10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2002.
OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                      to                                     .

COMMISSION FILE NUMBER 000-29661

UTSTARCOM, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)	52-1782500 (I.R.S. Employer Identification Number)
1275 HARBOR BAY PARKWAY, ALAMEDA, CALIFORNIA (Address of principal executive offices)	94502 (Zip Code)

Registrant's telephone number, including area code: (510) 864-8800
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.00125 par value

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/    No / /

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

        The aggregate market value of voting stock held by non-affiliates of the registrant as of January 31, 2003, was approximately $1,231,318,352 based upon the closing price of $19.27 reported for such date on The Nasdaq National Market. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held by officers and directors of the registrant, have been excluded in that such persons may be deemed to be affiliates. This determination is not necessarily conclusive for other purposes.

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes /x/    No / /

        The aggregate market value of voting stock held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter was approximately $1,378,658,004 based upon the closing price of $20.17 reported for such date on The Nasdaq National Market. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held by officers and directors of the registrant, have been excluded in that such persons may be deemed to be affiliates. This determination is not necessarily conclusive for other purposes.

        As of February 7, 2003 registrant had outstanding 107,017,039 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 9, 2003 are incorporated herein by reference in Part III.

UTSTARCOM, INC.

TABLE OF CONTENTS

			PAGE
PART I.
	Item 1.	Business	4
	Item 2.	Properties	26
	Item 3.	Legal Proceedings	27
	Item 4.	Submission of Matters to a Vote of Security Holders	27
		Executive Officers	28
PART II.
	Item 5.	Market for UTStarcom, Inc.'s Common Equity and Related Stockholder Matters	31
	Item 6.	Selected Financial Data	33
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risks	67
	Item 8.	Financial Statements and Supplementary Data	69
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	102
PART III.
	Item 10.	Directors and Executive Officers of UTStarcom	103
	Item 11.	Executive Compensation	103
	Item 12.	Security Ownership of Certain Beneficial Owners and Management	103
	Item 13.	Certain Relationships and Related Transactions	103
PART IV.
	Item 14.	Controls and Procedures	103
	Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	103
Exhibit Index			104
Signatures			110
Certifications			112

PART I

FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These statements are based on information that is currently available to management. We intend such forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with those provisions. The forward-looking statements include, without limitation, those concerning the following: our expectations as to the nature of possible trends, the manner in which customers in Chinese provinces negotiate for the purchase of our products; our expectation regarding continued growth in our business and operations; our expectation that our PAS network access system will continue to be allowed in China's county-level cities and counties; our expectation that there will be no penalties or fines for our non-compliance with the licensing requirements in China for our PAS and iPAS systems and other products; our expectation concerning the anticipated cost and completion date of our new Hangzhou manufacturing facility, our expectation that there will be fluctuations in our overall gross profit, gross margin, product mix, quarter to quarter results, customer base and selling prices; our plans for expanding the direct sales organization and our selling and marketing campaigns and activities; our expectation that we may use part of the net proceeds of our initial and follow on public offerings to acquire or invest in complementary businesses, technologies or product offerings; our expectation that there will be increases in selling, marketing, research and development, general and administrative expenses; our expectation that we will continue to invest significantly in research and development; our expectation that we will fill the majority of our current backlog orders; our expectation regarding our future investments, particularly in Softbank China; and our expectation that existing cash and cash equivalents will be sufficient to finance our operations for at least the next 12 months. Additional forward-looking statements may be identified by the words, "anticipate," "expect," "believe," "intend," "will" and similar expressions, as they relate to us or our management. Investors are cautioned that these forward-looking statements are inherently uncertain. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially. For a detailed discussion of these risks and uncertainties, see the "Factors Affecting Future Operating Results" section of this Form 10-K. We do not guarantee future results and undertake no obligation to update the forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-K.

ADDITIONAL INFORMATION

        UTStarcom is registered as a trademark in the United States. UTStarcom and PAS are registered as trademarks in China. We have applied to register the mSwitch and Netman trademarks in China.

        In this Annual Report on Form 10-K, references to and statements regarding China refer to mainland China, references to "U.S. dollars" or "$" are to United States Dollars, and references to "Renminbi" are to Renminbi, the legal currency of China.

        Unless specifically stated, information in this Annual Report on Form 10-K assumes an exchange rate of 8.3 Renminbi for one U.S. dollar, the exchange rate in effect as of December 31, 2002.

        UTStarcom's public filings, including its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, are available free of charge at its website, www.utstar.com. The information contained on our website is not being incorporated herein.

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ITEM 1—BUSINESS

OVERVIEW

        Incorporated in 1991 as a Delaware Corporation, UTStarcom designs, manufactures, and markets leading Broadband, Narrowband, wireless access, Softswitch and 3G products which offer a clean migration path to next-generation Internet Protocol (IP-based) networks. These products support service providers as they evolve their networks to meet the changing and growing demands of consumers. Providers are migrating voice services from the traditional copper-based network to wireless and packet-based networks. The copper-based network itself, once limited to carrying narrowband services, is evolving to support broadband services. Service providers are also migrating from circuit-based time division multiplex (TDM) services to packet-based services. Because UTStarcom engineers its solutions with migration needs in mind, service providers can implement them quickly and cost effectively.

        We provide a range of next-generation wireless and wireline network service products that support widely adopted international standards and protocols, so service providers can easily integrate them into existing networks and deploy them in new networks.

        UTStarcom solutions are based on four principle technology platforms—mSwitch, PAS/iPAS (IP-based PAS), AN-2000, and 3G—that carriers can use to build their networks in a modular fashion.

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mSwitch is a highly scalable, IP-based, multiservice switching architecture that seamlessly bridges the gap between existing circuit-switched and next-generation packet-switched networks.



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Our wireless network solution, Personal Access Services (PAS/iPAS), allows service providers to offer premium-quality voice, data, and value-added services over mobile and fixed wireless networks using our specially designed PAS handsets. PAS also provides an affordable pathway for service providers to migrate from wireline to community-based wireless in regions where there is little or no existing copper infrastructure. As of December 31, 2002, UTStarcom had cumulatively deployed or were in the process or deploying approximately 22 million lines of PAS/iPAS equipment servicing approximately 7.5 million subscribers in 21 provinces in China. Based on our knowledge of China's communications market, we believe that PAS is the most widely deployed wireless local access system in China. In the Taiwan market, approximately 500,000 subscribers were using our PAS systems as of December 31, 2002. In addition, we have deployed systems or begun trials for PAS in India, Vietnam and the Latin America region.



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For wireline networks, we provide a broadband-ready access platform called AN-2000. As of December 31, 2002, approximately 4 million AN-2000 lines had been deployed in China, including deployments of 80,000 broadband DSLAM lines in Zhejiang Province. We have launched significant deployments of our AN-2000 platform in Japan, Latin America and India.



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Our 3G network solution enables the transformation of voice-centric mobile communications to content-rich multimedia services. We support W-CDMA, CDMA 2000 and TD-SCDMA standards to deliver wireless multimedia over an IP core network.

        UTStarcom is committed to offering products that make its customers more competitive and more successful. Service providers use our integrated suite of products to attract a wide range of customers by offering a wider selection of efficient and expandable voice, data and Internet access services. Because UTStarcom offers cost-effective deployment, we believe our products enable service providers to earn more money per customer by offering numerous additional services.

        UTStarcom's range of wireless solutions enables service providers to sell highly affordable wireless communications services to the large population of users whose needs are not met by existing fixed line and cellular services. Our solutions also make it easy for service providers to offer value added services for a nominal amount or at no additional cost to themselves and for only a small incremental cost to

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their customers. And because our solutions offer a migration path, the service providers can easily add new wireless services and additional revenue streams while maintaining the value of their previous technology investments.

        Historically, substantially all of our sales have been to service providers in China. However, our range of solutions can be used wherever there is a need for cost-effective communications. We are currently expanding our sales efforts to include growing communications markets in Japan, Taiwan, Vietnam, India, Latin America, and elsewhere.

INDUSTRY BACKGROUND

        Growth in China's Communications Market.    China is the fastest-growing and largest communications markets in the world. Growth in China's communications equipment and services markets is being driven by the government of China's commitment to developing a communications infrastructure, strong demand for communications services and robust economic growth.

        China's demand for communications services is highlighted by its relatively low tele-density rate, which is a measure of the number of lines per hundred people. According to data released by China's Ministry of Information Industry (MII) at the end of 2002, China had a fixed-line teledensity rate of only 16.8% and a population of approximately 1.3 billion. In contrast, according to a report by the International Telecommunication Union as updated in June 2002, fixed-line teledensity rates for the United Kingdom, France, Hong Kong and the United States were 58.8%, 57.4%, 57.7%, and 66.5%, respectively. While growth in China's communications market is currently driven predominantly by voice services, the increasing demand for data services also presents a growing opportunity both in China and in other international markets. According to data provided by the MII, Internet users in China reached 49.7 million by the end of 2002, an increase of 36% year over year. In order to support this growth in data traffic, service providers in China must continue to expand their networks. We believe this is best achieved by deploying IP-based equipment.

        China's ability to invest heavily in its communications infrastructure is fueled by the country's strong economic activity. According to the China's State Statistics Bureau, China's gross domestic product, or GDP, grew 8.0% in 2002. The bureau also estimates that China's GDP will grow by approximately 7% through 2005.

        Communications Needs of Developing Countries.    Demand for voice and data communications services in developing countries continues to grow rapidly and is driven by both public sector infrastructure investment and private sector business growth. The governments of many developing countries have identified the development of a communications infrastructure as a key driver of modernization and economic growth. Governments are increasingly implementing and funding infrastructure development through privatization of state-owned telecommunications service providers. These service providers, in turn, are deploying advanced networks for voice and data services. In addition, increasingly affluent businesses and residential consumers in the highest growth regions of these countries are demanding state-of-the-art voice and data communications solutions to interact and compete on a global basis.

        Communications Network Architecture in China.    The development of China's communications infrastructure involves installing a nationwide network of high-bandwidth fiber-optic backbone networks and connecting each business and residential subscriber to this backbone. The wireline and wireless systems that link local subscribers to these backbone networks are referred to as the last mile or the local access network. The high growth rate, geographic dispersion and diverse communications needs of residences and businesses in China means that the direct wiring of subscribers to the backbone network using traditional copper connections is a lengthy, costly and inefficient process. Direct wiring of subscribers to traditional telephone switches often locks those subscribers into a limited set of communications services and limits expandability and migration to other services. In contrast, service

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providers in China require communications equipment that allows them to provide services quickly, efficiently and cost-effectively. Given the relative absence of a legacy communications infrastructure in China, these service providers are less constrained and thus often seek to deploy the latest best-of-breed systems with the flexibility to handle voice and data services.

        Needs of Service Providers.    Voice and data service providers require network solutions that address all of their access needs and offer easy migration to next generation networks while minimizing operational expense. These service providers require products that enable them to quickly, and with minimal incremental investment, address the changing demands of their subscribers for expanded or more advanced services. Given the rapid growth in emerging communications markets in regions such as Southeast Asia, Latin American and India, network solutions must be scalable. The same architecture must provide an affordable entry-level solution to initially serve a few hundred subscribers, yet economically scale to serve several hundred thousand subscribers over time. In addition, service providers require the following:

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Return on Investment. As competition intensifies, service providers require the ability to offer advanced and flexible services to their customers. Service providers must ensure these new services drive subscriber growth and, ultimately, revenue and profitability. As a result, service providers are focused on return on investment, enabling them to deploy technology that provides increased services today while also providing a cost-effective migration path to future expansion and functionality.



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IP-Based Networks. An increasing amount of voice and data traffic travels across IP-based networks instead of traditional circuit-based networks. The principal advantages of highly flexible, IP-based networks over circuit-based networks are lower cost, higher speed and the support of multiple applications, including e-mail, short-messaging, Internet access, video and voice in a single network. Because of these advantages, investment in IP-based networks is increasing while investment in circuit-based networks is decreasing.



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Integrated Voice and Data Solutions. Service providers are increasingly looking to expand their service offerings beyond traditional voice services to provide data and other value-added services. As advanced high speed data networks are deployed, service providers will require solutions that can be upgraded to adapt to new technologies while preserving the investment in their existing infrastructure. These networks will enable service providers to differentiate their service offerings, build customer loyalty and generate incremental revenue.



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Rapid Deployment. Given the rapid growth in emerging communications markets such as China, service providers are focused on quickly deploying solutions to meet customer needs. Wireless access solutions allow for rapid deployment of relatively inexpensive networks that give service providers significant revenue potential and cost advantages over wireline networks. In addition, service providers require wireless networks that will allow for convergence of voice and data and migration to third generation networks, referred to as 3G networks.



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Commitment to Local Markets. Service providers value equipment vendors that have made a strong commitment to their local markets. This commitment includes direct sales forces and local service organizations to respond to the needs of service providers and their subscribers.

        Although markets such as China represent substantial opportunities for communications equipment vendors, few companies have delivered products that have the ability to smoothly migrate to next generation technologies, coupled with the local presence that service providers require.

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THE UTSTARCOM SOLUTION

        We design, manufacture, and market a full range of Broadband, Narrowband, Wireless, Softswitch and 3G solutions that enable easy migration to next-generation IP-based networks. Carriers use them to create IP-based networks, integrated voice and data solutions, and wireless access networks.

        An important element of our strategy is our commitment to delivering lower cost-per-subscriber via lower operating costs, greater operating efficiencies, and higher and more diversified throughput levels. In addition, we provide our customers with a full range of solutions that they can tailor to their specific market needs and that enable them to offer a full range of services to their subscribers. We have been particularly successful in enabling our customers to offer high-bandwidth, multi-featured, affordable regional wireless services to portions of the large, unserved market of users that want mobile service but that do not require or cannot afford GSM cellular service. Finally, our solutions give carriers a full range of migration services, from voice to wireless, from copper to broadband, and from circuit switching to packet switching.

        We offer our customers a number of key competitive advantages:

        Migration to Next-Generation IP Networks.    Our core IP products are designed with the flexibility to allow service providers to deliver voice and data services over today's circuit-based networks and to migrate to next-generation broadband wireline and wireless networks based on IP and other international open standards. As a result, service providers can preserve their investment in existing networks and generate incremental revenue from their investment in our products while migrating to next-generation networks over time. Our products enable service providers to effectively time their network equipment expenditures, expand voice and data capacity and rapidly introduce new services as demand warrants.

        Cost-Effective Solutions.    Our products are designed to provide operators with a high return on their investment. By reducing network complexity, integrating high performance capabilities and providing a flexible migration path to next generation networks, our products cost less to deploy and maintain than most alternative technologies.

        Convergence of Voice and Data Services.    We have designed our systems to offer a high degree of flexibility in terms of subscriber capacity and types of traffic delivered. Our equipment can be flexibly configured to offer a variety of services in response to subscriber demand. This flexibility is particularly important to those emerging communications markets that are currently undergoing rapid change and growth. As Internet usage achieves greater global penetration, we believe service providers around the world will desire systems that are designed to deliver high-speed data capability. Our access systems allow service providers to quickly and cost-effectively implement upgrades for new services, including high-speed data capability. Alternative solutions may require the purchase of an entirely new system to provide these services.

        Wireless Access Networks.    Our PAS and 3G wireless access solutions are ideally suited for the requirements of service providers in both robust and emerging communications markets. Service providers can deploy our products quickly to cost-effectively meet customer demand. Our systems allow service providers to rapidly add new subscribers and to scale network capacity in response to demand. Our IP-based wireless access solutions also provide a platform for service providers to migrate to 3G mobile networks.

        Local Presence.    We have established a strong local presence with China Telecom Corporation and China Netcom Corporation, the incumbent wireline service providers in China, which enables us to be responsive to them and the specific needs of their subscribers. We manufacture our products primarily at our facility in Hangzhou in Zhejiang province. By using local facilities in China, we have helped create new jobs within the provinces and have strengthened our relationships with the

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Telecommunications Administrations in some of China's most modern and rapidly growing provinces. We also maintain 21 sales and customer support sites in China that allow us to deploy a customer support representative onsite anywhere in China within 24 hours. Our sales force develops direct relationships with decision makers at both the provincial and local levels through pre-sales design and consulting services. Additionally, through our relationships at the national, provincial and local levels in China, we receive a flow of information regarding market changes and insight into unique service provider needs and related opportunities. As part of this strategy to develop a local presence in markets that we serve, we also have sales, support and engineering personnel in Taiwan, India, Japan, Vietnam, as well as the Caribbean, Latin America, Europe and Africa regions.

STRATEGY

        Our objective is to be a leading global provider of Broadband, Narrowband, Wireless, Softswitch, and 3G solutions. The principal elements of our strategy are as follows:

        Capitalize on the Emerging IP-based Switching Market.    We believe the increase in Internet usage, particularly voice over IP traffic, has resulted in a market need for a next-generation, IP-based switching platform. Accordingly, we are making a substantial investment in developing our mSwitch architecture, which is designed to integrate with our existing products and can be scaled in response to increased demand. We believe that mSwitch can deliver value to service providers, both as a stand-alone system and in combination with our PAS system and AN-2000 platform. In the future, we intend to incorporate additional functionality into the mSwitch platform that we believe will enable us to enter new markets in China and around the world.

        Maintain and Grow Market Share.    We believe we are well positioned to maintain and grow our worldwide business. According to a report by Synergy Research in the fourth quarter of 2002, we are the leading worldwide supplier of softswitch solutions, holding more than 51% of the global market. According to a report by Infonetics Research in the fourth quarter of 2002, we are the second leading supplier of DSLAM and IP-DSLAM solutions worldwide. Our solutions are easy to deploy, offer a clean migration strategy to future network requirements, and enable service providers to sell a wide range of high-value-added services. We expect to continue to build local and global market share, extending the benefits of our solutions to our global customer base through expansion of our international sales operations and direct sales forces outside of China.

        Leverage Our Installed Base to Capitalize on Demand for Wireless and Wireline Broadband Services.    We believe we are well positioned to leverage our existing global installed base of systems and service provider relationships to capitalize on an increasing demand for data and broadband services. To meet this demand, we intend to:

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leverage our installed base of AN-2000 platforms and our working relationships with providers to offer our wireless access systems;



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continue to enhance functionality and increase features of our mSwitch IP-based, multiservice softswitch platform, which is designed to enable geographically dispersed gateways and servers to interact over high-speed IP networks to serve millions of subscribers;



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enhance our PAS systems and handsets to enable the provisioning of high-speed data services over 128 Kilobits per second, or Kbps, wireless links;



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continue to focus our development efforts on products that enable migration to 3G wireless technologies;



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continue to innovate and develop new products so that we may offer new broadband upgrades to our installed base of AN-2000 platforms to enable the delivery of broadband services over copper connections through digital subscriber line, or xDSL, technologies;

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broaden our PAS systems to enable value-added services, such as wireless content and applications which our customers offer in China under the brand name C-Mode, in Vietnam under the brand name CityPhone and in Taiwan under the brand name MiMi; and



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work with original equipment manufacturers to offer service providers a complete solution for IP-based networks.

        Expand Our Presence in China.    We intend to further capitalize on favorable market conditions in China, including its large population, low teledensity and strong demand for communications services. Since our inception, we have focused our engineering, product development and sales and marketing efforts primarily on communications equipment for China. This focus has enabled us to be a leader in this market by quickly identifying the needs of service providers in China and rapidly developing market-specific products to address those needs. We intend to expand our presence in this market by:

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increasing the number of sales and support staff and offices in China;



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developing new products to address the demands of our existing and future customer base;



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migrating our installed base from voice to data, from wireline to wireless, and from time division multiplex (TDM) switching to IP soft switching as market demand warrants; and



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increasing our local research and development and manufacturing capabilities.

        Penetrate Other Growing Communications Markets Worldwide.    We have started offering our products in growing communications markets outside of mainland China, opening new international sales operations in North America, Europe, the Middle East and Africa, Central America and Latin America, and South and North Asia. We intend to penetrate these markets in several ways: through direct sales offices located in key market regions, licensing our technology to local manufacturers where import taxation favors this approach, the development of local sales agency and distributor relationships within specific market regions, and sales relationships with original equipment manufacturers. Our sales division has initiated expansion into Africa, Europe, India, Japan, Latin America, Taiwan, and other Pacific Rim markets. We have established regional offices to focus on non-China market development with sales and customer support operations in Bangkok, Hanoi, Ho Chi Minh, Manila, Miami, New Delhi, New Jersey, Shanghai, Taipei, Tel Aviv, and Tokyo. We also plan to establish local direct sales representative offices in key regions around the world. To date, we have deployed our products in a number of growing communications markets outside of mainland China, including India, Japan, Vietnam, and Taiwan.

PRODUCTS

        We provide communications equipment for service providers that operate wireless and wireline networks. Our wireless and wireline access networks and IP-based switching systems include four principal technology platforms:

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mSwitch—our IP-based multiservice softswitch architecture;



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PAS/iPAS—our wireless access solution which includes infrastructure systems, handsets and value-added services;



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AN-2000—our broadband access platform; and



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3G offerings—our third-generation mobile and multimedia solution.

        Each comprises multiple hardware and software subsystems that can be offered in various combinations to suit individual customer needs. In addition, through original equipment manufacturer relationships, we provide customers in China with equipment for deployment in metropolitan area networks.

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Our IP-Based Multiservice Softswitch (mSwitch)

        mSwitch, our IP-based, multiservice softswitch architecture, is a cost-effective, flexible and scalable network solution designed to replace traditional central office switches. This architecture delivers multiple services, including broadband and narrowband remote access services, on an IP-based packet-switching infrastructure via wireless and wireline networks. Capacity of the mSwitch is highly scalable, allowing customers to increase their sources of revenue generation by supporting a wide range of new revenue-generating services.

        A single mSwitch platform provides a variety of features and benefits:

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It provides a cost effective way to upgrade an existing PSTN to a v5.2 interface.

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It delivers a fully converged network that can be used to provide broadband access, Gigabit Ethernet, IP VPN, streaming video, 3G and other services.

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The mSwitch architecture includes a new, revenue-generating Wireless PAS Access Gateway.

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The architecture incorporates a 3G mobile core network capable of serving both immediate and future demands.

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Voice over IP (VoIP) eliminates the need for the continued build-out of obsolete infrastructure.

        The mSwitch's highly reliable transport carries bearer data along with signaling, control, and management information. The architecture includes operations support systems for associated billing, provisioning, and service management. The VoIP gateway functions of mSwitch seamlessly bridge service providers' existing circuit-switched platforms to next-generation, IP-based packet-switched architecture. In addition, service providers can use the mSwitch to implement a network migration strategy that protects their investments on every level. By combining our softswitch functionality with our wireless technology, mSwitch provides highly scalable, mobile switching centers that can operate with our PAS system.

        mSwitch networks are distributed, which means that many geographically dispersed gateways and servers can interact over a high-speed, IP-based network to serve millions of subscribers. Gateways provide hardware resources to process voice and data and support widely used interface protocols. Servers provide functions like call routing, accounting, authorization, billing, provisioning, fault monitoring and recovery.

        We have developed an advanced and comprehensive operations support system (OSS) for management of mSwitch equipment, billing for mSwitch services, and customer care for mSwitch subscribers. This OSS uses an online, Internet-based user interface that enables service provider personnel and individual subscribers to access provisioning and billing information through the Internet from an ordinary web browser.

        We are also developing a set of capabilities to support 3G wireless technologies, including a mobile switching center, a radio network controller and a general packet radio service node. We were one of a select group of participants in China's technical trial of 3G mobile networks based on the 3GPP WCDMA standard. In 2002, we successfully completed the first phase of testing conducted by China's Ministry of Information Industry, or MII, and have begun field trials in two major cities. We also expect to launch two more field trials in 2003.

        In addition, we are also developing mSwitch applications to provide wireline local exchange functionality, voice-over-IP gateways that will enable legacy public networks to connect to low-cost, IP-based, long-distance trunk lines, and modem and fax pools that will allow mSwitch to act as a remote access server for dial-up users who wish to access IP networks.

        We are also developing IP routing capabilities that we will integrate in our mSwitch platform to further improve functionality and reduce cost to our customers. We intend to continue to enhance

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mSwitch with additional applications in response to evolving market requirements and technology trends.

Our Wireless Access System (PAS)/(iPAS)

        UTStarcom's Personal Access Services (PAS) wireless access system and IP-based (iPAS) wireless access system use micro cell radio technology and specialized handsets to offer business and consumer subscribers mobile and fixed access to telephone services.

PAS Wireless Access System

        PAS takes advantage of unused switching capacity to let service providers offer a wide range of profitable services to a large subscriber base that other wireless technologies cannot reach. We specifically designed our PAS solution to meet the growing needs of a specific consumer-and//or subscriber population that desires limited and/or regional mobility (more than fixed line and less than a traditional cellular offering), a more cost-effective tariff plan, and access to value-added data services (VAS). When compared to macrocellular systems like GSM and CDMA, PAS offers lower deployment costs, easier radio planning, higher traffic capacity, better voice quality, faster data transmission speeds, lighter handsets with lower power requirements, and better support of advanced information services.

        Because PAS is a limited-mobility system, it is ideal for deployment in urban and suburban areas; while traditional cellular systems that are based upon either GSM or CDMA standards cover larger regional areas. UTStarcom's wireless CityPhone feature allows service providers to offer subscribers same-number extension lines with citywide mobility. For additional coverage or capacity, service providers can easily deploy PAS in indoor spaces such as office buildings, airports, and shopping malls. PAS can provide wireless mobile phone service at densities of upwards of 15,000 subscribers per square kilometer. Our PAS solution integrates seamlessly into existing Public Switched Telephone Networks and offers unlimited scalability, enabling service providers to economically sell services to anywhere from 10,000 to a million subscribers.

        The PAS wireless access network employs a mobile switching network based on our AN-2000 platform. The wireless access network formed by PAS components connects to the central office switch to provide local and long distance telephone service over a standard digital interface or an analog 2-wire interface. These open interfaces to the central office allow PAS to access any of the operator's installed switching capacity and to deliver existing switch based services, such as caller ID, call forwarding, and voice mail, to wireless subscribers.

iPAS Wireless Access System

IP-based PAS (iPAS)

        With the UTStarcom iPAS™ wiress access network, operators can migrate their current wireline network to an IP-based wireless network that provides wireless voice and data services within a city or community. With this new system, service providers can offer new wireless services, such as citywide mobility, same-number wireless extension, email, mobile Internet access, short messaging and location-based services.

        iPAS interconnects with the existing PSTN by way of the SS7 interface, making it an ideal solution for areas where the V5.2 interface is not yet available. With the IP trunking capability, iPAS can operate as an independent network over a unified IP-based infrastructure. iPAS also provides a standard V5.2 interface to support wireline services over a V5-based access network.

        In 2002, we deployed more than 10 million lines of mSwitch-based iPAS systems in many cities in China and in several other locations outside of China. Chengdu now has the largest iPAS site in the world, with more than 500,000 users by the end of 2002.

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PAS Handsets, Value Added Services and Network Management

        We also design and manufacture handsets that are specifically configured to support PAS services. In 2002, we introduced 6 new handset models spanning a full spectrum of price ranges and functionalities, including our high-end 718U, a full-color handset that takes full advantage of our value-added services or VAS platform. Our strategy of designing in-house, manufacturing, licensing, and direct sourcing handset components gives us the flexibility to meet demand while offering the broadest line of PAS handsets to our global customer population. We expect to continue to invest in this area and to introduce additional handset models in 2003, including a dual-mode cellular/PAS handset.

        In conjunction with our PAS system, we enable rich wireless content and applications similar to NTT DoCoMo's iMode service. To date, this service has been launched by our customers in Xian, Chengdu, and Hangzhou in China; Hanoi and Ho Chi Minh in Vietnam; and Taipei in Taiwan. This service, known in China as C-mode, as CityPhone in Vietnam, and as Mobile Information, Mobile Internet, or MiMi/WiWi in Taiwan, employs a high-function handset with expanded LCD display that subscribers can use to browse the worldwide web and to send and receive e-mail and short messages. We support standardized Chinese as well as English characters, and local content providers in China and Taiwan are accumulating hundreds of information services including news, stock quotes, sports results, job postings, dating services, chat rooms, and fortune telling. MiMi has a Global Positioning Service (GPS) feature that can accurately determine a user's location and can list local restaurants, shops, hotels, theaters, hospitals, or other location-sensitive information when queried.

        Our Netman network management system, which is integrated with our network access products, provides for centralized management of our PAS products. Netman provides the ability to manage individual network components and to report on the status of the network as a whole. With Netman, a service provider can add and drop subscribers and continuously monitor all access network elements, providing for real-time reporting and alarms in addition to performance management, optimization and distribution of software updates. Netman uses scalable client/server architecture in a Windows NT environment. Server hardware may be scaled to handle several thousand nodes. Netman can also be installed on a portable personal computer and may be used as the local onsite maintenance terminal wherever remote nodes are installed.

        By end of 2002, there were 7.5 million PAS subscribers on UTStarcom's systems throughout China, a net increase of 137% year over year. UTStarcom's installed and under construction PAS/iPAS system capacity in China reached 22.2 million lines, an increase of 236% over the capacity of 6.6 million lines at the end of 2001. Among the cities we added during 2002, several cities, such as Wenzhou, Chengdu and Taipei have reached over half a million active subscribers.

Our Broadband Access Platform (AN-2000)

        UTStarcom understands that service providers want to bring the power of broadband into the homes and businesses they serve so they can offer a wide range of new services that generate new revenue streams. We give service providers a way to access these services and revenue streams with our economical, scalable, versatile, and powerful AN-2000 broadband solutions.

        Because our broadband solutions conform to the most rigorous industry compatibility standards, they give our customers a number of advantages. Our solutions support modular network build out, enabling service providers to expand their networks easily. Customers can be confident that their UTStarcom solution is designed to work with their networks as they grow and evolve. Our solutions also work with existing equipment; service providers do not need to eliminate their legacy technologies to offer broadband services.

        The AN-2000 family of integrated broadband access platforms delivers a mix of broadband and traditional voice and data services via copper or fiber, or a wireless network. The solutions also enable

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network migration from narrowband to broadband. Services supported by the AN-2000 include the following:

•

traditional analog voice;

•

voice and data in digital format over integrated services digital network, or ISDN, lines;

•

analog and digital leased lines;

•

business data over integrated digital subscriber lines, or IDSL, and high-data-rate digital subscriber lines, or HDSL; and

•

high-performance, always-on Internet access for residential and business subscribers using advanced asymmetric digital subscriber line, or ADSL, technology.

        Our AN-2000 platform contains both central office terminals and remote terminals that are linked together by fiber, microwave radio, or copper to form a digital access network. The remote terminals are located close to the subscribers and offer last-mile wireline connections for voice and data services to the subscribers. Each remote terminal, which is scalable from 16 to 1,520 lines, can be connected into a ring to form a metropolitan access network of up to 23,000 subscriber lines. By connecting multiple metropolitan access networks, a metropolitan service network can potentially service hundreds of thousands of subscribers.

        The AN-2000 platform offers a V5.2 exchange interface that benefits service providers by shifting network intelligence out into the access network, reducing reliance on costly proprietary distributed central office switch architectures. For service providers whose switches are not yet V5.2 compliant, we provide a migration capability whereby the AN-2000 terminates analog and ISDN ports in the central office, effectively creating a V5.2 interface to the remote AN-2000 platforms.

        For broadband services based on ADSL, the AN-2000 platform has integral multiplexing capability for up to 384 users to share 155Mbps of Asynchronous Transfer Mode, or ATM, bandwidth to the Internet or, alternatively, 1.6Gbps in our IP-over-Ethernet version. The AN-2000 platforms can serve as a multi-service access node in which ADSL is delivered from a remote location combined with voice and leased line services or it can be configured as a pure central-office based Digital Subscriber Loop Access Multiplexer (DSLAM). Other DSL services, including HDSL and G.SHDSL, are also available. We also offer a Broadband Remote Access Server (B-RAS) to provide service management features, including authorization, accounting, virtual networking, and protocol translation. As with PAS, our integrated Netman network management system provides centralized management of the AN-2000 platforms. The ADSL service is compatible with most customer premise modems provided by third-party vendors. As of December 31, 2002, service providers have deployed approximately 4.0 million AN-2000 lines worldwide.

        In 2001, we introduced our IP-DSLAM product, based on an extension of our AN-2000 technology. This product, which began shipping in the fourth quarter of 2001, provides extremely high density and high functionality at an attractive price. This product represents a new generation of DSLAM, which does not require ATM networking, and is therefore compatible with IP-based networks. Our IP-DSLAM lowers operator costs by eliminating the need for traditional high cost ATM-based networks.

Our 3G Solution

        UTStarcom offers an end-to-end solution for 3G wireless networks that supports W-CDMA, CDMA 2000 and TD-SDCMA standards. Our solution consists of three primary elements:

1.

mSwitch Mobile Core Network, which consists of a Softswitch server complex, an integrated Operations and Support System (OSS), and various types of media gateways.

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2.

Radio Access Network (RAN), which is a combination of Radio Node Controller (RNC) and a radio base station (Node-B).

3.

A suite of portable multimedia devices, which supports a variety of new applications including mobile web browsing, video phone applications and mobile computing.

        UTStarcom's 3G solution is based on forward-looking IP and softswitch architecture which we believe will significantly lower the investment and operational cost for operators. This simple and cost-efficient architecture provides the ability to migrate from 3GPP R99 to 3G PP R4/5 ALL IP in the future. Other unique advantages which UTStarcom's 3G solution offers include:

1.

Co-existing with iPAS network, which provides operators the choice to share the iPAS core network with future 3G solutions and offer seamless upgrades of network and customer services.

2.

Layered network for flexibility and efficiency, which consists of a service layer, control layer, connection layer and access layer.

3.

Scalable network capacity, which supports 10,000 to 10,000,000 subscribers.

        UTStarcom started the research and development of our 3G technology in 1997. UTStarcom has established a global team of hundreds of engineers across China and the US to engage in the different aspects of 3G solutions. One major development came in November 2001 when UTStarcom was selected by China's Ministry of Information Industry (MII) along with a select group of vendors to conduct technical trials in a comprehensive mobile communications trial system of MII (MTNet) using the 3GPP WCDMA standard. After several rounds of vigorous testing, UTStarcom successfully passed all the Phase I tests in March of 2002, whereby we not only provided a complete 3GPP R99 compliant system, including core networks, (MSC, GSN, HLR, etc.), network management, RNC, Node B, and user equipment emulators, but also demonstrated a total 3G solution with stable and consistent performance with IP transport technology.

        As a result, in May 2002, UTStarcom moved onto the MII's Phase II test which focused on interoperability between different vendors and an operator trial. In addition, due to the successful outcome of the Phase I test, UTStarcom secured a 10 MHZ IMT-2000 frequency from the MII to be used for internal research and trials in a few select cities. To date, the two trial systems in Shenzhen and Shanghai are running smoothly, both utilizing commercial grade handsets, and have achieved high-quality voice, data and multimedia services.

        UTStarcom also has strategic alliances with Matsushita, interWAVE and Datang Mobile in co-designing and jointly developing WCDMA, CDMA 2000 and TDS-CDMA 3G systems.

Our OEM Products for Metropolitan Area Networks (MANs)

        We partner with original equipment manufacturers, or OEMs, which allows us to offer our customers a broader range of products. This OEM strategy allows us to provide benefits to our customers and also allows us to learn about specific technologies and market segments that may help us to shape our overall strategic planning. One such initiative is our program to penetrate China's Metropolitan Area Networks, or MANs, to provide Layer2/Layer3 switches.

Our ACD Products

        Our in house design capabilities allow us to continue to develop leading carrier class broadband access solutions. ACD products and development are synergetic with the overall system development efforts at UTStarcom. In 2002, ACD successfully launched a new Single LAN Switch chip set.

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MARKETS AND CUSTOMERS

China

        With anticipated annual gross domestic product growth of 7-8% and a low teledensity of 16.9% for fixed line and 16.1% for mobile, we expect China to continue to be our single largest market in 2003. We expect 70-80% of our revenue will come from China in 2003, although no assurances can be provided in this regard. In addition to a China-based engineering force, we had 21 direct sales offices throughout China staffed by nearly 1,000 sales and service representatives as of December 31, 2002.

        Our PAS systems are deployed in 21 provinces in China. At December 31, 2002 there were approximately 7.5 million subscribers.

        We are also a strong competitor in DSLAM and IP-DSLAM product, with 80,000 lines deployed.

        Furthermore, we are competitively positioned for our 3G offerings due to our incumbent position as the largest wireless provider to the fixed line operators with our mSwitch-based iPAS system that ensures easy migration to the next generation IP core network.

        Geographically, we provide our communications equipment to local telecommunications companies in a wide variety of provinces of China. Market opportunities within China's 31 provinces vary greatly by region, with the more densely populated coastal provinces experiencing the strongest economic development. However, as China extends development to the western part of the country, we have expanded our focus from the more prosperous eastern coastal regions of China, including Guangdong, Zhejiang, Fujian, Shandong, and Jiansu, to almost all inland provinces in the western part of China. While each of the local telecommunications companies is part of the China Telecom or China Netcom systems and subject to their management control, equipment purchasing decisions for most of these provinces are generally made at the local level.

Vietnam

        UTStarcom entered the Vietnam market in 2002, winning contracts worth more than $20.5 million from Vietnam Post and Telecommunications (VNPT). VNPT is deploying UTStarcom's IP-based PAS technology in two major cities—Hanoi, with a population of 4 million, and Ho Chi Minh City, with a population of 6.5 million. In addition, UTStarcom is implementing its AN-2000 Network Solution in Ho Chi Minh City and installing another for trials in Hanoi.

        The economy of Vietnam, which has a total population of nearly 80 million, is growing at 7% annually. Vietnam is the second-fastest-growing telecommunications market in the world after China, yet it has a teledensity of less than 5%.

India

        UTStarcom has successfully implemented its mSwitch, PAS, and AN-2000 solutions in India. We have either implemented our products or conducted trials with Reliance, BSNL, MTNL, Tarta and Shanym, who are among India's eight basic service operators. We believe we have successfully positioned ourselves to rapidly expand the breadth and depth of our Indian operations.

        In addition, we have built a major research and development facility in Gurgaon, on the outskirts of New Delhi, that focuses on developing the India market and global research and development initiatives. We have also established local manufacturing of our AN-2000 technology in association with Himachal Futuristic Communications Limited.

Japan

        Yahoo! BB, the leading provider of broadband service in Japan, has deployed UTStarcom's AN-2000 IB IP-DSLAM equipment to support its 12 Mbps ADSL service. According to the Ministry of Public Management, Home Affairs, Posts and Telecommunications in Japan, Yahoo! BB reached more than one million subscribers by September 2002, less than 13 months after the service was introduced.

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        The following table is a list of our customers who purchased more than $1.0 million of our products in 2002.

Fujian Province

Fu Jiang Zhang Zhou Telecommunication Bureau
Fujian Hongyu Group Company
Fujian Longyan TB
Fujian Net-Com Material ltd.
Fujian Quanzhou TB
Fujian Sanming PTC

Gansu Province

Gan Su Lan Zhou Telecommunication Bureau
Gan Su Bai Yin Telecommunication Bureau
Gan Su Tian Shui Telecommunication Bureau

Guangdong Province

Guang Dong Jiang Men Telecommunication Bureau
Guang Dong Shao Guan Telecommunication Bureau
Guang Dong Zhao Qing Telecommunication Bureau
Guangdong Telecommunication Bureau Group Zhuhai Branch
Guangxi Province

Guangxi He Zhou Telecommunication Bureau
Guang Xi Gui Lin Telecommunication Bureau
Guang Xi Nan Ning Telecommunication Bureau
Guang Xi Wu Zhou Telecommunication Bureau
Guangxi Hechi Zone Telecom Indust. Company
Guangxi Qinzhou Com. Indus. Company
Guangxi Telecommunication Bureau Baise Branch
Guangxi Telecommunication Bureau Guigang Branch
Guangxi Telecommunication Bureau Liuzhou Branch

Hainan Province

Hainan Haikou Telecommunication Bureau
Hainan Telecommunication Bureau

Hebei Province

ShiJiazhuang Telecommunication Bureau
Hebei Baoding Customers
Hebei Handan PTC
Hebei Langfang Telecommunication Bureau

Heilongjiang Province

HeiLongjiang Haerbin Telecommunication Bureau

Henan Province

He Nan Luo Yang Telecommunication Bureau
Henan Telecom Material Ltd.
Henan Telecom. Jiaozuo Company
Henan Xinxiang Com. Material Maintenance Company
Henan Zhengzhou WeiKemu Company

Hubei Province

Huangshi Telecommunication Bureau
Hubei Telecom Huanggang Branch
Hubei Telecom Yichang Branch
Shiyan Telecommunication Bureau
Xiangfan Telecommunication Bureau

Jiangsu Province

Jiang Su Nan Tong Telecommunication Bureau
Jiang Su Yang Zhou Telecommunication Bureau
Jiangsu Jubang Zixun Indust. Ltd.
Jiangsu LianYungang Guomai Com.
Jiangsu Taizhou Telecommunication Bureau
Jiangsu Xuzhou Telecommunication Bureau Yongan Branch
Nantong Post Material Company

Jiangxi Province

Jiang Xi Gan Zhou Telecommunication Bureau
Jiangxi Telecom.Yichun Branch
Jiangxi Telecom. Pingxiang Branch
Jiang Xi Shang Rao Telecommunication Bureau
Jiang Xi Xin Yu Telecommunication Bureau
Jiang Xi Ying Tan Telecommunication Bureau
Jiangxi Nanchang Telecom Indust. Ltd.
Jiangxi Telecom. Jiujiang Branch
Jiang Xi Ji An Telecommunication Bureau

Jilin Province

Jilin Siping Com. Indust. Company

Liaoning Province

Liaoning Benxi Telecom Branch
Liaoning Post Material Group Panjin Company

Neimenggu Province

Dongsheng
Huhehaote Bibo Telecom Company
Neimenggu Huhehaote Telecommunication Bureau
NeiMenggu Wide Band

Ningxia Province

Ningxia Telecommunication Bureau

Shandong Province

Jinan Zhongheng Shopping Center Zhongxun Electronic
Shan Dong De Zhou Telecommunication Bureau
Shan Dong Ji Nan Telecommunication Bureau
Shan Dong Liao Cheng Telecommunication Bureau
Shan Dong Telecommunication Bureau
Shan Dong Zi Bo Telecommunication Bureau
Shandong Jining PTelecommunication Bureau Lutong Ltd.
Shandong Linyi Telecom. Lutong Ltd.
Shandong Telecom Jining Branch
Shandong Tonglian Inf. Indus. Group Material Company
Shandong Weihai Telecom Lutong Ltd.
Shandong Yantai Telecom Lutong Ltd.

Shanxi Province

Jinzhong Telecommunication Bureau
Shanxi Datong Telecommunication Bureau
Shanxi Jincheng Telecom Branch
Shanxi Lvliang
Shanxi Taiyuan Telecommunication Bureau
Shanxi Xinyuan Com. Trade Ltd.

Sichuan Province

Chengdu Fuchuan Com. Developing Ltd.
Chengdu Guowei Industrial Ltd.
Chengdu Homeclub Com. Material Ltd.
Chengdu Lantian Information Tech. Project Ltd.
Chengdu Taili PT Field Ltd.
China Post Material Southwest Company
Fu Jiang Pu Tian Telecommunication Bureau
Si Chuan Nei Jiang Telecommunication Bureau
Si Chuan Telecommunication Bureau
Si Chuan Yi Bin Telecommunication Bureau
Si Chuan Zi Gong Telecommunication Bureau
Si Chuan Zi Yuang Telecommunication Bureau
Sichuan Chengdu Telecommunication Bureau
Sichuan Hengtong Telecom Tech. Developing Company
Sichuan Litong S&T Ltd.
Sichuan Telecommunication Bureau PanZhihua Branch

Tibet Province

Tibet Changdu Telecom Branch

Shan‘ Xi Province

Shan Xi Han Zhong Telecommunication Bureau
Shan Xi Telecommunication Bureau
Shan Xi Tong Chuan Telecommunication Bureau
Shan Xi Xi An Telecommunication Bureau
Shanxi Xi An Tonglian Telecom Ltd.
Xianyang Telecommunication Bureau

Xinjiang Province

Xi Jiang Yi Li Telecommunication Bureau
Xin Jiang Bo Le Telecommunication Bureau
Xin Jiang Ta Cheng Telecommunication Bureau
Xin Jiang Wu Lu Mu Qi Telecommunication Bureau
Xinjiang Aletai Telecommunication Bureau
Xinjiang Dushanzi Telecommunication Bureau
Xinjiang Telecom Hami Branch
Xinjiang Telecom Kelamayi Branch
Xinjiang Telecom Shihezi Branch

Yunnan Province

Banna Telecommunication Bureau
Diqing Telecommunication Bureau
Yunan Chuxiong Telecommunication Bureau
Yunan Dali Telecommunication Bureau
Yunan Telecom Company
Yunnan Kunming Telecommunication Bureau
Yunnan Lincang Telecom Company
Yunnan Telecom Lijiang Branch

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Zhejiang Province

Huzhou Telecommunication Bureau
Jiang Su Xu Zhou Telecommunication Bureau
Zhejiang Hangzhou Telecommunication Bureau
Zhejiang Shaoxing Telecommunication Bureau
Zhejiang Telecom. Group Chunan Branch
Zhejiang Telecom. Group Jiande Branch
Zhejiang Telecom. Group Linan Branch
Zhejiang Telecom. Group Ningbo Branch
Zhejiang Telecom. Group Quzhou Branch
Zhejiang Telecom. Group Taizhou Branch
Zhejiang Telecom. Group Wenzhou Branch
Zhejiang Telecommunication Bureau
Zhejiang Xiaoshan Telecommunication Bureau
Zhejiang Yuhang Telecommunication Bureau

Outside Mainland China

BB Technologies Corporation
First International Telecom Corp.
Matsushita Communication Industrial Co. Ltd
Hitron Technologies Inc.
NEC USA, Inc.
Hughes Telecom (India) Ltd.
Himichal Futuristic Communications Ltd.
Corporate Access (HK) Ltd.

        For the year ended December 31, 2002, sales to Zhejiang province and BB Technologies Corporation accounted for 18% and 13% our net sales, respectively. Approximately 77.8% of our net sales during 2002 were to entities affiliated with the government of China.

        We also sell our network access equipment to service providers in high growth communications markets outside of China. These markets accounted for approximately 16.2% of our net sales in 2002. We have shipped equipment to service providers in Bangladesh, India, Japan, Mauritius, Russia, Taiwan, Thailand and Venezuela. We have also begun trial deployments in the United States and Vietnam.

        As of December 31, 2002, our backlog totaled approximately $605.4 million, compared to approximately $360.7 million as of December 31, 2001. We include in our backlog, contracts and purchase orders for which we anticipate delivery to occur within 12 months and products delivered but for which final acceptance has not yet been received. Because contracts and purchase orders are generally subject to cancellation or delay by customers with limited or no penalty, our backlog is not necessarily indicative of future revenues or earnings.

SALES, MARKETING AND CUSTOMER SUPPORT

        We pursue a direct sales and marketing strategy in China, targeting sales to individual Telecommunications Bureaus and to manufacturers or equipment distributors with closely associated customers. We maintain sales and customer support sites in Beijing, Chengdu, Fuzhou, Guangzhou, Hangzhou, Jinan, Kunming, Nanning, Nanjing, Inner Mongolia, Shanghai, Shenyang, Wuhan, Xian, and Zhengzhou. We also sell through relationships with regional government-owned telecommunications manufacturing companies, which act as agents in the sale of our products to Telecommunications Bureaus.

        We believe our customer support services in China allow us to offer our customers high service quality. Our customer service operation in Hangzhou is co-located with our manufacturing joint venture and serves as both a technical resource and liaison to our product development organization. In China, customer service technicians are distributed in the regional sales and customer support sites to provide a local presence. We provide additional support on a 24-hour, 365-day basis from our customer support center in Hangzhou in the form of field dispatch personnel, who also provide training on installation, operation and maintenance of equipment. As of December 31, 2002, we employed 1,103 people in sales, marketing and customer support in China.

        Our sales efforts in markets outside of China combine direct sales, original equipment manufacturers, distributors, resellers, agents and licensees. We maintain sales and customer support sites in Iselin, New Jersey to address North American markets; in Tokyo, Japan to address the Japan market; in Gurgaon, India to address the Indian market; in Miami, Florida and Mexico City, Mexico to address the Latin American markets; in Frankfurt, Germany to address the European and African markets; in Manila, Philippines to address the Philippine market; in Taipei, Taiwan to address the Taiwan market; in Hanoi, Vietnam to address the Vietnam market; and in Shanghai, China to address other Pacific Rim markets.

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        Our customer service operations in the U.S. and Hangzhou, China support our customers outside of mainland China with training, project supervision and problem resolution. We maintain and will continue to expand our staff of local personnel near customers who require support on a 24-hour, 365-day basis. In many cases our local in-country sales partners also provide customer support.

TECHNOLOGY

        We believe the following key technologies have been instrumental in our ability to provide leading broadband wireline and wireless access networks and IP-based switching systems.

        X-over-IP.    X-over-IP refers to the transmission of various forms of traffic, including voice, video, fax, music and broadcast, over IP networks. An X-over-IP network requires the following equipment:

•

media gateways at the edge of the network that convert legacy media like telephone lines, fax and data modems, or other non-IP data interfaces to IP and incorporate quality of service functionality designed to avoid delay and packet loss due to congestion;



•

softswitching adds intelligence to a network platform, supporting a wide arry of functions which include address translation, service monitoring and assurance, billing, authorization, supplementary services like call forwarding, conferencing, and other signaling translations; and



•

an IP network that provides high speed IP routing and transmission.

        Our mSwitch platform provides the media gateway and the softswitching server and, when combined with industry-standard IP routers, creates a complete X-over-IP network.

        The mSwitch gateway converts incoming TDM formats from POTS, ISDN, SS7 and leased lines into packetized voice over IP. The packetization process utilizes programmable digital signal processors that can code voice, fax and standard 56Kbps modem signals into IP. The gateway also terminates the associated TDM format signaling protocols and generates IP based signaling protocols like H.323, MGCP and SIP. The mSwitch gateway also provides IP routing functions that allow the IP packets to penetrate deeper into the core network with queuing, and route selection, consistent with the desired quality of service for each particular call.

        The mSwitch softswitch provides switching intelligence to manage the calls in the network as they progress from gateway to gateway. The mSwitch operations support system provides the database management for service provisioning, authorization and flexible billing.

        Service providers are increasingly offering X-over-IP services to reduce costs, reduce obsolescence, provide easier upgrades and generate incremental revenue through value-added voice and data services.

        Softswitch Mobility Management.    We are a founding member of the International Softswitch Consortium, an industry group formed to promote compatibility and interoperability of softswitch technologies. Based on our knowledge of the industry, we believe we are one of the first companies to develop a softswitch architecture to support mobile applications.

        Softswitches control the signaling and call management functions in an X-over-IP network. Of the many possible types of softswitching services, mobile telephony and information delivery services are among the most demanding and complex. Mobile networks must track subscribers' locations dynamically whether or not they are on a call. They must provide real-time handovers between base stations, perform authorization of roaming visitors, provide real-time billing for pre-paid services and flexible routing to its roamers in foreign networks and support messaging, file transfer and assignment of data bandwidths. Based on our knowledge of the industry, we believe that our mSwitch platform is one of the first systems to provide mobile switching functionality.

        mSwitch employs our proprietary, object oriented signaling protocol for mobility, known as SNSP, which we believe provides advantages over other similar protocols. mSwitch is commercially deployed

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with mobility support for our PAS wireless infrastructure. The mSwitch gateway is also being developed to support the future WCDMA and TD-SCDMA radio network control protocols as well as the payload protocols for 3G. mSwitch will serve as an IP-based, mobile switching center and IP-based radio network controller. With this focus on mobility services, mSwitch is targeting one of the most complex and commercially important segments of softswitch applications.

        PAS Value-Added Services.    PAS offers a full suite of integrated value added services, which are easily customized, including short message services, location services, web browsing, e-mail, voice mail, and 64Kbps Internet access.

        IP-switching and Transport.    In support of the basic trends outlined above, we are also engaged in developing products to switch and transport IP traffic. We have introduced an IP-DSLAM which helps bring high speed IP services directly to consumer and residential users using ADSL, and are pursuing other xDSL technologies such as VDSL and G.SGDSL. In addition, we have developed products that provide Layer 2 and Layer 3 IP switching, and are working on products which will provide fiber interfaces in support of an overall FTTx standards initiative.

RESEARCH AND DEVELOPMENT

        We believe that continued and timely development and introduction of new and enhanced products are essential if we are to maintain our competitive position. While we use competitive analyses and technology trends as factors in our product development plans, the primary input for new products and product enhancements comes from soliciting and analyzing information about service providers' needs. Our Ministry of Information Industry, Telecommunications Administration and Telecommunications Bureau relationships and Chinese full-service post-sale customer support provide our research and development organization with insight into trends and developments in the marketplace. The insight provided from these relationships allows us to develop market-driven products such as PAS, mSwitch and IP-DSLAM. We maintain a strong relationship between our research centers in the U.S. and China. We rotate engineers between the U.S. and China to further integrate our research and development operations. We have been able to cost-effectively hire highly skilled technical employees from a large pool of qualified candidates in China. We have also started a development center in Gurgaon, India to take advantage of the talent pool available there, and to support our operation in India.

        In the past we have made, and expect to continue to make, significant investments in research and development. Our research and development expenditures totaled $86.2 million in 2002, $59.8 million in 2001 and $41.5 million in 2000.

MANUFACTURING, ASSEMBLY AND TESTING

        We manufacture or engage in the final assembly and testing of our mSwitch, PAS systems and handsets and AN-2000 products at our manufacturing facility in the Chinese province of Zhejiang. The manufacturing operations consist of circuit board assembly, final system assembly, software installation and testing. We assemble circuit boards primarily using surface mount technology. Assembled boards are individually tested prior to final assembly and tested again at the system level prior to system shipment. We use internally developed functional and parametric tests for quality management and process control and have developed an internal system to track quality statistics at a serial number level.

        Our manufacturing facility is ISO 9002 certified. ISO 9002 certification requires that the certified entity establish, maintain and follow an auditable quality process including documentation requirements, development, training, testing and continuous improvement which is periodically audited by an independent outside auditor.

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        We contract with third parties in China to undertake high volume assembly and manufacturing of our handsets and we conduct final assembly, testing and packaging at our own facilities. In addition, we generally use third parties for high volume assembly of circuit boards. HonXun Electrical Industry in Hangzhou, a subsidiary of Foxconn Group, manufactures our PAS handsets; Eastcom Communications manufactures our PAS handsets; and Shanghai Jingling Electronic manufactures line cards for our IP-ADSL product.

        We have also contracted with Mitsubishi Electric Corporation to provide PAS wireless base station components for distribution under the UTStarcom label. Other suppliers include Wistron NeWeb Corporation and Sanyo Electric Co., Ltd., which provide handsets under the UTStarcom label. Our AN-2000 product line integrates some third party products for subscriber premises equipment and testing. In China, we undertake final assembly and test our wireless infrastructure products at our own facilities and have recently begun to manufacture some of these products ourselves.

STRUCTURE AND REGULATION OF THE TELECOMMUNICATIONS INDUSTRY IN CHINA

        Structure of China's Telecommunications Industry.    Historically, the China Telecom system was the sole provider of public telecommunications services in China. In 1993, the State Council, in an effort to promote competition, began issuing licenses to new telecommunications operators including China United Telecommunications Corporation, or Unicom, a provider of mobile communication services, and Jitong Communications Co., Ltd., a provider of data communications and Internet access services.

        In February 1999, the State Council approved a restructuring plan for the China Telecom system, under which the telecommunications operations of the China Telecom system were separated along four business lines: fixed line, mobile, paging and satellite communications services. Following the announcement, we observed a reduction in orders from Telecommunications Companies, which we attributed to the uncertainties surrounding the restructuring and the ultimate impact the restructuring would have on the Telecommunications Companies.

        The Ministry of Information Industry confirmed in December 2001 that the State Council had approved a plan to restructure China Telecom. The Ministry of Information Industry has been authorized to execute the plan. China Telecom was split into two regional entities. The assets of the present China Telecom in North China's Beijing and Tianjin municipalities, the Inner Mongolia Autonomous Region and Hebei and Shanxi provinces, Northeast China's Liaoning, Jilin and Heilongjiang provinces, Central China's Henan Province and East China's Shandong Province were merged with China Netcom Co. Ltd. and China Jitong Network Communications Co. Ltd. The new company was named China Netcom Group Corp., or New CNC. China Telecom's assets in the other 21 provinces, municipalities and autonomous regions retained the brand name and intangible assets of the old China Telecom. We refer to this entity as the New China Telecom. The New CNC inherited 30% of the old China Telecom's national backbone network, with the rest going to the New China Telecom. As this change is relatively recent and its implementation is ongoing, we cannot be certain what the final impact of this restructuring will be on our business operations. However, we may experience a decline in orders and related revenues during such restructuring as a result of uncertainty among our customers presently operating under China Telecom.

        New CNC and New China Telecom will continue to operate through each of their own regional networks of approximately 2,400 local level telephone companies called Telecommunications Bureaus. Telecommunications Bureaus are responsible for purchasing, installing and operating the voice and data communications services in their local markets. Local telephone companies are funded by their own operational revenue from local telephone charges, a portion of shared long distance revenue through settlement, and headquarter allocation and cross subsidy, particularly in remote and poor regions. Among the funding sources, local revenue accounts for the majority of the revenue for local telephone companies.

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        In November of 2002, China Telecom and four of its subsidiaries became listed on the Hong Kong and New York stock exchanges.

        Government Regulation of the Telecommunications Industry.    The China telecommunications industry is regulated at the national, provincial and local levels. At the national level, the Ministry of Information Industry regulates the industry. The Ministry of Information Industry was established in March 1998 to assume the regulatory, administrative and other governmental duties of the former Ministry of Posts and Telecommunications. The Ministry of Information Industry has broad discretion and authority to regulate all aspects of the telecommunications and information technology industry in China, including managing spectrum bandwidths, setting network equipment specifications and standards and drafting laws and regulations related to the electronics and telecommunications industries. Additionally, the Ministry of Information Industry can decide what types of equipment may be connected to the national telecommunications networks, the forms and types of services that may be offered to the public, the rates that are charged to subscribers for those services and the content of material available in China over the Internet. Based on our industry experience, we believe that the Ministry of Information Industry's general telecommunications equipment strategy is to ensure that China's infrastructure is based on advanced open architectures that are expandable, cost efficient and quickly deployed.

        The Ministry of Information Industry also oversees the 31 Telecommunications Administrations that have regulatory responsibility over the telecommunications industry in their respective provinces. In China today, each Telecommunications Administration approves a subset of telecommunications products that meet Ministry of Information Industry standards from which Telecommunications Bureaus can then select the specific products they purchase, install and operate. Although historically the Ministry of Information Industry has shared regulation and operation of China's telecommunications industry with the China Telecom system, as part of the Chinese government's industry restructuring, the regulatory functions of the Ministry of Information Industry and the Telecommunications Administrations have been separated from the operational functions of the state-owned Telecommunications Bureaus under their control. The Ministry of Information Industry acts exclusively as the industry regulator and the local Telecommunications Bureaus act exclusively as operators. Given the multi-level regulatory environment, equipment providers in China must generally market intensively to all three levels of the communications industry.

        Statutory Framework.    China does not yet have a national telecommunications law. However, with China's recent entry into the World Trade Organization, or WTO, the Ministry of Information Industry, under the direction of the State Council, must present a draft Telecommunications Law of the People's Republic of China for ultimate submission to the National People's Congress for review and adoption. In order to comply with the WTO, subsets of draft telecommunications regulations were published in December 2001. One of the most significant of the draft regulations is the "Regulation of Foreign Investment over Telecom Enterprises." In December 2001, the State Council promulgated the Provisions on the Regulation of Foreign Invested Telecommunications Enterprises, which lifts the restrictions on foreign investment in the telecommunication industry, subject to certain equity ratio and geographic limitations. Also in December 2001, the Ministry of Information Industry issued the Measures on Regulation of Telecommunication Business Operation Permits, which details the procedures for obtaining permits for the operation of telecommunications businesses and makes it possible for those conducting telecommunications business to obtain the relevant permits. As we provide equipment rather than services, these two regulations should not have a direct effect on our business. Nevertheless, as the two regulations came into effect only recently, we are uncertain whether we will be indirectly affected by the impact of the two regulations on telecom service providers.

        Currently, the governing regulation over telecommunications in China is the Telecommunications Regulations of the People's Republic of China issued by the State Counsel in September 2000. This set of regulations is known as the Telecom Regulations. The Telecom Regulations govern

21

telecommunications services and market regulations, pricing, interconnection and connection, as well as telecommunications construction and security issues. These regulations are not very detailed, have not been applied by a court and may be interpreted and enforced by regulatory authorities in a number of different ways. As with the Telecommunications Law, we are uncertain what effect, if any, the Telecom Regulations will have on our business as presently conducted.

        Licenses for Communication Equipment.    Beginning January 1, 1999, China's government required that all telecommunications equipment connected to public or private telecommunications networks within China, which includes equipment that we sell in China, be approved by the Ministry of Information Industry, and the manufacturer of the equipment obtain a network access license for each of its products. Subsequently, the State Council issued the Telecom Regulations in September 2000. In May 2001, the Ministry of Information Industry issued the Administrative Measures of Network Access Licenses, known as the Access License Measures, to implement the Telecom Regulations and to replace the old access license regulation. Both the Telecom Regulations and the Access License Measures require the government to implement license systems for telecommunications terminal equipment, wireless communications equipment and equipment used in network interconnection that is connected to public telecommunications networks. The above equipment must meet government and industry standards, and a network access license for the equipment must be obtained. Without the license, the equipment is not allowed to be connected to public networks or sold in China. The Telecom Regulations require that manufacturers ensure that the quality of thetelecommunications equipment for which they have obtained a network access license is stable and reliable, and they may not lower the quality or performance of other installed licensed products. The State Council's product quality supervision department, in concert with the Ministry of Information Industry, performs spot checks to track and supervise the quality of telecommunications equipment for which a network access license has been obtained and publishes the results of such spot checks.

        The regulations implementing these requirements are not very detailed, have not been applied by a court and may be interpreted and enforced by regulatory authorities in a number of different ways. We have obtained the required network access licenses for our AN-2000 platform. We have applied for, but have not yet received, a network access license for our PAS system. Based upon conversations with the Ministry of Information Industry, we understand that our PAS system is considered to still be in the trial period and that sales of our PAS system may continue to be made by us during this trial period, but a license will ultimately be required. Network access licenses will also be required for most additional products that we are selling or may sell in China, including our mSwitch platform. If we fail to obtain the required licenses, we could be prohibited from making further sales of the unlicensed products, including our PAS system, in China, which would substantially harm our business, financial condition and results of operations. Our counsel in China has advised us that China's governmental authorities may interpret or apply the regulations with respect to which licenses are required and the ability to sell a product while a product is in the trial period in a manner that is inconsistent with information received by our counsel in China, either of which could have a material adverse effect on our business, financial condition and results of operations.

        Software Registration.    On October 27, 2000, the Ministry of Information Industry issued the Administrative Regulations on Software Products, known as the Software Regulations, to enhance software product management and stimulate the development of the software industry in China. Under the Software Regulations, the government imposes a registration and filing system on software and products incorporating software. Software cannot be produced and sold in China without registration and filing. The developers and producers of the software are responsible for the registration and filing of domestic software products. Registration under the Software Regulations is valid for five years and can be renewed upon expiration. The Ministry of Information Industry is responsible for the overall management of software. The local offices of the Ministry of Information Industry at the provincial level are responsible for the management and examination of and approval for the registration of the

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domestic software within their own territories. The designated agencies authorized by these local offices are responsible for acceptance for registration of software. Before registration is approved by the government agencies, software products need to be tested by the authorized testing institutions.

        We have accomplished the necessary registration with regards to the software incorporated in our AN-2000, PAS and mSwitch products. However, additional registration is required for software incorporated in additional products that we are selling or may sell in China. Based upon verbal advice received from the Ministry of Information Industry, we believe that we will be able to continue to sell our products incorporating our software during the period in which these regulations are being implemented and our application is pending. However, this implementation period may not last long enough for us to complete the registration of our software. Moreover, the Chinese government may interpret or apply the Software Regulations in such a way as to prohibit sales of products incorporating our unregistered software prior to registration. If the government prohibits sales pending registration, or if we fail in our efforts to register our software, we could be prohibited from making further sales of products incorporating the unregistered software in China, which could substantially harm our business and financial condition.

COMPETITION

        We face intense competition in our target markets and expect competition to increase. Our principal competitors in our various product lines include:

•

mSwitch: Alcatel Alsthom CGE, S.A.; Cisco Systems, Inc.; Clarent Corporation; Ericsson LM Telephone Co.; Huawei Technology Co., Ltd.; Lucent Technologies, Inc.; Motorola, Inc.; Nokia Corporation; Nortel Networks Corporation; Nuera Communications, Inc.; Siemens AG; Sonus Networks, Inc.; and Zhongxing Telecommunications Equipment.



•

PAS systems and handsets: Lucent Technologies, Inc. and Zhongxing Telecommunications Equipment.



•

AN-2000: Advanced Fibre Communications, Inc.; Alcatel Alsthom CGE, S.A.; Datang Telecom Technology Co. Ltd.; Huawei Technology Co., Ltd.; Lucent Technologies, Inc.; and Zhongxing Telecommunications Equipment.



•

3G: potentially, we will compete with Ericsson LM Telephone Co.; Huawei Technology Co., Ltd.; Lucent Technologies, Inc.; Motorola, Inc.; Nokia Corporation; Nortel Networks Corporation; Siemens AG, Alcatel Alsthom CGE, S.A.; Zhongxing Telecommunications Equipment.

        We are increasingly facing competition from domestic companies in China. We believe that our strongest competition comes from these companies, many of which operate under lower cost structures and more favorable governmental policies and have much larger sales forces than we do. Furthermore, other companies not presently offering competing products may also enter our target markets, particularly with the reduction of trade restrictions as a result of China's admission to the WTO. Many of our existing and potential competitors may have significantly greater financial, technical, product development, sales, marketing and other resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies and changes in service provider requirements. Our competitors may also be able to devote greater resources than we can to the development, promotion and sale of new products and offer significant discounts on handsets or other products. These competitors may also be able to offer significant financing arrangements to service providers, in some cases facilitated by government policies, which is a competitive advantage in selling systems to service providers with limited financial and foreign currency resources. Increased competition is likely to result in price reductions, reduced gross profit as a percentage of net sales and loss of market share, any one of which could materially harm our business, financial condition and results of operations.

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        Moreover, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties, including Telecommunications Administrations, Telecommunications Bureaus and other local organizations, to increase their ability to address the needs of prospective customers in our target markets. Accordingly, alliances among competitors or between competitors and third parties may emerge and rapidly acquire significant market share. To remain competitive, we believe that we must continue to partner with Telecommunications Administrations and other local organizations, maintain a high level of investment in research and development and in sales and marketing, and manufacture and deliver products to service providers on a timely basis and without significant defects. If we fail to meet any of these objectives, our business, financial condition and results of operations could be harmed.

        The introduction of inexpensive wireless telephone service or other competitive services in China may also have an adverse impact on sales of our PAS systems in China. We may not be able to compete successfully against current or future competitors. In addition, competitive pressures in the future may materially adversely affect our business, financial condition and results of operations.

        We believe that the principal competitive factors affecting the market for our network access products include:

•

total initial cost of solution;



•

for PAS, the availability, cost and functionality of our handsets;



•

short delivery and installation intervals;



•

design and installation support;



•

ease of integration with the backbone network;



•

flexibility in supporting multiple interfaces and services;



•

operational cost and reliability; and



•

manageability of the solution and scalability.

        We may not be able to compete effectively against current and future competitors based on these or any other competitive factors in the future, and the failure to do so would have a material adverse affect on our business, financial condition and results of operations.

INTELLECTUAL PROPERTY

        Our ability to compete is dependent in part on our proprietary technology. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements and licensing arrangements, to establish and protect our proprietary rights. To date, we have relied primarily on proprietary processes and know-how to protect our intellectual property. We presently hold three U.S. patents and one Taiwanese patent for existing products. The terms of one of the United States patents will expire in 2016, while the terms of the remaining United States patents will expire in 2019. The Taiwanese patent will expire in 2020. We have submitted 35 additional U.S. patent applications and 29 foreign patent applications. In addition, we have, from time to time, chosen to abandon previously filed applications. Patents may not issue and any patents issued may not cover the scope of the claims sought in the applications. Our U.S. patents do not afford any intellectual property protection in China or other international jurisdictions. Moreover, we have applied for but have not yet obtained patents in China and Taiwan. We may not be able to obtain patents in China on our products or the technology that we use to manufacture our products. KDDI, a Japanese service provider, has licensed key technology to us that serves as the base for the MiMi service in Taiwan. Our joint ventures in China rely upon our trademarks, technology and know-how to manufacture and sell our products. Under the terms of our joint venture agreements, any modifications or enhancements to or derivatives

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of our intellectual property developed by the joint ventures will be owned by the joint ventures. Any infringement of our proprietary rights could result in significant litigation costs, and any failure to adequately protect our proprietary rights could result in our competitors offering similar products, potentially resulting in loss of a competitive advantage and decreased revenues. Despite our efforts to protect our proprietary rights, existing patent, copyright, trademark and trade secret laws afford only limited protection. In addition, the legal systems of some foreign countries, including China, do not protect our proprietary rights to the same extent as does the legal system of the United States.

        Attempts may be made to copy or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary. Accordingly, we may not be able to prevent misappropriation of our technology or deter others from developing similar technology. Furthermore, policing the unauthorized use of our products is difficult. Litigation may be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. This litigation could result in substantial costs and diversion of resources and could significantly harm our business.

        The communications industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. From time to time, third parties may assert patent, copyright, trademark and other intellectual property rights to technologies and in various jurisdictions that are important to our business. Any claims asserting that our products infringe or may infringe proprietary rights of third parties, if determined adversely to us, could significantly harm our business. Any claims, with or without merit, could be time-consuming, result in costly litigation, divert the efforts of our technical and management personnel, cause product shipment delays or require us to enter into royalty or licensing agreements, any of which could significantly harm our business. Royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. In the event a claim against us was successful and we could not obtain a license to the relevant technology on acceptable terms or license a substitute technology or redesign our products to avoid infringement, our business would be significantly harmed.

EMPLOYEES

        As of December 31, 2002, we employed a total of 3,277 full-time employees. We also from time to time employ part-time employees and hire contractors. Of the total number of full-time employees at December 31, 2002, 1,352 were in research and development, 371 in manufacturing, 1,253 in marketing, sales and support, and 301 in administration. We had 2,750 employees located in China, 405 employees located in the United States, and 122 employees in other countries. Our employees are not represented by any collective bargaining agreement, and we have never experienced a work stoppage. We believe that our employee relations are good.

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ITEM 2—PROPERTIES

        UTStarcom leases the following facilities:

Location	Functions	Square Footage	Date of Lease Expiration
HEADQUARTERS Alameda, CA	Administration, Sales/Customer Support and Research and Development	25,576	January, 2006
Alameda, CA	Research and Development/Sales	12,690	January, 2004
Fremont, CA	Research and Development	9,688	June, 2005
Iselin, NJ	Sales/Customer Support and Research and Development	48,991	July, 2004
Eatontown, NJ	Research and Development	13,375	October, 2005
Shenzhen, China	Research and Development	107,596	September, 2004
Shenzhen, China	Research and Development	3,660	April, 2004
Hefei, China	Research and Development	3,606	June, 2004
Hefei, China	Research and Development	3,767	July, 2005
Gurgaon, India	Research and Development	5,723	March, 2005
Gurgaon, India	Research and Development	5,479	December, 2005
Shanghai, China	Research and Development	15,421	December, 2007
Hangzhou, China	Administration, Sales/Customer Support, Engineering and Manufacturing	271,589	December, 2004
Hangzhou, China	Administration, Sales/Customer Support, Research and Development, and Manufacturing	269	March, 2004
Hangzhou, China	Administration, Sales/Customer Support, Research and Development, and Manufacturing	168,444	December, 2003
Huizhou, China	Manufacturing	37,728	December, 2002
Beijing, China	UTSC Headquarters Administration, Sales/Customer Support	16,695	July, 2003
Shanghai, China	Sales/Customer Support	8,214	April, 2003
Wuhan, China	Sales/Customer Support	1,658	April, 2003
Guangzhou, China	Sales/Customer Support	11,964	April, 2004
Chengdu, China	Sales/Customer Support	5,199	April, 2004
Jinan, China	Sales/Customer Support	3,229	March, 2003
Kunming, China	Sales/Customer Support	2,676	February, 2003
Xian, China	Sales/Customer Support	4,155	December, 2004
Shenyang, China	Sales/Customer Support	3,122	May, 2003
Fuzhou, China	Sales/Customer Support	4,445	June, 2003
Zhengzhou, China	Sales/Customer Support	2,422	October, 2003

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Taipei, Taiwan	Sales/Customer Support	7,769	September, 2004
Hong Kong, China	Sales/Customer Support	800	December, 2002
NanNing, China	Sales/Customer Support	2,293	August, 2003
Nanjing, China	Sales/Customer Support	3,781	May, 2003
Nei Mon Gol, China	Sales/Customer Support	500	December, 2003
Taiyuan, China	Sales/Customer Support	732	February, 2003
Hebei, China	Sales/Customer Support	603	August, 2003
Tianjing, China	Sales/Customer Support	500	July, 2003
HaErBin, China	Sales/Customer Support	1,421	November, 2003
Hsin Chu, Taiwan	Sales/Customer Support (ACD)	2,639	February, 2003
Gurgaon, India	Sales/Customer Support	3,042	June, 2004
Miramar, Florida	Sales/Customer Support	4,796	April, 2006
Tokyo, Japan	Sales/Customer Support	3,217	February, 2004
Hanoi, Vietnam	Sales/Customer Support	2,336	June, 2004
Ho Chi Minh City, Vietnam	Sales/Customer Support	2,594	September, 2004
Bangkok, Thailand	Sales/Customer Support	1,259	August, 2005
Mexico City, Mexico	Sales/Customer Support	130	November, 2003

        In 2001, we purchased the rights to use approximately 49 acres of land located in the Zhejiang Science and Technology Industry Garden of Hangzhou Hi-tech Industry Development Zone for a period of 50 years. As of December 31, 2002, we have completed the foundation and ground work and have commenced construction of the building. Construction of the new manufacturing facility is expected to be completed in late 2003. In addition, as we expand into markets outside of China, our facility needs may increase according to business needs.

ITEM 3—LEGAL PROCEEDINGS

        On October 31, 2001, a complaint was filed in United States District Court for the Southern District of New York against our company, some of our directors and officers and various underwriters for our initial public offering. Substantially similar actions were filed concerning the initial public offerings for more than 300 different issuers, and the cases were coordinated as In re Initial Public Offering Securities Litigation, 21 MC 92. In April 2002 a consolidated amended complaint was filed in the matter against us, captioned In re UTStarcom, Initial Public Offering Securities Litigation, Civil Action No. 01-CV-9604. Plaintiffs allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 through undisclosed improper underwriting practices concerning the allocation of IPO shares in exchange for excessive brokerage commissions, agreements to purchase shares at higher prices in the aftermarket, and misleading analyst reports. Plaintiffs seek unspecified damages on behalf of a purported class of purchasers of our common stock between March 2, 2000 and December 6, 2000. The claims against our directors and officers have been dismissed without prejudice pursuant to a stipulation. We believe that we have meritorious defenses to this lawsuit and will defend this lawsuit vigorously. Motions to dismiss have been filed on behalf of our company and the other defendants in the coordinated proceeding. Those motions are currently pending with the Court.

ITEM 4—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.

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EXECUTIVE OFFICERS OF UTSTARCOM

        Our executive officers and directors, and their ages as of December 31, 2002, are as follows:

Name	Age	Position
Masayoshi Son	45	Chairman of the Board of Directors
Hong Liang Lu	48	President, Chief Executive Officer and Director
Ying Wu	43	Vice Chairman of the Board of Directors, Executive Vice President and Chief Executive Officer, China Operations
Michael Sophie	45	Vice President of Finance, Chief Financial Officer and Assistant Secretary
Bill Huang	40	Senior Vice President, Chief Technology Officer
Shao-Ning J. Chou	40	Senior Vice President and Chief Operating Officer, China Operations
Gerald Soloway	54	Senior Vice President, Engineering
Howard Kwock	53	Vice President, Engineering
David A. Robison	37	Vice President, International Sales
Betsy S. Atkins	47	Director
Larry D. Horner	68	Director
Thomas J. Toy	47	Director

        MASAYOSHI SON has served as our Chairman of the Board of Directors since October 1995. For more than 16 years, Mr. Son served as President and Chief Executive Officer and as a director of SOFTBANK CORP., a leading global provider of Internet content, technology and services. Mr. Son also serves as a director of BB Technologies Corporation, Yahoo Japan Corporation and Aozora Bank, Ltd. Mr. Son also serves as Chairman of the Board of Directors and Chief Executive Officer of SOFTBANK Holdings Inc. and Chairman of the Board of Directors of SOFTBANK America Inc. From April 1998 to October 1999, Mr. Son served as a director of Ziff-Davis, Inc. Mr. Son holds a B.A. in Economics from the University of California at Berkeley.

        HONG LIANG LU has served as our President and Chief Executive Officer and as a director since June 1991. Mr. Lu co-founded UTStarcom under its prior name, Unitech Telecom, Inc., in June 1991 which subsequently acquired StarCom Network Systems, Inc. in September 1995. From 1986 through December 1990, Mr. Lu served as President and Chief Executive Officer of Kyocera Unison, a majority-owned subsidiary of Kyocera International, Inc. From 1983 until its merger with Kyocera in 1986, he served as President and Chief Executive Officer of Unison World, Inc., a software development company. From 1979 to 1983, he served as Vice President and Chief Operating Officer of Unison World, Inc. Mr. Lu holds a B.S. in Civil Engineering from the University of California at Berkeley.

        YING WU has served as our Executive Vice President and Vice Chairman of the Board of Directors since October 1995. Mr. Wu has also served as the President and Chief Executive Officer of one of our subsidiaries, UTStarcom China, since October 1995. Mr. Wu was a co-founder of, and from February 1991 to September 1995 served as Senior Vice President of, StarCom Network Systems, Inc., a company that marketed and distributed third party telecommunications equipment. From 1988 to 1991, Mr. Wu served as a member of the technical staff of Bellcore Laboratories. From 1987 through 1988, Mr. Wu served as a consultant at AT&T Bell Labs. He holds a B.S. in Electrical Engineering from Beijing Industrial University and an M.S. in Electrical Engineering from the New Jersey Institute of Technology.

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        MICHAEL SOPHIE has been our Vice President of Finance and Chief Financial Officer since August 1999. Prior to joining our company, Mr. Sophie held executive positions at P-Com, Inc. from August 1993 to August 1999 as Vice President Finance, Chief Financial Officer and Group President. From 1989 through 1993, Mr. Sophie was Vice President of Finance at Loral Fairchild Corporation. He holds a B.S. degree from California State University, Chico and an M.B.A. from the University of Santa Clara.

        BILL HUANG has been our Chief Technology Officer since September 1999. He was appointed Senior Vice President in September 2001. From December 1996 to September 1999, he was our Vice President of Strategic Product Planning. From June 1995 to December 1996, Mr. Huang served as our Vice President, China Operations. From 1994 to June 1995, Mr. Huang was our Director, Engineering. From 1992 to 1994, he was a Member of the Technical Staff and Project Leader at AT&T Systems. Mr. Huang serves on the board of Shenzhen Gin De (Group) Ltd., Goldfield Industries a real estate investment company in China. Mr. Huang holds a B.S. in Electrical Engineering from Huazhong University of Science & Technology, and an M.S. in Electrical Engineering and Computer Sciences from the University of Illinois.

        SHAO-NING J. CHOU has been our Executive Vice President and Chief Operating Officer of China Operations since January 1999. He was appointed Senior Vice President in September 2001. From March 1997 to December 1998, he was Vice President of China Operations and from February 1996 to March 1997, he served as Vice President of Engineering. From March 1995 to June 1996, he was Director of Engineering for wireless systems and software with Lucent Technologies Microelectronics IC group. From April 1993 to March 1995, he was a Technical Manager for the Global Wireless product group with AT&T consumer products where he led multiple development teams for handset and wireless personal base station products. From February 1985 to April 1993, Mr. Chou was team leader and a member of the technical staff for advanced digital communication research in AT&T Bell Laboratories where he led and engaged in data communication equipment and multimedia product development. Mr. Chou holds a B.S. in Electrical Engineering from City College of New York, an M.S. in Engineering from Princeton University and an M.B.A. from the State University of New Jersey, Rutgers.

        GERALD SOLOWAY has been our Vice President of Engineering since January 1999. He was appointed Senior Vice President of Engineering in September 2001. From April 1998 to January 1999, he served as our Director of Strategic Marketing. Prior to this, Dr. Soloway worked for Lucent Technologies, formerly Bell Labs, for 29 years. At Lucent, Dr. Soloway held executive positions in Consumer Products, Business Terminal Development, PBX Systems Engineering, Key System Development and Access Systems Development. He holds a Ph.D. from Polytechnic Institute of New York, an M.S. from New York University, and a B.S. from Cooper Union, all in Electrical Engineering. Dr. Soloway also holds seven patents in communications and computer graphics technology.

        HOWARD KWOCK was appointed our Vice President of Engineering in September 2001. From March 2001 to September 2001, he served as our Senior Director of Engineering. From February 2000 to February 2001, Mr. Kwock worked as Director of Engineering at Zhone Technologies. From June 1995 to January 2001, Mr. Kwock served as Director of Engineering at Lucent Technologies, formerly Ascend Communications. Mr. Kwock holds a B.A. in Business Administration from California State University, Fullerton.

        DAVID A. ROBISON has been our Vice President of International Sales since April 2002. From September 1999 to April 2002, Mr. Robison was Senior Vice President of International Sales and Business Development at Zhone Technologies. From September 1994 to September 1999, Mr. Robison held executive sales positions at Ascend Communications prior to and shortly after its merger with Lucent Technologies where he served as Senior Vice President—Network Service Providers, Vice

29

President—Network Service Providers, and Director—Internet Service Providers. Mr. Robison studied both electrical engineering and business administration at Purdue University.

        BETSY S. ATKINS has served as a director since March 2002. Ms. Atkins has served as Chief Executive Officer of the Operating Group of Accordiant Ventures since 1994. Ms. Atkins is also currently a director of Polycom Inc., and Lucent Technologies, Inc., where she sits on the audit and compensation committees. Ms. Atkins was a founder of Ascend Communications Corp. in 1989 and formerly served as a director. Ms. Aitkins served as a member of the Board of Directors for Olympic Steel from 1988 to 2000, Selectica, Inc. from 1996 to 1999, and Secure Computing, Inc. from 1997 to 1999. Ms. Atkins is a presidential appointee to the Pension Benefit Guarantee Trust Corporation. Ms. Atkins holds a B.A. from the University of Massachusetts.

        LARRY D. HORNER has served as a director since January 2000. From 1994 until June 2001, Mr. Horner served as Chairman of Pacific USA Holdings Corp. and as Chairman of the Board and Chief Executive Officer of Asia Pacific Wire & Cable Corporation Limited. He is a director of Phillips Petroleum Company, Atlantis Plastics, Inc. and Newmark Homes Corp. Mr. Horner formerly served as Chairman and Chief Executive Officer of KPMG Peat Marwick from 1984 to 1990. Mr. Horner is a Certified Public Accountant, holds a B.S. from the University of Kansas and is a graduate of the Stanford Executive Program.

        THOMAS J. TOY has served as a director since February 1995. Since March 1999, Mr. Toy has served as Managing Director of Pacrim Venture Partners, a professional venture capital firm specializing in investments in the information technology sector. Prior to that he was a partner at Technology Funding, a professional venture capital firm, from January 1987 to March 1999. While at Technology Funding, Mr. Toy was Managing Director of Corporate Finance and headed the firm's investment committee. Mr. Toy also serves as a director of White Electronic Designs Corporation and several private companies. Mr. Toy holds B.A. and M.M. degrees from Northwestern University.

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PART II

ITEM 5—MARKET FOR UTSTARCOM, INC.'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Fiscal 2001	High		Low
First Quarter	$	28.00	$	13.56
Second Quarter		27.28		12.50
Third Quarter		25.61		12.98
Fourth Quarter		31.43		15.51
Fiscal 2002
First Quarter	$	33.95	$	20.25
Second Quarter		27.03		18.58
Third Quarter		20.82		12.57
Fourth Quarter		21.10		15.66

        Our common stock has been traded on The Nasdaq Stock Market under the symbol UTSI since our initial public offering on March 3, 2000. The preceding table sets forth the high and low closing sales prices per share of our common stock as reported on The Nasdaq National Market for the periods indicated. As of December 31, 2002 we had approximately 141 stockholders of record.

        To date, we have not paid any cash dividends on our common stock. We currently anticipate that we will retain any available funds to finance the growth and operation of our business and we do not anticipate paying any cash dividends in the foreseeable future. Certain present or future agreements may limit or prevent the payment of dividends on our common stock.

Equity Compensation Plan Information

        The following table sets forth information, as of December 31, 2002, about equity awards under the Company's equity compensation plans:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders (1)	14,903,746	(2)	$	15.06	6,294,128	(3)
Equity compensation plans not approved by security holders	51,169		$	2.85	115,943	(4)
Total	14,954,915		$	15.02	6,410,071

(1)

Includes the 1997 Stock Plan which provides for an annual increase in the number of shares available for issuance under the plan equal to the lesser of (i) 4% of the outstanding Shares on such date, (ii) 6,000,000 shares or (iii) a lesser amount determined by the Board, and the 2000 Employee Stock Purchase Plan, which provides for an annual increase in the number of shares available for issuance under the plan equal to the lesser of (i) 2% of the outstanding shares on such date, (ii) 2,000,000 shares or (iii) a lesser amount determined by the Board.

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(2)

Includes shares of common stock to be issued upon exercise of options granted under our 1995 Stock Plan, 1997 Stock Plan and 2001 Director Option Plan.

(3)

Number of securities available for future issuance includes 3,533,857 shares of common stock available for issuance under our 2000 Employee Stock Purchase Plan, 1,955,271 under our 1997 Stock Plan and 805,000 under our 2001 Director Option Plan. See Note 15 of our "Notes to Consolidated Financial Statements" for a description of our equity compensation plans.

(4)

Includes 76,067 shares of common stock available for issuance under our Advanced Communication Devices Corporation Incentive Program and 39,876 shares of common stock available for issuance under our Issanni Communications, Inc. Incentive Program.

RECENT SALES OF UNREGISTERED SECURITIES

        On October 16, 2002, UTStarcom issued warrants to purchase an aggregate of 857,144 shares of common stock to thirty-nine residents of China who are employees and consultants of our wholly-owned subsidiary, UTStarcom Communication Co., Ltd. The warrants were exercisable for an aggregate of 857,144 shares of our common stock at an exercise price of $0.01 per share and were issued in partial consideration for their agreement to become employees or consultants of UTStarcom Communication Co., Ltd. On October 17, 2002, UTStarcom issued 857,144 shares of common stock pursuant to the exercise of all of such warrants a portion of which is subject to a right of repurchase by UTStarcom that lapses over time or upon the achievement of certain milestones.

        The sales and issuances of securities in the transactions described above were deemed to be exempt from registration under the Securities Act of 1933, as amended, by virtue of Regulation S promulgated thereunder, as transactions not involving the issuance of securities to U.S. persons and not involving any public offering. Each purchaser represented that he or she is not a U.S. persons as defined in Regulation S and that his or her intention was to acquire the securities for investment only and not with a view to the distribution thereof.

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ITEM 6—SELECTED CONSOLIDATED FINANCIAL DATA

        You should read the selected consolidated financial data set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and the Notes thereto included elsewhere in this report. Historical results are not necessarily indicative of results that may be expected for any future period.

		Years Ended December 31,
		1998			1999			2000			2001		2002
		(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net sales		$	105,167		$	187,516		$	368,646		$	626,840	$	981,806
Gross profit			41,025			74,813			128,181			224,548		345,472
Operating income			3,013			16,719			33,780			76,728		145,962
Income from continuing operations			593			13,119			27,993			56,954		107,862
Net income (loss) available to common stockholders			(300	)		(18,514	)		27,013			56,954		107,862
Basic earnings (loss) per share:
	Income (loss) from continuing operations	$	0.08		$	(1.94	)	$	0.35		$	0.56	$	0.98
	Income (loss) from discontinued operations		(0.12	)		(0.19	)		—			—		—
	Cumulative effect on prior years of the application of SAB 101, "Revenue Recognition in Financial Statements"		—			—			(0.01	)		—		—
	Net income (loss)	$	(0.04	)	$	(2.13	)	$	0.34		$	0.56	$	0.98
Diluted earnings (loss) per share:
	Income (loss) from continuing operations	$	0.01		$	(1.94	)	$	0.28		$	0.52		0.94
	Income (loss) from discontinued operations		(0.01	)		(0.19	)		—			—		—
	Cumulative effect on prior years of the application of SAB 101, "Revenue Recognition in Financial Statements"		—			—			(0.01	)		—		—
	Net income (loss)	$	—		$	(2.13	)	$	0.27		$	0.52	$	0.94
Proforma amounts assuming application of SAB101, "Revenue Recognition in Financial Statements" is applied retroactively:
	Net income (loss) available to common stockholders	$	(300	)	$	(19,494	)	$	27,993		$	56,954	$	107,862
Earnings (loss) per share:
	Basic	$	(0.04	)	$	(2.25	)	$	0.35		$	0.56	$	0.98
	Diluted	$	—		$	(2.25	)	$	0.27		$	0.52	$	0.94
Weighted average shares used in per share calculations:
	Basic		7,582			8,678			79,696			101,433		109,566
	Diluted		77,050			8,678			101,867			108,612		114,407

	As of December 31,
	1998		1999		2000		2001		2002
	(in thousands)
Cash and cash equivalents	$	17,626	$	87,364	$	149,112	$	321,136	$	231,944
Working capital		57,416		128,973		369,861		591,103		568,215
Total assets		142,121		271,788		591,837		1,005,880		1,305,552
Total short-term debt		38,426		43,338		43,381		58,434		—
Long-term debt		—		—		12,048		12,048		—
Total stockholders' equity		72,336		165,720		412,319		681,887		766,395

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ITEM 7—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These statements are based on information that is currently available to management. We intend such forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with those provisions. The forward-looking statements include, without limitation, those concerning the following: our expectations as to the nature of possible trends, the manner in which customers in Chinese provinces negotiate for the purchase of our products; our expectation regarding continued growth in our business and operations; our expectation that our PAS and iPAS network access systems will continue to be allowed in China's county-level cities and counties; our expectation that there will be no penalties or fines for our non-compliance with the licensing requirements in China for our PAS system and other products; our expectation concerning the anticipated cost and completion date of our new Hangzhou manufacturing facility; our expectation that there will be fluctuations in our overall gross profit, gross margin, product mix, quarter to quarter results, customer base and selling prices; our plans for expanding the direct sales organization and our selling and marketing campaigns and activities; our expectation that we may use part of the net proceeds of our initial and follow on public offerings to acquire or invest in complementary businesses, technologies or product offerings; our expectation that there will be increases in selling, marketing, research and development, general and administrative expenses; our expectation that we will continue to invest significantly in research and development; our expectation that we will fill the majority of our current backlog orders; our expectation regarding our future investments; and our expectation that existing cash and cash equivalents will be sufficient to finance our operations for at least the next 12 months. Additional forward-looking statements may be identified by the words, "anticipate," "expect," "believe," "intend," "will" and similar expressions, as they relate to us or our management. Investors are cautioned that these forward-looking statements are inherently uncertain. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially. For a detailed discussion of these risks and uncertainties, see the "Factors Affecting Future Operating Results" section of this Form 10-K. We do not guarantee future results and undertake no obligation to update the forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-K.

OVERVIEW

        Incorporated in 1991, UTStarcom designs, manufactures, and markets leading Broadband, Narrowband, wireless, Softswitch, and 3G products that support both fixed-line and mobility at the local loop while offering a clean migration path to next-generation IP-based networks. Our operations are conducted primarily by our foreign subsidiaries that manufacture, distribute and support our products, principally in China. Our systems and products allow service providers to offer cost-efficient and expandable voice, data and Internet access services. Because our systems are based on widely adopted international communications standards, service providers can easily integrate our systems into their existing networks and deploy our systems in new broadband, Internet Protocol and wireless network rollouts.

        Since our incorporation, we have focused our resources on developing products for China's communications market. We shipped our first network access products in 1993. In 1995, we acquired StarCom Network Systems, Inc. and changed our name to UTStarcom, Inc. In 1996, we introduced our advanced, V5.1 and V5.2 compliant, multi-service network access platform, the AN-2000. Late in 1996, we introduced our PAS wireless access system. In December 1999, we completed the acquisition of the portion of our Wacos, Inc. subsidiary owned by the minority shareholders. Wacos, Inc. is a research and development subsidiary that develops IP-based switching systems. In November 2001, we completed the

34

acquisition of Advanced Communications Devices Corporation, or ACD, for $21.3 million. ACD is a system on chip semi-conductor company focusing on LAN and IP switching technology. On April 19, 2002, the Company completed the purchase of Issanni Communications, Inc. ("Issanni"). Our investment in Issanni was $2.0 million prior to the acquisition. The purchase consideration for all the outstanding shares of Issanni, other than those already held by us prior to the acquisition, was $2.1 million. In addition, $2.0 million will be payable in the form of an earnout to all Issanni shareholders of record at closing, subject to the completion of certain performance milestones during 2002, 2003 and 2004. On December 18, 2001, we entered into an agreement to acquire the remaining 49% ownership interest in GUTS, one of our two primary manufacturing facilities in China, for a total consideration of $3.6 million in cash, in order to achieve 100% ownership in the joint venture. On January 21, 2002, we entered into an agreement to acquire the remaining 12% ownership interest in HUTS, our other manufacturing facility, for a total consideration of $14.5 million in cash. As a result of the GUTS and HUTS transactions, which closed in the second quarter of 2002, we now conduct our operations in China through wholly owned subsidiaries.

        We have derived most of our revenues from sales of telecommunications equipment to service providers in China. However, we continue to expand our sales to service providers in other growing communications markets outside of China, including Japan, Taiwan, Vietnam, India and Latin America. Our customers often make a large initial purchase of our equipment followed by supplemental purchases of enhancements and upgrades. As a result, our largest revenue-producing customers typically vary from period to period. The evaluation period for our products by potential customers may span a year or more and our business generally depends on a relatively small number of large deployments. We sell our products in China through a direct sales force.

        Approximately 83.8%, 90.3% and 98.8% of our net sales for the years ended December 31, 2002, 2001 and 2000, respectively, were in China. Accordingly, our business, financial condition and results of operations are likely to be influenced by the political, economic and legal environment in China, and by the general state of China's economy. Our results may be adversely affected by, among other things, changes in the political, economic, competitive and social conditions in China, including changes in governmental policies with respect to laws and regulations, changes in telecommunications industry and regulatory rules and policies, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation. We extend credit to our customers in China without requiring collateral. We monitor our exposure for credit losses and maintain allowances for doubtful accounts.

        We have historically considered local telecommunications service providers serving municipalities and counties to be our primary customers in China. Recently, however, the provincial-level telecommunications service entity in the Zhejiang province of China has begun to consolidate telecommunications purchasing decisions for that province. As a result of this trend in the Zhejiang province, we have grouped all customers in Zhejiang province together and have treated these as one customer. Giving effect to this treatment, for the year ended December 31, 2002, sales to Zhejiang province and BB Technologies Corporation accounted for 18% and 13% of net sales, respectively. For the year ended December 31, 2001, Zhejiang province accounted for 24% of net sales. For the year ended December 31, 2000, sales to Hangzhou PTT accounted for 12% of net sales. At December 31, 2002, we have approximately thirty-three customers in Zhejiang province.

        Whether this represents the beginning of a greater trend throughout China towards increased consolidation of negotiations and purchasing decisions into the control of provincial-level telecommunications service entities is unclear. To our knowledge, no telecommunications service entities in the other Chinese provinces in which we operate have centralized this process at this time. However, the nature of negotiations in China is still evolving. If a trend toward consolidation of purchasing decisions into the control of provincial-level telecommunications service entities in China does emerge, it could possibly take a variety of forms. For example, some provincial-level telecommunications service entities could simply coordinate purchase decisions to be made by local

35

telecommunications service providers, with local service providers retaining ultimate control over purchasing decisions. In other cases, however, provincial-level entities could wield greater control over the decision of whether or not to purchase our products. In any event, such a trend could streamline the negotiation process within Chinese provinces, but it could also place downward pressure on the prices we can charge for our products. We will continue to monitor business practices in China closely, and to the extent that any of these changes affect the manner in which our customers make their decisions about whether or not to purchase our products, we will re-evaluate what entities may best be described as our customers.

        Under China's current regulatory structure, the communications products that we offer in China must meet government and industry standards, and a network access license for the equipment must be obtained. Without the license, the equipment is not allowed to be connected to public telecommunications networks or sold in China. Moreover, we must ensure that the quality of the telecommunications equipment for which we have obtained a network access license is stable and reliable, and may not lower the quality or performance of other installed licensed products. The State Council's product quality supervision department, in concert with the Ministry of Information Industry, performs spot checks to track and supervise the quality of licensed telecommunications equipment and publishes the results of such spot checks.

        The regulations implementing these requirements are not very detailed, have not been applied by a court and may be interpreted and enforced by regulatory authorities in a number of different ways. We have obtained the required network access licenses for our AN-2000 platform. We have applied for, but have not yet received, a network access license for our PAS systems and handsets. Based upon conversations with the Ministry of Information Industry, we understand that our PAS systems and handsets are considered to still be in the trial period and that sales of our PAS systems and handsets may continue to be made by us during this trial period, but a license will ultimately be required. Network access licenses will also be required for most additional products that we are selling or may sell in China, including our mSwitch platform. If we fail to obtain the required licenses, we could be prohibited from making further sales of the unlicensed products, including our PAS systems and handsets, in China, which would substantially harm our business, financial condition and results of operations. Our counsel in China has advised us that China's governmental authorities may interpret or apply the regulations with respect to which licenses are required and the ability to sell a product while a product is in the trial period in a manner that is inconsistent with the information received by our counsel in China, either of which could have a material adverse effect on our business, financial condition and results of operations.

        Remittances from China which are of a capital nature, such as the repayment of bank loans denominated in foreign currencies, require approval from appropriate governmental authorities before Renminbi can be used to purchase foreign currency. Although the payment of cash dividends is permitted so long as our subsidiaries have sufficient reserves and adequate amounts of Renminbi to purchase foreign currency, regulations restrict the ability of our subsidiaries to transfer funds to us through intercompany loans and advances.

        Business activity in China and many other countries in Asia declines considerably during the first quarter of each year in observance of the Lunar New Year. As a result, sales during the first quarter of our fiscal year have typically been lower than sales during the fourth quarter of the preceding year, and we expect this trend to continue.

        Revenues from sales of telecommunications equipment are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred as evidenced by customer acceptance, the fee is fixed or determinable and collectibility is reasonably assured. If the fee due from the customer is not fixed or determinable due to extended payment terms, revenue is recognized as payments become due from the customer, assuming all other criteria for revenue recognition are met. The majority of our

36

revenue is recognized upon receipt of final acceptance certificates. Where multiple elements exist in an arrangement, the arrangement fee is allocated to the different elements based upon verifiable objective evidence of the fair value of the elements. Revenue is then recognized as each element is earned, provided that the undelivered elements are not essential to the functionality of the delivered elements. Revenues from engineering services contracts and from sales of telecommunications equipment involving significant production, modification or customization of the product or where services being provided are deemed to be essential to the functionality of the product are recognized using the percentage of completion method if the project cost can be reasonably estimated. If the cost cannot be reasonably estimated, the completed contract method is applied. Any payments received prior to revenue recognition are recorded as deferred revenue.

        In November 2002, the Emerging Issues Task Force reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF No. 00-21"). This issue addresses how revenue arrangements with multiple deliverables should be divided into separate units of accounting and how the arrangement consideration should be allocated to the identified separate accounting units. EITF No. 00-21 is effective for fiscal periods beginning after June 15, 2003. We have not yet determined the impact of adopting EITF No. 00-21 on our consolidated results of operations or financial position.

        Cost of sales consists primarily of material costs, third party commissions, costs associated with manufacturing, assembly and testing of products, costs associated with installation and customer training and overhead and warranty costs. Cost of sales also includes import taxes and tariffs on components and assemblies. Some components and materials used in our products are purchased from a single supplier or a limited group of suppliers and, in some cases, are subject to our obtaining Chinese import permits and approvals. We also rely on third party manufacturers in China to manufacture and assemble most of our handsets.

        Our gross profit has been affected by product mix, average selling prices and material costs. Our gross profit, as a percentage of net sales, varies among our product families. The gross profit, as a percentage of net sales, on our handsets is lower compared to our other products. We believe that our handset sales in 2003 could represent up to approximately 35% to 45% of our net sales. We expect that our overall gross profit, as a percentage of net sales, will fluctuate from period to period as a result of shifts in product mix, anticipated decreases in average selling prices and our ability to reduce cost of sales.

        Selling, general and administrative expenses include compensation and benefits, professional fees, sales commissions, provision for doubtful accounts receivable and travel and entertainment costs. A large percentage of our costs are fixed and are difficult to quickly reduce in periods of reduced sales. We intend to pursue aggressive selling and marketing campaigns and to expand our direct sales organization, and, as a result, our sales and marketing expenses will increase in future periods. We also expect that in support of our continued growth, general and administrative expenses will continue to increase for the foreseeable future.

        Research and development expenses consist primarily of salaries and related costs of employees engaged in research, design and development activities, the cost of parts for prototypes, equipment depreciation and third party development expenses. A large percentage of our costs are fixed and are difficult to quickly reduce in periods of reduced sales. We believe that continued investment in research and development is critical to our long-term success. Accordingly, we expect that our research and development expenses will increase in future periods.

        Amortization of intangible assets consists primarily of the amortization of intangible assets associated with acquisitions in China and outside of China, our acquisition of a minority interest in Wacos, Inc. and our acquisitions of Stable Gain International Ltd., Issanni and ACD.

37

        Consolidated equity in net income (loss) of affiliated companies comprised our 51% share of the earnings from Guangdong UTStarcom, Ltd. ("GUTS"), our Guangdong manufacturing subsidiary, which we accounted for using the equity method prior to our acquisition of the remaining 49% ownership interest in GUTS in May 2002. We previously accounted for this under the equity method because we did not have voting control over significant matters.

        Under current regulations in China, foreign investment enterprises that have been accredited as technologically advanced enterprises are entitled to additional tax incentives. These tax incentives vary in different locales and could include preferential national enterprise income tax treatment at 50% of the usual rates for different periods of time. All of our active subsidiaries in China were accredited as technologically advanced enterprises. The tax holidays applicable to our wholly-owned subsidiaries UTStarcom China and UTStarcom Telecom Co., Ltd. ("HUTS"), which together accounted for approximately 83.8% of our revenues in 2002, expired at the end of 2002 and 2001, respectively. Unless the tax holidays are extended for the entities, for 2003, the tax rates for these two subsidiaries will increase from 7.5% to 15%, and from 10% to 15%, respectively, which could negatively impact our financial condition and results of operations by increasing our tax rate. During the fourth quarter of 2002, we formed a new entity, Hangzhou UTStarcom Telecom Co., Ltd., to manufacture and sell handsets. This entity will benefit from a two year income tax exemption and a 50% income tax reduction in the following three years. The Chinese government is considering the imposition of a "unified" corporate income tax that would phase out, over time, the preferential tax treatment to which foreign-funded enterprises, such as UTStarcom, are currently entitled. We cannot be certain whether the government will implement such a unified tax structure, or, if implemented, whether it will adversely affect our financial results.

        Minority interest in (earnings) loss of consolidated subsidiaries represented the share of earnings in HUTS, our Zhejiang manufacturing joint venture, attributable to our joint venture partner, prior to our acquisition of the remaining 12% ownership interest in HUTS in May 2002.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        Our financial condition and results of operations are based on certain critical accounting policies and estimates, which include judgments, estimates, and assumptions on the part of management. Estimates are based on historical experience, knowledge of economic and market factors and various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from those estimates. The following summary of critical accounting policies and estimates highlights those areas of significant judgment in the application of our accounting policies that affect our financial condition and results of operations.

        Our business is concentrated in China. Therefore, a material adverse change in economic, political and social conditions in China could have an adverse effect on our accounting estimates and result in additional charges to income.

Revenue Recognition, Allowances for Doubtful Accounts and Product Warranty

        We recognize revenue from sales of telecommunications equipment when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable and collectibility is reasonably assured. For transactions where we have yet to obtain customer acceptance, revenue is deferred until the terms of acceptance are satisfied. A sales reserve is established based on historical trends in sales returns. If actual future sales returns do not reflect the historical data, our revenue could be affected. Historically, the level of sales returns and our collection history have been within our expectations.

        We also maintain allowances for doubtful accounts based on our assessment of the collectibility of our accounts receivable. We continually monitor collections from our customers and maintain

38

allowances for doubtful accounts based upon the age of outstanding invoices and any specific customer collection issues. Historically, doubtful accounts or credit losses have been within our expectations, and our doubtful account allowances have been adequate.

        We provide a warranty on our equipment and handset sales for a period generally ranging from twelve to eighteen months. We provide for the expected cost of product warranties at the time that we recognize revenue, based on our assessment of past warranty experience. We continually monitor the level of our warranty expenses. If, however, there were a material adverse change in our product failure rates, an additional warranty provision would be required. Historically, our warranty experience has been within our expectations.

Inventories

        Our inventories are stated at the lower of cost or net realizable value, net of write-downs for excess, slow moving and obsolete inventory. Inventory write-downs are based on our assumptions about future market conditions and customer demand. We continually monitor our inventory valuation. Historically, the level of inventory write-downs, our inventory turnover, and obsolescence experience have been within our expectations.

Research and Development and Software Development Costs

        Our research and development costs are charged to expense as incurred. We capitalize costs incurred in the development of software that will ultimately be sold when technological feasibility has been attained and/or the development of the related product has been completed. Management judgment is required in assessing expected future revenues and changes in product technologies, and the ultimate recoverability of our capitalized software development costs.

Deferred Income Taxes

        We recognize deferred income taxes as the difference between the tax bases of assets and liabilities and their financial statement amounts based on enacted tax rates. Management judgment is required in the assessment of the recoverability of our deferred tax assets based on our assessment of projected taxable income. Numerous factors could affect our results of operations in the future. If there were a significant decline in our future operating results, our assessment of the recoverability of our deferred tax assets would need to be revised, and any such adjustment to our deferred tax assets would be charged to income in that period.

Goodwill and Intangibles

        We have recorded goodwill and intangible assets in connection with our business acquisitions. Management judgment is required in the assessment of the related useful lives, assumptions regarding our ability to successfully develop and ultimately commercialize acquired technology, and assumptions regarding the fair value and the recoverability of these assets. Historically, there have been no circumstances that resulted in revised assumptions or impairment charges. We completed the required transitional assessment of goodwill during the first quarter of fiscal 2002. Based on this assessment, there was no transition goodwill impairment charge. We completed our annual goodwill impairment review for 2002 in the fourth quarter of 2002, and no charge was required. We plan to carry out our annual goodwill impairment review for future years in the fourth quarter of each year.

Long-Term Investments

        We have invested in a fund focused on investments in Internet companies in China and a fund focused on investments in companies in Asia undergoing restructuring or bankruptcy procedures. We have also invested directly in a number of private technology-based companies in the early stages of

39

development and in publicly listed technology companies traded on Nasdaq and NYSE. While quoted market prices are readily available to determine the fair value of our investments in these publicly traded companies, management judgment is required in evaluating the carrying value of our private company investments for possible impairment. For our private technology company investments, we assess impairment based on an evaluation of the achievement of business objectives and milestones, the financial condition and prospects of these companies and other relevant factors. We continually monitor these investments for impairment, and charge to income any impairment amounts in the period such a determination is made.

RELATED PARTY TRANSACTIONS

        We recognized revenue of $123.0 million, $13.9 million, and $0.0 during the years ended December 31, 2002, 2001 and 2000, respectively, with respect to sales of telecommunications equipment to BB Technologies Corporation ("BBTC"), an affiliate of SOFTBANK CORP. SOFTBANK America Inc., an entity affiliated with SOFTBANK CORP., is a significant stockholder of ours. BBTC offers asynchronous digital subscriber line ("ADSL") coverage throughout Japan, which is marketed under the name YAHOO. We provide ADSL technology to BBTC. The contract was competitively bid and the terms of this contract were on terms no more favorable than those with unrelated parties. Included in accounts receivable at December 31, 2002 is $0.8 million related to this agreement. There were no amounts included in deferred revenue in respect of this agreement at December 31, 2002. Included in accounts receivable in respect of this agreement at December 31, 2001 was $13.5 million. There were no amounts included in deferred revenue in respect of this agreement at December 31, 2001.

        We have invested $10.0 million in Softbank China, an investment fund established by SOFTBANK CORP. focused on investments in Internet companies in China. This investment permits us to participate in the anticipated growth of Internet-related businesses in China. SOFTBANK CORP. and its related companies are significant stockholders of UTStarcom. Our investment constitutes 10% of the funding for Softbank China, with SOFTBANK CORP. contributing the remaining 90%. The fund has a separate management team, and none of our employees are employed by the fund. Many of the fund's investments are and will be in privately held companies, many of which can still be considered in the start-up or development stages. These investments are inherently risky as the market for the technologies or products the companies have under development are typically in the early stages and may never materialize. We recorded losses on this investment of $2.8 million, $1.7 million and $0.0 million in 2002, 2001 and 2000, respectively. The balance remaining in this investment at December 31, 2002 was $5.5 million.

        During the first quarter of fiscal 2002, we invested $2.0 million in Restructuring Fund No. 1, a venture capital investment limited partnership established by SOFTBANK INVESTMENT CORP., an affiliate of SOFTBANK CORP. SOFTBANK America Inc., an entity affiliated with SOFTBANK CORP., is a significant stockholder of UTStarcom. The fund focuses on leveraged buyout investments in companies in Asia undergoing restructuring or bankruptcy procedures. The total fund offering is expected to be between approximately $150.0 million and $226.0 million, with each investor contributing a minimum of $0.8 million. The fund has a separate management team, and none of the Company's employees are employed by the fund. The balance in this investment is $2.0 million at December 31, 2002.

        On August 29, 2002, we completed the repurchase of six million shares of our common stock for $72.9 million from our largest shareholder, SOFTBANK Corp. As part of this transaction, SOFTBANK signed a voluntary "lock up""agreement stipulating that it will not sell any of our common stock within the next six months. This lock up agreement will end on March 1, 2003, which coincides with the start of our "blackout period," in which insiders are not permitted to buy or sell shares. The blackout period begins March 1, 2003 and ends commencing at the close of business on the second trading day

40

following the public release of our first quarter fiscal 2003 results in April 2003. We may make additional repurchases of our common stock from SOFTBANK Corp. in order to continue to mitigate SOFTBANK Corp.'s ownership influence.

RESULTS OF OPERATIONS

        The following table sets forth the percentage of net sales represented by certain items reflected in our consolidated statements of operations:

			Years Ended December 31,
			2000		2001		2002
Percentage of Net Sales:
Net sales			100.0	%	100.0	%	100.0	%
Cost of sales			65.2		64.2		64.8
Gross profit			34.8		35.8		35.2
Operating expenses:
	Selling, general and administrative		13.1		12.1		11.2
	Research and development		11.2		9.5		8.8
	Amortization of intangible assets		1.3		1.2		0.2
	In-process research and development		—		0.8		0.1
		Total operating expenses	25.6		23.6		20.3
Operating income			9.2		12.2		14.9
Interest and other income (expenses)			2.9		0.7		(0.6	)
Equity in net income (loss) of affiliated companies			(0.1	)	(0.4	)	(0.4	)
Income before income taxes and minority interest			12.0		12.5		13.9
Income tax expense			(3.8	)	(3.2	)	(2.8	)
Minority interest in (earnings) of consolidated subsidiaries			(0.6	)	(0.2	)	(0.1	)
Income before cumulative effect of accounting change			7.6		9.1		11.0
Cumulative effect on prior years of the application of SAB 101, "Revenue Recognition in Financial Statements"			(0.3	)	—		—
Net income			7.3	%	9.1	%	11.0	%

Comparison of years ended December 31, 2002 and December 31, 2001

NET SALES. Our net sales increased 56.6% to $981.8 million in 2002 from $626.8 million in 2001. Sales of telecommunications equipment, which includes our PAS, IP-based PAS products and wireline products, were $605.0 million in 2002, an increase of $166.1 million, or 38%, as compared to 2001. Sales of subscriber handsets were $376.8 million in 2002, an increase of $188.9 million, or 101%, as compared to 2001. Our handset sales increased as a result of higher than anticipated subscriber growth and the increased popularity of our PAS system. China sales remained strong, increasing by 45% in 2002 as compared to 2001. China sales accounted for 84% and 90% of our net sales for 2002 and 2001, respectively. International sales of telecommunications equipment increased to $159.2 million in 2002 as compared to $60.0 million in 2001, primarily driven by sales of equipment to BBTC in Japan to support its ADSL rollout. During the third quarter of 2002, the provincial-level telecommunications service entity in the Zhejiang province of China began to consolidate telecommunications purchasing decisions for that province. As a result of this trend in the Zhejiang province, we have grouped all customers in Zhejiang province together and have treated these as one customer. At December 31, 2002, we had approximately 33 such customers in Zhejiang province. In 2002, sales to Zhejiang province accounted

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for 17.8% and sales to BBTC accounted for 12.5% of our net sales. In 2001, sales to Zhejiang province accounted for 23.7% of our net sales.

GROSS PROFIT. Gross profit increased 53.9% to $345.5 million in 2002 from $224.5 million in 2001. Gross profit, as a percentage of net sales, was 35.2% in 2002 compared to 35.8% in 2001. The decrease in gross profit, as a percentage of net sales, was primarily due to increased sales of lower margin handsets, which comprised 38.4% of net sales in 2002 compared to 30.0% in 2001. Increasing margins on our handset sales, which averaged 27.0% in 2002, as compared to 15.5% in 2001, partially offset this. We believe that our handset sales in 2003 could represent up to approximately 35% to 45% of our net sales. In addition, we believe that there will be continued competitive market pricing pressures on our other products in line with current trends in the industry. However, we believe that cost efficiencies arising from manufacturing efficiencies and the redesign of our PAS products will partially offset the impact of these factors on our gross profit as a percentage of net sales.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased 45.5% to $110.3 million in 2002 from $75.8 million in 2001. The increase in selling, general and administrative expenses was primarily due to an increase of 450 sales and administrative personnel and related expenses, including sales commissions, associated with the growth in net sales and the expansion of our overall level of business activities. Selling, general and administrative expenses as a percentage of net sales decreased to 11.2% in 2002 from 12.1% in 2001. The decrease in selling, general and administrative expenses as a percentage of net sales was primarily due to economies of scale associated with the significant increase in net sales. We expect our selling, general and administrative expenses to increase in absolute dollar amounts in future periods as sales and marketing activities increase and we further invest in infrastructure and incur additional expenses related to the anticipated growth of our business and operations.

RESEARCH AND DEVELOPMENT. Research and development expenses increased 44.1% to $86.2 million in 2002 from $59.8 million in 2001. The increase in research and development expenses was primarily due to the hiring of an additional 303 technical personnel, and increased prototype expenses and licensing fees to support our research and development efforts. As a percentage of net sales, research and development expenses decreased to 8.8% in 2002 from 9.5% in 2001. This reduction was attributable to the decrease in non-cash compensation expense and an increase in sales in 2002. We expect our research and development expenses to increase in absolute dollar amounts in future periods as we expand our research and development organization to support new product development.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets decreased to $2.4 million in 2002 from $7.5 million in 2001. The decrease in amortization of intangible assets was primarily due to the elimination of goodwill amortization upon the adoption of SFAS No. 142 on January 1, 2002 of $7.0 million, offset by an increase in amortization of intangibles of $2.0 million. Had SFAS No. 142 been in effect during the year ended December 31, 2001, amortization expense would have been $0.2 million.

IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. In-process research and development costs of $0.7 million in 2002 resulted from our acquisition of Issanni on April 19, 2002. In-process research and development costs of $4.7 million in 2001 resulted from our acquisition of ACD in November 2001. These charges were based upon independent appraisals.

INTEREST INCOME (EXPENSE), NET. Interest income was $5.5 million in 2002 compared to interest income of $8.6 million in 2001. Interest expense was $1.3 million in 2002 compared to $3.9 million in 2001. The decrease in interest income was primarily due to a reduction in cash and cash equivalents and short-term investments of $58.3 million and a reduction in interest rates on deposits. The decrease of $2.7 million in interest expense was related to debt balances which were paid off in September 2002. At December 31, 2002, we did not have any debt.

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OTHER INCOME (EXPENSE), NET. Net other expense was $9.9 million in 2002, compared to net other expense of $0.3 million in 2001. Net other expense in 2002 was primarily comprised of impairment write-downs of $4.4 million relating to our investment portfolio and foreign exchange losses of $5.4 million.

EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES. Consolidated equity in net loss of affiliated companies was $4.1 million in 2002 and $3.0 million in 2001. This included equity losses of $2.9 million and $1.7 million in 2002 and 2001, respectively, related to our interest in investment funds. In May 2002, we acquired the remaining 49% ownership interest in GUTS, which is now a wholly-owned subsidiary. Its results of operations are included in our consolidated financial statements beginning June 1, 2002. Prior to May 2002, GUTS was accounted for using the equity method of accounting. On July 5, 2002, we entered into a joint venture agreement with Matsushita Communication Industrial Co., Ltd., and Matsushita Electric Industrial Co., Ltd., to jointly design, develop, manufacture and sell telecommunication products. We have a 49% ownership interest in this joint venture company. The investment in and results of operations of the joint venture company were accounted for using the equity method of accounting, commencing October 2002, and were not material for the year ended December 31, 2002.

INCOME TAX EXPENSE. Income tax expense was $27.3 million in 2002 and $19.8 million in 2001. The increase in income tax expense was due to our increased income. Our effective tax rate was 20% in 2002 compared to 25% in 2001. The reduction in our effective tax rate can be attributed to the increased portion of our net income derived from our operations in Chinese jurisdictions, which have granted us temporary tax holidays. The future rate may vary due to a variety of factors, including but not limited to, the relevant income contribution by domestic and foreign operations, changes in statutory tax rates, expiration of tax holidays, the amount of tax exempt interest income generated during the year, the ability to utilize foreign tax credits and non-deductible items relating to acquisitions, or other non-recurring charges.

MINORITY INTEREST IN EARNINGS OF CONSOLIDATED SUBSIDIARIES. Minority interest in earnings of consolidated subsidiaries was $1.2 million in 2002 and $1.3 million in 2001. The decrease is due to the acquisition of the remaining 12% ownership interest in HUTS in May 2002. HUTS is now a wholly-owned subsidiary of UTStarcom. The expected decrease was offset by an increase in HUTS net income for the four months ended April 30, 2002 as compared to the corresponding period in 2001.

Comparison of years ended December 31, 2001 and December 31, 2000

NET SALES. Our net sales increased 70.0% to $626.8 million in 2001 from $368.6 million in 2000. This increase was primarily due to an increase in sales volume of our PAS and IP-based PAS systems. Sales of telecommunications equipment for the year ended December 31, 2001 were $438.9 million, an increase of $176.9 million, or 67.5%, as compared to the corresponding period in 2000. Sales of subscriber handsets for the year ended December 31, 2001 were $187.9 million, an increase of $81.3 million, or 76.3%, as compared to the corresponding period in 2000. Sales of telecommunications equipment and subscriber handsets increased due to the continued growth in spending on telecommunications infrastructure in China, as China continues to modernize such infrastructure. During 2002, the provincial-level telecommunications service entity in the Zhejiang province of China began to consolidate telecommunications purchasing decisions for that province. As a result of this trend in the Zhejiang province, we have grouped all customers in Zhejiang province together and have treated these as one customer for comparison purposes. At December 31, 2001, we had approximately eight such customers in Zhejiang province. In 2001, Zhejiang province accounted for 23.7% of our net sales. In 2000, sales to Hangzhou PTT accounted for 12.1% of our net sales.

GROSS PROFIT. Gross profit increased 75.2% to $224.5 million in 2001 from $128.2 million in 2000. Gross profit, as a percentage of net sales, increased to 35.8% in 2001 from 34.8% in 2000. The increase in gross profit, as a percentage of net sales, was primarily due to increased margins on our handsets,

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which comprised 30.0% of net sales in 2001 compared to 28.9% in 2000. Margins on our handset sales averaged 15.5% in 2001, as compared to 5.3% in 2000.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased 57.7% to $75.8 million in 2001 from $48.1 million in 2000. The increase in selling, general and administrative expenses was primarily due to an increase of 388 in sales and administrative personnel and related expenses, including sales commissions, associated with the growth in net sales and the expansion of our overall level of business activities. This increase was partly offset by a decrease in non-cash stock compensation expense which decreased to $2.5 million in 2001 from $4.7 million in 2000. Selling, general and administrative expenses as a percentage of net sales decreased to 12.1% in 2001 from 13.1% in 2000. The decrease in selling, general and administrative expenses as a percentage of net sales was primarily due to economies of scale associated with the significant increases in net sales.

RESEARCH AND DEVELOPMENT. Research and development expenses increased 44.3% to $59.8 million in 2001 from $41.5 million in 2000. The increase in research and development expenses was primarily due to the hiring of an additional 396 technical personnel, increased prototype expenses and licensing fees to support our research and development efforts, partly offset by a decrease in non-cash stock compensation expense which decreased to $2.7 million in 2001 from $6.8 million in 2000. As a percentage of net sales, research and development expenses decreased to 9.5% in 2001 from 11.2% in 2000. This reduction was attributable to the decrease in non-cash compensation expense and an increase in sales in 2001.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets increased to $7.5 million in 2001 from $4.9 million in 2000. The increase in amortization of intangible assets was primarily due to the amortization of additional goodwill associated with the acquisition of Stable Gain, a software development company, of $11.0 million in the first quarter of 2001.

IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. In-process research and development costs resulted from our acquisition of ACD in November 2001. The aggregate purchase price of ACD was approximately $21.3 million which, based upon an independent appraisal of the assets acquired and liabilities assumed, was allocated to the specifically identifiable tangible and intangible assets acquired. In connection with the ACD acquisition, $4.7 million of in-process research and development costs were charged to operations in November 2001. There were no in-process research and development charges in 2000.

INTEREST INCOME (EXPENSE), NET. Interest income was $8.6 million in 2001 compared to interest income of $12.2 million in 2000. Interest expense was $3.9 million in 2001 compared to $3.3 million in 2000. Interest income decreased in 2001 due to lower interest rates, which were partially offset by higher average cash balances as a result of the completion of our follow-on public offering in July 2001. Interest expense increased due to higher borrowings in 2001 as compared to 2000.

OTHER INCOME (EXPENSE), NET. Net other expense was $0.3 million in 2001 and net other income was $1.9 million in 2000. The decrease in other income in 2001 was primarily due to impairment write-downs of $1.7 million relating to our investment portfolio.

EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES. Consolidated equity in net loss of affiliated companies was $3.0 million in 2001 and $0.3 million in 2000. The change between the two periods was due to a $1.7 million loss related to our interest in investment funds and an increase in losses at our Guangdong manufacturing subsidiary, GUTS.

INCOME TAX EXPENSE. Income tax expense was $19.8 million in 2001 and $14.0 million in 2000. The increase in income tax expense was due to our increasing income. Our effective tax rate decreased from 32% in 2000 to 25% in 2001 primarily due to a favorable settlement with the Internal Revenue Service upon examination of our corporate income tax returns filed for the years 1997, 1998 and 1999.

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MINORITY INTEREST IN EARNINGS OF CONSOLIDATED SUBSIDIARIES. Minority interest in earnings of consolidated subsidiaries was $1.3 million in 2001 and $2.3 million in 2000. The change between the two periods was primarily due to the decreased profitability at our Zhejiang manufacturing subsidiary, HUTS.

LIQUIDITY AND CAPITAL RESOURCES

        At December 31, 2002, we had lines of credit totaling $314.3 million available for future borrowings. We did not have any borrowings at December 31, 2002. We have not guaranteed any debt not included in the consolidated balance sheet. At December 31, 2002, we had working capital of $568.2 million, including $231.9 million in cash and cash equivalents and $107.3 million of short-term investments.

        Net cash generated from operating activities in 2002 was $157.3 million as compared to $40.2 million in 2001, an increase of $117.1 million. This was primarily due to improved operating performance and accounts receivable collection efficiency. We will continue to focus our efforts on improving our operating performance through cost efficiencies arising from continued cost reduction and manufacturing efficiencies. Efficient accounts receivable collection resulted in an improvement in our Day Sales Outstanding (DSO), which was 66 days at December 31, 2002 as compared to 88 days at December 31, 2001. The DSO ratio shows the average time it takes us to turn our receivables into cash and the age in terms of days of our accounts receivable. This ratio is a measure of the effectiveness with which we convert our receivables to cash. DSO is calculated as follows: (net accounts receivable/sales) × number of days in period that is being analyzed. We are also continuing to focus our efforts on the efficient management of our inventory, which was $424.7 million at December 31, 2002. Our inventory turnover ratio for the fourth quarter of 2002 was 2.3 and was in line with the corresponding period in 2001. The inventory turnover ratio shows how often we turn our inventory in the course of the year. Inventory turnover is calculated as follows: (cost of goods sold /average inventory). Over half of our inventory is at customer locations against signed contracts. During 2002, some strategic uses of our cash included the retirement of $70.5 million in debt, a $72.9 million stock buy-back at $12.25 per share and capital expenditures of $38.6 million for our new manufacturing facility in Hangzhou. We believe this new facility will contribute to cost and manufacturing efficiencies and higher revenue and profits in the future.

        Net cash provided by operations in 2002 of $157.3 million was primarily due to net income of $107.9 million, adjusted for non cash charges including depreciation and amortization expense of $22.4 million, amortization of stock compensation expense of $3.1 million, non-qualified stock option exercise tax benefits of $6.5 million, investment impairment write downs of $4.4 million, inventory write-downs of $12.4 million and allowance for doubtful accounts of $7.2 million. In addition, cash increased due to the growth in accounts payable of $170.5 million, other accrued liabilities of $27.7 million, deferred revenue of $87.8 million and income taxes payable of $2.5 million. This was offset by an increase in inventories, accounts receivable and other current and non-current assets of $207.3 million, $34.2 million and $60.5 million, respectively. Net cash provided by operations in 2001 of $40.2 million was primarily due to net income of $57.0 million adjusted for depreciation and amortization expense of $18.5 million, amortization of deferred stock compensation expense of $5.2 million, non-qualified stock option exercise tax benefits of $15.3 million, inventory write-downs of $11.1 million, allowance for doubtful accounts of $6.2 million and an increase in accounts payable, income taxes payable and other current liabilities and deferred revenue of $39.1 million, $3.4 million and $86.2 million, respectively. This was partially offset by an increase in inventories, accounts receivable and other current and non-current assets of $121.2 million, $39.2 million and $52.6 million, respectively.

        Net cash used in investing activities in 2002 of $144.2 million was primarily due to purchases of property, plant and equipment of $75.3 million, of which $38.6 million related to our new

45

manufacturing facility in Hangzhou, business acquisitions of $17.7 million, including $14.1 million relating to the purchase of the remaining interest in HUTS, investment in affiliates of $28.9 million which primarily comprised investments in public and private technology companies, offset by net sales of short-term investments of $22.4 million. Net cash used in investing activities in 2001 of $43.7 million was primarily due to purchases of property, plant and equipment of $30.2 million, investments in affiliates of $9.8 million, and net purchases of short-term investments of $2.1 million.

        Net cash used in financing activities in 2002 of $102.4 million was primarily due to the repurchase of our shares and related transaction costs of $72.9 million and net payments of $70.5 million on borrowings under our lines of credit. We paid off our short and long-term debt in September and, as of December 31, 2002, we had no debt. These uses of cash were partially offset by $40.9 million in proceeds from the sale of common stock in connection with the Softbank resale and the issuance of common stock through the exercise of stock options. Net cash provided by financing activities in 2001 of $175.5 million was primarily due to $160.6 million of proceeds from our follow-on public offering of common stock in August 2001 and exercise of stock options, and net proceeds from borrowings under our line of credit arrangements of $15.1 million.

        In 2001, we purchased the rights to use 49 acres of land located in Zhejiang Science and Technology Industry Garden of Hangzhou Hi-tech Industry Development Zone. As of December 31, 2002, we have completed the foundation and ground work and have commenced construction of the building. We expect that construction of the new facility will be completed in 2003 at a projected cost of approximately $95.6 million. Capital expenditures for the facility were $38.6 million in 2002.

        Our principal commitments at December 31, 2002 consist of obligations under operating leases and a commitment to invest up to an additional $4.0 million in one of our investments. We lease certain of our facilities under non-cancelable operating leases, which expire at various dates through 2007. We did not have any borrowings under our lines of credit at December 31, 2002.

        We have not engaged in any transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect our liquidity or the availability of, or requirements for, capital resources.

        Our China sales are generally denominated in local currency. Due to the limitations on converting Renminbi, we are limited in our ability to engage in currency hedging activities in China. Sales outside China are generally denominated in US dollars. As of December 31, 2002, we were not engaged in any hedging activities and did not hold any derivative financial instruments. We cannot guarantee that fluctuations in currency exchange rates in the future will not have a material adverse effect on revenues from international sales and, correspondingly, on our business, financial condition and results of operations. We have contracts negotiated in Japanese Yen and a multi-currency bank account in Japanese Yen for purchasing portions of our inventories and supplies. The balance of this Japanese Yen account at December 31, 2002 was approximately $7.1 million. As of December 31, 2002, we were not engaged in any hedging activities and did not hold any derivative financial instruments in respect of these Japanese Yen purchases.

        We believe that our existing cash and cash equivalents, short-term investments and cash from operations will be sufficient to finance our operations through at least the next 12 months. As of December 31, 2002, we had cash, restricted cash and investments, of $349.0 million and lines of credit totaling $314.3 million available for future borrowings. $260.1 million of available lines of credit expire during 2003 and $54.2 million of available lines of credit expire between 2008 and 2010. However, in the event that our current cash balances, future cash flows from operations and current lines of credit are not sufficient to meet our obligations or strategic needs or in the event that market conditions are favorable, we would consider raising additional funds in the capital or equity markets. If additional financing is needed, there can be no assurance that such financing will be available to us on commercially reasonable terms, or at all.

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CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

        Our obligations under contractual obligations and commercial commitments are primarily with regards to leasing arrangements and standby letters of credit and are as follows:

	December 31, 2002
	Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years
Contractual Obligations
Operating leases	$	10,536	$	5,857	$	4,504	$	175
Other Commercial Commitments
Standby letters of credit	$	9,779	$	9,779	$	—	$	—

INVESTMENT COMMITMENTS:

        In June 2002, we invested $1.0 million in Global Asia Partners L.P. The fund size is anticipated to be $100 million and was formed to make private equity investments in private or pre-IPO technology and telecommunications companies in Asia. We have a commitment to invest up to a maximum of $5.0 million. The remaining amount is due at such times and in such amounts as shall be specified in one or more future capital calls to be issued by the general partner.

RECENT ACCOUNTING PRONOUNCEMENTS

        In July 2002, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses the measurement, timing of recognition and reporting of costs associated with exit or disposal activities and restructuring activities. SFAS No. 146 requires that a liability for costs associated with exit or restructuring activities be recognized only when the liability is incurred as opposed to at the time that a company formally approves and commits to an exit plan as set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect the adoption to have an impact on our consolidated financial statements.

        In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity's product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. We believe that the adoption of this standard will not have a material impact on our consolidated financial statements.

        In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." This issue addresses how revenue arrangements with multiple deliverables should be divided into separate units of accounting and how the arrangement consideration should be allocated to the identified separate accounting units. EITF No. 00-21 is effective for fiscal periods beginning after June 15, 2003. We have not yet determined the impact of adopting EITF No. 00-21 on our results of operations or financial position.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation Costs—Transition and Disclosure". This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", and provides alternative methods of transition for an entity that voluntarily changes to

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the fair value-based method of accounting for stock-based compensation. It also requires additional disclosures about the effects on reported net income of an entity's accounting policy with respect to stock-based employee compensation. We account for stock-based compensation in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and have adopted the disclosure-only alternative of SFAS No. 123. We adopted the disclosure provisions of SFAS No. 148 in December 2002.

FACTORS AFFECTING FUTURE OPERATING RESULTS

RISKS RELATING TO OUR COMPANY

OUR FUTURE PRODUCT SALES ARE UNPREDICTABLE, OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE FROM QUARTER TO QUARTER, AND IF WE FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY

        Our quarterly and annual operating results have fluctuated in the past and are likely to fluctuate in the future due to a variety of factors, some of which are outside of our control. As a result, period-to-period comparisons of our operating results are not necessarily meaningful or indicative of future performance. Furthermore, it is likely that in some future quarters our operating results will fall below the expectations of securities analysts or investors. If this occurs, the trading price of our common stock could decline.

        Factors that may affect our future operating results include:

•

the timing, number and size of orders for our products, as well as the relative mix of orders for each of our products, particularly the volume of lower margin handsets;



•

cancellation, deferment or delay in implementation of large contracts;



•

the evolving and unpredictable nature of the economic, regulatory, competitive and political environments in China and other countries in which we market or plan to market our products;



•

price reductions by our competitors;



•

competitive market pressures resulting in decreased gross margins or increased inventory levels;



•

changes in our customers' subscriber growth rate;



•

currency fluctuations;



•

market acceptance of our products and product enhancements;



•

the lengthy and unpredictable sales cycles associated with sales of our products combined with the impact of this variability on our suppliers' ability to provide us with components on a timely basis;



•

longer collection periods of accounts receivable in China and other countries; and



•

the decline in business activity we typically experience during the Lunar New Year, which leads to decreased sales during our first fiscal quarter.

        The limited performance history of some of our products, our limited forecasting experience and processes and the emerging nature of our target markets make forecasting our future sales and operating results difficult. Our expense levels are based, in part, on our expectations regarding future sales, and these expenses are largely fixed, particularly in the short term. In addition, to enable us to promptly fill orders, we maintain inventories of finished goods, components and raw materials. As a result, we commit to considerable costs in advance of anticipated sales. In the past, a substantial portion of our sales in each quarter resulted from orders received and shipped in that quarter, and we have operated with a limited backlog of unfilled orders. Accordingly, we may not be able to reduce our

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costs in a timely manner to compensate for any unexpected shortfall between forecasted and actual sales. Any significant shortfall of sales may require us to maintain higher levels of inventories of finished goods, components and raw materials than we require, thereby increasing our risk of inventory obsolescence and corresponding inventory write-downs and write-offs.

COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED PRICES, REVENUES AND MARKET SHARE

        We are increasingly facing intense competition in our target markets, especially from domestic companies in China. We believe that our strongest competition in the future may come from these companies, many of which operate under lower cost structures and more favorable governmental policies and have much larger sales forces than we do. Furthermore, other companies not presently offering competing products may also enter our target markets, particularly with the reduction of trade restrictions as a result of China's admission to the World Trade Organization, or WTO. Many of our competitors have significantly greater financial, technical, product development, sales, marketing and other resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies and changes in service provider requirements. Our competitors may also be able to devote greater resources than we can to the development, promotion and sale of new products. These competitors may also be able to offer significant financing arrangements to service providers, in some cases facilitated by government policies, which is a competitive advantage in selling systems to service providers with limited financial and currency resources. Increased competition is likely to result in price reductions, reduced gross profit as a percentage of net sales and loss of market share, any one of which could materially harm our business, financial condition and results of operations.

        Moreover, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties, including Telecommunications Administrations, Telecommunications Bureaus and other local organizations, to increase the ability of their products to address the needs of prospective customers in our target markets. Accordingly, alliances among competitors or between competitors and third parties may emerge and rapidly acquire significant market share. To remain competitive, we believe that we must continue to partner with Telecommunications Administrations and other local organizations, maintain a high level of investment in research and development and in sales and marketing, and manufacture and deliver products to service providers on a timely basis and without significant defects. If we fail to meet any of these objectives, our business, financial condition and results of operations could be harmed.

        The introduction of inexpensive wireless telephone service or other competitive services in China may also have an adverse impact on sales of our PAS systems and handsets in China. We may not be able to compete successfully against current or future competitors, and competitive pressures in the future may materially adversely affect our business, financial condition and results of operations.

BECAUSE CONTRACTS AND PURCHASE ORDERS ARE GENERALLY SUBJECT TO CANCELLATION OR DELAY BY CUSTOMERS WITH LIMITED OR NO PENALTY, OUR BACKLOG IS NOT NECESSARILY INDICATIVE OF FUTURE REVENUES OR EARNINGS

        As of December 31, 2002, our backlog totaled approximately $605.4 million, compared to approximately $360.7 million as of December 31, 2001. We include in our backlog contracts and purchase orders for which we anticipate delivery to occur within 12 months and products delivered but for which final acceptance has not yet been received. Because contracts and purchase orders are generally subject to cancellation or delay by customers with limited or no penalty, our backlog is not necessarily indicative of future revenues or earnings. In addition, we have a number of large contracts under which realization of our backlog is dependent on the successful implementation of our products by our customers and in some cases, the successful development of regional infrastructures.

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OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO COLLECT PAYMENTS FROM OUR CUSTOMERS ON A TIMELY BASIS

        Our customers often must make a significant commitment of capital to purchase our products. As a result, any downturn in a customer's business that affects the customer's ability to pay us could harm our financial condition. Moreover, accounts receivable collection cycles historically tend to be much longer in China than in other markets. The failure of any of our customers to make timely payments could require us to write-off accounts receivable or increase our accounts receivable reserves, either of which could adversely affect our financial condition.

OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND TO COMPETE EFFECTIVELY, WE MUST CONTINUALLY INTRODUCE NEW PRODUCTS THAT ACHIEVE MARKET ACCEPTANCE

        The emerging market for communications equipment in developing countries is characterized by rapid technological developments, frequent new product introductions and evolving industry and regulatory standards. Our success will depend in large part on our ability to enhance our network access and switching technologies and develop and introduce new products and product enhancements that anticipate changing service provider requirements and technological developments. We may need to make substantial capital expenditures and incur significant research and development costs to develop and introduce new products and enhancements. If we fail to timely develop and introduce new products or enhancements to existing products that effectively respond to technological change, our business, financial condition and results of operations could be materially adversely affected. From time to time, our competitors or we may announce new products or product enhancements, technologies or services that have the potential to replace or shorten the life cycles of our products and that may cause customers to defer purchasing our existing products, resulting in inventory obsolescence. Future technological advances in the communications industry may diminish or inhibit market acceptance of our existing or future products or render our products obsolete.

        Even if we are able to develop and introduce new products, they may not gain market acceptance. Market acceptance of our products will depend on various factors including:

•

our ability to obtain necessary approvals from regulatory organizations;



•

the perceived advantages of the new products over competing products;



•

our ability to attract customers who have existing relationships with our competitors;



•

product cost relative to performance; and



•

the level of customer service available to support new products.

        Specifically, sales of PAS, our wireless access system, will depend in part upon consumer acceptance of the mobility limitations of this service relative to other wireless service systems, such as GSM or CDMA. If our existing or new products fail to achieve market acceptance for any reason, our business could be seriously harmed.

OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO DELIVER QUALITY PRODUCTS ON A TIMELY AND COST EFFECTIVE BASIS

        Our operating results depend on our ability to manufacture products on a timely and cost effective basis. In the past, we have experienced reductions in yields as a result of various factors, including defects in components and human error in assembly. If we experience deterioration in manufacturing performance or a delay in production of any of our products, we could experience delays in shipments and cancellations of orders. Moreover, networking products frequently contain undetected software or hardware defects when first introduced or as new versions are released. In addition, our products are often embedded in or deployed in conjunction with service providers' products, which incorporate a

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variety of components produced by third parties. As a result, when a problem occurs, it may be difficult to identify the source of the problem. These problems may cause us to incur significant warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relation problems or loss of customers, any one of which could harm our business.

        We contract with third parties in China to undertake high volume manufacturing and assembly of our handsets. In addition, we sometimes use third parties for high volume assembly of circuit boards. We do not have any long-term contracts with these third party manufacturers, and in the event that these manufacturers are unable or unwilling to continue to manufacture our products, we may be unable to secure alternative manufacturers or could experience delays in qualifying new manufacturers.

WE DEPEND ON SOME SOLE SOURCE AND OTHER KEY SUPPLIERS FOR HANDSETS, BASE STATIONS, COMPONENTS AND MATERIALS USED IN OUR PRODUCTS, AND IF THESE SUPPLIERS FAIL TO PROVIDE US WITH ADEQUATE SUPPLIES OF HIGH QUALITY PRODUCTS AT COMPETITIVE PRICES, OUR COMPETITIVE POSITION, REPUTATION AND BUSINESS COULD BE HARMED

        Some components and materials used in our products are purchased from a single supplier or a limited group of suppliers. If any supplier is unwilling or unable to provide us with high quality components and materials in the quantities required and at the costs specified by us, we may not be able to find alternative sources on favorable terms, in a timely manner, or at all. Our inability to obtain or to develop alternative sources if and as required could result in delays or reductions in manufacturing or product shipments. Moreover, these suppliers may delay product shipments or supply us with inferior quality products. If any of these events occur, our competitive position, reputation and business could suffer.

        Our ability to source a sufficient quantity of high quality components used in our products may be limited by China's import restrictions and duties. We require a significant number of imported components to manufacture our products in China. Imported electronic components and other imported goods used in the operation of our business are subject to a variety of permit requirements, approval procedures, import duties and registration requirements. Non-payment of required import duties could subject us to penalties and fines and could adversely affect our ability to manufacture and sell our products in China. In addition, import duties increase the cost of our products and may make them less competitive.

        In particular, components of our PAS system include the handset used by subscribers to make and receive mobile telephone calls and the base station unit. Our inability to obtain a sufficient number of high quality components and assemblies for handsets and base stations could severely harm our business. From time to time, there has been a worldwide shortage of handsets, and there currently exists a shortage of low-priced handsets, which we have found to be popular with many consumers in China. We have only used third parties to assemble and manufacture handsets in China for us for a limited period of time. These manufacturers may be unable to produce adequate quantities of high-quality handsets to meet the demand of our customers. In addition, we may be unable to obtain adequate quantities of base stations and may be unable to find alternative sources on favorable terms, in a timely manner, or at all. Our inability to obtain or to develop alternative sources if and as required could result in delays or reductions in manufacturing or product shipments.

IF WE ARE UNABLE TO EXPAND OUR DIRECT SALES OPERATION IN CHINA AND INDIRECT DISTRIBUTION CHANNELS ELSEWHERE OR SUCCESSFULLY MANAGE OUR EXPANDED SALES ORGANIZATION, OUR OPERATING RESULTS MAY SUFFER

        Our distribution strategy focuses primarily on developing and expanding our direct sales organization in China and our indirect distribution channels outside of China. We may not be able to

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successfully expand our direct sales organization in China and the cost of any expansion may exceed the revenue generated from these efforts. Even if we are successful in expanding our direct sales organization in China, we may not be able to compete successfully against the significantly larger and better-funded sales and marketing operations of current or potential competitors. In addition, if we fail to develop relationships with significant international resellers or manufacturers' representatives, or if these resellers or representatives are not successful in their sales or marketing efforts, we may be unsuccessful in our expansion efforts outside China.

WE EXPECT AVERAGE SELLING PRICES OF OUR PRODUCTS TO DECREASE WHICH MAY REDUCE OUR REVENUES AND OUR GROSS MARGIN AS A PERCENTAGE OF NET SALES, AND, AS A RESULT, WE MUST INTRODUCE NEW PRODUCTS AND REDUCE OUR COSTS IN ORDER TO MAINTAIN PROFITABILITY

        The average selling prices for communications access and switching systems and subscriber terminal products, such as handsets, in China have been declining as a result of a number of factors, including:

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increased competition;



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aggressive price reductions by competitors; and



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rapid technological change.

        We anticipate that average selling prices of our products will decrease in the future in response to product introductions by us or our competitors or other factors, including price pressures from customers. Therefore, we must continue to develop and introduce new products and enhancements to existing products that incorporate features that can be sold at higher average selling prices. Failure to do so could cause our revenues and gross profit, as a percentage of net sales, to decline.

        Our cost reduction efforts may not allow us to keep pace with competitive pricing pressures or lead to improved gross profit, as a percentage of net sales. In order to be competitive, we must continually reduce the cost of manufacturing our products through design and engineering changes. We may not be successful in these efforts or delivering our products to market in a timely manner. Any redesign may not result in sufficient cost reductions to allow us to reduce the prices of our products to remain competitive or to improve or maintain our gross profit, as a percentage of net sales.

SHIFTS IN OUR PRODUCT MIX MAY RESULT IN DECLINES IN GROSS PROFIT, AS A PERCENTAGE OF NET SALES

        Our gross profit, as a percentage of net sales, varies among our product groups. Our gross profit, as a percentage of net sales, is generally higher on our access network system products and is significantly lower on our handsets. We also anticipate that the gross profit, as a percentage of net sales, may be lower for our newly developed products due to start-up costs and may improve as unit volumes increase and efficiencies can be realized. Our overall gross profit, as a percentage of net sales, has fluctuated from period to period as a result of shifts in product mix, the introduction of new products, decreases in average selling prices for older products and our ability to reduce manufacturing costs.

SERVICE PROVIDERS SOMETIMES EVALUATE OUR PRODUCTS FOR LONG AND UNPREDICTABLE PERIODS WHICH CAUSES THE TIMING OF PURCHASES AND OUR RESULTS OF OPERATIONS TO BE UNPREDICTABLE

        The period of time between our initial contact with a service provider and the receipt of an actual purchase order may span a year or more. During this time, service providers may subject our products to an extensive and lengthy evaluation process before making a purchase. The length of these qualification processes may vary substantially by product and service provider, making our results of

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operations unpredictable. We may incur substantial sales and marketing expenses and expend significant management effort during this process, which ultimately may not result in a sale. These qualification processes often make it difficult to obtain new customers, as service providers are reluctant to expend the resources necessary to qualify a new supplier if they have one or more existing qualified sources.

OUR MULTI-NATIONAL OPERATIONS SUBJECT US TO VARIOUS ECONOMIC, POLITICAL, REGULATORY AND LEGAL RISKS

        We market and sell our products in China and other markets, including Taiwan, Japan, Vietnam, India and Latin America. The expansion of our existing multi-national operations and entry into additional international markets will require significant management attention and financial resources. Multi-national operations are subject to inherent risks, including:

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difficulties in designing products that are compatible with varying international communications standards;



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longer accounts receivable collection periods and greater difficulty in accounts receivable collection;



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unexpected changes in regulatory requirements or the regulatory environment;



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changes in governmental control or influence over our customers;



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changes to import and export regulations, including quotas, tariffs and other trade barriers;



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delays or difficulties in obtaining export and import licenses;



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potential foreign exchange controls and repatriation controls on foreign earnings;



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exchange rate fluctuations and currency conversion restrictions;



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the burdens of complying with a variety of foreign laws and regulations;



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difficulties and costs of staffing and managing multi-national operations, including but not limited to internal control and compliance;



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reduced protection for intellectual property rights in some countries;



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potentially adverse tax consequences; and



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political and economic instability.

        Multi-national companies are required to establish intercompany pricing for transactions between their separate legal entities operating in different taxing jurisdictions. These intercompany transactions are subject to audit by taxing authorities in the jurisdictions in which multi-national companies operate. An additional tax liability may be incurred if it is determined that intercompany pricing was not done at arm's length. We believe we have adequately estimated and recorded our liability arising from intercompany pricing, but an additional tax liability may result from audits of our intercompany pricing policies.

        In markets outside of China, we rely on a number of original equipment manufacturers, or OEMs, and third-party distributors and agents to market and sell our network access products. If these OEMs, distributors or agents fail to provide the support and effort necessary to service developing markets effectively, our ability to maintain or expand our operations outside of China will be negatively impacted. We may not successfully compete in these markets, our products may not be accepted and we may not successfully overcome the risks associated with international operations.

        Moreover, in less developed markets we may face additional risks, such as inconsistent infrastructure support, unstable political and economic environments, and lack of a secure environment for our personnel, facilities and equipment. We have in the past experienced cases of vandalism and

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armed theft of our equipment that had been or was being installed in the field. If disruptions for any of these reasons become too severe in any particular market, it may become necessary for us to terminate contracts and withdraw from that market and suffer the associated costs and lost revenue.

        Due to the multi-national nature of our business and operations, we are subject to regulation in multiple governmental jurisdictions. Furthermore, as a result of the heavily regulated nature of the markets in which we operate, we are continually subject to the risk of governmental investigations regarding our compliance with the rules and regulations of such jurisdictions. Should we become subject to any such investigations, there may be significant and unanticipated expenses, and risks such as the distraction of our key employees and disruptions to our operations. Such expenses and risks may result even in the event that such investigations are decided in our favor and no instances of non-compliance are found.

WE ARE SUBJECT TO RISKS RELATING TO CURRENCY EXCHANGE RATE FLUCTUATIONS

        We are exposed to foreign exchange rate risk because our sales to China are denominated in Renminbi and portions of our accounts payable are denominated in Japanese Yen. Due to the limitations on converting Renminbi, we are limited in our ability to engage in currency hedging activities in China. Although the impact of currency fluctuations of Renminbi to date has been insignificant, fluctuations in currency exchange rates in the future may have a material adverse effect on our results of operations.

OUR FAILURE TO MEET INTERNATIONAL AND GOVERNMENTAL PRODUCT STANDARDS COULD BE DETRIMENTAL TO OUR BUSINESS

        Many of our products are required to comply with numerous government regulations and standards, which vary by market. As standards for products continue to evolve, we will need to modify our products or develop and support new versions of our products to meet emerging industry standards, comply with government regulations and satisfy the requirements necessary to obtain approvals. Our inability to obtain regulatory approval and meet established standards could delay or prevent our entrance into or force our departure from particular markets.

OUR RECENT GROWTH HAS STRAINED OUR RESOURCES, AND IF WE ARE UNABLE TO MANAGE AND SUSTAIN OUR GROWTH, OUR OPERATING RESULTS WILL BE NEGATIVELY AFFECTED

        We have recently experienced a period of rapid growth and anticipate that we must continue to expand our operations to address potential market opportunities. If we fail to implement or improve systems or controls or to manage any future growth and expansion effectively, our business could suffer.

        Our expansion has placed and will continue to place a significant strain on our management, operational, financial and other resources. To manage our growth effectively, we will need to take various actions, including:

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enhancing management information systems and forecasting procedures;



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further developing our operating, administrative, financial and accounting systems and controls;



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maintaining close coordination among our engineering, accounting, finance, marketing, sales and operations organizations;



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expanding, training and managing our employee base; and



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expanding our finance, administrative and operations staff.

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WE MAY NOT BE ABLE TO SUSTAIN PROFITABILITY

        We may not be able to remain profitable in future periods. We anticipate continuing to incur significant sales and marketing, research and development and general and administrative expenses and, as a result, we will need to generate higher revenues to remain profitable. Numerous factors could negatively impact our results of operations, including a decrease in sales, price pressures and significant fixed costs. Our past results should not be relied on as an indication of our future performance.

OUR SUCCESS IS DEPENDENT ON CONTINUING TO HIRE AND RETAIN QUALIFIED PERSONNEL, AND IF WE ARE NOT SUCCESSFUL IN ATTRACTING AND RETAINING THESE PERSONNEL, OUR BUSINESS WOULD BE HARMED

        The success of our business depends in significant part upon the continued contributions of key technical and senior management personnel, many of whom would be difficult to replace. In particular, our success depends in large part on the knowledge, expertise and services of Hong Liang Lu, our President and Chief Executive Officer, and Ying Wu, our Executive Vice President and Chief Executive Officer of China Operations. The loss of any key employee, the failure of any key employee to perform satisfactorily in his or her current position or our failure to attract and retain other key technical and senior management employees could have a significant negative impact on our operations.

        To effectively manage our recent growth as well as any future growth, we will need to recruit, train, assimilate, motivate and retain qualified employees. Competition for qualified employees is intense, and the process of recruiting personnel with the combination of skills and attributes required to execute our business strategy can be difficult, time-consuming and expensive. We are actively searching for research and development engineers and sales and marketing personnel, who are in short supply. Additionally, we have a need for and have experienced difficulty in finding qualified accounting personnel knowledgeable in U.S. and China accounting standards who are resident in China. If we fail to attract, hire, assimilate or retain qualified personnel, our business would be harmed.

        Competitors and others have in the past and may in the future attempt to recruit our employees. In addition, companies in the telecommunications industry whose employees accept positions with competitors frequently claim that the competitors have engaged in unfair hiring practices. We may be the subject of these types of claims in the future as we seek to hire qualified personnel. Some of these claims may result in material litigation and disruption to our operations. We could incur substantial costs in defending ourselves against these claims, regardless of their merit.

ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE OUR STOCKHOLDERS AND HARM OUR OPERATING RESULTS

        We may acquire complementary businesses, products and technologies. For example, in November 2001, we acquired Advanced Communication Devices Corporation, a system on chip semiconductor company. On April 19, 2002, the Company completed the purchase of Issanni Communications, Inc., a RAS (remote access server) and local access technology company, providing broadband over ADSL. On October 16, 2002, we acquired the assets and intellectual property of Shanghai Yi Yun Telecom Technology Co. Ltd., a provider of synchronous digital hierarchy ("SDH") transmission equipment. Any anticipated benefits of an acquisition may not be realized. We have in the past and will continue to evaluate acquisition prospects that would complement our existing product offerings, augment our market coverage, enhance our technological capabilities, or that may otherwise offer growth opportunities. Acquisitions of other companies may result in dilutive issuances of equity securities, the incurrence of debt and the amortization of expenses related to intangible assets. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of operations, technologies, products and personnel of the acquired company, diversion of management's attention from other business concerns, risks of entering markets in which we have no direct or limited prior experience, and the potential loss of key employees of the acquired company.

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WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY AND MAY BE SUBJECT TO CLAIMS THAT WE INFRINGE THE INTELLECTUAL PROPERTY OF OTHERS, EITHER OF WHICH COULD SUBSTANTIALLY HARM OUR BUSINESS

        We rely on a combination of patents, copyrights, trademarks, trade secret laws and contractual obligations to protect our technology. We have applied for patents in the United States, three of which have been issued. We have also filed patent applications in other countries. Additional patents may not be issued from our pending patent applications and our issued patents may not be upheld. In addition, we have, from time to time, chosen to abandon previously filed applications. Moreover, we have not yet obtained, and may not be able to obtain, patents in China on our products or the technology that we use to manufacture our products. Our subsidiaries and joint ventures in China rely upon our trademarks, technology and know-how to manufacture and sell our products. We cannot guarantee that these and other intellectual property protection measures will be sufficient to prevent misappropriation of our technology or that our competitors will not independently develop technologies that are substantially equivalent or superior to ours. In addition, the legal systems of many foreign countries, including China, do not protect intellectual property rights to the same extent as the legal system of the United States. Furthermore, in connection with acquisitions, we from time to time obtain intellectual property rights, including patents. These intellectual property rights could be found to infringe on third parties' rights. If such a situation were to occur, we would endeavor to obtain licenses to allow us to continue to use such intellectual property. However, no assurances can be provided that any intellectual property we acquire will not infringe on the rights of third parties, nor that we will be able to successfully negotiate licenses to use such intellectual property on terms that are acceptable to us. If we are unable to adequately protect our proprietary information and technology, our business, financial condition and results of operations could be materially adversely affected.

        The increasing dependence of the communications industry on proprietary technology has resulted in frequent litigation based on allegations of the infringement of patents and other intellectual property. In the future we may be subject to litigation to defend against claimed infringements of the rights of others or to determine the scope and validity of the proprietary rights of others. Future litigation also may be necessary to enforce and protect our trade secrets and other intellectual property rights. Any intellectual property litigation could be costly and could cause diversion of management's attention from the operation of our business. Adverse determinations in any litigation could result in the loss of our proprietary rights, subject us to significant liabilities or require us to seek licenses from third parties which may not be available on commercially reasonable terms, if at all. We could also be subject to court orders preventing us from manufacturing or selling our products.

BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS

        Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan. Our headquarters facility in the State of California was subject to electrical blackouts as a consequence of a shortage of available electrical power. In the event these blackouts resume, they could disrupt the operations at our headquarters. In addition, we do not carry sufficient business interruption insurance to compensate us for losses that may occur and any losses or damages incurred by us could have a material adverse effect on our business.

WE ARE EXPOSED TO FLUCTUATIONS IN THE VALUES OF OUR PORTFOLIO INVESTMENTS

        We maintain an investment portfolio of various holdings, types, and maturities. Part of this portfolio includes equity investments in publicly traded companies, the value of which are subject to market price volatility. Recent events have adversely affected the public equities market and general economic conditions may continue to worsen. Should the fair value of our publicly traded equity investments decline below their cost basis in a manner deemed to be other-than-temporary, it may become necessary for us to take an impairment charge.

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        We have also invested in several privately held companies as well as investment funds which invest primarily in privately held companies, many of which can still be considered in the start-up or development stages. These investments are inherently risky, as the market for the technologies or products they have under development are typically in the early stages and may never materialize. We could lose our entire initial investment in these companies and investment funds.

IF WE SEEK TO SECURE ADDITIONAL FINANCING WE MAY NOT BE ABLE TO DO SO. IF WE ARE ABLE TO SECURE ADDITIONAL FINANCING OUR STOCKHOLDERS MAY EXPERIENCE DILUTION OF THEIR OWNERSHIP INTEREST OR WE MAY BE SUBJECT TO LIMITATIONS ON OUR OPERATIONS.

        We currently anticipate that our available cash resources, which include existing cash and cash equivalents, short-term investments and cash from operations, will be sufficient to meet our anticipated needs for working capital and capital expenditure during the next 12 months. If we are unable to generate sufficient cash flows from operations to meet our anticipated needs for working capital and capital expenditures, we may need to raise additional funds to develop new or enhanced products, respond to competitive pressures, take advantage of acquisition opportunities or raise capital for strategic purposes. If we raise additional funds through the issuance of equity securities, our stockholders may experience dilution of their ownership interest, and the newly issued securities may have rights superior to those of common stock. If we raise additional funds by issuing debt, we may be subject to limitations on our operations.

WE HAVE BEEN NAMED AS A DEFENDANT IN SECURITIES LITIGATION

        We, and various underwriters for our initial public offering are defendants in a putative shareholder class action. The complaint alleges undisclosed improper underwriting practices concerning the allocation of IPO shares, in violation of the federal securities laws. Similar complaints have been filed concerning the IPOs of more than 300 companies, and the litigation has been coordinated in federal court for the Southern District of New York as In re Initial Public Offering Securities Litigation, 21 MC 92. We believe we have meritorious defenses to the claims against us and intend to defend the litigation vigorously. However, as litigation is by its nature uncertain, an unfavorable resolution of the lawsuit could have a material adverse effect on our business, results of operations, or financial condition.

RISKS RELATING TO THE STRUCTURE AND REGULATION OF CHINA'S TELECOMMUNICATIONS INDUSTRY

CHINA'S TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION

        China's telecommunications industry is heavily regulated by the Ministry of Information Industry. The Ministry of Information Industry has broad discretion and authority to regulate all aspects of the telecommunications and information technology industry in China, including managing spectrum bandwidths, setting network equipment specifications and standards and drafting laws and regulations related to the electronics and telecommunications industries. Additionally, the Ministry of Information Industry can unilaterally, or in concert with other relevant authorities, decide what types of equipment may be connected to the national telecommunications networks, the forms and types of services that may be offered to the public, the rates that are charged to subscribers for those services and the content of material available in China over the Internet. If the Ministry of Information Industry sets standards with which we are unable to comply or which render our products noncompetitive, our ability to sell products in China may be limited, resulting in substantial harm to our operations.

        At the end of May 2000, we became aware of an internal notice, circulated within the Ministry of Information Industry, announcing a review of PHS-based telecommunications equipment for future

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installation into China's telecommunications infrastructure. The Ministry of Information Industry requested service providers to temporarily halt new deployments of PHS-based telecommunications equipment, including our PAS systems and handsets, pending conclusion of a review by the Ministry of Information Industry. Subsequently, at the end of June 2000, the Ministry of Information Industry issued a notice stating that it had concluded its review of PHS-based equipment and that the continued deployment of PHS-based systems, such as our PAS systems and handsets, in China's county-level cities and towns and villages would be permitted. In addition, the notice stated that deployments within large and medium-sized cities would only be allowed in very limited areas of dense population, such as campuses, commercial buildings and special development zones. The notice confirmed, however, that new citywide deployments of our PAS system in large and medium cities would not be permitted. Failure of the Ministry of Information Industry to permit the sale or deployment of our PAS systems and handsets, or the sale or deployment of our other products, or the imposition of additional limitations on their sale in the future could have a material adverse effect on our business and financial condition. The Ministry of Information Industry may conduct further reviews or evaluations of PHS-based telecommunications equipment or may change its position regarding PHS-based systems in the future.

CHINA'S TELECOMMUNICATIONS REGULATORY FRAMEWORK IS IN THE PROCESS OF BEING DEVELOPED, WHICH HAS LED TO UNCERTAINTIES REGARDING HOW TO CONDUCT OUR BUSINESS IN CHINA

        China does not yet have a national telecommunications law. However, to provide a uniform regulatory framework for the telecommunication industry, the Chinese government is currently preparing a draft of such a law (the "Telecommunication Law"). If and when the Telecommunication Law is adopted by the National People's Congress or its standing committee, it is expected to provide a new regulatory framework for telecommunications regulation in China. We do not yet know the final nature or scope of the regulation that would be created if the Telecommunications Law is passed. Accordingly, we cannot predict whether it will have a positive or negative effect on us or on some or all aspects of our business.

        China's telecommunications regulatory framework is in the process of being developed. In September 2000, the State Council issued the Telecommunications Regulations of the People's Republic of China, known as the Telecom Regulations. The Telecom Regulations cover telecommunications services and market regulations, pricing, interconnection and connection, as well as telecommunications construction and security issues. In May 2001, the Ministry of Information Industry issued the Administrative Measures of Network Access Licenses to implement the Telecom Regulations. Regulations in this area often require subjective interpretation and, given the relative infancy of the Telecom Regulations and the implementing regulations, we do not know how the regulations will be interpreted or enforced. As a result, our attempts to comply with these regulations may be deemed insufficient by the appropriate regulatory agencies, which could subject us to penalties that adversely affect our business.

OUR BUSINESS MAY SUFFER AS A RESULT OF THE RECENT RESTRUCTURING OF CHINA TELECOM

        In February 1999, the State Council approved a restructuring plan for the China Telecom system, under which the telecommunications operations of the China Telecom system were separated along four business lines: fixed line, mobile, paging and satellite communications services. Following the announcement, we observed a reduction in orders from Telecommunications Companies, which we attributed to the uncertainties surrounding the restructuring and the ultimate impact the restructuring would have on the Telecommunications Companies.

        Effective in May 2002, China Telecom was split into two entities by region, northern and southern. The 10 northern provinces, municipalities and autonomous regions of China Telecom were merged with

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China Netcom Co. Ltd. and China Jitong Network Communications Co. Ltd. to form a new company known as China Netcom ("China Netcom"). The remaining 21 provinces, municipalities and autonomous regions now constitute the southern entity, and have kept the name of China Telecom (the "New China Telecom"). China Netcom inherited 30% of the old China Telecom's national backbone network, with the rest going to the New China Telecom. As this change is very recent, we cannot be certain what impact the restructuring of China Telecom will have on our business operations. However, we may experience another decline in orders and related revenues similar to that which we experienced following the 1999 restructuring, resulting from uncertainty among our telecommunications company customers associated with the restructuring. Additionally, China Telecom completed its initial public offering in November 2002, and is now a publicly listed on the New York Stock Exchange. Moreover, following any restructuring, China Netcom, the New China Telecom or any other entity that may replace it as a result of any subsequent restructuring may restrict or prohibit the sales of our products, which could cause substantial harm to our business.

WE DO NOT HAVE SOME OF THE LICENSES WE ARE REQUIRED TO HAVE TO SELL OUR NETWORK ACCESS PRODUCTS IN CHINA

        Under China's current regulatory structure, the communications products that we offer in China must meet government and industry standards, and a network access license for the equipment must be obtained. Without the license, the equipment is not allowed to be connected to public telecommunications networks or sold in China. Moreover, we must ensure that the quality of the telecommunications equipment for which we have obtained a network access license is stable and reliable, and may not lower the quality or performance of other installed licensed products. The State Council's product quality supervision department, in concert with the Ministry of Information Industry, performs spot checks to track and supervise the quality of licensed telecommunications equipment and publishes the results of such spot checks.

        The regulations implementing these requirements are not very detailed, have not been applied by a court and may be interpreted and enforced by regulatory authorities in a number of different ways. We have obtained the required network access licenses for our AN-2000 platform. We have applied for, but have not yet received, a network access license for our PAS systems and handsets. Based upon conversations with the Ministry of Information Industry, we understand that our PAS systems and handsets are considered to still be in the trial period and that sales of our PAS systems and handsets may continue to be made by us during this trial period, but a license will ultimately be required. Network access licenses will also be required for most additional products that we are selling or may sell in China, including our mSwitch platform. If we fail to obtain the required licenses, we could be prohibited from making further sales of the unlicensed products, including our PAS systems and handsets, in China, which would substantially harm our business, financial condition and results of operations. Our counsel in China has advised us that China's governmental authorities may interpret or apply the regulations with respect to which licenses are required and the ability to sell a product while a product is in the trial period in a manner that is inconsistent with the information received by our counsel in China, either of which could have a material adverse effect on our business and financial condition.

WE ARE REQUIRED TO REGISTER THE SOFTWARE INCORPORATED IN OUR PRODUCTS IN ACCORDANCE WITH RELEVANT CHINESE REGULATIONS

        In October 2000, the Ministry of Information Industry issued regulations which prohibit the production and sale of software products, or products incorporating software, in China unless the software is registered with the government. We have accomplished the necessary registration with regards to the software incorporated in our AN-2000, PAS and mSwitch products. However, additional registration is required for software incorporated in additional products that we are selling or may sell in China. Based upon verbal advice received from the Ministry of Information Industry, we believe that

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we will be able to sell products incorporating our software while any of our applications for registration may be pending. However, the Chinese government may interpret or apply the regulations in such a way as to prohibit sales of products incorporating our unregistered software prior to registration. If the government prohibits sales pending registration, or if we fail in our efforts to register any software required to be registered, we could be prohibited from making further sales of products incorporating our unregistered software in China, which could substantially harm our business and financial condition.

MOST OF OUR CUSTOMERS IN CHINA HAVE HISTORICALLY BEEN PART OF THE CHINA TELECOM SYSTEM AND UNDER CHINA TELECOM'S ULTIMATE CONTROL; FOLLOWING THE RECENT RESTRUCTURING OF CHINA TELECOM, MOST OF OUR CUSTOMERS IN CHINA ARE NOW PART OF THE NEW CHINA TELECOM OR CHINA NETCOM, AND ARE SUBJECT TO THEIR ULTIMATE CONTROL

        Our main customers in China are the local Telecommunications Companies (formerly known as Telecommunications Bureaus) which historically operated under China Telecom, China's state-owned fixed line operator, and were subject to its ultimate control. Following the recent restructuring of China Telecom, the Telecommunications Companies now operate under the ultimate control of either the New China Telecom or China Netcom. China Telecom completed its initial public offering in November 2002, and is listed on the New York Stock Exchange. Policy statements may be issued and decisions may be made by the New China Telecom and China Netcom, which govern the equipment purchasing decisions of most of our customers in China. For example, in late 1999, China Telecom prohibited all Telecommunications Companies from purchasing PHS systems, such as our PAS systems, for implementation in large cities, even before these sales were prohibited by the Ministry of Information Industry. As most of our sales are generated from our operations in China, any decisions by the New China Telecom or China Netcom restricting or prohibiting the sales or deployment of our products could cause significant harm to our business.

OUR CUSTOMER BASE IN CHINA COULD EFFECTIVELY BECOME INCREASINGLY CONCENTRATED IF MORE PURCHASING DECISIONS ARE COORDINATED OR MADE BY PROVINCIAL OR GREATER REGIONAL TELECOMMUNICATIONS SERVICE ENTITIES RATHER THAN BY LOCAL TELECOMMUNICATIONS SERVICE PROVIDERS

        We have historically considered local telecommunications service providers serving municipalities and counties to be our primary customers in China. Recently, however, the provincial-level telecommunications service entity in the Zhejiang province of China has begun to consolidate telecommunications purchasing decisions for that province. As a result of this trend in the Zhejiang province, we have grouped all customers in Zhejiang province together and have treated these as one customer for 2002 and the comparative periods presented. In 2002 and 2001, Zhejiang province accounted for more than 10% of our net sales. At December 31, 2002, we have approximately thirty-three customers in Zhejiang province.

        Whether this represents the beginning of a greater trend throughout China towards increased consolidation of negotiations and purchasing decisions into the control of provincial-level telecommunications service entities is unclear. If an increasing number of purchasing decisions and negotiations are controlled on a larger regional level in China by provincial-level telecommunications service entities, this would effectively result in a concentration of the Company's customer base. The Company's financial results may increasingly depend in significant part upon the success of a few major customers and the Company's ability to meet their future capital equipment needs. Although the composition of the group comprising the Company's largest customers may vary from period to period, the loss of a significant customer or any reduction in orders by any significant customer, including reductions due to market, economic or competitive conditions in the telecommunications industry, may have a material adverse effect on the Company's business, financial condition and results of operations.

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In addition to the business risks associated with dependence on major customers, significant customer concentration may also result in significant concentrations of accounts receivable. Significant and concentrated receivables would expose the Company to additional risks, including the risk of default by one or more customers representing a significant portion of the Company's total receivables. If the Company is required to take additional accounts receivable reserves, its business, financial condition and results of operations would be materially adversely affected.

OUR ABILITY TO SELL OUR PAS WIRELESS SYSTEMS AND HANDSETS COULD BE SIGNIFICANTLY IMPAIRED IF THE NEW CHINA TELECOM OR CHINA NETCOM ARE GRANTED, OR IF THEY OTHERWISE ACQUIRE, MOBILE LICENSES ALLOWING THE NEW CHINA TELECOM OR CHINA NETCOM TO DELIVER CELLULAR SERVICES

        The New China Telecom and China Netcom hold and operate the fixed line telephone and data communications assets in China, and currently do not have the licenses necessary to offer cellular services. To offer wireless services to end users, the Telecommunications Companies must offer services that can be delivered over wireline networks, such as those delivered over our PAS wireless systems and handsets. China's media sources have widely reported that after the restructuring of China Telecom, the Ministry of Information Industry may grant mobile licenses to the New China Telecom or China Netcom, or to both. If the Ministry of Information Industry does grant a mobile license to the New China Telecom or China Netcom, or to both, or if such entities otherwise acquire mobile licenses, local Telecommunications Companies will be free to offer cellular services such as GSM or CDMA to their customers, and they may therefore elect not to deploy our PAS systems and handsets. If this were to occur, we could lose current and potential customers for our PAS systems and handsets, and our financial condition and results of operations could be materially adversely affected.

CHANGES IN TELECOMMUNICATIONS RATES OR PRICING POLICIES MAY RESULT IN DECREASED DEMAND FOR OUR PRODUCTS

        In November 2000, the Ministry of Information Industry announced significant changes in rates for telecommunications services in China. While long distance, international, leased line and Internet connection fees were cut by up to 70%, the rates for local telephone services, which include certain types of wireless access services such as those offered over our PAS systems and handsets, were increased, from approximately $0.01 per minute to approximately $0.02 per minute. The increase in rates may result in a reduced demand by end users for wireless services delivered over our PAS system and a corresponding decline in demand for our products. In addition, mobile operators are offering price incentive plans that could impact demand for our products. Additionally, the Ministry of Information Industry may implement future rate changes for wireline or wireless services in China or change telecommunications pricing policies, including allowing carriers to set prices based on market conditions, any of which may lead to reduced demand for our systems and products and result in a material adverse effect on our business or results of operations.

RISKS RELATING TO CONDUCTING OPERATIONS IN CHINA

SALES IN CHINA HAVE ACCOUNTED FOR MOST OF OUR SALES, AND THEREFORE, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS ARE TO A SIGNIFICANT DEGREE SUBJECT TO ECONOMIC, POLITICAL AND SOCIAL EVENTS IN CHINA

        Approximately $822.3 million, or 83.8%, of our net sales in fiscal 2002, $565.9 million, or 90.3%, of our net sales in fiscal 2001, and $364.0 million, or 98.8%, of our net sales in fiscal 2000 occurred in China. Additionally, a substantial portion of our fixed assets are located in China. Of our total fixed assets, approximately 87.8% as of December 31, 2002, 75.3% as of December 31, 2001 and 75.0% as of December 31, 2000 were in China. We expect to make further investments in China in the future. Therefore, our business, financial condition and results of operations are to a significant degree subject to economic, political and social events in China.

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DEVALUATION IN THE VALUE OF THE RENMINBI AND FLUCTUATIONS IN EXCHANGE RATES COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS

        Exchange rate fluctuations could have a substantial negative impact on our financial condition and results of operations. We purchase substantially all of our materials in the United States and Japan and a significant portion of our cost of goods sold is incurred in U.S. dollars and Japanese yen. A significant portion of our operating expenses are incurred in U.S. dollars. At the same time, most of our sales are denominated in Renminbi. The value of the Renminbi is fixed by China's national government and is subject to changes in China's governmental policies and to international economic and political developments. China may choose to devalue the Renminbi against the U.S. dollar. Additionally, China's government has considered from time to time whether to partially or fully abandon the official exchange rate for Renminbi to the U.S. dollar. The abandonment of this official exchange rate policy may lead to sharp depreciation of the Renminbi against the U.S. dollar and other foreign currencies and to significantly more volatility in the Renminbi exchange rate in the future, both of which would adversely affect our financial results and make our future results more subject to fluctuation.

        In the past, financial markets in many Asian countries have experienced severe volatility and, as a result, some Asian currencies have experienced significant devaluation from time to time. The devaluation of some Asian currencies may have the effect of rendering exports from China more expensive and less competitive and therefore place pressure on China's government to devalue the Renminbi. Any devaluation of the Renminbi could result in an increase in volatility of Asian currency and capital markets. Future volatility of Asian financial markets could have an adverse impact on our ability to expand our product sales into Asian markets outside of China. Moreover, due to the limitations on the convertibility of Renminbi, we are limited in our ability to engage in currency hedging activities in China and do not currently engage in currency hedging activities with respect to international sales outside of China.

CURRENCY RESTRICTIONS IN CHINA MAY LIMIT THE ABILITY OF OUR SUBSIDIARIES AND JOINT VENTURES IN CHINA TO OBTAIN AND REMIT FOREIGN CURRENCY NECESSARY FOR THE PURCHASE OF IMPORTED COMPONENTS AND MAY LIMIT OUR ABILITY TO OBTAIN AND REMIT FOREIGN CURRENCY IN EXCHANGE FOR RENMINBI EARNINGS

        China's government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Under the current foreign exchange control system, sufficient foreign currency may not be available to satisfy our currency needs. Shortages in the availability of foreign currency may restrict the ability of our Chinese subsidiaries to obtain and remit sufficient foreign currency to pay dividends to us, or otherwise satisfy their foreign currency denominated obligations, such as payments to us for components which we export to them and for technology licensing fees. We may also experience difficulties in completing the administrative procedures necessary to obtain and remit needed foreign currency. Our business could be substantially harmed if we are unable to convert and remit our sales received in Renminbi into U.S. dollars. Under existing foreign exchange laws, Renminbi held by our China subsidiaries can be converted into foreign currencies and remitted out of China to pay current account items such as payments to suppliers for imports, labor services, payment of interest on foreign exchange loans and distributions of dividends so long as the subsidiaries have adequate amounts of Renminbi to purchase the foreign currency. Expenses of a capital nature such as the repayment of bank loans denominated in foreign currencies, however, require approval from appropriate governmental authorities before Renminbi can be used to purchase foreign currency and then remitted out of China. This system could be changed at any time by executive decision of the State Council to impose limits on current account convertibility of the Renminbi or other similar restrictions. Moreover, even though the Renminbi is intended to be freely convertible under the current account, the State Administration of Foreign Exchange, which is responsible for administering China's foreign currency market, has a significant degree of administrative

62

discretion in implementing the laws. From time to time, the State Administration of Foreign Exchange has used this discretion in ways which effectively limit the convertibility of current account payments and restrict remittances out of China. Furthermore, in many circumstances the State Administration of Foreign Exchange must approve foreign currency conversions and remittances. Under the current foreign exchange control system, sufficient foreign currency may not be available at a given exchange rate to satisfy our currency demands.

CHINA SUBJECTS FOREIGN INVESTORS IN THE TELECOMMUNICATIONS INDUSTRY TO OWNERSHIP AND GEOGRAPHIC LIMITATIONS

        China's government and its agencies, including the Ministry of Information Industry and the State Council, regulate foreign investment in the telecommunications industry through the promulgation of various laws and regulations and the issuance of various administrative orders and decisions. Currently, foreign investors may engage in such activities only in accordance with certain ownership and geographic limitations. China may promulgate new laws or regulations, or issue administrative or judicial decisions or interpretations, which would further restrict or bar foreigners from engaging in telecommunications-related activities. The promulgation of laws or regulations or the issuance of administrative orders or judicial decisions or interpretations restricting or prohibiting telecommunications activities by foreigners could have a substantial impact on our ongoing operations.

GOVERNMENTAL POLICIES IN CHINA COULD IMPACT OUR BUSINESS

        Since 1978, China's government has been and is expected to continue reforming its economic and political systems. These reforms have resulted in and are expected to continue to result in significant economic and social development in China. Many of the reforms are unprecedented or experimental and may be subject to change or readjustment due to a number of political, economic and social factors. We believe that the basic principles underlying the political and economic reforms will continue to be implemented and provide the framework for China's political and economic system. New reforms or the readjustment of previously implemented reforms could have a significant negative effect on our operations. Changes in China's political, economic and social conditions and governmental policies which could have a substantial impact on our business include:

•

new laws and regulations or the interpretation of those laws and regulations;



•

the introduction of measures to control inflation or stimulate growth;



•

changes in the rate or method of taxation;



•

the imposition of additional restrictions on currency conversion and remittances abroad; and



•

any actions which limit our ability to develop, manufacture, import or sell our products in China, or to finance and operate our business in China.

ECONOMIC POLICIES IN CHINA COULD IMPACT OUR BUSINESS

        The economy of China differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development in various respects such as structure, government involvement, level of development, growth rate, capital reinvestment, allocation of resources, self-sufficiency, rate of inflation and balance of payments position. In the past, the economy of China has been primarily a planned economy subject to one- and five-year state plans adopted by central government authorities and largely implemented by provincial and local authorities, which set production and development targets.

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        Since 1978, increasing emphasis had been placed on decentralization and the utilization of market forces in the development of China's economy. Economic reform measures adopted by China's government may be inconsistent or ineffectual, and we may not in all cases be able to capitalize on any reforms. Further, these measures may be adjusted or modified in ways which could result in economic liberalization measures that are inconsistent from time to time or from industry to industry or across different regions of the country. China's economy has experienced significant growth in the past decade. This growth, however, has been accompanied by imbalances in China's economy and has resulted in significant fluctuations in general price levels, including periods of inflation. China's government has implemented policies from time to time to increase or restrain the rate of economic growth, control periods of inflation or otherwise regulate economic expansion. While we may be able to benefit from the effects of some of these policies, these policies and other measures taken by China's government to regulate the economy could also have a significant negative impact on economic conditions in China with a resulting negative impact on our business.

CHINA'S ENTRY INTO THE WORLD TRADE ORGANIZATION CREATES UNCERTAINTY AS TO THE FUTURE ECONOMIC AND BUSINESS ENVIRONMENTS IN CHINA

        China's entry into the WTO was approved in September 2001. Entry into the WTO will require China to further reduce tariffs and eliminate non-tariff barriers, which include quotas, licenses and other restrictions by 2005 at the latest. While China's entry into the WTO and the related relaxation of trade restrictions may lead to increased foreign investment, it may also lead to increased competition in China's markets from international companies. China's entry into the WTO could have a negative impact on China's economy with a resulting negative impact on our business.

IF TAX BENEFITS AVAILABLE TO OUR SUBSIDIARIES LOCATED IN CHINA ARE REDUCED OR REPEALED, OUR BUSINESS COULD SUFFER

        Our subsidiaries and joint ventures located in China enjoy tax benefits in China which are generally available to foreign investment enterprises, including full exemption from national enterprise income tax for two years starting from the first profit-making year and/or a 50% reduction in national income tax rate for the following three years. In addition, local enterprise income tax is often waived or reduced during this tax holiday/incentive period. Under current regulations in China, foreign investment enterprises that have been accredited as technologically advanced enterprises are entitled to additional tax incentives. These tax incentives vary in different locales and could include preferential national enterprise income tax treatment at 50% of the usual rates for different periods of time. All of our active subsidiaries in China were accredited as technologically advanced enterprises. The tax holidays applicable to our wholly-owned subsidiaries, UTStarcom China and HUTS, which together accounted for approximately 83.8% of our revenues in 2002, expired at the end of 2002 and 2001, respectively. Unless the tax holidays are extended for the entities, for 2003 the tax rates will increase from 7.5% to 15% and from 10% to 15%, respectively, which could negatively impact our financial condition and results of operations. During the fourth quarter of 2002, we formed a new entity, Hangzhou UTStarcom Telecom Co., Ltd., to manufacture and sell handsets. This entity will benefit from a two year income tax exemption, and a 50% income tax reduction in the following three years. The Chinese government is considering the imposition of "unified" corporate income tax that would phase out, over time, the preferential tax treatment to which foreign-funded enterprises, such as UTStarcom, are currently entitled. While it is not certain whether the government will implement such a unified tax structure or whether, if implemented, UTStarcom will be grandfathered into the new tax structure, if the new tax structure is implemented, it will adversely affect our financial condition.

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CHINA'S LEGAL SYSTEM EMBODIES UNCERTAINTIES THAT COULD NEGATIVELY IMPACT OUR BUSINESS

        China has a civil law system. Decided court cases do not have binding legal effect on future decisions. Since 1979, many new laws and regulations covering general economic matters have been promulgated in China. Despite this activity to develop the legal system, China's system of laws is not yet complete. Even where adequate law exists in China, enforcement of existing laws or contracts based on existing law may be uncertain and sporadic and it may be difficult to obtain swift and equitable enforcement, or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of China's judiciary in many cases creates additional uncertainty as to the outcome of any litigation. Further, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. Moreover, government policies and internal rules promulgated by governmental agencies may not be published in time, or at all. As a result, we may operate our business in violation of new rules and policies without having any knowledge of their existence.

        China has adopted a broad range of related laws, administrative rules and regulations that govern the conduct and operations of foreign investment enterprises and restrict the ability of foreign companies to conduct business in China. These laws, rules and regulations provide some incentives to encourage the flow of investment into China, but also subject foreign companies, and foreign investment enterprises, including our subsidiaries in China, to a set of restrictions that may not always apply to domestic companies in China. As a result of its admission into the WTO, China is increasingly according foreign companies and foreign investment enterprises established in China the same rights and privileges as Chinese domestic companies. These special laws, administrative rules and regulations governing foreign companies and foreign investment enterprises may still place us and our subsidiaries at a disadvantage in relation to Chinese domestic companies and may adversely affect our competitive position. Moreover, as China's legal system develops, the promulgation of new laws, changes to existing laws and the pre-emption of local regulations by national laws may adversely affect foreign investors and companies. Many of our activities and products in China are subject to administrative review and approval by various national and local agencies of China's government. Because of the changes occurring in China's legal and regulatory structure, we may not be able to secure the requisite governmental approval for our activities and products. Failure to obtain the requisite government approval for any of our activities or products could substantially harm our business.

NEW MANUFACTURING FACILITY

        We have purchased the rights to use 49 acres of land located in Zhejiang Science and Technology Industry Garden of Hangzhou Hi-tech Industry Development Zone. As of December 31, 2002, we have completed the foundation and ground work and have commenced construction of the building. Capital expenditures were $38.6 million in 2002. We expect that construction of the new facility will be completed in 2003 at a projected cost of approximately $95.6 million. If we are unable to complete the construction on a timely basis our business may be harmed.

RISKS RELATING TO OUR STOCK PERFORMANCE

OUR STOCK PRICE IS HIGHLY VOLATILE

        The trading price of our common stock has fluctuated significantly since our initial public offering in March 2000. Our stock price could be subject to wide fluctuations in the future in response to many events or factors, including those discussed in the preceding risk factors relating to our operations, as well as:

•

actual or anticipated fluctuations in operating results, actual or anticipated gross profit as a percentage of net sales, levels of inventory, our actual or anticipated rate of growth and our actual or anticipated earnings per share;

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•

changes in expectations as to future financial performance or changes in financial estimates or buy/sell recommendations of securities analysts;



•

changes in governmental regulations or policies in China, such as the temporary suspension of sales of our PAS systems that occurred in May and June of 2000, which caused our stock price to drop;



•

our, or a competitor's, announcement of new products, services or technological innovations;



•

the operating and stock price performance of other comparable companies; and



•

news and commentary emanating from the media, securities analysts, and government bodies in China relating to UTStarcom and to the industry in general.

        General market conditions and domestic or international macroeconomic factors unrelated to our performance may also affect our stock price. For these reasons, investors should not rely on recent trends to predict future stock prices or financial results. In addition, following periods of volatility in a company's securities, securities class action litigation against a company is sometimes instituted. This type of litigation could result in substantial costs and the diversion of management time and resources.

SOFTBANK CORP. AND ITS RELATED ENTITIES, INCLUDING SOFTBANK AMERICA INC., HAS SIGNIFICANT INFLUENCE OVER OUR MANAGEMENT AND AFFAIRS, WHICH IT COULD EXERCISE AGAINST YOUR BEST INTERESTS

        SOFTBANK CORP. and its related entities, including SOFTBANK America Inc., beneficially own 21.2% of our outstanding stock. As a result, SOFTBANK CORP. and its related entities, including SOFTBANK America Inc., have the ability to exercise significant influence over all matters submitted to our stockholders for approval and exert significant influence over our management and affairs. This concentration of ownership may delay or prevent a change of control or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which could decrease the market price of our common stock. Matters that could require stockholder approval include:

•

election and removal of directors;



•

merger or consolidation of our company; and



•

sale of all or substantially all of our assets.

        The interests of SOFTBANK America Inc. may not always coincide with our interests. SOFTBANK America Inc., acting through its designees on the Board of Directors and through its ownership of voting securities, will have the ability to exercise significant influence over our actions irrespective of the desires of our other stockholders or directors. On August 29, 2002, we completed the repurchase of six million shares of our common stock for $72.9 million from SOFTBANK CORP., reducing their beneficial ownership to 21.2%. We may make additional stock repurchases in the future in order to continue to mitigate this ownership influence.

DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE OR PREVENT A POTENTIAL TAKEOVER, EVEN IF THE TRANSACTION WOULD BENEFIT OUR STOCKHOLDERS

        Other companies may seek to acquire or merge with us. An acquisition or merger of our company could result in benefits to our stockholders, including an increase in the value of our common stock. Some provisions of our Certificate of Incorporation and Bylaws, as well as provisions of Delaware law,

66

may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable. These provisions include:

•

authorizing the Board of Directors to issue additional preferred stock;



•

prohibiting cumulative voting in the election of directors;



•

limiting the persons who may call special meetings of stockholders;



•

prohibiting stockholder action by written consent;



•

creating a classified Board of Directors pursuant to which our directors are elected for staggered three year terms; and



•

establishing advance notice requirements for nominations for election to the Board of Directors and for proposing matters that can be acted on by stockholders at stockholder meetings.

ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to the impact of interest rate changes, changes in foreign currency exchange rates and changes in the stock market.

        Interest Rate Risk.    Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. The fair value of our investment portfolio would not be significantly affected by either a 10% increase or decrease in interest rates due mainly to the short-term nature of most of our investment portfolio. However, our interest income can be sensitive to changes in the general level of U.S. interest rates since the majority of our funds are invested in instruments with maturities less than one year. Our policy is to limit the risk of principal loss and ensure the safety of invested funds by generally attempting to limit market risk. Funds in excess of current operating requirements are mostly invested in government-backed notes, commercial paper, floating rate corporate bonds, fixed income corporate bonds and tax exempt instruments. In accordance with our investment policy, all short-term investments are invested in "investment grade" rated securities with minimum A or better ratings. Currently, most of our short-term investments have AA or better ratings.

        The table below represents carrying amounts and related weighted-average interest rates of our investment portfolio at December 31, 2002:

(In thousands, except interest rates)
Cash and cash equivalents	$	231,944
Average interest rate		1.3	%
Restricted cash	$	9,779
Average interest rate		1.3	%
Short-term investments	$	107,305
Average interest rate		1.5	%
Long-term investments	$	1,092
Average interest rate		1.8	%
Total investment securities	$	350,120
Average interest rate		1.4	%

        Equity Investment Risk.    Our investment portfolio includes equity investments in publicly traded companies, the values of which are subject to market price volatility. Recent events have adversely affected the public equities market and general economic conditions may continue to worsen. Should the fair value of our publicly traded equity investments decline below their cost basis in a manner deemed to be other-than-temporary, our earnings may be adversely affected. We have also invested in several privately held companies as well as investment funds which invest primarily in privately held

67

companies, many of which can still be considered in the start-up or development stages. These investments are inherently risky, as the market for the technologies or products they have under development are typically in the early stages and may never materialize.

        Foreign Exchange Rate Risk.    We are exposed to foreign exchange rate risk because most of our sales in China are denominated in Renminbi and portions of our accounts payable are denominated in Japanese Yen. Due to the limitations on converting Renminbi, we are limited in our ability to engage in currency hedging activities in China. Although the impact of currency fluctuations of Renminbi to date has been insignificant, fluctuations in currency exchange rates in the future may have a material adverse effect on our results of operations. We have a multi-currency bank account in Japanese Yen for purchasing portions of our inventories and supplies. The balance of this Japanese Yen account at December 31, 2002 was approximately $7.1 million.

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ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements and Financial Statement Schedules

			Page
Financial Statements:
	Report of Independent Accountants		70
	Consolidated Balance Sheets at December 31, 2002 and 2001		71
	Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000		72
	Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002, 2001 and 2000		73
	Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000		74
	Notes to Consolidated Financial Statements		75
Financial Statement Schedules:
	For each of the three years in the period ended December 31, 2002
		Report of Independent Accountants	114
		I—Condensed Financial Information of Registrant	115
		II—Valuation and Qualifying Accounts	119

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

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REPORT OF INDEPENDENT ACCOUNTANTS

         To the Board of Directors and Stockholders of UTStarcom, Inc.:

        In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of UTStarcom, Inc. and its subsidiaries (the Company) at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        As discussed in Note 3 to the Consolidated Financial Statements, in 2000 the Company changed its method of accounting for revenue recognition.

/s/  PRICEWATERHOUSECOOPERS LLP

San Francisco, California
January 23, 2003

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UTSTARCOM, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

			December 31,
			2002			2001
ASSETS
Current assets:
	Cash and cash equivalents		$	231,944		$	321,136
	Short-term investments			107,305			86,176
	Accounts receivable, net of allowances for doubtful accounts of $26,250 and $19,053 at December 31, 2002 and 2001, respectively			222,050			194,716
	Inventories			424,666			229,050
	Other current assets			121,407			65,397
Total current assets				1,107,372			896,475
Property, plant and equipment, net				98,511			43,942
Long-term investments				35,360			17,818
Goodwill, net				44,806			34,813
Intangible assets, net				5,014			4,179
Other long-term assets				14,489			8,653
	Total assets		$	1,305,552		$	1,005,880
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	256,980		$	83,649
	Debt			—			58,434
	Deferred revenue			164,247			76,424
	Income taxes payable			13,003			10,536
	Other current liabilities			104,927			76,329
Total current liabilities				539,157			305,372
Long-term debt				—			12,048
	Total liabilities			539,157			317,420
Minority interest in consolidated subsidiaries				—			6,573
Commitments and Contingencies
Stockholders' equity:
	Preferred stock: $.00125 par value; authorized: 5,000,000 shares; issued and outstanding: none at December 31, 2002 and 2001			—			—
	Common stock: $.00125 par value; authorized: 250,000,000 shares; issued and outstanding: 106,787,908 at December 31, 2002 and 109,302,816 at December 31, 2001			135			138
	Additional paid-in capital			658,546			638,697
	Deferred stock compensation			(11,766	)		(6,045	)
	Retained earnings			120,520			49,146
	Notes receivable from stockholders			(282	)		(381	)
	Accumulated other comprehensive income (loss)			(758	)		332
		Total stockholders' equity		766,395			681,887
		Total liabilities, minority interest, and stockholders' equity	$	1,305,552		$	1,005,880

See accompanying notes to consolidated financial statements.

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UTSTARCOM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

		Years Ended December 31,
		2002			2001			2000
Net sales
	Unrelated parties	$	858,768		$	612,907		$	368,646
	Related parties		123,038			13,933			—
Total net sales			981,806			626,840			368,646
Cost of sales (includes stock compensation expense of $20, $41, and $90)			636,334			402,292			240,465
Gross profit			345,472			224,548			128,181
Operating expenses:
	Selling, general and administrative expenses (includes stock compensation expense of $1,237, $2,499, and $4,676)		110,263			75,764			48,055
	Research and development expenses (includes stock compensation expense of $1,843, $2,660, and $6,795)		86,182			59,809			41,452
	Amortization of intangible assets		2,395			7,527			4,894
	In-process research and development costs		670			4,720			—
Total operating expenses			199,510			147,820			94,401
Operating income			145,962			76,728			33,780
Interest income			5,522			8,572			12,195
Interest expense			(1,251	)		(3,909	)		(3,311	)
Other income (expense), net			(9,908	)		(330	)		1,945
Equity in net loss of affiliated companies			(4,053	)		(2,962	)		(288	)
Income before income taxes, minority interest and cumulative effect of a change of accounting principle			136,272			78,099			44,321
Income tax expense			27,254			19,823			14,021
Income before minority interest and cumulative effect of a change in accounting principle			109,018			58,276			30,300
Minority interest in earnings of consolidated subsidiaries			(1,156	)		(1,322	)		(2,307	)
Income before cumulative effect of a change of accounting principle			107,862			56,954			27,993
Cumulative effect on prior years of the application of SAB 101, "Revenue Recognition in Financial Statements"			—			—			(980	)
Net income		$	107,862		$	56,954		$	27,013
Basic earnings (loss) per share:
	Net income	$	0.98		$	0.56		$	0.35
	Cumulative effect on prior years of the application of SAB 101, "Revenue Recognition in Financial Statements"		—			—			(0.01	)
	Net income	$	0.98		$	0.56		$	0.34
Diluted earnings (loss) per share:
	Net income	$	0.94		$	0.52		$	0.28
	Cumulative effect on prior years of the application of SAB 101, "Revenue Recognition in Financial Statements"		—			—			(0.01	)
	Net income	$	0.94		$	0.52		$	0.27
Weighted average shares used in per-share calculation:
	—Basic		109,566			101,433			79,696
	—Diluted		114,407			108,612			101,867

See accompanying notes to consolidated financial statements.

72

UTSTARCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)

		Preferred Stock					Common Stock
												Additional Paid-in-Capital			Deferred Stock Compensation			Retained Earnings (Accumulated Deficit)			Notes Receivable from Stockholders			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity			Comprehensive Income
		Issued		Amount			Shares		Amount
Balances, December 31, 1999		70,377,322		$	88		8,929,837		$	13		$	218,692		$	(17,792	)	$	(34,821	)	$	(555	)	$	95		$	165,720
Common stock issued upon Initial Public Offering, net of expenses							11,500,000			14			189,391															189,405
Conversion of preferred stock to common stock upon Initial Public Offering		(70,377,322	)		(88	)	70,377,322			88																		—
Exercise of common stock warrant							500,000			1			3,124															3,125
Common stock issued upon exercise of options							3,651,687			4			4,551															4,555
Common stock issued upon ESPP purchases							73,811						1,130															1,130
Distribution to stockholders													1,889															1,889
Deferred stock compensation related to grant of stock options													260			(260	)											—
Amortization of deferred stock compensation																11,561												11,561
Tax Benefits for non-qualified stock option exercises													7,628															7,628
Repayment of notes receivable from stockholders																						241						241
Net income																			27,013									27,013		$	27,013
Other comprehensive income:
	Unrealized holding gain (loss)																								52			52			52
Total comprehensive income																														$	27,065
Balances, December 31, 2000		—			—		95,032,657			120			426,665			(6,491	)		(7,808	)		(314	)		147			412,319
Common stock issued upon exercise of options							5,363,601			8			18,756															18,764
Common stock issued upon ESPP purchases							118,223						1,866															1,866
Common stock issued related to acquisition of Stable Gain							439,810						10,700															10,700
Common stock issued upon secondary offering, net of expenses							7,400,000			9			139,911															139,920
Common stock issued for ACD acquisition, net of expenses							948,525			1			20,733															20,734
ACD deferred compensation													5,000			(5,000	)											—
Amortization of deferred compensation related to ACD acquisition																1,250												1,250
Amortization of deferred stock compensation related to grants of stock options to employees													23			3,928												3,951
Cancellation of deferred compensation charges due to employee terminations													(268	)		268												—
Tax benefits for non-qualified stock option exercises													15,311															15,311
Notes receivable from stockholders																						(67	)					(67	)
Net income																			56,954									56,954		$	56,954
Other comprehensive income (loss):
	Unrealized holding gain (loss)																								211			211			211
	Translation adjustment																								(26	)		(26	)		(26	)
Total comprehensive income																														$	57,139
Balances, December 31, 2001		—			—		109,302,816			138			638,697			(6,045	)		49,146			(381	)		332			681,887
Common stock issued upon exercise of options							1,717,899			3			9,162															9,165
Common stock issued upon Softbank offering, net of expenses							1,500,000			2			28,933															28,935
Common stock issued upon ESPP purchases							182,437			—			2,828															2,828
ACD acquisition-related stock issuances							84,756
Buyback of Softbank shares, net of fees							(6,000,000	)		(8	)		(36,433	)					(36,488	)								(72,929	)
Cancellation of deferred compensation charges due to employee terminations													(1,282	)		1,282												—
Amortization of deferred stock compensation													103			2,997												3,100
Acquisition-related deferred compensation													10,000			(10,000	)
Tax benefits for non-qualified stock option exercises													6,538															6,538
Notes receivable from stockholders																						99						99
Net income																			107,862									107,862		$	107,862
Other comprehensive income (loss):
	Unrealized holding gain (loss)																								(952	)		(952	)		(952	)
	Translation adjustment																								(138	)		(138	)		(138	)
Total comprehensive income																														$	106,772
Balances, December 31, 2002		—		$	—		106,787,908		$	135		$	658,546		$	(11,766	)	$	120,520		$	(282	)	$	(758	)	$	766,395

See accompanying notes to the consolidated financial statements.

73

UTSTARCOM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

			Years ended December 31,
			2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	107,862		$	56,954		$	27,013
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Cumulative effect of change in accounting principle			—			—			980
	Gain on change in ownership interest in subsidiary						(277	)		—
	Depreciation and amortization			22,435			18,533			9,494
	Non-qualified stock option exercise tax benefits			6,537			15,311			7,628
	Write-off of in-process research and development costs			670			4,720			—
	Net loss on sale of assets			1,098			802			807
	Impairment of long-term investments			4,442			1,690			—
	Stock compensation expense			3,100			5,200			11,561
	Provision provided for doubtful accounts			7,197			6,218			6,045
	Inventory write-downs			12,396			11,143			2,786
	Equity in net (income) loss of affiliated companies			4,053			2,962			288
	Minority interest in consolidated subsidiary			1,156			1,322			2,307
	Changes in operating assets and liabilities:
		Accounts receivable		(34,207	)		(39,196	)		(87,177	)
		Inventories		(207,321	)		(121,198	)		(63,479	)
		Other current and non-current assets		(60,506	)		(52,619	)		(4,850	)
		Accounts payable		170,452			39,085			14,143
		Income taxes payable		2,470			3,366			(1,721	)
		Other current liabilities		27,683			41,407			5,659
		Deferred revenue		87,823			44,746			22,351
Net cash provided by (used in) operating activities				157,340			40,169			(46,165	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment				(75,271	)		(30,199	)		(19,513	)
Investment in affiliates				(28,933	)		(9,779	)		(8,226	)
Purchase of minority interest				—			(705	)		—
Acquisition of businesses, net of cash acquired				(17,706	)		—			—
Proceeds from disposal of property, plant and equipment				175			214			164
Purchase of intangible assets				—			(1,078	)		—
Purchases of short-term investments				(140,583	)		(89,625	)		(124,096	)
Sales of short-term investments				118,168			87,516			40,290
Net cash used in investing activities				(144,150	)		(43,656	)		(111,381	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock, net of expenses				40,928			160,550			198,213
Proceeds from borrowings				39,621			137,108			95,179
Payments for borrowings				(110,101	)		(122,055	)		(74,343	)
Repurchase of common stock				(72,929	)		—			—
Proceeds (payments) from stockholder notes				99			(67	)		245
Net cash (used in) provided by financing activities				(102,382	)		175,536			219,294
Effects of exchange rates on cash				—			(25	)		—
Net (decrease) increase in cash and cash equivalents				(89,192	)		172,024			61,748
Cash and cash equivalents at beginning of period				321,136			149,112			87,364
Cash and cash equivalents at end of period			$	231,944		$	321,136		$	149,112

See accompanying notes to the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—DESCRIPTION OF BUSINESS

        UTStarcom, Inc. ("the Company"), a Delaware corporation, designs, manufactures and markets wireline and wireless broadband access and switching equipment that enables migration to next generation IP-based networks. The Company's operations are conducted primarily by its foreign subsidiaries that manufacture, distribute and support the Company's products in international markets, principally China.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

        The accompanying consolidated financial statements include the accounts of the Company and its wholly and majority (over 50 percent) owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the preparation of the consolidated financial statements. Minority interest in consolidated subsidiaries and equity in affiliated companies are shown separately in the consolidated financial statements.

Reclassifications:

        Certain reclassifications have been made in the prior years' financial statements to conform with the 2002 presentation. Such reclassifications had no impact on previously reported net income or stockholders' equity.

Use of Estimates:

        The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents:

        Cash and cash equivalents consist of highly liquid monetary instruments with a maturity of three months or less at the date of purchase.

Short-term Investments:

        Short-term investments consist of investments with original maturities of less than twelve months. In accordance with the Company's investment policy, all short-term investments are invested in "investment grade" rated securities with a minimum of A or better ratings. Currently, most of the Company's short-term investments have AA or better ratings. Marketable securities are classified as available-for-sale and are carried at fair value. Unrealized holding gains and losses on securities classified as available-for-sale are recorded as a separate component of stockholders' equity. Realized gains and losses are reported in earnings. The fair value of investments is based on quoted market

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prices. The cost of securities is based on specific identification. At December 31, 2002 and 2001, short-term investments in available-for-sale securities consisted of (in thousands):

	December 31, 2002
	Amortized Cost		Gross Unrealized Gains		Estimated Fair Value
Government and agency obligations	$	11,006	$	12	$	11,018
Other debt securities		96,233		54		96,287
Total current available for-sale securities	$	107,239	$	66	$	107,305

	December 31, 2001
	Amortized Cost		Gross Unrealized Gains		Estimated Fair Value
Government and agency obligations	$	32,695	$	173	$	32,868
Other debt securities		53,218		90		53,308
Total current available for-sale securities	$	85,913	$	263	$	86,176

Inventories:

        Inventories are stated at the lower of cost or market, net of an allowance for excess, slow-moving and obsolete inventory. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis.

Revenue Recognition:

        Revenues from sales of telecommunications equipment are recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred as evidenced by customer acceptance, the fee is fixed or determinable and collectability is reasonably assured. If the fee due from the customer is not fixed or determinable due to extended payment terms, revenue is recognized as payments become due from the customer, assuming all other criteria for revenue recognition is met. Shipping and handling costs are recorded as revenues and costs of revenues. Where multiple elements exist in an arrangement, the arrangement fee is allocated to the different elements based upon verifiable objective evidence of the fair value of the elements. Revenue is then recognized as each element is earned, provided that the undelivered elements are not essential to the functionality of the delivered elements. Revenues from engineering service contracts and from sales of telecommunications equipment involving significant production, modification or customization of the product, or where services being provided are deemed to be essential to the functionality of the product, are recognized using the percentage of completion method if the project cost can be reasonably estimated. If the cost cannot be reasonably estimated, the completed contract method is applied. Any payments received prior to revenue recognition are recorded as deferred revenue.

Warranty Costs:

        A warranty is provided under the terms of the Company's purchase contracts for a period generally ranging from twelve to twenty four months. The Company provides for these costs at the time of revenue recognition based on an assessment of past warranty experience.

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Property, Plant and Equipment:

        Property, plant and equipment are recorded at cost and are stated net of accumulated depreciation. Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvements or the term of the lease. When assets are disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are included in results of operations. The Company generally depreciates its assets over the following periods:

	Years
Furniture, test or manufacturing equipment	5
Computers and software	2-3
Buildings	20
Automobiles	5
Leasehold improvements	lesser of 5 or remaining lease life

Goodwill and Intangible Assets:

        Goodwill and intangible assets include the excess of costs of acquired companies over the fair value of tangible net assets and acquired in process research and development. Intangible assets are amortized on a straight-line basis generally over three to five years. With the adoption of SFAS No. 142 on January 1, 2002, goodwill is no longer amortized. See Note 10. Rather, goodwill is tested annually for impairment. There were no goodwill impairment charges in 2002, 2001 and 2000.

Impairment of Long-Lived Assets:

        Long-lived assets and certain intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If undiscounted expected future cash flows are less than the carrying value of the assets, an impairment loss will be recognized based on the excess of the carrying amount over the fair value of the assets. Long-lived assets that are to be disposed of by sale are measured at the lower of book value or fair value less cost to sell.

Capitalized Software Development Costs:

        Software development costs have been accounted for in accordance with SFAS No. 86, "Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." During 2002 and 2001, the Company capitalized costs of $3.4 million and $2.0 million, respectively, upon establishment of technological feasibility. Amortization of capitalized development costs begins when the products are available for general release to customers, and is provided on a straight-line basis over the remaining estimated economic life of the product, generally three years. Amortization of capitalized development costs was $1.1 million, $0.3 million and $0 in 2002, 2001 and 2000, respectively. Direct costs of software developed for internal use are expensed during the preliminary project stage and capitalized during the application development stage.

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Research and Development Costs:

        Research and development costs are expensed as incurred and consist primarily of salaries and related costs of employees engaged in research, design and development activities, the cost of parts for prototypes, equipment depreciation and third party development expenses.

Stock-Based Compensation:

        The Company accounts for employee stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted the disclosure-only alternative of SFAS No. 123, as amended by SFAS No. 148, "Accounting for Stock-Based Compensation" ("SFAS 123"). Under APB 25, compensation expense is based on the difference, if any, on the date of grant between the fair value of the common stock and the exercise price of the option.

        The fair value of warrants, options or stock exchanged for services is expensed over the period benefited. The warrants and options are valued using the Black-Scholes option pricing model.

        The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share data):

	Year ended December 31,
	2002			2001			2000
Net income, as reported	$	107,862		$	56,954		$	27,013
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		2,209			3,706			8,238
Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(20,060	)		(15,827	)		(11,115	)
Proforma net income	$	90,010		$	44,833		$	24,136
Basic—as reported	$	0.98		$	0.56		$	0.34
Basic—pro forma	$	0.82		$	0.44		$	0.30
Diluted—as reported	$	0.94		$	0.52		$	0.27
Diluted—pro forma	$	0.81		$	0.42		$	0.24

        The following assumptions were used to calculate the fair value of the options granted:

	Year ended December 31,
	2002		2001		2000
Expected remaining term in years	3.00		3.00		3.00
Weighted average risk-free interest rate	3.43	%	4.04	%	5.86	%
Expected dividend rate	0.00	%	0.00	%	0.00	%
Volatility	67.50	%	86.07	%	100.00	%

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        The weighted average fair value per share of options granted in 2002, 2001 and 2000 was $9.16, $11.30 and $9.03, respectively.

Comprehensive Income:

        Comprehensive income includes all changes in equity (net assets) during a period from nonowner sources. Accumulated other comprehensive income or loss is shown in the consolidated statement of stockholders' equity.

Income Taxes:

        Deferred income taxes are recognized for the differences between the tax bases of assets and liabilities and their financial statement amounts based on enacted tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

        The Company does not provide for U.S. Federal taxes on undistributed earnings of its foreign subsidiaries or affiliates as they are considered to be reinvested for an indefinite period.

Segment Reporting:

        The Company operates in a single segment, providing telecommunications equipment through an integrated suite of network access systems and subscriber terminal products.

Disclosures About Fair Value of Financial Instruments:

        Financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable and payable, and accrued liabilities. The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable and payable and accrued liabilities approximate their fair values because of the short-term nature of those instruments.

Foreign Currency Translation:

        Operations of the Company's subsidiaries are conducted primarily in China and the financial statements of those subsidiaries are translated from China's Renminbi, the functional currency, into U.S. Dollars in accordance with SFAS No. 52, "Foreign Currency Translation." Accordingly, all foreign currency assets and liabilities are translated at the period-end exchange rate and all revenues and expenses are translated at the average exchange rate for the period. The effects of translating the financial statements of foreign subsidiaries into U.S. Dollars are reported as a cumulative translation adjustment, a separate component of comprehensive income in stockholders' equity. Foreign currency transaction gains and losses are reported in earnings and were $5.4 million of losses in 2002. They were not material for 2001 and 2000.

Earnings Per Share:

        Basic earnings per share ("EPS") is computed by dividing net income available to common stockholders by the weighted average number of shares of the Company's common stock outstanding during the period. Diluted earnings per share is determined in the same manner as basic earnings per share except that the number of shares is increased by potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of employee stock options, warrants and restricted stock.

79

        The following is a summary of the calculation of basic and diluted EPS (in thousands, expect per share data):

		Year Ended December 31,
		2002		2001		2000
Net income before cumulative effect of change in accounting principle:		$	107,862	$	56,954	$	27,993
Shares used to compute basic EPS			109,566		101,433		79,696
Dilutive common equivalent shares:
	Stock options		4,510		7,151		10,157
	Warrants		28		28		92
	Other		303		—		11,922
Shares used to compute diluted EPS			114,407		108,612		101,867
Basic earnings per share		$	0.98	$	0.56	$	0.35
Diluted earnings per share		$	0.94	$	0.52	$	0.28

        For the years ended December 31, 2002, 2001 and 2000, options to purchase approximately 2,801,200, 1,783,248 and 226,200 shares of common stock, respectively, with exercise prices greater than the fair market value of the Company's stock, were not included in the calculations because the effect would have been antidilutive.

Recent Accounting Pronouncements:

        In July 2002, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which addresses the measurement, timing of recognition and reporting of costs associated with exit or disposal activities and restructuring activities. SFAS No. 146 requires that a liability for costs associated with exit or restructuring activities be recognized only when the liability is incurred as opposed to at the time that a company formally approves and commits to an exit plan as set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect the adoption to have an impact on the consolidated financial statements.

        In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosure about the guarantees that an entity has issued, including a reconciliation of changes in the entity's product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. See Note 13. The Company believes that the adoption of this standard will not have a material impact on the consolidated financial statements.

        In November 2002, the Emerging Issues Task Force reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." This issue addresses how revenue arrangements with multiple deliverables should be divided into separate units of accounting and how the arrangement consideration should be allocated to the identified separate accounting units. EITF No. 00-21 is

80

effective for fiscal periods beginning after June 15, 2003. The Company has not yet determined the impact of adopting EITF No. 00-21 on its consolidated financial statements.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation Costs—Transition and Disclosure". This statement amends SFAS No. 123, "Accounting for Stock—Based Compensation", and provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based compensation. It also requires additional disclosures about the effects on reported net income of an entity's accounting policy with respect to stock-based employee compensation. We account for stock-based compensation in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and have adopted the disclosure-only alternative of SFAS No. 123. The Company adopted the disclosure provisions of SFAS No. 148 in December 2002. See Note 15.

NOTE 3—ACCOUNTING CHANGES

        Effective January 1, 2000, the Company adopted Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial Statements", issued by the Securities and Exchange Commission in December 1999. As a result of adopting SAB 101, the Company changed the way it recognizes revenue on certain contracts that had previously led to revenue being recognized as contract stages were completed and accepted. In light of the guidance issued in SAB 101, the Company changed its method of revenue recognition to the point of contractual final acceptance. In addition, certain contracts include service requirements for which revenue was previously recognized, and costs accrued, on contractual acceptance. In consideration of SAB 101, revenues associated with these service requirements are being deferred until the service obligations are completed. Due to these changes, the Company recorded a cumulative adjustment in the first quarter 2000 of $1.0 million (net of income taxes of $0) or $0.01 per share, basic and diluted.

NOTE 4—COMPLETION OF INITIAL PUBLIC OFFERING, FOLLOW-ON PUBLIC OFFERING AND RESALE PUBLIC OFFERING

        On March 3, 2000, the Company completed its initial public offering ("IPO") and sold 11,500,000 shares of common stock at $18.00 per share for aggregate net proceeds of approximately $189.4 million. On August 3, 2001, the Company completed a follow-on public offering and sold an aggregate of 7,400,000 shares of common stock at $20.00 per share. Selling stockholders sold an additional 2,950,000 shares of common stock in the offering. The aggregate net proceeds to the Company were $139.9 million. On February 28, 2002, the Company sold 1,500,000 shares of common stock in connection with the resale public offering of 10,000,000 shares of our common stock by SOFTBANK America Inc., one of the Company's stockholders. The aggregate net proceeds to the Company were $28.9 million.

NOTE 5—SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Year ended December 31,
(in thousands)
	2002		2001		2000
Cash paid during the period for:
Interest	$	1,492	$	3,798	$	3,289
Income taxes	$	18,442	$	10,832	$	8,038

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        Noncash investing and financing activities were as follows:

	Year ended December 31,
(in thousands)
	2002	2001		2000
Issuance of shares and vested stock options upon the ACD acquisition	$—	$	20,734	$—
Issuance of shares upon the Stable Gain acquisition	$—	$	10,700	$—

NOTE 6—ACQUISITIONS AND DIVESTITURES OF COMPANIES

        During 2002, the Company completed a number of purchase acquisitions which are summarized as follows (in thousands):

	Consideration		In-process R&D expense		Goodwill		Purchased Technology
Issanni Communications, Inc.	$	4,120	$	670	$	202	$	3,230
Guangdong UTStarcom, Ltd.		3,664		—		3,292		—
UTStarcom (Hangzhou) Communication Co. Ltd.		14,546		—		6,398		—
	$	22,330	$	670	$	9,892	$	3,230

        On April 19, 2002, the Company completed the purchase of Issanni Communications, Inc. ("Issanni"). Issanni develops RAS (remote access server) and local access technology, which the Company incorporates into one of its products. The Company's investment in Issanni was $2.0 million prior to the acquisition. The purchase consideration for all the outstanding shares of Issanni, other than those already held by the Company prior to the acquisition, was $2.1 million, $0.5 million of which is held in escrow for any undisclosed liabilities or contingencies incurred by Issanni prior to closing. In addition, $2.0 million will be payable in the form of an earnout to all Issanni shareholders of record at closing, subject to the completion of certain performance milestones during 2002, 2003 and 2004. This earnout will be recorded as additional purchase price when earned. No amounts were earned in 2002. Furthermore, the Company adopted an incentive program providing for the issuance of 39,876 shares of common stock valued at $1.0 million to Issanni employees who will continue to perform services for the Company. These shares vest at the earlier of five years or upon the achievement of certain performance milestones. The Company records this amount as compensation expense ratably over the vesting period and will accelerate the amortization if the milestones are met. The amount of the purchase price allocated to in-process research and development of $0.7 million was charged to the Company's results of operations, as no alternative future uses existed at the acquisition date. Goodwill of $0.2 million was recorded in connection with the acquisition and is expected to be deductible for tax purposes. The results of operations of Issanni are included in the Company's consolidated results of operations beginning on April 19, 2002.

        In September 1996, the Company purchased a 49% interest in Guangdong UTStarcom, Ltd. ("GUTS"), one of the Company's two primary manufacturing facilities. In February 1998, the Company acquired an additional 2% interest in GUTS, increasing its ownership interest to 51%. This investment was accounted for using the equity method prior to the Company's acquisition of the remaining 49% ownership interest in GUTS in May 2002, as the Company did not have voting control over significant matters. On December 18, 2001, the Company entered into an agreement to acquire the remaining 49% ownership interest in GUTS for a total consideration of $3.6 million in cash. The cash consideration was paid in the first quarter of 2002 and final government approvals were received in May 2002. Goodwill of $3.3 million was recorded in connection with the acquisition and is not expected

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to be deductible for tax purposes. GUTS is now a wholly-owned subsidiary of the Company and its results of operations are included in the Company's consolidated financial statements beginning June 1, 2002.

        In July 1997, the Company, as part of its business operations in China, acquired an 88% interest in UTStarcom (Hangzhou) Communication Co., Ltd, which has since changed its name to UTStarcom Telecom Co., Ltd. ("HUTS"), one of the Company's primary manufacturing facilities. On January 21, 2002, the Company entered into an agreement to acquire the remaining 12% ownership interest in the joint venture company for a total consideration of $14.5 million in cash. Cash consideration of $7.3 million was paid in January 2002, and the remaining consideration was paid in the second quarter of fiscal 2002. Final government approvals were received in May 2002. Goodwill of $6.4 million, was recorded in connection with the acquisition and is not expected to be deductible for tax purposes.

        Had the acquisitions of Issanni and the remaining interests in HUTS and GUTS, which were recorded in the second quarter of fiscal 2002, occurred on January 1, 2002, proforma net income for 2002 would have been $107.2 million, or $0.98 per share basic, and $0.94 per share fully diluted. Had the acquisitions occurred on January 1, 2001, proforma net income for 2001 would have been $52.9 million or $0.52 per share basic, and $0.49 per share fully diluted. Proforma revenues would have been $983.9 million for 2002 and $635.9 million for 2001. Proforma adjustments include the amortization of fixed asset step-ups and intangible assets as if the transactions had occurred on January 1, 2002.

        On October 16, 2002, the Company acquired the assets and intellectual property of Shanghai Yi Yun Telecom Technology Co. Ltd., a provider of synchronous digital hierarchy ("SDH") equipment. Consideration was $0.2 million of cash and 342,854 shares of restricted stock valued at $6.0 million. The acquisition has not been recorded as of December 31, 2002 as the consideration is held in escrow for a year and the outcome of the contingencies that would allow the escrowed shares to ultimately be issued free and clear is not determinable beyond a reasonable doubt. In addition, the Company issued 514,290 shares of restricted stock valued at $9.0 million to the acquiree's employees. Such restricted stock vests over five years, with accelerated vesting upon the achievement of specified milestones. This stock has been treated as deferred compensation.

        On July 24, 2000, the Company entered into an agreement with Stable Gain International Ltd. ("Stable Gain") to purchase intellectual property and certain related fixed assets, and to transfer development employees to the Company. Under the amended purchase agreement, the Company paid Stable Gain consideration of $10.7 million in the form of common stock of the Company and $0.3 million in cash. The transfer of the common stock was completed during the second quarter of 2001. The total purchase consideration of $11.0 million was allocated to property and equipment, intangible assets and goodwill under the purchase method of accounting. Goodwill totaling $7.4 million was recorded on acquisition and had an estimated life of three years.

        In November 2001, the Company completed the purchase of Advanced Communication Devices Corporation ("ACD") for $21.3 million, comprised of approximately one million shares of the Company's common stock valued at $19.9 million, $0.9 million of vested common stock options valued using the Black-Scholes pricing model, and $0.5 million of acquisition-related expenses. ACD was a System on Chip ("SoC") semiconductor company focusing on LAN and IP switching technology whose then current markets included Taiwan, China and Korea. In addition, the Company adopted an incentive plan providing for the issuance of shares of common stock valued at $5 million to ACD employees who will continue to perform services for the Company. These shares vest at the earlier of

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five years or the achievement of certain performance milestones. The Company recorded the amount as deferred compensation. $0.8 million and $1.3 million of deferred compensation was charged to operations in 2002 and 2001, respectively. The number of shares issued for the acquisition was calculated using the average closing price of the common stock for the five trading days ended August 13, 2001 (the date the merger agreement was signed). The acquisition has been accounted for as a purchase and the results of operations have been included in the Company's consolidated financial statements since the acquisition. ACD results of operations prior to the acquisition were not material to the Company's results of operations on a pro forma basis. The acquisition cost has been allocated to the assets acquired based on their respective fair values. Intangible assets are comprised of intellectual property related to ACD Ethernet technology, which is being amortized on a straight-line basis over its estimated useful life of three years. In accordance with SFAS No. 141, the Company is not amortizing goodwill for this acquisition.

        The Company recorded a $4.7 million charge for purchased in-process research and development at the date of acquisition of ACD. Technological feasibility was not established on the development of ACD's Ethernet Digital Subscriber Line (EDSL) chip design. The design was approximately 15% completed at the time of acquisition. The estimated completion date for the project was March 2003. In October 2002, the Board of Directors authorized the ACD Incentive Program Review Committee to review the remaining ACD Incentive Program milestones in light of certain changes in the strategic plans of ACD. Final approval of the revised milestones is pending.

        The following table represents the allocation of the purchase price for ACD:

(in thousands)
Fair value of tangible net assets acquired	$	58
Fair value of identified intangible assets		4,340
In process research and development		4,720
Excess of costs of acquiring ACD over fair value of identified net assets acquired (goodwill)		12,215
	$	21,333

NOTE 7—INVENTORIES

        As of December 31, 2002 and 2001, inventories consist of the following:

	December 31,
(In thousands)
	2002		2001
Raw materials	$	84,715	$	54,700
Work-in-process		26,915		33,037
Finished goods		313,036		141,313
	$	424,666	$	229,050

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NOTE 8—PROPERTY, PLANT AND EQUIPMENT

        As of December 31, 2002 and 2001, property, plant and equipment consists of the following:

	December 31,
(In thousands)
	2002			2001
Buildings	$	38,901		$	68
Land		6,702			7,319
Leasehold improvements		7,052			4,077
Automobiles		4,846			2,952
Software		16,512			11,752
Equipment and furniture		62,479			37,858
		136,492			64,026
Less accumulated depreciation		(37,981	)		(20,084	)
	$	98,511		$	43,942

        Depreciation expense was $20.0 million, $11.0 million and $4.6 million for the years ended December 31, 2002, 2001 and 2000, respectively.

NOTE 9—LONG-TERM INVESTMENTS

        The Company's investments are as follows:

	December 31,
(in thousands)
	2002		2001
Investment in Softbank China	$	5,526	$	8,314
Investment in Cellon International		8,000		2,000
Investment in China Telecom		9,106		—
Investment in Joint Venture with Matsushita		4,683		—
Investment in others		8,045		7,504
Total	$	35,360	$	17,818

        The Company has invested $10.0 million in Softbank China, an investment fund established by SOFTBANK CORP. focused on investments in Internet companies in China. This investment permits the Company to participate in the anticipated growth of Internet-related businesses in China. SOFTBANK CORP. and its related companies are significant stockholders of the Company. The Company's investment constitutes 10% of the funding for Softbank China, with SOFTBANK CORP. contributing the remaining 90%. The fund has a separate management team, and none of the Company's employees are employed by the fund. Many of the fund's investments are and will be in privately held companies, many of which can still be considered in the start-up or development stages. These investments are inherently risky as the market for the technologies or products the companies have under development are typically in the early stages and may never materialize. The Company accounts for this investment under the equity method and recorded losses of $2.8 million, $1.7 million and $0.0 million in 2002, 2001 and 2000, respectively, on this investment.

        During the first quarter of fiscal 2002, the Company invested $2.0 million in Restructuring Fund No. 1, a venture capital investment limited partnership established by SOFTBANK INVESTMENT CORP., an affiliate of SOFTBANK CORP. SOFTBANK America Inc., an entity affiliated with

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SOFTBANK CORP., is a significant stockholder of the Company. The fund focuses on leveraged buyout investments in companies in Asia undergoing restructuring or bankruptcy procedures. The total fund offering is expected to be between approximately $150.0 million and $226.0 million, with each investor contributing a minimum of $0.8 million. The fund has a separate management team, and none of the Company's employees are employed by the fund. The Company accounts for this investment under the equity method of accounting. The balance in this investment is $2.0 million at December 31, 2002.

        The Company has also invested directly in a number of private technology-based companies in the early stages of development. These investments are accounted for on a cost basis. The Company continually evaluates the carrying value of these investments for possible impairment based on the achievement of business objectives and milestones, the financial condition and prospects of these companies and other relevant factors. During 2002 and 2001, impairment charges in respect of these private technology investments were $3.0 million and $1.7 million, respectively. These investment impairment charges are included in Other Income (Expense), Net in the consolidated statements of operations.

        In June 2002, the Company invested $1.0 million in Global Asia Partners L.P., with a commitment to invest up to a maximum of $5.0 million. The remaining amount is due at such times and in such amounts as shall be specified in one or more future capital calls to be issued by the general partner. The fund size is anticipated to be $100 million and was formed to make private equity investments in private or pre-IPO technology and telecommunications companies. The fund's geographic focus is on technology investments in Asia, in particular India and China. The Company accounts for this investment under the equity method of accounting.

        During 2002, the Company purchased approximately 5.8 million shares of common stock of InterWave Communications, Inc., a technology company listed on NASDAQ, for approximately $3.0 million. In addition, the Company received warrants to purchase 2.0 million shares of InterWave's common stock at $0.21 cents per share, which were valued at $0.3 million using the Black-Scholes option pricing model. The Company recorded a charge of $1.4 million in the fourth quarter of 2002 to reflect the other than temporary decline in the carrying value of these marketable securities.

        In November 2002, the Company purchased approximately 0.5 million shares of common stock of China Telecom in its initial public offering for approximately $10.0 million. China Telecom is the leading provider of wireline telephone, data and Internet and leased line services in four of the most economically developed regions of China, and its affiliates are customers of the Company. China Telecom is listed on the New York Stock Exchange. The investment is considered available-for-sale, and the Company recorded the temporary decline of $0.9 million in the carrying value of these securities as of December 31, 2002 in comprehensive income in equity.

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NOTE 10—GOODWILL AND INTANGIBLE ASSETS

        As of December 31, 2002 and 2001, goodwill and other acquired intangible assets consisted of the following:

	December 31,
(In thousands)
	2002			2001
Goodwill	$	57,629		$	47,636
Less accumulated amortization		(12,823	)		(12,823	)
	$	44,806		$	34,813
Purchased technology	$	7,570		$	4,340
Less accumulated amortization		(2,556	)		(161	)
	$	5,014		$	4,179

        Amortization expense was $2.4 million, $7.5 million and $4.9 million for the years ended December 31, 2002, 2001 and 2000, respectively. The estimated aggregate amortization expense for intangibles for each of the five years beginning 2003 through 2007 is $2.5 million, $2.4 million, $0.1 million, $0.0 million and $0.0 million, respectively.

        Goodwill increased by $10.0 million in 2002. Goodwill totaling $6.3 million was recorded on the acquisition of the remaining 12% ownership interest in HUTS, goodwill of $3.3 million was recorded on the acquisition of the remaining 49% ownership in GUTS, and goodwill of $0.4 million was recorded on the acquisition of Issanni. Intangible assets increased by $3.2 million during 2002. This increase was due to purchased technology that was recorded on the acquisition of Issanni. The estimated useful life of this purchased technology is three years. See Note 6.

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

        SFAS No. 142 was adopted by the Company on January 1, 2002. SFAS No. 142 had the effect of eliminating amortization of goodwill commencing January 1, 2002; however, impairment reviews may result in future periodic write-downs. The Company completed the required transitional assessment of goodwill during the first quarter of fiscal 2002. Based on this assessment, there was no transition goodwill impairment charge. The Company performed its annual impairment review in the fourth quarter of 2002. No impairment in goodwill was noted.

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        The reconciliation of net income to adjusted net income as if there had been no goodwill amortization for the twelve months ended December 31, 2001 and 2000 is as follows (in thousands):

		Year Ended December 31,
		2001		2000
Reported net income		$	56,954	$	27,013
Add back: goodwill amortization			7,365		4,894
Adjusted net income		$	64,319	$	31,907
Basic earnings per share:
	Reported net income	$	0.56	$	0.34
	Goodwill amortization		0.07		0.06
	Adjusted net income	$	0.63	$	0.40
Diluted earnings per share:
	Reported net income	$	0.52	$	0.27
	Goodwill amortization		0.07		0.05
	Adjusted net income	$	0.59	$	0.32
Average number of shares outstanding:
Basic			101,433		79,696
Diluted			108,612		101,867

NOTE 11—DEBT

        The following represents the outstanding borrowings at December 31, 2002 and 2001 (in thousands):

	December 31,
Note
	2002		2001
Bank of China	$	—	$	34,338
China Merchants Bank		—		6,024
Commercial Bank of Hangzhou		—		12,048
CITIC Industrial Bank		—		6,024
China Everbright Bank		—		12,048
Total debt	$	—	$	70,482
Long-term debt		—		12,048
Short-term debt	$	—	$	58,434

        All outstanding debt was repaid in September 2002, and there were no gains or losses on the early retirement of this debt. The Company has available borrowing facilities of $314.3 million as of December 31, 2002. $260.1 million of these facilities expire in 2003 and $54.2 million of these facilities expire between 2008 and 2010.

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NOTE 12—OTHER CURRENT LIABILITIES

        Other current liabilities at December 31, 2002 and 2001 consist of the following:

	December 31,
(In thousands)
	2002		2001
Accrued contract costs	$	45,756	$	30,217
Accrued payroll and compensation		24,633		18,055
Accrued other taxes		2,869		15,983
Warranty costs		13,297		6,271
Accrued construction costs		9,889		—
Other		8,483		5,803
	$	104,927	$	76,329

NOTE 13—WARRANTY OBLIGATIONS AND OTHER GUARANTEES

        Warranty obligations are as follows (in thousands):

Balance at January 1, 2001	$	3,133
Accruals for warranties issued during the period		6,792
Settlements made during the period		(3,654	)
Balance at December 31, 2001		6,271
Accruals for warranties issued during the period		15,156
Settlements made during the period		(8,130	)
Balance at December 31, 2002	$	13,297

        Certain of the Company's sales contracts include provisions under which customers would be indemnified by the Company in the event of, among other things, a third-party claim against the customer for intellectual property rights infringement related to the Company's products. There are no limitations on the maximum potential future payments under these guarantees. The Company has accrued no amounts in relation to these provisions as no such claims have been made and the Company believes it has valid, enforceable rights to the intellectual property embedded in its products.

NOTE 14—PROVISION FOR INCOME TAXES

        United States and foreign income (loss) before income taxes, minority interest and cumulative effect of a change in accounting principle were as follows (in thousands):

	Year ended December 31,
	2002		2001			2000
United States	$	13,245	$	(12,237	)	$	(9,973	)
Foreign		123,027		90,336			54,294
	$	136,272	$	78,099		$	44,321

        Undistributed foreign earnings at December 31, 2002 amounted to $290 million.

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        The components of the provision (benefit) for income taxes are as follows (in thousands):

		Year ended December 31,
		2002			2001			2000
Current:
	Federal	$	12,222		$	7,246		$	13,369
	State/Other		1,515			621			782
	Foreign		28,222			21,586			6,046
Deferred:
	Federal		(6,665	)		(8,002	)		(4,433	)
	State		(315	)		(172	)		2
	Foreign		(7,725	)		(1,456	)		(1,745	)
		$	27,254		$	19,823		$	14,021

        Deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. A summary of the components of net deferred tax assets is as follows (in thousands):

			U.S.			China		Hong Kong		Total
December 31, 2002:
Current deferred tax assets:
	Allowances and reserves		$	8,586		$	8,184	$	—	$	16,770
	Gross profit in intercompany inventory			5,052			—		—		5,052
		Total current deferred tax assets	$	13,638		$	8,184	$	—	$	21,822
Non current deferred tax assets:
	Net operating loss carryforward		$	1,988		$	—	$	2,974	$	4,962
	Future period compensation deductions			1,575			—		—		1,575
	Tax credit carryforwards			6,413			—		—		6,413
	Fixed assets			356			461		—		817
	Other			3,967			—		—		3,967
		Total non current deferred tax assets		14,299			461		2,974		17,734
Valuation allowances				(4,964	)		—		—		(4,964	)
	Net non-current deferred tax assets		$	9,335		$	461	$	2,974	$	12,770

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			U.S.			China		Hong Kong		Total
December 31, 2001:
Current deferred tax assets:
	Allowances and reserves		$	5,692		$	3,894	$	—	$	9,586
	Gross profit in intercompany inventory			2,031			—		—		2,031
		Total current deferred tax assets	$	7,723		$	3,894	$	—	$	11,617
Non current deferred tax assets:
	Net operating loss carryforward		$	5,855		$	—	$	—	$	5,855
	Future period compensation deductions			1,581			—		—		1,581
	Tax credit carryforwards			4,938			—		—		4,938
	Fixed assets			(842	)		—		—		(842	)
	Other			1,525			—		—		1,525
		Total non current deferred tax assets		13,057			—		—		13,057
Valuation allowances				(4,787	)						(4,787	)
	Net non-current deferred tax assets		$	8,270		$	—	$	—	$	8,270

        As of December 31, 2002, the Company has research and development credit carryforwards of approximately $5.1 million for federal and state tax purposes expiring in varying amounts between 2017 and 2022. As of December 31, 2002, the Company has federal and state net operating loss carryforwards of $3.1 million and $7.8 million, respectively. The federal net operating loss carryforwards will expire in 2019. The state net operating loss carryforwards will expire in varying amounts between 2004 and 2006 and cannot be utilized in 2002 and 2003. Management believes that the Company's ability to use their deferred tax assets is limited based on the expectation that they will not be able to fully utilize the net operating losses from the purchase of Wacos in December 1999 and the research and development credits generated by Company's research and development center in New Jersey. The Company has created a valuation allowance against these deferred tax assets. The valuation allowance increased by $0.2 million and $0.6 million in 2002 and 2001, respectively. As of December 31, 2002, the Company had net operating loss carryforwards of approximately $18.0 million in Hong Kong, which do not expire and can be carried forward indefinitely.

        UTSC and HUTS were granted tax holidays, which started to phase out in 1999. The net impact of these tax holidays was to increase net income by approximately $10.0 million, $6.7 million, and $4.5 million for the years ended December 31, 2002, 2001 and 2000, respectively.

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        The difference between the Company's effective income tax rate and the federal statutory rate is reconciled below:

	Year ended December 31,
	2002		2001		2000
Federal statutory rate	34	%	34	%	34	%
State taxes, net of federal income tax benefit	—		—		(1	)
Permanent differences	5		5		7
Amortization of deferred compensation	1		2		8
Effect of difference in foreign taxes rates	(16	)	(14	)	(18	)
Tax credits and other	(4	)	(2	)	2
Effective rate	20	%	25	%	32	%

        In 2001, audits of the Company's federal income tax returns for the years ended December 31, 1999, 1998 and 1997 were completed. No audits of the Company's income tax returns were underway as of December 31, 2002.

NOTE 15—COMMON STOCK AND STOCK INCENTIVE PLANS

Stock Option Plans

        The 1995 Stock Plan.    On July 31, 1995, the Board of Directors adopted, and in October 1995, the Company's stockholders approved, the Company's 1995 Stock Plan. Under the 1995 plan, officers, employees and consultants were eligible to acquire shares of common stock pursuant to options or stock purchase rights. At the time of adoption, 3,705,232 shares of common stock were reserved for issuance under the 1995 plan. In 1995 and 1996, the Company's Board and stockholders added an additional 5,400,000 shares to the 1995 plan, raising the total number of authorized shares reserved under the 1995 plan to 9,105,232. As of December 31, 2002, there were 6,711,744 shares authorized for issuance under the 1995 plan and options to purchase 523,885 shares of common stock were outstanding under the 1995 plan. On January 31, 1997, the Board of Directors elected not to grant any further options under the 1995 plan. Upon the adoption of the 1997 plan, all remaining unissued shares under the 1995 plan not already subject to options or other awards ceased to be reserved for issuance under the 1995 plan.

        The 1997 Stock Plan.    On January 31, 1997, the Board of Directors adopted, and the Company's stockholders approved, the Company's 1997 Stock Plan. Under the 1997 plan, officers, employees and consultants are eligible to receive options to purchase shares of common stock and stock purchase rights. In December 1999, the Board of Directors amended the 1997 plan, which the Company's stockholders approved in February 2000. As of December 31, 2002, the Company is authorized to issue up to 21,092,663 shares subject to options. During the term of the 1997 plan, the number of shares issuable under the plan will be increased annually on the first day of each fiscal year beginning in 2001 by an amount equal to the lesser of 6,000,000 shares or 4% of the outstanding shares of common stock on that date, or a lesser amount determined by the Board. The plan terminates in January 2007, but may be terminated earlier by the Board of Directors. As of December 31, 2002, there were options to purchase 13,984,861 shares of common stock outstanding under the 1997 plan. The Compensation Committee administers the 1997 plan.

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        Options granted under the 1997 plan may be incentive stock options, or ISOs, which are intended to qualify for favorable federal income tax treatment under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended, or non-qualified stock options, or NSOs, which do not so qualify. The Compensation Committee selects the eligible persons to whom options will be granted and determines the grant date, amounts, exercise prices, vesting periods and other relevant terms of the options, including whether the options will be ISOs or NSOs. The exercise price of ISOs granted under the 1997 plan may not be less than 100% of the fair market value of common stock on the grant date, while the exercise price of NSOs can be determined by the Compensation Committee in its discretion. Options are generally not transferable during the life of the optionee.

        Options vest and become exercisable as determined by the Compensation Committee, generally over four years. Options may generally be exercised at any time after they vest and before their expiration date as determined by the Compensation Committee. However, no option may be exercised more than ten years after the grant date. Options will generally terminate (i) 12 months after the death or permanent disability of an optionee and (ii) 90 days after termination of employment for any other reason. The aggregate fair market value of the shares of common stock represented by ISOs that become exercisable in any calendar year may not exceed $100,000. Options in excess of this limit are treated as NSOs.

        In the event the Company is merged with or into another corporation, or all or substantially all of the Company's assets are sold, each outstanding option will be assumed or an equivalent option or right will be substituted by the successor corporation or its parent or subsidiary. If the successor corporation refuses to assume or substitute for the option or right, the options or rights will automatically vest and become exercisable in full for a period of at least fifteen days, after which time the option will terminate.

        Under the 1997 plan, the Company may grant stock purchase rights to eligible participants. Any shares purchased pursuant to stock purchase rights will be subject to a restricted stock purchase agreement. Unless the Compensation Committee determines otherwise, this agreement will grant the Company a right to repurchase the stock upon the voluntary or involuntary termination of the employee for any reason, including death or disability. The purchase price for repurchased shares will be the original price paid and may be paid by cancellation of any indebtedness owed to the Company. The shares of stock subject to the right of repurchase lapse over time.

        2001 Director Option Plan.    On March 2, 2001, the Board of Directors adopted, and in May 2001, the Company's stockholders approved, the Company's 2001 Director Option Plan. Under the 2001 Director Option Plan, those directors who are not employees of the Company ("Outside Directors") are eligible to receive options to purchase shares of common stocks. Directors Horner, Atkins, Son and Toy are Outside Directors. All grants of options to Outside Directors are automatic and nondiscretionary. In July 2001, the Board of Directors amended the 2001 Director Option Plan. As of December 31, 2002, the Company is authorized to issue up to 1,200,000 shares subject to options. The Plan terminates in May 2011, but may be terminated earlier by the Board of Directors. As of December 31, 2002, there were options to purchase 395,000 shares of common stock outstanding under the 2001 Director Option Plan. The Compensation Committee administers the 2001 Director Plan.

        Upon approval of the 2001 Director Plan, each Outside Director is automatically granted an option to purchase eighty thousand shares of common stock (the "First Option") on the date on which such person first becomes an Outside Director (the "Anniversary Date"). A director who is an employee of the Company and ceases employment with the Company to become an Outside Director

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shall receive an option to purchase twenty thousand shares of common stock (a "Subsequent Option") at the Company's first annual meeting of stockholders following such conversion to an Outside Director and at each subsequent annual stockholder meeting thereafter, provided he or she is serving as an Outside Director on each such date. As such time as each Outside Director's First Option is fully vested, each Outside Director shall be automatically granted a Subsequent Option on the Anniversary Date of each year provided he or she is then an Outside Director.

        Under the terms of the 2001 Director Plan, the exercise price of each option granted is the market value of the common stock on the date of grant. Such options have terms of ten years, but terminate earlier if the individual ceases to serve as a director. The First Option grants vest as follows: 25% of shares subject to the First Option vest on each anniversary of its date of grant. The Subsequent Option grants vest as follows: 100% of the shares subject to the Subsequent Option vest on the first anniversary of its date of grant.

        In August 2002, the Company granted each Outside Director options to purchase 25,000 shares of common stock. These options vest over twelve months.

        ACD 1996 and 1997 Stock Plan.    On August 27, 2001, the Board of Directors approved the assumption of the outstanding vested stock options issued under the ACD 1996 and 1997 Stock Plans upon the acquisition of ACD. A total of 868,701 fully vested shares issued under the ACD 1996 and 1997 Stock Plans were converted to 46,105 UTStarcom stock options at the date of merger on November 19, 2001.

        A summary of activity under the Plans follows:

	Shares available for grant		Number of shares		Weighted average exercise price
Options Outstanding, December 31, 1999	172,243		14,405,714		$	3.25
Options Authorized in 2000	4,404,823		—		$	—
Options Granted	(4,848,697	)	4,848,697		$	15.74
Options Exercised	—		(3,651,687	)	$	1.25
Options Forfeited or Expired	426,666		(428,000	)	$	12.52
Options Outstanding, December 31, 2000	155,035		15,174,724		$	7.54
Options Authorized in 2001	5,062,760		—		$	—
Options Granted	(3,326,957	)	3,326,957		$	19.77
Options Exercised	—		(5,363,601	)	$	3.48
Options Forfeited or Expired	559,663		(559,663	)	$	13.79
Options Outstanding, December 31, 2001	2,450,501		12,578,417		$	12.22
Options Authorized in 2002	4,372,167		—		$	—
Options Granted	(4,977,723	)	4,977,723		$	19.46
Options Exercised	—		(1,717,899	)	$	5.38
Options Forfeited or Expired	915,326		(915,326	)	$	18.40
Options Outstanding, December 31, 2002	2,760,271		14,922,915		$	15.05

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        The following table summarizes information with respect to stock options outstanding and exercisable as of December 31, 2002:

	Options Outstanding				Options Exercisable
Range of exercise Price	Outstanding at December 31, 2002	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Exercisable at December 31, 2002	Weighted Average Exercise Price
	(in thousands)			(in years)	(in thousands)
$  0.06 - $  0.06	105,476	$	0.06	4.9	105,476	$	0.06
$  0.25 - $  0.25	89,770	$	0.25	5.8	83,963	$	0.25
$  0.85 - $  0.85	523,885	$	0.85	2.8	523,885	$	0.85
$  1.71 - $  2.50	271,986	$	2.31	4.8	271,238	$	2.31
$  3.39 - $  4.71	1,533,359	$	4.27	6.4	1,249,068	$	4.29
$  5.65 - $  5.65	5,785	$	5.65	5.4	5,785	$	5.65
$  9.38 - $13.61	2,909,251	$	11.44	7.3	1,665,180	$	11.22
$14.23 - $21.31	7,361,193	$	17.96	8.8	1,535,579	$	16.94
$21.85 - $32.65	2,112,210	$	24.15	8.5	609,784	$	24.42
$36.50 - $36.50	10,000	$	36.50	7.4	6,459	$	36.50
$  0.06 - $36.50	14,922,915	$	15.05	7.9	6,056,417	$	10.95

        2000 Employee Stock Purchase Plan.    In February 2000, the Company's stockholders approved the 2000 Employee Stock Purchase Plan. The purchase plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code.

        The Company has reserved 2,000,000 shares of common stock for sale under the stock purchase plan. The number of shares reserved for sale under the plan will be increased annually on the first day of each fiscal year beginning in 2001 by an amount equal to the lesser of 4,000,000 shares or 2% of the outstanding shares of the Company's common stock on that date, or a lesser amount determined by the Board of Directors. The stock purchase plan will be administered by the Board or a committee appointed by the Board.

        The stock purchase plan is implemented by offering periods, the duration of which may not exceed 24 months. Offering periods may contain interim purchase periods. Shares purchased under the stock purchase plan will be held in separate accounts for each participant. The first offering period began in March 2000 and ended on the last trading day before April 30, 2002. Subsequent consecutive overlapping offering periods begin on May 1 and November 1 annually. These offering periods end twenty-four months thereafter.

        Employees will be eligible to participate in the stock purchase plan if they are employed by the Company for more than 20 hours per week and more than five months in a calendar year. The stock purchase plan permits eligible employees to purchase the Company's common stock through payroll deductions, which may not exceed 15% of the employee's total compensation. Stock may be purchased under the plan at a price equal to 85% of the fair market value of the Company's stock on either the date of purchase or the first day of the offering period, whichever is lower. However, the Board of Directors may in its discretion provide that the price at which shares of common stock are purchased under the plan shall be 85% of the fair market value of the Company's shares on the date of purchase. Participants may not purchase shares of common stock having a value greater than $25,000 during any calendar year.

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        Participants may increase or decrease their payroll deductions at any time during an offering period, subject to limits imposed by the Board of Directors. If a participant withdraws from the stock purchase plan, any contributions that have not been used to purchase shares shall be refunded. A participant who has withdrawn may not participate in the stock purchase plan again until the next offering period. In the event of retirement or cessation of employment for any reason, any contributions that have not yet been used to purchase shares will be refunded to the participant, or to the participant's designated beneficiary in the case of death, and a certificate will be issued for the full shares in the participant's account.

        The Board of Directors may terminate or amend the stock purchase plan, subject to stockholder approval in some circumstances. Unless terminated earlier by the Board, the stock purchase plan will have a term of ten years.

        Total shares purchased under the plan were 182,437 and 118,223 in 2002 and 2001, respectively. At December 31, 2002, there were 3,533,857 shares available for purchase under the plan.

NOTE 16—DEFERRED STOCK COMPENSATION

        In connection with the grant of certain stock options and restricted common stock to employees, non-employees and members of the Board of Directors and in connection with certain acquisitions (see Note 6), the Company recorded net deferred stock compensation of $8.7 million, $4.7 million and $0.3 million for the years ended December 31, 2002, 2001 and 2000, respectively, representing the fair value of restricted stock and the difference between the fair value of common stock and the option exercise price of options at the date of grant. Deferred compensation is presented as a reduction of stockholders' equity, with amortization recorded over the vesting period of the related restricted stock and options. The Company recorded stock compensation expense of $3.1 million, $5.2 million and $11.6 million for the year ended December 31, 2002, 2001 and 2000, respectively. At December 31, 2002, approximately $11.8 million remained to be amortized over the corresponding vesting period of each respective option or restricted share, generally four to five years.

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NOTE 17—401(K) PLAN

        On January 1, 2000, the Company adopted the UTStarcom, Inc. 401(k) Savings Plan (the "401(k) Plan"), a cash-or-deferred arrangement, which covers the Company's eligible employees who have attained the age of 21. The 401(k) Plan is intended to qualify under Sections 401(a), 401(m) and 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), and the 401(k) Plan trust is intended to qualify under Section 501(a) of the Code. All contributions to the 401(k) Plan by eligible employees or by the Company, and the investment earnings thereon, are not taxable to such employees until withdrawn, and any contributions the Company may make are expected to be deductible by the Company. The Company's eligible employees may elect to reduce their current eligible compensation by one percent (1%) up to fifty percent (50%), subject to the maximum statutorily prescribed annual limit of $11,000 for participants under age 50 and $12,000 for participants age 50 and over, and to have such salary reductions contributed on their behalf to the 401(k) Plan. The 401(k) Plan permits, but does not require, the Company to make matching contributions on behalf of all eligible employees who make salary reduction contributions to the 401(k) Plan. Commencing with the plan year beginning January 1, 2001, the Company elected to begin making matching contributions on behalf of qualified employees who participate in the 401(k) Plan. The Company will contribute $0.50 for each dollar contributed by qualified employees to the 401(k) Plan, to a maximum of $3,000 for the 2002 and 2001 plan years. The Company's matching contributions are subject to a vesting schedule based upon longevity of employee service with the Company. Matching contributions were $0.7 million and $0.4 million for 2002 and 2001, respectively.

NOTE 18—COMMITMENTS AND CONTINGENCIES

Leases:

        The Company leases certain facilities under non-cancelable operating leases which expire at various dates through 2007. The minimum future lease payments under the leases at December 31, 2002 are as follows:

		(in thousands)
Years ending December 31:
	2003	$	5,863
	2004		3,548
	2005		988
	2006		100
	2007		75
	Total minimum lease payments	$	10,574

        Rent expense for the years ended December 31, 2002, 2001 and 2000 was $6.5 million, $3.8 million, and $2.2 million, respectively.

Litigation:

        On October 31, 2001, a complaint was filed in United States District Court for the Southern District of New York against the Company, some of its directors and officers and various underwriters for its initial public offering. Substantially similar actions were filed concerning the initial public offerings for more than 300 different issuers, and the cases were coordinated as In re Initial Public Offering Securities Litigation, 21 MC 92. In April 2002, a consolidated amended complaint was filed in

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the matter against the Company, captioned In re UTStarcom, Initial Public Offering Securities Litigation, Civil Action No. 01-CV-9604. Plaintiffs allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 through undisclosed improper underwriting practices concerning the allocation of IPO shares in exchange for excessive brokerage commissions, agreements to purchase shares at higher prices in the aftermarket, and misleading analyst reports. Plaintiffs seek unspecified damages on behalf of a purported class of purchasers of the Company's common stock between March 2, 2000 and December 6, 2000. The claims against our directors and officers have been dismissed without prejudice pursuant to a stipulation. The Company believes that it has meritorious defenses to this lawsuit and will defend this lawsuit vigorously. Motions to dismiss have been filed on behalf of the Company and the other defendants in the coordinated proceeding. Those motions are currently pending with the Court.

Investment Commitments:

        In June 2002, the Company invested $1.0 million in Global Asia Partners L.P. The fund size is anticipated to be $100 million and was formed to make equity investments in private or pre-IPO technology and telecommunications companies in Asia. The Company has a commitment to invest up to a maximum of $5.0 million. The remaining amount is due at such times and in such amounts as shall be specified in one or more future capital calls to be issued by the general partner.

NOTE 19—OPERATING RISKS

Financial Risks:

        Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The Company places its temporary cash and short-term investments with several financial institutions. Approximately $115.1 million and $128.0 million of the Company's cash was on deposit in foreign accounts at December 31, 2002 and 2001, respectively. The Company invests excess cash in highly liquid investments with original maturities of twelve months or less, such as certificates of deposit, government sponsored entities notes, commercial paper, floating rate corporate bonds, fixed income corporate bonds, and money market funds, which the Company believes have limited exposure to risk.

Concentration of Credit Risk and Major Customers:

        The Company's first and second largest customers accounted for 17.8% and 12.5% of the Company's sales in 2002 and 23.7% and 6.6% of the Company's sales in 2001, respectively, and 5.7% and 0.4% of accounts receivable at December 31, 2002 and 35.5% and 10.3% of accounts receivable at December 31, 2001, respectively. The Company's first and second largest customers accounted for 12.1% and 8.4% of the Company's net sales, respectively, in 2000. Approximately 84%, 90% and 90% of the Company's net sales during 2002, 2001 and 2000, respectively, were to entities affiliated with the government of China. Accounts receivable balances from these China government affiliated entities or state owned enterprises were $238.0 million and $192.8 million, respectively, as of December 31, 2002 and 2001. The Company extends credit to its customers generally without requiring collateral. The Company monitors its exposure for credit losses and maintains allowances for doubtful accounts.

Country Risks:

        Approximately 84% of the Company's sales for the year ended December 31, 2002 were made in China. Accordingly, the Company's business, financial condition and results of operations may be

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influenced by the political, economic and legal environment in China, and by the general state of China's economy. The Company's operations in China are subject to special considerations and significant risks not typically associated with companies in the United States. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by, among other things, changes in the political, economic and social conditions in China, and by changes in governmental policies with respect to laws and regulations, changes in China's telecommunications industry and regulatory rules and policies, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation.

        Under China's current regulatory structure, the telecommunications products that the Company offers in China must meet government and industry standards, and a network access license for the equipment must be obtained. Without the license, the equipment is not allowed to be connected to public telecommunications networks or sold in China. Moreover, the Company must ensure that the quality of the telecommunications equipment for which it has obtained a network access license is stable and reliable, and may not lower the quality or performance of other installed licensed products. The State Council's product quality supervision department, in concert with the Ministry of Information Industry, performs spot checks to track and supervise the quality of licensed telecommunications equipment and publishes the results of such spot checks.

        The regulations implementing these requirements are not very detailed, have not been applied by a court and may be interpreted and enforced by regulatory authorities in a number of different ways. The Company obtained the required network access licenses for its AN-2000 platform. The Company applied for, but has not yet received, a network access license for its PAS systems and handsets. Based upon conversations with the Ministry of Information Industry, the Company understands that its PAS systems and handsets are considered to still be in the trial period and that sales of the Company's PAS systems and handsets may continue to be made during this trial period, but a license will ultimately be required. Network access licenses will also be required for most additional products that the Company is selling or may sell in China, including the mSwitch platform. If the Company fails to obtain the required licenses, the Company could be prohibited from making further sales of the unlicensed products, including the PAS systems and handsets, in China, which would substantially harm its business, financial condition and results of operations. The Company's counsel in China has advised that China's governmental authorities may interpret or apply the regulations with respect to which licenses are required and the ability to sell a product while a product is in the trial period in a manner that is inconsistent with the information received by such counsel in China, either of which could have a material adverse effect on the Company's business and financial condition.

NOTE 20—SEGMENT REPORTING

        The Company provides telecommunications equipment through an integrated suite of network access systems and subscriber terminal products. The Company primarily operates in two geographic areas, China and other regions. The chief operating decision makers evaluate performance, make operating decisions, and allocate resources based on consolidated financial data. Gross profit, operating income, income from operations, and income taxes are not allocated to specific individual departments within the organization. In accordance with SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," the Company is considered a single reportable segment. The Company is required to disclose certain information about product revenues, information about geographic areas, information about major customers, and information about long-lived assets.

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        During the third quarter of 2002, the provincial-level telecommunications service entity in the Zhejiang province of China began to consolidate telecommunications purchasing decisions for that province. As a result of this trend in the Zhejiang province, the Company has grouped all customers in Zhejiang province together and has treated these as one customer. At December 31, 2002, the Company had approximately 33 such customers in Zhejiang province. For the year ended December 31, 2002, sales to Zhejiang province and BBTC accounted for 18% and 13% of net sales, respectively. For the year ended December 31, 2001, sales to Zhejiang province accounted for 24% of our net sales. For the year ended December 31, 2000, sales to Hangzhou PTT accounted for 12% of net sales. Revenue attributable to Japan was primarily due to sales to BB Technologies Corporation. Sales to BB Technologies Corporation were $123.0 million and $13.9 million and $0.0 million for the year ended December 31, 2002, 2001 and 2000, respectively.

        Geographical area and product sales data are as follows (in thousands):

		Year ended December 31, 2002
		Telecommunications Equipment		Subscriber Handsets		Total
Net sales:
	China	$	445,789	$	376,510	$	822,299
	Japan		130,104		—		130,104
	Other		29,108		295		29,403
Total net sales		$	605,001	$	376,805	$	981,806

		Year ended December 31, 2001
		Telecommunications Equipment		Subscriber Handsets		Total
Net sales:
	China	$	378,934	$	186,946	$	565,880
	Japan		16,303		—		16,303
	Other		43,701		956		44,657
Total net sales		$	438,938	$	187,902	$	626,840

		Year ended December 31, 2000
		Telecommunications Equipment		Subscriber Handsets		Total
Net sales:
	China	$	257,474	$	106,572	$	364,046
	Japan		1,084		—		1,084
	Other		3,516		—		3,516
Total net sales		$	262,074	$	106,572	$	368,646

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        Long-lived assets by geography are as follows (in thousands):

	December 31,
	2002		2001
Foreign	$	104,731	$	41,289
U.S.		43,600		41,645
Total long-lived assets	$	148,331	$	82,934

NOTE 21—RELATED PARTY TRANSACTIONS

        The Company recognized revenue of $123.0 million, $13.9 million, and $0.0 during the twelve months ended December 31, 2002, 2001 and 2000, respectively, with respect to sales of telecommunications equipment to BB Technologies Corporation ("BBTC"), an affiliate of SOFTBANK CORP. SOFTBANK America Inc., an entity affiliated with SOFTBANK CORP., is a significant stockholder of the Company. BBTC offers asynchronous digital subscriber line ("ADSL") coverage throughout Japan, which is marketed under the name YAHOO. The Company provides ADSL technology to BBTC. The contract was competitively bid and the terms of this contract were on terms no more favorable than those with unrelated parties. Included in accounts receivable at December 31, 2002 is $0.8 million related to this agreement. There were no amounts included in deferred revenue in respect of this agreement at December 31, 2002. Included in accounts receivable in respect of this agreement at December 31, 2001 was $13.5 million. There were no amounts included in deferred revenue in respect of this agreement at December 31, 2001.

        The Company has invested in Softbank China and Restructuring Fund No. 1, which are investment vehicles established by SOFTBANK and its affiliates. See Note 9.

        On August 29, 2002, the Company completed the repurchase of six million shares of the Company's common stock for $72.9 million from its largest shareholder, SOFTBANK Corp. As part of this transaction, SOFTBANK signed a voluntary "lock up" agreement stipulating that it will not sell any of the Company's common stock within the next six months. This lock up agreement will end on March 1, 2003, which coincides with the start of the Company's "blackout period" in which insiders are not permitted to sell shares. The blackout period begins March 1, 2003 and ends commencing at the close of business on the second trading day following the public release of our first quarter fiscal 2003 results in April 2003. The Company recorded the cost of the common stock repurchased and the related transaction costs of $36.4 million to additional paid-in capital and common stock based on the pro rata amount of shares repurchased, with the remaining $36.5 million recorded to retained earnings in accordance with Accounting Principles Board Opinion No. 6.

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QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

        Quarterly financial data for the periods indicated are as follows:

		Quarters Ended
		Dec. 31, 2002		Sept. 30, 2002		June 30, 2002		March 31, 2002		Dec. 31, 2001		Sept. 30, 2001		June 30, 2001		March 31, 2001
(In thousands, except per share amounts)
Net sales		$	301,095	$	265,513	$	231,508	$	183,690	$	197,128	$	170,484	$	140,047	$	119,181
Gross profit		$	101,101	$	92,817	$	85,912	$	65,642	$	68,952	$	64,276	$	49,907	$	41,413
Net income		$	33,852	$	30,749	$	25,735	$	17,526	$	16,535	$	18,797	$	12,260	$	9,362
Net earnings per share:*
	Basic	$	0.32	$	0.28	$	0.23	$	0.16	$	0.15	$	0.18	$	0.13	$	0.10
	Diluted	$	0.30	$	0.27	$	0.22	$	0.15	$	0.14	$	0.17	$	0.12	$	0.09

*

Net earnings per share is computed independently for each of the quarters presented and, therefore, the sum of the quarterly net earnings per share may not equal the annual earnings per share.

ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      Not applicable.

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PART III

ITEM 10—DIRECTORS AND EXECUTIVE OFFICERS OF UTSTARCOM, INC.

        The information required by this section is incorporated by reference from the information in the section entitled "Election of Directors" in the Proxy Statement. The required information concerning our executive officers is contained in the section entitled "Executive Officers" in Part I of this Form 10-K.

        Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act. This disclosure is contained in the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement and is incorporated herein by reference.

ITEM 11—EXECUTIVE COMPENSATION

        The information required by this section is incorporated by reference from the information in the sections entitled "Election of Directors—Directors' Compensation," "Executive Compensation and Other Matters," "Report of the Compensation Committee," and "Stock Price Performance Graph" in the Proxy Statement.

ITEM 12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information required by this section is incorporated by reference from the information in the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. The required information concerning our equity compensation plans is contained in the section entitled "Market for Registrant's Common Equity and Related Stockholder Matters" in Part II of this Form 10-K.

ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required by this section is incorporated by reference from the information in the section entitled "Certain Relationships and Related Transactions" in the Proxy Statement.

PART IV

ITEM 14—CONTROLS AND PROCEDURES

        (a)    Evaluation of disclosure controls and procedures.    Our chief executive officer and our chief financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934) as of a date (the "Evaluation Date") within 90 days before the filing date of this quarterly report, believe that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company.

        (b)    Changes in internal controls.    There were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date.

ITEM 15—EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

        (a)(1)    Financial Statements—See Index to Consolidated Financial Statements and Financial Statement Schedules at page 69 of this Form 10-K.

(2)    Financial Statement Schedule—See Index to Consolidated Financial Statements and Financial Statement Schedules at page 69 of this Form 10-K.

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(3)    Exhibits

Exhibit Number	Description
3.1(1)	Thirteenth Amended and Restated Certificate of Incorporation of UTStarcom, Inc.
3.2(1)	Amended and Restated Bylaws of UTStarcom, Inc.
4.1	See exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws defining the rights of holders of Common Stock.
4.2(1)	Specimen Common Stock Certificate.
4.3(1)	Third Amended and Restated Registration Rights Agreement dated December 14, 1999.
10.1(1)	Form of Indemnification Agreement.
10.2(1)	1992 Omnibus Equity Incentive Plan and form of related agreement.
10.3(1)	1995 Stock Plan and forms of related agreements.
10.4(1)	1997 Stock Plan, as amended, and forms of related agreements.
10.5(1)	2000 Employee Stock Purchase Plan and forms of related agreements.
10.6(1)	Common Stock Purchase Warrant dated February 5, 1998 between UTStarcom, Inc. and Lintech Limited.
10.7(1)	Common Stock Purchase Warrant dated September 20, 1999 between UTStarcom, Inc. and Talent Group International, Ltd.
10.8(1)	Employment and Non-Competition Agreement dated October 6, 1995 between UTStarcom, Inc. and Hong Lu.
10.9(1)	Employment and Non-Competition Agreement dated October 6, 1995 between UTStarcom, Inc. and Ying Wu.
10.10(1)*	Product Manufacture & License Agreement dated May 13, 1997 between UTStarcom, Inc. and Tollgrade Communications, Inc.
10.11(1)*	Sales Agreement dated February 12, 1999 between UTStarcom (China) Ltd. and BaoDing Telecommunication Bureau, Hebei Province.
10.12(1)*	Sales Contract dated August 23, 1999 between UTStarcom (China) Ltd. and Xian Telecommunication Bureau.
10.13(1)*	Technical License and Assistance Agreement dated November 2, 1999 between UTStarcom, Inc. and Mitsubishi Electric Corporation.
10.13(a)(1)*	Amendment No. 1 to Technical License and Assistance Agreement dated February 21, 2000 between UTStarcom, Inc. and Mitsubishi Electric Corporation.
10.14(1)*	Technical Assistance Agreement dated October 1, 1999 between Matsushita Communication Industrial Co. Ltd. and UTStarcom, Inc.
10.14(a)(1)	Addendum dated February 18, 2000 to the Technical Assistance Agreement dated October 1, 1999 between Matsushita Communication Industrial Co. Ltd. and UTStarcom, Inc.
10.15(1)*	Joint Product Development and Marketing Memorandum and Understanding dated September 2, 1999 between UTStarcom, Inc. and Matsushita Communication Industrial Co., Ltd.
10.16(1)*	Joint Patent Filing Agreement dated December 1, 1998 between UTStarcom, Inc. and Matsushita Communication Industrial Co., Ltd.

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10.17(1)*	Loan Agreement dated June 15, 1998 between UTStarcom, Inc. and SOFTBANK Corp.
10.18(a)(1)*+	Loan Agreement dated March 9, 1999 between Bank of China and UTStarcom Hangzhou Telecommunications Co., Ltd.
10.18(b)(1)*	Loan Agreement dated June 7, 1999 between Bank of China and UTStarcom Hangzhou Telecommunications Co., Ltd.
10.18(c)(1)*	Loan Agreement dated June 29, 1999 between Bank of China and UTStarcom Hangzhou Telecommunications Co., Ltd.
10.18(d)(1)*	Loan Agreement dated July 7, 1999 between Bank of China and UTStarcom Hangzhou Telecommunications Co., Ltd.
10.18(e)(1)*	Loan Agreement dated July 14, 1999 between Bank of China and UTStarcom Hangzhou Telecommunications Co., Ltd.
10.18(f)(1)*	Loan Agreement dated July 21, 1999 between Bank of China and UTStarcom Hangzhou Telecommunications Co., Ltd.
10.18(g)(1)*	Loan Agreement dated August 5, 1999 between Bank of China and UTStarcom Hangzhou Telecommunications Co., Ltd.
10.18(h)(1)*	Loan Agreement dated August 17, 1999 between Bank of China and UTStarcom Hangzhou Telecommunications Co., Ltd.
10.18(i)(1)*	Loan Agreement dated September 2, 1999 between Bank of China and UTStarcom Hangzhou Telecommunications Co., Ltd.
10.18(j)(1)*	Loan Agreement dated September 17, 1999 between Bank of China and UTStarcom Hangzhou Telecommunications Co., Ltd.
10.19(1)*	Joint Venture Agreement dated July 31, 1997 between UTStarcom, Inc. and Zhejiang Telecommunication Equipment Factory.
10.20(1)*	Joint Venture Agreement dated December 8, 1995 between UTStarcom, Inc. and Chinese Guangdong Nanfeng Telecommunication Group Co. Ltd.
10.20(a)(1)*	Amendment Agreement to the Contract and Articles of Association of Guangdong UTStarcom Communications Co. Ltd. dated December 11, 1997.
10.21(1)*	Joint Venture Agreement dated September 12, 1997 between UTStarcom, Inc. and Zhejiang Nantian Post and Telecommunication Development Group Co. Ltd.
10.22(1)	Lease dated December 23, 1997 between UTStarcom, Inc. and Tech Center Partners.
10.23(1)	Lease Agreement dated April 1995, as amended, between UTStarcom, Inc. and Metro Park Associates.
10.24(1)	Lease Agreements dated December 31, 1997 and May 14, 1998 between Guangdong UTStarcom Telecom Co., Ltd. and Guangdong Southern Telecom Group Huizhou Company.
10.25(1)	Lease Contract dated December 15, 1996 between UTStarcom (Hangzhou) Telecommunications Co., Ltd. and Yile Village, Gudang Township.
10.26(1)*	Purchase Agreement for P.R. China Market dated April 1, 1999 between UTStarcom Inc., Matsushita Electric Industrial Co., Ltd. and Matsushita Communication Industrial Co., Ltd.
10.27(1)	Information Service Project Contract dated June 1, 1998 between UTStarcom (China) Ltd. and China Jitong Communication Co. Ltd.

105

10.28(1)	Payment Agent Contract dated June 11, 1998 among UTStarcom, UTStarcom (China) Ltd, Softbank Corporation and Jitong Communication Co., Ltd.
10.29(1)	Agreement on Termination of Contract dated August 30, 1999 among UTStarcom, Inc., UTStarcom (China) Ltd., Softbank Corporation and Jitong Communication Co., Ltd.
10.30(1)	Exchange Agreement dated October 15, 1997 between UTStarcom, Inc. and certain investors.
10.31(1)	Exchange Agreement dated October 15, 1997 between UTStarcom, Inc. and certain investors.
10.32(1)	Employment and Non-Competition Agreement dated October 6, 1995 between UTStarcom, Inc. and Bill Huang.
10.33(1)	Lease contract on Housing and Vacant Land at Yunshan Post and Telecommunication Industrial Village dated January 3, 2000 between Guangdong UTStarcom Telecom Co., Ltd. and Guangdong Nanfang Communication Group, Huizhou Co.
10.34(1)	Loan Agreement dated October 8, 1996 between UTStarcom (China) Co., Inc. and Bill X. Huang.
10.35(1)	Promissory Note Secured by Deed of Trust dated February 13, 1999 issued to UTStarcom, Inc. by Bill X. Huang and Minnie Huang.
10.36(1)*	Supply Agreement dated February 18, 2000 between UTStarcom, Inc. and Matsushita Electric Industrial Co., Ltd.
10.37(2)*	Manufacturing License Agreement between Himachal Futuristic Communications Ltd. and UTStarcom, Inc. undated.
10.38(2)*	Sales Agreement between Japan Radio Company and UTStarcom, Inc. dated March 16, 2000.
10.39(2)*	Technical Collaboration Agreement between Sharp Corporation and UTStarcom, Inc., dated March 31, 2000.
10.40(2)*	Parts Supply Agreement between Sharp Corporation and UTStarcom, Inc. undated.
10.41(3)*	Joint Venture Agreement between SOFTBANK Corporation and UTStarcom, Inc. dated May 29, 2000.
10.42(3)*	Land Use Right Assignment Agreement between the Administration Committee of Hangzhou Hi-Tech Industry Development Zone of Zhejiang Province of the People's Republic of China and UTStarcom, Inc. dated May 18, 2000.
10.43(3)*	Supply Agreement between Matsushita Electric Industrial Co., Ltd., Matsushita Communications Industrial Co., Ltd., and UTStarcom, Inc. dated April 1, 2000.
10.44(4)*	OEM Agreement between UTStarcom, Inc. and Zaffire, Inc., dated August 10, 2000.
10.45(4)*	Development Agreement between UTStarcom, Inc. and Matsushita Communication Industrial Co., Ltd., dated September 26, 2000.
10.46(4)*	OEM Agreement between UTStarcom, Inc. and Interwave Communications International, Ltd., dated July 14, 2000.
10.47(4)*	OEM Agreement between UTStarcom, Inc. and Foundry Networks, Inc., dated August 24, 2000.
10.48(4)*	Loan Contract between UTSC Co., Ltd. and Bank of China Beijing Branch, dated August 29, 2000.

106

10.49(9)*	Sales Contract between UTStarcom (China), Ltd. and Zhejiang Telecom Company (Shaoxing Branch), dated November 18, 2000.
10.50(9)*	Sales Contract between UTStarcom (China), Ltd. and He Nan Telecom Company, dated October 28, 2000.
10.51(9)*	Sales Contract between UTStarcom (China), Ltd., Xian Equipment Import/Export Company, Ltd., and Shaanxi China Telecom Group, Ltd., dated September 29, 2000 (received by UTStarcom, Inc. on October 9, 2000).
10.52(9)*	Technical Assistance Agreement between UTStarcom, Inc. and Matsushita Communication Industrial Co. Ltd., dated December 1, 2000.
10.53(9)*	Definitive Agreement for Collaboration between UTStarcom, Inc. and Mitsubishi Electric Corporation, dated October 22, 2000.
10.54(9)*	Software License Agreement between UTStarcom, Inc. and DDI Corporation, Inc. dated October 4, 2000.
10.55(9)*	Strategic Alliance, Purchase and License Agreement between UTStarcom, Inc. and Telecommunication D'Haiti S.A.M., dated December 5, 2000.
10.56(5)*	Assignment Agreement between UTStarcom, Inc. and Stable Gain International Limited dated July 24, 2000.
10.57(5)*	Amendment No.1 to July 24, 2000 Assignment Agreement between UTStarcom, Inc. and Stable Gain International Limited, dated March 2, 2001.
10.58(5)*	Loan Agreement between China Merchant Bank and UTStarcom (China) Co., Ltd., dated March 14, 2001.
10.59(5)*	Technical Service Agreement between UTStarcom (China) Co., Ltd. and Hainan Xinhuangpu Investment Co., Ltd., dated August 18, 2000.
10.60(5)*	Assets Transfer Agreement between Hainan Xinhuangpu Investment Co., Ltd. and UTStarcom (China) Co., Ltd., dated August 18, 2000.
10.61(5)*	Equity Transferring Agreement between Zhe Jiang Nantian Telecommunication Development Group Share Company and UTStarcom, dated February 5, 2001.
10.62(5)*	Sales Contract between Zhejiang Telecom Co. and UTStarcom (China) Co., Ltd., dated March 23, 2001.
10.63(5)*	Manufacturing License Agreement between Himachal Futuristic Communications Ltd. and UTStarcom, Inc. dated March 6, 2001.
10.64(7)	2001 Director Option Plan.
10.65(7)*	Strategic Alliance, Purchase and License Agreement between UTStarcom, Inc. and Telecommunications D'Haiti S.A.M. dated as of April 12, 2001.
10.66(6)	2001 Director Option Plan, as amended on July 10, 2001.
10.67(8)*	Purchase Contract between UTStarcom Inc. and BB Technologies Corporation, dated October 9, 2001.
10.68(10)	Comprehensive Credit-Extension Agreement between UTStarcom (China) Ltd. and China Everbright Bank, Chaoyang Branch, Beijing, dated November 30, 2001.
10.69(10)	Equity Transfer Agreement between UTStarcom, Inc. and Guangdong Nanfang Communications Group Co. Ltd., dated December 18, 2001.
10.70(10)	Equity Transfer Agreement between UTStarcom, Inc. and Zhejiang Provincial Telecom. Instruments Factory and UTStarcom (Hangzhou) Communications Co., Ltd., dated January 21, 2002.

107

10.71(10)	Lease Agreement between UTStarcom, Inc. and Legend Tech., dated September 12, 2001.
10.72(11)	Comprehensive Credit-Extension Agreement between UTStarcom (China) Ltd. and Beijing City Commercial Bank, Yuhaiyuan Road Branch, dated February 20, 2002, and Maximum Amount Guaranty Contract between UTStarcom (Hangzhou) Telecommunication Co., Ltd. and Beijing City Commercial Bank, Yuhaiyuan Road Branch, dated February 20, 2002.
10.73(11)	Change of Control Severance Agreement between Gerald Soloway and UTStarcom, Inc. dated April 12, 2002.
10.74(11)	Change of Control Severance Agreement between Howard Kwock and UTStarcom, Inc. dated April 12, 2002.
10.75(11)	Change of Control Severance Agreement between Michael J. Sophie and UTStarcom, Inc. dated April 12, 2002.
10.76(12)	Comprehensive Credit-Extension Agreement between UTStarcom (China) Ltd. and Shenzhen Development Bank, Hangzhou, dated June 26, 2002.
10.77(12)	Merger Agreement by and between UTStarcom Telecom Co., Ltd. and Guangdong UTStarcom Teleco.
10.78(13)*	Professional Services Agreement between UTStarcom, Inc. and N. Lohr Bangle, Jr. dated as of September 10, 2002.
10.79(13)*	Teaming Agreement between UTStarcom, Inc. and Stellar Holdings, LLC dated as of September 10, 2002.
10.80(13)*	Joint Venture Contract between UTStarcom Telecom Co., Ltd., Matsushita Electric Industrial Co., Ltd. and Matsushita Communication Industrial Co., Ltd. dated as of July 5, 2002.
10.81(13)*	Amendment to OEM Agreement between UTStarcom, Inc. and InterWave Communications dated as of September 27, 2002.
10.82*	Joint Development Agreement between Datang Mobile Communications Equipment Co., Ltd and UTStarcom (China) Co., Ltd. dated November 22, 2002.
10.83*	Broadband Access Network General Terms and Conditions between Reliance Infocomm Limited and UTStarcom, Inc. dated as of October 1, 2002.
10.84*	Broadband Access Equipment Contract between Reliance Infocomm Limited and UTStarcom, Inc. dated as of October 1, 2002.
10.85*	Broadband Access Services Contract between Reliance Infocomm Limited and UTStarcom, Inc. dated as of October 1, 2002.
10.86*	Broadband Access Software Contract between Reliance Infocomm Limited and UTStarcom, Inc. dated as of October 1, 2002.
21.1	Subsidiaries of UTStarcom.
23.1	Consent of PricewaterhouseCoopers LLP.
23.2(10)	Consent of Willamette Management Associates.
24.1	Power of Attorney (included on signature page).

108

99.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*

Portions of the exhibit have been omitted pursuant to an order granted by the Securities and Exchange Commission for confidential treatment.

(1)

Incorporated by reference to the registrant's Registration Statement on Form S-1 (No. 333-93069), which became effective March 2, 2000.

(2)

Incorporated by reference to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.

(3)

Incorporated by reference to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

(4)

Incorporated by reference to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.

(5)

Incorporated by reference to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

(6)

Incorporated by reference to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.

(7)

Incorporated by reference to the registrant's Registration Statement on Form S-3, which became effective July 18, 2001.

(8)

Incorporated by reference to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.

(9)

Incorporated by reference to the registrant's Annual Report on Form 10-K for the year ended December 31, 2000.

(10)

Incorporated by reference to the registrant's Annual Report on Form 10-K for the year ended December 31, 2001.

(11)

Incorporated by reference to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.

(12)

Incorporated by reference to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

(13)

Incorporated by reference to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.

(b)

Reports on Form 8-K:

1.

UTStarcom filed a Report on Form 8-K with the Securities and Exchange Commission on August 29, 2002 in connection with its Repurchase of 6,000,000 shares of Common Stock from SOFTBANK Corp.

(c)

Exhibits

See Item 15(a)(3) above.

109

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934 as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 21st day of February, 2003.

UTSTARCOM, INC.
By:	/s/  MICHAEL J. SOPHIE Michael J. Sophie Vice President of Finance, Chief Financial Officer and Assistant Secretary

110

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Hong Liang Lu and Michael J. Sophie, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:

Signature	Title	Date
/s/  HONG LIANG LU Hong Lu	President and Chief Executive Officer (principal executive officer) and Director	February 21, 2003
/s/  MICHAEL J. SOPHIE Michael J. Sophie	Vice President of Finance, Chief Financial Officer and Assistant Secretary (principal financial and accounting officer)	February 21, 2003
/s/  BETSY S. ATKINS Betsy S. Atkins	Director	February 21, 2003
/s/  LARRY D. HORNER Larry D. Horner	Director	February 21, 2003
/s/  MASAYOSHI SON Masayoshi Son	Chairman of the Board of Directors	February 21, 2003
/s/  THOMAS J. TOY Thomas J. Toy	Director	February 21, 2003
/s/  YING WU Ying Wu	Executive Vice President, Chief Executive Officer, China Operations and Director	February 21, 2003

111

CERTIFICATIONS

I, Hong Liang Lu, certify that:

1.

I have reviewed this annual report on Form 10-K of UTStarcom, Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 21, 2003

/s/  HONG LIANG LU Hong Liang Lu
President and Chief Executive Officer

112

CERTIFICATIONS

I, Michael J. Sophie, certify that:

1.

I have reviewed this annual report on Form 10-K of UTStarcom, Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 21, 2003

/s/  MICHAEL J. SOPHIE Michael J. Sophie
Vice President of Finance, Chief Financial Officer and Assistant Secretary

113

INDEPENDENT ACCOUNTANTS REPORT ON FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and Stockholders of UTStarcom, Inc.:

        Our audits of the consolidated financial statements referred to in our report dated January 23, 2003 also included an audit of the financial statement schedules in this Annual Report on Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
San Francisco, California
January 23, 2003

114

SCHEDULE I

UTSTARCOM, INC. (UNCONSOLIDATED)

REGISTRANT BALANCE SHEETS

(in thousands, except share and per share data)

		December 31,
		2002			2001
ASSETS
Current assets:
	Cash and cash equivalents	$	117,003		$	198,285
	Short-term investments		80,662			86,176
	Accounts receivable		234,917			116,265
	Inventories		37,964			14,278
	Other current assets		32,683			18,994
Total current assets			503,229			433,998
Property, plant and equipment, net			16,785			21,919
Investments in affiliated companies			346,645			223,200
Goodwill, net			43,542			33,549
Intangible assets, net			5,014			4,179
Deferred tax assets			9,335			8,270
Other long-term assets			1,545			383
	Total assets	$	926,095		$	725,498
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable	$	113,180		$	11,354
	Income taxes payable		6,099			7,458
	Deferred revenue		18,934			8,874
	Other current liabilities		21,487			15,925
Total current liabilities			159,700			43,611
Stockholders' equity:
	Convertible preferred stock: $.00125 par value; authorized: 5,000,000 shares; issued and outstanding none at December 31, 2002 and 2001		—			—
	Common stock: $.00125 par value; authorized: 250,000,000 shares; issued and outstanding: 106,787,908 at December 31, 2002 and 109,302,816 at December 31, 2001		135			138
	Additional paid-in capital		658,546			638,697
	Deferred stock compensation		(11,766	)		(6,045	)
	Retained earnings		120,520			49,146
	Notes receivable from stockholders		(282	)		(381	)
	Accumulated other comprehensive income (loss)		(758	)		332
	Total stockholders' equity		766,395			681,887
	Total liabilities and stockholders' equity	$	926,095		$	725,498

The accompanying notes are an integral part of these financial statements.

115

SCHEDULE I

UTSTARCOM, INC. (UNCONSOLIDATED)

CONDENSED INFORMATION AS TO THE
RESULTS OF OPERATIONS
OF THE REGISTRANT

(in thousands, except share and per share data)

		Years ended December 31,
		2002			2001			2000
Net sales		$	359,265		$	351,373		$	267,384
Cost of sales			309,544			294,995			228,624
Gross profit			49,721			56,378			38,760
Operating expenses:
	Selling, general and administrative expenses		38,793			25,199			14,814
	Research and development expenses		9,146			56,937			40,957
	Amortization of intangible assets		2,395			7,440			4,808
	In-process research and development costs		670			4,720			—
Total operating expenses			51,004			94,296			60,579
Operating income			(1,283	)		(37,918	)		(21,819	)
Interest income			4,454			7,832			12,426
Interest expense			(16	)		(644	)		(154	)
Other income (expense), net			18,964			(1,737	)		(139	)
Equity in net income (loss) of affiliated companies			98,396			99,506			47,399
Income before income taxes and cumulative effect of a change of accounting principle			120,515			67,039			37,713
Income tax expense			12,653			10,085			9,720
Net income before cumulative effect of a change of accounting principle			107,862			56,954			27,993
Cumulative effect of a change in accounting principle, net of taxes			—			—			(980	)
Net income		$	107,862		$	56,954		$	27,013

The accompanying notes are an integral part of these financial statements.

116

SCHEDULE I

UTSTARCOM, INC. (UNCONSOLIDATED)

CONDENSED INFORMATION AS TO THE CASH FLOWS OF THE REGISTRANT

(In thousands)

			Years ended December 31,
			2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	107,862		$	56,954		$	27,013
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Gain on change in ownership interest in subsidiary			—			(277	)		—
	Depreciation and amortization			13,202			15,218			7,308
	Non-qualified stock option exercise tax benefits			6,538			15,311			7,628
	Write-off of in-process research and development costs			670			4,720			—
	Impairment of long-term investments			4,442			3,376			—
	Net loss on sale of assets			449			527			698
	Cumulative effect of change in accounting principle			—			—			980
	Stock compensation expense			3,100			5,201			11,560
	Equity in net loss of affiliated companies			(95,608	)		(97,816	)		(47,399	)
	Changes in operating assets and liabilities:
		Accounts receivable		(119,998	)		(10,288	)		(61,089	)
		Inventories		(22,995	)		3,945			(6,744	)
		Other current and non-current assets		(12,908	)		(19,060	)		2,497
		Accounts payable		98,947			(7,440	)		14,363
		Income taxes payable		(1,356	)		3,459			(4,364	)
		Other current liabilities		4,649			2,956			(1,987	)
		Deferred revenue		10,060			(2,583	)		10,957
Net cash provided by (used in) operating activities				(2,946	)		(25,797	)		(38,579	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment				(5,511	)		(19,853	)		(6,044	)
Investment in affiliates				(27,447	)		(18,135	)		(8,945	)
Acquisition of businesses, net of cash acquired				(17,705	)		—			—
Purchases of intangible assets				—			(1,078	)		—
Purchases of short-term investments				(85,688	)		(89,625	)		(124,096	)
Sales of short-term investments				89,916			87,516			40,290
Net cash used in investing activities				(46,435	)		(41,175	)		(98,795	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock, net of expenses				40,928			160,550			198,213
Repurchase of common stock				(72,929	)		—			—
Proceeds (payments) from borrowings, net				—			(5	)		(8	)
Proceeds (payments) from stockholder notes				99			(67	)		245
Net cash (used in) provided by financing activities				(31,902	)		160,478			198,450
Effects of exchange rates on cash				1			(26	)		—
Net increase (decrease) in cash and cash equivalents				(81,282	)		93,480			61,076
Cash and cash equivalents at beginning of period				198,285			104,805			43,729
Cash and cash equivalents at end of period			$	117,003		$	198,285		$	104,805

The accompanying notes are an integral part of these financial statements.

117

SCHEDULE I

UTSTARCOM, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1.    BASIS OF PRESENTATION

        UTStarcom, Inc., a Delaware corporation, is the parent company of all UTStarcom, Inc. subsidiaries. The accompanying condensed financial statements reflect the financial position, results of operations and cash flows of UTStarcom, Inc. on a separate basis. All subsidiaries of UTStarcom, Inc. are reflected as investments accounted for using the equity method. Accordingly, intercompany transactions have not been eliminated. No cash dividends were paid to UTStarcom, Inc. by its subsidiaries during the three years ended December 31, 2002. For accounting policies and other information, see the Notes to Consolidated Financial Statements included elsewhere herein.

118

SCHEDULE II

UTSTARCOM, INC.

Valuation and Qualifying Accounts and Reserves

For the Years Ended December 31, 2002, 2001 and 2000.

Description	Balance at beginning of the period		Additions charged to costs and expenses		Deductions		Balance at end of the period
Year ended December 31, 2002
Allowance for doubtful accounts	$	19,053	$	7,434	$	237	$	26,250
Accrued product warranty costs	$	6,271	$	15,156	$	8,130	$	13,297
Year ended December 31, 2001
Allowance for doubtful accounts	$	12,835	$	6,218	$	—	$	19,053
Accrued product warranty costs	$	3,133	$	6,792	$	3,654	$	6,271
Year ended December 31, 2000
Allowance for doubtful accounts	$	6,789	$	6,448	$	402	$	12,835
Accrued product warranty costs	$	1,236	$	4,279	$	2,382	$	3,133

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UTSTARCOM, INC. TABLE OF CONTENTS
PART I FORWARD-LOOKING STATEMENTS
ADDITIONAL INFORMATION

ITEM 1—BUSINESS

ITEM 2—PROPERTIES
ITEM 3—LEGAL PROCEEDINGS
ITEM 4—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

EXECUTIVE OFFICERS OF UTSTARCOM
PART II

ITEM 5—MARKET FOR UTSTARCOM, INC.'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6—SELECTED CONSOLIDATED FINANCIAL DATA

ITEM 7—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

FACTORS AFFECTING FUTURE OPERATING RESULTS
RISKS RELATING TO OUR COMPANY
RISKS RELATING TO THE STRUCTURE AND REGULATION OF CHINA'S TELECOMMUNICATIONS INDUSTRY
RISKS RELATING TO CONDUCTING OPERATIONS IN CHINA
RISKS RELATING TO OUR STOCK PERFORMANCE

ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS
UTSTARCOM, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
UTSTARCOM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
UTSTARCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share data)
UTSTARCOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART III

ITEM 10—DIRECTORS AND EXECUTIVE OFFICERS OF UTSTARCOM, INC.
ITEM 11—EXECUTIVE COMPENSATION
ITEM 12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14—CONTROLS AND PROCEDURES
ITEM 15—EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

SIGNATURES
POWER OF ATTORNEY
CERTIFICATIONS
CERTIFICATIONS
INDEPENDENT ACCOUNTANTS REPORT ON FINANCIAL STATEMENT SCHEDULES

SCHEDULE I

UTSTARCOM, INC. (UNCONSOLIDATED) REGISTRANT BALANCE SHEETS (in thousands, except share and per share data)

SCHEDULE I

UTSTARCOM, INC. (UNCONSOLIDATED) CONDENSED INFORMATION AS TO THE RESULTS OF OPERATIONS OF THE REGISTRANT (in thousands, except share and per share data)

SCHEDULE I

UTSTARCOM, INC. (UNCONSOLIDATED) CONDENSED INFORMATION AS TO THE CASH FLOWS OF THE REGISTRANT (In thousands)

SCHEDULE I

UTSTARCOM, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS

SCHEDULE II

UTSTARCOM, INC. Valuation and Qualifying Accounts and Reserves For the Years Ended December 31, 2002, 2001 and 2000.

EX-10.82

EXHIBIT 10.82

[***] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS

JOINT DEVELOPMENT AGREEMENT

Between

DATANG MOBILE COMMUNICATIONS
EQUIPMENT CO., LTD

And

UTStarcom (China) Co., Ltd.

CONTENTS

JOINT DEVELOPMENT AGREEMENT

THIS AGREEMENT made as of the 22nd day of November, 2002 (hereinafter the “Effective Date”).

BY AND BETWEEN:

DATANG MOBILE COMMUNICATIONS EQUIPMENT CO., LTD., having its registered office at 40, Xue Yuan road, Beijing, the People’s Republic of China (hereinafter collectively and individually referred to as “Datang”)

AND:

UTStarcom (China) Co., Ltd, having its office at 11th Floor, CNT Manhattan Building No.  6, Chao Yang Men Bei Da Jie St. Dong Cheng Dist. Beijing 100027, PRC. (hereinafter collectively and individually referred to as “UT”)

WHEREAS Datang and UT wish to co-operate with each other and jointly develop [***];

NOW THEREFORE, in consideration of the mutual promises contained herein, the Parties agree as follows:

ARTICLE 1.  DEFINITIONS

1)The following capitalized terms, and other capitalized terms defined elsewhere in this Agreement, will have the meanings ascribed thereto wherever used in this Agreement:

a)“Background IPR” means any Intellectual Property Rights of a Party conceived, created, developed, or reduced to practice prior to, or independently of, any work performed pursuant to this Agreement.

b)“Background Technology” means any Technology of a Party conceived, created, developed, or reduced to practice prior to, or independently of, any work performed pursuant to this Agreement.

c)“Business Day” means any of Monday, Tuesday, Wednesday, Thursday or Friday, excluding any statutory holiday in PRC;

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d)“Confidential Information” means any business, marketing, technical, scientific or other information disclosed by any Party which, at the time of disclosure, is designated as confidential or proprietary (or like designation), is disclosed in circumstances of confidence, or would be understood by the Parties, exercising reasonable business judgment, to be confidential.  Confidential Information includes, without limitation, all Background IPR, Background Technology, and the terms and conditions of this Agreement.

e)“Deliverables” means those tangible items that are to be delivered to a Party during or at the completion of a Project, including functional or interface specifications, product requirements, service or network architecture plans and tangible embodiments of Technology.  A Project may have more than one Deliverable.

f)“Documentation” means the documentation as specified in a Project.

g)“Intellectual Property Rights” or “IPR” shall mean all intellectual property rights, including without limitation, any rights in any invention, patent, discovery, improvement, know-how, utility model, trade-mark, copyright, industrial design or mask work, integrated circuit topography, trade secret and all rights of whatsoever nature in computer software and data, Confidential Information, and all intangible rights or privileges of a nature similar to any of the foregoing, including in every case in any part of the world and whether or not registered, and shall include all rights in any applications and granted registrations for any of the foregoing.

h)“Joint IPR” means the Intellectual Property Rights mutually identified by the Parties in a Project as Joint IPR and conceived, created, developed, or reduced to practice in a Project pursuant to this Agreement.

i)“Joint Technology” means the technology mutually identified by the Parties in a Project as Joint Technology and conceived, created, developed or reduced to practice in a Project pursuant to this Agreement.

j)“Licensee” means the Party to which a license has been granted pursuant to this Agreement.

k)“Licensor” means to Party which has granted a license pursuant to this Agreement.

l)“Party” means either Datang or UT.

m)“Parties” means Datang and UT.

n)“PRC” means the People’s Republic of China and includes the Special Administrative Regions of Hong Kong and Macau, and Taiwan.

o)“Products” means [***] and Datang’s [***].

p)“Project” means the research and development to be performed by either Party, or by the Parties jointly, as described in an executed Project schedule.

q)“Project schedule” means a document referencing this Agreement and containing, in substance, the information relating to the Project required by Article 2 hereof.

r)“Proprietary IPR” means the Intellectual Property Rights conceived, created, developed, or reduced to practice in by a Party individually and owned by such Party;

s)“Proprietary Technology” means the Technology conceived, created, developed or reduced to practice in by a Party individually and owned by such Party;

t)“Software” means computer software.  Except as otherwise specified or granted hereunder, Software shall include both Source Code and Object Code.

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u)“Source Code” means the code in human-readable form.

v)“Specifications” means the features and functional capability of a Deliverable.

w)“Subsidiary” means any corporation or other legal entity in which a Party directly or indirectly owns or controls, and continues to own or control, fifty percent (50%) or more of the voting stock or shares.

x)“Technical Information” means all drawings, schematics, formulae, specifications, designs, concepts, diagrams, processes, procedures, protocols, parameters, engineering details, functional descriptions, layouts, architectural models, invention disclosures, data and database content, or other technical or scientific documentation, including bills of materials, component supplier lists, manuals, and other information (in any form communicated or mediated) to the extent it exclusively relates to the Software, Hardware and provided by one Party to the other Party, but other than the Source Code, Object Code, and associated software documentation.

y)“Trademarks” means all registered and unregistered trademarks, service marks, trade names , business names, brand names, product names, distinguishing guises, trade dress, network identifiers, domain names and any other indicators of origin, whether registered or unregistered, in every part of the world, and any and all applications or registrations, and any and all rights whatsoever, for any of the foregoing, belonging to either Party.

z)“Third Party IPR” shall mean any Intellectual Property Rights, including software programs, owned by a third person.

2)The insertion of headings herein and the division of this Agreement into articles and sections are for convenience of reference only and shall not affect the interpretation hereof.  The words “hereof”, “hereunder” and similar expressions refer to this Agreement and not any particular section hereof; “article”, “section”, and “subsection” mean and refer to the specified article, section or subsection of this Agreement.

ARTICLE 2.  SCOPE

1)In order to reduce time to market for a [***] solution, UT and Datang have agreed to work together to provide a [***] solution, including [***] as described in Annex I.

2)UT and Datang will jointly develop [***] with the capability defined in Annex IV based on [***].  In particular, Datang will be responsible for the development of the [***].

3)Datang and UT will provide corresponding expertise to the other Party for the joint development of the [***].

4)Datang will provide the [***] for integration and testing.

5)UT will provide the [***] for integration and testing.  This [***] will be based on [***].

6)Both parties will join effort to specify the [***] and Datang will be the prime for the specification of the [***].

7)Both parties will join effort to specify the [***] and Datang will be the prime for the specification of the [***].

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8)Both parties will join effort to specify the [***] and Datang will be the prime for the specification of the [***].

9)Both parties will join effort together to perform initial compatibility testing, including [***], which will be located in [***].

10)Both parties will join effort together to perform the whole [***] integration test, which will be located in [***].

11)Both parties will join effort together to perform the whole [***].

12)Each Party on behalf of itself and its subsidiaries and affiliates agrees to work [***] with the other Party on Joint Development activities in respect of the [***].

13)All Projects undertaken by the Parties shall be governed by the terms of this Agreement.

ARTICLE 3.  MANAGEMENT

1)Each party shall respectively appoint a project manager to be responsible for day to day management of the Project.

2)The project managers shall be responsible for the following activities in respect of the applicable Project, together with such other activities as the Parties may agree:

a)representing their respectively appointing parties in all development matters relating to such Project;

b)resolution of all technical and operational disputes between the Parties with respect to the such Project (all such disputes that cannot be resolved by the Project Managers shall be submitted to each party’s high level management);

c)submitting and receiving the Deliverables and other materials and documents required to be delivered for such Project under this Agreement;

d)overseeing development Projects, acting on requests for minor changes to the Project and preparing proposals for major changes to such Projects for submission to the management;

e)arranging any meetings to be held between the parties;

f)maintaining, for record-keeping purposes, a log book or notes containing summaries of all material communications and deliveries between the two project managers; and

g)implementing appropriate practices and procedures to assure the security of the items delivered under this Agreement.

ARTICLE 4.  FUNDING, RESOURCES AND FACILITIES

1)Each Party will assign resources to the Project [***].  [***] expenses relating to the performance of its obligations under the Project, including without limitation, [***].

2)Datang shall provide its premises in [***] for the development to be carried out by Datang.

3)UT shall provide the premises in [***] for the development to be carried out by UT.

4)Each Party shall provide or arrange for [***] for the development at its premises.

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5)Each Party shall permit the other Party’s designated development personnel access to such premises as required in each Project in accordance with agreed policies and procedures.

ARTICLE 5.  DELIVERABLES

1)Each Party shall use [***] to provide all Deliverables for which it is responsible on or before the scheduled delivery date set forth in the Project schedule.

2)Prior to delivery of any Deliverable, the supplying Party (“Supplier”) shall conduct tests to ensure that the Deliverable conforms to the Specifications.  Upon receipt of any Deliverable, the receiving Party (“Receiver”) shall conduct such tests, with the assistance of Supplier if requested by Receiver, to determine whether such Deliverable conforms to the Specifications.  Unless the tests reveal a non-conformity of the Deliverable to the Specifications, Receiver shall [***] provide a notice of acceptance of the Deliverable to the Supplier upon completion of the tests.

3)In the event that Receiver fails to provide a notice describing any non-conformity to the Specifications within [***] Business Days from the date of the initial delivery of the Deliverable or within [***] Business Days of the date of any redelivery of the Deliverable, Supplier shall be entitled to provide Receiver with a notice specifying that unless Receiver has provided a notice of a deficiency within [***] Business Days of receipt of the notice, Receiver shall be deemed to have accepted the Deliverable.

4)If the Deliverable does not conform to the Specifications, Receiver shall provide to Supplier a written description of the relevant part of the Specifications to which the Deliverable does not materially conform.  Within [***] Business Days of receiving said written description from Receiver, Supplier shall provide to Receiver a plan and date for correction of such nonconformities.  Supplier shall apply all commercially reasonable efforts to correct any such nonconformities according to the date in such plan.  Upon receipt of the corrected Deliverable, Receiver shall retest the Deliverable.

5)If, for any reason other than a default by Receiver, a Deliverable has not been accepted within [***] Business Days of the originally scheduled delivery date, Receiver may reject the Deliverable.  Additionally, where Receiver has rejected any Deliverable, Receiver shall be entitled, by giving notice within [***] Business Days of such rejection, to terminate the Project to which the Deliverable related.

ARTICLE 6.  PROJECT SCHEDULE

Please see the ANNEX II.  The attached schedule is subject to change upon thirty (30) business days prior notice by either party to the other.  Such notice shall include the reason to change the schedule and the new proposed schedule.

ARTICLE 7.  OEM

1)To maximize the market share of the Parties in the market, and if mutually deemed to be commercially reasonably by both Parties, the Parties would OEM each other’s products to provide the [***] solution.  [***] products are the [***] product is the [***].

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2)[***] would OEM the [***] to [***] for sale by [***].

3)[***] will OEM the [***] to [***] for sale by [***].

4)The above-described OEM relationship between the Parties would be subject to the terms and conditions contained in a separate OEM agreement, which would be mutually negotiated by and agreed to by the Parties.

ARTICLE 8.  OWNERSHIP OF INTELLECTUAL PROPERTY

1)Except for the rights expressly granted under this Agreement, each Party shall retain all right, title, and interest in and to such Party’s Background IPR, Background Technology, Proprietary IPR, Proprietary Technology and Trademarks.  Each Party reserves all rights not expressly granted herein, and any express reservations of rights set forth herein shall not be construed as limiting such reservation or conferring by implication, estoppel or otherwise any grant or license or other right under any patent or other right of intellectual property or confidential information other than those rights expressly set forth in this Agreement.

2)Each Party shall retain ownership of all right, title and interest in and to any IPR and Technology (including Background Technology and Background IPR as described in Annex III, Proprietary IPR and Proprietary Technology) developments it creates other than IPR and Technology which have been identified to be Joint IPR and Joint Technology in a Project.

3)Without limitation to the foregoing, each Party reserves all rights to continue to develop, manufacture, license and use such Party’s Background Technology, Background IPR, Proprietary Technology and Proprietary IPR as such Party, in its discretion, sees fit.  Each Party also reserves the right to license such Party’s Background Technology under such Background IPR, or Proprietary Technology under such Proprietary IPR, or rights thereunder, to other parties.

4)Joint IPR and Joint Technology shall be identified in advance in Annex 1 as agreed between the Parties.

5)Except as the Parties may otherwise agree in any Project schedule, the Parties agree that all Joint IPR and Joint Technology shall belong jointly to both Parties and each Party shall have the [***] right to practice and exploit such Joint IPR or Joint Technology, and without limitation, to [***] to the extent that it embodies such Joint IPR or Joint Technology anywhere in the world without any restriction or accounting to the other Party.  [***].

6)Both Parties shall mutually agree upon the filing of applications and execution and delivery of any further documents that may be required in order to secure intellectual property rights, including but not limited to patent and copyright, in the Joint IPR and Joint Technology.

7)While either Party may have the responsibility to file, prosecute and/or maintain patents, the filing, prosecuting or maintaining of such patents shall be at the sole discretion and judgment of that Party, and neither Party, nor their employees, agents or officers, shall have any responsibility or liability to the other party for any failure, mistake or error in the filing, prosecuting or maintaining of such patents.

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8)Each Party shall enforce its sublicense agreements with Contractors, Distributors, Suppliers or Customers as necessary to protect the other Party’s intellectual property rights or rights to Confidential Information.

9)Copyright Notices.

a)Licensee shall not remove or destroy any copyright or restricted rights notices affixed to any original media containing any Background Technology.  All copies of Background Technology made by or on behalf of Licensee shall either be labeled in the same manner as on the original media or in a manner substantially similar to the following:

Copyright [name of Licensor].  All Rights Reserved.

b)All copies of Modified Source Code, and Modified Object Code made by or on behalf of Licensee shall either be labeled in the same manner as on the original media or in a manner substantially similar to the following:

Copyright [year(s)] [name of Licensee] and its licensors.  All Rights Reserved.

10)Licensee shall mark all Licensee Products with a notation such as “Licensed under [Country] Patent No. _,___,___”, as applicable.  Licensee shall include such notations in all of its publicity (including but not limited to advertising, catalogues and brochures, and the like) describing Licensee Products.  Within [***] after notice, Licensee shall provide Licensor with a sample of all of such packaging and publicity (including but not limited to advertising, catalogues and brochures, and the like), to enable verification of such marking and notation.

ARTICLE 9.  LICENSES

1)Subject to the terms and conditions of this Agreement, to the extent of its legal right to do so, Datang grants to UT a [***] license in, to and under the Datang Background IPR for [***] within the scope defined in Article 2 only.

2)Subject to the terms and conditions of this Agreement, to the extent of its legal right to do so, UT grants to Datang a [***] license in, to and under the UT Background IPR for [***] within the scope defined in Article 2 only.

ARTICLE 10.  RESPONSIBILITIES

1)In the event that regulatory approvals are required in the PRC for [***], Datang shall, at its expense, initiate and complete the procedures necessary to obtain all such regulatory, telecommunications, safety and like approvals that are required in the PRC for the Products.  Datang shall process all necessary applications and forms, perform all necessary language translations to and from English, and assist in local testing.  Subject to nondisclosure terms, UT shall provide Datang with information and Products as may be required for the application and certification process.

2)In the event that regulatory approvals are required in the PRC for [***], UT shall, at its expense, initiate and complete the procedures necessary to obtain all such regulatory, telecommunications, safety and like approvals that are required in the PRC for the Products.  UT shall process all necessary applications and forms, perform all necessary language translations to and from

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English, and assist in local testing.  Subject to nondisclosure terms, Datang shall provide UT with information and Products as may be required for the application and certification process.

ARTICLE 11.  SUPPORT

1)Unless the applicable Project schedule specifies that technical assistance shall not be available in respect of any Deliverable, Supplier shall provide, upon request, technical assistance to facilitate Receiver’s use of the Deliverables.  Any such technical assistance shall be limited to that which is reasonable under the circumstances and shall be scheduled by Supplier to serve the needs of Receiver but not so as to inconvenience, or place irregular demands upon, the operations of Supplier.  Technical assistance may include training, consulting technical services of Supplier’s engineering, technical and research personnel, visits of such personnel to Receiver’s facilities, and visits of Receiver’s engineering, technical and research personnel to Supplier’s facilities.

ARTICLE 12.  RECORD KEEPING AND REPORTING

1)Each Party shall maintain a record, including but not limited to copies of agreements addressing rights to use the software executed by the Customer, of its distribution of the Products for a period of 5 years in order to comply with the requirements imposed upon such Party by such Party’s suppliers of software and for both Parties protection in the event that products liability, copyright infringement, trade secret misappropriation, or intellectual property misuse claims related to the Products should arise.

ARTICLE 13.  WARRANTIES

[***]

ARTICLE 14.  CLAIMS OF INFRINGEMENT

1)If a third party raises a claim of an infringement or alleged infringement of any PRC patent, copyright or other intellectual property right against a Party in connection with the Background Technology only as licensed hereunder and integrated into a Product, Licensor shall defend against or settle with such third party, and indemnify and protect Licensee from the damages and costs including reasonable attorney’s fee, if any, awarded in lawsuit directly attributable to such claim or any settlement thereof; provided that,

a)Licensee shall inform Licensor immediately of such claim;

b)Licensor has sole control of such defense and all negotiations for any settlement or compromise;

c)Licensee shall not, of its own accord, admit or settle such claim;

d)Licensee shall provide reasonable assistance to Licensor to ward off such claim;

e)Licensee shall act only in accordance with written instructions of Licensor, which shall be received in a timely fashion; and

9

f)Licensor shall have the right to give to Licensee, at Licensor’s option, a right to participate in and/or take over disputes, and/or to settle such claim.

g)In case of a claim set forth in this Article, Licensor may, without any further liability and at its own cost and discretion, take one of the following:

i)acquire the right to use the necessary intellectual property right from the person or company entitled to dispose of such intellectual property right; or

ii)replace or modify the Background Technology so as to become a non-infringing one;

2)[***]

3)In the excepted cases stated above, Licensee shall indemnify and hold Licensor harmless against any loss, cost, expense, damage, settlement or other liability, including, but not limited to, reasonable attorneys’ fees, which may be incurred by Licensor with respect to any action based on such a claim.

ARTICLE 15.  LIMITATION OF LIABILITY

1)[***]

2)[***]

3)[***]

4)Each Party shall (i) obtain a written agreement with its Customers which includes both warranty and [***] or (ii) failing to do so, [***].

ARTICLE 16.  CONFIDENTIALITY

1)Each Party agrees, in the event it receives Confidential Information of the other Party to take all reasonable actions to protect and hold such information in confidence in order to prevent its disclosure to third parties, to use such Confidential Information only for those purposes contemplated under this Agreement, and to disclose Confidential Information only to its employees on a need-to-know basis.

2)At all times during the term of the Agreement, both Parties shall perform all reasonably required security procedures at its facilities and in connection with its business activities in order to protect the Confidential Information of the other Party, including but not limited to, controlled access to the such Party’s facilities and/or installations, use of security badges by its employees, contractors and others while on the premises or installation sites, and confidentiality agreements with its employees and contractors and such other security standards and procedures as shall be reasonably necessary to ensure the protection and non-disclosure of Confidential Information.

3)The obligations of each Party under this Article shall survive for three (3) years after the expiration or termination of this Agreement.  Notwithstanding the foregoing, neither Party shall be required to protect or hold in confidence any information which:

a)is or becomes available to the public or to industry without the fault of the recipient;

b)is subsequently rightfully received by the recipient from a third party without obligation of restriction on further disclosure; or

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c)is independently developed by the recipient as evidenced by its business records.

ARTICLE 17.  TERM

1)This Agreement is valid for [***] from the effective date hereof.  Thereafter, the Agreement may be renewed [***] for successive [***] periods by mutual written agreement of the Parties.

ARTICLE 18.  TERMINATION

1)Either Party may at its option forthwith terminate this Agreement hereunder without payment of any compensation by giving a written notice thereof to the other Party, in the event of the happening of any of the following:

a)Insolvency of the other Party;

b)Filing of a voluntary petition in bankruptcy or for corporate reorganization or for any similar relief or passing a resolution for its winding-up or commencement of voluntary liquidation proceeding by the other Party;

c)Filing of an involuntary petition in bankruptcy or for corporate reorganization or for any similar relief or commencement of involuntary liquidation proceeding against the other Party unless such petition or proceeding is set aside or withdrawn or ceases to be in effect within sixty (60) days from the date of such filing or comment;

d)Appointment of receiver, trustee or liquidator with respect to any of the assets of the other Party;

e)Execution by the other Party of an assignment for the benefit of its creditors under laws relating to bankruptcy, liquidation or insolvency;

f)Transfer to or acquisition by a third party;

g)Any substantial or important change in the ownership, control or management of the other Party;

h)Any unauthorized sale of Products outside of the conditions set forth in this Agreement; or

i)Failure to correct or cure any material breach by the other Party of any covenant or obligation under this Agreement and/or individual sales contracts hereunder within [***] after receipt by the other Party of a written notice from such Party specifying such breach;

j)Occurrence of the following circumstances make this agreement unnecessary, 1) “Chinese government announces to abandon [***]; 2) the other party’s development work cumulatively delay [***] according to the project schedule in Article 6.

2)Any expiration or earlier termination of the Agreement does not release modify or alter any of the obligations of the Parties which accrued prior to such expiration or termination.  Any provision of this Agreement which by its content is intended to survive expiration or termination shall so survive.

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ARTICLE 19.  NO AGENCY

1)No agency, partnership, joint venture or employment relationship is or shall be created by virtue of this Agreement.

ARTICLE 20.  PUBLICITY

1)Neither Party shall use the name of the other Party in any advertising, public relations or media release without the prior written consent of such other Party.

ARTICLE 21.  PRODUCT DISCONTINUANCE

ARTICLE 22.  FORCE MAJEURE

1)For the purpose of this Agreement, the force majeure shall mean the circumstances of earthquake, typhoon, floods, fire and war and any objective circumstance which is unforeseeable, unavoidable and insurmountable.

2)A Party who is unable to perform the Agreement or unable to fully perform the Agreement due to force majeure, shall notify the other Party within [***] after the event of force majeure occurs and provide the certificate notarized by the local Notary Public within [***] after the event of force majeure occurs.

3)A Party who is unable to perform the Agreement due to force majeure is exempted from liability in part or in whole in light of the impact of the event of force majeure, except otherwise provided by law.

4)Where an event of force majeure occurred after the Party’s delay in performance, it is not exempted from liability.

5)In the event that the performance under this Agreement is prevented for a continuous period of [***] or longer by any of the events of force majeure, either Party shall have the right to terminate the Agreement by sending a written notice to the other Party.

ARTICLE 23.  RESOLUTION OF DISPUTES

1)All disputes, controversies and claims arising out of or in connection with this Agreement, or the breach, termination or invalidity hereof (a “dispute”), shall be settled through friendly consultation among the Parties.  If the dispute cannot be settled through friendly consultation within sixty (60) days after written notice is first given of the dispute, then it shall be settled by arbitration in accordance with China International Economic and Trade Arbitration Commission’s Arbitration Rules as supplemented by the provisions of this Article 22.

2)The arbitration shall take place in Beijing before China International Economic and Trade Arbitration Commission.  There shall be three (3) arbitrators.  UT and Datang shall each appoint one (1) arbitrator.  The third arbitrator shall be appointed by the president of China International Economic and Trade Arbitration Commission and shall serve as chairman of the panel.

3)The arbitration fee shall be borne by the losing Party.

4)In the course of arbitration, both Parties shall continue to execute the Agreement insofar as is reasonably practical except the part of the Agreement which is under arbitration.  This Article shall survive termination of this Agreement.

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ARTICLE 24.  ASSIGNMENT

1)Neither Party shall, in whole or in part, assign or otherwise transfer this Agreement or any of rights and obligations created thereunder, without the prior written consent of the other Party, which shall not be unreasonably withheld.

ARTICLE 25.  AMENDMENT

1)No part of this Agreement shall be altered, changed, supplemented or amended except by a written instrument or instruments signed by the duly authorized representatives of UT and Datang.

ARTICLE 26.  GOVERNING LAW

1)This Agreement shall in all respects be governed by and construed in accordance with the laws of the PRC.

ARTICLE 27.  SEVERABILITY

1)If any provision of this Agreement shall be determined to be illegal or unenforceable, such provision, to the extent it is illegal or unenforceable, shall be deemed severed from this Agreement, and shall be substituted by a reasonable provision to be mutually agreed upon.

ARTICLE 28.  NOTICE

1)All notices under this Agreement shall be given by airmail or facsimile (confirming the same by mail), addressed to the Party to be notified at the address specified below:

If to Datang:DATANG MOBILE COMMUNICATIONS EQUIPMENT CO., LTD

ADDRESS:Bldg. 41,333 Qingjiang Road, Shanghai, China, 200233

Attention:Mr. Chen Ping

If to UT:UTStarcom Shenzhen R&D Center

ADDRESS:3/F, Legend Building, High-tech Industrial Park, Nanshan Shenzhen, China, 518057

Attention:Mr. Zeeman Zhang

or to such other address or addresses as the respective Party may designate from time to time.  Such notice shall be considered to have been sufficiently given on the fifth (5th) Business Day following the date of mailing such notice or the next working day following transmission, if by facsimile.

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ARTICLE 29.  ENTIRE AGREEMENT

1)This Agreement contains the entire agreement between both Parties concerning the subject matter hereof and supersedes all previous negotiations, commitments and writings in respect to such subject matter.  No provision of this Agreement may be modified or amended, in whole or in part, except in writing executed by duly authorized representatives of both Parties.

2)Should there be any conflict between the Articles of this Agreement and the Schedules, the Articles of this Agreement shall supersede the conflicting portions of the Schedules.

ARTICLE 30.  LANGUAGES

1)This Agreement is written in both English and Chinese.  The English version and the Chinese version shall be equally valid.  In case of discrepancy between the two versions, the Chinese version shall prevail.

ARTICLE 30.  SOLICITATION OF EMPLOYEES

1)Neither party shall during the Term and for [***] thereafter solicit for employment or hire, directly or indirectly, the other party’s personnel who are directly involved in the conception, reduction to practice, or development of any Technology, or the transfer or receipt of any Technology hereunder, without the express prior written consent of the other party.

TABLE OF ANNEXES

Annex I                                  Overview of Joint Development

Annex II                                 Project Schedule

Annex III                               Background IPR

Annex IV                               [***]

14

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed in duplicate in English and Chinese respectively by duly authorized representatives of both Parties as of the dates written below.

Datang Mobile Communications Equipment Co., Ltd	UTStarcom (China) Co., Ltd
By:	By:
Name:	Name:
Title:	Title:
Date:	Date:

15

Annex I - Overview of Joint Development

[***]

ANNEX II              schedule

[***]

ANNEX III             Background IPR And Background Technology List

[***]

Annex IV – [***]

[***]

EX-10.83

Exhibit 10.83

[***] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS

STRICTLY CONFIDENTIAL

BROADBAND ACCESS NETWORK GENERAL TERMS AND CONDITIONS

between

RELIANCE INFOCOMM LIMITED,

“Reliance”

and

UTSTARCOM INC.,

“Vendor”

Dated as of October 1, 2002

Table of Contents

Section 1.	BACKGROUND
1.1	The Reliance Vision
1.2	General Terms
1.3	Contracts
1.4	Purchase Orders
1.5	Procedures Manual
1.6	Priority
Section 2.	DEFINITIONS AND INTERPRETATION
2.1	Definitions
2.2	Interpretation
Section 3.	SCOPE OF WORK AND RESPONSIBILITIES
3.1	Overview
3.2	Work Not Described Elsewhere
3.3	Task Orders for Services
3.4	Continuous Improvement
3.5	Termination Assistance Services
3.6	Exclusivity
3.7	Use of Third Parties
3.8	Vendor Developments
3.9	Right of Inspection
3.10	References to Certain Sources
3.11	Review of Documents
3.12	Eligibility under Applicable Laws and Applicable Permits
3.13	Liens and Other Encumbrances
3.14	Vendor To Inform Itself Fully; Waiver of Defense
3.15	Reliance's Right to Suspend Work
3.16	Forward Price Assurance
3.17	Third Party Contracts
3.18	Network Integration
3.19	Not used
3.20	Sales to Competitors
3.21	Insurance
Section 4.	SITES, SOFTWARE AND EQUIPMENT
4.1	Sites
4.2	Software and Equipment
4.3	Updates and Upgrades
Section 5.	PERFORMANCE WARRANTY AND LIQUIDATED DAMAGES
5.1	Special Provisions for Substantial Completion:
5.2	Performance Certification
5.3	Problem Analysis
5.4	Continuous Improvement Reviews
5.5	Satisfaction Surveys

i

5.6	Performance Failure
5.7	Liquidated Damages
Section 6.	PROJECT PERSONNEL
6.1	Key Personnel
6.2	Approval of Key Personnel
6.3	Continuity of Key Personnel
6.4	Vendor Program Manager
6.5	Vendor Personnel Are Not Reliance, Reliance Affiliate or User Employees
6.6	Replacement, Qualifications, and Retention of Vendor Personnel
6.7	Reliance Approval of Vendor Personnel
6.8	Union Contracts and Applicable Laws
Section 7.	VENDOR'S RESPONSIBILITIES
7.1	Committees and Meetings
7.2	Documentation and Records
7.3	Reports
7.4	Meetings
7.5	Quality Assurance
7.6	Architecture, Standards and Information Technology and Telecommunications Planning
7.7	Time, Date and Location Processing Compliance
7.8	Access to Specialized Vendor Skills and Resources
7.9	Standby Letter of Credit
7.10	Planning
7.11	Disaster Recovery
Section 8.	RELIANCE RESPONSIBILITIES
8.1	Responsibilities
Section 9.	AFFILIATES
9.1	Affiliates
9.2	Affiliate Rights and Obligations
Section 10.	SUBCONTRACTORS
10.1	Subcontractors
10.2	Vendor's Liability
10.3	Assignability of Subcontracts to Reliance
10.4	Subcontractor Insurance
10.5	Vendor Warranties
10.6	Payment of Subcontractors
Section 11.	TERM
Section 12.	CHARGES
12.1	General
12.2	Volume/Trade Discount
12.3	Third Party Fees
12.4	Expenses
12.5	Proration
12.6	Reliance Benchmarking Reviews
12.7	Annual Price Improvement

ii

12.8	Rate Review
12.9	Anti-Backsliding
12.10	Extraordinary Events
12.11	Audit Rights
12.12	Asset Register
12.13	Price Reduction
12.14	Reliance Policies and Procedures
Section 13.	INVOICING AND PAYMENT
13.1	General
13.2	Invoicing
13.3	Credits
13.4	Payment Due
13.5	Disputed Charges
13.6	Stale Invoices
Section 14.	ORDERING AND DELIVERY
14.1	Forecasts of Products and Services
14.2	Ordering
14.3	Change Orders
14.4	Delivery
14.5	Cancellation
14.6	No Payment in Event of Material Breach
Section 15.	INTELLECTUAL PROPERTY
15.1	License Grants
15.2	Ownership Rights
15.3	Vendor Disclosure and Cooperation
15.4	Marks
15.5	Required Consents
15.6	Intellectual Property Warranties
15.7	Infringement
15.8	Survival
Section 16.	TITLE AND RISK OF LOSS
16.1	Title
16.2	Risk of Loss
Section 17.	FORCE MAJEURE
Section 18.	TAXES, DUTIES, OTHER LEVIES OR INCIDENTAL CHARGES
Section 19.	DISCONTINUATION AND TECHNOLOGY FORECAST
19.1	Discontinuation
19.2	Technology Forecast
Section 20.	INDEMNIFICATION AND LIABILITY LIMITATION
20.1	Vendor Indemnity
20.2	Reliance Indemnity
20.3	Liability
20.4	Limitation on Liability

iii

20.5	Damages for Fraud, Gross Negligence or Willful Misconduct
20.6	Claims Procedure
Section 21.	REPRESENTATIONS AND WARRANTIES
21.1	Representations and Warranties of the Vendor
21.2	Bring Down
21.3	Representations and Warranties of Reliance
21.4	Bring Down
Section 22.	DISPUTE RESOLUTION
22.1	Interpretation
22.2	Negotiation
22.3	Arbitration
Section 23.	TERMINATION AND EVENTS OF DEFAULT
23.1	Reliance's Right of Termination
23.2	Vendor's Right of Termination
23.3	Continuing Obligations; Survival
Section 24.	MISCELLANEOUS
24.1	Amendments
24.2	Offset
24.3	Assignment
24.4	Notices
24.5	Independent Contractor
24.6	Inducements
24.7	Headings
24.8	Severability
24.9	Waiver
24.10	Public Statements
24.11	Records and Communications
24.12	Specifications
24.13	Financing Parties Requirements
24.14	Confidentiality
24.15	Entirety of Contract; No Oral Change
24.16	Publicity
24.17	Change of Control of the Vendor
24.18	Non-Recourse
24.19	Further Assurances
24.20	Counterparts
24.21	Time is of the Essence
24.22	Construction
24.23	Improvements, Inventions and Innovations

iv

EXHIBIT

Exhibit A Specifications (Including Annexures)

SCHEDULES

Schedule 1	-	Not Used
Schedule 2	-	Insurance
Schedule 3	-	Reliance Policies
Schedule 4	-	Pro-Forma Purchase Order
Schedule 5	-	Form of Performance Security
Schedule 6	-	Feature and Function Availability

v

BROADBAND ACCESS NETWORK GENERAL TERMS AND CONDITIONS

These Broadband Access Network General Terms and Conditions (the “General Terms”) are effective as of October 1, 2002 (the “Effective Date”), by and between Reliance Infocomm Limited, a company incorporated and registered under the Companies Act, 1956 and having its Registered Office at Avdesh House, Pritam Nagar, 1st Slope, Ellis Bridge, Ahmedabad 380006, Republic of India (hereinafter referred to as “Reliance” which expression, unless repugnant to the context or meaning thereof, shall mean and include its successors and permitted assigns), and UTStarcom Inc., a company incorporated under the laws of Delaware and having its principal offices at 1275 Harbor Bay Parkway, Alameda, California 94502, U.S.A (hereinafter referred to as the “Vendor”, which expressions, unless repugnant to the context or meaning thereof, shall mean and include its permitted successors and assigns and, together with Reliance, the “Parties” and each, a “Party”).

RECITALS:

(a)Reliance has obtained the following licenses from the Department of Telecommunications, Ministry of Communications, Government of India:

(i)national long distance operation;

(ii)basic telephone services in seventeen (17) telecom circles in India; and

(iii)International long distance operations

that can be used for transporting voice, video and data telecommunications in India.

(b)Vendorhas represented that it has the requisite knowledge, expertise, technical know-how, experience, resources, infrastructure and intellectual property for the design, manufacture, development, procurement, installation, configuration, integration, operations, management, maintenance and administration of all Products and Services contemplated by the Documents.

(c)The Parties desire to establish a master set of general terms and conditions that shall govern all hardware, software and services provided by or for Vendor to Reliance and the Users as hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

SECTION 1.                 BACKGROUND

1.1  The Reliance Vision.

1.1.1           Reliance desires to construct a telecommunications network in the Republic of India and to provide advanced optical, wireless and wireline voice, video and data services across the Republic of India and throughout other areas of the world, either directly to its end customers or through services resold by

other telecommunications carriers. Reliance and its Affiliates have been providing GSM mobile wireless services in seven (7) telecommunications circles and basic telecommunications services in one (1) telecommunications circle.  Reliance and its Affiliates have placed fiber-optic cable along rights of way and desire to sell certain strands of “dark” fiber capacity and to “light” the remaining fiber-optic cable by attaching optical-electronic equipment in order to create a telecommunications traffic transport network throughout India.  This fiber-optic network will serve as a “backbone” to which Reliance will interconnect various wireless and wireline networks, switching equipment and monitoring, management and administrative systems to create an integrated telecommunications network.

1.1.2Reliance has received authority to provide basic local and long distance services in India. Using appropriate wireless and wireline technologies Reliance seeks to provide basic local telecommunications services.  Reliance seeks to develop a backbone network that will provide national long distance services, high capacity access for business customers and points of interconnection to local loops. Finally, Reliance seeks to interconnect its integrated network with those of other telecommunications providers.

1.1.3Reliance’s objective is to implement this integrated network such that it can provision, transport, monitor, manage, maintain and administer all types of telecommunications traffic.  As a result, the network envisioned by Reliance also includes network operations centers (“NOCs”) to constantly monitor the status of the network, and a full suite of software support systems (e.g., enterprise, operations and billing) to permit Reliance to provide all its anticipated voice, data and enhanced services efficiently, to monitor the services being provided and to invoice its customers on an accurate and timely basis for such services.  Reliance will also require optimization and maintenance services to ensure the network provides the levels of service demanded by Reliance’s potential customers.

1.1.4In summary, Reliance desires to retain the services of appropriate contractors to provision, build, operate, manage, maintain and administer the Broadband Access Reliance Network and associated operations, billing and Enterprise support systems.  Such services may include the following:

(a)Design of some sections of the Broadband Access Reliance Network and confirmation of the designs already developed by Reliance;

(b)Engineering of the various sections of the Broadband Access Reliance Network;

(c)Supply of equipment for the Broadband Access Reliance Network;

(d)Supply of software for the Broadband Access Reliance Network;

(e)Installation of equipment;

2

(f)Installation of software;

(g)Commissioning of the sections of the Broadband Access Reliance Network for service;

(h)Optimization of the sections of the Broadband Access Reliance Network;

(i)Construction, provisioning, configuration, operation, management and maintenance of NOCs, including the Wireless NOC and the Backbone NOC and the links to the NOCs and the integration of all Reliance and other customer and services provider products, networks and NOCs where requested by Reliance to assure Interoperability;

(j)Management of integration of all Products supplied by Vendor with all products comprising the Broadband Access Reliance Network;

(k)Interconnection of the Broadband Access Reliance Network with other networks;

(l)Maintenance of the Broadband Access Reliance Network;

(m)Monitoring of the Broadband Access Reliance Network;

(n)Implementation of, and integration of Vendor’s Products with, operational support systems (“OSS”), operational management systems (“OMS”), billing support systems (“BSS”) and enterprise support systems (“ESS”) for the Broadband Access Reliance Network; and

(o)Project and program management for the entire process.

1.1.5Reliance has disclosed the implementation plans of the program to Vendor and Vendor acknowledges that it is fully aware of the technical details and Timetables of the program and the requirements of and Specifications for the Equipment, Software and Services required to achieve the goals, objectives and purposes set forth in the Documents.  As a result, Reliance and Vendor have negotiated the Documents to describe the contractual rights and responsibilities between Reliance and Vendor with respect to the implementation of the Broadband Access Reliance Network, as it evolves and continuously improves during the Term.  Vendor is skilled and experienced in, and desires to provide, these services to Reliance in accordance with the provisions and the objectives set forth herein.

1.2  General Terms.

During the Term, Vendor shall offer to Reliance and Reliance may obtain from Vendor, certain Equipment, Software and Services in accordance with the terms and conditions set forth in the Documents.  The Parties desire to enter into these General Terms to define the

3

terms and conditions that shall govern their relationship, allocate certain responsibilities and provide certain price preferences and other incentives that shall apply to all Equipment, Software and Services purchased by or for Reliance from the Vendor.  The General Terms do not obligate Reliance to purchase any specific equipment, software or services except as otherwise set forth in the Documents.  The Vendor shall not and these General Terms do not impose any condition on Reliance to purchase any equipment, software or services as a precondition to sale, purchase or supply of any other equipment, software or services required by the Documents. The Vendor shall provide all Products and Services to Reliance pursuant to and in accordance with the Specifications, these General Terms and other applicable Documents.  Except to the extent a contrary intent is set forth herein, all Products and Services shall be subject to Acceptance Testing in accordance with the applicable Acceptance Tests as set forth in the Specifications.

1.3  Contracts.

Vendor shall provide Equipment to Reliance pursuant to a Broadband Access Equipment Contract (the “Broadband Access Equipment Contract”). Vendor shall provide Software to Reliance pursuant to a Broadband Access Software Contract (the “Broadband Access Software Contract”). Vendor shall provide Services to Reliance pursuant to a Broadband Access Services Contract (the “Broadband Access Services Contract”). Each of the Broadband Access Equipment Contract, the Broadband Access Software Contract and the Broadband Access Services Contract is a “Contract” and collectively are the “Contracts.”

1.4  Purchase Orders

Reliance shall only be obligated to pay for Equipment, Software and Services provided by or for the Vendor pursuant to, and in accordance with, each Purchase Order.  Reliance shall be permitted to modify the form of Purchase Order and Task Order in its discretion if it is necessary to do so.

1.5  Procedures Manual

1.5.1As part of the Work, and at no additional cost to Reliance, Vendor shall deliver to Reliance for its review, comment and approval (a) an outline of a Procedures Manual within [***] following the Effective Date of each Contract, and (b) a final draft of such Procedures Manual at least [***] prior to the Commencement Date of each Contract; provided, that Vendor shall in all events have a minimum of [***] in which to deliver such final draft to Reliance.  At a minimum, the Procedures Manual shall include all information typically addressed by Vendor in its Procedures Manuals and the following:

[***]

1.5.2Vendor shall perform the Work in accordance with the Documents.  The Procedures Manual shall be delivered and maintained by Vendor in both Microsoft Word and web-based HTML/XML format.  Paper copies of the Procedures Manual shall be delivered, and electronic copies of the Procedures Manual shall be emailed, to Reliance designated personnel upon

4

the completion of each draft, when finalized by the Parties and whenever the Procedures Manual is subsequently updated or otherwise modified.  Vendor shall promptly modify and update the Procedures Manual to reflect changes in the operations or procedures described therein, and shall provide the proposed changes in the manual to Reliance for review, comment and written approval.

1.6  Priority.

In the event of a conflict between these General Terms and any other document, the following order of priority shall be applied:

1.General Terms, supersede;

2.Contracts, which supersede;

3.Specifications, which supersede;

4.Purchase Orders, which supersede;

5.the Procedures Manual.

provided, (a) that in the event of a conflict or inconsistency between any schedule or exhibit or an attachment to the General Terms or any Contract, the General Terms or the concerned Contract, as applicable, shall prevail; (b) that in the event identical defined terms are provided for in two or more Documents, the term as defined in any such Document shall control as to such Document (e.g., the “Effective Date” as defined in any Contract shall be the effective date applicable to such Contract) and (c) that in the event the Net Price for any Product or Service, when calculated under the terms of the General Terms or terms of any agreement results in different Net Prices, Reliance shall in all events be charged the lowest Net Price so determined.

SECTION 2.         DEFINITIONS AND INTERPRETATION

2.1  Definitions.

As used in the Documents, capitalized terms shall have the meaning set forth herein, or if there is no express definition set forth herein, the meaning set forth in an applicable Document.

“Acceptance” or “Accepted”

the successful completion of all of the Acceptance Tests and requirements as set forth in the Documents in respect of the Broadband Access Reliance Network or any relevant portion thereof. In the event that the Acceptance Tests as set forth in the Documents in respect of any Products have not been completed within [***] after the delivery of such Products due to reasons attributable to Reliance under the responsibility matrix set forth in the Specifications then such Products shall be deemed to have achieved Acceptance on the expiry of such [***] period.

5

“Acceptance Certificates”

those written certificates provided by Reliance to the Vendor evidencing Reliance’s Acceptance of the Products, Services and the Initial Broadband Access Reliance Network or the Broadband Access Reliance Network or any relevant portion thereof pursuant to and in accordance with the Specifications and the Performance Criteria. With respect to Expansions, Reliance shall provide Vendor with Acceptance Certificates once every calendar month setting forth the Products that have achieved Acceptance during the preceding calendar month.

“Acceptance Tests” and “Acceptance Testing”

the collective reference to the performance and reliability demonstrations and tests relating to acceptance set forth in the Specifications.

“Ad Hoc Reporting Baseline”

has the meaning ascribed thereto in Section 7.3.

“Ad Hoc Reports”

has the meaning ascribed thereto in Section 7.3.

“Additional Reports”

has the meaning ascribed thereto in Section 7.3.

“Affiliate”

means, with respect to any Person, any other Person directly or indirectly Controlling, Controlled by, or under direct, indirect or common Control with, such Person. For the purposes of this definition of “Affiliate,” “Control,” “Controlled” or “Controlling” shall mean, with respect to any Person, any circumstance in which such Person is controlled by any other Person by virtue of the latter Person controlling the composition of the board of directors or managers or owning the largest or controlling percentage of the voting securities or interests of such Person or otherwise.  For the avoidance of doubt it is clarified that a mere holding by a Person of the largest percentage of the voting securities or interest of another Person shall not make the latter an Affiliate of the former under this definition unless it also controls the latter Person.

“Annual Price Improvement”

a discount calculated on the lowest Net Price paid or payable for any given Product in the previous [***] period in which Reliance has purchased such Product, to determine the Net Price applicable to purchases of such Product by Reliance in succeeding [***] periods as set forth in the table below.  Such discounts shall be applied on a compounding basis.

6

[***]

“Applicable Laws”

as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, all domestic and foreign laws (including, but not limited to, any Environmental Laws), treaties, ordinances, judgments, decrees, injunctions, writs, orders and stipulations of any court, arbitrator or governmental agency or authority and statutes, rules, regulations, orders and interpretations thereof of any federal, state, provincial, county, municipal, regional, environmental or other Governmental Entity, instrumentality, agency, authority, court or other body (i) applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject or (ii) having jurisdiction over all or any part of the Broadband Access Reliance Network or the Work to be performed pursuant to the terms of the Documents.

“Applicable Permits” or “Permits”

any waiver, exemption, building, variance, franchise, permit, authorization, approval, license or similar order of or from any domestic or foreign, federal, state, provincial, county, municipal, regional, environmental or other Governmental Entity, instrumentality, agency, authority, court or other body having jurisdiction over all or any part of the Broadband Access Reliance Network or the Work to be performed pursuant to the terms of the Documents.

“Backwards Compatibility” or “Backwards Compatible”

means (i) with respect to all Updates, Upgrades and Combined Releases relating to Software, the ability of the greater of (A) each of the prior [***] Major Releases, or (B) the number of Major Releases issued by Vendor within a period of [***] prior to the integration into the Broadband Access Reliance Network of such Update, Upgrade and/or Combined Release relating to Software, to remain fully functional in accordance with and up to the performance levels to which each was performing immediately prior to the integration with such Update, Upgrade and/or Combined Release relating to Software, and the ability of such Update, Upgrade and/or Combined Release to Interoperate and be compatible with all such functionality of such prior Software versions and with all existing in-service Vendor provided Products already installed in the Broadband Access Reliance Network; (ii) with respect to all Updates, Upgrades and Combined Releases (to the extent of that portion of the Combined Release that is the Update or the use of which by Reliance is not optional without losing the benefit of the Update (for these purposes a “New Equipment Release” means collectively such Update and such non-optional portion of such Combined Release) relating to Equipment, the ability of the existing Broadband Access Reliance Network infrastructure to remain fully functional in accordance with and up to the performance levels to which it was performing immediately prior to the integration with the New Equipment Release, and the ability of the New Equipment Release to Interoperate and be fully compatible with all such functionality of such existing infrastructure and (iii) with respect to each of (A) Updates, Upgrades and Combined Releases relating to Software, and (B) New Equipment Releases, the ability of each of the Products set forth in (A) and (B) to comply with the existing

7

interfaces to other third party equipment and software already deployed in the Broadband Access Reliance Network and with respect to which Vendor is already in compliance prior to the introduction of the Products set forth in (A) and (B).

“BAN”

means the physical location where the Broadband Access traffic from various BNs is aggregated, processed and interconnected to the other components of the Broadband Access Reliance Network.

“BAN Terminal”

means the Network Element forming part of the Broadband Access Reliance Network that is located at the BAN location of the Broadband Access Reliance Network

“BA Ring”

means a discrete portion of the Broadband Access Reliance Network, comprising of one or more BN Terminals and the associated BAN Terminal, connected in a ring and satisfying the specifications for the SDH Equipment or any other protection mechanism as set forth in the Specifications.

“BN”

means the physical location where the Broadband Access traffic from various CPEs is aggregated, processed and interconnected to the other components of the Broadband Access Reliance Network.

“BN Terminal”

means the Network Element forming part of the Broadband Access Reliance Network described in the Specifications that is located at the BN location of the Broadband Access Reliance Network, including without limitation any CPE’s that may be located at such BN location.

“Benchmarker”

has the meaning ascribed thereto in Section 12.6.

“Benchmarking”

has the meaning ascribed thereto in Section 12.6.

“Best-in-Class Performance”

for the applicable measurement period for any Deliverable, the average of the [***] highest performance standards identified by the Benchmarker as comparable.

“Best Practices”

with respect to any item of Work, those customs, practices, processes and methods used by the leading contractors providing deliverables similar to such item to design,

8

manufacture, develop, install, commission, optimize, maintain and monitor such item, including the process and quality recommendations of any industry- or sector-wide standard setting organizations.

“Bill of Quantities” or “BOQ”

the final as-built bill of quantities of Products in the Initial Broadband Access Reliance Network, at the time of Acceptance of the Initial Broadband Access Reliance Network.  Vendor’s initial estimate of the BOQ is set forth in the Specifications and will change from time to time based on network and Broadband Access link engineering as agreed by the Parties.  The basis for determination of the BOQ for the Initial Broadband Access Reliance Network is set forth in the Specifications.

“Broadband Access Reliance Network” or “Network”

all Products and Services and other items of Work furnished by Vendor and all Subcontractors under the Documents, together with all equipment, hardware, software, services and other items furnished by Third Party Providers, including the Initial Broadband Access Reliance Network.

“Broadband Access Equipment”

means access network equipment’s such as Digital Loop Carrier, transport equipment, DSL equipment, metro Ethernet equipment, the Customer Premises Equipment, their components, parts and accessories as required at BAN and BN.

 “Broadband Access Equipment Contract”

has the meaning ascribed thereto in Section 1.3.

“Broadband Access Reliance Network Plan”

has the meaning ascribed thereto in Section 7.10.

 “Broadband Access Services Contract”

has the meaning ascribed thereto in Section 1.3.

“Broadband Access Software Contract”

has the meaning ascribed thereto in Section 1.3.

“Business Day”

any day of the year other than a Sunday or Indian national holiday.

“Change”

has the meaning ascribed thereto in Section 14.3.

9

“Change Orders”

has the meaning ascribed thereto in Section 14.3.

“Charges”

for any period, the total amount of charges by Vendor for the Deliverables invoiced in accordance with the Documents during such period.

“Civil Work”

with respect to any Network Facility, the labor and materials necessary in the performance of demolition, construction and renovation work, and any structural improvements (including, but not limited to, any buildings and towers) in order to construct a Network Facility.

“Combined Release”

an Update that is combined with any Upgrade.

“Commencement Date”

the date upon which Work shall commence pursuant to any Contract or other Document.

“Commercial Service”

means revenue generating stable commercial operation of the Broadband Access Reliance Network, or any relevant portion thereof, exclusive of operation for purposes of Acceptance Testing in accordance with the Specifications.

“Contracts”

has the meaning ascribed thereto in Section 1.3.

 “COT”

means (Central Office Terminal) which is also known as LET ( Local Exchange Terminal)

“Critical Performance Failure”

has the meaning ascribed thereto in the relevant Documents.

“Custom Work Software”

all Software made, conceived or developed by Vendor or any Vendor Affiliate expressly on behalf of Reliance pursuant to the Documents, and any Inventions or Derivative Works therefrom.  Except as otherwise provided herein, Custom Work Software does not include any pre-existing software owned or licensed by Vendor or any Vendor Affiliate.

10

“Customer Premises Equipment” or “CPE”

means the end-user/customer equipment, including telephones and other equipment for broadband access, located at the customer’s premises and connected to the BN Terminals.

“Date Processing Compliance”

has the meaning ascribed thereto in Section 7.7.

“Defects and Deficiencies”, “Defects or Deficiencies”, or “Defective” or “Deficiencies”

any one or a combination of the following, or items of a similar nature:

(a)           when used with respect to the performance of labor or service (including any work by any Subcontractor), such items that are not provided in a workmanlike manner, consistent with the standards of quality and performance set forth in the Documents and in accordance with the Specifications and Timetables set forth herein;

(b)           when used with respect to structures, materials, Equipment and Software (including any Work by any Subcontractor), such items that are not (i) of good quality and free from improper workmanship and defects in accordance with the standards set forth herein and the highest standards of procurement and manufacturing, or (ii) free from errors and omissions in design, development or engineering services in light of such standards; or (iii) in compliance with the Specifications; and

(c)           in general, (i) Work (including any Work by any Subcontractor) that does not conform to the Specifications and/or requirements of the Documents, (ii) Work (including any Work by any Subcontractor) that is not free from excessive corrosion or erosion or (iii) any design, engineering, start-up activities, materials, Equipment, Software, tools, supplies, commissioning, optimization or Training that (a) does not conform to the standards and/or Specifications set forth herein, (b) has improper or inferior workmanship or (c) would adversely affect the ability of the Products to meet the Performance Criteria on a consistent and reliable basis.

“Deliverable”

any item identified in any Purchase Order accepted by Vendor pursuant to Section 14.2 below, including, without limitation, any Product or Services.

“Derivative Work”

a work that is based upon one or more preexisting works, such as a revision, modification, translation, abridgment, condensation, expansion, or any other form in which such preexisting works may be recast, transformed, or adapted, and that, if prepared without authorization of the owner of the copyright in such preexisting

11

work, would constitute a copyright infringement.  For purposes hereof, a Derivative Work shall also include any compilation that incorporates such a preexisting work.

“Development Committee”

the Development Committee established pursuant to Section 3.8.2.

“Disabling Code”

any code, program or sub-program the knowing or intended purpose of which is to disable or otherwise shutdown all or any portion of the Work or that prevent access or the operation of any program, sub-program, feature or functionality that is necessary for the proper functioning of the Products within the Broadband Access Reliance Network in accordance with the Specifications.  This definition shall not include key codes or similar items whose purpose is to enable the functioning of further features, functions or capacity in respect of Equipment or Software.

“DLC”

means Digital Loop Carrier system, providing broadband data and voice services.

“Documentation”

all materials, instructions, specifications related to the design, manufacture, development, installation, configuration, optimization, operation, maintenance, management, administration or Interoperability of the Products, Services for the Broadband Access Reliance Network, training and operating manuals, including Vendor’s standard Product and Software documentation as provided by Vendor and expressly accepted by Reliance.

“Documents”

the collective reference to these General Terms and all Contracts, the Specifications and the schedules and exhibits hereto and thereto, and all Purchase Orders and the Procedures Manual, all as amended from time to time in accordance with the procedures set forth hereunder (and the term “Documents” shall include all such amendments) and all other present or future agreements and instruments between Reliance, on the one hand, and Vendor and/or any Affiliate of Vendor, on the other hand, in connection with the performance of the General Terms, the Contracts, the Specifications, Purchase Orders and/or the Procedures Manual or any of the obligations hereunder or thereunder.  The term “Documents,” when used in the context of any applicable Contract, shall be deemed to include such Contract.

“Effective Date”

has the meaning ascribed thereto in the prefatory paragraph to these General Terms.

“Environmental Laws”

any and all domestic and foreign, federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental

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Entity, or requirements of law (including, without limitation, common law) relating in any manner to contamination, pollution, or protection of human health or the environment, as now or may at any time hereafter be in effect, as applicable.

“Equipment”

(a) all equipment, components, hardware, spare and replacement parts, accessories, test bed and other items of tangible personal property furnished to Reliance by the Vendor or any Subcontractor pursuant to the Documents; (b) all Upgrades, Updates and Combined Releases relating to the equipment, hardware, spare and replacement parts and other items of tangible personal property described in (a) above; and (c) all Documentation relating to (a) and (b) of this definition.

“Expansions”

all Products and Services ordered by Reliance that are not a part of the Initial Broadband Access Reliance Network.

“Expense”

any cost or expense incurred by a Party.  The term “Expenses” includes Pass-Through Expenses, Reliance Internal Expenses and Retained Expenses.

“Extraordinary Event”

a circumstance in which an event or discrete set of events has occurred or is planned with respect to the business of Reliance that results or will result in a change in the scope, nature or volume of the Products and/or Services that Reliance will require from Vendor, and which is expected to cause the estimated chargeable resource usage in any category used to provide the Work to increase or decrease by twenty percent (20%) or more.  Examples of the kinds of events that might cause such substantial increases or decreases include:

(a)           changes to locations where Reliance operates;

(b)           changes in products of, or in markets served by, Reliance;

(c)           mergers, acquisitions or divestitures of Reliance;

(d)           changes in the method of service delivery; or

(e)           changes in market priorities.

“Features”

means Product features and performance or with respect to other items, the features and performance of such items.

“Financial Audit”

means the procedure set forth in Section 12.11

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“Fit”

means physical size or mounting arrangement.  For the purposes of illustration it would be mechanical, electrical or thermal requirements.

“Forward Price Assurance”

means the procedure set forth in Section 3.16.

“Force Majeure”

means any or all of the following events or occurrences:

(a)           Acts of God, epidemic, earthquake, fire, explosion, or extraordinary weather conditions more severe than those normally and typically experienced in the affected geographic area;

(b)           Acts of a public enemy, war (declared or undeclared, terrorism), blockade, insurrection, riot or civil disturbance, or any exercise of police power by or on behalf of any public entity;

(c)           (i) With respect to Reliance, the suspension, termination, interruption, denial or failure of or delay in renewal or issuance of any Applicable Permit required by the Documents; or (ii) a change in Applicable Law that materially prevents a Party’s performance of its responsibilities under the Documents; provided, that no such order, judgment, act, event or change is the result of the action or inaction of, or breach of the Documents by, the Party relying thereon; or

(d)           Strikes, boycotts or lockouts by a whole national category of workers except for any such strike, boycott or lockout limited to the employees of the Vendor or the employees of a Subcontractor;

provided, that any such event (i) has a material adverse impact on a Party’s ability to perform its responsibilities under the Documents, and (ii) is beyond the reasonable control of the affected Party.

Events of Force Majeure include the failure of a Subcontractor to furnish labor, services, materials, or equipment in accordance with its contractual obligations, only to the extent such failure is itself due to an event of Force Majeure to the extent the Subcontractor or Vendor could not avoid or mitigate such failure.  Delays in performance by the Vendor to the extent due to the failure of the Vendor or any Subcontractor to provide an adequate number of engineers or other workmen or to manufacture or procure an adequate amount of Equipment, Software and/or Services shall not be considered events of Force Majeure.

“Forecast”

has the meaning ascribed thereto in Section 14.1.

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“Forecast Period”

the [***] following the date of delivery of any Forecast.

“Form”

means physical shape.

“Function”

means that the Product, Licensed Material or Features perform in the manner described in the Specifications or if not so described, as described in the Vendor’s or Vendor’s Affiliate’s specifications relating thereto that were furnished to Reliance.

“General Terms”

this statement of Broadband Access Network General Terms and Conditions, including all exhibits and schedules attached hereto, as amended from time to time.

“Governmental Entity”

any nation or government, any state, province or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Indemnitees”

has the meaning ascribed thereto in Sections 20.1 and 20.2.

“Initial Broadband Access Reliance Network”

 a fiber-optic cable / copper cable network covering [***] node (BN) locations, associated Building Aggregation Node (BAN) locations, associated Media Convergence Node (MCN) locations and associated network elements, the technical and other specifications of which are set forth in the Specifications.

“Inspector”

a qualified Person designated as an authorized representative of Reliance assigned to make all necessary inspections of the Work, or of the labor, materials and equipment furnished or being furnished by the Vendor or any of its Subcontractors in the course thereof at the Network Locations and the other sites where the Vendor or any Subcontractor is prosecuting the Work, subject to appropriate notice, safety, security and confidentiality requirements.

“Interoperability”

means the ability through the use of open interfaces and published standards for (i) the Broadband Access Reliance Network or any material part thereof to interconnect and successfully operate with another portion of the Broadband Access Reliance Network or any material part thereof provided by or for the Vendor, Third Party Providers

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and/or the Other Contractors and/or other suppliers or service providers whose equipment and software also meet relevant standards in accordance with the Specifications, (ii) Products to operate with one another and to operate with and within the Broadband Access Reliance Network in accordance with the Specifications, and (iii) Products and the Broadband Access Reliance Network to operate and interoperate with the networks of other domestic and national telecommunications services providers in the Republic of India, and interwork with international service providers throughout the world in accordance with the Specifications.

“Intellectual Property Rights”

all patent, trademark, copyright, design right, trade secret, service mark or other intellectual property rights in and to the Work licensed, granted or assigned by Vendor or any Vendor Affiliate to, or otherwise vested in, Reliance pursuant to the Documents.

“Invention”

any idea, design, concept, technique, invention, discovery, or improvement, regardless of patentability, made solely or jointly by Vendor, any Vendor Affiliate and/or their respective employees, or jointly by Vendor, any Vendor Affiliate and/or their respective employees, agents or Subcontractors with one or more employee of Reliance during the Term under the Documents.

“Invoice”

shall mean invoices or claim bills, in writing, delivered to Reliance by Vendor for amounts which have become due and payable pursuant to the terms of the Documents.

“Joint Operating Committee”

that committee described in Section 7.1.1.

“LET”

means Local Exchange Terminal, which is also known as COT (Central Office Terminal)

“Key Personnel”

those expatriate and Indian Vendor Personnel as reasonably identified by Reliance as key personnel.

“Liabilities”

has the meaning ascribed thereto in Section 20.1.

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“Licensed Material”

means Equipment or Software that is licensed to Reliance by the Vendor or any Vendor Affiliate or that Reliance has the right to use in connection with the operation of the Products and Services furnished by Vendor, any Vendor Affiliate or any Third Party Provider.

“Link”

a discrete segment of the Broadband Access Reliance Network comprising of (i) a BAN Terminal and all Products required for such BAN Terminal to be ready for its intended use, ii) BN terminal/s and all products required for such BN terminal to be ready for its intended use (iii) without limitation Products comprising the associated BA Ring to which such BAN and BN Terminals are connected and (iv)  corresponding equipment, both hardware/software at the MCN/NoC for the link to be ready for its intended use as set forth in the Specifications.

“Liquidated Damages”

has the meaning ascribed thereto in Section 5.7.

“Major Release”

a hardware or software package which provides substantial operational and performance improvement over the previous version as well as adds additional revenue generating features and services.

“Malicious Code”

any code, program or sub-program the knowing or intended purpose of which is to damage or interfere with the operation of the computer system that contains the code, program or sub-program, or to halt, disable or interfere with the operation of the Software, code, program or sub-program, itself, or any code, program or sub-program that permits any person to circumvent the normal security of the Software or the system containing the code.

“Market”

a geographic area subject to consistent regulation by a Governmental Entity (e.g., wireless services within a basic telecommunications circle or backbone services in a long distance charging area) or all Products and Services and any Reliance property located within the geographic boundaries of such area, as the context requires.

“Marks”

has the meaning ascribed thereto in Section 15.4.

“MCN”

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means Media Convergence Node, where intra and inter city network equipments are located. These equipment’s consist of transport, transmission, switching, data, IP etc. ,without limitation.

“NMS/EMS”

the NMS/EMS for Narrowband and Broadband Access application platform and all of the associated products, terminals, services, applications and modules required to manage the Broadband Access Reliance Network all by itself, as set forth in the Specifications.

“Net Price”

the final transaction price paid or payable after all applicable price preferences, reductions, rebates, volume/trade discounts or adjustments of any kind are applied, whether under the original contract of purchase, as it may be amended, supplemented or otherwise modified from time to time, or any supplemental, separate, or complementary transaction.  Solely for purposes of the application of Annual Price Improvement or any other credit, discount or price adjustment available to Reliance under the Documents (other than Forward Price Assurance), the “Net Price” paid or payable by Reliance for such purposes shall be deemed to be the lowest price available to Reliance under the Documents prior to the application of Forward Price Assurance. For the further avoidance of doubt, any adjustment of prices payable by Reliance under the Forward Price Assurance provisions shall not effect the Net Price for purposes of the application of the Annual Price Improvement or any other credit, discount or price adjustment available to Reliance under the Documents, such that Annual Price Improvement, or other credit, discount or price adjustment as aforesaid will be applied against the Net Price in place immediately prior to the Forward Price Assurance Evaluation.

“Network Element”

Equipment, Software or Services or any combination thereof required to be provided by or for the Vendor to Reliance, any Reliance Affiliate or the Users as set forth in the Documents.

“Network Facility”

the structures, improvements, foundations, towers, and other facilities utilized to house or hold any Network Element and any related Equipment to be located at a particular Network Location.

“Network Location” or “Site”

the physical location for a Network Element.

“New Services”

services provided by Vendor that are materially different in character from, and in addition to, the Work.

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“Other Contractors”

contractors, other than the Vendor, with whom Reliance has entered, either directly or indirectly, or may enter in the future, into a contract for the provision of products and services for the engineering and construction of any portion of the Broadband Access Reliance Network.  The term “Other Contractors” does not include any Subcontractors in connection with the Work to be performed under the Documents in their capacity as Subcontractors.

“Other Customer”

excluding Reliance, any customer of the Vendor or any customer of any of the Vendor’s Affiliates or subsidiaries.

“Out-of-Pocket Basis”

actual and documented cost of an expense, reduced by all rebates, incentives and price preferences, but without any overhead, profit, administrative or other markup.

“Overcharge”

with respect to any amount invoiced by the Vendor, the positive difference (if any) between such amount invoiced to Reliance and the actual amount of such Charge as calculated in accordance with the terms and conditions of the Documents (including Rebates and Annual Price Improvement adjustments).

“Parties”

has the meaning ascribed thereto in the prefatory paragraph to these General Terms.

“Pass-Through Expenses”

expenses managed and paid by or for the Vendor and reimbursed by Reliance on an Out-of-Pocket Basis, to the extent expressly set forth herein.

“Performance Criteria”

the levels of service and performance and other standards set forth in the Documents that the Work is required to comply with.

“Performance Failure”

failure of a Network Element or other portion of the Work to perform in accordance with the Specifications or the applicable provisions of the Documents.

“Performance Security”

has the meaning ascribed thereto in Section 7.9.1.

“Performance Warranty”

has the meaning ascribed thereto in Section 5.2.

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“Person”

an individual, partnership, limited partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Entity or other entity of whatever nature.

“Point Release”

a hardware or software release that provides solutions or fixes to mistakes or “bugs” introduced in previous versions or releases.

“Procedures Manual”

that procedures manual described in Section 1.5.

“Products”

the collective reference to the Equipment and the Software provided by the Vendor or any Subcontractor pursuant to and in accordance with the terms of the Documents.

“Product Warranty Period”

with respect to all Products included in the same Purchase Order, a period of [***] following Acceptance of all such Products and as such period may be extended.  With respect to Expansions, including without limitation Products furnished in connection with an Update or Upgrade, the Product Warranty Period shall be a period of [***] following the date of Acceptance of such Expansion. With respect to Equipment furnished as spare or replacement parts, the Product Warranty period shall be a period of [***] following Acceptance of such spare or replacement parts. With respect to repaired, replaced or corrected Products, the Product Warranty Period shall be the longer of (i) [***] from the date of delivery of such repaired replaced or corrected Products, or (ii) the unexpired term of the  original Product Warranty Period of the Product.

“Proprietary Information”

has the meaning ascribed thereto in Section 24.14.1.

“Punch List”

the list prepared in conjunction with and as a result of Acceptance Testing and included in any Substantial Completion Certificate, which only contains one or more non-service-affecting and non performance affecting item/s, not meeting the performance norms and tests deferred upon mutual agreement of the Parties determined in accordance with the Specifications that have not been fully completed by the Vendor as of the date of the related Substantial Completion Certificate; provided, that such incomplete portion of the Work shall not, during its completion, in any way impair the normal daily operation of the Broadband Access Reliance Network or relevant portion thereof in accordance with the Specifications, except for maintenance periods mutually agreed by the Parties to complete such items.

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“Purchase Order”

those written orders delivered by Reliance to the Vendor pursuant to Section 14 specifying the Products, Services or other Work that the Vendor is authorised to supply or commence in compliance with the Documents.  A “Purchase Order” also includes a task order issued by Reliance for the provision of Services or other Work under the Documents (“Task Order”).

“Quantities Purchased”

cumulative amounts of BN Terminals purchased by  Reliance from Vendor.

“Rate Review”

has the meaning ascribed thereto in Section 12.8.1.

“Rebates”

is defined in Section 3.16.7

“Reliance”

has the meaning ascribed thereto in the prefatory paragraph to these General Terms.

“Reliance Internal Expenses”

fully-loaded cost of any personnel, supplies, equipment, materials or services to be provided by Reliance (other than such amounts the cost of which is categorized as a Retained Expense) in connection with the provision of any Deliverable.  The applicable schedule to each Contract shall contain the fully-loaded unit cost for all such personnel, supplies, equipment, materials and services, which may be amended from time to time by Reliance to reflect any changes in the cost of making available such personnel, supplies, equipment, materials and services to Vendor to provide the Deliverables.

“Reliance Program Manager”

has the meaning ascribed thereto in Section 8.1.1.

“Reliance Software”

any software, graphic user interface, text, images, designs, products, computer programs, drawings, documentation, notes, development aids, technical documentation, information and other intellectual property materials owned, licensed or controlled by Reliance relating to the Broadband Access Reliance Network that is provided or used by or for Reliance in its discretion related to the provision or performance of the Work, excluding Software subject to the Intellectual Property Rights.

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“Required Consents”

consents, authorizations, licenses, permissions or approvals (other than Applicable Permits) required to be obtained by or on behalf of Vendor to provide Products and Services under the Documents and to grant applicable rights of access to Reliance, Reliance Affiliates, Users, Vendor and/or the Vendor Personnel to certain third party software and third party hardware, networks, systems or other materials of any kind or nature during the Term, to the extent required by Vendor or the Vendor Personnel to fulfill their responsibilities under the Documents, or necessary or desirable for Reliance, the Reliance Affiliates and the Users to fully use, enjoy and operate the Products, the Broadband Access Reliance Network and other Work.  Required Consents shall include the consents (if any) required to be obtained: (i) to grant Vendor the right to use or access the third party software in connection with providing the Work; (ii) to assign to Reliance any required licenses to third party software to the extent provided in the Documents; and (iii) all other consents required from third parties in connection with Vendor’s provision of the Work.

“Retained Expenses”

expenses retained by Reliance to the extent expressly set forth herein.

“Reviewers”

has the meaning ascribed thereto in Section 3.9.

“Revision Level”

each version of Equipment or Software that reflects any modification or change from the immediately preceding version of such items of Equipment or Software.

“Root Cause Analysis”

analysis, verification and correct identification of any applicable issue concerning the Broadband Access Reliance Network.

“RT”

means Remote Terminal equipment of DLC, including all its accessories, located at the BN.

“SDH Equipment”

means Synchronous Digital Hierarchy Equipment including the software such as [***], their components, parts and accessories.

“Services”

the collective reference to all of the services to be conducted by the Vendor as part of the Work performed in accordance with the terms of the Documents.

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“Site Availability”

the activities of Reliance and/or its subcontractors with respect to (a) identifying and acquiring sufficient rights to the Network Locations (including all requisite approvals required by any Governmental Entity) and (b) the labor and materials necessary in the performance of Civil Work in order to construct a Network Facility at such Network Location.

“Site Availability Delay”

a delay in Reliance’s Site Availability activity that was not anticipated by Reliance at the commencement of its Site Availability.

“Software”

(a) all software, including without limitation, graphic user interface, text, images, designs, products, computer programs, drawings, documentation, notes, development aids, technical documentation and information furnished by the Vendor or any Subcontractor pursuant to the Documents; (b) all Updates, Upgrades and Combined Releases relating to the software described in (a) above; and (c) all Documentation relating thereto.

“Software License(s)”

has the meaning ascribed thereto in Section 15.1.3.

“Specialized Services”

has the meaning ascribed thereto in Section 7.8.

“Specifications”

the statement of work attached as Exhibit A to these General Terms, provided that (i) the statement of work shall be deemed to require that all of the Products and Services shall comply with applicable industry standards except where otherwise explicitly stated, and (ii) with respect to Products and Services for which specifications and performance standards are not provided in the statement of work, the term “Specifications” shall include Vendor’s or Vendor’s Affiliates published specifications in respect thereof.

“Specified Reports”

has the meaning ascribed thereto in Section 7.3.

“Standards”

a published requirements and/or specifications document developed by a Standards Organisation.

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“Standards Organisations”

national and international organisations, which include but are not limited to the IEEE, ITU, ANSI, TIA, ARIB, TEC or the ETSI, whose responsibilities are the development of industry accepted requirements, specifications and procedures for the design, integration, installation and testing of telecommunications equipment and signaling protocols.

“Subcontractor”

a contractor, vendor, supplier, licensor or other Person, having a contract with the Vendor or with any other Subcontractor of the Vendor who has been hired to assist the Vendor in certain specified areas of its performance of its obligations under the Documents including, without limitation, performance of any part of the Work.

“Substantial Completion”

(A) with respect to the Initial Broadband Access Reliance Network, the time at which Reliance signs the Substantial Completion Certificate; and (B) with respect to Expansions, the time at which Reliance provides the Substantial Completion Certificate to Vendor.

“Substantial Completion Certificate”

(A) with respect to the Initial Broadband Access Reliance Network, a document submitted by the Vendor to Reliance and signed by an authorized representative of Reliance and an authorized officer of the Vendor stating that (i) the Vendor has successfully completed the Acceptance Tests applicable to the Work covered by such certificate with the exception of items covered under the related Punch List; (ii) the Vendor has submitted to Reliance the documentation, completed checklists and signed certificates set forth in Chapter ___ of the Specifications; and (iii) the Work is ready for Commercial Service; and (B) with respect to Expansions, a document provided by Reliance to the Vendor on a monthly basis certifying that all the Products set forth in such document have (i) successfully passed the Acceptance Tests applicable to such Products with the exception of items covered under the related Punch List; and (ii) the Products are ready for Commercial Service.

“Technical Support Services” or “TSS”

means the support services that the Vendor shall provide to Reliance as further described in the Broadband Access Services Contract and Annexure 1A to the Specifications.

“Term”

has the meaning ascribed thereto in Section 11.

“Termination Assistance Period”

the period of time specified by Reliance, and the activities to be performed by or for Vendor in accordance with the Documents, during which Vendor shall transition

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responsibility for, and control of, the Work to the persons or entity designated by Reliance.

“Termination Assistance Plan”

the plan reasonably established by Reliance for Termination Assistance Services pursuant to Section 3.5.

“Termination Assistance Services”

the collective reference to those Services described in Section 3.5.

“Territory”

[***] and such other countries or geographic areas mutually agreed in writing by Reliance and the Vendor.

“Test Bed Laboratory”

means a laboratory that includes the Products and Services necessary to support the Broadband Access Reliance Network and other products and services designated by Reliance, as set forth in the Documents.

“Testing Exhibits”

the collective reference to the applicable acceptance and other testing procedures and criteria in the Specifications.

“Third Party Intellectual Property Rights”

has the meaning ascribed thereto in Section 15.7.1.

“Third Party Provider”

any person or entity that provides any hardware, software, services, networks, systems or other work to Reliance, excluding Products and Services provided by or for Vendor or any Subcontractor hereunder, but including the hardware, software, services and other services that is provided internally by Reliance and the Users.

“Timetables”

schedules mutually agreed by Reliance and the Vendor which are set forth in the Documents.

“Update”

a change or modification in any Equipment or Software that fixes or otherwise corrects faults, design defects or other shortcomings in meeting the Specifications, or failure rates, or in any such case, that is necessary to attain and maintain compliance with the provisions set forth herein and also enables satisfactory performance in conjunction with the most current version of the Equipment or Software. An Update includes a Point Release.

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“Upgrade”

modifications or improvements made to the Equipment or Software that improve the performance, functionality or capacity of the Equipment or Software.  An Upgrade includes a Major Release.

“User”

all persons or entities designated by Reliance to receive or use the Products or Services provided by Vendor or to otherwise use the Broadband Access Reliance Network.

“Vendor”

has the meaning ascribed thereto in the prefatory paragraph to these General Terms.

“Vendor-Controlled Locations”

Sites at which Work is being or will be performed and for which access and security are controlled by Vendor.

“Vendor Developments”

product developments, innovations and/or technological advances that are relevant to any Products or Services conceived, made or developed by Vendor or any Vendor Affiliates.

“Vendor Event of Default”

has the meaning ascribed thereto in Section 23.1.

“Vendor Internal Use Tools”

all software, hardware, testing tools, instruments and other materials used by or for the Vendor related to the Work to perform or provide functions that are purely internal to the Vendor.

“Vendor Personnel”

personnel employed by or for Vendor or its Subcontractors whose functions or job assignments relate in whole or in part to the provision of Services or performance of any other Work.

“Vendor Program Manager”

has the meaning ascribed thereto in Section 6.4.

“Vendor’s Succeeding Entity”

has the meaning ascribed thereto in Section 24.17.

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“Work”

all Equipment, Software and Services to be provided by or for the Vendor and all equipment, software and services to be provided by or for any Subcontractor to Reliance, the Reliance Affiliates or the Users in accordance with the Documents.

2.2  Interpretation.

The terms defined in these General Terms or any other Document, include the plural as well as the singular.  Unless otherwise expressly stated, the words “herein”, “hereof”, and “hereunder” and other words of similar import refer to the Documents as a whole and not to any particular Section or other subdivision.  Section references in a Document refer to sections of such Documents.  The words “include” and “including” shall not be construed to be terms of limitation.  The words “day”, “month”, and “year” shall mean, respectively, calendar day, calendar month and calendar year, and the words “writing” or “written” mean preserved or presented in retrievable or reproducible written form. Other terms used in these General Terms and other Documents are defined in the context in which they are used and have the meanings there indicated.

SECTION 3.         SCOPE OF WORK AND RESPONSIBILITIES

3.1  Overview.

3.1.1           Vendor desires to provide hardware, software, equipment, communications circuits, networks, services, maintenance, management and other Work to Reliance, the Reliance Affiliates and the Users, and Reliance desires this Work be performed.  Reliance is entitled to acquire products and services that Vendor or any Vendor Affiliate generally makes available to other customers or that are set forth in a Document or as mutually agreed upon in writing by the Parties, pursuant to terms and conditions no less favorable to Reliance than the prices, service levels, terms and conditions set forth in any then-current Document.  Commencing on the applicable Commencement Date, Vendor shall perform the Work described in the Documents.  All Work provided by or for the Vendor shall be appropriately interfaced and Interoperable and shall comply with all relevant Applicable Laws, Applicable Permits, Specifications, Standards and Best Practices. Vendor shall also ensure that all Products and Services will, as a minimum, meet the performance and design requirements, functionality and capability defined in the appropriate Standard.

3.1.2           The scope of Services provided by the Vendor to Reliance, the Reliance Affiliates and the Users, shall, at Reliance’s request by way of one or more Purchase Orders,include the following:

Management Services, including overall management of a seamless end-to-end network solution, including appropriate management of:

(i)            projects and programs

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(ii)           costs and Expenses

(iii)          changes

(iv)          quality

(v)           schedules and Timetables

(vi)          technical Equipment and Software requirements to provide sufficient capacity and support Reliance estimates of anticipated demand

(vii)         administration

(viii)        execution including installation, commissioning, and acceptance testing

(ix)           logical security

(x)            integration, optimization, backwards compatibility and Interoperability

(xi)           personnel, Subcontractor and account

(xii)          training

(xiii)         enhancements, continuous improvement and technology refresh

(xiv)        dispute resolution

(xvii)       Product technical requirements

(xviii)      Network performance requirements

(xix)       Standards compliance matrix for all Products and Services

(xv)         logistics

3.1.3           The scope of Services provided by the Vendor to Reliance and Reliance Affiliates, shall, if specifically agreed by the Parties in the relevant Documents, include the following:

(a)           Architecture, Design and Planning Services

(b)           Services to review Third Party Provider specifications and/or develop specifications

(c)           Order/Procurement Services

(d)           Installation and commissioning Services

(e)           Integration Services

(f)            Interconnection and Interoperability Services

(g)           Configuration and customization Services

(h)           Operations support Services for [***] following the completion of the Broadband Access Reliance Network build out

(i)            Overall Network Acceptance Testing Services

(j)            NOC Services and Integration with NOC Services

(k)           Services to implement and/or  integrate with Operation Support Systems (“OSS”), Operations Management Systems (“OMS”), GIS System and Enterprise Management Systems (“EMS”) for fault management, trouble resolution, alarm escalation, diagnostics, repair/upgrade, spare/inventory management, change configuration, provisioning of subscriber services, capacity planning, NOC integration etc.

(l)            Implementation/integration of voice/data usage information collection, billing systems, billing support systems (“BSS”) and other application support Services

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(m)          Problem management, repair, sparing and maintenance Services till the expiry of the penultimate warranty period

(n)           TSS services, including without limitation Help Desk services,

(o)           call center and other support services and services for integration with call center

(p)           Specialty Services including as the implementation of fraud detection systems, traffic pattern analysis and capacity estimation.

3.2  Work Not Described Elsewhere.

If any services, functions or responsibilities not specifically described herein or in the Documents are an inherent, necessary or customary part of the Work in accordance with the Documents they shall be deemed to be included within the scope of the Work to be delivered for the base charges (as set forth in each of the pricing schedules and associated Purchase Orders), as if such services, functions or responsibilities were specifically described in the Documents unless, such services, functions or responsibilities were agreed to be specifically excluded by the Parties in writing prior to Reliance issuing the relevant Purchase Order(s).  Except as otherwise expressly provided in the Documents, Vendor shall be responsible for providing the facilities, personnel, equipment, software and other items and resources necessary to complete the Work.

3.3  Task Orders for Services.

From time to time, Reliance may desire to issue Task Orders for specific Services pursuant to an Contract.  Reliance shall have no responsibility or liability for any Services or other Work except to the extent expressly set forth in a Task Order issued in accordance with the Documents.  Reliance may request information about Services or other Work to prepare Task Orders and Vendor shall promptly provide to Reliance, [***] sufficiently detailed information that is responsive to Reliance’s request.  The general requirements and procedures for all Task Orders are set forth below in Section 14.

3.4  Continuous Improvement.

The Parties anticipate that the Products and Services will evolve and be supplemented, modified, enhanced or replaced over time to keep pace with technological advancements and improvements in the methods of delivering services.  The Parties acknowledge that these changes will improve the Products and Services and shall not be deemed to result in new Charges or New Services, unless the changed products or services are materially different in character from those then being provided by Vendor and impose materially different obligations on Vendor.  If Reliance authorizes Vendor to proceed with the provision of Products or Services but the Parties disagree as to whether the authorized work should be subject to a new Charge, or should constitute New Services, Vendor shall proceed with such work and the disagreement shall be submitted to negotiation between the Parties for a period of [***]. If any disagreement remains unresolved after such negotiation, the same shall be submitted to dispute resolution, as described in Section 22.

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3.5  Termination Assistance Services.

3.5.1           Overview.

As part of the Services and for the Charges set forth in the applicable Contract, Vendor shall provide to Reliance or its designees Termination Assistance Services for up to [***] following the termination of all or any portion of any Contract (such period, the “Termination Assistance Period”).  Reliance shall pay Vendor fees for Termination Assistance Services in accordance with Section 3.5.5 hereinbelow only in the event Termination Assistance Services are rendered pursuant to termination by convenience of all or any portion of any Contract. Vendor shall provide Termination Assistance Services regardless of the reason for the expiration or termination of the Term.  Termination Assistance Services shall be provided subject to, and in accordance with, the terms and conditions of the Documents.

3.5.2           Preparation of Termination Assistance Plan.

During each Termination Assistance Period, Vendor shall perform the Termination Assistance Services and provide the deliverables specified in the applicable Termination Assistance Plan in accordance with the Documents.  During the Termination Assistance Period, Reliance shall perform those tasks that are designated to be a Reliance responsibility in the Termination Assistance Plan.  Reliance shall not be responsible for the performance of any tasks during the Termination Assistance Period that are not expressly designated as being a Reliance responsibility in the Termination Assistance Plan.  At least [***] prior to the beginning of the Termination Assistance Period under any Contract, Vendor shall present to Reliance for review, comment and approval a detailed work plan based on and consistent with the Termination Assistance Plan, which shall identify the specific transition activities to be performed by individual Vendor Personnel on a daily basis during the Termination Assistance Period.  Such detailed work plan shall become a part of the Termination Assistance Plan and be incorporated therein.  The Termination Assistance Period may be extended by mutual written agreement of the Parties.

3.5.3           Implementation of Termination Assistance Plan.

Vendor shall perform the tasks described in the Termination Assistance Plan in accordance with the applicable Timetable and the Termination Assistance Milestones set forth in the Termination Assistance Plan.  Vendor shall provide all cooperation and assistance required or requested by Reliance in connection with Reliance’s evaluation or testing of the Deliverables set forth in the Termination Assistance Plan.  Vendor shall perform the tasks described in the Termination Assistance Plan in a manner that shall not disrupt, or have an adverse effect on, Reliance’s business, except as may be otherwise provided in the Termination Assistance Plan.  Vendor shall identify and resolve, with Reliance’s reasonable assistance, any problems that may impede or delay the timely completion of each task in the Termination Assistance Plan that is Vendor’s responsibility and shall use reasonable efforts to assist Reliance’s resolution of any problems that may impede or delay the timely completion of each task in the Termination Assistance Plan that is Reliance’s responsibility.

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3.5.4           Reports.

Vendor shall report to Reliance not less frequently than [***] on its progress in performing its responsibilities and meeting the timetable set forth in the Termination Assistance Plan.  Promptly upon receiving any information indicating that Vendor may not perform its responsibilities or meet the Timetable set forth in the Termination Assistance Plan, Vendor shall disclose such information to Reliance.

3.5.5           Termination Assistance Fees

Subject to Section 3.5.1, Reliance shall pay to Vendor charges at rates stipulated for program management Services in the relevant Documents (“Termination Assistance Fees”); provided that, Services performed by the Vendor under a Task Order shall not be considered as Termination Assistance Services and notwithstanding any termination, the Vendor shall, unless Reliance in its sole discretion determines otherwise by written notice to Vendor, continue to perform the Work (and Reliance shall continue to perform its related responsibilities) as set out in the Purchase Orders issued prior to the termination of the Documents or any part thereof.

3.6  Exclusivity

Vendor shall not have any exclusivity rights except as otherwise set forth in the Documents.

3.7  Use of Third Parties.

Notwithstanding any provision to the contrary, Reliance reserves the right to use Third Party Providers to provide or perform any portion of the work. Reliance shall discuss the use of and contract terms relating to Third Party Providers with Vendor and, if necessary in Reliance’s opinion, involve Vendor in the contract negotiations with one or more Third Party Providers.  Reliance shall incorporate Vendor’s recommendations into Reliance’s contracts with Third Party Providers if, in Reliance’s opinion, such recommendations are necessary.  Subject to Reliance’s compliance with the foregoing procedure, Vendor shall fully cooperate with and work in good faith with any Third Party Providers as reasonably directed by Reliance and at no additional charge except to the extent a specific charge is otherwise provided in an Contract. Such cooperation shall include, without limitation, (i) the provision of written requirements, standards, policies or other documentation to verify Interoperability with the Work procured, operated, supported or used by Vendor in connection therewith; all under reasonable conditions of confidentiality and, if appropriate or necessary, interface licenses and (ii) highest priority access to Vendor test location(s) and assistance to Third Party Providers for interoperability testing, interfacing and inter-working purposes, to enable such Third Party Providers to successfully test their products and services. Vendor shall promptly notify Reliance if an act or omission of a Third Party Provider shall cause, or has caused, a problem or delay in performing the Work, and shall work with Reliance to prevent or circumvent, and in all cases mitigate the extent of, such problem or delay. Vendor shall coordinate with Reliance and the Third Party Providers to resolve differences and conflicts arising between the Work and other activities undertaken by Reliance or any of the Third Party Providers.

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3.8  Vendor Developments.

3.8.1           New Technologies.

Vendor and Vendor’s Affiliates acknowledge Reliance’s substantial interest in state-of-the-art technologies that offer improved performance and more efficient and cost-effective ways to meet Reliance’s communications and related requirements. As the Vendor or any Vendor Affiliate develops and acquires new capabilities, such as improvements to existing technologies, the Vendor shall, no less frequently than [***], keep Reliance fully apprised of such new capabilities and of the expected and actual availability, use, and implementation of such new technologies developed or acquired by Vendor or any Vendor Affiliate; provided, that if requested by Reliance, such reports shall include business case analyses of the tangible and service benefits that Reliance may realize from each such technology.  Vendor shall consult with Reliance about opportunities to participate in Beta test programs for new technologies and services and shall cooperate in the testing and deployment of new features, functions, technologies, or applications conceived or developed by Reliance. Vendor and Vendor’s Affiliates shall design and manufacture their existing Products and Features to comply with the Specifications. In designing and developing future products and Features, Vendor and Vendor’s Affiliates shall be competitive with other manufacturers and suppliers with respect to Features, products and services relevant to the Broadband Access Reliance Network.  Vendor and Vendor’s Affiliates acknowledge Reliance’s primary objective is to be the leading national and international Broadband Access operator and to offer, at all times, high revenue, cost effective and competitive communications services via the Broadband Access Reliance Network.  To this end, Vendor and Vendor’s Affiliates shall take into account, in its and their development of future products and Features, inter alia, of all new standards and specifications being developed by Standards Organizations that are relevant to any Features, Products and Services furnished by Vendor and/or Vendor’s Affiliates to Reliance.  Vendor and Vendor’s Affiliates shall discuss and monitor such developments with Reliance through the Development Committee and will use all commercially reasonable endeavours to keep Reliance competitive with leading-edge technology and the timely development of innovative and cost-effective new products and Features.

3.8.2           Development Committee.

(a)           In order to accommodate Reliance’s participation pursuant to the Documents, Reliance and the Vendor shall establish a Development Committee within [***] of the Effective Date.  The purpose of the Development Committee shall be to review the development requirements and high level development milestones, to ensure that the Vendor understands Reliance’s requirements for the Products including, without limitation, any subsequent Products and/or enhancements.  The Development Committee shall provide an executive forum to discuss Product ideas, Reliance requirements and recommended development prioritization for improved infrastructure-based subscriber features and system features, functions and capabilities.  The focus of the Development Committee shall be on

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Product features and services, new Products, Product enhancements, critical operation issues, future developments and on such other matters as the Parties mutually agree upon from time to time.  Nothing contained in this Section 3.8.2 shall in any way limit and/or modify Reliance’s ability to enforce its rights under the Documents or to otherwise maintain contacts with the Vendor in any other way it sees fit.

(b)           The Vendor shall provide a market development manager to coordinate the efforts of the Vendor in meeting its obligations relating to the Development Committee who shall specifically focus on new products, services and features.  Such market development manager shall be knowledgeable in telecommunications technology and the Broadband Access Reliance Network and shall work closely, and on a regularly scheduled basis, with Reliance’s senior engineering and marketing personnel on feature development, feature roll-out, future road maps for Products, and any other marketing aspect of providing telecommunications services that Reliance believes is beneficial to the Broadband Access Reliance Network and/or any Market at such time.  The Vendor’s market development manager and the manager’s staff shall serve as the Vendor’s direct liaison with Reliance to ensure that the Vendor’s and Vendor’s Affiliates’ product development teams are focusing on Reliance’s priorities as described to the Vendor by Reliance from time to time either through the Development Committee or by any other means acceptable to the Parties.

(c)           In the event of any Vendor Development being funded in whole or in part by any Other Customer, Vendor shall exert best efforts to procure the consent of such Other Customer for providing reasonable information of such Customer Development to Reliance and further, for inviting Reliance to participate in such Vendor Development. Upon receipt of such consent from the Other Customer, the Vendor shall provide reasonable information and sufficient notice of any Vendor Development funded in whole or in part by any Other Customer prior to initiating such Vendor Development. Reliance shall thereafter and, at its own discretion, have the right (but not the obligation) to participate in such Vendor Development on such terms as may mutually be agreed by and between Reliance, Vendor and such Other Customers.

(d)           The Vendor shall provide Reliance, through the Development Committee or Reliance’s designated representative, with reasonable prior notice of any Vendor Developments relevant to any Products,  [***]; provided, that (i) any such notice pursuant to this Section 3.8.2 need not include any information originated by any Other Customer that is proprietary to such Other Customer; and (ii) Vendor shall not be obligated to issue any such notice with regard to any Vendor Development in which Reliance decides not to participate. For the

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purposes of this Section 3.8.2, the term “Vendor” includes the Vendor and Vendor’s Affiliates and subsidiaries.  [***].

(e)           Reliance has the right, but not the obligation, to witness and/or participate in Vendor’s demonstration laboratory and any demonstration testing and/or application of any Vendor Development other than developments that are [***]  The Vendor shall provide Reliance at least [***] prior notice of the availability of such demonstration facilities or testing, and upon Reliance’s reasonable written request, the Vendor shall allow Reliance to participate in such demonstration testing at Vendor’s relevant facilities upon terms reasonably acceptable to the Parties at such time.

(f)            Reliance shall be entitled to observe the Vendor’s or Vendor’s Affiliates’ product development and testing activities pursuant to and relatable to the Documents.

3.8.3           Safety.

(a)           The Vendor shall immediately notify Reliance by telephone (followed by written confirmation within no more than [***] of such telephone call) if any goods purchased or materials used fail to comply with applicable safety rules or standards or contain a defect that presents a substantial risk to the public health or injury to the public or the environment, whether by itself or when used by Reliance or any of its Affiliates for its intended purpose.

(b)           To the extent the Vendor is in control of any Network Location or Vendor-Controlled Location, the Vendor shall be solely responsible for initiating, maintaining, and supervising all safety precautions and programs in connection with all such Vendor-Controlled Locations.  In all events, the Vendor shall comply with Applicable Laws, standards and the Specifications bearing on safety of persons or property or protection against injury, damages or loss.  The Vendor shall provide a written report to Reliance describing fully all incidents affecting safety on any Vendor-Controlled Location and shall also furnish to Reliance copies of all reports that are provided to any Governmental Entity.

(c)           If any Work under the Documents involves Products or Services on Reliance’s, its customers’ or the Reliance Affiliates’ premises, the Vendor shall take necessary precautions to prevent injury to persons or property during the Work and adhere to security policies and procedures of Reliance, its customers or its Affiliates, as the case may be.

(d)           In the event of any emergency endangering life or property, the Vendor shall take such action as may be reasonable and necessary to prevent, avoid or mitigate injury, damage or loss and shall, as soon as possible, report any such incidents, including the Vendor’s response

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thereto, to Reliance.  Whenever, in the reasonable opinion of Reliance, the Vendor has failed to take sufficient precautions for the safety of the public or the protection of the Work or of structures or property on or adjacent to any Vendor-Controlled Location, creating, in the reasonable opinion of Reliance, an emergency requiring immediate action, then Reliance, after having given reasonable prior notice to the Vendor, may (but shall not be obligated to) cause such sufficient precautions to be taken or itself provide such protection.  Where the cause of the emergency was attributable to the fault or negligence of the Vendor or any Subcontractor, the taking or provision of any such precautions or protection by Reliance or its agents or representatives shall be for the account of the Vendor and the Vendor shall reimburse Reliance for the cost thereof.

3.9  Right of Inspection.

Any Person designated by Reliance including Inspectors (collectively, “Reviewers”), shall at all reasonable times have access to the various sites where the Vendor or any Vendor Affiliate or any Subcontractors are performing any and all Work; provided, that this Section 3.9 shall not be presumed to give such access to direct competitors of the Vendor unless such sites are otherwise Reliance sites.  For these purposes, reasonable access shall be given during normal business hours to the Vendor’s and its Subcontractors’ plants, premises, storage and deposit areas, facilities and offices, sources of materials, Equipment being assembled, already assembled or in operation, Equipment being performance tested or tested to the Vendor’s specifications and to any other places or areas occupied by the Vendor or its Subcontractors in connection with the Work.  The Vendor shall provide reasonable temporary office space and services for the Reviewers to the extent necessary. The number of Reviewers shall be commensurate with the particular circumstances.

3.10        References to Certain Sources.

Reference to standards, specifications, manuals or codes of any technical society, organization or association or to the laws or regulations of any Governmental Entity by the Documents, means (unless specifically stated otherwise) the latest standard, specification, manual, code, laws or regulations in effect at the time of issuance of the applicable Purchase Order of the portion of Work to which they relate.

3.11        Review of Documents.

The Vendor has examined in detail and carefully studied and compared the Documents with all other information furnished by Reliance as of the Effective Date and has promptly reported to Reliance any material errors, inconsistencies or omissions so discovered or discovered by any of the Subcontractors.  The Vendor shall not perform or provide any portion of the Work knowing that it involves a material error, inconsistency or omission in the Documents without prior written notice to and approval by Reliance.  If for any reason the Vendor violates this Section 3.11, then the Vendor shall, in addition to being subject to any other remedies of Reliance, be deemed to have waived any claims for an adjustment in any of the Specifications and/or Standards that result directly from any such error,

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inconsistency or omission.  This Section 3.11 does not, nor shall it be deemed to, in any manner limit the terms of Section 3.14.

3.12        Eligibility under Applicable Laws and Applicable Permits.

3.12.1         The Vendor shall be responsible for ensuring that the Vendor and its Subcontractors are and remain eligible under all Applicable Laws and acquire all Applicable Permits to perform the Work under the Documents in the various jurisdictions involved.

3.12.2         Obtaining any Applicable Permits required by any Government Entity relating to the manufacture, export, importation, re-exportation, safety, installation (other than those necessary for Site acquisition and preparation) or use of the Products (obtaining of type approvals and permits of a similar nature) throughout the Republic of India, in any state, province or any political sub-division thereof, or elsewhere in the Territory shall be the sole responsibility of the Vendor provided that Reliance shall be solely responsible for obtaining all the Applicable Permits necessary for the initial importation of the Products into the Republic of India. Vendor shall provide all necessary assistance required by Reliance for obtaining the Applicable Permits for such initial importation of the Products into the Republic of India.  For the avoidance of doubt, Vendor shall be solely responsible for:

(a)           obtaining all Applicable Permits necessary for the export of the Products to the Republic of India and shall bear and pay all taxes duties and levies as applicable; and

(b)           obtaining and complying with the terms and conditions of all Applicable Permits necessary for the import into the Republic of India and re-export of all tools and equipment utilised by Vendor for fulfilling its obligations under the Documents.

Prior to the commencement of any Work and/or other activities by the Vendor or any of its Subcontractors in connection with or pursuant to the Documents, the Vendor shall furnish Reliance with evidence that such Applicable Permits have been obtained and are in full force and effect to the extent that Applicable Permits are necessary for the commencement or undertaking of such activities, and from time to time thereafter the Vendor, upon the reasonable request of Reliance, shall provide such further evidence as Reliance deems reasonably necessary.

3.12.3         Reliance agrees to reasonably assist, so long as such assistance does not involve  incurring of any costs or expenses by Reliance, the Vendor in obtaining and maintaining (a) Applicable Permits for importation or re-exportation of the Products and (b) entry or work permits, visas or authorizations required for personnel engaged by the Vendor to perform Work under the Documents.

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3.13        Liens and Other Encumbrances.

3.13.1         The Vendor covenants and agrees to:

(a)           protect and keep free any Products and all sites or facilities on or in which the Vendor is prosecuting any portion of the Work and any and all interests and estates therein, and all improvements and materials now or hereafter placed thereon under the terms of the Documents, from any and all claims, liens, charges, security interests, levies, rights of third parties or encumbrances (“Liens”) arising from or related to provision of the Products or the performance of the Work by or for the Vendor or any Subcontractor;

(b)           give notice of this Section 3.13 to each Subcontractor before such Subcontractor furnishes any labor or materials for any Market; and

(c)           make any and all filings requested by Reliance (and at Reliance’s expense) and related to the Products or the Work in order that Reliance may take advantage of the relevant local lien waiver procedures with respect to Liens of any Subcontractor.

3.13.2         If any Lien is filed by any Subcontractor, then the Vendor shall cause such Lien to be satisfied or otherwise discharged within [***].  If any such Lien is filed or otherwise imposed, and the Vendor does not cause such Lien to be released and discharged forthwith, Reliance has the right, but not the obligation, to pay all sums necessary to obtain such release and discharge or otherwise cause the Lien to be removed to Reliance’s satisfaction from funds retained from any payment then due or thereafter to become due to the Vendor. Reliance shall notify the Vendor prior to making such payment.

3.13.3         Reliance reserves the right to post, or place within any Market, notices of non-responsibility or to do any other act required by Applicable Law in order to exempt Reliance and the Broadband Access Reliance Network from any liability to third parties by reason of any work or improvements to be performed or furnished hereunder; provided, that failure by Reliance to do so will not release or discharge the Vendor from any of its obligations hereunder.

Nothing in the above provision shall be construed as a waiver of Vendor’s statutory rights relating to Liens.

3.14        Vendor To Inform Itself Fully; Waiver of Defense.

3.14.1         The Vendor shall be deemed to have notice of and to have fully examined and approved the Documents, and all regulations and other information in relation to the Documents and/or any amendments, modifications or supplements thereto at any time on or after the Effective Date and to have fully examined, understood and satisfied itself as to all relevant information

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of which the Vendor is aware or should have been aware and that is relevant as to the risks, contingencies and other circumstances that could affect the Documents and in particular the delivery, commissioning and/or optimization of any Product.  [***]

3.14.2         [***]

Provided always that, in respect of the foregoing provisions of this Section 3.14.2, Vendor shall be entitled to rely on, and Reliance shall take responsibility for, any traffic forecasts, subscriber uptake and data of a similar nature.

3.15        Reliance’s Right to Suspend Work.

3.15.1         Reliance may (i) at any time and upon [***] prior written notice to the Vendor, order the Vendor, in writing, to suspend any part of the Work (including any Purchase Orders) for such reasonable period of time as Reliance may reasonably determine to be appropriate for its convenience, and/or (ii) delay shipment of Products with at least [***] written notice prior to the shipment of the Products.  If any suspension or delay of Work under (i) or (ii) above continues for a period exceeding (a) [***] then Reliance shall be liable to pay Vendor reasonable actual costs directly attributable to the expatriate personnel deployed for any such suspended Services portion of the Work; or (b) [***] then Reliance shall be liable to pay Vendor reasonable actual costs directly attributable to the Indian personnel deployed for any such suspended Services portion of the Work, provided that, the Vendor demonstrates to the reasonable satisfaction of Reliance that it was unable to re-deploy its personnel despite best efforts and such costs are not otherwise paid or payable to Vendor under the Documents. If any suspension of the Work continues for a period of more than [***] Reliance shall pay Vendor actual out of pocket cash storage costs for Equipment directly affected by such suspension from the scheduled shipment date. Reliance shall have the right to audit the accuracy of such costs in accordance with the procedure set out in Section 12.11. Further, in the event such suspension of the Work extends beyond a period of [***] Parties shall discuss a mutually acceptable manner for mitigating such suspension of the Work and Vendor shall be entitled to invoice Reliance and be paid for the value of the Work so suspended.  Any request by the Vendor for a change in the Specifications caused by Reliance’s suspension of the Work pursuant to this Section 3.15 shall be subject to the review and reasonable acceptance of Reliance.  No modification to the Specifications shall be made to the extent that performance is, was or would have been suspended, delayed or interrupted for any other cause due to the Vendor’s fault or if the suspension had no effect on agreed upon performance deadlines set forth in the Documents.

The above provision shall not affect Vendor’s right to invoice Equipment delivered under Section 5.3 and Section 5.4 of the Broadband Access Equipment Contract and invoice Software delivered under Section 7.3 and Section 7.4 of the Broadband Access Software Contract.

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3.15.2         Notwithstanding anything to the contrary contained in the Documents, Reliance shall be entitled to suspend the operations or performance of any Purchase Order (including delivery) after [***] notice in writing to Vendor if in the reasonable opinion of Reliance, the Vendor materially fails to perform its obligations in accordance with the Documents.  Upon receipt of such notice and within [***] of such receipt, at the request of Vendor the matters described in the notice shall be referred to the higher management of the Vendor and Reliance for resolution and the Vendor shall forthwith remedy the non-performance in accordance with the decision of the higher management of the Parties, all in further period of [***] from the date of such reference.  If in Reliance’s reasonable discretion, the Vendor has failed to remedy such non-performance, Reliance shall be entitled to place purchase orders for similar items from any other vendors [***].  Rights under this Section 3.15.2 shall be in addition to all other rights and remedies available to Reliance under the Documents.

3.16        Forward Price Assurance.

[***]

3.17        Third Party Contracts.

3.17.1         Vendor shall be responsible for managing all Reliance designated “Third Party Contracts” as identified to Vendor from time to time and entered into for the benefit of Reliance, the Reliance Affiliates and certain Users to the extent described in a Contract.  Vendor shall be responsible with respect to products and service provided under the Third Party Contracts, for: (i) overall program management including, without limitation, the administration and maintenance of such Third Party Contracts (including verifying, advising, reporting and conforming to compatibility requirements of the Products and Services); and (ii) managing the successful integration of all Products supplied by the Vendor with all other products forming a part of the Broadband Access Reliance Network and other obligations as set forth in the Specifications and (iii) managing the compliance with and performance of all operational, administrative and contractual obligations specified in such Third Party Contracts, including nondisclosure obligations but excluding the payment obligations of the parties to such Third Party Contracts.

Provided that Vendor has fully complied with and satisfied its obligations as set forth in Section 3.17.1 above, Vendor shall not be responsible for delay or non-performance of products and/or services furnished pursuant to Third Party Contracts, however the Parties shall work together to maximize the benefits obtainable with respect to performance and timeliness under the relevant Third Party Contracts.

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Vendor shall be responsible for all interface and Interoperability of products and software furnished under Third Party Contracts to the extent set forth in the Specifications. With respect to Expansions, the Vendor’s only obligations shall be to ensure Backwards Compatibility and provide such other Work as Reliance and the Vendor may agree. With respect to all third party services purchased by Vendor for Reliance or any User on a cost-reimbursement or Pass-Through Expense basis, Vendor shall pass through to Reliance all price preferences, rebates, extras and other benefits offered by the vendors of such products and services.

3.17.2         As requested by Reliance, Vendor and Vendor Affiliates, shall certify (by their auditors) that they have not received any commission or discount or any other consideration or incentive by whatever name called, directly or indirectly, in any manner whatsoever from any Third Party Provider in relation to the program, except those which have been passed on to Reliance by Vendor and no such commissions, discounts, considerations, compensation or incentives by whatever name called are due from any such person to the Vendor.

3.18        Network Integration

Vendor shall assume complete responsibility for the successful integration of all Products supplied by the Vendor with all other products forming part of the Initial Broadband Access Reliance Network as set forth in the Documents, within the Timetables and time schedules set forth in the Specifications.

3.19        Not used

3.20        Sales to Competitors

[***]

3.21        Insurance.

The Vendor shall maintain insurance in accordance with the provisions set forth in Schedule 2 for Products and Services forming part of the Initial Broadband Access Reliance Network, together with any additional insurances required by Applicable Laws or as agreed by the Parties. Unless otherwise expressly stipulated in the Documents, all such insurance shall be arranged and maintained by the Vendor and the cost and terms of insurance to be approved by Reliance in advance. Reliance shall reimburse Vendor the cost of the marine cum erection insurance, including domestic storage and transportation.

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SECTION 4.         SITES, SOFTWARE AND EQUIPMENT

4.1  Sites.

Reliance shall provide Vendor with the use of and access to certain Sites (or equivalent space) as specified in Documents.  Vendor shall be responsible for providing information to Reliance with respect to each Site regarding weight, dimensioning, and space, utility and environmental requirements relating to the Products to be located at such Site.  Reliance shall review the Sites and respond to Vendor regarding the readiness of the Sites with respect to the foregoing information provided by the Vendor. Vendor shall be responsible for inspecting and evaluating the foregoing responses from Reliance or the Sites to determine the suitability of the Sites for the performance of the Work for the Initial Broadband Access Reliance Network.  Vendor shall respond to Reliance regarding Vendor’s recommendations as a result of Vendor’s foregoing inspection and evaluation.  Reliance shall make such corrections to the Sites as are reasonably recommended by the Vendor for suitability of the Work up to the agreed relevant Specifications. [***]  Vendor shall not make any changes, modifications or alterations to any Site without the prior written consent of Reliance.

4.2  Software and Equipment.

4.2.1           Vendor shall be responsible for: (a) the evaluation, procurement, testing, installation, rollout, support and maintenance of Software associated with the provision of the Products and Services (including Updates, Upgrades, new versions or new releases of such Software as described in Section 0, below); and (b) the compliance with and performance of all operational, administrative and contractual obligations specified in such applicable licenses and contracts, including nondisclosure obligations.  Vendor shall be responsible for the evaluation, procurement, testing, installation, rollout, use, support, management, administration, operation and maintenance of all Equipment required for the performance of the Work in accordance with the Documents (including all Updates, Upgrades or modifications).  Except to the extent expressly set forth in the Documents, Vendor shall be responsible for providing all furniture, fixtures, Equipment, space and other facilities required to perform the Work and all upgrades, improvements, replacements and additions to such furniture, fixtures, Equipment, space and facilities without additional charge to Reliance.

4.2.2           Vendor represents and warrants that (i) each Revision Level shall be Backwards Compatible, and (ii) all Point Releases and other bug-fixes shall be Backwards Compatible with all of the last [***] consecutive Revision Levels prior to the current Revision Level.  In the event that any Product supplied by the Vendor at any time does not provide Backwards Compatibility as required by this Section 4.2.2, then the Vendor shall provide, without charge to Reliance, any and all necessary Updates and Upgrades (and otherwise take such steps as may be necessary) to achieve Backwards Compatibility. [***].

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4.3  Updates and Upgrades.

4.3.1           Subject to Section 4.3.2 below, the Vendor will make available to Reliance, at such times as they become generally available to Other Customers, all Updates and Upgrades for any Products that Reliance has purchased pursuant to the terms of the Documents.  The Vendor shall give Reliance no less than [***] prior written notice of the introduction of any Upgrade.  [***] the Vendor shall provide Reliance with a forecast of future Updates and Upgrades then currently being developed by Vendor or any Vendor Affiliate.  The Vendor shall at all times take all reasonable measures to ensure that Updates and Upgrades will not introduce or release any Malicious Code or Disabling Code into any part of the Broadband Access Reliance Network.

4.3.2           Software and firmware (software embedded in equipment) Updates and Software and firmware Upgrades shall be provided and appropriately installed by Vendor as specified in Annexure1A to the Specifications (Technical Support Services) and the Documents for a period of [***] from the date of Acceptance of the Software or firmware to which such Update or Upgrade relates. With respect to any Software or firmware Update or Update forming part of a Combined Release, Reliance [***] of any additional hardware that may be required to support such Update. Additionally, Reliance shall [***] without losing the benefit of the Update.

4.3.3           In the event that any Update or Upgrade supplied by the Vendor has the effect of preventing the Broadband Access Reliance Network or any part thereof from satisfying, or performing in accordance with the Specifications or otherwise adversely affects the functionality or features of the Broadband Access Reliance Network or any part thereof, then the Vendor shall promptly retrofit or take such other corrective action (including the installation of any additional Products, at the Vendor’s [***]) as may be necessary to assure that the Broadband Access Reliance Network or any such affected part thereof, as modified to include each such Update or Upgrade, shall satisfy and perform in accordance with the Specifications, and restore all pre-existing functionality and features, in each case [***] to Reliance. Failing this, the Vendor shall promptly and [***] to Reliance, remove such Update and/or Upgrade from the Broadband Access Reliance Network, restoring the Network to its pre-existing state, and refund to Reliance all Charges paid for the same. Following such removal, Vendor shall perform all necessary corrective actions in and upon such Updates and/or Upgrades and shall re-test and re-deploy the same no later than [***] from the date of initial introduction into the Broadband Access Reliance Network.

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SECTION 5.         PERFORMANCE WARRANTY AND LIQUIDATED DAMAGES

5.1          Special Provisions for Substantial Completion:

The Parties agree that, notwithstanding the commencement of any services, in addition to all other requirements with respect to Substantial Completion set forth in the Documents, the following services and Features shall pass all Acceptance Tests related to such services and Features for the Initial Broadband Access Reliance Network and the Broadband Access Reliance Network, or relevant portion thereof, to be eligible for Substantial Completion, as specified in Acceptance Tests:

All of the above services and Features shall comply in all respect with the Specifications.

5.2          Performance Certification.

Provided always that the Broadband Access Reliance Network is operated and maintained (including all necessary repairs, replacements and other services as paid for by Reliance pursuant to the Broadband Access Services Contract and Technical Support Services) to the standard required under the relevant Documents, Vendor warrants that the Work shall, at all times during the Product Warranty Period and during the first [***] that the Technical Support Services is in effect (provided, however, that if Reliance terminates the Technical Support Services for cause prior to the expiration of such [***] period, then the Vendor’s obligations under this Section shall nevertheless continue for the remaining balance of such [***] period ), comply and perform in accordance with the Specifications (the “Performance Warranty”).  In the event of any breach of the Performance Warranty attributable to the Work not being performed in accordance with the Documents during the Product Warranty Period, or because of Vendor’s failure to comply with its obligations under the Broadband Access Services Contract and Technical Support Services(an “Attributable Breach”), Vendor shall provide, at no cost to Reliance, all Products, Features, Services and other items of Work necessary such that the Broadband Access Reliance Network complies and performs in accordance with the Specifications.

5.3          Problem Analysis.

If Vendor fails to perform the Work in accordance with the Documents, including the Specifications set forth herein, Vendor shall: (i) promptly investigate and report on the causes of the problem; (ii) provide an appropriate Root Cause Analysis of such failure as soon as practicable after such failure; (iii) promptly initiate remedial action reasonably acceptable to Reliance to correct the problem and to begin meeting the Specifications as soon as practicable; (iv) advise Reliance, as and to the extent requested by Reliance, of the status of remedial efforts being undertaken with respect to problems that may have a material impact upon Reliance or the User; (v) advise Reliance, on a weekly basis until correction, of the status of remedial efforts being undertaken with respect to problems that would not have a material impact upon Reliance or any User; and (vi) provide Reliance reasonable evidence that the causes of such problem have been or will be corrected on a permanent basis.  Vendor shall use reasonable efforts and diligence to complete the Root Cause Analysis within the time periods set forth in the Specifications.  Provided however that in the event that the warranty services with respect to Products and Technical Support Services provided by the

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Vendor pursuant to the Documents stipulate better service levels than what is set forth in this Section 5.3, Vendor shall provide such better levels of services.

5.4          Continuous Improvement Reviews.

Vendor acknowledges that the quality of the Work provided in certain Service areas may be improved during the Term.  Vendor shall use reasonable efforts to improve the quality of the Work provided in such areas to meet or exceed the Specifications and shall do so [***] to Reliance.

5.5          Satisfaction Surveys.

During the first [***] following the Commencement Date and at [***] intervals thereafter, at Reliance’s sole option, Reliance, its designee and/or independent third parties shall conduct the satisfaction surveys in accordance with the survey protocols and procedures specified in the Procedures Manual.  If the results of any satisfaction survey indicate that the level of satisfaction with Vendor’s performance is less than the target level specified in the Documents, Vendor shall promptly during the period of support and maintenance provided by the Vendor: (a) perform a Root Cause Analysis of the management or user dissatisfaction and report to Reliance the results of such Root Cause Analysis; (b) develop an action plan to address and improve the level of satisfaction; (c) present such plan to Reliance for its review, comment and approval; and (d) take action in accordance with the approved plan and as necessary to improve the level of satisfaction.  Reliance and Vendor shall establish a schedule for completion of the Root Cause Analysis and the preparation and approval of the action plan that shall be reasonable and commensurate with the severity and materiality of the problem; provided, that the time for completion of such tasks shall not exceed [***] from the date such user survey results are finalized and reported.  Following implementation of such action plan, if and to the extent deemed appropriate by Reliance, its designee and/or independent third parties will conduct follow-up surveys with the affected Users and management to confirm that the cause of any dissatisfaction has been addressed and that the level of satisfaction has improved.

5.6          Performance Failure.

If Vendor fails to remedy an Attributable Breach, Reliance may, in addition to its other remedies at law and in equity, including those provided in the Documents, terminate all or any portion of the Contract in accordance with the provisions of Section 23.

5.7          Liquidated Damages.

5.7.1           The Parties agree that damages for delay are difficult to calculate accurately and not reasonably determinable at the time of execution of the Documents and therefore agree that liquidated damages (“Liquidated Damages”) shall be paid as set forth in this Section.  The Parties agree that Liquidated Damages are intended to compensate Reliance for the delayed or late performance by the Vendor and are not a penalty.

(a)           In the event that delivery of Products or separately identified parts thereof are delayed past the date for delivery thereof set forth in the

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respective Purchase Orders covering such Products or parts thereof, which delay shall not include delays caused by (i) an event of Force Majeure with respect to delivery affecting the Vendor, (ii) Reliance’s failure to satisfy its obligations relating to delivery as set forth in the Documents or to provide the Vendor access to the Network to allow the Vendor to complete Acceptance Testing (including appropriate Network downtime to accommodate Acceptance Testing), (iii) delays solely attributable to air carriers that have been appointed by Reliance, or (iv) failure by a Third Party Provider (other than a Subcontractor) to perform its obligations with respect to delivery (provided that Vendor has not contributed to such failure by such Third Party Provider or failed to comply with Vendor’s program management responsibilities which contributed to such failure), then Liquidated Damages shall accrue at the rate of [***]  The value of the Products or parts thereof so delayed shall be equal to the Net Prices of such Products or parts thereof so delayed multiplied by the respective quantities of such Products or parts thereof so delayed.  [***]  The foregoing notwithstanding, in the event that such delivery delay of Products or separately identified parts thereof results in a delay in the commissioning or Acceptance of the Broadband Access Reliance Network or any part thereof, then the Liquidated Damages determined under this paragraph (a) shall be the greater of (i) the Liquidated Damages determined as described above, or (ii) Liquidated Damages accrued as described above but [***]

(b)           In the event that Substantial Completion of any portion of the Initial Broadband Access Reliance Network is delayed beyond the date set for Substantial Completion of such portion of the Initial Broadband Access Reliance Network specified in the Documents, which delay shall not include delays caused by (i) an event of Force Majeure with respect to such portion of the Initial Broadband Access Reliance Network affecting Vendor, (ii) Reliance’s failure to satisfy its obligations relating to Substantial Completion of such portion of the Initial Broadband Access Reliance Network set forth in the Documents, (iii) delays solely attributable to air carriers that have been appointed by Reliance or (iv) failure by a Third Party Provider (other than a Subcontractor) to perform its obligations with respect to such portion of the Initial Broadband Access Reliance Network (provided that Vendor has not contributed to such failure by such Third Party Provider or failed to comply with Vendor’s program management responsibilities which contributed to such failure), then Liquidated Damages shall accrue at the rate of [***].  The value of all Purchase Orders relating to such portion of the Initial Broadband Access Reliance Network shall be equal to the Net Prices of all Products and Services covered by all Purchase Orders that relate to such portion of the Initial Broadband Access Reliance Network, multiplied by the respective quantities of such Products and Services relating to such portion of the Initial Broadband Access Reliance Network.  [***]

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(c)           In the event that Substantial Completion of Products forming part of Expansions is delayed beyond the date set for such Substantial Completion due to Defects and Deficiencies attributable to the Vendor (other than delay in delivery) and Vendor fails to rectify such Defects or Deficiencies in accordance with the time periods set forth in Annexure 1A to the Specifications (Technical Support Services), then Liquidated Damages shall accrue at the rate of [***]. The Liquidated Damages shall be calculated for the period commencing on the date on which such Products failed to achieve Substantial Completion and ending on the date on which the Products achieve Substantial Completion. [***]

(d)           Liquidated Damages payable to Reliance hereunder shall, at Reliance’s option, be payable by way of offset against outstanding payment obligations of Reliance to Vendor or any assignee or Affiliate of Vendor or by credits against future purchases of Products and Services by Reliance from Vendor or any assignee or Affiliate of Vendor.

(e)           The Parties may agree that Liquidated Damages may be waived in the event that Reliance requests Vendor to deliver Products or achieve Acceptance of the Broadband Access Reliance Network or any part thereof on an expedited basis.  Any such agreement to waive Liquidated Damages must be in writing signed by both Parties at the time the Purchase Order relating to such Products or Link is given to Vendor.

5.7.2           In the event Vendor fails to make available for the Broadband Access Reliance Network each service, Feature and Function set forth on Schedule 6 to these General Terms on or before the respective date set forth on Schedule 6 for such availability, then the Vendor shall pay Liquidated Damages to Reliance in the respective amount set forth on Schedule 6 relating to such service, Feature or Function.  Liquidated Damages payable to Reliance hereunder shall, at Reliance’s option, be payable by way of offset against outstanding payment obligations of Reliance to Vendor or any assignee or Affiliate of Vendor or credits against future purchases of Products and Services from Vendor or any assignee or Affiliate of Vendor.

SECTION 6.         PROJECT PERSONNEL

6.1          Key Personnel.

Certain Key Personnel critical to the success of the Work are designated in a schedule to these General Terms provided that for Expansions Key Personnel shall be identified only in the event that Reliance issued a Task Order for Services to Vendor. Vendor will implement and maintain a program designed to retain Key Personnel on the Reliance account for the prescribed period.

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6.2          Approval of Key Personnel.

Before assigning an individual to act as one of the Key Personnel, Vendor shall notify Reliance of the proposed assignment and provide a reasonable opportunity for Reliance or its designee representatives to interview the individual, including a resume and such other information about the individual as may be reasonably requested by Reliance.  If Reliance in good faith objects to the proposed assignment, the Parties shall attempt to resolve Reliance’s concerns on a mutually agreeable basis.  If the Parties have not been able to resolve Reliance’s concerns within [***] Vendor shall not assign the individual to that position and shall propose to Reliance the assignment of another individual of suitable ability and qualifications.  Reliance may from time to time change the positions designated as Key Personnel under these General Terms with Vendor’s approval, which shall not be unreasonably withheld.

6.3          Continuity of Key Personnel.

Vendor shall cause each of the Key Personnel to devote full time and effort, for the period specified in the applicable Documents, to the performance of the Work under the applicable Documents.  Vendor shall not transfer, reassign or remove any of the Key Personnel (except as a result of voluntary resignation, involuntary termination for cause, illness, disability, or death) during the specified period without Reliance’s prior approval.  In addition, even after the period specified (except as a result of voluntary resignation, involuntary termination, illness, disability, or death), Vendor shall transfer, reassign or remove one of its Key Personnel only after: (i) giving Reliance at least [***] prior written notice; (ii) obtaining Reliance’s written approval of a suitable replacement or position elimination; and (iii) assuring Reliance that such action will not have an adverse impact on Vendor’s performance of its obligations under the Documents.

6.4          Vendor Program Manager.

At Reliance’s request, Vendor shall designate a “Vendor Program Manager” for Reliance with respect to the Work performed pursuant to each Contract.  The Vendor Program Manager shall: (i) be one of the Key Personnel; (ii) be a full time at-will employee of Vendor; (iii) devote his or her full time and effort to managing the Work for a minimum period of [***] after the date of Acceptance of the Initial Broadband Access Reliance Network (except as a result of voluntary resignation, involuntary termination, illness, disability, or death); (iv) serve as the single point of accountability for the Work; and (v) have day-to-day authority for ensuring customer satisfaction and attainment of all Specifications.

6.5          Vendor Personnel Are Not Reliance, Reliance Affiliate or User Employees.

Vendor, not Reliance nor any Reliance Affiliate or User, has the right, power, authority and duty to supervise and direct the activities of the Vendor Personnel and to compensate such Vendor Personnel for any work performed by them on Reliance’s behalf pursuant to the Documents.

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6.6          Replacement, Qualifications, and Retention of Vendor Personnel.

6.6.1           Vendor shall assign sufficient Vendor Personnel to perform the Work in accordance with the Documents and such Vendor Personnel shall possess suitable competence, ability and qualifications and shall be properly skilled for the Work they are to perform.

6.6.2           In the event that Reliance determines that the continued assignment of any Vendor Personnel in accordance with the Documents (including Key Personnel) is not in the best interests of Reliance or User, Reliance shall give Vendor prior written notice to that effect requesting that such Vendor Personnel be replaced; provided, that Vendor shall not effect any such replacement in violation of Applicable Laws.  Vendor shall promptly replace such Vendor Personnel with an individual of suitable skills.  Nothing in this provision shall operate to limit Vendor’s responsibility for the acts or omissions of the Vendor Personnel.

6.6.3           In addition to, and not in limitation of any rights Reliance possesses under Section 6, if Reliance determines that a Vendor-provided employee, agent or Subcontractor is not providing satisfactory service, Reliance shall advise the Vendor and may require the Vendor to remove that employee/agent or Subcontractor.  Reliance shall only pay for work actually satisfactorily performed by the removed employee/agent or Subcontractor prior to Reliance’s notice for removal and not for transportation or per diem costs associated with replacing the employee/agent or Subcontractor.

6.6.4           The Vendor shall require its employees, agents and Subcontractors (to the extent applicable) to comply with the terms and conditions of the Documents.

6.7          Reliance Approval of Vendor Personnel

If Charges for any Services are payable on a per diem or a time and materials basis, Reliance shall have a reasonable opportunity to review and approve all Vendor Personnel involved in the applicable Purchase Order.

6.8          Union Contracts and Applicable Laws.

Vendor shall provide Reliance not less than [***] notice of the expiration of any collective bargaining agreement with unionized Vendor Personnel if the expiration of such agreement or any resulting labor dispute could potentially interfere with or disrupt the business or operations of Reliance or a User, or impact Reliance’s ability to timely perform its duties and obligations under the Documents.

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SECTION 7.         VENDOR’S RESPONSIBILITIES

7.1          Committees and Meetings.

7.1.1           Joint Operating Committee.

Reliance and Vendor shall establish a Joint Operating Committee, consisting of three appropriate representatives of each Party with authority to make commitments and take appropriate actions.  The purpose of the Joint Operating Committee is to discuss Reliance’s business requirements, the Work and ways to better align the Work to serve these business requirements and to discuss payments due and outstanding to the Vendor.  Additionally, the Joint Operating Committee will review the status of the Documents, the performance of the Parties thereunder and the status and resolution of disputes between the Parties.  The Joint Operating Committee will also provide a forum for discussions regarding Reliance’s current and anticipated needs, the direction of technology changes and Vendor’s performance and anticipated requirements.

7.1.2           Meetings.

During the Term, representatives of the Parties shall meet periodically to discuss matters arising under the Documents.  Such meetings shall include the following:

(a)           a periodic meeting at least monthly of the Joint Operating Committee to review performance and monthly reports, planned or anticipated activities and changes that might adversely affect performance, outstanding invoices and such other matters as appropriate;

(b)           a quarterly management meeting to review the monthly reports for the quarter, review Vendor’s overall performance under the Contract, review progress on the resolution of issues, provide a strategic outlook for Reliance’s information systems requirements, and discuss such other matters as appropriate;

(c)           an annual meeting of senior management of both Parties to review relevant contract and performance issues; and

(d)           such other meetings of Reliance and Vendor Personnel, including senior management of Vendor, as Reliance or Vendor may reasonably request.

7.1.3           Preparation for Meetings.

For each such meeting, upon Reliance’s request, Vendor shall prepare and distribute an agenda, which will incorporate the topics suggested by Reliance.  Vendor shall distribute such agenda in advance of each meeting so that the meeting participants may prepare for the meeting.  In addition, upon Reliance’s request, Vendor shall record and promptly distribute to applicable Reliance personnel and Vendor Personnel minutes for every meeting.

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7.1.4           Notice of Meetings.

Vendor shall notify the Reliance Program Manager in advance of scheduled meetings with Users (other than meetings pertaining to the provision of specific Services on a day-to-day basis) and shall invite the Reliance Program Manager to attend such meetings or to designate a representative to do so.

7.2          Documentation and Records.

The Vendor shall furnish all drawings, specifications, specific design data, preliminary arrangements and drawings arising from or related to the Work or as otherwise required for the Vendor to perform its responsibilities under the Documents. Such materials shall be in sufficient detail to indicate that the Work to be supplied and performed under the Documents complies with the Specifications and the other requirements set forth herein. Vendor will maintain and provide all of the documentation and records produced in connection with the implementation of the Work and the Documents and any other documents that may be required by Reliance to (a) meet and comply with any Applicable Laws, (b) minimize the cost of the program, and (c) arrange financing, insurance or improved operational flexibility for Reliance.  The Vendor shall be responsible for any loss arising out of or relating to the negligent act or omission of the Vendor, its employees, agents or Subcontractors in failing to maintain proper records and documentation for Reliance’s property.  The Vendor shall reimburse Reliance for any such loss of Reliance’s property at the replacement cost applicable thereto.

7.3          Reports.

Vendor shall provide to Reliance the reports required in the applicable Contract in the format and at the frequencies provided therein (the “Specified Reports”).  From time to time, Reliance may request and Vendor shall prepare and deliver any additional reports that Reliance may identify to be generated by Vendor on an ad hoc basis (the “Ad Hoc Reports”).  The Specified Reports and the Ad Hoc Reports shall be collectively referred to as the “Reports”.  All Specified Reports shall be provided to Reliance as part of the Work [***]. The Procedures Manual shall indicate the number and nature of the Ad Hoc Reports that shall be provided to Reliance as part of the Work at no additional charge (the “Ad Hoc Reporting Baseline”). If Reliance requests a number or nature of Ad Hoc Reports that exceeds the Ad Hoc Reporting Baseline (“Additional Reports”), Vendor shall prepare and deliver such Additional Reports promptly, but shall be permitted to charge Reliance [***].  If no Ad Hoc Reporting Baseline is specified in a Contract, the Parties shall assume that the Ad Hoc Reporting Baseline is equal to the number and nature of reporting that one reasonably trained and experienced person could produce using reasonable efforts and diligence.  As part of the Work, Vendor shall provide Reliance with such information available to Vendor as may be reasonably requested by Reliance in order to verify the accuracy of the Reports provided by Vendor.  Vendor shall promptly correct any errors or inaccuracies in or with respect to the Reports or other deliverables caused by Vendor or Vendor Personnel.

7.4          Meetings.

During the term of each Contract, representatives of the Parties shall meet periodically or as reasonably requested by either Party to discuss matters arising under such Contract.  Such

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meetings may include a periodic meeting to review performance and any reports, planned or anticipated activities and changes that might adversely affect or improve performance, and such other matters as appropriate, review progress on the resolution of issues, provide a strategic outlook for User’s information systems requirements, and discuss such other matters as appropriate.

7.5          Quality Assurance.

Vendor shall develop and implement quality assurance processes and procedures to ensure that the Work is performed in an accurate and timely manner, in accordance with the Documents and best practices of the information technology and telecommunications industry and in compliance with the laws applicable to Reliance and Users.  Such procedures shall include verification, checkpoint reviews, testing, acceptance, and other procedures for Reliance to assure the quality and timeliness of Vendor’s performance.  Vendor shall submit such processes and procedures to Reliance for its review and comment within [***] following the Effective Date of each Contract, and a final draft at least [***] prior to the Commencement Date of each Contract.  If the Parties do not agree upon a specific quality assurance modification requested by Reliance, the Parties shall promptly meet and work diligently to resolve the disagreement.  Such processes and procedures shall be included in the Procedures Manual.  Nothing herein shall require Vendor to disclose confidential Proprietary Information regarding its processes and procedures that do not directly affect Reliance or any User.  No failure or inability of the quality assurance procedures to disclose any errors or problems with the Work, however, shall excuse Vendor’s failure to comply with the Specifications and other terms of the Documents.

7.6          Architecture, Standards and Information Technology and Telecommunications Planning.

As requested by Reliance, Vendor shall provide Reliance with reasonable assistance in defining information technology and telecommunication architectures and standards relating to the Work on an ongoing basis and in preparing long-term strategic information technology and telecommunication plans and short-term implementation plans on an annual basis.

7.7          Time, Date and Location Processing Compliance.

7.7.1           Vendor covenants, and shall take all steps necessary to ensure, that the advent of any time, time zone, multiple locations, date or year shall not adversely affect Vendor’s performance of the Work.  Vendor further covenants, and shall take all steps necessary to ensure, that the Broadband Access Reliance Network and the Work shall: (a) have the ability to process time, time zone, multiple locations and date information before, during and after any time, time zone, multiple locations, date or year change, including accepting time and date input, providing time and date output and performing calculations on times and dates or portions of times and dates; (b) respond to two (2) digit year date input in a way that resolves the ambiguity as to date or year in a disclosed, defined and predetermined manner; (c) store and provide output of time, time zone, multiple locations and date information in ways that are unambiguous as to times, time zones, dates or

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years; and (d) properly exchange date and time data with software, equipment and systems with which it shall interact and Interoperate (collectively, “Date Processing Compliance”).

7.7.2           Vendor shall obtain warranties of Date Processing Compliance from each third party vendor from whom Vendor procures new third party Equipment or Software to be operated, maintained, supported or used by Vendor, Reliance or User under the Documents.  Vendor shall not procure any such Equipment or Software not having such warranties of Date Processing Compliance without Reliance’s prior approval.

7.8          Access to Specialized Vendor Skills and Resources.

Upon Reliance’s reasonable request, Vendor shall promptly provide Reliance with access to Vendor’s specialized technical services, personnel and resources (the “Specialized Services”) at least equal to that provided by Vendor to any of its other customers.  The Parties acknowledge that the provision of such Specialized Services may, in some cases, constitute New Services for which Vendor is entitled to additional compensation, but in no event shall Vendor be entitled to any additional compensation for New Services under this Section 7.8 unless agreed to in writing by Reliance.

7.9          Standby Letter of Credit.

7.9.1           Vendor shall at least [***] prior to the time that Vendor invoices Reliance with respect to the Acceptance of the Products or Services under a Purchase  Order, provide a  standby  letter of  credit (“Performance Security”) for performance of the  Work and  the  warranty obligations applicable to the Products or Services covered  under such Purchase Order.  Such Performance Security shall be in an amount equal to [***] of the total Purchase Order value and shall be valid for a period of [***] from and after the date of the Acceptance of all Products or Services covered under such Purchase Order (the “Initial Term”). Vendor shall renew such Performance Security for a further period of [***] (the “Extension Term”) on the same terms and conditions.

7.9.2           During the Initial Term, Reliance shall be entitled to draw upon the Performance Security, at any time after the occurrence of any one or more of the following events:

(a)           Any Products and Services fail to materially comply and perform in accordance with the Specifications;

(b)           Vendor fails to materially perform its obligations with respect to Section 5.2;

(c)           Any material breach by the Vendor of any of its covenants or obligations set forth in Section 3.16, Section 4.2.2, Section 14.2, Section 19.1 or Section 20.1;

(d)           Any breach by the Vendor of any of its covenants or obligations set forth in Section 3.20 or Section 12.7; and/or

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(e)           Vendor fails to materially perform its obligations set forth in the Documents with respect to the Test Bed Laboratory;

provided, that in each case Reliance shall give Vendor [***] written notice of Reliance’s intent to draw upon the Performance Security, during which time the Vendor shall be allowed to cure the breach, failure or default specified in such notice and any dispute between Vendor and Reliance with respect to such performance failure has not been resolved through the procedures set forth in Section 22.2(ii) except that the period to resolve such dispute as set forth in such Section 22.2(ii) was extended to thirty (30) days.

7.9.3           During the Extension Term, Reliance shall be entitled to draw upon the Performance Security at any time after the occurrence of the following event:

(a)           Any Products and Technical Support Services fail to materially comply and perform in accordance with the Specifications (excluding Vendor’s obligations in respect of providing Vendor Personnel for Program Management under Annexure 1A of the Specifications);

provided, that Reliance shall give Vendor [***] written notice of Reliance’s intent to draw upon the Performance Security, during which time the Vendor shall be allowed to cure the breach, failure or default specified in such notice (but only if such breach, failure or default is capable of being cured within such time) and any dispute between Vendor and Reliance with respect to such performance failure has not been resolved through the procedures set forth in Section 22.2(ii) except that the period to resolve such dispute as set forth in such Section 22.2(ii) was extended to [***].

7.9.4           The Performance Security shall be issued in the forms attached as Schedule 5A and 5B hereto and by a bank acceptable to Reliance.  Vendor shall vary the value of the Performance Security as necessary and called for by the issuing bank to include all Purchase Order changes made pursuant to the Documents including, but not limited to, increase or decrease in scope, value, and schedule acceleration or deceleration.

7.9.5           Vendor shall obtain such Performance Security and shall replace, renew or extend such Performance Security for one additional [***] period (with effect from the expiration of the immediately prior [***] period) in order that such Performance Security remains effective and valid at all times until the expiration of [***] after the date of Acceptance of the Work covered under such Performance Security. Vendor shall deliver evidence of such replacement, renewal or extension to Reliance at least [***] prior to the expiration of the then-current term.  In the event that Reliance does not receive such renewed or extended Performance Security at least [***] prior to the expiration of the then-current term, then Reliance may encash, present for collection or otherwise realize upon the entire amount of such existing Performance Security at any time prior to the expiration of the then-current term of such Performance Security, and Vendor hereby consents to such encashment,

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presentation for collection or other realization. In the event that Reliance actually receives any amounts as a result of any such encashment, presentation for collection or other realization, Reliance shall hold such amounts as a substitute for the Performance Security so encashed, presented for collection or otherwise realized, and such amounts shall be subject to the same terms and conditions regarding release of Performance Security set forth in this Section.  In the event that the Vendor subsequently provides Reliance with additional Performance Security of at least equal value with the Performance Security so encashed, presented for collection or otherwise realized, then Reliance shall pay over to the Vendor the foregoing amounts received by Reliance, less all bank charges related to the holding or paying over of such amounts to the Vendor.

7.9.6           Upon Vendor’s performance of all obligations, the Performance Security will be released to Vendor after it has been ascertained that Reliance has no claims against Vendor.

7.9.7           In the event that the terms of payment under the Purchase Order and applicable Documents allow for the payment of any amount to Reliance, Reliance shall be permitted to draw such amount from the Performance Security if such amount is not paid within [***] of it becoming due by the Vendor to Reliance.

7.10        Planning.

Vendor shall assist Reliance in preparing, on an annual basis, a network design, architecture and engineering plan to address Reliance business and technology requirements relating to the Products and Services provided by Vendor (the “Broadband Access Reliance Network Plan”).  The Broadband Access Reliance Network Plan shall incorporate both a five-year plan and an annual implementation plan, as set forth below. The Vendor shall, [***] provide the equivalent of up to one person to support such planning.

7.10.1         Five-Year Plan.

The Broadband Access Reliance Network Plan shall include a comprehensive assessment and strategic analysis of the Broadband Access Reliance Network, systems, products and services for the next five years, including an assessment of the appropriate direction for such Broadband Access Reliance Network, systems and services in light of Reliance’s business priorities, strategies and competitive market forces (to the extent such business information is provided by Reliance to Vendor).  The five-year plan shall include the specific identification of proposed software and hardware strategies and directions, cost projections, cost/benefit analyses of proposed changes, descriptions of the types of personnel skills and abilities needed to respond to recommended changes or upgrades in technology, general plans and projected time schedules for developing and achieving recommended elements, and recommendations of network and other technology platforms supporting service level requirements, exploiting industry trends or offering potential price/performance improvement opportunities.

7.10.2         Annual Implementation Plan.

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As necessary to support the overall objectives and directions of the five-year plan, the annual implementation plan shall provide specific guidance as to the network and other technology services requirements, projects, and plans for the upcoming year, including details on operations, maintenance backlog and development activities.  The annual implementation plan shall include a summary review of Vendor’s performance of the Work in the year then concluding, and shall make updates and revisions of the long-term plan as appropriate if the Term is extended.  An annual implementation plan shall be prepared for each year of the Term.

7.10.3         Project Planning.

Reliance shall develop a project plan for the drafting of the Broadband Access Reliance Network Plan that (i) identifies the key Reliance personnel whose input is required for completion of the Broadband Access Reliance Network Plan and (ii) sets forth a proposed interview schedule for such personnel.  Vendor shall adhere to the project plan, and shall notify Reliance of any delay or inability to complete any phase or portion thereof. Vendor shall recommend modifications to the Broadband Access Reliance Network Plan as it deems appropriate.

7.10.4         Implementation.

As requested by Reliance, Vendor shall modify the Work to conform to the Broadband Access Reliance Network Plan.

7.11        Disaster Recovery.

Vendor shall, on or before [***] propose to Reliance a disaster recovery plan for Broadband Access Reliance Network. Reliance may, pursuant to rejection and/or modification (in its sole discretion) of any portion of such Vendor proposed disaster recovery plan, accept such disaster recovery plan. Vendor shall ensure that its network management facility’s disaster recovery procedures are compatible with such Reliance accepted disaster recovery plan.

SECTION 8.         RELIANCE RESPONSIBILITIES

8.1          Responsibilities.

In addition to Reliance’s responsibilities as expressly set forth elsewhere in the Documents, Reliance shall be responsible for the following:

8.1.1           Reliance shall, at its sole discretion, designate, prior to commencement of the Services by Vendor, a “Reliance Program Manager,” who shall have the authority to act on behalf of Reliance in all day-to-day matters pertaining to the Documents and any Contract hereunder.  Reliance may change the designated Reliance Program Manager from time to time by providing notice to Vendor.  Additionally, Reliance will have the option, but will not be obligated, to designate additional representatives who will be authorized to make certain decisions (e.g., regarding emergency maintenance) if the Reliance Program Manager is not available.

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8.1.2           Reliance shall cooperate with Vendor by, among other things, making management decisions and providing information, approvals and acceptances, as reasonably requested by Vendor, so that Vendor may accomplish its obligations and responsibilities hereunder.

SECTION 9.         AFFILIATES

9.1          Affiliates.

9.1.1           During the Term, Reliance will have the right, but not the obligation, to require the Vendor to fulfill (and the Vendor will so fulfill) signed Purchase Orders for Products and/or Services received from any Affiliate designated by Reliance pursuant to and in accordance with the same prices and the same terms and conditions as set forth in the Documents, provided that such Products and Services shall be solely for Network deployment in the Republic of India.

9.1.2           The Reliance Affiliate placing a Purchase Order shall be primarily liable to Vendor for payment of all amounts due thereunder in accordance with the Documents. Reliance shall provide reasonable financial information relating to such Reliance Affiliate. In the event the Parties cannot reach agreement regarding such details, Reliance shall issue a comfort letter to the Vendor pursuant to which Reliance will agree to take all steps necessary to ensure that such Reliance Affiliate makes all payments due to the Vendor in accordance with the terms of the Documents.

9.2          Affiliate Rights and Obligations.

9.2.1           Notwithstanding anything contained herein to the contrary, Reliance Affiliates will not be deemed third party beneficiaries to these General Terms.  Only Reliance may designate a Person as a Reliance Affiliate in accordance with the terms of this Section 9 and (except with respect to specific Reliance Affiliate Purchase Orders made by a Reliance Affiliate pursuant to and in accordance with the terms of this Section 9) only Reliance has the right and/or the ability to enforce any rights hereunder against the Vendor.  Only the Reliance Affiliate issuing a specific Purchase Order for the supply of Products and/or Services under the Documents will incur an obligation or liability to the Vendor for any claim that may arise from or relate to that Purchase Order.  [***].

9.2.2           For purposes of any such Reliance Affiliate Purchase Order, the term “Reliance” as used herein shall be deemed to mean any such Reliance Affiliate ordering hereunder, subject solely to the terms of this Section 9.

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SECTION 10.       SUBCONTRACTORS

10.1        Subcontractors.

10.1.1         Performance of the Documents may not be delegated, subcontracted or assigned, in whole or in part, by the Vendor without the prior written consent of Reliance.  To attain Reliance’s consent, the Vendor shall provide Reliance with the following a) with respect to all Subcontractors engaged exclusively to perform Work for Reliance, Vendor shall submit to Reliance the general terms upon which it proposes to contract with such Subcontractors, together with their names and relevant details; Reliance will review the same expeditiously (taking into account the alternative sources available and program schedule) and will not unreasonably withhold, condition or delay its consent to the same; Reliance’s approval/consent shall not however affect the Vendor’s responsibility under the Documents.  Reliance shall be provided with unpriced copies of such executed agreements; and/or b) with respect to the Subcontractors who are directly working on the Broadband Access Reliance Network, the Vendor shall submit the general terms upon which it proposes to contract with such Subcontractors and/or c) with respect to the other Subcontractors, the Vendor shall submit Vendor’s subcontracting plan at no extra cost (specifying the details of major Subcontractors; the work, and the level of criticality of such work to be performed by the Subcontractors, the alternative sources/parties available for such providing such work) and the details of the agreement between the Vendor and such Subcontractor (describing guarantees of continued supply, protection against delays in project implementation and cost increases).  In the event that Reliance is of the opinion, based on the subcontracting plan provided and other program related information available, that any Subcontractor is critical to the implementation of the program (for example, where there is only one party providing such subcontracting services), the Parties shall mutually agree on certain preventive measures to ensure that such Subcontractor does not cause any delay in implementation of, or cost increases in, the program.  Pursuant to the terms set forth above, the Vendor will select Subcontractors in connection with the performance of the Work such that all Products and Services provided by any such Subcontractors meet the Specifications and all other requirements set forth in the Documents.

10.1.2         Regardless of whether or not the Vendor obtains approval from Reliance of a Subcontractor or whether the Vendor uses a Subcontractor recommended by Reliance, use by the Vendor of a Subcontractor will not, under any circumstances: (a) give rise to any claim by the Vendor against Reliance if such Subcontractor breaches its subcontract or contract with the Vendor; (b) give rise to any claim by such Subcontractor against Reliance; (c) create any contractual obligation by Reliance to the Subcontractor; (d) give rise to a waiver by Reliance of its rights to reject any Defects or Deficiencies or Defective Work; or (e) in any way release the Vendor from being solely responsible to Reliance for the Work to be performed under the Documents.

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10.1.3         The Vendor agrees that Reliance may revoke consent of any Subcontractor that violates any terms or conditions of the Documents.  Reliance has the right at any time to require removal of a Subcontractor and/or any of a Subcontractor’s personnel from Work upon reasonable grounds and reasonable prior written notice to the Vendor.  The exercise of such right by Reliance will have no effect on the provisions of Sections 10.1 and 10.2.

10.2        Vendor’s Liability.

10.2.1         The Vendor is the general contractor for the Work and remains responsible for all of its obligations under the Documents, including the Work, regardless of whether a subcontract or supply agreement is made or whether the Vendor relies upon any Subcontractor to any extent.  [***].

10.2.2         The terms of the Documents shall in all events be binding upon the Vendor regardless of and without regard to the existence of any inconsistent terms in any agreement between the Vendor and any Subcontractor whether or not and without regard to the fact that Reliance may have directly and/or indirectly had notice of any such inconsistent term.

10.3        Assignability of Subcontracts to Reliance.

To the extent reasonably requested in writing by Reliance, the Vendor will immediately assign to Reliance any subcontract between the Vendor and any Subcontractor engaged specially to perform Work for Reliance, or who are directly working on the Broadband Access Reliance Network.  The Vendor will ensure that each agreement between the Vendor and a Subcontractor contains a provision stating that such agreement permits assignment thereof without penalty to Reliance at the option of Reliance and for the same price and under the same terms and conditions as originally specified in such Subcontractor’s agreement with the Vendor and such Subcontractor will continue its portion of the Work as may be requested by Reliance.  Provided however, in the event a Subcontractor, in spite of best efforts of the Vendor, refuses to agree to the insertion of the said provision in the said agreement between the Vendor and the Subcontractor, the Parties shall discuss, if necessary with the Subcontractor, the means of resolution of such deviation. Furthermore, the Vendor shall ensure that each material agreement between the Vendor and a Subcontractor contains a provision stating that such agreement may be made available in whole or in part to Reliance at its reasonable request without causing the violation and/or breach of any such agreement.

10.4        Subcontractor Insurance.

The Vendor shall require all Subcontractors to obtain, maintain and keep in force during the time they are engaged in providing Products and Services hereunder adequate insurance coverage consistent with Section 3.19 and Schedule 2 (provided, that the maintenance of any such Subcontractor insurance will not relieve the Vendor of its other obligations pursuant to Section 3.19 and Schedule 2).  The Vendor will, upon Reliance’s request, furnish Reliance with evidence of such insurance in form and substance reasonably satisfactory to Reliance.  To the extent requested by Reliance all such insurance will be subject to Reliance’s reasonable approval.  All Subcontractors shall be of bondable financial condition.

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10.5        Vendor Warranties.

The warranties of the Vendor set forth in the Documents will be deemed to apply to all Work performed by any Subcontractor as though the Vendor had itself performed such Work, and the Parties agree that Subcontractor warranties will not be enforceable merely on a “pass-through” basis.  Reliance may, but shall not be obligated to, enforce such warranties of any Subcontractor to the extent that Reliance determines that the Vendor is not paying and/or performing its warranties; provided, that any such election by Reliance will not relieve the Vendor from any obligations or liability with respect to any such warranty.

10.6        Payment of Subcontractors.

The Vendor shall make all payments to all Subcontractors, unless otherwise specified in the Documents, (except in the case of legitimate disputes between the Vendor and any such Subcontractor arising out of the agreement between the Vendor and such Subcontractor) in accordance with the respective agreements between the Vendor and its Subcontractors such that Subcontractors will not be in a position to enforce liens and/or other rights against Reliance or any of its Affiliates, any Market or any part thereof or Product therein. Vendor shall provide, and shall obtain from all Subcontractors and deliver to Reliance, waivers of all unpaid vendors, mechanics’ and materialmen’s liens under all Applicable Laws.  Reliance reserves the right, upon written intimation to Vendor, to make payments due hereunder directly to suppliers of Vendor whenever Reliance has reason to believe Vendor has not paid or is likely not to pay such suppliers amounts due them on a timely basis, provided that Reliance shall give the Vendor notice prior to making such payments.  In the event Reliance makes such payments to Subcontractors, Vendor shall immediately credit, secure or repay to Reliance, the amount of such payments.

SECTION 11.       TERM

The term of these General Terms shall begin on the Effective Date and continue either (a) for a period of [***] or (b) until final termination of any Contract entered into in accordance with these General Terms, whichever is later (as such term may be renewed, extended or earlier terminated pursuant to the terms hereof, the “Term”).  The term of these General Terms and of each Contract shall begin and expire as set forth hereunder and thereunder; provided, that upon the mutual agreement of the Parties at least [***] prior to the expiration of the current term, each Contract is subject to renewal for [***] periods on the same terms and conditions contained therein.

SECTION 12.       CHARGES

12.1        General.

In full and complete consideration of Vendor’s performance of the Services and provision of the Products, Reliance agrees to pay Vendor the Charges set forth in the applicable Contract in accordance with the process set forth in such Contract.  [Reliance shall only be obligated to pay for Products and Services that comply with the Documents, including applicable Specifications and the provisions set forth in the relevant Contract.] Vendor shall correct,

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[***] any nonconforming Products or Services and any incorrect outputs, such as reports, that are the responsibility of Vendor hereunder, and [***].

12.2        [***]

12.3        Third Party Fees.

Beginning on the Commencement Date and to the extent expressly set forth in an Contract, Vendor shall be responsible for: (i) all Subcontractor  fees and expenses necessary for the performance of the Services and provision of the Products and other Work; and (ii) the payment of any fees, penalties, charges, interest or other expenses due and owing with respect to such Subcontractor.

12.4        Expenses.

Except to the extent identified as an Expense in an applicable Purchase Order, and approved by Reliance in accordance with the Documents, all expenses incurred by the Vendor to provide any Deliverable shall be deemed included in the Net Price for such Deliverable.

12.4.1         Expense Forecasts.

(a)           Prior to the issuance of any Purchase Order, Vendor shall provide Reliance with a good-faith estimate, as required by Reliance from time to time, of all Expenses to be incurred in connection with the Deliverables requested in such Purchase Order, including volume and technical specifications for Reliance to calculate freight, handling, warehouse charges and clearing and forwarding charges, together with a brief description of the role of such Expenses in Vendor’s provision of such Deliverables (with respect to such Purchase Order, the “Expense Forecast”).

(b)           To the extent (i) the actual cost of any Pass-Through Expenses or Retained Expenses exceeds the estimate for such Expense set forth in the Expense Forecast by greater than [***] and (ii) such increase in cost is not directly attributable to (A) a Force Majeure event or (B) the negligent or willful acts of Reliance, then Vendor shall be liable for all Expenses in excess of 120% (one hundred twenty percent) of the Expense Forecast and shall credit or pay such amount to Reliance within [***].

12.4.2         Pass-Through Expenses.

(a)           Except to the extent expressly set forth herein, Vendor shall be obligated to obtain the prior written approval of Reliance prior to incurring any Pass-Through Expense described in this Section 12.4.2, and Vendor shall be responsible for any unapproved Pass-Through Expenses it incurs.

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(b)           Vendor shall pay all Pass-Through Expenses directly to the applicable third party contractors.  Before paying an invoice for any Pass-Through Expense, Vendor shall review the invoiced charges and shall give Reliance a reasonable opportunity to review the invoice and any supporting information or documentation requested by Reliance.  Vendor will provide the original third-party invoice to Reliance, together with a statement that Vendor has reviewed and validated the invoiced charges, at least [***] prior to the date on which payment is due if reasonably possible.  Vendor will highlight any charges that appear to be inappropriate and reconcile all bills with applicable Subcontractors.  To the extent Vendor fails to comply with its obligations hereunder, it shall be financially responsible for any late fees, interest charges or other Losses, costs or expenses incurred by Reliance.  Reliance shall reimburse Vendor for all Pass-Through Expenses, provided that Reliance shall only be responsible for actual costs incurred by Vendor, with no mark-up, profit, overhead or administrative expense.

12.4.3         Retained Expenses.

With respect to any Deliverable, all items constituting Retained Expenses are as set forth in the relevant Documents.  With respect to any Deliverable, Reliance shall have no responsibility for Retained Expenses arising from or related to the provision of such Deliverable except to the extent such Retained Expenses are expressly set forth in such Document.  Reliance shall arrange, manage and pay all Retained Expenses directly to the applicable third party contractor.  Notwithstanding anything to the contrary, in the event Reliance fails to arrange for any equipment, materials, supplies, or other services constituting a Retained Expense within the timeframe set forth in the Documents, absent the fault or negligence of the Vendor, Vendor shall not suffer any penalty for delay in the provision of the Deliverables to the extent such delay results solely and directly from such failure.

12.4.4         Reliance Internal Expenses.

Notwithstanding anything herein to the contrary, in no event shall the provision by Reliance of any personnel, supplies, equipment, materials or services constituting Reliance Internal Expenses be considered a contractual obligation of Reliance, unless such provision is set forth in a mutually agreed Purchase Order. In addition, to the extent the actual usage of any personnel, supplies, equipment, materials or services to be provided by Reliance as Reliance Internal Expenses with respect to any Deliverable exceeds the amount set forth in the Expense Forecast unless Reliance exceeds the amount set forth in the Expense Forecast due to reasons exclusively attributable to Reliance, Reliance in its sole discretion may require Vendor to arrange alternate personnel, supplies, equipment, materials or services in lieu of such excess to be provided by Reliance, provided, that (i) any cost for such alternate arrangements shall be borne by Vendor and (ii) Vendor shall not be entitled to any delay in the provision of such Deliverable. Vendor’s sole remedy with respect to the failure of Reliance to provide any such personnel, supplies, equipment, materials or services shall be a permitted delay in the provision of the Deliverable to which such personnel,

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supplies, equipment, materials or services applied to permit Vendor to develop a revised Expense Forecast reflecting such personnel, supplies, equipment, materials or services as a Pass-Through Expense.  Vendor’s preparation of such revised Expense Forecast and Reliance’s acceptance or rejection shall be governed by Section 12.4.1 above, and the deadlines set forth in that Section shall be measured from the date of such failure by Reliance.

12.4.5         Cost Management.

Vendor will continually seek to identify methods for reducing and minimizing Expenses and will notify Reliance of such methods and the estimated potential savings of each such method.  If Vendor proposes an innovative, value-added, cost-saving solution related to the Deliverables that improves Reliance’s cost savings beyond the level required by Vendor’s responsibility to manage costs, and if Reliance, in its sole discretion, elects to implement the proposed solution, then Reliance may elect to share with Vendor a portion of the net cost savings realized therefrom.

12.4.6         Incidental Expenses.

Vendor acknowledges that, except as otherwise expressly provided in the Documents, expenses that Vendor incurs in performing the Work are included in the Charges.  Accordingly, such Vendor expenses are not separately reimbursable by Reliance unless Reliance has agreed in advance and in writing to reimburse Vendor for the expense.

12.4.7         Travel Expense Policy.

All travel expenses incurred by or for Vendor and payable by Reliance shall be subject to the Business Travel Process set forth in Schedule 3.

12.4.8         Refunds and Credits.

If Vendor should receive a refund, credit, price preference or other rebate for goods or services paid or payable by Reliance on a Pass-Through Expense, Retained Expense, cost-plus or cost-reimbursement basis, then Vendor shall (i) notify Reliance of such refund, credit, price preference or rebate and (ii) pay the full amount of such refund, credit, price preference or rebate to Reliance within [***].

12.5        Proration.

Periodic Charges under the Documents are to be computed on a calendar month basis, and shall be prorated for any partial month on a calendar day basis.  Any day based rate shall be prorated to hours, based on a ten (10) hour per day basis.  Notwithstanding anything to the contrary, no additional payment shall be made on overtime or additional hours of work done, unless otherwise agreed by the Parties.

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12.6        Reliance Benchmarking Reviews.

12.6.1         From time to time Reliance may engage the services of an internationally recognised independent third party (a “Benchmarker”) to compare the quality of the Deliverables against the quality of well-managed contractors providing similar deliverables to determine whether Reliance is obtaining levels of service that are best-in-class in terms of service levels, given the nature, volume and type of Deliverables provided by Vendor hereunder (“Benchmarking”).  The Benchmarker shall be selected by Reliance, and the cost of all services provided by the Benchmarker will be borne by Reliance.

12.6.2         Any Benchmarker engaged by Reliance shall agree in writing to be bound by the confidentiality and security provisions specified in these General Terms.  Vendor shall cooperate fully with Reliance and the Benchmarker and shall provide reasonable access to the Benchmarker during such effort at Vendor’s cost and expense to permit Benchmarker to perform the Benchmarking.

12.6.3         The Benchmarking process shall consider the service levels from comparable transactions in global markets.  To the extent that service levels are affected by discrepancies in infrastructure, the parties will use good faith efforts to develop a reasonable adjustment to the Benchmarking results to accommodate such discrepancies.  If the Benchmarker determines that the Specifications set forth in the Documents or otherwise are less favorable to Reliance than Best-in-Class Performance standards, the Specifications under the Documents or otherwise shall be prospectively revised to Best-in-Class Performance standards in accordance with the Procedures Manual. In the event that the changes required to be made in the Specifications result in the development of a substantially improved Product either in terms of functions or features or both, then the price for such Product shall be agreed under the terms of the Documents.

12.7        [***]

12.8        Rate Review.

12.8.1         At Reliance’s request, the Parties will regularly review the competitiveness of the Charges for any and all Products and Services in light of technological and marketplace developments (in each case, a “Rate Review”).  Reliance may initiate a Rate Review for a Contract Year any time after [***] prior to the beginning of such Contract Year by providing Vendor with written notice.  For the purposes of this Section, “Contract Year” shall mean  each successive period of twelve (12) consecutive months, with the first Contract Year commencing on the Effective Date and ending on the first anniversary of the Effective Date. At these meetings the Parties, acting in good faith, will seek to determine by mutual agreement whether (and, if so, what) changes to the Charges are appropriate by virtue of such developments, in order to preserve for each Party the expected benefit of, and the intent of the Parties

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with respect to, the Charges for such Work.  In connection with each Rate Review, the Parties will cooperate in good faith to assess the competitiveness of the Charges.  Such cooperation will include providing each other with pricing and other relevant information to which they have access (subject to each Party’s non-disclosure and other obligations to third parties), undertaking reasonable analyses of such information and negotiating agreeable adjustments to the Charges.

12.8.2         If the Parties agree that adjustments to the Charges are appropriate, Vendor will take, or will cause its Affiliates or Subcontractors providing affected Service(s) to take, all appropriate actions to implement such adjustments to provide Reliance with the economic benefit of any reduction in Charges effective no later than [***] following the initiation of a Rate Review.

12.9        [***]

12.10      Extraordinary Events

If an Extraordinary Event occurs, Reliance may, at its option, request a reduction in the unit charges specified in the pricing schedule to the Documents in accordance with the following:

(a)           Vendor and Reliance shall mutually determine on a reasonable basis the resulting efficiencies and economies and/or the resources no longer required by Vendor to perform the Work (the “Targeted Resource Reductions”).  Vendor shall identify in writing to Reliance the cost reduction to Reliance in connection with the Targeted Resource Reductions (the “Targeted Cost Reductions”).

(b)           Immediately upon determination of the Targeted Resource Reductions, Vendor shall proceed to eliminate the Targeted Resource Reductions as quickly as feasible and in accordance with the agreed upon schedule.

(c)           As the Targeted Resource Reductions are eliminated, the Charges provided on the pricing schedule to the Documents shall be reduced by the full amount of the corresponding Targeted Cost Reductions applicable to the Targeted Resource Reductions as such Targeted Cost Reductions are so eliminated, and any affected resource baselines shall be equitably adjusted, as appropriate.

(d)           In no event may an Extraordinary Event result in the Charges to Reliance being higher than such Charges would have been if the additional resource charges and resource reduction credits specified in the pricing schedule to the Documents (and as such terms are defined therein) had been applied. Reliance may, at its sole option, elect at any time to forego its rights under this Section 12.10 and instead, apply such additional resource credits and resource reduction credits to adjust the Charges.

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12.11      Audit Rights.

12.11.1       Financial Audits.

Vendor shall provide to Vendor’s independent auditors (the “Auditors”) access at reasonable hours to Vendor personnel and to Vendor’s records and other pertinent information, all to the extent relevant to the performance of Vendor’s financial obligations under the Documents.  Such access shall be provided for the purpose of performing audits and inspections to: verify the accuracy and completeness of calculations related Pass-Through Expenses, pecuniary claims from either Party and other actual costs, including but not limited to, costs and expenses reimbursable under Section 3.15 and invoiceable under the Documents.  The audit fees incurred shall be on Reliance’s account.

12.11.2       Overcharges.

If any such audit reveals an Overcharge by the Vendor, Vendor shall promptly refund the amount of Overcharge (together with all additional amounts paid or incurred by Reliance for excess taxes, levies, duties and fees relating to such Overcharge) by Product credits against future purchases of Products and Services from the Vendor or any assignee or Affiliate of Vendor, or if Reliance does not issue any Purchase Orders within [***] from the date of determination of such Overcharge, then Vendor shall refund such Overcharge within [***] of the date of determination of such Overcharge.

12.11.3       Review of Audits.

Reliance and Vendor shall meet to review each audit report promptly after the issuance thereof.  Vendor will respond to each audit report in writing within twenty (20) days from receipt of such report, unless a shorter time is specified in a report by any external auditor.  Reliance and Vendor shall develop and agree upon an action plan to promptly address and resolve any deficiencies, concerns and/or recommendations in such audit report and Vendor, at its own expense, shall undertake remedial action in accordance with such action plan.

12.11.4       Frequency of Audits.

Audits shall be limited to [***] per Contract Year.

12.11.5       Vendor Response to Government Audits.

If an audit by a governmental body or regulatory authority having jurisdiction over Vendor or Reliance results in a finding that Vendor is not in compliance with any generally accepted accounting principle or other audit requirement or any rule, regulation or law relating to the performance of its obligations under these General Terms, Vendor shall, at its own expense and within the time period specified by such auditor, address and resolve any deficiency identified by such governmental body or regulatory authority.

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12.11.6       Audit Costs.

Except as otherwise provided herein, Vendor Personnel shall provide all supporting services to the Auditors [***] to Reliance.

12.12      Asset Register

Vendor shall, [***] maintain and provide Reliance with such sales values and other charges invoiced to Reliance, in a form and a level of detail described in the applicable Contracts, as will allow Reliance to allocate the cost of Products and Services to Reliance customers and cost centers to produce an asset register required  by Reliance.

12.13      Price Reduction.

The pricing set forth in each Contract shall be reduced by all amounts saved as a result of engineering, technical, scope, performance and other changes suggested by Reliance that are incorporated into the Specifications by the Vendor; provided, that the Vendor reasonably believes that such changes shall not make it impossible or impracticable or commercially unviable for it to comply with any of its obligations under such Contract.  Any such reduction in price pursuant to the preceding sentence shall be agreed upon promptly by Reliance and the Vendor.  Failure of the Parties to mutually agree to such price reductions within [***] from the date Reliance delivered written notice to the Vendor of the need for such price reduction due to incorporated engineering changes shall result in the automatic reference of such matter to dispute resolution in accordance with Section 22.

12.14      Reliance Policies and Procedures

The operation of the Documents shall be governed by the following procedures that are appended hereto as Schedule 3:

(a)           Business Travel Process

(b)           Time Reporting/Invoicing Process

(c)           PAF & Roster Process

SECTION 13.       INVOICING AND PAYMENT

13.1        General

13.1.1         In the event that the total value of the Products or Services under a Purchase Order [***].

13.1.2         All payments shall be payable by local cheque in favour of the Vendor or directly to a non-Indian Affiliate of the Vendor, [***] if applicable.

13.1.3         Vendor shall comply with all applicable import/export requirements.  Vendor represents, warrants, and covenants that, with respect to all Equipment and

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Software sold or offered for sale in the relevant Documents for importation into the [***], the Net Prices for the same shall be the total cost [***].

13.1.4         The Net Prices for all Software (excluding Vendor Internal Use Tools) shall include [***] all pre-importation activities (FCA basis). The Net Prices [***].

13.2        Invoicing.

13.2.1         Reliance will have the right to require separate invoicing by legal entity, by country and by contract / Purchase Order, in such form and manner and containing such details as to comply with the legal and other requirements in India. The Parties shall work together to optimise  the overall commercial cost arising from or related to the Work

13.2.2         Vendor shall submit its Invoice(s) and supporting documents as follows:

1 original and 1 copy to

[***]

All Invoices pursuant to the Documents shall be supported by :

(a)           With respect to Products, supporting documents and a certificate in a form specified by Reliance certifying the timely achievement of the milestones for such Products (including without limitation,  the airway bill Reliance shall be required to pay amounts due under the invoice forty five days from the date of delivery of the Products to Reliance’s designated  warehouse provided that if the Products are not delivered to Reliance’s warehouse within [***] from the date in the cargo arrival notice evidencing the arrival of the Products in India, then Reliance shall be required to pay Vendor [***] from the expiry of such [***] period, or Substantial Completion and Acceptance) signed by Vendor and Reliance’s authorized representatives.

(b)           With respect to installation, testing and commissioning Services, supporting documents and a certificate in a form specified by Reliance certifying the timely achievement of the milestones in accordance with the Documents, signed by Vendor and Reliance’s authorized representatives.

(c)           With respect to program management Services and other Services that are payable on a per diem basis, original weekly time sheets, and/or other supporting documents in a form specified by Reliance, certifying the timely achievement of the milestones in accordance with the Documents, duly signed by Vendor and Reliance’s authorized representatives.  Vendor shall submit the timesheets on a [***] to Reliance for review and approval. Reliance shall either

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request additional supporting information or approve all of the correct timesheets for a calendar month within [***] from the end of the month to which such timesheets relate.

(d)           With respect to training Services, original daily time sheets, and/or other supporting documents in a form specified by Reliance, giving proof of free training days given in accordance with Documents, duly signed by Vendor and Reliance’s authorized representatives.

(e)           With respect to expenses that are reimbursable, all original receipts in a form acceptable to Reliance therefor shall be submitted along with the relevant Invoices, on a monthly basis.

13.3        Credits.

To the extent a credit may be due to Reliance pursuant to the Documents, Vendor shall provide, or at Reliance’s option cause any assignee of Vendor to provide, an appropriate credit to Reliance against amounts then due and owing in any manner reasonably specified by Reliance; if no further payments are due to Vendor or any assignee of Vendor, Vendor shall pay such amounts to Reliance within [***].

13.4        Payment Due.

Except as otherwise provided in the Documents and subject to the other provisions in the Documents, each Invoice shall be payable no later than [***] after receipt by Reliance of a true, accurate and complete Invoice in the form and manner specified by the Documents, unless and to the extent the amount in question is disputed.  If any portion of an amount due to Vendor under the Documents is subject to a bona fide dispute between the Parties, Reliance will pay to Vendor on the date such amount is due all amounts not disputed in good faith by Reliance. Any undisputed amount due under the Documents for which a time for payment is not otherwise specified shall also be payable no later than [***] after receipt by Reliance of a true, accurate and complete Invoice in the form and manner specified by the Documents. Undisputed amounts that are not paid on or before [***] after the date such undisputed amounts are payable are subject to a late payment charge at the rate of [***] per annum, or part thereof , pro-rated on a daily basis (but not to exceed the maximum lawful rate), from and after the day after the date such unpaid undisputed amounts were payable until such amounts are paid.

13.5        Disputed Charges.

13.5.1         Reliance shall pay undisputed Charges when such payments are due; however, Reliance may withhold payment of Charges that Reliance disputes in good faith. If Reliance in good faith disputes any Charges under the Documents, Reliance shall notify Vendor of such disputed amount and the basis for Reliance’s dispute prior to the date when such payment is due.  Reliance will provide Vendor with reasonably appropriate information supporting Reliance’s position.  Vendor will respond to Reliance’s notification of disputed amounts within [***] of receipt of Reliance’s

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notification.  If such Charges remain in dispute, within [***] of Vendor’s response, representatives of Reliance and Vendor shall meet to discuss the disputed Charges.

13.5.2         Neither the failure to dispute any Charges or amounts remitted prior to payment nor the failure to withhold any amount shall constitute, operate or be construed as a waiver of any right Reliance may otherwise have to dispute any Charge or amount or recover any amount previously paid.

13.6        Stale Invoices.

If Vendor fails to invoice Reliance for any amount within [***] after the month in which the applicable Work is rendered or the expense incurred, Vendor shall waive any right it may otherwise have to invoice for and collect such amount. Provided however, that, in the event that during the foregoing [***] period, Vendor notifies Reliance in writing that Vendor is unable to invoice Reliance for Work during such [***] period for specific reasons to be explained, then Vendor shall have an additional [***] in which to invoice Reliance for such Work.  If Vendor fails to so invoice Reliance during such second [***] period, then Vendor shall waive any right it may otherwise have to invoice for and collect such amount.

SECTION 14.       ORDERING AND DELIVERY

14.1        Forecasts of Products and Services.

Subject to the terms of the applicable Contract, on the Effective Date, and on the first of each month thereafter and throughout the Term, Reliance may deliver to the Vendor a forecast (“Forecast”) specifying its non-binding estimate of Reliance’s expected customer base and traffic expectations on the Broadband Access Reliance Network or any part thereof.  The Vendor shall be responsible for providing sufficient capacity and demand planning services so as to efficiently and effectively forecast Reliance’s Product and Service requirements and by each type of Equipment, Software and Services that Reliance and Reliance Affiliates should anticipate purchasing during the Forecast Period.  The Forecasts will be in a format mutually acceptable to the Parties.  The Vendor’s forecasting and demand planning Services shall be subject to specific Specifications set forth in the Documents.Further, from [***] onwards, Vendor shall obtain from Reliance [***] rolling non-binding forecasts for the supply of Products for the following [***] and the [***] following the said [***] period. Reliance shall issue Purchase Orders at least [***] prior to the complete delivery of the shipment of the Products.

14.2        Ordering.

14.2.1         Each Purchase Order submitted to the Vendor shall be solely for either Software or Equipment or Services, and no combination thereof is permitted; provided, that the existence of firmware within any Equipment shall not implicate the foregoing restriction. Reliance shall have no obligation to submit any Purchase Order and/or to purchase any Equipment, Software or Services from the Vendor except as otherwise set forth in the Documents. All

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Purchase Orders shall materially conform to the applicable Timetables.  Each Purchase Order, in combination with the relevant Documents, shall contain sufficient information to enable the Vendor to proceed with the execution of such Purchase Order.

14.2.2         Vendor shall be required to accept any Purchase Order, other than any Purchase Order that contradicts or is not in conformance with the terms of the Documents including Schedule 4 (Pro-forma Purchase Order format) hereto.  In no event shall Vendor reject a Purchase Order due to non-availability of Products or Services.  In the event Vendor rejects any Purchase Order in contravention of this Section, Reliance shall have the right to acquire products and services similar to the Products and Services subject to such rejected Purchase Order from Other Contractors at Vendor’s risk and cost. Notwithstanding any provision to the contrary, the remedies set forth in this subsection shall be in addition to any other remedies available to Reliance under the Documents at law or in equity.

14.2.3         Subject to the terms of the applicable Contract, Purchase Orders for Equipment and Software shall specify the quantity of each type, model, release or version to be purchased, the date(s) upon which such Deliverables are required to be shipped, the shipping method and the location to which such Products should be shipped.

14.2.4         Each Purchase Order shall be submitted to the Vendor at 1275 Harbor Bay Parkway, Alameda, California 94502, United States of America (or any other location as designated to Reliance in writing by the Vendor from time to time) and shall be acknowledged by the Vendor in writing to the Reliance designated authorized representative within [***] of receipt; provided, that the Vendor hereby agrees to accept any and all Purchase Orders that materially conform to the scope, terms and conditions of the Documents.  Failure of the Vendor to acknowledge to Reliance in writing receipt of any Purchase Order shall be deemed to render any such Purchase Order acknowledged and accepted.  In no way limiting the terms of Section 14.2.1, to the extent that the Vendor is actually aware that any Purchase Order in any way contradicts or is not otherwise in conformance with the terms of the Documents, the Vendor agrees to promptly notify Reliance of any such contradiction or non-conformance as soon as possible upon becoming actually aware of such contradiction or non-conformance so that Reliance shall have a reasonable opportunity to correct or acknowledge any such contradiction or non-conformance.

14.2.5         The Vendor shall cooperate with Reliance, and/or any Person designated by Reliance for such purpose, to develop processes and systems that shall maximize and optimize delivery logistics.  Metrics and targets shall be defined by the Parties for stocking percentages, delivery times and total logistics costs that satisfy Reliance business requirements and the provisions set forth in the Documents.

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14.2.6         Unless the Parties otherwise expressly agree in writing, each Purchase Order shall be deemed to incorporate by reference all of the terms and conditions of these General Terms and the applicable Documents.  The General Terms and the applicable Documents shall continue to apply to all Purchase Orders until all obligations herein and thereunder are fully performed.

14.3        Change Orders.

14.3.1         If Reliance requests that Vendor perform any New Services, or if Reliance requests a material modification to an existing Purchase Order (each a “Change”) Reliance shall prepare and deliver to Vendor a request that Vendor provide Reliance with a proposal to provide such a Change. Vendor shall promptly prepare such proposal for such Change for Reliance’s consideration. Vendor shall prepare such proposal at no additional charge to Reliance and shall deliver to Reliance such proposal as soon as reasonably practicable, but in no event later than [***] after its receipt of Reliance’s request; provided, that Vendor shall use all commercially reasonable efforts to respond more quickly in the case of a pressing business need or an emergency situation. Such proposal shall include, among other things:

(a)           a detailed performance schedule and project plan for providing the Change,

(b)           the price for the Change,

(c)           a detailed description of any additional service levels to be associated with such services,

(d)           a description of the new hardware or software to be provided in connection with the service, and

(e)           a compliance matrix which defines whether the Vendor’s proposed solution is fully Interoperable and Backwards Compatible with the Broadband Access Reliance Network, and if not fully Interoperable and Backwards Compatible, a complete description of any failures in Interoperability or Backwards Compatibility.

Reliance may accept, reject or modify any such proposal in its sole discretion.  Vendor shall not provide any Change prior to Reliance’s written acceptance of Vendor’s proposal. Upon acceptance of Vendor’s proposal Reliance shall issue an order to Vendor to provide such Change in accordance with the accepted Vendor proposal (a “Change Order”). Such Change shall be subject to the Forward Price Assurance provisions set forth in Section 3.16.

14.4        Delivery.

14.4.1         Reliance may request that the Vendor provide more extensive logistical and distribution capabilities to Reliance, which capabilities the Vendor shall use its best efforts to provide.  If the Vendor agrees to provide such services,

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there may be, depending on the level and scope of such services, additional charges to Reliance on a per unit basis. Any such additional logistical Charges and distribution Services Charges shall be mutually agreed upon by the Parties; provided, that Vendor shall procure best available rates for such additional logistical charges and Reliance shall be deemed the Vendor’s most important and preferred customer in India and shall further receive such services at actual costs, on payment terms and subject to all other contract terms on terms no less favorable to Reliance than those offered or available to any Other Customer.

14.4.2         Upon request, Vendor agrees to provide appropriate shipping invoices in such forms and manners reasonably requested by Reliance to facilitate the importation of the Equipment and Software, based on the Net Price for such items.  Notwithstanding any provision to the contrary, Reliance shall have no obligation to pay amounts based solely on the shipping invoice.  All payment obligations of Reliance shall be solely on the invoicing and payment provisions set forth in the Documents.

14.4.3         Vendor agrees, on receipt of written notice from Reliance, to delay delivery of any Product for up to [***], and at the discretion of, Reliance.

14.4.4         If there is any overage, shortage or defect in any Products, Vendor shall promptly correct such overage, shortage or defect at its sole cost and expense, including the payment of any additional fees, duties or taxes.

14.4.5         Notwithstanding anything aforesaid, Vendor [***].

14.4.6         In determining delivery dates for Products ordered under a Purchase Order (including without limitation for purposes of the determination of Liquidated Damages for delay in delivery), the time to manufacture such Equipment that is factored into such delivery dates shall not exceed the standard manufacturing intervals for such Equipment set forth in the Specifications.

14.5        Cancellation.

During the Term, Reliance shall have the right, but not the obligation, at any time to cancel, in whole or in part, any Purchase Order or Change Order made pursuant to the terms of the Documents upon advance written notice to the Vendor. Reliance may cancel delivery of Products at any time upon written notice to Vendor at least [***] prior to the scheduled shipment date of the Products so canceled [***]. In the event Reliance cancels delivery of Products at least [***] but less than [***] prior to the scheduled shipment date of the Products so canceled, Vendor may invoice Reliance for cancellation charges equal to [***] of the Net Price of the Products so canceled. In the event Reliance cancels delivery of Products at least [***] but less than [***] prior to the scheduled shipment date of the Products so cancelled, Vendor may invoice Reliance for cancellation

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charges equal to [***] of the Net Price of the Products so canceled.  In the event Reliance cancels delivery of Products at least [***] prior to the scheduled shipment date of the Products so cancelled, Vendor may invoice Reliance for cancellation charges equal to [***] of the Net Price of the Products so cancelled. In the event Reliance cancels delivery of Products less than [***] prior to the scheduled shipment date of the Products so cancelled, Vendor may invoice Reliance for cancellation charges equal to [***] of the Net Price of the Products so cancelled.  The foregoing notwithstanding, in the aggregate, Reliance shall have the right to cancel delivery of Products with a value not to exceed [***] of the value of such Purchase Orders at any time prior to shipment of such Products without incurring any cancellation charges or expenses from Vendor. The aggregate value of such canceled Products shall not exceed [***] of the cumulative value of all issued Purchase Orders. The payment of the charges described in this Section shall be Vendor’s sole remedy and Reliance’s sole obligation for such canceled Purchase Order(s) or Change Order(s) provided however that such cancellations shall not relieve Reliance of the purchase commitments set forth in the Documents.

14.6        No Payment in Event of Material Breach.

If at any time the Vendor is in material breach of any Document and until and unless such material breach is cured or waived by Reliance in accordance with the terms set forth in the Documents, then notwithstanding any other provision to the contrary contained herein, Reliance shall have no obligation to make any payment with respect to all portions of the Work affected by such material breach.

SECTION 15.       INTELLECTUAL PROPERTY

15.1        License Grants.

15.1.1         Subject to the terms of this Section 15, upon delivery of Software, Vendor hereby grants to Reliance or its Affiliates (and to third parties whom Reliance or its Affiliates have contracted to operate the Broadband Access Reliance Network on their behalf (and to the extent of the same)) upon payment of, or agreement to pay, the relevant license fees by Reliance and/ or its Affiliates, a [***] license, to use such Software for the benefit of Reliance in direct connection with the ownership, operation maintenance and use of the Broadband Access Reliance Network in the Territory and the provision of relevant services in the Territory to Reliance’s customers.  The Software shall be used in accordance with the relevant Documents.

15.1.2         For the avoidance of doubt, the licenses referred to in Section 15.1.1 above are not intended to restrict the provision by Reliance of telecommunications services between the Broadband Access Reliance Network and customers outside the Territory via appropriate gateways either through appropriate interconnect agreements that Reliance may enter into with other operators or otherwise, provided always that, unless otherwise agreed in writing, Reliance and its Affiliates shall not be permitted to deploy or use the Software acting as a carrier outside the Territory.

15.1.3         The aforementioned licenses set forth in Section 15.1.1 shall hereinafter be referred to as the “Software Licenses”.  Such Software Licenses shall not be

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transferred, assigned, sublicensed by, or used by outsourcees of, Reliance without Vendor’s consent except with respect to: (i) the sale of the Broadband Access Reliance Network (or any relevant component thereof); (ii) the financing of the Broadband Access Reliance Network (or any component thereof); or (iii) the outsourcing by Reliance of any operating or maintenance functions related to the Broadband Access Reliance Network; or (iv) the transfer, assignment or sublicense by Reliance of the Software Licenses to a Reliance Affiliate (or vice versa) or between Reliance Affiliates, in conjunction with a transfer of a portion of the Broadband Access Reliance Network provided that in each such case, such transferee, assignee, sublicensee or outsourcee agrees in writing to abide by all the terms and conditions set forth in this Section 15 and the Vendor is informed of the same in writing by Reliance and provided further that the rights transferred, assigned sublicensed or granted to outsourcees, as the case may be, shall be those reasonably necessary to fulfill the commercial purposes of such transaction.

15.1.4         Except as otherwise expressly set forth in the Documents and except for the purpose described in the relevant Purchase Order, Reliance shall use such Software only for the operation of the Broadband Access Reliance Network, or, in the case where the Software is purchased by or on behalf of Reliance Affiliates, for the operations of such Reliance Affiliates in the Broadband Access Reliance Network.  The Software Licenses grant Reliance or Reliance Affiliates no right to, and Reliance or Reliance Affiliates will not, sublicense such Software or modify, decompile, reverse engineer, or disassemble, or in any other manner decode Software furnished as object code for any reason.  Reliance and Reliance Affiliates shall not copy the Software, including firmware, except for the purposes of making a limited number of archival copies (for backup use in operating and maintaining the Broadband Access Reliance Network) in accordance with the Documentation and/ or the relevant Contract, or as otherwise authorized in writing by the Vendor or as otherwise set out in the relevant Documentation.  Except as provided below, no license is granted to Reliance to use the Software outside of the Territory.  For the avoidance of doubt, the changing by Reliance or Reliance Affiliates of tables and values in the Software, modification by Reliance and/or its Affiliates of the Software by using the tools provided in or with the Software or any modification, in accordance with and pursuant to the relevant Documentation, shall not constitute ‘modification’ of the Software, provided always that Reliance may only change, amend or modify Software which is designed for “customer access” and to be so modified.

15.1.5         In the event that Reliance or any licensed Reliance Affiliates wishes to use the Software outside of the Territory (or to transfer, assign or sublicense Software to its Affiliate(s) or third party transferee, assignee or sublicensee, as applicable, located outside the Territory), Vendor shall neither unreasonably withhold or delay its consent to such use or transfer, assignment or sublicense nor (subject to the terms of the relevant Purchase Order) have any right to claim any fees or payment of monies from Reliance or its Affiliate, provided that the transferee, assignee or sublicensee, as the case may be, enters into an

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appropriate license agreement with the Vendor or an Affiliate of Vendor carrying on business in the territory in which the Software is to be located, on terms substantially similar to the license terms set forth in this Section 15 and such transfer, assignment or sublicense occurs in conjunction with the transfer of the relevant portion of the Broadband Access Reliance Network to such person, provided, however, that Reliance acknowledges and agrees that support and maintenance obligations set forth herein are only applicable for Software resident on products located within the Territory.  Support and maintenance Services offered by Vendor or Vendor’s Affiliates differs in various territories, and may be subject to the local practices maintained in such territories and shall be subject to relevant mutually agreed fees. Notwithstanding the generality of the foregoing, Reliance should be aware that Software may not be designed to operate satisfactorily in countries outside the Territory and may not comply with the regulations of another territory’s Regulatory Authorities.  Reliance shall, therefore, consult with Vendor to address such non-compliance to the mutual satisfaction of the Parties, prior to initiating any such transfer, assignment or sublicensing.

15.1.6         Reliance agrees that the Software, whether or not modified, and all copies thereof made by Reliance, are owned by, and are copyrights of, Vendor, its Subcontractors or its suppliers, as appropriate, and Reliance shall:

(a)           ensure that all copies of the Software shall, upon any reproduction by Reliance authorized by Vendor (where such authorization is required under the Documents) and whether or not in the same form or format as such Software, contain the same proprietary, confidentiality and copyright notices or legends (if any) which appear on the Software provided pursuant hereto; and

(b)           hold secret and not disclose the Software to any person, except to: (i) such of its employees, contractors, agents representatives or Reliance Affiliates that are involved in the operation, maintenance or management of the Broadband Access Reliance Network and need to have access thereto to fulfill their duties in such capacity, or (ii) other Persons who need to use such Software to permit integration of Equipment with other products and software of other suppliers and customers; provided that such persons agree, or are otherwise obligated, to hold secret and not disclose the Software to the same extent as if they were subject to the Documents, and provided further that if any such Person is a competitor of Vendor, involved in the manufacture of communications equipment Vendor must approve such use (such approval not to be unreasonably withheld or delayed).

(c)           when and if Reliance determines that it no longer needs the Software or if Reliance’s Software Licenses are cancelled or finally terminated in accordance with and pursuant to the terms of this Section 15 of these General Terms, return all copies (except for any required back-up or archival copies) of such Software to Vendor or follow commercially reasonable written disposition instructions provided by Vendor.  If

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Vendor authorizes disposition by erasure or destruction, Reliance shall remove from the medium on which Software resides all electronic evidence of the Software, both in its original form and in all copies and derivations thereof, in such manner that prevents subsequent recovery of such original or derived Software.

15.1.7         If, as contemplated in Section 15.1.3, Reliance or its Affiliate(s):

(i)            elects to transfer, assign or sublicense any Software in conjunction with any portion of the Broadband Access Reliance Network to a third party, and where such Software shall remain in place or be moved within the Territory and used for substantially the same purpose as used by Reliance and where such third party resides in the Territory and is approved by the Vendor (which approval shall not be unreasonably withheld or delayed); or

(ii)           elects to transfer, assign or sublicense Software to a Reliance Affiliate, in conjunction with any portion of the Broadband Access Reliance Network,

then Reliance may so transfer, assign or sublicense its Software Licenses for the Software furnished under the Documents for use with such portion of the Broadband Access Reliance Network, without the payment of any additional fees or monies to the Vendor. If, however, the Software Licenses for the Software contains usage or per subscriber limits and/or the processor to be used by transferee, assignee or sublicensee, as applicable, requires additional memory or hard disk space to meet the transferee’s, assignee’s or sublicensee’s new or different requirements, then, unless otherwise agreed in writing, Reliance shall only transfer its existing rights to the transferee and the transferee may be required to enter into an appropriate agreement with the Vendor to cover requirements over and above the rights which Reliance has already purchased and has transferred.  The following conditions shall apply to transfers, assignments or sublicenses and relocations pursuant to this Section 15.1.7:

(a)           the right to use of such Software may be transferred, assigned or sublicensed, only together with the right to use in the environment under which it is generally utilised.

(b)           before any such Software is transferred, assigned or sublicensed, Reliance shall notify Vendor of such transfer, assignment or sublicense and the transferee, assignee or sublicensee, as applicable, shall have agreed in writing (a copy of which shall be provided to Vendor) to keep the Software in confidence and to corresponding conditions respecting possession and use of Software as those imposed on Reliance under this Section 15; and

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(c)           the transferee, assignee or sublicensee, as applicable, shall have the same right and obligations to Software warranty and Software maintenance for such Software as the transferor, provided the transferee continues to pay the fees, including recurring fees, if any, associated with such Software warranty or maintenance pursuant to the relevant Documents.

15.1.8         Except as otherwise provided in this Section 15 or in any of the Documents, Reliance, or any successor to Reliance’s title in the relevant portion of the Broadband Access Reliance Network, shall have no right to transfer, assign or sublicense Software furnished by Vendor under the Documents without the consent of Vendor, which consent shall not be unreasonably withheld or delayed.  If Reliance or such successor elects to transfer or assign any portion of the Broadband Access Reliance Network purchased under the Documents for which it does not, under the Documents, have the right to transfer, assign or sublicense related Software, Vendor agrees that, upon written request of the transferee or assignee as applicable, of such portion of the Broadband Access Reliance Network, or of Reliance or such successor, Vendor shall not unreasonably refuse or fail to grant to the transferee, assignee or sublicensee, as applicable, a license to use such Software, whether to be located within the Territory or elsewhere, upon payment by the transferee of a re-licensing fee to Vendor on commercially reasonable terms.

15.1.9         The rights and obligations of Reliance under the Software Licenses shall survive the termination of all or any portion of the Documents, regardless of the cause of termination, provided Reliance has met its material obligations as set forth in this Section 15.  In the event that Reliance breaches its obligations under Section 15.1.5, and if Vendor has provided Reliance with prior written notice describing the alleged breaches and given Reliance a reasonable time (in no event less than [***]) to cure any such breaches, Vendor may terminate Reliance’s Software License(s) relating to the breach.  Such rights of termination shall be without prejudice to Vendor’s right to seek injunctive or other equitable relief from a court of competent jurisdiction.  In the event that Reliance fails to pay applicable and undisputed Charges, Vendor may terminate Reliance’s right to use the Software to which such Charges apply; provided that Vendor has given written notice and details of such breach to Reliance and has advised Reliance of its intention to terminate, and Reliance has failed to make such payment within [***] from Vendor’s notice thereof.  Such terminated rights shall be immediately reinstated upon payment of all applicable license fees.  In no event other than as set forth in this Section 15.1.9 may Vendor terminate the Software Licenses or Reliance’s right to use the Software.  Notwithstanding any other provision of the Documents, if there is a dispute hereunder, pending final resolution of such dispute, all of Reliance’s rights under the Documents shall continue in full force and effect, and Vendor will not terminate the Software Licenses, and so long as Reliance continues to pay Vendor applicable fees, Vendor will not terminate, suspend, interrupt or delay maintenance and support of the Software.

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15.2        Ownership Rights.

15.2.1         Except as otherwise expressly agreed by the Parties in writing, all Custom Work Software shall be the sole and exclusive property of the Vendor, including, without limitation, all copyrights, trademarks, patents, trade secrets, and any other proprietary rights inherent therein and appurtenant thereto, and the Vendor hereby grants to Reliance and its Affiliates a [***] license, [***] to use, copy, sublicense, transfer (subject to similar restrictions as set forth in Section 15.1.3), make derivative works in relation thereto, modify such Custom Work Software within the Territory. Prior to the development of any Custom Work Software, Reliance and the  Vendor shall agree in writing with respect to exploitation rights.

15.2.2         All intellectual property rights with respect to the Software (other than the Intellectual Property Rights) are and shall remain the sole and exclusive property of Vendor or its suppliers, including, without limitation, all copyrights, trademarks, patents, trade secrets, and any other proprietary rights inherent therein and appurtenant thereto.  All intellectual property rights with respect to the Reliance Software are and shall remain the sole and exclusive property of Reliance, including, without limitation, all copyrights, trademarks, patents, trade secrets, and any other proprietary rights inherent therein and appurtenant thereto.

15.3        Vendor Disclosure and Cooperation.

Vendor shall promptly make a complete written disclosure to Reliance of all Custom Work Software, Inventions and Derivative Works in relation thereto, specifically pointing out features or concepts that Vendor believes to be new or different.

15.4        Marks.

Except as otherwise expressly provided herein, each Party agrees to submit to the other for prior written approval all press releases and other materials using or incorporating the other Party’s insignia, logos, trademarks, trade names or service marks (collectively, “Marks”).  All use by either Party of the other Party’s Marks shall inure to the benefit of the Party owning the Marks.  Except as may otherwise be stated herein, upon termination or expiration of these General Terms, neither Party shall have any continuing right to use the other Party’s Marks and each Party shall immediately cease all such use of the other Party’s Marks.

15.5        Required Consents.

Vendor shall obtain all Required Consents, at no additional cost or expense to Reliance and shall pay any fees (such as transfer, re-licensing or upgrade fees) associated with obtaining any Required Consents and any other costs that result from the termination or under utilization of any agreement with a third party.  If Vendor requests, Reliance shall cooperate with and assist Vendor in connection with obtaining the Required Consents, at no additional cost to Reliance.  With respect to any Purchase Order or other Work, if a Required Consent is not obtained during the first [***] following the Commencement Date of such Purchase

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Order or other Work, then unless and until such Required Consent is obtained, Vendor shall use best efforts to determine and adopt, subject to Reliance’s prior approval, such alternative approaches as are necessary and sufficient to provide the Work without such Required Consents.  Failure to obtain any Required Consent shall not relieve Vendor of its obligations under the Documents and Vendor shall pay any additional costs incurred by Reliance as a result of such failure in addition to any other remedies available to Reliance hereunder. Notwithstanding the foregoing, in cases in which infringement of any Third Party Intellectual Property Right is alleged against either Reliance or Vendor, this Section 15.5 shall not be construed as a remedy for such allegations.  The sole remedies with respect to any such allegations shall be as provided in Section 15.7 and Section 20.

15.6        Intellectual Property Warranties.

15.6.1         Vendor represents, warrants and covenants that:

(a)           Vendor is the owner, valid licensee, or authorized user of the Software and the Vendor Internal Use Tools;

(b)           The Software and Reliance’s proposed use thereof does not and shall not infringe the patent, copyright, trade secret or other intellectual property right of any third party;

(c)           The Software complies with all applicable legislation, rules and regulations;

(d)           The Software shall be free from viruses, worms, Trojan horses, Disabling Code and Malicious Code;

(e)           Vendor has and shall have full and sufficient right to assign or grant the Intellectual Property Rights, including without limitation to sublicense the Software, hereunder;

(f)            the Intellectual Property Rights are, or prior to Acceptance of any Item will be, sufficient for such items to perform in accordance with the relevant Specifications and Reliance’s business objectives expressed herein;

(g)           all Work does not and shall not infringe any patents, copyrights, trademarks, or other intellectual property rights (including trade secrets) or similar rights of any third party, nor has any claim of such infringement been threatened or asserted, nor is such a claim pending against Vendor;

(h)           Vendor has no obligations to any third party that in any way limits or restricts its ability to perform the Work; and

(i)            Vendor shall not disclose to Reliance, nor make use in the performance of the Work, any trade secrets or other proprietary information of any third party, unless Vendor may do so without Vendor or Reliance incurring any obligation (past or future) to such

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third party for such disclosure or work or any future application thereof.

15.7        Infringement.

15.7.1         The Vendor agrees that it shall defend, [***] all proceedings, suits and claims against and/or affecting Reliance, any Reliance Affiliate, any User or any of their officers, directors or employees and/or the Products with respect to infringement, breach or violation of any patent, trademark, copyright, trade secret, mark or other intellectual property rights of any third party (collectively, “Third Party Intellectual Property Rights”), covering, or alleged to cover, the Work or any component thereof or the use thereof, in the form furnished or as subsequently modified by the Vendor or any Vendor Affiliate.  The Vendor agrees that it shall pay [***]; provided, that:

(a)           the Vendor shall be given written notice of all claims of any such infringement or violation and of any suits or claims brought or threatened against Reliance, the Reliance Affiliates, the Users or the Vendor of which Reliance has actual knowledge;

(b)           the Vendor shall be given full authority to assume control of the defense thereof through its own counsel at its sole expense but shall not compromise or settle any suits or claims or admit any criminal liability or wrongdoing by Reliance, the Reliance Affiliates or the Users without the express prior written consent of Reliance; unless such compromise or settlement includes an unconditional release of any claims against Reliance, the Reliance Affiliates and the Users and does not involve any stipulation, judgment or injunction against Reliance, the Reliance Affiliates or the Users, in which event such written consent of Reliance shall not be required; and

(c)           Reliance shall reasonably cooperate (at the Vendor’s expense) with the Vendor in the defense of such proceeding, suit or claim.

15.7.2         If in any such suit so defended, all or any part of the Equipment or Software or any component thereof or the Work or the use thereof is held to constitute an infringement or violation of Third Party Intellectual Property Rights and its use is enjoined, or if in respect of any claim of infringement or violation the Vendor deems it advisable to do so, the Vendor shall [***] take one or more of the following actions: (a) procure the right to continue the use of the same without interruption for Reliance; (b) replace the same with non-infringing Equipment, Software or Work that meets the Specifications; or (c) modify said Equipment, Software, or Work or any component thereof so as to be non-infringing; provided, that (i) the Equipment, Software or any component thereof or Work as modified complies with all of the Specifications and (ii) Vendor shall [***].  If Vendor is unable to fulfill its obligations set forth in preceding sentence despite its best efforts, Reliance shall have the right, at the sole cost and expense of Vendor, to procure the right to continue the use of such infringing Product.

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15.7.3         The Vendor’s obligations under this Section 15.7 shall not apply to any infringement or violation of Third Party Intellectual Property Rights caused solely by (i) Reliance’s use and maintenance of the Products other than in accordance with the Specifications or the purposes contemplated by the Documents to the extent not otherwise authorized or permitted by the Vendor or any Vendor Affiliate, or (ii) Reliance’s use of the Products in conjunction with products provided to Reliance by a Third Party Provider, which use is not authorized or approved by the Vendor.  Reliance shall [***].

15.8        Survival.

Notwithstanding anything to the contrary herein, the provisions of this 0 shall survive the expiration or termination of the Documents.

SECTION 16.       TITLE AND RISK OF LOSS

16.1        Title.

16.1.1         Free and clear title to each Product shall pass to Reliance (without any liens, encumbrance or security interest, including purchase money security interests) upon delivery to the carrier at the port of shipment.  Nothing contained herein shall, in any manner, affect the Vendor’s obligations under the Documents.

16.1.2         With respect to the Initial Broadband Access Reliance Network, the Vendor shall assume end to end responsibility as set forth in the Specifications till the Acceptance of the Products, except for transportation of the Products from the warehouse to the designated Sites. Vendor shall, if required by Reliance, depute a reasonably skilled Vendor Personnel (to be approved by Reliance) to assist Reliance in ensuring that the Products are delivered and installed as set forth in the Documents.

16.1.3         Within [***] of receipt of the first Purchase Order the Vendor shall deliver to Reliance a detailed estimated schedule specifying all logistical details, including the date of shipment, the number of shipments, list of equipment, weight, volume and quantity of Products under each shipment, point of shipment, date of arrival at Indian port, expected date of delivery at Reliance designated site, details of the carrier, details of the freight forwarder, copy of insurance cover and all other relevant shipment documents as applicable and the Parties shall agree on the same before the placement of the first Purchase Order.  After the first Purchase Order, the Parties will agree on a procedure to provide the above information to Reliance with respect to subsequent Purchase Orders.

16.1.4         Except as otherwise mutually agreed between the Parties, Vendor shall be responsible for delivery of Products to Sites designated by Reliance and Reliance shall bear the costs of air and sea freight, clearing and forwarding,

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warehousing, handling, and inland transportation in the Republic of India with respect to Products.  These costs shall be budgeted and controlled by the Parties.  However, to the extent that any excess costs are incurred as a result of fault, errors or omissions of the Vendor, Vendor shall be responsible for such excess costs.

16.2        Risk of Loss.

Risk of loss of any Products furnished to Reliance as part of the Initial Broadband Access Reliance Network shall pass from the Vendor to Reliance upon Acceptance. Risk of loss of any Products furnished to Reliance as Expansions shall pass from the Vendor to Reliance upon delivery of the Products to the carrier at the port of shipment.

SECTION 17.       FORCE MAJEURE

17.1.1         Either Party may make a claim for excusable failure or delay with respect to any obligation of such Party under the Documents, excluding any obligation to make payments when due.  Excusable failure or delay shall be allowed only in the event of an event of Force Majeure.  Notwithstanding the foregoing, the Vendor shall not be entitled to relief under this Section 17 to the extent that any event otherwise constituting an event of Force Majeure results from the negligence or fault of the Vendor or any Subcontractor, and Reliance shall not be entitled to relief under this Section 17 to the extent any event otherwise constituting an event of Force Majeure results from the negligence or fault of Reliance.

17.1.2         The Party claiming the benefit of excusable delay hereunder shall (a) promptly notify the other Party of the circumstances creating the failure or delay and provide sufficient documentation to establish to the reasonable satisfaction of the other Party the impact of such Party failure or delay and (b) use reasonable efforts to avoid or remove such causes of nonperformance, excusable failure or delay.  If an event of Force Majeure prevents the Vendor from performing its obligations under the Documents for a period exceeding sixty (60) days, Reliance may, upon prior written notice to the Vendor, suspend or terminate (without payment or penalty of any kind) the Documents and/or any Purchase Order to which such excusable delay applies.

17.1.3         The Party not claiming the benefit of excusable delay hereunder shall likewise be excused from performance of its obligations hereunder on a day-for-day basis to the extent such Party’s obligations are affected due to the other Party’s delayed performance.

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SECTION 18.       TAXES, DUTIES, OTHER LEVIES OR INCIDENTAL CHARGES

18.1.1The Parties’ respective responsibilities for taxes arising under or in connection with this Contract shall be as follows:

(a)Each Party and/or Subcontractors shall be liable for any personal property or use taxes on equipment or property it owns, uses, or leases from a third party, for franchise and privilege taxes on its business; and for taxes based on its net income or gross receipts.  Vendor shall be liable for payment of taxes on equipment leases for which Vendor and/or any Subcontractor has financial responsibility.

(b)Vendor shall be liable for [***].

(c)Customs Duty: The amounts to be paid by Reliance under the Documents do not include any customs duties payable on importation in India, however designated, which may be levied or assessed on any Products or any component thereof.  Reliance shall be responsible for customs duties and clearing and forwarding charges on the importation of the Products into the Republic of India at the rate applicable to such imports.  To the extent permitted Reliance may import under the Export Promotion Capital Goods (“EPCG”) Arrangement at the concessional rate of duty specified in the relevant customs notification.  The Parties will work together and mutually determine the quantum of customs duty which should be payable before any shipments are made for a given Purchase Order or group of Purchase Orders.  Reliance shall bear and pay customs duty based on the applicable rates in the relevant customs tariff read with any relevant notification that may be in force.  Reliance shall also be liable for any increase in customs duties attributable to changes in published rates and for compliance with any obligation under the EPCG Arrangement.  Subject as below, Vendor shall be liable [***]

(d)Except as otherwise agreed by Vendor and Reliance in writing, Reliance shall be responsible for taxes imposed by a Governmental Entity in India on (i) sales of Products by Vendor to Reliance, if any (ii) entry of the Products into states within the Republic of India, if any; and (iii) octroi, if any.  The Parties shall mutually decide and agree for each Purchase Order or group of Purchase Orders within [***] of issuance of the Purchase Order(s) and before commencement of any delivery, an arrangement for handling taxes as aforementioned, which will include procedures and formats and the quantum of taxes applicable.  Reliance will not be liable for any excess over this quantum or any liability arising due to non-compliance with the arrangement agreed, except as covered below. Reliance shall be responsible for (i) additional amounts due as a result of an increase in the applicable rates for such foregoing taxes, as is generally applicable to all tax payers, (ii) any new tax introduced by a Governmental Entity in the Republic of India in lieu of the foregoing taxes, and (iii) any new taxes by a Governmental Entity in the Republic of India relating to sales of Products by

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Vendor to Reliance. Vendor shall be liable for the amounts required to be paid to any Governmental Entity with respect to the foregoing taxes that are not attributable to errors or omissions of Reliance.

(e)Reliance has no obligation to pay any other taxes, including, but not limited to, those relating to franchise, net or gross income, revenue, receipts, license, occupation, and/or taxes on real or personal property of Vendor or any Subcontractor or any taxes on income of Vendor or Subcontractor personnel.

(f)The Parties shall collaborate together to administer all commercial matters arising from or related to the Work efficiently to their mutual advantage.  Vendor’s Invoices shall separately state the amount of any taxes included therein.  Each Party shall provide and make available to the other any certificates, information regarding sales/purchases or use of equipment, materials, or services, and other exemption certificates or information reasonably requested by either Party.

(g)Vendor shall comply with all regulations and other requirements to the extent reasonable to enable Reliance to avail of the EPCG Arrangement, or other similar arrangements, for the import of Products into India.

(h)Vendor, using Reliance’s appointed customs clearing agent, shall be liable [***] on behalf of Reliance through customs in the Republic of India if required under the Documents and shall be liable to deliver the Products to the location where the Products are intended to be installed, paying all taxes, imposts, duties and levies necessary subject only to Reliance paying the taxes and duties as set forth in paragraphs (c) and (d) above.  The liability for clearing and forwarding charges will be governed on the same basis as for as customs duty as set forth in Subsection (c) above.

(i)Reliance shall withhold taxes applicable on payments to Vendor as per the Income Tax Act, 1961.  All price compensation agreed herein to the Vendor are gross of taxes in India except as specified above and Reliance shall pay only the amounts after deduction of necessary withholding tax, as applicable.

(j)Notwithstanding anything aforesaid, Vendor shall be responsible [***].

(k)Each Party shall promptly notify the other of, and reasonably coordinate with the other, the response to, any claim for taxes asserted by applicable taxing authorities for which the other Party is responsible hereunder.  With respect to any claim arising out of a form or return signed by a Party to this Contract, such Party shall have the right to elect to control the response to and settlement of the claim, but the other Party shall have all rights to participate in the

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responses that are appropriate to its potential responsibilities or liabilities.

(l)Notwithstanding anything aforesaid, Vendor shall be responsible for payment of any extra cost or expense incurred by Reliance due to any non compliance, omission, negligence, inefficiency or default by or on behalf of the Vendor or its Subcontractors with respect to the Vendors/Subcontractors responsibilities hereunder.

18.1.2Each Party represents, warrants and covenants that it shall file appropriate tax returns, and pay applicable taxes owed arising from or related to the Work in applicable jurisdictions. The Vendor shall, prior to filing any such returns, discuss with Reliance the basis of such filings and the assumptions used in or related to such filings, relating to the Work.

SECTION 19.       DISCONTINUATION AND TECHNOLOGY FORECAST

19.1        Discontinuation.

The Vendor shall continue to manufacture and otherwise provide and support Products, including but without limitation, spare and replacement parts and Technical Support Services and related Services to and for Reliance for at least [***] after the time of each such Product’s first being provided to Reliance pursuant to the Documents.

Upon any discontinuation of manufacturing of the Products (after the period specified above) the Vendor shall notify Reliance  at least [***] prior to the final production of any Products so that Reliance is able to order enough extension, spares and or functionally equivalent replacements parts for the maintenance and operation of the Network. The spare and functionally equivalent replacement parts shall be functionally identical or at least equivalent or capable of direct substitution such that no direct or indirect side effects shall be caused whatsoever to the Products, Reliance Network and or the operation and maintenance of the same.

In addition the Vendor shall provide Reliance with complete manufacturer’s standard technical specifications for all the Products (including the spares, functionally equivalent replacements ) as well as  the contacts of all other sources other than the Vendor from where such spares and or functionally equivalent replacements can be procured. No separate licence fees, royalties or other payments shall be payable by Reliance  for the use of such technical specifications and documents supplied in accordance with this Section. The Net Price of  such spares and or functionally equivalent replacements shall not exceed [***] of the Net Price at which the such spares are supplied by the Vendor before the discontinuation.

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19.2        Technology Forecast.

19.2.1Vendor shall provide Reliance with a technology forecast every [***]. Such forecast shall contain at a minimum the following:

(a)The evolution of all of Vendor’s and Vendor’s Affiliates Broadband Access network products, either hardware or software, relevant to the Broadband Access Reliance Network;

(b)The introduction of all new wireless telecommunication and Broadband Access network products, either hardware or software, relevant to the Broadband Access Reliance Network;

(c)The date of first office application and/or general commercial introduction (“General Availability”) of the products mentioned in (a) and (b) above;

(d)The known or forecasted technical specifications for the products mentioned in (a) and (b) above.

(e)The Vendor or Vendor’s Affiliates plans relating to discontinuation of any Product purchased by Reliance.

Such technology forecast shall be given on the basis of a rolling eighteen (18) month period.

19.2.2[***]

19.2.3The Vendor hereby acknowledges Reliance’s commercial need to know and understand the anticipated useful life of any Product prior to purchasing such Product under the Documents.

19.2.4In consideration of Reliance’s contemplation of purchasing any Product hereunder, the Vendor hereby covenants to provide to Reliance a detailed description of the planned evolutionary path of such Product, including, without limitation, the Product’s anticipated life cycle and the time period for which the Vendor intends to support such Product, provided, however, that any such description of an anticipated life cycle or planned support shall not affect Vendor’s obligations to manufacture, provide and support Products as set forth in Section 19.1.

SECTION 20.       INDEMNIFICATION AND LIABILITY LIMITATION

20.1        Vendor Indemnity.

Subject to the provisions of this Section 20, the Vendor shall [***].

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20.2        Reliance Indemnity.

Subject to the provisions of this Section 20, Reliance shall [***]

20.3        Liability

Except as expressly provided in this Section 20.3 and except also in relation to where the Vendor is obliged to pay Liquidated Damages under the Documents (and in such instance, the payment of Liquidated Damages shall be the sole remedy for such damages), it is the intent of the Parties that each Party shall be liable to the other Party for any actual damages incurred by the non-breaching Party as a result of the breaching Party’s failure to perform its obligations in the manner required by the Documents.

20.4        LIMITATION ON LIABILITY.

Notwithstanding anything to the contrary herein contained:

20.4.1The aggregate liability of any Party to another Party in respect of all claims for Liabilities arising under any Contract shall not exceed [***].

20.4.2EXCEPT IN RESPECT OF VENDOR’S LIABILITY PURSUANT TO SECTION 20.5 AND NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE DOCUMENTS, IN NO EVENT, AS A RESULT OF BREACH OF CONTRACT OR BREACH OF WARRANTY OR OTHERWISE, [***].

20.4.3For the avoidance of doubt, the performance of the Vendor’s obligations with respect to Liquidated Damages and Section 5.2 (Performance Warranty) shall not in any way be reduced, made void or affected by virtue of the provisions of Section 20.4.2 above. 

20.5        Damages for Fraud, Gross Negligence or Willful Misconduct.

[***]

20.6        Claims Procedure.

If a claim for Liabilities (a “Claim”) is to be made by a Person entitled to indemnification hereunder (the “Indemnified Person”) against a Party responsible for indemnification hereunder (the “Indemnifying Party”), the Indemnified Person shall give written notice of such Claim (a “Claim Notice”) to the Indemnifying Party as soon as practicable after the Indemnified Person becomes aware of any fact, condition or event which may give rise to Liabilities for which indemnification may be sought under the General Terms, provided, however, that no delay on the part of an Indemnified Person in notifying the Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party is thereby actually prejudiced.  If any lawsuit or enforcement action is filed against Indemnified Person, written notice thereof shall be given

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to the Indemnifying Party as promptly as practicable (and in any event within [***] after the service of the citation or summons).  The Indemnifying Party shall be entitled, if it so elects, (i) to defend such lawsuit or action, (ii) to employ and engage attorneys of its own choice to handle and defend the same, at the Indemnifying Party’s sole cost, risk and expense, and (iii) to compromise or settle such Claim, which compromise or settlement shall be made only with the written consent of the Indemnified Person (which may not be unreasonably withheld), unless such compromise or settlement includes an unconditional release of any claims against the Indemnified Person and does not involve any stipulation, judgment or injunction against the Indemnified Person, in which event such written consent of the Indemnified Person shall not be required.  If the Indemnifying Party fails to assume the defense of such Claim within [***] after receipt of the Claim Notice, the Indemnified Person against which such Claim has been asserted shall (upon delivering notice to such effect to the Indemnifying Party) have the right to undertake, at the Indemnifying Party’s cost and expense, the defense, compromise or settlement of such Claim on behalf of and for the account and risk of the Indemnifying Party.  In the event the Indemnified Person assumes the defense of the Claim, the Indemnified Person will keep the Indemnifying Party reasonably informed of the progress of any such defense, compromise or settlement.  The Indemnifying Party shall be liable for any settlement of any action effected pursuant to and in accordance with the General Terms and for any final judgment (subject to any right of appeal), and the Indemnifying Party agrees to indemnify and hold harmless the Indemnified Person from and against any Liabilities by reason of such settlement or judgment.

SECTION 21.       REPRESENTATIONS AND WARRANTIES

21.1        Representations and Warranties of the Vendor.

The Vendor hereby represents and warrants to Reliance as follows:

21.1.1Due Organization of the Vendor.

The Vendor is a corporation duly incorporated, validly existing and in good standing under the laws of the United States of America and in countries in which the Vendor conducts its business and has all requisite corporate power and authority to own and operate its business and properties and to carry on its business as such business is now being conducted and is duly qualified to do business in all jurisdictions in which the transaction of its business in connection with the performance of its obligations in connection with the Documents makes such qualification necessary.

21.1.2Due Authorization of the Vendor; Binding Obligation.

The Vendor has full corporate power and authority to execute and deliver the Documents and to perform its obligations hereunder, and the execution, delivery and performance of the Documents by the Vendor have been duly authorized by all necessary corporate action on the part of the Vendor; the Documents have been duly executed and delivered by the Vendor and are the valid and binding obligations of the Vendor enforceable in accordance with their terms, except as enforcement thereof may be limited by or with respect to the following: (i) applicable insolvency,

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moratorium, bankruptcy, fraudulent conveyance and other similar laws of general application relating to or affecting the rights and remedies of creditors; (ii) application of equitable principles (whether enforcement is sought in proceedings in equity or at law); and (iii) provided the remedy of specific enforcement or of injunctive relief is subject to the discretion of the court before which any proceeding therefore may be brought.

21.1.3Non-Contravention.

The execution, delivery and performance of the Documents by the Vendor and the consummation of the transactions contemplated hereby and thereby do not and will not contravene the certificate of incorporation or by-laws of the Vendor and do not and will not conflict with or result in (i) a breach of or default under any indenture, agreement, judgment, decree, order or ruling to which the Vendor is a party that would materially adversely affect the Vendor’s ability to perform its obligations under the Documents; or (ii) a breach of any Applicable Law.

21.1.4Regulatory Approvals.

All authorizations by, approvals or orders by, consents of, notices to, filings with or other acts by or in respect of any Governmental Entity or any other Person required in connection with the execution, delivery and performance of the Documents by the Vendor have been obtained or shall be obtained in due course.

21.1.5Non-Infringement.

The Vendor represents and warrants that there are no threatened or actual claims or suits in connection with patents and other intellectual property matters that would materially adversely affect the Vendor’s ability to perform its obligations under the Documents.

21.1.6Scope.

The representations and warranties of the Vendor pursuant to this Section 21.1 shall be deemed to apply to all of the Work performed by any Subcontractor employed by the Vendor as though the Vendor had itself performed such Work.

21.1.7Requisite Knowledge.

The Vendor represents and warrants that it has all requisite knowledge, know-how, skill, expertise and experience to perform the Work in accordance with the terms of the Documents.

21.1.8Work Standards

The Work shall be rendered with promptness and diligence and shall be executed in a workmanlike manner, in accordance with the reasonable best industry prevailing practices of the information technology and telecommunication outsourcing industry

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and the Documents.  Vendor shall use adequate numbers of qualified individuals with suitable training, education, experience, competence and skill to perform the Work.  Vendor shall provide such individuals with training as to new products and services prior to the implementation of such products and services in the User environment.

21.1.9Efficiency and Cost Effectiveness

Vendor shall use commercially reasonable efforts to provide the Work in the most cost-effective manner.  Without limiting the generality of the foregoing, such actions shall include:

(a)making adjustments in the timing of actions (consistent with Reliance’s and User’s priorities and schedules for the Work and Vendor’s obligation to meet the Specifications);

(b)tuning or optimizing the systems, including memory, used to perform the Work;

(c)using alternative technologies to provide the Products and perform the Work in accordance herewith; and

(d)efficiently using resources for which Reliance and/or User is charged hereunder, consistent with industry norms, and compiling data concerning such efficient use in segregated and auditable form whenever possible.

21.2        Bring Down.

The Vendor hereby acknowledges and agrees that, upon execution of each Contract and Purchase Order, the Vendor shall be deemed to make the representations and warranties of Section 21.1 as of the effective date of, and with respect to, any such Contract or Purchase Order.

21.3        Representations and Warranties of Reliance.

Reliance hereby represents and warrants to the Vendor as follows:

21.3.1Due Organization of Reliance.

Reliance is a corporation, validly existing and in good standing under the laws of the Republic of India and has all requisite power and authority to own and operate its business and properties and to carry on its business as such business is now being conducted and is duly qualified to do business in the Republic of India and in any other jurisdiction in which the transaction of its business makes such qualification necessary.

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21.3.2Due Authorization of Reliance; Binding Obligation.

Reliance has full corporate power and authority to execute and deliver the Documents and to perform its obligations hereunder, and the execution, delivery and performance of the Documents by Reliance have been duly authorized by all necessary corporate action on the part of Reliance; the Documents have been duly executed and delivered by Reliance and are the valid and binding obligation of Reliance enforceable in accordance with their terms, except as enforcement thereof may be limited by or with respect to the following: (i) applicable insolvency, moratorium, bankruptcy, fraudulent conveyance and other similar laws of general application relating to or affecting the rights and remedies of creditors; (ii) application of equitable principles (whether enforcement is sought in proceedings in equity or at law); and (iii) provided the remedy of specific enforcement or of injunctive relief is subject to the discretion of the court before which any proceeding therefore may be brought.

21.3.3Non-Contravention.

The execution, delivery and performance of the Documents by Reliance and the consummation of the transactions contemplated hereby and thereby do not and will not contravene the Memorandum and Articles of Association and do not and will not conflict with or result in (i) a breach of or default under any indenture, agreement, judgment, decree, order or ruling to which Reliance is a party that would materially adversely affect Reliance’s ability to perform its obligations under the Documents, or (ii) a breach of any Applicable Law.

21.4        Bring Down

Reliance hereby acknowledges and agrees that, upon execution of each Contract and Purchase Order, Reliance shall be deemed to make the representations and warranties of Section 21.3 as of the effective date of, and with respect to, any such Contract or Purchase Order.

SECTION 22.       DISPUTE RESOLUTION

22.1        Interpretation.

The validity, construction and performance of the Documents shall be governed by the laws of India, excluding its conflicts-of-laws provisions. Subject to the provisions of Section 22.3 below, the courts in [***] shall have exclusive jurisdiction.  All communication between the parties shall be in English.  In fulfilling the obligations hereunder, Vendor and its subcontractors and suppliers shall abide by all Applicable Laws, rules, regulations, codes including tax laws and regulations prevailing in India and all other applicable jurisdictions.

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22.2        Negotiation.

The Parties shall first use their best efforts to settle amicably any dispute arising out of or in connection with the Documents, including without limitation, their existence, interpretation, performance, or termination, by negotiation in accordance with this Section 22.2, as follows:

(i)The Party raising the dispute shall address to the other Party a notice requesting an negotiation of the dispute within [***] of notification.

(ii)The dispute shall then be referred for resolution between the President and CEO or the Chief Financial Officer or the Vice President (International Sales) of Vendor and Mr. Prakash Bajpai of Reliance.  Vendor and Reliance shall attempt to resolve such dispute by negotiation, and document any settlement that may be agreed, within a further period of [***].

22.3        Arbitration.

22.3.1Any dispute arising out of or relating to the Documents which cannot be settled by negotiation shall be first attempted to be resolved through conciliation between the Parties by appointing a conciliator mutually acceptable to the Parties.

22.3.2If the parties are unable to resolve the dispute through conciliation within [***] of the appointment of the conciliator then the Parties shall refer such dispute to arbitration in accordance with this Section 22.3.

22.3.3In case of any dispute or difference arising at any time between the parties hereto as to the interpretation or effect of the Documents or any clause or matter herein contained or the rights or liabilities of the Parties hereto or otherwise howsoever in relation to the Documents, the same shall be referred to the arbitration by an arbitral tribunal consisting of three arbitrators: one each nominated by the Parties and the third chosen by the two arbitrators nominated by the Parties. The arbitration shall be governed by the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or enactment thereof for the time being in force.

22.3.4[***]

22.3.5The Parties agree that any award of the arbitral tribunal shall be final and binding on them and shall be enforceable in any court of competent jurisdiction.

22.3.6Notwithstanding any dispute under the Documents, the Parties shall continue to perform their undisputed obligations under the Documents (subject to any right of termination or suspension in the Documents).

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SECTION 23.       TERMINATION AND EVENTS OF DEFAULT

23.1        Reliance’s Right of Termination.

23.1.1Termination by Reliance for Convenience.  Reliance may, at its sole option, terminate all or any portion of the Documents, for convenience upon [***] prior written notice at any time provided that no termination under this Section 23.1.1 shall relieve Reliance from the obligations set forth in Section 3.2 of the Broadband Access Equipment Contract.  Any Purchase Orders made prior to any such termination shall, subject to the terms hereof and the applicable Contract, remain in effect and shall be fulfilled to the extent that such orders are outstanding as of the date of such termination.

23.1.2Termination by Reliance for Cause. Reliance has the right to terminate all or any portion of the Documents without any penalty to, or payment obligation of, Reliance (other than undisputed outstanding payment obligations relating to the Work performed by Vendor as of the date of any such termination, with disputed payment obligations being subject to the dispute resolution provisions of Section 22) upon the occurrence of any Vendor event of default (each, a “Vendor Event of Default”) set forth below.  References to “Vendor” in this Section 23.1.3 shall include Vendor and any assignee of Vendor.  The occurrence of any one of the following shall constitute a Vendor Event of Default:

(a)the Vendor (i) is insolvent, (ii) files a voluntary petition in bankruptcy or has an involuntary petition in bankruptcy filed against it that is not dismissed within thirty (30) days of such involuntary filing, (iii) admits the material allegations of any petition in bankruptcy filed against it, (iv) is adjudged bankrupt, or (v) makes a general assignment for the benefit of its creditors, or a receiver is appointed for all or a substantial portion of its assets and is not discharged within thirty (30) days after his appointment;

(b)the Vendor commences any proceeding for relief from its creditors in any court under any state insolvency statutes;

(c)the Vendor disregards or violates material Applicable Laws or material Applicable Permits;

(d)the Vendor persistently fails to timely correct Defects and Deficiencies in accordance with the terms of the Documents;

(e)the Vendor persistently fails to fulfill its obligations with respect to the satisfaction, discharge or bonding of Liens as set forth in Section 3.13 hereof;

(f)the Vendor abandons or ceases its performance of the Work (except as a result of an event of Force Majeure or a casualty for which Reliance is fully covered by insurance or as to which other provisions

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reasonably acceptable to Reliance are being diligently pursued, or pursuant to Section 23.2);

(g)the Vendor assigns or subcontracts Work other than in accordance with the terms and conditions of Section 10;

(h)the Vendor fails to materially comply with any accepted Change Order pursuant to Section 14.3;

(i)the Vendor fails to pay to Reliance any material amount due not otherwise disputed in good faith to Reliance by the date required for such payment;

(j)the Vendor fails to accept or materially comply with any Purchase Order issued by Reliance in accordance with the Documents;

(k)Reliance elects to exercise its termination rights set forth in Section 24.17;

(l)the Vendor otherwise materially breaches any provision of the Documents; or

(m)A Critical Performance Failure with respect to (i) a failure of any individual Network Element to meet the applicable Specifications or (ii) the failure of multiple Network Elements, regardless of whether any one of which individually constitutes a Critical Performance Failure, or Vendor fails to remedy a material breach of the Performance Warranty.

23.1.3If any of the Vendor Events of Default exists, Reliance may, without prejudice to any other rights or remedies of Reliance in the Documents or at law or in equity, terminate the Documents upon written notice to the Vendor; provided, however, that Reliance shall have first provided to the Vendor the following periods of notice and opportunity to cure:

(a)in the case of a Vendor Event of Default specified in the foregoing Sections 23.1.2(d) and 23.1.2(l), Reliance shall have provided [***] prior written notice to the Vendor, and the Vendor shall have failed to remedy such breach entirely by the end of such [***] period;

(b)in the case of a Vendor Event of Default specified in the foregoing Sections 23.1.2(a), 23.1.2(b), or 23.1.2(k) [***]; and

(c)in the case of any other Vendor Event of Default, Reliance shall have provided [***] prior written notice, and the Vendor shall have failed (A) to commence to cure the default within [***] after receipt of such notice, and (B) to diligently pursue such cure and remedy the breach entirely by the end of said [***] notice period.

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23.1.4If Reliance elects to terminate the Documents, Reliance may, without prejudice to any other rights or remedies of Reliance in the Documents or at law or in equity, do one or more of the following:

(a)Take possession of all engineering and design data, manufacturing data, construction and erection data, start-up and testing data, materials, and Products that shall become part of the specified Markets, or the Work and which Reliance shall have the right of ownership to and/or possession of under the terms of the Documents, whether any of the same is in a partial state of completion or completed condition, and title to any of said items vests in Reliance (if not already vested by the provisions of the Documents);

(b)Take possession of all engineering and design data, manufacturing data, construction and erection data, start-up and testing data, materials, and Products that shall become part of the specified Markets, or the Work whether any of the same is in a partial state of completion or completed condition (if not already vested in Reliance by the provisions of the Documents);

(c)Take temporary possession and control of all of the Vendor’s installation equipment, machinery, and the Vendor’s materials, supplies, Software and any and all tools at any project site including, but not limited to, any Network Location, within the specified Markets that in Reliance’s opinion, are necessary to finish the Work, subject to any enforceable licenses related thereto or any confidentiality restrictions otherwise contained in these General Terms;

(d)Direct that the Vendor assign its Subcontractor agreements to Reliance without any change of price or conditions therein or penalty or payment therefore to the full extent permitted by such agreement or agreements; or

(e)Take over and finish the Work by whatever reasonable methods Reliance may deem expedient;

provided, that nothing contained in clauses (a) through (e) above shall require the Vendor to relinquish to Reliance any of its manufacturing facilities, specific Product designs (other than such designs previously provided to Reliance pursuant to the terms of the Documents), trade secrets or proprietary information not previously provided or made available to Reliance, the Market or any part thereof or any materials, supplies, inventories, tools, software, engineering and/or designs that are not integral or relevant to the completion of the Work.

23.1.5Upon such notification of termination, the Vendor shall immediately discontinue all of the Work (unless such notice of termination directs otherwise), and, as more fully set forth in Section 23.1.4, deliver to Reliance copies of all data, drawings, specifications, reports, estimates, summaries,

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and such other information, and materials as may have been accumulated by the Vendor in performing the Work, whether completed or in process.  Furthermore, the Vendor shall assign, assemble and deliver to Reliance all purchase orders and Subcontractor agreements (and in connection with such agreements, to the full extent permitted by such agreements) requested by Reliance.

23.1.6In the event Reliance terminates the Documents pursuant to Section 23.1.2, the Vendor shall not be entitled to receive further payment, other than payments due and payable under the Documents and not subject to dispute prior to such termination (with disputed payment obligations being subject to the dispute resolution provisions of Section 22).  Notwithstanding anything herein to the contrary, Reliance may withhold payments, if any, to the Vendor for the purposes of offset of amounts owed to Reliance pursuant to the terms of the Documents until such time as the exact amount of damages due to Reliance from the Vendor is fully determined; provided, however, that the amount of any such offset pursuant to this Section 23.1.6 shall not be greater than the amounts otherwise owed to the Vendor and claimed hereunder.

23.1.7In the event of a termination due to a Vendor Event of Default, Reliance shall be entitled to the costs in connection with finishing the Work (exclusive of any late fees or penalties already paid and/or owing to Reliance upon termination of the Documents), and if such costs exceed the unpaid balance of the prices hereunder for such Work, the Vendor shall be liable to pay such excess to Reliance.  The amount to be paid by the Vendor pursuant to this Section 23.1.7 shall survive termination of the Documents.

23.2        Vendor’s Right of Termination.

The Vendor shall have the option to suspend or terminate the Documents without any penalty or payment obligations, other than undisputed outstanding payment obligations relating to the Work performed by Vendor as of the date of any such termination (with disputed payment obligations being subject to the dispute resolution provisions of Section 22) pursuant to the terms of the Documents if:

23.2.1Reliance (i) files a voluntary petition in bankruptcy or has an involuntary petition in bankruptcy filed against it that is not dismissed within sixty (60) days of such involuntary filing, (ii) admits the material allegations of any petition in bankruptcy filed against it, (iii) is adjudged bankrupt, or (iv) makes a general assignment for the benefit of its creditors, or if a receiver is appointed for all or a substantial portion of its assets and is not discharged within sixty (60) days after his appointment, and any such filing, proceeding, adjudication or assignment as described herein above shall otherwise materially impair Reliance’s ability to perform its obligations under the Documents;

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23.2.2Reliance commences any proceeding for relief in any court under any state insolvency statutes; or

23.2.3The Vendor shall have the option to suspend the Vendor’s performance of Work (other than Services for which Reliance has paid in advance) if Reliance fails to make payments of undisputed amounts in excess of U.S. Dollars [***] due to the Vendor pursuant to the terms of the Documents that are more than [***] overdue; provided, that such failure has continued for at least [***] after the Vendor has provided written notice to Reliance of its right and intent to so suspend on account of such overdue amount (which written notice with respect to any overdue undisputed amounts may be given no earlier than [***] after date of receipt of relevant conforming invoice along with all supporting documents)

23.3        Continuing Obligations; Survival.

Notwithstanding anything to the contrary in the Documents, termination or expiration of the Documents for any reason (i) shall not relieve either Party of its obligations with respect to the confidentiality of the Proprietary Information as set forth in Section 24.14, (ii) shall not relieve either Party of any obligation that expressly or by implication survives termination, and (iii) except as otherwise provided in any provision of these General Terms expressly limiting the liability of either Party, shall not relieve either Party of any obligations or liabilities for loss or damage to the other Party arising out of or caused by acts or omissions of such Party prior to the effectiveness of such termination or arising out of its obligations as to portions of the Work already performed or of obligations assumed by the Vendor prior to the date of such termination.  In addition to, and in no way limiting the foregoing, Section 15, Section 19.1, Section 20, and Sections 22, 24.2, 24.5, 24.10, 24.12, 24.14 and 24.18 shall survive termination or expiration of these General Terms, in addition to any other provisions that by their content are intended to survive the performance, termination, expiration or cancellation of these General Terms.

SECTION 24.       MISCELLANEOUS

24.1        Amendments.

The terms and conditions of the Documents, including the provisions of these General Terms, may only be amended by mutually agreed amendments.  Each amendment shall be in writing and shall identify the provisions to be changed and the changes to be made.  Amendments of the Documents shall be signed by duly authorized representatives of each of the Vendor and Reliance as set forth in these General Terms.

24.2        Offset.

Either Party may offset, deduct or retain out of any monies, which may be due or become due to the other Party hereunder or otherwise, any amounts such other Party owes to such first Party hereunder.

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24.3        Assignment.

24.3.1Except as otherwise permitted herein, neither the Documents nor any portion thereof may be assigned by Reliance without the express prior written consent of the Vendor, such consent not to be unreasonably withheld, conditioned or delayed.  Except as otherwise permitted herein, neither the Documents nor any portion hereof may be assigned by Vendor without the express prior written consent of Reliance, which may be withheld, conditioned or delayed at the sole discretion of Reliance.  Notwithstanding the foregoing, Reliance may, without the prior consent of the Vendor, assign its rights under all or any portion of the Documents to any of Reliance’s Affiliates, direct or indirect successors, parent and may collaterally assign its rights under the Documents to any or all financial institutions providing financing for any part of the Broadband Access Reliance Network.  The foregoing rights and obligations are in addition to those set forth in Section 24.3.3 below.  No assignment by the Vendor of all or any portion of the Documents or any of the Vendor’s obligations under any of the Documents shall release the Vendor from liability for the full performance of all of Vendor’s obligations under the Documents, unless otherwise expressly agreed by Reliance in writing. No assignment by Reliance to its Affiliates, direct or indirect successors or parent or a financial institution of this Broadband Access Equipment Contract or any of Reliance’s obligations under this Broadband Access Equipment Contract shall release Reliance from liability for the full performance of all of Reliance’s obligations under this Broadband Access Equipment Contract, unless otherwise expressly agreed by the Vendor in writing. Any attempted assignment in violation of Section 24.3 shall be null and void.

24.3.2The Parties agree that Reliance may enforce the provisions of the Documents regarding assignment by an action for injunction or other equitable remedies.

24.3.3Subject to the foregoing, the Documents shall bind and inure to the benefit of the Parties, their successors and permitted assigns.

24.4        Notices.

Any notice, request, consent, waiver or other communication required or permitted hereunder shall be effective only if it is in writing and shall be deemed received by the Party to which it is sent (i) upon delivery when delivered by hand, (ii) three days after being sent, if sent with all sending expenses prepaid, by an express courier with a reliable system for tracking delivery, (iii) when transmitted, if sent by confirmed facsimile, or (iv) 14 days after the date sent, if sent by certified or registered mail, postage prepaid, return receipt requested, addressed as follows:

If to Reliance:

[***]

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If to the Vendor:
Chuck Farrell
UTStarcom Inc.
1275 Harbor Bay Parkway
Alameda, California 94502, U.S.A.

With a copy to:
Russell Boltwood
UTStarcom Inc.
1275 Harbor Bay Parkway
Alameda, California 94502, U.S.A.

24.5        Independent Contractor.

24.5.1Nothing in the Documents shall be deemed to constitute either Party a partner, agent or legal representative of the other Party, or to create any fiduciary relationship between the Parties.  The Vendor is and shall remain an independent contractor in the performance of the Work, maintaining complete control of its employees, agents, Subcontractors and operations required for performance of the Work.  The Documents shall not be construed to create any relationship, contractual or otherwise, between Reliance and any Subcontractor, except to establish Reliance as a third party beneficiary of the contracts with Subcontractors.

24.5.2The Vendor shall be responsible for its employees’ compliance with Applicable Laws while performing all Work under the Documents.  The Vendor has the responsibility for, and control over, the means and details of performing the Services, subject to Reliance’s inspection.  The Vendor shall provide all training, hiring, supervising, hours of work, work policies and procedures, work rules, compensation, payment for expenses and discipline and termination of its Subcontractors and employees.  Reliance shall incur no responsibility or obligation to employees, agents, Subcontractors or other parties utilized by the Vendor to perform the Work set forth in the Documents.  Such person or parties shall, at all times, remain employees, agents or Subcontractors (whichever is applicable) of the Vendor.  The Vendor shall indemnify and defend Reliance from all claims by any person, government or agency relating to payment of taxes and benefits to employees, agents, Subcontractors or other parties utilized by the Vendor.

24.6        Inducements

Vendor represents and warrants that it has not given and will not give commissions, payments, kickbacks, lavish or extensive entertainment, or other inducements of more than minimal value to any employee or agent of Reliance in connection with this contract.  Vendor also represents and warrants that, to the best of its knowledge, no officer, director, employee, agent or representative of Vendor has given any such payments, gifts, entertainment or other thing of value to any employee or agent of Reliance.  Vendor also acknowledges that the giving of any such payments, gifts, entertainment, or other thing of value is

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strictly in violation of Reliance’s policy on conflicts of interest, and may result in the cancellation of this and all future contracts between the parties.

24.7        Headings.

The headings given to the sections, sub-sections, chapters, paragraphs and other sub-divisions herein are inserted only for convenience and are in no way to be construed as part of the Documents or as a limitation of the scope of the particular sections, sub-sections, chapters, paragraphs and other sub-divisions to which the heading refers.

24.8        Severability.

Whenever possible, each provision of the Documents shall be interpreted in such a manner as to be effective and valid under such Applicable Law, but, if any provision of the Documents shall be held to be prohibited or invalid in any jurisdiction, such provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with Applicable Laws.  The remaining provisions of the Documents shall remain in full force and effect and the prohibited or invalid provision shall remain in effect in any jurisdiction in which it is not prohibited or invalid.

24.9        Waiver.

Unless otherwise specifically provided by the terms of the Documents, no delay or failure to exercise a right resulting from any breach of the Documents shall impair such right or shall be construed to be a waiver thereof, but such right may be exercised from time to time as may be deemed expedient.  All waivers shall be in writing and signed by the Party waiving its rights.  If any representation, warranty or covenant contained in the Documents is breached by either Party and thereafter waived by the other Party, such waiver shall be limited to the particular breach so waived and not be deemed to waive any other breach under the Documents.

24.10      Public Statements.

The Vendor shall not and shall not permit its Subcontractors to issue any public statement, except as stated below, relating to or in any way disclosing any aspect of the Work, including the scope, extent or value of the Work.  The express written consent of Reliance is required prior to the invitation of or permission to any reporter or journalist to enter upon the Broadband Access Reliance Network or any part thereof.  The Vendor agrees not to use for publicity purposes any photographs, drawings and/or materials describing the Broadband Access Reliance Network, or any portion thereof, without obtaining the prior written consent of Reliance.  This Section 24.10 is not intended to exclude the provision of necessary information to prospective Subcontractors and the Vendor’s personnel.  All other such public disclosures require the written consent of Reliance.  The obligations of the Parties under this Section 24.10 are in addition to their respective obligations pursuant to Section 24.14.

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24.11      Records and Communications.

To the extent not already established, promptly after the Work begins, procedures for keeping and distributing orderly and complete records of the Work and its progress shall be established by the Parties.  The procedures so established shall be followed throughout the course of the Work unless Reliance and the Vendor mutually agree in advance in writing to revise such procedures.

24.12      Specifications.

24.12.1Neither the Vendor nor any Subcontractor, nor any other Person performing or furnishing the Work, whether or not under a direct or indirect contract with Reliance, shall have or acquire any title to or ownership rights in any of the Specifications, or in any other part or portion of the Documents (or copies of any of the Specifications or the Documents); and no such Party shall re-use any of the Specifications on and/or with respect to any other project without the prior written consent of Reliance.  The Specifications and the Documents (and any and all copies thereof), are owned by and title resides in Reliance, unless otherwise agreed between Reliance and any other Person.  Notwithstanding anything contained in this Section 24.12 to the contrary, Reliance shall not acquire any patent, copyright or trade secret rights as a result of these General Terms, except pursuant to licenses and other approvals provided in connection with the performance of the Work and except to the extent that a non-exclusive license of any of the Vendor’s patent, copyright or trade secret rights is required to perform the Work and as further provided for in the Documents.

24.12.2Reliance acknowledges that parts of the Specifications are comprised of specifications prepared by the Vendor and that the Vendor contributed significantly to many other portions thereof.  Reliance also acknowledges that, during the normal design, evolution and development process, portions of the Specifications may appear in design and procurement documents prepared by the Vendor in its normal course of business; provided, however, that Reliance shall have no liability for any third party claims for contributor infringement or the like with respect to such Specifications prepared by the Vendor or portions thereof to which the Vendor contributed significant portions or use and the Vendor shall hold Reliance harmless from any such third party claims.

24.13      Financing Parties Requirements.

The Vendor acknowledges that Reliance represents that attainment of financing for construction of the Broadband Access Reliance Network may be subject to conditions that are customary and appropriate for the providers of such financing.  Therefore, the Vendor shall execute promptly any reasonable amendment to or modification of the Documents required by such providers (including, without limitation, any pertinent industrial development authority or other similar governmental agency issuing bonds for financing of any portion of the Broadband Access Reliance Network) in order to obtain such financing,

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and Reliance shall reimburse the Vendor for related reasonable actual out-of-pocket costs incurred by the Vendor.  The Vendor shall be responsible for and pay all costs as a result of the Vendor’s or its Subcontractors’ failure to promptly comply with the request for any such modification or amendment made by any provider of financing described in this Section 24.13.

24.14      Confidentiality.

24.14.1All information including, without limitation, all oral and written information, disclosed by a Party to the other Party is deemed to be confidential, restricted and proprietary to the disclosing Party (hereinafter referred to as “Proprietary Information”); provided, that in order for Vendor to invoke the provisions of this Section 24.14 with respect to information disclosed by Vendor to Reliance, the Vendor shall, (i) identify any and all written Proprietary Information by placing the word “CONFIDENTIAL” conspicuously on such material or otherwise mark such material so as to clearly indicate such material is in fact confidential and (ii) identify any and all oral Proprietary Information by reducing such disclosed oral Proprietary Information to a writing that conforms to clause (i) immediately above within seventy-two (72) hours of such disclosure by the Vendor.  Each Party agrees to use the Proprietary Information received from the other Party only for the purpose of the applicable Documents.  Except as specified in the Documents, no other rights or licenses to trademarks, inventions, copyrights, patents, or any other intellectual property rights are implied or granted under the Documents or by the conveying of Proprietary Information between the Parties.  Proprietary Information supplied is not to be reproduced in any form except as required to accomplish the intent of, and in accordance with the terms of, the Documents.  The receiving Party shall provide the same care to avoid disclosure or unauthorized use of Proprietary Information as it provides to protect its own similar proprietary information.  All Proprietary Information shall be retained by the receiving Party in a secure place with access limited to only such of the receiving Party’s employees or agents who need to know such information for purposes of the Work and the Documents and to such third parties as the disclosing Party has consented to by prior written approval.  All Proprietary Information, including all copies of such information, unless otherwise specified in writing (x) remains the property of the disclosing Party, (y) shall be used by the receiving Party only for the purpose for which it was intended, and (z) shall be returned to the disclosing Party or destroyed after the receiving Party’s need for it has expired or upon request of the disclosing Party, and, in any event, upon expiration or termination of the Documents.  At the request of the disclosing Party, the receiving Party shall furnish a certificate of an officer of the receiving Party certifying that Proprietary Information not returned to disclosing Party has been destroyed.  For the purposes hereof, Proprietary Information does not include information that:

(a)is published or otherwise in the public domain through no fault of the receiving Party at the time such information was received by the receiving Party;

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(b)prior to disclosure to the receiving Party, is properly within the legitimate possession of the receiving Party as evidenced by reasonable applicable documentation;

(c)subsequent to disclosure to the receiving Party, is lawfully received from a third party having rights in the information without restriction of the third party’s right to disseminate the information and without notice of any restriction against its further disclosure;

(d)is independently developed by the receiving Party, by itself or through parties who have not had, either directly or indirectly, access to or knowledge of such Proprietary Information;

(e)is transmitted to the receiving Party after the disclosing Party has received written notice from the receiving Party that it does not desire to receive further Proprietary Information; or

(f)is obligated to be produced under order of a court of competent jurisdiction or other similar requirement of a Governmental Entity, provided that the Party required to disclose the information provides the other Party with prior notice of such order or requirement.

24.14.2Notwithstanding any provision to the contrary, Reliance may disclose, as necessary or required under Applicable Law, the Vendor’s Proprietary Information to Governmental Entities within the Republic of India, and financial institutions and insurance companies to the extent necessary or desirable for Reliance or any Reliance Affiliate to obtain financing or insurance.  Reliance shall request that such Governmental Entities within the Republic of India, and financial institutions and insurance companies shall maintain such information in confidence.  Vendor may disclose, as necessary or required under Applicable Law, Reliance’s Proprietary Information to Governmental Entities within the Republic of India and insurance companies to the extent necessary or desirable for Vendor or any Affiliate of Vendor to obtain insurance.  Vendor shall request that such Governmental Entities within the Republic of India and insurance companies shall maintain such information in confidence.

24.14.3Because damages may be difficult to ascertain, the Parties agree that, without limiting any other rights and remedies specified herein, an injunction may be sought against the Party who has breached or threatened to breach this Section 24.14.

24.15      Entirety of Contract; No Oral Change.

The Documents referenced herein constitute the entire contract between the Parties with respect to the subject matter hereof and thereof, and supersede all proposals, oral or written, all previous negotiations, and all other communications between the Parties with respect to the subject matter hereof.  No modifications, alterations or waivers of any provisions herein

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contained shall be binding on the Parties hereto unless evidenced in writing signed by duly authorized representatives, of both Parties as set forth in Section 24.1.

24.16      Publicity

Both Parties shall submit to the other, all advertising, written sales promotion, press releases, other publicity matters and public announcements relating to the Documents where the name, identity or mark of such other Party, an Affiliate or any User is disclosed or mentioned or from which the connection of said name or mark may be inferred or implied, and the publishing Party shall not publish or use such advertising, sales promotion, press releases, publicity matters or public announcements without submitting the full text and format to the other Party for review and prior written approval.

24.17      Change of Control of the Vendor.

24.17.1In the event (a) the Vendor consolidates with or merges with or into any other Person or conveys, transfers or leases all or substantially all of its assets to any Person or Persons, or (b) Vendor or Parent conveys, transfers or distributes a business or assets that includes the supply of the Products and Services provided to Reliance under the Documents (the “Broadband Access Business”), or (c) any Person (either alone in conjunction with such Person’s Affiliates) directly or indirectly own or acquire fifty percent (50%) of the voting interest of the Vendor where such Person (or any of its Affiliates) directly or indirectly did not own as of the Effective Date in excess of ten percent (10%) of such voting interest (in the case of (a), (b) or (c) above the surviving entity or entity that acquires Vendor’s assets or the Broadband Access Business or such Person or group being referred to as the “Vendor’s Succeeding Entity”), and in any case if:

(a)the Vendor’s Succeeding Entity does not agree, in writing to assume all of the obligations of the Vendor under these Documents; or

(b)Reliance is not satisfied, in its sole discretion, with the transaction, based on (A) the creditworthiness of the Vendor ‘s Succeeding Entity, (B) whether the Vendor’s Succeeding Entity is a competitor of Reliance and (C) whether in Reliance’s judgment the Vendor’s Succeeding Entity will be able to fulfill all of the obligations of Vendor under the Documents, (including without limitation providing Reliance with a guarantee from a creditworthy entity in such a  form acceptable  to Reliance)

then Reliance shall have the right to terminate all or any part of the Documents, in Reliance’s sole discretion in accordance with Section 23.1.2.

24.18      Non-Recourse.

The Parties understand and agree that none of the direct or indirect shareholders, equity holders, limited or general partners, owners, directors, employees or representatives of

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Reliance, nor any Reliance Affiliates shall guarantee or otherwise be in any way liable with respect to any obligations or liabilities of Reliance or any of its subsidiaries pursuant to the Documents.  The sole recourse of the Vendor for satisfaction of the obligations of Reliance under the Documents shall be against Reliance and Reliance’s assets.

24.19      Further Assurances.

The Parties shall execute and deliver all reasonable further instruments and documents, and take all reasonable further action, including, but not limited to, assisting Reliance in filing notices of completion with the appropriate state, provincial and local lien recording offices, that may be necessary or that either of the Parties may reasonably request in order to enable such Party to meet its respective obligations under the Documents or the Vendor’s performance of the Work or to effectuate the purposes or intent of the Documents.

24.20      Counterparts.

The Documents may be executed on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

24.21      Time is of the Essence.

Time is of the essence with respect to each of the Vendor’s responsibilities under the Documents.

24.22      Construction

Each Party represents, warrants and acknowledges that it has been represented by effective counsel and that the Documents will not be construed in favor of or against either Party due to that Party’s drafting of the Documents.

24.23      Improvements, Inventions and Innovations

All rights in any improvements, inventions, and innovations made solely by Reliance shall vest in Reliance, and Reliance shall have the right to exploit such improvements, inventions, and innovations.  All rights in any improvements, inventions and innovations made solely by the Vendor shall vest in the Vendor, and the Vendor shall have the right to exploit such improvements, inventions and innovations.  All rights in any improvements, inventions and innovations made by the substantial contribution of both Parties (“Joint Improvement”) shall vest jointly in both parties. Joint Improvement does not include Custom Work Software or any underlying information owned by one of the parties prior to commencement of such joint activities or developed beyond the scope of such joint activities, including Products and Product information, technical information or inventions developed prior to the commencement of any joint activities, developed outside of the scope of such joint activities or developed solely by either Party.  The rights of joint ownership to such Joint Improvement shall be rights of full non-exclusive worldwide ownership, including rights to license and transfer.  Each Party may exploit its rights to the Joint Improvement independent of the other and may retain all economic benefits thereof, neither Party shall have any obligation to account to the other for profits derived from

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the Joint Information and each Party shall have full rights to enforce the Joint Information intellectual property rights against non-authorized users.

*  *  *  *  *

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RELIANCE AND THE VENDOR HAVE READ THESE GENERAL TERMS INCLUDING ALL SCHEDULES AND EXHIBITS ATTACHED HERETO AND AGREE TO BE BOUND BY ALL THE TERMS AND CONDITIONS HEREOF AND THEREOF.

IN WITNESS WHEREOF, the Parties have executed these General Terms as of the date first above written.

RELIANCE INFOCOMM LIMITED
By:	/s/ Prakash C. Bajpai
	Name:
	Date:
By:	/s/ S. Ramesh
	Name:
	Date:
UTSTARCOM INC
By:	/s/ Michael J. Sophie
	Name:
	Date:

Schedule 1

[NOT USED]

Schedule 2

Insurance

SCOPE OF INSURANCE COVER REQUIRED BY RELIANCE FROM THE VENDOR FOR THE INITIAL BROADBAND ACCESS RELIANCE NETWORK

1.The Vendor shall offer insurance cover for all Products supplied till Acceptance.  The cover also should include spares if any and any risk of damage or loss during transit, temporary storage and permanent storage.  The cover also will include delivery to Test Bed Laboratory and all operations thereat. The premium for covering marine cum erection from CFA delivery point up to Acceptance shall be reimbursed by Reliance to the Vendor.

2.The insurance cover should include costs of all Services including installation, commissioning and testing and other per diem costs.

3.Insurance should cover risks from the Vendor’s warehouse/ up to the Site to the point of handing over of the system to the Operation and Maintenance team after Acceptance.

4.Vendor should keep adequate spare Products ready at overseas/Indian storage points to be able to ship out in case there is any calamity in any Site.

5.The Marine insurance should provide coverage of all risks of loss or damage to consignments as per Institute Cargo Clause-A and War and Strikes, Riots, and Civil Commotion clauses.

6.The policy shall cover the respective interests of Vendor and Reliance so that claims get settled accordingly.

7.For periods other than transit, the items should be covered for all types of loss/damage including breakdown to the Products.  Accident to the items supplied due to damage to facilities and surrounding items should also be covered.  The cover provided should also take care of any loss due to the Vendor’s negligence during warranty period, even after handing over the properties to the Operation and Maintenance team.

8.Third party liability insurance cover should be provided by the Vendor by an amount not less than [***].

9.             Cover should include any accidental damage/breakdown to the Products due to any inadvertent act or other accidental causes until Substantial Completion of the Initial Broadband Access Reliance Network to the extent it relates to Vendor’s Products and Services and products and services provided by Third Party Providers as set forth in the Specifications.

10.The Vendor shall in addition maintain other insurances, including worker’s compensation, employer liability, medical, and insurance coverage against physical loss or damage to Vendor’s equipment, and the Test Bed Laboratory.

Schedule 3

Reliance Policies

Project Procedures

A—   PAF & Roster Process

B—   Business Travel Process

C—   Time Reporting / Invoicing Process

Reliance Infocomm Ltd

A-PAF & Roster Process

1.0          Purpose of Instruction

This instruction documents the process for the addition, deletion or modification of CONTRACTOR personnel on the Reliance program.  In addition, it provides Reliance with an up to date record of these individuals approved to apply time to the contract.

2.0          Responsibility

Responsibility for the upkeep and updating of this process shall be with the CONTRACTOR, including the responsibility of generation of PAF (Personnel Authorisation Form) for Reliance’s approval in advance:

Reliance will update and maintain PAF form folder.

3.0          Approval of Items

This process instruction can be modified by Reliance.  The CONTRACTOR shall carry out those modifications.  The PAF form (given in Annexure-I) will be prepared by the CONTRACTOR and submitted for approval to Mr. Prakash Bajpai before any personnel is booked to the Reliance contracts referred to above.  Reliance may at its sole discretion refuse to approve the PAF without assigning any reason.  The PAF shall give details related to budgeted cost and days and shall be in line with the organisation chart provided and it should give reference of the same.  PAF shall indicate any excess over the project plan.  It is mandatory that every PAF be accompanied by a CV.  Any change in start / end dates will also require Reliance’s approval.

4.0          Updation

This procedure shall not be continuously updated.  Recommended changes are encouraged Proposed changes should be addressed to CONTRACTOR’s Project Manager.  Updation will be on a periodical basis

5.0          Roster Information

The following information is required to be kept in each record of the roster file, which will be provided, once in every two week to Mr. Prakash Bajpai or any alternative personnel of Reliance, designated from time to time.  The information shall be sorted by Project name.

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Sr. No Name Project Name Grade Actual/Sch. Start Date Actual/Sch. End Date Period for which PAF is Approved Location Contract Lead Part time/ Full time.

After perusal of the report, Reliance may require CONTRACTOR to carry out modifications/corrections CONTRACTOR shall carry out the modifications/corrections required by Reliance.

6.0          The PAF form, using the Department field should clearly state if the person proposed to be engaged is

•      an employee of CONTRACTOR (or)

•      proposed to be hired from market by CONTRACTOR or any of its associates (or)

•      proposed to be engaged through a sub-contractor & who is such sub-contractor.

7.0          Changes in CONTRACTOR’s Personnel

CONTRACTOR shall forthwith demobilise any of its Personnel found unsuitable by Reliance for the job [***] and replace the position through the PAF procedure [***].

Any Personnel on the Reliance job will not be changed by the CONTRACTOR unless the change is due to resignation/illness/termination of services or by mutual agreement between Reliance and CONTRACTOR.

8.0          References

Reliance Infocomm Ltd Project Process Instructions

Construction Supervisory Services Contract - Business Travel Process, PM-003, Latest Version

Time Reporting / Invoicing Process, PM-004, Latest Version

2

B) BUSINESS TRAVEL PROCESS

1.0          Purpose of Instruction

This procedure documents the process for travel on the program by the CONTRACTOR including lodging and boarding as follows:

•              For travel to/from India as per requirements envisaged

•              For travel within [xxxx] and to areas other than India

2.0          Scope:

•      To provide instruction for travel by CONTRACTOR’s personnel (including its subcontractors, vendors etc.)

•      To provide guidelines for completion of Travel Expense Reports and Business Visit Reports.

3.0          Responsibility.

•      Responsibility for the upkeep and updating of this process shall be Reliance.

•      Responsibility for the upkeep and updating of the Program Travel Authorization

Request found in Attachment l -of this document with CONTRACTOR upon Request to modify by Reliance.

4.0          Approval of Items

This process instruction can be modified by Reliance.  The CONTRACTOR shall carry out those modifications.

5.0          Updation

This procedure shall not be continuously updated.  Recommended changes are encouraged Updation will be on a Periodical basis.

6.0          Instructions

a)     All CONTRACTOR’s personnel travelling to India must obtain a visa.  Unless otherwise instructed the visa shall be a business visa with multiple entry.

3

b)    CONTRACTOR’s personnel are individually responsible for maintaining current visas and complying with all regulations including penalties (if any) to renew expired visas.  If the VISA expires in India, Reliance will provide assistance to renew the same.  [***].  However, all efforts to be made by the CONTRACTOR that such an eventuality does not arise.

c)     CONTRACTOR’s personnel are individually responsible for maintaining their inoculations current.  Inoculations should be scheduled sufficiently before the trip so that any side effects will be over prior to the trip.

d)    CONTRACTOR’s personnel shall complete the Program Travel Authorisation form in Attachment 1.  The approval of CONTRACTOR Project Manager and Reliance Project Manager should be taken in advance prior to any Project travel-taking place (international and domestic).  All travel should be at the most economical rates possible.  The approval taken should include a full description of purpose of the business visit including name(s) of people being visited

e)     The Program Travel Authorisation Form shall be directed to Mr. Prakash Bajpai in advance of travel.  Upon receipt Mr. Goenka shall either approve or deny the trip, sign the form with his disposition.  Mr. N.V.S. Menon shall fax the approved form to Contractor’s contact person via Fax and also inform the traveler by email of the decision taken.

f)     For Travel to India:

i.      On Reliance’s approval of the Program Travel Authorisation Form, travel plans and Passport details of the traveler (as per Attachment 2) should be e-mailed and faxed to Reliance’s Travel Coordinator [***] for preparation of Prepaid Ticket Advice (PTA) and making pick-up and stay arrangements in Mumbai.

ii.     Reliance’s travel coordinator shall arrange for two way PTA to be issued and advise the PTA number and the airline(s) to Contractor’s contact person via fax and also to the traveler by email.  Travel will be by [***].  Upon arrival the return leg of the ticket has to be exchanged for a ticket issued in INR.

iii.    Using the PTA numbers the traveler may either obtain the ticket at the airline office or have the ticket issued at the airport one hour before departure.  The ticket should be issued and collected prior to the original journey date.

iv.    All travelers should indicate the date of travel at least [***] in advance.  Bookings will be done by the airline of choice depending on seat availability.  Reliance may at its discretion change the Airline in case seats are not available for the date(s) in question.

4

v.     Pickup arrangement for all the travelers shall be made by Reliance.  The driver of the vehicle assigned shall stand outside immigration clearance area with a placard depicting the name of the traveler.  The traveler shall ask the driver to present a welcoming letter.  This letter is from Reliance that welcomes you to Mumbai and refers to you by name.  If the driver can not present one, then he is not the driver hired by Reliance and you are NOT to proceed anywhere with that person.  This is a security precaution to prevent problems with false drivers giving you the impression that they are responsible to pick you up by writing your name on a placard in an attempt to get you to ride with them.

vi.    Accommodation: Reliance has a number of Guest houses which are at par or in some cases better than the best available Hotels in India.  All attempts shall be made to house the travelers in the Reliance owned Guesthouses.  The idea of this is to make the traveler feel more at home and to avoid undue long distance commuting as most of our guest houses are nearby to the offices.  In certain cases if the guesthouse is not available the traveler shall be accommodated in reasonable quality hotels.  All accommodation will be on a single status basis only.

vii.   Upon arrival in India the representative of the CONTRACTOR should get himself registered with the necessary authorities in India.

viii.  All official onward travel to other locations in India will be organised by economy class by air or air conditioned first class by rail or air conditioned car or other mode of transport as applicable to a Senior management level personnel of Reliance.

ix.    At locations other than Mumbai, stay will be organised in similar quality hotels as in Mumbai, if available, or Reliance operated guesthouses.

x.     All lodging, boarding and laundry expenses and local travel while in India will be borne [***].  No Liquor/Tobacco are allowed to be charged to [***].  All other expenses should be kept within reasonable limits.

xi.    Reliance shall provide office accommodation, secretarial assistance, including telegrams, telexes, faxes, telephones, computers, e-mails etc. required for CONTRACTOR’s performance in India of this Contract.  However, all the CONTRACTORS personnel should use the telephone, Internet and fax for usage of Reliance official work.  When put up in a hotel any personal telephone call, fax and Internet should be paid for directly before checking out of the hotel.

5

xii.   [***]

xiii.  Emergency Contact Number:

Should travelers require assistance after having landed in Mumbai the following Reliance employees are to be available to provide assistance:

1.     Mr. NVS Menon [Tel nos: 4916800 / 4916883 / 4916851]

2.     To Be Announced

g)    For Travel other than to India:

i.      On Reliance’s approved Program Travel Authorisation Form, CONTRACTOR may go ahead and arrange for travel, on reimbursable basis.

ii.     All air travel is by Economy Class.

iii.    Hotels of stay should be decent without being ostentatious.  (Holiday Inn, Hilton, Marriott equivalent)

h)    Travel expense reports shall be prepared by all travelling personnel of CONTRACTOR, for travel other than to India within [***] of completion of the business visit, detailing billable and non-billable expenses.  [***].  All these expenses are expected to be incurred at reasonable rates.  Reliance has an option to propose to the CONTRACTOR an alternative of arranging travel facilities directly, if possible, including material supply.  [***].  These expense reports along with original bills will be maintained by CONTRACTOR, and they would be required to be produced to Reliance’s audit group from time to time.  The photocopy of ticket jacket, hotel bills, restaurant bills, car rentals irrespective of amount (no lower limit) should be submitted along with the invoice raised.

i)      A trip report provides the link between Program Travel Authorisation Request, Project Plan Instruction and Work performed for complete transparency while billing.  These reports should be prepared within [***] of completion of each business visit and maintained by CONTRACTOR.  Reliance’s audit group may require these reports to be produced from time to time.

7.0          References

Reliance Infocomm Ltd. Project Procedures

Technical Services Contract —

Time Reporting / Invoicing Process, PM-004, Latest Version

Personnel Authorization Form & Roster Process, PM-006, Latest Version

6

Attachment — 1:

PROGRAM TRAVEL AUTHORISATION REQUEST

DATE OF APPLICATION:____________

Name of Traveler:	:	Contractor Employee
No:	:
Flight Itinerary (From — To)	:
Departure Airline & Flight No	:
Departure date & Time	:
Arrival Date & Time	:
Connecting Airline & Flight No	:
Departure Date & Time	:
Arrival Date & Time	:
Flight Itinerary (From — To)	:
Return Departure Airline & Flight No	:
Departure Date & Time	:
Arrival Date & Time	:
Return Connecting Airline & Flight No	:
Departure Date & Time	:
Arrival Date & Time	:
Class of Travel	: Business/Economy
Hotel Arrangements (India Travel Only)*	:
Date of Arrival	:
Date of Departure	:
Emergency Contact Information (India Travel Only)
Emergency Contact Person	:
Emergency Contact Address	:
Emergency Contact Telephone No	:
Reason for trip	:
PAF Period
To___________	: From__________

APPROVED	DENIED
REMARK
SIGNATURE
DATE

*Ensure dates are for the day BEFORE you arrive since you will arrive at 12.30 am the following day (i.e. if you arrive on May 9^th at 12:30 am, your reservation arrival date needs to be for May 8^th).  Departure date should be for the date of departure as you leave at 2:00 am or so (i.e. if you leave on May 12^th even though you will leave the hotel the night of May 11^th)

7

Send this completed form to Mr. N.V.S. Menon.

Attachment 2:

Program Travel Information Form

Name of Person on Passport	: First Name, Middle Name, Family
Name
Passport No.	:
Place of Issue of Passport	:
Date of Issue of Passport	:
Validity date of Passport	:
Nationality as mentioned in Passport:	:
Date of Birth as mentioned in Passport	:
Place of Birth as declared in Passport:	:
Phone No	:
Contact Address	:
Fax Nos.	:
Email address	:
Visa no and date (recommend 1-year visas)	:

8

C) Time Reporting and Invoicing Process

1.0          Purpose of Instruction

This instruction documents the process for time reporting on the program comprising the contracts executed on [Date] between CONTRACTOR & Reliance

All contractor personnel approved by Reliance under the PAF and Roster Procedure (Document no. PM-006) will charge their time to the relevant job order number assigned to the program.  This process also explains the invoicing process required for preparation of invoice by CONTRACTOR, processing & payment thereof by Reliance.

2.0          Responsibility

Responsibility for the upkeep and updating of this process shall be with the CONTRACTOR.

Additional information/documents as required by Reliance is to be provided by CONTRACTOR in a timely manner in order to not unduly delay the invoicing process.

3.0          Approval of Items

This procedure can be modified by Reliance.  The CONTRACTOR shall carry out those modifications.

4.0          Updation

Recommended changes are encouraged.  Updation will be done on a periodical basis on the approval of both the parties.

5.0          Job Order Numbering & Control :

6.0          Time Recording/Reporting Process

This section covers the time recording and reporting process.

1.     CONTRACTOR personnel shall record their time in the CONTRACTOR’s system (CONTRACTOR’s internal recording/reporting system) on a daily basis.

2.     CONTRACTOR shall prepare and submit weekly time sheets along with summary for approval by Reliance’s designated authority — i.e., Mr. ----------.  Before submission of the invoice to Reliance CONTRACTOR shall ensure that the billing is as per the contract.  CONTRACTOR’s finance personnel shall check the summary and forward it to Reliance for their approval.  Invoicing will not be done by the CONTRACTOR till the summary is approved by Reliance.

9

7.0                          Invoicing Process :

                This section covers the invoicing process in detail:

[***]

The invoice format found in Attachment I is the cover invoice that CONTRACTOR will use.  [***].  The format is the same for off-shore/on-shore except that for on-shore services components (B) & (C) will be absent.

8.0          Invoicing for onshore & offshore work

a)     Separate invoices shall be prepared for on-shore work, and offshore work.  Invoices should bear the Contract number.  The invoice should be supported with timesheets duly signed by Reliance designated representative, this invoice will be only for Reliance approved man-hours actually worked on the job based on daily rates as per contract.  Along with the invoice a report (or reports) has to be attached in line with the project plan work undertaken for the billing month concerned.  The invoice shall be submitted to the address mentioned in the Contract:

The invoice will cover all approved visits to India and back-up information to be provided along with the invoices as follows.  Documents numbered I to IV below should be submitted with the first invoice and the rest with all the subsequent invoices:

I.      Certificate of Incorporation/Registration of CONTRACTOR’s company.

II.    CONTRACTOR’s Tax Residency Certificate*

III.   No Permanent Establishment(PE) in India Certificate*

IV.   Authorization letter to make an application to Income Tax Department in India seeking tax clearance for remittance of fees to CONTRACTOR under the captioned agreement.*

V.    Original Timesheets duly signed by CONTRACTOR and Reliance’s representative.

VI.   Receipts as required.

VII.  Personal detail page, Indian visa page and entry / exit stamps of the passport.

VIII. Copy of Business Visit Report [Refer Document No. 003, the Business Travel Process]

* Specimen Formats enclosed.

b)    The invoice for offshore and on-shore services shall not contain any other element of charge, including charge towards visa, inoculation, withholding or other taxes, including taxes on account of CONTRACTOR’s Employees.

c)     Reliance shall make the payment for the invoice in [***] time from the date of Reliance’s approval of the invoice, as being in conformity with these

10

instructions.  Reliance shall approve the Invoice after all the clarifications/information etc if any needed are given by the CONTRACTOR to Reliance.

9.0          Other conditions

1.     The material that has been already invoiced to Reliance will be owned by Reliance and the same will be transferred and delivered to Reliance at the conclusion of the work.

2.     Reliance or its representative can examine all books/records/accounts/other documentation of the CONTRACTOR to verify the amounts charged to Reliance.

3.     CONTRACTOR is responsible for taking out and maintaining Insurance policies for all its personnel.

10.0        Deliverables: Contractor to give list of deliverables given during the Invoicing period v/s what was planned in Task Order.

11.0        References

Reliance Infocomm Limited Project Procedures

Construction Supervisory Services Contract —

Business Travel Process, PM-003, Latest Version

Personnel Authorization Form & Roster Process, PM-006, Latest Version

11

Schedule 4

Pro-forma Purchase Order

Reliance Infocomm Limited

[***]

PURCHASE ORDER FORM

VENDOR

167315 UTSTARCOM INC.	Purchase Order No. XW2/ Date:
1275, Harbour Bay Parkway, Alameda, California, Pin-94502 USA
	Total number of pages:
Phone: Fax:  0015108648802 E-Mail: Attention:  Chuck Farrel

Prices of the individual items are indicated in the Exhibit A against each item of the equipment.  The information contained herein is confidential and is not to be released or disclosed for any other use or purpose other than for the execution of this Purchase Order.  The supply and delivery instructions are annexed herein.  Vendor shall mean UTSTARCOM INC. and Reliance Infocomm Limited shall be referred to as “Reliance”.

	TOTAL PO Value:  USD _____________ for the Equipment listed in the “EXHIBIT-A”
Delivery Terms:  FCA _______________	(Value in Words):  USD ___________________
Payment: _________________________	RELIANCE INFOCOMM LTD.
Pre-Dispatch Inspection (PDI) required: No/Yes.
	Authorized Signatory
For detailed Terms and Conditions, please refer Enclosures.	VENDOR’S ACCEPTANCE
	Authorized Signatory

2

Purchase Order No. XW2/

EXHIBIT “A”

Purchase Order No. XW2/

Supply and Delivery Instructions:

Vendor must not ship any Product until receipt of a shipment release note, definite shipping instructions and SCN number.  Partial shipment is strictly prohibited unless agreed in writing by Reliance.

1.0           COMMUNICATION

All communications, correspondence and documentation requested in this purchase order except those in item-3(A) below, shall be addressed as follows:

Procurement related

[***]

Shipping and Logistics; related

[***]

2.0           DELIVERY TERMS

Vendor shall deliver the Products export packed as per standard international packing and marked in accordance with the packaging and shipping instructions.  The Equipment will first be delivered to the Reliance freight forwarder at Shanghai International Air Port.  Vendor shall have to provide Reliance with the detailed shipment schedules for the Equipment within [***]. of receipt of this Purchase Order.

3.0           SHIPPING DOCUMENTS

A.            Before effecting Shipment Vendor shall submit, One (1) copy of the draft invoice and packing list, for approval to Reliance at the following address:

Reliance Infocomm Limited

[***]

After receipt of SCN number and shipping Instructions such as freight forwarder details, port of shipment and related information, Vendor shall proceed with the shipment.  Vendor shall ensure ETD/ETA of the goods to Reliance, as soon as the respective SCN’s are allotted by Reliance.

The Products shall be:

2

Purchase Order No. XW2/

(i)            Invoiced in duplicate to:

Reliance Infocomm Limited

[***]

(ii)           Shipped to:

Reliance Infocomm Limited

[***]

B.            Vendor shall submit the following manually signed non negotiable set of documents at the time of shipment to the designated freight forwarder and along with advance copies (by fax and e-mail of scanned documents) of the same to Reliance EXIM clearance department.  These advance documents shall specifically include:

a)             Invoice detailing item-wise breakdown of values.

b)            Copy of HAWB /Clean Bill of Lading (as applicable).

c)             Packing List.

d)            Certificate of Origin duly signed and issued by the local Chamber of Commerce.

e)             Copy of Inspection certificate (if applicable).

f)             Copy of Insurance Certificate.

g)            Export Certificate, if applicable from their respective Export Regulating Agency.

Vendor is solely responsible to ensure reaching of aforesaid non-negotiable documents, at least [***] (except for the Certificate of Origin, HAWB and freight forwarder’s Receipt) in advance of the anticipated landing of goods in India.  Any demurrage or payment liability arising out of the improper or delayed documentation directly attributable to the Vendor shall be recovered from the Vendor.

4.0           SHIPPING INSTRUCTIONS

a)             Vendor and Reliance will work in close co-ordination with each other for the selection of the Reliance appointed Freight Forwarder.  Vendor shall assist Reliance with the shipment booking arrangements through the provision of a Logistics Plan, in the agreed format, which will be made available to Reliance prior to shipment release and which will be updated on a weekly basis.  In the unlikely event of an emergency, Vendor shall, at Reliance’s request, make arrangements directly with Reliance’s appointed Freight Forwarder to expedite shipment on next available flight basis [***].

b)            Reliance assisted by Vendor shall arrange to book through the nominated Freight Forwarder space as per requirements, in the aircraft or ship.

3

Purchase Order No. XW2/

c)             In the event of any change in the schedule not reflected in the Logistics Plan, Vendor shall arrange for cancellation of the initial booking and arrange for alternate booking [***] but with prior approval in writing.  In the event of any cancellation of flight / vessel Vendor shall arrange through the Freight Forwarder for alternate arrangement immediately with any other air/shipping lines and ensure immediate movement of goods.

d)            Shipment Release / overseas warehousing:  As indicated above, Vendor is required to obtain Shipment Release Note from Reliance prior to effecting any dispatch.  During such request from Vendor, for specific reasons, Reliance prior to effecting any dispatch.  During such request from Vendor, for specific reasons, Reliance reserves the right to withhold such Release Note and to postpone the shipment despite its readiness for dispatch.  For this purpose such decisions shall be communicated to the Vendor in writing.  Vendor shall comply with such request and arrange for temporary storage of the packed consignment in its own warehouse.  Vendor is responsible for safe and proper storage / handling of the consignment in the warehouse.  The insurance cover to be arranged by the Vendor for the purpose of execution of the contract shall also include the risk to be covered during temporary storage.

e)             [***].  Vendor shall keep Reliance informed about such temporary arrangements.

f)             Vendor shall send Cargo dispatch intimation advice after shipment in the mutually agreed format.

g)            PACKING:

1.             Customer hereby provides the methodology to be adopted by the Contractor with respect to the Packing of various materials during the execution of the order.  However, Contractor is to note that it is neither a packing manual, nor a substitute for professional packing practices.  CONTRACTOR is fully responsible for the quality of his packing.  Packing may be subject to surveillance by Customer at the sole option of Customer

2.             Packing shall be standard to efficiently and effectively protect the Products from the moment that they leave the factory for a period of [***] both during loading, transport by road, rail, air or sea, and unloading.  The method of packing and packaging the Products shall also be sufficient to protect purchased items against the hazard associated with handling, Transportation and storage for a period of at least [***] while in transit or in storage at the Job Site.

3.             Packing shall include all pre-crating protection activities including but not limited to the suitable application of approved anti-corrosion, coating, vacuum, pealing, desiccants, solvents, inert blankets and end caps.  Depending

4

Purchase Order No. XW2/

on their type, the Products are to be protected against both mechanical damage (shocks, rupture, breakage, loss) and corrosion (rain, salty atmosphere, sand, wind).  Each individual equipment and component must be bar coded.

For the purpose of this instruction, the term “shipping unit” may be used as a generalized description of a freight piece representing, but not limited to any of the following:  carton, crate, box, barrel, keg, drum, tower, tank, pipe, bar, steel, pallet, bundle or applicable package type.

4.             Each unit of the BN Terminal is to be packed independently without intermixing of it’s parts or accessories with any other unit so as to enable the Customer to redistribute the units to various Sites in India without involvement of unpacking or re-packing upon arrival in India.  Each independent package or box or carton shall be packed as per the requirements of airfreight worthiness and they shall be able to withstand handling, transit shock, load of stacking etc. during transportation.  The size and shapes of the boxes must meet the requirements of the passenger aircrafts from the designated FOB International Gateway Airport.

5.             Due to restrictions in movement of Air Cargo, the independent units of the BN Terminal are not be palletized without prior approval of the Customer or their authorized Freight Forwarding Agent(s).

6.             Any Product/s that is found to be below standard or damaged due to inadequate or improper packing shall be repaired or replaced by the Vendor [***].  The Vendor upon notification to Reliance shall carry out such repairs or replacement and the Vendor shall use all reasonable efforts not to jeopardize Reliance site roll out plan as per delivery Schedule.

7.             In addition Vendor is responsible to ensure that all material is packed to:  Acceptable airline industry standards and in such a way as to afford items maximum mechanical protection.  Allow stacking on airline pallets and the reduction of total weight of the shipping units.  Acceptable industry standards to enable item maximum mechanical protection and withstand environmental conditions in Indian Sub-Continent during storage.

h)            Hazardous Product/s:  All outside containers and packing shall be in accordance with rules and regulations of applicable governmental agencies such as I.C.A.O. / UN / I.MC.O. and I.A.T.A. for all hazardous Product/s.  Vendor must certify that the Product/s have been packaged for transportation in accordance with all applicable government agency requirements / standards and Hazardous Product/s Certificates must be provided for all items identified as Hazardous in the above regulations rules.

For each Purchase Order the vendor shall pack the Product/s in a separate shipping unit.

5

Purchase Order No. XW2/

i)              Export Packing:  Vendor shall package the Product/s in accordance with relevant requirements, and where instructions are not provided or fully defined, the best practice and standards for packaging shall be followed.

j)              Packing List:  Each Packing List shall incorporate the reference of corresponding invoice and relevant Purchase Order.  The Packing List for each packages or shipping units shall factually state the material code or part nos. of all individual items packed in the package.  Packing lists itemizing contents on each box or crate must be placed inside each shipping unit.  A second copy, together with any special instructions regarding preservation of contents, must be sealed in a water-proof envelope and securely fastened to the outside of each shipping unit.  Spare parts marking shall include the part name and number listed in the service manual bill or material.

Packing Lists must state Job site name, Job site identification number, Reliance’s Purchase Order Number and Reliance’s Purchase Order line item number, SCN and full description of the contents.  Only the contents of the shipping unit to which the Packing List is attached may appear on the Packing List.  Individual cartons or packages within a shipping unit shall be labeled with the Purchase Order Item Number and content details.

k)             Marking:  Vendor shall mark each package with the following:

SPECIMEN SHIPPING MARKS

CONSIGNOR:

CONSIGNEE:

P.O. No.:

SCN Number:

Case No.:               of

Dimensions:  L                      xW                          xH           cm

Gross Weight:                      Kilos

Net Weight: _______________________________Kilos

Airport \ Port of Entry: _____________________________

Job site: __________________________________________

6

Purchase Order No. XW2/

Job site identification number: ________________________

Destination:  C/o Cotton Corporation of India Ltd.

Warehouse Complex

Plot no. S-5

Kalamboli

Navi Mumbai — 410218

India

Made in:

l)              Labels:  Shipping units which cannot be marked in accordance with the above shall be marked with labels, which shall be printed on durable, weather resistant material using waterproof ink.  Labels shall be affixed to the shipping unit by waterproof glue.

m)            Bar Coding:  All the Equipment and their components are to be Bar Coded as agreed by the parties for easy identifications and storage.  The box or the cartons containing the Equipment are also to be Bar Coded for the above reason.

n)            Special Handling Instructions:  Special Handling requires International Maritime symbol.  Symbols shall be applied with exterior grade paint or waterproof ink in a color that produces a high contrast with the surrounding background.  Which are easily damaged Product/s shall be marked “FRAGILE” and also when required, “HANDLE WITH CARE”, “COOL STORAGE”, and/or “USE NO HOOKS” and as provided in the special handling instructions.  When required, due to length or unbalanced weight, creates or boxes shall have a center of gravity, indicated by the relevant symbol.

o)            Appointment of Freight forwarding Agent:  Vendor to provide all inputs, support, experience, assistance / advice to Reliance for selecting the Freight Forwarder.  Reliance shall be responsible for appointing freight forwarder for transportation of the Product/s from International airport/seaport up to seaport / airport of entry in India.

p)            Contact details:  Vendor shall provide the complete details of One point Contact for various geographical locations of their factory from where the goods are expected to be dispatched and the corresponding Vendor’s Inland Freight Forwarding Agents located in such place.  These details shall be provided within a week from the date of placement of Purchase Order by Reliance, as per agreed format.

Vendor’s request for shipping instructions shall be through e-mail or facsimile, with the following information included in its fax:

•      Reliance’s Purchase Order number.

•      Number of packages with individual weights, dimensions and identification marks.

•      Name and telephone number of person in Vendor’s organizations to be contacted.

7

Purchase Order No. XW2/

•      Vendor’s reference (i.e., shop order number).

•      Confirm documentation ready (shipping invoices/packing lists etc.).

•      Any special handling requirements, e.g., hazardous or fragile equipment.

•      PO line item and quantity ready for shipment.

q)            Overseas inland transportation:  Vendor shall be responsible for the loading of the consignment at their works and to transport the same up to agreed International airport / seaport of dispatch at its own cost.  For this purpose, Vendor shall engage a reputed and experienced transporter and ensure that the consignment reaches the international airport / seaport on time in good condition.  In this connection, the Vendor shall keep the Reliance or its designated Freight forwarder informed about such movements of goods on ongoing basis.

r)             Export clearance:  All the export formalities including but not limited to air /sea port handling and customs clearance in the Vendor’s country of dispatch shipment shall be carried out by the Vendor or its appointed agency [***].  For this purpose, [***].  Vendor shall keep Reliance informed about the status of Export Clearance on ongoing basis.

*****

8

Schedule 5

Form of Performance Security

FORMAT

STANDBY LETTER OF CREDIT

Reliance InfoComm Limited

Reliance Centre,

19, Walchand Hirachand Marg,

Ballard Estate,

Mumbai — 400 001.

Standby Letter of Credit No:                                                                   

Date:                                         Amount:                                                         

Re Purchase Order (“PO”) No._________________ between ___________ & ________________ dated ______________, Broadband Access Network General Terms And Conditions dated ___________________ and Broadband Access Equipment Agreement/ Broadband Access Software Agreement/ Broadband Access Services Agreement dated _________________ (hereinafter refer as “CONTRACT”)

Dear Sirs,

Whereas Reliance Infocomm Limited (hereinafter referred to as  “RELIANCE”) has issued  a PO No.____________________ dated______________   with UTStarcom Inc.                                                                  (hereinafter referred to as “VENDOR”) for Supply of equipment/ software/ services; and

Whereas VENDOR is required under the CONTRACT to procure a Standby Letter of Credit issued by an acceptable bank in favour of RELIANCE in support of the due and proper performance of the obligations undertaken by VENDOR in respect of the above mentioned CONTRACT.

Therefore, in consideration of the above, we                                                                               

(Name of Bank) established in                                                                    and having our address at                                                                               ;                       (this “Bank”), hereby irrevocably and unconditionally guarantee and undertake to RELIANCE, without any right of defence, set off or counterclaim whether on our behalf or on behalf of VENDOR and on demand and without demur to pay to RELIANCE a sum not exceeding ……………………(Figures) ……………………………….(Words) or any lesser sum specified by RELIANCE by transfer to an account in RELIANCE’s name at such bank as RELIANCE shall stipulate or in

Page 1 of 3

such other manner as shall be acceptable to RELIANCE upon presentation of a letter of claim as specified below.

The letter of claim shall be drawn on this Bank, signed by the authorized manager of RELIANCE.  Each draft must be accompanied by this original Standby Letter of Credit (and any amendments hereto) and must bear on its face the clause “Drawn under [name of bank] Standby Letter of Credit Number _________, dated ______________, 200_” and the following certification:

“The undersigned certifies that that he/she is a duly authorized manager of RELIANCE, and that VENDOR has failed, after being provided [***] written notice of failure by RELIANCE, to perform its obligations to RELIANCE under the Contract with respect to performance, in accordance with the Contract and any dispute between VENDOR and RELIANCE with respect to such performance failure has not been resolved through the procedures set forth in Section 22.2(ii) of the Broadband Access Network General Terms And Conditions dated October 1, 2002, except that the period to resolve such dispute as set forth in such Section 22.2(ii) was extended to [***].”

We agree that your draft drawn under and in compliance with this Standby Letter of Credit will be duly honored by us upon presentation of said draft if presented in the manner described herein on or before the date that is [***] after the date hereof plus a claim period of [***] (“Expiry Date”) or amended Expiry Date if applicable.  In case this Standby Letter of Credit is required to be extended, and is not extended, for a further period, [***] prior to the Expiry Date, then Reliance shall be entitled to encash this Standby Letter of Credit.

We agree that any changes, modifications, additions or amendments which may be made to the CONTRACT, or in the work to be performed thereunder, or in the payments to be made on account thereof, or any extensions of the time for performance or other forbearance on the part of either RELIANCE or VENDOR to the other or to any other guarantor of the obligations of either of them, shall not in any way release us from our continuing liability hereunder, and we expressly waive our rights to receive notice of any such changes, modifications, additions, amendments, extensions or forbearance.

We further agree that any payment made hereunder shall be made free and clear of and without deductions for or on account of any present or future taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature whatsoever and by whomsoever imposed.

Notwithstanding anything contained herein above, the liability of this Bank under this Standby Letter of Credit shall be limited to ………………………….and shall remain valid till the Expiry Date.  This Bank is liable to pay to the RELIANCE the guaranteed amount or any part thereof under this Standby Letter of Credit only and only if the RELIANCE serves upon this Bank a written letter of claim as described above on or before the Expiry Date.

This Standby Letter of Credit shall be governed by the Uniform Customs and Practice for Documentary Credit (1993 Revision) International Chamber of Commerce Publication No. 500.

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Yours faithfully,

Authorised Signature of Bank

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FORMAT

STANDBY LETTER OF CREDIT

Reliance Infocomm Limited

Reliance Centre,

19, Walchand Hirachand Marg,

Ballard Estate,

Mumbai — 400 001.

Standby Letter of Credit No:                                                                   

Date:                                         Amount:                                                         

Re Purchase Order (“PO”) No._________________ between ___________ & ________________ dated ______________, Broadband Access Network General Terms And Conditions dated ___________________ and Broadband Access Equipment Agreement/ Broadband Access Software Agreement/ Broadband Access Services Agreement dated _________________ (hereinafter refer as “CONTRACT”)

Dear Sirs,

Whereas Reliance Infocomm Limited (hereinafter referred to as  “RELIANCE”) has issued  a PO No.____________________ dated______________   with UTStarcom Inc.                                                                  (hereinafter referred to as “VENDOR”) for Supply of equipment/ software/ services; and

Whereas VENDOR is required under the CONTRACT to procure a Standby Letter of Credit issued by an acceptable bank in favour of RELIANCE in support of the due and proper performance of the Products and Technical Support Services supplied by VENDOR in accordance with the Specifications set forth in the above mentioned CONTRACT.

Therefore, in consideration of the above, we                                                                               

(Name of Bank) established in                                                                    and having our address at                                                                               ;                       (this “Bank”), hereby irrevocably and unconditionally guarantee and undertake to RELIANCE, without any right of defence, set off or counterclaim whether on our behalf or on behalf of VENDOR and on demand and without demur to pay to RELIANCE a sum not exceeding ……………………(Figures) ……………………………….(Words) or any lesser sum specified by RELIANCE by transfer to an account in RELIANCE’s name at such bank as RELIANCE shall stipulate or in

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such other manner as shall be acceptable to RELIANCE upon presentation of a letter of claim as specified below.

The letter of claim shall be drawn on this Bank, signed by the authorized manager of RELIANCE.  Each draft must be accompanied by this original Standby Letter of Credit (and any amendments hereto) and must bear on its face the clause “Drawn under [name of bank] Standby Letter of Credit Number _________, dated ______________, 200_” and the following certification:

“The undersigned certifies that that he/she is a duly authorized manager of RELIANCE, and that VENDOR has failed in its obligations under and in accordance with the Contract and the Specifications with respect to the performance of Products and/or Technical Support Services as notified in writing by Reliance and has not cured such failure within a period of [***] of such notification and any dispute between VENDOR and RELIANCE with respect to such performance failure has not been resolved through the procedures set forth in Section 22.2(ii) of the Broadband Access Network General Terms And Conditions dated October 1, 2002, except that the period to resolve such dispute as set forth in such Section 22.2(ii) was extended to [***].”

We agree that your draft drawn under and in compliance with this Standby Letter of Credit will be duly honored by us upon presentation of said draft if presented in the manner described herein on or before the date that is [***] after the date hereof plus a claim period of [***] (“Expiry Date”) or amended Expiry Date if applicable.  In case this Standby Letter of Credit is required to be extended, and is not extended, for a further period, [***] prior to the Expiry Date, then Reliance shall be entitled to encash this Standby Letter of Credit.

We agree that any changes, modifications, additions or amendments which may be made to the CONTRACT, or in the work to be performed thereunder, or in the payments to be made on account thereof, or any extensions of the time for performance or other forbearance on the part of either RELIANCE or VENDOR to the other or to any other guarantor of the obligations of either of them, shall not in any way release us from our continuing liability hereunder, and we expressly waive our rights to receive notice of any such changes, modifications, additions, amendments, extensions or forbearance.

We further agree that any payment made hereunder shall be made free and clear of and without deductions for or on account of any present or future taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature whatsoever and by whomsoever imposed.

Notwithstanding anything contained herein above, the liability of this Bank under this Standby Letter of Credit shall be limited to ………………………….and shall remain valid till the Expiry Date.  This Bank is liable to pay to the RELIANCE the guaranteed amount or any part thereof under this Standby Letter of Credit only and only if the RELIANCE serves upon this Bank a written letter of claim as described above on or before the Expiry Date.

This Standby Letter of Credit shall be governed by and interpreted under the laws of _________.

Yours faithfully,

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Authorised Signature of Bank

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Schedule 6 - Proposed Feature Delivery Schedule

[***]

Reliance and UTStarcom Proprietary & Confidential`

Annexure 1A

TECHNICAL SUPPORT  SERVICES (‘TSS’)

SECTION 1.         INTRODUCTION

Vendor shall note that Reliance’s basic philosophy in delivering world class service to its customers will be achieved mainly through:

•Deploying equipment of latest technology and made of high quality components which are developed with the aim of achieving very long Mean Time Between Failure (‘MTBF’) performance;

•Opting for redundancy in component level which are highly critical in nature;

•Ensuring back-up features built into equipment and software to minimize the loss of customer and operating data in the event of failure;

•Deploying advanced software programs to solve problems through self-, and remote-diagnostic equipment capabilities;

•Network Operations Centers (‘NOCs’) which constantly monitor the status of the network, and a full suite of software support systems (e.g., enterprise, operations and billing) to permit Reliance to provide all its anticipated voice, data and enhanced services efficiently; and

•Upgrading the Products continuously in phase with development in technology.

SECTION 2.         INTENT OF THIS DOCUMENT: -

This TSS document is meant to provide a structured framework for provision of TSS of all the Products supplied by the Vendor. Also, the philosophy, scope, and other terms and conditions are provided with an intention to enable the Vendor to achieve the following:

•To understand the complete volume and scope of work;

•To understand the level of Service expected;

•To plan all the activities required to be carried out well in advance;

•To forecast, derive and ensure availability of resources required;

•To develop and implement a comprehensive system/procedure;

•To establish strategy and to deploy resources and ensure achievement of Service Levels; and

•To define a system for continuous improvement and to enhance the Service Levels on continuous basis.

2.1.1Definitions

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“Customer Service Request or CSR” means a document issued by Reliance personnel specifying the fault observed in the Broadband Access Reliance Network and or Network Element as the case may be and the efforts taken by Reliance to correct the same.

“Depot’ shall mean the centre/office of the Vendor located within or outside India where the Products  or part thereof or any spares are repaired or replaced by the Vendor.

“FRU” means Field Replaceable Unit.

“GST” means the Global Product Support Centres of the Vendor located at various places throughout the world.

“Products” shall have the same meaning as ascribed to it in General Terms.

“MTBF/Mean Time Between Failure” shall mean the time taken between two successive failures of the individual FRU.

“MTTR/Mean Time to Repair” shall mean the total time taken from the time of component failure to the time the FRU is repaired and made functional.

“NOC/s” mean operations centre/office of Reliance located at Mumbai  to manage and monitor the Broadband Access Reliance Network.

“Broadband Access Reliance  Network” shall have the meaning as ascribed to it in the General Terms.

“Uptime” shall mean the total time for which the Product(s) is in working condition and able to provide the intended services.

“Technical Support Services or TSS” shall mean the preventive and or corrective maintenance and all other services to be carried out by the Vendor as set forth below..

“Network Location” shall have the meaning as ascribed to it in the General Terms.

“Supervising Officer” shall mean the person for the time being or from time to time duly appointed by Reliance and notified in writing to the Vendor, to act as the Reliance representative.

“ MCN Locations” shall mean  Media Convergence Node location  of Reliance within India.

SECTION 3.         TERMS AND CONDITIONS:

All TSS shall be provided to Reliance, by Vendor, during a period of [***] including the applicable Product Warranty Period. Reliance shall, after expiry of the applicable Product Warranty Period, pay for the Technical Support Services at the rates set forth in Exhibit A to the Broadband Access Services Contract. The Parties may renew the TSS after such [***] period on mutually agreed terms. [***].

During the Product Warranty Period and under the Technical Support Services, Vendor shall provide the services described hereunder and in the Contracts , [***].

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The Vendor shall be deemed to have inspected the Network Location where the Products are installed and commissioned by the Vendor, the requirements specified and the terms and conditions for the provision of the Technical Support Services. No claim from the Vendor shall be entertained [***] for the reason of misinterpretation of any matter relating to the Network Location, the requirements specified hereunder and or conditions on which the Vendor has reasonably satisfied itself by a visit to the Network Location, reference to the Supervising Officer or such other means as may be appropriate.

(a)[***]

(b)The service levels required to be achieved by the Vendor are specified in hereunder. [***].

(c)The Supervising Officer of Reliance shall afford to the authorised personnel of the Vendor, at all reasonable times and with prior agreement, such access to the Network Locations  (but not necessary sole access) as may be necessary for the inspection thereof and for the provision of TSS, [***]. Any necessary action taken under this clause shall forthwith be confirmed in writing to the Vendor by the Supervising Officer, however the same shall not relieve the Vendor of its obligations hereunder. The Vendor shall work in the Network Location only after the permission from the Supervising Officer.

(d)The Vendor shall take reasonable care to ensure that, in the provision of TSS, it does not interfere with the operations of the Reliance, its employees, or any other third parties.

(e)The Vendor shall be responsible [***] for the delivery to, unloading at and removal from the Network Location of all plant, equipment and things of all kinds necessary for the provision of TSS except those plant, equipment and things for which Reliance specifically agrees for taking such obligations. Unless and otherwise agreed [***].

(f)In the event that Reliance shall require any reasonable alterations or additions to or omissions from TSS or any part thereof (hereinafter referred as ‘Variation’) the Vendor shall state in writing the effect such Variation shall have on TSS, level of availability and what adjustments, costs, if any, are associated with such Variations. The Vendor shall furnish such details in a timeframe as may mutually be agreed.

(g)The Vendor shall not vary TSS in any respect unless instructed in writing to do so by Reliance.

(h)Neither the Vendor personnel nor any third party employed by the Vendor shall modify, move or adjust the Products or part thereof except with prior consent of Reliance.

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(i)The Vendor shall provide details of activities sub-contracted  and also complete details of each Sub-contractor.

SECTION 4.         LEVEL OF AVAILABILITY

4.1.1The level of availability shall be [***], during the period of TSS provided by the Vendor. Vendor undertakes that this shall be equivalent to the uptime  of the Product  required for providing service level of [***] of Broadband Access Reliance Network  as long as Reliance complies with the  purchase of recommended level of spares, O & M procedure prescribed in the Documentation Chapter, service restoration as advised in writing by Vendor from time to time and procedure of Repair and Return as specified hereunder.

4.1.2The standard of performance shall be the ability of the Products to meet the functionality, response times and other criteria specified hereunder or under the Specifications. In this provision of TSS Vendor shall ensure that such standard of performance is not impaired for reasons attributable to or within the control of itself and or its Sub-contractors. In the event of the standard being impaired for whatever reason, Vendor upon notification from Reliance shall take remedial actions to restore such standard of performance in accordance with the terms specified hereunder.

SECTION 5.         SCOPE OF WORK

5.1  General

The Vendor is responsible for providing TSS for the following:

a)the  Products and other Items supplied by the Vendor in the Broadband Access Reliance Network;

b)All Products (hardware & software) and other items supplied by Vendor’s Sub-contractor for the Broadband Access Reliance Network;

c)All the Products (hardware & software) and other items supplied by any other third party only to the extent of the scope of work as mutually agreed between the parties.

The Vendor shall provide following TSS to ensure that the Service Levels and performance criteria are achieved without any hindrance to the operation of the Broadband Access Reliance Network. The overall scope is identified against major headings (but not limited to the same) and is contained herein as follows:

•Assessment of the Broadband Access Reliance Network Architecture;

•Designation of Account Maintenance Management Team and Systems/Procedures;

•Global Service Centre;

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•Preventive Maintenance;

•Remote Dial-in Diagnostics;

•Breakdown Maintenance Support;

•Help Desk;

•Emergency Services;

•Technical Consultancy Services

•Root Cause Analysis of Repeated, Critical and Major Faults;

•Repair and Replacement Services;

•Spares Management;

•Management Information System;

•Quality Improvement Analysis;

•Software and Firmware Updates and Upgrades

•Meetings;

•Access to Database;

•Predictive and Analytical Reports; and

•Obsolescence and Up-gradation Activities Management.

Vendor and Reliance shall agree on a specific Vendor support engineer who will act as one point of contact for all issues concerning maintenance activities, resolution & expansion plan etc for provision of TSS for the Broadband Access Reliance Network. While the said engineer may not personally respond all the problems and or issues but should be appraised of all the support or change/expansion and development activities, problems and operation status in the Broadband Access Reliance Network.

5.2  Assessment Of The Broadband Access Reliance Network Architecture

The Vendor shall assess the complete architecture of Broadband Access Reliance Network, and various Products and other third party equipment and items deployed therein. Based on such assessment, Vendor shall, upon request by Reliance clearly furnish details to Reliance in writing of the requirement of specific personnel with respect to provision of Technical Support Services, and maintaining the Broadband Access Reliance Network. Vendor shall provide to Reliance the type and quantity of spare and replacement parts to be maintained by Reliance, which shall attached as Schedule K (Spares Management). The Support center(s) shall be established by Vendor for provision of TSS at  [***].

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5.3  Designation Of Account Maintenance Management Team And Systems/Procedures

Vendor shall notify its established personnel and management team respectively to ensure that the same are utilised for the provision of TSS to the best of the satisfaction of Reliance in accordance with the terms specified hereunder. For this purpose the Vendor is required to furnish the details of personnel who are responsible for TSS and to solve the problems during the escalation process at .

•Local field level ;

•Regional level;

•National level

•International level; and

•Vendor Corporate/management level.

The Vendor shall ensure that the personnel identified for providing such TSS possess the required skill levels for performing the specified job and ability to act timely and required manner to escalate the problems and solve the same. The Vendor shall provide the above details as per mutually agreed format.

Vendor is also required to set an unambiguous system and procedure for the purpose of rendering TSS hereunder at various levels as above for their personnel and team.

[***].

The systems and procedure proposed by the Vendor shall be based on the Escalation Procedure indicated hereinbelow:

5.4  CSR Handling And Escalation Procedure

5.4.1The overall process flow provided in the following diagram. Whenever a Network Element/software level fault is reported in the Broadband Access Reliance Network, Reliance’s trained personnel shall try to resolve the same based on the standard documentation and maintenance procedure provided to them by the Vendor.

5.4.2If the fault cannot be resolved by Reliance’s representative pursuant to the above process prescribed in the documentation for operation and maintenance, then he/she shall inform the NOC of Reliance immediately. Authorised representative at the NOC of Reliance shall immediately get in touch with the Help Desk of the Vendor and also raise Reliance Service Request (CSR)/case as specified in Schedule A which shall specifically mention the trouble / fault observed and the efforts taken to correct the same. The CSR shall also specify the details of the Products and or part thereof and other details as necessary to ensure the Local Support Representative (‘LSR’), located at Mumbai Support Centre, understands the problem in line with the Reliance’s representative. The

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LSR initiates the action for resolving the problems and also in parallel follow the escalation levels indicated below:

RELIANCE SITE PERSONNEL

RELIANCE (NOC)  OR PERSONNEL

VENDOR’S LOCAL SUPPORT CENTRE (LSC)

VIA – PHONE /IN PERSON

VENDOR’S GLOBAL SUPPORT TEAM

(GST) VIA – PHONE /IN PERSON

5.4.3This CSR shall be first communicated through telephone, web-based intimation or emailing the CSR to the Vendor’s In-country Support office (‘LSC’). This LSC when required shall depute their representative (LSR) at the Network Location. The LSC shall provide direct support to the Reliance through the field support office located within the area where the Products are installed. Such support shall be extended either by phone, email or in Person as may be mutually agreed, depending on the nature and Severity of the problems.

5.4.4LSR shall ensure the timely response against the CSR raised and resolve the problem as per the Service Level/performance criteria specified hereunder. While taking action for resolving the problem, LSC also keeps their Global Support Team (‘GST’) informed about the problems so that they are on alert and monitor the situation on continuous basis to ensure earliest resolution. All instructions and technical assistance are provided by LSC. In the event of LSR fail to solve the problem, the LSC shall ensure the deputation of suitably qualified personnel to the Network Locations or arrange for necessary corrective action within the time-bound schedule (as per the Service Levels/performance criteria).

5.4.5In the event of LSC is not able to solve the problem the same shall be escalated to the GST simultaneously to ensure further action to be taken in this regard. It is considered that this final escalation means to the Vendor that the problems encountered is very severe and the same shall be resolved on emergency basis. It is considered that the personnel at GST Level are highly qualified and experienced personnel provided with all resources and to be able to analyse the problem in depth in a dedicated manner and solve the same irrespective of the nature of the problem i.e., whether it is hardware or software functional, design or application problems. For this purpose Vendor shall ensure facilitation of access to the expertise at GST expeditiously.

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5.4.6During the above escalation process, each level personnel shall ensure the following:

•Keep in constant touch with the Reliance’s representative and the next level personnel of the Vendor’s Team;

•Despite escalating the problem to the next level, keep analysing the problem and try to resolve the same;

•Keep informing  Reliance and all Vendor’s personnel (at different levels) about the action being taken to resolve the problems;

•Keep exploring all other resources available outside the Vendor’s purview and try to use such resources for resolving the problems;

•Actively participate in the problem resolution activity and contribute for early resolution;

•Keep collecting the maximum data from all the connected sources and inform all the personnel involved in the process of resolution; and

•Registration of CSR and maintenance of other documents.

5.4.7However if in the opinion of Reliance and in case of an emergency, Reliance shall have the right to directly access the LSC and or GST who in turn shall take the appropriate actions for rectification of problem in terms of support from/through its personnel, documentation, technical support either [***].

5.4.8An escalation process and procedure will be specified and agreed in the following cases in the Procedure manuals:

•Emergency CSR Escalations;

•Non Emergency CSR Escalations;

•Management Escalations;

•Return and Replace Escalations; and

•Customer Service Account Management Escalation.

5.5  Severity Levels:

The first line maintenance for the Equipment will be performed by Reliance. In order to establish the common understanding of the criticality of the fault/problems and to enable the Vendor to take action accordingly, the same are defined hereinbelow which shall be the base for categorising the nature of faults/problems. Vendor shall be responsible for ensuring the response and resolution times defined for each Severity level. For this purpose the Severity Levels are defined in three categories as follows.

•Critical

•Major; and

•Minor

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5.5.1Response And Restoration Time

Vendor shall ensure that TSS are provided strictly in accordance with the Response and Restoration Times (Service Levels) provided below and to achieve the Service Levels/performance criteria of the Broadband Access Reliance Network.

                [***]

The above figures shall be closely monitored to ensure that Vendor provides the required level of support to the Reliance. The response time figures shall be measured from the time that Reliance initially contacts the Vendor, until an engineer from Vendor first responds to Reliance. The restoration time shall be calculated from the time that Reliance initially contacts Vendor, until the problem/fault is solved/ rectified.

5.6  Global Service Center (GSC)

Vendor undertakes that its GSC located at various locations outside India consisting of a large additional resource pools for support and problem resolution shall be accessible to Reliance through LSCs. The support by GSC shall be provided to Reliance is available in terms of following activities.

•Design Support Prime for the  Products;

•Provides support to in resolving highly complex issues;

•Develops patches/fixes and verifies their functionality and performance;

•Provides design solution for hardware and software;

•Single point of contact for emergency recovery services;

•24hours x 365 days per year emergency recovery support;

•Escalation of emergency issues to specialized design support terms following escalation process; and

•Follow-up actions and Root Cause Analysis of emergency Conditions;

•Monitor , address  Vendor support performance issues  during pre service and post service periods;

•Understand and manage customer priorities within the Vendor support organization and ensure issues are managed within the support organization; and

•Technical Consultancy Services.

The Vendor  shall provide  the details of all the Global Service Centre including the contact numbers. The same shall be enlisted and specified in Schedule.

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5.7  Preventive Maintenance

Vendor shall provide the detailed Preventive Maintenance Plan/Schedule and processes in the format as Schedule C for each of the items of the Products with minimum of the details from time to time as requested by Reliance taking into consideration the past history of the failures recorded by the Vendor. This Preventive Maintenance Plan/Schedule is subject to the scrutiny and acceptance of Reliance. Reliance reserves the right to add, delete or modify such plan. However, such alteration will not relieve the Vendor from any of his obligations defined hereunder.

5.8  Remote Dial-In Diagnostics

As part of the TSS, Vendor will carry out remote dial-in diagnostics service. By this, Vendor shall as and when required monitor the relevant parameters of Broadband Access Reliance Network and carry out required corrections as well as make recommendations for improvement of the same . As part of this service, Vendor shall also provide hands-off training for software handling, disturbance reporting and software updates and upgrades/enhancements..

5.9  Breakdown Maintenance Support

In the event of any fault/problem, Reliance, as part of O&M activity, shall undertake trouble-shooting as per the processes and procedure laid down in the Maintenance Procedure Manual for such  Products and make effort to resolve the issue prior to lodging the CSR with the Vendor. However, for Critical and Major problems CSR shall be lodged simultaneously with the Vendor besides carrying out the internal trouble-shooting process. In order to facilitate Vendor for providing best services, Reliance shall carryout the following:

•Performing day to day in-house basic maintenance and Network Operations as per OA&M;

•Monitoring network and system alarms;

•Performing diagnosis in accordance with instructions provided by Vendor and carryout the initial remedial action including the Remote Dial-up Diagnosis;

•Operating and controlling Reliance’s internal help desk for logging and tracking fault inquiries, prioritizing events, and escalating as required to Vendor’s Technical Support Team; and

•Gather data whatever required for Vendor to provide technical support.

In the event of CSR raised by Reliance for Breakdown Maintenance Vendor shall ensure resolution of the problems/faults as per the procedure indicated in the CSR Handling within the resolution time as specified in Clause 19.7.4. Vendor, as part of resolution activities, shall ensure minimum of the following:

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•Troubleshoot problems using diagnostic utilities;

•Diagnosis of routine hardware/software problems;

•Provide advice on how to detect and resolve hardware problems;

•Advise on issues requiring hardware replacements;

•Diagnosis of issues related to interoperability;

•Analysis of trace/log/dump/operational measurement information;

•Root Cause Analysis of emergency incidents;

•Identify and resolve code level problems as per severity levels as specified hereinabove;

•Test and release code corrections;

•Provide regular on-going updates and upgrades; and

•Provide case resolution and agree closure.

5.10        Help Desk Service

Vendor shall provide, a Help Desk Service which will be adequately staffed and shall be the  “One Point Contact” for the Reliance to lodge the CSR and to solve all day to day minor problems/faults ( if the problem/fault is not resolved by Reliance maintenance and operation engineer at first level) which impair operation of Broadband Access Reliance Network.

Vendor customer support website – [***] is the front end for the provision of TSS .  This website will allow Reliance  maintenance and operation engineers to log in Broadband Access Reliance Network and Product  problems along with the perceived severity and problem details.  Trouble tickets entered via this website are continuously monitored and an acknowledgement will be available within [***].  In addition to the web based trouble reporting system, Vendor will also provide a 24 * 7 hotline toll free access number, which should be used to report Critical or Major problems.

This Help Desk service shall be made available   for providing technical assistance on [***] basis.

The person in charge of the Help Desk shall be one point contact and responsible for establishing communication between Reliance’s engineers and the Vendor’s local/regional/national/ Asia Pacific/corporate personnel. However, Reliance reserves the right to contact directly any personnel of the Vendor if it is felt necessary.

In the event of telephone contact is not sufficient to resolve the problems, experienced personnel of Vendor shall remain available for dial-in-diagnostics and visits to the Network Location.

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Vendor shall provide to Reliance its Help Desk process, management and organisation and same shall be attached herewith as Schedule L (Vendor Help Desk Process, Management and Organisation) engaged in providing the services through its Help Desk.

5.11        Emergency Services

For Critical and Major Problems, as decided by Reliance emergency CSR shall be raised against which Vendor is liable for providing Emergency Services. By this, Vendor provides to Reliance the access to the experts available [***]. If any emergency service is sought via Help Desk the same shall be provided on [***] basis.

In order to take assistance during the emergency, the Vendor shall make available of its experts either [***], as required, on telephone. Based on the nature of problems, the Vendor’s experts shall advise the solution to Reliance over phone or if necessary, he will arrange for remote access for the Broadband Access Reliance Network through dial-up-link. In the event of failure to solve the problems through phone, Vendor will arrange immediately for his expert’s site visit to resolve the problems.

5.12        Technical Consultancy Services:

As part of this service to be provided by the Vendor hereunder technical consultancy services shall be provided through Help Desk. Such services shall include minimum of the following but not limited to the same:

•Any clarifications sought by Reliance with regard to either the specifications, maintenance or operations of the equipment/software covered hereunder. For this purpose, Vendor shall ensure timely response so that there is no impact on the operations of the Broadband Access Reliance Network;

•To provide any information on the procedures/systems of maintenance, operations or maintenance of the Broadband Access Reliance Network;

•To provide all information about the latest developments in the Products, Specifications, configuration and functional aspects;

•To provide any information on statutory regulations and assisting Reliance in meeting such regulations;

•To provide all Management Information System (‘MIS’) reports as mutually agreed ;

•To provide implementation procedures and ways and means to use the various existing features and provide work around with existing features to give tailor made solutions to certain requirements; and

•To provide information on a continuous basis about the developments took place in introducing new features and evaluation of the same with respect to its functional aspects, acceptance in the market and business opportunities.

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In the event of telephone contact is not sufficient to resolve the problems, experienced personnel of Vendor shall remain available for dial-in-diagnostics and site visit/s as may be mutually agreed.

5.13        Root Cause Analysis Of Repeated, Critical & Major Faults:

Vendor shall be responsible for monitoring and collecting data with respect to the repeated and emergency failures (Critical and Major) analyse the same for the cause of such failures and the resolution thereof. Root cause failure reports are also to be provided to Reliance. The reports shall include:

•      Modules exchanged;

-By type;

-By network;

•      Non conformance from the specified parameters;

•      Customer specific statistics vs. global statistics;

•      Product enhancement actions;

•      Process enhancement actions;

•      Analyze the problem/fault for its causes;

•For this purpose, if required, experts from region/national/Asia pacific/corporate levels shall be deputed for ascertaining such causes;

•Ascertaining the concrete reasons for occurrence of such causes;

•Action plan  for avoiding such failure/fault completely in future;

•Implementation of such action plan after duly accepted by Reliance;

•Monitoring the effect of the action taken, collecting data, preparation of report and submission of the same to Reliance;

•MTBF analysis report/no trouble found analysis for all Network elements based on the fault observed on the Broadband Access Reliance Network; and

•Create reports recording Critical/Major problems and their resolution for review which shall be done periodically by Vendor and Reliance.

5.14        Repair &  Replacement Service

This Repair and Replacement Service covers the repair/replacement and return of the defective Field Replaceable Unit (FRUs) for the  Products supplied by the Vendor. Reliance shall  place the Purchase Order for Repair and Return Service on the Vendor.

Vendor shall provide for Reliance’s approval, Vendor’s Repair and Replacement procedures and processes that are in place to ensure Vendor’s compliance with the MTTR as specified in Section 19.7 Response and Restoration Time, above.

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In the process of resolution of the Critical and Major problems/faults the spares for field replacement units may be used from the stock of spares maintained by Reliance The original components/parts which are defective and removed from the Products shall be repaired and replaced by the Vendor with [***] to Reliance during the Product Warranty Period. During  and after the expiry of the Product Warranty Period Vendor shall repair and replace  the defective Products within such time periods so as to comply with the Service Levels.

For this purpose the Vendor shall be responsible for providing back up parts/ components, FRUs as spare in order to meet the MTTR as specified in Section 19.7 Response and Restoration Time, above. In addition if the spares stock of Reliance for Critical spares falls below [***] of the recommended spares stocking level at any Location within India, as recommended by the Vendor as per Section 3.3.of the Broadband Access Equipment Contract then the Vendor shall  replenish such  spare [***], upon notification by Reliance. For the spares other than the Critical spares the same shall be replenished within a period of [***]. In addition if any non critical spare used for resolution of Critical/Major fault , the level of which has fallen below [***] of the recommended level, the same shall be replenished within a period of [***]. All the  logistics activities and related costs  while replenishing the spare stock shall be the responsibility of the Vendor. At the time of calculation of the aforesaid [***] , rounding of be carried out to full number by ignoring the decimal, if any.

Any spares sent for repair either within India or outside India shall be repaired and rectified immediately and made available for despatch to Reliance designated location within [***] from the date of receipt of defective parts / components at the Repair Centre of the Vendor.

Vendor shall provide, the details of their repair centres available within India  and also worldwide (Schedule B) along with the specific details about what level of repair and rectification process is carried out in such centres..

The Vendor shall be responsible for carrying out all logistics activities to send the defective parts to the Vendor’s repair centre, getting the same back as well as  the delivery at the Vendor’s location in India or  to Reliance’s designated spare stock location OR MCN Location in India .   Vendor shall be responsible for collection of all the defective FRUs from the designated MCN locations , at its own cost including the transportation  and insurance costs

[***]

Vendor shall responsible for packing the Products or part thereof in such a way that the same is worthy enough to bear the stress, strain and impact while in transit or handling. Please also refer the clause “Packaging” in the chapter “Logistics Management”.

In the event of failure to identify the defect or to repair the item or the part/ component of the items can not be repaired, the Vendor is responsible for replacement of the item

14

with new one of same specification [***]. Such replaced parts shall become the property of Reliance on receipt of the same.

The spares which are repaired and returned/replaced shall be subjected to in-house testing and acceptance at Reliance’s end. within [***] of receipt of such FRU. In the event of any defect found during the testing which renders the repaired /replaced spare/parts unusable, Vendor shall take all responsibilities and bear [***] to be incurred in making good such items including [***].

Reliance shall co-operate with the Vendor in all export/import documentation required from Reliance for this activity .

In the event that a repaired or replaced FRU fails to function in accordance with the Specifications when installed, Vendor shall replace the BN Terminal or COT in which such FRU is installed at no additional cost to Reliance.

5.15        Spares Management:

For provisions relating to management of spares, reference be made to the Schedule K “Spares Management” attached herewith.

5.16        Management Information System

Vendor is responsible for maintaining all documents and issue to Reliance, all relevant  reports pertaining to TSS  and obligations covered hereunder. Reliance reserves the right to audit such documents or reports at any time and to suggest any addition/deletion and modification to the documents/information provided they are mutually agreed upon. Such audit and suggestion shall not relieve the Vendor from his obligations covered hereunder .

The Vendor shall maintain the following documents but not limited to the same during the Request for Assistance – CSR  details;

•The Initial Response Sheet  - IRA details;

•History of maintenance carried out;

•Details of all the Products covered under TSS;

•Details of inventory of spares with minimum details as per the SPIR form;

•Details of upgradation carried out on equipment/software;

•Details of Sub-contractors and their responsibilities;

•Details of Service Levels achieved  –  As per the Service Availability Report  –  SAR; and

•Details of the invoices raised by Vendor and the payments made by Reliance.

•All documents concerning movement of spares within India and outside India

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The above documents shall be maintained on online basis and shall be subjected to audit by Reliance authorised personnel anytime during the subsistence of TSS. For this purpose, the Vendor shall extend unlimited access to the records and documents. Reliance reserves the right to take possession of the documents either during the duration of  TSS or thereafter at its sole discretion.

Reliance reserves the right to suggest any other formats or information and request Vendor to maintain such details as and when it becomes necessary Vendor shall be liable to maintain such details on online basis.

Vendor is responsible for design, develop and maintain a comprehensive System and database for the  Products. All the activities pertaining to TSS shall be captured in the same and shall be available for deriving any type of reports required for the Reliance. Reliance reserves the right to have direct access to such maintenance module. Vendor shall furnish minimum of the following reports but not limited to the same to Reliance:

•Service Availability report - Once in a  [***] (the Help Desk Engineer shall submit to the  NOC in charge of Vendor who in turn will submit the same to the O&M in charge identified from Reliance’s end) ;

•Root Cause Analysis Report - as and when it is required (this shall be sent immediately to Reliance’s in-charge for O&M after resolution of the Emergency/Major/Critical problems);

•Upgradation / Enhancement Report - as and when required (This shall be submitted by the Vendor’s circle in-charge to the Reliance s circle in-charge for O&M);

•Global Data Analysis Report;

•System Performance Analysis Report [***];

•Vendor’s/other Reliance Experience Report worldwide and feedback on any issues and resolution passed etc., which are relevant to the business of the Reliance.

•Spare in stock at Vendor’s premises under repair /in transit report

5.17        Quality Improvement Analysis

Vendor will carry out analysis of the Broadband Access Reliance Network and ensure the continuous improvement in the quality of the same . In this connection, Vendor shall

•Analyze the configuration and performance of the Broadband Access Reliance Network and makes specific recommendation for the action to be taken for improvement;

•Review and provide report to identify intermittent problems that may affect the Broadband Access Reliance Network including detection and correction of database errors created during the operations of the Broadband Access Reliance Network, which cannot be resolved during the day to day operations;

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5.18        Software and Firmware Updates and Upgrades

Vendor will provide all Software, firmware Updates/Upgrades (major/ minor) and, Combined Releases as per the charges  specified in Exhibit A to the Broadband Access Services Contract to to Reliance during a period of [***] including the applicable Product Warranty Period. Software and firmware Updates/Upgrades should be provided in case of an emergency problem with minimal testing to correct the Critical problems. Any such  Update/Upgrade will be fully tested and provided in the next available  Update/Upgrade.

Vendor shall be responsible for correcting any problems arising with the Software  irrespective of any Software Updates/Upgrades are released or yet to be released for such problems. Software Update shall include the following:

•Software correction for complete release of a feature; and

•Repair loads, or Software Updates to take care of critical bug fixes and corrections into the generic software release.

Vendor shall be responsible for installation, testing and verification of all Updates and Upgrades, Combined Releases and any other correction software provided as part of  TSS.

If Reliance is operating a Software version which is not the current minimum supported version, the Vendor is responsible for upgradation/enhancement of such software to the most current version of the same and carry out TSS. However, in the process of providing TSS for the Software Vendor shall not wait for upgradation/enhancement of the Software and will ensure that the defect is fixed without any delay. However, Vendor shall subsequently ensure upgradation and enhancement.

5.19        Meetings

Reliance and Vendor agree to set up task force consisting of technical and managerial personnel/executives from both the parties. The task force will meet [***] and which meeting will be a forum to review, discuss, status of the operation of the Broadband Access Reliance Network, technical support calls, field visits, module replacements and configuration analysis status of Services levels and improvements thereof, requirements of Reliance and recommendations from the Vendor improvements in operation and maintenance of the Broadband Access Reliance Network.

These meeting shall also be the occasion to share information between Reliance and Vendor at a detailed operational level to find opportunities for improving practices, product features or network reliability.

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5.20        Access to Database

Vendor shall allow Reliance to access all available inventory management system for tracking and analysing all  spares at all location of Vendor and provide assistance to Reliance for interfacing the same with the inventory system maintained by Reliance.

In addition, subject to the confidentiality arrangements Vendor shall provide access to its database for the problems encountered and its solutions in provision of services in other networks world wide and which are accessible and available with Vendor’s local representative.

5.21        Predictive and Analytical Reports

Reliance shall carry out the first level maintenance. Vendor shall assist to carry out fault analysis and trending to adjust and conform to specifications and to specify corrective measures. Vendor shall lead/support to analyze trends and predict potential failures or service degradations before they are detected by alarm/performance threshold crossings. The results of the predictive and analytical reports shall contain the standard accessible information after analysis as well as the data available in respect of the relevant module, during the manufacturing and testing, which can be used as a guide for analyzing the patterns and trending. These reports shall be used for development and improvement of the Broadband Access Reliance Network.

5.22        Obsolescence and Up-gradation Activities Management:

Vendor is responsible for continuous monitoring of Products including spares for its obsolescence. For this purpose, Vendor shall monitor the developments taking place with respect to the improvements/enhancements/functional features either in the market or in the research and development centres of different original suppliers of the  Products and keep Reliance informed about the same well in advance. Also, Vendor shall recommend specifically the new products/developments/features/functional or capacity enhancements to Reliance for approval and implementation.

Schedule A           :               Format of CSR Form

Schedule B           :               List of Repair Centres and Global Service Centres

Schedule C           :               Preventive Maintenance Plan / Schedule

Schedule D           :               Repair and Replacement /Return Advice

Schedule E            :               Initial Response Sheet

Schedule F            :               Service Availability Report

Schedule G           :               Service Availability Payment Certification

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Schedule H           :               List of O& M In charge

Schedule I             :               Overall Maintenance Activity Report

Schedule J      :                     Process of Repair and Replacement

Schedule K           :               Spare Management

Schedule H :                         Vendor Help desk Process, Management and Organisation

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Customer Service Request (Attachment A)

CSR no.	:	Circle Name	:
		City Name	:
CSR Date	:	Site name	:
		Site GIS UID	:
Target Resolution Time	:	Actual Resolution Time and Date	:
Category of Fault	:	(Critical\Major\Minor)
Time of raising the CSR	:
Copies sent to (Tick as Relevant)
Field	:
Regional	:
National	:
Asiapacific	:
Corporate	:
Nature of Fault
Initial Internal Maintenance activity performed and result
Escalation Required	:	Y/N                         To:
Escalation Note	:
Action Required by Contractor
Signature of Reliance Field Engineer
Name :
Empl. No. :

LIST OF REPAIR CENTRES AND GLOBAL SERVICE CENTRES

(ATTACHMENT B)

[***]

Reliance Infocomm Broadband FTTB Access Network

Preventive Maintenance Document (Attachment C)

Introduction:

This document highlights some of the important points that are to be taken care of during the installation and routine operation of the AN FTTB to ensure smooth and reliable operation of the system.  The AN FTTB is a reliable and maintenance free Access Node and the amount of post installation maintenance required is negligible.  The items given below can be considered as general guidelines for maintenance in addition to the system configuration and system installation rules already provided.

Audience

This document is intended as a guideline to the Installation and Commissioning Engineers, O&M Staff and Network planning groups to create procedures and processes for installation of the AN FTTB network

[***]

R&RR No : -	Circle Name : -	Site Name : -
	City Name : -	GIS UID : -
R&RR Date : -	Store Location : -

Sr. no.	Item Description	Part No	UOM	Quantity	Fault Identified	Corrective action Suggested	Qty issued by Stores	Item Identification Reference	Items Received by
1
2
3
4
5
6
7
8

Items to be sent to
Root Cause Analysis
Prepared by	Verified & Authorised
Name & Signature	Name & Signature

Description
IRS no.	:	CSR no.	:
IRS date	:	CSR date	:
IRS Time	:	Circle	:
		City	:
		Site	:
		GIS UID	:
Fault Reported
Remedial Action suggested
Contractor’s Engineer	Signature	Name :
		Phone :
		Fax no. :

Downtime
Sr. No.	Circle Name	City Name	Critical	Major	Minor	Total Downtime	Service Level

Service Availability-Certification for Payment (Annexure - 7)

Description

Circle Name

Operations Incharge Name :

Period From :

To :

Contractor’s Invoice Reference

(for the above period)

Invoice Amount

Service Level Achieved

Recommended for payment : In full \ In partial

If Partial

Amount to be withheld

Amount to be deducted

Special Remarks

Circle Operation Chief Signature

Note :

To Accounts : Original copy

To Contractor : Duplicate copy

To Operations Chief’s Office : Triplicate copy

List of O and M In Charge (Annexure - 13)

			O&M Incharge
Sr. no.	Circle	Address	Name	Designation	Phone	Mobile	Email	Fax
1
2
3
4
5
6
7
8

Sr. No. CSR No. Category of Fault Fault in brief Equipment Name Equipment Ref. No. Component Description

Component Part No. CSR time Initial Response Time Restoration Time Time taken to restore Corrective Action Total down time

Proposal for Broadband FTTB Access Network

Process for Repair and Replacement  (Attachment H)

1.PURPOSE

The purpose of this ‘Return Material Process’ (hereinafter referred to as “RMC”) is to prescribe a detailed process to ensure proper handling of Defective Parts/Items requiring repairs and/or replacement within  outside the contracted warranty period.

2.DEFINITIONS

“FRU” (Field Replacement Unit)  shall mean the Equipment, sub-assembly, component, or the part, supplied under the Contract, which have become unserviceable and which require repair, or replacement in order to again become serviceable.

[***]

ANNEXURE – A

Information to Accompany the Defective FRU : Defective Report

Customer Name :
Complaint Date	Complaint Raised By :

Proprietary and Confidential

Page 1 of 4

Site Name :		Location : MUMBAI/PUNE
Part No :		Serial No :
Description :
Invoice No :	Invoice Date :		B/E No. & Date :
REMARKS

ANNEXURE – B

Documents to Accompany the [***]

COMMERCIAL INVOICES FOR RE-EXPORT/IMPORT OF DEFECTIVE FRUS.

Vendor Manager  shall prepare the Commercial Invoice/Delivery Challan which will contain the following information:

(a)Invoice Number and Date.

Proprietary and Confidential

Page 2 of 4

(b)Carton No./Authorization Number.

(c)Serial Number of [***].

(d)Part number of [***].

(e)Description of [***].

(f)Quantity of [***].

(g)Declared value (cost price) for Customs Purposes

(h)Signature.

DOCUMENT REQUIRED

DOCUMENTS REQUIRED AT THE TIME OF RE-EXPORT

Following documents are required to facilitate export of [***].  Customer shall furnish these documents to Vendor along with the [***].  Without these documents no consignment can be exported.

(a)Original Export Invoice

(b)Original GR Waiver issued by Bank ( Original Triplicate Copy or Exchange Control copy of  Bill of Entry)

(c)Copy of Import Invoice  against which the items/parts/ equipment was initially imported.

(d)Original Duplicate Importers’ copy of Bill of Entry

(e)Declaration by Vendor regarding price/serial no. of defective items and address of the Repair Center.

(f)Authority letter incase of RS&R for third party equipment.

(g)Request letter to AC Exports regarding permission for Re-export.

(h)Insurance Cover Note.

DOCUMENTS REQUIRED AT THE TIME OF  RE-IMPORT  AFTER REPAIRS

Following documents are required at the time of re-import of repaired/replaced [***].

(a)Original Invoice mentioning  serial no. of  repaired items/parts, which should match with the corresponding export invoice.

(b)Repair Certificate from Repair Center.

Proprietary and Confidential

Page 3 of 4

(c)Original Export Shipping Bill.

(d)Original Export Airway Bill.

(e)Original dispatch documents consisting of following :

•Master Airway Bill.

•House Airway Bill

•Airlines Delivery Order

•Freight Forwarders Delivery Order

•Import General Manifest

•Pre-condition: Items/Parts which are exported for repairs, the same should come back after repair.

•Proper identity should be established at the time of re-import in terms of serial nos.

REQUIREMENT FROM OTHER ORGANISATIONS/ DEPARTMENTS/  CUSTOMER

•All the Import documents pertaining to the import of original Equipment shall be provided by the Customer

•All the Export Documents shall be given to the CFO department for getting the GR - Waiver. Only on receipt of GR-waiver and Export Documents, [***] can be sent to the repair center abroad.

Proprietary and Confidential

Page 4 of 4

Reliance and UTStarcom Proprietary & Confidential

Schedule N

SPARES MANAGEMENT

1

CHAPTER  : SPARES MANAGEMENT

1.1INTRODUCTION :-  In order to ensure the continuous operations of the entire Network and to provide the highest level of service to the customers, it is Reliance desire to ensure the availability of all the spares .  For this purpose, the entire Spares Management procedures and processes are defined in this Chapter which depicts out the complete obligations on both Reliance and Vendor.

1.2PHILOSOPHY :-  It is Reliance philosophy that the spares are stocked adquately in number for serving the Equipment in the Network.  The spares shall be stocked in locations in such a way that the same are available to the site within a very short time so that the problem resolution times are met.  The spares shall strictly be used for the purpose of Broadband Access Reliance Network and the Inventory management of the same shall be strictly monitored scientifically.

[***]

2

Broadband FTTB Access Network

Help Desk Procedure - Attachment J

[***]

Proprietary and Confidential

Page 1 of 1

HIGHLY CONFIDENTIAL

MARCH 16 2002

BACKBONE NETWORK

RESPONSIBILITY MATRIX

ANNEXURE - R

To the Backbone Services Contract between

RELIANCE COMMUNICATIONS PRIVATE LIMITED,
“Reliance”

and

[INSERT NAME],
“Contractor” or “Contractor”

Dated as of                            , 2002

RESPONSIBILITY MATRIX:$Inc=Included in cost of Equipment & Software supplied under the Documents ; $C = Charges for Installation,Testing,Commisioning services. ; $R = Retained expenses; $MS = Management services as laid down in the Documents; $ TS = Training services as laid down in the Documents; $TSS = Technical Support Services  as laid down in the Documents; $PT=Pass through expenses.

[***]

EX-10.84

Exhibit 10.84

[***] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS

STRICTLY CONFIDENTIAL

BROADBAND ACCESS EQUIPMENT CONTRACT

between

RELIANCE INFOCOMM LIMITED,

“Reliance”

and

UTSTARCOM INC.,

“Vendor”

Dated as of October 1, 2002

Table of Contents

1		BACKGROUND AND OBJECTIVES
	1.1		Background
	1.2		Objectives
2		DEFINITIONS
3		SCOPE OF WORK, RESPONSIBILITIES AND MILESTONES
	3.1		Scope of Work
	3.2		Minimum Purchase Commitment
	3.3		Spare and Replacement Parts
	3.4		Test Bed
	3.5		Shipment
	3.6		Material and Inventory Management Systems
	3.7		Capacity Changes
	3.8		Applicability
4		TERM
5		PRICING AND INVOICING
	5.1		Price List
	5.2		Determination of Net Price
	5.3		Invoicing Terms
	5.4		Invoicing Terms for all other Equipments:
	5.5		Currency and Mode of Payments
	5.6		Total Cost Basis
6		WARRANTIES
	6.1		Equipment Warranty
	6.2		Breach of Warranties
	6.3		Repair and Return
	6.4		Other Services To Be Provided By The Vendor Under Warranty Services-
	6.5		Third Party Provider Warranties
	6.6		Disclaimer
7		TERMINATION AND EVENTS OF DEFAULT
	7.1		Reliance’s Right of Termination
	7.2		Vendor’s Right of Termination

i

EXHIBITS

Exhibit A	-	Price List
Exhibit B	-	Initial Spare and Replacement Parts

ii

BROADBAND ACCESS EQUIPMENT CONTRACT

This Broadband Access Equipment Contract (“Broadband Access Equipment Contract”) is effective as of October 1, 2002 (the “Effective Date”), by and between Reliance Infocomm Limited, a company incorporated and registered under the Companies Act, 1956 and having its registered office at Avdesh House, Pritam Nagar, 1st Slope, Ellis Bridge, Ahmedabad 380006, Republic of India (hereinafter referred to as “Reliance” which expression, unless repugnant to the context or meaning thereof, shall mean and include its successors and permitted assigns), and UTStarcom Inc., a company incorporated under the laws of Delaware and having its principal offices at 1275 Harbor Bay Parkway, Alameda, California 94502, U.S.A  (hereinafter referred to as the “Vendor” which expression, unless repugnant to the context or meaning thereof, shall mean and include its permitted successors and assigns and, together with Reliance, the “Parties” and each, a “Party”).

RECITALS:

A.  Reliance desires to purchase from the Vendor certain Equipment appropriate for the efficient and effective installation, operation, management and maintenance of the Broadband Access Reliance Network, including the Initial Broadband Access Reliance Network; and

B.  The Vendor, desires to provide to Reliance such Equipment and shall, including, without limitation manufacture, supply and deliver such Equipment, in accordance with the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

1      BACKGROUND AND OBJECTIVES

1.1  Background

Reliance desires to obtain certain Equipment to support its Initial Broadband Access Reliance Network and the Broadband Access Reliance Network in the Territory. The Vendor shall perform all specific Vendor responsibilities set forth in this Broadband Access Equipment Contract, including applicable Purchase Orders and the Specifications. The Vendor shall review the Broadband Access Reliance Network work performed and shall report on any exception. Notwithstanding the foregoing sentence, Vendor shall be responsible for providing the Equipment under this Broadband Access Equipment Contract in accordance with the Specifications, including without limitation the Timetables. This Broadband Access Equipment Contract is subject to the terms and conditions set forth in the Broadband Access Network General Terms and Conditions executed by the Parties as of the date hereof (the “General Terms”).

1.2  Objectives

Reliance requires equipment that fully supports: (a) the Initial Broadband Access Reliance Network and the Broadband Access Reliance Network, including all cost, performance and functional requirements set forth in the relevant Documents; (b) Interoperability; and (c) Reliance’s business requirements described in the Documents (collectively, the “Objectives”).  The Vendor represents, warrants and covenants that the Equipment shall be

1

fully compatible with and fully supports the Objectives, as shall be demonstrated to Reliance, in part, in the Acceptance Tests.

2      DEFINITIONS

As used in this Broadband Access Equipment Contract, the following terms have the following meanings.  In addition to the terms listed below, certain additional capitalised terms are defined in the General Terms, the attachments to this Broadband Access Equipment Contract and in other applicable Documents.  Unless otherwise specifically provided, all section, schedule and exhibit references are to this Broadband Access Equipment Contract.

“Base Price”

has the meaning as ascribed hereto in Section 5.2.2.

“Effective Date”

has the meaning ascribed thereto in the prefatory paragraph to this Broadband Access Equipment Contract.

“Equipment Warranty”

has the meaning ascribed thereto in Section 6.1.

“Price List”

means a table of list prices applicable to Equipment supplied by Vendor to Reliance as amended from time to time as set forth herein. The Price List as of the Effective Date is set forth in Exhibit A.

“Broadband Access Equipment Contract”

this Broadband Access Equipment Contract, including all schedules, exhibits and other attachments hereto.

3      SCOPE OF WORK, RESPONSIBILITIES AND MILESTONES

3.1  Scope of Work.

3.1.1The Vendor shall provide to Reliance the Equipment set forth in the Specifications as amended from time to time by mutual written agreement between the Parties. Vendor’s obligations hereunder shall include, but not be limited to, the obligation to manufacture, supply (including inspection and expediting) and deliver the Equipment in and within the Broadband Access Reliance Network as designated by Reliance in accordance with the Broadband Access Equipment Contract.  All Equipment shall comply with the Specifications and the Standards and shall be the latest and best in class, unless otherwise specified by Reliance in writing. The Vendor shall coordinate its efforts hereunder with all Subcontractors, Third Party Providers and the Other Contractors, to ensure compliance with any and all supply and logistics requirements and all Governmental Entities. All Equipment, requiring certification shall be certified by independent and

2

appropriate professionals licensed or properly qualified to perform such certification in all appropriate jurisdictions, reasonably acceptable and at no cost to Reliance, if such certification is, required by Applicable Law or the Specifications.

3.1.2Vendor shall deliver only such Equipment as are specifically ordered by Reliance pursuant to a Purchase Order. Reliance shall not be obligated to pay for any Equipment not covered by a Purchase Order.

3.2  Minimum Purchase Commitment

Notwithstanding anything to the contrary, Reliance agrees that it shall, between [***] from Vendor (the “Minimum Committed Quantity”) subject to Vendor’s continued conformance with the terms set forth in the Documents.

3.3  Spare and Replacement Parts.

3.3.1The Vendor shall provide to Reliance the type and quantity of the spare and replacement parts to be maintained by Reliance (the “Spares”) in relation to the Equipment, including without limitation spare and replacement parts for all Upgrades and Enhancements purchased by Reliance, and in accordance with industry standards applicable for similar networks, as set forth on Exhibit B hereto (the “Initial Spares”). Vendor shall also recommend storage locations for such Spares.  Vendor warrants that the Initial Spares shall be sufficient for the maintenance and repair of all of the Equipment during the lifetime of the Equipment to maintain and enable the Broadband Access Reliance Network to operate in accordance with the Specifications at all times, provided that Reliance maintains the Spares and the Initial Broadband Access Reliance Network in accordance with the procedures set forth in the Specifications. With respect to Expansions, Reliance shall purchase additional Spares to support the growth of the Broadband Access Reliance Network.  Vendor shall similarly recommend the type, quantity and storage locations of such Spares with respect to Expansions necessary to support the growth of the Broadband Access Reliance Network.

3.3.2Reliance shall purchase spare and replacement parts, subject to the limitations set forth in this Section 3.3.2, at prices no greater than [***] for the respective items of Equipment corresponding to the spare and replacement parts determined in accordance with Section 5.2 below. In the event that any additional spare and replacement parts are required, which were not initially included in the Initial Spares, such additional spare and replacement parts shall be provided by the Vendor at [***] within the applicable time period set forth in the Specifications if such additional spares are required by Reliance for reasons attributable to the Vendor as a result of Vendor having to comply with the Service Levels and/or mean time to repair (“MTTR”) as specified in Annexure 1A to the Specifications (Technical Support Services) and/or Performance Criteria as specified in the Specifications.

3.3.3To the extent that spare parts need to be acquired from Third Party Providers (other than Subcontractors), the Vendor shall use all reasonable commercial

3

efforts to obtain from such suppliers a supply of spare and replacement parts in connection with the supply of the related Equipment, at a price to be mutually agreed between the Parties. All spare parts obtained by the Vendor at [***] from Third Party Providers shall be provided to Reliance at [***].

3.3.4In all cases, until the expiration of the applicable Product Warranty Period, and during the period that Reliance has purchased warranty coverage under the Technical Support Services for the Equipment, the Vendor shall, [***], replace all spare and replacement parts utilized to replace parts that became Defective in the Broadband Access Reliance Network or were consumed in connection with the Vendor’s performance of its obligations under the Equipment Warranty and were replaced from the Spares inventory.  The Spares inventory shall be replaced by Vendor in accordance with the procedures set forth in Chapter 20 of the Specifications, and shall comply with the response time and service level requirements in such Chapter 20. [***]. Following the expiration of the applicable Product Warranty Period, the Vendor shall at all times provide spare and replacement parts at the [***] as set forth in Section 3.3.2.

3.3.5With respect to any spare or replacement parts purchased by Reliance in connection with the purchase of New Products as set forth in Section 19 of the General Terms, the Vendor shall, at its sole cost, remove spare and replacement parts for the Existing Products from the Spares inventory and provide Reliance with the applicable spare and replacement parts for such New Products.

3.4  Test Bed

3.4.1For the purpose of testing the Vendor shall provide the Equipment set forth in the Specifications at [***] to Reliance and such Equipment shall be shipped to the Reliance designated location not later than [***] after the Effective Date of the Broadband Access Equipment Contract if specifically requested for by Reliance in writing.

3.4.2The Vendor shall supply and install [***] to Reliance the Test Bed Laboratory and at least one of each type of new Equipment set forth in any Purchase Order or that is planned to be bought by Reliance before the end of the next succeeding [***].

3.4.3In order to work towards achieving Interoperability, Reliance may bring other infrastructure vendor’s equipment into the Test Bed Laboratory. Notwithstanding anything to the contrary, the Vendor shall share with these other infrastructure vendors that Reliance brings into the Test Bed Laboratory all necessary interface information to facilitate meeting the Timetables, upon suitable conditions of confidentiality.

3.4.4Vendor shall provide all applicable Technical Support Services including but not limited to Updates and Upgrades to and for the Equipment installed in the Test Bed Laboratory.

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3.5  Shipment

Vendor shall ensure that all Equipment constituting a COT/LET, RT, CPE and or any other equipment related to DLC are shipped in a single shipment. Vendor shall not ship Equipment constituting only a part of a COT/LET, RT, CPE or any other equipment related to DLC (other than expansion or spare or replacement parts) except after prior written approval from Reliance. The Vendor shall ship all Spares or circuit packs in accordance with the instructions contained in the relevant Purchase Order.

3.6  Material and Inventory Management Systems

Vendor shall take all reasonable actions necessary to ensure that Vendor’s material & inventory management system integrates and interfaces with Reliance’s material & inventory management system. The extent of integration and interfacing shall be as mutually agreed.

3.7  Capacity Changes

Vendor shall provide Reliance with procedures and capabilities in order to allow Reliance to move Equipment and components in connection with changing capacities within and among Network Elements purchased throughout the Broadband Access Reliance Network.

3.8  Applicability

Parties agree that all Purchase Orders for Equipment issued by Reliance to Vendor on or after September 1, 2002 shall be subject to and governed by this Broadband Access Equipment Contract. The Parties further agree that Purchase Order number 13008676 dated August 21, 2002 shall, except for payment terms, performance bank guaranty related terms, annual price improvement related terms and deemed Acceptance related terms, also be governed by the terms of this Broadband Access Equipment Contract.

3.9  Marketing Fund

Vendor shall credit Reliance against amounts payable by Reliance to Vendor for Equipment purchases a sum of [***] as Vendor’s contribution to a marketing fund for the Equipment. Vendor shall credit such sum to Reliance quarterly in advance.

4      TERM

The initial term of this Broadband Access Equipment Contract is [***] from the Effective Date, subject to the terms and conditions of this  Broadband Access Equipment Contract including, without limitation, the termination provisions set forth in Section 0. This Broadband Access Equipment Contract shall upon the mutual written agreement of the Parties be renewed for [***] on the same terms and conditions contained herein.

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5      PRICING AND INVOICING

5.1  Price List

5.1.1The prices as set forth in the Price List shall be applicable to all purchases by Reliance of Equipment, including without limitation spare and replacement parts (subject to Section 3.3.2).

5.1.2Vendor shall notify Reliance in writing in the event Vendor proposes to modify the Price List and Reliance’s prior written consent shall be required before any such modification shall take effect. The Price List shall be amended from time to time to add equipment, components, hardware, accessories, spares, test bed and documentation as agreed by the Parties.

5.1.3Anything to the contrary in the Documents notwithstanding, at no time will Reliance be liable to pay a Net Price for any Equipment in excess of the [***] for such Equipment that is determined by reference to the Price List, as further reduced by all applicable discounts, rebates and credits available to Reliance under the Documents.

5.2  Determination of Net Price

5.2.1The Net Price for any Equipment purchased by Reliance under this Broadband Access Equipment Contract shall be determined in accordance with the provisions of Section 5.2.  [***].

5.2.2The Net Price of any Equipment that is a part of the Broadband Access Reliance Network shall be determined as set forth in paragraphs a, b, c, d, e, f, g and h below:

[***].

5.3  Invoicing Terms

All Equipment purchased by Reliance that forms a part of the Initial Broadband Access Reliance Network shall be invoiced as set forth in this Section and paid in accordance with Section 13 of the General Terms.

[***].

5.4  Invoicing Terms for all other Equipments:

All Equipment purchased by Reliance that forms a part of Expansions shall be invoiced as set forth in this Section and paid in accordance with Section 13 of the General Terms.

[***].

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5.5  Currency and Mode of Payments

5.5.1The value of all Equipment purchased by Reliance under this Broadband Access Equipment Contract shall be computed based on Net Prices expressed in [***] in accordance with the provisions of the General Terms, unless otherwise agreed by the Parties.

5.5.2All payments shall be payable by wire transfer.

5.6  Total Cost Basis

[***].

6      WARRANTIES

6.1  Equipment Warranty.

6.1.1The Vendor warrants that, during the Product Warranty Period, all Equipment shall conform with and perform in accordance with the Specifications and shall be free from Defects and Deficiencies (the “Equipment Warranty”).

6.1.2During the Product Warranty Period, Vendor shall provide the warranty services described under the Documents at no additional cost to Reliance.

6.2  Breach of Warranties.

6.2.1In the event of any breach of the Equipment Warranty, the Vendor shall promptly repair or replace the defective or nonconforming Equipment or otherwise cure any Defects and Deficiencies so that the Equipment and Broadband Access Reliance Network shall perform in accordance with the Specifications.  If the Vendor fails or refuses  to promptly repair, replace and/or cure such defect, Reliance may, in addition to exercising any other remedies available to it under the contract, law and/or equity,  at its option ;

i)elect to have such Defective Equipment, replaced, repaired or corrected by itself or any third party, and Vendor shall in such an event (a) provide all technical details, documentation, and other information required for such repair replacement or correction; and (b) reimburse Reliance for all direct costs incurred in connection with such repair, replacement or correction; and/or

ii)elect to have the Vendor provide a credit or refund based on the original purchase price of such Defective Equipment.

6.2.2The Warranty Period for all repaired, replaced or corrected Equipment shall be the longer of :

a[***] from the date of delivery of the repaired, replaced or corrected Equipment; or

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bthe un-expired term of the original Product Warranty Period.

6.2.3Notwithstanding the foregoing, the Vendor shall have no liability pursuant to this Section 6.2 for:

adamage caused by an event of Force Majeure other than to the extent that the Equipment should have been able to withstand any such Force Majeure event, in accordance with the Documents;

balterations by Reliance and/or the Vendor at Reliance’s request against Vendor recommendations and inconsistent with this Broadband Access Equipment Contract, excluding normal maintenance or parameter changes;

cdamage or Deficiencies resulting from a failure by Reliance to follow the Specifications;

ddamage resulting from the gross negligence or willful misconduct of Reliance, or any of its employees, agents or contractors (other than the Vendor and its Subcontractors); or

eperformance or damages directly resulting from the failure of the equipment or software (or any related services) not provided by the Vendor or any Subcontractors (provided that Vendor has not contributed to such failure or failed to comply with Vendor’s project management responsibilities which contributed to such failure), provided that this shall not limit the Vendor’s obligations as to Interoperability pursuant to the terms of the Documents;

except when any such damage or Deficiencies is done, made or caused by Vendor or any Subcontractor or their employees or agents.

6.3  Repair and Return.

6.3.1The provisions of Repair and Return Services required to be provided during the Equipment Warranty and Technical Support Services are specified in Annexure 1A to the Specifications. In the event of a breach of the Equipment Warranty, the Parties shall follow the procedures set forth in the Specifications.

6.3.2In the event that the remedy of any breach of the Equipment Warranty, Reliance will notify within a reasonable time period and if such remedy  requires the installation or provision of additional equipment, software and/or services, the Vendor shall provide such equipment, software and/or services, at [***] to Reliance. Where Reliance cannot remove and reinstall the Defective Equipment without incurring significant time and expense, Vendor shall repair, replace or correct the Equipment at Reliance’s site.  In such event Vendor shall perform all such repair, replacement and correction at Reliance’s site without disrupting, the operation of the Reliance Network or any part thereof. Vendor shall be responsible at [***], for replacement of cable and wire products site restoration and performing all work incidental to the repair replacement and correction of Defective Equipment. Reliance shall

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allow the Vendor to inspect the Equipment, Software, Services, or the Network, as the case may be, on-site in order to effect the necessary repairs.

6.3.3During the Product Warranty Period and the period that the Technical Support Services is in effect, the Vendor shall be [***] associated with: (a) removing or disconnecting the Equipment subject to the warranty claim as set forth in the Specifications; (b) dismantling and reinstalling surrounding equipment and property in connection with removing or disconnecting the Equipment that is the subject of such warranty claim as set forth in the Specifications; and (c) all on-site and off-site repair and related activities (including without limitation reinstallation after repair) for Equipment as set forth in the Specifications.

6.4       Other Services To Be Provided By The Vendor Under Warranty Services-

During the Product Warranty Period, in addition to the warranty obligations described in this Broadband Access Equipment Contract, the Vendor shall also provide, [***], all services as set forth in Annexure 1A to the Specifications..

6.5      Third Party Provider Warranties.

a)With respect to Equipment furnished by any Third Party Provider (excluding Subcontractors), all warranties given to the Vendor by such Third Party Provider shall inure, to the extent applicable or permitted by law, to the benefit of Reliance, and Reliance shall have the right, at its sole discretion, to enforce such warranties directly and/or through the Vendor. All warranties with respect to such Equipment provided by such Third Party Providers shall be given to Reliance on a pass-through basis.

b)The Vendor shall be responsible for monitoring and managing of all warranties and warranty services provided by Third Party Providers if required, by mutual agreement between the Parties. In the event of any dispute with respect to either identifying or resolving any problems or defects or their root cause in the Network, the Vendor shall be responsible to establish the co-ordination among all Persons connected to such problems/defects and establish the process of problem resolution and ensure an early solution.

6.6    Disclaimer

The foregoing Warranties are in lieu of all other express and implied warranties of merchantability and fitness for a particular purpose.

7      TERMINATION AND EVENTS OF DEFAULT

7.1  Reliance’s Right of Termination.

7.1.1Reliance may suspend all or any portion of this Broadband Access Equipment Contract, in accordance with the terms of Sections 3.15 of the General Terms.  Reliance also has the right to terminate all or any portion of this Broadband Access Equipment Contract upon the occurrence of any

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Vendor Event of Default in accordance with the terms of Section 23.1 of the General Terms.

7.2  Vendor’s Right of Termination.

The Vendor shall have the option to suspend or terminate this Broadband Access Equipment Contract in accordance with the terms of Section 23.2 of the General Terms.

*  *  *  *  *

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Reliance and the Vendor have read this Broadband Access Equipment Contract including all Schedules and Exhibits hereto and agree to be bound by all the Terms and Conditions hereof and thereof.

IN WITNESS WHEREOF, the Parties have executed this Broadband Access Equipment Contract as of the date first above written.

RELIANCE INFOCOMM LIMITED
By:	/s/  Prakash C. Bajpai
Name:
Title:
By:	/s/  S. Ramesh
Name:
Title:
UTSTARCOM INC.,
By:	/s/  Michael J. Sophie
Name:
Title:

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ANFTTB Webstore Equipment Price List

[***]

ANFTTB Model 1 Equipment Price List

[***]

ANFTTB Model 2 Equipment Price List

[***]

ANFTTB Spares/Expansions Equipment Price List

[***]

Recommended Spares List

[***]

EX-10.85

Exhibit 10.85

[***] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS

STRICTLY CONFIDENTIAL

BROADBAND ACCESS SERVICES CONTRACT

between

RELIANCE INFOCOMM LIMITED,

“Reliance”

and

UTSTARCOM INC.,

“Vendor”

Dated as of October 1, 2002

Table of Contents

1		BACKGROUND AND OBJECTIVES
	1.1		Background
	1.2		Objectives
2		DEFINITIONS
3		SCOPE OF WORK
	3.1			Scope of Work
	3.2			Services
	3.3			Tools and Test Equipment for Services
	3.4			Testing and Acceptance
	3.5			Training Services
	3.6			Management Services
	3.7			Knowledge Management System
	3.8			Policies Applicable to Vendor Personnel
	3.9			Technical Support Services:
4		TERM
5		PRICING AND INVOICING
	5.1			Determination of Net Price
	5.2			Invoicing Terms
	5.3			Payments for Services
6		WARRANTIES
	6.1			Services Warranty
	6.2			Breach of Warranty
	6.3			Cure Procedures
	6.4			Other Services To Be Provided By The Vendor Under Warranty Services-
	6.5			Third Party Provider Warranties
	6.6			Disclaimer
7		TERMINATION AND EVENTS OF DEFAULT
	7.1			Reliance’s Right of Termination
	7.2			Vendor’s Right of Termination

ii

EXHIBITS

Exhibit A - Pricing

iii

BROAD BAND ACCESS SERVICES CONTRACT

This Broadband Access Services Contract (“Broadband Access Services Contract”) is effective as of October 1, (the “Effective Date”), by and between Reliance Infocomm Limited, a company incorporated and registered under the Companies Act, 1956 and having its Registered Office at Avdesh House, Pritam Nagar, 1st Slope, Ellis Bridge, Ahmedabad 380006, Republic of India (hereinafter referred to as “Reliance” which expression, unless repugnant to the context or meaning thereof, shall mean and include its successors and permitted assigns), and UTStarcom Inc., a company incorporated under the laws of Delaware and having its principal offices at 1275 Harbor Bay Parkway Alameda, California 94502, U.S.A (hereinafter referred to as the “Vendor” which expression, unless repugnant to the context or meaning thereof, shall mean and include its permitted successors and assigns and, together with Reliance, the “Parties” and each, a “Party”).

RECITALS:

A.  Reliance desires to purchase from the Vendor certain Services appropriate for the efficient and effective installation, commissioning, operation, management and maintenance of the Broadband Access Reliance Network, including the Initial Broadband Access Reliance Network; and

B.  The Vendor desires to provide to Reliance such Services in accordance with the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

1BACKGROUND AND OBJECTIVES

1.1Background

Reliance desires to obtain certain Services to support  the Broadband Access Reliance Network in the Territory.  The Vendor shall perform all specific Vendor responsibilities set forth in this Broadband Access Services Contract, including applicable Purchase Orders and the Specifications. This Broadband Access Services Contract is subject to the terms and conditions set forth in the Broadband Access Network General Terms and Conditions executed by the Parties as of the date hereof (the “General Terms”).

1.2Objectives

Reliance requires services that fully support: (a) the Initial Broadband Access Reliance Network and the Broadband Access Reliance Network, including all cost, performance and functional requirements set forth in the relevant Documents; (b) Interoperability as set forth in the Specifications; and (c) Reliance’s business requirements described in this Broadband Access Services Contract (collectively, the “Objectives”).  The Vendor represents, warrants and covenants that the Services are fully compatible with and fully supports the Objectives, as shall be demonstrated to Reliance, in part, in the Acceptance Tests.

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2DEFINITIONS

As used in this Broadband Access Services Contract, the following terms have the following meanings.  In addition to the terms listed below, certain additional capitalised terms are defined in the General Terms, the attachments to this Broadband Access Services Contract and in other applicable Documents.  Unless otherwise specifically provided, all section, schedule and exhibit references are to this Broadband Access Services Contract.

“Effective Date”

has the meaning ascribed thereto in the prefatory paragraph to this Broadband Access Services Contract.

“FCAPS”

shall mean Fault Management, Configuration, Accounting, Performance and Security Management.

“Services Warranty”

has the meaning ascribed thereto in Section 6.1.

“Services Warranty Period”

with respect to all Services that relate to Products that form a portion of the Broadband Access Reliance Network, a period of [***] following Acceptance  of such portion of the Broadband Access Reliance Network.For Services provided by the Vendor under the TSS, there shall be a warranty period of [***] from satisfactory acceptance by Reliance of the repair or replacement by the Vendor of any Network Element provided that in the event such repairs occur during the applicable Product Warranty Period, then the warranty period shall be the greater of [***].  With respect to all other Services, the Services Warranty Period shall be [***] from the date of completion of such Services.

“Trainer Day”

the provision of Training Services to personnel designated by Reliance, by one Vendor Personnel [***].

“Trainer Fee”

has the meaning ascribed thereto in Section 3.5.3

“Training Services”

has the meaning ascribed thereto in Section 3.5.1

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 “Broadband Access Services Contract”

this Broadband Access Services Contract, including all schedules, exhibits and other attachments hereto.

“Services Price List”

means the Charges for the Services to be provided by the Vendor as set forth in Exhibit A.

3SCOPE OF WORK

3.1Scope of Work.

3.1.1The Vendor shall provide to Reliance the Services set forth in the relevant Purchase Order pursuant to and in accordance with this Broadband Access Services Contract. All Services shall comply with the relevant Specifications and the Standards. The Vendor shall coordinate its efforts hereunder with all Subcontractors, Third Party Providers and the Other Contractors, to ensure compliance with any and all supply and transportation requirements and all Governmental Entities.  All Services, requiring certification shall be certified by independent and appropriate professionals licensed or properly qualified to perform such certification in all appropriate jurisdictions, reasonably acceptable and at no cost to Reliance, if such certification is required by Applicable Law or the Specifications. Vendor shall provide to Reliance, necessary installation certificates, as per EPCG regulations for which the Parties will mutually agree on a format and procedure.

3.1.2Reliance shall purchase the Services described herein by Purchase Orders pursuant to the price list set forth in Exhibit A and shall pay for such Services pursuant to Section 5.2. Vendor shall perform only such Services as are specifically ordered by Reliance pursuant to a Purchase Order. Reliance currently intends that Vendor shall provide Services (other than Technical Support Services) with respect to the Initial Broadband Access Reliance Network only. Reliance shall not be obligated to pay for any Services not covered by a Purchase Order.

3.2Services

3.2.1Vendor shall provide all Services purchased under a Purchase Order and in accordance with the relevant Specifications on an end-to-end basis to ensure successful completion of the Work (provided, however, that installation and commissioning Services shall be limited to the Services requested ordered in the applicable Purchase Order), which Services include but are not limited to :

aProduct logistics, installation and commissioning (including commissioning testing) Services including, but not limited to, ready for

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installation inspection and validation and as-built documentation (redline versions); and

bManagement Services including, but not limited to: program management, optimization, engineering, network design, network integration, integration with network management system (for FCAPS functionality), network operations center, management of Third Party Products, Network Acceptance Testing, Product Integration including Test Bed integration, Test Bed operation support, and Network O&M.

cAt Reliance’s request Vendor shall mobilize and commit sufficient resources necessary to successfully implement the Initial Broadband Access Reliance Network with the approval of Reliance, as required, including subject matter experts (subject to the experience requirements set forth in Section 3.10.2 below).

d.             Acceptance Testing, Training, TSS , Knowledge Management

No Services described in this paragraph 3.2(b), shall be provided unless the Parties mutually agree to a budget and pricing for such Services in advance of accepting a Task Order for such Services. In the event such budget is exceeded, each Party shall be responsible for such excess in proportion to its relative fault or causation.  Any disagreement on the budget and pricing shall be resolved by the Parties by negotiations in good faith within [***]. In the event that the Parties are unable to reach mutual agreement on the budget and pricing, the Parties shall work together to ensure a mutual resolution that does not adversely affect the relevant schedule.

3.2.2At Reliance’s request Vendor shall mobilize and commit sufficient resources necessary for Program Management. Reliance shall pay Vendor for program management as set forth in Exhibit A. In the event that Reliance requires Vendor Personnel to be deputed to a Network Location, Vendor shall depute such Vendor Personnel. Reliance shall pay Vendor the Charges set forth in Exhibit A for such Vendor Personnel.

3.3Tools and Test Equipment for Services

3.3.1Vendor agrees, [***], to provide all tools (including Vendor Internal Tools) tackles and test equipment along with their accessories and consumables, to perform the installation, commissioning, and acceptance testing Services of Products for the Initial Broadband Access Reliance Network Upon Acceptance of the Initial Broadband Access  Network, Vendor shall remove all such tools, tackles and test equipment.

3.3.2In order to work towards achieving Interoperability, Reliance may bring other infrastructure vendors’ equipment into the Test-Bed Laboratory.  Notwithstanding

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anything contained herein to the contrary, the Vendor shall share with these other infrastructure vendors that Reliance brings into the Test-Bed Laboratory, all necessary interfacing information (under suitable conditions of confidentiality and/or licensing agreements) to assure the timely achievement of each of the mutually agreed Interoperability Milestones in accordance with the Time Tables and schedules set forth in the relevant Purchase Orders.

3.4Testing and Acceptance

Vendor hereby agrees to strictly adhere to the testing and acceptance procedure set forth in the Specifications. Reliance shall co-operate on a commercially reasonable basis with Vendor to ensure the successful completion of testing and acceptance activities.

3.5Training Services

3.5.1The Vendor shall provide to Reliance, access to all the training courses and the right to use (“RTU”) to all the training courses and training course materials for which Vendor owns intellectual property rights and/or the license to use and as are available from time to time that are relevant to the Products supplied for the Broadband Access Reliance Network (the “Training Services”). The RTU shall be provided with permission to reproduce the course material for training Reliance personnel, including associates and contractors retained for installation, commissioning and operational support of the Broadband Access Reliance Network. Vendor shall update such course material for all such courses from time to time. Vendor shall provide all Training Services in accordance with the Specifications either at the Vendor’s global training centers or at Reliance training facilities in the Republic of India, with such location to be decided and advised by Reliance. The Parties shall mutually determine the method and manner of the provision of Training Services, including without limitation, class planning, scheduling and co-ordination. The Training Services shall be provided by qualified and experienced training personnel, as approved by Reliance. Vendor shall provide Reliance with the resumes of all of Vendor’s and any Subcontractor’s training personnel to enable Reliance to determine, in its sole discretion, which training personnel should provide the Training Services. Such training personnel shall have at least [***] of Access Network training experience in the field in which they are proposed to train. Vendor shall also be obliged to train Reliance’s trainers and shall perform, with Reliance’s approval, skills audits for all Reliance personnel trained to be instructors for Reliance. Periodically, mutually agreed training schedules shall be agreed upon for imparting such training courses. The content of these training courses shall be focussed on the implementation, operation and maintenance of the RelianceBroadband Access  Network.

3.5.2Vendor shall, during the term of this Broadband Access Services Contract, provide to Reliance all updated course materials relating to the Products for all Training Services provided to Reliance hereunder from time to time.

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3.5.3Reliance agrees to reimburse Vendor for all Trainer Days as set forth in Exhibit A hereto. Reliance shall have the right, in its sole discretion, to determine the method and manner of utilisation of the above mentioned Trainer Days. Notwithstanding anything to the contrary set forth above, Reliance shall not be liable to pay for Vendor trainer personnel’s rest and recreation.

3.6Management Services

Vendor shall provide the management Services described in the Specifications at the rates set forth in of Exhibit A. Vendor shall provide sufficient resources to complete the Work specified in the Specifications and associated Purchase Orders for the Work. No Services described in Section 3.2.1(c,) shall be provided unless the Parties mutually agree to a budget for such Services prior to accepting a Purchase Order.

3.7Knowledge Management System

Vendor agrees that, among other things, all value engineered standards, specifications, designs, and relevant Vendor practices, including but not limited to testing and commissioning procedures, technical and standard documentation for facilities, maintenance and operational procedures and standards,  documentation, reports, drawings, etc., relating to the implementation, management and operation of the Broadband Access Reliance Network shall be delivered to Reliance, provided that the Materials are utilised solely for the implementation, operation and management of the Broadband Access Reliance Network and are subject to the confidentiality provisions set forth in Section 24.14 of the General Terms and this Section.  Upon delivery of such materials to Reliance, Vendor grants to Reliance a [***] license solely for use in the Territory to internally use, execute, to make sufficient copies for its own internal use, and to modify and translate them and/or combine them with other materials (at Reliance’s own risk) in order to prepare other works for Reliance’s own internal use, provided, however that Reliance shall not have the right to license or sell any software that is a Derivative Work of software delivered by Vendor pursuant to this Section 3.9 Reliance acknowledges that all information and materials delivered under this Section 3.9 are delivered on an “as-is-where-is” basis. Notwithstanding the above, for any software and/or other Materials originating from or being proprietary from a third party, if the Vendor has any limitation under a license and/or other agreement with such third party, Vendor will advise Reliance on how such third party software and/or Materials can be acquired or used, to enable Reliance to decide whether to acquire or use such third party software and/or Materials. Wherever possible, Vendor shall attempt, on a reasonable efforts basis, to obtain such third party’s consent for use of such software and/or Materials by Reliance without an additional charge to Reliance. Vendor shall use its knowledge management system for the performance of the Services and shall provide Reliance and the Users access to Vendor’s knowledge database during the term of this Broadband Access Services Contract. Vendor shall facilitate, during the performance of Services, tapping of its pool of consultants, and industry experts as reasonably requested by Reliance. Reliance agrees that Reliance shall be responsible to procure any hardware necessary to utilise any materials provided to Reliance under this Section and to pay for

8

any additional services requested by Reliance relating to this Section under the terms of this  Services Agreement.

3.8Policies Applicable to Vendor Personnel

3.8.1Vendor and Reliance shall follow the mobilization procedure as per the “PAF and Roster process” attached to the General Terms for each of the Key Personnel and those Vendor Personnel mobilized to provide the Services and who are charged to Reliance on a per diem basis.

3.8.2Unless otherwise mutually agreed between the Parties in writing prior to their mobilization on the job, the Vendor shall engage only those personnel to perform Services, that at all times meet each of the following criteria:

[***]

3.8.3Reliance shall request additional information or approve or disapprove PAFs submitted in accordance with the Documents in [***].  If Reliance does not so respond to the submitted PAF, the Vendor shall give notice to Reliance for necessary action and in the event of Reliance not responding in the next [***], the submitted PAFs shall be deemed to have been approved.  At the Vendor’s option the Vendor may provide multiple resumes in advance for Reliance’s review. Reliance shall request further information, approve, or disapprove such individuals as set forth in this Section 3.10.3. Reliance shall also provide invitation letters for expediting visa and entry approvals for such individuals to enable such individuals to travel to India as required after completion of the approval process set forth in the Documents.

3.8.4In cases where the Vendor is required to use Vendor Personnel to carry out Work outside of India, such Vendor Personnel will be subject to approval by Reliance (acting reasonably and in a timely manner) prior to starting any work.

3.8.5For Subcontractors carrying out Services under section 3.2.1(a) above, the engagement of the Subcontractors’ personnel are not covered under this Section 3.10. These Subcontractors will be contracted by the Vendor as set forth in the General Terms. However, Reliance shall have the right, with Vendor’s approval, to pay such Subcontractors directly.

3.8.6If Reliance requires the services of Vendor Personnel for future support or warranty purposes, Vendor shall use [***] efforts make available the services of personnel who were involved in the performance of the original or related Services. However if such personnel are no longer employed by the Vendor or are otherwise prevented by reasons of health issues at the time or other issues beyond Vendor’s control, Vendor and Reliance shall identify the best alternative and mobilize alternative personnel.

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3.8.7For Work performed on a time and materials basis, Vendor shall prepare and submit weekly timesheets for signature by Reliance’s designated representative on a weekly basis in accordance with the Procedures Manual. The normal working week shall be [***] a week.

3.8.8On a [***] basis, and at the end of this Broadband Access Services Contract,  Vendor shall submit its invoice(s) and supporting documents in accordance with this Services Agreement and the General Terms.

3.9Technical Support Services:

3.9.1Vendor shall, during the Term of this Broadband Access Services Contract, provide the Technical Support Services as set forth in Annexure 1A to the Specifications, including but not limited to repair and return of Defective Equipment, provision of all Software  and firmware Updates and Upgrades and firmware Updates, access to Vendor’s Indian and global Technical Assistance Centre. Vendor shall provide Technical Support Services during the Product Warranty Period. Reliance shall pay Vendor for the Technical Support Services as set forth in Exhibit A following the expiry of the applicable Product Warranty Period. Parties have agreed that the Vendor shall provide the TSS for an initial period of [***].

3.9.2Vendor shall ensure the continued availability of Vendor personnel having the required skill and experience to be located at Reliance’s Network Operations Centres (NOC) at [***] to Reliance. In addition, Vendor shall also staff its helpdesk in accordance with the requirements set forth in Annexure 1A to the Specifications at [***] to Reliance. In the event that, pursuant to Reliance’s specific written request, any additional Vendor Personnel are requested to be deputed to a Network Location, Vendor shall make such additional Vendor Personnel available to Reliance and Reliance shall reimburse Vendor for [***] incurred by such Vendor Personnel. [***].

4TERM

4.1.1The initial term of this Broadband Access Services Contract is [***] from the Effective Date, subject to the terms and conditions of this Broadband Access Services Contract including, without limitation, the termination provisions set forth in Section 7. This Broadband Access Services Contract shall upon the mutual written agreement of the Parties, be renewed for [***] on the same terms and conditions contained herein.

5PRICING AND INVOICING

5.1Determination of Net Price

5.1.1The Net Price for any Services purchased by Reliance under this Broadband Access Services Contract shall be determined in accordance with the provisions

10

of Section 5.1 and is [***] on or with respect to the provisions of such Services. [***].

5.1.2The Net Price of any Services shall be the Net Price for such services specified in the Services Price List All amounts in excess of the Net Price paid by Reliance to the Vendor for Services shall be handled in accordance with the provisions of the General Terms. The Net Prices set forth in the Services Price List are [***].

5.1.3The Net Price on the Services Price List shall be fixed for a period of [***] from the Effective Date. At such time, the Parties shall re-negotiate such Net Prices to be fixed for a subsequent [***] period to reflect the changes in the labour rates during the preceding [***]. This process shall be repeated every [***] thereafter during the Term of this Broadband Access Services Contract.

5.2Invoicing Terms

All Installation and Commissioning Services provided by Vendor to Reliance shall be invoiced as set forth in this Section and paid in accordance with Section 13 of the General Terms.

[***].

Where Services are provided which are not rendered for Products, such Services shall be invoiced and paid in accordance with Section 13 of the General Terms and mutually agreed milestones.

5.3Payments for Services

The value of the Services described in Section 3.2.1(a) shall be denominated in [***] in accordance with the provisions of the General Terms, unless otherwise agreed by the Parties. The amount paid is inclusive of all and any taxes levied by any Governmental Entity on the provision of Services provided by the Vendor.

6WARRANTIES

6.1 Services Warranty.

The Vendor warrants that, during the Services Warranty Period, all Services shall conform with and perform in accordance with the Specifications and shall be free from Defects and Deficiencies (the “ Services Warranty”).

6.2Breach of Warranty.

6.2.1 In the event of any breach of the Services Warranty, the Vendor shall promptly repair, replace, provide additional services or otherwise correct (including re-performance of Services) at [***], any Defective Services so that the Services and Broadband Access Reliance Network comply with the Specifications.  If the Vendor

11

fails or refuses  to promptly cure any such Defective Services, Reliance may, in addition to exercising any other remedies available to it  under the contract, law and/or equity, Reliance may at its option.(i) elect to have such Defective Services, replaced, repaired or corrected by any third party, and Vendor shall in such an event (a) provide all technical details, documentation, and other information required for such repair replacement or correction; and (b) reimburse Reliance for all costs and expenses incurred in connection with such repair replacement or correction; or

(ii) elect to have the Vendor provide (a) a credit or refund based on the original purchase price of such Defective Services, as the case may be.

The warranty period for all repaired, replaced or corrected  Services shall be the longer of

[***].

6.2.2 Notwithstanding the foregoing, the Vendor shall have no liability pursuant to this Section 6.2 for:

a)damage caused by an event of Force Majeure other than to the extent that the Services should have been able to withstand any such Force Majeure event, in accordance with the Documents;

b) alterations by Reliance and/or the Vendor at Reliance’s request against Vendor recommendations and inconsistent with this Broadband Access Services Contract, excluding normal maintenance or parameter changes;

c)damage or Deficiencies resulting from a failure by Reliance to follow the Specifications; or

d) damage resulting from the gross negligence or willful misconduct of Reliance, or any of its employees, agents or contractors (other than the Vendor and its Subcontractors); or

e) performance or damages directly resulting from the failure of the equipment or software (or any related services) not provided by the Vendor or any Subcontractors (excluding OMC Products for which Vendor is responsible), provided that this shall not limit the Vendor’s obligations as to Interoperability pursuant to the terms of the Documents;

except when any such damage or Deficiencies is done, made or caused by Vendor or any Subcontractor or their employees or agents.

6.3Cure Procedures.

6.3.1If Reliance claims a breach of any warranty , its shall notify the Vendor of the breach within a reasonable period of time after its determination that the breach has occurred. For provision of repair, replacement and correction of Defective Services, Reliance shall allow the Vendor to inspect the Work on-site and to perform any repairs, replacements and corrections  that can be performed on Site

12

without disrupting the operation of the Broadband Access Reliance Network or any other the Network Element relating to such Services.

6.3.2In the event that the remedy of any breach by the Vendor of the Services Warranty requires the installation or provision of replacement equipment, software and/or services, the Vendor shall provide such equipment, software and/or services, at no cost or expense to Reliance.

6.3.3During the Services Warranty Period, the Vendor shall be solely responsible for all costs and expenses associated with: (a) cure, repair, replacement  or correction of the Services subject to the warranty claim; (b) dismantling and reinstalling equipment and property in connection with cure or correction of the Services that are the subject of such warranty claim; and (c) all on-site and off-site repair and related activities for Services.

6.4Other Services To Be Provided By The Vendor Under Warranty Services-

During the Service Warranty Period, in addition to the warranty obligations described herein in this Service Contract, the Vendor shall also provide all services as set forth in Annexure 1A to the Specifications (Technical Support Services) in accordance with the Documents.

6.5Third Party Provider Warranties.

a) With respect to Services furnished by any Third Party Provider (other than Subcontractors), all warranties given to the Vendor by such Third Party Provider shall inure, to the extent applicable or permitted by law, to the benefit of Reliance, and Reliance shall have the right, at its sole discretion, to enforce such warranties directly and/or through the Vendor.  All warranties with respect to such Services provided by such Third Party Providers shall be given to Reliance in accordance with the General Terms.

b) In the event of any dispute with respect to either identifying or resolving any problems or defects or their root cause in the Network, the Vendor shall be responsible to establish the co-ordination among all Persons connected to such problems/defects and establish the process of problem resolution and ensure an early solution.

6.6Disclaimer

The foregoing warranties are in lieu of all the other express and implied warranties, of merchantability and fitness for a particular purpose.

7TERMINATION AND EVENTS OF DEFAULT

7.1Reliance’s Right of Termination.

Reliance may suspend all or any portion of this Broadband Access Services Contract, in accordance with the terms of Section 3.16 and Section 23.1.2 of the General Terms.

13

Reliance also has the right to terminate all or any portion of this Broadband Access Services Contract in accordance with the terms of Section 23.1 of the General Terms.

7.2Vendor’s Right of Termination.

The Vendor shall have the option to suspend or terminate this Broadband Access Services Contract in accordance with the terms of Section 23.2 of the General Terms.

14

Reliance and the Vendor have read this Broadband Access Services Contract including all Schedules and Exhibits hereto and agree to be bound by all the terms and conditions hereof and thereof.

IN WITNESS WHEREOF, the Parties have executed this Broadband Access Services Contract as of the date first above written.

RELIANCE INFOCOMM LIMITED
By:	/s/  Prakash C. Bajpai
Name:
Title:
By:	/s/  S. Ramesh
Name:
Title:
UTSTARCOM INC.,
By:	/s/  Michael J. Sophie
Name:
Title:

15

Exhibit A - Pricing (Broadband Access Services Contract)

[***]

EX-10.86

Exhibit 10.86

[***] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS

STRICTLY CONFIDENTIAL

BROADBAND ACCESS SOFTWARE CONTRACT

between

RELIANCE INFOCOMM LIMITED,

“Reliance”

and

UTSTARCOM INC.,

“Vendor”

Dated as of October 1, 2002

Table of Contents

1		BACKGROUND AND OBJECTIVES
	1.1		Background
	1.2		Objectives
2		DEFINITIONS
3		SCOPE OF WORK, RESPONSIBILITIES AND MILESTONES
	3.1		Scope of Work
	3.2		Minimum Purchase Commitment
	3.3		Test Bed
	3.4		Shipment
	3.5		Material and Inventory Management Systems
	3.6		Applicability
4		Source code escrow
5		Malicious AND DISABLING CODE
6		TERM
7		PRICING AND INVOICING
	7.1		Price List
	7.2		Determination of Net Price
	7.3		Invoicing Terms
	7.4		Invoicing Terms for all other Softwares:
	7.5		Currency and Mode of Payments
	7.6		Total Cost Basis
8		WARRANTIES
	8.1		Software Warranty
	8.2		Breach of Warranties
	8.3		Correction of Software
	8.5		Third Party Provider Warranties
	8.6		Disclaimer
9		TERMINATION AND EVENTS OF DEFAULT
	9.1		Reliance’s Right of Termination
	9.2		Vendor’s Right of Termination

i

EXHIBITS

Exhibit A Price List

ii

BROADBAND ACCESS SOFTWARE CONTRACT

This Broadband Access Software Contract (“Broadband Access Software Contract”) is effective as of October 1, 2002 (the “Effective Date”), by and between Reliance Infocomm Limited, a company incorporated and registered under the Companies Act, 1956 and having its registered office at Avdesh House, Pritam Nagar, 1st Slope, Ellis Bridge, Ahmedabad 380 006, Republic of India (hereinafter referred to as “Reliance” which expression, unless repugnant to the context or meaning thereof, shall mean and include its successors and permitted assigns), and UTStarcom Inc., a company incorporated under the laws of Delaware and having its principal offices at 1275 Harbor Bay Parkway, Alameda, California 94502, U.S.A  (hereinafter referred to as the “Vendor” which expression, unless repugnant to the context or meaning thereof, shall mean and include its permitted successors and assigns and, together with Reliance, the “Parties” and each, a “Party”).

RECITALS:

A.  Reliance desires to purchase from the Vendor certain Software appropriate for the efficient and effective installation, operation, management and maintenance of the Broadband Access Reliance Network, including the Initial Broadband Access Reliance Network; and

B.  The Vendor, desires to provide to Reliance such Software and shall, including, without limitation supply and deliver such Software, in accordance with the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

1BACKGROUND AND OBJECTIVES

1.1Background

Reliance desires to obtain certain Software to support its Initial Broadband Access Reliance Network and the Broadband Access Reliance Network in the Territory. The Vendor shall perform all specific Vendor responsibilities set forth in this Broadband Access Software  Contract, including applicable Purchase Orders and the Specifications. The Vendor shall review the Broadband Access Reliance Network work performed and shall report on any exception. Notwithstanding the foregoing sentence, Vendor shall be responsible for providing the Software under this Broadband Access Software Contract in accordance with the Specifications, including without limitation the Timetables. This Broadband Access Software Contract is subject to the terms and conditions set forth in the Broadband Access Network General Terms and Conditions executed by the Parties as of the date hereof (the “General Terms”).

1.2Objectives

Reliance requires software that fully supports: (a) the Initial Broadband Access Reliance Network and the Broadband Access Reliance Network, including all cost, performance and functional requirements set forth in the relevant Documents; (b) Interoperability; and (c) Reliance’s business requirements described in the Documents (collectively, the

1

“Objectives”).  The Vendor represents, warrants and covenants that the Software shall be  fully compatible with and fully supports the Objectives, as shall be demonstrated to Reliance, in part, in the Acceptance Tests.

2DEFINITIONS

As used in this Broadband Access Software Contract, the following terms have the following meanings.  In addition to the terms listed below, certain additional capitalised terms are defined in the General Terms, the attachments to this Broadband Access Software Contract and in other applicable Documents. Unless otherwise specifically provided, all section, schedule and exhibit references are to this Broadband Access Software Contract.

“Base Price”

has the meaning as ascribed hereto in Section Error! Reference source not found..

“Effective Date”

has the meaning ascribed thereto in the prefatory paragraph to this Broadband Access Software Contract.

“Price List”

means a table of list prices applicable to Software supplied by Vendor to Reliance as amended from time to time as set forth herein. The Price List as of the Effective Date is set forth in Exhibit A.

“Software Warranty”

has the meaning ascribed thereto in Section 8.1.

“Broadband Access Software Contract”

this Broadband Access Software Contract, including all schedules, exhibits and other attachments hereto.

3SCOPE OF WORK, RESPONSIBILITIES AND MILESTONES

3.1Scope of Work.

3.1.1The Vendor shall provide to Reliance the Software set forth in the Specifications as amended from time to time by mutual written agreement between the Parties. Vendor’s obligations hereunder shall include, but not be limited to, the obligation to supply (including inspection and expediting) and deliver the Software in and within the Broadband Access Reliance Network as designated by Reliance in accordance with the Broadband Access Software Contract. All Software shall comply with the Specifications and the Standards. and shall be the latest and best in class, unless otherwise specified by Reliance in writing. The Vendor shall coordinate its efforts hereunder with all Subcontractors, Third Party Providers and the Other Contractors, to ensure compliance with any and all supply and logistics requirements and all

2

Governmental Entities. All Software, requiring certification shall be certified by independent and appropriate professionals licensed or properly qualified to perform such certification in all appropriate jurisdictions, reasonably acceptable and at no cost to Reliance, if such certification is, required by Applicable Law or the Specifications.

3.1.2Vendor shall deliver only such Software as are specifically ordered by Reliance pursuant to a Purchase Order. Reliance shall not be obligated to pay for any Software not covered by a Purchase Order.

3.1.3The Software supplied under this Broadband Access Software Contract is standard software that Vendor would supply to any other Person seeking to establish wireless telephony networks similar to the Broadband Access Reliance Network.

3.2Minimum Purchase Commitment

Notwithstanding anything to the contrary, Reliance agrees that it shall, between [***] purchase at least [***] from Vendor (the “Minimum Committed Quantity”) subject to Vendor’s continued conformance with the terms set forth in the Documents.

3.3Test Bed

3.3.1For the purpose of testing the Vendor shall provide the Software set forth in the Specifications at [***] to Reliance and such Software shall be shipped to the Reliance designated location not later than [***] after the Effective Date of the Broadband Access Software Contract if specifically requested for by Reliance in writing.

3.3.2The Vendor shall supply and install at [***] to Reliance the Test Bed Laboratory and at least one of each type of new Software set forth in any Purchase Order or that is planned to be bought by Reliance before the end of the next succeeding [***].

3.3.3In order to work towards achieving Interoperability, Reliance may bring other infrastructure vendor’s software into the Test Bed Laboratory. Notwithstanding anything to the contrary, the Vendor shall share with these other infrastructure vendors that Reliance brings into the Test Bed Laboratory, all necessary interface information to facilitate meeting the Timetables upon suitable conditions of confidentiality.

3.3.4Vendor shall provide all applicable Technical Support Services including but not limited to Updates and Upgrades to and for the Software installed in the Test Bed Laboratory.

3.4Shipment

Vendor shall ensure that all Software constituting a EMS/NMS (for the required configuration) and/or any other software related to DLC are shipped in a single shipment. Vendor shall not ship Software constituting only a part of the above element(s) except after prior written approval from Reliance.

3

3.5Material and Inventory Management Systems

Vendor shall take all reasonable actions necessary to ensure that Vendor’s material & inventory management system integrates and interfaces with Reliance’s material & inventory management system. The extent of integration and interfacing shall be as mutually agreed.

3.6Applicability

Parties agree that all Purchase Orders for Software issued by Reliance to Vendor on or after September 1, 2002 shall be subject to and governed by this Broadband Access Software Contract. The Parties further agree that Purchase Order number 13008681 dated August 21, 2002 shall, except for payment terms, performance bank guaranty related terms, annual price improvement related terms and deemed Acceptance related terms, also be governed by the terms of this Broadband Access Equipment Contract.

4SOURCE CODE ESCROW

4.1.1Vendor represents and warrants that as of the date hereof, neither Vendor nor any of Vendor’s affiliates has established a Source Code escrow for any of its existing customers.  In the event that Vendor or any affiliate of the Vendor establishes a Source Code escrow in the future which applies to any of the Software furnished to Reliance hereunder, Vendor shall add, or cause the affiliate that establishes a Source Code escrow to add, Reliance as a beneficiary of such Source Code escrow, and Reliance shall be entitled to receive a copy of the escrowed Source Code in the event of the occurrence of any of the events set out below.  In addition to the foregoing, Vendor shall immediately deliver and hereby grants, or cause the affiliate that establishes a Source Code escrow to immediately deliver and grant, Reliance a right to access the Source Code and to modify the Software (the “RTM License”) for the maintenance, enhancement and support of those Products purchased from Vendor and owned or operated by Reliance or any Affiliate under the following circumstances, provided that any such released Source Code shall be subject to the confidentiality provisions set forth in the General Terms:

aif Vendor or any affiliate of Vendor that owns or controls such Source Code (such affiliate the “Control Affiliate”) becomes insolvent, makes a general assignment for the benefit of creditors, files a voluntary petition in bankruptcy or an involuntary petition in bankruptcy is filed against Vendor or the Control Affiliate which is not dismissed within thirty (30) days of such involuntary filing, or a receiver is appointed for its business, or its assets become subject to any proceeding under a bankruptcy or insolvency law, domestic or foreign, or has liquidated its business, or Vendor, or a business unit or affiliate of Vendor that is responsible for maintenance of the Software, ceases doing business without providing for a successor, and Reliance has reasonable cause to believe that any such event shall cause Vendor to be unable to meet its warranty service or support requirements under the Documents; or

4

bif Vendor or affiliate of Vendor that is responsible for maintenance of the Software ceases to maintain or support a previously supported version of the Software and Reliance cannot obtain, with Vendor’s assistance (for example, by providing a third party with Source Code or by any other appropriate method) the same support services Vendor is required to provide under the Documents from another entity (either working with or independently from Vendor) at a price that is equal to or less than the prices for such support as provided herein, or there is a persistent and material failure by Vendor to provide the warranty service or support it is required to provide pursuant to the terms of the Documents.

5MALICIOUS AND DISABLING CODE

Vendor represents, warrants and covenants that all Software will at all times be free of Malicious Code and Disabling Code. Vendor shall provide Reliance with procedures and capabilities in order to allow Reliance to re-assign Software key codes or similar items whose purpose is to enable the functioning of further features, functions or capacity within and among Network Elements in connection with changing the capacity of such Network Elements purchased throughout the Broadband Access Reliance Network. In the event of any breach of the foregoing warranty Vendor shall, at no additional charge to Reliance, diligently take all commercially reasonable efforts to: (a) remove such Malicious Code and Disabling Code and restore or recover all data and information lost due to the Malicious Code or Disabling Code; and (b) reimburse Reliance for all damage proximately caused by the Malicious Code or Disabling Code.

6TERM

The initial term of this Broadband Access Software Contract is [***] from the Effective Date, subject to the terms and conditions of this Broadband Access Software Contract including, without limitation, the termination provisions set forth in Section 9. This  Broadband Access Software Contract shall upon the mutual written agreement of the Parties, be renewed for [***] on the same terms and conditions contained herein.

7PRICING AND INVOICING

7.1Price List

7.1.1The prices as set forth in the Price List shall be applicable to all purchases by Reliance of Software.

7.1.2Vendor shall notify Reliance in writing in the event Vendor proposes to modify the Price List and Reliance’s prior written consent shall be required before any such modification shall take effect.  The Price List shall be amended from time to time to add software, test bed and documentation as agreed by the Parties.

7.1.3Anything to the contrary in the Documents notwithstanding, at no time will Reliance be liable to pay a [***] for any Software in excess of the [***].

5

7.2Determination of Net Price

[***].

7.3Invoicing Terms

All Software purchased by Reliance that forms a part of the Initial Broadband Access Reliance Network shall be invoiced as set forth in this Section and paid in accordance with Section 13 of the General Terms.

[***].

7.4Invoicing Terms for all other Softwares:

All Software purchased by Reliance that forms a part of Expansions shall be invoiced as set forth in this Section and paid in accordance with Section 13 of the General Terms.

[***].

7.5Currency and Mode of Payments

7.5.1The value of all Software purchased by Reliance under this Broadband Access Software Contract shall be computed based on Net Prices expressed in [***] in accordance with the provisions of the General Terms, unless otherwise agreed by the Parties.

7.5.2All payments shall be payable by wire transfer.

7.6Total Cost Basis

Vendor represents, warrants, and covenants that, with respect to all Software sold or offered for sale for importation into the Republic of India, the Net Prices for the same shall be the [***].

8WARRANTIES

8.1Software Warranty.

8.1.1The Vendor warrants that, during the Product Warranty Period, all Software shall conform with and perform in accordance with the Specifications and shall be free from Defects and Deficiencies (the “Software Warranty”).

8.1.2During the Product Warranty Period, Vendor shall provide the warranty services described in this Section 8.1 and the Documents at no additional cost to Reliance.

Reliance shall receive all base Software releases and, Software Major/Minor Releases, Software Upgrades, Updates, Bug-Fixes, Software & Firmware Patches, Software Updates, New Software Releases, Software Combined Releases, New Features & all other Releases of Software furnished by Vendor at such times as they become generally available to the Vendor’s

6

customers.  Reliance shall also be entitled to receive all optional Software features, at no additional cost during the Product Warranty Period. The Vendor shall give Reliance an advance notice of the introduction of any Software Upgrade Release, any Software Combined Release or any Software releases containing any optional Software Release features.

8.2Breach of Warranties.

8.2.1In the event of any breach of the Software Warranty, the Vendor shall promptly repair or replace the defective or nonconforming Software or otherwise cure any Defects and Deficiencies so that the Software and Broadband Access Reliance Network shall perform in accordance with the Specifications. Vendor’s obligations with respect to Software shall be first to attempt to repair or replace at no additional cost, any Defective Software, using software updates, upgrades, patches, bug fixes in accordance with the provisions of hereunder and as specified in Annexure 1A to the Specifications (Technical Support Services). In the event that the Vendor is unable to or refuses to repair or replace or correct Defective Software, Reliance may in addition to exercising any other remedies available to it under the contract, law and/or equity, at its option :

(i)elect to have such Defective Software, replaced, repaired or corrected by any third party, and Vendor shall in such an event (a) provide all technical details, documentation, and other information required for such repair replacement or correction; and (b) reimburse Reliance for all direct costs incurred in connection with such repair replacement or correction; and/or

(ii)elect to have the Vendor provide (a) a credit or refund based on the original purchase price of such Defective Software, as the case may be; and/or

8.2.2The warranty period for all repaired, replaced or corrected Software shall be the longer of :

[***].

8.2.3Notwithstanding the foregoing, the Vendor shall have no liability pursuant to this Section 8.2 for:

[***]

except when any such damage or Deficiencies is done, made or caused by Vendor or any Subcontractor or their employees or agents.

8.3Correction of Software

8.3.1In the event of a breach of the Software Warranty, the Parties shall follow the procedures set forth in the Specifications. Reliance will notify the Vendor upon occurrence of any breach of warranty within a reasonable time period.

7

8.3.2In the event that the remedy of any breach of the Software Warranty requires the installation or provision of additional equipment, Software Updates, Upgrades or Combined Release and/or services, the Vendor shall provide such equipment, software and/or  perform such services on Site, at no cost or expense to Reliance, except as otherwise expressly provided in the Specifications and the shall be performed by the Vendor at Site, without disrupting the operation of the Reliance, Network or any part thereof. Reliance shall allow the Vendor to inspect the Equipment, Software, or the Network, as the case may be, on-site in order to effect the necessary repairs.

8.3.3During the Product Warranty Period and the period that the TSS is in effect, the Vendor shall be solely responsible for all costs and expenses associated with: (a) correcting of defective Software, and (b) all on-site and off-site corrective activities for Software as set forth in the Specifications.

8.4 Other Services To Be Provided By The Vendor Under Warranty Services-

During the Product Warranty Period, in addition to the warranty obligations described hereunder, the Vendor shall also provide, at [***] to Reliance, all services as set forth in Annexure 1A to the Specifications.

8.5 Third Party Provider Warranties.

a)With respect to Software furnished by any Third Party Provider (excluding Subcontractors), all  warranties given to the Vendor by such Third Party Provider shall inure, to the extent applicable or permitted by law, to the benefit of Reliance, and Reliance shall have the right, at its sole discretion, to enforce such warranties directly and/or through the Vendor.  All warranties with respect to such Software provided by such Third Party Providers shall be given to Reliance  on a pass-through basis.

b)The Vendor shall be responsible for monitoring and managing of all warranties and warranty services provided by Third Party Providers if required, by mutual agreement between the Parties.  In the event of any dispute with respect to either identifying or resolving any problems or defects or their root cause in the Network, the Vendor shall be responsible to establish the co-ordination among all Persons connected to such problems/defects and establish the process of problem resolution and ensure an early solution.

8.6Disclaimer

The foregoing warranties are in lieu of all other express and implied warranties of merchantability and fitness for a particular purpose.

9TERMINATION AND EVENTS OF DEFAULT

9.1Reliance’s Right of Termination.

9.1.1Reliance may suspend all or any portion of this Broadband Access Software Contract  in accordance with the terms of Section 3.15 of the General Terms.

8

Reliance also has the right to terminate all or any portion of this Broadband Access Software Contract upon the occurrence of any Vendor Event of Default in accordance with the terms of Section 23.1 of the General Terms.

9.2Vendor’s Right of Termination.

The Vendor shall have the option to suspend or terminate this Broadband Access Software Contract in accordance with the terms of Section 23.2 of the General Terms.

*  *  *  *  *

9

RELIANCE AND THE VENDOR HAVE READ THIS BROADBAND ACCESS SOFTWARE CONTRACT INCLUDING ALL SCHEDULES AND EXHIBITS HERETO AND AGREE TO BE BOUND BY ALL THE TERMS AND CONDITIONS HEREOF AND THEREOF.

IN WITNESS WHEREOF, the Parties have executed this Broadband Access Software Contract as of the date first above written.

RELIANCE INFOCOMM LIMITED
By:	/s/  Prakash C. Bajpai
Name:
Title:
By:	/s/  S. Ramesh
Name:
Title:
UTSTARCOM INC.,
By:	/s/  Michael J. Sophie
Name:
Title:

10

ANFTTB Software Price List

[***]

EX-21.1

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Exhibit 21.1

UTSTARCOM SUBSIDIARIES

Name	Place of Incorporation or Organization
UTStarcom China Co., Ltd. (UTSC)	China
UTStarcom (China) Co., Ltd. (UTSC)	China
UTStarcom Telecom Co., Ltd. (HUTS)	China
Hangzhou UTStarcom Telecom Co., Ltd.	China
Advanced Communications Devices Inc. (ACD)	U.S.A.
Guangdong UTStarcom Telecom Co., Ltd. (GUTS)	China
UTStarcom S.A. de C.V.	Mexico
UTStarcom GmbH	Germany
UTStarcom Japan KK	Japan
UTStarcom Hong Kong Ltd.	Hong Kong
UTStarcom Ltd. (Thailand)	Thailand
UTStarcom Cayman Inc.	Cayman Islands
UTStarcom International Service Inc.	U.S.A.
UTStarcom International Product Inc.	U.S.A.
UTStarcom Communication Technology (Hangzhou) Company Limited	China

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Exhibit 21.1

UTSTARCOM SUBSIDIARIES

EX-23.1

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Exhibit 23.1

Consent of Independent Accountants

        We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-44548, 333-60150, 333-84710 and 333-92340) of UTStarcom, Inc. of our report dated January 23, 2003 relating to the consolidated financial statements, which appears in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated January 23, 2003 relating to the financial statement schedules, which appears in this Annual Report on Form 10-K.

PricewaterhouseCoopers LLP
San Francisco, California
February 19, 2003

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Exhibit 23.1

Consent of Independent Accountants

EX-99.1

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Exhibit 99.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        I, Hong Liang Lu, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of UTStarcom, Inc. on Form 10-K for the fiscal year ended December 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of UTStarcom, Inc.

By:
/s/  HONG LIANG LU Name: Hong Liang Lu
Title: President and Chief Executive Officer

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Exhibit 99.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-99.2

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Exhibit 99.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        I, Michael J. Sophie, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of UTStarcom, Inc. on Form 10-K for the fiscal year ended December 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of UTStarcom, Inc.

By:
/s/  MICHAEL J. SOPHIE Name: Michael J. Sophie
Title: Vice President of Finance, and
Chief Financial Officer and Secretary

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Exhibit 99.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002