<PAGE>

                                                                    EXHIBIT 10.6
                                                                    ------------

  CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
     EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
                       ASTERISKS (*) DENOTE SUCH OMISSIONS.

                                OMNIBUS AGREEMENT


THIS OMNIBUS AGREEMENT is made and entered into as of August 26, 1999 (the
"Effective Date"),

BY AND BETWEEN:

     NORTEL NETWORKS INC., a corporation organized and existing under the laws
     of the State of Delaware, having a place of business at 2221 Lakeside
     Blvd., Richardson, Texas 75082 (hereinafter referred to as "NNI"), on
     behalf of itself, and Nortel Networks Corporation and its other
     Subsidiaries (hereinafter collectively referred to as "Nortel").

AND:

     Avici Systems Inc., a corporation organized and existing under the laws of
     the State of Delaware having a place of business at 101 Billerica Avenue,
     North Billerica, MA 01862 (hereinafter referred to as "Avici").

WHEREAS, in early 1998, to meet anticipated market requirements for terabit
routers, Nortel and Avici entered into a comprehensive relationship
("Relationship"), which:

     (a)  was structured to expedite the time to market for Avici's Terabit
          Switch Router system ("TSR"); and

     (b)  included, among other components, technology collaboration, market
          collaboration and an equity investment by Nortel in Avici as more
          particularly described in the Prior Agreements; and,


WHEREAS, the Parties have agreed to alter salient elements of the Relationship;

NOW, THEREFORE, in consideration of the foregoing and the mutual promises and
covenants hereinafter set forth, the Parties agree as follows:

1.  DEFINITIONS


    1.1.  Capitalized terms used herein without definition have the meanings
          ascribed to them in Appendix I annexed hereto.

<PAGE>

2.  TERMINATION OF AGREEMENTS



    2.1.  Distribution Agreement. The Distribution Agreement is hereby
          terminated by mutual agreement of the Parties. The Distribution
          Agreement shall be of no further force or effect; provided, however,
          that the provisions enumerated in Section 28 of the Distribution
          Agreement shall survive termination of the Distribution Agreement as
          set forth therein.

    2.2.  Technology License Agreement.

          (a)  The Technology License Agreement is hereby terminated by mutual
               agreement of the Parties. The Technology License Agreement shall
               be of no further force or effect; provided, however, that the
               provisions enumerated in Section 18.10 of the Technology License
               Agreement shall survive termination of the Technology License
               Agreement as set forth therein.

          (b)  Notwithstanding Section 2.2(a) of this Agreement or Section 18.10
               of the Technology License Agreement, upon termination of the
               Technology License Agreement Section 18.6 of the Technology
               License Agreement shall terminate and be of no further force or
               effect.

    2.3.  Assistance Agreement.

          (a)  Notwithstanding anything to the contrary in the Assistance
               Agreement or any Activity Description, the Assistance Agreement
               shall terminate by mutual agreement of the Parties only upon the
               termination of the final Activity Description listed in Section
               3.1 of this Agreement, at which time the Assistance Agreement
               shall be of no further force or effect; provided, however, that
               the provisions enumerated in Section 4.11 of the Assistance
               Agreement shall survive termination of the Assistance Agreement
               as set forth therein.

          (b)  Notwithstanding Section 2.3(a) of this Agreement or Section 4.11
               of the Assistance Agreement, upon termination of the Assistance
               Agreement, Sections 4.9 and 6.3 of the Assistance Agreement shall
               terminate and be of no further force or effect.



                                       2
<PAGE>

3.  PERFORMANCE OF ACTIVITY DESCRIPTIONS, CONFIDENTIAL INFORMATION, AND LICENSES


    3.1.  Performance. For each of the Assistance Activities listed below, and
          subject to the terms and conditions of this Section 3, Nortel and
          Avici shall perform such Assistance Activity in accordance with the
          terms and conditions set out in the associated Activity Description:

          (a)  The Assistance Activity described in Activity Description 98-011
               ("Flute ASIC Part 2");

          (b)  The Assistance Activity described in Activity Description 98-017
               ("EMC Module and Shelf Design Adaptation"), as amended by an
               "Amendment #1 to Activity Description 98-017", dated as of
               July 2, 1999;

          (c)  The Assistance Activity described in Activity Description 98-018
               ("TSR Product Line Management"), provided that Nortel shall be
               able to remove its employee, Gerald de Grace, from this
               Assistance Activity at any time after August 30, 1999; and

          (d)  The Assistance Activity described in Activity Description 98-021
               ("Flute ASIC Part 3").


    3.2.  License Grant With Respect to Nortel Background IPR.  With respect to
          Nortel Background IPR contained in Contracted Work and such other
          assistance as Nortel may have provided Avici in connection with the
          development of Contracted Work (only as such assistance is described
          under the Activity Descriptions), Nortel hereby grants to Avici a non-
          exclusive, worldwide, royalty-free, perpetual, irrevocable and
          transferable license, with the right to sublicense, to use, copy,
          modify, have modified, enhance, improve, display, distribute (directly
          or indirectly), make derivative works of, license and otherwise
          commercially exploit such Nortel Background IPR and Nortel assistance
          solely in connection with the development, manufacture, marketing,
          sale and support of Avici Products.

    3.3.  Confidential Information.  Except as provided in Sections 3.4, 3.5 and
          4.1 of this Agreement, each Party ("Receiving Party") represents and
          warrants that it shall not use the Confidential Information,
          Intellectual Property Rights or Technology of the other Party
          ("Disclosing Party") for any purpose whatsoever, including, without
          limitation, for research or product development purposes, and without
          limiting the generality of the foregoing, each Party represents and
          warrants that it has not incorporated, and shall not incorporate, the
          Confidential Information, Intellectual Property Rights, or Technology
          of the other Party in any of its products or technology. Upon
          completion of each Activity Description listed in Section 3.1 of this
          Agreement,




                                       3
<PAGE>

          Confidential Information of Disclosing Party that is no longer
          required to be retained for the purposes set forth in Section 4.1 of
          this Agreement shall be returned to Disclosing Party in accordance
          with such Section 4.1.

    3.4.  Notwithstanding anything else in this Agreement or any of the Prior
          Agreements, neither Party shall be bound by any obligations
          restricting disclosure, return, and use set forth in this Agreement or
          any of the Prior Agreements with respect to Confidential Information,
          or any part thereof, which:

       (a)  was known by Receiving Party prior to disclosure, as evidenced by
            its business records;

       (b)  was lawfully in the public domain prior to its disclosure, or
            becomes publicly available other than through a breach of this
            Agreement;

       (c)  was disclosed to Receiving Party by a third party provided such
            third party or any other party from whom such third party receives
            such information is not in breach of any confidentiality obligation
            in respect of such information;

       (d)  is independently developed by Receiving Party, as evidenced by its
            business records; or

       (e)  is disclosed when such disclosure is compelled pursuant to legal,
            judicial, or administrative proceeding, or otherwise required by
            law, subject to Receiving Party giving all reasonable prior notice
            to Disclosing Party to allow it to seek protective or other court
            orders.

  3.5  Subject to Section 3.4, notwithstanding anything else in this Agreement
       or any of the Prior Agreements, nothing in this Agreement or the Prior
       Agreements shall be construed as precluding or preventing Receiving Party
       from accidentally using the Residuals of Disclosing Party's Confidential
       Information for any purpose, including use in the development, testing,
       manufacture, acquisition, marketing and maintenance of Receiving Party's
       products and services, provided that this right with regard to Residuals
       does not represent, and shall in no event be deemed to grant to either
       Party, a license either expressly, by implication, estoppel or otherwise
       under the other Party's patents, copyrights, mask works or other United
       States or foreign intellectual property rights.  This Section 3.5 will
       not be interpreted to prevent a party from making the decision not to
       pursue a particular development path based on knowledge that it would be
       inefficient or uneconomical to do so.



                                       4
<PAGE>

4.  RETURN OF MATERIALS AND EQUIPMENT


    4.1.  Subject to Section 3.4 of this Agreement, except to the extent
          retention of Confidential Information is required by either Party (a)
          to fulfill its obligations under Section 3.1 hereof, (b) to fulfill
          its obligations under any agreement between the Parties not terminated
          by this Agreement, including without limitation, the EMC Supply
          Agreement dated as of May 5, 1999, (c) to exercise any surviving
          license of Intellectual Property Rights granted pursuant to this
          Agreement, the Assistance Agreement or the Technology License
          Agreement, each Party shall, within four (4) weeks following the
          Effective Date:

          (a)   return to the other Party, or destroy, at the other Party's
                option, all Confidential Information, Intellectual Property
                Rights, and Technology of the other Party in its possession or
                control, and other materials (including any notes, extracts,
                summaries or analyses), whether in written or electronic form,
                that disclose or embody such Confidential Information,
                Intellectual Property Rights, and Technology; and

          (b)   certify in writing its compliance with the foregoing provision.

       Notwithstanding anything in this Section 4.1, each Party may retain one
       copy of the Confidential Information for archival purposes only, which
       copy can only be accessed to resolve disputes.

  4.2  Return of TSR Equipment.  Without limiting the provisions of Section 4.1
       of this Agreement, Nortel shall promptly return all TSR equipment (the
       cost of such return to be borne [CONFIDENTIAL TREATMENT REQUESTED/*/% by
       Avici and [CONFIDENTIAL TREATMENT REQUESTED/*/% by Nortel), other than
       the GST Units, Beta Unit and Demo Unit (each as defined in Section 8 of
       this Agreement), shipped by Avici to Nortel or to a third party at the
       request of Nortel. In consideration of the costs incurred by Avici in
       connection with the return of all such TSR equipment, Nortel will
       transfer all of its right, title and interest in and to the GST Units to
       Avici effective upon the execution of this Agreement. Nortel shall have
       no further right, title or interest in or to the Beta Unit and the GST
       Units following the execution of this Agreement.


5.  COVENANTS


    5.1.  Filing of Restated Certificate of Incorporation. Nortel shall execute
          the Stockholders Consent attached hereto as Appendix II and shall
          further cooperate with Avici to allow


---------------------
/*/ [CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN
OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH
OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

                                       5
<PAGE>

          Avici to cause the filing of the Restated Certificate of Incorporation
          with the Secretary of State of the State of Delaware.

    5.2.  Further Assurances.  Each Party agrees to execute and deliver such
          other documents, certificates, agreements and other writings and to
          take such other actions as may be necessary or desirable in order to
          consummate or implement expeditiously the transactions contemplated by
          this Agreement.

    5.3.  INM Agreement.  The parties shall enter into a Nortel INM Agreement
          whereby Nortel will extend its Integrated Network Manager (INM)
          product, such that the product will include interfaces that will allow
          it to manage the Avici TSR. The terms of the agreement shall be no
          less favorable to Avici than the terms Nortel offers to other
          nonaffiliated third parties offering Nortel similarly valued
          consideration in return for similar INM extensions. The functionality
          provided within INM for the TSR shall be no less than that provided
          for the Versalar25000 or Cisco12000 and other similar products, unless
          functionality differences are attributable to differences in the
          features supported by such products. Nortel will provide ongoing INM
          updates, and will make reasonable efforts to promptly update INM as
          Avici provides new TSR MIBs. Avici shall have the right to sell the
          TSR-related loads of INM to its customers. Provided INM is given a
          reasonable amount of time to complete INM-development work relating to
          the TSR, completion of such development must be complete before the
          associated product release of the TSR. Subject to the satisfactory
          completion and delivery of the INM tool to Avici, the cost to Avici
          for the tool will be [CONFIDENTIAL TREATMENT REQUESTED]/*/, provided
          that the minimum payment due from Avici to Nortel shall be
          [CONFIDENTIAL TREATMENT REQUESTED]/*/

    5.4.  Avici hereby grants Nortel, until the sooner of the execution of the
          Nortel INM Agreement or six months from the Effective Date, a non-
          exclusive, worldwide, royalty-free, license in the MIB-information
          relating to the TSR, with the right to distribute (directly or
          indirectly), and license such MIB-information, provided that the MIB
          information is distributed and licensed only in an non-operational
          state and only as part of its INM product. Upon execution of the INM
          Agreement, this license shall terminate. Notwithstanding anything in
          this grant, and without limiting the generality of the foregoing,
          Nortel cannot use the MIB-information except when using the INM
          product to manage the TSR.

    5.5.  Employee Notification. Promptly following the execution of this
          Agreement, each Party shall notify those of its employees who have had
          access to the Confidential Information of the other Party of their
          obligations under this Agreement, including without limitation, the
          obligations set forth in Section 3 hereof.


---------------------
/*/ [CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN
OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH
OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

                                       6
<PAGE>

6.  CUSTOMER ISSUES


    6.1.  Systems Integrator. For three (3) months following the Effective Date,
          at the request of GST/NTON, Qwest and any other customer that is
          mutually agreed upon by the Parties ("Customer"), Nortel shall act as
          a Systems Integrator of Avici Products with respect to such Customer.
          In such event,:

          (a)  Customer shall enter into (i) a formal or other binding agreement
               directly with Avici to purchase/license the desired Avici
               Products and (ii) a formal or other binding agreement
               ("Integration Agreement") directly with Nortel that governs
               Nortel's role as a Systems Integrator; and,

          (b)  Provided that Avici consents to the terms of the Integration
               Agreement, which consent shall not be unreasonably withheld,
               Avici shall in good faith cooperate with and assist Nortel in
               meeting Nortel's obligations under the Integration Agreement, and
               any other agreement that is ancillary to the Integration
               Agreement.

7.  PERSONNEL MATTERS


    7.1.  For a period of twelve (12) months following July 1, 1999, neither
          Party (the "Non-Hiring Party") shall:

          (a)  solicit for employment, directly or indirectly, whether as an
               employee, agent, contract worker, independent contractor or any
               individual in a similar capacity, any employee of the other
               Party, provided however, and except as set forth in section
               7.1(b), that this Section 7.1(a) shall not prevent either Party
               from soliciting such other Party's employees if such solicitation
               takes place solely by means of a general solicitation of
               employment, by advertisements, or by engaging firms to conduct
               searches that are not specifically directed towards employees of
               the other Party any employee of the other Party; and,

          (b)  offer employment to, or hire, directly or indirectly, whether as
               an employee, agent, contract worker, independent contractor or in
               any similar capacity, any employee of the other Party with whom
               the Non-Hiring Party has had substantial direct contact prior to
               or after the Effective Date of this Agreement, including the
               employees restricted under Section 7.2 of this Agreement.

    7.2.  No Nortel employee, agent, contract worker, contractor or other
          individual listed on Appendix III hereto shall work on (or consult
          with any individual working on) the design, development, marketing or
          manufacture of high speed internet routers and


                                       7
<PAGE>

       router switches, or products related thereto for the period of time set
       forth opposite each such individual's name on Appendix III attached
       hereto, except as set forth in Appendix III.


8.  SALE OF TSR EQUIPMENT AND PAYMENT

    8.1.  Sale of TSR Equipment. In connection with the Relationship, Nortel
          confirms that it has purchased [CONFIDENTIAL TREATMENT REQUESTED]/*/
          TSR units from Avici, to be used by GST/NTON (the "GST Units"). Nortel
          shall pay Avici [CONFIDENTIAL TREATMENT REQUESTED]/*/ for the GST
          Units. The GST Units were purchased on an "as is" basis and the sale
          is final and unconditional.

    8.2.  Payment for Beta Unit at Qwest. In connection with the Relationship,
          Nortel and Avici placed one (1) Avici TSR beta test unit (the "Beta
          Unit") at Qwest. Nortel shall pay Avici $[CONFIDENTIAL TREATMENT
          REQUESTED]/*/. All right, title and interest to the Beta Unit shall
          vest exclusively in Avici.

    8.3.  Sale of TSR Demo Unit. In connection with the Avici TSR demonstration
          unit (the "Demo Unit") ordered by Nortel from Avici and shipped to
          Nortel in Q2 1999, Nortel shall pay Avici [CONFIDENTIAL TREATMENT
          REQUESTED]/*/. This sale is final and unconditional, except that (i)
          [CONFIDENTIAL TREATMENT REQUESTED]/*/ and (ii) Nortel shall use the
          Demo Unit solely for the purpose of interoperability testing and for
          no other purpose.

    8.4.  Payment. The amounts owed by Nortel to Avici shall be currently due
          and payable and may, at the option of Nortel, be offset against all
          amounts owed by Avici to Nortel as of the date of this Agreement for
          services provided by Nortel to Avici. Notwithstanding anything to the
          contrary in any agreement executed by and between Nortel and Avici,
          all amounts owed by Avici to Nortel as of the date of this Agreement
          (other than amounts that have been offset pursuant to the preceding
          sentence), shall be payable upon the earlier to occur of thirty (30)
          days following the first closing of the next round of equity financing
          of Avici or ninety days following the date of this Agreement.


9.  RELEASE

    9.1.  In consideration of mutual releases and of other good and valuable
          consideration, the receipt and sufficiency of which are hereby
          acknowledged, and in reliance upon the representations and warranties
          and mutual promises and covenants contained in this Agreement, Avici,
          on behalf of itself and each of its corporate parents, subsidiaries
          and affiliates (individually and collectively, "AVICI RELEASOR")
          generally, unconditionally and irrevocably releases and discharges
          Nortel, and its corporate



---------------------
/*/ [CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN
OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH
OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

                                       8
<PAGE>

          parents, subsidiaries and affiliates and all of their respective
          present and former directors, officers, employees, agents, successors,
          assigns, transferees and beneficiaries (individually and collectively,
          "NORTEL RELEASEE") from all actions, causes of action, accounts,
          agreements, bonds, bills, covenants, contracts, controversies, claims,
          damages, demands, debts, dues, extents, executions, judgments,
          liabilities, obligations, promises, predicate acts, reckonings,
          specialties, suits, sums of money, trespasses and variances
          whatsoever, whether known or unknown, in law, admiralty or equity
          which each AVICI RELEASOR ever had, now has, or may at any time or
          from time to time have, arising out of or by reason of any matter,
          cause or thing whatsoever from the beginning of the world to the
          Effective Date, which would not have occurred but for the Relationship
          (collectively, "Actions"), including, without limiting the foregoing,
          any Action arising from or relating to:

          (a)  any negotiation, execution, termination, performance or lack of
               performance under:

               .  any of the Prior Agreements, or

               .  any other written or oral contracts in effect between any
                  AVICI RELEASOR and any NORTEL RELEASEE;

          (b)  Nortel's cessation of the distribution of Avici's products;

          (c)  any NORTEL RELEASEE not offering to acquire control of Avici; and

          (d)  Nortel's cessation of the performance, negotiation, or
               contemplation of any commenced or proposed activity, including
               any Assistance Activity, relating to the Assistance Agreement.


          This Section 9.1 does not apply to any Action that an AVICI RELEASOR
          may have against a NORTEL RELEASEE arising from or relating to:

          (e)  any obligation of Nortel set forth in this Agreement;

          (f)  a material misappropriation or infringement by a NORTEL RELEASEE
               of a material element of Avici Technology and/or Avici's
               Intellectual Property Rights; and

          (g)  the sections that shall survive the termination of each of the
               Distribution Agreement, Technology License Agreement and
               Assistance Agreement, respectively, as set out in Section 2
               hereunder, which sections include without limitation Section 17
               of the Technology License Agreement, Section 17 of the
               Distribution Agreement, and Section 9 of the Assistance
               Agreement.

     9.2. In consideration of mutual releases and of other good and valuable
          consideration, the receipt and sufficiency of which are hereby
          acknowledged, and in reliance upon the representations and warranties
          and mutual promises and covenants contained in this



                                       9
<PAGE>

          Agreement, NNI, on behalf of itself and each of its corporate parents,
          subsidiaries and affiliates (individually and collectively, a "NORTEL
          RELEASOR") generally, unconditionally and irrevocably releases and
          discharges Avici, and its corporate parents, subsidiaries and
          affiliates and all of their respective present and former directors,
          officers, employees, agents, successors, assigns, transferees and
          beneficiaries (collectively, "AVICI RELEASEE") from all actions,
          causes of action, accounts, agreements, bonds, bills, covenants,
          contracts, controversies, claims, damages, demands, debts, dues,
          extents, executions, judgments, liabilities, obligations, promises,
          predicate acts, reckonings, specialties, suits, sums of money,
          trespasses and variances whatsoever, whether known or unknown, in law,
          admiralty or equity which each NORTEL RELEASOR ever had, now has, or
          may at any time or from time to time have, arising out of or by reason
          of any matter, cause or thing whatsoever from the beginning of the
          world to the Effective Date, which would not have occurred but for the
          Relationship (collectively, "Actions"), including, without limiting
          the foregoing, any Action arising from or relating to:

          (a)  any negotiation, execution, termination, performance or lack of
               performance under:

               .  any of the Prior Agreements, or

               .  any other written or oral contract in effect between any
                  NORTEL RELEASOR and any AVICI RELEASEE.

          This Section 9.2 does not apply to any Action that a NORTEL RELEASOR
          may have against an AVICI RELEASEE arising from or relating to:

          (b)  any obligation of Avici set forth in this Agreement;

          (c)  a material misappropriation or infringement by an AVICI RELEASEE
               of a material element of Nortel Technology and/or Nortel's
               Intellectual Property Rights, except for any Claim by a NORTEL
               RELEASOR for acts occurring before the Effective Date of this
               Agreement with regard to Avici's "Nutcracker" customer support
               testing software, which Claim, if any, is expressly released
               hereunder; and

          (d)  the sections that shall survive the termination of each of the
               Distribution Agreement, Technology License Agreement and
               Assistance Agreement, respectively, as set out in Section 2
               hereunder, which sections include without limitation Section 17
               of the Technology License Agreement, Section 17 of the
               Distribution Agreement, and Section 9 of the Assistance
               Agreement.



                                       10
<PAGE>

10.  NOTICES


     10.1.  Any and all notices or other information to be provided by one Party
            to another shall be in writing and shall be deemed sufficiently
            given when sent by prepaid registered or certified first-class mail,
            overnight courier, facsimile transmission with confirming receipt,
            or hand delivery to the other Party at the following address:

            If to Nortel:

            Nortel Networks Corp.
            8200 Dixie Road, Suite 100
            Brampton, Ontario L6T 5P6
            Canada
            Fax No.: (905) 863-8261

            Attention: Mergers and Acquisitions Department


            Copy to:

            Nortel Networks Inc.
            200 Athens Way
            Nashville, TN 37228
            Fax No.: (615) 734-4067

            Attention: Legal Department


            If to Avici:

            Avici Systems Inc.
            101 Billerica Avenue
            North Billerica, MA  01862
            Fax No.: (978) 964-2100

            Attention:  President and Chief Executive Officer


            Copy to:

            Testa, Hurwitz & Thibeault, LLP
            125 High Street
            Boston, MA  02110
            Fax No.:  (617) 248-7100

            Attention:  John A. Meltaus, Esq.


                                       11
<PAGE>

           or such other address as such Party may designate by giving thirty
           (30) days prior written notice.

    10.2.  Such notices shall be deemed to have been received five (5) business
           days after mailing if sent by mail, and the following business day if
           sent by facsimile transmission, overnight courier or delivered by
           hand.

11. GENERAL


    11.1.  No agency, partnership, joint venture or employment relationship is
           or shall be created by virtue of this Agreement.

    11.2.  No Party shall use the name of the other in any advertising, public
           relations or media release without the prior written consent of the
           other Party. The Parties agree that the terms and conditions of this
           Agreement shall be treated as Confidential Information which shall
           not be disclosed to any third party without the prior written consent
           of the non-disclosing Party, provided, however, that each Party may
           disclose the terms and conditions of the Agreement: (i) as required
           by any court or other governmental body; (ii) as otherwise required
           by law; (iii) to legal counsel of the Parties; (iv) in confidence, to
           accountants, banks, investors and other financing sources and their
           advisors; (v) in confidence, in connection with the enforcement of
           this Agreement or rights under this Agreement; or (vi) in confidence,
           in connection with an actual or proposed merger, acquisition, or
           similar transaction.

    11.3.  No Party shall have the right to delegate any duty or assign any
           right hereunder without the prior written consent of the other Party,
           provided, however, that Avici may assign all of its rights hereunder
           as part of a sale of all or substantially all of the assets of Avici.
           Notwithstanding the foregoing, NNI shall have the right to delegate
           or assign this Agreement or any right hereunder to Nortel Networks
           Corporation or any Subsidiary of Nortel Networks Corporation without
           the consent of Avici. A merger, consolidation or sale of more than
           fifty percent (50%) of the equity securities of Avici shall not be
           deemed to be an assignment for the purposes of this Agreement.

    11.4.  If the performance by a Party of any of its obligations under this
           Agreement shall be interfered with by reason of any circumstances
           beyond the reasonable control of that Party, including without
           limitation, fire, explosion, acts of God, war, revolution, civil


                                       12
<PAGE>

          commotion, unavailability of supplies or sources of energy, power
          failure, breakdown of machinery, or labor difficulties, including
          without limitation, strikes, slowdowns, picketing or boycotts, then
          that Party shall be excused from such performance for a period equal
          to the delay resulting from the applicable circumstances and such
          additional period as may be reasonably necessary to allow that Party
          to resume its performance. With respect to labor difficulties as
          described above, a Party shall not be obligated to accede to any
          demands being made by employees or other personnel. This provision
          shall not apply to the performance of any payment obligations.

   11.5.  The attached Appendices form part of this Agreement. This Agreement
          may not be amended or modified except in a writing executed by the
          duly authorized representatives of the Parties. Neither Party shall be
          deemed, by any act or omission, to have waived any of its rights or
          remedies hereunder unless such waiver is in writing and signed by the
          waiving Party, and then only to the extent specifically set forth in
          such writing. The waiver by either Party of a breach of any provision
          of this Agreement by the other Party will not operate or be
          interpreted as a waiver of any other or subsequent breach.

   11.6.  In the event that any provision of this Agreement is found to be
          invalid, voidable or unenforceable, the Parties agree that unless such
          provision materially affects the entire intent and purpose of this
          Agreement, such invalidity, voidability or unenforceability shall
          affect neither the validity of this Agreement nor the remaining
          portions herein, and that the provisions in question shall be deemed
          to be replaced with a valid and enforceable provision most closely
          reflecting the intent and purpose of the original provision. In the
          event that any provision of this Agreement is found to be invalid,
          voidable or unenforceable, and such provision materially affects the
          entire intent and purpose of this Agreement, the Parties shall
          negotiate in good faith to enter into a new agreement replacing this
          Agreement. In the event that the Parties are unable to enter into a
          new agreement replacing this Agreement, this Agreement shall
          terminate.

   11.7.  This Agreement and the surviving provisions of the Prior Agreements as
          amended by this Agreement constitute the entire agreement between the
          Parties and supersede all prior written or oral agreements between the
          Parties concerning the subject matter hereof.

   11.8.  This Agreement and all matters related hereto shall be governed by and
          construed in accordance with the laws of the Commonwealth of
          Massachusetts without regard to conflict of laws principles, and the
          Parties consent to personal and exclusive jurisdiction and venue in
          the state and federal courts sitting in Suffolk and Middlesex
          counties, Massachusetts. Process may be served on either Party by
          using the notice provisions of Section 10 above.


                                       13
<PAGE>

    11.9.  Each Party represents and warrants that it has obtained all rights
           and waivers necessary to grant the rights, title and interests
           granted to the other Party under this Agreement.











                                       14
<PAGE>

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date set
forth above.

Nortel Networks Inc.                      Avici Systems Inc.


/s/ Klaus M. Buechner                     /s/ Surya Panditi
--------------------                      -----------------
Authorized Signature                      Authorized Signature

Klaus M. Buechner,
S.V.P. Corporate Strategy & Alliances     Surya Panditi, President & CEO
-------------------------------------     ------------------------------
Name and Title                            Name and Title








                                       15
<PAGE>

                            APPENDIX I: DEFINITIONS
                            -----------------------

"Activity Description" has the meaning given to that term in the Assistance
Agreement;

"Agreement" means this document, including all Appendices attached hereto and
any amendments as may be, from time to time, mutually agreed in writing and
signed by authorized representatives of the Parties;

"Assistance Activity" has the meaning given to that term in the Assistance
Agreement;

"Assistance Agreement" means the Nortel - Avici Assistance Agreement executed by
and between Nortel and Avici, dated as of January 28, 1998 and terminated
pursuant to the terms and conditions of this Agreement. The Assistance
Agreement, pursuant to Section 2.1 thereof, shall include all Activity
Descriptions executed by and between the Parties, including any such Activity
Descriptions executed pursuant to this Agreement;

"Avici" means Avici Systems Inc. and all of its Subsidiaries;

"Avici Product" means any present or future product which Avici develops,
licenses or sells, and shall include any enhancement, replacement, modification
or evolution of any such Avici Product or any portions thereof;

"Avici Technology" has the meaning given to that term in the Technology License
Agreement;

"Background IPR" has the meaning given to that term in the Assistance Agreement;

"Confidential Information" means any business, marketing, technical, scientific
or other information obtained from any Party which, at the time it is obtained,
is designated as confidential (or like designation), is disclosed in
circumstances of confidence, or would be understood by the Parties, exercising
reasonable business judgment, to be confidential.  Confidential Information
shall include, without limitation, the terms and conditions of this Agreement;

"Contracted Work" has the meaning given to that term in the Assistance
Agreement;

"Distribution Agreement" means the Distribution Agreement executed by and
between Nortel and Avici, dated as of January 28, 1998 and terminated pursuant
to the terms and conditions of this Agreement;

"Effective Date" means the date that this Agreement was made and entered into as
set forth in the first sentence of this Agreement;




                                       16
<PAGE>

"Foreground IPR" has the meaning given to that term in the Assistance Agreement;

"Intellectual Property Rights" means all rights in any invention, discovery,
improvement, utility model, copyright, industrial design or mask work right, and
all rights of whatsoever nature in computer software and data, Confidential
Information, trade secrets or know-how, and all intangible rights or privileges
of a nature similar to any of the foregoing, in every case in any part of the
world and whether or not registered, and shall include all rights in any
applications and granted registrations for any of the foregoing.  Intellectual
Property Rights shall include the subject matter thereof;

"NNI" means Nortel Networks Inc.;

"Nortel Product" means any present or future product which Nortel develops,
licenses or sells, and shall include any enhancement, replacement, modification
or evolution of any such Nortel Product or any portions thereof;

"Party" means either Nortel or Avici; "Parties" means both Nortel and Avici;

"PLM Function" means a function that involves the following activities: (1)
Develop the product strategy, business case, and perform product business
analysis (2) Work with marketing and sales to bring in project values to the
customer value proposition (3) Develop and manage project specifics as it
relates to product portfolio (4) Assist Product Development to develop and
maintain the detailed feature specifications required to satisfy customer needs
(5) Coordination of PLM team support (6) Feed-in and feed-out project
information into the LOB product-line manager (7) Manage cross-Project
dependencies and opportunities (8) Facilitate cross-line-of-business
opportunities and alliances (9) Select field trial and lead customers (10)Work
with Marketing and Sales departments to ensure the lead customer provides
adequate feature coverage (11) Collateral and Pre-Sales Support;

"Prior Agreements" means the Distribution Agreement, Technology License
Agreement, Assistance Agreement, Series C Convertible Preferred Stock Purchase
Agreement dated as of January 28, 1998 by and between Avici and Nortel, EMC
Module Supply Agreement dated as of May 5, 1999 by and between Avici and Nortel,
Series D Convertible Preferred Stock Purchase Agreement dated as of January 28,
1998 by and among Avici, Nortel and the other Purchasers named therein, and the
Third Amended and Restated Investor Rights Agreement dated as of March 31, 1998
by and among Avici, the Investors named therein and the Founders named therein;

"Product Development Work" has the meaning given to that term in the Assistance
Agreement;

"Residuals" means information of a general nature, such as general knowledge,
ideas or concepts,




                                       17
<PAGE>

that is retained in the unaided memories of the Receiving Party's employees
(without reference to any material which is written, stored in magnetic,
electronic or physical form or otherwise fixed), as the result of exposure to
the Disclosing Party's Confidential Information. An employee's memory is unaided
only if the employee has not memorized the Disclosing Party's Confidential
Information for the purpose of retaining and subsequently improperly using or
improperly disclosing it. Residuals shall not include the unique Avici
implementations (as of the date of the completion of the last Activity
Description set forth in Section 3.1 of this Agreement) of the following
technologies:

   (i)    forwarding/packet classification/scheduling technology including:
          .  Avitri - Search Tree Builder;
          .  Forwarding engine implementation;
          .  Scheduler that enables scaling, multi-cast and composite trunking;
             and,
          .  Distributed source routing for internal fabric routing;
          .  Methods for maintaining packet order while performing the lookup
             in parallel on multiple lookup engines;

   (ii)   switch fabric technology including:
          .  toroidal mesh with passive backplane interconnect;
          .  distributed fabric control; and,
          .  the topology, flow control mechanisms, including virtual networks,
             buffer organization, insertion and extraction mechanisms, fabric
             router architecture and logical organization, signaling methods,
             error control methods employed in the Avici routing fabric, packet
             division into flits and wormhole routing;
          .  methods for distributing network timing, as long as such methods do
             not include Technology, Confidential Information, or Intellectual
             Property Rights belonging to Nortel.

   (iii)  quality of service (QOS) technology including:
          .  Unique implementation of RED, WFQ, GPRA/GPRS;
          .  Unique queue management and organization;
          .  Fabric priority and tournament search

   (iv)   composite trunking; and,

   (v)    packet descriptor layer definition and implementation.

"Restated Certificate of Incorporation" means the Restated Certificate of
Incorporation of Avici Systems Inc., which is attached as an exhibit to the
Stockholders Consent;

"Stockholders Consent" means the Avici Systems Inc. Written Consent of
Stockholders in Lieu of a Special Meeting, which is attached to the Agreement as
Appendix II;





                                       18
<PAGE>

"Schedule C Entries" means all the descriptions of technology licensed by Nortel
to Avici under the Technology License Agreement, which descriptions were
executed by the Parties in accordance with section 7.2 of the Technology License
Agreement, prior to the Effective Date;

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

"Systems Integrator" means a person, corporation or other legal entity that
plans, coordinates, integrates, manages, schedules, tests, improves and/or
maintains a network, where such network comprises communications and other sorts
of equipment and systems that have been sourced from a plurality of vendors;

"Technology" has the meaning given to that term in the Technology License
Agreement;

"Technology License Agreement" means the Technology License and Agreement
executed by and between Nortel and Avici, dated as of January 28, 1998 and
terminated pursuant to the terms and conditions of this Agreement.  The
Technology License Agreement, pursuant to Section 7.2 thereof, shall include all
Schedule C Entries executed by and between the Parties prior to the Effective
Date; and

"Avici Terabit Router" has the meaning given to that term in the Technology
License Agreement.






                                       19
<PAGE>

                                  APPENDIX II
                                  -----------

                               AVICI SYSTEMS INC.

   Written Consent of Stockholders in Lieu of Special Meeting of Stockholders
   --------------------------------------------------------------------------

                        Effective as of August __, 1999

     The undersigned stockholders of Avici Systems Inc., a Delaware corporation
(the "Corporation"), do hereby adopt, pursuant to Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware, the following resolutions
by consent and without a meeting:


Restated Certificate of Incorporation


RESOLVED:   That, the Restated Certificate of Incorporation of the
            Corporation in the form attached hereto as Exhibit A (the
            "Certificate of Incorporation") be filed with the Division of
            Corporations, Department of State in the State of Delaware and that
            such Restated Certificate of Incorporation is hereby adopted,
            approved, ratified and confirmed in all respects.

General
-------

RESOLVED:   That the officers of the Corporation hereby are, and each of
            them singly hereby is, authorized to execute and deliver all such
            instruments, make such payments, make all such filings and do all
            such other acts and things as in their opinion, or in the opinion of
            any of them, may be necessary or appropriate in order to carry out
            the intents and purposes of the foregoing resolutions.

     The undersigned further direct that this Consent shall be filed in the
minute books of the Corporation with the minutes of the meetings of the
stockholders.  This written consent may be signed in separate counterparts and
is effective as of the date first written above.


                              By:
                                 -----------------------------------
                                 Print Name of Stockholder:




                                       20
<PAGE>

                                  APPENDIX III
                                  ------------

NORTEL EMPLOYEE                END AND NATURE OF RESTRICTION
--------------------------------------------------------------------------------

[CONFIDENTIAL TREATMENT        March 31, 2000, as set out in section 7.2 except
REQUESTED]/*/                  that [CONFIDENTIAL TREATMENT REQUESTED]/*/ may
                               work on (or consult with any individual working
                               on) any Nortel Product that does not directly
                               compete with the TSR, in a PLM Function.
                               Notwithstanding anything to the contrary in this
                               Agreement, Nortel's Bay RS Product shall not be
                               considered a competing product for the purposes
                               of this restriction.

[CONFIDENTIAL TREATMENT        June 30, 2000
REQUESTED]/*/

[CONFIDENTIAL TREATMENT        March 31, 2000, as set out in section 7.2,
REQUESTED]/*/                  except that [CONFIDENTIAL TREATMENT REQUESTED]/*/
                               may work on (or consult with any individual
                               working on) any Nortel Product created under
                               Nortel's Equinox Project, provided such Nortel
                               Product does not involve interconnect technology
                               based on or related to toroidal mesh or modified
                               toroidal mesh architectures.

[CONFIDENTIAL TREATMENT        March 31, 2000
REQUESTED]/*/

[CONFIDENTIAL TREATMENT        September 30, 1999
REQUESTED]/*/

[CONFIDENTIAL TREATMENT        March 31, 2000, as set out in section 7.2 except
REQUESTED]/*/                  that [CONFIDENTIAL TREATMENT REQUESTED]/*/ may
                               work on (or consult with any individual working
                               on) any Nortel Product created under Nortel's
                               Equinox Project, provided such Nortel Product
                               does not involve interconnect technology based on
                               or related to toroidal mesh or modified toroidal
                               mesh architectures.

[CONFIDENTIAL TREATMENT        June 30, 2000
REQUESTED]/*/




---------------------
/*/ [CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN
OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH
OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

                                       21