EXHIBIT 10.8
Confidential Portions omitted and filed separately with the Securities and
Exchange
Commission. Bullet points denote omissions.
MASTER REPAIR SERVICES AGREEMENT
between
NORTEL NETWORKS LIMITED
and
FLEXTRONICS TELECOM SYSTEMS LTD.
Dated as of June 29, 2004
Master Contract Repair Services Agreement

 

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TABLE OF CONTENTS

         
DEFINITIONS
    6  
 
       
SECTION 1 SCOPE OF THE RELATIONSHIP
    13  
 
       
1.1 Expectations
    13  
1.2 Information Access
    13  
1.3 Commitments and Obligations
    14  
1.4 Competitiveness
    14  
1.5 Structure of the Agreement
    15  
 
       
SECTION 2 GOVERNANCE PROCESS
    15  
 
       
2.1 Transition Planning
    15  
2.2 Strategic Governance
    15  
2.3 Operations Governance
    16  
2.4 Monthly Operations Reviews
    16  
2.5 Resources for Repair Services Support
    17  
 
       
SECTION 3 ORDERS
    17  
 
       
3.1 Service Blanket Orders
    17  
3.2 Acceptance of Orders
    17  
3.3. Minimum Commitment
    17  
3.3.1 Adjustments to the Minimum Commitment
    17  
3.3.2 Remedy for Failure to Achieve Minimum Commitment
    18  
3.3.3 Forecast of Required Repair Services
    18  
3.3.4 Forecast of Additional Required Repair Services
    18  
3.4 Issuance of Orders Electronically
    18  
 
       
SECTION 4 TRANSFER OF TITLE AND RISK OF LOSS
    18  
 
       
4.1 Transfer of Title and Risk of Loss
    18  
 
       
SECTION 5 DELIVERY PROCESS
    19  
 
       
5.1 Repair and Delivery Period
    19  
5.2 Packaging, Labelling and Trade-Marks
    19  
5.3 Management of Third Party Contracts
    19  
 
       
SECTION 6 MATERIALS MANAGEMENT PROCESS
    20  
 
       
6.1 Repair Facility Location
    20  
6.2 Material and Supplier Management Services
    20  
6.3 Storing and Handling
    21  
 
       
SECTION 7 CHANGE MANAGEMENT
    21  
 
       
7.1 Joint Change Management Process
    21  
7.1.1 Flextronics Proposal
    21  
7.1.2 Nortel Networks Proposal
    21  
7.2 Joint Product Change Management Process
    22  
7.3 New Product for Repair Introduction (NPRI)
    22  
7.4 New Capital Investments
    23  
 
       
SECTION 8 INVENTORY MANAGEMENT
    23  
 
       
8.1 End-of-life Planning
    23  
8.2 Class B Inventory and Class C Inventory
    23  
8.3 Open Market Purchases
    24  
8.4 Components
    24  

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8.5 Purges
    25  
8.6 Support of Nortel Networks Remanufacturing Activities
    25  
8.7 Excess Inventory
    25  
8.8 Consigned Inventory
    26  
8.9 Order of Inventory Usage
    27  
8.10 A-B Writedowns
    27  
8.11 Tracking of Inventory Furnished by Nortel Networks
    28  
 
       
SECTION 9 QUALITY
    29  
 
       
9.1 Metrics, Report Card and Liquidated Damages
    29  
9.1.1 Report Card
    29  
9.1.2 Liquidated Damages for Failure to Meet Metrics
    30  
9.1.3 Pass-through of Liquidated Damages from Customers
    31  
9.1.4 Termination for Breach of Metrics
    31  
9.2 Industry Standards
    33  
9.3 Source Inspection
    33  
9.4 Repair Quality
    33  
 
       
SECTION 10 REPAIR COST MANAGEMENT PROCESS
    33  
 
       
10.1 Prices for Repair Services
    34  
10.2 Payment, Taxes and Duties
    34  
10.2.1 Invoices
    34  
10.2.2 Payment
    35  
10.3 Ongoing Cost Reduction
    36  
10.4 Incremental Cost Reduction
    36  
10.4.1 Definition of ICR
    36  
10.4.2 ICR Commitment
    36  
10.4.3 Implementation of ICR
    37  
10.4.4 Year 4 Cost Reduction
    37  
10.5 OCR Threshold Commitment
    37  
 
       
SECTION 11 BUSINESS CONTINUITY
    38  
 
       
11.1 Business Continuity Planning
    38  
 
       
SECTION 12 WARRANTIES
    39  
 
       
12.1 Repair Services
    39  
12.2 Return of Products under Warranty
    40  
12.3 Epidemic Failure
    40  
12.3.1 Procedure for Epidemic Failure
    40  
12.3.2 Remedies for Epidemic Condition
    40  
 
       
SECTION 13 INTELLECTUAL PROPERTY RIGHTS AND LICENSES
    41  
 
       
13.1 License to Nortel Company Proprietary Information Granted
    41  
13.2 Limitations on Grant of License
    42  
13.3 Flextronics Inventions
    42  
13.4 Specifications and Deliverables Owned by NNL
    42  
13.5 Flextronics Retains Ownership of Flextronics Proprietary Information
    42  
13.6 Assignment of Inventions Agreements with Employees
    42  
 
       
SECTION 14 INDEMNIFICATION
    43  
 
       
14.1 Intellectual Property Indemnification
    43  
14.1.1 By NNL
    43  
14.1.2 By Flextronics
    44  
14.1.3 Measures to Safeguard NNL against Liability
    44  
14.2 Other Indemnification
    45  

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14.2.1By Flextronics
    45  
14.2.2By Nortel Networks
    45  
 
       
SECTION 15 LIMITATION OF LIABILITY
    45  
 
       
SECTION 16 COMMUNICATION AND INFORMATION TRANSFER
    46  
 
       
16.1 Access to Nortel Networks Computer Systems by Flextronics
    46  
16.2 Flextronics Compatibility with Nortel Networks Computer Systems
    46  
16.3 Information Technology Services
    47  
 
       
SECTION 17 EQUIPMENT FURNISHED BY NORTEL NETWORKS
    47  
17.1 Title to Equipment Furnished by Nortel Networks
    47  
17.2 Risk, Insurance and Maintenance of Equipment Furnished by Nortel Networks
    47  
 
       
SECTION 18 RESERVED ASSETS
    47  
 
       
SECTION 19 LEGAL AND REGULATORY COMPLIANCE
    47  
 
       
SECTION 20 INTERNATIONAL TRADE
    48  
20.1 Exports
    48  
20.2 Customs Invoice
    48  
20.3 Duty Drawback and Minimization
    49  
 
       
SECTION 21 ENVIRONMENTAL POLICIES
    49  
 
       
21.1 ISO 14001
    49  
21.2 Corporate Policy
    49  
21.3 VOC Free and Lead-Free Technology
    50  
21.4 European Union (“EU”) Environmental Directives
    50  
21.4.1Compliance
    50  
21.4.2Indemnification
    51  
21.5 Packaging Reusable and Recyclable
    51  
21.6 INTENTIONALLY LEFT BLANK
    51  
21.7 Collaborate on Environmental Initiatives
    51  
21.8 Hazardous Materials
    51  
 
       
SECTION 22 CONFIDENTIALITY AND PROPRIETARY INFORMATION
    53  
 
       
22.1 Restriction on Disclosure and Use of Confidential Information
    53  
22.2 Publicity
    54  
 
       
SECTION 23 INSURANCE
    54  
 
       
23.1 General Liability Insurance
    54  
23.2 Property and Business Insurance
    55  
23.3 Certificate of Insurance
    55  
 
       
SECTION 24 EXPIRATION OR TERMINATION
    56  
 
       
24.1 Termination
    56  
24.2 Effect of Expiration or Termination
    57  
 
       
SECTION 25 TERMINATION ASSISTANCE
    58  
 
       
25.1 Termination Assistance Services
    59  
25.2 Obligation to Provide Termination Services
    59  
25.3 Termination Assistance Period
    59  
 
       
SECTION 26
    59  

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DISPUTE RESOLUTION
    59  
 
       
26.1 Internal Dispute Resolution
    59  
 
       
SECTION 27 GENERAL PROVISIONS
    60  
 
       
27.1 Access to Facilities
    60  
27.2 Reporting
    60  
27.3 Documentation
    60  
27.4 Audits
    60  
27.4.1 Agreement Compliance
    60  
27.4.2 Control & Security Compliance
    61  
27.5 Force Majeure
    62  
27.6 Notices
    62  
27.7 Independent Contractor
    63  
27.8 Flextronics Responsible for its Contractors
    64  
27.9 Assignment
    64  
27.10 Severability
    64  
27.11 Governing Law; Waiver of Jury Trial
    65  
27.12 Consent to Jurisdiction
    65  
27.13 Entire Agreement; Amendments
    65  
27.14 Most Favored Customer
    65  
27.15 Construction
    65  
27.16 Headings
    66  
27.17 Time of Essence
    66  
27.18 Agreement by All Flextronics Entities
    66  
27.19 Language
    66  

EXHIBITS

     
Exhibit 1
  Third Party Management Statement of Work
Exhibit 2
  Logistics Services Statement of Work
Exhibit 3
  Repair Services Statement of Work
Exhibit 4
  A to B Writedown Templates
Exhibit 5
  Metrics & Scorecard
Exhibit 6
  Products
Exhibit 7
  Pricing and Cost Reduction Process
Exhibit 8
  Specifications
Exhibit 9-1
  Form of Agreement to Intellectual Property and Confidentiality (Nortel
Networks)
Exhibit 9-2
  Form of Employee Confidential Information and Inventions Agreement
(Flextronics)
Exhibit 10
  Dispute Escalation

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Exhibit 11
  EMEA Employment Provisions
Exhibit 12
  Managed Contracts
Exhibit 13
  Reserved Assets
Exhibit 14
  Out of Scope Activity
Exhibit 15
  Process to Establish Day One Pricing

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\

Master Contract Repair Services Agreement
This Agreement is entered into between Nortel Networks Limited, a Canadian
corporation with a place of business at 8200 Dixie Road, Suite 100, Brampton,
Ontario (“NNL”) and Flextronics Telecom Systems Ltd., a company organized under
the laws of Mauritius, and having its registered office located at Suite 802 St
James Court, St Denis Street, Port Louis, Mauritius, executed as of June 29,
2004 (“Execution Date”). As set out in the Phased Closing Side Letter, dated as
of the Execution Date, the Effective Date of this Master Repair Services
Agreement (the “Agreement”) shall be the date that the first Virtual System
House Agreement is executed (“Effective Date”). The Parties agree that the terms
and conditions of this Agreement shall come into effect for each VSHA executed
as such VSHAs are executed (“VSHA Effective Date(s)).
WHEREAS NNL wishes Flextronics to provide NNL certain repair services relating
to orders made by NNL to Flextronics in respect of products manufactured
pursuant to the terms of the MCMSA (as defined herein).
WHEREAS Flextronics International Ltd., a company duly established under the
laws of Singapore, and having its registered office located at 2 Changi South
Lane, Singapore 486123 acting through its Hong Kong branch office with offices
at Room 908, Dominion Centre, 43-59 Queen’s Road East, Wanchai, Hong Kong and
NNL have executed that certain Performance Guarantee dated X, 2004;
WHEREAS NNL has agreed to purchase and Flextronics has agreed, upon the terms
and conditions set out herein, to provide the services as more particularly
defined herein;
NOW THEREFORE, in consideration of the mutual promises hereinafter set forth
(the receipt and sufficiency of which is hereby acknowledged), the Parties
hereby agree as follows:
DEFINITIONS
“Affiliate” means individually or collectively:

  (a)   a Manufacturing Licensee;     (b)   a joint venture or other cooperative
business enterprise formed between Nortel Networks and one (1) or more person(s)
which are not part of or related to Nortel Networks; and/or     (c)   a
corporation or other legal entity in which Nortel Networks, directly or
indirectly, at any time, owns or controls twenty (20%) percent or more of the
voting equity shares, or securities convertible into such shares.

“Asset Purchase Agreement” means the agreement executed between NNL and
Flextronics dated June 29, 2004.
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“Assists” means goods and services supplied directly or indirectly, free of
charge or at a reduced cost for use in connection with the production of
imported goods, such as raw materials, components, parts used for or
incorporated into the imported goods, tools, dies, moulds and other equipment
used to produce the finished goods, any materials used to produce the finished
goods being imported, engineering, development work, art work, designs, plans or
sketches undertaken anywhere other than the country of import.
“Business Continuity Plan” has the meaning set forth in Section 11.1, known to
Flextronics as the Business Resumption Plan.
“Business Day” means, for the purposes of dealings between (i) NNL and
Flextronics hereunder, any day other than Sunday, or a statutory holiday or
otherwise scheduled holiday agreed to in writing by the parties on which either
of such parties is closed for business.
“CA” means a point of time at which the Class A material is available to select
customers.
“Carrying Charge” means [•] per annum. For Carrying Charge applied to
End-of-Life Inventory, the Carrying Charge will be [•].
“Class A Inventory” is sometimes referred to as Class A material and means
Products that are brand new and have not been installed in a Customer’s live
network.
“Class B Inventory” is sometimes referred to as Class B material and means those
Products repaired and available for use.
“Class C Inventory” is sometimes referred to as Class C material and means
unrepaired inventory.
“Commencement Date” means the VSHA Effective Date for the last of the following
System Houses to be transferred: Calgary, Montreal, Monkstown, or Chateaudun;
provided that the optical designers in Ottawa and Monkstown and the logistics
management and embedded physical repair in St. Laurent and Calgary must have
been transferred.
“Competitor” means any company with more than $50 million in revenues from the
development or sale of telecom, optical or wireless networking equipment or
$10 million of repair revenue.
“Component Cost” means Flextronics’ actual unburdened cost of components,
inclusive of freight and duty, as set forth and verifiable by Flextronics’
purchase order with its components supplier. This cost will take into
consideration all rebates and favourable payment terms (cash, term or other).
“Confidential Information” has the meaning set out in Section 22.1.
“Consigned Inventory” shall mean End-of-Life Inventory or other Inventory
purchased by Nortel Networks but held by Flextronics under the terms set out in
Section 8.8.
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“Consumable Material” means materials that are consumed in the repair and
logistics process, such as solder, finished goods packaging, labels, skids,
pallets and shipping packaging materials.
“Contact Center” means the point of contact designated by Nortel Networks for
its Customers to request Repair Services.
“Control and Responsibility” means, for the purposes of this Agreement, [•].
“Currency Conversion” means a factor used in calculating Price or Material Cost,
or any part thereof, for purchases in a currency other than the currency in
which Nortel Networks is required to pay Flextronics hereunder, based on the “FX
Bench” forward currency rate as published by Reuters 12.00 CET on the mutually
agreed date for pricing (the “Exchange Rate”), or any other benchmark as
otherwise agreed in the applicable VSHA.
“Customer” means a direct or indirect customer of Nortel Networks.
“Daily Usage Rate” means the amount of Class B Inventory expressed in units that
were sold in the last 90 calendar days divided by 90.
“Delivery Location” means the location specified in an Order to which the
Repaired Product shall be delivered or to the stocking location.
“Dollar” or “$” means U.S. dollars.
“ECO” or “Engineering Change Order” means a written direction in the form of an
engineering change order to make a change to a Product including a change to the
design, manufacture, and repair or test procedure for a Product.
“EDI” means electronic data interchange.
“End-of-Life Inventory” means components that are necessary for the repair of
the Products which have been or are scheduled to be discontinued by suppliers.
“Epidemic Condition” means when RDOA Repaired Product failures equal or exceed
the percentage as mutually agreed and set forth in Exhibit 5.
“Flextronics” means Flextronics and, as applicable, any Subsidiary of
Flextronics that is to perform Repair Services pursuant to this Agreement.
“Flextronics Invention” means any innovation, improvement, idea or feature,
whether or not patentable or registerable, which is conceived or created in the
course of the performance by Flextronics of the Repair Services, but shall not
include any Product Specific Inventions.
“Flextronics Proprietary Information” means information, technology, processes,
or other proprietary property, including copyrights, trade secrets, know-how,
mask work rights, any waiver to moral rights, patents and/or patent applications
in any form or medium developed or
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acquired by Flextronics or its licensors other than Nortel Networks, but for
greater certainty, does not include the following: (i) Nortel Company
Proprietary Information or such information or processes listed above which are
derived from Nortel Company Proprietary Information; (ii) the Specifications and
all deliverables resulting from the Services; (iii) Reserved Assets;
(iv) materials and/or equipment loaned pursuant to Section 17.1; (v) Product
Specific Inventions; and (vi) such information, technology, processes, etc.
developed or arising out of Services funded by Nortel Networks under this
Agreement.
“Force Majeure” means all acts or events beyond the reasonable control of a
Party. This definition shall not include any act or event that would have been
prevented, or the effects of which would have been substantially mitigated, by
implementation of a Business Continuity Plan in accordance with best practices
in the relevant equipment manufacturing industry for telecommunications by
Flextronics as required under Section 11.1, unless Flextronics demonstrates that
it has made a good faith effort to implement such a plan. For clarity, the
following will be considered an event of Force Majeure: an act of God, act or
decree of governmental or military bodies, strike, lock-out, fire, casualty,
flood, earthquake, war, epidemic, destruction of production facilities, riot,
insurrection; provided however a Party’s failure to resolve its own labour
difficulties such as strike or lock-out shall only be considered an event of
Force Majeure if that Party (i) has included specific action plans related to
strikes and lock-outs in its Business Continuity Plan (ii) is in compliance with
fair labour practices under the law of the applicable jurisdiction, and
(iii) has made commercially reasonable efforts to resolve such labour
difficulties.
“GA” means general availability of Class A material.
“Government Entity” means any federal, provincial, state, municipal or other
governmental authority, domestic or foreign, or any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of government.
“Hub” means a physical location where Customers return Products and where
Inventory is located.
“Inventory” means components purchased by Flextronics, work in process, and
Products.
“Leadership Category” means a business division within Nortel Networks, which is
currently designated as one of Wireless Networks, Optical Networks, Wireline
Networks and Enterprise Networks.
“License Agreement” means the agreement or agreements entered into between NNL
and Flextronics on the date of this Agreement whereby NNL has agreed to grant to
Flextronics certain licenses in respect of certain licensed intellectual
property, as defined therein.
“Life Cycle” means, with respect to any Product, the time beginning at CA until
end-of-life.
“Logistics” as more particularly described in Exhibit 2, means those services
including i) warehouse services, ii) transportation coordination and management,
iii) export services, iv) packaging and labeling, v) Inventory control and
reporting, and vi) trade and compliance.
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“Manufacturing Licensee” means a third party which enters into an agreement with
Nortel Networks to manufacture, in modified or unmodified form, Products,
whether or not associated with a right to lease, sell, sublicense or otherwise
distribute (directly or indirectly through distributors) such Products under the
brand name of a Nortel Company or that of the Manufacturing Licensee.
“Material and Supplier Management Services” shall mean those services to be
provided by Flextronics described in Section 6.2.of this Agreement.
“MCMSA” means the Amended and Restated Master Contract Manufacturing Services
Agreement dated June 29, 2004, between NNL and Flextronics with respect to
manufacturing services to be provided to Nortel Networks relating to the
products specified therein.
“Minimum Commitment” means Nortel Networks’ spend on Repair Services as set
forth in Section 3.3.
“NC Material” or “NC” means components or services which are sourced under a
contract or other commercial relationship with Nortel Networks and Nortel
Networks retains sourcing control.
“Nortel Company” means NNL or any of its Subsidiaries.
“Nortel Company Proprietary Information” means:

  (a)   Programs;     (b)   technology, designs or other information that enjoy
issued or pending statutory proprietary protection, including patents,
copyrights, waivers of moral rights, mask work rights or integrated circuit
topography registrations, industrial design registrations or design patents but
not trade-marks or other indicia of origin;     (c)   confidential or non public
business information including ideas, formulae, plans, proposals, designs,
schematics, drawings, flow charts, product and process and test specifications,
trade secrets, know how, technical data, algorithms, databases, and technical
reports, and customer, marketing and financial information;

embodied in any form or medium and owned or developed by or on behalf of a
Nortel Company or acquired from its licensors with rights to disclose or
sublicense that pertains to Nortel Company’s business, including Products and
their design, manufacture, use and testing and Pre-Production Products as
defined in the MCMSA, Systems, Specifications and all deliverables resulting
from the Repair Services, and Product Specific Inventions or any Flextronics
Proprietary Information deemed to be owned by a Nortel Company pursuant to
Section 13.4 hereof.
“Nortel Networks” means NNL or, as applicable, any Nortel Company that has
become a Party to this Agreement by issuing an Order under this Agreement.
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“Nortel Networks Supplier” means an Affiliate or any Person who supplies repair
services to Nortel Networks.
“NPRI” means new products and process introduction for Repair of Products that
are introduced for the first time at a Repair Facility.
“Order(s)” means either the “hard copy” document or EDI used by Nortel Networks
to order Repair Services under this Agreement pursuant to Section 3.4 of this
Agreement.
“Party” means either NNL or Flextronics and “Parties” shall mean both NNL and
Flextronics.
“Person” means an individual, a partnership, a corporation, an association, a
limited liability company, a joint stock company, a trust, a joint venture, an
unincorporated organization or a Government Entity.
“Price” means the price paid by Nortel Networks to Flextronics with respect to
any Repair Services as set forth herein.
“Product(s)” means those products identified in Exhibit 6 as of the Effective
Date and any additions to Exhibit 6 specifically agreed as evidenced in a
written instrument signed by authorized representatives of the Parties.
“Product Family” means NNL’s Optical, Wireline, Wireless and Enterprise
leadership categories.
“Product Specific Inventions” means Flextronics innovations, improvements, ideas
or features relating to or incorporated in a Product, but not including any such
innovations, ideas or feature relating solely to repair processes for the
Product.
“Programs” means software used or retained for use in the provision of Repair
Services in whatever form, including that which is ROM resident, listings,
flowcharts, logic diagrams, operating instructions, and any other related
documentation, whether or not described in the Specification.
“Purge” means the rework of Inventory as further defined in Section 8.5.
“Repair” means test analysis, repair, upgrade, incircuit testing, system level
testing, packing, Logistics and refurbishment, as set out in the Statement of
Work, provided to Nortel Networks by Flextronics.
“Repair Change Impact Form” means the form to be completed by Flextronics in
response to a change to the Repair or test procedure of a Product. This form
shall contain, at a minimum, an estimate of the change of the price in the
relevant Repair Services as well as any Purge charges as defined in Section 8.5.
“R DOA” or “Repair Dead On Arrival” means Product that has been repaired and is
being returned for repair again within 90 days of the initial Repaired Product
shipment.
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“Repair Facility(ies)” means (a) Flextronics facility(ies) where Flextronics
performs Repair Services.
“Repair Services” means the services specific to repair and distribution of the
Products, including engineering, technical, programming, Logistics, Repair,
overhaul and other functions and services as applicable, provided to Nortel
Networks by Flextronics as set forth in the applicable Statement of Work.
“Repair Warranty Period” means twelve (12) months from Shipping Date.
“Repaired Product” means a Product on which a Repair has been completed by
Flextronics or third parties managed by Flextronics.
“Replacement Value” means the cost of replacing any Repaired Product, Product to
be Repaired or Nortel Networks property with an equivalent value asset.
“Reserved Assets” means all test fixtures, functional test equipment, and system
test equipment unique to NNL as well as those assets included in the Subject
Assets as defined in the Asset Purchase Agreement and which may be repurchased
by Nortel Networks from Flextronics pursuant to the provisions of Section 18 of
this Agreement.
“SC Material” or “SC” means components or services sourced under a contract or
other commercial relationship with Flextronics and Flextronics retains sourcing
control.
“Service Blanket Order” means an Order which does not set forth a delivery date,
Shipping Date and/or specific quantities.
“Shared Services Agreement” means the Shared Services Agreement between NNL and
Flextronics as provided in the Asset Purchase Agreement.
“Shipping Date” means the date when a Product shall be delivered to the carrier
at the Shipping Location for shipment to the Delivery Location.
“Shipping Location(s)” means the location(s) as may be amended from time to time
by the Parties, from which a Product shall be shipped by Flextronics.
“Specifications” means the documents referenced in Exhibit 8. These
Specifications may be amended from time to time as mutually agreed by the
Parties.
“Statement of Work” means the description of Repair Services attached hereto as
Exhibits 1, 2 and 3.
“Subsidiary” means, with respect to any specified Person, means any corporation
with respect to which the Person directly or indirectly owns more than fifty
percent (50%) of the issued and outstanding equity securities or securities
convertible into such securities or has the power to vote or direct the voting
of sufficient securities to elect a majority of the directors. With respect
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to the Parties, a specified Person shall be Nortel Networks Corporation and
Flextronics International Ltd.
“System” means a Nortel Networks’ product comprised of various components and
sub-assemblies and which incorporates one (1) or more Products.
“Term” means has the meaning set forth in Section 1.6.
“Trade-Marks” mean words, designs, shapes, configurations, guises or brands that
serve as indications that the origin of Products is Nortel Networks and includes
model numbers and product designations as used both internally and externally on
the Products or in conjunction with their sale or other distribution.
“Virtual Systems House Agreement” or “VSHA” shall mean any Virtual Systems House
Agreement agreed upon in writing between Nortel Networks and Flextronics, a form
of which is attached to the MCMSA as Exhibit 2, which when executed, together
with its Schedules, shall form part of the MCMSA.
“Year One” means the twelve months following the Commencement Date.
“Year Two” means the twelve months following the first anniversary of the
Commencement Date.
“Year Three” means the twelve months following the second anniversary of the
Commencement Date.
“Year Four” means the twelve months following the third anniversary of the
Commencement Date.
SECTION 1
SCOPE OF THE RELATIONSHIP
1.1 Expectations
Nortel Networks and Flextronics will collaborate in the development and
execution of strategic plans for support of Nortel Networks’ business strategy
worldwide for Repair Services. Nortel Networks has designated Flextronics as a
Strategic Supplier under Nortel Networks current Supplier Business Engagement
Model.
1.2 Information Access
Flextronics will have access to the Nortel Networks Proprietary Information and
NNL shall have access to Flextronics Proprietary Information as set forth in
this Agreement. To enable
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Flextronics to perform the Repair Services NNL shall provide all mutually agreed
to information related to those Repair Services.
1.3 Commitments and Obligations
Nortel Networks shall maintain a central Contact Center where Customers may
request Repair Services. During the Term, and provided Flextronics is not in
material breach of this Agreement, Nortel Networks agrees to purchase from
Flextronics [•].
Flextronics agrees to perform Repair Services in respect of all Products
received from Nortel Networks in accordance with the Statement of Work and the
Nortel Networks workmanship standards and procedures as set out in the
Specifications or any more stringent standard mutually agreed with Flextronics
and indicated herein in writing. Flextronics shall perform the Repair Services
solely for, either directly or on behalf of, Nortel Networks. Flextronics shall
not perform services on Nortel Networks Products for third parties.
1.4 Competitiveness
If Flextronics fails to remain Competitive with its competitors with respect to
the Repair Services, then Nortel Networks may source such Repair Service from
another supplier. Notwithstanding the foregoing, Nortel Networks will not
transfer the Repair Services if Flextronics becomes Competitive within
forty-five (45) days from notification by Nortel Networks.
For the purposes of this Section, “Competitive” means terms and conditions taken
as a whole that are at least as favorable to Nortel Networks as any “bona fide
benchmarking” exercise or bona fide quote from a third party considering price,
product quality, lead times, local content, delivery, warranty, technical
support, Inventory ownership, payment terms, assumption of overhead, logistics,
and other criteria identified by Nortel Networks in writing to Flextronics. A
“bona fide benchmarking exercise” shall be considered to be one performed by an
independent recognized benchmarking firm which is (i) selected by Nortel
Networks from those companies which are regularly engaged in the industry
related to the Repair Services, (ii) is not a Competitor of Flextronics and
(iii) which has executed a non-disclosure agreement reasonably satisfactory to
Flextronics. All fees and charges paid to such benchmarking firm shall be borne
by Nortel Networks, and such fees and charges shall not be contingent upon
reaching a conclusion favorable to Nortel Networks. Each party shall have the
opportunity to advise the benchmarking firm of any information or factors that
it deems relevant to the conduct of the benchmarking, with the intention of
providing an “apples to apples” comparison, so long as such information is
disclosed to the other Party. The benchmarking firm shall provide the written
reports and the core data resulting from the benchmarking to both Nortel
Networks and Flextronics, including the factors actually used to perform the
benchmarking, data on participants and confidence factors related to the
accuracy of the data and the benchmarking methodology. Flextronics will be
entitled to challenge the accuracy of the results of the benchmarking exercise
pursuant to the Dispute Resolution process in Exhibit 10.
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1.5 Structure of the Agreement
This Agreement sets out the terms and conditions of the relationship between NNL
and Flextronics and the Repair Services to be performed by Flextronics pursuant
to this Agreement and the terms of performance of such Repair Services by
Flextronics. Each Order, or Service Blanket Order issued to Flextronics shall
create rights and obligations between the Nortel Company which issues the Order
and the Flextronics Subsidiary to which it is issued. An Order, or Service
Blanket Order, shall bind solely the Nortel Company that issued it and the
Flextronics Subsidiary to which it is issued, and neither NNL nor any other
Nortel Company shall be liable for any Order or Service Blanket Order not issued
by it.
This Agreement shall continue to apply to an Order issued during the Term until
all obligations provided for in this Agreement are performed. Notwithstanding
that an Order does not refer to this Agreement, any Order issued by a Nortel
Company during the Term shall be deemed to have been issued pursuant to this
Agreement unless the Parties expressly agree in writing to the contrary. In the
event of any conflict or inconsistency between the terms of this Agreement and
any other document ancillary or relating thereto, the following order of
precedence shall apply, but only to the extent of an express conflict or
inconsistency: (1) this Agreement, (2) Exhibits, (3) Order(s), and (4) Service
Blanket Order(s).
1.6 Term
This Agreement shall commence on the Effective Date and continue until
terminated in accordance with this Agreement (the “Term”). For purposes of this
Section, Section 10 and related Exhibits, Year One shall begin on the
Commencement Date. Years Two, Three and Four shall begin on the respective
anniversaries of such Commencement Date. Either Party may deliver a notice for
termination for convenience to take effect [•] following such notice; provided
however, that no such notice may be delivered before a date that is [•] before
the fourth anniversary of the beginning of Year One.
SECTION 2
GOVERNANCE PROCESS
2.1 Transition Planning
The Parties will mutually agree to meet to discuss transition planning in
respect of the Repair Services as frequently as is required. Such discussions
shall consider the terms of any transition implementation plans developed by the
Parties.
2.2 Strategic Governance
Nortel Networks and Flextronics shall meet quarterly at a management level to
exchange and align business strategies around the following areas:
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(a)   Quarterly Business Reviews. The Parties shall conduct quarterly business
reviews that are strategic and global in nature, to include but not limited to:
consolidated global Report Card performance, total business and Nortel Networks
business trends, key financial indicators, process improvements, significant
technology trends and advancements, organizational alignments, and cost to
market and time to market foot print and trends.   (b)   Cost Reduction
Opportunities. The Parties shall discuss cost reduction opportunities, and
Flextronics shall use its commercially reasonable efforts to identify such
opportunities including savings in the areas of research and development, head
count investment, risk, timeframe and materials.   (c)   Metrics and Report
Card. The Parties shall use the performance indicators set forth in Section 9.1
and Exhibit 5 to establish the Report Card.

2.3 Operations Governance
Nortel Networks and Flextronics shall:

(a)   Dedicate business management teams to provide consistent and efficient
responses to mutually agreed upon goals and requirements.   (b)   Create a
process to communicate about and resolve issues promptly and to drive continuous
improvement of the day-to-day operation.   (c)   Comply with all reporting and
meeting requirements, including collecting and reporting scorecard metrics, as
provided in this Agreement.   (d)   Upon reasonable prior notice, provide open
book access for Nortel Networks at Flextronics’ premises to resources,
documents, records, databases and any other information that is not in violation
of any third party agreements of confidentiality and is directly relevant to
Nortel Networks’ cost management, including but not limited to, information
relating to the On-going Cost Reduction and continuous improvement, as more
fully described in Section 10.3 and Exhibit 7. Each Party hereby covenants and
agrees that it shall keep confidential all information gathered in the open book
process, including not disclosing such information directly or indirectly to any
competitor or supplier of the disclosing Party, all subject to the provisions of
Section 22. Any breach of the preceding sentence shall be considered to be a
material breach of this Agreement.   (e)   Review the total cost plan and
provide the results of such review to Nortel Networks on a timely basis

2.4 Monthly Operations Reviews
Flextronics and Nortel Networks shall conduct monthly (or on a schedule as
otherwise agreed) operations reviews of the business performance, processes and
procedures of both Flextronics and Nortel Networks at the leadership category
level with the intent to improve the overall supply chain performance.
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2.5 Resources for Repair Services Support
Throughout the term of this Agreement, Flextronics shall provide Repair Services
in accordance with the terms of this Agreement. Flextronics will maintain
available repair resources which may at Flextronics’ discretion be independent
of manufacturing resources.
SECTION 3
ORDERS
3.1 Service Blanket Orders
Nortel Networks may issue Service Blanket Orders to Flextronics for Repair
Services of Products. There shall be no minimum order quantity.
3.2 Acceptance of Orders
Nortel Networks or its designated Nortel Networks Supplier shall submit an Order
to Flextronics and if the Order complies with the terms of this Agreement,
Flextronics will acknowledge its acceptance of the Order issued by Nortel
Networks or its designated Nortel Networks Supplier.
3.3. Minimum Commitment
During the Term of this Agreement, Nortel Networks will source [•] of it’s spend
on Repair Services with Flextronics (Minimum Commitment), excluding any
adjustments to the Minimum Commitment as set forth in Section 3.3.1.
3.3.1 Adjustments to the Minimum Commitment

(A)   Out of Scope Activity       Flextronics acknowledges that the out of scope
activity as defined in Exhibit 14 will not be part of the Minimum Commitment
calculations.   (B)   Competitive Criteria       If Flextronics fails to remain
Competitive with its competitors with respect to any Repair Service, then Nortel
Networks may source such Repair Services from another supplier. Records of any
such deductions from the Minimum Commitment will be made in writing and
exchanged between the Parties for full verification and agreement each quarter.
Notwithstanding the foregoing, Nortel Networks will not transfer Repair
Service(s) if Flextronics becomes Competitive within forty-five (45) days from
notification by Nortel Networks that Flextronics has failed to remain
Competitive, as defined below.       For the purposes of this Section,
“Competitive” shall have the same meaning as Section 1.4 of the Agreement   (C)
  Performance Issues

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    Nortel Networks may source its requirements for Repair Services from other
suppliers, in the event that Flextronics is in breach of the breachable Report
Card metrics as set out in Exhibit 5. These requirements will not be part of the
Minimum Commitment calculations.

3.3.2 Remedy for Failure to Achieve Minimum Commitment
If Nortel Networks fails to meet the Minimum Commitment for any reason other
than those set out in Section 3.3.1(A), (B) or (C) above, Nortel Networks shall
compensate Flextronics for [•]. The Parties will negotiate such costs in good
faith.
3.3.3 Forecast of Required Repair Services
If Nortel Networks provides Flextronics with a forecast or an estimate of Repair
Services that it expects to order, whether set forth in this Agreement or
otherwise, Flextronics acknowledges that Nortel Networks shall not be obligated
to submit an Order for any portion of such forecast or estimate.
3.3.4 Forecast of Additional Required Repair Services
Should Flextronics require additional facilities from additional requirements
which did not exist at the Effective Date, and provided that Nortel Networks
approved Flextronics forecast or estimate, Nortel Networks shall be obliged to
discharge the commercially reasonable costs that may arise owing to an
underutilization of these additional facilities, additional Reserved Assets, any
related additional severance costs, or other mutually agreed costs caused by the
forecast or estimate of incremental Services.
3.4 Issuance of Orders Electronically
If Nortel Networks issues an Order electronically, such transaction shall be
carried out in accordance with the provisions set forth in Exhibit 26 of the
MCMSA.
SECTION 4
TRANSFER OF TITLE AND RISK OF LOSS
4.1 Transfer of Title and Risk of Loss
Class B orders will be shipped DDU (Delivered Duty Unpaid) from Flextronics’
Delivery Facility to a named destination within the same country, title shall
pass to Nortel Networks upon delivery to the named destination. Class B orders
will be shipped DDU (Delivered Duty Unpaid) from Flextronics’ Delivery Facility
to a Nortel Networks or a Customer’s named destination in a different country,
title shall pass to Nortel Networks immediately prior to importation into the
country specified in the named destination.
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Class C Inventory returns will be shipped DDU (Delivered Duty Unpaid) from
Nortel Networks or a Customer to Flextronics’ or Flextronics’ subcontractor’s
premises and title shall pass to Flextronics upon delivery to the named
destination.
Nortel Networks may make a written request that title and risk of loss to
Class B orders or Class C Inventory pass to it at the points other than as
outlined above. Upon mutual agreement, Flextronics will comply with such request
provided that the revised transfer point is no later in the delivery process
then the relevant points stated above.
For Class B orders and Class C Inventory returns that are shipped from
Flextronics’ Delivery Facility to another Flextronics’ Facility/Subcontractor
and/or repair vendor, title and risk of loss will remain with Flextronics.
Unless otherwise covered in existing third party/vendor agreements, all shipping
activities and costs are the responsibility of Flextronics.
SECTION 5
DELIVERY PROCESS
5.1 Repair and Delivery Period
Flextronics shall repair Products and deliver Repaired Products as set forth in
the Statement of Work.
5.2 Packaging, Labelling and Trade-Marks
Products shall be packaged and labeled in accordance with Nortel Networks’
practices as more particularly set forth in Exhibit 2, the relevant
Specifications, or as Nortel Networks may otherwise direct in writing, and
consistent with the provisions of Section 21.5. Flextronics shall not otherwise
apply to or display on the Products Flextronics’ trade–marks or other markings
without the express written permission of Nortel Networks, which may be withheld
in its absolute discretion. Flextronics shall use the Trade-Marks only to apply
to Products on Nortel Networks’ behalf together with other legends, notices or
markings as Nortel Networks may direct.
5.3 Management of Third Party Contracts
Flextronics shall be responsible for managing applicable third party vendors as
set forth in Exhibit 1 in order to provide Repair Services under this Agreement.
5.3.1 Where Nortel Networks has financial obligations in connection with
contracts or other agreements relating to assets, inventory, facilities or
services to which Nortel Networks is a party for the performance of Repair
Services contemplated under this Agreement with a third party and in the event
that Flextronics pursuant to such contracts or other agreements becomes liable
to discharge the financial obligations contained therein to any third party due
to a mutual
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decision by the Parties to terminate the relevant contract or other documented
agreement, then Nortel Networks shall have an obligation to pay Flextronics a
sum equal to the financial obligation required to be discharged by Flextronics.
Any sums due and not recovered under this Section may be recovered by
Flextronics from Nortel Networks as a debt. The parties hereby intend that this
obligation shall survive the termination of this Agreement and will remain in
effect until fulfilled.
SECTION 6
MATERIALS MANAGEMENT PROCESS
6.1 Repair Facility Location
Flextronics shall repair each Product at the Site and/or on the repair line
initially agreed to by Flextronics and Nortel Networks, and Flextronics shall
not change such Site or repair line unless Nortel Networks consents in writing.
Flextronics shall follow Nortel Networks’ qualification process as set out in
Exhibit 3 of MCMSA. Where Flextronics proposes additional sites for Repair
Services to be performed, Flextronics shall provide a complete qualification
report. Nortel Networks shall provide its approval of the change within sixty
(60) days of receiving a complete and satisfactory qualification report. If
Nortel Networks fails to provide such approval within such time period,
Flextronics will be relieved of its obligation to provide Incremental Cost
Reduction (as defined in Section 10.4.1 below) related to such move for the
period of default.
Flextronics agrees to support Nortel Networks’ customer needs by transferring
the Repair Services to alternate Flextronics sites or providing an equivalent
alternative solution to support such Nortel Networks customer in each region as
requested, provided that Nortel Networks and Flextronics will discuss and agree
upon the appropriate delivery terms.
At Nortel Networks’ request, Flextronics will evaluate setting up operations in
another country or equivalent alternative solution, and each Party shall bear
its respective reasonable costs of such evaluation. If Flextronics is unable or
unwilling to meet such in-country or regional needs in a timely fashion, and
provided Flextronics has been provided prior written notice of such in-country
needs and a minimum of thirty (30) days to provide a plan in reasonable detail
to meet such needs, including, without limitation, cost, quality and service, in
a reasonable time frame as specified by Nortel Networks, Nortel Networks shall
have the right to place such business with an alternative supplier in such new
location. Any such sourcing changes shall not change NNL obligations with
respect to the Minimum Commitment unless otherwise specified in Section 3.3.
6.2 Material and Supplier Management Services
Flextronics shall perform Material and Supplier Management Services and
activities consistent with the Statement of Work and any other related services
the Parties agree to perform. All materials required by Flextronics for the
performance of Repair Services shall be purchased by Flextronics only from
suppliers approved by Nortel Networks. Flextronics agrees that only
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materials approved by Nortel Networks and purchased from such approved suppliers
shall be used for the performance of Repair Services.
Any alternative sources of supply shall be qualified and managed by Flextronics,
subject to Nortel Networks’ approval. Flextronics may recycle various components
as mutually agreed by the Parties.
6.3 Storing and Handling
Flextronics shall deal with all materials and Products in accordance with the
storage and handling standards as set out in Exhibit 2.
SECTION 7
CHANGE MANAGEMENT
7.1 Joint Change Management Process
Either Party may propose in writing a change to the Repair or test procedure of
any Product, pursuant to the procedures set out below:
7.1.1 Flextronics Proposal
In the event Flextronics proposes in writing a change to the Repair or test
procedure of any Product, Nortel Networks shall provide an acknowledgement in
writing within ten (10) Business Days as to whether Flextronics is required to
prepare and provide Nortel Networks with a Repair Change Impact Form. If
Flextronics is required to prepare and provide Nortel Networks with a Repair
Change Impact Form, Nortel Networks shall, upon receipt of such Repair Change
Impact Form, promptly determine if it wants to go forward with the change. If
Nortel Networks requires the change to be implemented, the Parties shall
negotiate any open issues, including additional material or software liability
that shall be identified on a revised Repair Change Impact Form, and set the
implementation date. Flextronics shall fully implement the change and
co-ordinate the activities of Flextronics’ sub-contractors, if necessary for
such implementation. Nortel Networks shall pay no charges not specifically
identified by Flextronics on the Repair Change Impact Form and agreed to by
Nortel Networks. Flextronics and Nortel Networks shall each pay their own
respective administration charges associated with the assessment and
implementation of the change to the Repair or test procedure of a Product. In
the event that Nortel Networks determines that it does not wish to proceed with
a proposed change, Flextronics shall be entitled to invoke the Dispute
Resolution Process in Exhibit 10.
7.1.2 Nortel Networks Proposal
In the event Nortel Networks proposes in writing a change to the Repair or test
procedure of any Product, Flextronics shall, within ten (10) Business Days of
receipt of Nortel Networks’ proposal, respond to such proposal with a Repair
Change Impact Form. Upon receipt by Nortel Networks of the Repair Change Impact
Form, Nortel Networks shall promptly determine if it wants to go forward with
the change. If Nortel Networks
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requires the change to be implemented, the Parties shall negotiate any open
issues, including additional material or software liability that shall be
identified on a revised Repair Change Impact Form, and set the implementation
date. Flextronics shall fully implement the change and co-ordinate the
activities of Flextronics’ sub-contractors, if necessary for such
implementation. Nortel Networks shall pay no charges not specifically identified
by Flextronics on the original or the revised Repair Change Impact Form.
Flextronics and Nortel Networks shall each pay their own respective
administration charges associated with the assessment and implementation of the
change to the Repair or test procedure of a Product.
7.2 Joint Product Change Management Process
In the event Nortel Networks has created an ECO for a Product, Nortel Networks
shall provide Flextronics with a copy of the ECO and any other relevant
information to enable Flextronics to determine the implications for the Repair
of the applicable Products. If Flextronics considers such implications to be
significant, Flextronics shall, within ten (10) Business Days of receipt of the
ECO or any such other relevant information, respond to the ECO with a Repair
Change Impact Form. Upon receipt of Flextronics’ Repair Change Impact Form,
Nortel Networks shall promptly determine if it wants to go forward with the
change. If Nortel Networks requires the ECO to be implemented, the Parties shall
use commercially reasonable efforts to negotiate any open issues, including
additional material or software liability and incremental costs identified and
agreed upon on an implementation date. Flextronics shall fully implement the ECO
and co-ordinate the activities of third party suppliers, if necessary for such
implementation. Both parties have the right to invoke the Dispute Resolution
Process. Flextronics and Nortel Networks shall each pay their own respective
administration charges associated with ECO assessment.
7.3 New Product for Repair Introduction (NPRI)
Flextronics shall have a NPRI process and a transfer process for assuming
responsibility for the Repair of a Product which (a) are aligned with the Nortel
Networks’ NPRI process and transfer process; (b) which are common and consistent
at all Repair Facilities; and (c) are acceptable to Nortel Networks. The parties
shall be obliged to meet and negotiate in good faith a mutually acceptable
agreement for the transfer of responsibility to Flextronics for the Repair of
any new products.
Prior to the transfer of responsibility for the Repair of any new product to
Flextronics hereunder, Flextronics shall demonstrate to Nortel Networks’
reasonable satisfaction that such transfer shall not negatively affect cost,
quality, service or customer requirements. Without limiting the generality of
the foregoing, with respect to the Repair of any products identified in any
implementation plan relating to the Repair Facility, Flextronics shall meet all
Nortel Networks requirements specified therein prior to the transfer of
responsibility for the Repair of such products to Flextronics.
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7.4 New Capital Investments
If Nortel Networks agrees that Flextronics must invest in equipment in order to
carry out a particular NPRI project, Nortel Networks shall reimburse Flextronics
for such equipment expenditures, which are (i) necessary for the NPRI process,
and (ii) pre-approved by Nortel Networks. Nortel Networks shall determine, in
consultation with Flextronics, if the cost of this equipment is to be paid for
by one of the following methods: (a) upfront at the start of the project,
(b) amortized over a specific quantity of Product, (c) in agreed upon
installation payments over a defined term or (d) built in the total cost of
Product. Nortel Networks’ preference for the applicable method of payment for
the equipment shall be set out in the project plan provided by Nortel Networks
prior to start of the project. This project plan may include a mechanism to deal
with any unamortized or un-recovered expenses incurred by Flextronics under
scenarios (b) or (c) above. In the case of scenario (b) or (c), the calculation
of the amortization costs will use the Carrying Charge as the cost of money over
a three (3) year period. Unique equipment shall be deemed to be a Reserved Asset
under this Agreement.
In the event that the Reserved Assets have not been fully funded for the
applicable Product, within the agreed depreciation period, Nortel Networks will
reimburse Flextronics on the anniversary of the Effective Date for the
under-depreciated capital as described under scenario b), c) or d) above.
SECTION 8
INVENTORY MANAGEMENT
8.1 End-of-life Planning
From time to time, Nortel Networks may declare that a Product is to be
manufacture discontinued, or Nortel Networks or a supplier may advise
Flextronics that a material or component required for the Repair of a Product is
to be manufacture discontinued. The Parties acknowledge that the Repair
requirements for the applicable Product shall continue well beyond the date at
which such Product, material or component is manufacture discontinued, and
Flextronics shall provide Repair Services consistent with the terms of this
agreement, including performance of all relevant test processes and securing
material availability, for each Product. At least quarterly, Nortel Networks and
Flextronics shall jointly meet to discuss actions involving Products which could
be eliminated from the Repair operations.
8.2 Class B Inventory and Class C Inventory
Flextronics shall be responsible for maintaining appropriate levels of Class B
Inventory in order to fulfil its obligations under this Agreement provided that
Flextronics is able to obtain from Nortel Networks such volumes and types of
Class C Inventory which shall be necessary in order to provide such Class B
Inventory levels.
During the Term, Flextronics shall maintain the Class B Inventory, as determined
on a PEC by PEC basis, at levels which do not exceed the greater of 5 units or
90 times the Daily Usage Rate, unless Flextronics inherited such excess Class B
Inventory at the Effective Date or as otherwise mutually agreed by the Parties.
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Should there be insufficient Class B Inventory available to service a Customer
order, it is expected that Flextronics will fast track a unit from Class C
Inventory in order to meet the level of service criteria as shown in Exhibit 5.
Should there not be enough Class C stock available to either service a customer
order or a normal Class B Inventory restocking demand, then Flextronics shall
inform the appropriate Nortel Networks representative as soon as is reasonably
practicable. Provided that Flextronics has met it’s obligations in this
Agreement for controlling, planning and securing Class C Inventory, Flextronics
shall not be held accountable for those level of service misses caused by not
having enough Class C Inventory. Flextronics shall not hold Nortel Networks
financially accountable for any loss of repair revenues due to a lack of Class C
Inventory. Should such event result in an A-B writedown, then Nortel Networks
will be financially accountable for any A-B writedown costs.
Except as otherwise agreed in writing by Nortel Networks, all Class B Inventory
and Class C Inventory acquired by Flextronics after the Effective Date shall be
used by Flextronics exclusively for the satisfaction of any obligation it may
have to provide Repair Services, directly or indirectly, to Nortel Networks
under this Agreement.
If Flextronics decides to junk or dispose of Class C Inventory or Class B
Inventory, Flextronics will, upon authorization by Nortel Networks, dispose of
such Inventory free of processing charges to Flextronics utilizing Nortel
Networks’ designated reclamation center.
8.3 Open Market Purchases
Flextronics shall seek prior written approval from Nortel Networks prior to
obtaining any Class B Inventory or Class C Inventory from the open market.
8.4 Components
Flextronics shall perform, on an ongoing basis, all activities necessary to
manage the supply of Repaired Products in accordance with the terms of this
Agreement, such activities to include, but not be limited to, the following:

  (a)   conduct and provide to Nortel Networks a summary and forecast of
components that any supplier in the supply chain plans to discontinue;     (b)  
identify, monitor and react to suppliers end-of-life notifications;     (c)  
apply strategic technical analysis of the supply base to proactively warn of
potential End-of-Life Inventory trouble areas by product family;     (d)  
maintain and provide to Nortel Networks a consolidated list of components
(including supplier part numbers) which are approaching end-of-life;     (e)  
for components that have had last time buys performed, track and monitor
Inventory on hand and projected use up dates with the goal of continuity of
supply and be able to react accordingly if the use up date is advanced;     (f)
  negotiate with supply base to maintain supply until an alternative solution
can be achieved;     (g)   if required by Nortel Networks, research, review and
recommend to Nortel Networks for approval (including business case, detailed
cost analysis, design

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      plans, last time buy quantity required, qualification and verification
plans, scope of intellectual property risk known to Flextronics and the basis of
Flextronics’ knowledge) of the best alternative available, such as, perform last
time buy, component substitutions, component packaging foot print changes,
elimination of the component by incorporating function into another component,
specification relaxation to eliminate the need for the component. In this
regard, Nortel Networks will provide Flextronics with parameters concerning its
forecasted demand for the Product through the Products end-of-life, including,
without limitation, the estimated sell-off period and aggregate quantity
required and anticipated Product mix (the “End of Life Parameters”). Flextronics
shall be entitled to rely on such End of Life Parameters in conducting its
analysis;

(h) where last-time buy plan is approved by Nortel Networks, Flextronics shall
perform the activities set out in this Section 8.4 including executing the
last-time buy and such Inventory will be considered End-of-Life Inventory.

8.5 Purges
Flextronics shall be responsible to keep Class B Inventory at or above the
baseline shippable release levels (“Baseline”). Upon either party determining
that such Inventory is not at Baseline, Flextronics shall bring Inventory to
Baseline provided that there is a viable upgrade path. Flextronics shall propose
via the process outlined in Section 7.2, and Nortel Networks shall pay, for
those commercially reasonable costs provided that Nortel Networks has approved
those charges, and provided that Flextronics has used commercially reasonable
planning practices within its control. Upon agreement that a Purge needs to be
performed, Flextronics will use commercially reasonable efforts to Purge the
Inventory within 15 days.
8.6 Support of Nortel Networks Remanufacturing Activities
From time to time, Nortel Networks may need to utilize Class C Inventory or
purchase Class B Inventory in order to satisfy Nortel Networks or Nortel
Networks’ third parties obligations for remanufacturing activities. Upon request
by Nortel, Flextronics shall use commercially reasonable efforts to sell such
Inventory and notify Nortel Networks of any potential negative impact on service
level agreement deliverables or commercially reasonable costs.
8.7 Excess Inventory
Nortel Networks shall have no obligation or liability to Flextronics with
respect to excess and obsolete Inventory, other than as set out herein.
For every Product sold to Nortel Networks, Flextronics shall be permitted to
charge Nortel Networks an uplift percentage applicable on the Product Price. The
Parties will agree to the percentage uplift prior to the Effective Date. The
Parties understand that the uplift factor(s) during Year 1 will be greater than
for subsequent years due to the purchase of one year’s inventory at the
Effective Date by Flextronics. After the first anniversary of the Effective
Date, the uplift factor will reflect only the on-going events beyond
Flextronics’ control. The Parties agree that the uplift percentage will be
reviewed six (6) months after the Effective Date and
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annually on the anniversary of the Effective Date. In conjunction with each
uplift factor review, Flextronics will perform an E & O calculation based on one
year’s historical demand, NPI forecast, and known events. During such reviews,
the Parties may mutually agree to adjust the uplift percentage. For any increase
of the uplift percentage, Flextronics must demonstrate to Nortel Networks that
such adjustment is material (greater than 2% of total Inventory) and the result
of an act or event outside Flextronics’ control.
The table below provides an example of how the uplift percentage shall be
applied.

                                                                               
                                      Uplift Amount                            
                        Year 1                                   Year 2    
Product   Current   Units Sold   Amount   Uplift %   Uplift   Current   Units
Sold   Amount   Uplift %   Uplift %     Price   to Nortel   Sold   Factor  
Amount   Price   to Nortel   Sold   Factor   Amount             During year    
                              During year                              
aaaaaaaa
  $ 1,000       400     $ 400,000       1.0 %     4000     $ 990       400     $
396,000       1.0 %     3960  
bbbbbbb
  $ 400       98     $ 39,200       1.0 %     392     $ 360       50     $
18,000       1.0 %     180  
ccccccc
  $ 136       4000     $ 544,000       1.0 %     5440     $ 122       3800     $
463,600       1.0 %     4636  
ddddd
  $ 300       35     $ 10,500       1.0 %     105     $ 270       30     $ 8,100
      1.0 %     81  
 
                                    9,937                                      
8857  
 
                                  Two yr sum             18794                  
       

On an annual basis, Nortel Networks and Flextronics shall perform the
calculations as shown in the examples above and project the uplift percentage
required for the following year. In the event that the accumulated uplift fund
is greater than the excess Inventory requirements, Flextronics shall agree to
reduce the uplift factor to an agreed upon factor for on-going operations under
Flextronics control.
Thirty days prior to the Effective Date both Parties will jointly meet and agree
on the percentage to be used as an uplift factor. Considerations in determining
the uplift factor will include analyzing Nortel Networks historical E & O
requirements and determining whether these factors are applicable to the
inventory model which Flextronics will be operating under after the Effective
Date.
8.8 Consigned Inventory
On the Effective Date, Nortel Networks will sell twelve (12) months demand of
Class B Inventory on a PEC code by PEC code basis to Flextronics. All other
transferred inventory will be held by Flextronics as Consigned Inventory.
With respect to Consigned Inventory:
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  (a)   Unless Nortel Networks otherwise directs, Flextronics shall hold such
inventory on behalf of and, in the ordinary course of business, [• ];     (b)  
Flextronics shall keep and care for such Consigned Inventory with the same
standard of care as if it were part of the Inventory, including the obligation
to hold at Flextronics’ risk and to insure against loss. However, no such
Consigned Inventory shall be, nor be deemed to be, a part of the Inventory;    
(c)   Flextronics shall repurchase all suitable Consigned Inventory from Nortel
Networks prior to repairing Class C Inventory;     (d)   When Flextronics is
required to acquire Consignment Inventory, Flextronics will acquire the lesser
of all Consigned Inventory or 30 times the Daily Usage Rate.     (e)  
Flextronics shall make such purchase at the then current Price unless otherwise
agreed by the Parties. Flextronics shall make payment to Nortel Networks for
such purchases within forty (40) days thereof;     (f)   In the event
Flextronics does not repurchase Consigned Inventory in accordance with the
foregoing, Nortel Networks shall be deemed to have sold such Inventory to
Flextronics and Flextronics will immediately credit Nortel Networks with the
amount attributable to such deemed repurchase;     (g)   Flextronics will be
responsible for normal cycle count adjustments for Consigned Inventory. [• ];
and     (h)   If Nortel Networks requires Flextronics to increase the level of
Consigned Inventory above the level as of the Effective Date, the Parties will
mutually agree if an adjustment is required to the Price.

8.9 Order of Inventory Usage

    Flextronics shall utilize inventory in the following order:

  1.   Flextronics Day 1 Inventory 2. Flextronics Zero Cost E & O Inventory (if
applicable)     3.   Consigned Inventory     4.   Class C Inventory repaired and
converted to Class B

8.10 A-B Writedowns
On a regular basis Flextronics will be responsible for acquiring additional
Inventory to maintain appropriate levels of safety stocks in order to perform
the Repair Services under this Agreement. Such acquisitions may be made from
reliable secondary market sources approved by Nortel Networks, third party
manufacturers, Flextronics’ manufacturing facilities or any other Nortel
Networks qualified sources.
Approximately fifteen days prior to the beginning of a quarter, Flextronics will
review the requirements for inventory replenishment as referenced in Exhibit 4
and shall request written approval from Nortel Networks prior to acquiring the
Inventory. Provided that Flextronics
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remains within the approved quarterly budget, Flextronics shall have the
flexibility to respond to demand changes to the approved plan for the quarter,
provided that Flextronics demonstrates that the deviation was necessary and
Flextronics submits to Nortel Networks a monthly summary of status against the
plan. Payment will only be made against authorized purchase orders.
The Parties will be responsible for payment to replenish Inventory as follows:
Flextronics Responsibility:

  a)   The Inventory was lost beyond the threshold as specified in Section 8.9
of this Agreement.     b)   Shortages are caused by Flextronics internal repair
process(es) non-performance.

Joint Responsibility:

  a)   Provided Nortel Networks has received notice, and Flextronics has used
commercially reasonable efforts to mitigate the issue, Flextronics will not be
responsible for shortages resulting from the non-performance of third-party
suppliers under Nortel Networks control and Flextronics management.     b)  
Flextronics will be responsible for A-B writedowns if the scrap rate on the part
exceeds the Minimum Performance level as set forth in Exhibit 5 for reasons
other than Customer damage. Nortel Networks is responsible for A-B writedown
costs resulting from Freight Damage, issues arising from ECO implementations
beyond Flextronics control, mutually agreed EOL scrapping, failure analysis
authorized by Nortel Networks or other Nortel Networks authorized scrap
activities.     c)   Flextronics will be responsible for A-B writedowns that
result from shortages caused by a GCIP processing delay within Flextronics
control as agreed in Exhibit 5. Nortel Networks will be responsible for all
other A-B writedowns relating to GCIP delays. Nortel Networks reserves the right
to approve all related A-B writedowns.

NNL Responsibility:

  a)   New Product Introduction     b)   Last Time Buys     c)   Material On
Loan     d)   Quality     e)   Return rates     f)   Retrofits     g)  
Manufacturing Discontinued Products     h)   Remanufacturing

8.11 Tracking of Inventory Furnished by Nortel Networks
Flextronics shall maintain appropriate tracking and recording procedures to
mitigate against loss of Inventory and Consigned Inventory owned by Nortel
Networks. In addition to periodic cycle
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counts, Flextronics shall perform an annual physical inventory. These records
shall be made available upon request to Nortel Networks and it may, at its
discretion, perform a physical audit. Should an audit or physical inventory
indicate, in respect of any Inventory or Consigned Inventory location, that a
loss or shrinkage in excess of 0.5% of the aggregate units owned by Nortel
Networks has occurred; Flextronics will be responsible for either the Book Value
of such property or replacement of such property, at Nortel Networks’ reasonable
discretion.
SECTION 9
QUALITY
9.1 Metrics, Report Card and Liquidated Damages

  9.1.1   Report Card

    Flextronics shall complete report cards, which shall be used as a method to
measure against the goals of quality, service and cost and shall deliver such
report cards to Nortel Networks on a monthly basis coinciding with the monthly
reviews provided for in Section 2.4. The metrics used to derive the report card
scores and the formats for the report cards shall be as set out in Exhibit 5.  
    For each Metric, there will be two performance criteria: “Minimum
Performance” and “Continuous Improvement”. Minimum Performance criteria will be
used to measure whether the process is in control and meeting the minimum
performance expectations. Continuous Improvement criteria will be used to assess
improvement of the average performance of the applicable process and reduction
of process variations.       The “Minimum Performance Baseline” and “Continuous
Improvement Baseline” will be established for each breachable metrics as
follows, unless otherwise mutually agreed.

  (a)   an operational definition of each metric will be outlined in Exhibit 5,
    (b)   Minimum Performance Baseline:

  (i)   Initial Minimum Performance Baseline will be: Historical data from the
[• ] prior to the Effective Date will be used to calculate the average
performance and standard deviation. In the event that [• ] of historical data is
not available, Flextronics will measure the metric for [• ] before establishing
the average and standard deviation. The calculation will be done at the Product
Family level.

  1.   For a process that should be maximized (where a higher metric value is
better), the [•].     2.   For a process that should be minimized, (where a
lower metric value is better), the [•].

  (ii)   The Minimum Performance Baseline will be reviewed and adjusted each
calendar year as follows;

  1.   For a process that should be maximized, the [• ] will be the Minimum
Performance Baseline. However, this adjustment will

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      not be lower than the Initial Minimum Performance Baseline established at
the date of each Product transfer or any Minimum Performance Baseline in
following years, which ever is better.     2.   For a process that should be
minimized, the [• ] will be the Minimum Performance Baseline. However, this
adjustment will not be higher than the Initial Minimum Performance Baseline
established at the date of each Product transfer or any Minimum Performance
Baseline in following years, which ever is better.

  (c)   Continuous Improvement Baseline:

  (i)   The initial Continuous Improvement Baseline will be the [• ] prior to
the Effective Date. In the event that [• ] of historical data is not available,
Flextronics will measure the metric for [• ] before establishing the average and
standard deviation. The calculation will be done at the Product Family level.  
  (ii)   The Continuous Improvement Baseline will be reviewed and adjusted each
calendar year as follows;

  1.   For a process that should be maximized, the [• ] will be the Continuous
Improvement Baseline. However, this adjustment will not be lower than the
Initial Continuous Improvement Baseline established at the date of each Product
transfer or any Continuous Improvement Baseline in following years, which ever
is better.     2.   For a process that should be minimized, the [• ] will be the
Continuous Improvement Baseline. However, this adjustment will not be higher
than the Initial Continuous Improvement Baseline established at the date of each
Product transfer or any Continuous Improvement Baseline in following years,
which ever is better.

9.1.2 Liquidated Damages for Failure to Meet Metrics
The Parties acknowledge that the failure of Flextronics to obtain performance
results better than or equal to the metric target for RDOA and On-Time Delivery
elements on the report card with respect to any Product Family as a result of
any act or omission within Flextronics’ Control and Responsibility, for [• ]
(measured as the weighted average of the scorecards for each of those months),
shall entitle Nortel Networks to receive the applicable liquidated damages as
set out in the table below.
The assessment of liquidated damages shall be limited to one assessment per [•].
In instances where Nortel Networks is entitled to receive damages for more than
one metric, a single assessment (being the largest of the applicable
assessments) shall apply. Liquidated damages shall be assessed as follows:
For the period of 0-4 months after the Effective Date, no liquidated damages
shall be assessed for any Product.
For the period of 5-8 months after the Effective Date, liquidated damages shall
be assessed as follows:
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                                      After 2 consecutive     After 3 or more  
    After 1 month     months     consecutive months  
Performance between
                       
Target and Passing
    [•]       [•]       [•]  
Performance below Passing
    [•]       [•]       [•]  

After [• ] from the Effective Date, liquidated damage shall be assessed as
follows:

                                      After 2 consecutive     After 3 or more  
    After 1 month     months     consecutive months  
Performance between Target and Passing
    [•]       [•]       [•]  
 
                       
Performance below Passing
    [•]       [•]       [•]  

 

*   Flextronics’ revenue for the affected Product Family, as measured in the
aggregate on the relevant Report Card.

Payments for liquidated damages shall be made 40 days from the date Nortel
Networks has documented the claim and the Parties have agreed on the amount to
be assessed.
9.1.3 Pass-through of Liquidated Damages from Customers
In the event Flextronics fails to meet its obligations for a specific order, and
as a result Nortel Networks is required to pay liquidated damages to its
Customer, Nortel Networks shall be entitled to receive from Flextronics an
amount representing [•] imposed on Nortel Networks by the Customer.
In the event that Flextronics is required to pay liquidated damages under this
Section 9.1.3, the order(s) against which damages were assessed shall not be
used in the calculation of whether Flextronics has met a relevant metric under
Section 9.1.2.
9.1.4 Termination for Breach of Metrics
The failure of Flextronics to obtain performance results better than or equal to
the passing grade for those breachable metrics identified in Exhibit 5 for each
element on the report card with respect to any Product Family as a result of any
act or omission within Flextronics’ Control and Responsibility, for [•]
(measured as the weighted average of the scorecards for each of those [•]),
constitutes a material breach of Flextronics’ obligations under this Agreement
with respect to that Product Family. If Nortel Networks does not exercise its
right to terminate for such breach, any applicable liquidated damages owing
pursuant to Section 9.1.2 will be paid by Flextronics for each successive month
that Flextronics fails to obtain metric target as set out herein. If Nortel
Networks does
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exercise its right to terminate for such breach, Flextronics’ liability for any
damages Nortel Networks may have suffered due to the breach shall be reduced by
the amount of liquidated damages already paid. If Flextronics disputes whether
there has been a material breach for purposes of this Section 9.1.4, then such
dispute will be submitted to the Dispute Resolution Process in Section 26 prior
to Nortel Networks exercise of its termination rights or Flextronics obligation
to pay any liquidated damages.
9.1.5 Transition Performance Period
Nortel Networks acknowledges that Flextronics’ ability to perform its
obligations at the Effective Date under the attached Exhibits is dependent upon
Flextronics ability to engage certain Nortel Networks current internal/external
suppliers to continue to perform the Repair Services defined in this Agreement
at the metric levels required in Exhibit 5. In addition, Flextronics’ ability to
perform its obligations at the Effective Date is dependent upon Nortel Networks
timely transfer of the necessary Nortel Networks’ equipment, information,
processes and personnel, to satisfy the requirements set forth in Exhibits 2 and
3.
Nortel Networks agrees to provide all reasonable assistance to Flextronics
including the assignment of certain agreements and as appropriate the
facilitation of discussions with other third parties that Flextronics desires to
engage, to assist Flextronics in gaining the capability to deliver the Repair
Services in accordance with the stipulated service levels.
Except where indicated in the relevant Statement of Work, Flextronics shall be
obligated to deliver all of the Repair Services as of the Effective Date,
provided however that during the four (4) month period after the Effective Date,
Nortel Networks shall not use any breachable metric measured during this four
(4) month period to terminate this Agreement pursuant to Section 9.1.4 of this
Agreement for Breach of Metrics unless the breach of the performance metric is
solely attributable to an action of Flextronics.
To the extent that during this four (4) month period Flextronics is able to
demonstrate that any of the service levels were not achieved prior to the
Effective Date, then Flextronics shall be excused from achieving the service
level. In this circumstance, the Parties agree to meet and negotiate in good
faith a timeline for achieving the service level including any associated cost
issues and to amend the relevant Exhibit(s) to reflect the agreed resolution.
If subsequent to the agreed timeline to achieve the required service level,
Flextronics still cannot achieve the required service level then,
notwithstanding the commitments and obligations in Section 3.3 of this
Agreement, Nortel Networks shall be permitted to arrange for the Repair Services
from another service provider or provide the Repair Service itself until
Flextronics is able to reasonably demonstrate that Flextronics can achieve the
required service level.
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9.2 Industry Standards
If in existence on the Effective Date, Flextronics agrees to maintain the
industry standards set out below. If Nortel Networks requires Flextronics to
implement an industry standard not certified on the Effective Date, Flextronics
will pursue such standard, subject to the mutual agreement of the Parties on the
associated costs.

  (a)   ISO 14001 and ISO 9001 compliance at Delivery Facilities;     (b)  
applicable TL9000 requirements requested by Nortel Networks;     (c)   effective
assessments and corrective/preventive actions in respect of processes;     (d)  
effective assessments and corrective/preventive actions in respect of quality
audits;     (e)   senior management reviews are undertaken to discuss quality
across all processes.

9.3 Source Inspection
Nortel Networks may perform source inspections of parts, assemblies or processes
at a Flextronics supplier or subcontractor facility whenever Nortel Networks
decides it is necessary. The source inspection shall be conducted during normal
business hours and with reasonable prior written notice to Flextronics.
9.4 Repair Quality

  (a)   Flextronics shall maintain a level of quality with respect to
workmanship, testing and packaging processes that shall limit RDOA occurrences
as specified in Exhibit 5, measured on a monthly basis. Flextronics will provide
to Nortel Networks a weekly pareto of RDOA occurrences and for the top three
(3) issues Flextronics will provide to Nortel Networks (a) a root cause
analysis, (b) an action plan detailing corrective actions required and (c) the
action register showing the status of the action plan. At its discretion, Nortel
Networks may participate in the development of these action plans.     (b)   For
each Repair Facility, Flextronics will develop a quality performance program no
less stringent than the standards currently in place, or as may be updated from
time to time, in the relevant repair facility of Nortel Networks. Flextronics’
compliance with these standards will be measured monthly pursuant to Exhibit 5.
    (c)   Nortel may notify Flextronics in writing if Flextronics has failed to
meet the requirements set forth in either subsection (a) or (b) above. If during
the Term, NNL so notifies Flextronics in each of three (3) consecutive months,
Flextronics shall be deemed to be in material breach of this Agreement. If
Flextronics disputes whether there has been a material breach for the purposes
of this Section 9.4 then Flextronics shall be entitled to invoke the Dispute
Resolution Process in Exhibit 10.

SECTION 10
REPAIR COST MANAGEMENT PROCESS
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10.1 Prices for Repair Services

  10.1.1   Repair Services Prices

    The initial Prices for Repair Services specific to each Product shall be as
set out in Exhibit 6 and periodically updated as set out in Exhibit 7. The
Parties agree that Prices for Repair Services will not be greater after the
Effective Date than before provided that there are no new material services or
capabilities required by Nortel Networks.

  10.1.2   Logistics Services

    The Prices for Logistics Services are set forth in Exhibit 6.

  10.1.3   Pricing and Scope

    The Scope of Work broadly defines the activities performed by Nortel
Networks prior to the Effective Date with respect to the Transitioned Business.
The Parties agree that the Prices set forth in this Agreement include all such
activities.

  10.1.4   Day One Pricing

    The Parties agree that the Price for Repair Services, on the Effective Date,
will not be greater than the cost incurred by Nortel Networks for such Repair
Services on the day before the Effective Date. In addition, the Price for Repair
Services on the day after Flextronics assumes responsibility of such Repair
Services from third party suppliers [•]. These Prices are set out in Exhibit 6.
Thereafter, Nortel Networks and Flextronics will set Prices on an annual basis,
using the process described in Exhibit 7, incorporating the ICR and OCR into the
committed Price for the forward four quarters.       In order to establish
Prices as of the Effective Date, Nortel Networks shall provide sufficient
information to support current Prices as at such date. This process is set forth
in Exhibit 15. Flextronics will determine by the end of four (4) months after
the Effective Date whether it is satisfied that the resources and cost
responsibilities, as transferred, are accurately reflected in the Prices as
provided by Nortel Networks. If Flextronics is not so satisfied, it will notify
Nortel Networks and present reasonable evidence to support this determination.
If Nortel Networks accepts this determination, the Parties will mutually agree
on restated Prices for the applicable Repair Services, which shall be
retroactive to the first invoice. If Nortel Networks does not accept this
determination, the Parties shall follow the Dispute Resolution Process. Upon
acceptance or other resolution of the revised Pricing, the Party which either
overpaid or overcharged will pay the other Party the difference between the
amounts originally invoiced and the revised Prices forty (40) days after receipt
of invoice.

10.2 Payment, Taxes and Duties

  10.2.1   Invoices

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    Each invoice shall be rendered against the relevant Order. On each invoice
submitted to Nortel Networks, Flextronics shall reference the number of the
Order(s) issued for the Repair Services covered by such invoice. Any taxes not
included in the Price but which are to be paid by Nortel Networks and collected
by Flextronics and remitted to the applicable taxing authority, shall be
itemized on the invoice except as is required by law to be included in the
Price; if Flextronics is unable to itemize such amounts attributable to Repair
Services listed on any invoice and does not include such amounts on the invoice,
Flextronics shall invoice the applicable Nortel Company as soon as practicable
the amount attributable to such charges for such invoices issued during the
preceding calendar month and provide to Nortel Networks a reconciliation to each
such invoice. Flextronics agrees not to assess any applicable excise tax, sales
tax, goods and services tax, value added or similar taxes where Nortel Networks
furnishes Flextronics a tax exemption certificate, a certificate of authority, a
direct pay permit and/or any equivalent acceptable to the applicable taxing
authority. Nortel Networks shall withhold any applicable withholding tax from
payments made to Flextronics pursuant to this Agreement. To assist Flextronics
in obtaining any tax credits for the amounts withheld, Nortel Networks shall
promptly provide Flextronics with such evidence as may be reasonably required by
the applicable taxing authorities to establish that such withholding tax has
been paid.

  10.2.2   Payment

    Payment shall be made net [•] after the date of the applicable invoice. [•].
Nortel Networks may deduct any undisputed credit due and owing it, upon approval
of Flextronics. Payment shall be made in U.S. dollars, unless otherwise agreed
upon in the appropriate Virtual Systems House Agreement or otherwise between the
Parties. If payment is made in currency other than U.S. dollars, the Parties
shall use the Currency Conversion factor except as otherwise set out in the
appropriate Virtual Systems House Agreement to calculate payment. Nortel
Networks shall pay by wire transfer in the jurisdictions where this is possible.
      [•].       Nortel Networks shall identify any dispute with respect to an
invoice within thirty (30) days of its receipt of such invoice.       [•].      
Flextronics reserves the right to make emergency surcharges (ie fuel, security)
to recover commercially reasonable costs associated with temporary or industry
wide situations which could not be reasonably anticipated at the commencement of
this Agreement. Nortel Networks will receive thirty (30) days written notice of
any emergency surcharges. Surcharges will be reviewed between Nortel Networks
and Flextronics every thirty (30) days from the time that the initial notice
period was served until the time at which the temporary surcharges are removed.
All surcharges will be temporary, and will

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    apply in addition to negotiated rates and will be separately identified.
Flextronics will attempt to mitigate these costs wherever possible.

10.3 Ongoing Cost Reduction
“Ongoing Cost Reduction” or “OCR” means the universe of cost reductions minus
the “Incremental Cost Reductions” or “ICR” (as defined in Section 11.9.1 of the
MCMSA). The parties acknowledge that they have arrived at the concepts of OCR
and ICR by assigning cost reductions that Nortel Networks generally would have
been able to achieve through its own efforts, and/or through Nortel Networks
existing supply chain, had it retained the Transferred Business to the OCR
category and cost reduction that Nortel Networks generally would not have been
thus able to achieve to the ICR category. Flextronics commits to the cost
reduction to the Prices as set out in Exhibit 6 of the MRSA. The implementation
is set out in Exhibit 7 of the MRSA. Nortel Networks is responsible for
generating the plan for the OCR for Year One. OCR cannot be used to fulfill the
Committed ICR %.
If Flextronics achieves more than the quarterly take-down in any given quarter,
it is not obligated to pass through the cost reduction in the current quarter,
or the quarter following, but will provide 100% of the reduction in the current
quarter plus two. The implementation of this method would be the 1st day of the
quarter following the full quarter of share. The Parties will enter into a
supplement to the Joint CR Commit and Pricing Agreement (as defined in Exhibit
17-1 of the MCMSA) to reflect this incremental cost reduction.
10.4 Incremental Cost Reduction
Flextronics will use its cost management, cost to market sites, vertical
integration, logistics, repair and design services capabilities to achieve
additional cost reductions, which are incremental to the OCR. The process for
measuring and implementing incremental cost reduction is set out in Exhibit 7.
Flextronics will use its materials management capabilities to leverage SC and NC
spend, cost management, cost to market sites, vertical integration, logistics,
repair and design services capabilities to achieve additional cost reductions,
which are incremental to the OCR.

  10.4.1   Definition of ICR

    “Incremental Cost Reduction” or “ICR” means the list of cost reduction
programs set forth in Exhibit 7. In addition, the Parties agree that any ICRs
achieved by Flextronics consistent with the terms of Exhibit 7, during the time
period between the Execution Date and the Commencement Date shall be credited
towards Flextronics’ ICR Commitment.

  10.4.2   ICR Commitment

    Flextronics agrees that it will pass on to Nortel Networks ICR equal to a
certain percentage of the total revenue received from purchases of Repair
Services made by

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    Nortel Networks (“Total Revenue”). This percentage is defined as the
“Committed ICR %”. [•]. If the Total Revenue is reduced because Nortel Networks
has not purchased Repair Services from Flextronics for any of the reasons set
out in Section 3.3.1(B) or (C), the ICR to be delivered shall be calculated as
if the Total Revenue had not been so reduced.

  10.4.3   Implementation of ICR

    Incremental Cost Reduction (ICR) will be reflected in the Product price
using the Cost Plus, MPLP or PLP Process, as applicable, and not recovered as a
lump sum payment (except in the case of a true-up). If, as determined in an
annual true-up process, the annual guarantee is not achieved by means of the
product pricing at the end of Years 2 and 3 respectively, Flextronics will pay
Nortel Networks the amount of the shortfall as a lump-sum payment. The Baseline
(as defined below) at the end of Years 2 and 3 will be set to include the
guaranteed ICR; provided that the Baseline at the end of Year 3 will be for
planning purposes only for Year 4 and prices for Year 4 will be set according to
market conditions.       ICR is an “in-year” amount calculated by applying the
Committed ICR % to the applicable year’s Total Revenue over a twelve month
period. The “Baseline” is the Total Revenue determined by Supplier and Nortel
Networks as of a certain date. The Year One Baseline will be the Total Revenue
as of the Effective Date assuming that all Transferred Business has been
transferred as of the Commencement Date. [•].       Cost reduction, including
ICR, which exceed the agreed upon level will be subject to the cost sharing
provisions set out in Exhibit 7 of the MRSA; provided, however, that Flextronics
shall be entitled to retain 100% of any ICRs, which exceed the total in-year ICR
Commitment applicable to Year 2. Any ICR achieved as of the end of Year 3 that
is greater than the ICR Commitment will be treated as OCR.

  10.4.4   Year 4 Cost Reduction

    In Year 4 all cost reduction will be managed using the process in Exhibit 7
for OCR [•].

10.5 OCR Threshold Commitment
In the event that Flextronics considers that, due to any unforeseen event or
condition beyond Flextronics’ control that the OCR commitment will be missed by
a threshold of [•] or greater. Flextronics will present to Nortel Networks
quantifiable information, including, third party benchmarking, to enable Nortel
Networks to validate that the Annual Commitment and Product Prices are not
achievable due to such conditions, the Parties will review the Annual Commitment
and Product Price at the monthly Cost Review Meeting. Where Nortel Networks does
so validate, then the Parties will agree to revise the Product Prices and Annual
Commitment for the balance of the quarters remaining. Nortel Networks shall have
fifteen (15) calendar days to notify Flextronics that it is either validating or
rejecting Supplier’s request. If Nortel Networks
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fails to respond in such time, Flextronics will have the right to update the
Exhibit 6 Pricing. The amount of this revision will reflect directly the
validated number/percentage.
(Example: [•]. )
SECTION 11
BUSINESS CONTINUITY
11.1 Business Continuity Planning
Flextronics shall maintain a business continuity plan for each Repair Facility
to be put into effect if a Repair Facility becomes unable to provide Repair
Services for any reason, including Force Majeure, for a period of more than five
(5) days (“Business Continuity Plan”). Flextronics’ goal is to be able to
continue to provide Repair Services in accordance with the time schedules
required under this Agreement.
The Business Continuity Plan shall contain, at a minimum, (a) a risk assessment
and business impact analysis, (b) a prevention/mitigation plan, and (c) a
resumption of Repair Services plan, including a recovery/restoration plan. The
preceding will cover, but not be limited to, provisions for documentation
storage (product, process, fixture, tools), information systems technology
redundancy, a demonstration of Flextronics’ capability to recover in an
emergency if one of its own repair facilities or processes becomes unable to
provide Repair Services and if one of its component suppliers or subcontractors
experiences such an emergency.
At Nortel Networks’ request and at no additional charge to Nortel Networks,
Flextronics will participate in any commercially reasonable tests implemented by
Nortel Networks or discussions initiated by Nortel Networks for purposes of
evaluating and coordinating and integrating the business continuity plans of its
suppliers with Nortel Networks’ overall business continuity plan, in so much as
current Repair Services and associated level of service metrics are not impacted
by said test. As reasonably requested by Nortel Networks during the Term,
Flextronics will adjust the Business Continuity Plan to better conform to and
integrate with Nortel Networks’ business continuity plan, on terms to be
mutually agreed to by the Parties.
Throughout the Term, Flextronics shall provide a copy of any changes in the
Business Continuity Plan to NNL within ten (10) days of any such change. A
period of Force Majeure or other event causing inability to provide Services
shall be deemed to commence on the date that the event of Force Majeure or other
such event first occurs.
NNL and Flextronics shall review Flextronics’ Business Continuity Plan annually.
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SECTION 12
WARRANTIES
12.1 Repair Services
Flextronics covenants and warrants that:

  (i)   all Repair Services performed under this Agreement shall be performed in
a competent, professional and timely manner in accordance with the standards
generally accepted in the telecommunications industry and in accordance with the
applicable Specifications and the terms of this Agreement;     (ii)   it shall
use adequate numbers of qualified individuals with suitable training, education,
experience and skill to perform Repair Services;     (iii)   it shall provide
the Repair Services using proven, current technology that will enable Customer
to take advantage of technological advancements in the telecommunications
industry;     (iv)   Repaired Products shall be free of defects in material
controlled by Flextronics and workmanship during the Repair Warranty Period,
such period to start upon shipment of the Repaired Product to Customer;     (v)
  with the exception of those components recycled by Nortel Networks as of the
Effective Date, only new and unused materials shall be used in the Repair
Services, unless Nortel Networks, in its sole discretion, authorizes Flextronics
to use certified equivalent to new materials for the repair of a specific
Product;     (vi)   to the best of its knowledge, upon inquiry, it does not and
will not employ or contract the services of (i) forced or prison labor or
(ii) employees or contractors that are younger than the minimum age legally
entitled to work in each applicable jurisdiction in which Repair Services are
provided; and     (vii)   to the best of its knowledge, upon inquiry, no
subcontractor of Flextronics employs or contracts, directly or indirectly, the
services of (i) forced or prison labor or (ii) employees or contractors that are
younger than the minimum age legally entitled to work in each applicable
jurisdiction in which Repair Services are provided.

Nortel Networks represents and warrants that: (i) it has the right to enter into
this Agreement, including the right to grant the license set forth in
Section 13.1; (ii) no claim or action is pending or threatened against Nortel
Networks or, to Nortel Networks knowledge as of the Effective Date, against any
licensor or supplier of Nortel Networks that might, if adversely decided,
adversely affect the ability of Flextronics to perform the Repair Services;
(iii) it has all rights and powers necessary to perform its obligations under
this Agreement; and (iv) this Agreement does not violate the terms of its
agreements with any suppliers.
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Nortel Networks covenants and warrants that it will perform its obligations
under this Agreement in a competent, professional and timely manner in
accordance with the standards generally accepted in the telecommunications
industry and the terms of this Agreement.
12.2 Return of Products under Warranty
Any Product for which Flextronics has performed Repair Services and which fails
while under the Repair Warranty Period described in Section 12.1 may be returned
to Flextronics and Flextronics shall replace or repair, as mutually agreed, and
bring to current baseline these Products at the agreed to costs in Exhibit 6
(inclusive of upgrade costs unless otherwise defined in Exhibit 6). During the
Repair Warranty Period, in those instances where the Product is diagnosed as No
Trouble Found (“NTF”), Flextronics shall also bring the Product to current
baseline. If Products require repair during the Repair Warranty Period due to
reasons outside of Flextronics’ control such as customer abuse, NTF, planned
retrofits, destructive failure analysis authorized by Nortel Networks, or
freight damage, then Flextronics shall be entitled to charge the appropriate
rate for such services.
NORTEL NETWORKS’ SOLE AND EXCLUSIVE REMEDY AND FLEXTRONICS’ ENTIRE LIABILITY FOR
BREACH OF WARRANTY IN RESPECT OF SECTIONS 12.1(iv) AND 12.1(v) SHALL BE AS SET
FORTH IN SECTIONS 12.2 AND 12.3 AND SUBJECT TO THE LIMITATIONS SET FORTH IN
SECTION 15 BELOW. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT BUT
SUBJECT TO SECTION 14 AND TO THE EXTENT PERMITTED BY LAW, THE FOREGOING IS
FLEXTRONICS’ SOLE WARRANTY WITH RESPECT TO THE REPAIRED PRODUCTS AND FLEXTRONICS
HEREBY EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE.
12.3 Epidemic Failure

  12.3.1   Procedure for Epidemic Failure

    If a Repaired Product shows evidence of an Epidemic Condition, each Party
shall notify the other Party within two (2) Business Days of becoming aware of
such Epidemic Condition. Upon notification to Flextronics of the Epidemic
Condition, Nortel Networks shall have the right, pending correction of the
Epidemic Condition as provided herein, to postpone further shipments of such
Repaired Product evidencing the Epidemic Condition, by giving notice of such
postponement to Flextronics. Until such Epidemic Condition is corrected,
Flextronics shall negotiate a remedy in good faith within a commercially
reasonable period of time with Nortel Networks which may include acquiring
Class A material in order to fulfill it’s obligations under this Agreement
provided that such Epidemic Condition has been caused solely by Flextronics or
Flextronics’ suppliers.

  12.3.2   Remedies for Epidemic Condition

    Nortel Networks shall pay the costs of implementing the remedy on Repaired
Products to the extent that the Epidemic Condition results from Flextronics’
compliance with the

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    Specifications. Flextronics shall bear all reasonable costs of implementing
the remedy to the extent the Epidemic Condition arose from Flextronics’
non-conformance with the Specifications, defects in SC Material, or defects in
workmanship or manufacturing processes. The Parties shall use reasonable efforts
to minimize the costs associated with the recovery plan without compromising
NNL’s ability to aggressively respond to Customer needs.       Subject to the
foregoing, Flextronics shall:

  (a)   Incorporate the remedy in the affected Repaired Products in accordance
with Nortel Networks’ ECO procedures;     (b)   Subsequently ship only Repaired
Products incorporating the required modification correcting the Epidemic
Condition;     (c)   Rework, repair and/or replace any Repaired Product at no
cost to Nortel Networks, that shows evidence of the Epidemic Condition; and    
(d)   At Nortel Networks’ option, reimburse Nortel Networks for all costs
associated with the repair or replacement of Repaired Products for Nortel
Networks.

    Flextronics’ obligations for Epidemic Condition relating to a Repaired
Product unit shall continue for [•] after the shipment of such Repaired Product.
      The foregoing provisions shall survive termination and expiry of this
Agreement.

SECTION 13
INTELLECTUAL PROPERTY RIGHTS AND LICENSES
13.1 License to Nortel Company Proprietary Information Granted
Flextronics shall have the right and Nortel Networks hereby grants to
Flextronics, to the extent of its legal right to do so, a world-wide,
non-exclusive, non-transferable, royalty-free license to use Nortel Company
Proprietary Information communicated to Flextronics by Nortel Networks as
appropriate for provision of the Repair Services in question solely for internal
use for the purpose of performing the Repair Services hereunder in connection
with Repaired Products. Nortel Networks shall retain exclusive rights and title
to all Nortel Company Proprietary Information provided hereunder. This license
is non-transferable, may be used only in connection with the performance of
Repair Services by Flextronics for Nortel Networks under this Agreement, and
shall expire on the date on which Flextronics obligations to support the repair
Product or to perform Repair Services terminate under this Agreement.
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13.2 Limitations on Grant of License
Except as expressly stated herein, nothing in this Agreement shall be deemed to
grant, either directly or indirectly by implication, estoppel or otherwise, any
licenses to Flextronics of Nortel Company Proprietary Information or any
Trade-Marks, and Flextronics acknowledges that Nortel Networks shall retain
exclusive right and title to the foregoing.
13.3 Flextronics Inventions
Flextronics Inventions, including Flextronics Inventions relating solely to a
repair process not specific to the repair of a Product, shall be the property of
Flextronics. Flextronics shall and does hereby grant Nortel Networks, subject to
fulfillment of its payment obligation, a limited, irrevocable, world-wide,
non-exclusive, royalty-free license, but not as a standalone license, solely to
make or have made and use such Flextronics Invention and Nortel Networks shall
have the right to sub-license such rights to Nortel Networks Suppliers for the
purpose of repairing Products. Nortel Networks shall be fully responsible for
any damages accrued to Flextronics arising out of any third party’s violation of
the scope of the license granted hereunder.
13.4 Specifications and Deliverables Owned by NNL
The Specifications and all deliverables resulting from the Repair Services shall
be the property of Nortel Networks. Flextronics agrees not to offer or provide
the Specifications or deliverables to any third parties without Nortel Networks’
prior written consent, which shall not be unreasonably withheld.
13.5 Flextronics Retains Ownership of Flextronics Proprietary Information
Flextronics shall retain exclusive right, title, and interest to all Flextronics
Proprietary Information; and provided, that Nortel Networks has fulfilled its
payment obligations, Flextronics will grant NNL a limited, world-wide,
non-exclusive, and royalty-free license, but not as a stand-alone license,
solely to make or have made, use, and sell any Flextronics Proprietary
Information incorporated into the Products or used in the repair of the Products
and provided that Nortel Networks shall have the right to sub-license such
rights to Nortel Networks Suppliers for the purpose of repairing Products.
13.6 Assignment of Inventions Agreements with Employees
In respect of any inventions which are specific and related to the repair of
Nortel Networks’ Products, Flextronics shall have agreements with its employees,
consultants, agents or representatives (individually “Counter-Party”), in which
each such Counter-Party shall agree in writing that any and all inventions,
discoveries, developments, modifications, procedures, ideas, innovations,
systems, Programs, know-how or designs developed by any such Counter-Party
during the term of its relationship with Flextronics, shall be the property of
Flextronics. Furthermore, such agreement between any such Counter-Party and
Flextronics shall contain usual clauses including an undertaking by such
Counter-Party to execute applications for patents, copyrights, industrial
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registerable intellectual property rights thereon to the extent so requested by
Flextronics and/or to assign the same to Flextronics.
SECTION 14
INDEMNIFICATION

14.1   Intellectual Property Indemnification

14.1.1 By NNL
Except as otherwise provided in this Section 14, Nortel Networks shall, at its
expense and at Flextronics’ request, indemnify and defend Flextronics against
any claim or action brought against Flextronics by a third party to the extent
that such claim is based on an assertion that Flextronics’ activities as part of
the Repair Services infringe, directly as a result of Flextronics’ compliance
with the Specifications or directions by Nortel Networks to Flextronics relating
to a Product for use under this Agreement, any patent, copyright or trademark,
or violates any trade secret or other proprietary right of a third party. Nortel
Networks shall pay any pre-judgment and pre-settlement costs as wells as any
resulting costs and damages finally awarded against Flextronics or agreed to in
any settlement, and Flextronics’ reasonable attorneys’ or patent agent’s or
other expert’s fees incurred in connection therewith, provided that
(i) Flextronics promptly notifies Nortel Networks in writing of any such claim,
(ii) Nortel Networks has sole control of the defense and all related settlement
negotiations, and (iii) Flextronics reasonably cooperates, at Nortel Networks’
cost, in the defense and furnishes all related evidence under its control.
Notwithstanding the foregoing, Nortel Networks shall have no liability under
Section 14.1 to the extent the alleged infringement or violation:

  (a)   arises from Flextronics’ modification or alteration of the information
supplied by Nortel Networks relating to a Product or the Specifications, and
such modification or alteration is not authorized by Nortel Networks;     (b)  
arises from any method or process used in or practiced as a part of the Repair
Services provided by Flextronics under this Agreement (unless such method or
process was specifically requested by Nortel Networks); or     (c)   arises from
any Repair Services provided by Flextronics under this Agreement (unless the
method or process of providing such Service was specifically requested by Nortel
Networks).

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14.1.2 By Flextronics
Flextronics shall, at its expense and at Nortel Networks’ request, indemnify and
defend all Nortel Companies against any claim or action brought against any
Nortel Company by a third party to the extent that such claim is based on an
assertion that any method or process used or practiced by Flextronics in or
during the provision of any Service provided by Flextronics under this Agreement
infringes any patent, copyright or trademark, or violates any trade secret or
other proprietary right of a third party, unless such method or process was
specifically requested by Nortel Networks [•].
In any such case Flextronics shall pay any pre-judgment and pre-settlement costs
as well as any resulting costs and damages finally awarded against Nortel
Networks or agreed to in any settlement, and Nortel Networks’ reasonable
attorneys’ or patent agent’s or other expert’s fees incurred in connection
therewith, provided that (a) Nortel Networks promptly notifies Flextronics in
writing of any such claim, (b) Flextronics has sole control of the defense and
all related settlement negotiations, and (c) Nortel Networks reasonably
cooperates, at Flextronics’ cost, in the defense and furnishes all related
evidence under its control.
Notwithstanding the foregoing, Flextronics shall have no liability under
Section 14.1 to the extent the alleged infringement or violation:

  (a)   arises from Nortel Networks’ modification or alteration of the
information supplied by Flextronics relating to the Repair Services, and such
modification or alteration is not authorized by Flextronics;     (b)   would not
have arisen but for the combination of the information provided by Flextronics
or other result of such method or process or Service provided by Flextronics
with any other product or technology not supplied by Flextronics, or not
authorized by Flextronics.

14.1.3 Measures to Safeguard NNL against Liability
If, as a result of a claim described in 14.1.2 above, the continued use by
Flextronics of any method or process used in or practices as part of the Repair
Services or the continued use of any intellectual property component of the
Repair Services, an injunction is obtained against the sale or distribution of
any Repaired Product or the continued use of such method or process or
intellectual property component, or if either Party reasonably determines on the
advice of counsel that there is a likelihood of such continued use exposing
either Party to material liability, Flextronics shall forthwith at its option
and expense, unless such element, method or process was specifically requested
by Nortel Networks, use its reasonable efforts to either:

  (a)   procure the right to continue using such process or method or
intellectual property component, to continue selling the Products or to continue
providing such Repair Services; or

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  (b)   modify the process or method, intellectual property component, or Repair
Services, so that the provision of Repair Services, as applicable, no longer
infringes.

THE FOREGOING SECTION 14.1 STATES THE ENTIRE LIABILITY OF THE PARTIES TO EACH
OTHER CONCERNING INFRINGEMENT OF PATENT, COPYRIGHT, TRADE SECRET OR OTHER
INTELLECTUAL PROPERTY RIGHTS HELD BY THIRD PARTIES.

14.2   Other Indemnification

14.2.1 By Flextronics
With respect to matters not covered in Section 14.1, Flextronics shall indemnify
and hold Nortel Networks, its customers, distributors and their employees,
harmless from any losses, damages, liabilities and costs including reasonable
attorney’s fees arising from any injury or death to persons or loss of or damage
to property to the extent caused by any method or process used in the
performance of Repair Services, and, any defect or deficiency including any
defect or deficiency in any parts or components used in the Repair process, or
Flextronics’ negligence or willful misconduct.
14.2.2 By Nortel Networks
With respect to matters not covered in Section 14.1 or 14.2.1, Nortel Networks
shall indemnify and hold Flextronics, its customers, distributors and their
employees, harmless from any losses, damages, liabilities and costs including
reasonable attorney’s fees arising from any injury or death to persons or loss
of or damage to property to the extent caused by Nortel Networks’ negligence or
willful misconduct.
SECTION 15
LIMITATION OF LIABILITY
NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT EXCEPT FOR THE PARTIES’
OBLIGATIONS UNDER SECTION 14 AND A BREACH OF THE OBLIGATIONS IN SECTIONS 12.3,
AND 22, TO THE MAXIMUM EXTENT PERMITTED BY LAW, UNDER NO CIRCUMSTANCES AND UNDER
NO LEGAL THEORY, WHETHER TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY,
CONTRACT, OR OTHERWISE, SHALL ONE PARTY BE LIABLE TO THE SECOND PARTY OR ANY
OTHER PERSON FOR ANY LOSS OF PROFIT OR ANY INDIRECT, SPECIAL, INCIDENTAL,
RELIANCE OR CONSEQUENTIAL DAMAGES, EVEN IF THE FIRST PARTY SHALL HAVE BEEN
INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. NOTHING IN THIS AGREEMENT SHALL ACT
TO RESTRICT OR EXCLUDE LIABILITY FOR DEATH OR PERSONAL INJURY CAUSED BY THE
NEGLIGENCE OF ANY PARTY. FOR PURPOSES OF CLARITY, THE PARTIES AGREE THAT THE
PAYMENT OF PERFORMANCE LIQUIDATED DAMAGES, CUSTOMER PASS-THROUGH
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LIQUIDATED DAMAGES AND REVENUE SHORTFALL LIQUIDATED DAMAGES SHALL NOT BE
RESTRICTED OR EXCLUDED BY THIS LIMITATION OF LIABILITY.
SECTION 16
COMMUNICATION AND INFORMATION TRANSFER
16.1 Access to Nortel Networks Computer Systems by Flextronics
Flextronics shall limit access and use of any Nortel Networks computer systems
solely to the supply of Products and/or Repair Services and shall not access or
attempt to access any intranet, computer systems, files, software or services
other than those required for the supply of Products and/or Repair Services.
Flextronics shall limit such access to those employees with an express
requirement to have such access in connection with supply of Products and/or
Repair Services, and shall strictly follow all security rules and procedures of
Nortel Networks for restricting access to its computer systems. All user
identification numbers and passwords disclosed to Flextronics and any
information obtained by Flextronics as a result of Flextronics’ access to, and
use of Nortel Networks’ computer systems shall be deemed to be, and treated as,
Nortel Company Proprietary Information in accordance with the provisions set
forth in Section 22, with the same degree of care as such Flextronics uses for
its own information of a similar nature, but in no event a lower standard than a
reasonable standard of care. Flextronics shall cooperate in the investigation of
any apparent unauthorized access to any Nortel Networks computer system. The
requirements of this Section shall apply equally to any access and use by
Flextronics of any Nortel Networks intranet, electronic mail system, of any
Nortel Networks’ electronic switched network, either directly or via a direct
inward service access (DISA) feature or of any other property, equipment or
service of Nortel Networks.
16.2 Flextronics Compatibility with Nortel Networks Computer Systems
Flextronics shall use and maintain business systems capable of interfacing with
Nortel Networks’ business systems in such a way that meets the Nortel Networks
definition of managed access for electronic information exchange as set out in
Exhibit 26 of the MCMSA. Information to be exchanged as of the Effective Date,
as applicable, may include: on time shipment, on line work-in-process status,
Product Quality status, shipment notification, and Product design information.
Nortel Networks will assist Flextronics with the integration of Flextronics’
information technology systems with the Nortel Networks systems, as further set
out in Exhibit 26 to the MCMSA.
Flextronics and Nortel Networks shall each take necessary precautions to put in
place contingency plans adequate to safeguard data and enable ongoing operations
in the event of a systems outage.
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16.3 Information Technology Services
Flextronics shall be responsible for providing the information technology
services as set out in Exhibit 26 of the MCMSA.
SECTION 17
EQUIPMENT FURNISHED BY NORTEL NETWORKS
17.1 Title to Equipment Furnished by Nortel Networks
Any equipment loaned by Nortel Networks in connection with the Repair Services
described in the Statement of Work, with or without charge to Flextronics, shall
be deemed bailed to Flextronics, and title thereto shall at all times remain
with Nortel Networks. Upon the earlier of such Nortel Networks request therefore
or the completion of the Repair Services, Flextronics shall return, at a
commercially reasonable expense and risk borne by Nortel Networks, all such
equipment in the same condition as they were when furnished to Flextronics,
reasonable wear and tear excepted. Flextronics shall provide Nortel Networks a
list of all such equipment in Flextronics’ possession on a quarterly basis.
17.2 Risk, Insurance and Maintenance of Equipment Furnished by Nortel Networks
All Nortel Networks equipment in Flextronics’ custody or control shall be held
at Flextronics’ risk and be kept insured by Flextronics at Flextronics’ expense
in an amount no less than the replacement cost with loss payable to the
supplying Nortel Company. Flextronics shall use such equipment solely in the
performance of its obligations hereunder and with the consent of Nortel Networks
Flextronics may use such equipment for other tasks. Upon the expiration or
termination of this Agreement, or upon the written request of Nortel Networks at
any time, Flextronics shall deliver such equipment to the supplying Nortel
Company in the same condition as originally received by Flextronics, reasonable
wear and tear excepted. The supplying Nortel Company shall have the right, at
all reasonable times, upon prior request, to enter Flextronics’ premises to
inspect any and all of its equipment and any equipment or goods manufactured,
developed or created with the aid of its equipment.
SECTION 18
RESERVED ASSETS
From time to time Nortel Networks may convey or otherwise transfer Reserved
Assets in connection with this Agreement and, in such event; the provisions of
Exhibit 13 shall apply.
SECTION 19
LEGAL AND REGULATORY COMPLIANCE
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Flextronics shall at no additional charge to Nortel Networks, comply with and
obtain all licenses and permits necessary to repair Products and provide Repair
Services in accordance with this Agreement and, for Products in respect of which
Flextronics provides Logistics pursuant to Exhibit 2, Flextronics covenants and
agrees that each Repaired Product shall, with respect to the repair, conform
with, all applicable laws, governmental orders and regulations in effect in all
countries to which such Repaired Product is shipped and any other relevant
international agreements relating to the Products Each Party shall provide all
information under its control, which is necessary or useful to obtain any
export, or import license or document required to ship or receive product,
including but not limited to, U.S. Customs Certificates of Delivery, Affidavits
or Origin and U.S. Federal Communications Commission Identifier, if applicable.
SECTION 20
INTERNATIONAL TRADE
20.1 Exports
In addition to the requirements of Exhibit 2, each Party agrees that it shall
not knowingly (i) export or re-export, tangible or intangible, any technical
data (as defined by the U.S. Export Administration Regulations or any other
jurisdiction with import or export restrictions), including software received
from the other under this Agreement or (ii) export or re-export, tangibly or
intangibly, any direct product of such technical data, including software, to
any destination to which such export or re-export is restricted or prohibited by
U.S. or applicable non-U.S. law without obtaining prior authorization from the
U.S. Department of Commerce and/or other competent government authorities to the
extent required by those laws. In addition, each Party agrees to comply with all
the requirements of the Export and Import Permits Act (Canada) all export
control laws and regulations of the exporting country, and any other applicable
legislation throughout the world. As it is relevant to all outstanding
shipments, this clause shall survive termination or cancellation of this
Agreement.
20.2 Customs Invoice
Unless otherwise set forth in this Agreement, Flextronics shall produce customs
invoices and country of origin documents for all shipments crossing
international borders which comply with all laws, treaties and regulations of
both the exporting country and the importing country. If a Product is repaired
in more than one country, then to the extent required by applicable laws, the
different countries of origin must be identified on the customs invoices, along
with the related quantities/serial numbers of such Materials. If any upgrade of
Products to the most recent revision level in accordance with this Agreement is
performed, the applicable fee for this upgrade must be included on the customs
invoice, or, if such upgrade is performed at no charge to Nortel Networks, the
value of such upgrade shall be so indicated. Flextronics shall be solely
responsible for all fines, penalties and costs resulting from any customs
invoice, document, or declaration not being so compliant unless such
non-compliance is solely the result of an action or omission of Nortel Networks
in which case, Nortel Networks shall be responsible for the fine, penalty and
costs or its proportionate share of that fine and/or penalty and cost. Any cost
related to Value Added Tax, duties and fines will be charged to Nortel Networks
at Flextronics cost with
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no markup. All customs invoices must indicate whether or not any Assists were
provided and the value of said Assists.
20.3 Duty Drawback and Minimization
In the countries where Nortel Networks maintains a duty drawback program,
Flextronics shall provide Nortel Networks with a quarterly report of part
numbers and import duties paid or refunded (at entry and through subsequent
adjustment) on behalf of Nortel Networks for all deliveries in country and for
which Nortel Networks may become a subsequent exporter entitled to duty
drawback. Flextronics shall provide a duty drawback waiver on the appropriate
form for duty paid on any materials imported by Flextronics and used or consumed
in the manufacture of Products supplied to Nortel Networks. Nortel Networks
shall provide guidelines to Flextronics with respect to the data required to be
provided by Flextronics.
In the countries in which Nortel Networks does not currently maintain a duty
drawback program, the Parties shall work together with a view to implementing a
similar duty drawback program as soon as practicable and as mutually deemed
required.
When Nortel Networks determines that duties warrant a drawback claim,
Flextronics shall provide all necessary and relevant data and/or documentation
and shall cooperate with Nortel Networks in pursuing the claim. Flextronics will
cooperate with Nortel Networks in any audit relating to this Section. Similarly,
when Flextronics determines that duties warrant a drawback claim, Nortel
Networks shall provide all necessary and relevant data and/or documentation and
shall cooperate with Flextronics in pursuing the claim. In either case, the
costs of preparing and filing the drawback claim will be borne by the parties in
proportion to their relative drawback benefits and Nortel Networks will
cooperate with Flextronics in any audit relating to this Section.
Flextronics will utilize duty minimization programs such as inward and outward
processing relief, ATA Carnets (An international customs document that permits
duty-free and tax-free temporary import of goods for up to one year), and
temporary imports to mitigate duty costs to Nortel Networks. Duty minimization
programs will be reviewed and agreed by both parties. Flextronics shall not be
required to pursue a specific duty minimization program if that program is
unlikely to yield savings greater than the cost of implementing it.
SECTION 21
ENVIRONMENTAL POLICIES
21.1 ISO 14001
Flextronics agrees to maintain ISO 14001 registration for those Repair
Facilities so registered as of the Effective Date and to obtain such
registration within [•] of the Effective Date for those Repair Facilities not so
registered as of the Effective Date.
21.2 Corporate Policy
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Within [•] of the Effective Date, Flextronics shall produce for Nortel Networks’
review and approval its corporate-wide Environmental Policy.
21.3 VOC Free and Lead-Free Technology
Where applicable, Flextronics shall use VOC-free technology in the provision of
Repair Services.
Except in the circumstances where exemptions allowing the use of lead shall
apply under applicable law, Flextronics agrees to have fully qualified and be
ready to deploy lead-free technology in the Repair Facilities by [•]. Such
implementation shall include lead-free components to the extent required in a
Virtual Systems House Agreement or in the relevant bill of material. The Parties
acknowledge the required use of lead-free components may involve different
components and costs attributable to these different components in the Price,
and the Parties will allocate such costs to Nortel Networks unless otherwise
agreed. Nortel Networks and Flextronics agree to address jointly any problems of
supply.
If Flextronics can demonstrate that compliance with any VOC-free or lead-free
requirements will result in change to costs or delay in delivery, the Parties
will agree on appropriate changes to the Price or delivery schedule, only to the
extent such costs or delays are directly related to the provision of Repair
Services. Flextronics acknowledges that changes to VOC-free and lead-free
requirements may result in decreases or increases to costs and that it will
bring any such change to Nortel Networks’ attention. Nortel Networks shall be
responsible for those associated costs that result from Flextronics bringing
operations in legacy Repair Facilities into initial compliance with regulations
regarding lead and VOC-free technology.

21.4   European Union (“EU”) Environmental Directives 

21.4.1 Compliance       Flextronics will engage with Nortel Networks or its
designate and mutually agree on the development and provision of a plan (the
“Compliance Plan”) for the implementation and management of the WEEE (Waste
Electrical and Electronic Equipment) Directive and the RoHS (Restriction of
Hazardous Substances) Directive, as well as any other EU environmental
directives that affect Products to be sold in the EU. Flextronics will provide
the Compliance Plan to Nortel Networks for its approval, within 90 days on
receipt of specific Nortel Networks requirements, which shall include at a
minimum: a) overall objectives in regard to the directives, b) Specifications
and other requirements that must be complied with, c) Products that are
impacted, d) an outline of Flextronics’ and Nortel Networks responsibilities for
achieving the foregoing objectives and requirements and (e) allocation of any
applicable increase in Price to Nortel Networks unless otherwise agreed to by
the Parties. Nortel Networks shall be responsible for those associated costs
that result from Flextronics bringing operations in a legacy Repair Facilities
into initial compliance with regulations regarding any applicable EU directives.

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    Flextronics will provide Nortel Networks with any changes to the Compliance
Plan within ten (10) days of the change coming into effect. Nortel Networks
reserves the right to inspect Flextronics’ facilities to validate compliance
with the EU directives.       To the extent Flextronics is responsible under the
Compliance Plan, Flextronics must be able to demonstrate to Nortel Networks
satisfaction by [• ] that no hexavalent chromium, cadmium, mercury or
polybrominated biphenyls (PBB)/polybrominated diphenyl ethers (PBDE) are present
in Products to be sold in the EU. To the extent Nortel Networks is responsible
under the Compliance Plan, Nortel must be able to demonstrate to Flextronics
satisfaction by [• ] that no hexavalent chromium, cadmium, mercury or
polybrominated biphenyls (PBB)/polybrominated diphenyl ethers (PBDE) are present
in Products to be sold in the EU. [• ]. Nortel Networks and Flextronics agree to
address jointly any problems of supply. If Flextronics can demonstrate that
compliance with any EU directives will result in change to costs or delay in
delivery, the Parties will agree on appropriate changes to the Price or delivery
schedule, only to the extent such costs or delays are directly related to the
provision of Repair Services. Flextronics acknowledges that changes to EU
directives may result in decreases or increases to costs and that it will bring
any such change to Nortel Networks attention.        21.4.2Indemnification      
[•].   21.5   Packaging Reusable and Recyclable

Flextronics shall use only packaging that complies with the Canadian Code of
Preferred Packaging Practices and equivalent legislated requirements, as
applicable. Flextronics shall strive to minimize all product packaging and to
design packaging that delivers reusable/returnable packaging options or is
constructed of recyclable materials.

21.6   INTENTIONALLY LEFT BLANK   21.7   Collaborate on Environmental
Initiatives

Flextronics and Nortel Networks agree to collaborate in good faith on
environmental initiatives aimed at addressing particular customer and market
requirements.

21.8   Hazardous Materials

Flextronics shall supply to Nortel Networks a list of all components used in the
Repair of a Product which are classified as toxic or hazardous under applicable
laws and regulations, information on the safe handling of each Repaired Product
and any pertinent information concerning any adverse effects on people or the
environment that may result from use of,
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exposure to, or disposal of such Repaired Product. [•]. Nortel Networks shall
cooperate with Flextronics to facilitate and minimize the damages, costs and
expenses of any recall or prohibition against such use.
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SECTION 22
CONFIDENTIALITY AND PROPRIETARY INFORMATION
22.1 Restriction on Disclosure and Use of Confidential Information
Any Nortel Company Proprietary Information provided or made available by any
Nortel Company to Flextronics and any Flextronics Proprietary Information
provided or made available by Flextronics to Nortel Networks shall be deemed for
the purposes of this Agreement to be “Confidential Information” of the person
disclosing (“discloser”) such information to another person (“recipient”),
except if such information disclosed to recipient is (a) in or becomes part of
the public domain through no fault of recipient; (b) disclosed to recipient by a
third party without breach of any obligation or other restriction; (c) known to
recipient at the time of disclosure and has been so documented prior to receipt
thereof; (d) independently developed by recipient without access to any
information furnished to it by discloser and has been or is so documented; or
(e) disclosed by recipient to the extent required to be disclosed pursuant to
any applicable law or order, decree or directive of any competent judicial,
legislative or regulatory body or authority, provided that the recipient shall
have provided prior notice to discloser of such requirement and an opportunity
for discloser to take action to contest or attempt to prohibit or limit such
disclosure as permitted by law and such information shall continue to be
Confidential Information for the purposes hereof to the extent disclosure is
prohibited or limited by law. All Confidential Information shall be owned and
remain the sole and exclusive property of discloser, and all rights to
Confidential Information made available to recipient by discloser shall be held
in trust by recipient for the exclusive benefit of discloser. All Confidential
Information of discloser shall be held in confidence by recipient and, if in a
form of any physical media of any kind, returned by recipient upon request of
discloser. Recipient shall not (i) reproduce the Confidential Information of
discloser without the written consent of discloser or (ii) use the Confidential
Information for any purpose other than the performance by recipient of its
obligations under this Agreement. Each Nortel Company and Flextronics shall
cause each of their respective employees, consultants, agents and
representatives who shall have access to Confidential Information to sign a
written agreement setting forth confidentiality obligations of each such
employee, consultant, agent and representative, substantially in the form of
Exhibits 9-1 and 9-2, which are attached hereto and incorporated herein by
reference. Flextronics shall be liable for and shall indemnify NNL and each
Nortel Company, its officers, directors, employees, subcontractors, agents
against any losses, claims, costs or expenses arising from the failure of
Flextronics or its employees, consultants, agents and representatives against
any losses, claims, costs or expenses arising from the failure of Flextronics or
its employees, consultants, agents and representatives, for whatever reason, to
execute the form of agreement set out in Exhibit 9 hereof or to comply with the
terms thereof, and Nortel Networks shall be liable for and shall indemnify
Flextronics, its officers, directors, employees, subcontractors, agents against
any losses, claims, costs or expenses arising from the failure of each Nortel
Network Company or NNL, its respective employees, consultants, agents and
representatives for any corresponding failures by Nortel Company to Flextronics
in respect of such obligations. Each Party acknowledges that monetary damages
may not be adequate in the event of a default of this Section, and the discloser
shall be entitled to injunctive or other affirmative relief and/or to give
notice of default pursuant to this Agreement, or both.
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22.2 Publicity
Flextronics shall not in any advertising, sales promotion materials, press
releases or any other publicity matters use the name “NORTEL NETWORKS”,
“Northern Telecom”, “BNR”, “Bell-Northern Research”, “Nortel Networks
Technology” or the name of any Affiliate, or any variation thereof or language
from which the connection of said names may be implied, nor shall Flextronics
disclose or advertise in any manner the nature of Products repaired or Repair
Services which are part of the repair process or any order by Nortel Networks
hereunder, or the fact that Flextronics has entered into this Agreement, unless
Flextronics is otherwise required to make such disclosure under applicable law
or Nortel Networks, in its sole discretion, grants Flextronics prior written
permission to do so.
No Nortel Company shall in any advertising, sales promotion materials, press
releases or any other publicity matters use the name “FLEXTRONICS CORPORATION”,
“Flextronics”, or any variation thereof or language from which the connection of
said names may be implied, nor shall any Nortel Company disclose or advertise in
any manner the fact that Nortel Networks has entered into this Agreement, unless
Nortel Networks is otherwise required to make such disclosure under applicable
law or Flextronics, in its sole discretion, grants Nortel Networks prior written
permission to do so.
SECTION 23
INSURANCE
23.1 General Liability Insurance
Flextronics shall maintain during the Term, with insurers with an A.M. Best
rating of A- or better policies providing the following insurance coverage: 1)
general umbrella liability insurance (including contractual and products
liability ) with limits of either [•] combined single limit per occurrence for
bodily injury and property damage or [•] bodily injury per occurrence and [•]
property damage per occurrence, 2) workers’ compensation insurance and other
employee insurance coverage required by law, and employer’s liability insurance
with limits of [•] 3) owned or non-owned automobile liability with limits of [•]
and 4) Errors & Omissions insurance with limits of not less than [•].
Nortel Networks shall maintain during the Term, insurance coverage: 1) general
liability insurance (including contractual, products liability and broad form
vendors’ endorsement) with limits of either [•] combined single limit per
occurrence for bodily injury and property damage or [•] bodily injury per
occurrence and [•] property damage per occurrence, 2) workers’ compensation
insurance and other employee insurance coverage required by law, and employer’s
liability insurance with limits of [•].
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Flextronics’ insurance shall be primary and non-contributory (except with
respect of Errors & Omissions referred to in subparagraph 4) above, which may be
primary and non-contributory as regards negligence or negligent acts, as
applicable) with respect to any insurance that Nortel Networks may have and each
applicable Nortel Company shall be named under Flextronics’ general liability
insurance as an additional insured.
23.2 Property and Business Insurance
Flextronics shall provide evidence satisfactory to Nortel Networks that its
property and business are adequately insured up to at least [•] against all
risks of loss or damage, including business interruption, for at least the
amount of the Maximum Foreseeable Loss as defined within the insurance industry.
23.3 Certificate of Insurance
Prior to the commencement of the Initial Term and upon demand of Nortel Networks
thereafter, Flextronics shall furnish to Nortel Networks a certificate or
certificates of insurance evidencing that all insurance required in this
Section 23 is in effect. Flextronics will endeavor to provide at least 30 days
notice of any change in insurance coverage which would impact compliance with
the requirements of this Section 23.3. Flextronics shall in such event furnish a
new certificate in the event of cancellation or expiration of any insurance
evidencing that replacement coverage is in effect.
23.4 Business Continuity
Flextronics acknowledges that the existence, content and adequacy of its
Business Continuity Plan shall be used by Nortel Networks as part of initial and
ongoing assessment criteria for review of Flextronics’ overall performance under
this Agreement. Flextronics shall maintain its property conservation program to
address risks in its worldwide locations. Flextronics will share a description
of this program with Nortel Networks, and shall provide Nortel Networks
annually, or as requested upon reasonable notice, information related to
property protection and insurer’s engineering recommendations for the locations
relevant to the Repair Services. Nortel Networks and/or its insurance companies
shall be allowed to inspect any Site at any time upon reasonable notice and
during normal business hours and to recommend to Flextronics any appropriate
protection improvements. Nortel Networks and Flextronics shall review any
recommendations made as a result of such inspection and Flextronics shall
implement any recommendations or alternative solutions which are mutually
agreed.
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SECTION 24
EXPIRATION OR TERMINATION

24.1   Termination   (a)   In the event the MCMSA is terminated, the Parties
agree to meet and consider the continuance of this Agreement on terms that are
mutually acceptable. If the Parties are unable to agree, either Party has the
right to terminate this Agreement.   (b)   In addition to any other right or
remedy available to Nortel Networks or any Nortel Company under this Agreement
or at law or in equity, if Flextronics breaches any material term of this
Agreement or an Order and such breach is susceptible of cure but is not
corrected within thirty (30) days after the delivery of written notice thereof
by Nortel Networks to Flextronics or if Flextronics defaults in any payment to
Nortel Networks and does not correct the default in payment issue within thirty
(30) days after the date of notice of the breach to Flextronics NNL may
terminate this Agreement and any Nortel Company may terminate any Order. For
greater certainty, if any Service Blanket Order is terminated, all Orders
relating thereto shall be deemed to be concurrently terminated. Notwithstanding
the foregoing, (i) Nortel Networks and any Nortel Company shall have the same
rights and remedies without the requirement to wait for thirty (30) days for
cure if the breach by Flextronics relates to Nortel Company Proprietary
Information under Section 13 or Section 22 hereof and such breach is not
susceptible of cure; and (ii) Flextronics shall have the same rights and
remedies without the requirement to wait for thirty (30) days for cure if the
breach by any Nortel Company relates to Flextronics Company Proprietary
Information under Section 13 or Section 22 hereof and such breach is not
susceptible of cure.   (c)   Regardless of the excuse of Force Majeure, if a
Party is not able to perform within ninety (90) days after such event which
constitutes Force Majeure, the other Party may terminate this Agreement in
accordance with this Section 24.1 provided such Party purporting to terminate is
not otherwise in default of any of its material obligations under this
Agreement. Termination of this Agreement shall not release or diminish any other
obligations of any Party hereunder that exist as of the date of termination.  
(d)   If Flextronics shall be declared insolvent or bankrupt, or if any
assignment of its property shall be made for the benefit of creditors or
otherwise, or if its interest herein shall be levied upon under execution or
seized by virtue of any writ of any court, or if a petition for assignment for
the benefit of creditor is filed in a court is filed by Flextronics to declare
Flextronics bankrupt, or if a petition is filed by any person other than
Flextronics in any court to declare Flextronics bankrupt which is not dismissed
within sixty (60) days of the filing of such petition, or if a trustee in
bankruptcy, receiver or receiver-manager or similar officer is appointed for or
in respect of Flextronics or its assets, then NNL may terminate this Agreement
and/or any Order at its option, and without charge, and shall thereupon be free
from all liability and obligations thereunder except as specifically provided in
Section 24.2(c), all subject to applicable bankruptcy and insolvency legislation
which may otherwise provide. For greater certainty, if any Service Blanket

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    Order is terminated, all Orders relating thereto shall be deemed to be
concurrently terminated.   (e)   Flextronics may terminate an Order only if the
Nortel Company which issued the Order is in material breach of a term,
including, without limitation, any payment obligation of this Agreement or an
Order, and such breach has not been cured within thirty (30) days after the
delivery of written notice thereof by Flextronics to Nortel Company defaulting
in any payment to Flextronics and for any other breach within thirty (30) days
after the date of Flextronics’ written notice thereof to the applicable Nortel
Company in respect of the particular breach, provided that Flextronics has sent
a copy of such notice to NNL. The failure of Nortel Networks to pay to
Flextronics in a timely manner any moneys in dispute shall not constitute a
material breach hereof.   (f)   The Parties agree that the provisions of
Exhibit 11 shall apply with respect to those employees in the United Kingdom or
European Union countries who were employed by Nortel Networks prior to the VSHA
Effective Date applicable to Monkstown and Chateaudun System Houses,
respectively, and were transferred to Flextronics pursuant to the Asset Purchase
Agreement.   24.2   Effect of Expiration or Termination

Upon expiration or any termination of this Agreement by either Party:

(a)   Nortel Networks shall pay all applicable undisputed amounts or charges
owed to Flextronics as provided in this Agreement. Either Party shall have the
right with prior written notification and mutual agreement to set-off any such
amounts or charges owed to the Party against any amounts owing to the other
Party pursuant to this Agreement. If the aggregate amount owing by Nortel
Networks to Flextronics is less than the aggregate amount owing by Flextronics
to Nortel Networks, Flextronics shall pay such net amount owing to Nortel
Networks promptly and in full within [•] of the date which is the earliest of
expiry or termination, as the case may be.   (b)   So long as Nortel Networks
has made all payments required pursuant to paragraph (a) above, Flextronics
shall complete all partially completed Repair Services and deliver such Repaired
Products in accordance with the terms of this Agreement that would have
otherwise applied to such Repair Services. Provided Nortel Networks has made all
payments required pursuant to paragraph (a) above, Flextronics shall deliver
within three (3) weeks of the later of the date of expiry or termination or such
payment, if required, to Nortel Networks all Products, Inventory, any Nortel
Networks property described in Section 17, in exchange for payment by Nortel
Networks of the Price for Products and Inventory.   (c)   The provisions of this
Agreement relating to Warranties (Section 12), Equipment Furnished by Nortel
Networks (Section 17), Reserved Assets (Section 18), Confidential and
Proprietary Information (Section 22), Intellectual Property Rights (Section 13)
except the license granted to Flextronics in Section 13.1, Indemnification
(Section 14) and Audit (Section 27.4), shall remain in effect beyond any
expiration or termination.

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(d)   Flextronics shall return all Nortel Company Proprietary Information and
any Reserved Assets with respect to which Nortel Networks exercises its right to
purchase pursuant to Section 6 of Exhibit 13 to the locations designated by
Nortel Networks and under Nortel Networks’ supervision, either return, destroy
or erase all copies of such Nortel Company Proprietary Information in the
possession of Flextronics or any of its employees, consultants, agents or
representatives, including copies on paper or other hard copy and copies on
computer or other storage media, provided, however, that this provision shall
not apply to any such Nortel Company Proprietary Information in respect of which
Flextronics has a continuing license or obligation which survives the expiry or
termination of this Agreement as expressly provided herein.   (e)   Nortel
Networks shall return to the locations designated by Flextronics all Flextronics
Proprietary Information under Flextronics’ supervision, either return, destroy
or erase all copies of such Flextronics Proprietary Information in the
possession of any Nortel Company or any of their respective employees,
consultants, agents or representatives, including copies on paper or other hard
copy and copies on computer or other storage media; provided, however, that this
provision shall not apply to any such Flextronics Proprietary Information in
respect of which Nortel Networks has a continuing license or obligation which
survives the expiry or termination of this Agreement as expressly provided
herein.   (f)   In the event that Nortel Networks exercises its right to
terminate the purchase of any Repair Services pursuant to Section 3.3.1(B) and
(C) or either Party exercises its right to terminate the purchase or supply of
any Products for convenience upon 180 days notice pursuant to Section 1.6, and
in addition to Flextronics’ obligations in this Section 24.2, Flextronics will
(a) at the beginning of the notice period, put in place a dedicated transition
team to manage the transfer of Repair Services back to Nortel Networks or to a
third party (b) fulfill all obligations under this Agreement for the notice
period at the same level required under this Agreement (c) upon reasonable prior
notice, allow Nortel Networks and any third party designated by Nortel Networks
access to Flextronics’ Sites and to data and information necessary for a
successful transition, and (d) actively support the transition of Repair
Services to Nortel Networks or a third party designated by Nortel Networks.    
  Upon termination, NNL shall have the obligation, to purchase any or all last
time buy components at Flextronics’ acquisition cost as well as Class B
Inventory at the current Price and Class C Inventory at zero cost.   (g)   At
Nortel Networks option but subject to Flextronics’ agreement, Flextronics shall
continue to perform any requested services for a period of time that continues
beyond the expiration or termination of the Term, on terms and conditions to be
mutually agreed upon.

SECTION 25
TERMINATION ASSISTANCE
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25.1   Termination Assistance Services

On notice from Nortel Networks to Flextronics after a determination that an
expiration or termination of this Agreement will occur, Flextronics shall
provide to Nortel Networks any and all termination services (collectively, the
“Termination Assistance Services”) reasonably requested by Nortel Networks to
facilitate the orderly transfer of responsibility for the Repair Services to
Nortel Networks or its designee. The Termination Assistance Services may
include:

  (a)   cooperating with Nortel Networks in effecting the orderly Repair
Services transfer to a third party or Repair Services resumption by Nortel
Networks, provided that (i) such third parties comply with Flextronics’ security
and confidentiality requirements, including executing a confidentiality
agreement reasonably acceptable to Flextronics, and (ii) Flextronics shall not
be required to disclose any of its Confidential Information or Flextronics
Proprietary Information;     (b)   continuing to perform Repair Services until
the effective date of expiration or termination of this Agreement (“Conclusion
Date”); and     (c)   continuing to perform those Repair Services requested by
Nortel Networks after the Conclusion Date.

25.2   Obligation to Provide Termination Services

Except as otherwise agreed within the scope of Termination Assistance Services,
Flextronics will have no obligation to provide Repair Services or any part
thereof after the Conclusion Date.

25.3   Termination Assistance Period

Flextronics shall provide the Termination Assistance Services, and Nortel
Networks shall pay applicable fees for provision of Termination Assistance
Services for a period of up to four (4) months after the Conclusion Date
(“Termination Assistance Period”), at [•].
SECTION 26
DISPUTE RESOLUTION

26.1   Internal Dispute Resolution

Except as otherwise expressly provided in this Agreement, the Parties initially
shall attempt to resolve all disputes, claims, questions or differences between
the Parties with respect to the interpretation of any provision of this
Agreement or with respect to the performance by Contractor or Customer of their
respective obligations hereunder (a “Dispute”), informally in accordance with
the dispute resolution procedure set forth in Exhibit 10.
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SECTION 27
GENERAL PROVISIONS

27.1   Access to Facilities

Nortel Networks shall have the right to review Flextronics’ facilities,
operations, and procedures as they relate to the Repair Services, at any
reasonable time with adequate prior notice for purposes of determining
compliance with the requirements of this Agreement. From time to time a Customer
may request the right to review Flextronics facilities and operations for the
purpose of qualification. Flextronics shall permit such reviews with notice of
five (5) Business Days, provided that Flextronics does not consider the Customer
to be a competitor of Flextronics, and such Customer signs an acceptable
non-disclosure agreement. Flextronics shall not grant access to those areas of
its facilities where Repair Services are conducted to a Competitor of Nortel
Networks without Nortel Networks’ express written permission.

27.2   Reporting

Flextronics shall provide Nortel Networks with the reports as set forth herein
and in the Statement of Work or as mutually agreed by the parties consistent
with the appropriate management of the Repair Services.

27.3   Documentation

Flextronics shall maintain documentation and information relating to the Repair
Services and Specifications, and updates thereto consistent with industry best
practices, but in no event less than [•].

27.4   Audits        27.4.1 Agreement Compliance       Upon Nortel Networks’
prior reasonable request and at Nortel Networks’ cost, Flextronics shall
cooperate in the audit of its records in the manner set forth below, for the
purpose of confirming compliance with this Agreement. Nortel Networks may retain
the services of a major, independent accounting firm, other than the accounting
firm(s) employed as primary outside auditors of Nortel Networks’ or Flextronics’
Parent (the “Accounting Firm”). In conducting any audit hereunder or in making a
determination following such audit, the Accounting Firm shall be directed to
take into consideration all relevant aspects of the matter being audited which
may include, among other things, product scope, volume levels, product
complexity, regulatory requirements and Material Overhead for comparative
purposes.       The Accounting Firm shall be required to maintain in confidence
and not disclose to Nortel Networks any and all Confidential Information
concerning the business, affairs and products of Flextronics that it may learn
in the course of conducting its inspections, except to the extent that it
discovers information indicating that Flextronics has violated its obligations
under this Agreement; provided that in no event shall the Accounting Firm

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make disclosure to Nortel Networks of information relating to any customer of
Flextronics. Flextronics agrees to permit the Accounting Firm to inspect any of
Flextronics’ facilities where Flextronics’ records are located or stored, and to
fully cooperate with such audits including, without limitation, giving the
Accounting Firm full access to all such facilities and all records, documents,
and personnel related to the Products. Nortel Networks shall give reasonable
notice to Flextronics of its desire to conduct such an audit. Audits shall occur
during normal business hours and, except when Nortel Networks in its sole
discretion believes a violation of this Agreement has occurred, shall occur not
more often than once in any twelve (12) month period.
[•]
27.4.2 Control & Security Compliance
Upon five (5) Business Days notice to Flextronics and during normal business
hours, Nortel Networks shall be permitted to audit, inspect and/or verify
relevant Flextronics’ operations and other areas of service to confirm that
(i) Flextronics is maintaining controls and security measures specific to
Flextronics’ fulfillment of its obligations to Nortel Networks pursuant to this
Agreement (ii) billings to Nortel Networks are correct, (iii) reports relating
to Flextronics’ performance are complete and accurate, (iv) records relating to
consigned inventory are accurate, complete, valid and appropriately valued, and
(v) proof of shipping are accurate, complete and valid (‘Inspections’). Nortel
Networks shall clearly state the nature of the Inspection being requested.
Such Inspections shall be limited to information that relates directly to
Flextronics’ fulfillment of its obligations pursuant to this Agreement. Nortel
Networks may conduct Inspections itself or with the assistance of a third party
organization acceptable to Flextronics, provided that the third party
organization executes a confidentiality agreement reasonably acceptable to
Flextronics, at Nortel Networks expense, as appropriate. Inspections may be made
as frequently as Nortel Networks reasonably deems appropriate.
Flextronics will provide to Nortel Networks and its respective auditors
(including internal audit staff), inspectors, regulators, consultants and other
representatives (collectively ‘Inspectors’) as Nortel Networks may from time to
time designate in writing, reasonable access to, without limitation:
(i) Flextronics’ facilities where the services and/or operations are being
performed; (ii) Flextronics’ personnel and subcontractors providing any of the
services/operations; and (iii) data and records, and (iv) operational or
security audit reports and findings including remediation plans in the
possession of Flextronics relating to any of the relevant services and/or
operations. Flextronics will provide such access to Inspectors upon reasonable
written notice by Nortel Networks during regular business hours, provided that
all such persons adhere to Flextronics’ customary security and safety policies
and have executed a confidentiality agreement reasonably acceptable to
Flextronics.
Upon request by Nortel Networks and with Flextronics’ prior consent, not to be
unreasonably withheld, delayed or conditioned, Flextronics will assist and
cooperate with Nortel Networks Inspectors in connection with Inspection
functions, including the
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    review and/or timely remediation of audit issues. Such cooperation shall
extend to agreed Sarbanes Oxley regulatory compliance, as described below.      
As the processes impacted by this Agreement and the Sarbanes Oxley rules and
regulations for Section 404 compliance are more fully understood, both
Flextronics and Nortel Networks will work together to determine the exact
requirements needed to meet the Sarbanes Oxley Section 404 legislation. The
Parties will work together to determine a reasonable, cost effective and
mutually satisfactory solution to meet each Party’s compliance needs. Each party
will maximize the use of its own internal controls and internally available
information to minimize the impact on the other Party.       All Inspections
will be performed in a manner and frequency intended to minimize disruption to
the Parties’ respective businesses.   27.5   Force Majeure

A Party affected by an event of Force Majeure shall be released without any
liability on its part from the performance of its obligations (other than an
obligation to pay money) under this Agreement, but only to the extent and only
for the period that its performance of such obligations is prevented by
circumstances of Force Majeure and provided that such Party shall have given
prompt notice to the other Party. Such notice shall include a description of the
nature of the event of Force Majeure, its cause, and its possible consequences.
The Party claiming circumstances of Force Majeure shall promptly notify the
other Party of the conclusion of the event.

27.6   Notices

All demands, notices, communications and reports provided for in this Agreement
shall be in writing and shall be either sent by facsimile transmission with
confirmation to the number specified below or personally delivered or sent by
reputable overnight courier services (delivery charges prepaid) to any party at
the address specified below, or at such address, to the attention of such other
person, and with such other copy as the recipient party has specified by prior
written notice to the sending party pursuant to the provisions of this Section:
Nortel Networks:
Nortel Networks
3500 Carling Avenue
Ottawa, Ontario
Canada K2H 8E9
Attention: Vice President Supply Management
With a copy to:
NNL Corporate Secretary
8200 Dixie Road, Suite 100,
Brampton, Ontario
Canada L6T 5P6
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Flextronics:
Flextronics Telecom Systems Ltd.
802 St. James Court,
St. Denis Street,
Port Louis,
Mauritius
Phone: 230 212 7600
Fax: 230 210 9168
Attention: President
With a copy to:
Flextronics International Inc.
Room 908, Dominion Centre,
43-59 Queen’s Road East, Wanchai, Hong Kong
Attention: President
With a copy to:
Corporate Legal Department at the address above
Any such demand, notice, communication or report shall be deemed to have been
given pursuant to this Agreement when delivered personally, when confirmed if by
facsimile transmission, or on the Business Day after deposit with a reputable
overnight courier service, as the case may be.
27.7 Independent Contractor
This Agreement shall not constitute Flextronics the agent or legal
representative of Nortel Networks for any purpose and Flextronics shall not hold
itself out as an agent of Nortel Networks other than as expressly provided in
this Agreement. This Agreement creates no relationship of joint venturers,
partners, associates, employment or principal and agent between the Parties, and
both Parties are acting as independent contractors. Neither Party shall have the
right to exercise any control or direction over the operations, activities,
employees or agents of the other Party in connection with this Agreement. Other
than as expressly permitted or provided elsewhere in this Agreement, Flextronics
is not granted any right or authority to, and shall not attempt to, assume or
create any obligation or responsibility for or on behalf of any Nortel Company
or Affiliate. Flextronics shall have no authority to bind any Nortel Company or
Affiliate to any contract, whether of employment or otherwise, and Flextronics
shall bear all of its own expenses for its operations, including the
compensation of its employees, contractors, representatives and agents and the
maintenance of its offices, service, warehouse and transportation facilities.
Flextronics shall be solely responsible for its own employees and sales people
and for their omissions, acts and the things done by them. Other than as
expressly permitted or provided elsewhere in this Agreement, Nortel Networks
expressly disclaims any liability for any commitments on behalf of Nortel
Networks made by Flextronics.
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27.8 Flextronics Responsible for its Contractors
Flextronics may subcontract Repair Services only with Nortel Networks’ prior
written approval, which approval may be withheld in Nortel Networks’ sole
discretion. The approval by Nortel Networks of any subcontractor chosen by
Flextronics shall in no way be construed to relieve Flextronics of any of its
duties, responsibilities and obligations to Nortel Networks under this
Agreement.
27.9 Assignment
Except as expressly set forth in this Agreement, neither this Agreement nor any
license or rights hereunder, in whole or in part, shall be assignable or
otherwise transferable whether by merger, operation of law or otherwise, without
the prior written consent of the other Party. Any change of control in fact of a
Party shall be deemed to constitute an assignment for the purposes of this
Section.
Subject to the condition that Flextronics is satisfied, upon reasonable
evidence, that such future assignee possesses sufficient creditworthiness and
future assignee has accepted the assignment without reservation, NNL may assign
this Agreement or any portion thereof (i) to any of NNL’s Subsidiaries or
company of which NNL becomes a Subsidiary; or (ii) to a person or entity into
which it has merged or which has otherwise succeeded to all or substantially all
of its business and assets to which this Agreement pertains, by purchase of
stock, assets, merger, reorganization or otherwise, and which has assumed in
writing or by operation of law its obligations under this Agreement. Any
attempted assignment in violation of the provisions of this Section shall be
void. In any assignment in case (ii) above, the person or entity into which NNL
has merged or which has otherwise succeeded to all or substantially all of NNL’s
business and assets, shall agree in writing to be bound by the terms of this
Agreement.
Flextronics agrees to give NNL, to the extent legally permissible, notice of the
direct or indirect acquisition by any entity of (1) shares in the capital of
Flextronics or of any Subsidiary of Flextronics, if rights sufficient to elect a
majority of the board of directors of such entity (pursuant to a shareholders
agreement or otherwise) are attached to such shares or such Subsidiary of
Flextronics ceases to be a Subsidiary of Flextronics, or (2) substantially all
of the assets of Flextronics or of such Subsidiary of Flextronics.
27.10 Severability
If any provision of this Agreement is held illegal, invalid or unenforceable by
any competent authority in any jurisdiction, such illegality, invalidity or
unenforceability shall not in any manner affect or render illegal, invalid or
unenforceable such provision in any other jurisdiction or any other provision of
this Agreement in any jurisdiction, and such invalid or unenforceable provision
shall be replaced for the purposes of the jurisdiction in which it is held to be
illegal, invalid or unenforceable with an enforceable clause which most closely
achieves the result intended by the invalid provision.
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27.11 Governing Law; Waiver of Jury Trial
All issues and questions concerning the construction, validity, enforcement,
interpretation and performance of this Agreement, the rights and obligations
arising hereunder and any purchase made hereunder shall be governed by the laws
of the Province of Ontario and the federal laws of Canada applicable therein,
without reference to the UNCITRAL Conventions on Contracts for the International
Sale of Goods and without giving effect to any choice of law or conflict of law,
rules or provisions (whether of such Province or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the
Province of Ontario. In furtherance of the foregoing, the internal Laws of the
Province of Ontario shall control the interpretation and construction of this
Agreement, even though under that jurisdiction’s choice of Law or conflict of
Law analysis, the substantive Law of some other jurisdiction would ordinarily
apply.
IN THE EVENT OF ANY DISPUTE BETWEEN THE PARTIES, WHETHER IT RESULTS IN
PROCEEDINGS IN ANY COURT IN ANY JURISDICTION OR IN ARBITRATION, THE PARTIES
HEREBY KNOWINGLY AND VOLUNTARILY, AND HAVING HAD AN OPPORTUNITY TO CONSULT WITH
COUNSEL, WAIVE ALL RIGHTS TO TRIAL BY JURY, AND AGREE THAT ANY AND ALL MATTERS
SHALL BE DECIDED BY A JUDGE OR ARBITRATOR WITHOUT A JURY TO THE FULLEST EXTENT
PERMISSIBLE UNDER APPLICABLE LAW.
27.12 Consent to Jurisdiction
The parties hereto submit to and consent to the non-exclusive jurisdiction of
Courts located in each Province within Canada.
27.13 Entire Agreement; Amendments
This Agreement, including all Exhibits and Schedules thereto, and the other
transaction documents referenced therein, constitutes the entire agreement
between the parties pertaining to the subject matter thereof and such Exhibits
and Schedules thereto are incorporated herein by reference. This Agreement
supersedes all prior agreements and understandings between the parties, written
or oral, with respect to such subject matter. No representation or statement of
any kind made by a representative of either Party that is not stated in this
Agreement shall be binding. The provisions of this Agreement may be amended or
waived only by an instrument in writing signed by the authorized representatives
of each Party, except as otherwise expressly provided in this Agreement.
27.14 Most Favored Customer
[•].
27.15 Construction
Unless the context requires otherwise, all words used in this Agreement in the
singular number
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shall extend to and include the plural, all words in the plural number shall
extend to and include the singular, and all words in any gender shall extend to
and include all genders.
Wherever the Agreement uses the expression “including” or “such as” or similar
expressions denoting examples, such expressions shall be interpreted as being
“without limitation”.
27.16 Headings
The headings used in this Agreement are for the purpose of reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
27.17 Time of Essence
Time shall be of the essence of this Agreement, except as otherwise expressly
provided in this Agreement.
27.18 Agreement by All Flextronics Entities
Flextronics has entered into this Agreement for and on behalf of itself and its
Subsidiaries. Flextronics represents and warrants that it has full power and
authority to negotiate this Agreement for itself and for and on behalf of each
of its Subsidiaries.
27.19 Language
The Parties have requested that this Agreement and all documents contemplated
thereby or relating thereto be drawn up in the English language. Les Parties ont
requis que cette Convention ainsi que tous les documents qui y sont envisagés ou
qui s’y rapportent soient rédigés en langue anglaise.
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IN WITNESS WHEREOF, the Parties hereto have signed this Agreement by their duly
authorized representatives, to be effective as of the Effective Date, although
actually signed by the Parties on the dates below their respective signatures.

                  NORTEL NETWORKS LIMITED   FLEXTRONICS TELECOM SYSTEMS, LTD.  
 
 
               
By:
  /s/ CHAHRAM BOLOURI
 
  By:   /s/ MANNY MARIMUTHU
 
   
 
                Print Name: Chahram Bolouri   Print Name: Manny Marimuthu    
 
               
Title:
President, Global Operations   Title:  Authorized Signatory    
 
               
By:
               
 
               
Print Name:
           
 
               
Title:
               

[Signature page to Repair Agreement]