Document:

<PAGE>

                                                                    Exhibit 10.7

                            BUSINESS LOAN AGREEMENT

Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials

$10,000,000.00

The above references in the shaded area are for Lender's use only and do not
limit the applicability of this document to any particular loan or item.

Borrower: Tellium, Inc.                      Lender: Commerce Bank/Shore, N.A.
          2 Cresent Place                            Attn: Christopher C. Giamo
          Oceanport, NJ  07757                       1101 Hooper Avenue, CN 2050
                                                     Toms River, NJ  08754
<TABLE>
<S>                                    <C>                             <C>
Principal Amount:  $10,000,000.00      Initial Interest Rate: 6.75%    Date of Agreement:  6-1-00
</TABLE>

THIS BUSINESS LOAN AGREEMENT between Tellium, Inc. ("Borrower" or "Grantor") and
Commerce Bank/Shore, N.A. ("Lender") is made and executed on the following terms
and conditions. Borrower has applied to Lender for a loan in the total principal
amount of U.S. $10,000,000.00 in order to finance the working capital needs of
the Borrower. Lender is conditionally willing to lend the loan amount to
Borrower solely under the terms and conditions specified in this Agreement and
in the Related Documents, to each of which Borrower agrees. Borrower understands
and agrees that: (a) in granting, renewing, or extending any Loan, Lender is
relying upon Borrower's representations, warranties, and agreements as set forth
in this Agreement, and (b) all such Loans shall be and remain subject to the
terms and conditions of this Agreement.

TERM.   This Agreement shall be effective as of June 1, 2000 and shall continue
thereafter until all Indebtedness has been paid in full, all other obligations
of Borrower hereunder have been performed in full, and the parties terminate
this Agreement in writing.

DEFINITIONS.   The following words shall have the following meanings when used
in this Agreement.  Terms not otherwise defined in this Agreement shall have the
meanings customarily attributed to such terms in the Uniform Commercial Code.
All references to dollar amounts in lawful money of the United States of
America.

     Agreement:  shall mean the within business Loan Agreement dated June 1,
     2000, between Tellium, Inc. as Borrower or Grantor and Commerce Bank/Shore,
     N.A. as Lender.
<PAGE>

     Promissory Note:  shall mean the Promissory Note dated June 1, 2000,
     between Tellium, Inc., as Borrower, and Commerce Bank/Shore, N.A. as
     Lender.

     Related Documents:  shall mean, the executed Business Loan Agreement, the
     executed Promissory Note and other agreements related to the within
     Loan/transaction.

LOAN.  The Loan shall be in an amount not to exceed the principal sum of U.S.
$10,000,000.00 and shall bear interest on so much of the principal sum as shall
be advanced pursuant to the terms of this Agreement and the Related Documents.
The Loan shall bear interest on each Advance from the date of the Advance in
accordance with the terms of the accompanying Promissory Note and related
documents.  Borrower shall use the Loan Funds solely for the following specific
purposes: To finance the working capital needs of the Borrower.  The Loan amount
shall be subject at all times to all maximum limits and conditions set forth in
the law, this Agreement, the Note, or in any of the Related Documents.

REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any loan,
and at all times any Indebtedness exists:

     Organization.  Borrower is a corporation which is duly organized, validly
     existing, and in good standing under the laws of the State of Delaware and
     is validly existing and in good standing in the State of New Jersey.
     Borrower has the full power and authority to own its properties and to
     transact the businesses in which it is presently engaged or presently
     proposes to engage.

     Authorization.  The execution, delivery, and performance of this Agreement
     by Borrower, to the extent to be executed, delivered or performed by
     Borrower, have been duly authorized by all necessary action by Borrower; do
     not require the consent or approval of any other person, regulatory
     authority, or governmental body; and do not conflict with, result in a
     violation of, or constitute a default under (a) any provision of its
     Articles of Incorporation or organizational documents, by-laws, or any
     agreement or other instrument binding upon Borrower or (b) any law,
     governmental regulation, court decree or order applicable to Borrower.

     Financial Information.  Each financial statement of Borrower supplied to
     Lender truly and completely disclosed Borrower's financial condition as of
     the date of the statement, and there has been no materially adverse change
     in Borrower's financial condition subsequent to the date of the most recent
     financial statement supplied to

                                      -2-
<PAGE>

     Lender or as of the date of the within document. Borrower has no material
     contingent obligations except as disclosed in such financial statements.

     Litigation and Claims.  No litigation, claim, investigation, administrative
     proceeding or similar action (including those for unpaid taxes) against
     Borrower (or the property) is pending, threatened, or anticipated and no
     other event has occurred which may materially or adversely affect
     Borrower's financial condition or properties - other than litigation,
     claims, or other events, if any, which have been disclosed to and
     acknowledged by Lender, in writing.

     Legal Effect.  This Agreement constitutes, and any instrument or agreement
     required hereunder to be given by Borrower when delivered will constitute,
     legal, valid, and binding obligations of Borrower-enforceable against
     Borrower (and Guarantor, if applicable) in accordance with their respective
     terms.

     Binding Effect.  This Agreement, the Note, the related documents, and all
     Security Agreements directly or indirectly securing repayment of Borrower's
     Loan and Note are binding upon Borrower, as well as upon Borrower's
     successors, representatives, and assigns, and are legally enforceable in
     accordance with their respective terms.

     Survival of Representations and Warranties.  Borrower understands and
     agrees that Lender is relying upon the above representations and warranties
     in extending Loan Advances to Borrower.  Borrower further agrees that the
     foregoing representations and warranties shall be continuing in nature and,
     unless otherwise excepted herein or in the Related documents, shall remain
     in full force and effect until such time as Borrower's Loan and Note shall
     be paid in full, or until this Agreement shall be terminated in the manner
     provided above, whichever is the last to occur.

PAYMENT OBLIGATIONS.  Borrower will pay this loan in full on or before June 30,
2001.  The annual interest rate for this loan is computed on a 365/360 basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding.  Borrower will pay Lender
at Lender's address shown above, or at such other place as Lender may designate
in writing.  Unless otherwise agreed or required by applicable law, payments
will be applied first to accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.

     Interest alone shall be payable monthly during the Loan term at the rate
set forth herein (and in the accompanying Promissory Note) on the first day of
each month,

                                      -3-
<PAGE>

commencing July 1, 2000, and from and after the first disbursement of the Loan
until June 30, 2001, (hereinafter referred to as the "Maturity Date")

AFFIRMATIVE COVENANTS.  Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:

     Adverse Changes/Litigation.  Promptly inform Lender in writing of (a) all
     material adverse changes in Borrower's financial condition; (b) all
     existing and all threatened litigation, claims, investigations,
     administrative proceedings or similar actions affecting Borrower which
     could materially affect the financial condition of Borrower; and/or (c) any
     change in the legal or beneficial ownership of the Borrowing entity which
     unreasonably impairs and/or invalidates the security pledged by Borrower in
     conjunction with the within Loan.

     Financial Records.  Maintain its books and records in accordance with
     generally accepted accounting principles, applied on a consistent basis,
     and permit Lender to immediately examine and audit Borrower's books,
     records, and all other documents at all reasonable times.

     Financial Statements.  Furnish Lender with, as soon as available, but in no
     event later than ninety (90) days after the end of each fiscal year,
     Borrower's balance sheet, tax returns, and income and expense statements
     for the year ended, prepared by Borrower or Borrower's accountant.  All
     financial reports required to be provided under this Agreement shall be
     prepared in accordance with generally accepted accounting principles,
     applied on a consistent basis, and certified by Borrower as being true and
     correct.  The said statements and balance sheet are to be reviewed by a
     Certified Public Accountant, satisfactory to Lender.  All such statements
     shall set forth, in reasonable detail, the results, operations, and
     conditions of the Borrower and all related businesses, certified as true
     and correct by Borrower and shall be in form satisfactory to Lender.
     Additionally, each year, the Borrower shall provide the Lender with signed
     income tax returns.

     Additional Information.  Furnish such additional information and
     statements, and other reports with respect to Borrower's financial
     condition and business operations, as Lender may request from time to time.

     Loan Proceeds.  Use the Loan Funds solely to finance the working capital
     needs of the Borrower.

     Performance.  Perform and comply with all terms, conditions, and provisions
     set forth in this Agreement and in all other instruments and agreements
     between

                                      -4-
<PAGE>

     Borrower and Lender, (including the Promissory Note dated June 1, 2000) and
     in all other loan agreements now or hereafter existing between Borrower and
     any other party. Borrower shall notify Lender immediately, in writing, of
     any default in connection with any agreement.

     Additional Assurances. Make, execute, and deliver to Lender such Security
     Agreements, instruments, documents, and any other agreements reasonably
     necessary to document and secure the Loan and to perfect Lender's Security
     Interests in the Property and Improvements.

NEGATIVE COVENANTS.  Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

     Indemnification. Borrower shall defend, release, and indemnify and hold
     Lender (and its agents, representatives, employees, and attorneys) harmless
     from any and all claims asserted against Lender by any person, entity, or
     governmental body, or arising out of or in connection with this Agreement,
     and the related documents. Lender shall be entitled to appear in any action
     or proceeding to defend itself against such claims, and all costs incurred
     by Lender in connection with such defense, (including attorneys' fees,)
     shall, upon demand, be paid by Borrower to Lender. Lender shall, in its
     sole discretion, be entitled to settle or compromise any asserted claims
     against it, and such settlement shall be binding upon Borrower for purposes
     of this indemnification. All amounts paid by Lender under this paragraph
     shall be secured by the Borrower's Savings Account which is pledged as
     collateral for the within Loan and shall be deemed an additional principal
     Advance under the Loan, payable upon demand, and shall bear interest at the
     rate applicable to the Loan.

     Actions. Lender shall have the right to commence, appear in, or defend any
     action or proceeding purporting to affect the rights, duties, or
     liabilities of the parties to this Agreement, or the disbursement of funds
     from the Loan Fund. In connection with this right, Lender may incur and pay
     reasonable costs and expenses, including, but not limited to, attorneys'
     fees, for both trial and appellate proceedings. Borrower covenants to pay
     to Lender on demand all such expenses, together with interest from the date
     Lender incurs the expense at the rate specified in the accompanying Note,
     and Lender is authorized to disburse funds from the Loan Fund for such
     purposes.

DEFAULT.  Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due.  (b) Borrower breaks any promise
Borrower has

                                      -5-
<PAGE>

made to Lender, or Borrower fails to comply with or to perform, when due, any
other term, obligation, covenant, or condition contained in this Document or any
agreement related to this Document, Promissory Note between the parties dated
June 1, 2000, or in any other agreement or loan Borrower has with Lender. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's property or
Borrower's ability to repay the loan or perform Borrower's obligations under the
loan documents or any of the Related Documents. (d) Any representation or
statement made or furnished to Lender by Borrower or on Borrower's Behalf is
false or misleading in any material respect either now or at the time made or
furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part
of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against Borrower
under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest. This
includes a garnishment of or levy on any of Borrower's accounts with Lender. (g)
Any guarantor dies or any of the other events described in this default section
occurs with respect to any guarantor of this Agreement. (h) A material adverse
change occurs in Borrower's financial condition, or Lender believes the prospect
of payment or performance of the indebtedness is impaired. (i) Borrower, without
the prior written consent of Lender, prematurely breaks, halts, withdraws, or
interrupts the Commerce Bank Savings Account which has been pledged as
collateral/security for the within Line of Credit. (j) Any change in the legal
or beneficial ownership of the borrowing entity which unreasonably impairs the
security pledged by Borrower in conjunction with the within Loan.

LENDER'S RIGHTS.  Upon default, Lender may declare the entire unpaid principal
balance on the loan and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount.  Upon default, including,
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the variable interest rate on the
accompanying Note to 3 percentage points over the rate of interest charged prior
to default.  The interest rate will not exceed the maximum rate permitted by
applicable law.  Lender may hire or pay some other individual/entity to help
collect/enforce the obligations due under the loan agreements if Borrower does
not pay; Borrower will also pay Lender for such additional amounts.  This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgement collection services.  If not prohibited by applicable
law, Borrower will pay any court costs, in addition to all other sums provided
by law.  This Agreement has been delivered to Lender and accepted by Lender in
the State of New Jersey.  If there is a lawsuit, Borrower agrees, upon Lender's
request, to

                                      -6-
<PAGE>

submit to the jurisdiction of the courts of Monmouth County, the State of New
Jersey or such other lawful jurisdiction as the Lender may determine. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New Jersey.

     Additionally, upon default, and without any further notice to the Borrower,
the Lender shall have complete and uninterrupted access to the Commerce Bank
Savings Account (Account #5297281) which has been pledged as collateral for the
within Loan.  That is, the said Savings Account has been assigned to the Lender,
and/or its successors.  By signing the within Agreement, Borrower consents to
the assignment of the aforementioned Savings Account to the benefit of the
Lender, or its successor.  However, notwithstanding anything contained herein to
the contrary, such an assignment shall only occur if Borrower is in default of
any of its obligations connected with the within Agreement.

     With regard to the above, the Borrower shall sign and execute such other
documents as Lender may, in its sole discretion, deem necessary to effectuate
the assignment as aforesaid.  Borrower hereby irrevocably appoints Lender,
and/or its successor, as its Power of Attorney to sign any and all documents in
this regard.  The representations and obligations contained herein shall survive
settlement.

     Finally, nothing contained herein shall prevent Lender (and/or its
successors) from pursuing any other recourse as law or equity may allow.

ADDITIONAL REMEDIES: Notwithstanding anything contained herein to the contrary,
in the event of Borrower's default, Lender may also avail itself to the
following:

     TERMINATION OF ACCOUNT.  If Borrower's Account is in default, Lender may,
     at its option, and without further notice or demand, eliminate Borrower's
     available credit by reducing Borrower's credit line to zero.  In such an
     event, Lender will require Borrower to return any unused credit line
     account checks (if applicable) and, until Borrower does so, and until the
     principal balance of the loan has been paid in full, Lender will not
     release its interest in the collateral for the loan.  Additionally, in such
     an event, Lender will no longer supply Borrower with additional credit line
     account checks (if applicable).  Moreover, Borrower shall immediately repay
     to Lender, any principal balance, accrued finance charges, and any other
     charges which may be due and owing.

     SUSPENSION OF CREDIT PRIVILEGES.  Lender may, temporarily or permanently,
     prohibit additional advances, or may reduce Borrower's credit line during
     any period in which (a) the value of the Lender's collateral declines
     significantly; (b) Lender has reason to believe that the Borrower will be
     unable to

                                      -7-
<PAGE>

     meet the repayment terms set forth herein because there has been a material
     change in any of the Borrower's financial circumstances; and/or (c)
     Borrower does not abide by any obligation contained in the within
     Agreement.

     CESSATION OF ADVANCES.  Lender shall have no obligation to make Loan
     Advances or to disburse Loan proceeds under this Agreement or under any
     other agreement if: (a) Borrower or any Guarantor is in default under the
     terms of this Agreement or any of the Related Documents or any other
     agreement that Borrower or any Guarantor has with Lender; (b) Borrower or
     any Guarantor dies, becomes incompetent or insolvent, files a petition in
     bankruptcy or similar proceeds, or is adjudged a bankrupt; (c) there occurs
     a material adverse change in Borrower's financial condition, in the
     financial condition of any Guarantor, or in the value of any Collateral
     securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to
     limit, modify or revoke such Guarantor's guaranty of the Loan or any other
     loan with Lender; or (e) Lender in good faith deems itself insecure, even
     though no Event of Default shall have occurred.

CLOSING OF ACCOUNT.  Upon sixty (60) days advanced written notice to Lender (at
the address shown above), Borrower may close the Account if (a) the principal
balance on the account is zero; and (b) Borrower (if applicable) has not issued
any credit line account checks which are still outstanding.  In the event both
the aforementioned conditions (and any other conditions contained in the loan)
are satisfied, within sixty (60) days of the receipt of Borrower's request to
close the account, Lender will release its security interest in the collateral
which secures the account.

RIGHT OF SETOFF.  Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title, and interest in and to Borrower's accounts with Lender
(whether checking, savings, certificate of deposit, or some other account),
including, without limitation, all accounts held jointly with another
entity/individual and all accounts Borrower may open in the future, excluding,
however, all IRA and Keogh Accounts, and all trust accounts for which the grant
of a security interest would be prohibited by law.  Borrower authorizes Lender,
to the extent permitted by applicable law, to charge or setoff all sums owing on
this Agreement against any and all such accounts.

INCORPORATION BY REFERENCE.  The Promissory Note dated June 1, 2000 is
incorporated herein at length.

MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of
this Agreement:

                                      -8-
<PAGE>

     Agency.  Nothing in this Agreement shall be construed to constitute the
     creation of a partnership or joint venture between Lender and Borrower or
     any contractor.  Lender is not an agent or representative of Borrower.
     This Agreement does not create a contractual relationship with and shall
     not be construed to benefit or bind Lender in any way with or create any
     contractual duties by Lender to any contractor, subcontractor, materialman,
     laborer, or any other person.  The relationship between Lender and Borrower
     will, at all times, be that of a Creditor and Debtor.

     Amendments.  This Agreement, together with the Commitment Letter, Note,
     Assignment of Accounts, Business Loan Agreement, Support Documents and
     Related Documents, constitute the entire understanding and agreement of the
     parties as to the matters set forth in this Agreement.  No alteration of or
     amendment to this Agreement shall be effective, unless given in writing and
     signed by the party or parties sought to be charged or bound by the
     alteration of amendment.

     Applicable Law.  This Agreement has been delivered to Lender and accepted
     by Lender in the State of New Jersey.  If there is a lawsuit, Borrower
     agrees upon Lender's request to submit to the jurisdiction of the courts of
     Monmouth County, the State of New Jersey or any such other New Jersey
     County as the Lender may determine.  This Agreement shall be governed by
     and construed in accordance with the laws of the State of New Jersey.

     Litigation.  Borrower represents that there is no Litigation pending,
     threatened, or anticipated against Borrower which would, in any way, affect
     Borrower's ability to repay the Loan amount as referenced herein.

     Authority to File Notices.  Borrower appoints and designates Lender as its
     attorney-in-fact to file for record any notice that Lender deems necessary
     to protect its interest under this Agreement.  This power shall be deemed
     coupled with an interest and shall be irrevocable while any sum or
     performance remains due and owing under this Agreement or under any of the
     Related Documents or Support Documents.

     Caption Headings.  Caption headings in this Agreement are for convenience
     purposes only and are not to be used to interpret or define the provisions
     of this Agreement.

     Multiple Parties; Corporate/Company Authority.  All obligations of Borrower
     under this Agreement shall be joint and several, and all references to
     Borrower

                                      -9-
<PAGE>

     shall mean each and every Borrower. This means that each of the
     persons/entities signing below is responsible for all obligations in this
     Agreement.

Consent to Loan Participation.  Borrower agrees and consents to Lender's sale or
transfer, whether now or later, of one or more participation interests in the
Loans to one or more purchasers, whether related or unrelated to Lender.  Lender
may provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
expressly waives any rights to privacy it may have with respect to such matters.
Borrower additionally expressly waives any and all notices of sale of
participation interest, as well as all notices of any repurchase of such
participation interests.  Borrower also agrees that the purchasers of any such
participation interest will be considered as the absolute owners of such
interest in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such participation
interests.  Borrower further waives all rights of offset or counterclaim that it
may have, now or later, against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower's obligation under the Loans - irrespective of
the failure or insolvency of any holder of any interest in the Loans.  Borrower
further agrees that the purchaser of any such participation interests may
enforce its interest - irrespective of any personal claims or defenses that
Borrower may have against Lender.

Costs and Expenses.  Borrower agrees to pay, upon demand, all of Lender's
expenses, including, without limitation, attorneys' fees, incurred in connection
with the preparation, execution, enforcement, modification, and collection of
this Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may pay some other individual/entity to help collect the Loans and to
enforce this Agreement, and Borrower will pay that amount.  This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses, whether or not there is a lawsuit, including attorneys'
fees for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services.  Borrower also will pay any of Lender's court costs, in
addition to all other sums provided by law.

Entire Agreement.  This Agreement and the Related Documents constitute all of
the agreements between the parties relating to the closing and supersede all
other prior or concurrent oral or written agreements or understandings relating
to the closing.

Notices.  All notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile (unless otherwise required by law), and
shall be effective when actually delivered or when deposited with a nationally
recognized overnight courier

                                      -10-
<PAGE>

or deposited in the United States mail, first class, postage prepaid, addressed
to the party to whom the notice is to be given at the address shown herein. Any
party may change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of the notice
is to change the party's address. To the extent permitted by applicable law, if
there is more than one Borrower, notice to any Borrower will constitute notice
to all Borrowers. For notice purposes, Borrower will keep Lender informed at all
times of Borrower's current address(es).

Successors and Assigns.  All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the benefit
of Lender, its successors, and assigns.  BORROWER SHALL NOT, HOWEVER, HAVE THE
RIGHT TO ASSIGN ITS RIGHTS UNDER THIS AGREEMENT OR ANY INTEREST THEREIN, WITHOUT
THE PRIOR WRITTEN CONSENT OF LENDER.

Severability.  If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances.  If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.

Survival.  All warranties, representations, and covenants made by Borrower in
this Agreement shall be considered to have been relied upon by Lender and will
survive the making of the Loan and delivery to Lender of the Related Documents -
regardless of any investigation made by Lender or on Lender's behalf.

Time is of the Essence.  Time is of the Essence in the performance of this
Agreement.

Waiver.  Lender shall not be deemed to have waived any rights under this
Agreement, unless such waiver is given in writing and signed by Lender.  No
delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right.  A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement.  No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor/Guarantor, shall
constitute a waiver of any of Lender's rights or of any obligations of Borrower
or of any Grantor/Guarantor as to any future actions, obligations, or
transactions.  Whenever the consent of Lender is required under this Agreement,
the granting of such consent by Lender in any instance shall not constitute
continuing consent

                                      -11-
<PAGE>

in subsequent instances where such consent is required, and in all cases, such
consent may be granted or withheld in the sole discretion of Lender.

PRIOR TO SIGNING THIS DOCUMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS BUSINESS LOAN AGREEMENT, BORROWER AGREES TO THE TERMS OF THE BUSINESS
LOAN AGREEMENT AND ACKNOWLEDGES RECEIPT OF AN EXECUTED COPY OF THE SAME.
BORROWER ALSO ACKNOWLEDGES REVIEWING THE CONTENTS OF THIS AGREEMENT WITH AN
ATTORNEY OF ITS OWN CHOICE.

ATTEST

                                        Telliurn, Inc., Borrower

By: /s/ Michael J. Losch                By: /s/ Richard W. Barcus
    ----------------------------            ------------------------------
    Michael J. Losch, Secretary             Richard W.  Barcus, President

Date: 6 - 1 - 00                        Date:  1 June 00
      --------------------------             -----------------------------

                                      -12-<PAGE>

                                                                    Exhibit 10.9

                                       1

                        EXECUTIVE EMPLOYMENT AGREEMENT
                        ------------------------------

         This Employment Agreement (the "Agreement") is made as of December 21,
1999 (the "Execution Date") by and between Tellium, Inc., a Delaware corporation
(the "Company"), and Harry J. Carr ("Executive").

         WHEREAS, on the terms and conditions set forth herein, the Company
desires to employ Executive in the position of Chairman of the Board of
Directors (the "Board") and Chief Executive Officer of the Company and Executive
desires to accept such employment;

         NOW, THEREFORE, in consideration of the mutual promises and agreements
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follow:

         1. Position; Term. The Company hereby hires Executive, and Executive
            --------  ----
accepts employment, as Chairman of the Board ("Chairman") and Chief Executive
Officer of the Company for a period commencing as of December 31, 1999 or as
soon as is practicable thereafter (the "Employment Date") and ending as of the
second anniversary thereof, unless Executive is earlier terminated as provided
in Section 4 hereof. The Term of this Agreement (the "Term") shall automatically
be renewed for successive one-year periods, unless either party provides the
other party written notice of its intent not to renew at least 90 days prior to
the end of such Term.

         2. Duties; Powers.
            ---------------

            (a) Executive will report solely and directly to the Board of the
Company, will undertake and assume the responsibilities which would ordinarily
or customarily be associated with the positions of Chairman and Chief Executive
Officer with a comparable employer, will have those powers and authority
ordinarily or customarily associated with such positions, will use his
reasonable best efforts in performing, for and on behalf of and at the sole cost
and expense of the Company, during business hours (other than during absences
due to illness or vacation), and, in such positions, will comply with the
written policies of the Company and the direction of the Board. The Executive
agrees to devote his full working time to the performance of his duties with the
Company. Executive will, as part of his duties as an employee of the Company,
actively seek such opportunities and undertake such activities so as to promote
high visibility and a positive image of the Company.

            (b) Notwithstanding the foregoing, from and after the Employment
Date, Executive may (i) serve on corporate, trade group, civic or charitable
boards or committees, (ii) deliver lectures, fulfill speaking engagements or
teach at educational institutions or programs, (iii) manage his personal,
financial and legal affairs, and (iv) passively invest personally in any
business in a private capacity where no actual conflict of interest exists
between such investment and the business of the Company so long as such
activities do not interfere with Executive's performance

<PAGE>

of his obligations hereunder. The Company hereby agrees that any earnings of
Executive in connection with the permissible activities described in the
preceding sentence may be retained by Executive.

            (c) For a time period not to exceed four weeks from the Employment
Date, Executive may consult with Lucent Technologies, Inc. ("Lucent") (his
former employer), in connection with the transition from his former duties and
responsibilities at Lucent. This consulting arrangement shall not be a breach of
this Agreement.

         3. Compensation.
            ------------

            (a) Salary. The Company agrees to pay Executive and Executive agrees
                ------
to accept as compensation for his services, a base salary of $300,000.00 per
annum (subject to such annual increases in the base salary set in accordance
with this Section), payable in accordance with the Company's standard payroll
policy and beginning as of the Employment Date. At least annually, the Board
will consider increases in Executive's annual rate of salary in light of
Executive's individual performance and other relevant factors.

            (b) Benefits. During his employment hereunder, Executive will be
                --------
entitled to participate in the employee benefit plans maintained by the Company
to the full extent provided for under those plans. In addition, the Company
shall obtain supplemental insurance for the benefit of Executive for any
"out-of-plan" costs or other costs incurred by Executive in order to utilize the
services of the health care provider of Executive's choice, to the extent that
the costs for utilizing such provider are not covered by the applicable Company
benefit plan.

            (c) Expenses. The Company will pay or reimburse Executive for
                --------
reasonable travel, entertainment or other expenses incurred by Executive in the
furtherance of or in connection with the performance of Executive's duties
hereunder in accordance with the Company's established policies. Executive shall
furnish the Company with evidence of the incurrence of such expenses within a
reasonable period of time from the date that they were incurred.

            (d) Stock Options. The parties acknowledge that, in order to induce
                -------------
Executive's execution of this Agreement, Executive has been granted (i) options
to purchase the Common Stock of the Company pursuant to the Stock Option
Agreement attached hereto as Exhibit A ( the "Option") and (ii) performance-
based options to purchase the Common Stock of the Company pursuant to the
Performance Stock Option Agreement attached hereto as Exhibit B (the
"Performance Option").

            (e) Bonus. Executive shall be eligible to receive an annual bonus of
                -----
up to 66 2/3% of his base salary under Section 3(a) in respect of each full
fiscal year during the term of employment in which the Company and the Executive
achieve the objectives mutually agreed upon by Executive and the Board of the
Company for such fiscal year. Should Executive exceed such

                                       2
<PAGE>

objectives, the bonus payable may be increased appropriately in such amounts as
the Board determines in its sole discretion.

            (f) Vacation. Executive shall be entitled to four weeks of paid
                --------
vacation per year (in addition to the holidays during which the Company is
closed and for which Company employees are paid).

            (g) Disability Insurance. If Executive is insurable, and if
                --------------------
generally and regularly available, the Company shall maintain, at its cost,
supplemental renewable long-term disability insurance as agreed to by the
Company and Executive for the benefit of Executive, which insurance shall
provide benefits not less than 100% of Executive's base salary at the time of
the disability for the duration of Executive's disability.

            (h) Rental Residence. The Company shall provide, at its cost,
                ----------------
Executive and his family with a furnished residence, acceptable to Executive (in
Executive's sole discretion) and located near the Company's principal place of
business, for the use of Executive and his family during the Term. The Company
estimates that the expected monthly cost of such residence is approximately
$1,500 per month.

            (i) Additional Compensation. The Company may pay to (or grant)
                -----------------------
Executive any and all additional compensation (including, without limitation,
cash bonus or deferred compensation programs, stock options or restricted stock)
that it deems relevant and appropriate to reflect Executive's performance.

         4. Termination.
            -----------

            (a) Termination upon Death. If Executive dies during the Term, this
                ----------------------
Agreement shall terminate, subject to Sections 5, 7, 8, 11, 12 and 15, as of the
date of his death.

            (b) Termination upon Disability. If during the Term Executive
                ---------------------------
becomes physically or mentally disabled, whether totally or partially, so that
Executive is unable to perform his essential job functions hereunder for: (i) a
period of 135 consecutive days; or (ii) for shorter periods aggregating 180 days
during any twelve-month period, the Company may, by written notice to Executive,
terminate this Agreement, subject to Sections 5, 6, 7, 8, 11, 12, 14 and 15, in
which event the Term shall terminate 10 days after the date upon which the
Company shall have given notice to Executive of its intention to terminate this
Agreement because of the disability. Nothing in this Section 4(b) shall be
deemed to extend the Term.

            (c) Termination.
                -----------

                (i) The Company may terminate this Agreement at any time with or
without cause upon 30 days' written notice by the Company to Executive (subject
to Sections 5, 6,

                                       3
<PAGE>

7, 8, 11, 12, 14 and 15 hereof). The Company's failure to renew this Agreement
under Section 1 shall be considered a termination of this Agreement by the
Company pursuant to this Section 4(c)(i).

                (ii) Executive may terminate this Agreement, subject to Sections
5, 6, 7, 8, 11, 12, 14 and 15, effective immediately by written notice to the
Company given within six (6) months after the occurrence of any of the following
events without Executive's written consent:

                     (A) The nature of Executive's title, position, duties,
                         powers and authority, reporting relationship, or the
                         scope of his responsibilities, are adversely modified
                         without Executive's written consent;

                     (B) The occurrence of a Change in Control as defined in
                         Section 7 of this Agreement;

                     (C) This Agreement is not assumed by any successor to the
                         Company pursuant to Section 15(a) hereof in a situation
                         other than a Change in Control; or

                     (D) A material breach of this Agreement by the Company
                         which breach remains uncured for 14 days from the date
                         that the notice of breach is received by the Company
                         from Executive.

            (d) Termination Upon Voluntary Resignation. Executive may terminate
                --------------------------------------
this Agreement, subject to Sections 6, 12 and 15, at any time after the
Employment Date by giving written notice to the Company at least 30 days prior
to the effective termination date stated in such notice. Executive's failure to
renew this agreement under Section 1 shall not be considered a voluntary
resignation.

         5. Severance Payments.
            ------------------

            (a) Certain Severance Payments. If during the Term this Agreement is
                --------------------------
terminated pursuant to Section 4(c) (i) or (ii) hereof, all compensation payable
to Executive under Section 3 hereof shall cease as of the date of termination
specified in the Company's or Executive's notice, as the case may be (the
"Termination Date"), and the Company shall pay to Executive, subject to Section
 ----------------
6 hereof, the following sums and benefits: (i) the Base Salary on the
Termination Date for one year (the "Severance Period"), payable ratably over the
                                    ----------------
Severance Period in accordance with the Company's standard payroll policy; (ii)
any unpaid bonus earned under Section 3(e) with respect to all prior years in
one lump sum; (iii) the unpaid bonus under Section 3(e) for that portion of the
year in which termination occurs, which bonus calculated under this clause (iii)
shall be no less than the prorata portion (based upon the portion of the year
during which employment continued as compared to the entire year) of the greater
of the bonus earned by

                                       4
<PAGE>

Executive in the immediately prior year or the target bonus payable under
Section 3(e) for such year calculated on the basis that Executive had achieved
the mutually agreed upon objectives for such year, payable in one lump sum; (iv)
benefits under group health and life insurance plans in which Executive
participated prior to termination through the Severance Period; (v) all
previously earned, accrued, and unpaid benefits from the Company and its
employee benefit plans, including, without limitation, any such benefits under
the Company's pension, disability, and life insurance plans, policies, and
programs; (vi) expenses reimbursable under Section 3(c); (vii) all previously
earned, accrued, and unpaid compensation and benefits, if any, under Section
3(i); and (viii) if Executive is residing in a rental residence pursuant to
Section 3(h), a continuation of the Company's payment responsibilities thereto
pursuant to Section 3(h) for a period no less than 3 months. If, prior to the
end of the Severance Period, Executive violates Section 6 hereof, then the
Company shall have no obligation to make any of the payments that remain payable
by the Company under clauses (i) and (iii) of this Section 5(a) on or after the
date of such violation. Amounts payable under this Section 5(a) shall be payable
within 10 days of the Termination Date, with the exception of the amounts
payable ratably under Section 5(a)(i).

            (b) Severance Payments Upon Other Termination Events. If this
                ------------------------------------------------
Agreement is terminated by the Company pursuant to Sections 4(a) or 4(b) hereof,
Executive shall receive the sums and benefits specified in clauses (ii), (iii),
(iv), (v), (vi), (vii) (if applicable), and (viii) (if applicable) of Section
5(a) hereof. In addition to these amounts, if the Agreement is terminated
pursuant to Sections 4(a) or 4(b), Executive shall receive his then-current
salary through the last day of the month of his death or the last day of the
month in which Executive is terminated due to disability in one lump sum
payment, plus any accrued but unpaid vacation pay through the last day of the
month in which Executive's death or notification of termination due to
disability occurs. If this Agreement is terminated by Executive pursuant to
Section 4(d), Executive shall receive the amounts specified in clauses (ii),
(iv) (only with regard to amounts incurred prior to the Termination Date), (v),
(vi) and (vii) of Section 5(a) hereof and the salary due and payable to him as
of the date of termination. Amounts payable under this Section 5(b) shall be
payable within 10 days of the Termination Date.

     6.     Non-Compete.
            -----------

            (a) During the Term and for a period of one (1) year thereafter (the
"Non-Compete Period"), Executive shall not (i) directly or indirectly through
 ------------------
another person or entity induce or attempt to induce any employee of the Company
to leave the employ of the Company, or in any way interfere with the
relationship between the Company, on the one hand, and any employee thereof, on
the other hand, (ii) directly and indirectly hire any person who was an employee
of the Company until six months after such individual's employment relationship
with the Company has been terminated, or (iii) directly or indirectly through
another person or entity induce or attempt to induce any customer, supplier,
subcontractor, licensee or other business relation of the Company to cease doing
business with the Company, or in any way interfere with

                                       5
<PAGE>

the relationship between any such customer, supplier, subcontractor, licensee or
business relation, on the one hand, and the Company, on the other hand.

            (b) The Executive understands that the foregoing restrictions may
limit his ability to earn a livelihood in a business similar to the business of
the Company, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the Company and as
otherwise provided hereunder to clearly justify such restrictions which, in any
event (given his education, skills and ability), the Executive does not believe
would prevent him from otherwise earning a living.

            (c) Executive shall inform any prospective or future employer of any
and all restrictions contained in this Agreement and provide such employer with
a copy of such restrictions (but no other terms of this Agreement), prior to the
commencement of that employment.

            (d) During the Term and during the Non-Compete Period, Executive
will not directly or indirectly disclose to any person, or use or otherwise
exploit for his own benefit or for the benefit of any person, other than the
Company, any Confidential Information or Trade Secrets other than any of the
foregoing which becomes public information without any breach of this Agreement
by Executive. For purposes of this Section 6(d), (i) the term "Confidential
                                                               ------------
Information" shall mean all information respecting the business and activities
-----------
of the Company, including, without limitation, the clients, customers,
suppliers, employees, consultants, computer or other files, projects, products,
computer disks or other media, computer hardware or computer software programs,
marketing plans, financial information, methodologies, know-how, processes,
practices, approaches, projections, forecasts, formats, systems, data gathering
methods and/or strategies of the Company (notwithstanding the immediately
preceding clause, Confidential Information shall not include (x) any information
that is, or becomes, a part of the public domain or generally available to the
public (unless such availability occurs as a result of any breach by Executive
of any portion of this Agreement or any other obligation Executive owes to the
Company) or (y) any business knowledge and experience of the type usually
acquired by persons engaged in positions similar to Executive's position with
the Company, to the extent such knowledge and experience is not specific to the
Company and not proprietary to the Company); and (ii) the term "Trade Secrets"
                                                                -------------
shall mean the whole or any portion or phase of any scientific or technical
information, design, process, procedure, computer program, formula or
improvement of the Company that is valuable and not generally known to the
competitors of the Company, whether or not in written or tangible form
(notwithstanding the immediately preceding clause, Trade Secrets shall not
include (x) any information that is, or becomes, a part of the public domain or
generally available to the public (unless such availability occurs as a result
of any breach by Executive of this Agreement or any other obligation Executive
owes to the Company) or (y) any business knowledge and experience of the type
usually acquired by persons engaged in positions similar to Executive's position
with the Company, to the extent such knowledge and experience is not specific to
the Company and not proprietary to the Company).

                                       6
<PAGE>

         7. Change of Control.
            -----------------

            (a) In the event that any payment or benefit (within the meaning of
Section 280G of the Internal Revenue Code) that is provided for hereunder to be
paid to or for the benefit of Executive or payments or benefits under any other
plan, agreement or arrangement between Executive and the Company (including,
without limitation, the Option and the Performance Option) (a "Payment" or
"Payments"), is determined or alleged to be subject to an excise or similar
purpose tax pursuant to Section 4999 of the Code or any successor or other
comparable federal, state, or local tax laws or any interest or penalties
incurred by Executive with respect to such excise or similar purpose tax (such
excise tax, together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax"), the Company shall pay to
Executive such additional compensation as is necessary to place Executive in the
same after-tax position he would have been in had no such Excise Tax been paid
or incurred (taking into account any federal, state and local income taxes or
Excise Tax, payable by Executive as a result of the receipt of such additional
compensation) (a "Gross-Up Payment").

            (b) Notwithstanding anything herein to the contrary, this Section 7
shall survive any termination under this Agreement.

         8. Enforcement.
            -----------

            (a) Because Executive's services are unique and because Executive
has access to confidential information and work product, the parties hereto
agree that money damages would be an inadequate remedy for any breach of this
Agreement. Therefore, in the event of a breach or threatened breach of this
Agreement, the Company or its successors or assigns may, in addition to other
rights and remedies existing in their favor at law or in equity, apply to any
court of competent jurisdiction for specific performance and/or injunctive or
other relief in order to enforce, or prevent any violations of, the provisions
hereof (without posting a bond or other security) or require Executive to
account for and pay over to the Company all compensation, profits, moneys,
accruals, increments or other benefits derived from or received as a result of
any transactions constituting a breach of the covenants contained herein in this
Agreement, if and when final judgment of a court of competent jurisdiction is so
entered against Executive.

            (b) Executive shall have an equivalent right to apply to any court
of competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce, or prevent any violations of, the provisions hereof.

         9. Insurance. The Company may, for its own benefit, maintain "keyman"
            ---------
life and disability insurance policies covering Executive. Executive will
cooperate with the Company and provide such information or other assistance as
the Company may reasonably request in connection with the Company obtaining and
maintaining such policies.

                                       7
<PAGE>

     10.  Representations and Warranties.
          ------------------------------

          (a)   Executive hereby represents and warrants to the Company that (i)
the execution, delivery and performance of this Agreement by Executive does not
and will not conflict with, breach, violate or cause a default under any other
agreement, contract or instrument to which Executive is a party or any judgment,
order or decree to which Executive is subject, (ii) Executive is not a party to
or bound by any other employment agreement, consulting agreement, non-compete
agreement, confidentiality agreement or similar agreement with any other person
or entity other than the Retention Agreement and the Non-Competition and Non-
Disclosure Agreement, each dated as of April 27, 1998, (copies of which are
attached hereto as Exhibits D and E) (collectively the "Lucent Agreements") and
(iii) upon the execution and delivery of this Agreement by the Company and
Executive, this Agreement will be a valid and binding obligation of Executive,
enforceable in accordance with its terms.

          (b)   The Company hereby represents and warrants to Executive that (i)
it has the requisite authority and corporate power to enter into this Agreement,
the Option and the Performance Option, (ii) the execution and delivery of this
Agreement, the Option and the Performance Option have been duly authorized by
the Board and by shareholder action, and (iii) this Agreement, the Option and
the Performance Option constitute a valid and binding obligation of the Company
enforceable in accordance with their respective terms (except to the extent
enforceability may be limited by the application of bankruptcy, insolvency, and
other similar laws affecting creditors' rights generally).

          (c)   Each of the parties hereto have read the Lucent Agreements and
agree that the execution, delivery and performance of this Agreement does not
constitute a breach of either Section 2 of the aforementioned Non Competition
and Non-Disclosure Agreement or the above-referenced Retention Agreement.

     11.  Directors' and Officers' Liability Insurance. Within ninety days
          --------------------------------------------
following the Execution Date, the Company shall obtain and maintain Directors'
and Officers' liability insurance for the benefit of Executive (and other
executives of the Company). After Executive is no longer employed by the
Company, for three (3) years following the date of termination of Executive's
employment, the Company shall provide Executive with Director's and Officers'
liability insurance coverage for events occurring prior to the termination of
Executive's employment that is no less favorable than the Company's Directors'
and Officers' liability insurance policy in effect on the date first written
above in terms of coverage and amounts.

     12.  Indemnification.
          ---------------

          (a)   General. The Company agrees that if Executive is made a party or
                -------
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that Executive is or was a

                                       8
<PAGE>

director or officer of the Company or any subsidiary thereof or is or was
serving at the request of the Company or any subsidiary thereof as a director,
officer, member, employee or agent of another corporation or a partnership,
joint venture, trust or other enterprise, including, without limitation, service
with respect to employee benefit plans, whether or not the basis of such
Proceeding is alleged action in an official capacity as a director, officer,
member, employee or agent while serving as a trustee, director, officer, member,
employee or agent, Executive shall be indemnified and held harmless by the
Company to the fullest extent authorized by Delaware law, as the same exists or
may hereafter be amended, against all Expenses (as hereinafter defined) incurred
or suffered by Executive in connection therewith, and such indemnification shall
continue as to Executive even if Executive has ceased to be an officer,
director, trustee or agent, or is no longer employed by the Company and shall
inure to the benefit of his heirs, executors and administrators. Notwithstanding
the provisions of this Section 12, the Executive shall not be entitled to
indemnification if (i) the Company is prohibited from paying such
indemnification under applicable law, (ii) the Executive breached his duty of
loyalty to the Company or its stockholders, (iii) the Executive's actions or
omissions were not in good faith or involved intentional misconduct or a knowing
violation of law or (iv) the Executive derived an improper personal benefit from
any transaction which is a subject of the applicable Proceeding (any existence
or occurrence described in the foregoing clauses (i)-(iv), individually, a
"Culpable Action"). The existence or occurrence of a Culpable Action shall be
conclusively determined by (i) a non-appealable, final decision of the court
having jurisdiction over the applicable Proceeding or (ii) a non-appealable,
final decision of the Court of the Chancery of the State of Delaware (or if such
a decision is appealable, by the court in such State which has jurisdiction to
render a non-appealable, final decision). Such determination shall be final and
binding upon the parties hereto.

     (b)   Expenses. As used in this Agreement, the term "Expenses" shall
           --------
include, without limitation, damages, losses, judgments, liabilities, fines,
penalties, excise taxes, settlements, costs, attorneys' fees, accountants'
investigations, and any expenses of establishing a right to indemnification
under this Agreement.

     (c)   Enforcement. If a claim or request under this Agreement is not paid
           -----------
by the Company or on its behalf, within thirty (30) days after a written claim
or request has been received by the Company, Executive may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim or request and if successful in whole or in part, Executive shall be
entitled to be paid also the expenses of prosecuting such suit. All obligations
for indemnification hereunder shall be subject to, and paid in accordance with,
applicable Delaware law.

     (d)   Partial Indemnification. If Executive is entitled under any provision
           -----------------------
of this Agreement to indemnification by the Company for some or a portion of any
Expenses, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Executive for the portion of such Expenses to which
Executive is entitled.

     (e)   Advances of Expenses. Expenses incurred by Executive in connection
           --------------------
with

                                       9
<PAGE>

any Proceeding shall be paid by the Company in advance upon request of Executive
that the Company pay such Expenses and upon Executive's delivery of an
undertaking to reimburse the Company for Expenses with respect to which
Executive is not entitled to indemnification.

     (f)   Notice of Claim. Executive shall give to the Company notice of any
           ---------------
claim made against him for which indemnification will or could be sought under
this Agreement, but the failure of Executive to give such notice shall not
relieve the Company of any liability the Company may have to Executive except to
the extent that the Company is prejudiced thereby. In addition, Executive shall
give the Company such information and cooperation as it may reasonably require
and as shall be within Executive's power and at such time and places as are
convenient for Executive.

     (g)   Defense of Claim. With respect to any Proceeding as to which
           ----------------
Executive notifies the Company of the commencement thereof;

           (i)   the Company shall be entitled to participate therein at its own
expense; and

           (ii)  Except as otherwise provided below, to the extent that it may
wish, the Company will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Executive. Executive also shall have the right to
employ his own counsel in such action, suit or proceeding if he reasonably
concludes that failure to do so would involve a conflict of interest between the
Company and Executive, and under such circumstances the fees and expenses of
such counsel shall be at the expense of the Company.

          (iii)  the Company shall not be liable to indemnify Executive under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner which would not include a full and unconditional release of
Executive without Executive's prior written consent. Neither the Company nor
Executive will unreasonably withhold or delay their consent to any proposed
settlement.

     (h)   Non-exclusivity. The right to indemnification and the payment of
           ---------------
Expenses incurred in defending a Proceeding in advance of its final disposition
conferred in this Agreement shall not be exclusive of any other right which
Executive may have or hereafter may acquire under any statute, provision of the
declaration of trust or certificate of incorporation or by-laws of the Company
or any subsidiary, agreement, vote of shareholders or disinterested directors or
trustees or otherwise.

 13. Withholding. All amounts payable to Executive under this Agreement shall be
     -----------
subject to applicable withholding by the Company for taxes payable by Executive.

                                       10
<PAGE>

     14.   Mitigation. Executive shall not be required to mitigate the amount of
           ----------
any payment, benefit, or other Company obligation provided for in this Agreement
by seeking other employment or otherwise and no such payment, benefit or other
Company obligation shall be offset or reduced by the amount of any compensation
or benefits provided to Executive in any subsequent employment.

     15.   Miscellaneous.
           -------------

           (a)   Successors; Binding Agreement.
                 -----------------------------

                 (i)   This Agreement shall be binding upon and shall inure to
the benefit of the Company. The Company shall require its successors and
assigns, by agreement in form and substance reasonably satisfactory to
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession or assignment had taken place.

                 (ii)  Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by Executive, his beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
Executive's legal personal representative.

           (b)   Entire Agreement; Amendment. Together with the Option and the
                 ---------------------------
Performance Option, this Agreement contains the entire agreement of the parties,
and may not be changed orally, but only by a subsequent writing signed by the
party against whom enforcement of such change is sought.

           (c)   Prior Agreements; Waiver. This Agreement supersedes any and all
                 ------------------------
prior discussions or agreements between the parties, whether oral or in writing,
related to the subject matter hereof. It is agreed that a waiver by either party
of a breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach by the same party.

           (d)   Severability. Without in any way limiting the provisions of
                 ------------
Section 6, in case one or more of the provisions contained in this Agreement
shall be held to be invalid, illegal or unenforceable in any respect for any
reason, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement but such provisions shall be deemed deleted
and such deletion shall not affect the validity of any other provision of this
Agreement.

           (e)   Governing Law. This Agreement shall governed by and construed
                 -------------
according to the internal laws of the State of New Jersey, without regard to any
applicable conflicts of law principles. The federal and state courts of the
State of New Jersey shall have exclusive jurisdiction to adjudicate any dispute
rising out of this Agreement.

                                       11
<PAGE>

           (f)   Jurisdiction and Venue.
                 ----------------------

                 (i)    The Company and Executive hereby irrevocably and
unconditionally submit, for themselves and their property, to the non-exclusive
jurisdiction of any New Jersey State court or federal court of the United States
of America sitting in New Jersey, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to this Agreement or for
recognition or enforcement of any judgment, and the Company and Executive hereby
irrevocably and unconditionally agree that all claims in respect of any such
action or proceeding may be heard and determined in any such New Jersey State
court or, to the extent permitted by law, in such federal court. The Company and
Executive agree that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.

                 (ii)   The Company and Executive irrevocably and
unconditionally waive, to the fullest extent they may legally and effectively do
so, any objection that they may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement in
any New Jersey State or federal court sitting in New Jersey. The Company and
Executive irrevocably waive, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.

                 (iii)  Notwithstanding clauses (i) and (ii) of this Section
15(f), the parties intend to and hereby confer jurisdiction to enforce the
covenants contained in Section 6 upon the courts of any jurisdiction within the
geographical scope of such covenants. If the courts of any one or more of such
jurisdictions hold such covenants wholly or partially invalid or unenforceable
by reason of the breadth of such scope or otherwise, it is the intention of the
parties that such determination not bar or in any way affect the Company's right
to the relief provided above in the courts of any other jurisdiction within the
geographical scope of such covenants, as to breaches of such covenants in such
other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.

                 (iv)   The Company and Executive further agree that the mailing
by certified or registered mail, return receipt requested, of any process
required by any such court shall constitute valid and lawful service of process
against them, without the necessity for service by any other means provided by
law.

           (g)   Counterparts. This Agreement may be signed in counterparts
                 ------------
which together will constitute one instrument.

           (h)   Legal Fees and Expenses. Upon receipt of reasonable written
                 -----------------------
evidence, the Company shall reimburse Executive promptly following the date
first written above for all reasonable legal fees (and expenses of counsel)
incurred by Executive in connection with (i) the Company and Executive entering
into this Agreement, the Option, the Performance Option and any

                                       12
<PAGE>

other agreements contemplated hereby and (ii) Executive's termination of the
Lucent Agreements.

           (i)   Notices. Any notice required or permitted to be given under
                 -------
this Agreement, the Option or the Performance Option shall be in writing and
shall be deemed to have been given when delivered in person or when deposited in
the U.S. mail, registered or certified, postage prepaid, and mailed to the
respective addresses set forth herein, unless a party changes its address for
receiving notices by giving notice in accordance with this Section 15(i), in
which case, to the address specified in such notice.

                                       13
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.

TELLIUM, INC.                                 Executive:

By:        /s/ Richard W. Barcus              /s/ Harry J. Carr
           ---------------------              -----------------
           Name:  Richard W. Barcus           Harry J. Carr
           Title:   President

           Address:                           Address:

           2 Crescent Place                   Two Manor Hill Drive
           P.O. Box 901                       Bernardsville, NJ  07924
           Oceanport, NJ 07757-0901

211758v5

                                       14

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