AVANEX CORP
EXHIBIT 10.7
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>9
<FILENAME>f94625exv10w7.txt
<DESCRIPTION>EXHIBIT 10.7
<TEXT>
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                                                                    EXHIBIT 10.7

NOTE: Information in this document marked with an "[*]" has been omitted and
filed separately with the Commission. Confidential treatment has been requested
with respect to the omitted portions.

                                SUPPLY AGREEMENT

This Supply agreement (the "Agreement") is made by and between ALCATEL, a French
societe anonyme having its registered office at 54 rue La Boetie 75008 Paris,
France and AVANEX CORPORATION, a Delaware corporation having its principle place
of business at 40919 Encyclopedia Circle, Fremont, California 94538, U.S.A.
("Supplier").

WHEREAS

The Parties, along with Corning Incorporated, are parties to a Share Acquisition
and Asset Purchase Agreement (as defined hereinafter) pursuant to which, among
other things, Supplier is purchasing or otherwise acquiring all of the issued
and outstanding stock of Optronics France. In connection with such stock
purchase, Alcatel and Supplier agreed to enter into a supply agreement in which
Supplier would sell, and Alcatel would purchase, certain products. The parties
hereby enter into this Agreement in order to effectuate such purchase and sale.

NOW THEREFORE, in furtherance of the foregoing recitals and in consideration of
the mutual covenants and obligations set forth in this Agreement, the Parties
agree as follows.

Article 1 Definitions Except as otherwise defined below, initially capitalized
terms used herein shall have the definitions assigned to such terms in the Share
Acquisition and Asset Purchase Agreement.

         AFFILIATED COMPANIES: shall mean, as to any specified party, any other
         entity that directly or indirectly, through one or more intermediaries,
         controls, is controlled by, or is under common control with such
         specified party; provided, however, that the term "Affiliate" shall not
         include any entity of which a party or its Subsidiaries hold fifty
         percent (50%) or less of the outstanding equity securities so long as
         such party or its Subsidiaries hold fifty percent (50%) or less of the
         seats on the governing board of such entity.

         ALCATEL COMPETITOR: shall mean those entities listed on Exhibit 3.

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         SUPPLIER COMPONENT: means any product offered by Supplier or by any
         Supplier Affiliated Company,

         OPTO-ELECTRONIC COMPONENTS, OR COMPONENTS: means any optic components
         for optical signal based devices, whether terrestrial or submarine used
         in the transmission, conveyance, receipt of information (e.g. data,
         voice, pictures, music, etc.), through analog wavelength signals (e.g.
         optical detectors, signal lasers, pump lasers, optical amplifiers,
         optical transmitters, transceivers and transponders, optical filters,
         multiplexers, couplers) used as such or embedded into processing
         optical module.

         "SUBSIDIARY" shall mean, when used with respect to any party, any
         corporation or other organization, whether incorporated or
         unincorporated, at least a majority of the securities or other
         interests of which having by their terms ordinary voting power to elect
         a majority of the Board of Directors or others performing similar
         functions with respect to such corporation or other organization is
         directly or indirectly owned or controlled by such party or by any one
         or more of its subsidiaries, or by such party and one or more of its
         subsidiaries.

         SUPPLIER ACCESSIBLE MARKET (SAM): means the aggregate amount of
         Opto-electronic components procured during a specified period of time
         by Alcatel and its Affiliated Companies, either directly or indirectly
         through CMs and LSPs, which components are offered by Supplier and
         qualified into Alcatel products, including Dispersion Compensation
         Modules (DCM).

         EFFECTIVE DATE: has the meaning assigned to such term in Article 7
         hereof.

Article 2 Purchase

2.1      Minimum Purchase. During each Period during the term of this Agreement,
         Alcatel will purchase from Supplier seventy percent (70%) of the SAM
         (the "Minimum Purchase").

         Such Components shall be purchased from Supplier and/or Supplier
         Affiliated Companies by Alcatel, its Affiliated Companies and/or their
         contract manufacturers (CMs) and/or their logistic service providers
         (LSPs).

         The Minimum Purchase will be measured over each 12 month period ending
         on the anniversary of the Effective Date (each a "Period").

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         If during the term of this Agreement, Supplier introduces any new
         Component, Alcatel will consider the integration of such Component,
         subject to Supplier being willing and able to supply on competitive
         terms in accordance with Section 2.3, into any relevant application of
         Alcatel or its Affiliated Companies, either existing or currently in
         development. If this integration is accepted and requires an additional
         substantial research and development effort from Alcatel, the parties
         will discuss in good faith the most appropriate means and contributions
         of each party.

2.2      In connection with the calculation of the Minimum Purchase, Supplier
         shall communicate to Alcatel, promptly after the end of each Period,
         the actual billings of Supplier and/or Supplier Affiliated Companies to
         Alcatel Affiliated Companies, their CMs and their LSPs for Components
         during such year and Alcatel shall communicate in writing to Supplier,
         promptly after the end of each Period, the SAM for such Period.

         At the end of each Period, if the amount of Alcatel's cumulative
         purchases are less than [*] percent ([*]%) of the Minimum Purchase
         (i.e. [*] percent ([*]%) of the SAM), then Alcatel shall pay to
         Supplier an amount equal to [*] percent ([*]%) of the short-fall (each
         a "Periodic Payment"); provided that if, at the end of the third
         Period, the aggregate, cumulative purchases of Opto-electronic
         Components during such three Periods is less than [*] percent ([*]%) of
         the aggregate, cumulative SAM for all three Periods, Alcatel shall at
         its election either: (i) pay the amount of such shortfall within [*]
         after Supplier's invoice therefor or (ii) make up such shortfall in the
         next succeeding Period upon mutual agreement between the parties to
         extend the term of this Agreement for such an additional Period.

         If the amount of Alcatel's cumulative purchases during any Period
         (including excess amounts from prior Periods) exceeds the Minimum
         Purchase, then the excess shall be included in the amount of purchases
         made in the subsequent Period.

2.3      In the event Alcatel can demonstrate that Supplier (i) has [*] or (ii)
         has [*] or (iii) has discontinued any Components previously purchased
         by Alcatel and still requested by Alcatel, then the purchase of those
         Components by Alcatel, its Affiliated Companies, CMs and LSPs from
         third parties will be deemed purchased from Supplier and shall be taken
         into account in determining Alcatel's fulfillment of the purchase
         obligation set forth in this Article 2; provided that with respect to
         [*].

[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

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2.4      In the event Supplier has discontinued a Component and Alcatel still
         desires to purchase such Component as contemplated under subsection
         2.3(iii) above, Alcatel's purchase of such Component from a third party
         supplier shall count towards fulfillment of the Minimum Purchase in an
         amount equal to Supplier's invoice price to Alcatel for the relevant
         Component, multiplied by the number of such Components purchased by
         Alcatel from the third party supplier.

2.5      Sale of Business

2.5.1    Subject to Supplier's obligations under Section 4.5, in the event of
         any (i) change in the ownership of the voting shares of Supplier,
         resulting in the ownership of more than 50% of such voting shares by an
         Alcatel Competitor, (ii) merger of Supplier with an Alcatel Competitor,
         or (iii) sale of 50% or more of the assets or the business of Supplier
         to an Alcatel Competitor, then this Agreement shall terminate on notice
         from Alcatel to Supplier.

2.5.2    In the event of the sale or transfer by Supplier of a specific product
         line that includes at least one commercially released product purchased
         under this Agreement to a third party, then products of such product
         line shall not be required to be purchased by Alcatel hereunder, or
         included in the SAM or the Minimum Purchase obligation.

2.5.3    If, during the term of this Agreement, Alcatel or an Alcatel Affiliated
         Company intends to sell all or any part of a product line which uses
         Components, or a portion of its or their business, to a third party
         buyer, Alcatel shall notify Supplier of such intended sale as soon as
         is reasonably practicable and Alcatel shall provide for the valid
         assignment or replication of all rights and obligations under this
         Agreement related to the product line or business being sold, provided
         that Alcatel shall not have any joint and several liability with such
         third party to Supplier arising after the date of such assignment or
         replication.

2.6      If during the term of this Agreement,

         (i)      Supplier ceases substantially all performance of its material
                  obligations under this Agreement, or ceases substantially all
                  of the manufacture and sale of any Components;

         (ii)     Supplier shall commence any case, proceeding or other action
                  seeking to have an order for relief entered on its behalf as
                  debtor or to adjudicate it a bankrupt or insolvent, or seeking
                  reorganization arrangement, adjustment, liquidation,
                  dissolution or composition of it or its debts under any law
                  relating to

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                  bankruptcy, insolvency, reorganization or relief of debtors or
                  seeking appointment of a receiver, trustee, custodian or other
                  similar official for it or for all or any substantial part of
                  its property or shall file an answer or other pleading in any
                  case, proceeding or other action admitting the material
                  allegations of any petition, complaint or similar pleading
                  filed against it or consenting to the relief sought therein;
                  or

         (iii)    Any involuntary case, proceeding or other action against
                  Supplier shall be commenced seeking to have an order for
                  relief entered against it as debtor or to adjudicate it a
                  bankrupt or insolvent, or seeking reorganization, arrangement,
                  adjustment, liquidation, dissolution or composition of it or
                  its debts under any law relating to bankruptcy, insolvency,
                  reorganization or relief of debtors, or seeking appointment of
                  a receiver, trustee, custodian or other similar official for
                  it or for all or any substantial part of its property, and
                  such case, proceeding or other action is not dismissed within
                  thirty (30) days;

then, on immediate, written notice to Supplier (a) in any case or proceeding
described under clauses (ii) or (iii) involving a petition or case under the
U.S. Bankruptcy Code, if (A) Supplier has "rejected" this Agreement as such term
is understood under the U.S. Bankruptcy Code, or its equivalent under any other
applicable bankruptcy or creditor laws under which such proceedings are
commenced, or (B) Supplier seeks requisite approvals to commence actions for, or
likely to result in, the liquidation of substantially all of Supplier's assets,
then, notwithstanding Supplier's continued performance of this Agreement in
accordance with its terms, Alcatel may [*] or (b) in any other case described
above, Alcatel may [*]. Notwithstanding the foregoing, if clauses (ii) or (iii)
above are applicable, then within five (5) business days following a written
request by Alcatel, Supplier shall file a motion to "assume" the Agreement
(including the cure of any default then existing hereunder and demonstration of
adequate assurance of future performance) pursuant to 11 U.S.C. Section 365(a),
and shall use its reasonable best efforts to cause the court to enter an order
granting such relief not later than thirty (30) days following the filing of
such motion. Without in any manner limiting or waiving Supplier's obligations
contained in the preceding sentence, if Supplier fails to comply with such
obligations, then in recognition of Alcatel's need under such circumstances to
promptly obtain appropriate assurances of Supplier's ability to perform
hereunder, which need for such assurances Supplier acknowledges, then Alcatel
shall, without limiting all of its rights under the U.S. Bankruptcy Code or the
applicable law, have the right to request expedited consideration of a motion
authorizing and directing Supplier's immediate assumption of the

[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

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Agreement pursuant to 11 U.S.C. Section 365(a) or seeking such other relief as
may be appropriate under the circumstances, and Supplier shall consent to, and
not contest, the entry of an order granting such relief to Alcatel.

2.7      The Parties hereby agree and acknowledge that Alcatel's payment as set
         forth under section 2.2 shall constitute the sole rights and remedies
         of Supplier to Alcatel regarding its obligation to make the Minimum
         Purchase for any Period, exclusive of any other compensation
         whatsoever.

Article 3 Research and Development

3.1      During the term of the Agreement, Alcatel will communicate to Supplier
         its vision and strategic directions for future applications and
         evolution of its future optical components requirements. Alcatel will
         also communicate to Supplier, on a preferred supplier basis, any
         request for information ("RFI") or quotation ("RFQ"). Supplier will
         communicate to Alcatel its vision and strategic directions in the field
         of optical technologies and/or components.

         The Parties will jointly identify new strategic design and
         opportunities of collaboration in the areas of interest for both
         Parties. Consequently Supplier will make reasonable efforts to develop
         such products and/or technologies to fit Alcatel's needs, as are
         discussed in the Steering Committee, and mutually agreed between the
         Parties.

         Nothing in this Section 3.1 shall be deemed to require either party to
         (i) disclose any Confidential Information of such party, or (ii) to
         accept any Confidential Information of the other party, in each case
         with respect to strategic directions, applications or opportunities.

         Supplier shall be the preferred supplier of Alcatel and Alcatel
         Affiliated Companies for any new design of Components.

3.2      Subject to other applicable agreements with any third Party, Supplier
         will give to Alcatel early access to new technologies and products, and
         Alcatel will evaluate and provide Supplier with evaluation results of
         new Supplier technologies and/or products, as discussed in the Steering
         Committee, and as mutually agreed between the parties.

3.3      For any new designs mutually agreed to in writing by the parties,
         Supplier shall use reasonable efforts to offer to Alcatel and Alcatel
         Affiliated Companies short prototyping manufacturing cycle time.

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3.4      [*]

Article 4 Guaranty of supply and price

4.1      With respect to those Components a complete list of which is set forth
         in Exhibit 1A hereto, the Parties agree as follows:

         (i)      Supplier will secure for Alcatel and its Affiliated Companies
                  the manufacturing capability of the Components listed in
                  Exhibit 1A during the term of this Agreement;

         (ii)     Supplier will sell and deliver to Alcatel and/or its
                  Affiliated Companies, in accordance with Alcatel needs, the
                  Components listed in Exhibit 1A during the term of this
                  Agreement;

         (iii)    Supplier will not [*] without the prior written consent of
                  Alcatel and/or its Affiliated Companies, which shall not be
                  unreasonably withheld;

         (iv)     Supplier will not [*] during the term of this Agreement.

         (v)      In case discontinuance of a Component is due to a third party
                  component phase out, Supplier will use its best efforts to
                  maintain product availability. Each party hereby acknowledges
                  and agrees that any increase or decrease in the price of the
                  relevant Component based on such procurement shall be
                  reflected and cause an adjustment to the prices for the
                  relevant Component as set forth in Exhibit 1A.

4.2      In case Alcatel and/or its Affiliated Companies reasonably require
         technical modification to any Components listed in Exhibit 1, Supplier
         and Alcatel shall agree to such technical modification pursuant to a
         mutually executed engineering change order ("ECO").

4.3      Subject to Section 4.1(v), Supplier will sell to Alcatel and/or the
         Affiliated Companies of Alcatel, and Alcatel and/or the Affiliated
         Companies of Alcatel will purchase, the Components listed in Exhibit 1
         hereto at prices which will not exceed the prices indicated in Exhibit
         1, provided volumes are consistent with volumes purchased prior to the
         date of this Agreement.

[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

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4.4      Supplier hereby grants Alcatel and its Affiliated Companies a
         preferential customer status [*].

4.5      If Supplier sells all or part of the Assets as defined in 2.5 above to
         any third party during the term of this Agreement, then Supplier
         undertakes to condition such sale of Assets on the acquiring third
         party agreeing to be bound by the same obligations as those set forth
         in this article 4, provided that Supplier shall not have any joint and
         several liability with such third party to Alcatel arising after the
         date of such assignment or replication.

Article 5 Terms and conditions of purchase

         The terms and conditions of purchase shall be those set forth in the
         frame purchase agreement attached as Exhibit 2. In the event of any
         contradictions between the terms and conditions of this Agreement and
         the frame purchase agreement, the terms and conditions of this
         Agreement shall prevail.

Article 6  Steering Committee

6.1      As soon as practicable after the effective date of this Agreement, the
         Parties shall establish a Steering Committee to monitor the performance
         of this Agreement and to discuss future product strategy.

6.2      The Steering Committee shall be composed of an equal number of
         representatives of Alcatel and Supplier. The representatives will be
         appointed among senior executives of each party, and the parties will
         appoint the first members of the steering committee as soon as
         practicable after the Share Acquisition Closing.

6.3      The Steering Committee will meet at least quarterly (or whenever
         necessary as may be mutually agreed between the Parties) in Alcatel or
         Supplier premises.

6.4      The Steering Committee shall not have any authority to take binding
         decisions on behalf of either Party or to represent or bind the
         Parties, including but not limited to dealings with any third parties.
         All decisions of the Steering Committee will be taken on the basis of
         mutual agreement.

[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

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Article 7 Term

         This Agreement shall take effect at the "Share Acquisition Closing" as
         such term is defined in the Share Acquisition and Asset Purchase
         Agreement (the "Effective Date") and shall continue for a term of three
         (3) years after the Share Acquisition Closing.

Article 8  Applicable Law - settlement of dispute

         This Agreement shall be governed by the laws of France. Any dispute
         arising out of this Agreement shall be finally settled under the Rules
         of Conciliation and Arbitration of the International Chamber of
         Commerce by three (3) arbitrators appointed in accordance with said
         Rules, New York City, New York. The arbitration, agreements, evidence
         and any other materials used by either party in the course of making
         their case before such arbitrators will be in the English language.

Article 9  Miscellaneous

         This Agreement and the Exhibits and the Share Acquisition and Asset
         Purchase Agreement, and any and all attachments thereto, embody the
         entire understanding of the Parties relating to the subject matter
         hereof and supersede any prior oral or written agreement, materials,
         communications or other understandings between the Parties

         In case of discrepancies between this Agreement and its Exhibits, this
         Agreement shall prevail

         No amendment shall be valid and binding upon the Parties unless it is
         made in writing and signed by their respective duly authorized
         representatives.

         This Agreement is, and shall otherwise be deemed to be, an agreement
         "supplementary to" the Intellectual Property Licensing Agreement
         between Alcatel and Supplier.

Article 10 Assignment

         Neither Party shall be permitted to assign this Agreement or any rights
         or obligations herein (by operation of law or otherwise) without the
         prior written consent of the other Party, and any such attempted
         assignment shall be void; provided, however, subject to the other
         provisions of this Agreement, that either Party may assign this
         Agreement in its entirety and all of its associated rights and
         obligations without such consent in

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         connection with the sale of all or substantially all of the business to
         which this Agreement relates. Without limiting the foregoing, this
         Agreement shall be binding upon and inure to the benefit of the Parties
         and their respective successors and permitted assigns.

IN WITNESS WHEREOF, the Parties duly represented have signed this Agreement in
two (2) original copies

FOR ALCATEL

/s/

FOR SUPPLIER

/s/

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