Tellabs to Acquire Vivace

NAPERVILLE, Ill. -- Tellabs plans to acquire privately held Vivace Networks, a leading developer of flexible, high-performance multiservice IP (Internet Protocol) edge switches, for $135 million in cash and employee stock options. The move brings two complementary new products to Tellabs and enables the company to expand into the high-growth global service provider edge router and switch market, estimated at $3 billion in 2003 and growing to $5 billion by 2005, according to industry analyst Infonetics Research. Vivace Networks, a 4-year-old start-up based in San Jose, Calif., recognized its first customer revenues in 2002.

"Acquiring Vivace is the next step on Tellabs' path to profitable growth," said Michael J. Birck, chairman and chief executive officer of Tellabs. "This move enables Tellabs to offer exactly what our customers around the world are looking for -- a next-generation platform that helps service providers smoothly migrate from today's services to the most profitable data services of tomorrow."

"We're excited about bringing together Vivace and Tellabs, since our products complement each other perfectly and will combine to create even greater benefits for customers worldwide," said Ken Koenig, chief executive officer and co-founder of Vivace Networks. "We look forward to joining our strengths with those of Tellabs to create products that best fit customers' rapidly growing needs for the converged, multiservice networks of the future."

Tellabs' acquisition of Vivace Networks is expected to close in the third quarter, subject to Hart-Scott-Rodino and Vivace stockholders' approval. Tellabs plans to retain Vivace Networks' employees and offices in San Jose. Koenig will become Tellabs senior vice president, advanced data products, and report to Ed Kennedy, president of Tellabs North America.

"Tellabs will offer customers a complete multiservice IP switch solution that combines Layer 2 and Layer 3 switching at the edge of the network," said Kennedy. "By adding Vivace products to Tellabs' portfolio of carrier-class transport and access systems, we can help customers around the world reduce operating and capital expenses as they deliver profitable new IP and MPLS data services."

"The vision of converged multiservice edge networks is what will drive service provider capex in the long run," said Kevin Mitchell, directing analyst with Infonetics Research. "Many top tier service providers have spoken publicly about their goal of building an IP/MPLS network to deliver both new and legacy data services to their customers."

With the addition of Vivace, Tellabs will be able to offer leading telecom service providers a complete, global transport and data solution to address Layer 1, 2 and 3 network applications. Vivace is currently shipping two multiservice IP switches for the edge of the network that complement the Tellabs® 5000, 6000 and 7000 series of transport and access systems. Combining Tellabs and Vivace products enables data solutions that collectively manage traffic at Layers 0/1 of the network (the physical layer) and seamlessly pass these services to data networking elements that operate at Layer 2 (data link layer) to Layer 3 (network layer). This approach provides one of the most cost-effective and complete transport and data networking solutions for service provider customers worldwide.

Tellabs Inc.

Vivace Networks