Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. SUPPLY AGREEMENT Nortel Networks Agreement No: 011634 OPTICAL COMPONENTS SUPPLY AGREEMENT By and Between Nortel Networks...

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Exhibit 4.3

EXECUTION COPY

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

SUPPLY AGREEMENT

Nortel Networks Agreement No: 011634

OPTICAL COMPONENTS

SUPPLY AGREEMENT

By and Between

Nortel Networks Limited

And

Bookham Technology plc

TABLE OF CONTENTS

1.	DEFINITIONS	1
2.	SCOPE	5
3.	PRODUCTS	9
4.	NORTEL'S PRODUCT QUALIFICATION AND ACCEPTANCE PROGRAM	12
5.	PRODUCT AND PROCESS CHANGES	15
6.	CERTIFICATION, QUALITY CONTROL AND RELIABILITY REQUIREMENTS, CAPACITY PLANNING, SUPPLY MANAGEMENT AND NORTEL'S AUDITING RIGHTS	20
7.	ORDERING	22
8.	DELIVERY	25
9.	PRICES AND PAYMENTS	27
10.	INSURANCE, TITLE, AND RISK OF LOSS	30
11.	ACCEPTANCE OR REJECTION	31
12.	WARRANTY	31
13.	REPAIR PROCEDURES	33
14.	REPAIR SERVICES	35
15.	CONTINUING AVAILABILITY OF PRODUCT	38
16.	DOCUMENTATION	38
17.	CONFIDENTIAL INFORMATION	39
18.	INDEMNIFICATION	40
19.	HAZARDOUS MATERIALS	41
20.	COUNTRY OF ORIGIN, INTERNATIONAL TRADE	42
21.	COMPLIANCE WITH LAWS	43
22.	CONSEQUENTIAL DAMAGES AND LIMITATION OF LIABILITY	44
23.	FORCE MAJEURE	44
24.	TERM	44
25.	TERMINATION AND CONTINUING RIGHTS	44
26.	NOTICES	46
27.	GOVERNING LAW	46
28.	DISPUTE RESOLUTION	47
29.	GRANT OF LICENSE 29.1	47
30.	GENERAL	49

EXHIBITS

Exhibit A	—Product Lists, Share Allocation and Custom Products
Exhibit A-1	—Minimum Commitment
Exhibit A-2	—Products in Development
Exhibit B	—Specifications
Exhibit C	—Demand Pull
Exhibit D	—Monthly Reports
Exhibit E	—Procedures for Electronic Communication
Exhibit F	—Certification
Exhibit G	—Prohibited Manufacturers

This Optical Components Supply Agreement (this "Agreement") is entered into by and between Nortel Networks Limited, (hereinafter collectively referred to as "NNL") and Bookham Technology plc (hereinafter referred to as "BT").

WITNESSETH that the Parties agree as follows:

1. DEFINITIONS

1.1

As used herein:

(a): "Acceptance Date" has the meaning specified in Section 4.1.
(b): "Acceptance Program" has the meaning specified in Section 4.1.
(c): "Acquisition Agreement" means the Acquisition Agreement between the Parties, dated as of the Effective Date hereof.
(d): "AMPS Family" means components or subsystems that amplify an optical signal in digital optical communication systems.
(e): "ARO" means after receipt of a Purchase Order or Release.
(f): "Assist" mean goods and services supplied directly or indirectly, by Nortel or Nortel Affiliates to Supplier free of charge or at a reduced cost for use in connection with the production of imported goods, such as: raw materials, components, parts used or incorporated into imported goods; tools, dies, moulds and other equipment used to produce the finished goods; any materials used to produce the finished goods being imported; engineering, development work, art work, designs, plans, sketches undertaken anywhere other than the county of import.
(g): "Blanket Purchase Order" means an internal Nortel mechanism issued for Products to support the Demand-Pull Program. Blanket Purchase Orders (i) do not indicate a Delivery Date, (ii) may be issued by Nortel or Nortel Affiliate under the Demand Pull Program of this Agreement, and (iii) are non-binding except to the extent Releases are subsequently issued for specific quantities of the Products.
(h): "Business" means the Business as defined in the Acquisition Agreement.
(i): "Business Continuity Plan" means a plan to be put into effect if a site becomes unable to produce Products for any reason, including Force Majeure, for a period of more than five (5) continuous days.
(j): "Business Day" means any day other than a Saturday, Sunday, or any statutory holiday observed in the jurisdiction where a right is to be exercised or an obligation to be executed hereunder.
(k): "Change" has the meaning specified in Section 5.1.
(l): "Closing" means the Closing as defined in the Acquisition Agreement.
(m): 'Closing Date" means the Closing Date as defined in the Acquisition Agreement.
(n): "Committed Delivery Dates" means, as applicable, (i) the dates specified by Supplier for delivery of Products covered under each Nortel Forecast pursuant to the Demand-Pull Program; or (ii) the dates specified by Supplier for delivery of Products ordered by Nortel pursuant to a Purchase Order.

(o): "Delivery Date" means the date specified in a Release or as mutually agreed upon pursuant to a Purchase Order, in either event, when the Products are to be delivered.
(p): "Demand-Pull Program" means Nortel's ordering process as described in Section 7 (Ordering) and Exhibit C hereto.
(q): "Documentation" means the documentation as described in Section 16.
(r): "Effective Date" means the Closing Date as defined in the Acquisition Agreement.
(s): "Epidemic Failure" means that a [**] Product (whether in the installed base or in stock at Nortel, Nortel Affiliate, Nortel customers or distributors) has experienced in any [**] period a FIT rate, measured on Field Returns, in excess of [**] times the FIT rate as specified in the applicable Specification for the Product and such failure affects Product functionality.
(t): "Failures in Time (FIT)" means number of failures in one billion 1,000,000,000 (10⁹) hours of device operation.
(u): "Field-Replaceable Unit (FRU)" means replacement Product, parts, sub-assemblies, circuit cards, modules and other electronic and mechanical assemblies that may be replaced at an end-user location.
(v): "Flex" has the meaning specified in Section 7.1.6.
(w): "Forecast" has the meaning specified in Section 7.1.1.
(x): "FCA" has the meaning set forth in the International Chamber of Commerce document, "INCOTERMS 2000".
(y): "Intellectual Property License Agreement" means the Intellectual Property License Agreement between the Parties, dated as of the Effective Date.
(z): "Material Cycle Time" means the period which begins once Nortel receives seed stock; such period continues while Nortel ships to seed stock to customer, customer changes out unit, customer ships returned unit to Nortel, Nortel receives unit and ships to Supplier, and such period ends when Supplier receives unit.
(aa): "Mature Product" means a Product that has been accepted, in accordance with Section 4, for more than six (6) months.
(bb): "Nortel" means collectively NNL and Nortel Subsidiaries.
(cc): "Nortel Subsidiary" means a corporation or other legal entity in which NNL or Nortel Networks Corporation effectively owns or controls, and continues to own or control, directly or indirectly, more than fifty percent (50%) of the voting stock or shares, or other indices of ownership.
(dd): "No Fault Found (NFF)" means a Product returned or rejected by Nortel, due to a suspected fault but where Supplier does not detect a fault through testing and the Parties mutually agree to designate the returned component NFF.
(ee): "Party" means either of NNL and BT, as the context requires and "Parties" means both NNL and BT.
(ff): "Pre-Closing Design" means a design for a Product as it existed on or prior to Closing.

(gg): "Pre-Closing Process" means a Process qualified for manufacturing Products as it existed on or prior to Closing.
(hh): "Pre-Closing Products" means components manufactured and sold by the Business, prior to Closing, to Nortel and Nortel Affiliates; and in Nortel's, Nortel Affiliates' and other third party's stockrooms and customer locations.
(ii): "Prices" means the prices applicable to the Products and Repair Services determined in accordance with Section 9 and Exhibit A, which Prices are in US Dollars.
(jj): "Primary Sourced Products" means Products for which Nortel relies on Supplier for [**]% or more of its Product requirements, and which are indicated as such in Exhibit A hereof or as may be otherwise agreed.
(kk): "Process" means a set of interrelated resources, techniques and methods used in manufacturing the Products, which are specified and designed by designers/developers of the Products.
(ll): "Product and Process Technical Information" shall mean that technical information necessary for the manufacture of Products, including without limitation, all design, technical, and manufacturing information (including, drawings, specifications and circuit schematics) of assemblies, sub-assemblies and parts, sole source and other components (including the part number, name and location of the supplier), associated test requirements and lists of associated manufacturing tools and test equipment, as well as, repair and maintenance specifications and test procedures, as are used by Supplier for the manufacturing of Products.
(mm): "Product" means any component listed in Exhibit A, which may be modified, from time to time, by written agreement of the Parties; and "Products" means some or all of such Products. Whenever the term "product" is used in this Agreement with respect to any component, such term designates: a) other products of Supplier not yet accepted by Nortel in accordance with Section 4 (Nortel's Product Qualification and Acceptance Program); or b) products in development listed on Exhibit A-2. The term "products" means some or all of such products. For the avoidance of doubt, the term "product" shall not be deemed to include the term "Nortel product" or "NNL product" referred to anywhere in this Agreement.
(nn): "Purchase Order" means any discrete written purchase order issued by any means of transmission in respect of any Products or products. For greater clarity a Purchase Order does not include a Blanket Purchase Order or Release.
(oo): "Release" means a written release, including electronic release, issued pursuant to Section 7.1 or Exhibit C by any means of transmission, that is initiated by Nortel pursuant to a Blanket Purchase Order, and which specifies the Delivery Date for a specified Product. Each release shall include, at a minimum, the following information consistent with the terms and conditions of this Agreement: (i) the identity of the Products required and the quantity of each such Product, (ii) the Delivery Date(s) and delivery address(es) for each such Product and (iii) the agreed Price for each such Product (in accordance with Section 9 and Exhibit A).
(pp): "Repair Date" means the date on which the repair of a Product is completed and which is stamped on the Product according to Section 13.5.

(qq): "Repair Service" means, in the case of Products, the upgrade, the repair or replacement of defective Products as set forth in Section 14 (Repair Services) to be performed during and after the applicable Product Warranty Period (as defined in Section 12) in accordance with the provisions of this Agreement.
(rr): "Repair Services Pool" means a stock of FRU's that will be maintained by Supplier during the Term, as further described in Section 14.
(ss): "Series A Notes" means the Series A Notes as defined in the Acquisition Agreement.
(tt): "Series B Notes" means the Series B Notes as defined in the Acquisition Agreement.
(uu): "Services" means collectively assembly, customization, manufacturing, analysis, and test services, as may be agreed to from time to time, and Repair Services.
(vv): "Share Allocation" has the meaning specified to such term in Section 2.1 and Exhibit A hereof.
(ww): "[**] Products" means Products for which Nortel relies on Supplier for [**]% of its Product requirements and which are indicated as such in Exhibit A hereof or as otherwise may be agreed by the Parties.
(xx): "Specifications" means the technical specifications and the other requirements listed, described or referred to in Exhibit B, including the certifications listed in Exhibit F, acceptance test specifications, which are required to be met by the Products, and the Documentation, including any modifications or waivers of those specifications and requirements to which both Parties have agreed in writing.
(yy): "BT Subsidiary" means a corporation or other legal entity in which BT effectively owns or controls, and continues to own or control, directly or indirectly, more than fifty percent (50%) of the voting stock or shares, or other indices of ownership.
(zz): "Supplier" means BT and BT Subsidiaries.
(aaa): "Term" has the meaning specified to such term in Section 24 (Term) of this Agreement.
(bbb): "TxRx Family" means components or subsystems that convert an electrical signal into an optical signal or convert an optical signal into an electrical signal in digital optical communication systems.

1.2: Any reference in this Agreement to another agreement shall mean such other agreement as executed by the Parties thereto and all subsequent amendments to such agreement, unless otherwise explicitly stated.

2. SCOPE

2.1

Share Allocations and Minimum Commitment.

2.1.1: The Parties have had and continue to have a business relationship, which entails the cooperative sharing of information, and the development and manufacture of Products and products by Supplier for purchase by Nortel. The Parties are now entering into a series of agreements relating to the Business intended to bind the Parties to a closer working relationship. As partial consideration for entering into this closer relationship, each Party desires to commit to and bind the other to certain obligations, including those set forth in this Agreement. This Agreement requires that NNL purchase from Supplier a specific percentage of its requirements for specific Products, as specified in Exhibit A, ("Share Allocation"), as well as certain specific commitments as set out in Exhibit A-1 ("Minimum Commitment"). Except with respect to the products listed on Exhibit A-2 ("Products in Development"), NNL agrees to purchase from Supplier the specific percentage of its requirements for each specific Product as set out on Exhibit A, at Closing, during the initial three (3) years of the Term. Subject to the provisions of Section 2.1.2, NNL agrees to maintain the Share Allocation percentages specified in Exhibit A for the period commencing on January 1, 2004 until the end of the initial three (3) year term. The Share Allocation for Products in Development shall be as set forth in Exhibit A-2; provided however, that Supplier acknowledges that the Share Allocation for such Products in Development will be reduced, as specified in Exhibit A-2, when NNL develops second sources for such products. The Share Allocation for new products and Products in Development that are accepted as Products will be agreed to by the Parties at the time such new products are added to Exhibit A.
2.1.2: NNL's obligations with respect to the Share Allocation for a given Product are conditional upon the following: a) Supplier is not in breach of a material provision of this Agreement which affects or which is anticipated to affect such Product, which breach remains uncured for more than thirty (30) calendar days after receipt of notice, b) Supplier remains competitive with its competitors on the basis of Product price, Product performance, quality (return rate), delivery and customer service level with respect to such Product, and c) Supplier has Product available to meet the Target Product Total Stock for each Product in accordance with the terms of Exhibit C. Supplier acknowledges that the allocation of risk under the terms and conditions of this Agreement will have an impact on the cost of the Products to Nortel. For the purposes of clarity, the Parties agree that any cost that can be reasonably associated with the additional level of risk that Nortel has been required to assume under this Agreement (as compared to the level of risk that Nortel has assumed in its agreements with other suppliers, which agreements shall be of similar scope and shall be for products comparable to the affected Products in technical sophistication and manufacturing complexity) will be factored into the Price for the purposes of determining whether such Price is competitive.

2.1.3: For the avoidance of doubt, except as specified in Exhibit A and Exhibit A-1, this Agreement does not bind Nortel to purchase any particular Product or to purchase a specific quantity of Products, but requires that NNL purchase the Share Allocation of its total requirement for the Products as listed in Exhibit A, as such requirements are modified by the Forecasts. For the avoidance of doubt, NNL agrees and acknowledges that (a) the Share Allocation and Minimum Commitment are separate and distinct obligations of NNL, each of which must be satisfied and (b) purchases made to satisfy the Share Allocation shall be applied to satisfy the Minimum Commitment for the corresponding time period, if applicable, and vice versa. Exhibit A contains the estimated Product requirements of Nortel as of the date of this Agreement which is based upon the scenario Nortel currently expects for the 12 months following Closing. The Share Allocations specified in Exhibit A are the percentage of Nortel's Product purchases from Supplier, without regard to any changes in Nortel's estimated or forecasted amounts.
2.1.4: If in a given calendar half year, measured from January 1 to June 30 and July 1 to December 31 respectively, Nortel's aggregate purchases of a Product are less than [**] ([**]%) percent, but more than or equal to [**] ([**]%) percent, of the Share Allocation percentage set out in Exhibit A for such Product and Supplier is not in breach of the a material provision of this Agreement which affects or which is anticipated to affect such Product, which breach remains uncured for more than [**] ([**]) calendar days after receipt of notice, then NNL will purchase, in the next calendar quarter immediately following such half year, a quantity of that Product equal to the difference between the quantity of that Product actually purchased from Supplier by Nortel and Nortel Affiliates in that calendar half year and the quantity that Nortel and Nortel Affiliates would have purchased from Supplier in that calendar half year, if NNL had complied with the Share Allocation percentage.
2.1.5: If in a given calendar half year, measured in accordance with Section 2.1.4, Nortel's aggregate purchases of a given Product are less than [**] ([**]%) percent of the Share Allocation Percentage set out in Exhibit A for such Product and Supplier is not in breach of a material provision of this Agreement which affects or which is anticipated to affect such Product, which breach remains uncured for more than [**] ([**]) calendar days after receipt of notice, then NNL may at its option: a) purchase, in the first month of the next calendar quarter immediately following such half-year, a quantity of that Product equal to the difference between the quantity of that Product actually purchased from Supplier by Nortel in that calendar half-year and the quantity of Product that Nortel would have purchased from Supplier in that calendar half-year, if Nortel had met the Share Allocation percentage; or b) provide notice to Supplier, of its intent to pay and pay Supplier, within [**] ([**]) days of receipt of an invoice from Supplier, [**] ([**]%) percent of the aggregate value of the difference between the quantity that Nortel would have purchased from Supplier in that calendar half year if Nortel had met the Share Allocation percentage and the quantity of that Product actually purchased from Supplier by Nortel in that calendar half year, based on the Price for such Product during the calendar half year in question.
2.1.6: The remedies set out in Sections 2.1.4 and 2.1.5 shall be Supplier's sole remedies in the event of NNL's failure to meet the required Share Allocation.
2.1.7: As a general principle, subject to the Share Allocations set out in Exhibit A, Nortel is permitted to second source any of its needs from a third party.

2.2

Target Allocations

2.2.1: Provided Supplier is not in breach of a material provision of this Agreement with respect to the supply of any Product within the product family at issue, which breach remains uncured for more than [**] ([**]) calendar days after receipt of notice, during the first three (3) years of the Term, NNL will endeavor to purchase from Supplier a percentage of NNL's product family requirements as set out in the table below ("Target Allocations"):

		2002		2003		2004		2005
TxRx Family		[**]%		[**]%		[**]%		[**]%
AMPS Family		[**]%		[**]%		[**]%		[**]%

The Target Allocation will be measured on a calendar half-year basis on the aggregate value of Nortel and Nortel Affiliates purchases from Supplier for each product family during each calendar year, as a function of the aggregate purchases by Nortel and Nortel Affiliates, from all vendors of products, within each product family, that: a) Supplier is capable of manufacturing during the measurement period; b) Supplier has the capacity to manufacture during the measurement period; and c) Supplier's products have passed the Acceptance Program, in accordance with Article 4 ("Target Product").

Target Allocation
(By Product Family)

100% ×

Value of Nortel's and Nortel Affiliates' purchases from Supplier of Target Product Target

Value of Nortel's and Nortel Affiliates' purchases from all vendors of Target Product

2.2.2: With respect to the foregoing Target Allocations, Nortel and Nortel Affiliates will be deemed to have purchased from Supplier the value of any Product that Nortel and Nortel Affiliates purchased from other sources solely because the Supplier did not offer, during the relevant period, a Product that was competitive in terms of price, performance and availability.
2.2.3: The Parties will compare Nortel's and Nortel Affiliates' actual and deemed purchases under this Agreement against the Target Allocations on a calendar half-year basis. If NNL fails to meet the Target Allocations, such a failure will not constitute a breach of this Agreement and in the event of such a failure the Parties shall discuss actions to avoid similar occurrences in the future. NNL will have no liability or obligation if the Target Allocations are not met.

2.3

Nortel Subsidiaries and Nortel Affiliates

2.3.1: Supplier and NNL intend that NNL's contract manufacturers, non-controlled subsidiaries and such other third parties as may be designated by NNL from time to time, with the prior written approval of Supplier (collectively, "Nortel Affiliates") be permitted to purchase Products pursuant to the terms of this Agreement. In such event this Agreement shall be deemed to extend to and for the benefit of Nortel Affiliates as set forth in this Agreement. The Parties agree that each Nortel Subsidiary and Nortel Affiliate purchasing Products, including Custom Products, will agree in writing to be bound by the terms and conditions of this Agreement, and will have the rights and obligations of Nortel set forth herein with respect to the purchase of Products, including, without limitation, the right to place Purchase Orders together with the rights and obligations which accrue in respect of the Products or in respect of the ordering payment or delivery of such Products. For the purposes of giving effect to the above, where a Nortel Subsidiary or Nortel Affiliate purchases Products pursuant to this Agreement, where the context so admits, references to Nortel herein shall be deemed to be references to the relevant Nortel Subsidiary or Nortel Affiliate which is ordering and/or purchasing Products in accordance with the terms of this Agreement. In addition, where the context so admits, reference to Supplier herein shall be deemed to be references to the relevant BT Subsidiary, which is supplying Products in accordance with the terms of this Agreement. Each Blanket Purchase Order and release thereunder, and Purchase Order shall create rights and obligations solely between BT or BT Subsidiary which fulfils, and the Nortel Subsidiary or Nortel Affiliate which issues, the Blanket Purchase Order, and related Release and the Purchase Order. BT or BT Subsidiary is entitled to refuse any Blanket Purchase Order, Release or Purchase Order from a Nortel Subsidiary or Nortel Affiliate that does not meet BT's or BT Subsidiary's normal and commercially reasonable customer credit requirements for such a transaction, or for which BT and/or BT Subsidiary have a good-faith basis for believing that such Nortel Subsidiary or Nortel Affiliate will not or cannot comply with a material provision of this Agreement. Product purchases made by a Nortel Affiliate or Nortel Subsidiary will be counted toward the Minimum Commitment, Share Allocations in Exhibit A of this Agreement, and Target Allocations.
2.3.2: In the event that a dispute arises between Supplier and a Nortel Subsidiary or Nortel Affiliate, NNL will provide reasonable assistance to Supplier in enforcing the terms of this Agreement, as well as any Blanket Purchase Order, and related Release, or Purchase Order, as against such Nortel Subsidiary or Nortel Affiliate. Further, to the extent practicable, NNL will use diligent efforts to enforce any relevant contractual provisions NNL may have with such Nortel Subsidiary or Nortel Affiliate, to require such Nortel Subsidiary or Nortel Affiliate to comply with the terms of this Agreement.

2.4: The following Exhibits are an integral part of this Agreement and are incorporated by reference:

Exhibit A—Product Lists, Price, Share Allocation, and Custom Products
Exhibit A-1—Minimum Commitment
Exhibit A-2—Products in Development
Exhibit B—Specifications
Exhibit C—Demand Pull Program
Exhibit D—Monthly Reports
Exhibit E—Procedures for Electronic Communication
Exhibit F—Certification
Exhibit G—Prohibited Manufacturers

3. PRODUCTS

3.1

Custom Products

3.1.1: NNL and Supplier agree that the Products marked with a "C" in Exhibit A, as such Exhibit may be amended from time to time by agreement of the Parties, ("Custom Products") form a subset of the Products and are of special importance for Nortel to maintain its competitive position in the market place. It is agreed that: (a) these Custom Products shall be manufactured by Supplier for supply to Nortel only and (b) NNL will order [**]% of its requirements for Custom Products exclusively from Supplier and will not order such Custom Products from a second source, from the date any such Product is designated as a Custom Product until [**] ([**]) months after such Product ceases to be designated as a Custom Product; provided that NNL will not be prohibited from engaging a second source if Supplier is not fulfilling its obligations with respect to delivery or Product quality for such Custom Product.
3.1.2: Nortel may request Supplier to customize or modify any Product, product or Documentation. Supplier and Nortel will enter into good faith negotiations with respect to any request for customization including the establishment of a mutually acceptable price. Customization requirements, if any, shall be incorporated in the Specifications and the sale and purchase of any customized Product or Documentation shall be in accordance with the terms and conditions of this Agreement and Exhibits. For the avoidance of doubt, the Parties agree that a Product customized in accordance with this Section 3.1.2 shall not be deemed a Custom Product unless (a) the Product was previously designated a Custom Product pursuant to Section 3.1.1 above, or (b) the Parties otherwise mutually agree in writing.

3.1.3: In the event that, after a reasonable time and reasonable discussion between the Parties, an agreement cannot be reached on the customization or Supplier declines to carry out the customization, then subject to the term of Section 29, Nortel will be free to engage a third party to carry out the customization and Supplier agrees to reasonably cooperate with Nortel and such third party to effect the customization, including offering a license on commercially reasonable terms to such third party to effect the customization as more particularly set out in Section 29. In that event, Nortel may purchase any product that has been customized by a third party in accordance with this Section 3.1.3, directly from that third party, together with any required support for such product and the Share Allocation percentages for the affected Product shall be adjusted to take into consideration the fact that the Supplier declined such customization.

3.2: Branding

The Products will incorporate Nortel's branding requirements, which includes without limitation, Nortel's name, trademark and logotype, Nortel's color, Nortel's part number, Nortel's bar-codes and/or CLEI codes, and Nortel's technical handbook (standard xxxx color binder), all in accordance with the Specifications. Further, the packing material for each Product will incorporate Nortel's logotype and Nortel's box bar coding, applicable to each shipment. Nortel shall be solely responsible for supplying all the information required by Supplier to comply with the foregoing obligations.

3.3

Modifications; New Products

3.3.1: Nortel and Supplier may from time to time, by mutual agreement, modify the Product Lists contained in Exhibit A to add other products offered for sale by Supplier and/or to incorporate therein enhancements or new features introduced in Products by Supplier. Supplier shall advise Nortel and offer and make available to Nortel for incorporation in this Agreement, any new product or Product enhancement or new feature that Supplier makes generally available to third parties (collectively, "New Product"). The Share Allocation for such New Product will be agreed to by the Parties at the time such New Product is added to Exhibit A, giving consideration to applicable product family Target Allocation, NNL's then-current sourcing arrangements, and such New Product's competitiveness based on technology, quality, delivery and price.
3.3.2: With respect to any modifications (including enhancements or new features) introduced to a Product made specifically to Nortel specifications, Supplier will give Nortel notice of such modifications as per the terms of Section 26 of this Agreement.
3.3.3: With respect to New Products introduced that perform the same basic function as a Product and which Supplier makes generally available to third parties, Supplier will use its commercially reasonable efforts to give Nortel notice of such New Product within [**] ([**]) Business Days, but in no event later than [**] ([**]) Business Days, after Supplier's decision that such New Product meets Supplier quality, reliability and other standards for the sale of such products. If Nortel accepts Supplier's offer, the actual qualification of any such New Product under this Agreement will take place only after it complies with Nortel's acceptance requirements under Section 4. At the time any New Product is qualified as a Product under this Agreement, Exhibit A shall be amended to add the Prices, Share Allocation and the availability date applicable to such New Product.

3.4

Preferred Supplier Status

3.4.1: For present and future optical components (including Products in Development) required by NNL during the Term, which Supplier is capable of manufacturing, NNL and Supplier agree to take the necessary steps to add each such component as a Product under this Agreement and NNL agrees, upon completion of those steps, to purchase from Supplier a greater share of each such Product, than NNL purchases from any other supplier measured by Product volume over successive six month periods during the Term, ("Preferred Supplier Status"), giving consideration to the Target Allocations and NNL's then-current sourcing arrangements with other suppliers; provided, however, that (i) Supplier is able to provide NNL's volume capacity requirements for such Product; (ii) Supplier is able to deliver such Product on a timely basis in accordance with this Agreement; (iii) there are no material quality problems or issues with such Product; and (iv) the price for such Product, is competitive with other actual or potential sources of such component, taking into consideration any cost that can be reasonably associated with any additional level of risk that Nortel has been required to assume under this Agreement, as compared to the level of risk that Nortel has assumed in its agreements with other suppliers, (which agreements shall be of similar scope and shall be for products comparable to the Products in technical sophistication and manufacturing complexity).
3.4.2: If Supplier has Preferred Supplier status for a given Product pursuant to Section 3.4.1 and thereafter no longer satisfies one or more of the criteria described in subparts (i) through (iv) of Section 3.4.1 for such Product, NNL shall be relieved from giving Supplier Preferred Supplier Status for such Product and may adjust its purchases of such Product to levels appropriate to protect NNL's security of supply of such Product based on the severity and expected continuation of such issues.
3.4.3: Notwithstanding that Supplier meets all the conditions for Preferred Supplier Status outlined in Section 3.4.1 for a particular Product, NNL will not be in violation of its obligation to accord Supplier Preferred Supplier Status with respect to such Product to the extent that NNL has existing binding contractual commitments with other suppliers which are inconsistent with such Preferred Supplier Status for such Product. However, NNL will use reasonable commercial efforts to reduce such commitments to a sufficient level so that Supplier is accorded Preferred Supplier Status with respect to such Product as reasonably promptly as possible, so long as such reductions do not result in liability by NNL for liquidated damages, cancellation charges or similar liabilities or do not create a material risk of disruption to NNL's security of supply of the applicable components.
3.4.4: The parties shall hold periodic reviews at least quarterly and establish a communications mechanism to give each other early visibility into opportunities to work together as development collaborators or in a supplier-customer relationship. These opportunities shall include, in the case of Supplier, its new and potential product offerings and, in the case of NNL, opportunities for which Supplier might be considered as a potential supplier or a potential collaborator to engage in cooperative product definition or development activities.

3.4.5: For those opportunities for which Supplier wishes to be considered as a development collaborator or supplier and for which NNL reasonably concurs, NNL undertakes to make available to Supplier reasonable and appropriate NNL resources to work with Supplier to facilitate its analysis of such opportunities and Supplier's suitability to participate in such opportunities.
3.4.6: NNL will allow Supplier, with respect to all new components required by NNL which Supplier is reasonably qualified to provide and has or is expected to have the capability of manufacturing, to have at least an equal opportunity to submit a bid or proposal (a) for the initial supply of such components to NNL; and (b) to work with NNL to design Supplier's components offering into NNL's products and to engage in the requisite development with NNL to achieve such design.
3.4.7: The Parties shall set up reasonable mechanisms to publicize internally and otherwise facilitate the cooperative undertakings contemplated in Section 3.4.4, provided that such mechanisms will be designed so as not to place unreasonable demands on the resources or systems of either Party. Notwithstanding the undertakings of the Parties under the preceding sentence, if NNL through inadvertence fails to meet its obligations under Section 3.4.4, such a failure will not constitute a breach of Section 3.4.4 and in the event of such a failure the Parties shall discuss actions to avoid similar occurrences in the future. Nothing in Section 3.4.4 shall (i) obligate NNL to accept any Supplier bid; or (ii) prevent NNL, during or after the bidding process with Supplier, from soliciting and considering alternative bids from other suppliers; or (iii) prevent NNL from engaging in joint product definition or development activities with other parties.

4. NORTEL'S PRODUCT QUALIFICATION AND ACCEPTANCE PROGRAM

4.1: Supplier shall supply Products that comply with the Specifications. Except as otherwise set forth herein, prior to being purchased by Nortel, any new product, product listed in Exhibit A-2 as not having passed the acceptance program or a Product subject to a Change, as set out in Section 5, will undergo a program of evaluation, qualification and acceptance by Nortel, in consultation with Supplier ("Acceptance Program") to verify its compliance with the Specifications. With respect to each product that will be subject to an Acceptance Program in order to become a Product hereunder, the parties will agree on the date on which such Acceptance Program is to be completed and the product accepted ("Acceptance Date"). Products listed in Exhibit A have been accepted by Nortel, unless otherwise identified.
4.2: It is acknowledged by Supplier that circumstances may arise where Nortel will desire to purchase one or more products prior to acceptance in accordance with this Section 4. Such circumstances will be examined in good faith by the Parties on a case-by-case basis. In the event that Nortel requests to purchase such product and Supplier agrees to sell such products prior to its Acceptance Date, Nortel will issue Purchase Order(s) covering same. Purchase Orders for any product will be subject to this Agreement and all terms and conditions applicable to Products in this Agreement will apply to the products ordered by Nortel, unless otherwise agreed in writing.

4.3

Acceptance by Nortel of a product(s) will take place upon successful completion by Nortel of its verification that the product complies with the Specifications. The verification process shall be developed by Nortel, in consultation with Supplier. Nortel's development department will notify Supplier in writing of its acceptance of the products within [**] ([**]) Business Days from successful verification. Once such products have been accepted; and the Parties have agreed to Price and Share Allocation for same; such products shall become Products under this Agreement and shall be deemed to be included in Exhibit A. Once Nortel accepts a Product under this Acceptance Program for a specific application, the Product shall be qualified for supply to Nortel pursuant to the terms of this Agreement and Nortel will not impose any additional requirements on the Product in order for such Product to remain qualified hereunder, for such specific application, except pursuant to Section 5 of this Agreement (Product and Process Changes).

4.4

In the event that in the course of carrying out the Acceptance Program, Nortel reasonably determines that a product fails to comply with the Specifications, Nortel will promptly notify Supplier in writing of such failure, providing reasonable detail of the basis therefore. Upon receipt of such notice, Supplier will, take prompt and effective action, at its expense, to correct the notified deficiencies by the applicable Acceptance Date. In such case, acceptance of the product will take place upon verification by Nortel that the notified deficiencies have been corrected, and the accepted product shall become a Product hereunder and shall be deemed to be included in Exhibit A in accordance with Section 4.3.

4.5

In the event that acceptance of a product does not take place on or before the Acceptance Date, or in the event Nortel and Supplier, acting reasonably, do not expect that acceptance will take place on the Acceptance Date, then either Party may request that a design review be held between Supplier's and Nortel's engineers in order to determine a revised timeline for the product to achieve acceptance (the "Revised Acceptance Date"). In addition, if and to the extent that, the failure to accomplish acceptance by Supplier on the Acceptance Date is due to a failure by Supplier to diligently pursue the Acceptance Program, then Nortel may recover from Supplier the damages that Nortel is legally obligated to pay to its customer(s) as a direct result of the products not being accepted by the Acceptance Date; provided that:

(a): Supplier had written notice of such damages prior to Supplier's agreement on the Acceptance Date; and agreed in writing to be responsible for such damages after Supplier's agreement on the Acceptance Date; and
(b): in no event shall Supplier's liability per occurrence under this Section 4.5 exceed the lesser of (i) [**] percent ([**]%) of any such damages, or (ii) [**] Dollars ($[**]).

4.6: In the event that the product is not accepted by the Acceptance Date, or the Revised Acceptance Date, as the case may be, for reasons not attributable to Nortel, or Nortel Affiliate and Supplier has accepted Nortel's Purchase Order(s) for the product, Nortel may, in addition to its rights under this Section 4.6, request that Supplier provide, and in such event, Supplier will use diligent efforts to provide as an alternate solution, for purchase by Nortel, a functionally equivalent product acceptable to Nortel's customer(s) (if and to the extent that such functionally equivalent product is available). Supplier shall invoice Nortel for the price of such functionally equivalent product, which invoice shall be subject to this Agreement, and the terms and conditions applicable to Products in this Agreement shall apply to such functionally equivalent Products. Supplier will continue to use diligent efforts to make such functionally equivalent products available until the Product has successfully completed the Acceptance Program and has been successfully phased into Nortel's production. Once the Product has passed the Acceptance Program, and if Nortel desires to replace the functionally equivalent products with the Product, Supplier shall, at its own cost, supply to Nortel a sufficient amount of Product to enable Nortel to replace the functionally equivalent product with the Product. In the event that the amount paid by [**] for the functionally equivalent product [**], Supplier shall [**] of the Product being delivered to Nortel. In the event that the Price of the Product [**] for the functionally equivalent product, [**] of the Product being delivered to Nortel. For the purposes of clarity, [**] the amount paid by Nortel for the functionally equivalent product. Further, the purchases of the functionally equivalent product [**] for the applicable product family. The Parties shall work in good faith to minimize the cost to the other Party if a product is not accepted by the Acceptance Date.
4.7: In the event that either Party decides to terminate any Acceptance Program for any product prior to the Acceptance Date (or Nortel decides not to market or integrate into a Nortel system product, a Product which has successfully completed the Acceptance Program), the terminating party (or Nortel if Nortel decides not to market or integrate into a Nortel system product, a Product as described above) will reimburse [**]% of the out-of-pocket expenses, and [**]% of the labor costs that the other party has reasonably incurred or is reasonably obligated to incur, as a direct result of the Acceptance Program and its termination; provided, however, that no such payment will be made if the termination results from a breach by the non-terminating Party of any written commitment it has made to the terminating Party with respect to the Acceptance Program for such Product.

5. PRODUCT AND PROCESS CHANGES

5.1: Supplier shall notify Nortel in writing of all Supplier proposed modifications and changes that may affect processes, form, fit, function, reliability or performance to the Products, Nortel's products and/or Processes (including source changes that affect the performance of subcomponents or a change in manufacturing location) ("Change(s)"). Such notification shall be made by Supplier to Nortel within the duration specified in the relevant section of the Nortel's Specification Document NPS25268 covering supplier product change notifications, a copy of which has been provided by NNL to Supplier. Without limiting the generality of the foregoing notice requirements, any proposed Change to the Products in accordance with the classifications described in Telcordia (formerly Bellcore) GR-209-CORE (herein "GR-209") require that a notice be forwarded to Nortel; except, however, that no notice will be required for Class D Changes under GR-209 which do not affect form, fit, function or performance of the Product. Supplier shall comply with GR-209 only to the extent expressly set forth in this Section. Supplier's Change notifications shall be sufficiently detailed so as to disclose adequately the Change to Nortel.
5.2: Supplier's written Change notifications shall be numbered in a single sequential numbering scheme and shall include the information specified in GR-209 including the following: a detailed list of the Products and/or Processes affected and associated Changes that must be implemented in conjunction with or prior to the notified Change, the compatibility of the Change with the Products and/or Processes currently deployed, a detailed description of the reason for the Change, the effect on the Products and/or Processes once the Change is implemented and a summary of the procedure for implementation. In addition, a detailed description of the Change, the consequences if the Change is not implemented and the planned implementation date of the Change shall be included in the Change notification. Nortel will propose a disposition plan for Nortel's and its customers' stockrooms. Nortel will notify Supplier of the type and quantity of Products it requires for the implementation of the Change and the locations where such Products should be delivered, and the Parties will agree on the quantity of the Products to be supplied on the understanding that Nortel must be made whole as soon as practical. Supplier will stamp any changed Product with a serial number that clearly distinguishes it from the previous Product.
5.3: Nortel reserves the right to request reasonable test data associated with any Product Changes. Furthermore, in the event Nortel determines it is necessary to verify the Change prior to acceptance, under Section 4, Supplier shall supply, on loan and without charge, a sufficient production level quality Products for such verification, or offer some other alternative arrangement, reasonably satisfactory to Nortel, for such verification. All such Products furnished on loan will remain the property of Supplier, and will not be resold by Nortel, unless those Products are subsequently purchased by Nortel from Supplier.

5.4: Supplier shall not implement a Change without the prior written consent of Nortel, which consent may not be unreasonably withheld or delayed, however, any such consent will be conditioned on the Product or Processes affected by the Change being qualified in accordance with an Acceptance Program. If Supplier implements a Change without Nortel's prior consent, Nortel will have no obligations with respect to the changed Product. Supplier will make the unchanged Product available for purchase until the changed Product has successfully completed the Acceptance Program and has successfully been phased into Nortel's production, unless the Parties otherwise agree. Notwithstanding the foregoing, nothing in this Agreement shall be determined to prevent Supplier from making any changes to any Products, excluding Custom Products, for the benefit of any third parties not subject to this Agreement.
5.5: In the event that, during the Product Warranty Period [**], a Product experiences an Epidemic Failure, Nortel and Supplier shall, as expeditiously as possible, meet in good faith to decide if a Change is necessary and how the cost of such Change shall be allocated according to each Party's fault. In the event the Parties agree that a Change is necessary and the failure has been caused by a fault in a Pre-Closing Design or a Pre-Closing Process, Nortel and Supplier [**]. Where the Parties have agreed that a Change is necessary and to the extent that the failure has been caused by a fault in a Process or Product design other than a Pre-Closing Design or Pre-Closing Process, the cost of the Change [**]. If Nortel and Supplier mutually agree that a Change is necessary, Supplier shall, as expeditiously as possible, generate a Class A or AC Change, as defined in GR-209, to eliminate the defect and supply such Change to Nortel. If mutually agreed by the Parties to be required, Nortel and Supplier will develop a plan for a retrofit program for units of the failed Product. A retrofit program is a program that allows the Change to be implemented in all of Nortel's, Nortel Affiliate's and other third parties' stockrooms and customer locations within a period not to exceed [**] ([**]) calendar days from the date of Supplier's first knowledge or notice of the defect. A retrofit can only exceed [**] calendar days ([**]) if agreed to by Nortel's affected customers. The retrofit plan will be implemented by Nortel [**]; provided, however, that Supplier will [**] as determined above, [**] such retrofit program in the field, which costs shall consist of [**] the Field Replacement Units. The remedies set out in Sections 5.5 and 5.6 for Epidemic Failure are in addition to any other remedies available to Nortel at law or under this agreement.
5.6: Supplier shall provide, Class A seed stock units to support a retrofit program completion within said [**] calendar ([**]) days as set forth above in Section 5.5. The number of seed stock units will be calculated as follows:

Seed Stock Units = Material Cycle Time (Weeks) × Retrofit Rate

Retrofit Rate

Number of units to be retrofitted
Change Completion Date — Implementation Date

Upon completion of the retrofit program, Nortel will have no obligation to purchase any of the seed stock units. Further, Nortel may return seed stock units to Supplier and Supplier will treat such seed stock units as Product removed from the field during the retrofit program. The cost of providing such Class A seed stock units will be allocated according to the Parties relative liability as determined under Section 5.5 above.

5.7

Nortel shall provide Supplier with Nortel's Customer Product Code, the release number of the Product and the CLEI code of the Product, if required, for each Product Change under this Section. At Nortel's request, this information shall be placed on the Products incorporating the Change by Supplier in accordance with the Specifications.

5.8

Supplier shall provide Nortel with a field baseline report covering the Products which will include: part number, Current Revision Level, New Revision Level, Reason for Change, Parts affected by Change, Old and New Revision of printed circuit board ("PCB"), if applicable. This report will be updated whenever a Change to the Products is generated by Supplier. Supplier will use its diligent efforts to produce these updates within five (5) Business Days of each Change date.

5.9

Throughout the Term, Supplier shall, at Nortel's request, furnish to Nortel all Supplier data showing that a Product will continue to meet the original Specifications, if a proposed Change is made to a Product. If Nortel determines that such data is insufficient to determine such compliance with the Specifications, Supplier and Nortel will agree to any additional testing or qualification procedures that may be required to do so provided, however, that such testing or qualification procedures shall not impose any new requirements for compliance, in addition to those that were imposed under the original Acceptance Program for such Product, as it relates to the original application under Section 4.

5.10

Return Rate

5.10.1

Product Returns consist of three categories

(a): "Field Returns" means the number of units, within a product family, returned by Nortel's customers, excluding Other Returns;
(b): "Factory Returns" means the number of units, within a product family, returned for out-of-Specification performance prior to the said units being delivered to Nortel customers, excluding Other Returns and NFF;
(c): "Other Returns" means the number of units, within a product family, returned for out-of-Specification performance which is not caused by Supplier, including, but not limited to damaged connectors and damage due to shipping.

5.10.2: Supplier agrees that the Total Return Rate for a given Product (as determined by Supplier in accordance with the formula set out below) will not exceed the return rate set out in Exhibit A, or if applicable in the Product Specification ("Target Return Rate"). The Total Return Rate for a given Product will be calculated as follows:

Total Return Rate		=		Field Returns + Factory Returns over a six (6) month period Total units within a product family shipped during the same 6 month period
For the avoidance of doubt the provisions relating to Total Return Rate (including this section 5.10 and section 5.11) shall only apply to Mature Products.

5.10.3: Supplier will track the Total Return Rate on a monthly basis, and provide Nortel with monthly reports.

5.11

High Total Return Rate

5.11.1: (a) If the Total Return Rate for a given Product (as defined in Section 5.10 hereof) is higher than [**] ([**]) times the Target Return Rate, (a "High Total Return Rate"), Supplier and NNL shall confer to determine the cause of the High Total Return Rate, and Supplier shall promptly develop and adopt, in consultation with NNL, corrective measures to resolve the problem. NNL may take such interim action as is reasonably required to protect its source of supply of the Product, based on the severity and expected continuation of such issues and NNL's obligations with respect to Share Allocation for the affected Product will be reduced, to the extent Nortel is required to obtain the Product from an alternate source.

(b) If Supplier fails to promptly develop and adopt such mutually agreed corrective measures, or such corrective measures fail to reduce the High Total Return Rate for a Mature Product to an acceptable Total Return Rate within [**] ([**]) Business Days of adoption of such corrective measures, then NNL may reduce the Share Allocation for such Mature Product, by a further [**] ([**]%) percent per month, while the Total Return Rate exceeds the specified level, up to a maximum reduction of [**]%. For the purposes of clarity, the Share Allocation reduction set out in the previous sentence, is in addition to any Share Allocation reduction which occurs as a result of Nortel being required to obtain the Product from an alternate supplier to protect its security of supply.

5.11.2: Any occurrence of a High Total Return Rate may result in the cancellation of all orders, including Releases, for Products affected by the default in quality requirements (without Nortel incurring any liability or affecting Nortel's other remedies under this Agreement).
5.11.3: Once the High Total Return Rate issue giving rise to actions under Section 5.11.1 has been corrected, and the actual Total Return Rate does not exceed the Target Return Rate for the affected Product, then NNL will undertake to return the Share Allocations with respect to the affected Product to the original levels that existed prior to NNL exercising its rights under Section 5.11.1, taking into consideration, among other things, any binding contractual commitments NNL has made to alternate suppliers because of the prior reduction of the Supplier's Share Allocation for the Product. NNL shall endeavor not to enter into any agreement with an alternate supplier binding NNL to purchase a quantity or share of Products that is or will be in conflict with NNL's Share Allocation set forth in Exhibit A hereof.
5.11.4: In the event that Section 5.11.1 applies to a [**] Product, once the High Total Return Rate issue giving rise to actions under Section 5.11.1 has been corrected, and the actual Total Return Rate does not exceed the Target Return Rate for the affected Product, a [**] ([**]%) percent reduction in Price will be applied to the number of units purchased by Nortel equal to the number of defective units affected by the High Total Return Rate.

5.11.5: If NNL elects to reduce the Share Allocation for a particular Product, in accordance with Section 5.11.1(b), such reduction of the Share Allocation will be NNL's sole remedy for Supplier's failure to comply with the provisions of Section 5.10 of this Agreement. However, if NNL does not elect to reduce the Share Allocation in accordance with Section 5.11.1(b), NNL shall have the right to take any action or exercise any other right pursuant to this Agreement or applicable law.

6. CERTIFICATION, QUALITY CONTROL AND RELIABILITY REQUIREMENTS, CAPACITY PLANNING, SUPPLY MANAGEMENT AND NORTEL'S AUDITING RIGHTS

6.1

Certification

6.1.1: Nortel represents that on the Effective Date it has received ISO 9001 certification for the Business and TL 9000 certification for the Paignton facility. Supplier shall maintain the foregoing ISO 9001 and TL 9000 certifications in effect throughout the Term. Further Supplier undertakes to have all other facilities used by Supplier to manufacture Products, certified under ISO 9001 and TL 9000 on or before June 30, 2003 and shall maintain such ISO 9001 and TL 9000 certification for as long as such facilities are being used for manufacture of any Products under this Agreement.
6.1.2: Supplier will obtain the certifications set out in Exhibit F.

6.2

Quality Control and Reliability Requirements

6.2.1: It is acknowledged that Supplier will be taking over the operation of the Business at Closing and Supplier agrees that it will at least maintain Nortel's quality programs existing at the time of Closing in relation to the Business and will strive to improve performance with respect to those programs to meet Nortel's quality and reliability target metrics for the Products, such metrics to include, without limitation, mean time between failure, return rate and supplier product quality level.
6.2.2: Products furnished by Supplier shall be tested and inspected by Supplier prior to shipment in accordance with testing and inspection procedures mutually agreed, in writing, by Supplier and Nortel. Inspection records shall be maintained by Supplier and made available to Nortel upon request.
6.2.3: Supplier shall provide Nortel with a monthly report covering the items shown in Exhibit D and any other items reasonably required by Nortel in a format reasonably acceptable to Nortel.
6.2.4: Supplier shall report to Nortel in writing, within five (5) Business Days of becoming aware of an actual failure of any Product to conform to the Specifications.

6.3

Capacity Planning

6.3.1: Supplier shall implement a capacity plan to meet Nortel's and Nortel Affiliates' Products requirements and as such requirements are modified in the Forecast.

6.4

Supply Management and Business Continuity

6.4.1: The Parties will have monthly and quarterly business review meetings. During the regular monthly meetings which shall review capacity planning, Product cost road maps, competitiveness, supply management, Flex requirements and Forecasts with Nortel, Supplier will provide Nortel with a list of its suppliers (throughout the entire supply chain) of sole-source and critical components so that Nortel may have input and raise any concerns it may have with respect to such suppliers. Prior to these meetings, Nortel will provide Supplier with Nortel's 12 month view of its requirements for Products, anticipated new products, Product mix and any other significant matters that may impact Nortel's Forecast. The quarterly business review meetings will be a senior level review of the business between the Parties, including capacity and security of supply reviews. It is also agreed that Supplier will supply appropriate on-site personnel at Nortel's sites to facilitate this Agreement.
6.4.2: During the quarterly business reviews, Supplier will identify to Nortel in writing any sole source/critical components incorporated into the Products.
6.4.3: In the event Supplier desires to subcontract to a third party a part of its obligations under this Agreement, Supplier shall notify Nortel, including the name of the proposed subcontractor and the scope of the subcontract. Nortel will, as promptly as possible, but no later than five (5) Business Days after receipt of such notice, advise Supplier of any issues or concerns regarding such proposed subcontract and its impact on Supplier's performance of this Agreement. In the event Nortel raises issues or concerns about a proposed subcontract, the Parties shall meet and seek in good faith to agree on actions to be taken by Supplier to resolve Nortel's issues or concerns. Supplier will not implement a subcontract (a) without notifying Nortel and giving Nortel reasonable period of time to identify issues or concerns; and (b) if issues or concerns are identified by Nortel, without resolving them to the reasonable satisfaction of Nortel.
6.4.4: Supplier, in cooperation with NNL, shall develop and implement a Business Continuity Plan for each manufacturing site used to manufacture Products. Where a recent Business Continuity Plan exists on Closing for the Business, Supplier agrees to maintain the Business Continuity Plan currently in place. Supplier's goal is to be able to continue to produce Products in accordance with the time schedules required under this Agreement. Such Business Continuity Plan is expected to contain, at a minimum, provisions for documentation storage (product, process, fixture, tools), information systems technology redundancy, a demonstration of Supplier's capability to recover in an emergency if one of its own manufacturing facilities or processes becomes unable to produce Products and if one of its component suppliers or subcontractors experiences such an emergency.
6.4.5: Throughout the Term of this Agreement, Supplier shall provide NNL with access to the Business Continuity Plan and shall provide NNL with notification of any changes in the Business Continuity Plan to NNL within ten (10) Business Days of any change. Supplier shall put the Business Continuity Plan into effect if a site becomes unable to produce products for any reason, including Force Majeure, for a period of more than five (5) days. A period of Force Majeure or other event causing inability to produce Products shall be deemed to commence on the date that the event of Force Majeure or other such event first occurs.
6.4.6: NNL and Supplier shall review Supplier's Business Continuity Plan annually.

6.5

Nortel's Inspection Rights

6.5.1: Nortel employees whose job responsibilities encompass the responsibility to audit quality management, control and/or assurance of Nortel suppliers ("Quality Auditors") may inspect or test, at all reasonable times during Supplier's normal business hours and at Supplier's locations, any Products covered by this Agreement upon not less than five (5) Business Days prior written notice, but no more than six (6) times per calendar year, unless there are quality problems in which case NNL may inspect the problem location as many times as the Parties determine appropriate in order to rectify such quality issues. Supplier shall provide at no additional cost such facilities, labor, data, specifications, manuals and information as are reasonably required to allow Nortel Quality Auditors to perform a full range of quality assurance functions without unduly interfering with Supplier's normal day-to-day operations. Inspection of Products may be performed in whole or in part prior to final assembly and/or completion of manufacturing or repair Processes. Testing of Products may be performed only in the event that either Party has detected quality problems or failures relating to the Product being tested. Supplier will reasonably cooperate with Nortel to ensure that any contract manufacturer used by Supplier in relationship to the manufacturing or assembly of any Product will be subject to a similar standard of inspection and test as related to those Products as consistent with good commercial practice in that industry. NNL's Quality Auditors shall observe all of Supplier's site rules regarding safety, security, environment, health and other working practice, NNL shall have and maintain in force general liability insurance with limits of either (i) $5,000,000 combined single limit per occurrence for bodily injury and property damage or (ii) $3,000,000 bodily injury per occurrence and $2,000,000 property damage per occurrence.
6.5.2: Subject to the provisions of Section 4 hereof, any exercise of or failure by Nortel to inspect Products, Processes and Supplier's manufacturing locations shall not constitute, or be construed as acceptance of the Products and Processes by Nortel or as relieving Supplier from its obligation to furnish all Products under this Agreement.

7. ORDERING

7.1

Demand-Pull Program

7.1.1: For Products in the Demand-Pull Program, Nortel shall provide each week a twelve (12) month rolling forecast report ("Forecast") of its Products requirements. The first three (3) months of each Forecast will be detailed on a weekly basis. Supplier will respond on a monthly basis with a plan for the Committed Delivery Dates for the first three (3) months of a Forecast. The remaining nine (9) months of each Forecast will be detailed on a monthly basis. Releases under clause 7.1.5(a) below will be issued by Nortel on the basis of the then current Forecast.

7.1.2

Except as set out in Exhibit A and A-1, Supplier acknowledges and agrees that the Forecasts and Blanket Purchase Orders are issued for convenience only, and Nortel's issuance of a Forecast and/or Blanket Purchase Order is not a purchase of Products or commitment to purchase any quantity of the Products identified in the Forecast and/or Blanket Purchase Order. Neither Party is legally bound to purchase or sell Product on the basis of a Blanket Purchase Order. Releases will be issued by Nortel in accordance with Nortel's requirements. On a quarterly basis the Parties will agree upon targeted Product stocking requirements for Supplier stated on a Finished Goods ("FG") and Work-In-Process ("WIP") basis, (collectively, "Target Product Total Stock") which Target Product Total Stock will be set out in Exhibit C.

7.1.3

Nortel shall purchase all FG and WIP, held in stock at Supplier, as agreed by the Parties. In the event Nortel is required to purchase WIP, it will be valued at [**]% of the Product Price. If Products constituting FG are not purchased by Nortel within [**]([**]) days of becoming FG, both parties shall negotiate to arrive at a mutually acceptable disposition of such FG. If such disposition is not agreed to by Supplier and Nortel within [**] ([**]) days after the beginning of negotiations, the FG shall be shipped and invoiced to Nortel.

7.1.4

FG will be maintained at a delivery location (the "Proximity Warehouse") in a close and mutually agreeable proximity to Nortel System Houses or other Nortel designated destinations, such as but not limited to Nortel Affiliates locations or facilities under Nortel's Vendor Managed Inventory Program. All inventory, logistic costs (including but not limited to freight, duty, customs brokerage), taxes and other charges associated with delivering the Products to the Proximity Warehouse will be borne by Supplier.

7.1.5

With respect to the Demand-Pull Program:

(a): Supplier shall manufacture Product as per weekly Forecasts, but shall ship Products only per latest Release from Nortel. A Release will not exceed the Forecast plus Flex (as defined below).
(b): Supplier shall maintain FG and WIP stocking quantities as agreed, such FG and WIP quantities to be updated monthly as Forecast requirements change.
(c): Supplier shall provide to Nortel's designated purchasing department representative a weekly report of Supplier's FG and WIP status.

7.1.6

Supplier will make reasonable efforts, to target NNL's schedule flexibility objectives ("Flex"), NNL Flex objectives will be updated at each Quarterly Business Review. NNL's short term Flex objectives through to [**] are as follows:

(a): [**]% increases in Product demand, within [**] weeks of request by Nortel;
(b): [**]% increases in Product demand within [**] weeks of request by Nortel; and
(c): [**]% increases in Product demand within [**] weeks of request by Nortel.

NNL's long term Flex objectives will be discussed at each Quarterly Business Review. NNL's long term Flex objectives, as of the Effective Date, for 2004 and the remainder of the Term are as follows:

(a): [**]% increases in Product demand, within [**] weeks of request by Nortel;

(b): [**]% increases in Product demand within [**] weeks of request by Nortel; and
(c): [**]% increases in Product demand within [**] weeks of request by Nortel.

All percentages are based on increases or decreases from the current Forecasted demand.

Where the Supplier has acquired inventory as part of the Acquisition Agreement, Supplier will use such inventory to provide additional flexibility.

7.2: Notwithstanding that a Blanket Purchase Order, a Release or a Purchase Order issued in respect of Products does not refer to this Agreement, any such Blanket Purchase Order, Release or Purchase Order issued by Nortel during the Term shall be deemed to have been issued pursuant to this Agreement and shall be deemed to incorporate and be governed solely by the terms and conditions set forth in this Agreement unless the Parties expressly agree in writing to the contrary. Subject to the following sentence, any standard and pre-printed terms and conditions contained in any Blanket Purchase Order, Release or Purchase Order or in any Supplier's acknowledgment, invoice or other documentation shall be deemed deleted and of no force or effect. Any additional typed and/or written terms and conditions contained in any Purchase Order or Release and any Supplier's acknowledgment, invoice or other documentation shall be for administrative purposes only, i.e., to identify the types and quantities of Products to be supplied, line item Prices and total Price, delivery schedule, and other similar ordering data, all in accordance with the provisions of this Agreement.
7.3: Nortel shall not be obligated to purchase any quantities of Products hereunder, except that Nortel will be obligated to purchase: (a) the Share Allocation and Minimum Commitment for Products as shown in Exhibits A and A-1; and (b) any quantities required in order to satisfy Nortel's obligations to purchase Products pursuant to the Demand-Pull Program as expressly set forth in Section 7.1; provided, however, that any quantities purchased to satisfy such Demand-Pull Program obligations will also be considered in determining whether NNL has satisfied its Share Allocation and Minimum Commitment as set out in Exhibits A and A-1. Supplier acknowledges that no minimum line item value or minimum order values shall apply in order for Supplier to ship Products to Nortel.
7.4: Supplier shall supply to Nortel the Products contained in the first three months of the Forecast. Supplier shall acknowledge receipt of: each Release within two (2) hours ARO if received during normal business hours; and each Blanket Purchase Order or Purchase Order within two (2) Business Days ARO if received during normal business hours.
7.5: Any change to the first three months of the Forecast (or to a Release or Purchase Order) shall be mutually agreed ("Change Order"), referencing the original Forecast or Release or Purchase Order. In the event that the Change Order affects work already performed, the adjustment of the Forecast, Release or Purchase Order Product price shall include reasonable charges incurred by Supplier related to such work. No such changes shall be performed until a Change Order has been agreed by the Parties in writing.
7.6: In addition to Products purchased through the Demand-Pull Program, as described in this Section, Nortel may from time to time, on an ad hoc basis submit Purchase Orders for Products or Services to Supplier. Such Purchase Orders may only be accepted by Supplier on a commercially reasonable basis.

7.7: At its discretion Nortel may issue Blanket Purchase Orders, Releases and Purchase Orders by electronic communication, as described in Exhibit E.

8. DELIVERY

8.1

Products ordered pursuant to this Agreement shall be shipped by Supplier FCA from the Proximity Warehouse to be received by Nortel by the Committed Delivery Date. No partial shipment shall be made without Nortel's prior consent.

8.2

Supplier shall package the Products in accordance with the packing and external marking practices agreed upon by Nortel and Supplier which shall comply with any criteria set forth in the Specifications.

8.3

Supplier shall xxxx each Product with Supplier's model number and where practical, the description of the Product and its revision level.

8.4

In the event Supplier, for any reason whatsoever, fails to deliver Products to meet a Committed Delivery Date and such failure results in a disruption to Nortel's manufacturing or delivery routines, unless such failure is attributable to force majeure or any wrongful act or omission of NNL, Nortel Subsidiary or Nortel Affiliate, NNL may, by written notice to Supplier, at its option:

(a): cancel the affected quantity of Products in such Purchase Order or Release (without incurring any liability to purchase from Supplier such quantity or affecting its other remedies under this Agreement) and reduce the relevant Target Product Total Stock (as set out in Section 7.1) by an amount not greater than the affected quantity of Products, and Nortel may thereafter purchase the affected quantity of Products (or equivalent products) from third parties and such purchases will count toward Nortel's Share Allocation, Target Allocations and Minimum Commitments; or
(b): allow Supplier to make partial and/or late shipment of some or all of the affected quantity of Products, in which case Nortel will pay for Product actually shipped.

Nortel may, without liability, reschedule the Committed Delivery Date for Products provided such rescheduled Committed Delivery Date shall not exceed thirty (30) Business Days from the date the Products were originally scheduled to be delivered, and such rescheduling shall not prejudice Nortel's obligations pursuant to Section 7.1 for such Products.

8.5

Supplier will notify Nortel of any anticipated delay in meeting a Committed Delivery Date specified in any Purchase Order or Release and shall reasonably co-operate with Nortel in the implementation by Supplier of any appropriate action or workaround plans with a view to enable Nortel to satisfy its customers' requirements. Upon receiving notification of the anticipated delay, Nortel may, by written notice to Supplier, at its option:

(a): permit Supplier to make a partial shipment of Products;
(b): permit Supplier to substitute products acceptable to Nortel until the Products are delivered; or
(c): permit Supplier to implement a workaround plan acceptable to Nortel and Nortel's customers.

8.6

In the event a delay in delivery is attributable to force majeure, and such delay lasts more than thirty (30) days, the Parties shall make a joint effort to find a solution; provided, however, that, in the event any delay attributable to force majeure extends for a period such that Nortel's manufacturing or delivery routines are materially adversely affected, Nortel shall have the right, without obligation or liability, to cancel any Release or Purchase Order affected by such delay.

8.7

Regardless of the Committed Delivery Dates, it is the Parties intent that Supplier's delivery performance will be measured against its ability to meet customer requested dates ("CRD"), among other metrics. CRD is defined as the date Nortel or Nortel Affiliates request that the Product be delivered. These requests for Products will include all forecasted demand plus Flex as determined pursuant to Section 7.1.6. For greater certainty, Supplier will not, in any way, be in default of this Agreement if it does not meet any CRD.

8.8

Delivery Performance

8.8.1

If Supplier is in default of meeting Nortel's requirements under this Section 8.8, Supplier must advise Nortel, in writing within five (5) Business Days. NNL may take such interim action as is reasonably required to protect its source of supply of the affected Product, based on the severity and expected continuation of Supplier's inability to meet Nortel's delivery requirement, and NNL's obligations with respect to Share Allocation for the affected Product will be reduced, to the extent Nortel is required to obtain the Product from an alternate source. Supplier will be in default of its commitment to meet Nortel's requirements if any one of the following occurs due to any reason other than force majeure or the fault of Nortel or Nortel Affiliate (a "Delivery Default"):

(a): 3 consecutive weeks with a Delivery Performance (as defined below) to Committed Delivery Dates below [**]%, or
(b): 4 nonconsecutive weeks within a 13 week period, with a Delivery Performance to Committed Delivery Dates below [**]%.

where Delivery Performance shall be calculated as follows:

Delivery Performance

100% ×

On-time deliveries with respect to Committed Delivery Dates made over a one week period

Total deliveries made with respect to Committed Delivery Dates over the same one week period

8.8.2: If a Delivery Default occurs with respect to a Mature Product, NNL is permitted to reduce the Share Allocation for such Mature Product, by a further [**] ([**]%) percent per month, up to a maximum reduction of [**]%, for each consecutive month that a Delivery Default occurs until the problem is corrected. For purposes of this Section 8.8.2, a Delivery Default is deemed to occur in a month if the last week that constitutes such default, i.e., the third week for Section 8.8.1(a) and the fourth week for Section 8.8.1(b), ends in a given month. For the purposes of clarity, the Share Allocation reduction set out in the previous sentence, is in addition to any Share Allocation reduction which occurs as a result of Nortel being required to obtain the Product from an alternate source to protect its source of supply for such Product.

8.8.3: Any default in meeting Nortel's delivery requirements may result in the cancellation of all orders, including Releases, affected by the default in delivery performance (without Nortel incurring any liability or affecting Nortel's other remedies under this Agreement).
8.8.4: Once the delivery performance issue giving rise to actions under this Section 8.8 is corrected then Nortel will undertake to return the Share Allocations with respect to the affected Product to the original levels that existed prior to Nortel exercising its rights under this Section 8.8, taking into consideration, among other things, any binding contractual commitments Nortel has made to alternate suppliers because of the prior reduction of the Supplier's Share Allocation for the Product. NNL shall endeavor not enter into any agreement with an alternate Supplier binding NNL to purchase a quantity or share of Products that is or will be in conflict with NNL's Share Allocation set forth in Exhibit A hereof.
8.8.5: In the event that Section 8.8.1 applies to a [**] Product, and NNL is entitled to lower the Share Allocation for such [**] Product as provided in Section 8.8.2, then NNL may, as an alternative to reducing the Share Allocation for such Product, lower the Share Allocation, of a different Product in accordance with Section 8.8.2 and 8.8.4 so as to effect a similar financial impact on Supplier.
8.8.6: If NNL elects to reduce the Share Allocation for a particular Product, in accordance with 8.8.2, such reduction of the Share Allocation will be NNL's sole remedy for Supplier's failure to comply with the provisions of Section 8 of this Agreement. However, if NNL does not elect to reduce the Share Allocation in accordance with Section 8.8.2, NNL shall have the right to take any action or exercise any other right pursuant to this Agreement or applicable law.

8.9: In the event Products ordered by Nortel or Nortel Affiliates are not delivered on the Committed Delivery Date; and Nortel or Nortel Affiliates are required to obtain the Product, or a functional equivalent, from an alternate source; NNL's obligations with respect to Share Allocation for the affected Product, will be reduced in accordance with Section 8.8; and Target Allocation, and Minimum Commitment will be reduced, to the extent Nortel or Nortel Affiliate is required to obtain the Product from an alternate source.

9. PRICES AND PAYMENTS

9.1: The Price for each Product supplied to Nortel are set forth in Exhibit A and shall be firm for the period commencing on the Effective Date and ending [**]. Thereafter, Prices will be reviewed and agreed to every six months as set out in Section 9.4 and shall be firm for the six month period following each such review. Notwithstanding the preceding two sentences, Prices will be adjusted to take into account any price reductions and volume discounts agreed to between the Parties.
9.2: Product Prices are: (a) FCA (from Proximity Warehouse) to the delivery location specified by Nortel, including packaging; and (b) exclude all applicable federal, provincial and local taxes.

9.3: To the extent that Supplier's records may be relevant in determining whether Supplier is complying with the [**] requirements in Section 9.5, NNL shall have the right upon at least ten (10) Business Days prior written notice, to have a qualified independent third party auditor reasonably acceptable to both Parties examine not more frequently than once per year, and during normal business hours, such records of Supplier as may, under recognized accounting practices, contain information bearing upon the Product Prices. NNL will be responsible for the cost of such audit, unless it is determined that Supplier is in breach of Section 9.5, in which case Supplier will reimburse NNL for the cost of such audit.
9.4: The Parties shall review the Prices charged for each Product supplied to NNL hereunder twice annually, in December and June, with the new Prices coming into effect in January and June of each year, unless the Forecast volumes change significantly (more than [**]% up or down between Forecasts) in which case the Prices may be reviewed quarterly. The Parties agree that the Price for each Product in effect on Closing Date will be reduced by: (a) [**]% for the period commencing July 1, 2003 and ending December 31, 2003; and (b) an additional [**]% for the period commencing January 1, 2004 and ending June 30, 2004. Thereafter, Nortel expects that market conditions will require a [**]% annual price reduction, year over year. Notwithstanding anything else in this Agreement to the contrary, Prices for Products shall be set by Supplier, in consultation with NNL, giving consideration to market conditions, and subject to the other provisions of this Section 9. For the purposes of clarity, the Price, with respect to Products on Exhibit A at Closing, will not be a factor in determining Share Allocation during the period commencing on the Effective Date and ending on [**].
9.5: Supplier further represents and warrants that the [**] Products and Repair Services supplied hereunder [**] Products and Repair Services or for products or services interchangeable with, or equivalent to, the Products and Repair Services, during the same time period, in similar quantities for delivery in the same geographic area, and with similar terms and conditions (including warranty, delivery, intellectual property and other terms).
9.6: [**], as identified in Section 9.5 above, Supplier will [**], and [**]. This Agreement will be amended [**]. In the event that the Parties are unable to agree on the applicability of this Section 9.6 in any particular instance, then the Parties shall first appoint a qualified independent auditor, reasonably acceptable to both Parties, to make an independent assessment of the applicability of this Section 9.6 according to recognized industry and accounting standards. The Parties shall share equally the cost of such auditor. If, after receiving the auditor's assessment, the Parties are still unable to agree on the applicability of this Section 9.6, then each Party shall be entitled, subject to the dispute resolution procedures set forth in Section 28 hereof, to exercise and right or seek any remedy available to them under this Agreement, whether under contract, tort or otherwise.
9.7: If Nortel cancels a Release or Purchase Order, Supplier will use all reasonable efforts to minimize any costs related to the Products (e.g., returning excess components to suppliers or reducing cancellation costs to suppliers).

9.8: Nortel shall pay Supplier, upon invoice, the amount of any applicable sales tax, use or service tax, goods and services tax and value added or similar taxes that Supplier may be required to collect because of its performance under or in connection with this Agreement (except for any franchise tax, withholding tax (as described below) or any tax imposed on Supplier's net income). Supplier shall identify any such tax as a separate item on each invoice (unless taxes are required under the law of the relevant jurisdiction to be included in the price). Supplier agrees not to assess these taxes where Nortel furnishes Supplier with a tax exemption certificate, a certificate of authority, a direct pay permit and/or any equivalent document acceptable to the applicable taxing authority. Nortel shall withhold any applicable withholding taxes required under the applicable law from any payments made to Supplier pursuant to this Agreement. To assist Supplier in obtaining any tax credits for the amounts withheld, Nortel shall furnish Supplier with such reasonable evidence as may be required by the applicable taxing authorities to establish that such withholding tax has been paid. Supplier shall reimburse Nortel to the extent taxes paid by Nortel are recovered by Supplier from the taxing or governmental authorities. To the extent such items may only be refunded to Nortel by the taxing or governmental authorities, Supplier agrees to reasonably cooperate with Nortel in obtaining a refund or reimbursement of such taxes.
9.9: Payment shall be due to Supplier from Nortel [**] ([**]) calendar days following the receipt by Nortel of an invoice for the Products, Repair Services or other services for which Supplier is entitled to receive payments hereunder. All invoices for Products shall be delivered to Nortel no earlier than the Delivery Date of the Products.
9.10: North Optical Components Limited, North (U.K.) Limited and North HPOCS Inc., on its own behalf or on behalf of NL, North Subsidiary or North Affiliate, will have the right to make payment of up to [**] ([**]%) of any amounts owed hereunder, for any Products, products or Services, purchased in any calendar quarter that are in excess of the quarterly purchase targets set forth below, by surrendering an equivalent portion of the amounts due in respect of the Series B Notes or, if no Series B Notes remain outstanding, an equivalent portion of the amounts dues in respect of the Series A Notes.

	Quarterly Target Purchases
	Series A	Series B
4Q02	$[**] million	$[**] million
1Q03	$[**] million	$[**] million
2Q03	$[**] million	$[**] million
3Q03	$[**] million	$[**] million
4Q03	$[**] million	$[**] million

For the avoidance of doubt, the quarterly target purchases, are targets set to trigger the surrendering of the Series B Notes and Series A Notes, as a result of the aggregate value of purchases under this Agreement. The quarterly target purchases do not constitute an obligation or commitment on the part of Nortel or Nortel Affiliates to purchase such target levels.

9.11: Invoices for Products delivered hereunder, and for any other amounts which may be payable hereunder shall be forwarded directly to the appropriate Nortel location as directed by Nortel from time to time in writing.

10. INSURANCE, TITLE, AND RISK OF LOSS

10.1

Insurance

10.1.1: General Liability Insurance.

Supplier shall maintain during the Term of this Agreement, with insurers acceptable to Nortel and under policies the wording of which shall be subject to the approval of Nortel, the following insurance coverages:

(a): general liability insurance (including contractual, products liability and broad form vendors' endorsement) with limits of either (US) $10,000,000 combined single limit per occurrence for bodily injury and property damage or (US) $6,000,000 bodily injury per occurrence and (US) $4,000,000 property damage per occurrence;
(b): workers' compensation insurance and other employee insurance coverages required by law, and employer's liability insurance with limits of (US) $1,000,000;
(c): owned or non-owned automobile liability with limits of (US) $1,000,000; and
(d): Errors & Omissions insurance with limits of not less than (US) $10,000,000.

Such insurance shall be primary and non-contributory (except in respect of Errors & Omissions referred to in subparagraph (d) above, which may be primary and non-contributory as regards negligence or negligent acts, as applicable) with respect to any insurance that Nortel may have and each applicable Nortel Subsidiary and Nortel Affiliate shall be named under the Supplier's general liability insurance as an additional insured with a cross-liability endorsement.

10.1.2: Property and Business Insurance

Supplier shall provide evidence satisfactory to Nortel that its property and business are adequately insured against all risks of loss or damage, including business interruption, for at least the amount of the Maximum Foreseeable Loss as defined within the insurance industry.

10.1.3: Business Continuity

Supplier acknowledges that the existence, content and adequacy of its Business Continuity Plan in accordance with the requirements under Section 6.4.4 hereof shall be used by Nortel as part of initial and ongoing assessment criteria for review of Supplier's overall performance under this Agreement. Supplier shall use commercially reasonable efforts to maintain a suitable level of property protection (including, where appropriate, sprinklers, earthquake bracings, flood protection, windstorm protection, maintenance, regular testing and inspection etc.) to meet or exceed the level maintained by Nortel on Closing in relation to the Business. NNL shall notify Supplier in writing of such levels maintained on Closing. NNL and/or its insurance companies shall be allowed to inspect any site at any time, at NNL's sole expense, not more than twice every year, upon reasonable written notice during normal business hours and to recommend to Supplier any appropriate protection improvements. NNL and Supplier shall review any recommendations made as a result of such inspection and Supplier shall implement any reasonable recommendations that may reduce business continuity exposures in the most effective manner

10.1.4: Certificate of Insurance Prior to the commencement of the Term and upon reasonable demand of Nortel thereafter, Supplier shall furnish to Nortel a certificate or certificates of insurance evidencing that all insurance required in this Section 10.1 is in effect. The certificate shall also state that Nortel shall be notified in writing by Supplier's insurance carrier(s) at least thirty (30) days prior to any cancellation and, to the extent not prohibited by law, such certificate shall also require notification of material change in terms and conditions of insurance and/or exhaustion of the aforementioned limits. Supplier shall in such event furnish a new certificate in the event of cancellation or expiration of any insurance evidencing that replacement coverage is in effect.

10.2: Title to the Products and risk of loss of and damage to the Products will pass to Nortel upon delivery FCA at the delivery location specified by Nortel.

11. ACCEPTANCE OR REJECTION

11.1: Nortel reserves the right to accept or reject Products ordered hereunder after the delivery of such Products to Nortel's facility or, as the case may be, to a Nortel customer's site. A rejection must be based on Nortel's reasonable good-faith belief that the Products meet the criteria for rejection set out in 11.2 below, or that their delivery does not comply with the requirements of this Agreement. Products shall be deemed accepted by Nortel unless Nortel notifies Supplier that such Products are rejected and provides the reasons for such rejection within thirty (30) Business Days after Nortel's receipt thereof at its facilities or, when the Products are received at a Nortel customer's site, as the case may be, upon completion of installation and testing of the Products or thirty (30) Business Days after such receipt of the Products at Nortel customer's site, whichever event occurs first.
11.2: If any Products are found not to be in substantial conformance with this Agreement, including the Specifications, applicable Purchase Order or Release, and/or in the event that excessive failures are observed by Nortel with respect to Products contained in a lot/shipment, Nortel shall have the right, notwithstanding the warranty provisions contained in this Agreement, to at its option (a) reject the lot/shipment and cancel the affected Purchase Order or Release, (b) require that such Products be replaced or repaired, where possible, within one (1) Business Day for Releases and within ten (10) Business Days for Purchase Orders at Supplier's risk and expense (including shipping charges) or (c) if Nortel has already paid Supplier for the Products, Nortel may require Supplier to issue a credit memo to Nortel for the amount paid for the returned Products. Any notice of rejection issued by Nortel under this Section 11.2 will include a reasonable description of the deficiencies.
11.3: Payment or acceptance by Nortel shall not be deemed to constitute a waiver of the rights which Nortel may have resulting from Supplier's delivery of faulty or defective Products.

12. WARRANTY

12.1

Supplier warrants that:

(a): Products shall, at the actual delivery date, be new and free and clear of all security interest or other lien or any other encumbrance;

(b): for a period of 12 months from the actual delivery date (such period being hereinafter referred to as the "Product Warranty Period"), the Products shall be free from any defect in materials or workmanship, or any other condition, which causes the Products to fail to conform to and operate in accordance with the Specifications; and
(c): with the exception of any notice which may be provided by Supplier pursuant to Section 19 or as noted in the relevant Specifications, the Products furnished by Supplier, and used in accordance with professional standards and any written instructions provided by Supplier to Nortel, are safe for normal use, are non-toxic, present no abnormal hazards to persons or their environment, and may be disposed of as normal refuse without special precautions.

12.2: The warranty in Section 12.1(b) does not apply to items normally consumed in operation, such as lamps and fuses and to any defect which has been caused by NNL, Nortel Subsidiary, Nortel Affiliate or any of their end customers.
12.3: Supplier shall, at its expense, during the Product Warranty Period, provide Repair Services in accordance with Section 14 in respect of Products which have failed to conform to the warranty in Section 12.1(b).
12.4: Product supplied under Section 14 pursuant to Supplier's warranty obligations under this Section 12.1(b), shall be functionally equal to or better than the vintage of the replaced unit.
12.5: Product repairs or replacements effected during the Product Warranty Period shall be warranted, as provided in Section 12.1, for the remainder of the Product Warranty Period or for a period of nine (9) months from the Repair Date or replacement date, whichever is longer. Product repairs or replacements effected after expiry of the Product Warranty Period, in accordance with Section 13 and 14, shall be warranted, as provided in Section 12.1 and the warranty period for such repaired or replacement Products with respect to the warranty in Section 12.1 (b) shall be for a period of nine (9) months from the Repair Date or the replacement date, as applicable. All transportation and insurance expenses arising from shipping the non-conforming Products to, and the repaired or replacement Products from, Supplier during the Product Warranty Period shall be paid by Supplier.
12.6: Supplier represents and warrants that all services provided under this Agreement will be provided in a highly professional manner consistent with applicable industry practice.
12.7: Supplier warrants and covenants that: (a) it does not and will not employ or otherwise use, directly or indirectly, any forced, bonded or involuntary labor or employees or contractors that are younger than the minimum age legally entitled to work in each applicable jurisdiction in which the production effort is conducted or in which BT or any BT Subsidiary carries on business; and (b) to the best of its knowledge, upon inquiry, no supplier or other subcontractor of Supplier employs or otherwise uses, directly or indirectly, any forced, bonded or involuntary labor or employees or contractors that are younger than the minimum age legally entitled to work in each applicable jurisdiction in which the production effort is conducted or in which BT or any BT Subsidiary carries on business.
12.8: The above warranties shall survive inspection, acceptance and payment.

12.9: Upon mutual agreement of the parties, Nortel may repair or replace any defective Product on its own or arrange for such repair, replacement or correction by other entities, and Supplier shall reimburse Nortel for all reasonable costs and expenses so incurred by Nortel during the applicable Product Warranty Period.
12.10: EXCEPT FOR THE EXPRESS WARRANTIES STATED IN THIS AGREEMENT, SUPPLIER DISCLAIMS ALL WARRANTIES ON PRODUCTS AND SERVICES FURNISHED UNDER THIS AGREEMENT, EXPRESS OR IMPLIED, ORAL OR WRITTEN INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF CONDITION, VALUE, MERCHANTABILITY NON-INFRINGEMENT, VALIDITY, COMPLETENESS OR FITNESS OR SUITABILITY FOR A PARTICULAR PURPOSE. TO THE EXTENT THAT REPAIR OR REPLACEMENT OF PRODUCTS WILL SATISFY SUPPLIER'S WARRANTY OBLIGATIONS UNDER THIS SECTION 12, SUCH REMEDY SHALL BE NORTEL'S AND NORTEL AFFILIATES' SOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF THE WARRANTIES SET OUT IN THIS SECTION 12.

13. REPAIR PROCEDURES

13.1

This Section 13 shall be applicable to the providing of Repair Services described in Section 14 by Supplier during and after the Product Warranty Period for Products and Pre-Closing Products (collectively "Repair Products").

13.2

Prior to returning any defective Repair Products to Supplier's repair location, Nortel will notify Supplier orally of the defect, if known at that time, and will request authorization from Supplier for the return of such Repair Products. Upon such request, Supplier shall provide Nortel with a Return Material Authorization ("RMA") number to be prominently displayed on the shipping container for the defective Repair Products and advise Nortel of the repair location to which the Repair Products should be returned.

13.3

In all cases covered in Section 14, Nortel shall then ship such Repair Products to Supplier, freight prepaid and properly insured. Nortel shall prepare proper export documentation as per Supplier's instructions, evidencing Nortel's ownership of the Repair Products.

13.4

Nortel shall furnish the following information in writing with Repair Products returned to Supplier for Repair Services:

(a): Nortel's or the Nortel Affiliates' name and complete address;
(b): quantities and model numbers of Repair Products being delivered for repair;
(c): the nature of the defect or failure, if known;
(d): Purchase Order number under which repairs are to be made, if Repair Product is no longer under warranty;
(e): name(s) and telephone number(s) of Nortel's employee(s) or other designated persons to contact in case of questions about the Repair Products;
(f): ship-to address or Nortel's location to which repaired or replacement Repair Products should be returned; and
(g): whether or not returned Repair Products are under warranty.

13.5: Supplier shall date stamp each repaired and returned or replacement Repair Product with the Repair Date and type of repair "pre fix" as per GR-209 specifications and the Specifications. Repair Product repaired by Supplier shall be stamped in accordance with requirements outlined in Telcordia TR-NWT-000078. Without limiting the generality of the foregoing, the stamping shall include the Repair Date stencilled or otherwise identified in a permanent manner at a readily visible location on the Repair Product, unless otherwise directed by Nortel.
13.6: Supplier shall promptly provide a written notice to Nortel with the name(s) and telephone number(s) of the individual(s) to be contacted concerning any questions that may arise with respect to the Repair Services, and if required, specify any special packing of Repair Products which might be necessary to provide adequate in-transit protection from transportation damage.

Supplier will:

(a): track any defective Repair Product by its unique serial number throughout the repair process;
(b): repair and update the Repair Products to the minimum field baseline;
(c): return the same Repair Product shipped by Nortel for repair. If the returned Repair Product's serial number has changed, Supplier will put the following on repair tag originally provided by Nortel: (i) old serial number, (ii) new serial number and (iii) reason(s) for change; and,
(d): target to complete the Same-for-Same process within 10 calendar days of having received the defective Repair Product, but in not event will the Same-for Same process exceed thirty (30) calendar days after receiving the defective Repair Product, unless Nortel agrees in writing to an extension and Supplier provides Nortel with a replacement Product at no charge. The Parties acknowledge that on Closing the Business completes the Same-for-Same process with a mean time of 14 calendar days after receiving the defective Repair Product.

13.7

Once Repair Products that are out of warranty have been repaired or replaced by Supplier, Supplier shall reissue to Nortel an invoice for the charges applicable to the providing of Repair Services for such repaired or replacement Repair Products. Supplier's invoice shall contain the following:

(a): Nortel's Purchase Order number for the Repair Services;
(b): a detailed description of the Repair Services provided by Supplier and the need therefor;
(c): quantities and model numbers of Repair Products repaired or replaced and associated repair charges;
(d): total amount payable including applicable shipping and insurance charges and sales or excise taxes; and
(e): an address to which payment should be sent.

13.8: The repaired or replacement Repair Products shall be delivered by Supplier to the destination specified by Nortel, freight prepaid and properly insured. Supplier shall prepare proper export documentation as per Nortel's instructions, evidencing Nortel's ownership of the Repair Products.

13.9: Supplier shall promptly notify Nortel of returned Repair Products which are found by Supplier to be beyond repair. Repair Products shall only be considered beyond repair after agreement of the Parties to that effect.
13.10: Nothing in this Agreement shall be construed as giving Supplier an exclusive privilege to repair any Repair Products covered under this Agreement, provided that during the Product Warranty Period Supplier will be the exclusive repair provider or the warranty will be voided.

14. REPAIR SERVICES

14.1

This Section 14 shall be applicable to the providing of Repair Services by Supplier during and after the Product Warranty Period with respect to Repair Products.

14.2

To order Repair Services after expiry of the applicable Product Warranty Period, Nortel shall issue a Purchase Order and such Purchase Order shall contain the description of the requested Repair Services as set forth in Section 13 above.

14.3

Repair Services shall be provided by Supplier at no charge to Nortel during the Product Warranty Period. For Repair Services for Repair Products not covered by warranty, the repair fees will be equal to Supplier's then standard fees for such or similar services.

14.4

Spares

14.4.1: At Supplier's factory or at a location agreed upon by the parties, Supplier will store the Repair Services Pool. The quantity of spares will be agreed on in writing by the parties, based on the (a) volume of Products delivered, (b) the applicable mean time between failure rates, and (c) Nortel's desire to provide its customers with immediate Product replacement. Supplier will not use the Repair Services Pool for retrofits or upgrades. The parties may agree in writing to change the quantity of spares, based on changes in the installed base of Products.
14.4.2: At all times Supplier will maintain the agreed quantity of spares in the Repair Services Pool. However, Supplier will be responsible to ensure that the Repair Services Pool will be sufficient to provide Nortel with FRU replacement Product within [**] ([**]) Business Days of (as applicable) (a) Nortel' request for a replacement, (b) Supplier's failure to repair by the end of the Repair Period, or (c) the parties' agreeing that the Product is uneconomical to repair ("UTR").
14.4.3: The Repair Services Pool may consist of stock of new FRU's or previously used FRU's, refurbished to conform to the Specifications. Spares added to the Repair Services Pool will (a) be functionally equal or better than the inventory being replenished, (b) be backward compatible, and (c) meet the minimum field baseline. Supplier may provide new Products as spares.

14.5: Information about the status of Repair Products being repaired will be included in the Monthly Report described in Exhibit D of the Agreement.

14.6: Fast Cycle Failure Analysis

During the Repair Period (as defined in Section 15.3), Supplier shall perform a Fast Cycle Failure Analysis ("FCFA") at no cost to Nortel on Repair Products which have caused any service interruption in the field or as may otherwise be reasonably requested by Nortel. Nortel will request a separate RMA number for each Product returned for a FCFA. A FCFA shall be performed by Supplier in accordance with the following additional requirements:

(a): FCFA shall include a detailed root cause analysis, using engineering tools such as Environment Stress Screening ("ESS") and any other tools which may be required to determine the cause of the failure.
(b): Supplier shall track the defective Repair Product by its unique serial number throughout the repair process.
(c): Supplier shall return, after having repaired and updated the defective Repair Product at a minimum to its release vintage, the exact same Repair Product having the same serial number. If the serial number has to change for any reason, Supplier shall, on the "repair tag" originally provided by Nortel, document the following information: old serial number, new serial number and reason(s) for change. This information will also be documented in the FCFA report. The Repair Product shall not be "upgraded" to other than the actual unit release vintage until root cause analysis is completed and the Repair Product successfully passes the complete test cycle. The Repair Product shall not be repaired without completion of the FCFA activity.
(d): Supplier shall return the repaired Repair Product (i) with a written report documenting all findings as a result of the FCFA (ii) an invoice for the repair services in accordance with the then-current prices for such services, unless the Repair Product is still under warranty or if the defect was caused by an Epidemic Failure within the period specified in Section 5.5 of this Agreement.
(e): Supplier shall endeavor to complete the FCFA process within [**] ([**]) calendar days of having received the defective Repair Product at the Repair Location, but in no event will the FCFA process exceed [**] ([**]) calendar days except with respect to die problems and other problems reasonably requiring extensive analysis. In the case of a die problem or other problem reasonably requiring extensive analysis, the Parties acknowledge that the FCFA process may not be completed within [**] ([**]) calendar days, however, Supplier will complete the FCFA process as expeditiously as possible. Nortel shall provide all available technical information to allow Supplier to understand the circumstances and environmental conditions that led to the failure of the Repair Product.
(f): Supplier shall inform Nortel of the return Repair Product shipping information as soon as it is available. The shipping information will include date shipped, carrier, waybill number and any other information that will help Nortel expedite the return of the Repair Product.
(g): In the event that the results of the FCFA indicate deficiencies with the Repair Product caused by Supplier, then Supplier will modify all deficient Products during the Product Warranty Period and for four years thereafter, in the case of Epidemic Failure, to eliminate such FCFA indicated deficiencies. Such modifications will be implemented in accordance with Section 5.

14.7

Products accepted by Nortel and found defective within the first [**] ([**]) calendar days from their initial utilization at customer site, (referred to as "Dead On Arrival' ("DOA") or Early Life Failure ("ELF") shall be returned to Supplier along with the RMA documentation. Nortel will immediately notify Supplier of a DOA/ELF Product and Supplier will immediately ship a new Product to the location indicated by Nortel. Returned DOA/ELF Products shall, at no charge to Nortel, be tested through adequate functional tests including full functional tests and ESS when necessary in order to provide a root cause analysis. After testing, Supplier shall then repair, re-xxxxxxx, (and, at Nortel's option and expense, upgrade to the latest version or release) and stamp (with the repair date) DOA/ELF Products. Such DOA/ELF Products will be considered new Products. Supplier will update Nortel in writing with the findings of the root cause analysis as well as with the corrective plan of action. Supplier will maintain data on Repair Product return rates and No Fault Found Products. Supplier and Nortel will work diligently on root cause analysis and corrective action plans for each cause of a Repair Product return or No Fault Found Product, with priority given to the causes which occur most frequently. Unless otherwise agreed by the Parties, Supplier will exercise diligent efforts to provide a preliminary written report to Nortel, within [**] Business Days of receipt by Supplier of the returned Product and a final written report, outlining the cause of the Repair Product failure, as expeditiously as possible and within [**] calendar days of receipt by Supplier of the returned Product. The priorities and progress on these root cause analyses and corrective action plans will be reviewed by the Parties at their regular program reviews.

14.8

No Fault Found

14.8.1: Supplier will return the NFF Products to Nortel, using Nortel' chosen carrier. Supplier will take no more than [**] Business Days from the later of its receipt of Nortel' PO or receipt of the returned Products to test the Repair Products and return them to Nortel.
14.8.2: If NFF Products are more than [**] percent ([**]%) of the Repair Product repairs and returns as defined in the Specifications, Supplier and NNL will enter into good faith discussions to investigate the cause of the NFF, including an analysis of outgoing and incoming test procedures against agreed Specifications. Subject to the foregoing, Supplier will use diligent efforts to implement a plan to correct the NFF occurrences in accordance with a time table mutually acceptable to the Parties, giving consideration to NNL's customer requirements. Supplier will include the analysis results and the plan in the Monthly Report described in Exhibit D.

15. CONTINUING AVAILABILITY OF PRODUCT

15.1: Unless otherwise agreed in writing by the Parties, Supplier shall not discontinue the production or sale of a Product without having first given Nortel at least [**] months advance notice, and in the case of Custom Products, [**] Products or Primary Sourced Products [**] months advance notice, (the "MD Notice"). The date of discontinuance of manufacture of the Product will be the "MD Date". Supplier will negotiate in good faith any request by Nortel to extend the MD Date to a date later than [**] months after the date of the MD Notice.
15.2: No later than [**] months prior to the MD Date, Nortel may place a "Last Time Buy" Purchase Order at the Price in effect one day prior to the MD Notice, for a quantity of the Product not to exceed Supplier's annual manufacturing capacity for that Product. Supplier will deliver the Last Time Buy order in accordance with the delivery schedule agreed upon by the Parties, provided however that Supplier will not be required to exceed or increase its production capacity for the Product; and the entire Last Time Buy quantity must be delivered no later than [**] months after the MD Date.
15.3: For a period of [**] years after the earlier of (a) the MD Date or (b) the expiration or termination of this Agreement the ("Repair Period"), Supplier agrees to diligently endeavor to: 1) provide Repair Services on Products ordered hereunder and; 2) offer for sale to Nortel, functionally equivalent maintenance, replacement and repair parts as may be necessary for the continued maintenance of such Products or; 3) together with Nortel find a mutually acceptable third party subcontractor to provide Repair Services on Products.
15.4: The terms of this Section 15.4 apply, for each Product, during the period in which Supplier is supplying that Product hereunder until the MD Date for that Product, Supplier will identify to Nortel the components (if any) of a Product for which there is only one supplier and which are critical to the Product. For any such components, Supplier will use reasonable commercial efforts to ensure that Supplier's supplier gives Supplier at least eighteen months prior written notice before discontinuing the manufacture of that component. Upon receipt of such notice, Supplier will consult with Nortel to determine the appropriate course of action to ensure continuity of supply of the Product, which may include making a last time buy.

16. DOCUMENTATION

16.1: Supplier shall provide to Nortel, at no charge, for each type of Product delivered one (1) set of (a) Supplier's promotional materials for the Products and (b) the following materials ("Documentation") in accordance with the Specifications: all Product descriptions, planning guides, operations manuals, installation manuals, and maintenance manuals normally provided by Supplier to customers to facilitate their installation, use, and maintenance of the Products.
16.2: Supplier hereby grants to Nortel, at no charge, the right to use, copy, modify, translate and distribute to Nortel's customers and potential customers, Supplier's promotional materials for the Products, the Product Documentation furnished hereunder and other material relating to the Products made generally available by Supplier to its customers and to use such material to further Nortel's marketing efforts with respect to the Products. Nortel shall not remove, and shall reproduce, any and all proprietary rights notices from and on the Documentation, including Supplier's name and logos, on any and all copies of the Documentation permitted to be made hereunder.

17. CONFIDENTIAL INFORMATION

17.1

It is expected that the Parties will disclose to each other certain business, marketing, technical, scientific or other information of either Party, including, without limitation, the Specifications which, at the time of disclosure, is designated as confidential (or like designation) or which would reasonably be considered to be confidential information ("Confidential Information"). With respect to such Confidential Information, this Section 17 will apply, to the exclusion of any other confidentiality, non-disclosure or similar terms in any other agreements between the Parties. Each Party recognizes the value and importance of the protection of the other's Confidential Information. All Confidential Information of a Party disclosed to the other Party shall remain solely the property and a trade secret of the disclosing Party, and its confidentiality shall be maintained and protected by the other Party with the same degree of care used to protect its own proprietary and confidential information of a similar nature, but no less than reasonable care, to prevent the unauthorized use, dissemination or publication of the Confidential Information. Except to the extent required or expressly permitted by this Agreement or otherwise authorized in writing by the disclosing Party, the receiving Party agrees not to use in any manner the other's Confidential Information or to disclose it to any of their employees not having a need to know for the purposes of this Agreement or to any third party. The receiving Party's employees (and the employees of the receiving Party's controlled subsidiaries) having a need to know the Confidential Information for the purpose of this Agreement may receive disclosure of the Confidential Information. The confidentiality obligations contained herein shall survive the expiration or termination of this Agreement for a period of five (5) years, unless otherwise agreed in writing.

17.2

Confidential Information shall not include information which:

(a): now is, or hereafter becomes, available to the public through no act or omission of the receiving Party; or
(b): is documented as being known by the receiving Party prior to its disclosure by the other Party; or
(c): is independently developed by the receiving Party by persons who have not had access to the Confidential Information and without recourse to any Confidential Information received under this Agreement and is so documented; or
(d): is lawfully obtained by the receiving Party from a third party or parties without breach of confidentiality obligations or is disclosed hereafter to the receiving Party by a third party who did not acquire the information directly or indirectly from the disclosing Party; or
(e): is disclosed in response to a valid order of a court or other governmental body or any political subdivision thereof, but only to the extent and for the purpose of such order and only if the receiving Party, to the extent possible, first notifies the disclosing Party, of such order and permits and reasonably assists it in seeking an appropriate protective order.

17.3: Subject to the non-compete obligation of NNL set forth in Section 5.23 of the Acquisition Agreement between the Parties, nothing in this Agreement shall be interpreted or construed to limit either Party's right to perform or to continue to perform its own independent research, development, manufacturing or marketing of any type of products or systems even if such research, development, manufacturing or marketing pertains to technology or products similar to the Products.

17.4: Prior to the publication or use by a Party hereto of any advertising, sales promotions, press releases or other publicity matters relating to the Products or this Agreement in which the name or logo of the other Party is mentioned or language from which the connection of said name can be reasonably inferred or implied, including any public statement about the relationship between the Parties, each Party shall obtain the prior written consent of the other Party. The terms and conditions of this Agreement including, but not limited to, Prices, the Product Lists, discounts and other information contained in Exhibit A hereto, shall be held in confidence by both Parties and only disclosed as may be agreed to in writing by both Parties or as may be required to meet securities disclosure or export permit requirements. Neither Party shall make public statements or issue publicity or media releases with regard to this Agreement or the relationship between the Parties without the prior written approval of the other Party.

18. INDEMNIFICATION

18.1

Supplier agrees to indemnify, defend and hold Nortel harmless from all claims, damages, liabilities, settlements, losses, costs and expenses (including reasonable attorneys' fees) (collectively "Claims") arising out of or related to any claim that the use, manufacture sale and/or distribution of any Product purchased under this Agreement, infringes or violates any patent, copyright, trade secret or other intellectual property right ("Infringement Claim"). This indemnity shall not apply to the extent that such Claim is based on (i) use manufacture, sale and/or distribution of the Product in a manner that is not contemplated by this Agreement, the Specifications or the Documentation, or has not otherwise been approved by Supplier; (ii) use manufacture, sale and/or distribution of the Product in combination with products or services not provided by Supplier where such combination is not reasonably contemplated by this Agreement or authorized by Supplier and where such infringement would not occur in the absence of such combination; provided, however, this sub-clause (ii) shall not apply to any Product that is designed into an NNL product (or that is reasonably contemplated for incorporation into such NNL product) unless Supplier has previously notified Nortel that the combination is not authorized; (iii) modification of the Product if the infringement or misappropriation arises from such modification, and if such modification is not authorized by Supplier; (iv) continued use of the Product after the Supplier has provided a non-infringing replacement for the Product; or (v) any design or special instruction supplied by Nortel or Nortel Affiliate, after Closing, where such infringement or misappropriation would not occur in the absence of the adoption of such design or special instruction. Nortel agrees to indemnify, defend and hold harmless Supplier from and against any Infringement Claims to the extent such Infringement Claims arise from or relate to items (i) through (v) above.

18.2

In the event of an adjudication that the Product infringes any patent, copyright or other intellectual property right or misappropriates any trade secret of a third party, as its sole option and expense, Supplier may take the following actions with respect to such Product:

(a): secure for Nortel the right to continue using, selling and distributing the Product; or
(b): replace or modify such Product to make it non-infringing or non-misappropriating, but with substantially equivalent functionality and capabilities to enable Nortel to continue to use, sell and distribute the Product as it had before the infringement or misappropriation occurred; or

(c): if Supplier has used diligent efforts to take the actions described in (a) and (b), but has been unsuccessful, Supplier may accept the return of the Product and refund to Nortel all amounts paid for such Product, as well as compensate Nortel for reasonable labour costs associated with collecting and returning the Product.

18.3

Supplier shall indemnify and save harmless Nortel from and against any Claims which arise directly from any injury or death to persons or loss of or damage to property which is caused directly by a Product ("Product Liability Claim").

18.4

The rights of indemnification are set out in Section 18.1 and 18.3 are subject to the following:

(a): The indemnified Party shall provide prompt written notice to the indemnifying Party of the Claim and facts giving rise to a right of indemnification under this Agreement.
(b): The indemnifying Party shall be given the right to assume control of the defense of any such of such Claim and the indemnified Party, as its own expense, shall have the right to participate in such defense with counsel of its own choosing.
(c): The indemnified Party shall provide all reasonable assistance to the indemnifying Party with respect to the defense of the claim including, without limitation, making available records, documents, and witnesses, and provided that the indemnifying Party pays all reasonable out-of-cost expenses associated with such assistance.
(d): The indemnifying Party shall vigorously and diligently defend such proceedings to final conclusion, but shall not enter into any settlement or compromise, or consent to the entry of any judgement, that affects the rights of the indemnified Party without the prior written consent of the indemnified Party, which consent will not be unreasonably withheld.

18.5: The indemnity obligations under the foregoing provisions shall survive the termination or expiration of this Agreement.
18.6: Nothing contained in this Agreement shall be deemed to grant, either directly or indirectly or by implication, any license under any patents or patent applications of Supplier, except that Nortel shall have the normal non exclusive, royalty-free license to use that which is implied or otherwise arises by operation of law, in the sale, resale or distribution of the Products.

19. HAZARDOUS MATERIALS

19.1: Supplier shall identify and list in a written notice forwarded to Nortel all of the hazardous or toxic materials which are contained in the Products, which notice will be updated promptly by Supplier to reflect new information, changes or new Products.
19.2: Supplier shall indemnify Nortel for any reasonable expenses (including the cost of substitute materials, less accumulated depreciation) that Nortel may incur by reason of the recall or prohibition against continued use or disposal of the Products furnished by Supplier, whether such recall or prohibition is directed by Supplier, or occurs under compulsion of law. Nortel shall cooperate with Supplier to facilitate and minimize the expense of any recall or prohibition against use of the Products directed by Supplier or under compulsion of law.

19.3: Supplier shall indemnify, defend and hold harmless Nortel from any claims, demands, suits, judgments, liabilities, damages, fines, costs and expenses including, without limitation, reasonable attorneys' fees which Nortel may incur under any of the laws, rules and regulations applicable to any hazardous/toxic substances contained in the Products (whether or not identified by Supplier pursuant to Section 19.1) or any amendment to said statutes by reason of Nortel's acquisition, use, sale or disposal of the Products furnished by Supplier; provided that Nortel is in compliance with Supplier's reasonable written instructions regarding proper use of the Products.
19.4: The right of indemnification under this Section 19 shall be subject to the procedures set forth in Section 18.4 hereof.

20. COUNTRY OF ORIGIN, INTERNATIONAL TRADE

20.1

Country of Origin Declaration and Marking

20.1.1: Supplier shall certify to Nortel the correct country of origin of each Product, determined in accordance with the rules of origin set out under the applicable laws and treaties, on a periodic basis as required by Nortel for the purposes of allowing Nortel to provide certification of origin in accordance with such rules, laws and treaties. Supplier shall use commercially reasonable efforts to notify Nortel at least thirty (30) days in advance of any change in the origin of a Product. Supplier shall maintain supporting documentation sufficient to meet the requirements of any audit of the origin information by Nortel or by any governmental entity. Supplier shall cooperate with Nortel in any audit relating to this Section at NNL's expense, unless it is determined that Supplier has not complied with its obligations hereunder, in which case Supplier will reimburse NNL for the cost of such audit.
20.1.2: Supplier shall obtain from each of its suppliers the appropriate certificate of origin of any material used in manufacturing a Product, including any subcomponent(s), ("Materials") and shall provide to Nortel quarterly a report identifying which suppliers of Materials have, and which suppliers have not, certified the country of origin for all Materials supplied by it to Supplier for manufacture of the Products.
20.1.3: All Products must be marked with their country of origin. The degree of permanence of the origin marking on the Product shall be sufficient to ensure that, in any reasonably foreseeable circumstance, the marking shall remain on the Product throughout its expected life. Both the Product's immediate packaging and the outermost containers shall also be marked to indicate the country of origin. Supplier shall be solely responsible for all fines, penalties, costs and seizures resulting from inadequate marking, packaging or labelling of Materials and Products provided by Supplier hereunder except to the extent such inadequacy was attributable to the fault of Nortel.

20.2: Exports

Each Party agrees that it shall not knowingly (i) export or re-export, directly or indirectly, any technical data (as defined by the U.S. Export Administration Regulations or any other jurisdiction with import or export restrictions), including software received from the other under this Agreement or (ii) export or re-export, directly or indirectly, any direct product of such technical data, including software, to any destination to which such export or re-export is restricted or prohibited by U.S. or applicable non-U.S. law without obtaining prior authorization from the U.S. Department of Commerce and/or other competent government authorities to the extent required by those laws. In addition, each Party agrees to comply with all the requirements of the Export and Import Permits Act (Canada). This clause shall survive termination or cancellation of this Agreement.

20.3: Customs Invoice

Unless otherwise set forth in this Agreement, Supplier shall take all administrative actions required to produce customs invoices and country of origin documents for all shipments crossing international borders which comply with all laws, treaties and regulations of both the exporting country and the importing country. If a Product is manufactured in more than one country, then to the extent required by applicable laws, the different countries of origin must be identified on the customs invoices, along with the related quantities/serial numbers of such Materials. If any upgrade of Products to the most recent revision level in accordance with Section 13 or 14 is performed, the applicable fee for this upgrade must be included on the customs invoice, or, if such upgrade is performed at no charge to Nortel, the value of such upgrade shall be so indicated. Supplier shall be solely responsible for all fines, penalties and costs resulting from a customs invoice not being so compliant unless such non-compliance is solely the result of an action or omission of Nortel. All customs invoices must indicate whether or not any Assists were provided and the value of said Assists.

20.4: Trade Treaties

Supplier shall perform all administrative actions required to determine the eligibility of each Product for preferential treatment under the rules of any applicable trade treaties/agreements and, if eligible, provide the necessary documentation and obtain such preferential treatment. Supplier shall be responsible for all penalties and costs resulting from any such documents subsequently determined to be invalid, shall maintain all documentation to support the eligibility and shall respond in a timely manner to verification questionnaires or reviews.

20.5: Duty Drawback

Each Supplier shall provide to Nortel, when and where applicable, a duty drawback waiver for duty paid on any Materials imported by such Supplier and used or consumed in the manufacture of Products supplied to Nortel. These waivers shall be provided on the approved forms and issued by Supplier at least monthly.

21. COMPLIANCE WITH LAWS

21.1: Each Party shall in its operations and actions in performance of this Agreement comply with and shall continue to comply with and have obtained and will continue to maintain in effect all licenses and permits required by, and the Products shall be in conformance with, all applicable laws and governmental orders and regulations in effect in any country in which Products are manufactured or delivered to at the time of the Delivery Date applicable thereto.

22. CONSEQUENTIAL DAMAGES AND LIMITATION OF LIABILITY

22.1: Notwithstanding any other provision of this Agreement, neither Party shall be liable pursuant to this Agreement for any incidental, indirect, punitive, or consequential damages or for any damages for loss of profits or revenues, except (a) with respect to either Party's indemnification obligations under Section 18; (b) damages arising from a Party's breach of its confidentiality obligations as set forth in Section 17, (c) damages resulting from injury or death of a person or damage or loss of property during performance of this Agreement and (d) damages set out in Section 4.5 and 5.5.
22.2: EXCEPT FOR LIABILITY ARISING UNDER SECTION 17 OR 18 OF THIS AGREEMENT, NEITHER PARTY'S AGGREGATE LIABILITY UNDER THIS AGREEMENT, WHETHER IN CONTRACT OR IN TORT, OR HOWEVER OTHERWISE ARISING, SHALL EXCEED [**].

23. FORCE MAJEURE

23.1: If the performance of any obligation under this Agreement or a Release or Purchase Order is interfered with by reason of any circumstances beyond the reasonable control of the Party affected, such as, without limitation, fire, explosion, power failure, acts of nature, war, revolution, civil unrest or any law, order, regulation, ordinance or requirement of any government or legal body, and labor difficulties, including without limitation, strikes, slowdowns, picketing or boycotts (except such labor difficulties occurring at the Party affected) then the Party affected shall be excused from such performance for a period equal to the delay resulting from any such causes and such additional period as may be reasonably necessary to allow the Party to resume its obligations (and the other Party shall likewise be excused from performance of its obligations to the extent such Party's obligations relate to the performance which was interfered with). The Party so affected shall make reasonable efforts to remove such causes of non-performance; provided, however, that, in the event any such cause of non-performance extends for a period such that either Party's manufacturing or delivery routines are disrupted, such Party shall have the right, without obligation or liability, to cancel any Release or Purchase Order affected by such cause.
23.2: Either Party shall notify the other Party in writing within two (2) Business Days after becoming aware of the occurrence of any force majeure event which may cause any delay or failure on the part of the notifying Party to perform its obligations hereunder.

24. TERM

24.1: This Agreement shall remain in effect for a period of three (3) years from the Effective Date (the "Term"). Both Parties shall meet at least six (6) months prior to the expiration of this Agreement to review any extensions to this Agreement, provided that no such extension shall be effective unless mutually agreed upon by the Parties in writing.

25. TERMINATION AND CONTINUING RIGHTS

25.1: This Agreement may be terminated upon notice by one Party, as its sole discretion in the event the other Party assigns this Agreement or any part thereof in violation of Section 30.4.

25.2

This Agreement or, if only a specific Blanket Purchase Order(s), Release(s) or Purchase Order(s) is/are affected by the breach, such Blanket Purchase Order, Release or Purchase Order may be terminated, in whole or in party by either Party, in the event the other Party materially breaches any one of its material obligations hereunder and fails to remedy the breach within thirty (30) calendar days after written notice of the breach given by the non-breaching Party. Neither Party may exercise any right under this Section 25.2 (including the service of a termination notice to the breaching Party) without first complying with the dispute resolution provisions set forth in Section 28 hereof.

25.3

In the event either NNL or Supplier:

(a): admits in writing its inability to pay its debts generally as they become due; or
(b): is the subject of a petition or assignment in bankruptcy under applicable bankruptcy laws or other similar laws, that is not discharged in ninety (90) calendar days of such institution; or
(c): files a notice of intention to make a proposal or otherwise seeks a reorganization under applicable bankruptcy laws or any other similar law or statute of any relevant jurisdiction; or
(d): makes an assignment for the benefit of its creditors; or
(e): consents to the appointment of a receiver or receiver-manager of itself or of the whole or any substantial part of its property; or
(f): enters into an arrangement with or for the general benefit of its creditors,

it shall be deemed to have committed an incurable material breach and the other Party may terminate this Agreement immediately upon written notice.

25.4: The termination rights shall be without prejudice to the rights or claim one Party may have against the other with respect to the performance, non-performance, or breach of such Party's obligations hereunder, and shall not operate so as to extinguish any rights or obligations which arose prior to the date of termination, and each Party shall have the right, except as expressly limited elsewhere in this Agreement, to pursue each and every available remedy at law and in equity.
25.5: This Agreement may be terminated upon written agreement of the Parties to that effect.
25.6: Notwithstanding any termination or expiry of this Agreement, the provisions of Sections 12 (Warranty), 13 (Repair Procedures), 14 (Repair Services), 15 (Continuing Availability of Product), 17 (Confidential Information), 18 (Indemnification), 19 (Hazardous Materials), 20.2 (Exports), 22 (Consequential Damages and Limitations of Liability), 29 (Grant of License) and all consequent rights, obligations and liabilities, and Nortel's obligation to make payments hereunder shall survive the termination or expiry of this Agreement.

26. NOTICES

26.1: Any and all notices or other information to be given by one of the Parties to the other hereunder shall be sent by registered or certified mail, postage prepaid, return receipt requested or by confirmed fax or hand delivery to the other Party at the addresses, specified below:


Supplier:		Bookham Technology plc 00 Xxxxxx Xxxx Xxxxxxxx Xxxxxxxxxxx, XX00 0XX XXXXXX XXXXXXX Attention: Company Secretary Facsimile:
With Copy to:		Xxxxxxx, Phleger & Xxxxxxxx LLP 0000 Xxxxxxxx, 00(xx) Xxxxx Xxx Xxxx, XX 00000 Attention: Xxxxxxx X. Xxxxxxx Facsimile: (000) 000-0000
Nortel:		Nortel Networks Limited 0000 Xxxxxxxxx Xxxxxx Xxxxx Xx. Xxxxxxx, Xxxxxx, Xxxxxx X0X 0X0 Attention: Product Supply Management Leader Facsimile: x0-000-000-0000
With Copy to:		Nortel Networks Limited 0000 Xxxxxxx Xxxxxx Xxxxxx, Xxxxxxx X0X 0X0 Attention: Senior Counsel, Supply Management

26.2: Notices given pursuant to Section 26.1 shall be deemed to have been received five (5) Business Days after mailing if given by registered or certified mail, and one (1) business day after sending if given by confirmed facsimile and upon delivery if given by hand.
26.3: Either Party may change its address at any time by giving fifteen (15) Business Days' prior written notice to the other Party as provided above.

27. GOVERNING LAW

27.1: The validity, construction, interpretation and performance of this Agreement and the rights and obligations of the Parties and any purchase made hereunder shall be governed by the laws of the State of New York, without regard to its rules with respect to the conflict of laws. The application of the U.N. Convention on Contracts for the International Sale of Goods is specifically excluded from this Agreement.

28. DISPUTE RESOLUTION

28.1: In the event of any dispute relating to any provision of this Agreement, Supplier and Nortel shall each promptly appoint a business representative from it company in an initial attempt to resolve such dispute, as described in this paragraph. Such representatives shall meet not later than 15 calendar days after the last representative has been appointed, in order to make a good faith effort to resolve such dispute. However, if they are not able to resolve such dispute within 15 calendar days after their first meeting, then they shall be joined by their immediate supervisors (who, at a minimum shall be at a Vice-President level) in their respective company. These four individuals will then have 15 more calendar days to attempt to resolve such dispute following the involvement of such supervisors. If these four individuals are unable to resolve the dispute and such inability to resolve the dispute can reasonably lead to either Party terminating all or a substantial part of this Agreement, then the dispute shall be referred to the Chief Executive Officer and/or President of each Party for resolution. These two individuals will then attempt to resolve the dispute within 30 calendar days of their involvement in the dispute resolution. If no resolution is reached as per this Section 28, the affected Party shall have the right to take any action or exercise any right pursuant to this Agreement or applicable laws.

29. GRANT OF LICENSE

29.1: Subject to the terms and conditions of this Agreement, including, but not limited to, Section 29.2, Supplier, to the extent of its legal right so to do, hereby grants to Nortel a personal, non-transferable, non-assignable, indivisible, non-exclusive, irrevocable, worldwide license (including a license to any required intellectual property rights) to: (1) make and have made those Products, (2) incorporate and combine Products with Nortel's products, (3) sell, distribute and support Products incorporated with Nortel's products and (4) use the Product Technical Information and Process Technical Information to manufacture, support and repair Products as provided in this Section 29. Supplier will provide technical assistance in conjunction with this license at its standard commercial rates.
29.2: The license in Section 29.1 is only exercisable in the event that Supplier: (1) to a material degree is unable to manufacture or supply [**] Products or Primary Sourced Products, in accordance with the terms of this Agreement for a continuous period of not less than [**] months; (2) does not agree to customize a Product as per Section 3.1; (3) discontinues manufacturing a [**] Product or Primary Sourced Product in accordance with the provisions of Section 15.1; (4) fails to implement a material provision of any Business Continuity Plan developed in accordance with Section 6.4.4 hereof and such failure continues for [**] months after notification by Nortel of such failure; (5) institutes insolvency, receivership or bankruptcy proceedings or any other material proceedings for the settlement of its debts which proceedings are not dismissed within [**] days of such institution; or (6) as the Parties may otherwise agree in writing. The license in Section 29.1 will only be exercisable for Products or sub-components thereof which are the cause or subject of the exercisable event described above.

If the license in Section 29.1 is exercisable pursuant to Section 29.2(4), the grant of license shall only apply to affected [**] Products.

29.3: NNL will give written notice to Supplier prior to exercising its license under Section 29.1.

29.4: In the event the license under Section 29.1 is exercisable as described above, NNL may elect to have a third party manufacturer manufacture Products. Due to the proprietary nature of the Product and Process Technical Information, NNL agrees that it will not use the manufacturers, listed on Exhibit G ("Prohibited Manufacturers"), as a third party manufacturer under this Section 29 unless the Supplier provides written consent. However, NNL is not required to obtain Supplier's consent to engage a third party manufacturer, not listed on Exhibit G. Any Product and Process Technical Information and required intellectual property rights may be provided by NNL to such third party manufacturer solely for the purpose of manufacturing Products to be provided to Nortel and Nortel Affiliates. As a condition precedent to providing any of such Product and Process Technical Information to a third party manufacturer, such third party manufacturer shall sign a confidentiality and license agreement with NNL, reasonably acceptable to Supplier (which shall include, without limitation, royalty payment, termination rights and reasonable audit rights provisions in favor of Supplier, and will name Supplier as a third party beneficiary to such agreement); and agree to future audits of its operation by an independent auditor to verify its compliance with the confidentiality and license agreement.
29.5: If exercisable pursuant to Section 29.2, the grant of license in Section 29.1 will continue until such time as the parties reasonably determine that the condition under Section 29.2 (1), (4), (5) or (6) that triggered such licensing right has been rectified or cured. Supplier acknowledges that NNL may have expended considerable effort and monies to establish its own manufacturing capacity or obtain the required capacity from a third party manufacturer and agrees that the license granted hereunder shall, in the event of termination of such license pursuant to the preceding sentence, remain in effect for a reasonable period of time to allow Nortel to wind down its operations or meet contractual obligations entered into with a third party manufacturer in order to establish or maintain the required capacity, and NNL will endeavor to return supply to Supplier within three (3) months of Supplier rectifying the matter which caused NNL to exercise its rights hereunder.
29.6: The Parties will diligently negotiate a reasonable royalty, payable to Supplier, giving consideration to the circumstances under which the license is being exercised. The Supplier agrees that if the license is exercised as a result of an event set out in Section 29.2(1) or (4) the royalty payable by NNL will be nominal and shall not exceed [**]% of the Price of the affected Product. It is the Parties objective that the negotiation of any royalty will not interfere with or delay the transfer of the Product and Process Technical Information to Nortel or a third party. Notwithstanding the foregoing, in the event NNL exercises the rights under this Section 29 pursuant to Section 29.2 (2), (3), (5) or (6) above, Supplier will have no obligation to transfer the Product and Process Technical Information to Nortel or a third party until the Parties agree upon the foregoing royalty payments.

29.7: In the event the license in Section 29.1 becomes exercisable by NNL pursuant to Section 29.2 (2), (3) or (5) above and NNL attempts and is unable to secure the required capacity from any third party manufacturer as a result of the limitation that the Products must be manufactured exclusively for NNL, Supplier and NNL will negotiate in good faith to mutually agree to reasonable license terms (including royalty fees payable to Supplier) which will permit the third party manufacturer to manufacture and sell the Product to third parties other than Nortel for the duration of this Agreement. In the event the Parties are unable to reach agreement upon such license terms, NNL shall not have the right to authorize the third party manufacturer to manufacture the Products for any third party.
29.8: Supplier shall have the right upon not less than ten (10) Business Days prior written notice to have an independent qualified auditor, reasonably acceptable to both Parties examine, not more than twice per year, the relevant books and records of NNL to verify compliance with the provisions of this Section 29. Supplier will be responsible for the cost of any such audit, unless NNL is in breach of this Section 29, in which case NNL will reimburse Supplier for the cost of such audit.

30. GENERAL

30.1: Severability

If any of the provisions of this Agreement shall be adjudged invalid or unenforceable, such invalidity or unenforceability shall not invalidate or render this Agreement unenforceable, but rather this Agreement shall be construed as if not containing the particular invalid or unenforceable provision or provisions, and the rights and obligations of the Parties shall be construed and enforced accordingly.

30.2: Subject to the provisions of Section 30.4 below, this Agreement shall continue to be valid and binding on the legal successors and assigns of each party.
30.3: Nortel certifies that it will not export or reexport the Products unless it complies with all applicable regulations of the United States relating to such export or reexport.
30.4: Assignment

Neither Party shall assign or otherwise transfer all or any part of this Agreement or any rights, obligations or duties hereunder, or any interest herein, without the prior written consent of the other Party. Except with respect to subcontractors engaged by the Business on the Closing Date (but limited solely to the extent of such engagement on the Closing Date) and as provided in Section 6.4.3, Supplier shall not subcontract any of its obligations or duties hereunder.

30.5: Waiver

Failure by either Party at any time to require performance by the other Party or to claim a breach of or to enforce any provision of this Agreement shall not be construed as affecting any subsequent breach or the right to require performance with respect thereto or to claim a breach with respect thereto and shall not constitute a waiver of any such provision or the right of such Party to enforce each and every provision of this Agreement.

30.6: Independent Contractors

Nortel and Supplier are independent contractors in all relationships and actions under and contemplated by this Agreement. This Agreement shall not be construed to create or to authorize the creation of any employment, partnership or agency relation, or to authorize Nortel or Supplier to enter into or make any commitment, agreement, representation or warranty binding on the other, or to allow one Party to accept service of any legal process addressed to, or intended for, the other Party. Nothing contained in this Agreement shall limit, in any manner, Nortel's right to enter into other agreements with other parties.

30.7: Section Headings

Section headings are inserted herein for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof.

30.8: Entire Agreement

This Agreement, including Exhibits A through G attached hereto, comprises all the terms, conditions and agreements of the Parties hereto with respect to the subject matter hereof, and it may not be altered or amended except in writing signed by authorized representatives of each Party hereto.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the day and year last written below.

BOOKHAM TECHNOLOGY PLC
By:	/s/ XXXXXX X.X. XXXXX
Name: Xxxxxx X.X. Xxxxx Title: Company Secretary Date:
NORTEL NETWORKS LIMITED
By:	/s/ KHUSH DADYBURJOR
Name: Khush Dadyburjor Title: Attorney-in-Fact Date:

EXHIBIT A

PRODUCT LISTS, SHARE ALLOCATION AND CUSTOM PRODUCTS

Family		Sub-Family		CPC		NNOC P/N		Item Desc		LOB		Custom		Allocation 2H02		2H02 Price		1H03 Price		Allocation 2H03		2H03 Price		Allocation 1H04		1H04 Price		Target Return Rate

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission.

EXHIBIT A-1

MINIMUM COMMITMENT

During the period commencing on Closing and ending on the last day of the sixth calendar quarter, following Closing, as described herein, (the "Commitment Period"), NNL commits that the combined aggregate value of Releases and Purchase Orders issued by Nortel and Nortel Affiliate to Supplier for Products, products and Services, to be delivered in the applicable calendar quarter, shall be equal to [**] ($[**]) Dollars per calendar quarter (the "Minimum Commitment").

NNL will receive a credit against the Minimum Commitment, in the following circumstances:

i.: Supplier is unable or unwilling to meet Nortel's and Nortel Affiliates' bona fide volume capacity requirements for a particular Product, that it could reasonably be expected to be able to manufacture giving consideration to the Forecast and Flex requirements;
ii.: Products ordered by Nortel or Nortel Affiliates are not delivered on the applicable Committed Delivery Date and, subject to Force Majeure (Section 23), such late delivery materially impacts Nortel or Nortel Affiliates production schedule or commitments, such that Nortel or Nortel Affiliates are required to obtain Products, or substitutes therefor, from an alternate source;
iii.: A Product has a High Total Return Rate, which requires Nortel or a Nortel Affiliate to seek an alternate source for such Product, or substitutes therefor.

For the purposes of subsection (i) the credit against the Minimum Commitment will be equivalent to the value of the Products that would have been produced, if the volume capacity had been met. With respect to subsections (ii) and (iii), the value of the credit against the Minimum Commitment will be the value of the Products, or substitutes therefor, that Nortel and the Nortel Affiliates are required to obtain from an alternate source.

During the Commitment Period, the Parties shall meet in the 6th week of each calendar quarter to review the aggregate value of the Purchase Orders and Releases issued by Nortel and Nortel Affiliates during such calendar quarter to determine whether Nortel's and Nortel Affiliates' requirements for Product, products and Services, as set out in the Forecast for the remainder of such calendar quarter, are in line with the Minimum Commitment. Giving consideration to the Forecast, Nortel's and Nortel Affiliates' requirements and Supplier's available capacity, as described in subsection (i) above, the Parties will agree on the manner in which the Minimum Commitment will be met and will implement such agreement (the "Quarterly Agreement").

If it is determined that the aggregate value of the Purchase Orders and Releases issued by Nortel and Nortel Affiliates in a particular calendar quarter will be less than [**]% of the Minimum Commitment, then during the 10th week of such calendar quarter, NNL will, either a) issue a Purchase Order or Release, for Products, products and Services in line with the Quarterly Agreement, to be delivered in the last week of such calendar quarter, having a value equal to the difference between [**]% of the applicable Minimum Commitment and the aggregate value of the Purchase Orders and Releases issued by Nortel and Nortel Affiliates for delivery in such calendar quarter; or b) issue a Purchase Order to Supplier, in the last week of such calendar quarter, for cancellation fees equal to [**] ([**]%) percent of the difference between [**]% of the applicable Minimum Commitment and the aggregate value of the Purchase Orders and Releases issued by Nortel and Nortel Affiliates in such calendar quarter.

Further, for the duration of the Commitment Period, at the end of each calendar quarter, during the quarterly business review meetings, the Parties will reconcile the Minimum Commitment obligations for the prior calendar quarter with the value of the actual Purchase Orders and Releases issued by Nortel and Nortel Affiliates for such period. If it is determined that the aggregate value of the actual Purchase Orders and Releases issued by Nortel and Nortel Affiliates, in a particular calendar quarter, are less than 100% of the Minimum Commitment, then, in the following calendar quarter, NNL agrees that the difference between the Minimum Commitment and the aggregate value of the actual Purchase Orders and Releases issued by Nortel and Nortel Affiliates, in such calendar quarter, ("Carry Over Commitment") will be added to the value of the Minimum Commitment in the immediately following calendar quarter.

The remedies set out herein are Supplier's sole remedies in the event the combined aggregate value of Products, products and Services, purchased by Nortel and Nortel Affiliate, from Supplier, do not meet the Minimum Commitment.

In the event that Closing occurs on or after October 1, 2002, but before January 1, 2003, the $[**] quarterly Minimum Commitment will be pro rated for the period commencing on the Effective Date and ending on December 31, 2002. In the event Closing occurs on or before November 14, 2002, the difference between the $[**] and the pro rated amount for the period ending on December 31, 2002, will be added to the value of the quarterly Minimum Commitment for the period commencing on January 1, 2004 and ending March 31, 2004. In the event Closing occurs on or after November 15, 2002, but before January 1, 0000 XXX commits that the combined aggregate value of Products, products and Services, purchased by Nortel and Nortel Affiliate, from Supplier, during the calendar quarter commencing on April 1, 2004 and ending June 30, 2004, shall be equal to the difference between the $[**] and the pro rated amount for the period ending on December 31, 2002.

In the event that Closing occurs on or after January 1, 2003, but before April 1, 2003, the $[**] quarterly Minimum Commitment will be pro rated for the period commencing on the Effective Date and ending on March 31, 2003. In the event Closing occurs on or before February 14, 2003, the difference between the $[**] and the pro rated amount for the period ending on March 31, 2003, will be added to the value of the quarterly Minimum Commitment for the period commencing on April 1, 2004 and ending June 30, 2004. In the event Closing occurs on or after February 15, 2003, but before Xxxxx 0, 0000 XXX commits that the combined aggregate value of Products, products and Services, purchased by Nortel and Nortel Affiliate, from Supplier, during the calendar quarter commencing on July 1, 2004 and ending September 30, 2004, shall be equal to the difference between the $[**] and the pro rated amount for the period ending on March 31, 2003.

NNL's obligations with respect to Minimum Commitment in a particular calendar quarter are conditional upon the Supplier being not in breach of a material provision of this Agreement, during that calendar quarter, which breach remains uncured for more than [**] ([**]) calendar days after receipt of notice.

For the purposes of clarity, the calendar quarters will be measured as follows:

January 1 to March 31;

April 1 to June 30;

July 1 to September 30; and

October 1 to December 31.

EXHIBIT A-2

PRODUCTS IN DEVELOPMENT

Family

Sub-Family

CPC

NNOC P/N

Item Desc

LOB Custom

Allocation
2H02

2H02
Price

Allocation
1H03

1H03
Price

Allocation
2H03

2H03
Price

Allocation
1H04

1H04
Price

Comments

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission.

EXHIBIT B

SPECIFICATIONS

PEC		CPC		Product Description		Specification

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission.

EXHIBIT C

DEMAND PULL

DEMAND-PULL PROGRAM

1.

Demand-Pull Program Forecast—On the first business day of each week during the Term, Nortel will provide Supplier with a 12 month rolling forecast (Forecast) of its Demand-Pull Program Product requirements. Nortel will issue a Blanket Purchase Order for the quantity of Products shown for the first 6 months of the first Forecast (Blanket Purchase Order). Nortel will update the Blanket Purchase Order as required. If Supplier's stock of components exceeds Supplier's requirements for Products purchased by Nortel under Releases against the Blanket Purchase Order, Supplier will sell the excess to third parties to the extent reasonably possible. Any and all actions undertaken by Supplier in respect of any Forecast or Blanket Purchase Orders that do not correspond identically to the information set forth in Releases against Blanket Purchase Orders, if any, shall be solely at the risk and cost of Supplier, unless otherwise expressly agreed in a separate mutually executed writing between the parties.

2.

Target Products Total Stock—Target Product Total Stock or TPTS means the total quantity of goods targeted (Target Finished Goods) plus works in progress (Target WIP) as agreed between the Parties and set out in Attachment 1 to Exhibit C. The Product run rate is included in Attachment 1 to Exhibit C. The maximum number of weeks for which Supplier will maintain the Target Product Total Stock is indicated on Attachment 1. However, if the Target Finished Goods is inactive for more than [**] days, the parties will agree on a reasonable disposition of all or part of the maximum Target Product Total Stock, subject to Section 7 of this Exhibit C.

2.1: Increase Target Product Total Stock—Supplier will have the capability of increasing the then-current Target Product Total Stock by (a) [**]% within 1 month of Nortel's request, and (b) [**]% within 2 months of Nortel's request. It is the Parties intent that these Flex requirements will be reviewed and updated at the Quarterly Business Review.
2.2: Depletion of Target Product Total Stock—In the event that Nortel's and Nortel Affiliates' demand for a Product exceeds the Forecast and Flex, Nortel may instruct Supplier to draw on the Target Product Total Stock. In such a case, if the Target Product Total Stock is reduced, Supplier will replenish such Target Product Total Stock within the applicable Product lead time.

3.: Delivery—Demand-Pull Program Products will be delivered FCA Proximity Warehouse, within 24 hours after Nortel issues the Release(s) to Supplier.
4.: Discrete PO's—Nortel may purchase Products included in the Demand-Pull Program by issuing a P.O. for the Products under terms of the Agreement rather than the terms of the Demand-Pull Program. The Products purchased under the P.O. will count towards Nortel's purchases of Target Product Total Stock.
5.: Target Finished Goods Report—Supplier will provide Nortel's designated purchasing department representative with a weekly written report detailing the status of the Target Products Total Stock.
6.: Cancellation—Nortel may cancel the Demand-Pull Program in whole or in part by providing Supplier with written notice. Such cancellation will be effective immediately, and the then current Blanket Purchase Order will be cancelled. The parties will agree on a reasonable disposition of the maximum Target Product Total Stock, subject to Section 7 of this Exhibit C.

7.

Disposition of the Target Product Total Stock due to inactivity described at Section 2 of this Exhibit or due to cancellation described at Section 6 of this Exhibit will be subject to the following:

(a)

Delivery schedule for applicable Target Product Total Stock will be as agreed by the parties hereto, provided that Nortel will have the right to require delivery in accordance with the time periods set out in this Agreement.

(b)

Nortel's total liability under the Demand-Pull Program, including without liability for Supplier's stock of finished goods and works in progress, will not exceed the Target Product Total Stock maintained by Supplier for the maximum number of weeks indicated on Attachment 1.

(c)

Amounts to be paid by Nortel for agreed upon Target Product Total Stock will be:

A.: Target Finished Goods @ [**]% of the applicable Product Price;
B.: Target WIP @ [**]% of the applicable Product Price.

EXHIBIT C

ATTACHMENT 1

The Parties agree, until Attachment 1 is completed on a per Product basis, to the following provisional Target Product Total Stock:

Target Finished Good Stock: [**] weeks

Target WIP:[**] weeks

[To be completed on a per Product basis following Closing]

CPC NO.		DESCRIPTION		MAX WKS TPTS		RUN RATE		TARGET FG STK		TARGET WIP		ACTUAL FG STK		ACTUAL WIP		LEAD TIME
























NORTEL APPROVAL:
DATE:
SUPPLIER APPROVAL:
DATE:

EXHIBIT D

REPORTING REQUIREMENTS

1): Shipment reports including the following information weekly and monthly overview:

—Ship to/from location
—Ship date
—CPC
—Qty
—W/B
—Requested qty
—YTD qty shipped by CPC
—PO#
—Total $ spend YTD by CPC

2): Stock reports monthly—template available—should show:

—F/G level
—WIP thru various stages of manufacturing measured at key process points.

3): Supply chain contract monthly reports:

—Delta to targets highlighted
—Recovery plans provided within 24hrs
—Any upside analysis or demand—response to requirements within 48hrs.

4): CR road map monthly—updated quarterly.
5): Price files issued quarterly.
6): Delta to ship request report weekly—recovery issued within 24hrs of delta to ship report.
7): Quality issues outlined monthly as follows:

—PP 100/1000 defect
—Corrective actions
—Root cause
—Trend by CPC

8): Web tools will be used

—PO confirmed/acknowledged on Web
—Stock report on web
—Projected shortages responses on web

9): Invoice discrepancy report 3rd week of month/issued once a month.

EXHIBIT E

PROCEDURES FOR ELECTRONIC COMMUNICATION

I.: PROCEDURES FOR ORDERS AND FORECAST UTILIZING ST-LAURENT SPECIFIC WEB TOOL

(REV DG 020701a)

WEB Tools refer to a set of tools developed by NNL's St-Laurent System House known as eSupply and used to transfer business related information, Purchase Orders and Release using a secure Internet connection.

1.

WEB Browser Certificate—Before utilizing the WEB Tools the Supplier will have to install a computer WEB Browser Certificate to comply with Nortel Corporate security requirements and create proper account on the XXX server. This operation will allow the user to receive encrypted mail from Nortel and access the secure Supplier web page via specific URL.

2.

Supported Transactions—eSupply supports transmission and confirmation, replenishment signal, forecast, inventory status as well as shipping details.

3.

Purchase Orders—and Releases

1.: A Purchase Orders or Release is created in the ERP system.
2.: The Purchase Order or Release is sent by Nortel through eSupply.
3.: The suppliers access the Purchase Orders/Release (Web Tool) to acknowledge "New Purchase Order/Release".
4.: Once acknowledged by the Supplier, the Purchase Order/Release is sent back, through the web, to Nortel.
5.: The buyer receives the Purchase Order/Release and Accept or Cancel the Purchase Order/Release.
6.: If accepted, the Purchase Order/Release will update the Purchasing module of Nortel ERP system.
7.: If cancelled, the buyer will contact the supplier to come to an agreement.

4.

Replenishment Signal—The POU module part of the eSupply system is used to request material pulls from the Supplier pursuant to Exhibit C herein

a.: Team-leader at the Nortel facility will pull all items from Supplier based on manufacturing requirements
b.: Nortel will track the pulls and extract delivery performance information
c.: Supplier will use the web interface of POU to respond and communicate with Nortel.

5.

Forecast—Nortel will transmit on a weekly basis, typically on Monday a detailed forecast using the System House ERP data and latest forecast information.

a.: The requirements showing in the Forecast tool are the Nortel gross requirements based on the manufacturing aspect, not based on any current Blanket Purchase Order. This is particularly important in regards of the "Back Schedule". A Back Schedule in the forecast means that the Nortel production is delayed Supplier's delivery should not be delayed.
b.: All information in the Forecast is downloadable.

6.

Inventory Status—Inventory status is a tool whereby the Supplier can be asked to provide to Nortel an updated FG and WIP inventory as agreed upon in the Agreement.

a.: The list of parts to be updated will be posted every week on the specific WEB page.
b.: Suppliers will be responsible to update information via the WEB page or using the upload capability before the end of the next working day.

7.

Shipping Details—If Nortel requires such information, the shipping module allows updates on Suppliers shipment and serves as an Advanced Ship Notice to Nortel.

a.: Once the Supplier has shipped the material, it signs on to the Web Shipping module to complete the transaction.
b.: Supplier enters the waybill, finds the appropriate Purchase Order/Release Line and submits the transaction.
c.: This input is extracted and fed back through a Corporate Interface Supply Link to Carrier Solutions St. Laurent, updating the Packing and Shipping Modules of Nortel's ERP system.

EXHIBIT F

CERTIFICATIONS

Supplier will obtain the design certifications listed below for new or modified designs after production release. At Supplier's expense, Nortel and Supplier will make joint submissions to the certifying regulatory bodies. However, Nortel will be responsible for any costs in excess of those for a solo submission. The parties will notify each other about design changes that might invalidate a certification. The exposure will be included in the Change Notification process whether or not the changed or modified design will be in a production release.

Supplier will obtain the following certifications and any other certifications required by law:

CEMark
UK Type Approval
UL/CSA/EN safety
FCC parts 15 and 101

EXHIBIT G

PROHIBITED MANUFACTURERS

[**]

QuickLinks

Exhibit 4.3

SUPPLY AGREEMENT
TABLE OF CONTENTS
EXHIBITS

EXHIBIT A

PRODUCT LISTS, SHARE ALLOCATION AND CUSTOM PRODUCTS

EXHIBIT A-1

MINIMUM COMMITMENT