE> 13
8.2 Nortel represents and warrants that it has the authority to enter into this
Agreement and has obtained all rights and waivers necessary to grant the rights
granted hereunder. Nortel represents and warrants that the Licensed Materials
(except those portions excluded under Article 3) do not infringe any third-party
patent, copyright, Trade secret or other intellectual property right when used
in accordance with this Agreement.
8.3 Nortel represents and warrants that there are no existing, or to Nortel's
knowledge, threatened legal proceedings against Nortel in respect of its
ownership or rights in the Licensed Materials.
8.4 Nortel represents and warrants that no substantial or significant portions
of the Licensed Materials have been incorporated into other Nortel products
after August 15, 1996.
8.5 Nothing contained in this Agreement shall be construed as:
(a) requiring Nortel to file any patent application, to secure any
patent or to maintain any patent in force;
(b) constituting a warranty, condition or representation by Nortel as
to the validity or scope of any patent licensed hereunder;
(c) conferring any right to use, in advertising, publicity or
otherwise, any name, trade-name or trademark, or any contraction,
abbreviation or simulation thereof, except as expressly provided
in writing by Nortel; or
(d) conferring by implication, estoppel or otherwise upon Licensee any
license or other right under any intellectual property, except the
licenses and rights expressly granted hereunder.
8.6 NORTEL DISCLAIMS ALL WARRANTIES, CONDITIONS AND REPRESENTATIONS, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES AND CONDITIONS OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
8.7 LICENSEE'S SOLE REMEDY FOR BREACH OF THE REPRESENTATIONS, WARRANTIES AND
CONDITIONS CONTAINED IN THIS ARTICLE SHALL BE LIMITED TO THE INDEMNITY SET OUT
IN ARTICLE 9.
ARTICLE 9
INDEMNIFICATION
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<PAGE> 14
9.1 Nortel shall indemnify, defend and hold Licensee harmless from any and all
claims, liabilities, damages, settlements, losses, expenses or costs (including
counsel fees) arising out of any breach of the representations, warranties or
conditions described in Article 8, and any infringement or alleged infringement
in any Licensed Materials. Licensee shall give Nortel prompt notice of, and
reasonable authority to defend or settle, any such claim and shall give, at
Nortel's expense, reasonable information and assistance. Nortel agrees not to
take any action which is inconsistent with this agreement in the conduct or
settlement of any action.
9.2 Nortel shall have no liability to Licensee in the event infringement of any
third-party patent, copyright, trade secret or other intellectual property right
arises from (a) portions of the Licensed Materials developed by Licensee (or any
of its Subsidiaries or Affiliates) for Nortel under the Master Agreement between
Northern Telecom Limited and ADA Canada, Inc. (this exclusion shall not,
however, include work done by employees of Licensee operating under the direct
management, direction and control of Nortel outside the scope of the Master
Agreement), (b) modification by Licensee of the Licensed Materials, or (c) the
combination of Licensed Materials with equipment or software not authorized or
provided by Nortel or otherwise approved by Nortel in the specifications or
documentation.
9.3 In no event shall Nortel's cumulative liability under this Article exceed *.
Each of Nortel's representations, warranties and conditions in Article 8, and
Nortel's obligation to indemnify Licensee pursuant to this Article 9, shall
expire * after the Effective Date of this Agreement. Licensee may receive
indemnification as provided herein provided that on or before such expiry date,
Licensee has delivered to Nortel written notice of a claim relating to such
representations, warranties, conditions or indemnification.
9.4 Subject to Sections 9.1 through 9.3, Licensee shall indemnify, defend and
hold Nortel harmless from any and all claims, liabilities, damages, settlements,
losses, expenses or costs (including counsel fees) arising out of any
infringement or alleged infringement by any Licensed Materials or Licensed
Products for which Nortel is not obliged to provide indemnification to Licensee.
Nortel shall give Licensee prompt notice of, and authority to defend or settle,
any such claim and shall give, at Licensee's expense, reasonable information and
assistance. Licensee agrees not to take any action inconsistent with this
Agreement in the conduct or settlement of any action.
9.5 Licensee shall indemnify, defend and hold Nortel harmless from any and all
claims, liabilities, damages, settlements, losses, expenses or costs (including
counsel fees) arising out of any malfunction, defect or error in any Licensed
Materials or any Licensed Products or in any service provided by Licensee in
respect of any Licensed Materials or Licensee Product. Nortel shall give
Licensee prompt notice of, and authority to defend or settle, any such claim and
shall give, at Licensee's expense, reasonable information and
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
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<PAGE> 15
assistance. Licensee agrees not to take any action inconsistent with this
Agreement in the conduct or settlement of any action.
9.6 In the event that the acts of a third party infringe or might infringe
intellectual property rights in the Licensed Materials, which infringement does
or might affect any Licensee Product (an "Infringement"), Licensee may, after
notice to Nortel of its intention, institute and prosecute any action or
proceeding with respect to the Infringement at the cost of Licensee. Licensee
shall be entitled to any and all proceeds as a result of such enforcement to the
extent that such proceeds relate to infringement against Licensed Products.
Licensee agrees not to take any action inconsistent with this Agreement in the
enforcement, conduct or settlement of any action.
ARTICLE 10
LIMITATION OF LIABILITY
10.1 Except for
(a) the indemnification provided in the article entitled
"Indemnification" (and except as otherwise provided by any
specific limitations set out in such section),
(b) claims arising from a Party's breach of its confidentiality
obligations set out in the Article entitled "Confidentiality", and
(c) claims by or against a Party for bodily injury or tangible
property damage caused by the fault of the other Party,
no Party's cumulative liability for damages UNDER THIS AGREEMENT (WHETHER IN
contract, tort, or any other theory of liability) shall exceed *.
10.2 EXCEPT WITH RESPECT TO 10.1(a) and 10.1(b), IN NO EVENT SHALL ANY PARTY BE
LIABLE FOR ANY INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND,
INCLUDING WITHOUT LIMITATION, LOST BUSINESS, LOST SAVINGS, LOST DATA, AND LOST
PROFITS, EVEN IF THE BREACHING PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
ARTICLE 11
FORCE MAJEURE
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
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11.1 Neither party shall be in default or liable for any loss or damage
resulting from delays in performance or from failure to perform or comply with
terms of this agreement due to any causes beyond its reasonable control during
the continuation of such causes, which causes include but are not limited to
Acts of God or the public enemy; riots and insurrections, war, accidents, fire,
strikes and other labor difficulties (whether or not the party is in a position
to concede to such demands), embargoes, judicial action; lack of or inability to
obtain export permits or approvals, necessary labor, materials, energy,
components or machinery, acts of civil or military authorities.
ARTICLE 12
TERM AND TERMINATION
12.1 This Agreement shall become effective on the Effective Date and shall
continue in effect unless terminated as set out herein.
12.2 In the event any Party is in a curable material breach of, or fails to
perform a material obligation under, this Agreement, then the other Party may by
notice to the Party in default, require the breach to be cured or the obligation
to be performed. If, within sixty (60) days of the receipt of such notice, such
Party fails to undertake a reasonable course of action to cure such breach, or
fails to perform such obligation, the notifying Party may, by notice, terminate
this Agreement.
12.3 In the event that Licensee:
(a) admits in writing its inability to pay its debts generally as they
become due;
(b) commits an act of bankruptcy;
(c) is the subject of a petition or assignment in bankruptcy under
applicable bankruptcy laws or other similar laws;
(d) files a notice of intention to make a proposal under the
Bankruptcy and Insolvency Act, commences proceedings under the
Companies' Creditors Arrangement Act, or otherwise seeks a
reorganization under applicable bankruptcy laws or any other
similar law or statute of any relevant jurisdiction;
(e) makes an assignment for the benefit of its creditors;
(f) consents to the appointment of a receiver or receiver-manger of
itself or of the whole or any substantial part of its property;
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(g) enters into an arrangement or composition with or for the general
benefit of its creditors; or
(h) fails to satisfy any final judgment rendered against it within the
period so permitted,
Nortel may terminate this Agreement immediately upon notice.
12.4 Apart from those copies of the Licensed Materials necessary for Licensee to
meet its support obligations to existing End Users at the time of termination,
Licensee shall, within sixty (60) days of termination, return to Nortel or
certify in writing to Nortel that all other copies of the Licensed Materials in
the possession or control of Licensee have been destroyed. Except for Licensee's
use which is strictly necessary for it to meet its support obligations to
existing End Users at the time of termination, Licensee shall immediately
discontinue the exercise of the rights granted hereunder and the use of the
Licensed Materials.
12.5 In the event a Contractor, Distributor, Subsidiary or Affiliate of Licensee
is in a curable material breach of, or fails to perform a material obligation
under, its services, distribution or sublicense agreement, which results in a
material contravention of the terms and conditions of this Agreement, Nortel may
notify the breaching Contractor, Distributor, Subsidiary or Affiliate, and
Licensee in writing of such contravention. If, within sixty (60) days of the
receipt of such notice, such Contractor, Distributor, Subsidiary or Affiliate
fails to undertake a reasonable course of action to cure such breach, or fails
to perform such obligation, Licensee shall, by notice, terminate the rights
related to this Agreement granted under the distribution or sublicense
agreement. Within sixty (60) days of such termination, Licensee shall require
the Contractor, Distributor, Subsidiary or Affiliate to discontinue use of, and
either return to Licensee or destroy, any copies of the Licensed Materials in
its possession, other than those copies necessary for such Distributor,
Subsidiary or Affiliate to meet its support obligations to existing End Users.
12.6 All sublicenses of Licensed Products properly granted to End Users pursuant
to this Agreement, whether granted by Licensee, its Distributors, Subsidiaries
or Affiliates, shall survive termination of this Agreement.
12.7 In addition to this Article, the Articles entitled "Definitions",
"Representations", "Limitation of Liability", "Indemnification" and
"Confidentiality" shall survive termination of this Agreement.
ARTICLE 13
NOTICES
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13.1 Any and all notices or other information to be given by one of the Parties
to the other shall be deemed sufficiently given when forwarded by prepaid,
registered or certified first class air mail or by facsimile, telegram or hand
delivery to the other Party at the following address:
If to Nortel: Northern Telecom Limited
8200 Dixie Road
Brampton, Ontario
Canada L6T 5P6
Attention: Corporate Secretary
If to Licensee: Applied Digital Access, Inc.
9855 Scranton Road
San Diego, California
U.S.A. 92121
Attention: President and CEO
and such notices shall be deemed to have been received fifteen (15) business
days after mailing if forwarded by mail, and the following business day if
forwarded by facsimile, telegram or hand delivery.
13.2 The aforementioned address of either Party may be changed at any time by
giving fifteen (15) business days prior notice to the other Party in accordance
with the foregoing.
13.3 In the event of a generally-prevailing labor dispute or other situation
which will delay or impede the giving of notice by any such means, in either the
country of origin or of destination, the notice shall be given by such specified
mode as will be most reliable and expeditious and least affected by such dispute
or situation.
ARTICLE 14
GENERAL PROVISIONS
14.1 Nothing in this Agreement shall be construed as establishing or implying
any partnership or joint venture between the Parties hereto, and nothing in this
Agreement shall be deemed to constitute either of the Parties hereto as the
agent of the other Party or authorize either Party to incur any expenses on
behalf of the other Party or to commit the other Party in any way whatsoever,
without obtaining the other Party's prior written consent.
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14.2 This Agreement and the AsseT Purchase Agreement set forth the entire
agreement and understanding between the Parties with respect to the subject
matter addressed herein and supersedes and cancels all previous negotiations,
agreements, commitments, and writings in respect to the subject matter hereof,
including, but not limited to, the License Agreement executed between the
Parties on July 15, 1996, and the Interim Licensed Agreement executed between
the Parties on January 24, 1997. Neither Party hereto shall be bound by any
term, clause, provision or condition save as expressly provided in this
Agreement or as duly set forth on or subsequent to the date hereof in writing,
signed by duly authorized representatives of the Parties.
14.3 Either Party may assign all or any portion of this Agreement without the
other Party's consent. In no event shall either Party create any contractual
relations between any third party and the other Party.
14.4 In the event of an enforceable decision or directive declaring invalid an
essential part of this Agreement, without which this Agreement would not have
been entered into, this Agreement may, at the option of either Party, be
terminated upon the giving of notice to the other Party. Save as before set
forth, in the event that any term, clause, provision or condition of this
Agreement shall be similarly adjudged invalid for any reason whatsoever, such
invalidity shall not affect the validity or operation of any other term, clause,
provision or condition and such invalid term, clause, provision or condition
shall be deemed to have been deleted from this Agreement.
14.5 Licensee represents and warrants that it will not, without the prior
written consent, if required, of the U.S. Department of Commerce or its
counterparts in nations other than the U.S., export, directly or indirectly, the
Licensed Materials to any prohibited country specified in the applicable export
administration regulations.
14.6 The failure of either Party to give notice to the other Party of the breach
or non-fulfillment of any term, clause, provision or condition of this Agreement
shall not constitute a waiver thereof, nor shall the waiver of any breach or
non-fulfillment of any term, clause, provision or condition of this Agreement
constitute a waiver of any other breach or non-fulfillment of that or any other
term, clause, provision or condition of this Agreement.
14.7 Neither Party shall use the name of the other in any advertising, public
relations or media release without the prior written consent of the other.
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14.8 This Agreement shall be governed by and construed in accordance with the
laws of the Province of British Columbia, Canada and the courts of the Province
of British Columbia and appellate courts therefrom shall have non-exclusive
jurisdiction to determine all matters in dispute hereunder. All proceedings
shall be conducted in English.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date
first above mentioned.
NORTHERN TELECOM LIMITED APPLIED DIGITAL ACCESS, INC.
- --------------------------------- -----------------------------------------
Authorized Signature Authorized Signature
- --------------------------------- -----------------------------------------
Printed Name and Title Printed Name and Title
- --------------------------------- -----------------------------------------
Authorized Signature Authorized Signature
- --------------------------------- -----------------------------------------
Printed Name and Title Printed Name and Title
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SCHEDULE "A"
LICENSED MATERIALS
DSS II Subsystems
Subsystem Description
- --------- -----------
ALS Alarm Surveillance
APM Application Process Manager
* * Interface 2
* * License*
* Interface
* Base for *Subsystem
BSI Binary System Interface
COM Communications
CUE USer Interface for*
* * Filter
DAS Database Alignment System
DBM Database Management Subsystem
* * Interface
DSS I/O Management System (otherwise referred to as 1MS)
ELS Event Logging Subsystem
EPM Network Performance Manager (otherwise referred to as EPM)
ESI External System Interface
* * Translator
GEN Generic Network Element Manager
* * Interface
* * Custom Phase I (otherwise known as *)
* * Interface
NEM Network Element Manager
* * Interface
* * Interface
OWS Operations Workstation System
* * Server
RTT Reach Through Tool
SAM Service Availability Manager
SIS Service Inventory Management
SMS Service Management System
SOT Selected Object Tool
SPR Service Provisioner
SSN DSS II Application Utilities
* * Interface
* * Interface
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
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TMS Test Management System
TOD Topological Display
UPM User Profile Management
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SCHEDULE "B"
SUBLICENSING TERMS
Sublicense agreements with End Users shall include terms and conditions
substantially similar to the following:
1. restrict use of the Licensed Products or Licensed Information to object code
form only;
2. prohibit causing or permitting the reverse engineering, disassembly or
decompilation of the Licensed Products or Licensed Information except to the
extent permitted by law or required to obtain interoperability with other
independently created software programs;
3. prohibit title to the licensed products or Licensed Information from passing
to the End User;
4. disclaim Nortel's liability for any damages, whether direct, indirect,
incidental or consequential arising from the use of the Licensed Products or
Licensed Information;
5. in any sublicense to United States Government End Users, include the
following on all copies of Licensed Products distributed to United States
Government End Users:
By accepting delivery of this software, the Government hereby agrees that
this software qualifies as commercial computer software within the meaning
of the acquisition regulation(s) applicable to this procurement. The terms
and conditions of this license shall pertain to the Government's use and
disclosure of this software, and shall supersede any conflicting contractual
terms and conditions. If this license fails to meet the Governments minimum
needs or is inconsistent in any respect with Federal procurement law, the
Government agrees to return this software, unused to the seller. The
following additional statement applies only to procurement governed by DFARS
Subpart 227.4 (1988): "Restricted Rights - Uses, duplication and disclosure
by the Government is subject to restrictions as set forth in subparagraph
(c)(1)(ii) of the Rights in Technical Data and Computer Software clause at
DFARS 252.227-7013 (1988).
6. require End Users to comply with all applicable governmental legislation or
regulations imposing restrictions on the export of products; and
7. require End Users, at the termination of the sublicense, to discontinue use
and destroy or return to Licensor the Licensed Products or Licensed
Information,
23
<PAGE> 24
associated documentation and all archival or other copies of the Licensed
Products or Licensed Information.
24
<PAGE> 25
SCHEDULE "C"
EXCLUDED CUSTOMERS
*, Inc. / *, Inc.
* Communications Limited
* Limited*, S.A.
* Limited* / The Kingdom of *
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
25
<PAGE> 26
SCHEDULE "D"
THIRD-PARTY SOFTWARE
Non-Commercial Software
Software Version
- -------- -------
ACE *
Athena Widget *
clist
dbug
expect
gcc (Sun) *
GCC Compiler *
gmake *
gmalloc *
perl *
xpm *
Commercial Software
- -------------------
<TABLE>
<CAPTION>
Software Version Vendor
- -------- ------- ------
<S> <C> <C>
Booch Components * Rogue Wave
C++ Compiler (HP-UX) - Hewlett-Packard
* * *
* * *
* * *
* * *
* * *
* * *
* - *
* * *
* * *
*
Code Centre * Centerline
* * *
dde * Hewlett-Packard
* * *
* * *
FrameBuilder * Adobe
</TABLE>
26
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
<PAGE> 27
<TABLE>
<CAPTION>
Software Version Vendor
- -------- ------- ------
<S> <C> <C>
HP-UX Development Environment * Hewlett-Packard
HP OpenView DM Platform * Hewlett-Packard
Motif * Open Software
Foundation
* - *
Object Center - Centerline
* * *
* - *
Pure Coverage * Pure
Purify * Purify
Quantify - Purify
* * *
* * *
* * *
* * *
* * *
UIL Compiler - Open Software Foundation
* * *
Windows * * Microsoft Corporation
Windows * * Microsoft Corporation
Corel Draw - Corel Corporation
xdb * Hewlett-Packard
xmt widget * Open Software Fdtn.
X11 * Open Software Fdtn.
Foundation
ARS - Remedy Corporation
</TABLE>
27
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
<PAGE> 28
SCHEDULE "E"
*
*
*
*
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
28
<PAGE> 29
INDEX
ARTICLE TITLE
- ------- -----
1 DEFINITIONS
2 GRANT OF RIGHTS
3 THIRD-PARTY SOFTWARE
4 PROVISION OF LICENSED MATERIALS
5 TECHNICAL ASSISTANCE
6 ESCROW
7 CONFIDENTIALITY
8 REPRESENTATIONS
9 INDEMNIFICATION
10 LIMITATION OF LIABILITY
11 FORCE MAJEURE
12 TERM AND TERMINATION
13 NOTICES
14 GENERAL PROVISIONS
SCHEDULE "A" LICENSED INFORMATION
SCHEDULE "B" SUBLICENSING TERMS
SCHEDULE "C" EXCLUDED ENTITIES
SCHEDULE "D" THIRD-PARTY SOFTWARE
SCHEDULE "E" *
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
29
<PAGE> 1
EXHIBIT 10.2
APPLIED DIGITAL ACCESS, INC.
1997 REGISTRATION RIGHTS AGREEMENT
This 1997 Registration Rights Agreement (this "Agreement") made as of
June 27, 1997 by and between Applied Digital Access, Inc., a California
corporation (the "Company") and Northern Telecom Limited, a Canadian corporation
("Nortel").
WHEREAS, the Company and Nortel have entered into that certain Stock
and Warrant Purchase Agreement dated the date hereof (the "Stock and Warrant
Purchase Agreement"), pursuant to which the Company has agreed to issue to
Nortel, and Nortel has agreed to receive a warrant to purchase 150,000 shares of
the Company's Common Stock (the "Warrant") and, in certain circumstances, shares
of the Company's Common Stock (collectively, the "Shares").
In consideration of the mutual agreements, covenants and conditions
contained herein, the Company and Nortel hereby agree as follows:
SECTION 1
REGISTRATION RIGHTS
The Company hereby grants to Nortel the registration rights set forth
in this Section 1, with respect to the Registrable Securities (as hereinafter
defined) owned by Nortel. The Company and Nortel agree that the registration
rights provided herein set forth the sole and entire agreement on the subject
matter between the Company and Nortel.
1.1 Definitions. As used in this Section 1:
(a) The term "NASD" means the National Association of Securities
Dealers, Inc.
(b) The term "NASDAQ" means the National Association of Securities
Dealers, Inc. Automated Quotation System.
(c) The terms "register," "registered," and "registration" refer to
a registration effected by filing with the Securities and Exchange Commission
(the "SEC") a registration statement (the "Registration Statement") in
compliance with the Securities Act of 1933, as amended (the "1933 Act") and the
declaration or ordering by the SEC of the effectiveness of such Registration
Statement.
(d) The term "Registrable Securities" means (i) the Shares issued
to Nortel pursuant to the Stock and Warrant Purchase Agreement, if any, (ii)
shares of Common Stock of the Company issued to Nortel upon exercise of the
Warrant (the "Warrant Shares") and (iii) any Common Stock of the Company issued
as (or issuable
<PAGE> 2
upon the conversion or exercise of any warrant, right, or other security that is
issued as) a dividend or other distribution with respect to, or in exchange or
in replacement of the Common Stock or the Warrant Shares described in (i) and/or
(ii) of this Section 1.1 (d). In the event of any recapitalization by the
Company from the date hereof going forward, whether by stock split, reverse
stock split, stock dividend or the like, the number of shares of Registrable
Securities used throughout this Agreement for various purposes shall be
proportionately increased or decreased.
(e) The term "Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Section 1, including without
limitation all registration, filing and applicable fees of the SEC, stock
exchange or NASD registration or filing fees and all listing fees and fees with
respect to the inclusion of securities in NASDAQ, all fees and expenses of
complying with state securities or blue sky laws (including fees and
disbursements of counsel to the underwriters or Nortel in connection with "blue
sky" qualification of the Registrable Securities and determination of their
eligibility for investment under the laws of various jurisdictions), all
duplicating and printing expenses, all messenger and delivery expenses, the fees
and disbursements of counsel for the Company and of its independent public
accountants including the expenses of "cold comfort" letters required by or
incident to such registration, all fees and disbursements of underwriters
customarily paid by issuers or sellers of securities and all transfer taxes;
provided, however, that Registration Expenses shall exclude underwriters' fees
and underwriting discounts and commissions in respect of the Registrable
Securities being registered and the fees and expenses of counsel to Nortel.
1.2 Company Registration.
(a) If at any time or from time to time the Company shall determine
to register any of its securities, either for its own account or the account of
security holders (other than Nortel), other than a registration relating solely
to employee benefit plans, or a registration on Form S-4 relating solely to an
SEC Rule 145 transaction, the Company shall:
(i) promptly give Nortel written notice thereof (which shall be
given at least 30 days prior to filing and shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such securities
under the applicable blue sky or other state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within twenty (20) days after receipt of such written notice
from the Company, by Nortel, except as set forth in Section 1.2(b) below.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise Nortel as a part of the written notice given pursuant to Section
1.2(a)(i). In such event the right
-2-
<PAGE> 3
of Nortel to require registration pursuant to this Section 1.2 shall be
conditioned upon Nortel's participation in such underwriting and the inclusion
of Nortel's Registrable Securities in the underwriting to the extent provided
herein. If Nortel proposes to distribute its securities through such
underwriting, Nortel, together with the Company and the other parties
distributing their securities through such underwriting, shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Nortel may, at its option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of Nortel and that any or
all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement shall also be conditions precedent to the
obligations of Nortel. Nortel shall not be required to make any representations
or warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding Nortel, Nortel's ownership
of and title to the Registrable Securities, Nortel's intended method of
distribution and any other representations required by law or regulation, and
the liability of Nortel to any underwriter or other person under such
underwriting agreement shall be limited to liability arising from misstatements
in or omissions from its representations and warranties and shall be limited to
the amount of the net proceeds received by Nortel in the offering; provided,
however, that the provisions of any underwriting agreement executed by the
Company and Nortel will supersede any conflicting provisions of this Agreement.
Notwithstanding any other provision of this Section 1.2, if the underwriter
determines that marketing factors require a limitation of the number of shares
to be underwritten, the underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting, or may exclude
Registrable Securities entirely from such registration and underwriting subject
to the terms of this Section. The Company shall so advise Nortel of the
Company's securities that would otherwise be registered and underwritten
pursuant hereto, and the number of shares of such securities, including
Registrable Securities, that may be included in the registration and
underwriting shall be allocated in the following manner: (i) shares proposed by
the Company to be sold for its own account shall be included first, and (ii) any
Registrable Securities requested to be included in such registration and any
other shares proposed to be included by any other Person holding securities of
the Company that has been granted registration rights shall thereafter be
included, pro rata among the holders thereof requesting such registration on the
basis of the number of shares of such securities requested to be included by
such holders. If Nortel disapproves of the terms of the underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities so withdrawn shall also be withdrawn
from registration.
(c) There is no limitation on the number of registrations which the
Company may effect pursuant to this Section 1.2. The Company will pay all
Registration Expenses in connection with any registration of Registrable
Securities pursuant to this Section 1.2.
-3-
<PAGE> 4
1.3 Obligations of the Company. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities as expeditiously as possible (and in any
event within 120 days after the relevant request for registration) and use its
diligent best efforts to cause such registration statement to become effective,
and, upon the request of Nortel, keep such registration statement effective for
up to the earlier of (I) ninety (90) days or (II) until Nortel has completed the
distribution relating thereto.
(b) Notify Nortel of the SEC's requests for amending or
supplementing the registration statement and the prospectus and prepare and file
with the SEC such amendments and supplements to such registration statement and
the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement.
(c) Furnish to Nortel such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions in the United States as shall be reasonably requested
by Nortel, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering.
(f) Notify Nortel at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Before filing any registration statement or any amendment or
supplement thereto (or any comparable statements under securities or blue sky
laws of any jurisdiction containing any different disclosure), furnish
substantially final copies of such documents to Nortel.
-4-
<PAGE> 5
(h) Use its best efforts to cause all Registrable Securities
covered by such registration statement to be listed on a national securities
exchange or to secure designation of all such Registrable Securities as a NASDAQ
"national market system security" within the meaning of Rule 11Aa2-1 under the
1934 Act (as defined below), in each case to the extent the shares of the
Company's common stock are so listed or designated.
(i) Make available its officers and personnel to the underwriters,
if any, and otherwise provide reasonable assistance to the underwriters, if any,
in their marketing of Registrable Securities.
1.4 Indemnification.
(a) The Company shall, and does hereby undertake to, indemnify and
hold harmless Nortel, each of Nortel's officers and directors and each person
controlling Nortel, with respect to any registration, qualification or
compliance effected pursuant to this Section 1 of the Registrable Securities
held by or issuable to Nortel, and each underwriter of the Registrable
Securities, if any, and each person who controls Nortel or any underwriter,
against all claims, losses, damages and liabilities (or actions or proceedings
in respect thereto whether commenced or threatened) to which they may become
subject under the 1933 Act, the Securities Exchange Act of 1934, as amended,
(the "1934 Act"), or other federal or state law arising out of or based on (i)
any untrue statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other similar document (including any
related Registration Statement, notification, preliminary prospectus, amendment
or supplement thereto, documents incorporated by reference therein or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) any violation or alleged violation by the Company of any federal, state or
common law rule or regulation applicable to the Company in connection with any
such registration, qualification or compliance, and shall reimburse, as
incurred, Nortel, each such underwriter, and each such director, officer agent
and controlling person, for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability, action or proceeding; provided that the Company shall not be liable
in any such case hereunder to the extent that any such claim, loss, damage,
liability, or expense arises out of or is based on any untrue statement or
omission in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by Nortel or such underwriter, as
the case may be.
(b) Nortel, if Registrable Securities held by or issuable to Nortel
are included in such registration, qualification or compliance, shall indemnify
the Company, each of its directors, and each officer who signs a Registration
Statement in connection therewith, and each person controlling the Company, each
underwriter, if any, and each person who controls Nortel or any underwriter,
against all claims, losses, damages and liabilities (or actions or proceedings
in respect thereof whether commenced or
-5-
<PAGE> 6
threatened) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such Registration Statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse, as
incurred, the Company, each such underwriter and each such director, officer,
partner, and controlling person, for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, action, or proceeding, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) was made in such Registration Statement,
prospectus, offering circular or other document, in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by Nortel. Notwithstanding any other provision of this Agreement,
Nortel's liability hereunder shall be limited to the amount of the net proceeds
received by Nortel in the offering with respect to which indemnity is being
sought.
(c) Each party entitled to indemnification under this Section 1.4
(the "Indemnified Party") shall give notice to the party required to provide
such indemnification (the "Indemnifying Party") of any claim as to which
indemnification may be sought promptly after such Indemnified Party has actual
knowledge thereof, and shall permit the Indemnifying Party to assume the defense
of any such claim or any litigation resulting therefrom; provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be subject to approval by the Indemnified Party (whose
approval shall not be reasonably withheld) and the Indemnified Party may
participate in such defense at the Indemnifying Party's expense if
representation of such Indemnified Party would be inappropriate due to actual or
potential differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding; and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 1.4, except
to the extent that such failure to give notice shall materially adversely affect
the Indemnifying Party in the defense of any such claim or any such litigation.
No Indemnifying Party, in the defense of any such claim or litigation, shall
consent, except with the consent of each Indemnified Party, to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff therein, to such
Indemnified Party, of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for in this Section 1.4 shall
for any reason be held by a court to be unavailable to an indemnified party
under subsection (a) or (b) hereof in respect of any claim, loss, damage or
liability, or any action or proceeding in respect thereof, then, in lieu of the
amount paid or payable under subsection (a) or (b) hereof, the indemnified party
and the indemnifying party under subsection (a) or (b) shall contribute to the
aggregate, claims, losses, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same), (i) in
such proportion as is appropriate to reflect the relative fault of the Company
and Nortel which resulted in such claim, loss, damage or liability,
-6-
<PAGE> 7
or action or proceeding in respect thereof, as well as any other relevant
equitable considerations or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as shall be appropriate
to reflect not only the relative fault but also the relative benefits received
by the Company and Nortel from the offering of the securities covered by such
registration statement as well as relevant equitable considerations. The parties
hereto agree that it would not be just and equitable if contributions pursuant
to this Section 1.4(d) were to be determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. In addition, no person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or claim
effected without such person's consent, which consent shall not be unreasonably
withheld. Notwithstanding anything in this subsection (d) to the contrary, no
indemnifying party (other than the Company) shall be required to contribute any
amount in excess of the net proceeds received by such party from the sale of the
Registrable Securities in the offering to which the claims, losses, damages or
liabilities of the indemnified parties relate.
1.5 Information by Nortel. Nortel, if included in any registration,
shall furnish to the Company such information regarding Nortel and the
distribution proposed by Nortel as the Company may reasonably request in writing
and as shall be required in connection with any registration, qualification or
compliance referred to in this Section 1.
1.6 Temporary Cessation of Offers and Sales by Shareholders. Nortel
acknowledges that there may be times when the Company may be required to suspend
the use of the prospectus forming part of the Registration Statement (including
foregoing a request that the Registration Statement become effective) until such
time as an amendment to the Registration Statement has been filed by the Company
and declared effective by the SEC, until the prospectus is supplemented or
amended to comply with the 1933 Act, or until such time as the Company has filed
an appropriate report with the SEC pursuant to the Exchange Act, but only if
pursuant to advice of counsel (i) the filing of a registration statement would
require premature disclosure of information, the disclosure of which could have
an adverse effect on the business or operations of the Company, or would in the
good faith opinion of the Company not be in the Company's best interests at such
time, or (ii) the Company then is unable to comply with the requirements of the
SEC relating to such registration or to resale of the Registrable Securities,
provided, however, that the Company shall use its reasonable best efforts to
make such disclosure, or remedy such noncompliance including removal of any stop
order, as the case may be, at the earliest practical date that the Company
believes to be in the Company's best interests. In the event of any such
suspension, Nortel may elect to withdraw the Registrable Securities from such
registration by written notice to the Company. Nortel hereby agrees that it will
not sell any Registrable Securities pursuant to said prospectus during the
period commencing at the time at which the Company gives Nortel notice of the
suspension of the use of the prospectus and ending at the time
-7-
<PAGE> 8
the Company gives Nortel notice that Nortel may thereafter effect sales pursuant
to said prospectus, as the same may have been supplemented or amended.
1.7 Transfer of Registration Rights. The rights, contained in Sections
1.2, 1.3, 1.4 and 1.8 hereof, to cause the Company to register the Registrable
Securities, may be assigned or otherwise conveyed in whole (but only with all
related obligations) to a transferee or assignee of Registrable Securities, who
shall be considered "Nortel" for purposes of this Section 1, provided that the
transferee or assignee is a subsidiary, affiliate or shareholder of Nortel, and
the Company is given written notice by Nortel at the time of or within a
reasonable time after said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned.
1.8 Requested Registration. Nortel may, at any time and from time to
time, make a written request that the Company effect a registration (a
"Requested Registration") on Form S-3 (or any successor form, if permitted) and
any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by Nortel, subject to the limitations set forth
below. In such event, the Company shall as soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of Nortel's Registrable Securities as are specified in such request,
provided that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.8:
(a) if Form S-3 is not available to the Company for such offering
by Nortel;
(b) if Nortel proposes to sell Registrable Securities at an
aggregate price to the public (net of any underwriters'
discounts or commissions) of less than $1,000,000 unless such
offering shall cover all remaining Registrable Securities;
(c) if the Company shall furnish to Nortel a certificate signed by
the president of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be
materially detrimental to the Company and its shareholders for
such Requested Registration to be effected at such time,
(without taking into account the costs to the Company) and
containing a statement of the reasons for such postponement
and an approximation of the anticipated delay, in which event
the Company shall have the right to defer the filing of the
statement related to such Requested Registration for a period
of not more than one hundred eighty (180) days after receipt
of the request of Nortel under this Section 1.8; provided,
however, that the Company shall not utilize this right more
than once in any twelve
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<PAGE> 9
(12) month period and, in the event of any such postponement,
Nortel shall have the right to withdraw its registration
request;
(d) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two
Requested Registrations for Nortel pursuant to this Section
1.8; or
(e) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general
consent to service of process in effecting such registration,
qualification or compliance.
Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities so requested to be registered as
soon as practicable after receipt of Nortel's request. The Company agrees to
include in any such registration statement all information which, in the
reasonable opinion of counsel to Nortel and counsel to the Company, is required
to be included. Whenever the Company shall effect a registration pursuant to
this Section 1.8 in connection with an underwritten offering by Nortel, no
securities other than Registrable Securities shall be included among the
securities covered by such registration unless Nortel consents to such
inclusion, such inclusion is pursuant to and subject to the terms of the
underwriting agreement or arrangements and such inclusion will not have a
material adverse effect on the offering (including, without limitation, on the
pricing of the offering). Registration Expenses shall be shared equally by the
Company and Nortel with respect to the first Requested Registration. All
expenses incurred in connection with any Requested Registration after the first
Requested Registration has been effected shall be borne by Nortel. Nortel shall,
with respect to all Requested Registrations, be responsible for the payment of
any and all underwriters' fees and underwriting discounts and commissions in
respect of the Registrable Securities being registered and the fees and expenses
of counsel to Nortel.
The Company further agrees that if it shall have previously received a
request for registration under Section 1.8 hereof, and if such previous
registration shall not have been withdrawn or abandoned, the Company shall not
effect any public or private offer, sale or other distribution of its securities
or effect any registration of any of its securities under the 1933 Act (other
than a registration of Form S-8), whether or not for sale for its own account,
until a period of 90 days (or such shorter period as Nortel shall agree) has
elapsed from the effective date of such previous registration.
1.9 Delay of Registration. Nortel shall have no right to obtain or seek
an injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.10 Rule 144 Reporting. With a view to making available to Nortel the
benefits of certain rules and regulations of the SEC which may permit the sale
of the
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<PAGE> 10
Registrable Securities to the public without registration, the Company agrees to
take all actions reasonably necessary to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the 1933 Act, at all times;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the 1933 Act and 1934 Act;
(c) So long as Nortel owns any Registrable Securities, furnish to
Nortel forthwith upon request: a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 of the 1933 Act, and
of the 1934 Act; a copy of the most recent annual or quarterly report of the
Company; and such other reports and documents as Nortel may reasonably request
in availing itself of any rule or regulation of the SEC allowing it to sell any
such securities without registration.
1.11 Amendment of Registration Rights. Any provision of this Section 1
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and Nortel (or their respective successors or
permitted transferees). Any amendment or waiver effected in accordance with this
Section 1 shall be binding upon Nortel, each future holder of Registrable
Securities and the Company.
1.12 Termination of Registration Rights. Nortel shall not be entitled
to exercise any right provided for in this Section 1 following the earlier of
(a) June 27, 2000 or (b) such time as Nortel is entitled to sell all of the
Registrable Securities held by Nortel (and Nortel has no remaining rights to
acquire Registrable Securities, upon exercise of the Warrant or otherwise),
without any restriction on manner of transaction or any notice requirements,
within a ninety (90)-day period under SEC Rule 144 (or a successor rule).
1.13 "Market Stand-Off" Agreement. During the period, specified by the
Company and an underwriter of Common Stock or other securities of the Company,
following the effective date of a registration statement of the Company filed
under the 1933 Act, Nortel shall not, to the extent requested by the Company and
such underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except any Common Stock included in such registration; provided, however, that:
(a) Such period shall not exceed one hundred eighty (180) days for
the first such registration statement of the Company which covers Common Stock
(or other securities) to be sold on its behalf to the public in an underwritten
offering;
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<PAGE> 11
(b) Such period shall not exceed ninety (90) days for any
subsequent registration statement of the Company which covers Common Stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering; and
(c) Nortel shall not be so obligated unless all executive officers
and directors of the Company are subject to or obligated to enter into similar
agreements.
In order to enforce this Section 1.13, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of Nortel
(and the shares or securities of any other person subject to the foregoing
restriction) until the end of such period. The obligations described in this
Section 1.12 shall not apply to a registration statement relating solely to
employee benefit plans on Form S-l or Form S-8 or similar forms which may be
promulgated in the future, or a registration statement relating solely to an SEC
Rule 145 transaction on Form S-4 or any similar form which may be promulgated in
the future.
SECTION 2
MISCELLANEOUS
2.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents made and to be performed entirely with the State of
California.
2.2 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with respect to the
subject matter hereof. This Agreement may be amended, waived, discharged or
terminated only by written consent of the Company and Nortel.
2.3 Notices. Any notice, request or other communication required or
permitted hereunder shall be given in writing and shall be deemed to have been
duly given if personally delivered or if mailed by registered or certified mail,
postage prepaid, at the following addresses:
If to the Company: Applied Digital Access, Inc.
9855 Scranton Road
San Diego, California 92121
Attn: President
Telephone No.: (619) 623-2200
Facsimile No.: (619) 623-2208
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<PAGE> 12
With a copy to: Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101
Attn: Faye H. Russell, Esq.
Telephone No.: (619) 234-1966
Facsimile No.: (619) 234-3848
If to Nortel: Northern Telecom Limited
Suite 100
8200 Dixie Road
Brampton, Ontario
L6T 5P6
Attn: Corporate Secretary and
Assistant General Counsel
Telephone No.: (905) 863-1103
Facsimile No.: (905) 863-8386
Any party hereto may by notice so given change its address for future
notices hereunder. Notice shall conclusively be deemed to have been given when
personally delivered or when deposited in the mail in the manner set forth above
and shall be deemed to have been received when delivered.
2.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.5 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
2.6 Captions. The captions and headings to Sections and paragraphs of
this Agreement have been inserted for identification and reference purposes only
and shall not be used to construe the meaning or the interpretation of this
Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties as of the date first above written.
APPLIED DIGITAL ACCESS, INC., NORTHERN TELECOM LIMITED,
a California corporation a Canadian corporation
By: /s/ JAMES L. KEEFE By:
------------------------------- -------------------------------------
James L. Keefe Its:
Chief Financial Officer ------------------------------------
By:
-------------------------------------
Its:
------------------------------------
[SIGNATURE PAGE TO 1997 REGISTRATION RIGHTS AGREEMENT]
<PAGE> 1
EXHIBIT 10.3
STOCK AND WARRANT PURCHASE AGREEMENT
THIS STOCK AND WARRANT PURCHASE AGREEMENT (the "Agreement") is made as
of the 27th day of June, 1997, by and between Applied Digital Access, Inc., a
California corporation (the "Company"), and Northern Telecom Limited, a
corporation incorporated under the laws of Canada ("Nortel").
WHEREAS, the Company and Nortel are contemporaneously entering into
that certain Asset Purchase Agreement dated the date hereof (the "Asset Purchase
Agreement") pursuant to which Nortel has agreed to sell and the Company has
agreed to buy certain assets of Nortel (the "Transferred Assets").
WHEREAS, the Company has agreed to issue to Nortel, and Nortel has
agreed to acquire, (i) a warrant to purchase 150,000 shares of the Company's
Common Stock, in substantially the form attached hereto as Exhibit A (the
"Warrant") in partial consideration of the purchase price of the assets acquired
pursuant to the Asset Purchase Agreement and (ii) shares of the Company's Common
Stock (the "Common Stock") (at the Company's discretion pursuant to the Asset
Purchase Agreement).
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Shares and Warrant.
1.1 Sale and Issuance of Shares and Warrant.
(a) Warrant. Subject to the terms and conditions of this
Agreement and the Asset Purchase Agreement and in consideration of the transfer
of certain assets by Nortel under the Asset Purchase Agreement to the Company at
the Closing, the Company agrees to sell and issue to Nortel the Warrant at the
Closing. The sale and issuance of the Warrant will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and such Warrant is
being issued in reliance on exemptions from registration under the Securities
Act.
(b) Shares of Common Stock. Subject to the terms and conditions
of this Agreement and the Asset Purchase Agreement, the Company agrees to sell
and issue to Nortel shares of Common Stock as follows:
(i) In the event the Company determines to pay all or a
portion of the amount due on or before July 15, 1997 pursuant to Sections 2.5(c)
and 2.7 of the Asset Purchase Agreement in shares of Common Stock (such amount
determined to be paid in shares of Common Stock, the "First Installment
Amount"), the Company shall issue to Nortel the number of shares (the "First
Installment Shares") of the Common Stock equal to the First Installment Amount
or portion thereof, as the case may be, divided by the weighted average closing
price of the Common Stock as reported on the Nasdaq National Market for all of
the trading days of the calendar quarter ending
<PAGE> 2
June 30, 1997. The Company shall deliver to Nortel the First Installment Shares
(free and clear of all liens, claims and other encumbrances except as otherwise
provided herein and in the Registration Rights Agreement dated as of June 27,
1997 between the Company and Nortel (the "Registration Rights Agreement")) on or
before July 15, 1997, along with documentation of the First Installment Amount,
the weighted average closing price of the quarter ending June 30, 1997 and the
calculation made to determine the number of First Installment Shares issued.
(ii) In the event the Company determines to pay all or a
portion of the amount due on or before October 15, 1997 pursuant to Sections
2.5(c) and 2.7 of the Asset Purchase Agreement in shares of Common Stock (such
amount determined to be paid in shares of Common Stock, the "Second Installment
Amount"), the Company shall issue to Nortel the number of shares (the "Second
Installment Shares") of the Common Stock equal to the Second Installment Amount
or portion thereof, as the case may be, divided by the weighted average closing
price of the Common Stock as reported on the Nasdaq National Market for all of
the trading days of the calendar quarter ending September 30, 1997. The Company
shall deliver to Nortel the Second Installment Shares (free and clear of all
liens, claims and other encumbrances except as otherwise provided herein and in
the Registration Rights Agreement) on or before October 15, 1997, along with
documentation of the Second Installment Amount, the weighted average closing
price of the quarter ending September 30, 1997 and the calculation made to
determine the number of Second Installment Shares issued.
(iii) In the event the Company determines to pay all or a
portion of the amount due on or before January 15, 1998 pursuant to Sections
2.5(c) and 2.7 of the Asset Purchase Agreement in shares of Common Stock (such
amount determined to be paid in shares of Common Stock, the "Third Installment
Amount"), the Company shall issue to Nortel the number of shares (the "Third
Installment Shares", and collectively, with the First Installment Shares and the
Second Installment Shares, the "Shares) of the Common Stock equal to the Third
Installment Amount or portion thereof, as the case may be, divided by the
weighted average closing price of the Common Stock as reported on the Nasdaq
National Market for all of the trading days of the calendar quarter ending
December 31, 1997. The Company shall deliver to Nortel the Third Installment
Shares (free and clear of all liens, claims and other encumbrances except as
otherwise provided herein and in the Registration Rights Agreement) on or before
January 15, 1998, along with documentation of the Third Installment Amount, the
weighted average closing price of the quarter ending December 31, 1997 and the
calculation made to determine the number of Third Installment Shares issued.
(iv) The sale and issuance of the Shares, if any, will not
be registered under the Securities Act and such Shares, if any, will be issued
in reliance on exemptions from registration under the Securities Act; provided
that if notwithstanding the accuracy of the representations of Nortel set forth
herein, the issuance of any Shares requires registration with or approval of any
governmental authority under Federal or state law before such Shares may be
issued upon exercise thereof, the Company shall, at
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<PAGE> 3
its expense and as expeditiously as possible, either cause such Shares to be
duly registered or approved, as the case may be or the Company shall pay the
First Installment Amount, the Second Installment Amount or the Third Installment
Amount, as the case may be, in cash.
1.2 Closing. The closing for the purchase and sale of the Warrant
shall take place as set forth in the Asset Purchase Agreement (the "Closing"),
at which time the Company shall deliver to Nortel the Warrant. Nortel shall
deliver to the Company a bill of sale for the Transferred Assets.
1.3 Subsequent Closings. The closing for the sale and issuance by
the Company to Nortel of each of the First Installment Shares, the Second
Installment Shares and the Third Installment Shares, if any and as applicable,
shall take place on or before the respective due date set forth in Section
1.1(b) above at such time and place as the Company and Nortel mutually agree
upon orally or in writing (each such time and place being designated a
"Subsequent Closing"). At each Subsequent Closing, the Company shall deliver to
Nortel a certificate representing the number of Shares being issued and the
other documentation referred to in Subsection 1.1(b).
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to Nortel that:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized and validly existing under the laws of the State of
California and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would be reasonably expected to have a material
adverse effect on the business, operations, properties, assets, prospects or
condition (financial or otherwise) of the Company, taken as a whole (a "Material
Adverse Effect"). Except as disclosed in the SEC Filings (as defined herein),
the Company has no subsidiaries.
2.2 Authorization. The Company has all requisite corporate power and
authority: (i) to execute, deliver and perform its obligations under this
Agreement; (ii) to issue the Warrant, the Warrant Shares (as defined below) and
the Shares in the manner and for the purposes contemplated by this Agreement and
the Asset Purchase Agreement; and (iii) to execute, deliver and perform its
obligations under all other agreements and instruments executed and delivered by
it pursuant to or in connection with this Agreement, including, without
limitation, the Registration Rights Agreement. All corporate action on the part
of the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and such other
agreements and instruments, the performance of all obligations of the Company
hereunder and thereunder and the authorization, issuance and delivery of the
Warrant, the Warrant Shares (as defined below) and the Shares hereunder has been
taken or will be taken prior to the Closing, and this Agreement constitutes a
valid and legally binding obligation of the Company, enforceable in accordance
with its terms, except (y) as
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<PAGE> 4
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (z) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
2.3 Valid Issuance of Shares. The Shares, when issued, sold and
delivered in accordance with the terms hereof and the Asset Purchase Agreement
will be duly and validly issued, fully paid and nonassessable and, based in part
upon the representations of Nortel in this Agreement, the Shares will be issued
in compliance with all applicable United States federal and state securities
laws.
2.4 Valid Issuance of Warrant Shares. The shares of Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares"), when issued, sold
and delivered in accordance with the terms of the Warrants, will be duly and
validly issued, fully paid and nonassessable and, based in part upon the
representations of Nortel in this Agreement, the Warrant Shares will be issued
in compliance with all applicable United States federal and state securities
laws.
2.5 SEC Reports. The Company has heretofore filed with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities Act
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), an
Annual Report on Form 10- K for the year ended December 31, 1996 and a Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997 (collectively, the "SEC
Filings"). None of the SEC Filings contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements made, at the time and in light of the
circumstances under which they were made, not misleading. Since December 31,
1996, the Company has timely filed with the SEC all SEC Filings and all such SEC
Filings complied with all applicable requirements of the Securities Act and the
Exchange Act, as applicable, and the rules thereunder. The audited financial
statements of the Company included or incorporated by reference in the SEC
Filings and the unaudited financial statements contained in the SEC Filings each
have been prepared in accordance with such acts and rules and with United States
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated therein and with each other, except as may be
indicated therein or in the notes thereto and except that the unaudited interim
financial statements may not contain all footnotes and adjustments required by
United States generally accepted accounting principles, and fairly present the
financial condition of the Company as of the dates thereof and the results of
its operations and statements of cash flows for the periods then ended, subject,
in the case of unaudited interim financial statements, to normal year-end
adjustments. Except as reflected in such financial statements, the Company has
no material liabilities, absolute or contingent, other than ordinary course
liabilities incurred since the date of the last such financial statements in
connection with the conduct of the business of the Company.
2.6 Compliance with Other Instruments. The execution, delivery and
performance of this Agreement and of the transactions contemplated hereby will
not
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<PAGE> 5
result in any violation of or constitute, with or without the passage of time
and the giving of notice, either a default, breach or violation under any
provision of the Company's Articles of Incorporation or Bylaws, any instrument
or agreement of any kind to which the Company is bound, any judgment, decree,
order or award of any court, governmental body or arbitrator to which the
Company is a party or any law, rule or regulation applicable to the Company (in
each case, if such default, breach or violation would materially and adversely
affect the business, assets, prospects, operations or financial condition of the
Company, the ability of the Company to perform its obligations under the Asset
Purchase Agreement, this Agreement or the Warrant or the validity or
enforceability of the Asset Purchase Agreement, this Agreement or the Warrant).
No party to any material contract included as an exhibit to the SEC Filings (or
incorporated by reference therein) would be authorized or permitted to terminate
its obligations thereunder by reason of the execution and delivery of this
Agreement or any of the transactions contemplated herein.
2.7 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any United States federal, state or local governmental authority is
required on the part of the Company in connection with the Company's valid
execution, delivery and performance of this Agreement, except for any filings
under any applicable United States state or foreign securities laws. The filings
under United States state securities laws, if any, will be effected by the
Company at its cost within the applicable stipulated statutory period.
2.8 Litigation. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company which
questions the validity of this Agreement, or the right of the Company to enter
into this Agreement or to consummate the transactions contemplated hereby.
2.9 SEC Filings. The SEC Filings correctly set forth, to the extent
required under the Securities Act and the Exchange Act, as applicable, and the
rules thereunder, as of the date thereof (before giving effect to this Agreement
and the issuance of the Warrant), the authorized and outstanding shares of the
Common Stock and other securities of the Company (specifying the type, class or
series of all such Common Stock and other securities and whether such Common
Stock and other securities are voting or non-voting) and all options, warrants
and other rights to purchase any Common Stock and other securities of the
Company, together with descriptions of the terms thereof. All such outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and non-assessable. There are no obligations (contingent or
otherwise) of the Company to repurchase or otherwise acquire or retire any
shares of its Common Stock or other securities (or options to purchase the same)
and there are no preemptive rights, subscription rights, or other contractual
rights similar in nature to preemptive rights with respect to any Common Stock
of the Company. The Company has reserved from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares and the Shares.
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<PAGE> 6
3. Representations and Warranties of Nortel. Nortel hereby represents
and warrants that:
3.1 Organization. Nortel is a corporation duly organized and validly
existing under the laws of Canada.
3.2 Authorization. Nortel has all requisite corporate power and
authority (i) to execute, deliver and perform its obligations under this
Agreement; and (ii) to execute, deliver and perform its obligations under all
other agreements and instruments executed and delivered by it pursuant to or in
connection with this Agreement including, without limitation, the Registration
Rights Agreement. All corporate action on the part of Nortel, its officers,
directors and shareholders necessary for the authorization, execution and
delivery of this Agreement and such other agreements and instruments and the
performance of all obligations of Nortel hereunder and thereunder has been taken
or will be taken prior to the Closing, and this Agreement constitutes a valid
and legally binding obligation of Nortel, enforceable in accordance with its
terms, except (y) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (z) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
3.3 Purchase Entirely for Own Account. This Agreement is made with
Nortel in reliance upon Nortel's representation to the Company, which by
execution of this Agreement Nortel hereby confirms, that the Warrant, the
Warrant Shares and the Shares to be received by Nortel will be acquired for
investment for Nortel's own account (or for the account of an Affiliate (as
defined below)), not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Nortel has no present intention of
selling, granting any participation in, or otherwise distributing the Warrant,
the Warrant Shares or the Shares in violation of the Securities Act or the
California Corporate Securities Law of 1968; provided that (subject to Section
6.1) Nortel's representations and warranties herein are without prejudice to its
right at all times to sell or otherwise dispose of all or any part of the
Warrant, the Warrant Shares or the Shares under the Securities Act, or in a
transaction exempt from the registration requirements of the Securities Act,
including a transaction pursuant to Rule 144. By executing this Agreement,
Nortel further represents that Nortel has no contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to the Warrant, the Warrant Shares
or the Shares.
3.4 Investment Experience. Nortel acknowledges that it is able to
fend for itself and to bear the economic risk of its investment and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Warrant, the Warrant
Shares and the Shares.
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<PAGE> 7
3.5 Representations as to Certain Matters Relating to the Warrant,
the Warrant Shares and the Shares.
(i) Nortel understands that no U. S. or Canadian, federal or
state agency has passed on or made any recommendation or endorsement of the
Warrant, the Warrant Shares or the Shares.
(ii) Nortel acknowledges that, in making the decision to
purchase the Warrant, the Warrant Shares and the Shares, it has relied solely
upon independent investigations made by it and not upon any representations made
by the Company with respect to the Company, the Warrant, the Warrant Shares or
the Shares.
(iii) Nortel understands that the Warrant, the Warrant Shares
and the Shares are being offered and sold to it in reliance on specific
exemptions or non- application from the registration requirements of federal and
state securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgements and
understandings of Nortel set forth herein in order to determine the
applicability of such exemptions and the suitability of Nortel to acquire the
Warrant, the Warrant Shares and the Shares.
3.6 Accredited Investor. Nortel is an "accredited investor" within
the meaning of SEC Rule 501 of Regulation D, as presently in effect.
3.7 Restricted Securities. Nortel understands that the Warrant, the
Warrant Shares and the Shares it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations the Warrant, the Warrant Shares
and the Shares may be resold without registration under the Securities Act only
in certain limited circumstances. In this connection, Nortel represents that it
is familiar with SEC Rule 144, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.
3.8 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, Nortel further agrees not to make any
disposition of all or any portion of the Warrant, the Warrant Shares or the
Shares unless and until the transferee has agreed in writing for the benefit of
the Company to be bound by Sections 3.8 and 6.1 (except that Sections 3.8 and
6.1 shall not apply to a transferee in a registered public offering or a sale
under Rule 144 or as provided in Section 7) of this Agreement and the
Registration Rights Agreement, and:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) (i) Nortel shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the
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<PAGE> 8
circumstances surrounding the proposed disposition (to the extent required for
purposes of securities law compliance), and (ii) Nortel shall have furnished the
Company with an opinion of counsel, in form and substance reasonably
satisfactory to the Company, that such disposition will not require registration
of such securities under the Securities Act.
3.9 Legends. It is understood that the Warrants and the certificates
evidencing the Shares and the Warrant Shares may bear one or all of the
following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) "These securities are subject to certain additional transfer
restrictions contained in a certain Stock and Warrant Purchase Agreement dated
as of June 27, 1997 as amended from time to time, a copy of which may be
obtained from the corporation without charge."
(c) Any legend required by the laws of any other jurisdiction.
To the extent that such legends are no longer applicable, the
Company shall cause its transfer agent to remove the legends upon request by
Nortel.
3.10 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority is required on
the part of Nortel in connection with Nortel's valid execution, delivery and
performance of this Agreement or the Registration Rights Agreement or the
issuance of the Warrant, the Warrant Shares or the Shares, except for any
filings under any applicable United States state securities laws regarding
Nortel's execution, delivery and performance of this Agreement, which notice
shall have been given prior to the Closing.
4. Conditions of Nortel's Obligations at Closing and at Subsequent
Closings. The obligations of Nortel under Subsections 1.1(a) and (b) of this
Agreement are subject to the fulfillment on or before the Closing or any
Subsequent Closing, as the case may be, of each of the following conditions, the
waiver of which shall not be effective without the consent of Nortel thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing, or any Subsequent Closing, as the case may be, with the same effect as
though such representations and warranties had been made on and as of the date
of such Closing, or any Subsequent Closing, as the case may be.
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<PAGE> 9
4.2 Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing, or any
Subsequent Closing, as the case may be.
4.3 Compliance Certificate. An officer of the Company shall have
delivered to Nortel a certificate certifying that the conditions specified in
Sections 4.1 and 4.2 have been fulfilled.
4.4 Qualifications. The Commissioner of Corporations of the State of
California shall have issued a permit qualifying the offer and sale of the
Warrant or the Shares, as the case may be, pursuant to this Agreement, or such
offer and sale when made shall be exempt from such qualification under the
California Corporate Securities Law of 1968, as amended.
4.5 Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing, or any
Subsequent Closing, as the case may be, and all documents incident thereto shall
be reasonably satisfactory in form and substance to Nortel and Nortel shall have
received all such counterpart original and certified or other copies of such
documents as Nortel may reasonably request.
4.6 Agreements. The Company and Nortel shall have entered into the
Asset Purchase Agreement, the Warrant and the Registration Rights Agreement.
4.7 Conditions of Nortel's Obligations at Subsequent Closings. The
obligations of Nortel under Subsection 1.1(b) are subject to the fulfillment on
or before the applicable closing of each of the following additional conditions,
the waiver of which shall not be effective without the consent of Nortel
thereto: (a) all shares purchased at the applicable closing shall, when issued,
sold and delivered, be duly and validly issued, fully paid and nonassessable;
(b) the offer and sale of the applicable shares shall comply with applicable
federal and state securities laws; and (c) the Company shall have filed with the
SEC all material reports required by the Exchange Act to be filed as of the date
of the applicable closing.
In the event any of the forgoing conditions are not fulfilled as of
the time of any Subsequent Closing, then, unless such conditions are effectively
waived by Nortel, the Company shall pay the First Installment Amount, the Second
Installment Amount or the Third Installment Amount, as the case may be, in cash.
5. Conditions of the Company's Obligations at Closing and at Subsequent
Closings. The obligations of the Company under Subsections 1.1(a) and (b) of
this Agreement are subject to the fulfillment on or before the Closing, or any
Subsequent Closing, as the case may be, of each of the following conditions, the
waiver of which shall not be effective without the consent of the Company
thereto:
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<PAGE> 10
5.1 Representations and Warranties. The representations and
warranties of Nortel contained in Section 3 shall be true on and as of the
Closing, or any Subsequent Closing, as the case may be, with the same effect as
though such representations and warranties had been made on and as of the
Closing, or any Subsequent Closing, as the case may be.
5.2 Performance. Nortel shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing, or any
Subsequent Closing, as the case may be.
5.3 Compliance Certificate. An officer of Nortel shall have
delivered to the Company a certificate certifying that the conditions specified
in Sections 5.1 and 5.2 have been fulfilled as of the date of Closing or
Subsequent Closing, as the case may be.
5.4 California Qualification. The Commissioner of Corporations of
the State of California shall have issued a permit qualifying the offer and sale
to Nortel of the Warrant or the Shares, as the case may be, pursuant to this
Agreement, or such offer and sale when made shall be exempt from such
qualification under the California Corporate Securities Law of 1968, as amended.
5.5 Agreements. The Company and Nortel shall have entered into the
Asset Purchase Agreement, the Warrant and the Registration Rights Agreement.
5.6 Conditions of the Company's Obligations at Subsequent Closings.
The obligations of the Company under Subsection 1.1(b) are subject to the
fulfillment on or before the applicable closing of the following additional
condition, the waiver of which shall not be effective without the consent of the
Company thereto: the offer and sale of the applicable shares shall comply with
applicable federal and state securities laws. In the event the foregoing
condition is not fulfilled as of the time of any Subsequent Closing, then,
unless such condition is effectively waived by the Company, the Company shall
pay the First Installment Amount, the Second Installment Amount or the Third
Installment Amount, as the case may be, in cash (in which event the Company
shall reserve all rights to remedies for any unwaived breach of representation
or covenant by Nortel as contemplated by Section 7.1).
6. Covenants of The Parties.
6.1 Transfer Restriction. Notwithstanding any rights under the
Registration Rights Agreement, Nortel hereby agrees that without the prior
written consent of the Company (which may be withheld in the Company's sole
discretion), neither Nortel nor any affiliate (as defined in Rule 144 under the
Securities Act promulgated by the SEC ("Affiliate")) shall, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (collectively, "Sell") (other than to donees who agree to be similarly bound)
the Warrant or any of the Warrant Shares or any of
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<PAGE> 11
the Shares, until twenty four (24) months following the date hereof, provided,
however, that Nortel may Sell one-half (1/2) of the shares of the Company's
Common Stock acquired pursuant to this Agreement (the "Acquired Shares") after
twelve (12) months has elapsed from the date hereof subject to, without
limitation, the following conditions and restrictions:
(a) Nortel hereby grants to the Company and its Affiliates the
right of first refusal to purchase any or all of the Acquired Shares that Nortel
proposes to sell in a transaction or transactions involving a broker-dealer as
intermediary, and grants to the Company and its Affiliates the right of first
refusal to purchase all but not less than all of the Acquired Shares that Nortel
proposes to sell in a transaction or transactions not involving a broker-dealer
as intermediary. In the event Nortel proposes to Sell any of the Acquired
Shares, it shall give the Company written notice of its intention describing the
price and the general terms upon which Nortel proposes to Sell the Acquired
Shares and a statement as to whether the sale will involve a broker-dealer as
intermediary (the "Notice"). The Company shall have twenty (20) days after the
Notice is effective to agree to purchase any or all of the Acquired Shares
Nortel proposes to Sell, as applicable, for the price and upon the terms
specified in the Notice by giving written notice to Nortel and stating therein
the quantity of the Acquired Shares to be purchased in any case where the
Company is entitled to purchase less than all of the Acquired Shares that Nortel
proposes to sell. In the event the Company fails to exercise the right of first
refusal within said twenty (20)-day period, Nortel shall have one hundred twenty
(120) days thereafter to sell or enter into an agreement (pursuant to which the
sale of the Acquired Shares covered thereby shall be closed, if at all, within
one hundred twenty (120) days from the date of said agreement) to sell any or
all of the Acquired Shares with respect to which the Company's right of first
refusal option set forth in this Section was not exercised, at a price and upon
terms no more favorable to the purchaser or purchasers thereof than specified in
the Notice. In the event Nortel has not sold within said one hundred twenty
(120)-day period or entered into an agreement to sell the Acquired Shares within
said one hundred twenty (120)-day period (or sold the Acquired Shares in
accordance with the foregoing within one hundred twenty (120) days from the date
of said agreement), Nortel shall not thereafter issue or sell any of the
Acquired Shares prior to the date twenty four (24) months after the date of
acquisition of such Acquired Shares without first again offering such Acquired
Shares to the Company in the manner provided in this Subsection.
(b) In the event Nortel Sells any Acquired Shares as permitted
hereunder, Nortel shall maintain an orderly market and shall not unduly disrupt
the public market for shares of the Company's Common Stock in connection with
any such sale.
(c) Nortel shall comply with any and all federal, state and
local securities and other applicable laws of the United States and Canada.
Notwithstanding the foregoing, transfers solely among Nortel Affiliates shall
not be subject to the transfer restrictions set forth in this Subsection 6.1
provided the Nortel
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<PAGE> 12
Affiliate transferee agrees in writing to be bound by this Subsection 6.1. The
transfer restrictions set forth in this Section 6.1 shall terminate in the event
of a change of control affecting the Company. Control shall have the meaning set
forth in the definition of Affiliates in the Asset Purchase Agreement. In order
to enforce the foregoing covenant, the Company may impose legends and/or
stop-transfer instructions with respect to the Warrant or the Warrant Shares or
the Shares held by Nortel or any Nortel Affiliate (and such securities of every
other person subject to the foregoing restriction).
7. Miscellaneous.
7.1 Survival of Warranties. The warranties, representations and
covenants of the Company and Nortel contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing or any Subsequent Closing, as the case may be, and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of Nortel or the Company.
7.2 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any of the securities sold or issued hereunder). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
7.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
7.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing by personal delivery to
the party to be notified or by Federal Express or other overnight package
delivery service or registered or certified mail, postage prepaid and addressed
to the party to be notified at the following addresses, or at such other address
as such party may designate by five (5) days' advance written notice to the
other parties (with notice deemed given upon receipt):
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<PAGE> 13
If to the Company:
Applied Digital Access, Inc.
9855 Scranton Road
San Diego, California 92121
Attn: President
Facsimile: (619) 623-2208
If to Nortel:
Northern Telecom Limited
8200 Dixie Road
Suite 100
Brampton, Ontario
L6T 5P6
Attn: Corporate Secretary and Assistant General Counsel
Facsimile: (905) 863-8386
7.7 Finder's Fee. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. Each party agrees to indemnify and to hold harmless the other from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the indemnifying party or any of its officers, partners,
employees, or representatives is responsible.
7.8 Expenses; Attorney Fees. Irrespective of whether the Closing or
any Subsequent Closing is effected, each party shall pay all costs and expenses
that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement. Notwithstanding the foregoing, the Company shall
pay any and all stamp, transfer and other similar taxes payable or determined to
be payable in connection with the execution and delivery of this Agreement or
the original issuance of the Shares and the Warrant Shares and shall save and
hold Nortel harmless from and against any and all liabilities with respect to or
resulting from any delay in paying, or omission to pay, such taxes. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
7.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and/or Nortel, as
applicable. Any amendment or waiver effected in accordance with this Section
shall be binding upon each holder of any securities purchased under this
Agreement at the time outstanding, each future holder of all such securities,
and the Company.
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<PAGE> 14
7.10 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
7.11 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties pertaining to the
subject matter hereof and no party shall be liable or bound to any other party
in any manner by any warranties, representations, or covenants except as
specifically set forth herein or therein.
7.12 Arbitration Provisions. To the fullest extent permitted by
applicable law, in the event of any controversy, dispute or claim arising out
of, in connection with, or in relation to the interpretation, performance or
breach of this or any action taken by the Company or Nortel hereunder, or
otherwise arising out of the execution or performance hereof, such controversy,
dispute or claim shall be determined by arbitration conducted in the English
language in San Francisco, California in accordance with the Rules for Large
Complex Cases of the American Arbitration Association as in effect on the date
that demand for such arbitration is filed with the American Arbitration
Association. The parties to the arbitration shall attempt to select an
arbitrator from such members. If the parties to the arbitration do not agree on
the selection of an arbitrator within twenty (20) days after the date demand for
the arbitration is filed, an arbitrator having such experience shall be selected
in accordance with such Rules of the American Arbitration Association. The
arbitrator shall set forth his or her determination in writing (which shall be
sent to each party to such arbitration) and shall enumerate in reasonable detail
the basis of his or her determination. No party to the arbitration may seek, and
the arbitrator shall not award, punitive or exemplary damages. To the fullest
extent permitted by applicable law, any judgment or award rendered by the
arbitrator shall be final, conclusive and binding. Judgment may be entered on
any final, unappealable arbitration award by any state or federal court having
jurisdiction thereof. To the fullest extent permitted by applicable law, any
controversy concerning whether a dispute is an arbitrable dispute or as to the
interpretation or enforceability of this Section shall be determined by the
arbitrator. The arbitration proceedings as well as the fact such proceedings
occur, shall be kept confidential by the parties hereto and may only be
disclosed to their personal representatives and advisors or as required by law
and insofar as is necessary to confirm, correct, vacate or enforce the award. In
the event of a breach of this provision, the arbitrator is expressly authorized
to assess damages and each of the parties hereto consents to the expansion of
the scope of arbitration for such purpose. The pendency of any arbitration under
this Section shall not relieve any party hereto of its obligations under this
Agreement. To the fullest extent permitted by applicable law, if the Company or
Nortel shall resort to legal proceedings for injunctive or other similar relief
pending the outcome of any such arbitration proceeding or prior to the
initiation thereof, such party shall not be deemed to have waived its rights to
cause such matter or any other matter to be referred to arbitration pursuant to
this Section. The parties intend that this agreement to arbitrate be valid,
enforceable and irrevocable. The designation of a situs or a governing law for
this Agreement or the arbitration shall not be deemed an election to preclude
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<PAGE> 15
application of the Federal Arbitration Act if it would be applicable. The
arbitrator shall have authority in his or her discretion to grant injunctive
relief, award specific performance and impose sanctions upon any party to any
such arbitration. The fees, expenses and charges of any such arbitration shall
be allocated among the parties thereto in such manner as the arbitrator shall
determine in his or her discretion. The provisions of the California Code of
Civil Procedure Section 1283.05 are incorporated into this agreement to
arbitrate.
[Remainder of This Page Intentionally Left Blank]
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<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
NORTEL: THE COMPANY:
NORTHERN TELECOM LIMITED, APPLIED DIGITAL ACCESS, INC.,
a Canadian corporation a California corporation
By: By: /s/ JAMES L. KEEFE
----------------------------- -------------------------------------
Title: Title: Chief Financial Officer
-------------------------- ----------------------------------
By:
-----------------------------
Title:
--------------------------
[SIGNATURE PAGE TO STOCK AND WARRANT PURCHASE AGREEMENT]
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<PAGE> 17
EXHIBIT A
WARRANT
<PAGE> 18
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE
UPON THE EXERCISE OF THIS WARRANT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. NEITHER
THIS WARRANT NOR THE SHARES ISSUABLE UPON THE
EXERCISE OF THIS WARRANT MAY BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO SUCH SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
THIS WARRANT AND THE SHARES ISSUABLE UPON
THE EXERCISE OF THIS WARRANT ARE SUBJECT TO
CERTAIN ADDITIONAL TRANSFER RESTRICTIONS
CONTAINED IN A STOCK AND WARRANT PURCHASE
AGREEMENT DATED AS OF JUNE 27, 1997 AS AMENDED FROM
TIME TO TIME, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY AT NO CHARGE.
No. W -1 Warrant to Purchase 150,000 Shares of Common Stock
(subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
APPLIED DIGITAL ACCESS, INC.
Void after 5:00 P.M., PACIFIC TIME, JUNE 27, 2000
This certifies that, for value received, NORTHERN TELECOM LIMITED, or
its registered assigns ("Holder") is entitled, subject to the terms set forth
below, to purchase from APPLIED DIGITAL ACCESS, INC. (the "Company"), a
California corporation, One Hundred Fifty Thousand (150,000) shares of the
Common Stock of the Company, as constituted on the date hereof (the "Warrant
Issue Date"), upon surrender hereof, at the principal office of the Company
referred to below, with the Notice of Exercise attached hereto duly executed,
and simultaneous payment therefor in lawful money of the United States or
otherwise as hereinafter provided, at the Exercise Price as set forth in Section
2 below. The number, character and Exercise Price of such shares of Common Stock
are subject to adjustment as provided below. The term
<PAGE> 19
"Warrant" as used herein shall include this Warrant, and any warrants delivered
in substitution or exchange therefor as provided herein.
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and ending at 5:00 p.m., U.S.A. Pacific
Time, on June 27, 2000 (the "Exercise Period"), and shall be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be $12.00 (U.S. Dollars) per share of Common Stock, as adjusted
from time to time pursuant to Section 11 hereof (such price as from time to time
to be adjusted as hereinafter provided being hereinafter called the "Warrant
Price").
3. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are exercisable
by the Holder in whole or in part, at any time, or from time to time, during the
term hereof as described in Section 1 above, by the surrender of this Warrant
and the Notice of Exercise annexed hereto duly completed and executed on behalf
of the Holder, at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the Holder at the
address of the Holder appearing on the books of the Company), upon payment (i)
in cash or by check acceptable to the Company, (ii) by cancellation by the
Holder of indebtedness of the Company to the Holder, or (iii) by a combination
of (i) and (ii), of the purchase price of the shares to be purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter (and in any event promptly following delivery of the purchase price
for the purchased shares if paid other than as provided in Section 4 below), the
Company at its expense shall issue and deliver to the person or persons entitled
to receive the same a certificate or certificates for the number of shares
issuable upon such exercise. In the event that this Warrant is exercised in
part, the Company at its expense will execute and deliver a new Warrant of like
tenor exercisable for the number of shares for which this Warrant may then be
exercised. No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. In lieu of any fractional share to
which the Holder would otherwise be entitled, the Company shall round the number
of shares down to the nearest whole number of shares.
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<PAGE> 20
4. Net Issuance.
(a) In addition to and without limiting the rights of the Holder
under the terms of this Warrant, the Holder shall have the right to convert this
Warrant or any portion thereof (the "Conversion Right") into shares of Common
Stock as provided in this Section 4 at any time or from time to time during the
Exercise Period. Upon exercise of the Conversion Right with respect to a
particular number of shares subject to the Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Holder (without payment by the Holder
of any exercise price or any cash or other consideration) that number of shares
of fully paid and nonassessable Common Stock computed using the following
formula:
X = Y (A - B)
-------
A
Where X = the number of shares of Common Stock to be delivered
to the Holder
Y = the number of Converted Warrant Shares
A = the fair market value of one share of the Company's
Common Stock on the Conversion Date (as defined below)
B = the per share exercise price of the Warrant (as
adjusted to the Conversion Date)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
(b) The Conversion Right may be exercised by the Holder by the
surrender of the Warrant at the principal office of the Company together with a
written statement specifying that the Holder thereby intends to exercise the
Conversion Right and indicating the total number of shares under the Warrant
that the Holder is exercising through the Conversion Right. Such conversion
shall be effective upon receipt by the Company of the Warrant together with the
aforesaid written statement, or on such later date as is specified therein (the
"Conversion Date"). Certificates for the shares issuable upon exercise of the
Conversion Right and, if applicable, a new warrant evidencing the balance of the
shares remaining subject to the Warrant, shall be issued as
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<PAGE> 21
of the Conversion Date and shall be delivered to the Holder promptly following
the Conversion Date.
(c) For purposes of this Section 4, fair market value of a share of
Common Stock on the Conversion Date shall be calculated in accordance with the
formula set forth in the definition of "Market Price" in Section 11 hereof,
except that in applying such formula, any references to dates as of or on which
the "Market Price" is to be determined shall be deemed to be references to the
applicable Conversion Date.
5. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
6. Rights of Holder. This Warrant shall not entitle Holder to any of
the rights of a shareholder of the Company until this Warrant shall have been
exercised and the shares of Common Stock purchasable upon the exercise hereof
shall have been issued, as provided herein.
7. Transfer of Warrant.
(a) The Company maintains a register (the "Warrant Register")
containing the names and addresses of the holders of warrants. The Holder of
this Warrant, or any portion thereof, may change its address as shown on the
Warrant Register by written notice to the Company requesting such change. Any
notice or written communication required or permitted to be given to the Holder
may be delivered or given by mail to such Holder as shown on the Warrant
Register and at the address shown on the Warrant Register. Until this Warrant is
transferred on the Warrant Register of the Company, the Company may treat the
Holder as shown on the Warrant Register as the absolute owner of this Warrant
for all purposes, notwithstanding any notice to the contrary.
(b) The Company may, by written notice to the Holder, appoint an
agent for the purpose of maintaining the Warrant Register referred to in Section
7(a) above, issuing the Common Stock or other securities then issuable upon the
exercise of this Warrant, exchanging this Warrant, replacing this Warrant or any
or all of the foregoing. Thereafter, any such registration, issuance, exchange
or replacement, as the case may be, shall be made at the office of such agent.
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<PAGE> 22
(c) This Warrant may not be transferred or assigned in whole or in
part without compliance with all applicable federal and state securities laws by
the transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). Subject to the provisions of
this Warrant with respect to compliance with the Securities Act of 1933, as
amended (the "Act"), title to this Warrant may be transferred by endorsement (by
the Holder executing the Assignment Form annexed hereto) and delivery in the
same manner as a negotiable instrument transferable by endorsement and delivery.
(d) On surrender of this Warrant for exchange, properly endorsed on
the Assignment Form and subject to the provisions of this Warrant with respect
to compliance with the Act and with the limitations on assignments and transfers
and contained in this Section 7, the Company at its expense shall issue to or on
the order of the Holder a new warrant or warrants of like tenor, in the name of
the Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, for the number of shares issuable upon exercise thereof. In
the event of a partial transfer or assignment of this Warrant, a new Warrant, in
substantially the form of this Warrant, evidencing the rights to purchase the
number of shares so transferred or assigned, shall be issued to the transferee
or assignee thereof and a new Warrant, in substantially the form of this
Warrant, evidencing the rights to purchase the remaining number of shares, shall
be issued to the then-registered Holder thereof.
8. Reservation of Stock. The Company covenants that, during the
Exercise Period, the Company will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares, and, from time to time, will take all steps necessary to amend
its Articles of Incorporation (the "Articles") to provide sufficient reserves of
the Warrant Shares. The Company further covenants that all Warrant Shares, upon
exercise of the rights represented by this Warrant and payment of the Exercise
Price, all as set forth herein, will be free from all taxes, liens, and charges
in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously), will be validly and legally issued, will be fully
paid and nonassessable and will be free from preemptive rights of any kind. The
Company agrees that its issuance of this Warrant shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares.
9. Notices.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by
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<PAGE> 23
which such adjustment was calculated and the Exercise Price and number of shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the Holder of this Warrant.
(b) In case
(i) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant) for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any shares of stock of
any class or any other securities, or to receive any other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up of
the Company,
then, and in each such case, the Company will mail or cause to be mailed to
Holder a notice specifying, as the case may be, (A) the date on which a record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, or (B)
the date on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
notice shall be mailed at least fifteen (15) days prior to the earlier of the
date therein specified or the date on which a record shall be taken for
determining rights to vote or receive distributions in respect of such event.
(c) All such notices, advices and communications shall be deemed to
have been received (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the third business day following
the date of such mailing by certified or registered mail, postage prepaid and
addressed to the Holder at its registered address.
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<PAGE> 24
10. Amendments; Waivers.
(a) Any term of this Warrant may be amended with the written consent
of the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon each future holder of this Warrant and the
Company.
(b) No waivers of or exceptions to any term, condition or provision
of this Warrant, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
11. Adjustments. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
(a) In the event that the outstanding shares of Common Stock shall
be split, combined or consolidated, by dividend, reclassification or otherwise,
into a greater or lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation and the number of
shares purchasable under this Warrant shall, concurrently with the effectiveness
of such combination or consolidation, be proportionately adjusted. If there
shall be effected any consolidation or merger of the Corporation with another
corporation, or a sale of all or substantially all of the Corporation's assets
to another corporation, and if the holders of Common Stock shall be entitled
pursuant to the terms of any such transaction to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a condition of
such consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Holder of this Warrant shall thereafter have the right to receive,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the exercise
of such Warrant, such shares of stock, securities or assets as may be issuable
or payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore so receivable had such consolidation, merger or sale not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the Holder to the end that the provisions hereof
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of this
Warrant.
(b) Adjustment Upon Issuance of Common Stock. If at any time after
the date hereof the Company shall issue or sell any shares of Common Stock
(except on exercise of one or more of the Warrants or exercise of stock options
or stock purchases under the Company's future or existing stock option or stock
purchase plans) for a consideration per share less than the Market Price (as
hereinafter defined) per share of Common Stock immediately prior to the time of
such issue or sale, then,
-7-
<PAGE> 25
forthwith upon such issue or sale, the Warrant Price shall be adjusted by
multiplying the Warrant Price as in effect immediately prior to the time of such
issue or sale by a fraction, (i) the numerator of which shall be the sum of (A)
the total number of shares of Common Stock outstanding immediately prior to such
issue or sale, multiplied by the Market Price per share of Common Stock
immediately prior to such issue or sale, and (B) the consideration received by
the Company upon such issue or sale, and (ii) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately after such
issue or sale multiplied by the Market Price immediately prior to such issue or
sale.
(c) Issuance of Rights, Warrants or Options. If at any time after
the date hereof the Company shall grant, issue or sell (whether directly or by
assumption in a merger or otherwise) any rights (other than rights issued
pursuant to a stockholders' rights plan adopted by the Company pursuant to which
the acquisition by any third party of a specified percentage of shares of Common
Stock triggers the exercisability of such rights to purchase Common Stock, for
so long as no event has occurred triggering such right to exercise) or warrants
(other than the Warrant) to subscribe for or to purchase, or any options (other
than stock options or stock purchases under the Company's existing or future
stock option or stock purchase plans) for the purchase of, Common Stock or any
stock or securities convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being herein called "Convertible
Securities") whether or not such rights or warrants or options or the right to
convert or exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such rights or warrants or options or upon conversion or exchange of such
Convertible Securities (determined as provided below) shall be less than the
Market Price as of the date of granting such rights or warrants or options, as
the case may be, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or warrants or options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such rights or warrants or options
shall (as of the date of granting of such rights or warrants or options) be
deemed to be outstanding and to have been issued for such price per share (and
such deemed amounts shall be used to determine the number of shares and the
consideration received by the Company for purposes of adjustment under Section
11(b)). Except as provided in Section 11(e) hereof, no further adjustments of
the Warrant Price shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such rights or warrants or options
or upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities. For the purposes of this Section 11(c), the price
per share for which Common Stock is issuable upon the exercise of any such
rights or warrants or options or upon conversion or exchange of any such
Convertible Securities shall be determined by dividing (A) the total amount, if
any, received or receivable by the Company as consideration for the granting of
such rights or warrants or options, plus the minimum aggregate amount of
additional consideration payable to the Company
-8-
<PAGE> 26
upon the exercise of all such rights or warrants or options, plus, in the case
of such rights or warrants or options which relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or warrants or options or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such rights or warrants or options.
(d) Issuance of Convertible Securities. In case the Company shall
issue (whether directly or by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined as provided below) shall be less than the Market Price determined as
of the date of such issue or sale of such Convertible Securities, then the total
maximum number of shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have been issued
for such price per share (and such deemed amounts shall be used to determine the
number of shares and the consideration received by the Company for purposes of
adjustment under Section 11(b)); provided, however, that (a) except as provided
in Section 11(e) hereof, no further adjustments of the Warrant Price shall be
made upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities, and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any rights or warrants to
subscribe for or to purchase or any option to purchase any such Convertible
Securities for which adjustments of the Warrant Price have been or are to be
made pursuant to Section 11(c) hereof, no further adjustment of the Warrant
Price shall be made by reason of such issue or sale. For the purposes of this
Section 11(d), the price per share for which Common Stock is issuable upon
conversion or exchange of Convertible Securities shall be determined by dividing
(i) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities.
(e) Change in Option Price or Conversion Rate. If the purchase price
provided for in any rights or warrants or options referred to in Section 11(c)
above, or the additional consideration, if any, payable upon the conversion or
exchange of Convertible Securities referred to in Sections 11(c) or 11(d) above,
or the rate at which any Convertible Securities referred to in Sections 11(c) or
11(d) above are convertible into or exchangeable for Common Stock, shall change
(other than under or by reason of any event resulting in a change pursuant to
provisions set forth in the documents governing such rights, warrants, options
or Convertible Securities designed to protect
-9-
<PAGE> 27
against dilution, which event also results in an adjustment pursuant to this
Section 11), then the Warrant Price in effect at the time of such event shall
forthwith be readjusted to the Warrant Price which would have been in effect at
such time had such rights, warrants, options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or conversion rate, as the case may be, at the time initially granted, issued or
sold. On the expiration of any such option or warrant or right or the
termination of any such right to convert or exchange such Convertible
Securities, the Warrant Price then in effect hereunder shall forthwith be
increased to the Warrant Price which would have been in effect at the time of
such expiration or termination had such right, warrant, option or Convertible
Security, to the extent outstanding immediately prior to such expiration or
termination, never been issued, and the Common Stock issuable thereunder shall
no longer be deemed to be outstanding. If the purchase price provided for in any
such right or warrant or option referred to in Section 11(c) above, or the
additional consideration, if any, payable upon the conversion or exchange of
Convertible Securities referred to in Sections 11(c) or 11(d) above, or the rate
at which any Convertible Securities referred to in Sections 11(c) or 11(d) above
are convertible into or exchangeable for Common Stock, shall change at any time
under or by reason of provisions set forth in the documents governing such
rights, warrants, options or Convertible Securities designed to protect against
dilution, then in case of the delivery of Common Stock upon the exercise of any
such right or warrant or option or upon conversion or exchange of any such
Convertible Security, the Warrant Price then in effect hereunder shall forthwith
be adjusted to such respective amount as would have obtained had such right,
warrant, option or Convertible Security never been issued as to such Common
Stock and had adjustments been made upon the issuance of the shares of Common
Stock delivered as aforesaid, but only if as a result of such adjustment the
Warrant Price then in effect hereunder is thereby decreased.
(f) Stock Dividends. In case the Company shall declare a dividend or
make any other distribution upon any stock of the Company payable in Common
Stock or Convertible Securities, any Common Stock or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
(g) Consideration for Stock. In case any shares of Common Stock or
Convertible Securities or any rights or warrants or options to purchase any such
Common Stock or Convertible Securities shall be issued or sold:
(i) for cash, the consideration received therefor shall be
deemed to be the amount received by the Company therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection therewith;
-10-
<PAGE> 28
(ii) for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed to be the
fair value of such consideration as determined by the Board of Directors of the
Company, in good faith and in the exercise of reasonable business judgment,
without deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection therewith, which
determination shall be conclusive and which determination of valuation shall be
sent in writing by the Board of Directors to the Holder, subject to Section
11(g)(v) below;
(iii) in connection with any merger or consolidation in which
the Company is the surviving corporation (other than any consolidation or merger
in which the previously outstanding shares of Common Stock of the Company shall
be changed into or exchanged for the stock or other securities of another
corporation), the amount of consideration therefor shall be deemed to be the
fair value as determined reasonably and in good faith by the Board of Directors
of the Company of such portion of the assets and business of the non-surviving
corporation as such Board of Directors may determine to be attributable to such
shares of Common Stock, Convertible Securities, rights or warrants or options,
as the case may be, subject to Section 11(g)(v) below;
(iv) in the event of any consolidation or merger of the Company
in which the Company is not the surviving corporation or in which the previously
outstanding shares of Common Stock of the Company shall be changed into or
exchanged for the stock or other securities of another corporation or in the
event of any sale of all or substantially all of the assets of the Company for
stock or other securities of any corporation, the Company shall be deemed to
have issued a number of shares of its Common Stock for stock or securities or
other property of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for a consideration
equal to the fair market value on the date of such transaction of all such stock
or securities or other property of the other corporation, subject to Section
11(g)(v) below and provided that, if any such calculation results in adjustment
of the Warrant Price, the determination of the number of shares of Common Stock
issuable upon exercise of the Warrant immediately prior to such merger,
consolidation or sale, for purposes of Section 11(a), shall be made after giving
effect to such adjustment of the Warrant Price;
(v) with respect to Sections 11(g)(ii), (iii) and (iv) above
(and with respect to Sections 11(j)(ii) and 11(l) below), if the fair value of
the non-cash consideration the value of which is being determined exceeds
$50,000, the Board of Directors of the Company shall provide written notice of
its valuation to the Holder, and in the event that the Holder disagrees with
such valuation, the Holder may provide written notice of such disagreement to
the Company within 30 days following such notice from the Board of Directors.
For a period of 15 days following the delivery of the last
-11-
<PAGE> 29
timely delivered notice of disagreement, the Company and the Holder shall in
good faith seek to agree upon a valuation. If at the end of such 15 day period
the Company and the Holder have not agreed upon a valuation, then the value of
the non-cash consideration the value of which is being determined shall be
determined in an arbitration conducted in the same manner as an arbitration
conducted to determine Market Price as provided in Sections 11(j) and 13(j)
hereof.
(h) Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (a) to receive a
dividend or other distribution payable in Common Stock or in Convertible
Securities, or (b) to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(i) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this Section 11.
(j) Definition of Market Price. "Market Price" shall mean:
(i) If shares of the Common Stock are listed or admitted to
trading on any exchange or quoted through NASDAQ or any similar organization,
the Market Price shall equal the average of the daily closing prices per share
of the Common Stock for the 20 consecutive trading days immediately preceding
the date of public announcement of the event giving rise to adjustment under
this Section 11 or, if no such public announcement is made with respect to such
event, the average of the daily closing prices per share of the Common Stock for
the 20 consecutive trading days immediately preceding the day as of which
"Market Price" is being determined. The closing price for each day shall be the
last sale price regular way or, in case no such sale takes place on such day,
the average of the closing bid and asked prices regular way, in either case on
the New York Stock Exchange, or, if shares of the Common Stock are not listed or
admitted to trading on the New York Stock Exchange, on the principal national
securities exchange on which the shares are listed or admitted to trading, of if
the shares are not so listed or admitted to trading, the average of the highest
reported bid and lowest reported asked prices as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or through a similar
organization if NASDAQ is no longer reporting such information.
(ii) If such shares of Common Stock are not listed or admitted
to trading on any exchange or quoted through NASDAQ or any similar
-12-
<PAGE> 30
organization, the Market Price shall be determined by the Board of Directors of
the Company, in good faith and in the exercise of reasonable business judgment,
without taking into consideration any premium for shares representing control of
the Company, any discount for any minority interest therein or any restrictions
on transfer under federal and applicable state securities laws or otherwise,
which determination shall be conclusive, and which determination of valuation
shall be sent in writing by the Board of Directors to the registered holders of
Warrants, subject to Section 11(g)(v) above.
(k) Determination of Market Price under Certain Circumstances.
Anything herein to the contrary notwithstanding, in case the Company shall issue
any shares of Common Stock or Convertible Securities in connection with the
acquisition by the Company of the stock or assets of any other corporation or
the merger of any other corporation into the Company, the Market Price shall be
determined as of the date the number of shares of Common Stock or Convertible
Securities (or in the case of Convertible Securities other than stock, the
aggregate principal amount of Convertible Securities) was determined (as set
forth in a written agreement between the Company and the other party to the
transaction) rather than on the date of issuance of such shares of Common Stock
or Convertible Securities.
(l) Certain Special Dividends. In case the Company shall declare a
dividend or make any other distribution (other than a distribution referred to
in Section 11(a) or 11(f)) upon the Common Stock (other than regular periodic
cash dividends made out of retained earnings), then in each case the Warrant
Price in effect immediately prior to the declaration of such dividend or making
of such distribution shall be adjusted by multiplying the Warrant Price in
effect immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such dividend or distribution
by a fraction the numerator of which shall be the Market Price on the date fixed
for such determination less, in the case of a dividend or distribution in cash,
the amount per share of Common Stock so declared or, in the case of any other
dividend or distribution, the then fair market value (as determined reasonably
and in good faith by the Board of Directors of the Company) of the portion of
the property so distributed applicable to one share of Common Stock (subject to
Section 11(g)(v) above), and the denominator of which shall be the Market Price
on the date fixed for such determination, such adjustment to become effective
immediately prior to the opening of business on the day following the date fixed
for the determination of stockholders entitled to receive such distribution.
(m) Certain Events. If any event occurs as to which in the
reasonable opinion of the Company or the holder of this Warrant, in good faith,
the other provisions of this Section 11 are not strictly applicable but the lack
of any adjustment would not in the opinion of the Company or such Holder fairly
protect the purchase rights of the holder of this Warrant in accordance with the
basic intent and principles of such provisions, or if strictly applicable would
not fairly protect the purchase
-13-
<PAGE> 31
rights of the holder of this Warrant in accordance with the basic intent and
principles of such provisions, then the Company shall appoint a firm of
independent certified public accountants (which may be the regular auditors of
the Company) of recognized national standing, which shall give their opinion
upon the adjustment, if any, on a basis consistent with the basic intent and
principles established in the other provisions of this Section 11, necessary to
preserve, without dilution, the exercise rights of the registered holder of this
Warrant. Upon receipt of such opinion, the Company shall forthwith make the
adjustments described therein.
(n) Corresponding Change to Number of Warrant Shares. Whenever the
Warrant Price payable upon exercise of this Warrant is adjusted, the number of
Warrant Shares purchasable upon the exercise of this Warrant shall be adjusted
by multiplying the number of Warrant Shares purchasable upon exercise of this
Warrant immediately prior to such adjustment by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
(o) Adjustment of Warrant Shares Upon Company Repurchase. In the
event that the Company elects to repurchase any of its outstanding shares of
Common Stock, the number of Warrant Shares issuable upon exercise of the Warrant
shall be adjusted by multiplying (i) the total number of outstanding shares of
the Company's Common Stock immediately after the repurchase by (ii) a fraction,
the numerator of which is (A) the number of Warrant Shares issuable upon
exercise of the Warrant immediately before the repurchase and the denominator of
which is (B) the number of shares of the Company's Common Stock outstanding
immediately prior to the repurchase.
(p) Computation of Adjustments and Readjustments. Upon the
occurrence of each adjustment or readjustment pursuant to this Section 11, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Company shall, upon the written
request, at any time, of the Holder, furnish or cause to be furnished to the
Holder a like certificate setting forth: (i) such adjustments and readjustments;
(ii) the Exercise Price at the time in effect; and (iii) the number of shares
and the amount, if any, of other property which at the time would be received
upon the exercise of the Warrant.
12. Registration Rights. Upon exercise of this Warrant (and in
connection with such exercise), the Holder shall have and be entitled to
exercise the rights of registration granted under the Registration Rights
Agreement of even date hereof between Holder and the Company (with respect to
the Warrant Shares).
-14-
<PAGE> 32
13. MISCELLANEOUS.
(a) Successors and Assigns. The terms and provisions of this Warrant
shall be binding upon the Company and the Holder and their respective successors
and assigns.
(b) Attorney's Fees. In any litigation, arbitration or court
proceeding between the Company and the Holder relating hereto, the prevailing
party shall be entitled to attorneys' fees and expenses and all costs of
proceedings incurred in enforcing this Warrant.
(c) Governing Law. This Warrant shall be governed by and construed
for all purposes under and in accordance with the laws of the State of
California.
(d) Counterparts. This Warrant may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Remedies. In the event of any default hereunder, the
non-defaulting party may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including but not limited to an action
for damages as a result of any such default, and/or an action for specific
performance for any default where Holder will not have an adequate remedy at law
and where damages will not be readily ascertainable.
(f) No Impairment of Rights. The Company will not, by amendment of
its Articles of Incorporation or through any other means, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company shall not take any action which results
in any adjustment of the Warrant Shares if such Warrant Shares issuable after
the action would exceed the total number of shares of unissued Common Stock then
authorized by the Company's articles of incorporation and available for the
purpose of issue upon such exercise.
(g) Survival. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to this
Warrant shall survive the execution and delivery of this Warrant.
(h) Severability. In the event any one or more of the provisions of
this Warrant shall for any reason be held invalid, illegal or unenforceable, the
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<PAGE> 33
remaining provisions of this Warrant shall be unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by a mutually acceptable
valid, legal and enforceable provision, which comes closest to the intention of
the parties underlying the invalid, illegal or unenforceable provision.
(i) Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or Sunday or shall be a legal holiday in either the
United States or Canada, then such action may be taken or such right may be
exercised on the next succeeding day not a legal holiday.
(j) Arbitration Provisions. To the fullest extent permitted by
applicable law, in the event of any controversy, dispute or claim arising out
of, in connection with, or in relation to the interpretation, performance or
breach of this or any action taken by the Company or the Holder hereunder, or
otherwise arising out of the execution or performance hereof, including any
determination of the fair market value of one share of the Company's Common
Stock on the Conversion Date, such controversy, dispute or claim shall be
determined by arbitration conducted in the English language in San Francisco,
California in accordance with the Rules for Large Complex Cases of the American
Arbitration Association as in effect on the date that demand for such
arbitration is filed with the American Arbitration Association. The parties to
the arbitration shall attempt to select an arbitrator from such members. If the
parties to the arbitration do not agree on the selection of an arbitrator within
twenty (20) days after the date demand for the arbitration is filed, an
arbitrator having such experience shall be selected in accordance with such
Rules of the American Arbitration Association. The arbitrator shall set forth
his or her determination in writing (which shall be sent to each party to such
arbitration) and shall enumerate in reasonable detail the basis of his or her
determination. No party to the arbitration may seek, and the arbitrator shall
not award, punitive or exemplary damages. To the fullest extent permitted by
applicable law, any judgment or award rendered by the arbitrator shall be final,
conclusive and binding. Judgment may be entered on any final, unappealable
arbitration award by any state or federal court having jurisdiction thereof. To
the fullest extent permitted by applicable law, any controversy concerning
whether a dispute is an arbitrable dispute or as to the interpretation or
enforceability of this Section 13(j) shall be determined by the arbitrator. The
arbitration proceedings as well as the fact such proceedings occur, shall be
kept confidential by the parties hereto and may only be disclosed to their
personal representatives and advisors or as required by law and insofar as is
necessary to confirm, correct, vacate or enforce the award. In the event of a
breach of this provision, the arbitrator is expressly authorized to assess
damages and each of the parties hereto consents to the expansion of the scope of
arbitration for such purpose. The pendency of any arbitration under this Section
13(j) shall not relieve any party hereto of its obligations under this Warrant.
To the fullest extent permitted by applicable law, if the Company or any Holder
shall resort to legal proceedings for injunctive or other similar
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<PAGE> 34
relief pending the outcome of any such arbitration proceeding or prior to the
initiation thereof, such party shall not be deemed to have waived its rights to
cause such matter or any other matter to be referred to arbitration pursuant to
this Section 13(j). The parties intend that this provision to arbitrate be
valid, enforceable and irrevocable. The designation of a situs or a governing
law for this Warrant or the arbitration shall not be deemed an election to
preclude application of the Federal Arbitration Act if it would be applicable.
The arbitrator shall have authority in his or her discretion to grant injunctive
relief, award specific performance and impose sanctions upon any party to any
such arbitration. If any such arbitration pertains to a determination of the
fair market value of one share of the Company's Common Stock on the Conversion
Date or other valuation of property, the fees, expenses and charges of any
arbitration pursuant to this Section 13(j) shall be borne (1) by the Company, if
the arbitrator renders a valuation of the shares of Common Stock or such other
property that is higher than the valuation rendered by the Board of Directors,
or (2) by the Holder (pro rata in proportion to the number of shares of Common
Stock issuable upon exercise of this Warrant if more than one person is a
Holder), if the arbitrator renders a valuation of the shares of Common Stock or
such other property that is equal to or less than the valuation rendered by the
Board of Directors. In all other cases, the fees, expenses and charges of any
such arbitration shall be allocated among the parties thereto in such manner as
the arbitrator shall determine in his or her discretion. The provisions of the
California Code of Civil Procedure Section 1283.05 are incorporated into this
agreement to arbitrate.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated: June 27, 1997
APPLIED DIGITAL ACCESS, INC.,
a California corporation
By: /s/ JAMES L. KEEFE
------------------------------------
James L. Keefe, President
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<PAGE> 35
NOTICE OF EXERCISE
To:
(1) The undersigned hereby elects to purchase shares of Common Stock of
Applied Digital Access, Inc., pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price for such shares in full or, in
the event of cashless exercise under Section 4 of the Warrant, agrees to the
withholding of shares as described thereunder.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell, or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------------
[Name]
-----------------------------------------
[Name]
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
-----------------------------------------
[Name]
-----------------------------------------
- ----------------------- -----------------------------------------
[Date] [Signature]
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<PAGE> 36
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint _____________
______________________ Attorney to make such transfer on the books of Applied
Digital Access, Inc. maintained for the purpose, with full power of substitution
in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise hereof are being acquired for investment and that the Assignee
will not offer, sell or otherwise dispose of this Warrant or any shares of stock
to be issued upon exercise hereof except under circumstances which will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws. Further, the Assignee has acknowledged that upon exercise of
this Warrant, the Assignee shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the shares of stock so
purchased are being acquired for investment and not with a view toward
distribution or resale.
DATED:
----------------------
-----------------------------------------
Signature of Holder
-----------------------------------------
(Witness)
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<PAGE> 1
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
EXHIBIT 10.4
MASTER PURCHASE AGREEMENT
NUMBER 09-823273
BETWEEN
MCI TELECOMMUNICATIONS CORPORATION
AND
APPLIED DIGITAL ACCESS, INC.
AGREEMENT NUMBER: 09-823273
DATE OF AGREEMENT: June 16, 1997
<PAGE> 2
AGREEMENT GENERAL PROVISIONS
<TABLE>
<S> <C> <C>
ARTICLE 1 -- DEFINITIONS...................................................................1
ARTICLE 2 -- SCOPE OF WORK.................................................................2
ARTICLE 3 -- TERM OF AGREEMENT.............................................................2
ARTICLE 4 -- OPTIONS.......................................................................2
ARTICLE 5 -- PRICES........................................................................2
ARTICLE 6 -- ISSUANCE OF ORDERS............................................................3
ARTICLE 7 -- INVOICING AND PAYMENT.........................................................3
ARTICLE 8 -- DELIVERY......................................................................4
ARTICLE 9 -- ACCESS TO WORK IN PROGRESS AND DATA...........................................4
ARTICLE 10 -- INSPECTION AND TESTS.........................................................4
ARTICLE 11 -- ACCEPTANCE...................................................................4
ARTICLE 12 -- SOFTWARE.....................................................................5
ARTICLE 13 -- WARRANTY REGARDING PROCESSING OF DATES & DATE DEPENDENT DATA.................5
ARTICLE 14 -- TITLE AND ASSUMPTION OF RISK.................................................6
ARTICLE 15 -- EXCUSABLE DELAY..............................................................6
ARTICLE 16 -- DOCUMENTATION................................................................6
ARTICLE 17 -- RIGHTS IN DATA...............................................................7
ARTICLE 18 -- MODIFICATIONS/PROHIBITED USES................................................8
ARTICLE 19 -- PROPRIETARY INFORMATION......................................................9
ARTICLE 20 -- WARRANTIES...................................................................9
ARTICLE 21 -- TECHNICAL SUPPORT...........................................................11
ARTICLE 22 -- AVAILABILITY OF PARTS.......................................................12
ARTICLE 23 -- TRAINING....................................................................12
ARTICLE 24 -- CHANGES.....................................................................12
ARTICLE 25 -- CHANGES TO FORM, FIT, OR FUNCTION...........................................13
ARTICLE 26 -- INSURANCE...................................................................13
ARTICLE 27 -- INDEMNIFICATION.............................................................15
ARTICLE 28 -- PATENT RIGHTS...............................................................15
ARTICLE 29 -- PATENT INDEMNITY............................................................15
ARTICLE 30 -- LIENS.......................................................................16
ARTICLE 31 -- TERMINATION FOR CONVENIENCE.................................................17
ARTICLE 32 -- TERMINATION FOR DEFAULT.....................................................18
ARTICLE 33 -- ASSIGNMENT..................................................................19
ARTICLE 34 -- CONSEQUENTIAL DAMAGES.......................................................19
</TABLE>
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 35 -- ARBITRATION / DISPUTE RESOLUTION............................................19
ARTICLE 36 -- MCI'S PROPERTY..............................................................20
ARTICLE 37 -- MCI'S RESPONSIBILITY........................................................20
ARTICLE 38 -- ADA'S RESPONSIBILITY........................................................20
ARTICLE 39 -- REQUIREMENTS FOR BAR CODING.................................................20
ARTICLE 40 -- PERMITS AND LICENSES........................................................20
ARTICLE 41 -- LABOR.......................................................................21
ARTICLE 42 -- TRADE NAMES, TRADEMARKS AND TRADE DRESS.....................................21
ARTICLE 43 -- PUBLIC RELEASE OF INFORMATION...............................................21
ARTICLE 44 -- NOTICES.....................................................................21
ARTICLE 45 -- ORDER OF PRECEDENCE.........................................................22
ARTICLE 46 -- APPLICABLE LAW..............................................................22
ARTICLE 47 -- GENERAL.....................................................................22
ARTICLE 48 -- EXAMINATION AND ENTIRETY OF AGREEMENT.......................................23
ARTICLE 49 -- MISCELLANEOUS...............................................................23
EXHIBITS
EXHIBIT A DISCOUNT AND PRICE SCHEDULE......................................................A1
EXHIBIT B APPLIED DIGITAL ACCESS LIST PRICES BY PRODUCT NUMBER LISTING.....................B1
EXHIBIT C MCI ALLIANCE PARTNERS............................................................C1
EXHIBIT D SOFTWARE MAINTENCE PLAN..........................................................D1
EXHIBIT E PRODUCT CHANGE NOTICES...........................................................E1
EXHIBIT F TRAINING COURSES.................................................................F1
</TABLE>
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page ii
<PAGE> 4
MASTER PURCHASE AGREEMENT
This Master Purchase Agreement is made and entered into this 16th day of June
(hereinafter referred to as the "Effective Date of Agreement") by and between
APPLIED DIGITAL ACCESS, INCORPORATED (hereinafter referred to as "ADA") a
California corporation with principal offices at 9855 Scranton Road, San Diego,
CA 92121 and MCI TELECOMMUNICATIONS CORPORATION, (hereinafter referred to as
"MCI") with offices at 2270 Lakeside Blvd., Richardson, Texas 75082.
WHEREAS, MCI desires to purchase and license from ADA certain ADA
telecommunications hardware and software, related services, materials and
equipment, and such other optional equipment and services as MCI may elect to
acquire pursuant to this Agreement (hereinafter, the "Products"); and
WHEREAS, ADA desires to sell, license, and otherwise provide to MCI, the
Products including services which MCI may elect to obtain pursuant to this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and promises contained
herein, the Parties mutually agree as follows:
ARTICLE 1 - DEFINITIONS
The term "Agreement" includes these terms and conditions, specifications,
drawings, documents and addendum made a part of this Agreement, or incorporated
herein by reference; and any amendments to this Agreement.
The term "MCI" means MCI Telecommunications Corporation, its employees,
directors, subsidiaries, affiliates, successors and assigns, and for purposes of
this agreement, includes Alliance Partners. "Affiliates" means MCI's operating
entities, controlling, controlled by, or under common control with MCI
including, but not limited to, networkMCI, Inc., MCImetro Access Transmission
Services, Inc., MCI International Telecommunications Corporation, and MCImetro,
Inc. The term "Alliance Partner" shall mean any person or legal entity: (a) in
which MCI has an equity ownership, or which conversely has an equity ownership
in MCI, in excess of twenty (20) percent, or (b) with which MCI has an agreement
requiring or permitting (i) the large-scale licensing of technology to such
person or entity or (ii) the exclusive distribution of one or more products or
services by such person or entity, and which in any event is listed from time to
time during the term of this Agreement on Exhibit C ("MCI Alliance Partners")
attached hereto and incorporated herein by this reference.
The term "Parties" refers to ADA and MCI.
The term "Patent" means patents for inventions and similar forms of statutory
protection, domestic or foreign, such as utility models and registered designs.
The term "Delivery" means the tendering of the Work called for by this Agreement
by ADA at the MCI designated site, at the time(s) and place(s) specified in the
Article of this Agreement entitled "Delivery."
The term "Work" refers to the provision of goods, components, Products,
Services, documents, software, data, or other items constituting the subject
matter of this Agreement which are to be furnished by ADA to MCI.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 1
<PAGE> 5
The term "Documentation" shall mean all or any portion of user guides, operator
guides, installation manuals and other associated manuals furnished with the
Products as updated from time to time.
The term "Software" shall mean the tangible form, including without limitation,
the media and documentation in machine readable or printed form, and the
intangible interests therein.
The term "Enhancements" shall mean modifications, changes, additions to and
deletions from the Product provided by ADA.
The term "Version" shall mean the issuance of new Software to the Product
providing additional material feature/function capabilities and Enhancements
which are definable and measurable by ADA.
The term "Modification" means to change, alter, incorporate, enhance, upgrade or
revise any Work, including Product firmware and/or software, which affects the
form, fit, function, interface, interchangeability, substitutability, electrical
performance capability, safety or reliability of the Product or which deviates
from Work approved for use by MCI's Network Engineering Laboratory.
ARTICLE 2 - SCOPE OF WORK
ADA shall provide the necessary qualified personnel, facilities, and Products
including services to perform the Work in accordance with the Purchase Orders
issued and accepted in accordance with this Agreement. MCI shall have the
unilateral right to reject any personnel provided under this Agreement upon
demonstration by MCI of reasonable cause.
ARTICLE 3 - TERM OF AGREEMENT
The provisions of this Agreement shall be applicable to all Products purchased
and/or leased by MCI from the Effective Date of Agreement through June 16, 2000
unless extended or terminated prior to this date in accordance with the
provisions of this Agreement.
ARTICLE 4 - OPTIONS
At the request of MCI and upon the mutual written agreement of the Parties, the
terms of this Agreement may be extended for up to ***** (*) successive periods
of *** (*) year (each an "Extension Period") upon these same terms and
conditions; provided, however, that either Party may request an adjustment in
the pricing of the Products, and in such an event such pricing during the
Extension Period shall be subject to mutual agreement in writing between the
Parties; further provided, if the Parties fail to agree upon a requested
adjustment in pricing this Agreement will not be extended further and will
expire at the end of the current Extension Period.
ARTICLE 5 - PRICES
The prices set forth in Exhibit A and Exhibit B are exclusive of all taxes,
duties and similar liabilities whatsoever, except as noted below. All charges
for non-standard packaging, packing, crating and for shipping deliverable items
to destinations designated by MCI shall be prepaid and added to the invoices.
Unless otherwise agreed by the Parties, all prices quoted are payable in U.S.
funds and shall be exclusive of taxes (including without limitation any added
value, use, sales, or similar tax). MCI shall pay any and all such taxes and
shall hold ADA harmless therefrom, provided that if ADA, at its sole discretion,
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 2
<PAGE> 6
chooses to make any such payment, MCI shall reimburse ADA in full. All
transactions pursuant to this Agreement shall be considered taxable unless MCI
provides ADA with appropriate verification of exemption. All prices quoted shall
likewise be exclusive of any import duties imposed by the country of final
destination upon shipments from ADA to MCI.
ADA represents and warrants, during the term of this Agreement, that the prices
set forth in Exhibit A and Exhibit B shall be no higher than the current ADA
price to any other customer for the same quantity of such Work under like
conditions. ADA further agrees that in the event prices for the same quantity of
such Work under like conditions are lowered, ADA shall notify MCI in writing of
the new prices no later than thirty (30) days before they are to take effect,
and Exhibit A and Exhibit B shall be adjusted by written amendment provided that
any amounts previously paid to ADA shall be non-refundable and non-creditable.
ADA may sell to MCI at prices lower than those cited herein on a case-by-case
basis, and such sales shall not have the effect of lowering the prices generally
offered under this Agreement. ADA shall notify MCI in writing of the prices and
terms and conditions for this case-by-case Work.
ARTICLE 6 - ISSUANCE OF ORDERS
The purchase of Work shall be by means of individual purchase orders, including
change orders thereto, and delivery release orders (hereinafter referred to
collectively as "Orders") which may be issued from time to time to ADA by MCI.
Each Order shall specify the Products, quantity, price, delivery date,
destination, and other details pertaining to the Products ordered thereunder.
ADA understands and agrees that unless otherwise stated in the Order, this
Agreement shall be applicable to such Order for equipment and/or services,
whether or not this Agreement is expressly referred to in such Orders.
In the event of any conflict as to the terms and conditions between the
pre-printed terms of the Order and this Agreement, this Agreement shall take
precedence. Within thirty (30) days of receipt of the Order, ADA shall
acknowledge acceptance or rejection of the Order. In the absence of such Order
acknowledgment the Order shall be deemed to be accepted by ADA.
Neither MCI nor any MCI Affiliate or Alliance Partner ("Ordering Entity") shall
be liable for, or in relation to, any Order not placed by it. Further, neither
MCI, nor any other Ordering Entity shall be liable for any act or omission of
any other Ordering Entity whether in relation to this Agreement, any Order or
otherwise. Any Ordering Entities placing Orders under this Agreement are
separately and individually liable for anything pertaining to such Order(s).
ARTICLE 7 - INVOICING AND PAYMENT
ADA shall submit original invoices to the MCI Accounts Payable department
identified on the applicable Order stating the amounts due. The applicable
amounts due ADA shall be paid within thirty (30) days net in United States
dollars after receipt of an invoice, provided that the Work that is the subject
of the invoice has been delivered and/or completed and accepted in accordance
with the requirements of this Agreement, and that all conditions established
hereunder as prerequisites to payment have been fulfilled.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 3
<PAGE> 7
ARTICLE 7 - DELIVERY
ADA shall make deliveries both in quantities and at times specified herein and
in the applicable Orders. ADA shall deliver the Products to MCI Free on Board
(FOB) origin, and in the absence of other shipping instructions, ADA will ship
"surface prepaid." If Orders are received specifying order intervals of less
than thirty (30) days, ADA will use commercially reasonable efforts to meet such
dates and may apply an expedite charge to orders requiring fulfillment in less
than five (5) business days such expedite charges shall be pre-approved by MCI.
Except as provided above, if ADA deliveries exceed the delivery date, MCI,
without limiting its other rights or remedies as specified herein, may direct
expedited routing and ADA shall pay for any excess costs incurred thereby. MCI
shall not be liable for ADA's commitments or production arrangements in excess
of the amount, or in advance of the time, necessary to meet MCI's delivery
schedule. Products which ADA delivers more than fourteen (14) days in advance of
schedule may, at MCI's option, either (a) be returned at ADA's expense for
proper delivery, (b) have payment therefor withheld by MCI until the date that
Products are actually scheduled for delivery or (c) be placed in storage on
ADA's account until the delivery date specified herein. MCI may delay, at no
cost to MCI, the delivery and invoicing of Products for a period of up to thirty
(30) days; provided, however, that MCI notifies ADA in writing at least fifteen
(15) days prior to the scheduled delivery date. Delay(s) beyond thirty (30) days
shall be deemed a change in accordance with the Article of this Agreement
entitled CHANGES.
ARTICLE 9 - ACCESS TO WORK IN PROGRESS AND DATA
All Work in progress under this Agreement and all data and documentation related
to this Agreement are subject to continuous examination, evaluation and
inspection by MCI at any reasonable time during the term of this Agreement.
Thereafter, to the extent that such data and documentation is of a type normally
retained by ADA, it shall continue to be available for such purposes, without
affecting ADA's obligations under other provisions of this Agreement, and
subject to ADA's rights in data under the Article of this Agreement entitled
RIGHTS IN DATA. ADA shall also deliver copies of all such data and documentation
to MCI upon written request of MCI at any time during the term of this
Agreement.
ARTICLE 10 - INSPECTION AND TESTS
Inspections may be made at all reasonable times by MCI or its designated
representative(s) at ADA's manufacturing facilities or at the MCI or ADA site
designated for product staging, as described hereinafter. Travel and living
expenses and other incidental expenses will be borne by each Party that incurs
such expenses. Remedy of the non-conforming Products referred to in this Article
shall be made promptly by ADA, at its expense, upon receipt of written notice
thereof from MCI. If ADA fails to so remedy any such non-conforming Product(s),
MCI may either (a) have any or all such non-conforming Product(s) remedied
through other means, in which event ADA shall pay the reasonable costs of so
remedying such non-conforming Product(s); or (b) accept the non-conforming
Products and reduce the applicable price by the cost to remedy the Product.
ARTICLE 11 - ACCEPTANCE
After receipt at destination, MCI shall promptly inspect the Products received
and accept them. If within ten (10) business days after such inspection a
Warranty defect is found, MCI shall notify ADA in writing of those rejected
Product(s). Remedy of rejected items shall be promptly made by ADA at its
expense, which shall include all related costs for repair or replacement of the
rejected Product(s) in accordance
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 4
<PAGE> 8
with Article 18, WARRANTIES, and all applicable shipping changes. Upon remedy of
such rejected Product(s) in accordance with this Agreement, the Products shall
be accepted by MCI.
If ADA fails to remedy any such rejected item(s), MCI may elect either (i) to
have any or all such rejected item(s) remedied through other means, in which
event ADA shall pay the reasonable costs of so remedying such rejected item(s);
or (ii) to accept the Work and reduce the applicable price by an equitable
amount.
ARTICLE 12 - SOFTWARE
The price of Software ordered hereunder shall include, with respect to each copy
of Software covered by this Agreement, a perpetual, royalty-free, non-exclusive,
non-sublicensable license, subject to all the terms and conditions of this
Agreement, to use the initial feature release of the software delivered. These
license terms shall also extend to all future Software Versions and Enhancements
which are issued during the applicable Software Warranty period or provided
pursuant to a Software Maintenance plan, as described in Exhibit D. Software
that MCI develops independent of ADA or any MCI Software shall remain the
property of MCI. MCI understands that any modification of ADA's software without
ADA's consent shall vitiate ADA's maintenance responsibilities described in the
paragraph below.
Software is licensed hereunder and not sold. As between the Parties, ADA retains
and shall exclusively own all title to and, except as expressly and
unambiguously licensed herein, all rights and interests in the Software
delivered by ADA hereunder, all modifications and derivative works (by whomever
produced) thereof and all intellectual property and proprietary rights anywhere
in the world.
New product feature releases shall not be included under MCI's initial license
but shall be available to MCI at charges mutually agreed upon. Provided that MCI
subscribes to ADA's applicable Software Maintenance plan, ADA shall maintain all
software required to operate the Software for a period of up to *** (**) years
after the Effective Date of Agreement. Such software maintenance shall include
updates or changes which reflect operational or efficiency changes, as well as,
the development and delivery of new loads as released by ADA.
In the event that ADA files for protection under the provision of the Bankruptcy
Code, MCI and ADA agree that under Section17 U.S.C., particularly Section 117
(Federal Copyright Act), that MCI has the non-exclusive, limited right to use
the Software for the provision of MCI's services, including the right to prepare
copies for archive or back-up purposes.
MCI may sell, transfer or dispose of its rights under this Article to any
subsequent buyer of Products; such disposition shall be limited to the scope of
the Software license normally provided by ADA for Products purchased hereunder.
MCI may not sell, transfer or dispose of Products, with the rights under this
Article, to competitors of ADA.
ARTICLE 13 - WARRANTY REGARDING PROCESSING OF DATES & DATE DEPENDENT DATA
The licensed Software will provide accurate processing of date and date
dependent data (including, but not limited to, calculating, comparing and
sequencing operations) for all dates through the year 2100 and otherwise comply
with the certificate requirements for ISO 8601 standards for year 2000 date
compliance, and that upon request ADA will provide sufficient evidence through
adequate testing of the Software or otherwise to demonstrate compliance with
this Warranty.
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 5
<PAGE> 9
ARTICLE 14 - TITLE AND ASSUMPTION OF RISK
ADA shall convey good title, free from any claim or encumbrance, to MCI for all
Products delivered under this Agreement. Title to all such Products excluding
Software shall pass to MCI at the shipping point. Any loss or damage to such
Products prior to passing of title shall be at ADA's risk.
ARTICLE 15 - EXCUSABLE DELAY
In the event performance of this Agreement, or of any obligation hereunder, is
prevented, restricted or interfered with by reason of:
a) acts of God;
b) wars, revolution, civil commotion, acts of public enemies, blockage
or embargo;
c) acts of Government in its sovereign capacity;
d) labor difficulties, including, without limitation, strikes,
slowdown, picketing or boycotts; or
e) any other external circumstances beyond the reasonable control of
the Party affected.
The Party affected, upon giving prompt notice to the other Party, but in no
event to exceed more than twenty (20) days after either learning of such event
or after the date when such party should have known of such event, shall be
excused from such performance on a day-to-day basis to the extent of such
prevention, restriction, or interference (and the other Party shall likewise be
excused from performance of its obligations on a day-to-day basis to the extent
such Party's obligations related to the performance so prevented, restricted or
interfered with); provided, however, that the Party so affected shall use its
best efforts to avoid or remove such causes of non-performance and both Parties
shall proceed whenever such causes are removed or cease.
ARTICLE 16 - DOCUMENTATION
ADA shall supply MCI with originals of all documentation necessary to support
and maintain the equipment and systems provided by ADA to MCI under this
Agreement. ADA grants MCI a limited rights license, subject to all the terms and
conditions of this Agreement, to MCI at no charge to reproduce this
documentation in quantities required for this Agreement provided that all
reproduced copies include all ADA copyrights and other proprietary marks and
legends. MCI will take all reasonable precautions to insure that any
documentation reproduced under the limited rights licenses will be used
exclusively by MCI. Other documentation which may be provided pursuant to this
Article at the request of MCI shall include:
a) INSTALLATION, OPERATION AND MAINTENANCE (IOM) MANUALS --
Installation, operation and maintenance manuals, including packing
and unpacking instructions, general descriptions, tables of
specifications, theory of operation, installation procedures,
maintenance procedures, trouble-shooting procedures and parts list.
b) ENGINEERING DOCUMENTATION -- Non-proprietary specifications,
functional descriptions and operating descriptions.
c) ACCEPTANCE TEST PLAN/PROCEDURE -- This documentation shall be
sufficiently comprehensive to ensure that acceptance testing is
capable of determining whether the Products comply with the
requirements of this Agreement. ADA shall develop jointly with MCI
such test plans to include at a minimum:
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 6
<PAGE> 10
i) Reference to specification
ii) List of the test equipment to be used
iii) Environmental conditions
iv) Initial condition of item being tested, (e.g. profile, switch
position, etc.)
v) Brief description of each test, in the sequence they are to be
performed including a list of parameters to be measured.
vi) Block diagrams of the testing setups
vii) Failure reporting, correction and analysis requirements
a) FACTORY TEST PLAN -- This plan shall be sufficiently comprehensive
to ensure that factory testing is capable of determining whether,
upon shipment to MCI, the Products comply with the requirements of
this Agreement.
b) QUALITY ASSURANCE DOCUMENTATION -- This document shall describe the
Quality Assurance Program of ADA.
c) PRODUCT SUPPORT DOCUMENTATION -- This documentation shall include
all the information necessary to support and maintain the continued
operation of Products delivered by ADA. This shall include, but not
be limited to, the following:
iv) Recommended Spare Parts List -- ADA shall submit a complete
list of Field Replaceable Unit (FRU) assemblies, sub-
assemblies, parts and consumable recommended to support
production equipment for a period of ****** (**) months. The
list shall include part name, manufacturer's name and address,
part number, MTBF (Mean Time Between Failures), lead-time,
availability. For purposes of this Agreement, FRUs are defined
as: Primary components, assemblies or sub-assemblies such as
drawers, cards, boards and power units which, in the event of
failure, must be replaced in the field by field service
personnel in order to ensure continued equipment operation. In
addition, ADA shall submit a recommended depot level sparing
list.
v) Provisioning Documentation
ARTICLE 17 - RIGHTS IN DATA
Written documentation, provided by ADA, which is required to be delivered under
this Agreement shall be the same documentation as provided to other customers
and shall become the property of MCI and shall not be disclosed by MCI to any
other Party, and MCI shall have the right to use the information contained
therein for the purpose of this Agreement.
MCI shall protect any written documentation, which ADA has marked with an
appropriate and valid proprietary legend, such as "ADA Confidential," from
unauthorized use or disclosure to any person who is not a director, officer,
employee, agent, contractor, or affiliate of MCI, and, at a minimum, use such
measures as MCI uses to protect its own confidential information; provided,
however, that MCI shall have the right to use and duplicate such written
documentation together with applicable copyright notices for any MCI purpose
consistent with this Agreement.
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 7
<PAGE> 11
ARTICLE 18 - MODIFICATIONS/PROHIBITED USES
MCI shall have the right to request ADA to make Modifications to the Product(s)
to perform any functions which MCI deems desirable and the Product(s) so
modified shall remain subject to the terms of this Agreement. In such event, MCI
shall request ADA to submit a proposal for such Modifications to the Product and
provide an estimate for such Modifications and implementation thereof within
thirty (30) days after receipt of the MCI's request. ADA shall implement such
Modifications only upon receipt of written authorization from MCI Procurement at
2270 Lakeside Blvd., Richardson, TX 75082, Attn: Director of Procurement.
Notwithstanding of the above, if ADA lacks the capability or resources to
develop and implement the requested Modifications, the Parties agree to
negotiate in good faith an appropriate license permitting MCI to develop or have
developed the requested Modification.
MCI agrees not to translate, decompile, dissemble or reverse engineer the
Product(s) or otherwise attempt to alter, adapt or discover the source code of
the Product(s) by any means whatsoever or permit another to do so.
Further, MCI may not:
a) Provide, rent, lease, lend, use for timesharing or service bureau
purposes, sell, network (except as expressly contemplated herein),
transfer, or otherwise distribute or allow others to use the
Product(s), or any copy or portion thereof, or MCI's rights under
this Agreement on a temporary or permanent basis to or for the
benefit of anther person or entity without the prior written
permission of ADA;
b) Modify, incorporate into or with other software or create a
derivative work based upon any part to the Product(s) or attempt or
permit a third party to do so, except to the limited extent that
such actions do not affect the form or function of the Product(s)
provided that foregoing shall not restrict MCI from using standard
application programming interface, hereinafter referred to as API,
as necessary to permit interoperability of the Product(s) with
other applications;
c) Make any copies of the Product(s) or distribute any materials other
than for MCI's (excluding any affiliates which function as
telecommunications equipment suppliers) own internal use, except as
reasonably required to use the Product(s) strictly in accordance
with the license granted hereunder or as otherwise required by law
or applicable industry regulation and, except for one (1) copy
solely for archival and back-up purposes;
d) Remove, modify, or obscure the copyright, trademark, and/or any
other propriety notices or legends contained in the Product(s) or
affixed on the Documentation or Product(s) media or packaging;
e) Export, re-export, or transfer, directly or indirectly, the
Product(s), or any portion thereof, from the country in which is it
originally delivered to MCI in violation of any law, restriction,
national security control or regulation or without all required
licenses and authorizations to Cuba, Libya, North Korea, Iran,
Iraq, or Rwanda, or to any Group D:1 or E:2 country (or any
national of such country) specified in the then current supplement
No. 1 to Part 740 to the U. S. Export Administration Regulations
(or any successor supplement or regulations). This paragraph shall
survive termination of this Agreement; and
f) Use a portion or component of the Product(s) in a manner other than
as specified in the "T3AS User Manual," and "T3AS Installation &
Engineering Manual"; and
g) Disclose the results of any benchmark of the Product(s) to any
third party without the prior written authorization of ADA.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 8
<PAGE> 12
ARTICLE 19 - PROPRIETARY INFORMATION
Each Party agrees that with respect to any oral, written or computer generated
information supplied or disclosed by either Party to the other Party under this
Agreement and identified by the disclosing Party as confidential or proprietary
(hereinafter referred to as "Confidential Information"):
a) To use such Confidential Information only in performance of this
Agreement;
b) Not to make copies of any such Confidential Information or any part
thereof without the permission of the disclosing Party;
c) Not to disclose any such Confidential Information or any part
thereof to others for any purpose without prior written approval
from the disclosing Party;
d) To limit dissemination of such Confidential Information to persons
within the receiving Party's organization, including contractors
and consultants who are bound to protect Confidential Information
under the terms of a written agreement, who are directly involved
in the performance of this Agreement and have a need to use such
Confidential Information for purposes of such performance; and
e) To return such Confidential Information and any copies thereof to
the disclosing Party at the completion or termination of this
Agreement, or at such earlier date as the Parties may agree in
writing.
Notwithstanding the foregoing, neither Party shall have any obligation with
respect to any information which is: (i) previously known to the receiving
Party, (ii) invalidly marked, (iii) in or becomes in the public domain through
no fault of the receiving Party, (iv) rightfully acquired by the receiving Party
from third parties, (v) independently developed by the receiving Party without
reference to Confidential Information, (vi) approved for release by the written
authorization of the disclosing party, or (vii) identified by the disclosing
Party as no longer confidential.
Upon the execution of this Agreement, the Non-Disclosure Agreement between the
Parties dated June 10, 1996 shall terminate and all Confidential Information
previously disclosed under said agreement shall thereafter be governed by the
provisions of this Agreement. The provisions of this Article shall survive the
termination or expiration of this Agreement for a period of **** (*) years
thereafter.
ARTICLE 20 - WARRANTIES
ADA warrants the following with respect to each of its Hardware Products that
the Hardware Product is free from defects in material and workmanship, and that
upon payment in full all Hardware Product shall be delivered free and clear of
liens, claims or encumbrances of any kind. ADA warrants that the Product(s) will
conform to and perform in accordance with the specifications set forth in this
Agreement for a period of ************ (**) months commencing with the date of
shipment to MCI.
With respect to Products sold but not manufactured by ADA, ADA will assign to
MCI all warranties allowed by the manufacturer.
If ADA installs the Hardware Product, ADA will warrant the installation against
defects in material and workmanship for a period of ****** (**) days from the
date of installation and provide all parts and on-site labor (including
transportation costs of ADA's technician(s)) necessary to restore the Hardware
Product to proper operating condition at no charge to MCI. The warranty period
for repair parts and
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 9
<PAGE> 13
labor and for replaced Products shall be the remainder of
the warranty for the repaired or replaced item or ****** (**) days, whichever is
greater.
ADA warrants and represents that the Software media delivered hereunder is free
from material defects and the Product will operate substantially in accordance
with the Documentation provided with the Product for ****** (**) months
following installation (herein referred to as "Software Warranty Period"). Once
the Software Warranty Period has expired, MCI may request ADA continue
maintenance in accordance with Exhibit D entitled SOFTWARE MAINTENCE PLAN.
If at any time within the Software Warranty Period, the Product is considered by
MCI to not be in conformance with this Warranty, MCI shall promptly notify ADA
of such alleged non-conformance. ADA shall respond as required in the Article
entitled ACCEPTANCE.
THE WARRANTIES SET FORTH ABOVE ARE THE COMPLETE WARRANTY COVERAGE OFFERED BY ADA
FOR THE HARDWARE AND SOFTWARE PRODUCTS AND SERVICES PROVIDED HEREUNDER AND ARE
IN LIEU OF ALL OTHER WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE. NOTWITHSTANDING ANY OTHER
OR PRIOR STATEMENT, WRITTEN OR ORAL, ADA MAKES NO OTHER WARRANTIES, EXPRESS OR
IMPLIED, REGARDING THE QUALITY, MERCHANTABILITY, FITNESS, OR THE USE OR DATA
RESULTS BY THE USE OF THE PRODUCT(S).
Except as specifically provided under the above paragraph in this section, ADA's
liability under warranty shall be limited to either repair or replacement of the
defective Product in accordance with the Repair and Return Procedures described
elsewhere herein or, if repair or replacement is not reasonable, refund of the
purchase price for the effected Product(s). ADA shall incur no obligation under
this warranty if (i) the allegedly defective Product is returned to ADA more
than thirty (30) days after the expiration of the applicable warranty period
(provided, however, that notice of a defect that was caused by ADA's fraud or
such gross mistakes by ADA as amount to fraud may be given at any time), or if
(ii) ADA's verifiable tests disclose that the alleged defect is not due to
defects in material or workmanship.
The Warranty set forth in above of this Article does not extend to any Product
that (i) is modified or altered, (ii) is not maintained by ADA's maintenance
recommendations, (iii) is operated in a manner other than that specified by ADA,
(iv) has its serial number removed or altered or (v) is treated with abuse,
negligence or other improper treatment (including, without limitation, use
outside the recommended environment). MCI's sole remedy with respect to any
Product warranty or defect is as stated in this Article.
ADA Products are intended for standard commercial uses. Without appropriate
network design engineering, they should not be used (or sold, licensed or
distributed for use) in hazardous environments requiring fail safe performance
in which the failure of Products could lead directly to death, personal injury,
or severe physical or environmental damage; such environments include, without
limitation, the operation of nuclear facilities, aircraft
navigation/communication systems, air traffic control, direct life support
machines, or weapons systems. MCI agrees to consult with ADA prior to using the
Products (or selling, licensing, or distributing them for use) in such
environments so that ADA may review the proposed network design and recommend
appropriate system redundancies or design modifications. Any use, sale, license
or other distribution of the Products in any such environment without the prior
written consent of ADA, shall be deemed at MCI's sole risk.
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 10
<PAGE> 14
ARTICLE 21 - TECHNICAL SUPPORT
ADA shall maintain for the term of this Agreement a Technical Support Center
(hereinafter referred to as "TSC") to provide support services as described
below.
ADA shall make TSC services available, starting Effective Date of Agreement, to
MCI five (5) days per week, Monday through Friday, 8:00 A.M. to 8:00 P.M. EST.
Upon receipt of a request from MCI via telephone, or other form, for TSC
services, ADA shall provide the requested services via telephone on an immediate
response basis.
ADA support services shall include, but not be limited to, the following items:
a) TECHNICAL SUPPORT CALL-IN -- Technical support staff personnel are
available to assist in quick and easy resolutions of problems that
occur in the installation or use of ADA's Equipment. This service
is provided at no charge to MCI.
b) FIELD SERVICE ENGINEERING -- Field Service Engineers are available
to provide on-site installation assistance, installation checkouts,
trouble-shooting, field repair, routine maintenance or training on
installation operation and maintenance. Based upon mutual agreement
that a charge for field service is necessary, the charge to MCI
shall be in accordance with ADA's then existing rates.
c) INSTALLATION OF NEW PRODUCTS -- During the installation period of
new Products, ADA will guarantee immediate response on the turn
around of defective equipment.
d) REPAIR -- MCI shall contact ADA's personnel on the return of
Products for in or out of warranty repair or concerning status of
any repair service being performed. The following procedure shall
cover the repair of equipment returned to ADA for repair:
i) MCI must obtain ADA's Return Material Authorization (RMA)
Number prior to the return of any Products. A block of RMA
Numbers will be issued by ADA for MCI's Distribution
Center(s).
ii) In Warranty Products -- Ship via ADA designated carrier
instructed to be used upon obtaining the RMA Number, if
applicable. MCI is responsible for transportation charges from
Product(s) shipped to ADA; ADA is responsible for return
shipment to MCI. ADA will either repair or replace in warranty
Products within fifteen (15) business days of its receipt. The
warranty period for repaired or replaced Products shall be the
remainder or the original warranty or ninety (90) days, which
ever is greater.
iii) Out of Warranty Products -- ADA, on receipt of an Order from
MCI, is responsible for return shipment to MCI; MCI is
responsible for transportation charges of Product(s) shipped
to ADA.
iv) MCI shall furnish the following information with material
returned to ADA for repair: (a) MCI's name and complete
address; and (b) name(s) and telephone number(s) of MCI's
employee(s) to contact in case of questions about the Products
to be repaired; (c) ship to address for return of repaired
Products if different from (a); (d) a complete list of
Products and quantity of each returned; (e) the nature of the
defect or failure, if
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 11
<PAGE> 15
known; (g) ADA's (RMA) Number; and (h) Order number to cover
repair charges if out of warranty.
v) ADA will either repair or replace defective Products not
covered under warranty within fifteen (15) working days from
receipt. The warranty on Serviced Products is ****** (**) days
measured from date of service.
vi) If Products are returned to ADA for repair as provided for in
this section, and are determined to be beyond repair, or
repair costs are expected to exceed the cost of a replacement,
ADA shall so notify MCI. If requested by MCI for out of
warranty Product(s), ADA will sell to MCI a replacement at the
prices set forth in Exhibit A or, if no such price exists, at
a price agreed upon by ADA and MCI. Repair charges will be
invoiced against MCI's Repair Delivery Order (RDO).
vii) All invoices originated by ADA for repair services must be
clearly identified as such, and must contain: (1) a reference
to MCI's Order for these repair services, (2) repair charges,
if any and (3) the MCI tracking number (RE control number).
With the concurrence and scheduling of MCI, repair may be made by ADA on site.
ARTICLE 22 - AVAILABILITY OF PARTS
ADA shall make available to MCI repair parts of the latest revision for all
Products furnished under this Agreement for a period of *** (**) years from its
effective date. ADA shall give *** (*) year prior written notice to MCI in the
event ADA will be unable to supply such parts or to obtain another source of
supply for MCI in accordance with this Agreement. ADA's inability to provide
such parts shall be a default of this Agreement in accordance with the Article
contained in the terms and conditions of this Agreement entitled "Termination
for Default." Without waiving any of its rights or remedies under this Agreement
or by law MCI may, at its sole option, allow ADA to provide MCI with drawings
and all technical information or any other rights ADA may have so that MCI can
manufacture or obtain such parts from other sources. The technical information
shall include, by example and not by way of limitation: (a) manufacturing
drawings and specification of raw materials and components comprising such
parts; (b) manufacturing drawings and specifications covering special tooling
and the operation thereof; (c) a detailed list of all commercially available
parts and components purchased by ADA on the open market, disclosing the part
number, name and location of the supplier, for the purchase thereof; and (d)
in-depth test specifications and procedures describing the methods of testing
and repairing the material.
ARTICLE 23 - TRAINING
At MCI's request and in accordance with the pricing and time frame set forth in
Exhibit F, ADA shall provide training for MCI personnel on operation and
maintenance of the ADA equipment and systems as reasonably requested by MCI.
Training courses offered by ADA are set forth in Exhibit F.
ARTICLE 24 - CHANGES
MCI may, by written change order or modification, and without notice to any
surety, make changes within the general scope of this Agreement in drawings,
designs, specifications, methods of shipment or packaging/packing, quantities,
or time or place of delivery; require additional Work or direct the
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 24b-2 under the
Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 12
<PAGE> 16
omission of Work. To the extent that such change modifies the scope of ADA's
obligations under this Agreement, the Parties shall negotiate an equitable
adjustment to the contract price and/or schedule as necessary. Changes to this
Agreement can only be made in writing and signed by the duly authorized
representatives or designee of both Parties as described in Article 44 --
NOTICES.
ADA shall submit a proposal for the contract adjustment within thirty (30) days
after receipt of written notice from MCI, which MCI shall either accept or
reject within thirty (30) days of receipt. After the Parties have arrived at an
equitable adjustment to the contract price and schedule, nothing in this Article
shall excuse ADA from promptly proceeding with this Agreement as changed.
The Parties shall attempt to reach agreement as to any equitable adjustment that
is due pursuant to the first paragraph of this Article. Without relieving ADA of
its obligation to proceed promptly with this Agreement, in the event the Parties
are unable to reach an Agreement as to an equitable adjustment, the matter shall
be determined in accordance with the Article of this Agreement entitled
ARBITRATION.
MCI's personnel may from time to time render technical assistance or give
technical advice to, or effect an exchange of information with ADA personnel
concerning the Work to be furnished under this Agreement. However, ADA shall not
deviate from the requirements of this Agreement by reason of such assistance or
exchange of information, unless the deviation is incorporated into and
authorized by a change order issued in accordance with the first paragraph of
this Article. ADA shall not, by reason of such assistance, advice or exchange of
information, delete or in any way modify any of MCI's rights or any of ADA's
obligations, express or implied, which are a part of this Agreement.
ARTICLE 25 - CHANGES TO FORM, FIT, OR FUNCTION
ADA shall neither make nor incorporate any changes to the Products provided
hereunder which affect form, fit, function, interface or interchangeability,
without the prior express written notification of MCI. ADA shall notify MCI
within ninety (90) days of the effective change date. In addition, ADA shall
furnish, if available, MCI with new or updated manuals and/or agenda sheets and
new and/or revised data and drawings for all other affected documentation
furnished under this Agreement.
ADA may make or incorporate changes not affecting form, fit, function, interface
or interchangeability of the Product as it deems necessary at any time.
In the event certain changes become mandatory by reason of safety or failure of
the Products to perform in accordance with the requirements of this Agreement,
ADA shall provide immediate written notice to MCI and shall proceed promptly to
make the necessary change(s). ADA shall bear all costs and expenses relating to
such retrofit or replacement of Products which are necessary for the Products to
conform to the requirements of the Agreement.
Any mandatory changes to the Products, once approved by MCI, shall be compatible
with all Products in use (for a minimum of two releases backward) or on order
pursuant to this Agreement unless the Parties otherwise specifically agree. If
any mandatory change is not compatible, upward or downward as described, ADA, at
MCI's option, shall retrofit such change(s) on all affected installed Products
ordered pursuant to this Agreement at no cost to MCI.
ARTICLE 26 - INSURANCE
During the term of this Agreement, ADA shall maintain insurance, the kinds and
in the amounts specified with insurers of recognized responsibility, licensed to
do business in the State(s) where the work is being
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 13
<PAGE> 17
performed, and having either: an A.M. Best rating of A8, a Standard & Poor's
rating of AA, or a Moody's rating of Aa2. If any Work provided for or to be
performed under this Agreement are subcontracted, ADA shall require the
subcontractor(s) to maintain and furnish insurance equivalent to that which is
required of ADA.
In accordance with the above, ADA and any subcontractors shall maintain the
following insurance coverage:
a) Comprehensive or Commercial General Liability as follows:
$********* per occurrence combined single limit/$********* general
aggregate and will include:
i) coverage for contractual liability,
ii) coverage for the use of independent contractors, products and
completed operations, and
iii) will not contain an exclusion for explosion, collapse, and
underground coverage.
a) Business Automobile Liability including coverage for owned, hired,
leased, rented and non-owned vehicles as follows:
$********* combined single limit per accident
c) Workers' Compensation and Employers' Liability as follows:
Workers' Compensation - Statutory Limits
Employers Liability:
Bodily Injury by Accident $********* each accident
Bodily Injury by Disease $********* policy limit
Bodily Injury by Disease $********* each employee
A combination of primary and excess/umbrella liability policies will be
acceptable as a means to meet the limits required under this Agreement. The
required minimum limits of coverage shown above DO NOT limit or diminish ADA's
liability under this Agreement.
Excess or Umbrella Liability
Excess or Umbrella Liability coverage at a limit of no less than $********* per
occurrence and aggregate in excess of the underlying coverage required above.
Standard Provisions
a) ADA will submit to MCI a standard "Accord" insurance certificate
(or comparable form acceptable to MCI) signed by an authorized
representative of such insurance company(ies), certifying that the
insurance coverage(s) required hereunder are in effect for the
purposes of this Agreement. Said insurance certificate shall
certify that no material alteration, modification or termination of
such coverage(s) shall be effective without at least 30 days
advance written notice to MCI.
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 14
<PAGE> 18
b) ADA's insurers shall waive all rights of recovery against MCI for
any injuries to persons or damage to property due to the fault of
ADA in the execution of work performed under this Agreement.
c) All policies (excluding workers' compensation) shall name MCI, its
subsidiaries and affiliates, as Additional Insured as respects
work performed under this Agreement.
d) ADA shall permit any authorized representative of MCI to examine
ADA's original insurance policies should MCI so reasonably
request. Should ADA at any time neglect or refuse to provide the
insurance required herein, or should such insurance be canceled or
non-renewed, MCI shall have the right to terminate this Agreement,
or costs of securing substitute coverage shall be deducted from
payments owed to ADA.
e) ADA's insurance shall be considered primary and not excess of
contributing with any other applicable insurance.
f) ADA and all subcontractors shall ensure full compliance with the
terms of the Occupational Safety and Health Administration (OSHA)
and all locations' and jurisdictions' safety and health regulations
during the full term of this Agreement.
ARTICLE 27 - INDEMNIFICATION
The Parties, at their own expense, shall indemnify and hold the other Party, its
directors, officers, employees, agents, subsidiaries, affiliates, customers,
designees, and assignees harmless from any loss, damage, liability or expense,
on account of damage to physical property and bodily injuries, including death,
to all persons, arising from any occurrence solely caused by any negligent or
intentional act or omission of the other Party or its subcontractors related to
the performance of this Agreement. Each Party, at its expense, shall defend any
suit or dispose of any claim or other proceedings brought against the other
Party on account of such damage or injury, and shall pay all expenses, including
attorneys' fees, and satisfy all judgments which may be incurred by or rendered
against the other Party, provided that the Party seeking indemnification
hereunder shall notify the other promptly and in writing of any claim or action,
provide reasonable assistance, and shall afford the other Party sole control in
the defense or settlement of such claim or action.
ARTICLE 28 - PATENT RIGHTS
The Parties concur that, except as they may separately agree pursuant to an
applicable development agreement, none of the hardware, software, processes,
methods, techniques, or know-how produced or developed by ADA pursuant to this
Agreement shall constitute a work for hire and, accordingly, no patent rights or
other intellectual property rights with respect to the same shall accrue to MCI.
ARTICLE 29 - PATENT INDEMNITY
ADA, at its own expense, shall indemnify and hold MCI harmless from any loss,
damage, liability or expense on account of any claim(s), and shall defend any
suit based on an allegation that the Product, use, or license of any portion
thereof infringes any United Stated patents, copyrights, trade secrets,
trademarks, or other proprietary right(s). ADA shall pay any royalties and other
costs or expenses, including attorney's fees, related to the defense,
settlement, or disposition of such infringement claim(s). MCI shall promptly
notify ADA in writing of any such infringement claim or action and give ADA
authority and any assistance or information reasonably available to MCI for the
defense of such claim(s).
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 15
<PAGE> 19
Any such assistance or information which is furnished by MCI at the request of
ADA shall be at ADA's expense.
If MCI's Use or license of the Product or any portion thereof, is enjoined as a
result of a suit based on any such claim(s) of infringement, ADA agrees to the
following:
a) At its own expense and option, negotiate a license or other
agreement with the claimant so that the Product is no longer
subject to such injunction; or
b) At its own expense, replace or modify such Product suitably or
substitute a suitable Product therefor (subject to the approval of
MCI), which modified or substituted Product is not subject to such
injunction, and to extend the provisions of this Article thereto,
or
c) In the event that none of the foregoing alternatives are suitably
accomplished by ADA using commercially reasonable efforts, ADA
shall accept return of the Product and reimburse MCI for the price
of the Product less depreciation of the Product based on a system
life of five (5) years.
In the event that any proposed settlement or compromise terms do not include
MCI's right to continue to Use the Product in substantially the same form and on
substantially the same terms and conditions as set forth in this Agreement, MCI
may participate in such negotiations at its own expense, and MCI and ADA shall
seek to obtain such ongoing right to Use. Moreover, at any time, MCI may at its
own cost and expense settle or compromise any such claims against it so long as
such settlement or compromise is expressly without prejudice to the interest or
position of ADA and without cost or expense to the ADA.
ADA's obligation under this Article does not apply with respect to the Product
or portions or components thereof (i) not supplied by Product or its suppliers,
(ii) which are modified by any party other than Product after the date of
delivery by Product, (iii) which are modified by Product in accordance with
specifications provided by MCI (to the extent the alleged infringement relates
to such modification), (iv) combined with other products, processes or
materials, to the extent the alleged infringement relates to such combination,
(v) where MCI continues the allegedly infringing activity after being notified
thereof in writing by ADA, and (vi) where MCI's use of the Product is incident
to an infringement not resulting primarily from the Product or is not strictly
in accordance with the license granted in this Agreement.
ARTICLE 30 - LIENS
As MCI requires, before submitting any invoice for payment, or at any other time
that MCI requires, ADA shall deliver to MCI a satisfactory release of any and
all liens arising in connection with the Work under this Agreement.
ADA shall dispose of any claim and defend any suit or injunction brought to
enforce any lien arising from the performance of any Work under this Agreement,
and shall pay all expenses associated with such proceedings.
MCI may withhold from any payment or consideration otherwise due ADA, any sum
that MCI has reason to believe may be needed to satisfy any third party lien
arising out the Work under this Agreement. Prior to the time of any such
withholding, MCI shall notify ADA in writing of the nature of the lien and the
amount of money to be withheld pursuant to this Article and afford ADA
reasonable opportunity to satisfy the lien.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 16
<PAGE> 20
ADA shall reimburse MCI for all moneys, including all costs and reasonable
attorneys' fees, incurred by MCI in removing liens arising out of the Work under
this Agreement. Such reimbursement may be deducted from any payment or
consideration otherwise due ADA. ADA shall, upon written request by MCI,
promptly pay MCI any amounts due under this Article.
ARTICLE 31 - TERMINATION FOR CONVENIENCE
By written notice to ADA, MCI may terminate this Agreement or any Order issued
hereunder for its convenience at any time prior to completion. In the event of
such termination by MCI, it is agreed that the termination charges shall be
negotiated. However, in no event shall the termination charges pursuant to this
Article exceed the lesser of:
a) the total contract price as reduced by contract price of the Work
not terminated; or
b) the total costs, both direct and indirect, incurred by ADA in the
performance of the Work so terminated.
In the event of termination pursuant to this Article, ADA shall take all action
necessary to reduce the termination costs due from MCI, including but not
limited to, the immediate discontinuance of the terminated Work under this
Agreement, and the placing of no further orders for labor, material or services
required under the terminated portion. ADA agrees to take such action, as may be
necessary or as MCI may direct, for protection of property in ADA's possession
in which MCI may have acquired an interest.
ADA shall continue performance of the portion of this Agreement not terminated.
MCI shall have no obligation to ADA with respect to the terminated portion of
this Agreement, except as herein provided.
In the event of termination, ADA agrees to advise MCI in writing of all proposed
settlements with vendors which may bear upon the liability of MCI pursuant to
this Article; and ADA further agrees not to enter into any binding settlement
until either MCI has approved the proposed settlement or thirty (30) days have
elapsed from the date MCI was first notified of such proposed settlement.
Direct and indirect costs shall be determined in accordance with generally
accepted accounting practices and verified by an independent Certified Public
Accountant at MCI's cost. MCI shall pay ADA the termination charges due under
this Article within sixty (60) days after submission to MCI of such total costs
which, at MCI's option, may be verified by an independent Certified Public
Accountant. Payment of any termination charges hereunder shall be in an amount
equal to the total termination charges less the following:
a) Amount(s) previously paid by MCI to ADA for the terminated Products
pursuant to this Agreement; and
b) Amount(s) representing ADA's total cost of segregable items of
inventory for the terminated Work not desired by MCI and which is
commonly retained in ADA's parts of finished goods inventory.
Should the sum of (a) and (b) above exceed the total termination charges, ADA
shall repay to MCI within sixty (60) days the amount by which the sum of (a) and
(b) above exceed the total termination charges.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 17
<PAGE> 21
ARTICLE 32 - TERMINATION FOR DEFAULT
By written notice of default to ADA, MCI may terminate this Agreement, or any
order issued hereunder, in any one of the following circumstances:
a) If ADA fails to perform any of the other provisions of this
Agreement, or so fails to make progress as to endanger performance
of this Agreement in accordance with its terms, and in which of
these two circumstances does not initiate a mutually agreeable plan
within a period of ten (10) days (or such longer period as MCI may
authorize in writing) after receipt of notice from MCI specifying
such failure; or
b) If ADA commits an anticipatory breach of this Agreement which is
not remedied within thirty (30) days (or such longer period as MCI
may authorize in writing) after receipt of notice from MCI
specifying such anticipatory breach; or
c) ADA become insolvent or the subject of proceedings under any law
relating to bankruptcy the relief of debtors or admits its
inability to pay its debts as they become due.
In the event of default under this Article, ADA shall repay to MCI any payments
made by MCI in excess of the price of Work delivered by ADA and accepted by MCI.
In no event shall MCI be liable for the cost of partially completed Work not
delivered and accepted by MCI.
By written notice of default to MCI, ADA may terminate this Agreement, or any
Order issued hereunder, in any one of the following circumstances:
a) If MCI fails to make any payment within the time specified herein
or any extension hereof and does not cure such failure within
thirty (30) days of receipt of notice from ADA describing such
default; or
b) If MCI fails to perform any of the other provisions of this
Agreement and does not cure such failure within a period of thirty
(30) days (or such longer period as ADA may authorize in writing)
after receipt of notice from ADA specifying such failure, except in
the case of MCI's breach of Article 19 in which case termination
shall be effective immediately upon MCI's receipt of notice; or
c) If MCI commits an anticipatory breach of this Agreement which is
not remedied within thirty (30) days (or such longer period as ADA
may authorize in writing) after receipt of notice from ADA
specifying such anticipatory breach;
d) MCI becomes insolvent or the subject of proceedings under any law
relating to bankruptcy the relief of debtors or admits its
inability to pay its debts as they become due.
In the event of expiration or any termination of this Agreement (i) MCI's
obligation to pay all sums due hereunder shall be accelerated and all such sums
shall be due and payable on the effective date of termination and (ii) in the
event of termination by ADA due to MCI's default, all licenses granted to MCI
hereunder shall immediately terminate.
Neither Party shall incur any liability whatsoever for any damage, loss or
expenses of any kind suffered or incurred, except attorney's fees, by the other
party arising from or incident to any termination of this Agreement which
complies with the terms hereof except as specified by Arbitration in Article 35
- -- ARBITRATION / DISPUTE RESOLUTION.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 18
<PAGE> 22
If this Agreement is terminated as provided in this Article, in addition to any
other rights provided in this Article, the terminating Party shall have the
right of recovery of attorney's fees. MCI may withhold from amounts otherwise
due ADA for such completed supplies such sum(s) as MCI deems reasonably
necessary to protect MCI against any loss arising in connection with outstanding
liens or claims of former lien holders with respect to the Work delivered by
ADA. The rights and remedies of the Parties, provided in this Article are not
exhaustive and are in addition to any other rights and remedies under this
Agreement or by operation of law.
ARTICLE 33 - ASSIGNMENT
Any assignment or delegation of the rights or obligations hereunder, in whole or
in part, or any other interest hereunder, without MCI's written consent, which
consent shall not be unreasonably withheld, shall be void; except that an
assignment confined solely to money due or to become due shall be void only to
the extent that it attempts to impose upon MCI obligations to the assignee
additional to the payment of such moneys, or preclude MCI from dealing solely
and directly with ADA in all matters pertaining hereto, including the
negotiation of amendments or settlements of amounts due. Either Party may assign
its interest in the Agreement in connection with the sale of all or
substantially all of the assets, capital stock or business of that Party,
whether by sale of stock, assets, merger or otherwise, without the prior written
consent of the other Party.
ARTICLE 34 - CONSEQUENTIAL DAMAGES
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY
SHALL NOT BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT OR
UNDER ANY AGREEMENT OR CONTRACT, NEGLIGENCE, STRICT LIABILITY, OR OTHER LEGAL OR
EQUITABLE THEORY FOR AMOUNTS IN EXCESS OF THAT AMOUNT WHICH IS THE GREATER OF
(I) THE AGGREGATE OF THE AMOUNTS PAID BY MCI TO ADA UNDER THIS AGREEMENT DURING
THE ******** PERIOD PRIOR TO THE DATE THE CAUSE OF ACTION AROSE, OR (II)
$********* AND ANY SPECIAL, INCIDENTAL, INDIRECT, CONSEQUENTIAL DAMAGES, LOSS OF
PROFITS OR LOST DATA EXCEPT AS PROVIDED IN ARTICLE 29 -- PATENT INDEMNITY.
ARTICLE 35 - ARBITRATION / DISPUTE RESOLUTION
Any dispute arising out of or related to this Agreement, which cannot be
resolved by negotiation, shall be settled by binding arbitration in accordance
with the J.A.M.S/ENDISPUTE Arbitration Rules and Procedures ("Endispute Rules"),
as amended by this Agreement. The costs of arbitration, including the fees and
expenses of the arbitrator, shall be borne by the losing party unless the
arbitration award provides otherwise. Each party shall bear the cost of
preparing and presenting its case. The Parties agree that this provision and the
Arbitrator's authority to grant relief shall be subject to the United States
Arbitration Act, 9 U.S.C. 1-16 et seq. ("USAA"), the provisions of this
Agreement, and the ABA-AAA Code of Ethics for Arbitrators in Commercial
Disputes. The Parties agree that the arbitrator shall have no power or authority
to make awards or issue orders of any kind except as expressly permitted by this
Agreement, and in no event shall the arbitrator have the authority to make any
award that provides for punitive or exemplary damages. The Arbitrator's decision
shall follow the plain meaning of the relevant documents, and shall be final and
binding. The award may be confirmed and enforced in any court of competent
jurisdiction. All post-award proceedings shall be governed by the USAA.
Notwithstanding
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 19
<PAGE> 23
anything to the contrary, either Party shall be entitled to petition a court of
competent jurisdiction for the specific, limited purpose of requesting
injunctive relief.
ARTICLE 36 - MCI'S PROPERTY
Unless otherwise agreed to in writing, any physical property including but not
limited to designs, sketches, drawings, blueprints, patterns, dies,
specifications, engineering data or other technical or proprietary information,
and other equipment or material of every description furnished to ADA by MCI
shall remain the property of MCI. ADA shall not substitute any property for
MCI's property and shall not use such property except in filling MCI's orders.
Such property while in ADA's custody or control shall be maintained in good
condition at ADA's expense, shall be held at ADA's risk and shall be kept
insured by ADA at ADA's expense in an amount equal to the replacement cost with
loss payable to MCI. ADA shall make disposition of MCI's property as may be
directed or approved at any time by MCI.
ARTICLE 37 - MCI'S RESPONSIBILITY
MCI shall provide ADA reasonable access to the Products during the time(s)
necessary to install, maintain and service the Products on site.
MCI shall provide reasonable working space and facilities, including heat,
light, ventilation, electric current, outlets and the like, for use by ADA and
adequate storage space, if required, for spare parts, components and other
materials. All such facilities shall be provided by MCI at no cost to ADA on
site.
ARTICLE 38 - ADA'S RESPONSIBILITY
ADA is an independent contractor and is responsible to MCI for all acts or
omissions of all persons directly or indirectly used by it or any of its
subcontractor(s) in connection with the Work required by this Agreement;
provided, however, that nothing in this Agreement shall be construed as creating
any contractual relationship between MCI and any subcontractor.
The granting of any specific approvals by MCI shall not affect the
responsibility of ADA for other aspects of the design of the Products to meet
the requirements of the Agreement or for the correctness of ADA's drawings and
specifications. No such granting by MCI or course of dealing between the Parties
shall be held to constitute a waiver by MCI of any of MCI's rights under this
Agreement. All waivers by MCI shall be in writing.
ARTICLE 39 - REQUIREMENTS FOR BAR CODING
ADA shall comply with MCI bar coding requirements which include the following
documents:
a) MCI Telecommunications Corporation Bar Code Label Specification
Equipment Labels, Issue 4, dated November 15, 1991
b) MCI Requirements for Bar Code Labeling of Shipping Containers and
Product Packaging, dated November 15, 1991
c) TCIG Shipping and Receiving Transaction Bar Code Label
Specification, Issue 2, dated December 5, 1989
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 20
<PAGE> 24
ARTICLE 40 - PERMITS AND LICENSES
ADA shall, at its own expense, obtain all permits and licenses required for the
performance of Services under this Agreement, including but not by way of
limitation, inspection fees or any certificates of occupancy required by any
code, ordinance, or governmental regulations. ADA shall perform the Work in
accordance with the conditions of all applicable permits and licenses.
ARTICLE 41 - LABOR
ADA shall use only workers and supervisory personnel skilled in the job for
which they are employed. In the event that, in MCI's opinion, any workman or
supervisory person is uncooperative, careless or incompetent and unless the
Parties cannot resolve in good faith MCI's complaint, ADA shall remove such
person immediately upon MCI's request and such person shall not be re-employed
in the Work under this Agreement.
Division of any project specification into sections is not intended to control
ADA's division of Services among different trades or to limit the Services
performed by any trade.
ADA shall familiarize itself with the labor/management relationships at the site
at which the Services under this Agreement are contemplated and shall conduct
its activities under this Agreement in such a manner as to avoid (a) any
interruption of activity or services at the sites and (b) any interference with
the work of other contractors. Whenever ADA has knowledge that any actual or
potential labor dispute is delaying or threatening to delay, or may delay the
timely performance of this Agreement, it shall immediately give MCI notice
thereof and all relevant information it has with respect thereto.
ARTICLE 42 - TRADE NAMES, TRADEMARKS AND TRADE DRESS
Upon mutual agreement between the Parties, ADA agrees to comply with all MCI
instructions regarding the trade dress, packaging, trade names, trademarks,
service marks or other indicia of source which shall appear on items to be
delivered under this Agreement. ADA further agrees that, after delivery of said
item(s) to MCI or a designated MCI customer, MCI may, as mutually agreed, modify
the trade dress or packaging thereof, and/or replace, modify, or supplement any
indicia of origin appearing thereon, to identify MCI as the source of said
item(s).
ADA shall not use any mark or trade name of MCI or refer to MCI in connection
with any product, equipment, promotion, or publication without the prior written
approval of MCI's Authorized Representative.
ARTICLE 43 - PUBLIC RELEASE OF INFORMATION
No news releases, articles, brochures, advertisements, speeches or other
information releases related to this Agreement or the terms of this Agreement
shall be made without the prior written approval of the MCI's Procurement
Department or ADA's Marketing Department. The Parties agree to give each other
reasonable advance time for review of any material submitted for approval which
shall not be unreasonably delayed or withheld.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 21
<PAGE> 25
ARTICLE 44 - NOTICES
Any notice(s) required or permitted to be given or made in this Agreement shall
be in writing. Such notice(s) shall be deemed to be duly given or made when it
shall have been delivered by hand or registered mail to the Party to which it is
required to be given or made at such Party's address specified below or as
amended by notice pursuant to this Article:
MCI: MCI Telecommunications Corporation
2270 Lakeside Blvd.
Richardson, Texas 75082
Attention: Director, Network Acquisition
ADA: Applied Digital Access, Inc.
9855 Scranton Road
San Diego, California 92121
Attention: Contract Administration
ARTICLE 45 - ORDER OF PRECEDENCE
In the event of any ambiguity and/or inconsistency between the terms and
conditions, Statement of Work, specifications, drawings or other documents
incorporated by reference, the following descending order of precedence shall
control:
a) Terms and conditions and any amendments thereto;
b) Orders issued pursuant to this Agreement;
c) Drawings and other documents attached to the Specifications or
incorporated by reference.
ARTICLE 46 - APPLICABLE LAW
This Agreement shall be interpreted, construed and governed by the laws of the
State of New York without regards to its provisions relating to conflicts of
laws.
ARTICLE 47 - GENERAL
ADA agrees that the Work performed under this Agreement, including the Products
of that Work, shall comply with all applicable permits and licenses and the
requirements of all applicable laws, regulations and standards.
Where this Agreement or any code, ordinance, or governmental regulation requires
a material or item to conform to a particular standard, ADA shall, at the
request of MCI, deliver to MCI a certificate from the manufacturer or its
authorized representative stating that the material of item furnished conforms
to the standard prescribed. Such certificate shall be in triplicate and in such
form as MCI may reasonably require.
ADA agrees that it will neither incorporate any provision in its subcontracts
nor enter into any contract, written or oral, either directly or indirectly,
with subcontractor or vendors which has or may have the effect of prohibiting
subcontractor or vendor sales directly to MCI of any supplies, like those
manufactured or services like those furnished by any tier subcontractor or
vendor pursuant to this Agreement.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 22
<PAGE> 26
Any permission, acknowledgment or response required of or by either Party shall
not be unreasonably delayed.
The Parties agree that their respective rights, obligations and duties under
Articles entitled DEFINITIONS, INVOICING AND PAYMENT, TECHNICAL SUPPORT, PATENT
INDEMNITY, LIENS, MCI'S RESPONSIBILITY, ADA'S RESPONSIBILITY, APPLICABLE LAW,
GENERAL, EXAMINATION AND ENTIRETY OF AGREEMENT, and MISCELLANEOUS shall survive
expiration and any termination of this Agreement.
ARTICLE 48 - EXAMINATION AND ENTIRETY OF AGREEMENT
By executing this Agreement, each Party represents that it has thoroughly
examined this Agreement and believes it to be complete, consistent and accurate.
This Agreement sets forth and shall constitute the entire Agreement between MCI
and ADA with respect to the subject matter thereof, and supersedes all prior or
contemporaneous agreements or understandings between the Parties. This Agreement
may not be changed, modified or terminated orally, and no amendment,
interpretation, change, modification or termination of any of the provisions
hereof shall be binding unless in writing and signed by a duly authorized
officer or agent of both Parties against whom the same is sought to be enforced.
ARTICLE 49 - MISCELLANEOUS
The failure of either Party to enforce its rights under this Agreement at any
time for any period shall not be construed as a wavier of such rights.
Headings and captions are for convenience only and are not to be used in the
interpretation of this Agreement.
If any provision of this Agreement is held by a court of competent jurisdiction
to be illegal, invalid 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.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 23
<PAGE> 27
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date written above.
APPLIED DIGITAL ACCESS MCI TELECOMMUNICATIONS
INCORPORATED CORPORATION
- --------------------------------- ---------------------------------------
SIGNATURE SIGNATURE
- --------------------------------- ---------------------------------------
NAME NAME
- --------------------------------- ---------------------------------------
TITLE TITLE
- --------------------------------- ---------------------------------------
DATE DATE
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page 24
<PAGE> 28
EXHIBIT A
DISCOUNT AND PRICE SCHEDULE
The price schedule for T3AS/Centralized Test System (CTS) contained in this
Exhibit is based on a progressive discount rate determined by the quantity of
Product purchased in the previous calendar year. The discount rate is set at the
beginning of each calendar year based on the total dollar volume of Products
purchased in the previous calendar year by MCI. MCI will make a reasonable
attempt to provide ADA with a forecast of the number of systems required for the
upcoming calendar year. Additional discounts may be offered if MCI decides to
purchase a specific quantity of T3AS/CTS systems at the beginning of each **
month period. Product deliveries for the quantity may extend throughout the **
month period.
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page A-1
<PAGE> 29
<TABLE>
<CAPTION>
LIST DISCOUNT
PART NUMBER DESCRIPTION CLEI CPR ECI/BAR PRICE * *
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADMINISTRATION SHELF
02-0109-0000 * T3MYAATEAA 460307 417683 $***** $***** $*****
02-0110-0000 * T3PQDA71AA 680491 665544 ***** ***** ***
02-0102-0000 * T3PQDA81AA 780014 665545 *** *** ***
02-0111-0010 * T3PQDA91AA 780015 665546 ***** ***** *****
02-0116-0010 * T3PQDB31AA 780018 665549 ***** ***** *****
02-0113-0100 * T3PQAK86AA 680770 213803 ***** ***** *****
*
02-0108-0000 * T3MM4001RA 460306 072409 $***** $***** $*****
02-0180-0100 * T3PUAE0CAA F70420 217162 *** *** ***
02-0101-0000 * T3PQDA31AA 972855 665539 ***** *** ***
02-0105-0000 * T3PQDA41AA 973270 665540 ***** ***** *****
02-0128-0000 * T3PQADG6AA A72405 628063 ***** ***** *****
02-0100-0000 * T3PQDA51AA 973271 665541 ***** ***** *****
02-0104-0100 * T3PQAEL6AA A73969 686974 ***** ***** *****
02-0104-0200 * T3PQAK76AA D70645 213802 ***** ***** *****
02-0165-0000 * T3PQAFH6AA B73375 200185 ***** ***** *****
*
02-0271-0000 * T3MMPM01RA 135240 426051 $***** $***** $*****
02-0180-0100 * T3PUAE0CAA F70420 217162 *** *** ***
02-0101-0000 * T3PQDA31AA 972855 665539 ***** *** ***
02-0166-0000 * T3PQAFG6AA B73374 200184 ***** ***** *****
02-0104-0200 * T3PQAK76AA D70645 213802 ***** ***** *****
* * #N/A #N/A #N/A ***** ***** *****
* * T3PQAK16AA D70510 213511 ***** ***** *****
02-0103-0010 * T3PQDA11AA 973269 665537 ***** ***** *****
02-0103-0100 * T3CPL0GEAA D70317 212987 ***** ***** *****
* * T3CPM0GEAA D70318 212988 ***** ***** *****
02-0117-0100 * T3PQAK06AA D70509 213509 ***** ***** *****
02-0100-0000 * T3PQDA51AA 973271 665541 ***** ***** *****
02-0105-0000 * T3PQDA41AA 973270 665540 ***** ***** *****
02-0128-0000 * T3PQADG6AA A72405 628063 ***** ***** *****
*
02-0107-0000 * T3MM3001RA 460305 072408 $***** $***** $*****
02-0180-0100 * T3PUAE0CAA F70420 217162 *** *** ***
02-0101-0000 * T3PQDA31AA 972855 665539 ***** *** ***
02-0166-0000 * T3PQAFG6AA B73374 200184 ***** ***** *****
02-0104-0100 * T3PQAEL6AA A73969 686974 ***** ***** *****
02-0104-0200 * T3PQAK76AA D70645 213802 ***** ***** *****
02-0117-0010 * T3PQDB41AA 972856 665690 ***** ***** *****
02-0117-0100 * T3PQAK06AA D70509 213509 ***** ***** *****
02-0103-0010 * T3PQDA11AA 973269 665537 ***** ***** *****
02-0103-0100 * T3CPL0GEAA D70317 212987 ***** ***** *****
* * T3CPM0GEAA D70318 212988 ***** ***** *****
* * T3PQAFN6AA B73414 200473 ***** ***** *****
</TABLE>
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page A-2
<PAGE> 30
<TABLE>
<CAPTION>
LIST DISCOUNT
PART NUMBER DESCRIPTION CLEI CPR ECI/BAR PRICE * *
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
* * T3PQAK16AA D70510 213511 $***** $***** $ ***
*
02-0171-0000 * T3MM8001MA 560288 420066 ***** ***** *****
02-0180-0100 * T3PUAE0CAA F70420 217162 *** *** ***
02-0101-0000 * T3PQDA31AA 972855 665539 ***** *** ***
02-0166-0000 * T3PQAFG6AA B73374 200184 ***** ***** *****
02-0104-0100 * T3PQAEL6AA A73969 686974 ***** ***** *****
02-0104-0200 * T3PQAK76AA D70645 213802 ***** ***** *****
02-0172-0000 * T3PQAFJ6AA B73376 200186 ***** ***** *****
02-0173-0000 * T3PQAFK6AA B73377 200187 ***** ***** *****
02-0175-0000 * T3PQAFL6AA B73378 200188 ***** ***** ***
*
02-0227-0430 * N/A N/A N/A ***** ***** *****
02-0227-0440 * N/A N/A N/A ***** ***** *****
02-0162-0000 * N/A N/A N/A ***** ***** *****
02-0278-0000 * N/A N/A N/A ***** ***** *****
02-0182-0000 * N/A N/A N/A ****** ****** ******
02-0232-0000 * N/A N/A N/A ***** ***** *****
02-0249-0000 * N/A N/A N/A ***** ***** *****
02-0247-0000 * N/A N/A N/A ***** ***** *****
02-0248-0000 * N/A N/A N/A ***** ***** *****
02-0250-0000 * N/A N/A N/A ***** ***** *****
*
02-0193-0200 * N/A N/A N/A $*** $*** $***
02-0193-0300 * N/A N/A N/A *** *** ***
02-0193-0400 * N/A N/A N/A *** *** ***
02-0197-0100 * N/A N/A N/A ***** ***** *****
02-0197-0200 * N/A N/A N/A *** *** ***
02-0197-0300 * N/A N/A N/A ***** ***** *****
02-0268-0100 * N/A N/A N/A ***** ***** *****
02-0268-0200 * N/A N/A N/A *** *** ***
02-0268-0300 * N/A N/A N/A ***** ***** *****
02-0131-0000 * N/A N/A N/A *** *** ***
02-0132-0000 * N/A N/A N/A *** *** ***
02-0177-0000 * N/A N/A N/A *** *** ***
02-0168-4430 * N/A N/A N/A ** ** **
02-0187-0000 * N/A N/A N/A *** *** ***
02-0155-0000 * N/A N/A N/A *** *** ***
02-0164-0000 * N/A N/A N/A *** *** ***
*
02-0193-0200 * N/A N/A N/A $*** $*** $***
02-0148-0000 * N/A N/A N/A ** ** **
02-0137-0000 * N/A N/A N/A *** *** ***
14-0139-0000 * N/A N/A N/A *** *** ***
</TABLE>
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page A-3x
<PAGE> 31
<TABLE>
<CAPTION>
LIST DISCOUNT
PART NUMBER DESCRIPTION CLEI CPR ECI/BAR PRICE * *
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
14-0110-0000 * N/A N/A N/A *** *** ***
13-0151-0000 * N/A N/A N/A *** *** ***
14-0140-0000 * N/A N/A N/A *** *** ***
14-0142-0000 * N/A N/A N/A *** *** ***
02-0147-0000 * N/A N/A N/A *** *** ***
14-0116-0000 * N/A N/A N/A *** *** ***
02-0133-0020 * N/A N/A N/A *** *** ***
02-0133-0035 * N/A N/A N/A *** *** ***
02-0225-0000 * N/A N/A N/A ** ** **
05-0125-0035 * N/A N/A N/A *** *** ***
02-0281-0000 * N/A N/A N/A ***** ***** *****
*
14-0128-0000 * N/A N/A N/A *** *** ***
14-0113-0000 * N/A N/A N/A *** *** ***
14-0129-0000 * N/A N/A N/A *** *** ***
14-0144-0000 * N/A N/A N/A *** *** ***
14-0130-0000 * N/A N/A N/A *** *** ***
13-0131-0000 * N/A N/A N/A *** *** ***
14-0131-0000 * N/A N/A N/A ** ** **
14-0151-0000 * N/A N/A N/A ** ** **
14-0106-0000 * N/A N/A N/A ** ** **
02-0118-0000 * N/A N/A N/A ** ** **
02-0119-0000 * N/A N/A N/A ** ** **
65-0887-0000 * N/A N/A N/A ** ** **
13-0114-0000 * N/A N/A N/A ** ** **
02-0174-0000 * N/A N/A N/A *** *** ***
</TABLE>
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page A-4
<PAGE> 32
EXHIBIT B
APPLIED DIGITAL ACCESS LIST PRICES BY PRODUCT NUMBER LISTING
<TABLE>
<CAPTION>
LIST
PART NUMBER DESCRIPTION CLEI CPR ECI/BAR PRICE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02-0100-0000 * T3PQDA51AA 973271 665541 ******
02-0101-0000 * T3PQDA31AA 972855 665539 *****
02-0102-0000 * T3PQDA81AA 780014 665545 ***
02-0103-0010 * T3PQDA11AA 973269 665537 *****
02-0103-0100 * T3CPL0GEAA D70317 212987 *****
02-0104-0100 * T3PQAEL6AA A73969 686974 *****
02-0104-0200 * T3PQAK76AA D70645 213802 *****
02-0103-0100 * T3CPL0GEAA D70317 212987 *****
02-0105-0000 * T3PQDA41AA 973270 665540 *****
02-0107-0000 * T3MM3001RA 460305 072408 *****
02-0108-0000 * T3MM4001RA 460306 072409 *****
02-0109-0000 * T3MYAATEAA 460307 417683 *****
02-0110-0000 * T3PQDA71AA 680491 665544 *****
02-0111-0010 * T3PQDA91AA 780015 665546 *****
02-0113-0100 * T3PQAK86AA 680770 213803 *****
02-0116-0010 * T3PQDB31AA 780018 665549 *****
02-0117-0010 * T3PQDB41AA 972856 665690 *****
02-0117-0100 * T3PQAK06AA D70509 213509 *****
02-0105-0000 * T3PQDA41AA 973270 665540 *****
02-0118-0000 * N/A N/A N/A **
02-0119-0000 * N/A N/A N/A **
02-0128-0000 * T3PQADG6AA A72405 628063 *****
02-0103-0100 * T3CPL0GEAA D70317 212987 *****
02-0131-0000 * N/A N/A N/A ***
02-0132-0000 * N/A N/A N/A ***
02-0133-0020 * N/A N/A N/A ***
02-0133-0035 * N/A N/A N/A ***
02-0137-0000 * N/A N/A N/A ***
* * T3PQAFN6AA B73414 200473 *****
* * T3PQAK16AA D70510 213511 *****
02-0108-0000 * T3MM4001RA 460306 072409 *****
02-0147-0000 * N/A N/A N/A ***
02-0148-0000 * N/A N/A N/A **
02-0155-0000 * N/A N/A N/A ***
02-0162-0000 * N/A N/A N/A *****
02-0164-0000 * N/A N/A N/A ***
02-0165-0000 * T3PQAFH6AA B73375 200185 *****
02-0166-0000 * T3PQAFG6AA B73374 200184 *****
02-0132-0000 * N/A N/A N/A ***
02-0110-0000 * T3PQDA71AA 680491 665544 *****
02-0168-4430 * N/A N/A N/A **
02-0171-0000 * T3MM8001MA 560288 420066 *****
02-0172-0000 * T3PQAFJ6AA B73376 200186 *****
02-0173-0000 * T3PQAFK6AA B73377 200187 *****
</TABLE>
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page B-1
<PAGE> 33
<TABLE>
<CAPTION>
LIST
PART NUMBER DESCRIPTION CLEI CPR ECI/BAR PRICE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02-0174-0000 * N/A N/A N/A ***
02-0175-0000 * T3PQAFL6AA B73378 200188 *****
02-0177-0000 * N/A N/A N/A ***
02-0180-0100 * T3PUAE0CAA F70420 217162 ***
02-0110-0000 * T3PQDA71AA 680491 665544 *****
02-0133-0035 * N/A N/A N/A ***
02-0113-0100 * T3PQAK86AA 680770 213803 *****
02-0182-0000 * N/A N/A N/A ******
02-0187-0000 * N/A N/A N/A ***
02-0193-0200 * N/A N/A N/A ****
02-0193-0200 * N/A N/A N/A ***
02-0193-0300 * N/A N/A N/A ***
02-0193-0400 * N/A N/A N/A ***
02-0197-0100 * N/A N/A N/A *****
02-0197-0200 * N/A N/A N/A ***
02-0197-0300 * N/A N/A N/A *****
02-0225-0000 * N/A N/A N/A **
02-0227-0430 * N/A N/A N/A *****
02-0227-0440 * N/A N/A N/A *****
* * T3CPM0GEAA D70318 212988 *****
02-0275-0300 * 0 N/A N/A *
02-0232-0000 * N/A N/A N/A *****
02-0247-0000 * N/A N/A N/A *****
02-0248-0000 * N/A N/A N/A *****
02-0249-0000 * N/A N/A N/A *****
02-0250-0000 * N/A N/A N/A *****
02-0268-0100 * N/A N/A N/A *****
02-0268-0200 * N/A N/A N/A ***
02-0268-0300 * N/A N/A N/A *****
02-0271-0000 * T3MMPM01RA 135240 426051 *****
* * #N/A #N/A #N/A *****
02-0278-0000 * N/A N/A N/A *****
02-0281-0000 * N/A N/A N/A *****
05-0125-0035 * N/A N/A N/A ***
13-0114-0000 * N/A N/A N/A **
13-0131-0000 * N/A N/A N/A ***
13-0151-0000 * N/A N/A N/A ***
14-0106-0000 * N/A N/A N/A **
14-0110-0000 * N/A N/A N/A ***
14-0113-0000 * N/A N/A N/A ***
14-0116-0000 * N/A N/A N/A ***
14-0128-0000 * N/A N/A N/A ***
14-0129-0000 * N/A N/A N/A ***
14-0130-0000 * N/A N/A N/A ***
14-0131-0000 * N/A N/A N/A **
14-0139-0000 * N/A N/A N/A ***
14-0140-0000 * N/A N/A N/A ***
14-0142-0000 * N/A N/A N/A ***
</TABLE>
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page B-2
<PAGE> 34
<TABLE>
<CAPTION>
LIST
PART NUMBER DESCRIPTION CLEI CPR ECI/BAR PRICE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14-0144-0000 * N/A N/A N/A ***
14-0151-0000 * N/A N/A N/A **
65-0887-0000 * N/A N/A N/A **
</TABLE>
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page B-3
<PAGE> 35
EXHIBIT C
MCI ALLIANCE PARTNERS
MCI Telecommunications Corporation, including but not limited to the following
subsidiaries, affiliates, and those entities with which MCI has an on-going
enterprise, are hereby designated authorized users of this Agreement and may at
their option purchase Equipment, and/or Software in accordance with this
Agreement.
Access Transmission Services, Inc.
Access Transmission Services of Virginia, Inc.
Avantel, S.A.
British Telecommunications, PLC
Concert Communications Company
MCI America, Inc.
MCI Canada, Inc.
MCI Equipment Acquisition Corporation
MCI Global Access Corporation
MCI Global Resources, Inc.
MCI Infosearch, Inc.
MCI International, Inc.
MCI International Telecommunications Corporation
MCImetro, Inc.
MCImetro Access Transmission Services, Inc.
MCI Network Technologies, Inc.
MCI/OTI Corporation
MCI Systemhouse Corporation (U.S.)
MCI Telecommunications Corporation
MCI Telecommunications Corporation of New Hampshire
MCI Telecommunications Corporation of Virginia
MCI Wireless, Inc.
networkMCI, Inc.
Overseas Telecommunications, Inc.
SHL Systemhouse, Inc. (Canada)
Southernnet Systems, Inc.
Stentor
Telecom*USA, Inc.
Teleconnect Long Distance Services and Systems Company
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page C-1
<PAGE> 36
EXHIBIT D
SOFTWARE MAINTENCE PLAN
D.1 INTRODUCTION
ADA shall provide a Software Upgrade Program ("Program") to provide continued
software support after MCI's software warranty has expired. The Program shall
include a minimum of two software upgrades per year to incorporate enhancements,
improvements and modifications to the System Software. New software releases add
new functionality to T3AS or CTS that enable technicians to perform their job
effectively. The software-based architecture of T3AS protects hardware
investments, since most new features are enabled through software.
D.2 SOFTWARE RELEASES
The Program shall provide selected Enhancements and Modifications to previous
Software Versions, including MCI suggested changes ADA considers not to be major
feature enhancements and which are generally applicable to ADA's customers.
Software upgrades shall be cumulative and include all improvements, changes and
new features to date.
The Program will include at least two software releases per year. ADA shall to
ensure that new features are provided on a timely basis while minimizing the
number of software upgrades each year. ADA will publish feature descriptions in
advance for current and upcoming releases in accordance with MCI's standard
procedures.
D.3 TECHNICAL SUPPORT
The Program will include unlimited telephone support at no charge during normal
business hours for non-emergency issues and twenty-four hours per day for
emergency (service affecting) issues.
ADA will assist MCI in installing new software releases for an additional
charge. Software installation charges are in accordance with ADA's charges for
on-site technical support listed in the table below entitled Engineering &
Installation Services.
D.4 CHARGES
MCI agrees to pay for the Program annually in advance. MCI may elect to
terminate the Program upon thirty (30) days written notice to ADA and shall
receive a prorated rebate for the remaining balance.
A one year subscription to the software upgrade program for CTS costs $***** per
system. Each software release for T3AS/CTS costs $***** per system outside the
software upgrade program. ADA offers MCI the option of purchasing an additional
4 years of software maintenance extended from the period of time when the
software warranty period expires for $********.
SOFTWARE MAINTENANCE PROGRAM PRICES
- ---------------------------------------------------------------------------
MCI Price List Price
CTS Maintenance Program 1 Yr. $***** $*****
CTS Maintenance Program 4 Yr. $***** $******
CTS Software Upgrade $***** $*****
(out-of-program)
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page D-1
<PAGE> 37
ENGINEERING & INSTALLATION SERVICES
================================================================================
Description Price
- --------------------------------------------------------------------------------
Project Management Services $**** per day
Equipment Installation Quotations Available on
Request
Field Service Engineering $**** per day
Software Upgrades $**** per system
includes travel &
expenses
D.5 PROGRAM ADMINISTRATION
ADA counts the number of T3AS Administration Shelves to determine the number of
T3AS systems eligible for the Program (T3AS System Software runs in hardware on
the T3AS Administration Shelf). Eligibility is based on the expiration of the
Software Warranty or the expiration of the previous Software Upgrade Program
subscription according to ADA's software warranty records. System warranties
expiring mid-year are pro-rated on a monthly basis. For ease of administration
and billing, a single total regional charge per customer is calculated on the
first day of each new calendar year and valid until the second release is
delivered.
The Program should be continued without interruption from expiration of the
Software Warranty or from the expiration of the previous Software Upgrade
Program subscription. In the event of Software Upgrade Program interruption, a
one-time charge equivalent to the cumulative subscription rates since
interruption may be assessed for the inspection of T3AS systems and application
of any software upgrades required to bring systems to the current release.
If MCI does not subscribe to the Program, software support after the warranty
period will be provided on a time and materials basis in accordance with ADA's
standard charges for technical support (see table above). Charges will apply for
telephone and on-site technical support to diagnose problems and to install
software upgrades which resolve issues or provide features for which
modifications have been incorporated into a current software release. A one-time
software upgrade charge may also apply for software upgrades provided.
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page D-2
<PAGE> 38
EXHIBIT E
PRODUCT CHANGE NOTICES
E.1 INTRODUCTION
This procedure establishes a process to notify customers of problems in ADA's
Products that may affect a MCI's service or functions associated with operation
or use of ADA's Products.
Service-affecting problems are those that may:
o Disrupt traffic carried on customer circuits,
o Damage the company's product or associated equipment,
o Disrupt the traffic-carrying functions of other customer
systems interconnected with ADA's product.
Function-affecting problems are those that may:
o Disable or degrade to the point of unusability any
functions of ADA's products.
o Disrupt the non-traffic-carrying functions of other MCI
Systems interconnected with ADA's product.
The process for notifying MCI of potential Service-Affecting problems shall be
initiated as quickly as reasonable after discovery of the issue. Distribution of
MCI notification document must occur within two (2) weeks after the discovery of
the problem and the decision that the problem is potentially service-affecting.
The process for MCI notification of potential Service-Affecting problems is
independent of how the problem was discovered -- whether as the result of field
experience, customer experience or ADA internal testing.
E.2 DEFINITIONS
SERVICE-AFFECTING: The definition of service-affecting includes, but is not
limited to, the following circumstances:
Customer-revenue traffic carried on one or more
telecommunications circuits could be unintentionally disrupted
due to presence of an ADA product.
IN WRITING: Within this procedure, the term "in writing" means by paper copy,
electronic mail or other medium that provides a semi-permanent record that may
be distributed to interested parties.
CUSTOMER SUPPORT ENGINEER: An ADA employee or contractor providing assistance to
customer for the specific purpose of resolving problems with installation,
operation or usage of ADA products. This title and job functions may often be
used synonymously with Field Service Engineer.
FIELD SERVICE ENGINEER: An ADA employee or contractor providing a variety of
on-site or field services to a customer purchasing or using ADA Products. These
services may be proactive (installation, training, planning, project management,
operations support) or reactive (resolving problems, repairing equipment, other
maintenance services). This title and job functions may often be used
synonymously with "Customer Support Engineer."
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page E-1
<PAGE> 39
E.3 PROBLEM IDENTIFICATION
The individual(s) who determine that a potentially Service-Affecting problem
exists should perform the following:
a) Report the problem to the Customer Support, Engineering, and
Quality, in writing, including a description of the problem and the
potential hazards, including resolution or work-around if known.
b) Follow whatever other problem reporting processes exist within the
MCI for reporting and initiating resolution of these problems.
MCI NOTIFICATION OF THE PROBLEM
(For this document, the term "customer notification document" shall be either
Technical Bulletin, Product Change Notice or Product Release Notice.)
After a problem has been identified and recorded, and Engineering and/or
Production have confirmed the existence of the problem the VP Customer Support
or his/her designee will:
a) Assess the severity of the problem and determine the degree of
urgency and the form of customer notification document.
b) Prepare a customer notification document in the form of a Technical
Bulletin, Product Change Notice or Product Release Notice to inform
customers of the problem. Technical Bulletins are the most urgent
notification form and generally focus on a limited number of
specific problems. Technical Bulletins shall include at least the
following information:
i) Date of issue, a Technical Bulletin reference number, company
name, product affected, author, contact party for additional
information.
ii) A description of the problem,
iii) Identification of the systems and/or sites which may
experience the problem
iv) The problem's suspected cause and circumstances,
v) The problem's detection or manifestation during operation,
vi) Work-around or avoidance if known,
vii) A statement of the company's intentions and plan to address
and/or resolve the problem,
viii) Associated Product Change Notice or Product Release Notice,
if any,
ix) In the event that resolution is unknown or indeterminate,
when the Technical Bulletin is issued, a statement shall be
included that gives a target date by which a resolution plan
will be available.
Formats and contents of Product Change Notices are governed by appropriate ADA
standards and are not defined within this document.
Format and contents of Product Release Notices are governed by ADA's customer
service group and are not defined within this document.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page E-2
<PAGE> 40
E.5 MCI NOTIFICATION OF RESOLUTION
When the resolution or work-around for the problem has been determined and
agreed upon within the company, the VP Customer Support or his/her designate
shall decide on the urgency and form of customer notification document either
Technical Bulletin, Product Change Notice or Product Release Notice.
If the form of a Technical Bulletin is appropriate to the urgency of the
problem, Customer Support will draft a Technical Bulletin to report the
resolution of the problem. This Technical Bulletin must include at least the
following information:
a) A brief description of the problem and those modules or systems
affected.
b) The resolution or work-around.
c) If a work-around, an estimate of when a full resolution will be
found and a description thereof.
d) If a product recall ensues, provide details of an exchange program
and schedule.
e) An offer of on-site assistance if appropriate.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page E-3
<PAGE> 41
EXHIBIT F
TRAINING COURSES
TRAINING CHARGES
ADA will provide MCI with 10 on-site training courses at any designated MCI
facility. MCI may choose the desired course from the curriculum below. If MCI
desires additional training, ADA offers MCI the training courses listed in this
Exhibit at the prices listed in this Exhibit.
On-site: $*** per student per day or fraction plus instructor's travel and
living expenses. Minimum charge of six students per day. Maximum eight students
per class. Instruction materials are included within charges. Up to 15 days'
advance notice may be required for scheduling of these classes.
TRAINING SERVICES
================================================================================
Description Price
- --------------------------------------------------------------------------------
One Training Course $*** per student per day
One Suitcased Training Course $*** per student per day plus
(minimum 6 students) travel & expenses
MCI provides suitable classroom, tables, chairs, nearby T3AS test system
(training is not performed on live systems), blackboard/white board, paper pad
and easel, overhead projector.
ADA Classroom: $*** per student per day or fraction. Minimum of six students per
class. Normal maximum of eight students per class; but may be extended with
ADA's discretion to a maximum of ten students per class. Any customer including
MCI sends fewer than six students may choose to attend scheduled classes with
other students and pay the per student rate as long as minimum class sizes are
met. ADA will schedule classes at its discretion to assure that minimum class
sizes are met. ADA reserves the right to cancel scheduled classes with one
week's notice if minimum attendance is not achieved. Students pay their own
travel and living expenses. Up to 30 days' advance notice may be required for
scheduling of these classes. ADA also publishes an annual head-office training
class schedule.
T3AS OPERATIONS AND MAINTENANCE TRAINING COURSE
Introductory course to the functionality, use and maintenance of T3AS. Day One
covers primarily system capabilities and principles of operation; Day Two
provides hands-on usage, testing and introduction to acceptance test procedure
and DS3 and DS1 rollover procedure.
Target Audience:
Equipment Maintenance Technicians and Managers, Technical Support.
Prerequisites:
1. Familiarity with Central Office Standards and Practices,
2. Familiarity with DS3, DS1, DS0 DDS and VF transmission and test
equipment.
3. Access to a powered T3AS system with VT-100 terminal,
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 406 under
the Securities Act of 1933.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page F-1
<PAGE> 42
4. Two T-Berd 310 and two T-Berd 224 test sets.
Maximum class size:
Eight students
Class Duration:
When coincident with installation and turn-up of a T3AS system, typically one
and a half days - three (3) hours of classroom, three (3) hours of hands-on and
3 hours of acceptance test preparation and run-through.
When presented at ADA Headquarters, the class is more in-depth and lasts about
two and one-half days or twenty-one (21) hours of combined classroom and
hands-on.
Areas covered include the following:
1. System Description
2. Network Architecture
3. TL1 Language
4. Alarms/Exception Reporting
5. TL1/T3AS-Specific Command Usage
6. Removing and Installing Modules
7. DS3 and DS1 Provisioning
8. Acceptance Testing
9. Rollover Procedure
10. Equipage of Remote Shelves
T3AS SYSTEM ADMINISTRATION TRAINING COURSE
This course details the administration tasks necessary to sustain the T3AS
system.
Target audience:
System Administrators, Technical Support, Maintenance Engineering
Prerequisites:
1. Familiarity with Central Office Standards and Practices.
2. Familiarity with Computer-controlled equipment, diskette and tape
management.
Maximum Class size:
Eight Students
Class Duration:
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page F-2
<PAGE> 43
Typically two hours.
Areas covered include the following:
1. TL1/T3AS-Specific Command Usage
2. General Administrative Functions
3. Assignment of TIDs, SIDs, Users, Passwords
4. Communications
5. Provisioning
6. Security
7. Software Upgrade Procedure
T3AS USER TRAINING COURSE
This course introduces students to performance monitoring, access and testing,
and alarm and event management functions of the T3AS with hands-on training.
Hands-on training usually occurs through the customer's Operational Support
Systems (OSS) and in conjunction with customer-developed and provided OSS
course. If no OSS is available, hands-on training occurs with direct interface
to the T3AS system using man-machine interfaces available on the T3AS.
Target audience:
Test Centers,
Service Assurance Centers
PM/Surveillance/Alarm Centers,
Circuit Design and Provisioning Centers and their Managers
Prerequisites:
1. Familiarity with Access and Test of DS1, DS0, DDS or VF.
2. Familiarity with Performance Monitoring Practices,
3. Familiarity with DS3, DS1, DS0 DDS and VF transmission and test
equipment.
4. Access to an installed and powered-up T3AS system with one or more
VT-100 terminal,
5. Test DS3s provided by one T-Berd 310 and one T-Berd 224 test set or
one live (monitored) DS3 with embedded DS1s and DS0s
6. NMA or equivalent surveillance/alarm system connected to T3AS
7. SARTS, REACT, LOGIX or equivalent test system connected to T3AS
8. One or more terminals connected to NMA or equivalent
9. One or more terminals connected to SARTS, REACT, LOGIX or
equivalent
10. One or more terminals connected directly to the T3AS.
Maximum class size:
Eight students
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page F-3
<PAGE> 44
Class Duration:
Typically 4 hours of classroom and 4 hours of hands-on training.
Areas covered include the following:
1. T3AS Architecture and Network placement
2. Access and test functions
3. Conducting HiCap, DDS, VF tests
4. Performance monitoring, thresholds, events, alarms, retrieval,
history
5. Alarm and event report management, severity
T3AS ADMINISTRATOR TRAINING COURSE
This course details the administration tasks necessary to sustain the T3AS
system in a telephone company central office.
Target audience:
System Installers, Maintenance Engineering
Prerequisites:
Familiarity with Central Office Standards and Practices.
Familiarity with Computer-controlled equipment, diskette and tape
management.
Maximum Class size:
Eight Students
Class Duration:
Typically one-half day
Areas covered include the following:
1. TL1/T3AS-Specific Command Usage
2. General Administrative Functions
3. Assignment of TIDs, SIDs, Users, Passwords
4. Communications
5. Provisioning
6. Security
7. Software Upgrade Procedure
T3AS INSTALLATION TRAINING COURSE
This course details the installation tasks necessary to install, turn-up and
perform acceptance tests of T3AS installed in a telephone central office.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page F-4
<PAGE> 45
Target audience:
System Installers, Equipment Maintenance Engineers who will be
responsible for installation and turn-up of T3AS systems.
Prerequisites:
Familiarity with Central Office Installation Standards and Practices.
Maximum Class Size:
Eight students.
Class Duration:
Typically one-half day of classroom work, preferably at a site that has
an existing T3AS system to illustrate installation details.
Areas covered include the following:
1. T3AS to Network Cabling: DS3s, DS1s, Power, RS232, FADs, TADs,
Remote Links
2. External Timing
3. System Assembly
4. Acceptance Testing
5. Future T3 Provisioning
T3AS PROTOCOL ANALYSIS ACCESS SYSTEM (PAAS) APPLICATION INSTALLATION
This course describes the installation of the T3AS and setup of all the other
devices within the PAAS application.
Target audience:
One installation team - Central Office Technicians and Technical
Support Technicians. Because the standards, specifications, procedures,
policies and equipment are unique to each customer, we recommend that
one team be established to carry out installation of all PAAS systems
within an area.
Prerequisites:
1. Familiarity with Central Office Standards, Practices and
Procedures.
2. Familiarity with DS1 wiring, Packet networks, DDS transmission and
test equipment.
3. Access to DS1 test equipment, asynchronous/X.25 protocol analyzers,
specialized protocol test sets.
4. Access to corporate technical support for packet networks, DCS
systems, central office engineering and wiring records.
Maximum class size:
Three students
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page F-5
<PAGE> 46
Class Duration:
Four hours of classroom
Areas covered include the following:
1. System Description
2. Installation, setup and checkout of the T3AS,
3. Setup and checkout of the network
4. DS1 Wiring to frame-relay test equipment.
5. Removing and Installing Modules
6. DS1 Provisioning
7. Troubleshooting methodology.
8. Communications setup between T3AS, DCS and the control terminals,
9. DS1 FAD links from DCS to T3AS
10. Provisioning the DCS.
11. Acceptance Testing
PAAS MAINTENANCE
This course describes the application, equipment used and fault isolation
techniques of the T3AS system and the other network devices used to support the
PAAS application.
Target audience:
Equipment Maintenance Technicians and Managers, Technical Support.
Prerequisites:
1. Familiarity with Central Office Standards and Practices,
2. Familiarity with DS1, DDS transmission and test equipment.
3. Access to a powered T3AS system with VT-100 terminal,
4. Operational PAAS system.
Maximum class size:
Four students
Class Duration:
Three hours of classroom with hands-on
Areas covered include the following:
1. System Description
2. Network Architecture
3. TL1 Language
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page F-6
<PAGE> 47
4. Alarms/Exception Reporting
5. TL1/T3AS-Specific Command Usage
6. Removing and Installing Modules
7. DS1 Provisioning
8. Troubleshooting methodology.
PAAS USERS
The course gives test center users an overview of the architecture of PAAS,
points to the documentation references needed to identify channels to be tested,
describes and exercises the T3AS test functions and procedures available to the
tester.
The customer is responsible for training staff on usage of the specialized test
equipment and usage of any other terminal programs required to retrieve circuit
information and control the specialized protocol test equipment.
Target audience:
Specialized protocol test center technicians and managers, Technical
Support.
Prerequisites:
1. Familiarity with Central Office Standards and Practices,
2. Familiarity with target protocol (frame relay, ATM, video) test
equipment and transmission equipment.
3. Familiarity with circuit record keeping system and descriptions
(e.g. TIRKS, WORD)
4. Access to a powered T3AS system with VT-100 terminal,
5. Access to an in-service T3AS PAAS system
Maximum class size:
Eight students
Class Duration:
Three hours of classroom with hands-on
Areas covered include the following:
1. System Description
2. Network Architecture
3. TL1 Language
4. TL1/T3AS-Specific Command Usage
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page F-7
<PAGE> 48
CUSTOMIZED TRAINING CLASSES
ADA can develop training courses to suit specific MCI requirements. Charges for
development of these course are quoted in response to requests. Standard
per-student-per-day rates or ADA instructor rates of $**** per day, minimum
charges, and travel and living expenses will still apply.
For additional information or schedules call Applied Digital Access, Inc. at
800 854 2242 (Main),
800 774 8327 (Customer Support)
619 623 2208 (Fax)
and ask for Customer Support.
August 11, 1997 MCI PROPRIETARY AND CONFIDENTIAL Page F-8
<PAGE> 1
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
EXHIBIT 10.5
MASTER AGREEMENT
Between
NORTHERN TELECOM LIMITED
And
APPLIED DIGITAL ACCESS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - DEFINITIONS......................................................................................... 1
ARTICLE 2 - CONTRACT DOCUMENTS.................................................................................. 3
ARTICLE 3 - PERIOD OF PERFORMANCE............................................................................... 3
ARTICLE 4 - CONSIDERATION....................................................................................... 3
ARTICLE 5 - PAYMENT SCHEDULE.................................................................................... 4
ARTICLE 6 - INVOICES............................................................................................ 5
ARTICLE 7 - AUDIT............................................................................................... 5
ARTICLE 8 - INFORMATION FROM NORTEL.............................................................................. 6
ARTICLE 9 - STATUS REPORTS....................................................................................... 6
ARTICLE 10 - MEETINGS............................................................................................ 6
ARTICLE 11 - INDEPENDENT CONTRACTOR.............................................................................. 7
ARTICLE 12 - CHANGE CONTROL PROCEDURES AND ACCEPTANCE............................................................ 7
ARTICLE 13 - MINIMUM PURCHASE COMMITMENT......................................................................... 8
ARTICLE 14 - TERMINATION FOR CONVENIENCE......................................................................... 8
ARTICLE 15 - TERMINATION FOR DEFAULT............................................................................. 9
ARTICLE 16 - CHANGE IN CONTROL.................................................................................. 10
ARTICLE 17 - RIGHTS NOT CONFERRED............................................................................... 10
ARTICLE 18 - INVENTIONS AND IMPROVEMENTS
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 19 - ASSIGNMENT...........................................................................................
ARTICLE 20 - COMPLIANCE WITH LAW...................................................................................
ARTICLE 21 - PUBLICITY RELEASE.....................................................................................
ARTICLE 22 - CONFIDENTIAL INFORMATION..............................................................................
ARTICLE 23 - PATENTS AND INFORMATION...............................................................................
ARTICLE 24 - WARRANTY AND LIABILITY................................................................................
ARTICLE 25 - SPONSORS AND PRIMES...................................................................................
ARTICLE 26 - NOTICES...............................................................................................
ARTICLE 27 - APPLICABLE LAW........................................................................................
ARTICLE 28 - CONTINUING OBLIGATIONS................................................................................
ARTICLE 29 - WAIVERS...............................................................................................
ARTICLE 30 - TERM OF AGREEMENT.....................................................................................
ARTICLE 31 - ENTIRETY OF CONTRACT..................................................................................
ARTICLE 32 - FORCE MAJEURE.........................................................................................
ARTICLE 33 - ARBITRATION...........................................................................................
ARTICLE 34 - AMENDMENT.............................................................................................
ARTICLE 35 - WITHHOLDING...........................................................................................
</TABLE>
<PAGE> 4
THIS MASTER AGREEMENT is made as of the 26th day of June, 1997.
BETWEEN:
NORTHERN TELECOM LIMITED, a company incorporated under the laws of
Canada, having its head office at Suite 100, 8200 Dixie Road, Brampton,
Ontario
(hereinafter called "Nortel"),
OF THE FIRST PART
AND:
APPLIED DIGITAL ACCESS, INC., a company incorporated under the laws of
the State of California, having its head office at 9855 Scranton Road,
San Diego, California, 92121, USA
(hereinafter called "ADA"),
OF THE SECOND PART
WHEREAS:
A. ADA and Nortel had previously entered into a Master Agreement dated
July 15, 1996 (the "Prior Agreement"), pursuant to which ADA performed
certain research and development activities for Nortel from time to
time subject to the terms and conditions of such agreement;
B. ADA and Nortel wish to cancel the Prior Agreement and replace it with
the terms and conditions set out herein:
NOW THEREFORE in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth and contained, this agreement witnesseth:
ARTICLE 1. DEFINITIONS
In this Master Agreement and any Work Schedule, unless there is something in the
subject matter or context inconsistent therewith, the expressions following
shall have the meanings indicated below:
"ADA Prime" has the meaning ascribed thereto in Section 25.1 hereof.
Page 1
<PAGE> 5
"Acceptance" has the meaning ascribed thereto in Section 12.4 hereof.
"Business Day" means each of Monday, Tuesday, Wednesday, Thursday and Friday,
except when any such day occurs on a statutory holiday in British Columbia;
"Commercial Specifications" means the specifications approved by Nortel for use
in developing Custom Software and Custom Hardware and upon which the technical
proposal is based;
"Contract Amount" means the dollar amount specified in any purchase order or
Work Schedule to be paid to ADA;
"Custom Software" means the computer programs which are to be developed by ADA
under the Work Schedule in accordance with the Commercial Specifications
referred to in such Work Schedule, including all source and object code listings
and all related documentation and design data, including but not limited to,
design specifications and descriptions, change control documents, calculation
formulae and algorithms for such software;
"Deliverables" means those items (tangible and/or intangible) which are
identified in the Work Schedule and which are to be provided to Nortel by ADA
pursuant to the applicable Development Agreement, and shall include items such
as, but not be limited Hardware, Custom Software, Software, Services, details of
the development environment documentation, reports, schedules and specifications
as specified in the applicable Development Agreement;
"Development Agreement" means this Master Agreement and any Work Schedule
attached hereto pursuant to Section 2.6 hereof;
"Full Price" means the full price for Work under a Development Agreement as set
forth in the Work Schedule or Development Agreement.
"Hardware" means original equipment manufacture (OEM) equipment which is to be
developed or qualified by ADA in accordance with the specifications referred to
in the Work Schedule, including all mechanical and electrical drawings for
components specified to the extent of ADA's legal right to do so.
"Master Agreement" means this document;
"Milestones" means the intermediate and final achievement dates specified in the
relevant Work Schedule that act as guide-posts for monitoring the progress of
the Work by identifying particularly critical portions of the Work and their
completion deadlines;
"Minimum Purchase Commitment" has the meaning ascribed thereto in Section 13.1.
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"Nortel Customer" means the end user, if any, identified in any purchase order
or any Work Schedule to whom Nortel will be providing the Custom Software under
such Work Schedule;
"Nortel Prime" has the meaning ascribed thereto in Section 25.1 hereof.
"RFQ" or "Request for Quotation" has the meaning ascribed thereto in Section
2.3(b) hereof.
"Services" means the services specified in the Work Schedule to be provided by
ADA;
"Software" means the third-party software which is to be qualified by ADA in
accordance with the specifications referred to in the Work Schedule. Where such
software is required to be delivered to Nortel, or to be incorporated in a
Deliverable, this requirement shall be subject to ADA having the legal right to
do so, or to have Nortel's do so;
"Technical Proposal" means a systems requirements document, preliminary project
plan, quality plan, preliminary design review, high level design document,
interface specifications document, trackable schedule and integrated plan based
upon a Commercial Specification or equivalent as described in Section 2.3 hereof
and as set forth in ADA Document Number 20-0301-0000 (Product Development
Overview), for product development phases as follows: project inception phase,
systems requirements phase, preliminary design phase and high level design
phase.
"Work" means the research and development activities, including development of
the Custom Software or Hardware, as applicable, specified in the Work Schedule;
"Work Schedule" means the added specific details of the Work to be done,
attached to or referencing this Master Agreement which is mutually agreed to in
writing by the parties, as amended from time to time as set forth in Article 12
below.
ARTICLE 2. CONTRACT DOCUMENTS
2.1 Nortel may purchase design, support or other services from ADA by
either: (a) issuing a purchase order, or (b) making a verbal or written
request for support, in each case setting out in adequate detail the
nature of the service requested and the warranty, and other terms and
conditions applicable. ADA shall invoice Nortel for such services each
month at a rate of */person-hour with payment due within 30 days of
receipt of invoice by Nortel.
2.2 Appendix A to this Agreement, the "Transition Plan" sets out, inter
alia, certain services which ADA or its Affiliates shall provide to
Nortel hereunder. ADA hereby acknowledges that it has received copies
of the quotations and purchase order pertaining to such services, and a
copy of Nortel's standard extended warranty plan. ADA hereby
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
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<PAGE> 7
agrees to provide the services on the terms and conditions set out in
such purchase orders, quotations, and (where applicable) extended
warranty plan.
2.3 (a) In addition to Nortel's rights under Sections 2.1 and 2.2 hereof, Nortel
may purchase services from ADA by preparing a Commercial Specification or
equivalent and attaching such specification or equivalent to a RFQ with
sufficient information to enable ADA to prepare a quotation as described in
Section 2.4 below.
(b) All RFQs shall indicate one of the following:
(i) Whether ADA shall only be required to prepare a Technical
Proposal, but not obliged to perform any further Work upon completion of such
Technical Proposal, as contemplated in Section 2.6 below.
(ii) Whether ADA shall be required to commit to performing the
Work identified in the completed Technical Proposal in accordance with Section
2.6 below, if requested to do so by Nortel.
(iii) If neither (i) or (ii) is specified, the parties shall
meet, after the Technical Proposal is completes, to determine what further
action, if any, they will take with respect to that Technical Proposal.
2.4 Based upon the Commercial Specification and the RFQ, ADA will use
its best efforts (if such request can be accomplished with the resources
dedicated to the Minimum Purchase Commitment of Nortel) and its reasonable
efforts (if such request must be addressed by resources outside of those
dedicated to satisfying the Minimum Purchase Commitment) to prepare a quotation
for the preparation of a Technical Proposal using the resources that are
committed by ADA to satisfy Nortel's Minimum Purchase Commitment.
2.5 If Nortel accepts any quotation within the time frame for
acceptance set out in such quotation, if any, it shall signify such acceptance
by means of a purchase order approving the preparation of the Technical Proposal
by ADA.
2.6 Upon completion of the Technical Proposal and subject to Section
2.3 (b), Nortel may request ADA to perform certain Work based upon the Technical
Proposal, by means of a Work Schedule issued to ADA by Nortel, along with a
purchase order.
2.7 ADA shall, within five (5) Business Days of its receipt of the
purchase order and attached Work Schedule described in Section 2.5, advise
Nortel in writing of ADA's acceptance or rejection of the Work Schedule. or
Technical Proposals prepared pursuant to Section 2.3(b) (ii), ADA shall
acknowledge acceptance of the purchase order and attached Work Schedules, within
five (5) Business Days of receipt.
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<PAGE> 8
2.8 Upon Nortel's receipt of the written acceptance of any purchase
order and attached Work Schedule by ADA, a contract for the performance of the
Work described in the Work Schedule (a "Development Agreement") will, in each
case, be formed. Each such Development Agreement will consist exclusively of the
terms and conditions of this Agreement and the Work Schedule related thereto. If
there is a conflict between this Agreement and the Work Schedule, this Agreement
shall govern unless it is specifically provided in the Work Schedule that the
Work Schedule shall govern.
2.9 The Work Schedule shall specify the Work to be done and the
Deliverables to be provided and shall include provisions with respect to the
following:
- the scope of the Work
- the estimated Contract Amount
- the project organization
- the project schedule including milestones
- the payment schedule
- Deliverables
- delivery dates
- the acceptance plan, conditions and specifications
- Nortel's responsibilities
- the change control procedure
and may include provisions with respect to the following:
- development process
- the decision request procedure
- shipping and transit insurance
- travel and living
- provisions and relating to follow-on work
- liquidated damages for late delivery
- additional ADA responsibilities
- assumptions and dependencies
- resource allocations
- risk assessment
- quality and process standards
ARTICLE 3. PERIOD OF PERFORMANCE
3.1 Both Nortel and ADA agree that time shall be of the essence herein
and ADA shall use its best efforts, within the current resource
commitment of Nortel, to commence and complete the Work in accordance
with the Work Schedule.
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<PAGE> 9
ARTICLE 4. CONSIDERATION
4.1 Except for services purchased pursuant to Section 2.1 and 2.2, ADA
shall be paid the Contract Amount for performance of the Work in
accordance with one of the following payment options and the selection
of the appropriate payment option for each Development Agreement will
be described in the Work Schedule:
(A) Time and Material Payment Option, which shall include the
following:
(i) An estimate of the price to Nortel to perform the Work,
together with an estimate of the price to perform that portion of the
Work applicable to each Milestone.
(ii) ADA will invoice Nortel monthly for the Work on the following
basis:
a. The actual hours required to perform the Work, in
accordance with the provisions of the Work Schedule, multiplied by the
hourly rate per employee classification, as agreed to by the parties;
b. All materials, contractors, and other preapproved project
expenses reasonably incurred by ADA in connection with the performance
of the Work, at cost plus a markup as agreed to by the parties;
c. All pre-approved travel expenses reasonably incurred by ADA
in connection with the performance of the Work, at cost plus a markup
as agreed to by the parties.
(iii) ADA shall notify Nortel forthwith upon ADA becoming aware
during the course of performance of the Work that the actual price of
the Work or any portion of the Work applicable to any Milestone is
likely to exceed the estimated price of the Work or portion of the
Work, as the case may be (hereinafter called the "Budget Overrun").
In addition to such notice, ADA shall forthwith provide Nortel with
a written report setting out ADA's explanation or understanding of the
causes of any such Budget Overrun and ADA's estimate of the cost to
Nortel to complete the Work or that portion of the Work applicable to
the Milestone.
(v) At such time as the price of performance of the Work equals the
estimated total price of the Work prior to completion of the Work, ADA
shall advise Nortel and no further costs shall be incurred by ADA
without the prior written consent of Nortel. Nortel will provide such
written consent in a timely manner, or will instruct ADA as to what
action to take with regard to the unfinished Work.
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(B) Firm Price Option, which will mean ADA will perform the Work
for a firm cost agreed upon in advance and set forth in the Work
Schedule. ADA shall be solely responsible for any Budget Overruns.
4.2 The Contract Amount, unless otherwise specifically provided in any
purchase order or Work Schedule, is exclusive of any goods and services
tax, custom and excise duties, provincial, sales, use, ad valorem, or
franchise taxes, or other similar taxes or duties. Any such amounts
billed by ADA to Nortel will be paid promptly 30 days from the date of
receipt of the invoice to be paid, however, Nortel shall have 10 days
to dispute any invoice, failing which the invoice shall be paid within
the aforementioned 30 days. Payment shall not be due until the dispute
is settled.
4.3 ADA provides no warranty, actual or implied, that the work
performed will qualify as eligible scientific research and experimental
development as defined in the Income Tax Act. ADA agrees that it will
take all commercially reasonable steps and provide all reasonable
assistance to establish such eligibility, at Nortel request and
expense.
4.4 The parties acknowledge that certain Work Schedules may contain
Work to be carried out partly under both Payment Options.
ARTICLE 5. PAYMENT SCHEDULE
5.1 Any Development Agreement entered into between Nortel and ADA
pursuant to the terms of this Master Agreement shall provide for
payment to be made pursuant to the following options:
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(a) Time and Material Payment Option:
Under the Time and Material Payment Option, ADA will issue monthly
invoices to Nortel in connection with the Work in accordance with the
provisions of Section 4.1 (A) (ii) hereof. Prior to the issuance of any
invoice, the ADA Prime, shall certify to Nortel in writing that such
amounts were calculated according to the formula as agreed to between
the parties, and were reasonably expended or incurred by ADA in the
performance of the Work and attach said writing to the invoice. ADA
will be paid the amount so invoiced, as described in Article 6 below.
(b) Firm Price Option:
Under the Firm Price Option, unless agreed otherwise in the Work
Schedule, ADA shall only issue an invoice upon delivery of any of the
Deliverables, which invoice shall become due on Acceptance of those
Deliverables for the value of those Deliverables, as set out in the
Work Schedules.
5.2 An alternative payment arrangement may be negotiated for each
project by mutual written agreement of Nortel and ADA.
ARTICLE 6. INVOICES
6.1 A maximum of one invoice per month shall be issued for each
purchase order issued by Nortel. Labour will be broken down into total
hours and total dollars per invoice and expenses incurred will be
broken down by category in accordance with ADA's normal accounting
methods. Terms of payment shall be thirty (30) days from date of
receipt of invoice by Nortel provided, however, that Nortel shall be
entitled to retain * per cent of the aggregate amount of all such
invoices under Firm Price Option contracts, until the fortieth (40th)
day following Acceptance of the Work. Nortel shall have ten (10) days
from receipt of invoice to dispute the accuracy of the invoice, failing
which the invoice shall be due as aforesaid. Payment shall not be due
until the dispute is settled.
6.2 Nortel shall pay simple interest at the rate of prime plus one
percent on all overdue amounts owing to ADA after thirty (30) days.
ARTICLE 7. AUDIT
7.1 ADA agrees to keep and maintain complete and accurate records of
costs incurred in connection with the performance of the Work, and
maintain books and accounts in accordance with generally accepted
accounting procedures, principles and practices, and in accordance with
such other procedures, principles and practices as may be specified in
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
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<PAGE> 12
the applicable Work Schedule respecting all matters pertinent to this
Master Agreement and any Development Agreements formed hereunder. Upon
notice in writing, and at its expense, Nortel through its independent
auditors shall have access to and the right to audit all accounts and
records maintained for the Work during normal business hours. Provided,
however, that Nortel independent auditors shall not, unless otherwise
provided in the applicable Work Schedule, have such access or right to
audit such accounts and records for Work performed under the Firm Price
Option, save and except where the Development Agreement for the Work
has been terminated by Nortel in accordance with Article 15. Any claims
or discrepancies disclosed by such audit shall be made in writing to
ADA within a reasonable period of time after completion of such audit
for resolution between the Nortel Prime and the ADA Prime or by
reference to more senior management.
ARTICLE 8. INFORMATION FROM NORTEL
8.1 ADA shall use its commercially reasonable efforts to identify in
the Work Schedule all information or documentation required for it to
perform the Work and deliver the Deliverables in the Work Schedule.
However, if in execution of the Work, ADA shall require additional
information or documents from Nortel, Nortel shall provide same, if
possible, promptly upon written request and reasonable notice from ADA.
If Nortel fails to respond to any request for information or documents
as herein provided and the failure to provide such information or
documents results in ADA not being able to meet its Milestones as set
forth in the Work Schedule, the Milestones shall be extended by the
length of the period of delay so caused.
8.2 In the event any Milestones are extended due to the unavailability
of information and documents from Nortel, ADA agrees to use reasonable
efforts to allocate its manpower to other Work and to advise Nortel in
the event such manpower cannot, after the exercise of reasonable
efforts, be allocated to other Work.
8.3 As an alternative to extension of any Milestone, Nortel may direct
ADA to make assumptions regarding the information or documents required
by ADA from Nortel. Nortel will approve any reasonable assumptions made
by ADA and if such assumptions are subsequently shown to be invalid,
Nortel will provide ADA written approval to proceed with any necessary
re-Work and will treat such re-Work as a change in the Work pursuant to
Section 12.2.
ARTICLE 9. STATUS REPORTS
9.1 Status reports shall be detailed periodically or as set forth in
the Work Schedule and shall summarize progress, problems, financial
expenditure (including ADA's estimate of the price to complete the
Work), and highlights in the execution of the Work. ADA
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shall respond promptly, verbally or in writing, if requested by Nortel
to any comments or queries of Nortel resulting from the review of
status reports. ADA shall notify Nortel immediately upon the
satisfaction or achievement of any Milestone or upon any Deliverable
becoming available for evaluation by Nortel or delivery to Nortel.
ARTICLE 10. MEETINGS
10.1 At the request of either party and as specified in the Work
Schedule, Nortel and ADA shall meet to discuss matters related to the
Work including progress, review of results, analysis of problems,
financial expenditures, adequacy of information to be provided by
Nortel pursuant to any Development Agreement and changes in the Work.
10.2 Any costs incurred by ADA in participating in such meeting will:
(i) in the case of the Time and Material Payment Option, be billed
to Nortel as part of the Work,
(ii) in the case of Work performed under the Firm Price Payment
Option, be included in the Firm Price as an anticipated and reasonable
expense in performing the Work.
ARTICLE 11. INDEPENDENT CONTRACTOR
11.1 In the execution of the Work provided for herein, ADA shall
operate as an independent contractor, and nothing in this Master
Agreement or any Development Agreement formed hereunder shall be
construed to constitute ADA or any of its employees as an agent,
representative or employee of Nortel.
ARTICLE 12. CHANGE CONTROL PROCEDURES AND ACCEPTANCE
12.1 The Work Schedule shall have a corresponding change control
section to accommodate requests by Nortel for changes to the scope of
the Work. Such requests for change are subject to the procedures set
out in this Article 12.
12.2 Nortel-Originated Changes
Nortel may request changes to the Work in accordance with the following
procedure:
(a) Nortel shall advise ADA, in writing, of a desired change
specifying the desired change with sufficient details to enable ADA to
evaluate the change.
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(b) Following receipt of a change request ADA will within five (5)
Business Days provide Nortel with an estimate (the "Preliminary
Estimate") of the estimated time to assess the change and the estimated
price of preparing such assessment. If ADA determines that it cannot
prepare the Preliminary Estimate within such period, ADA will advise
Nortel of the date by which the Preliminary Estimate will be available
and ADA will deliver the Preliminary Estimate by such date.
(c) Following receipt of the Preliminary Estimate, Nortel will, within
five Business Days (the "Response Period"), advise ADA in writing
whether or not to proceed with the assessment of the requested change.
If Nortel advises ADA not to proceed, the change request shall be
deemed withdrawn and ADA shall take no further action in respect of it.
If ADA has not received written notice to proceed within the Response
Period, Nortel shall be deemed to have advised ADA not to proceed.
(d) If Nortel instructs ADA to proceed, ADA will prepare an assessment
(the "Assessment') of the impact, if any, of the desired change on the
Contract Amount, the Milestones, the time frame for completion, the
performance of the Deliverables and any other areas which in the
opinion of ADA are likely to be affected by the requested change.
(e) The Assessment shall constitute an offer from ADA to carry out
changes as requested subject to the provisions of the Assessment. The
offer shall be irrevocable for five (5) Business Days following the
receipt thereof by Nortel.
(f) If Nortel accepts ADA's offer, the Work Schedule shall be deemed to
incorporate the change on the terms stated in the Assessment.
(g) ADA shall be entitled to recover outside any limit of maximum
expenditure specified in the Work Schedule, the price of preparation of
the Preliminary Estimate and the Assessment regardless of whether the
Assessment or change is proceeded with.
(h) Any change which either increases or decreases costs or modifies
Milestones or Deliverables, shall be implemented only with the prior
written consent of the Nortel Prime and the ADA Prime.
12.3 ADA-Originated Changes
In the event ADA wishes to request a change it shall notify Nortel in
writing of the suggested change and provide Nortel with a Preliminary
Estimate and the provisions of 12.2 (c), (d), (e), (f) and (g) shall
apply except that ADA shall not be entitled to recover the cost of
preparing the Preliminary Estimate.
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12.4 Acceptance of Work Performed Under Firm Price Option
Acceptance of Work performed under the Firm Price Option ("Firm Price
Work") shall only occur after delivery of the Deliverable to Nortel and
only in the event that there are no priority 1 and 2 problems, as
defined by the MPR classification system dated August 10, 1992,
identified during the verification testing stage, which testing is
performed by Nortel. The test plan shall be approved by ADA for Firm
Price Work where such procedure is not feasible, the alternate
acceptance procedure shall be set out in the Work Schedule.
Notwithstanding the foregoing, Nortel will accept or reject the Firm
Price Work within sixty (60) days after delivery by ADA; failure to
give notice of acceptance or rejection within that period by Nortel
will constitute acceptance.
ARTICLE 13. MINIMUM PURCHASE COMMITMENT
13.1 During the period beginning on May 15, 1997, and ending on January
31, 1998, Nortel shall purchase at least * person-months of design
services from ADA, at a rate of */hour (the "Minimum Purchase
Commitment"). If Nortel fails to meet the Minimum Purchase Commitment
within the prescribed time for reasons other than force majeure or
reasons attributable to ADA, then Nortel shall pay ADA, as ADA's sole
and exclusive remedy, and amount equal to the difference between the
Minimum Purchase Commitment and the amount of design services ordered
by Nortel.
13.2 For purposes of calculating whether the Minimum Purchase
Commitment has been met, any services ordered by Nortel pursuant to the
Transition Plan (other than purchase order obligations and warranty
obligations expressly assumed under the Asset Purchase Agreement) shall
be included.
ARTICLE 14. TERMINATION FOR CONVENIENCE
14.1 Subject to the terms and conditions of this Master Agreement,
Nortel may, from time to time by giving written notice to ADA,
terminate any Development Agreement with respect to all or any portion
of the Work. Upon such termination notice being given, ADA shall cease
performance of the Work in accordance with and to the extent specified
in such notice. Nortel may, at any time, give one or more additional
termination notices with respect to all or any portions of the Work not
terminated by any previous termination notice.
14.2 Neither party shall be held liable for indirect or consequential
damages or loss of anticipated profits of the other party on account of
termination of this Agreement other than as set forth in this Article
15 or in Article 14.
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
Page 12
<PAGE> 16
ARTICLE 15. TERMINATION FOR DEFAULT
15.1 Nortel may, at any time and from time to time, by notice of
default to ADA, terminate the whole or any part or parts of any
Development Agreement or this Agreement if ADA:
(i) fails to perform any of the other provisions of the Development
Agreement including performing the Work within the time or times
specified in the Work Schedule, or so fails to make progress so as to
endanger performance of the Development Agreement in accordance with
the Work Schedule, and, in either of these circumstances, does not cure
or take steps to promptly and diligently cure such failure within a
period of thirty (30) days after receipt of written notice from Nortel
or such longer period as Nortel may authorize; or
(ii)(a) applies for or consents to the appointment of a receiver,
trustee or liquidator of itself or of its property; or
(b) makes a general assignment for the benefit of creditors; or
(c) is adjudicated bankrupt or insolvent; or
(d) files a voluntary petition in bankruptcy or a petition or answer
seeking re-organization or an arrangement with creditors, or takes
advantage of any insolvency law, or admits to the material allegations
of a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding, or initiates a corporate action for the purpose
of effecting any of the foregoing.
15.2 ADA may, at any time and from time to time, by notice of default
to Nortel, terminate the whole or any part or parts of any Development
Agreement or this Agreement if Nortel:
(i) fails to perform any of the other provisions of the Development
Agreement including payment to ADA of amounts due thereunder, and does
not cure or take steps to promptly and diligently cure such failure
within a period of thirty (30) days after receipt of written notice
from ADA or such longer period as ADA may authorize; or
(ii)(a) applies for or consents to the appointment of a receiver,
trustee or liquidator of itself or of its property; or
(b) makes a general assignment for the benefit of creditors; or
(c) is adjudicated bankrupt or insolvent; or
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(d) files a voluntary petition in bankruptcy or a petition or answer
seeking re-organization or an arrangement with creditors, or takes
advantage of any insolvency law, or admits to the material allegations
of a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding, or initiates a corporate action for the purpose
of effecting any of the foregoing.
15.3 If Nortel terminates any Development Agreement as provided in
Section 15.1, ADA shall have no claims for any payment save as
hereinafter provided in this Article 15.
15.4 Upon a partial termination pursuant to this Article 15, ADA and
Nortel shall continue the performance of the Development Agreement to
the extent it is not terminated or otherwise affected by such partial
termination and shall not stop, suspend or impair any other aspect or
portion of the performance of the Development Agreement.
15.5 Upon a termination pursuant to this Article 15.1, and subject to
Article 18 below, Nortel, in addition to any other rights of Nortel in
this Article 15, may require ADA to transfer title and deliver to
Nortel, in the manner and to the extent directed by Nortel, any Work
which has not been delivered and accepted prior to such termination.
15.6 If, after notice of termination of the Development Agreement under
the provisions of this Article 15, it is determined by a court of
competent jurisdiction that the party allegedly in default was not in
default, such notice of termination shall be deemed to have been issued
pursuant to Article 14, TERMINATION FOR CONVENIENCE, and the rights and
obligations of ADA and Nortel shall be governed by the provisions of
that Article.
ARTICLE 16. CHANGE IN CONTROL
16.1 In the event that ADA becomes majority owned or controlled by an
entity which is a direct competitor of Nortel, ADA shall forthwith
provide written notification to Nortel of such change in majority
ownership or control. Within thirty (30) days of receipt of such
notice, Nortel may, in its sole discretion, elect to terminate without
cost or penalty whatsoever this Master Agreement provided the acquiring
entity is reasonably determined to be a direct competitor of Nortel.
ARTICLE 17. RIGHTS NOT CONFERRED
17.1 ADA agrees that this Master Agreement does not confer any right to
do all or any given proportion of Nortel's work.
ARTICLE 18. INVENTIONS AND IMPROVEMENTS
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18.1 ADA agrees to disclose and cause its employees to disclose
promptly to Nortel any inventions, designs or improvements capable of
patent, copyright or similar protection, made or conceived by such
employees either alone or jointly or with others in the course of or as
a result of the Work done hereunder, or as a result of information
supplied hereunder, directly or indirectly by Nortel. ADA further
agrees that all such inventions, designs or improvements shall without
further payment become and remain sole property of Nortel. Subject to
the provisions of Article 23, it is understood that any technology,
inventions, designs or improvements owned by ADA before starting the
Work remain the property of ADA, but shall be disclosed by notice in
writing to Nortel prior to starting the Work.
18.2 ADA agrees that it shall, at the direction and expense of Nortel
take all steps and will cause its employees to take all steps necessary
to apply for and to obtain patents, registered design or similar
protection in respect of any inventions, designs and improvements
which, by the provisions hereof, belong to Nortel in any part of the
world as Nortel may require and shall vest all such patents, registered
designs or similar protection in Nortel or as Nortel may direct;
provided ADA shall only be required to pursue such protection when the
costs associated with such pursuit are paid by Nortel.
18.3 ADA will, at the direction and expense of Nortel, render all
assistance and cause its employees to render all assistance within
their power to obtain and maintain any such patent, registered design
or similar protection and any extension thereof.
18.4 Each party warrants that it has and will maintain in effect during
the term of this Master Agreement, appropriate agreements with its
employees to carry out the obligations as to confidentiality and
inventions and improvements.
18.5 Unless the terms and conditions of any purchase order provide
otherwise, ADA shall own any Inventions that may be retained in
non-tangible form by ADA employees who had access to the Work.
ARTICLE 19. ASSIGNMENT
19.1 Neither party may assign all or any portion of this Master
Agreement, any Development Agreement formed hereunder or the Work
without the other party's prior written consent, such consent not to be
unreasonably withheld. Notwithstanding the foregoing, a party may
assign and transfer this Master Agreement and its rights and
obligations hereunder to its parents, affiliates or subsidiaries.
Furthermore, ADA may subcontract to ADA's wholly owned subsidiary, ADA
Canada Inc. ("ADA CANADA") any Services or Work, or any portion thereof
without obtaining Nortel's consent. In no
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event shall either party create any contractual relation between any
third party and the other.
ARTICLE 20. COMPLIANCE WITH LAW
20.1 ADA shall observe and comply with all applicable laws, ordinances,
codes and regulations of governmental agencies, including federal,
provincial, municipal and local governing bodies having jurisdiction
over the Work or any part thereof. All work performed by ADA must be in
accordance with such laws, ordinances, codes and regulations.
ARTICLE 21. PUBLICITY RELEASE
21.1 The parties understand and agree that they may not use each
other's name in any advertising or promotional material or publicity
release relating to the Work to be performed by the other hereunder
without the prior written consent of the other and that no publicity
release of the Work shall be made except with the prior written consent
of both parties, such consent not to be unreasonably withheld or
delayed.
ARTICLE 22. CONFIDENTIAL INFORMATION
22.1 All technical and commercial information, documentation and
know-how of every kind and description ("Information") supplied whether
before or after execution of this Master Agreement, other information
related thereto acquired or developed by either party in connection
with this Master Agreement or any Development Agreement, subject to
what is hereinafter provided, shall be confidential and the exclusive
property of the disclosing party, and the receiving party shall treat
and protect such Information as proprietary and confidential
information, shall not reproduce or divulge said Information in whole
or in part to third parties except as may be required for the
performance of its obligations under this Agreement, provided such
third parties agree in writing prior to such disclosure to keep such
Information confidential upon the same terms as herein contained. The
parties shall return each others Information and all copies thereof
forthwith upon its request. This confidentiality obligation shall
survive termination or expiry of the Development Agreement.
22.2 Notwithstanding the foregoing, ADA shall not be liable for
disclosure of the Information if:
(a) the Information enters the public domain other than through a
breach of the Development Agreement;
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<PAGE> 20
(b) the Information is lawfully obtained by ADA from a third party
without breach of the Development Agreement by ADA;
(c) Nortel has provided its prior express written approval for such
disclosure by ADA;
(d) the Information was known to ADA prior to the commencement of the
Development Agreement and so documented;
(e) was independently developed by employees or consultants of the
receiving party without access to such Information; or
(f) is required to be disclosed to governmental agencies in order to
complete Work, or disclosure is otherwise required by law, regulation
or governmental or court order.
ARTICLE 23. PATENTS AND INFORMATION
23.1 ADA agrees that it will not knowingly incorporate anything in the
Work which involves the use of a trade secret or proprietary
information of any third party without the prior written approval of
Nortel, such approval not to be unreasonably withheld.
23.2 ADA shall, at its expense, timely defend any suit instituted
against Nortel and indemnify Nortel against any award of damages and
costs made against Nortel in any suit insofar as such is based on a
claim that the use of the Work or Deliverables, or the manufacture,
lease, sale or sublicensing of same infringes any patent, copyright, or
other industrial or intellectual property right, in the United States,
Canada, any member country of the European Economic Community, or
Japan, except to the extent the claim is based on (i) ADA's compliance
with or use of designs, requirement specifications, or alterations
supplied, developed or requested by Nortel, and the infringement is
necessitated by such compliance or (ii) infringement is caused by the
use of with another product in combination with the Deliverables or
Work whose use with the Deliverables or Work was not otherwise intended
or reasonably foreseen by the ADA based on the information available to
it or (iii) the Work or Deliverables are altered and the infringement
results from that alteration. Provided Nortel gives ADA timely notice
in writing of the institution of suit and permits ADA to defend same
and provides, at ADA's request and expense, all available information,
assistance and authority to so defend such suit and any appeals. ADA
shall have sole control of the defense of any such claim or suit
including appeals and of all the negotiations for settlement, including
the right to effect the settlement or compromise thereof. If any
element of the Work or Deliverables is in any suit held to constitute
an infringement and its use is enjoined, ADA may at its option and
expense:
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<PAGE> 21
(a) procure for Nortel and any Nortel Customer the right to continue
using such infringing element; or
(b) replace or modify the same so that it becomes non-infringing,
provided, however, the essential attributes of the element remain the
same.
(c) Where after exercising all reasonable efforts to obtain the rights
set out in a) or b) above, neither alternative is possible, ADA shall
refund all of the monies paid by Nortel pursuant to the Development
Agreement which has given rise to the infringement.
23.3 The indemnity set out in Section 23.2 shall only be extended to
countries other than those set forth therein upon mutual agreement of
the parties with respect to any specific Work or Deliverable.
ARTICLE 24. WARRANTY AND LIABILITY
24.1 ADA warrants that, upon Acceptance by Nortel, each Deliverable
will be of good quality and workmanship and will meet the
specifications set out in the Work Schedule for a period of * months or
such greater period as may be specified in the Work Schedule and that
the "design life" of each Hardware Deliverable will meet or exceed the
design life specified for that Deliverable, if any, in the Work
Schedule. If any Deliverable does not conform with such warranty, ADA
will remedy the deficiencies so that the Deliverable conforms to the
specifications set out in the Work Schedule.
24.2 Under Firm Price contracts, the cost of the warranty coverage
referred to in this Article will be borne by ADA; under Time &
Materials contracts, such costs shall be charged to Nortel on a Time &
Materials basis. In the event that neither of these methods of payment
applies, the parties will address the cost of warranty coverage in the
individual Technical Proposals.
24.3 ADA warrants that the personnel performing the Work will be
qualified and capable of performing the Work.
24.4 (a) The foregoing warranty for Deliverables will not apply to, and
ADA will have no obligation or liability whatsoever in respect of,
defects or damage caused by unauthorized use, misuse, accident,
external cause, installation error (except where installed by or on
behalf of ADA) or normal wear and tear. All of the foregoing warranties
and remedies are in lieu of all other warranties and remedies.
(a) Unless specifically defined otherwise ADA does not give and will
not be liable for any warranties, representations, or guarantees of any
kind, either express or
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
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<PAGE> 22
implied by law or custom, regarding any products derived from or based
on the Deliverables (hereinafter called the "Products") or the
performance of the Products or their usefulness, including those
regarding fitness for purpose, merchantability, condition, design,
title, infringement of third party rights, or conformance with sample.
(b) In no event will ADA be liable to Nortel or to any other party for
damages, including but not restricted to, damages for lost profits,
lost savings, or punitive, exemplary, incidental, consequential or
special damages in respect of the Products, even if ADA has advance
knowledge of the possibility of such potential loss or damage and even
if caused by ADA's negligence. If, despite the foregoing limitations,
for any reason ADA becomes liable to Nortel for damages incurred by
Nortel in connection with any of the Products, then, the liability of
ADA will be limited to an amount equal to the price paid by Nortel to
ADA for the Development Agreement that gives rise to the claim for
damages.
24.5 Notwithstanding the foregoing or any other terms of this
Agreement, if Nortel issues a purchase order or otherwise requests
support or other services from ADA in connection with Nortel's
obligations to any customer, and if Nortel provides ADA with a copy of
such terms and conditions, then ADA's acceptance of any such purchase
order or commencement of services shall be deemed to be an agreement to
provide such services on such terms and conditions.
ARTICLE 25. SPONSORS AND PRIMES
25.1 Nortel will appoint a Prime (hereinafter called the "Nortel
Prime") and ADA will appoint a prime (hereinafter called the "ADA
Prime") for each Development Agreement (collectively the "Primes"). The
address of the applicable Primes will be identified in the Work
Schedule of the applicable Development Agreement.
ARTICLE 26. NOTICES
26.1 All communications in writing between Nortel and ADA related to a
specific Development Agreement shall be deemed to have been received by
the addressee if delivered to the appropriate Primes or if sent by
courier or facsimile transmission addressed to the appropriate Prime at
the address provided in the Work Schedule or such other address for the
Prime as have been designed in writing by either party to the other.
26.2 All communications in writing between the parties hereto of a
general nature and not related solely to a single Development Agreement
for Work shall be deemed to have been received by the addressee if sent
by courier or facsimile transmission addressed as follows:
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<PAGE> 23
If to Nortel:
Northern Telecom Limited
NSM Division
150-13575 Commerce Parkway
Richmond, British Columbia
Canada V6V 2L1
Fax: (604) 244-4080
Attn: General Manager
With a copy to:
Northern Telecom Limited
8200 Dixie Road, Suite 100
Brampton, Ontario
Canada L6T 5P6
Attention: Secretary
If to ADA:
Applied Digital Access, Inc.
9855 Scranton Road
San Diego, California 92121
Fax: (619) 623-2208
Attention: President
With a copy to:
ADA Canada, Inc.
8999 Nelson Way
Burnaby, British Columbia
Fax: (604) 293-6100
Attention: President
26.3 Invoices shall be sent to the address indicated for Nortel above,
for the attention of Accounts Payable.
26.4 All notices given hereunder shall be given in writing and
delivered or faxed. Such notice shall be deemed to have been received
upon delivery.
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<PAGE> 24
ARTICLE 27. APPLICABLE LAW
27.1 This Master Agreement and all Development Agreements formed
hereunder shall be governed and construed in accordance with the laws
of the Province of British Columbia and the federal laws of Canada
applicable therein.
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<PAGE> 25
ARTICLE 28. CONTINUING OBLIGATIONS
28.1 The provisions of Articles 18 - Inventions and Improvements, 20 -
Compliance with Law, 21 Publicity Release, 22 - Confidential
Information, 23 - Patents and Information and 24 - Warranty and
Liability shall survive the termination of this Master Agreement and
any Development Agreement formed hereunder.
ARTICLE 29. WAIVERS
29.1 The waiver by either party hereto of any breach of any term of
this Master Agreement or any Development Agreement formed hereunder
shall not prevent the subsequent enforcement of that term and shall not
be deemed a waiver of any subsequent breach.
ARTICLE 30. TERM OF AGREEMENT
30.1 This Master Agreement shall commence upon execution by both
parties hereto, and shall continue until terminated by either party
upon ninety (90) days' advance notice in writing. Termination of this
Master Agreement will not affect the status of any Development
Agreement formed hereunder or work performed in pursuance thereof.
ARTICLE 31. ENTIRETY OF CONTRACT
31.1 The Prior Agreement is hereby cancelled, effective as of the day
immediately prior to the date of execution of this Agreement, without
any further liability of Nortel to ADA Canada or ADA except for
Nortel's obligation to pay to ADA an amount equal to * within 30 days
of the execution of this Agreement. This Master Agreement and the
schedules hereof contain the entire agreement between the parties with
respect to the subject matter hereof. The prior Agreement and all
previous proposals and communications relative to such Work, oral or
written, will be superseded by this Master Agreement and the Work
Schedule except to the extent that they have been expressly
incorporated herein.
ARTICLE 32. FORCE MAJEURE
32.1 Neither party to this Agreement shall be liable for its failure to
perform any of its obligations hereunder during any period in which
such performance is prevented by any cause beyond its reasonable
control. In the event of any such delay the date of delivery or
performance hereunder shall be extended by a period equal to the time
lost by reason of such delay.
* Certain confidential portions of this Exhibit were omitted by means of
blacking out the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934.
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<PAGE> 26
ARTICLE 33. ARBITRATION
33.1 All disputes arising out of or in connection with this Master
Agreement shall be referred to and finally resolved by arbitration
under the rules of the British Columbia International Commercial
Arbitration Centre, in respect of which:
(a) the appointing authority shall be the British Columbia
International Commercial Arbitration Centre;
(b) the arbitration shall be conducted by a single arbitrator unless
the parties agree otherwise;
(c) the case shall be administered by the British Columbia
International Commercial Arbitration Centre in accordance with its
"Procedures for Cases under the BCICAC Rules"; and
(d) the place of arbitration shall be Vancouver, British Columbia,
Canada.
The prevailing party in any arbitration or legal action arising out of
or related to this Master Agreement shall be entitled, in addition to
any other rights and remedies it may have, to reimbursement for its
expenses incurred in such arbitration or action, including court costs
and reasonable legal fees.
ARTICLE 34. AMENDMENT
34.1 No amendment, modification, supplement or other purported
alteration of this Master Agreement shall be binding upon the parties
unless it is in writing and is signed on behalf of both parties by
their duly authorized representatives.
ARTICLE 35. WITHHOLDING
35.1 ADA believes that neither this Agreement (or any term hereof) nor
the performance of or exercise of rights under this Agreement requires
tax withholding under any law or regulations promulgated by any
organization, province, group of provinces, or political or
governmental entity located within Canada. Nortel agrees not to
withhold any amounts payable to ADA, without the written consent of
ADA, unless Revenue Canada has made a specific determination or
assessment that such amounts must be withheld. ADA agrees to indemnify
and hold harmless Nortel in respect of any amounts, including without
limitation, withholding taxes, penalties and interest, that Revenue
Canada may determine Nortel failed to properly withhold pursuant to
this Agreement.
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<PAGE> 27
IN WITNESS WHEREOF, Nortel and ADA have executed this Agreement as of
the day of June, 1997.
APPLIED DIGITAL ACCESS, INC. NORTHERN TELECOM LIMITED
- -------------------------------- -----------------------------------------
By: By:
- -------------------------------- -----------------------------------------
Name: Name:
- -------------------------------- -----------------------------------------
Title: Title:
-----------------------------------------
By:
-----------------------------------------
Name:
-----------------------------------------
Title:
Page 24
<PAGE> 1
EXHIBIT 11.1
APPLIED DIGITAL ACCESS, INC.
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
(UNAUDITED)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ -------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) ($ 2,374) ($ 1,440) ($ 3,823) ($ 2,308)
======== ======== ======== ========
Reconciliation of weighted average
number of shares outstanding to
amount used in net income per share
computation:
Weighted average number of common shares
outstanding 12,452 11,983 12,381 11,961
Weighted average number of options and
warrants outstanding - - - -
-------- -------- -------- --------
Weighted average number of shares
outstanding 12,452 11,983 12,381 11,961
======== ======== ======== ========
Net income (loss) per share ($0.19) ($0.12) ($0.31) ($0.19)
======== ======== ======== ========
</TABLE>
See Note 3 to Condensed Financial Statements
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $3,221
<SECURITIES> 15,874
<RECEIVABLES> 9,971
<ALLOWANCES> (100)
<INVENTORY> 7,107
<CURRENT-ASSETS> 37,226
<PP&E> 11,124
<DEPRECIATION> (5,458)
<TOTAL-ASSETS> 46,653
<CURRENT-LIABILITIES> 10,639
<BONDS> 0
0
0
<COMMON> 51,078
<OTHER-SE> 2,506
<TOTAL-LIABILITY-AND-EQUITY> 47,653
<SALES> 14,552
<TOTAL-REVENUES> 14,552
<CGS> 6,922
<TOTAL-COSTS> 6,922
<OTHER-EXPENSES> 11,910
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> (2)
<INCOME-PRETAX> (3,759)
<INCOME-TAX> 64
<INCOME-CONTINUING> (3,823)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,823)
<EPS-PRIMARY> ($0.31)
<EPS-DILUTED> ($0.31)
</TABLE>
