<PAGE>

                                                                    Exhibit 10.6
                                                                    ------------

                               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.
                              ----------

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
<PAGE>

          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.

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:

                                       2
<PAGE>

     (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, 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;

                                       3
<PAGE>

          (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.   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, including all whole and partial copies thereof, and all

                                       4
<PAGE>

               documents 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 50% by Avici and 50% 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 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,

                                       5
<PAGE>

          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 three percent (3%) of Avici's net sales of the
          Avici TSR in calendar years 2000, 2001 and 2002 up to a maximum
          aggregate amount of $2,750,000, provided that the minimum payment due
          from Avici to Nortel shall be $250,000 in the calendar year 2000,
          $500,000 in the calendar year 2001, and $1,000,000 in the calendar
          year 2002.

     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.

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.

                                       6
<PAGE>

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 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 two TSR units from Avici, to be used by
          GST/NTON (the "GST Units"). Nortel shall pay Avici $504,000 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 $91,000, which amount
          represents one-half of the cost of the Beta Unit. All right, title and
          interest to the Beta Unit shall vest exclusively in Avici.

                                       7
<PAGE>

     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 $220,800. This sale is final
          and unconditional, except that (i) Avici shall provide Nortel two (2)
          modules of the OBOE 2c at no additional charge when such modules
          become available 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 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;

                                       8
<PAGE>

          (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 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.

                                       9
<PAGE>

          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. 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

                                       10
<PAGE>

            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.

            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

                                       11
<PAGE>

            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
            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.

                                       12
<PAGE>

     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.

     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.

                                       13
<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

                                       14
<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;

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

                                       15
<PAGE>

"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, 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

                                       16
<PAGE>

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;

"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.

                                       17
<PAGE>

"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.

                                       18
<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:________________________________



                                       19
<PAGE>

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

Nortel Employee          End and Nature of Restriction
------------------------------------------------------

Gerald Degrace           March 31, 2000, as set out in section 7.2 except that
                         Gerald 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.

Alexander McKenney       June 30, 2000

Dan Oprea                March 31, 2000, as set out in section 7.2, except that
                         Dan 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.

Dilip Patel              March 31, 2000

Gerald Persuad           September 30, 1999

Roland Smith             March 31, 2000, as set out in section 7.2 except that
                         Roland 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.

Minzhi Zhang             June 30, 2000

                                       20