VOLUME SUPPLY AGREEMENT

Fabrinet (Cayman Islands)

Avanex

By:

/s/ David T. Mitchell

By:

/s/ Paul Negus

Name:

David T. Mitchell

Name:

Paul Negus

Title:

CEO

Title:

Vice President Operations

Date:

May 6, 2004

Date:

May 6, 2004

1.

Definitions. The definitions of capitalized terms defined in this Agreement are set forth in the Paragraphs referenced herein, or if not so referenced, ascribed to such term below:

(a)

“ Affiliate ”—An “Affiliate” of a party is a company, corporation, partnership or other form of legal organization or association that is controlled, directly or indirectly, by a party where “ control ” means the ownership, directly or indirectly, of at least 50% of the issued and outstanding voting securities of the company, corporation, partnership or other form of legal organization or association or the ability to control the management of a company, corporation, partnership or other form of legal organization or association through contract, board representation or otherwise.

(b)

“ Approved Vendor List ”—provided with the BOM of each SKU

(c)

“ Change Order ”—see Paragraph 10

(d)

“ Commercial Commitment ”—see Paragraph 5

(e)

“ Avanex ”—shall mean Avanex, Inc.

(f)

“ Avanex Competitor ”—shall mean any person, company, corporation, partnership, and any other form of legal organization or organization that engages in the business of manufacturing or having-manufactured, or offering to sell any product that competes with a Product currently or proposed for the future (provided in Attachment X)

(g)

“ Avanex-Consigned Parts ”—see Exhibit C.

(h)

“ Avanex Information ”—see Paragraph 9.

(i)

“ Avanex Indemnified Parties ”—see Paragraph 20.1.

(j)

“ Avanex Production Labor Hours ”—see Exhibit C.

(k)

“ Avanex-Proposed Engineering Change Order ”—see Paragraph 12.

(l)

“ Avanex-Sold Parts ”—see Exhibit C.

(m)

“ Epidemic Condition ”—see Paragraph 22.

(n)

“ Equipment ”—see Paragraph 6.

(o)

“Excess” : Excess Inventory is generally defined as inventory in Excess of Projected usage for a defined period of time, and is determined using management’s best estimate of future demand at the time, based upon information available.

(p)

“ Fabrinet Information ”—see Paragraph 9.

(q)

“ Fabrinet-Produced Parts ”—see Exhibit C.

(r)

“ Fabrinet Production Labor Hours ”—see Exhibit C.

(s)

“ Fabrinet Production Yield Rate ”—see Exhibit C.

(t)

“ Fabrinet-Proposed Engineering Change Order ”—see Paragraph 12.2.

(u)

“ Fabrinet Representative ”—see Paragraph 8, 9.4.

(v)

“ Fabrinet Savings Period ”—see Paragraph 16.3.

(w)

“ Facility ”— all Fabrinet owned and/or controlled facilities.

(x)

“ Initial Term ”—see Paragraph 18.

(y)

“ Loaded Labor Hourly Rate ”—see Exhibit C.

(z)

“ Losses ” shall mean all losses, liabilities, damages and claims, and all related costs and expenses (including any and all reasonable legal fees, expert witness fees and reasonable costs of investigation, litigation, settlement, judgment, appeal, interest and penalties) incurred.

(aa)

“ Master Schedule ”—see Paragraph 10.1.

(bb)

“ New Equipment ”—see Paragraph 6.2.

(cc)

“ Notice of Assumption of Defense ”—see Paragraph 20.3.

(dd)

“Obsolete” : Inventory that as a result of Engineering Change or Product Cancellation results in Materials no longer being used in the Manufacturing Process.

(ee)

“ Point of Delivery ”—see Paragraph 14.1.

(ff)

“ Pricing Methodology ”—see Exhibit C.

(gg)

“ Product(s) ”—shall mean those products listed in Exhibit A that fully conform to the Specifications referenced in Exhibit A, as Exhibit A may be amended by the parties from time-to-time, as permitted herein and in accordance with the terms of this Agreement.

(hh)

“ Product Manager ”—see Paragraph 8.1.

(ii)

“ Product Process Documentation ”—see Paragraph 2.2.

(jj)

“ Product Process Know-How ”—see Paragraph 2.3.

(kk)

“ Product Yield Rate ”—see Exhibit C.

(ll)

“ Renewal Term ”—see Paragraph 18.1.

(mm)

“ Safety Stock ”—see Paragraph 12.4.

(nn)

“ Shared Savings Period ”—see Paragraph 16.3.

(oo)

“ Specifications ” shall mean the operating performance parameters, mechanical drawings, reliability measures, and overall quality level applicable to a Product and with which there is required to be fully compliant in all respects.

(pp)

“ Surge Capacity ”—see Paragraph 10.5.

(qq)

“ Tech Transfer Schedule ”—see Paragraph 2.1.

(rr)

“ Transition Period ”—see Paragraph 19.1.

(ss)

“ Vendor-Sold Parts ”—see Exhibit C.

(tt)

“ Warranty Period ”—see Paragraph 21.1.

2.

Product Technology Transfer .

2.1

Technology Transfer Schedule . For each Product, representatives of Avanex and Fabrinet will prepare a technology transfer schedule (the “ Tech Transfer Schedule ”), including milestones for completion of the technology transfer. Once the Tech Transfer Schedule is developed, it will be approved by the appropriate Product Manager of each Party. Thereafter, Fabrinet and Avanex will use all commercially reasonable efforts to comply with the Tech Transfer Schedule and meet the milestones set forth therein.

2.2

Product Process Documentation . For each Product, Avanex will prepare and provide to Fabrinet a copy of design drawings, assembly drawings, Avanex’s manufacturing process flowchart, list of equipment used in the manufacturing process, bill of materials with an “ Approved Vendor List ” for certain components and other parts, the appropriate test and measurement procedures for finished goods, the Specifications, and such additional data and other information that Fabrinet may reasonably request from Avanex to assist in the transfer of manufacturing, testing and measurement technology related to the Product from Avanex to Fabrinet (the “ Product Process Documentation ”).

2.3

Product Process Know-How . With Avanex’s consent (not to be unreasonably withheld), Fabrinet may send a reasonable number of machine operators, assemblers, and engineers employed by Fabrinet to a facility where a Product is manufactured by Avanex so that such individuals may observe the manufacturing and testing processes used by Avanex personnel to manufacture the Product and to enable Avanex personnel to train Fabrinet’s personnel in the use of appropriate equipment and the techniques used to manufacture, test and measure the Products (“ Product Process Know-How ”).

2.4

Inventory Purchase . When a Product is added to the scope of this Agreement, Fabrinet will purchase Avanex’s inventory of parts and related raw materials for such Product at a price determined mutually agreed upon by both parties for such parts or other raw materials. The quantity of parts and raw materials that Fabrinet will purchase will be determined by the parties by reference to Avanex’s initial Forecast of its requirements for the Product.

2.5

Qualification . Upon completion of the technology transfer related to a Product and the installation and calibration of any Equipment at the Facility, Fabrinet will manufacture a reasonable number of samples of the relevant Product as requested by Avanex so that Avanex and its Customers may qualify the Product and the Facility. The costs of such qualification/validation samples will be mutually born by both parties ([*]).

2.6

Costs and Expenses of Technology Transfer . Each party will bear its own costs and expenses in completing the technology transfer processes generally described herein.

2.7

Confidential Nature of Information Disclosed . All Product Process Documentation, Product Process Know-How, and other data or information disclosed by Avanex or its Affiliates or any of their representatives to Fabrinet or any of its representatives in the course of completion of the technology transfer generally described herein is confidential and proprietary information belonging exclusively to Avanex or its Affiliate and shall be protected by Fabrinet from further disclosure and from any use other than for the manufacture and sale of Products by Fabrinet to Avanex with the same degree of care (though not less than an reasonable degree of care) as Fabrinet uses to protect its own trade secrets and other highly-sensitive and competitively-advantageous proprietary or confidential information. This obligation shall indefinitely survive the expiration or termination of this Agreement for any reason whatsoever.

2.8

Contingent Nature of Commercial Commitment . Without restricting or otherwise limiting any other provision of this Agreement, the Commercial Commitment in this Agreement with respect to any Product is contingent on the successful transfer of the relevant Product-related technology in accordance with the relevant Tech Transfer Schedule and Fabrinet’s ability to demonstrate, to Avanex’s reasonable satisfaction, that the Facility has the manufacturing systems, quality systems, supply chain management skills, and production skills to manufacture under full-production conditions, fully-compliant, qualified Products that conform in all respects to the relevant Specifications. Until such contingencies are fulfilled, Avanex shall have no obligation to Fabrinet with respect to such Product.

2.9

New Products . Whenever Fabrinet and Avanex wish to add a new product to the list of Products referenced in this Agreement, the parties will develop and implement an appropriate Tech Transfer Schedule for the products and thereafter, the provisions of this Agreement shall apply to such new Product.

2.10

Proprietary Rights : Fabrinet agrees not to compete directly with Avanex by selling products to an Avanex end customer with Fabrinet’s own product designs. Fabrinet can be engaged by Avanex’s competition to manufacture a directly competing product, provided Fabrinet complies with the confidentiality and IP protection mechanisms that are established in this Agreement. In addition: Fabrinet agrees and acknowledges that the Specifications, and any other information provided by Avanex to Fabrinet including manufacturing process, design or architecture information, inventions that result from any manufacturing, supply or NPI work for Avanex, and any development work done by Fabrinet for Avanex, such as prototype development, are the property of Avanex (the “Avanex Property”). Fabrinet will not use any Avanex Property, or equipment or materials provided by Avanex, for the benefit of any entity other than Avanex and will not disclose any Avanex Property to any third party without Avanex’s prior written consent. By way of example but not limitation, this means that Fabrinet will not sell or quote Products or any product that incorporates Avanex Property to any entity other than Avanex, such as an Avanex customer or competitor. (“Specification” means functional information, technical information, functional and quality goals relating to a pre-production product or Product, as applicable, and may include the BOM, test procedures, functional and quality goals, assembly documentation, circuit board art work, assembly and fabrication drawings, schematics, other design documents, software, business plan, manufacturing processes and related services, as applicable.)

3.

Equitable Relief .

3.1

Fabrinet understands and acknowledges that all Product Process Documentation and Product Process Know-How and other data or information disclosed by Avanex or its Affiliate or any of their representatives to Fabrinet or any of its representatives in the course of completion of the technology transfer generally in Paragraph 2 and its subparagraphs, is unique and provides a competitive advantage to Avanex in the markets where the Products compete. Accordingly, any breach or threatened breach or alleged breach of the obligations and restrictions agreed to in Paragraph 2.7 or Paragraph 2.10 or Paragraphs 25.1 or 25.2 may not be adequately compensated by damages at law; therefore, Fabrinet agrees that Avanex and its Affiliates are entitled, in addition to all other remedies available, to equitable relief by injunction or otherwise to enforce their rights under such Paragraphs and require compliance by Fabrinet with its obligations therein, without the necessity of proving that money damages alone would not provide adequate compensation and without the necessity of posting a bond. The foregoing shall survive the expiration or termination of this Agreement for any reason whatsoever.

4.

Products .

4.1

Contents of Exhibit A . The initial list of Products within the scope of this Agreement is set forth in Exhibit A . The list in Exhibit A includes the name of the Product, Avanex’s or its Affiliate’s part number, Fabrinet’s corresponding part number, a reference to the relevant Product Specifications, and the relevant Product Manufacturing Lead-Time, and if applicable, the designated Safety Stock of specified critical components and finished goods.

4.2

Relevant documents associated with Exhibit A . The initial list of Products within the scope of this Agreement is set forth in Exhibit A. The list in Exhibit A includes the name of the Product, Avanex’s or its Affiliate’s part number, Fabrinet’s corresponding part number (if it exists), a reference to the relevant Product Specifications, forecast requirements (build to order, BOM order to forecast, build to forecast), safety stock requirements. For each Product, described in

Exhibit A, Avanex will provide a copy of the relevant Product Specifications, the costed Bill Of Materials, an Approved Vendor List, Avanex Product Labor Hours, Scrap Rate, Product Yield Rate.

4.3

New Products to Exhibit A . When Fabrinet and Avanex or its Affiliate determine that a new product is to be added to the list appearing on Exhibit A, Avanex and Fabrinet will execute a written amendment to this Agreement by which Exhibit A is amended to include such new Product with the information referenced in Paragraph 4.1, and the information referenced in Paragraph 4.2 as applied to the new Product is to be attached to Exhibit A. Thereafter, the new product will be a “Product” hereunder and the provisions of this Agreement shall thereafter apply to such Product.

4.4

No Obligation . For the avoidance of doubt, nothing in this Agreement creates or imposes any legal or moral obligation on Avanex or any of its Affiliates to transfer the technology related to any product, or to acquire any product, other than the specific Products appearing on the list in Exhibit A. Avanex and its Affiliates may directly, or indirectly through other parties, manufacture products that perform a similar function, or operate in a similar manner as, or otherwise has similar application or use as any Product.

4.5

Manufacture of Products to Comply with Applicable Product Process Documentation and Product Process Know-How . Fabrinet will manufacture each Product in full conformity with the applicable Product Process Documentation and Product Process Know-How. Fabrinet’s manufacturing, procurement, testing, or measurement processes or operations may not deviate from those set forth in the most-current version of the relevant Product Process Documentation without the prior written consent of Avanex.

5.

Commercial Commitment .

5.1

Commercial Commitment . Upon successful completion of the technology transfer for a Product and ongoing compliance by Fabrinet with its obligations hereunder, during the term of this Agreement with respect to a Product, [*] transferred from Fabrinet, subject to the other provisions of this Agreement (the “ Commercial Commitment ”). The Commercial Commitment made herein will be proportionately adjusted if full-scale production of a Product is not in-place for an entire calendar year because the Facility or the Product manufactured at the Facility is not fully-qualified for the entire calendar year). The Commercial Commitment made by Avanex with respect to any Product is conditioned on Fabrinet continuously fulfilling Avanex’s requirements for the Product and delivering Product that conform in all respects with the relevant Specifications and required delivery-dates.

5.2

No Delays on Account of Disputes . Any breach of this Agreement with respect to any one Product or Order shall not impact Fabrinet’s obligation to deliver any other Product or Order, which deliveries shall not be delayed or withheld pending resolution of any disputes, claims, or controversies relating to another Product or Order.

6.

Manufacturing Equipment .

6.1

Consignment Equipment. Avanex will deliver to Fabrinet on consignment certain manufacturing equipment (“Consignment Equipment”) listed on Exhibit B, and other equipment as identified and agreed in writing by the parties. The Consignment Equipment is, and will

remain, the property of Avanex, will be subject to removal by Avanex without any cost to Fabrinet, shall be kept separate from other materials or tools, shall be clearly recorded and identified as the property of Avanex, shall be kept insured by Fabrinet with loss payable to Avanex, shall be located at Fabrinet’s facility at 294 Moo 8, Vibhavadi Rangsit Rd. Kookot, Lumlookka, Patumthanee 12130 Thailand, or other location as agreed in writing by Avanex, and will be used exclusively by Fabrinet for the manufacture of Products at its subsidiaries’ manufacturing facilities. Fabrinet will assume all risk of loss to the Consignment Equipment once Avanex delivers it to the designated manufacturing location. Fabrinet will keep the Consignment Equipment in good condition and repair, reasonable wear and tear excepted. Fabrinet will maintain the Consignment Equipment at a subsidiary facility. Fabrinet will not attempt to transfer or convey the Consignment Equipment to any third party. Fabrinet will return all Consignment Equipment to Avanex, at Avanex’s expense, immediately upon Avanex’s request. (“Subsidiary” means a corporation in which a party directly owns or controls, and continues to own or control, more than fifty percent of the voting stock.)

6.2

Purchased Equipment . In addition to the Equipment provided by Avanex and listed at Exhibit B of the Agreement, Fabrinet may procure manufacturing and testing equipment (“New Equipment”) from Avanex and/or third parties for the manufacture of Products for sale to Avanex. Subject to Avanex’s written approval, this New Equipment will be listed on an Exhibit B, signed by the parties. Fabrinet will provide Avanex with reasonable proof of the purchase price of each piece of New Equipment. Fabrinet will invoice Avanex quarterly for the depreciation costs of the New Equipment listed on Exhibit B, based on a pro rata [*] depreciation schedule. At the end of such term, Avanex will have the option to transfer title of the equipment at the depreciated value to Avanex after a minimal interest rate of [*] is applied to the purchase price and paid by Avanex. In the event either party terminates this Agreement, Fabrinet may promptly request that Avanex purchase the New Equipment listed on Exhibit B from Fabrinet at a cost equal to the original purchase price paid by Fabrinet, minus any depreciation costs attributable to the New Equipment and paid by Avanex. If Avanex cancels any or all orders for Products to be produced by Fabrinet with the New Equipment shown on Exhibit B, then Fabrinet may promptly request that Avanex purchase that portion of the New Equipment that shall no longer be used by Fabrinet due to such cancellation (upon a reasonable showing of such non-usage), at a cost equal to the original purchase price paid by Fabrinet, minus any depreciation costs attributable to that portion of the New Equipment and paid by Avanex.

7.

Intellectual Property – Operations Considerations .

7.1

Separation of Operations The operations related to the production of Products for Avanex will not be accessible or capable of being observed by any individual touring the Facility, other than Fabrinet’s security forces. Fabrinet will not allow any individual employed or otherwise associated with any Avanex Competitor to tour or otherwise observe the operations at the Facility related to the product of Products for Avanex. The “ operations related to the production of Products ” shall include, without limitation, raw material storage and inventory management, manufacturing processes, equipment operation, and measurement and testing methodologies and processes.

7.2

Audit Rights . Avanex and its customers shall have the right to audit the Facility and its operations to ensure that its security, intellectual property protection, manufacturing and quality-related processes meet or exceed the obligations undertaken by Fabrinet in this

Agreement and Avanex’s standards and requirements. Fabrinet’s failure to maintain the Facility and its operations at a level that meets or exceeds the obligations undertaken by Fabrinet in this Agreement or Avanex’s standards and requirements will be cause for Avanex to immediately terminate this Agreement with respect to any one or more Products.

8.

Relationship Management .

8.1

Product Managers . For each Product, Avanex or its Affiliate and Fabrinet will each designate a “ Product Manager ” who will be the primary point of contact for the other’s Product Manager on all matters related to the relevant Product, including, development of the Tech Transfer Schedule, development of the relevant Equipment List, preparation and exchange of the Product Process Documentation, coordination of Product Process Know-How disclosure, coordination of qualification processes by Avanex or its Affiliates and their respective Customers, the exchange of the relevant monthly Product Master Schedule, and development of cost-savings plan and timetables for implementation of such plans. The Product Managers will be the primary individuals for resolving minor disputes relating to delivery schedules, Change Orders, invoice payment, and other disputes relating to Orders for the relevant Product. However, in no event are the Product Managers authorized or otherwise empowered to alter, amend, modify or otherwise change any provision of this Agreement; such actions being accomplished solely through the procedures described in Paragraph 32.2. Fabrinet’s Product Manager shall prepare a monthly report quantifying Fabrinet’s ship-to-Order performance. The Product Managers shall be responsible for preparing quarterly business reports to be reviewed at the QBR Meetings contemplated below and shall otherwise comply with the requests of the Relationship Managers for information and other data.

8.2

Relationship Manager . Avanex and Fabrinet will each designate a “ Relationship Manager ” who will have a more global perspective of the relationship between Avanex and its Affiliates and Fabrinet as a result of this Agreement. The Relationship Managers will attempt to identify new opportunities for coordination between Avanex and its Affiliates and Fabrinet and will evaluate market trends. The Relationship Managers will attempt to resolve any disputes or controversies between Avanex or its Affiliate and Fabrinet arising hereunder. However, in no event are the Relationship Managers authorized or otherwise empowered to alter, amend, modify or otherwise change any provision of this Agreement; such actions being accomplished solely through the procedures described in Paragraph 32.2.

8.3

Quarterly Business Review Meetings . The Relationship Managers shall meet in person or by teleconference at least quarterly to review the progress of the relationship between the parties, the reports of the Product Managers, the Manufacturing Reports referenced in Paragraph 10, cost and price improvement initiative for each Product as anticipated by Paragraph 16.3, and attempt to resolve any dispute or controversy that the Product Managers are unable to resolve and which either Product Manager deems to be a matter that should be considered by the Relationship Managers.

9.

Intellectual Property .

9.1

Customer Information . Avanex and its Affiliates own certain technical information and know-how that relates to the design, techniques, processes, work instructions and materials for the manufacture of the Products, including without limitation, Product Process Documentation and Product Process Know-How (“ Avanex Information ”). Avanex and its Affiliates will retain

ownership of all intellectual property and other proprietary rights in and to the Information and the design and manufacture of the Products. Nothing in this Agreement, other than as specifically set forth in Paragraph 9.2 to 9.6 below and subject to the terms set forth in Paragraph 9.2 to 9.6 below, grants any right or license under any Information to Fabrinet or any third party.

9.2

Avanex License to Fabrinet. Avanex and its Affiliates hereby grant to Fabrinet a limited, revocable, nonexclusive, nontransferable, non-assignable right and license to use the Avanex Information to make the Products and sell the same only to Avanex and its Affiliates, and only while this Agreement is in effect. This license does not include any sublicensing or have-made rights, and is limited to manufacturing at the Facility. No other license is granted by Avanex or its Affiliates, by implication or otherwise. In the event this agreement is terminated, then Fabrinet will return to Avanex all licensed information originally licensed to Fabrinet within 30 days after the termination of the agreement.

9.3

License-Back. Fabrinet grants to Avanex a nonexclusive, royalty-free, transferable, assignable, irrevocable, perpetual license, including the right to sublicense and have-made rights, under any intellectual property or proprietary rights that Fabrinet may have with respect to any technical information or know-how specifically developed and used by Fabrinet to make the Products (“ Fabrinet Information ”). This license shall survive the expiration or termination of this Agreement for any reason whatsoever.

9.4

Copyrights. Fabrinet agrees that, for any works of authorship (including, but not limited to, illustrations, writings, mask works, multimedia works, data, software, firmware, and computer programs) created by Fabrinet or by any employees, agents or contractors of Fabrinet, or by any other persons or entity(ies) associated with or used by Fabrinet in the manufacture of Products under this Agreement (each a “ Fabrinet Representative ”; collectively, the “ Fabrinet Representatives ”), those works that come under one of the categories of “Works Made for Hire” in 17 USC 101, and all right, title and interest in such works of authorship shall belong to Avanex. For any works of authorship that do not come under such categories, Fabrinet, warranting that it has the right to do so, hereby assigns and agrees to assign all right, title and interest it has to any copyright in such works and will execute or cause to have executed at Avanex’s expense any documents required to establish Avanex’s ownership of such copyright. Fabrinet, on behalf of itself and the Fabrinet Representatives, hereby waives all “moral rights” and the like with respect to such authorship, to the extent allowed by applicable law. Such works of authorship shall be treated as Information and licensed-back to Fabrinet by Avanex subject to the provisions of Paragraph 9.2.

9.5

Patents. Fabrinet agrees to promptly disclose to Avanex all inventions, discoveries and improvements, whether or not patentable, made or first instituted to practice in the course of, or arising out of, or the performance of this Agreement, by Fabrinet or any Fabrinet Representative. All such inventions, discoveries, and improvements and any patents therefore shall be owned solely by Avanex. Fabrinet agrees to execute, or to cause a Fabrinet Representative to execute, any assignments or other documents, necessary to effect such ownership right and to assist Avanex (by reviewing documents and providing data), as requested by Avanex, for the preparation or prosecution of any applications for patents covering such inventions, discoveries, or improvements. Such inventions, discoveries and improvements shall be treated as Avanex Information and licensed-back to Fabrinet by Avanex subject to the provisions of Paragraph 9.2.

9.6

Patent Marking. Fabrinet shall mark Products or shipping containers for Products in accordance with patent marking instructions provided by Avanex.

10.

Orders; Forecasts .

10.1

Master Schedule. Within ten (10) calendar days of the end of every calendar month, Avanex shall provide Fabrinet with a written non-binding forecast which projects the anticipated types and quantities of Products that Avanex expects to purchase during the following twelve (12) months, itemized on a monthly basis (“Master Schedule”). Additionally, the Master Schedule will contain non-binding forecast projections of the types and quantities of Products Avanex expects to purchase during the ensuing thirteen week rolling period, broken down by weeks.

10.2

Orders . Avanex shall issue purchase orders (“Orders”) that match the Master Schedule. The first [*] weeks of each Master Schedule shall represent a binding commitment by Avanex to order (“Committed Order”), and Avanex shall submit an Order for such amount with each Master Schedule. Orders will specify the types and quantities of requested Products, and the delivery dates and destination points. Orders may be revised per the revised Master Schedule. Avanex shall only be required to purchase released items from Orders. The terms and conditions of this Agreement will be incorporated into each Order by reference and have the same effect as being in full text. In the event of any conflicts, differences or inconsistencies between the terms and conditions of this Agreement and those of any Order, quotation, acknowledgment or any other related document, the terms and conditions of this Agreement will govern.

10.3

Cancellation of Orders : Avanex understands and agrees that Fabrinet assumes no inventory liability under the terms of this agreement. However, Avanex and Fabrinet agree to work to reduce Avanex’s inventory exposure as follows:

10.3.1

Finished Goods : Avanex shall be liable for all Products manufactured in accordance with the Purchase Order commitments as of the date of cancellation, whether such Products are at Fabrinet’s manufacturing facility or in transit. However, Avanex shall not be obligated to pay for more finished goods than the supply of such Products matching the committed Purchase Order.

10.3.2

Work in Process : Avanex shall be responsible for Costs of work in process in percentage of work completed on the date of cancellation so long as the amount of Product is consistent with the committed Purchase Order.

10.3.3

Raw Materials : Avanex shall be responsible for [*] of the cost of any materials used in the Component manufacturing process on hand at or in transit to Fabrinet’s manufacturing facility as of the date of cancellation which is directly attributable to the Product described in the notice of Cancellation. Except as provided in section 10.3.4 below, Avanex shall not be responsible for any raw materials costs for Products scheduled for production greater than eight weeks from the date of cancellation.

10.3.4

Open Purchase Orders : The parties understand that Fabrinet may incur costs assessed by vendors for the cancellation of component orders with long lead times. In the event that Fabrinet is assessed any such costs, Avanex shall reimburses Fabrinet for all such costs, provided that such costs are for Products to be purchased within [*] weeks under the

Master Schedule or longer for long lead time items if agreed in advance in writing by both Parties. Fabrinet agrees to notify vendors of any cancellation within [*] hours of receipt of the notice of cancellation from Avanex. Fabrinet further agrees to make its best effort to return components, audit a vendor’s assessment and will make the results of such audit available to Avanex. Fabrinet agrees to immediately notify Avanex of any cancellation charges and provide Avanex with the opportunity to pay the cancellation charge or purchase the components ordered.

10.4

Avanex Purchase Commitments. See Section 5.1

10.5

Fabrinet Manufacturing Commitment. Fabrinet will maintain sufficient manufacturing capacity (equipment and trained personnel) to be able to increase the number of units (“upside flexibility”) of each Product shipped to Avanex by the percentages set forth as follows period over period. Within a lead time of [*] days [*]% Upside flexibili