exv10w4



 





EXHIBIT 10.4




Confidential Portions omitted and filed separately with the Securities and Exchange Commission. Bullet points denote omissions.


 


 


AMENDED AND RESTATED MASTER CONTRACT MANUFACTURING SERVICES AGREEMENT




between




NORTEL NETWORKS LIMITED




and




FLEXTRONICS TELECOM SYSTEMS LTD.



 







Dated as of June 29, 2004









 

 

 



AMENDED & RESTATED MCMSA — FINAL
CONFIDENTIAL INFORMATION






1









 







TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 
	SECTION 1 SCOPE OF THE RELATIONSHIP	 	 	7	 
	1.1
	 	Expectations	 	 	7	 
	1.2
	 	Opportunities	 	 	7	 
	1.3
	 	Commitments and Obligations	 	 	7	 
	 
	 	1.3.1	 	Allocation	 	 	7	 
	 
	 	1.3.2	 	Minimum Commitment	 	 	8	 
	 
	 	1.3.3	 	Adjustments to the Minimum Commitment	 	 	8	 
	 
	 	1.3.4	 	Remedy for Failure to Achieve Minimum Commitment	 	 	10	 
	 
	 	1.3.5	 	Calculation of Reduction of Minimum Commitment	 	 	10	 
	 
	 	1.3.6	 	ODM Products	 	 	11	 
	1.4
	 	Structure of the Agreement	 	 	11	 
	1.5
	 	Term	 	 	12	 
	SECTION 2 GOVERNANCE PROCESS	 	 	12	 
	2.1
	 	Strategic Governance	 	 	12	 
	2.2
	 	Operations Governance	 	 	13	 
	2.3
	 	Site Operations Reviews	 	 	13	 
	2.4
	 	Report Cards and Liquidated Damages	 	 	14	 
	 
	 	2.4.1	 	Report Cards	 	 	14	 
	 
	 	2.4.2	 	Minimum Performance, and Liquidated Damages for Failure to Meet Metrics	 	 	15	 
	 
	 	2.4.3	 	Continuous Improvement, and Liquidated Damages for Failure to Meet Metrics	 	 	16	 
	 
	 	2.4.4	 	Pass-through of Liquidated Damages from Customers	 	 	17	 
	 
	 	2.4.5	 	Termination for Breach of Metrics	 	 	17	 
	2.5
	 	Resources for Production Effort and Services	 	 	18	 
	2.6
	 	Management Resources and Support Infrastructure	 	 	18	 
	2.7
	 	Regulatory Compliance	 	 	18	 
	2.8
	 	Issue Resolution and Escalation Process	 	 	19	 
	SECTION 3 FORECASTING, ORDERING AND DELIVERING	 	 	19	 
	3.1
	 	Regular Market Forecast of Requirements	 	 	19	 
	3.2
	 	Unscheduled Market Forecast Changes	 	 	20	 
	3.3
	 	Market Forecast Accuracy Improvement	 	 	20	 
	3.4
	 	Orders and Delivery	 	 	20	 
	3.5
	 	Minimum Purchases	 	 	21	 
	3.6
	 	Excess Inventory	 	 	21	 
	3.7
	 	Obsolete Inventory	 	 	23	 
	3.8
	 	Responsibility to Minimize Obsolete Inventory	 	 	23	 
	3.9
	 	Identification of Obsolete Inventory	 	 	24	 
	3.10
	 	Title and Risk of Loss and Delivery	 	 	24	 
	 
	 	3.10.1	 	Title	 	 	24	 
	 
	 	3.10.2	 	Risk of Loss	 	 	24	 
	3.11
	 	Packaging, Labelling and Trade-Marks	 	 	25	 
	3.12
	 	Exception Demand Negotiation Process	 	 	25	 
	SECTION 4 MATERIALS MANAGEMENT PROCESS	 	 	25	 
	4.1
	 	Manufacturing Location	 	 	25	 
	4.2
	 	No Price Premiums	 	 	26	 
	4.3
	 	Transition of Material	 	 	26	 
	 
	 	4.3.1	 	From Nortel Networks to Flextronics	 	 	26	 








AMENDED & RESTATED MCMSA — FINAL
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	 	4.3.2	 	From Flextronics to Nortel Networks	 	 	26	 
	 
	 	4.3.3	 	From Flextronics to a Third Party	 	 	27	 
	 
	 	4.3.4	 	INTENTIONALLY DELETED	 	 	27	 
	 
	 	4.3.5	 	From Third Party to Flextronics	 	 	27	 
	 
	 	4.3.6	 	Price for Transitioned Materials	 	 	27	 
	4.4
	 	Materials Management Services	 	 	28	 
	 
	 	4.4.1	 	Definition	 	 	28	 
	 
	 	4.4.2	 	Level 3 Planning	 	 	28	 
	 
	 	4.4.2.1	 	Flexibility Models	 	 	28	 
	 
	 	4.4.3	 	Supply Chain Management	 	 	29	 
	 
	 	4.4.4	 	Component Discontinuance and End-of-Life Inventory	 	 	32	 
	 
	 	4.4.5	 	Traceability of Products and Material	 	 	33	 
	 
	 	4.4.5.1	 	General Requirements	 	 	34	 
	 
	 	4.4.5.2	 	Material/Component Traceability	 	 	34	 
	 
	 	4.4.5.3	 	Product Traceability (Field Replaceable Units / Sub-Assemblies)	 	 	35	 
	 
	 	4.4.6	 	Performance Report Cards	 	 	35	 
	 
	 	4.4.7	 	Process and Systems Support	 	 	35	 
	 
	 	4.4.8	 	Order Management/Customer Service	 	 	36	 
	 
	 	4.4.9	 	Return Material Operation Services	 	 	36	 
	 
	 	4.4.10	 	Purchase of Products for Use in Lab Facilities	 	 	37	 
	4.5
	 	Material and Tier 2 Supplier Qualification	 	 	37	 
	4.6
	 	NC Suppliers	 	 	38	 
	4.7
	 	Purchase by Flextronics of Materials from Tier 2 Suppliers	 	 	39	 
	4.8
	 	Prices for Products Required by Other Nortel Networks Vendors	 	 	40	 
	4.9
	 	Supply of Materials to Nortel Networks Affiliates and Vendors	 	 	41	 
	4.10
	 	Material and Flextronics Account Management Reviews	 	 	41	 
	4.11
	 	Source Inspection	 	 	41	 
	4.12
	 	Manufacturing Technical Information and Support	 	 	41	 
	4.13
	 	EMS Supplier and Material Sourcing Control	 	 	42	 
	SECTION 5 CHANGE MANAGEMENT	 	 	43	 
	5.1
	 	Joint Product Change Management Process	 	 	43	 
	5.2
	 	Changes in Corporate Standards	 	 	43	 
	SECTION 6 SERVICES	 	 	44	 
	6.1
	 	Design and Sustaining Services	 	 	44	 
	6.2
	 	Integration Services	 	 	45	 
	 
	 	6.2.1	 	Product Level Testing	 	 	45	 
	 
	 	6.2.2	 	Module Integration	 	 	45	 
	 
	 	6.2.3	 	Configuration	 	 	45	 
	 
	 	6.2.4	 	ICT, Functional & System Level Testing	 	 	46	 
	 
	 	6.2.5	 	Final Quality Inspection	 	 	46	 
	 
	 	6.2.6	 	QET (Quality Evaluation Test)	 	 	46	 
	 
	 	6.2.7	 	Quality and Process Audit	 	 	46	 
	 
	 	6.2.8	 	Test Results and Monitoring	 	 	46	 
	 
	 	6.2.9	 	Installation Requests (IR)	 	 	46	 
	6.3
	 	System House Engineering Services	 	 	46	 
	 
	 	6.3.1	 	Test Engineering	 	 	47	 
	 
	 	6.3.2	 	Optimization of Testing for Products	 	 	48	 
	 
	 	6.3.3	 	System House Sustaining Engineering	 	 	48	 
	 
	 	6.3.4	 	Materials Engineering	 	 	49	 
	 
	 	6.3.5	 	Product and Material Yield and Performance Issue Resolution	 	 	50	 








AMENDED & RESTATED MCMSA — FINAL
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	 	6.3.6	 	Design Services for Cost Reduction Opportunities	 	 	50	 
	6.4
	 	SIF (System Integration & Fulfillment) Services	 	 	50	 
	6.5
	 	Other System House Support Services	 	 	51	 
	6.6
	 	Payment for Services	 	 	51	 
	SECTION 7 PRODUCT LIFE-CYCLE PLANNING PROCESS (NPPI) AND TRANSFER PROCESS	 	 	51	 
	7.1
	 	Consistent Process at All Sites	 	 	51	 
	7.2
	 	Product Goals	 	 	52	 
	7.3
	 	DFX Services	 	 	52	 
	7.4
	 	Pre-production Products	 	 	52	 
	7.5
	 	Product End-of-Life Scenarios	 	 	53	 
	7.6
	 	Geographic Location	 	 	54	 
	SECTION 8 QUALITY STANDARDS AND QUALITY PROCESS	 	 	54	 
	8.1
	 	Quality Standards	 	 	54	 
	SECTION 9 REWORK PRODUCT PROCESS	 	 	55	 
	9.1
	 	Rework Operation	 	 	55	 
	9.2
	 	Rework Procedure	 	 	55	 
	SECTION 10 REPAIR PRODUCT PROCESS	 	 	55	 
	10.1
	 	Repair Operation & Procedure	 	 	55	 
	SECTION 11 PRODUCT COST MANAGEMENT PROCESS	 	 	55	 
	11.1
	 	Prices for Products	 	 	55	 
	 
	 	11.1.1	 	Day One Pricing	 	 	56	 
	11.2
	 	Payment, Taxes and Duties	 	 	57	 
	 
	 	11.2.1	 	Invoices	 	 	57	 
	 
	 	11.2.2	 	Payment	 	 	58	 
	11.3
	 	Implementation of Price Changes	 	 	58	 
	11.4
	 	Financial Review and Targets	 	 	60	 
	11.5
	 	Operational	 	 	60	 
	11.6
	 	Cost Modeling	 	 	60	 
	11.7
	 	Budget	 	 	60	 
	11.8
	 	Ongoing Cost Reduction	 	 	61	 
	11.9
	 	Incremental Cost Reduction	 	 	61	 
	 
	 	11.9.1	 	Definition of ICR	 	 	61	 
	 
	 	11.9.2	 	ICR Commitment	 	 	61	 
	 
	 	11.9.3	 	Implementation of ICR	 	 	61	 
	 
	 	11.9.4	 	Year 4 Cost Reduction	 	 	62	 
	 
	 	11.9.5	 	Adjustments to ICR Commitment	 	 	62	 
	SECTION 12 BUSINESS CONTINUITY	 	 	63	 
	12.1
	 	Business Continuity Planning	 	 	63	 
	SECTION 13 WARRANTIES	 	 	63	 
	13.1
	 	Title	 	 	63	 
	13.2
	 	Services and Production Effort	 	 	64	 
	13.3
	 	Free from Defects	 	 	64	 
	13.4
	 	Epidemic Condition	 	 	65	 
	 
	 	13.4.1	 	Procedure for Epidemic Condition	 	 	65	 
	 
	 	13.4.2	 	Remedies for Epidemic Condition	 	 	65	 








AMENDED & RESTATED MCMSA — FINAL
CONFIDENTIAL INFORMATION






3









 





	 	 	 	 	 	 	 	 	 
	13.5
	 	Safety and Regulatory Issues	 	 	67	 
	SECTION 14 INTELLECTUAL PROPERTY RIGHTS AND LICENSES	 	 	67	 
	14.1
	 	License to Nortel Company Proprietary Information Granted	 	 	67	 
	14.2
	 	Limitations on Grant of License	 	 	67	 
	14.3
	 	Flextronics Inventions	 	 	67	 
	14.4
	 	Specifications and Deliverables Owned by Nortel Networks	 	 	68	 
	14.5
	 	Flextronics Retains Ownership of Flextronics Proprietary Information	 	 	68	 
	14.6
	 	Assignment of Inventions Agreements with Employees	 	 	68	 
	SECTION 15 INDEMNIFICATION	 	 	69	 
	15.1
	 	Intellectual Property Indemnification	 	 	69	 
	 
	 	15.1.1	 	By Nortel Networks	 	 	69	 
	 
	 	15.1.2	 	By Flextronics	 	 	69	 
	 
	 	15.1.3	 	Measures to Safeguard Nortel Networks against Liability	 	 	70	 
	15.2
	 	Other Indemnification	 	 	71	 
	 
	 	15.2.1	 	By Flextronics	 	 	71	 
	 
	 	15.2.2	 	By Nortel Networks	 	 	71	 
	SECTION 16 LIMITATION OF LIABILITY	 	 	71	 
	SECTION 17 COMMUNICATION AND INFORMATION TRANSFER	 	 	72	 
	17.1
	 	Access to Nortel Networks Computer Systems by Flextronics	 	 	72	 
	17.2
	 	Flextronics Compatibility with Nortel Networks Computer Systems	 	 	72	 
	17.3
	 	Information Technology Services	 	 	72	 
	SECTION 18 LOANED ASSETS	 	 	73	 
	18.1
	 	Loaned Assets Procedure	 	 	73	 
	SECTION 19 RESERVED ASSETS	 	 	73	 
	19.1
	 	Reserved Assets Procedure	 	 	73	 
	SECTION 20 LEGAL AND REGULATORY COMPLIANCE	 	 	73	 
	SECTION 21 INTERNATIONAL TRADE	 	 	73	 
	21.1
	 	Exports	 	 	73	 
	21.2
	 	Country of Origin Declaration and Marking	 	 	74	 
	21.3
	 	Customs Invoice	 	 	74	 
	21.4
	 	Trade Treaties	 	 	75	 
	21.5
	 	Duty Drawback	 	 	75	 
	SECTION 22 ENVIRONMENTAL POLICIES	 	 	75	 
	22.1
	 	ISO 14001	 	 	75	 
	22.2
	 	VOC Free and Lead-Free Technology	 	 	76	 
	22.3
	 	European Union (“EU”) Environmental Directives	 	 	76	 
	 
	 	22.3.1	 	Compliance	 	 	76	 
	 
	 	22.3.2	 	Indemnification	 	 	77	 
	22.4
	 	Packaging Reusable and Recyclable	 	 	78	 
	22.5
	 	Collaborate on Environmental Initiatives	 	 	78	 
	22.6
	 	Hazardous Materials	 	 	78	 
	SECTION 23 CONFIDENTIAL INFORMATION	 	 	78	 








AMENDED & RESTATED MCMSA — FINAL
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	23.1
	 	Restriction on Disclosure and Use of Confidential Information	 	 	78	 
	23.2
	 	Publicity	 	 	79	 
	SECTION 24 INSURANCE	 	 	80	 
	24.1
	 	General Liability Insurance	 	 	80	 
	24.2
	 	Property and Business Insurance	 	 	80	 
	24.3
	 	Business Continuity	 	 	80	 
	24.4
	 	Certificate of Insurance	 	 	81	 
	SECTION 25 EXPIRATION OR TERMINATION	 	 	81	 
	25.1
	 	Effect of Expiration or Termination	 	 	81	 
	25.2
	 	Termination	 	 	82	 
	SECTION 26 GENERAL PROVISIONS	 	 	84	 
	26.1
	 	Access to Facilities	 	 	84	 
	26.2
	 	Reporting	 	 	84	 
	26.3
	 	Documentation	 	 	84	 
	26.4
	 	Audits	 	 	85	 
	 
	 	26.4.1	 	Agreement Compliance	 	 	85	 
	 
	 	26.4.2	 	Control & Security Compliance	 	 	85	 
	26.5
	 	Force Majeure	 	 	85	 
	26.6
	 	Notices	 	 	85	 
	26.7
	 	Independent Contractor	 	 	86	 
	26.8
	 	Non-Solicitation of Employees	 	 	86	 
	26.9
	 	Flextronics Responsible for its Contractors	 	 	87	 
	26.10
	 	Assignment	 	 	87	 
	26.11
	 	Severability	 	 	88	 
	26.12
	 	Governing Law; Waiver of Jury Trial	 	 	88	 
	26.13
	 	Consent to Jurisdiction	 	 	89	 
	26.14
	 	Counterparts	 	 	89	 
	26.15
	 	Entire Agreement; Amendments	 	 	89	 
	26.16
	 	Construction	 	 	89	 
	26.17
	 	Headings	 	 	89	 
	26.18
	 	Time of Essence	 	 	89	 
	26.19
	 	Agreement by All Flextronics Companies	 	 	89	 
	26.20
	 	Most Favoured Customer	 	 	90	 
	26.21
	 	Language	 	 	90	 







AMENDED & RESTATED MCMSA — FINAL
CONFIDENTIAL INFORMATION



5









 






Amended and Restated Master Contract Manufacturing Services Agreement




This Agreement is entered into between Nortel Networks Limited (formerly Nortel Networks
Corporation), a Canadian corporation with a place of business at 8200 Dixie Road, Suite 100,
Brampton, Ontario (“NNL”) and Flextronics Telecom Systems Ltd., a company organized under the laws
of Mauritius (“FTS”), executed as of June 29, 2004 (“Execution Date”) As set out in the Phased
Closing Side Letter, dated as of the Execution Date, the Amendment Effective Date of this Amended
and Restated Master Contract Manufacturing Services Agreement (the “Agreement”) shall be the date
that the first Virtual System House Agreement based on Exhibit 2 attached hereto (“VSHA”) is
executed(“Amendment Effective Date”). The Parties agree that the terms and conditions of this
Agreement shall come into effect for each VSHA executed pursuant to this Agreement as such VSHAs
are executed (VSHA Effective Date(s)”). This Agreement will come into effect with respect to
Exhibits 9-1, 9-2 and 9-3 on the date that the Saint Laurent System House VSHA is executed. The
Master Contract Manufacturing Services Agreement dated as of the April 4, 2003 (the “Effective
Date”), as amended prior to the Amendment Effective Date (“Original Agreement”), will remain in
effect as to the Products listed on the applicable Schedule As attached to the Virtual System House
Agreement executed pursuant to the Original Agreement until such time as those Products are
transferred to a Schedule A on a VSHA executed pursuant to this Agreement. At the time that all
such Products have been so transferred, the Original Agreement shall be terminated, provided that
all provisions of the Original Agreement which, by their terms, survive termination, shall survive
this termination with respect to the period prior to the applicable VSHA Effective Date or unless
otherwise provided by this Agreement. The words used as defined terms in this Agreement are
contained in Exhibit 1.



WHEREAS NNL and Flextronics International Ltd., a company duly established under the laws of
Singapore, and having its registered office located at 2 Changi South Lane, Singapore 486123
(“Flextronics Parent”) acting through its Hong Kong branch office with offices at Room 908,
Dominion Centre, 43-59 Queen’s Road East, Wanchai, Hong Kong entered into the Original Agreement on
the Effective Date;



WHEREAS Flextronics Parent has assigned the Original Agreement to FTS and Flextronics Parent and
NNL have executed that certain Performance Guarantee dated June 29, 2004;



WHEREAS pursuant to the APA (defined below), the Parties have agreed that NNL will transfer certain
of its System House operations and design capabilities to certain Affiliates of FTS (the
“Transferred Business”);



WHEREAS NNL has agreed to sell and certain Affiliates of FTS have agreed to purchase certain assets
related to the Transferred Business pursuant to an Asset Purchase Agreement dated X, 2004 with NNL
(the “APA”);





AMENDED & RESTATED MCMSA — FINAL
CONFIDENTIAL INFORMATION


6









 





AND WHEREAS the Parties desire to amend and restate the MCMSA to reflect the expanded scope of the
relationship with respect to the Transferred Business, as well as to incorporate various amendments
to the MCMSA;



NOW THEREFORE in consideration of the mutual promises hereinafter set forth (the receipt and
sufficiency of which is hereby acknowledged), the parties hereby agree as follows:



SECTION 1

SCOPE OF THE RELATIONSHIP





	1.1	 	Expectations




Nortel Networks and Flextronics will collaborate in the development and execution of strategic
plans for support of Nortel Networks’ business strategy worldwide for the portfolio of Products.




	1.2	 	Opportunities




Nortel Networks will provide access for Flextronics to the relevant Nortel Networks Product
development teams (design, marketing and operations) to provide Flextronics with the opportunity to
share in Nortel Networks’ market leadership success worldwide. Nortel Networks has designated
Flextronics as a Strategic Supplier under Nortel Networks current Supplier Business Engagement
Model.




	1.3	 	Commitments and Obligations





	 	1.3.1	 	Allocation





	 	 	During the Amended Term, Nortel Networks shall purchase from Flextronics and Flextronics
shall supply the Allocation of the requirements of the Virtual Systems Houses for the
Products listed in the relevant Virtual Systems House Agreement as of the applicable VSHA
Effective Date.. Flextronics shall only sell or distribute the Products to Nortel Networks
or its designate. Nortel Networks will review each applicable Allocation every 3 months and
may increase or reduce such Allocation at its discretion, notice of which Nortel Networks
will give to Flextronics at least 30 days before the beginning of the next quarter,
provided however that if the Allocation is reduced more than 65% of the current Allocation,
Nortel Networks will give such notice to Flextronics at least 60 days before the beginning
of the next quarter. If Nortel Networks wishes to reduce the Allocation to 0%, it will give
180 days notice of such intention to Flextronics. If Nortel Networks wishes to source
follow-on or new products from Flextronics, the Parties will amend the relevant VSHA to add such products. The supply of follow-ons to
Products and new products shall be agreed in writing between the Parties from time to time.
Any changes to





AMENDED & RESTATED MCMSA — FINAL
CONFIDENTIAL INFORMATION



7









 





	 	 	the Allocation shall not change Nortel Networks obligations with respect to the Minimum Commitment
as set out in Section 1.3.2.





	 	1.3.2	 	Minimum Commitment





	 	 	During the first three (3) years of the Amended Term, Nortel Networks will source a minimum of [   •   ]
of its spend on Manufacturable Products with Flextronics. In the fourth (4th) year of
the Amended Term, Nortel Networks will source a minimum of [   •   ] of its spend on Manufacturable
Products with Flextronics. Nortel Networks, through its auditor, has verified that the actual
percentage of Manufacturable Products to be transferred as of the Commencement Date is in the range
of [   •   ] based on the Nortel Networks September 2003 version of the 2004 forecast for Manufacturable
Products of its forecasted spend on Manufacturable Products for the twelve months following such
date. At Flextronics’s option, it may request Nortel Networks’ current auditor to verify whether
Nortel Networks has met its Minimum Commitment on an annual basis. Flextronics shall be entitled
to request that Nortel Networks provide an unaudited confirmation of whether it has satisfied the
Minimum Commitment on a quarterly basis.
	 
	 	 	The Minimum Commitment will be represented in US dollars on annual basis. For the purposes of
calculating this Minimum Commitment, the numerator shall be comprised of Nortel Networks spend with
Flextronics on Manufacturable Products and the denominator shall be comprised of Nortel Networks
total spend on Manufacturable Products.
	 
	 	 	Nortel Networks commitment to source requirements for design services related to the Transferred
Business is set out in Section 6.





	 	1.3.3	 	Adjustments to the Minimum Commitment
	 
	 	(A)	 	Pre-Existing Commitments





	 	 	Flextronics acknowledges that Nortel Networks has a contractual commitment to one other EMS
Supplier to provide a certain minimum level of revenue with respect to Manufacturable Products.
Nortel Networks acknowledges that as of the Execution Date, this contractual commitment does not
impact Nortel Networks ability to achieve the Minimum Commitment.
	 
	 	 	Nortel Networks failure to satisfy the Minimum Commitment due to its pre-existing commitment to
this EMS Supplier shall not relieve Nortel Networks of its obligations to Flextronics under Section
1.3.4.





	 	(B)	 	Competitive Criteria





	 	 	If Flextronics fails to remain Competitive with its competitors with respect to any Product, then Nortel Networks may source such Product from another supplier. Records of any such
deductions from the Minimum Commitment will be made in writing and exchanged between the Parties
for full verification and agreement each quarter. Notwithstanding the foregoing, Nortel Networks
will not transfer the Product(s) if Flextronics becomes Competitive within forty-five





AMENDED & RESTATED MCMSA — FINAL
CONFIDENTIAL INFORMATION


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	 	 	(45) days from notification by Nortel Networks that Flextronics has failed to remain Competitive,
as defined below.
	 
	 	 	For the purposes of this Section, “Competitive” means terms and conditions taken as a whole that
are more favourable to Nortel Networks, as determined in a “bona fide benchmarking” exercise or as
provided in a bona fide quote from a third party considering price, product quality, lead times,
delivery, warranty, technical support, and other criteria identified by Nortel Networks in writing
to Flextronics. A “bona fide benchmarking exercise” shall be considered to be one performed by an
independent recognized benchmarking firm which is (i) selected by Nortel Networks from those
companies which are regularly engaged in the industry related to the Transferred Business, or other
consultant as agreed between the Parties, (ii) is not a competitor of Flextronics and (iii) which
has executed a non-disclosure agreement reasonably satisfactory to Flextronics. All fees and
charges paid to such benchmarking firm shall be borne by Nortel Networks, and such fees and charges
shall not be contingent upon reaching a conclusion favourable to Nortel Networks. Each party shall
have the opportunity to advise the benchmarking firm of any information or factors that it deems
relevant to the conduct of the benchmarking, with the intention of providing an “apples to apples”
comparison, so long as such information is disclosed to the other Party. The benchmarking firm
shall provide the written reports and the core data resulting from the benchmarking to both Nortel
Networks and Flextronics, including the factors actually used to perform the benchmarking, data on
participants and confidence factors related to the accuracy of the data and the benchmarking
methodology. Flextronics will be entitled to challenge the accuracy of the results of the
benchmarking exercise pursuant to the Issue Resolution and Escalation Process.
	 
	 	 	Notwithstanding the above, the Parties agree that transformation costs for Products produced in
legacy Nortel Networks System Houses will not be subject to the cost portion of the “Competitive”
criteria will not be factored into the determination of whether Flextronics is Competitive for a
period of [•] after the applicable VSHA Effective Date. The parties will review the transformation
costs for such products after such [•] time period to determine whether this exception will apply
in the final [•] of the Amended Term.





	 	(C)	 	Performance Issues





	 	 	Nortel Networks may source its requirements for a Product Family from other suppliers, in the event
that Flextronics is in breach of the breachable Report Card metrics with respect to the applicable
Product, as set out in Section 2.4.5 herein.





	 	(D)	 	Local Content Requirements





	 	 	In the event that Flextronics is not able to comply with local governmental or regulatory content
requirements or provide an equivalent alternative solution, including applicable environmental
directives, Nortel Networks may source its requirements for an affected Product Family from other
suppliers who are able to so comply. If Flextronics presents a plan for compliance or equivalent
alternative solution, pursuant to the qualification process and requirements set forth in Section
4.1, that will meet Nortel Networks local content requirements within six (6) months,





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	 	 	Nortel Networks will return the sourcing of such Product Family to Flextronics when it is able to
meet its plan and the associated revenue will no longer be subject to Section 1.3.5. During this
six (6) month period, the revenue associated with the affected Product Family will be subject to
Section 1.3.5. If Flextronics does not present such a plan, but later is able to comply with these
requirements, Nortel Networks may, at its discretion, keep the sourcing with the other supplier and
the revenue associated with the affected Product Family will be subject to Section 1.3.5.





	 	(E)	 	Ability to Supply





	 	 	Flextronics will provide Nortel Networks preferential treatment with respect to security of supply
of the Products. However, if Flextronics does not have sufficient supply of the Products to meet
Flextronics’s Allocation of Nortel Networks requirements, Nortel Networks may source some or all of
the portion of Flextronics’s Allocation that Flextronics is unable to supply from other suppliers.
If Flextronics continues to be able to supply 50% or more of Flextronics’s Allocation of Nortel
Networks requirements during the period when Flextronics is unable to meet all of Nortel Networks
requirements, then Nortel Networks will return the sourcing of the affected Products to Flextronics
at the end of this period. If Flextronics is not able to supply such level of Nortel Networks
requirements, then the revenue associated with the affected Products will be subject to Section
1.3.5.
	 
	 	 	Nortel Networks may exercise any of its rights to source from alternative suppliers as provided in
subsections (A) — (E) above, upon 90 days written notice. In any situation where Flextronics
disputes the reason for such exercise of Nortel Networks rights, Flextronics shall, within fifteen
days of receiving such notice, forward the dispute to the Issue Resolution and Escalation Process.





	 	1.3.4	 	Remedy for Failure to Achieve Minimum Commitment





	 	 	If Nortel Networks fails to meet the Minimum Commitment for any reason other than those set out in
Section 1.3.3(B), (C), (D) or (E) above, Nortel Networks shall compensate Flextronics [•]. The
Parties will negotiate such costs in good faith.





	 	1.3.5	 	Calculation of Reduction of Minimum Commitment





	 	 	If Nortel Networks elects to source a specific Product from another supplier for any of the reasons
set forth in Section 1.3.3 (B), (C), (D) or (E) above the Minimum Commitment will be reduced by the
percentage that such Product constitutes of the total Manufacturable Products and in the case of
Sections 1.3.3(D) and (E) for the applicable duration.





	 	Example:	 	Nortel Networks Spend on Manufacturable Products = $1B

Minimum Commitment [•]

Product “A” revenue transferred to other supplier = $50M

Product “A” % of Manufacturable Products = 5%

Adjusted Minimum Commitment [•]





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	 	1.3.6	 	ODM Products





	 	 	Nortel Networks will give Flextronics the opportunity to bid on all new in-scope ODM
products. Nortel Networks will award the business relating to such ODM Products to
Flextronics provided that (i) Flextronics is able to supply such ODM Products to Nortel
Networks at prices and on such other terms and conditions which are not less favourable to
Nortel Networks than the prices, terms and conditions that can be obtained from other
Nortel Networks suppliers (or its Affiliates) (ii) Flextronics has proven and maintains
its ability to perform its obligations under this Agreement with respect to Products (iii)
Flextronics has product expertise recognized by applicable industry standards, including
appropriate hardware and software technology roadmap (iv) Flextronics has the capability of
performing the applicable design work (v) Flextronics can meet Nortel Networks time to
market requirements and schedule (vi) there are no IP restrictions, or where IP
restrictions exist, Flextronics is able to license the IP while remaining competitive.
Nortel Networks and Flextronics will meet at least annually to review their respective ODM
plans, future ODM requirements, and applicable technology roadmaps.





	1.4	 	Structure of the Agreement




This Agreement sets out the terms and conditions of the relationship between NNL and FTS and their
respective Subsidiaries or Affiliates (referred to herein individually as “Nortel Networks” or
“Flextronics” as applicable), the issuance of Purchase Orders by Nortel Networks to Flextronics
pursuant to this Agreement and the relevant Virtual Systems House Agreement and the fulfillment of
these Purchase Orders by Flextronics. In this regard, NNL acknowledges that FTS has the right to
assign any part and/or all of its rights and obligations under this Agreement to any FTS Affiliate.
Any FTS Affiliate that assumes any such rights and obligations shall execute a VSHA.



Any Nortel Company shall have the right to order Services and Products from a Flextronics Company.
By signing a Virtual Systems House Agreement (“VSHA”), the form of which is attached as Exhibit 2,
Nortel Company and Flextronics Company shall become parties to and be bound by this Agreement with
respect to the Products and other matters recited in the Virtual Systems House Agreement. A
Purchase Order or Online System Order shall bind solely the Nortel Company that issued it and the
Flextronics Company to which it is issued, and neither NNL nor any other Nortel Company or any
other Flextronics Company shall be liable for any Purchase Order or Online System Order not issued
by it.



The terms and conditions specific to Products contained in a Virtual Systems House Agreement
entered into between Nortel Networks and Flextronics shall modify and/or supplement the terms and
conditions of this Agreement, but only as specifically permitted by the terms of this Agreement and
with respect to that Product Family and the Products and Services described in such Virtual Systems
House Agreement. Each Virtual Systems House Agreement may contain terms and conditions unique to
each Site, such as a list of Products manufactured at the Site, support teams, the specific
reporting requirements and other information relevant to the Site. In the event of any conflict or
inconsistency





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between the terms of this Agreement and any other document ancillary or relating thereto, the
following order of precedence shall apply, but only to the extent of an express conflict or
inconsistency permitted by the terms of this Agreement: (1) Virtual Systems House Agreement and
related Schedules as applicable to the particular Virtual Systems House, Site(s) and parties
thereto; (2) Design Order and related Schedules, (3) the Exhibits to this Agreement (4) the Repair
Services Agreement (5) the Logistics Services Agreement (6) this Agreement, (7) Conventional
Purchase Order, (8) Blanket Purchase Order, Demand Pull Order, Kanban Trigger, Online System Order.
Notwithstanding the foregoing, specific trade terms written on the face on a Purchase Order may
supersede the terms of this Agreement, to the extent allowed in Section 3.10. For greater
certainty, each Virtual Systems House Agreement and Design Order shall be interpreted as
independent documents unless expressly referring to another such document and clearly intended to
supersede or replace all or part of another document.




	1.5	 	Term




This Agreement shall commence on the Amendment Effective Date and continue until terminated in
accordance with this Agreement (the “Amended Term”). For purposes of this Section, Section 11 and
related Exhibits, Year One shall begin on the Commencement Date. Years Two, Three and Four shall
begin on the respective anniversaries of such Commencement Date. Either Party may deliver a notice
for termination for convenience to take effect 180 days following such notice; provided however,
that no such notice may be delivered before a date that is 180 days before the fourth anniversary
of the beginning of Year One.



SECTION 2

GOVERNANCE PROCESS





	2.1	 	Strategic Governance




Nortel Networks and Flextronics shall meet quarterly to exchange and align business strategies
around the following areas:



	 	 	 	 	 
	

	 	(a)
	 	Forecasting of technology. The intent is to leverage Material suppliers’ and
Flextronics’s technology roadmaps for linkage to Nortel Network’s product development.
	

	 	(b)
	 	Goals and objectives for
Flextronics. These goals will be made in collaboration with selected Tier 2 Suppliers to assist Nortel Networks to achieve performance against its
competition for rendering market value that is best-in-class, including planning for
compliance with TL 9000.
	

	 	(c)
	 	Overall Quality System. The parties shall use as a guideline the criteria for
performance excellence as set forth in Section 2.4 and Exhibit 3.
	

	 	(d)
	 	Quarterly Business Reviews. The parties shall conduct quarterly business reviews that
are strategic and global in nature, to include but not limited to: consolidated global
Report Card performance, total business and Nortel Networks business trends,








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	 	financial health and key financial indicators, process improvements, significant technology
trends and advancements, organizational alignments, and cost to market and time to market
foot print and trends.







	2.2	 	Operations Governance




Nortel Networks and Flextronics shall:



	 	 	 	 	 
	

	 	(a)
	 	Dedicate business management teams, located at Sites and/or at Nortel Networks’
premises, to provide consistent and efficient responses to Product Goals and other
requirements.
	

	 	(b)
	 	Conduct Site operations reviews on a quarterly or monthly basis, as determined by the
Parties.
	

	 	(c)
	 	Comply with the processes set out in Exhibit 5 to communicate about and resolve
issues promptly, and escalate as necessary, and to drive continuous improvement of
operational and supply chain performance.
	

	 	(d)
	 	Comply with all reporting and meeting requirements, including collecting and
reporting scorecard metrics as provided in this Agreement.
	

	 	(e)
	 	Review the total cost plan and provide the results of such review to Nortel Networks
on a timely basis.
	

	 	(f)
	 	Upon reasonable prior notice, provide open book access for Nortel Networks at
Flextronics’s premises to resources, documents, records, databases and any other
information that is not in violation of any third party agreements of confidentiality and
is directly relevant to Nortel Networks cost management, including but not limited to,
information relating to the on-going cost reduction and continuous improvement, as more
fully described in Section 11, Exhibits 13-1, 13-2 and 17-1 and 17-2. Each Party hereby
covenants and agrees that it shall keep confidential all information gathered in the open
book process, including not disclosing such information directly or indirectly to any
competitor or supplier of the disclosing Party, all subject to the provisions of Section
23. Any breach of the preceding sentence shall be considered to be a material breach of
this Agreement.







	2.3	 	Site Operations Reviews




Flextronics and Nortel Networks shall conduct operations reviews, on a monthly or quarterly basis
as determined by the Parties, of the business performance, processes and procedures of both
Flextronics and Nortel Networks at the Site level with the intent to improve overall supply chain performance. The review shall include, at a minimum, performance
measurements of quality, delivery, Customer satisfaction, Product Life-cycle Planning, costs,
capacity, supply constraints, time to market, actual versus forecasted demand, innovations and
Price reductions for Products. Report cards shall be used as a method to measure against the goals.
The metrics used to derive the report card scores and the formats for the report cards shall be as
set forth in the applicable Virtual Systems House Agreement. Line capacity, test capacity, and
staff allocation, and the plan to meet future requirements in these areas,





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shall be reviewed. Such Site operations reviews are intended to consider Site level issues relating
to the Production Effort and Services, as referenced in the applicable Virtual Systems House
Agreement.




	2.4	 	Report Cards and Liquidated Damages





	 	2.4.1	 	Report Cards





	 	 	Flextronics shall complete report cards as set out in section 3A in the applicable VSHA,
which shall be used as a method to measure against the goals of quality, service and cost,
as well as performance with respect to Product Life-cycle Planning, and shall deliver such
report cards to Nortel Networks at the frequency set out in applicable VSHA. The VSHA will
set out the metrics to be measured for each System House and which metrics will be eligible
for liquidated damages and how to determine breach (the “Metrics”). Nortel Networks
reserves the right to review the report cards and to conduct an audit to determine their
accuracy.
	 
	 	 	For each Metric, there will be two performance criteria: “Minimum Performance” and
“Continuous Improvement”. Minimum Performance criteria will be used to measure whether the
process is in control and meeting the minimum performance expectations. Continuous
Improvement criteria will be used to assess improvement of the average performance of the
applicable process and reduction of process variations.
	 
	 	 	The “Minimum Performance Baseline” and “Continuous Improvement Baseline” will be
established for each breachable metrics as follows, unless otherwise mutually agreed.




	 	 	 	 	 	 	 	 	 
	(a)	 	an operational definition of each metric will be outlined in the applicable VSHA,

	(b)	 	Minimum Performance Baseline:
	 	 	(i)	 	Initial Minimum Performance Baseline will be:        Historical data from
the six (6) months prior to the applicable VSHA Effective Date will be used to
calculate the average performance and standard deviation. In the event that six (6) months of historical data is not available, the
Flextronics will measure the metric for six (6) months before establishing the average and standard deviation.
The calculation will be done at the Product Family level.
	

	 	 	 	1.	 	 	For a process that should be maximized (where a higher metric value is
better), the six (6) month average minus one standard deviation.
	

	 	 	 	2.	 	 	For a process that should be minimized, (where a lower metric value is
better), the six (6) month average plus one standard deviation.
	 	 	(ii)	 	The Minimum Performance Baseline will be reviewed and adjusted each
calendar year as follows;
	

	 	 	 	1.	 	 	For a process that should be maximized, the twelve (12) month average
minus one standard deviation will be the Minimum Performance Baseline.
However, this adjustment will not be lower than the Initial Minimum
Performance Baseline established at transfer of the applicable System
House or any Minimum Performance Baseline in following years, which ever
is better.








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	 	 	 	2.	 	 	For a process that should be minimized, the twelve (12) month average plus
one standard deviation will be the Minimum Performance Baseline.
However, this adjustment will not be higher than the Initial
Minimum Performance Baseline established at transfer of the
applicable System House or any Minimum Performance Baseline in
following years, which ever is better.
	(c)	 	Continuous Improvement Baseline:
	 	 	(i)	 	The initial Continuous Improvement Baseline will be
the process average from the six (6) months prior to the applicable VSHA
Effective Date. In the event that six (6) months of historical data is not
available, the Flextronics will measure the
metric for six (6) months before establishing the average and standard
deviation. The calculation will be done at the Product Family level.
	 	 	(ii)	 	The Continuous Improvement Baseline will be reviewed
and adjusted each calendar year as follows;
	

	 	 	 	1.	 	 	For a process that should
be maximized, the twelve (12) month average will
be the Continuous Improvement Baseline. However, this adjustment
will not be lower than the Initial Continuous Improvement Baseline
established at transfer of the applicable System House or any
Continuous Improvement Baseline in following years, which ever is
better.
	

	 	 	 	2.	 	 	For a process that should be minimized, the twelve (12) month
average will be the Continuous Improvement Baseline. However, this
adjustment will not be higher than the Initial Continuous
Improvement Baseline established at transfer of the applicable
System House or any Continuous Improvement Baseline in following
years, which ever is better.







	 	2.4.2	 	Minimum Performance, and Liquidated Damages for Failure to Meet Metrics





	 	 	The Parties acknowledge that the failure of Flextronics to obtain the Minimum Performance Baseline
on each metric of the report card with respect to the Product Family measured in the aggregate on
that Report Card, as a result any act or omission within Flextronics’s Control and Responsibility,
for a [•] period (measured as the weighted average of the scorecards for that month), shall mean
that Nortel Networks may place Flextronics on “Supplier Watch” as referenced in section 8.1, that
Flextronics must take corrective actions, and that Nortel Networks would be entitled to receive the
applicable liquidated damages as set out below.
	 
	 	 	If Flextronics can demonstrate performance to the aggregated metric is skewed due to an assignable
cause that is beyond its Control and Responsibility at an individual Product level (e.g. — a small
number of NPPI DOA rates may skew an aggregate DOA metric), the Parties will review and agree on
suitable actions, which could include deducting the applicable data for the purposes of measuring
Flextronics’s performance as well as calculating any resets to the performance criteria used to set
the Metrics.





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	 	 	The assessment of liquidated damages shall be limited to one assessment per [•]. In instances where
Nortel Networks is entitled to receive damages for more than one metric, a single assessment (being
the largest of the applicable assessments) shall apply. Liquidated damages shall be assessed as
follows:


[•]


Payments for liquidated damages shall be made 40 days from the date Nortel Networks
has documented the claim and the Parties have agreed on the amount to be assessed.





	 	2.4.3	 	Continuous Improvement, and Liquidated Damages for Failure to Meet Metrics





	 	 	The Parties acknowledge that the failure of Flextronics to obtain the Continuous Improvement
Baseline on each metric of the report card with respect to the Product Family measured in the
aggregate on that Report Card, as a result of any act or omission within Flextronics’s Control and
Responsibility, for a three (3) month period (measured as the weighted average of the scorecards
for a calendar quarter), shall:





	 	1.	 	Require Flextronics to take corrective actions if Flextronics is on “Supplier Watch”,
as referenced in Section 8.1.
	 
	 	2.	 	After two consecutive quarters of failure to be equal to or better than the
Continuous Improvement Baseline, entitle Nortel Networks to receive the applicable
liquidated damages as set out below.





	 	 	If Flextronics can demonstrate performance to the aggregated metric is skewed due to an assignable
cause that is beyond its Control and Responsibility at an individual Product level (e.g. — a small
number of NPPI DOA rates may skew an aggregate DOA metric), the Parties will review and agree on
suitable actions, which could include deducting the applicable data for the purposes of measuring
Flextronics’s performance as well as calculating any resets to the performance criteria used to set
the Metrics.
	 
	 	 	If the metric on the date of transfer of System House is on a declining trend, as measured by the
last 3 months average of Nortel’s historical performance being less than the initial Continuous Improvement Baseline, the Flextronics will not be subject to liquated damages during the
initial second quarter after transfer of the applicable System House. For greater clarity this is
only a one time grace period, and thereafter, it would be applicable on any two consecutive
quarters.




	 	 	The assessment of liquidated damages shall be limited to one assessment per quarter. Liquidated
damages shall [•] of Flextronics’s revenue for the affected Product Family, as measured in the
aggregate on the relevant Report Card, on the second quarter of the two consecutive quarters and
each quarter thereafter, if this performance criteria does not meet the Continuous Improvement
Baseline. In instances where Nortel Networks is entitled to receive damages for more than one
metric, a single assessment (being the largest of the applicable assessments) shall apply.





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	 	 	Payments for liquidated damages shall be made 40 days from the date Nortel Networks has documented
the claim and the Parties have agreed on the amount to be assessed.





	 	2.4.4	 	Pass-through of Liquidated Damages from Customers





	 	 	In the event Flextronics fails to meet its obligations for a specific order, and as a result Nortel
Networks is required to pay liquidated damages to its Customer, Nortel Networks shall be entitled
to receive from Flextronics an amount representing the lesser of:





	 	(a)	 	[•], for the order(s) against which damages were assessed (representing [•] for
Flextronics Products relating to the complete Customer order), and
	 	(b)	 	[•] imposed on Nortel Networks by the Customer.





	 	 	Nortel Networks shall not be entitled to receive any amount under this clause if the following
conditions are not met:





	 	(a)	 	Nortel Networks shall indicate in writing to Flextronics, within three days of the
applicable related Purchase Order(s) is placed, that the Product specified on the Purchase
Order will be eligible for liquidated damages from Nortel Networks’ Customer and specify
the terms that would trigger such liquidated damages,
	 	(b)	 	The applicable Purchase Order(s) shall be placed within normal lead time guidelines
and flexibility guidelines,
	 	(c)	 	Nortel Networks has incurred and paid damages related to the applicable Purchase
Order(s).





	 	 	In the event that Flextronics is required to pay liquidated damages under this Section 2.4.4, the
order(s) against which damages were assessed shall not be used in the calculation of whether
Flextronics has met a relevant metric under Section 2.4.2 and 2.4.3.





	 	2.4.5	 	Termination for Breach of Metrics





	 	 	The failure of Flextronics to obtain performance results better than or equal to the Minimum
Performance Baseline on the report card with respect to any Product Family as a result of any act
or omission within Flextronics’s Control and Responsibility, for three (3) consecutive months (measured as the weighted average of the scorecards for each of those
months), constitutes a material breach of Flextronics’s obligations under this Agreement with
respect to that Product Family. The failure of Flextronics to obtain performance results better
than or equal to the Continuous Improvement Baseline on the report card with respect to any Product
Family as a result of any act or omission within Flextronics’s Control and Responsibility, for
three (3) consecutive calendar quarters (measured as the weighted average of the scorecards for
each of those quarters), constitutes a material breach of Flextronics’s obligations under this
Agreement with respect to that Product Family. Such a material breach shall entitle Nortel
Networks, at its discretion, to terminate its obligation to purchase the Allocation for the
applicable Product Family. If Nortel Networks does not exercise its right to terminate for such
breach, any applicable liquidated damages owing pursuant to Sections 2.4.2 and 2.4.3 will be paid
by Flextronics for each successive month that Flextronics fails to obtain metric target as set out





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	 	 	herein. If Nortel Networks does exercise its right to terminate for such breach,
Flextronics’s liability for any damages Nortel Networks may have suffered due to the breach
shall be reduced by the amount of liquidated damages already paid. If Flextronics disputes
whether there has been a material breach for purposes of this Section 2.4.5, then such
dispute will be submitted to the Issue Resolution and Escalation Process in Section 2.8
prior to Nortel Networks exercise of its termination rights or Flextronics’s obligation to
pay any damages.





	2.5	 	Resources for Production Effort and Services




Throughout the life cycle of each Product, Flextronics shall provide production capacity, yield
information, corporate resources, necessary administrative processes, and adequate, qualified,
timely and separate staffing for each Product’s introduction at a Site and to perform the
Production Effort and Services in accordance with the terms of this Agreement, so that Flextronics
is able to meet Nortel Networks’ requirements for the Products set forth in the Market Forecast
from time to time, taking into account the flexibility requirements and other terms and conditions
set forth in the relevant Virtual Systems House Agreement. At a minimum, Flextronics shall provide
production capacity, corporate resources, and adequate, qualified, staffing in the same proportion
as Nortel Networks’ forecasted business is to Flextronics’s overall business for like customers and
products, subject to the Exception Demand Negotiation Process.



Flextronics shall provide separate functional resources in support of new Products as further
provided in this Agreement and the VSHA. Flextronics shall provide all necessary resources for
intra-company and inter-company transfers of new Products (which have a ramp-up period), production
of mature Products and End-of-Life Products.




	2.6	 	Management Resources and Support Infrastructure




Flextronics shall have dedicated business management and engineering teams assigned to Nortel
Networks, with some team members to be physically located at Nortel Networks as specified in the
Virtual Systems House Agreement. Nortel Networks will have a dedicated business management team assigned to Flextronics. Nortel Networks will also make
engineering teams available to fulfill Nortel Networks’ obligations under this Agreement. The
Parties shall mutually agree upon the number and function of team members assigned to Nortel
Networks and their physical location. Flextronics shall consult with Nortel Networks before
appointing personnel to such dedicated business management teams. Flextronics shall provide for
each team member a dedicated personal computer that is capable of supporting the e-supply and
interoperability requirements of the supply chain as it is deployed.




	2.7	 	Regulatory Compliance




Unless otherwise specified in a Virtual Systems House Agreement or Design Order or Exhibit 9-2 or
9-3, Flextronics shall be responsible for the following: 1) to the extent Flextronics designs a
Product for manufacture, obtaining design and functional approvals from the appropriate Nortel
Networks design entities as identified in writing by Nortel Networks, and regulatory bodies, based
on the anticipated





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destination countries identified in the Design Order 2) maintaining all necessary documentation
regarding design of a Product, functionality, certification and registration and 3) delivering to
Nortel Networks the applicable documentation in accordance with the requirements of the applicable
regulatory body. Flextronics’s manufacturing processes shall conform to the requirements of the
applicable regulatory body. Where Nortel Networks has design responsibility for a Product,
Flextronics shall manage the regulatory compliance of SC Suppliers supplying safety-related
Materials listed in the Product safety files; however, where Flextronics has performed Sustaining
Design Services for a Product, it shall manage the regulatory compliance of all Tier 2 Suppliers
supplying safety-related Materials listed in the Product safety files.




	2.8	 	Issue Resolution and Escalation Process




If any disagreement of any kind or nature whatsoever arises between Flextronics and Nortel Networks
with respect to this Agreement, in particular with respect to Product quality or security of
supply, Flextronics and Nortel Networks shall first attempt to resolve the disagreement informally.
If the Parties are unable to so resolve the disagreement, either Party may invoke the Issue
Resolution Process, set out in Exhibit 5. If the Parties are unable to resolve the disagreement
through the Issue Resolution Process, either Party may invoke the Escalation Process, set out in
Exhibit 5.



Flextronics and Nortel Networks shall use reasonable efforts and shall conduct discussions in good
faith to resolve all disagreements.



SECTION 3

FORECASTING, ORDERING AND DELIVERING





	3.1	 	Regular Market Forecast of Requirements




In accordance with the terms and conditions set forth in the relevant Virtual Systems
House Agreement, Nortel Networks shall deliver the Market Forecast monthly or as specified in the
applicable VSHA, to Flextronics for the Products. Flextronics shall respond to this Market
Forecast with its Capacity Commitments for the Products within two (2) Business Days of receipt of
such Market Forecast. If there are differences between the Nortel Networks’ requirements and the
Flextronics’s committed capacity, Flextronics shall identify the cause of this constraint within
the next two (2) Business Days. The Parties shall work together within the next five (5) Business
Days after receipt of such Market Forecast to develop and complete a plan to resolve in a timely
manner any constraints identified. As used in this Section 3.1 and 3.2 below, “Capacity Commitment”
means all necessary resources (including Materials) required to provide the Services in accordance
with the Agreement and the VSHA, including, but not limited to, facilities, equipment, overhead,
direct labour and support staffing. The timing of Flextronics’s responses to the Market Forecast
may be changed by the Parties in the VSHAs.





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	3.2	 	Unscheduled Market Forecast Changes




Nortel Networks may update the Market Forecast for any Product on a weekly basis, or more
frequently on an as-needed basis, and Flextronics shall respond to such Market Forecast with a
preliminary Capacity Commitment to the changed requirements within two (2) Business Days.
Flextronics shall respond with a firm commitment to the changed requirements with completed forms
indicating the impact on Material and Products affected by the change within five (5) Business Days
of receipt or deemed receipt of such Market Forecast change. If the change in the Market Forecast
exceeds the flexibility requirement for the Products as specified in the relevant Virtual Systems
House Agreement, the Parties shall employ the Exception Demand Negotiation Process specified in
Exhibit 7 to address responsiveness to customer, pricing and delivery issues. The timing of
Flextronics’s responses to the Market Forecast may be changed by the Parties in the VSHAs.




	3.3	 	Market Forecast Accuracy Improvement




Nortel Networks will provide to Flextronics the relevant Customer demand information and Nortel
Networks and Flextronics shall work together to improve overall responsiveness to the Customer and
supply chain performance. Nortel Networks commits to work with Flextronics to improve Market
Forecast accuracy as measured in the monthly operations review.




	3.4	 	Orders and Delivery




Nortel Networks will specify the order process to be used in each VSHA. When Nortel Networks wishes
to order Products, Nortel Networks will issue either a Blanket Purchase Order or discrete
Conventional Purchase Orders for each Product to Flextronics, as further specified in the VSHA. In
cases where Nortel Networks issues a Blanket Purchase Order for a Product, delivery of such
Products may be initiated in several ways: a Demand Pull Order via EDI or via the internet,
facsimile, or paper; a Kanban Trigger; or through an Online System Order arising by virtue of
access by Flextronics to a Nortel Networks’ information system.



If Nortel Networks issues a Conventional Purchase Order or Demand Pull Order electronically, such
transaction shall be carried out in accordance with the provisions set forth in Section 17 and the
terms and conditions of this Agreement applicable to notices specified in Section 26.6 shall apply.



For each Conventional Purchase Order or Demand Pull Order issued under a Blanket Purchase Order,
Flextronics shall comply with response times and flexibility provisions specified in the Virtual
Systems House Agreement.



In those instances when Nortel Networks issues a Blanket Purchase Order for a Product, Nortel
Networks may signal for delivery of the Product against the Blanket Purchase Order by providing to
Flextronics access to a Nortel Networks system from which Flextronics will pull the delivery
information, in accordance with Exhibit 14.





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	3.5	 	Minimum Purchases




The minimum order quantity shall be one unit of Product, unless otherwise stated in the VSHA.
Nortel Networks shall have no obligation to purchase any Products from Flextronics, other than as
set out in Section 1.3.




	3.6	 	Excess Inventory




Nortel Networks shall have no obligation or liability to Flextronics with respect to excess
Inventory, other than as set out herein.



For the purposes of this Section, “Forecast Consumption” shall mean Nortel Networks’ actual
Requirements for Products as a percentage of Nortel Networks’ Market Forecast (as calculated in
dollars at the Product Family level). Forecast Consumption shall be measured at the end of each
calendar quarter, and shall be calculated using the sum of the sixty (60) day Market Forecasts and
the sum of the actual Requirements for each month of the three-month forecast measurement period
(which shall include the last month of the previous calendar quarter, and the first two months of
the current calendar quarter, which shall be defined as the “Consumption Period”). Such calculation
shall be made in accordance with the methodology as set out in Exhibit 20.



The Forecast Consumption for a Consumption Period shall determine the excess uplift percentages to
be calculated against the total Material Cost and paid by Nortel Networks, in accordance with the
table as set out in Section 8 in the Virtual Systems House Agreement. The placeholders for the base
excess uplift percentages shall be expressed as A% and the incremental excess uplift percentage
shall be expressed as B% in Section 8 of Exhibit 2, and the applicable VSHAs will set out the
negotiated values of A% and B%. The A% and B% represents the excess uplift percentage between
Nortel Networks and Flextronics.



Compensation for excess above Forecast Consumption between EMS Tier 2 Suppliers providing Material
to Flextronics (whether or not it is a NC or SC Material) shall be expressed as X% and Y%. The base excess uplift percentage (X%) in the prices charged to Flextronics
will be part of the Material Cost and will flow through to Nortel Networks in the Product Price.
However any incremental uplift percentage (Y%) that is in addition to the X% charged to Flextronics
that is caused by Forecast Consumption less than the base range for the X% will be paid by the
Flextronics and will not appear in the Product Price. It will also be the responsibility of
Flextronics to monitor and track all aspects of the Forecast Consumption and excess uplift process
with both NC and SC Suppliers.



For clarity, the process of calculating the applicable uplift percentages as set out above is
described in Exhibit 25.



Exceptional Excess Inventory shall be defined as Inventory that is Unique to Nortel Networks, and
is on hand or on order but not within Time-to-Cancel, as a result of Forecast Consumption for a
Product Family that is lower than [•] for a Consumption Period. In these situations, Exceptional
Excess Inventory that will not be consumed in the current Market Forecast horizon of [•], and
cannot be





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mitigated and / or cancelled by Flextronics within 30 days of the end of the Consumption Period,
shall be purchased by Nortel Networks within 40 days of receipt by Nortel Networks of the
information identifying such Exceptional Excess Inventory.



[•]



With respect to Consigned Inventory, including Exceptional Excess Inventory re-purchased by Nortel
Networks:




	 	(a)	 	Unless Nortel Networks otherwise directs, Flextronics shall hold such Inventory on
behalf of and, in the ordinary course of business, at no additional cost to Nortel
Networks;
	 	(b)	 	Flextronics shall keep and care for such Consigned Inventory with the same standard
of care as if it were part of the Loaned Assets for use only in the Production Effort,
including the obligation to hold at Flextronics’s risk and to insure against loss.
	 	 	 	However, no such Inventory shall be, nor be deemed to be, a part of the Loaned Assets;
	 	(c)	 	subject to Exhibit 8, Flextronics shall place on order with Nortel Networks, and
shall not place any new purchase orders with any other source, any Material which is
suitable for the same use as such Consigned Inventory, or without first repurchasing such
Consigned Inventory from Nortel Networks. Flextronics shall use such repurchases upon
there being a requirement in the Production Effort prior to using any other Material that
is suitable for the same or similar use;
	 	(d)	 	Flextronics shall make such purchase at the then current Material Cost or as
otherwise agreed by the Parties. Flextronics shall make payment to Nortel Networks for
such purchases within forty (40) days thereof;
	 	(e)	 	in the event Flextronics does not repurchase Consigned Inventory in accordance with
the foregoing, (i) Nortel Networks shall be deemed to have sold such Inventory to
Flextronics and Flextronics will immediately credit Nortel Networks
with the amount attributable to such deemed repurchase; and (ii) in no event shall such
Material be, or be deemed to be, Exceptional Excess Inventory or Obsolete Inventory at any
time thereafter, provided however with respect to any such credited Inventory, it may only
become Exceptional Excess or Obsolete Inventory if Flextronics can demonstrate that orders
by Nortel Networks would not have consumed such credited Inventory;
	 	(f)	 	Flextronics shall report to Nortel Networks on a monthly basis the amount of
remaining on hand with Flextronics and on order until such has been consumed; and

	 	(g)	 	Flextronics will be responsible for normal cycle count adjustments for Consigned
Inventory. The Parties agree that this cost is part of the Total Cost and is included in
the Pricing.




Flextronics shall take all commercially reasonable steps and employ prudent purchasing practices to
purchase and have on hand only such Materials as are necessary to meet the Market Forecast,
including any safety stock required to support flexibility requirements. The above provisions do
not apply to End-of-Life Inventory held by Flextronics until it is purchased by Nortel Networks.




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	3.7	 	Obsolete Inventory




“Obsolete Inventory” is Inventory on-hand or on order that constitutes or contains any Material
that is Unique Inventory and:




	 	(a)	 	is not on a BOM for any Product; or
	 	(b)	 	is related to a Product that has been discontinued by Nortel Networks, or transferred
pursuant to Section 4.3.2 or 4.3.3, and is not on a BOM for any other Product; or
	 	(c)	 	cannot be sold as a result of a claim of intellectual property infringement as
referred to in Section 15.1.3;




and is no longer foreseen to be consumed by Nortel Networks within the Market Forecast and that
cannot be canceled by Flextronics within the Time-to-Cancel provisions or otherwise reduced by
Flextronics in accordance with Section 3.8 and Section 4.



Nortel Networks shall purchase such Obsolete Inventory within forty-five (45) days of receipt by
Nortel Networks of the information identifying such Obsolete Inventory. Nortel Networks shall pay
storage charges for such Obsolete Inventory that is in Flextronics’s possession from the time of 45
days after Nortel Network purchases such Obsolete Inventory to the time of disposal of that
inventory.



If a design change initiated by Flextronics has resulted in Material becoming Obsolete Inventory,
then Nortel Networks shall not purchase such Obsolete Inventory, unless agreed between the Parties.



On a quarterly basis, Flextronics will provide Nortel Networks with a list of Unique Inventory for
which there is no demand in the current Market Forecast and for which there has been no consumption
during the past 6 months and the parties will discuss the appropriate disposition of such Unique Inventory.




	3.8	 	Responsibility to Minimize Obsolete Inventory




Flextronics shall perform all commercially reasonable steps and employ prudent purchasing practices
to purchase and have on hand only such Materials, as are necessary to meet the Market Forecast,
taking into account flexibility and finished goods safety stock requirements specified in each
Virtual Systems House Agreement. Nortel Networks shall reimburse Flextronics for its reasonable
out-of-pocket expenses, including restocking charges required by its suppliers, where Flextronics
cannot sell such Obsolete Inventory to a third party for an amount that is at least equal to the
price paid by Flextronics for such Inventory; provided that the Parties shall mutually agree to any
such amount to be paid to Flextronics prior to Flextronics selling such Obsolete Inventory.



Flextronics also agrees to offer a first refusal of Obsolete Inventory to Nortel Networks’ third
party repair services contractor.



In no event shall the total amount of Obsolete Inventory for which Nortel Networks has liability
under Section 3.7 in aggregate exceed the amount of Inventory scheduled to be consumed per the
Market Forecast in effect at the time Flextronics implements the design change.





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	3.9	 	Identification of Obsolete Inventory




Obsolete Inventory for which Nortel Networks has liability pursuant to Section 3.7 will be
identified by Flextronics, pursuant to Section 5.1 and Section 15.1.3.




	3.10	 	Title and Risk of Loss and Delivery





	 	3.10.1	 	Title





	 	 	For orders that are shipped from Flextronics’s Delivery Facility to a named destination
within the same country, title shall pass to Nortel Networks upon delivery to the named
destination. For orders that are shipped from Flextronics’s Delivery Facility to a named
destination in a different country, title shall pass to Nortel Networks immediately prior
to importation into the country specified in the named destination.
	 
	 	 	Nortel Networks may make a written request that title pass to it at a point other than as
outlined above. Flextronics shall comply with such request provided that the revised
transfer point is no later in the delivery process then the relevant points stated above.
	 
	 	 	For returns that are shipped from Nortel Networks or a Customer to Flextronics’s or
Flextronics’s subcontractor’s premises within the same country, title shall pass to
Flextronics upon delivery to the agreed upon destination. For returns that are shipped
from Nortel Networks or a Customer to Flextronics’s or Flextronics’s subcontractor’s
premise in a different country, title shall pass to Flextronics
immediately prior to importation into the country specified in the named agreed upon
destination.





	 	3.10.2	 	Risk of Loss





	 	 	Flextronics shall deliver Products to the named destination duty unpaid as defined by ICC
Incoterms 2000 (“DDU”). For only those countries listed in Exhibit 22, Nortel Networks may
require Flextronics to deliver Products to the named destination duty paid as defined by
ICC Incoterms 2000 (“DDP”). If Nortel Networks requests a delivery term other than (i) DDU
or (ii) DDP to the countries listed in Exhibit 22, the Parties shall agree upon this
delivery term and written confirmation of this agreement shall govern in the case of a
conflict with a delivery term stated on the applicable Purchase Order. Risk of loss will
pass to Nortel Networks pursuant to the applicable Incoterms, determined as stated herein,
or as otherwise required by Nortel Networks.
	 
	 	 	If Nortel Networks or a Customer returns a Product, risk of loss, damage or theft for such
Product shall pass to Flextronics when the Product is delivered to Flextronics’s or
Flextronics’s subcontractor’s premises.





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	3.11	 	Packaging, Labelling and Trade-Marks




Products shall be packaged and labelled in accordance with Nortel Networks’ practices as more
particularly set forth in Exhibit 3, the relevant Specifications, the Virtual Systems House
Agreement or as Nortel Networks may otherwise direct in writing, and consistent with the provisions
of Section 22.3. Flextronics shall not otherwise apply to or display on the Products Flextronics’s
trade-marks or other markings without the express written permission of Nortel Networks, which may
be withheld in its absolute discretion. Flextronics shall use the Trade-Marks only to apply to
Products on Nortel Networks’ behalf together with other legends, notices or markings as Nortel
Networks may direct.




	3.12	 	Exception Demand Negotiation Process




If demand for a Product Family exceeds the Market Forecast plus the flexibility requirements set
forth in the relevant Virtual Systems House Agreement, measured at the aggregate of the cost of
sales of such Product Family purchased pursuant to that VSHA, then the Parties shall employ the
Exception Demand Negotiation Process specified in Exhibit 7 to address the responsiveness to
Customer issues.



SECTION 4

MATERIALS MANAGEMENT PROCESS





	4.1	 	Manufacturing Location




Flextronics shall manufacture each Product at the Site and/or on the manufacturing line initially
agreed to by Flextronics and Nortel Networks, and Flextronics shall not change such Site or
manufacturing line unless Nortel Networks consents in writing. The System
Houses transferred to Flextronics as part of the Transferred Business are hereby deemed to be
qualified. Flextronics shall follow Nortel Networks’ qualification process as set out in Exhibit 3
for additional Flextronics Sites for System House or Production Effort work and provide a complete
qualification report.



Flextronics agrees to support Nortel Networks’ customer needs by transferring the manufacture of
Products to alternative Flextronics Sites or providing an equivalent alternative solution to
support such Nortel Networks customer in each region as requested, provided that Nortel Networks
and Flextronics will discuss and agree upon the appropriate delivery terms.



At Nortel Networks’ request, Flextronics will evaluate setting up operations in another country or
equivalent alternative solution, and each Party shall bear its respective reasonable costs of such
evaluation. If Flextronics is unable or unwilling to meet such in-country or regional needs in a
timely fashion, and provided Flextronics has been provided prior written notice of such in-country
needs and a minimum of thirty (30) days to provide a plan in reasonable detail to meet such needs,
including, without limitation, cost, quality and service, in a reasonable time frame as specified
by Nortel Networks, Nortel Networks may place such business with an alternative supplier in such
new location. Any such sourcing changes shall not change Nortel Networks obligations with respect
to the Minimum Commitment as set out in Section 1.3.2, except those changes governed by Section
1.3.3(D).





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	4.2	 	No Price Premiums




Nortel Networks shall pay no price premiums or other additional charges for Production Effort or
Services, including price premiums associated with Production Effort and Services carried out
during times other than the usual working hours on Business Days, unless agreed through (i) the
Exception Demand Negotiation Process, or (ii) pursuant to Section 7 or (iii) such other process as
mutually agreed by the Parties from time to time.




	4.3	 	Transition of Material





	 	4.3.1	 	From Nortel Networks to Flextronics





	 	 	Except as otherwise provided for in the APA with respect to Inventory (as that term is
defined in the APA) purchased at the applicable Designated Country Closing Date, upon any
transfer of responsibility for supply of a Product from Nortel Networks to Flextronics or
upon any ramp-up of a new Product, subject to a physical quality inspection in accordance
with a procedure similar to the procedure set forth in Exhibit 8, Flextronics shall
purchase Materials for such Product in Nortel Networks’ control. If Nortel Networks has
placed orders with Materials suppliers which, at the time of such transfer, are not yet
completely filled, subject to a physical quality inspection in accordance with a procedure
similar to the procedure set forth in Exhibit 8, Flextronics shall accept assignment of
such orders to it for those Materials not yet shipped to Nortel Networks, in any event
prior to purchasing such Material from any other entity; provided that consumption of such
Material is included in the Market Forecast or comprises
part of End-of-Life Inventory. Other than purchases covered by End-of-Life Inventory or
related to the Transferred Business, Flextronics may stage purchases under this Section
4.3.1 taking into account the Material Lead Time for the applicable Material.





	 	4.3.2	 	From Flextronics to Nortel Networks





	 	 	Upon any transfer of responsibility for supply of a Product from Flextronics to Nortel
Networks or upon any ramp-up of a new Product, Nortel Networks will, subject to a physical
quality inspection in accordance with the procedure set forth in Exhibit 8, purchase
Materials that is Unique Inventory for such Product in Flextronics’s control. If
Flextronics has placed orders for Unique Inventory with Materials suppliers that, at the
time of such transfer, are not yet completely filled, Nortel Networks will accept
assignment of such orders to it for those Materials not yet shipped to Flextronics;
provided that consumption of such Material is included in the Market Forecast or comprises
part of End-of-Life Inventory. Nortel Networks will not require that Flextronics sell any
Materials or assign any orders that are still required by Flextronics to satisfy its
obligations under any outstanding Purchase Orders. Nortel Networks may stage purchases
under this Section 4.3.2 taking into account the Material Lead Time for the applicable
Material.





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	 	4.3.3	 	From Flextronics to a Third Party





	 	 	Upon any transfer of responsibility for supply of a Product between Flextronics and a third
party specified by Nortel Networks, Flextronics shall sell to such third party, subject to a
physical quality inspection in accordance with the procedures set forth in Exhibit 8,
Materials for
such Product in Flextronics’s control. If Flextronics has placed orders with Materials
suppliers
which, at the time of such transfer are not yet completely filled, Flextronics shall assign
such
orders to such third party for those Materials not yet shipped to Flextronics; provided that
Flextronics shall not be obligated to sell any Materials or assign any such orders if such
Materials are still required by Flextronics to satisfy its obligations under any outstanding
Purchase Orders. The third party may stage purchases under this Section 4.3.3 taking into
account the Material Lead Time for the applicable Material, subject to Flextronics’s
satisfaction
as to the creditworthiness of such purchasing third party.





	 	4.3.4	 	INTENTIONALLY DELETED





	 	4.3.5	 	From Third Party to Flextronics





	 	 	Upon any transfer of responsibility for supply of a Product between a third party specified by
Nortel Networks and Flextronics, Flextronics shall purchase from such third party, subject to
a physical quality inspection in accordance with the procedures set forth in Exhibit 8,
Materials for such Product , as well as all End-of-Life Inventory, in such designated third party’s control.
Notwithstanding the foregoing, Flextronics shall only be obligated to purchase Materials for
such Product for which there is a forecasted demand [•] of such transfer consistent with
Nortel Networks’ relevant existing third party contractual obligations. The afore-mentioned Inventory
physically transferred or on order and not cancellable as of the date of transfer greater
than [•] forecasted demand will be held and managed by Flextronics as Consigned Inventory. Any such
Inventory that is related to the Transferred Business purchased pursuant to this Section that
is not consumed within twelve months, could, at Flextronics’s option, be sold to an external
third party. Should the proceeds from such sale, on a sale-by-sale basis, be lower than the original
cost, then Nortel Networks will reimburse Flextronics for the difference. Flextronics agrees
to give Nortel Networks the first-right-of-refusal to buy such Materials at the original cost,
before Flextronics sells them to any third party at lower than the original cost. Any inventory
purchased pursuant to this Section shall be exempt from the imposition of the excess uplift
percentage.





	 	4.3.6	 	Price for Transitioned Materials





	 	 	The price payable for Materials purchased pursuant to (i) Section 4.3.1 shall be the Material
Cost of such Materials; and (ii) Section 4.3.2, 4.3.3 and 4.3.5 shall be equal the sum of the
[•].





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	4.4	 	Materials Management Services





	 	4.4.1	 	Definition





	 	 	This Section 4.4 sets out the definition of Materials Management Services.





	 	4.4.2	 	Level 3 Planning





	 	 	Flextronics shall perform Level 3 Planning (Exhibit 21). Flextronics shall review the
Market Forecast received from Nortel Networks and the Parties will agree on the Market
Forecast to be used to produce the Level 3 Plan for the applicable period. Flextronics shall, upon receipt of the Market Forecast from Nortel Networks,
convert and manage such Market Forecast into detailed planning information required for
order management, inventory management, procurement of all necessary Materials, and the
management of all End-of-Life Inventory (the “Level 3 Plan”) in order to satisfy
Flextronics’s responsibilities for the delivery of Products as set forth herein and in any
VSHA. Flextronics shall provide such Level 3 Plan to Nortel Networks and Nortel Networks
will review and the Parties will agree on the Level 3 Plan to be in effect for the
applicable period. The fact that Flextronics may have agreed upon a Market Forecast does
not relieve Nortel Networks from any of its liabilities as set out in this Agreement with
respect to excess inventory generated from the use of that Market Forecast by Flextronics.
The fact that Nortel Networks may have agreed upon a Level 3 Plan does not relieve
Flextronics from any of its liabilities as set out in this Agreement with respect to excess
inventory generated from the implementation of that Level 3 Plan.




	 	 	Flextronics shall provide a forecast to all Tier 2 Suppliers. As part of the forecasting
process Flextronics will be responsible for developing, managing and maintaining planning
bills, sub-bills, and Product structure information, Flextronics will update all
information in the systems that feed Nortel Networks systems and databases as mutually
agreed.




	 	 	Flextronics shall validate the market planning bills and Ship-Loose forecast, updating them
as required to any known future market demand changes that are known to either Party at the
time of the Market Forecast monthly, or weekly, as necessary. These changes may include,
among other things, information relating to promotional programs, customer software or
hardware upgrades or major new market initiatives.





	 	4.4.2.1	 	Flexibility Models





	 	 	The Parties acknowledge that there are two different flexibility models that may be in
place in the Virtual System Houses.
	 
	 	 	The Traditional Model is set out in Section 5.3 of the VSHA and sets out the flexibility
requirements as agreed to by the Parties for each applicable Product Family (the
“Traditional Model”).
	 
	 	 	Under The Dynamic Model, Flextronics will provide Nortel Networks, as part of the Level 3
Plan, with a flexibility plan, based on the Market Forecast and Market Forecast Agility





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	 	 	Requirements (“MFAR”) provided by Nortel Networks at the time of delivery of the Market Forecast.
The Parties will mutually accept and approve on a monthly or quarterly basis, as agreed in the VSHA
(the “Dynamic Model”). For clarity, the Dynamic Model can differ between Leadership Categories
and Product Families within the Leadership Categories.
	 
	 	 	The Parties will trial the Dynamic Model in one VSHA, as agreed between the Parties. The Parties
agree to work together to further define and clearly document the Dynamic Model and create a plan
to roll it out at the chosen Virtual System House before the applicable VSHA Effective Date. At the
end of the 6 months trial period, the Parties will review the success of this Dynamic Model and
agree to (a) revise the remaining VSHAs to institute the Dynamic Model, or (b) revert to the
Traditional Model for the VSHA which undertakes this trial. If option (a) is chosen, the Parties
will review the success of the Dynamic Model at each System House and the Parties may mutually
agree to continue with the Dynamic Model or revert to the Traditional Model with respect to each
System House; provided however if Flextronics has not met the Report Card Metrics at an applicable
System House, during the applicable 6 month period, Nortel Networks may unilaterally decide to
revert to the Traditional Model for that System House. If Flextronics has met the Report Card
Metrics and there is no mutual agreement on whether to continue with the Dynamic Model or not, the
Parties will use the Issue Resolution and Escalation Process to resolve the matter. If option (b)
is chosen at any time, then at such time the Parties will negotiate in good faith and agree on the
percentages to be used with the flexibility terms for the Traditional Model in the applicable VSHA.
The Parties will continue to review the success of a Dynamic Models in place at any System House
every 6 months, at which time the Parties may mutually agree to revert to the Traditional Model.
	 
	 	 	For either flexibility model, Flextronics will provide to Nortel Networks a quarter-end inventory
target for all inventory types (current, excess, exceptional excess, end of life, obsolete) based
upon the Market Forecast and Level 3 Plan.





	 	4.4.3	 	Supply Chain Management





	 	 	Flextronics agrees to take responsibility to manage the supply chain to support the business and
Nortel Networks Customer deliveries and Customer service performance to the extent provided below.
	 
	 	 	Flextronics will manage all elements of the supply chain, which activities shall include but not be
limited to the following:





	 	(a)	 	optimize the supply chain performance;
	 	(b)	 	perform short and long term capacity planning;
	 	(c)	 	as further set out in Section 4.5, application test any SC Material at Flextronics or
at an other EMS Supplier, and perform application testing for NC Material (as directed by Nortel
Networks); provided however, Flextronics’s obligation to perform NC application tests is
subject to available capacity and will be scheduled accordingly. There will be no separate
charge for application testing unless otherwise agreed. As set out in Section 4.5, qualify
any SC Material and qualify any SC Supplier that is not





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	 	 	 	already approved on the BOM for any Product at the time of the transfer or introduction of
a production Product to Flextronics and maintain the qualification
of SC Supplier and SC Material (which includes component product changes notices, known as
PCN’s) on the BOM for any Product in the ordinary course of business, subject to Nortel
Networks’ approval and consistent with the quality requirements of Exhibit 3;
	 	(d)	 	manage Tier 2 Supplier contracts and relationships to obtain maximum flexibility to
respond to Market Forecasts and upside flexibility requirements as set out in the relevant
VSHA;
	 	(e)	 	enter into contracts with SC Suppliers and administer Nortel Networks contracts with
NC Suppliers, as applicable, and where NC Supplier fails to perform in accordance with the
terms of its contract with Nortel Networks, and subject to Section 4.6, request Nortel
Networks assistance as necessary;
	 	(f)	 	beginning 6 months after the transfer of a Product to Flextronics, require in its
contracts with SC Suppliers last-time buy notifications of at least 12 months and a
delivery period of an additional 6 months;
	 	(g)	 	enforce all applicable contracts with Tier 2 Suppliers, and in the case of a NC
Supplier, with the assistance of Nortel Networks if necessary, subject to Section 4.6;
	 	(h)	 	enter into vendor managed inventory programs where appropriate and subject to Section
4.6 in the case of a NC Supplier, with Nortel Networks’ assistance where necessary;
	 	(i)	 	manage cost reduction programs, implementation and operational efficiencies,
including documented benchmarking techniques for both Materials and total supply chain and
providing dedicated primes for each Leadership Category, as set out in the applicable
VSHA;
	 	(j)	 	perform other purchasing services for consumable materials that are required to for
the Production Effort (e.g., solder paste);
	 	(k)	 	perform tactical purchasing activity such as purchasing orders, price management,
invoicing issue resolution;
	 	(l)	 	drive and achieve ongoing continuous improvement;
	 	(m)	 	perform proactive measures to assure supply flow of long lead-time, allocated, and
constrained Materials;
	 	(n)	 	manage End-of-Life Inventory and last time purchases, as set out in Section 4.4.4;
	 	(o)	 	perform proactive and timely identification of Obsolete/ End-of-Life Inventory,
including, identify, research, analysis of alternative, business case development, design,
prototypes, verification and project management and implement solutions to address
End-of-Life Inventory;
	 	(p)	 	perform best-in-class inventory management, including FIFO
practices;
	 	(q)	 	implement effective phase out and in of Materials during change management process;
	 	(r)	 	employ prudent purchasing practices to mitigate against any excess inventory
Exceptional Excess, Consigned Inventory or Obsolete Inventory;





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	 	(s)	 	manage any excess inventory, Exceptional Excess Consigned or Obsolete Inventories,
including disposition, physical handling, mitigation of extra charges, carrying charges,
restocking fees, etc.;
	 	(t)	 	periodically monitor industry trends and supplier chain lead-times, potential supply
chain interruptions, SC Supplier financial health and be knowledgeable of
any supplier constraints and make continuous improvements and adjustments to the supply
chain design to compensate for all such issues. Flextronics shall have processes to monitor
and update its internal ERP systems to reflect the current actual Material ordering lead
time and their internal end-to-end manufacturing lead times (i.e. receiving, kitting,
manufacturing, packaging, logistics, etc.). In addition, Flextronics
to require that all SC Suppliers have similar processes in place;
	 	(u)	 	provide the necessary oversight, information and actions with Tier 2 Suppliers to
facilitate their ability to deliver material for flexibility and security of supply;
	 	(v)	 	manage the supply chain in a fair and ethical manner;
	 	(w)	 	assist Nortel Networks to meet its commitments as set forth in the applicable VSHA
with respect to utilization of Tier 2 Suppliers or other suppliers who are minority
business enterprises, women business enterprises, and other businesses owned by disabled
individuals, disabled veterans, Vietnam veterans, and similar categories of organizations
(“Special Category Suppliers”), where such targets are applicable.
Flextronics will furnish data concerning use of such Special Category Suppliers on a
quarterly basis in a format as set out in a relevant VSHA. Nortel Networks agrees that if
it requires that Flextronics use of Special Category Suppliers who are not Competitive with
other suppliers, then Flextronics shall bring this situation and the applicable impact to
Product pricing or ICR/OCR Commitments to Nortel Networks attention. If Nortel Networks
requests that such Special Category Suppliers be used as an SC Supplier, the Parties will
agree upon appropriate adjustments;
	 	(x)	 	Flextronics shall take all administrative actions required to become a member of the
Customs & Trade Partnership Against Terrorism (C-TPAT or to demonstrate to Nortel Networks
compliance with C-TPAT guidelines or similar international supply chain programs designed
to protect against acts of terrorism. Demonstration of C-TPAT compliance includes
assessment of current supply chain security measures in accordance with the U.S. Customs
guidelines, and other countries guidelines as required, and addressing any potential
security weaknesses in Flextronics’s supply chain; and
	 	(y)	 	maintain and enhance existing electronic communications and demand-pull programs with
the supply chain. Flextronics shall share information with Nortel Networks regarding cost
trends, market availability and Materials End-of-Life Inventory scenarios during
appropriate monthly operations reviews, and sooner if applicable.





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	 	4.4.4	 	Component Discontinuance and End-of-Life Inventory





	 	 	Flextronics shall perform, on an ongoing basis, all activities necessary to manage the supply of
Products in accordance with the terms of this Agreement. Such activities to include, but not be
limited to, the following:





	 	(a)	 	conduct and provide to Nortel Networks a summary and forecast of Material that any
Tier 2 Suppliers notifies Flextronics that such Tier 2 Supplier or any applicable supplier
in the supply chain plans to discontinue;
	 	(b)	 	identify, monitor and react to suppliers’ end-of-life notifications;
	 	(c)	 	apply strategic technical analysis of the supply base to proactively warn of
potential End-of-Life Inventory trouble areas by product family;
	 	(d)	 	maintain and provide to Nortel Networks a consolidated list of components (including
Tier 2 Supplier’s part numbers) which are approaching end-of-life;
	 	(e)	 	for components that have had last time buys performed, track and monitor inventory on
hand and projected use up dates with the goal to ensure continuity of supply and react
accordingly if the use up date is advanced;
	 	(f)	 	negotiate with supply base to maintain supply until an alternative solution can be
achieved;
	 	(g)	 	if required by Nortel Networks, research, review and recommend to Nortel Networks for
approval (including business case, detailed cost analysis, design plans, last time buy
quantity required, qualification and verification plans, scope of intellectual property
risk known to Flextronics and the basis of Flextronics’s knowledge) of the best
alternative available, such as, perform last time buy, component substitutions, component
packaging foot print changes, elimination of the component by incorporating function into
another component, specification relaxation to eliminate the need for the component. In
this regard, Nortel Networks will provide Flextronics with parameters concerning its
forecasted demand for the Product through the Products end-of-life, including, without
limitation, the estimated sell-off period and aggregate quantity required and anticipated
Product mix (the “End of Life Parameters”). Flextronics shall be entitled to rely on such
End of Life Parameters in conducting its analysis;
	 	(h)	 	where last-time buy plan is approved by Nortel Networks, Flextronics shall perform
the activities set out in this Section 4.4.4 including executing the last-time buy and
such Inventory will be considered End-of-Life Inventory.





	 	 	If Flextronics is required to purchase End-of-Life Inventory, Nortel Networks shall pay to
Flextronics a Carrying Charge on the End-of-Life Inventory effective ninety (90) days from the
notification by Flextronics that it has executed the last-time buy as approved by Nortel Networks
and has received delivery of such End-of-Life Inventory as scheduled in the last-time buy plan.
Flextronics shall hold End-of-Life Inventory for a period not to exceed 3 years at which time
Nortel Networks will purchase such End-of-Life Inventory from Flextronics at Material Cost plus
Material Overhead. At the time of purchase of such Inventory, Nortel Networks will determine the
disposition of such Inventory. If Nortel Networks requires Flextronics to hold such Inventory, it
will be treated as Consigned Inventory.





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	 	 	End-of-Life Inventory held by Flextronics set out hereunder will have a total End-of-Life Inventory
cap of [•] of the total of the costed aggregate Market Forecast for all Flextronics business with
Nortel Networks on a six month forward-looking basis plus Flextronics’s global revenue under this
Agreement for the previous six months (the “End-of-Life Revenue Base”). If the End-of-Life Revenue
Base declines causing the End-of-Life Inventory currently held by Flextronics to exceed the then
current [•] cap for a six month period, then Nortel Networks will purchase the End-of-Life
Inventory which is excess to the current cap from Flextronics at Material Cost plus Material Overhead. Flextronics
will hold any such End-of-Life Inventory, which is excess to the cap and has been purchased by
Nortel Networks as Consigned Inventory.
	 
	 	 	Flextronics is not obligated to purchase additional End-of-Life Inventory above this [•] cap,
unless mutually agreed. For greater clarity End-of-Life Inventory will be considered Unique
Inventory.
	 
	 	 	Nortel Networks may from time to time purchase End-of-Life Inventory or require Flextronics to sell
it to a third party specified by Nortel Networks at a cost to Nortel Networks or such third party
equal to the Material Cost plus Material Overhead. Flextronics shall have the right to sell to one
or more third parties acceptable to Nortel Networks any End-of-Life Inventory purchased by
Flextronics. For greater clarity, Flextronics shall not dispose of any End-of-Life Inventory
without written authorization from Nortel Networks.





	 	4.4.5	 	Traceability of Products and Material





	 	 	The Parties acknowledge that certain assets and resources have been transferred to Flextronics
pursuant to the APA to enable Flextronics to perform the traceability requirements set out below.
Flextronics will determine by the end of 3 months after the System House transfer date whether it
is satisfied that these assets and resources, as transferred, are sufficient for such purpose. If
Flextronics is not so satisfied, it will notify Nortel Networks and present reasonable evidence to
support this determination along with a proposed plan to address any deficiencies in a commercially
reasonable manner. Nortel Networks may not unreasonably withhold or delay its acceptance of
Flextronics’s determination or of Flextronics’s proposed plan to acquire capability in this area
within a maximum of 12 months. If Nortel Networks accepts this determination and the plan to
remedy the deficit in assets and resources, then Flextronics shall not be liable for any Liquidated
Damages or direct damages related to this Section pending the implementation of Flextronics’s plan.
If Nortel Networks does not accept this determination or remedial plan, the Parties shall follow
the Issue Escalation and Dispute Resolution Process. If Flextronics can demonstrate that
implementation of a plan to satisfy the traceability requirements will result in change to costs at
the transferred System House, the Parties will agree on appropriate changes to the Price.





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	 	4.4.5.1	 	General Requirements





	 	 	Flextronics shall mark all Products manufactured by Flextronics or a sub-contractor of Flextronics,
including sub-assemblies and units, and Significant Components (as defined below) clearly; the
format of the labels will be agreed upon by the Parties such that the labels will identify the
Product and/or Significant Components and the party responsible for the manufacture of such Product
and/or Significant Component in accordance with the Specifications including Nortel Networks’
Corporate Standard 5014.00 Serialization Codes or successor thereof. Flextronics is not responsible
for traceability requirements on any Material that is purchased from another EMS Supplier Labels
shall identify appropriate regulatory and safety compliance requirements. All Products, including
sub-assemblies and units, and Significant Components manufactured by Flextronics or a sub-contractor of
Flextronics for Nortel Networks shall have suitable identification for Product and Material
traceability. With respect to Material, Flextronics shall generate and record all data necessary to
enable Material traceability for “Significant Components”. Nortel Networks and Flextronics will
agree and specify which Materials will be designated as Significant Components, as jointly agreed
to by both Nortel Networks and Flextronics in the applicable VSHA. Traceability data (including
product identification, revision level, in-process testing, final test, test step name, pass/fail,
repair and manufacturing date code) shall encompass acceptance through manufacturing, manufacturing
site, storage, logistics and, if applicable, installation.
	 
	 	 	Flextronics agrees to provide traceability and history of all Materials data including all
purchasing history, Material supplier name, Material supplier part number, quantities, date
received, and Material Cost. Flextronics shall also retain traceability data for a minimum period
of end of life plus three (3) years. Flextronics shall submit traceability data feeds to Nortel
Networks data warehouse in accordance with a schedule to be agreed on by the Parties, if the
Parties determine that it is necessary to keep duplicate data stores. Historical data will be
available on request in a media format to be determined by Flextronics.
	 
	 	 	All available historical and traceability Material data will be transferred from Sending to
Receiving Supplier Site, or if not transferable, then data shall be maintained and remain
accessible at either Sending or Receiving Supplier Site, as applicable. If responsibility for
supply of a Product moves or upon termination of this Agreement, all Material historical and
traceability data shall be transferred to Nortel Networks or to a new supplier (other than Material
Cost), as requested by Nortel Networks.





	 	4.4.5.2	 	Material/Component Traceability





	 	 	Flextronics shall be able to trace to top level PEC (“Product Engineering Code”) and serial number.
Flextronics shall be able to trace to an individual specific delivery of a top level PEC and serial
number. Flextronics shall adhere to lot management techniques for any component specified by Nortel
Networks, and shall maintain records of this traceability for product recalls, retrofits, field
changes, and/or product failure root cause analysis.





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	 	4.4.5.3	 	Product Traceability (Field Replaceable Units / Sub-Assemblies)





	 	 	Field replaceable units and sub-assemblies shall be traceable throughout the lifecycle of a Product
to the extent that Nortel Networks can currently trace such field replaceable units and
sub-assemblies. Documented procedures should provide traceability of design changes to
identifiable manufacturing dates, lots, or serial numbers. Traceability of specific Product should
be to serial number and CLEI code as applicable. Flextronics shall have a record of all
assembly/test (which includes all previous re-work history including details logged by manufacturer
site), and inspection points within the process by product serial number.





	 	4.4.6	 	Performance Report Cards





	 	 	Flextronics shall collect and evaluate and complete performance report cards, based on quantifiable
objective measurements, as designed by Flextronics, for each Tier 2 Supplier that falls into the
category of top 80% of Flextronics’s annual spend with respect to Nortel Networks related Material,
to measure against their goals of quality, service and cost, and make available to Nortel Networks
such data on a timely basis and as required by Nortel Networks.





	 	4.4.7	 	Process and Systems Support





	 	 	The Flextronics will provide resources to support the following systems and process areas:
electronic communications with Nortel Networks, Customers and suppliers, system trouble shooting,
process improvements, system evolution and the migration from Nortel Networks systems to the
Flextronics’s own information technology infrastructure, application environment and shall maintain
the level of capability transferred from Nortel Networks and work to provide improvements and
enhancements to systems and processes as technology evolves.
	 
	 	 	Nortel Networks will provide resources and processes to support electronics communications with
Flextronics in the following areas: customer orders, purchase orders, documentation, and invoicing
with the goal to support systems and processes which are best in class.
	 
	 	 	The Parties acknowledge that certain assets and resources have been transferred to Flextronics
pursuant to the APA to enable Flextronics to fulfill its support responsibilities herein.
Flextronics will determine by the end of 3 months after the System House transfer date whether it
is satisfied that these assets and resources, as transferred, are sufficient for such purpose. If
Flextronics is not so satisfied, it will notify Nortel Networks and present reasonable evidence to
support this determination along with a proposed plan to address any deficiencies in a commercially
reasonable manner. Nortel Networks may not unreasonably withhold or delay its acceptance of
Flextronics’s determination or of Flextronics’s proposed plan to acquire capability in this area
within a maximum of 12 months. If Nortel Networks accepts this determination and the plan to remedy
the deficit in assets and resources, then Flextronics shall not be liable for any Liquidated
Damages or direct damages related to this Section pending the implementation of Flextronics’s plan.
If Nortel Networks does not accept this determination or remedial plan, the Parties shall follow
the Issue Escalation and Dispute Resolution Process. If Flextronics can demonstrate that





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	 	 	implementation of a plan to satisfy the support requirements herein will result in change to costs
or delivery schedule, the Parties will agree on appropriate changes to the Price and delivery
schedule.





	 	4.4.8	 	Order Management/Customer Service





	 	 	Flextronics will be responsible for all order management activities relating to the Production
Effort and Services and Design Services including order receipt, order configuration validation to
configuration rules provided by Nortel Networks, order scheduling, order delivery, order status inquiries, and change order management. Additionally, the
parties agree to work towards establishing plans for handling other Customer service activities.
Flextronics will provide resources to support electronic communications with Nortel Networks via
EDI (electronic data interchange) or XML (extended Markup Language), or other similar means as
Nortel Networks requests and Flextronics agrees, including system troubleshooting, process
improvements, and system evolution. Nortel Networks will provide Flextronics with access to Nortel
Networks’ customer service satisfaction data.





	 	4.4.9	 	Return Material Operation Services





	 	 	In addition to Flextronics’s obligation under Section 9 and Section 10 for returned Products other
than Rework Products and Repair Products, Flextronics shall administer and manage a return material
operation for Products, including conducting diagnostic testing and upgrade support relating
thereto, all pursuant to the return material/RMA procedure set forth in Exhibit 11, purge
routing/processing (including segregation of materials), stock support on and upgrade support for
Nortel Networks. Costs of the foregoing shall be the responsibility of Flextronics and shall be
included as part of the Production Effort and Services provided by Flextronics hereunder.
	 
	 	 	Product that has been returned from Nortel Networks or a Nortel Networks Customer for reasons other
than for quality or DOA, and is re-sellable to Nortel Networks as new Product, shall not exceed the
percentage of the value of all shipments within a quarter for a Product Family as set out in the
applicable VSHA (the “RMA Cap”). In the event that the RMA Cap is exceeded, the Parties shall agree
upon a reasonable re-stocking fee or other method of compensation as appropriate. Such re-stocking
fee shall be paid by Nortel Networks no later than 40 days after the Parties agree upon such fee.
Product that has been returned to Flextronics due to quality issues or DOA is excluded from the RMA
Cap. Flextronics shall process RMA returns and associated credits to Nortel Networks in a timely
fashion on an ongoing basis to avoid any processing backlogs. For greater clarity, Lab Products
are not subject to the RMA Cap in Section 4.4.9.





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	 	4.4.10	 	Purchase of Products for Use in Lab Facilities





	 	 	If Nortel Networks requires Products for use in its lab facilities or for demonstration or
other purposes (“Lab Products”), it will purchase such Products from Flextronics. Nortel
Networks will return Lab Products to Flextronics and Flextronics will have a positive
obligation to take title of the Lab Products upon receipt of the returned Lab Products and
provide Nortel Networks with a credit for the then current Price for the Lab Product,
provided that Nortel Networks returns such Lab Products within one hundred and eighty (180)
days of Nortel Networks receipt and in the same state they were received without
compromising the quality, reliability or function (the “Return Requirements”), and further
provided that Nortel Networks provides Flextronics with reasonable notice prior to
returning any such Lab Products. However, if Nortel Networks wishes to return Lab Products
that do not meet the quality, reliability or function criteria of the Return Requirements,
it will pay Flextronics for the actual costs incurred by Flextronics to repair such Products at the then current Repair rates. Notwithstanding the
foregoing, if the failure to meet the Return Requirements is in any way attributable to the
actions of Flextronics, the Lab Products shall be deemed to meet the Return Requirements.
Flextronics shall reimburse Nortel Networks for the purchase price of any Lab Product
returned in accordance with the Return Requirements within forty (40) days of Flextronics’s
receipt of the Lab Products. Any Lab Product returned to Flextronics in accordance with
this Section 4.4.10 shall be treated by Flextronics as Class A Inventory upon its return
and Flextronics will cycle Lab Products through the System House process upon receipt from
Nortel Networks and deliver back to Nortel Networks on next Customer order at no additional
cost to Nortel Networks. For greater clarity, Lab Products are not subject to the RMA Cap
in Section 4.4.9.





	4.5	 	Material and Tier 2 Supplier Qualification




Flextronics shall only use Material and Tier 2 Suppliers that have been qualified and application
approved either by Nortel Networks or by Flextronics pursuant to Section 4.4.3(c) Qualification and
application approved status will be recorded on the Nortel Networks Approved Vendor List (“AVL”).
The Parties acknowledge that in some instances only the component of a specified supplier may be
used in a Product. Such components (also known in Nortel Networks as “Red Lists”) shall be
identified in the VSHA. Flextronics shall have a formal capture and purge process for
non-qualified Material as specified by Nortel Networks in Exhibit 3.



If Flextronics desires to include SC Material or SC Supplier on the AVL for a Product, then
Flextronics will notify Nortel Networks by submitting a change request. Flextronics must take into
consideration quality, safety, regulatory and performance-critical requirements before bringing
such a request to Nortel Networks. Nortel Networks will respond in a timely manner to such change
request to the applicable design authority at Nortel Networks or its designate, or, in the case of
Products for which Flextronics is responsible to perform Sustaining Design Services, by the
applicable designer at Flextronics. Nortel Networks will notify Flextronics whether it accepts or
rejects such change request. Nortel Networks will not unreasonably reject or delay its response to
a change request. In the event





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Nortel Networks accepts an SC Material or SC Supplier, Flextronics must perform its obligations to
qualify any SC Material or SC Suppliers under 4.4.3(c). Once any SC Supplier is qualified, Nortel
Networks will notify Flextronics in a timely manner that an SC Supplier has been included either by
including such SC Supplier in the most recent approved AVL or by otherwise notifying Flextronics in
writing. Nortel Networks will be responsible for qualifying any NC Suppliers.



If SC Material on the BOM for Product is not currently approved to the quality requirements of
Exhibit 3, Flextronics shall qualify the applicable SC Material and SC Supplier consistent with the
methodology outlined in Corporate Standard 180.40 Component Flextronics Assessment, Approval and
Qualification. For Material manufactured by Flextronics, Nortel Networks shall assist Flextronics
to use the supplier
self qualification process. For all qualifications performed by Flextronics, its responsibilities
include:




	 	(a)	 	Review and issue qualification waivers requested by suppliers based on low risk of
quality issues and low potential business impact.
	 	(b)	 	Define and implement qualification risk mitigation plans as early in the Product
development cycle as possible to provide for a minimal risk of non-conformance to the
Product quality requirements during Product production and without impact to Product
production release schedule.
	 	(c)	 	In the event of qualification failure of a supplier component, drive a corrective
action plan with the supplier that requires such supplier to redesign supplier component
to eliminate qualification failure and to repeat qualification testing successfully prior
to Product production and without impacting Product release schedule.
	 	(d)	 	Perform Product application testing/characterization and gain approval from
appropriate design authority, as referenced above
	 	(e)	 	Perform verification testing for Products, Services or Material




Flextronics shall maintain approval status of all SC Suppliers on the BOM for Product and perform
re-certification of SC Suppliers as necessary. Flextronics shall manage and maintain all component
information within the Nortel component database for which Flextronics has qualification
responsibility.



Any qualification activities described in this Section will be at the expense of Flextronics unless
otherwise agreed upon in writing by Flextronics and Nortel Networks.



NC and SC Control roles and responsibilities are set out in Exhibit 24 for all Material.




	4.6	 	NC Suppliers




Nortel Networks may enter into contracts with certain Tier 2 Suppliers, as specified by Nortel
Networks from time to time (“NC Suppliers”). Nortel Networks shall be responsible for ongoing cost
reduction related to such NC Suppliers and Flextronics shall perform Services and any other
services with respect to such NC Supplier that the Parties agree are relevant and appropriate to
meet Flextronics’s obligations under this Agreement. In the event of quality issues or Epidemic
Conditions related to the Material supplied by a NC Supplier, Flextronics agrees to use reasonable
efforts to





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pursue remedies against the applicable NC Supplier; provided that Flextronics will not be required
to pursue those remedies only available to Nortel Networks against the applicable Tier 2 Supplier.
Flextronics will request Nortel Networks’ assistance for issue resolution where the NC Supplier is
unwilling or unable to resolve the issue and Nortel Networks will work with Flextronics to resolve
such issues.



With respect to the applicable NC Suppliers, Nortel Networks shall provide Flextronics with an
approved supplier list and communicate the relevant terms of the contract and the specific
Materials purchase requirements (i.e. Materials plans, allocations between Tier 2 Suppliers) in a
timely fashion to the Flextronics and Flextronics shall honour such terms
and requirements. Nortel Networks shall provide Flextronics with any changes that Nortel Networks
makes to any NC Supplier arrangement as they are made. Flextronics shall notify Nortel Networks of
any material deviation in the performance of a NC Supplier from the terms and conditions provided
by Nortel Networks to Flextronics for such NC Supplier.



If Nortel Networks wishes to change the status of a component or commodity from a NC Supplier to an
SC Supplier, upon agreement of Flextronics, the Parties will follow the transfer process set out in
Exhibit 19.



Flextronics shall identify to Nortel Networks the impact of any inconsistency between the terms and
conditions of this Agreement and Nortel Networks’ negotiated terms and conditions with the NC
Suppliers. By way of example, and without limitation, the terms and conditions related to payment,
order cancellation and rescheduling and flexibility, vendor managed inventory, last-time buy
notification, warranty and return of Materials may have a material effect on cost or performance.
If the impact identified has a material affect on cost or performance, Nortel Networks shall either
attempt to negotiate such terms and conditions or reach an appropriate and reasonable solution with
Flextronics. [•]




	4.7	 	Purchase by Flextronics of Materials from Tier 2 Suppliers




Regardless of which Party negotiates the terms and conditions for supply, Flextronics is solely
responsible for using the Market Forecast to plan its requirements for Materials, performing
purchasing services (which shall include placing and expediting purchase orders with suppliers of
Materials and Services), accepting shipments, managing quality issues, achieving cycle time
reductions, measuring and communicating Materials supplier performance, cancelling and rescheduling
Material in support of schedule changes, and other Services as the Parties agree are relevant and
appropriate.



In placing orders with Materials suppliers, Flextronics shall take into account the flexibility
requirements specified in the Virtual Systems House Agreement. Flextronics shall monitor industry
trends, and Material lead times, as appropriate but no less than quarterly, and take proactive
measures as required to provide for a secure supply flow of long lead-time, allocated and
constrained components. In addition, Flextronics shall be proactively involved with suppliers in
the identification and management of substitute and obsolete components. All financial issues
should be identified and reported on a timely basis to Nortel Networks.





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Flextronics, at a minimum, shall provide Materials to Nortel Networks in the same proportion as
Nortel Networks’ forecasted business is to Flextronics’s overall business. For Material supplied to
Flextronics by Nortel Networks as supplier, Nortel Networks shall supply Material to Flextronics on
commercially reasonable terms consistent with those applicable to any other Tier 2 Supplier. If
Nortel Networks is not able to supply any such Material to Flextronics, and this circumstance leads
directly to Flextronics being in default of an obligation under this Agreement, Nortel Networks
shall waive any remedy it may have against Flextronics for such default, to the extent the default
was caused by Nortel Networks’ failure to supply.



If Nortel Networks arranges
for Flextronics to have the right to purchase goods and/or services from
a supplier at (a) the prices offered to Nortel Networks or (b) the prices offered to Nortel
Networks Vendors, then Flextronics shall, to the extent legally permissible, purchase those goods
and/or services for the manufacture, engineering, assembly, testing and configuration of Products
from such Nortel Networks Vendor. Flextronics shall use all such goods and/or services purchased
from any such Nortel Networks Flextronics at those prices exclusively for the satisfaction of any
obligation it may have to provide goods and/or services to Nortel Networks and treat any
information on pricing terms and conditions as Confidential Information under Section 23 of this
Agreement.




	4.8	 	Prices for Products Required by Other Nortel Networks Vendors




If Nortel Networks notifies Flextronics in writing that a Nortel Networks Vendor requires Products
for use in providing products or services to Nortel Networks, then Flextronics shall, to the extent
legally permissible, offer to sell such Products to that Nortel Networks Vendor on the same terms
and conditions as Nortel Networks may purchase such Products under this Agreement. If such Nortel
Networks Vendor does not accept these terms vis a vis Flextronics, then Flextronics shall sell such
Product on such other terms and conditions as Flextronics and such Nortel Networks Vendor may
agree. Notwithstanding the foregoing, Flextronics shall have no obligation to sell to a Nortel
Networks Vendor more of such Products than the Nortel Networks Vendor may require in order to
provide products or services to Nortel Networks. Flextronics acknowledges that any Market
Forecasts or estimates, whether set forth in a Virtual Systems House Agreement or otherwise, may
include quantities forecasted as possibly to be ordered by Nortel Networks Vendors. If Flextronics
accepts orders placed by such Nortel Networks Vendors, Flextronics acknowledges that each sale to a
Nortel Networks Vendor shall create rights and obligations solely between Flextronics and that
Nortel Networks Vendor and that Nortel Networks shall not have any obligation or liability to
Flextronics with respect thereto Notwithstanding the foregoing or any provisions to the contrary,
it is not incumbent upon the Flextronics to enter into any sales transactions with any Nortel
Networks Vendor if such Vendor could not provide satisfactory evidence of its creditworthiness for
fulfillment of payment obligations. In the event such a sale of Products would impact Flextronics’s
ability to meet commitments for Product shipments, safety stock and flexibility requirements, the
Flextronics will notify Nortel Networks. If Nortel Networks, in its sole discretion, requires
Flextronics to sell such Products to other Nortel Networks Vendor, Flextronics will do so and the
Parties will agree on the appropriate relief from performance metrics, if there is an impact to
these metrics.





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	4.9	 	Supply of Materials to Nortel Networks Affiliates and Vendors




If Nortel Networks notifies Flextronics that Nortel Networks or any Affiliate or Nortel Networks
Vendor requires a direct supply of Materials, Flextronics shall, to the extent legally permissible
and subject to the Affiliate or Nortel Networks Vendor satisfying Flextronics’s credit or
reasonable business requirements, sell and ship such Materials directly to Nortel Networks or such
Affiliate or Nortel Networks Vendor in accordance with Purchase Orders provided from time to time
in accordance with this Agreement. Such Materials shall be sold to Nortel Networks or such Affiliate or Nortel Networks Vendor at
Flextronics’s Material Cost plus Material Overhead. The provisions of Section 4.7 shall apply with
respect to the supply by Flextronics of such Materials. In the event such a sale of Material would
impact Flextronics’s ability to meet commitments for Product shipments, the Flextronics will notify
Nortel Networks of such impacts and work with Nortel Networks to meet both Parties’ business needs.
Notwithstanding the foregoing, Flextronics will not be obligated to sell such Material if it can
demonstrate to Nortel Networks that Flextronics would suffer material adverse business
consequences, determined at a Product Family level.




	4.10	 	Material and Flextronics Account Management Reviews




Flextronics and NNL shall meet at least once per quarter to agree on, among other things, the
targets and implementation plans for (i) Material Cost, (ii) the elements of Price, (iii) Material
asset management and utilization, and (iv) Flextronics share of business with respect to Material
for which Nortel Networks is responsible for the strategic sourcing as agreed by the Parties
pursuant to Section 4.6.




	4.11	 	Source Inspection




Nortel Networks or a designated third party may perform Source Inspections of those business
systems and processes of a Flextronics or subcontractor facility that are specifically dedicated to
provision of the Production Effort and the Services. The Source Inspection shall be conducted
during normal business hours and with reasonable prior notice to Flextronics and may require
participation by Flextronics.




	4.12	 	Manufacturing Technical Information and Support




Upon Nortel Networks’ reasonable request, Flextronics shall in a timely manner provide Nortel
Networks with all applicable, necessary technical information and support relating to the
manufacturing, engineering, assembly, testing, configuration, and related processes of the
Products. Nortel Networks acknowledges and agrees that such information may constitute Confidential
Information for the purposes of Section 23 of this Agreement.



Nortel Networks shall in a timely manner provide Flextronics with all applicable and necessary
documentation and information relating to the Transferred Business, including Prototypes,
PreProduction Products, Products, and Specifications relating thereto, the Production Effort,
Services and applicable updates thereto.





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	4.13	 	EMS Supplier and Material Sourcing Control




Vertical Integration of EMS Products: The Parties agree that Flextronics will control the sourcing
for the in-scope of EMS Products subject to i) qualification requirements are met, ii) 180 days
notice is provided to EMS Suppliers in conjunction with Nortel Networks and iii) Nortel Networks
contractual requirements with Sanmina-SCI with respect to Encore products are met. Flextronics’s
goal is to achieve a minimum vertical integration [•] of in-scope EMS Product revenue that is
sourced from Flextronics instead of other EMS Suppliers by the third anniversary of the last
transfer of the System Houses pursuant to the APA. It is understood that the primary responsibility for all activities relating
to vertical integration, including qualification, physical transfer and security of supply of the
Products, is the responsibility of Flextronics. Nortel Networks shall provide commercially
reasonable support to assist Flextronics to vertically integrate, including providing appropriate
design documentation and consent to Site qualification pursuant to Section 4.1. It is understood
that the [•] vertical integration target is a goal not an obligation on Flextronics’s part.



Supply Chain Material Control: The Parties agree to use commercially reasonable efforts to assure
that Flextronics has a minimum [•] supply chain Material Control of the total System House Material
spend as soon as practical, and agrees that the control on Day 1 will be no less than [•]. The
calculation of the supply chain Material Control is set out in Exhibit 27 and the percentage of
Flextronics vertical integration is not a factor in this calculation, i.e. Flextronics is deemed to
have 100% vertical integration of EMS Products for the purposes of this calculation. With respect
to all other Material to be re-categorized as SC Material from NC Material, Flextronics must meet
the NC to SC transfer criteria set out in Exhibit 28.



Exhibit 30 outlines 1) the Material which will be SC Material on the Amendment Effective Data, 2)
the Material which Nortel Networks is planning to convert to SC Material once the transfer criteria
has been met, and 3) Material which is to remain NC Material.



The Parties agree to negotiate in good faith any requests by Nortel Networks to convert SC Material
to NC Material.



With respect to all other Material to be re-categorized as SC Material from NC Material,
Flextronics must meet the NC to SC transfer criteria set out in Exhibit 28.



Exhibit 30 outlines 1) the Material which will be SC Material on the Amendment Effective Data, 2)
the Material which Nortel Networks will convert to SC Material once the transfer criteria has been
met, and 3) Material which is to remain NC Material.





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SECTION 5
CHANGE MANAGEMENT



	5.1	 	Joint Product Change Management Process




Upon Nortel Networks’ request, Flextronics shall participate in the formal change review process of
Nortel Networks. Either Party may propose in writing a change to the design, manufacture, or test
procedure of any Product. The other Party shall provide a preliminary response in writing within
one (1) Business Day and a final binding response within three (3) Business Days. Nortel Networks
may create an ECO and provide Flextronics with sufficient information to enable Flextronics to
respond. Flextronics shall, within two (2) Business Days of receipt of the ECO, respond to the ECO
on an ECO Material Impact Form, in the form as set out in the applicable VSHA and which will
identify the new Product Price (including any impact to the Material Cost), if applicable, and any associated Unique Equipment. Upon receipt of Flextronics’s response, Nortel Networks shall
promptly determine if it wants to go forward with the change. If Nortel Networks requires the ECO
to be implemented, the Parties shall agree on an implementation date. Flextronics shall implement
the ECO and co-ordinate the activities of Tier 2 Suppliers, if necessary for such implementation.
Flextronics shall pay all its administration and engineering charges associated with its
assessment, response to and implementation of the ECO, other than the costs identified on the ECO
Material Impact Form. The Parties acknowledge that on occasion Nortel Networks may require
implementation of an ECO in less than one (1) Business Day, after an accelerated review process by
both parties; provided that Nortel Networks has provided complete documentation and subject to the
availability of any special tooling/fixtures and test equipment. The Parties acknowledge that
Flextronics’s ability to coordinate the change management activities with Tier 2 Suppliers is
subject to either Nortel Networks (i) transferring applicable system capability to Flextronics,
(ii) providing Flextronics access to applicable Nortel Networks systems, or (iii) communicating
appropriate change documentation directly to Tier 2 Suppliers.




	5.2	 	Changes in Corporate Standards




If Flextronics can demonstrate that compliance with any versions of Corporate Standards amended
after the Execution Date will result in change to costs or delay in delivery, the Parties will
agree on appropriate changes to the Price or delivery schedule. Flextronics acknowledges that any
such changes to Corporate Standards may result in decreases or increases to costs and that it will
bring any such change to Nortel Networks’ attention.





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SECTION 6

SERVICES





	6.1	 	Design and Sustaining Services




Nortel Networks may contract the development of new products and enhancements to existing Products.
Flextronics shall work with the Product development teams in Nortel Networks to assist in the
design of new products and shall have design personnel co-located at Nortel Networks facilities, as
mutually agreed upon and set out in the applicable VSHA. Should Nortel Networks retain the services
of Flextronics to develop Prototypes or Pilots, then the terms and conditions as set forth in
Exhibit 9-1 shall apply. Notwithstanding anything to the contrary set forth in Section 11 hereof,
fees (including profit) for Design Services shall be as mutually agreed to by the Parties at the
applicable time.



During the first three (3) years of the Amended Term, Nortel Networks will source all of its
requirements for hardware and software product design from Flextronics for Optical products
OM3300/3400/3500/4100/4150/4200, TN-1X and DX/LH.. The terms and conditions as set forth in Exhibit
9-1 shall apply to this commitment and to the provision of these design services.



Flextronics intends to leverage the design resources transferred pursuant to the APA to develop
datacom and telecom design capabilities, and will maintain the centre of excellence in the Ottawa
region, as long as Flextronics’s business with Nortel Networks supports maintaining such a centre or unless the Parties agree otherwise. Flextronics’s
capabilities will include appropriate product and system design expertise and resources.



During the first three (3) years of the Amended Term, Nortel Networks will source all of its
requirements for product sustaining design from Flextronics for the Optical products
OM3300/3400/3500/4100/4150/4200, TN-1X and DX/LH and for the following Optical products that have
been manufacture discontinued: TN-16X,TN-4T, OC-12, OC-48 and OC-192. The terms and conditions as
set forth in Exhibit 9-2 shall apply to this commitment and to the provision of these design
services.



Nortel Networks intends to award NPI services and the manufacture of New Products on a competitive
basis. Nortel Networks has no obligation to award such services and New Products to Flextronics;
however, the scope and breadth of the relationship between Nortel Networks and Flextronics as the
result of this transaction means that Flextronics will have a significant talent pool of design and
other resources that are intimately familiar with Nortel Networks requirement and the continuous
communication between the parties’ respective operations groups. Therefore, Flextronics will have
a good opportunity to win future business for Wireline (Passport), Enterprise Voice, Wireless and
Optical replacement and new products.



The Parties acknowledge that certain assets and resources have been transferred to Flextronics
pursuant to the APA to enable Flextronics to fulfill its design responsibilities herein.
Flextronics will determine by the end of 3 months after transfer of the design resources whether it
is satisfied that these





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assets and resources, as transferred, are sufficient for such purpose. If Flextronics is not so
satisfied, it will notify Nortel Networks and present reasonable evidence to support this
determination along with a proposed plan to address any deficiencies in a commercially reasonable
manner. Nortel Networks may not unreasonably withhold or delay its acceptance of Flextronics’s
determination or of Flextronics’s proposed plan to acquire capability in this area within a maximum
of 12 months. If Nortel Networks accepts this determination and the plan to remedy the deficit in
assets and resources, then Flextronics shall not be liable for any Liquidated Damages or direct
damages related to this Section pending the implementation of Flextronics’s plan. If Nortel
Networks does not accept this determination or remedial plan, the Parties shall follow the Issue
Escalation and Dispute Resolution Process. If Flextronics can demonstrate that implementation of a
plan to satisfy the design requirements herein will result in change to costs or delay in
Deliverables, the Parties will agree on appropriate changes to the Price and Deliverables schedule.




	6.2	 	Integration Services




Purchase Orders issued by Nortel Networks may specify the delivery of Product that comprises one or
more of the following categories: (a) Build-to-Stock; (b) Build-to-Order; (c) Configure-to-Order;
or (d) Ship-Loose. Upon receipt of a Purchase Order, Flextronics shall test individual Product
components, configure the Product, test the Product for the integrity of the configuration, and
conduct any necessary post-test configuration in accordance to Nortel Networks written instructions. Flextronics shall label and
inspect the Product as required to meet Customer requirements set forth in the Purchase Order, and
package the Product for shipment to the Delivery Location, all in accordance with the provisions of
Section 3 of this Agreement.




	 	6.2.1	 	Product Level Testing





	 	 	Flextronics shall test Products in accordance with quality evaluation and test requirements
necessary to confirm that the Products meet the applicable Specifications. In the event
that any Products do not meet the applicable Specifications, Flextronics shall manage the
rework of such Products in accordance with the provisions of Section 9 and Exhibit 11.





	 	6.2.2	 	Module Integration





	 	 	Flextronics shall perform second level optical, radio, and digital module assembly which
includes but is not limited to complex fibre optics splicing and routing, mechanical
assembly, and thermal compound overfill, in accordance with applicable Specifications.





	 	6.2.3	 	Configuration





	 	 	Flextronics shall configure Products in accordance with the Specifications and, if
applicable, in accordance with any additional Customer requirements provided by Nortel
Networks to Flextronics in writing and accepted by Flextronics via a mutually agreed upon
process, subject to any Product or Materials limitations.





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	 	6.2.4	 	ICT, Functional & System Level Testing





	 	 	Flextronics shall test configured Products in accordance with the Specifications and, if
applicable, in accordance with any additional Customer requirements provided by Nortel
Networks to Flextronics in writing.





	 	6.2.5	 	Final Quality Inspection





	 	 	Upon completion of configuration and testing of a Product, Flextronics shall perform a
final quality control inspection to verify compliance of the Product with the
Specifications.





	 	6.2.6	 	QET (Quality Evaluation Test)





	 	 	Flextronics shall perform quality evaluation tests for process audit, monitoring
performance and driving back process and product improvements based on the data received in
accordance with the Specifications. Such QET testing includes environment stress testing
using nitrogen ovens.





	 	6.2.7	 	Quality and Process Audit





	 	 	Nortel Networks reserves the right to perform an on site audit, upon reasonable
notice, to verify the processes and the test results at any Product manufacturing level
(ICT, circuit pack functional, system level functional).





	 	6.2.8	 	Test Results and Monitoring





	 	 	Flextronics shall monitor the normal distribution of the test results and perform the
necessary root case analysis and inform Nortel Networks immediately of any statistically
significant deviation or skews of the normal distribution curve that would impact Product
performance and compliance with Product Specification. Corrective action plan should follow
as per Exhibit 3.





	 	6.2.9	 	Installation Requests (IR)





	 	 	Flextronics shall fulfill IRs, to arrive at the applicable Customer site, within
forty-eight (48) hours after receipt of the IR.





	6.3	 	System House Engineering Services




The Parties acknowledge that certain assets and resources have been transferred to Flextronics
pursuant to the APA to enable Flextronics to fulfill the System House Engineering Services set out
herein. Flextronics will determine by the end of 3 months after the System House transfer date
whether it is satisfied that these assets and resources, as transferred, are sufficient for such
purpose. If Flextronics is not so satisfied, it will notify Nortel Networks and present reasonable
evidence to support this determination along with a proposed plan to address any deficiencies in a
commercially reasonable manner. Nortel Networks may not unreasonably withhold or delay its
acceptance of Flextronics’s determination or proposed plan to acquire capability in this area with
respect to a particular System





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House within a maximum of 12 months from the transfer of such System House. If Nortel Networks
accepts this determination and the plan to remedy the deficit in assets and resources, then
Flextronics shall not be liable for any Liquidated Damages or direct damages related to this
Section pending the implementation of Flextronics’s plan. If Nortel Networks does not accept this
determination, the Parties shall follow the Issue Escalation and Dispute Resolution Process. If
Flextronics can demonstrate that implementation of a plan to fulfill its support responsibilities
herein will result in change to costs or delay in delivery, the Parties will agree on appropriate
changes to the Price or delivery schedule.



Flextronics will be responsible for the following Product and process areas: project management;
communications with Nortel Networks, Customers and suppliers; building and processing test
fixtures, tooling, stencils; kit management; Product trouble shooting, failure analysis and yield
analysis and root cause analysis up to component level; component engineering; process
improvements; system evolution and the migration from Nortel Networks’ systems to Flextronics’s own
information technology infrastructure, applications environment and support. Flextronics shall, as
part of the Services, be responsible for managing all costs and expenses relating to non-recurring
engineering charges and the acquisition of capital hardware as part of the Production Effort and
Services. Without limiting the generality of the foregoing, Flextronics will perform the
engineering services set forth below:




	 	6.3.1	 	Test Engineering





	 	 	For all test engineering activities related to System House activities, Flextronics will be
responsible to develop, implement and maintain test engineering processes to meet Nortel
Networks Product Specification and strategies; this will be successfully achieved through
close interaction and co-operation by the Flextronics with both the R&D and the
test/product Engineering community within Nortel Networks Supply Chain Operations as well
as with the Tier 2 Suppliers. Nortel Networks shall approve all such strategies and
processes.
	 
	 	 	Flextronics will be responsible for the following key areas of test engineering related to
System House activities:





	 	(a)	 	Product defectivity budget analysis;
	 	(b)	 	test equipment selection;
	 	(c)	 	test platform evolution in conjunction with the appropriate design authority, if
applicable;
	 	(d)	 	implementation of new product test strategy;
	 	(e)	 	initial new product test development implementation and adjustment;
	 	(f)	 	new product performance and design centering, in conjunction with the appropriate
design authority, if applicable; and
	 	(g)	 	yield analysis for channel readiness.





	 	 	In addition Flextronics will have responsibility to manage the following day-to-day business
activities with respect to test engineering services related to System House activities,





	 	(a)	 	perform test capacity planning / test equipment maintenance and calibration and
capability / test capability study and analysis/ operator availability / equipment





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	 	 	 	availability associated with all aspects of testing Products and identify potential trouble
spots by process family;
	 	(b)	 	develop cost effective process alternatives to the process end-of-life issue;
	 	(c)	 	recommend best course of action to Nortel Networks for decision/approval;
	 	(d)	 	complete technical development, testing, necessary approvals, and phase in /out as
per NPPI process, all within a managed project;
	 	(e)	 	test software installation and commissioning; and
	 	(f)	 	day-to-day business activities with respect to test engineering services.





	 	 	Further, Flextronics will have the responsibility to manage and support the following test
engineering processes with respect to the Tier 2 Suppliers:





	 	(a)	 	test capacity planning;
	 	(b)	 	test process support and improvement;
	 	(c)	 	proper maintenance and calibration of test sets; and
	 	(d)	 	over-all effectiveness of the test processes.





	 	6.3.2	 	Optimization of Testing for Products





	 	 	Flextronics shall be responsible for developing and implementing product and process improvements
to the Product testing process in order to optimize the testing process for cost, quality,
increased test efficiency and reduction in cycle-time of manufacturing. Flextronics shall collect
data and yield analysis and provide daily process monitoring, technical support and make this
available to Nortel Networks via server or web access all test and manufacturing process data.
Through failure analysis and root cause analysis up to the component level, Flextronics shall
manage and direct appropriate corrective and preventive actions with all suppliers, design
personnel and test personnel that reduce cycle times, product and process costs and improve product
performance.





	 	6.3.3	 	System House Sustaining Engineering





	 	 	Flextronics will participate with Nortel Networks in Product evolution discussions throughout the
Product lifecycle and Flextronics will manage the elements of Product evolution in Flextronics’s
manufacturing processes and in the supply chain. Flextronics will be required to assess
opportunities and recommend to Nortel Networks those that offer the potential to:





	 	(a)	 	reduce Product cost;
	 	(b)	 	enhance Product manufacturability;
	 	(c)	 	mitigate against component End-of-Life;
	 	(d)	 	allow consumption of excess and Exceptional Excess, Consigned and Obsolete
Inventories; and
	 	(e)	 	work with the appropriate design authority, enhance the overall Product design.





	 	 	These opportunities must be fully assessed and offer a high probability of implementation before a
request for implementation is sought from Nortel Networks Research & Development group who retain
all authority over Product definition. The forum to make recommendations on





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	 	 	Product change will be the scheduled Product design review, involving Flextronics and Nortel
Networks Research & Development group. These recommendations should be in the format of engineering
change requests, the content of which will be agreed between the participating groups.
	 
	 	 	Flextronics will perform the following activities during all aspects of product lifecycle
management for all phases of a Product’s life:





	 	(a)	 	engineering documentation and change management;
	 	(b)	 	DDME, and similar database maintenance and network support;
	 	(c)	 	Product design and Specification files transfers to users and suppliers;
	 	(d)	 	dependability and reliability studies;
	 	(e)	 	manage known product defects (KPD) as identified by Nortel Networks;
	 	(f)	 	test and validate Product change including component changes;
	 	(g)	 	research, review and recommend to Nortel Networks for approval (including business
case, detailed cost analysis, design plans, last time buy plan, qualification and
verification plans, scope of intellectual property risk known to Flextronics and the basis
of Flextronics’s knowledge) of the best alternative available, such as, last time buy,
and/or component substitutions/replacements, component packaging foot print changes,
elimination of the component by incorporating function into another component,
specification relaxation to eliminate the need for the component;
	 	(h)	 	complete technical development, prototypes, verification and testing; and
	 	(i)	 	project management and implementation of solution including, the phase in and phase
out of all impacted materials.





	 	 	If Flextronics informs Nortel Networks that any history Nortel Networks has provided relating to
the above is inaccurate or insufficient to allow Flextronics to perform the above activities, the
Parties will discuss exceptions to the obligations set out in this Section 6.3.3 (a) to (i)
immediately above.





	 	6.3.4	 	Materials Engineering





	 	 	Flextronics shall perform, on an ongoing basis, all activities necessary to provide continuity of
supply of Products in accordance with the terms of this Agreement, such activities to include, but
not be limited, to the following:





	 	(a)	 	conduct strategic technical analysis of the supply base to proactively warn of
potential trouble areas with respect to End-of-Life Inventory by product family;
	 	(b)	 	monitor all aspects of Product and Material life cycle;
	 	(c)	 	apply necessary material engineering resource to provide material qualification;
	 	(d)	 	qualify any source of supply managed by Flextronics, pursuant to Section 4.4.3(c);
	 	(e)	 	review and recommend material substitution opportunities;
	 	(f)	 	monitor and resolve Material performance to Specification issues; and
	 	(g)	 	drive and enhance Tier 2 Supplier’s Material quality and performance.





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	 	6.3.5	 	Product and Material Yield and Performance Issue Resolution





	 	 	Flextronics shall monitor, track and proactively drive and lead resolution of Product and Material
yield and performance issues from the field, based on information provided by Nortel Networks and
the Site (including yield bust, no fault found, installation returns and Epidemic Conditions), and
procure data and hardware as required for root cause analysis, focusing on product assurance and
quality. Flextronics shall promptly manage and direct corrective actions and project plans for
resolution based on the results of such monitoring to meet Customer specifications, as provided by
Nortel Networks. Flextronics will drive and lead the interface with Nortel Networks’ design, and
internal Customer technical support groups and Tier 2 Suppliers to provide timely resolutions to
field and factory performance issues, having regard to the severity of the issue and the time
frames for resolution forming part of such Customer specifications. For those issues that
Flextronics has reasonably determined that the issues are related to design, Nortel
Networks shall provide Flextronics with prompt assistance in the development of corrective actions
and project plans in connection with the resolution of any yield or performance issues arising from
Nortel Networks designs for which Nortel Networks has the design authority.





	 	6.3.6	 	Design Services for Cost Reduction Opportunities





	 	 	Flextronics shall provide, as mutually agreed upon, dedicated on-site engineering resources aligned
with each Nortel Networks Leadership Category which shall be co-located with Nortel Networks design
organization as specified in the Virtual Systems House Agreement to:





	 	(a)	 	identify additional areas for cost reduction and management of End-of-Life Inventory
in the areas such as component substitutions, off-AVL opportunities, component packaging
foot print changes, elimination of the component by incorporating function into another
component, technology changes, specification relaxation to eliminate the need for the
component.
	 	(b)	 	to research, review and recommend to Nortel Networks for approval (including business
case, detailed cost analysis, design plans, qualification and verification plans, scope of
intellectual property risk known to Flextronics and the basis of Flextronics’s knowledge)
of the best alternative available for cost reduction
	 	(c)	 	project manage all design for cost reduction opportunities and drive to
implementation
	 	(d)	 	interface between Nortel Networks and Flextronics teams or other functional
organizations within Nortel Networks and Flextronics
	 	(e)	 	perform ongoing reviews of the above activities and report to Nortel Networks
progress including performance metrics.





	6.4	 	SIF (System Integration & Fulfillment) Services




Flextronics shall provide systems and network integration services to configure the Products to
meet specific Customer requirements, which will be set out in a Customer-specific Statement of Work
(“SIF SOW”) or agreed to Purchase Order. These services will include:





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	 	(a)	 	Physical Integration of Systems/Networks — bay/shelf configuration with plugs as per
customer specification.
	 	(b)	 	Standard Testing of Network Elements — bay/shelf configuration with plugs as per
customer specification, as well as power-up testing.
	 	(c)	 	Logical configuration — bay/shelf configuration with plugs and network line-up as per
customer specification and network topology, as well as testing that will include, but is
not limited to, power-up testing, pre-commissioning, OEM integration, customer systems
software, customer provisioning and commissioning, traffic testing, and performance
monitoring.
	 	(d)	 	Customized testing as defined by Nortel Networks in the appropriate SIF SOW. or
agreed to Purchase Order.




In all cases, Flextronics shall ship Products as per the SIF-SOW or agreed to Purchase
Order, unless otherwise agreed in writing. All equipment associated to a given customer order shall
ship marshalled and as one shipment to site unless otherwise agreed upon.




	6.5	 	Other System House Support Services




Flextronics shall provide Services to certain System Houses, including those not transferred to
Flextronics pursuant to the APA, with respect to the Products related to the Transferred Business,
on terms as set out in the applicable Virtual System House Agreements.




	6.6	 	Payment for Services




Fees for Design Services referenced in Section 6.1 herein shall be paid as set out in Exhibits 9-1,
9-2 and 9-3, as applicable. Flextronics shall not issue separate invoices for the Services
referenced in Section 6.2, but shall include the related costs in applicable Overhead.



SECTION 7

PRODUCT LIFE-CYCLE PLANNING PROCESS (NPPI) AND TRANSFER PROCESS





	7.1	 	Consistent Process at all Sites




Flextronics shall have a NPPI process and a transfer process for assuming responsibility for the
manufacture of Products and engineering, field support, project management, supplier coordination,
prototyping services, assembly, testing and configuration of Products which (a) comply with the
Nortel Networks’ NPPI process (Exhibit 10) and transfer process; (b) are common and consistent at
all non-legacy Sites, and (c) are acceptable to Nortel Networks. Flextronics shall pay all its
administration and engineering charges (including non-recurring engineering charges as set out in
Exhibit 10-1) associated with assessment and implementation of the transfer to Flextronics of
responsibility for Product manufacture or the engineering, assembly, testing and configuration of a
Product; provided that the Parties shall have agreed on the Price of the applicable Products. All
activities associated with Flextronics’s NPPI process shall be coordinated with Flextronics’s
global NPPI representative





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specified in the VSHA. This may require co-location of appropriate resources as specified in the
VSHA.




	7.2	 	Product Goals




The VSHA and the Specifications for each Product shall set out the Product Goals, as applicable,
and Flextronics shall perform the Services and Production Effort in compliance with such Product
Goals. The parties will discuss and agree on attainable Product Goals that are set based on actual
historical performance for the current related Products and the technical capabilities of new
Products and System House process capabilities.



The progress toward meeting those Product Goals shall be measured and managed by Flextronics using
the performance metrics as agreed between the parties in the VSHA in addition to those specified in
Section 2.4. Flextronics shall work with Nortel Networks to provide the NPPI reports specified in
the VSHA.



Flextronics shall provide repair services and root-cause analysis for Pre-production Products and
Products as part of the NPPI process, until initial return rate targets (IRR) have been achieved.



Prior to the manufacture, engineering, assembly, testing or configuration of any new product,
Flextronics and Nortel Networks shall agree upon the relevant goals and metrics to be implemented
in respect of such new product. For greater certainty, the foregoing includes NPPI activity as
defined in Nortel Networks policies from time to time (including CS1505).




	7.3	 	DFx Services




Flextronics’s NPPI process shall provide for DFx Services consistent with Nortel Networks’ NPPI
Process, as set forth in Exhibit 10. This may require co-location of appropriate resources as
specified in the VSHA. Flextronics shall, as part of the NPPI process, participate with the Nortel
Networks extended integrated project teams to develop test strategies, processes and procedures for
new products. Flextronics shall also acquire product knowledge at the network, pack and software
levels in order to develop test processes for product configuration and test organization, and
provide NPPI deliverables as requested by Nortel Networks, including yields and failure analysis,
data collection, root cause analysis and project management for corrective action measures.




	7.4	 	Pre-production Products




Nortel Networks shall pay for Pre-Production Products provided by Flextronics in the NPPI process
as follows:




	 	(a)	 	The production pricing rates shall be agreed upon by the Parties.
	 	(b)	 	The pricing rates referred to in (a) above include [•], as provided for generally in
this Agreement. Except with respect to those services set out in
Exhibits 9-1, 9-2 or 9-3, no separate charges shall be levied for (i) any DFM/DFx services performed by
Flextronics in support of the NPPI process, (ii) sustaining test engineering and EC





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	 	 	 	change activities (except as provided in Section 5.1), or (iii) development activities such
as, but not limited to shop aid set-up, manufacturing set-up, test process set-up and
configuration, automated equipment programming and set-up, quality inspection processes,
BOM and MRP set-up, product quoting & costing, supply chain design and set-up, supplier
qualification and project management. For greater certainty, refer to the NRE charges table
in Exhibit 10-1.
	 	(c)	 	Pursuant to the Exception Demand Process, as set out in Section 3.12, Nortel Networks
will only reimburse Flextronics for premiums paid for labour or
expedited delivery of materials if Flextronics has obtained prior approval from Nortel
Networks for any such expenditure. In the event that such expenditures are approved by
Nortel Networks but Flextronics fails to meet any agreed upon delivery commitments and such
failure is due to factors within Flextronics’s control, Flextronics will refund the
reimbursement of these expenditures in full.
	 	(d)	 	[•] If Nortel Networks requests a lead-time shorter that this standard, the
provisions of (c) above shall apply.
	 	(e)	 	If Nortel Networks agrees that Flextronics must invest in equipment that is unique to
Nortel Networks in order to carry out a particular NPPI project, Nortel Networks shall
reimburse Flextronics for such unique equipment expenditures, which are (i) necessary for
the NPPI process, (ii) unique to the particular NPPI project, and (iii) pre-approved by
Nortel Networks (“Unique Equipment”). Nortel Networks shall determine, in consultation
with Flextronics, if the cost of the Unique Equipment is to be paid for by one of the
following methods: a) upfront at the start of the project, b) amortized over a specific
quantity of Product, c) in agreed upon installation payments over a defined term or d)
built into the Price of Product. Nortel Networks’ preference for the applicable method of
payment for Unique Equipment shall be set out in the project plan provided by Nortel
Networks prior to start of the project. This project plan may include a mechanism to deal
with any unamortized or unrecovered expenses incurred by Flextronics under scenarios b)
above. In the case of scenario b) or c), the calculation of the amortization costs will
use the Carrying Charge as [•]. Unique Equipment shall be deemed to be a Reserved Asset
under this Agreement.





	7.5	 	Product End-of-life Scenarios




Nortel Networks may, upon notice to Flextronics, plan the end-of-life of a Product. Nortel
Network’s notice of a Product end-of-life will include the End of Life Parameters as further set
forth in Section 4.4.4(g). Upon receipt of such notice, Flextronics shall prepare a proposal with
regard to the detailed cost/Inventory plans to address the end-of-life scenario (“End of Life
Plan”), and Flextronics and Nortel Networks shall agree upon the End of Life Plan. In the event
that a Product goes end of life, Flextronics shall return all Loaned Assets related to such
Product. Flextronics shall either return, destroy or erase all copies of such Nortel Company
Proprietary Information related to such Product in the possession of any Flextronics Company or any
of their respective employees, consultants, agents or representatives, including copies on paper or
other hard copy and copies on computer or other storage





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media, provided, however, that this provision shall not apply to any such Nortel Company
Proprietary Information in respect of which Flextronics has a continuing license or obligation
which are still required for other Products.




	7.6	 	Geographic Location




In order to be competitive and provide timely fulfillment of NPPI Services, Flextronics shall
locate a certain level of employees, including those employees transferred pursuant to the APA, in
such a manner as to promote flexibility and the ultimate success of the
projects. Employees who directly interface with the Nortel Networks’ Design Centers in Calgary,
Ottawa and Paris, France will be located at Flextronics’s premises which are within regional
proximity of such Design Centers; for example the Ottawa Optical Design Centre may be supported
from Montreal or Ottawa. Flextronics must obtain Nortel Networks consent prior to choosing any
primary location for NPPI Services, which consent will not be unreasonably withheld, except for
reasons of maintaining geographic proximity or qualification under Section 4.1.



SECTION 8

QUALITY STANDARDS AND QUALITY PROCESS





	8.1	 	Quality Standards




Flextronics shall adhere to the Quality Process outlined in Exhibit 3 and quality standards
specified in current version of TL9000 and in the relevant Virtual Systems House Agreement, or as
otherwise specified by Nortel Networks from time to time. If Flextronics can demonstrate that
compliance with any revised versions of these quality standards will result in change to costs or
delay in delivery, the Parties will agree on appropriate changes to the Price or delivery schedule.
Flextronics acknowledges that changes to quality standards may result in decreases or increases to
costs and that it will bring any such change to Nortel Networks’ attention. Flextronics
acknowledges that it will be subject to the operation of Nortel Networks Corporate Standard 180.106
“Supplier Watch” program, which establishes a formal approach to notify Nortel Networks’ suppliers
of substandard performance in relation to systemic quality related issues or stated quality
indices. Without limiting the generality of the foregoing, Flextronics shall require that (a) each
Flextronics Company which provides services that are in the nature of Design Services has been
registered pursuant to ISO 9001 (b) that each Flextronics Company and Flextronics Parent shall
obtain and maintain registration under ISO 9002 for each Site that manufactures Product. Nortel
Networks will provide Flextronics with access to their field quality data and the Parties will
mutually agree on and implement a “closed loop quality process”.





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SECTION 9

REWORK PRODUCT PROCESS





	9.1	 	Rework Operation




Flextronics shall administer and manage a Rework operation for Prototypes, Pre-Production Products
and Products. Flextronics shall conduct diagnostic testing on Rework Products, all pursuant to the
Rework procedure set forth in Exhibit 11, purge routing/processing (including segregation of
materials), stock support on and upgrade support for Nortel Networks. Costs of the foregoing shall
be the responsibility of Flextronics and shall be included as part of the Production Effort and
Services provided by Flextronics hereunder and shall only be chargeable to Nortel Networks pursuant
to the Rework procedures set forth in Exhibit 11.




	9.2	 	Rework Procedure




If Nortel Networks decides that a Prototype, Pre-Production Product or Product is a Rework Product,
then Nortel Networks may (i) return such Rework Product to Flextronics under the rework process;
(ii) service such Rework Product itself; or (iii) have such Rework Product reworked by a Third
Party Rework Operation, all as specified more fully in Exhibit 11.



SECTION 10

REPAIR PRODUCT PROCESS





	10.1	 	Repair Operation & Procedure




Flextronics shall administer and manage a repair operation for Prototypes, Pre-Production Products
and Products as set out in the Repair Agreement.



SECTION 11

PRODUCT COST MANAGEMENT PROCESS





	11.1	 	Prices for Products




The Price for each Product shall be calculated in accordance to one of the following methods and
will be identified in the Virtual System House Agreement which method is to be used:




	 	(a)	 	Cost Plus Method (Traditional): The Price for each Product shall be calculated using
the actual Material Cost for all Material in the Product and all Transformation Costs, in
accordance with the Cost Methodology identified in the Virtual System House Agreement and
set out in Exhibit 13.1. The Price for each Product will be calculated monthly, or as
otherwise stated in the VSHA.





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	 	(b)	 	Modified Product Level Pricing Method (MPLP): The Price for each Product shall be
calculated using the actual Material Cost for NC Material and a firm price commitment for
the SC Material and all Transformation Costs. The method for calculating the Price will be
in accordance with the Cost Methodology identified in the Virtual System House Agreement
and set out in Exhibit 13.2. The Price for each Product will be calculated monthly, or as
otherwise stated in the VSHA, taking into account changes in Material Cost for NC
Material, and appropriate adjustment to the Transformation Cost.
	 	(c)	 	Product Level Pricing Method (PLP): The Price for a Product shall be a firm Price
commitment for a specific time period and includes all Material Cost and Transformation
Costs, and shall be set out in Schedule A to the relevant VSHA for the period of time as
set out therein.




Once established in accordance with the applicable methodology, the Price for a Product will not be
modified unless expressly agreed to by the Parties pursuant to the Price
change process specified for the applicable pricing method in Section 11.3.



The Price for Prototype Products shall be agreed upon by the Parties under either the NPPI Process
or Design Services Agreement. Notwithstanding the foregoing, Flextronics shall provide up to [•]
design prototypes at no more than [•] in excess of the agreed upon production pricing rates for SC
Material and Transformation Costs for the Prototype Product. Nortel Networks will manage the
pricing for NC Material for Prototype Products directly with the NC Suppliers.



Unless otherwise agreed upon in the relevant Virtual Systems House Agreement, all Prices for
Products, Pre-Production Products and Rework Fees, Repair Fees and Upgrade Fees (collectively the
“Fees”) are (a) expressed in U.S. dollars, (b) exclusive of any applicable excise, sales, goods and
services, value added or similar taxes now existing or hereinafter imposed by any applicable taxing
authority except as is required by law to be included in the Price, and (c) inclusive of Logistics
Operations Services, with the exception of outbound freight costs. For purposes of clause (b) in
the immediately preceding sentence, the provisions of Section 11.2.1 shall apply. The Prices shall
always be deemed to include all charges for any Consumable Material consumed in the Production
Effort and Services.




	 	11.1.1	 	Day One Pricing





	 	 	The Parties agree that the aggregate transaction price immediately after the transfer (“Day
One Pricing”) for each Product Family or category of Services that are transferred by
Nortel Networks or another EMS Supplier to Flextronics [•]. These prices will be set out
in the applicable VSHA executed by the Parties.
	 
	 	 	In order to establish Prices as of the applicable VSHA Effective Date, Nortel Networks
shall provide sufficient information to support current Total Costs to be included in
Prices as at such date. This process will be documented in Exhibit 29. Flextronics will
determine by the end of 4 months after the VSHA Effective Date whether it is satisfied that
the resources and cost responsibilities, as transferred, are accurately reflected in the
Total Costs as provided by Nortel





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	 	 	Networks. If Flextronics is not so satisfied, it will notify Nortel Networks and present
reasonable evidence to support this determination. If Nortel Networks accepts this determination,
the Parties will mutually agree on restated Prices for the applicable Products, which shall be
retroactive to the first invoice. If Nortel Networks does not accept this determination, the
Parties shall follow the Issue Escalation and Dispute Resolution Process. Upon acceptance or other
resolution of the revised Pricing, the Party which either overpaid or overcharged will pay the
other Party the difference between the amounts originally invoiced and the revised Product Prices
40 days after receipt of invoice.
	 
	 	 	In the event that the initial Transformation Costs allocation methodology results in a pricing
inaccuracy greater than the Threshold Commitment during the first year following the transfer, the
Parties will negotiate in good faith amended pricing; provided however, that if the pricing for one
Product Family is increased due to more allocation
absorption, the pricing for other Product Families will be appropriately decreased due to less
allocation absorption.
	 
	 	 	Within the first 7 months after the applicable VSHA Effective Date, if Flextronics considers that
the initial MPLP cost reduction commitments provided by Nortel Networks as part of the Day One
Pricing contained an Error, as defined hereafter, that adversely impacts Flextronics’s ability to
meet such cost reduction commitments, Flextronics shall bring this to Nortel Networks attention and
the Parties will negotiate in good faith an appropriate amendment to the applicable cost reduction
commitment. An Error is defined as any one or more of the following errors or any substantially
similar errors:





	 	(a)	 	Nortel Networks set the cost reduction commitment using unjustified expectations; or
	 	(b)	 	Nortel Networks used cost information other than information provided or had
available; or
	 	(c)	 	Data entry mistakes were made; or
	 	(d)	 	incorrect unit of measures were used (i.e. cost reduction should have per 1000 but
unit of 1 used in error); or
	 	(e)	 	PCB panelization errors (i.e. price for a 2-up board should have been used but a 1-up
board used in error); or
	 	(f)	 	BOM errors (i.e. a subassembly was missing from the BOM).





	 	 	Any conditions outside the scope of the Errors that contribute to Flextronics’s ability to meet
cost reduction commitments will be subject to Threshold Commitment.
	 
	 	 	Thereafter, Nortel Networks and Flextronics will set product prices using the Cost Plus, MPLP or
PLP Processes, as applicable.





	11.2	 	Payment, Taxes and Duties





	 	11.2.1	 	Invoices





	 	 	Each invoice shall be rendered against the relevant Purchase Order. On each invoice
submitted to Nortel Networks, Flextronics shall reference the number of the Purchase
Order(s) issued for





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	 	 	the Products covered by such invoice. Any taxes not included in the Price as set forth in
Section 11.1 or in the relevant Virtual Systems House Agreement but which are to be paid by
Nortel Networks and collected by Flextronics and remitted to the applicable taxing
authority, and any Fees for which Nortel Networks is liable, shall be itemized on the
invoice except as is required by law to be included in the Price; if Flextronics is unable
to itemize such amounts attributable to Products listed on any invoice and does not include
such amounts on the invoice, Flextronics shall invoice the applicable Nortel Company as
soon as practicable the amount attributable to such charges for such invoices issued during
the preceding calendar month and provide to Nortel Networks a reconciliation to each such
invoice. Flextronics agrees not to assess any
applicable excise tax, sales tax, goods and services tax, value added or similar taxes
where Nortel Networks furnishes Flextronics a tax exemption certificate, a certificate of
authority, a direct pay permit and/or any equivalent acceptable to the applicable taxing
authority. Nortel Networks shall withhold any applicable withholding tax from payments made
to Flextronics pursuant to this Agreement. To assist Flextronics in obtaining any tax
credits for the amounts withheld, Nortel Networks shall promptly provide Flextronics with
such evidence as may be reasonably required by the applicable taxing authorities to
establish that such withholding tax has been paid.





	 	11.2.2	 	Payment





	 	 	Payment shall be made net [•] after the date of the applicable invoice and such invoice
shall be issued the earlier of the date of delivery to the Delivery Location or one week
(seven calendar days) after the applicable finished goods have left the Delivery Facility,
unless otherwise agreed upon in a Virtual Systems House Agreement or Design Order. Nortel
Networks may deduct any undisputed credit due and owing it, upon approval of Flextronics.
Payment shall be made in U.S. dollars, unless otherwise agreed upon in a Virtual Systems
House Agreement or otherwise between the Parties. Nortel Networks shall pay by wire
transfer in the jurisdictions where this is possible.
	 
	 	 	[•].
	 
	 	 	Nortel Networks shall identify any dispute with respect to an invoice within thirty (30)
days of its receipt of such invoice.
	 
	 	 	[•].





	11.3	 	Implementation of Price Changes




Cost Plus Method (Traditional):



The Parties will review the Prices each month or other time period as agreed upon in the VSHA for
implementation of new Prices on the first (1st) Business Day of the following calendar month, or
other time period as agreed upon in the VSHA. At least five (5) Business Days prior to the review,
Flextronics will provide to Nortel Networks a detailed analysis of each cost change, including
implementation timeframe, on-hand Inventory and its obligations to Tier 2 Suppliers. Agreed
upon





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changes to the Price shall be (a) documented as set forth in the revised Costed BOM; (b) set forth
in a new or amended Purchase Order for any Prices to be implemented on the first (1st)
Business Day of the following calendar month or other time period as agreed upon in the VSHA.



The Parties shall meet monthly or other time period as agreed upon in the VSHA not less than ten
(10) Business Days prior to the end of the applicable period, to discuss the assembly and test time
components of Labour Cost and Overhead which will be
applicable to the Products after the end of such month or applicable time period, and the Prices
for Products manufactured at each Site shall be adjusted accordingly on the first (1st)
Business Day of the immediately following month, unless agreed upon in the VSHA. Agreed upon
changes to Labour Cost and Overhead (a) shall be documented as set forth in the revised Costed BOM
for the applicable Virtual Systems House Agreement; (b) shall be set forth in a new or amended
Purchase Order for any affected Products; and (c) shall take into account all changes to Material
Cost applicable pursuant to the provisions of the immediately preceding paragraph in this Section
11.3.



Modified Product Level Pricing Method (MPLP):



The Parties will review the Material Cost for all NC Material each month to calculate the Price for
implementation of new Price and any associated Transformation Costs on the first (1st)
Business Day of the following calendar month, unless otherwise agreed to in the VSHA. At least five
(5) Business Days prior to the review, Flextronics will provide to Nortel Networks a detailed
analysis of each cost change for all NC Material, including implementation timeframe, on-hand
Inventory and its obligations to Tier 2 Suppliers. Agreed upon changes to the Price shall be (a)
documented as set forth in the revised Costed BOM; (b) set forth in a new or amended Purchase Order
for any Prices to be implemented in the timeline as set out above.



The Parties shall meet not less than thirty (30) Business Days prior to the end of each quarter to
review SC Material Costs and Transformation Cost which will be applicable to the Products after the
end of such period, and the Prices for Products manufactured at each Site shall be adjusted
accordingly on the first (1st) Business Day of the immediately following quarter as per
Exhibit 17. Agreed upon changes to SC Material Costs and Transformation Cost (a) shall be
documented as set forth in the revised Costed BOM for the applicable Virtual Systems House
Agreement; (b) shall be set forth in a new or amended Purchase Order for any affected Products; and
(c) shall take into account all changes to Material Cost applicable pursuant to the provisions of
the immediately preceding paragraph in this Section 11.3. [•].



Product Level Pricing Method (PLP):



Sixty (60) days before the expiration of the period of time set out in Schedule A of the relevant
VSHA for which a Price for a particular Period is applicable, the Parties shall meet to agree upon
the Price for such Product and the period of that Price’s validity and shall amend the applicable
Schedule A accordingly.




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	11.4	 	Financial Review and Targets



For Products for which Cost Plus (Traditional) Pricing Method is in effect, Flextronics shall
review quarterly as part of the QBR, [•], and shall provide the results of such review to NNL
within two weeks following the public announcement of Flextronics’s quarterly results. As part of
such review, Flextronics Parent shall review [•] and any other items as may be agreed; provided
that in the case where Flextronics is a party to written confidentiality agreements with third
parties that prevent the disclosure of material pricing, Flextronics will request permission to
disclose such information to Nortel Networks, failing which it will provide Nortel Networks with
market price information related to a “basket” of materials and a list of such Tier 2 Suppliers who
have refused such permission Flextronics shall manage the Production Effort in a manner intended to
achieve the business and financial targets, and with the intent to achieve cost reductions for the
Products in the future.


For Products for which Modified Product Level Pricing or Product Level Pricing Methods are in
effect, Flextronics shall provide necessary Product-specific financial data as requested by Nortel
Networks in order to allow Nortel Networks to validate Price, cost reduction sharing and the
Threshold Commitment.




	11.5	 	Operational



Flextronics shall provide to Nortel Networks each month the cost information for each Product as
specified in Exhibit 13.1 or 13.2, as applicable.




	11.6	 	Cost Modeling



For Products, regardless of which Pricing Method is in effect and the commitments in Exhibit 17,
Nortel Networks and Flextronics shall jointly maintain their agreed upon portion of the applicable
cost model forecasts based on the Market Forecast provided by Nortel Networks for the four (4)
rolling financial quarters in the future and share with Nortel Networks the evolution of this cost
model estimated for such four (4) rolling financial quarters in the future, as well as
Flextronics’s action plan to measure performance against and to achieve these targets. The cost
model will show Price along with cost evolution reflecting technology, component and process cost
curves and labour and overhead improvement plans, all of the foregoing to include volume impact. An
example of this cost model is provided in Exhibit 13-3.




	11.7	 	Budget



On or prior to the applicable VSHA Effective Date, Nortel Networks will provide Flextronics with
its capital expenditure plans that relate to the System Houses located at the Transferred
Businesses. These capital expenditure plans will be used by Flextronics for the calculation of the
Year One Total Cost for pricing the Products. For Products for which Cost Plus (Traditional)
Pricing Method is in effect, Flextronics shall present its capital expenditure plans that are based
on and consistent with the capital





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expenditure plans provided by Nortel Networks above and that directly relate to the Production Effort and Services, with the relevant cost quotes and budget for Products, quarterly to
Nortel Networks.




	11.8	 	Ongoing Cost Reduction



“Ongoing Cost Reduction” or “OCR” means the universe of cost reductions minus the “Incremental Cost
Reductions” or “ICR” (as defined in Section 11.9.1). The Parties acknowledge that they have arrived
at the concepts of OCR and ICR by assigning cost reduction that Nortel Networks generally would
have been able to achieve through its own efforts, had it retained the Transferred Business, to the
OCR category and cost reduction that Nortel Networks generally would not have been thus able to
achieve to the ICR category. OCR cannot be used to fulfill the Committed ICR %, as set out below
Flextronics commits to the cost reduction to Prices as set out in the applicable VSHA. The
implementation is set out in Exhibit 17-1. Nortel Networks is responsible for generating the plan
for the OCRs for Year One.




	11.9	 	Incremental Cost Reduction



Flextronics will use its materials management capabilities to leverage SC and NC spend, cost
management, cost to market sites, vertical integration, logistics, repair and design services
capabilities to achieve additional cost reductions, which are incremental to the OCR. The process
for measuring and implementing incremental cost reduction is set out in Exhibit 17-2.




	 	 	11.9.1   Definition of ICR





	 	 	“Incremental Cost Reduction” or “ICR” means the list of cost reduction programs set forth
in Exhibit 17-2 and the Phased Close Side Letter dated as of June 29, 2004 (“Phased Close
Side Letter”).





	 	 	11.9.2   ICR Commitment





	 	 	Flextronics agrees that it will pass on to Nortel Networks ICR equal to a certain
percentage of the total revenue received from purchases of goods and services made by
Nortel Networks, excluding purchases of IRM and Non-integrated OEM (“Total Revenue”). This
percentage is defined as the “Committed ICR %”. [•]. If the Total Revenue is reduced
because Nortel Networks has not purchased Products from Flextronics for any of the reasons
set out in Section 1.3.3(B), (C), (D) or (E), the ICR to be delivered shall be calculated
as if the Total Revenue had not been so reduced.





	 	 	11.9.3   Implementation of ICR





	 	 	Incremental Cost Reduction (ICR) will be reflected in the Product price using the Cost
Plus, MPLP or PLP Process, as applicable, and not recovered as a lump sum payment (except
in the case of a true-up). It is a guaranteed percentage and is not subject to the
Threshold Commitment as defined in the MCMSA. If, as determined in an annual true-up
process, the





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	 	 	annual guarantee is not achieved by means of the product pricing at the end of Years 2 and 3
respectively, Flextronics will pay Nortel Networks the amount of the shortfall as a lump-sum
payment. The Baseline (as defined below) at the end of Years 2 and 3 will be set to include the
guaranteed ICR; provided that the Baseline at the end of Year 3 will be for planning purposes only
for Year 4 and prices for Year 4 will be set according to market conditions.





	 	 	ICR is an “in-year” amount calculated by applying the Committed ICR % to the applicable year’s
Total Revenue over a twelve month period. The “Baseline” is the Total Revenue determined by
Flextronics and Nortel Networks as of a certain date. The Year One Baseline will be the Total
Revenue for Year One assuming that all Transferred Business has been transferred as of the
Commencement Date. [•]





	 	 	Cost reduction, including ICR, which exceed the agreed upon level will be
subject to the cost sharing provisions set out in Exhibit 17-1; provided, however, that Flextronics
shall be entitled to retain 100% of any ICRs, which exceed the total in-year ICR Commitment
applicable to Year 2. Any ICR achieved as of the end of Year 3 that is greater than the ICR
Commitment will be treated as OCR.





	11.9.4	 	Year 4 Cost Reduction





	 	 	In Year 4 all cost reduction will be managed using the Cost Plus, MPLP or PLP Process, as
applicable, to OCR [•].





	11.9.5	 	Adjustments to ICR Commitment





	 	 	The Parties acknowledge that Nortel Networks support and cooperation affect Flextronics’s ability
to actually achieve ICRs and the Flextronics vertical integration target set out in Section 4.13.
	 
	 	 	If the failure of Nortel Networks to fulfill its obligations under Section 4.13 with respect to
such target adversely impacts Flextronics’s ability to actually achieve the ICR Commitment, then
Flextronics may be relieved of its obligation with regard to the affected portion of the ICR
Commitment.
	 
	 	 	Flextronics shall notify Nortel Networks if it determines that there has been such an adverse
impact and provide competent evidence to support Flextronics’s determination. If Nortel Networks
does not fulfill its applicable obligations within 45 days after receipt of Flextronics’s notice or
otherwise accepts Flextronics’s determination, the ICR Primes will resolve the matter and, if they
are unable to do so, the Parties shall follow the Issue Escalation and Dispute Resolution Process.





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SECTION 12 BUSINESS

CONTINUITY





	12.1	 	Business Continuity Planning



Flextronics shall maintain a business continuity plan for each Site to be put into effect if a Site
becomes unable to produce Products for any reason, including Force Majeure, for a period of more
than five (5) days (“Business Continuity Plan”). Flextronics’s goal is to be able to continue to
produce Products in accordance with the time schedules required under this Agreement.


The Business Continuity Plan shall contain, at a minimum, (a) a risk assessment and business impact
analysis, (b) a prevention/mitigation plan, and (c) a resumption of Services plan, including a
recovery/restoration plan. The preceding will cover, but not be limited to, provisions for
documentation storage (product, process, fixture, tools), information systems technology
redundancy, a demonstration of Flextronics’s capability to recover in an emergency if one of its
own manufacturing facilities or processes becomes unable to produce Products and if one of its
component suppliers or subcontractors experiences such an emergency.


At Nortel Networks’ request and at no additional charge to Nortel Networks, Flextronics will
participate in any commercially reasonable tests implemented by Nortel Networks or discussions
initiated by Nortel Networks for purposes of evaluating and coordinating and integrating the
business continuity plans of its suppliers with Nortel Networks’ overall business continuity plan,
in so much as current manufacturing activities and associated On Time Delivery metrics are not
impacted by said test. As reasonably requested by Nortel Networks during the Term, Flextronics will
adjust the BCP to better conform to and integrate with Nortel Networks’ business continuity plan,
on terms to be mutually agreed to by the Parties.


Throughout the Amended Term, Flextronics shall provide a copy of any changes in the Business
Continuity Plan to NNL within ten (10) days of any such change. A period of Force Majeure or other
event causing inability to produce Products shall be deemed to commence on the date that the event
of Force Majeure or other such event first occurs.


NNL and Flextronics shall review Flextronics’s Business Continuity Plan annually.



SECTION 13

WARRANTIES





	13.1	 	Title



Flextronics represents and warrants that: (i) it has and covenants that it shall pass to Nortel
Networks good title to the Products free and clear of all liens and encumbrances; (ii) no claim or
action is pending or threatened against Flextronics or, to Flextronics ‘s knowledge, against any
licensor or supplier of Flextronics that might, if adversely decided, adversely affect the ability of Flextronics to
produce the





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Products or the right of Nortel Networks or any Customer to use the Products for their intended
use; and (iii) it has all rights and powers necessary to perform its obligations under this
Agreement.


Nortel Networks represents and warrants that: (i) it has the right to enter into this Agreement,
including the right to grant the license set forth in Section 14.1; (ii) no claim or action is
pending or threatened against Nortel Networks or, to Nortel Networks knowledge as of the Amendment
Effective Date, against any licensor or supplier of Nortel Networks that might, if adversely
decided, adversely affect the ability of Flextronics to produce the Products; (iii) it has all
rights and powers necessary to perform its obligations under this Agreement; and (iv) this
Agreement does not violate the terms of its agreements with any suppliers.




	13.2	 	Services and Production Effort



Flextronics covenants and warrants that all Services and all aspects of the Production Effort
performed under this Agreement shall be performed in a competent, professional and timely manner in
accordance with the standards generally accepted in the telecommunications industry and in
accordance with the applicable Specifications and the terms of this Agreement and the applicable
Virtual Systems House Agreement.


Flextronics covenants and warrants that: (a) to the best of its knowledge, upon inquiry, it does
not and will not employ or contract the services of (i) forced or prison labour or (ii) employees
or contractors that are younger than the minimum age legally entitled to work in each applicable
jurisdiction in which the Production Effort is conducted; and (b) to the best of its knowledge,
upon inquiry, no SC Supplier employs or contracts, directly or indirectly, the services of (i)
forced or prison labour or employees or contractors that are younger than the minimum age legally
entitled to work in each applicable jurisdiction in which the Production Effort is conducted.


Nortel Networks covenants and warrants that (a) it will perform its obligations under this
Agreement in a competent, professional and timely manner in accordance with the standards generally
accepted in the telecommunications industry and the terms of this Agreement and the applicable
Virtual Systems House Agreement.




	13.3	 	Free from Defects



Except (a) as may be set forth in the Repair Agreement, (b) Products transferred as finished goods,
work-in process or manufactured using Materials on hand as of the applicable VSHA Effective Date or
(c) as otherwise expressly agreed to in writing by the Parties, Flextronics covenants and warrants
that each Product and all Material shall be new and unused at the time of initial delivery.


Flextronics covenants and warrants that except for (a) Products transferred as finished goods,
work-in process or manufactured using Materials on hand (including any Consigned Inventory or
Inventory purchased from other suppliers pursuant to Section 4.3.5) as of the applicable VSHA
Effective Date, during the Warranty Period, subject to such longer period set out in Section 13.4
in respect of an





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Epidemic Condition, each Product shall be free from defects in Material supplied by Flextronics
under normal use and operation, and shall conform to the applicable Specifications.


Flextronics covenants and warrants that except for (a) Products transferred as finished goods as of
the applicable VSHA Effective Date, during the Warranty Period, subject to such longer period set
out in Section 13.4 in respect of an Epidemic Condition, each Product shall be free from defects in
workmanship under normal use and operation and shall conform to the applicable Specifications.


NORTEL NETWORKS’ SOLE AND EXCLUSIVE REMEDY AND SUPPLIER’S ENTIRE LIABILITY FOR BREACH OF WARRANTY
IN THIS SECTION 13.3 SHALL BE AS SET FORTH IN SECTIONS 9, 10, AND 13.4 AND SUBJECT TO THE
LIMITATIONS SET FORTH IN SECTION 16 BELOW. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT BUT SUBJECT TO SECTION 15 AND TO THE EXTENT PERMITTED BY LAW, THE FOREGOING IS SUPPLIER’S
SOLE WARRANTY WITH RESPECT TO THE PRODUCTS AND MATERIAL AND SUPPLIER HEREBY EXPRESSLY DISCLAIMS ANY
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.




	13.4	 	Epidemic Condition





	 	 	13.4.1   Procedure for Epidemic Condition





	 	 	If a Product shows evidence of an Epidemic Condition, each Party shall notify the other
Party within two (2) Business Days of becoming aware of such Epidemic Condition. Nortel
Networks may also notify Flextronics of such a condition throughout the life of the
Product. Upon notification to Flextronics of the Epidemic Condition, Nortel Networks shall
have the right, pending correction of the Epidemic Condition as provided herein, to
postpone further shipments of such Product evidencing the Epidemic Condition, by giving
notice of such postponement to Flextronics. Until such Epidemic Condition is corrected,
such postponement shall relieve Flextronics of its shipment liability for such Products and
relieve Nortel Networks of all obligations relating to such Product except its obligation
to respond or work within the ECO procedure. Both Parties shall work together to prepare
and propose a corrective action plan with respect to such Product, addressing
implementation and procedure milestones for remedying such Epidemic Condition(s). Both
parties shall co-operate with one another and use their best efforts to identify and
implement an agreed upon plan to remedy the Epidemic Condition.





	 	 	13.4.2   Remedies for Epidemic Condition





	 	 	Nortel Networks shall pay the costs of implementing the remedy on Products to the extent
that the Epidemic Condition results from (a) Materials that were transferred as part of
finished goods, work-in process or as Inventory on hand as of the applicable VSHA Effective
Date or (b) Flextronics’s compliance with the Specifications or defects in NC components.
Flextronics





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	 	 	shall pay the costs of implementing the remedy to the extent the Epidemic Condition results from
(i) Flextronics’s non-conformance with the Specifications; (ii) defects in Material supplied by an
SC Supplier, (iii) breach of Flextronics’s warranty obligations set out in Exhibits 9-1, 9-2 or
9-3, or (iv) defects in workmanship or manufacturing processes (other than as set out by Nortel
Networks in any applicable Specifications). The Parties shall use reasonable efforts to minimize
the costs associated with the recovery plan without compromising Nortel Networks’ ability to
aggressively respond to Customer needs.
	 
	 	 	Subject to the determination of liability as set out in the foregoing, Flextronics shall:





	 	(a)	 	Incorporate the remedy in the affected Products in accordance with Nortel Networks’ ECO
procedures;
	 	(b)	 	Subsequently ship only Products incorporating the required modification correcting
the Epidemic Condition;
	 	(c)	 	Rework, repair and/or replace any Product that has not been recalled
but shows evidence of the Epidemic Condition, in accordance with the terms and conditions set forth
in Exhibits 11 and 12, respectively;
	 	(d)	 	Refund or credit, at Flextronics’s discretion, to Nortel
Networks the Price for such Products included in Systems that Nortel Networks, in its discretion,
has recalled because of the Epidemic Condition;
	 	(e)	 	At Nortel Networks’ option, reimburse Nortel
Networks for all costs associated with the repair or replacement of Products for Nortel Networks,
its distributors and end users;
	 	(f)	 	Accept the immediate return of all units of affected Products
that Nortel Networks has in stock and replace such Products with updated units in order to
facilitate the replacement of such Products;
	 	(g)	 	Reimburse Nortel Networks for all field costs,
which are reasonable with respect to applicable industry standards and taking into consideration
Customer expectations, associated with the Epidemic Condition that Nortel Networks incurs in
accordance with the agreed recovery plan;





	 	 	Flextronics’s obligations for Epidemic Condition relating
to a Product unit shall continue for a period of [•] after the shipment of such Product
Notwithstanding the foregoing, with respect to Products not related to the Transferred Business
only, [•]. In the event that a VSHA changes the time period for Flextronics’s obligations for
Epidemic Condition with respect to such Material, the time period of [•] shall continue with
respect to all other Flextronics’s obligations under this Section 13.
	 
	 	 	Where Flextronics has had manufacturing responsibility for the Products effected by the Epidemic
Condition, and its liability has arisen from a breach of its warranty obligations pursuant to
Section 13.2 or 13.3 and/or to Section 44 of Exhibit 9 Flextronics’s liability shall not exceed [•]
USD per occurrence. Where Flextronics has not had manufacturing responsibility for such Products,
and its liability has arisen from a breach of its warranty obligations pursuant to Sections 72-75
of Exhibit 9-1 or Sections 65-67 of Exhibits 9-2 or Sections X of Exhibit 9-3,





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	 	 	Flextronics’s liability shall not exceed, per occurrence, the greater of [•] USD or [•] the
revenue Flextronics has received under the applicable Design Orders.
	 
	 	 	The foregoing provisions shall survive termination and expiry of this Agreement.





	13.5	 	Safety and Regulatory Issues



In the event that Nortel Networks determines that it must recall Products due to a safety or
regulatory issue before such issue has triggered an Epidemic Condition, Flextronics agrees to work
with Nortel Networks to accomplish this recall as if it were an Epidemic Condition. Flextronics’s
liability for any related costs shall be determined in accordance with section 13.4.2; however, if
it is so determined that Flextronics does bear liability for any costs of this recall, these will
not be owing until the applicable percentage that triggers an Epidemic Condition is met.



SECTION 14

INTELLECTUAL PROPERTY RIGHTS AND LICENSES





	14.1	 	License to Nortel Company Proprietary Information Granted



Flextronics shall have the right and Nortel Networks hereby grants to Flextronics, to the extent of
its legal right to do so, a world-wide, non-exclusive, non-transferable, royalty-free license to
use Nortel Company Proprietary Information communicated to Flextronics by Nortel Networks as
appropriate for the conduct of the Production Effort or Services in question solely for internal
use for the purpose of performing the Services and the Production Effort hereunder in connection
with a Design Order, Pre-Production Products and Products. Nortel Networks shall retain exclusive
rights and title to all Nortel Company Proprietary Information provided hereunder. This license is
non-transferable, may be used only in connection with the Production Effort and the performance of
Services by Flextronics for Nortel Networks under this Agreement, and shall expire on the date on
which Flextronics obligations to support the design, manufacture, rework or repair Product or to
perform Services terminate under this Agreement, or as to a specific Product under a Virtual
Systems House Agreement, as applicable.




	14.2	 	Limitations on Grant of License



Except as expressly stated herein, nothing in this Agreement shall be deemed to grant, either
directly or indirectly by implication, estoppels or otherwise, any licenses to Flextronics of
Nortel Company Proprietary Information or any Trade-Marks, and Flextronics acknowledges that Nortel
Networks shall retain exclusive right and title to the foregoing.




	14.3	 	Flextronics Inventions



Flextronics Inventions, including Flextronics Inventions relating solely to a manufacturing process
not specific to the manufacture of a Product, shall be the property of Flextronics. Flextronics
shall and does hereby grant Nortel Networks, subject to fulfillment of its payment obligation, a
limited, irrevocable,





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world-wide, non-exclusive, royalty-free license, but not as a standalone license, solely to make or
have made and use such Flextronics Invention and Nortel Networks shall have the right to
sub-license such rights to Nortel Networks Vendors for the purpose of manufacturing Products or
distributing Systems. Nortel shall be fully responsible for any damages accrued to Flextronics
arising out of any third party’s violation of the scope of the license granted hereunder.




	14.4	 	Specifications and Deliverables Owned by Nortel Networks



The Specifications and all deliverables resulting from the Production Effort and Services shall be
the property of Nortel Networks. Flextronics agrees not to offer or provide the Specifications or
deliverables to any third parties without Nortel Networks’ prior written consent, which shall not
be unreasonably withheld.




	14.5	 	Flextronics Retains Ownership of Flextronics Proprietary Information



Flextronics shall retain exclusive right, title, and interest to all Flextronics Proprietary
Information; and provided, that Nortel Networks has fulfilled its payment obligations, Flextronics
will grant NNL a limited, world-wide, non-exclusive, and royalty-free license, but not as a
stand-alone license, solely to make or have made, use, and sell any Flextronics Proprietary
Information incorporated into the Products or used in the manufacture of the Products and provided
that Nortel Networks shall have the right to sub-license such rights to Nortel Networks Vendors for
the purpose of manufacturing Products or distributing Systems.




	14.6	 	Assignment of Inventions Agreements with Employees



In respect of any inventions which are specific and related to the manufacture of Nortel’s
Products, Flextronics shall have agreements with its employees, consultants, agents or
representatives (individually “Counter-Party”), in which each such Counter-Party shall agree in
writing that any and all inventions, discoveries, developments, modifications, procedures, ideas,
innovations, systems, Programs, know-how or designs developed by any such Counter-Party during the
term of its relationship with Flextronics, shall be the property of Flextronics. Furthermore, such
agreement between any such Counter-Party and Flextronics shall contain usual clauses including an
undertaking by such Counter-Party to execute applications for patents, copyrights, industrial
designs, mask work rights, integrated circuit topographies and other registerable intellectual
property rights thereon to the extent so requested by Flextronics and/or to assign the same to
Flextronics.





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SECTION 15

INDEMNIFICATION





	15.1	 	Intellectual Property Indemnification





	 	 	15.1.1   By Nortel Networks





	 	 	Except as otherwise provided in this Section 15, Nortel Networks shall, at its expense and
at Flextronics’s request, indemnify and defend Flextronics against any claim or action
brought against Flextronics by a third party to the extent that such claim is based on an
assertion that Flextronics’s activities as part of the Production Effort or Services
infringe, directly as a result of Flextronics’s compliance with the Specifications or
directions by Nortel Networks to Flextronics relating to a Product for use under this
Agreement, any patent, copyright or trademark, or violates any trade secret or other proprietary right of a third
party. Nortel Networks shall pay any pre-judgment and pre-settlement costs as wells as any
resulting costs and damages finally awarded against Flextronics or agreed to in any
settlement, and Flextronics’s reasonable attorneys’ or patent agent’s or other expert’s
fees incurred in connection therewith, provided that (i) Flextronics promptly notifies
Nortel Networks in writing of any such claim, (ii) Nortel Networks has sole control of the
defence and all related settlement negotiations, and (iii) Flextronics reasonably
cooperates, at Nortel Networks’ cost, in the defence and furnishes all related evidence
under its control.
	 
	 	 	Notwithstanding the foregoing, Nortel Networks shall have no liability under Section 15.1
to the extent the alleged infringement or violation:





	 	(a)	 	arises from Flextronics’s
modification or alteration of the information supplied by Nortel Networks relating to a
Product or the Specifications, and such modification or alteration is not authorized by
Nortel Networks;
	 	(b)	 	arises from any method or process used or practiced by Flextronics in
or during the Production Effort (unless such method or process was specifically requested
by Nortel Networks); or
	 	(c)	 	arises from any Services provided by Flextronics under this
Agreement (unless the method or process of providing such Service was specifically
requested by Nortel Networks or Flextronics has met its obligations under Sections
4.4.4(g), 6.3.3(g) and 6.3.6(b).





	 	 	15.1.2   By Flextronics





	 	 	Flextronics shall, at its expense and at Nortel Networks’ request, indemnify and defend all
Nortel Companies against any claim or action brought against any Nortel Company by a third
party to the extent that such claim is based on an assertion that any method or process
used or practiced by Flextronics in or during the Production Effort or any Service provided
by Flextronics under this Agreement infringes any patent, copyright or trademark, or
violates any trade secret or other proprietary right of a third party, unless such method
or process was






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	 	 	specifically requested by Nortel Networks or Flextronics has met its obligations under Sections
4.4.4(g), 6.3.3(g) and 6.3.6(b).
	 
	 	 	In any such case Flextronics shall pay any pre-judgment and pre-settlement costs as well as any
resulting costs and damages finally awarded against Nortel Networks or agreed to in any settlement,
and Nortel Networks’ reasonable attorneys’ or patent agent’s or other expert’s fees incurred in
connection therewith, provided that (a) Nortel Networks promptly notifies Flextronics in writing of
any such claim, (b) Flextronics has sole control of the defence and all related settlement
negotiations, and (c) Nortel Networks reasonably cooperates, at Flextronics’s cost, in the defence
and furnishes all related evidence under its control.
	 
	 	 	Notwithstanding the foregoing, Flextronics shall have no liability under Section 15.1 to the extent
the alleged infringement or violation:





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





	 	 	15.1.3   Measures to Safeguard Nortel Networks against Liability





	 	 	If, as a result of a claim described in 15.1.2 above, the continued use by Flextronics of any
method or process used in or practices as part of the Production Effort or the continued use of any
intellectual property component of the Services, an injunction is obtained against the sale or
distribution of any Product or the continued use of such method or process or intellectual property
component, or if either Party reasonably determines on the advice of counsel that there is a
likelihood of such continued use exposing either Party to material liability, Flextronics shall
forthwith at its option and expense, unless such element, method or process was specifically
requested by Nortel Networks, use its reasonable efforts to either:





	 	(a)	 	procure the right to
continue using such process or method or intellectual property component, to continue selling the
Products or to continue providing such Services; or
	 	(b)	 	modify the process or method, intellectual
property component, Production Effort or Services, so that the Production Effort or provision of
Services, as applicable, no longer infringes.





	 	 	THE FOREGOING SECTION 15.1 STATES THE ENTIRE LIABILITY OF THE PARTIES TO EACH OTHER CONCERNING
INFRINGEMENT OF PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHTS HELD BY THIRD
PARTIES.





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	15.2	 	Other Indemnification





	 	 	15.2.1   By Flextronics





	 	 	With respect to matters not covered in Section 15.1, Flextronics shall indemnify and hold
Nortel Networks, its customers, distributors and their employees, harmless from any losses,
damages, liabilities and costs including reasonable attorney’s fees arising from any injury
or death to persons or loss of or damage to property to the extent caused by any
manufacturing method or process relating to the Products, any manufacturing defects or
deficiency including any defect or deficiency in any parts or components supplied by SC
Suppliers used in the Products or the manufacturing process related thereto, or
Flextronics’s negligence or wilful misconduct.





	 	 	15.2.2   By Nortel Networks





	 	 	With respect to matters not covered in Section 15.1 or 15.2.1, Nortel Networks shall
indemnify and hold Flextronics, its customers, distributors and their employees, harmless
from any losses, damages, liabilities and costs including reasonable attorney’s fees
arising from any injury or death to persons or loss of or damage to property to the extent
caused by the Products manufactured according to the Specifications, any Products, parts or components supplied by the NC Supplier or Nortel
Networks’ negligence or wilful misconduct.




SECTION 16

LIMITATION OF LIABILITY



NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT EXCEPT FOR THE PARTIES’ OBLIGATIONS UNDER SECTION
15 AND A BREACH OF THE OBLIGATIONS IN SECTIONS 13.4, AND 23, TO THE MAXIMUM EXTENT PERMITTED BY
LAW, UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY, WHETHER TORT (INCLUDING NEGLIGENCE), PRODUCT
LIABILITY, CONTRACT, OR OTHERWISE, SHALL ONE PARTY BE LIABLE TO THE SECOND PARTY OR ANY OTHER
PERSON FOR ANY LOSS OF PROFIT OR ANY INDIRECT, SPECIAL, INCIDENTAL, RELIANCE OR CONSEQUENTIAL
DAMAGES, EVEN IF THE FIRST PARTY SHALL HAVE BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES.
NOTHING IN THIS AGREEMENT SHALL ACT TO RESTRICT OR EXCLUDE LIABILITY FOR DEATH OR PERSONAL INJURY
CAUSED BY THE NEGLIGENCE OF ANY PARTY. FOR PURPOSES OF CLARITY, THE PARTIES AGREE THAT THE PAYMENT
OF PERFORMANCE LIQUIDATED DAMAGES AND CUSTOMER PASS-THROUGH LIQUIDATED DAMAGES SHALL NOT BE
RESTRICTED OR EXCLUDED BY THIS LIMITATION OF LIABILITY. [·]





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SECTION 17


COMMUNICATION AND INFORMATION TRANSFER





	17.1	 	Access to Nortel Networks Computer Systems by Flextronics



Flextronics shall limit access and use of any Nortel Networks computer systems solely to the supply
of Products and/or Services and shall not access or attempt to access any intranet, computer
systems, files, software or services other than those required for the supply of Products and/or
Services. Flextronics shall limit such access to those employees with an express requirement to
have such access in connection with supply of Products and/or Services, and shall strictly follow
all security rules and procedures of Nortel Networks for restricting access to its computer
systems. All user identification numbers and passwords disclosed to Flextronics and any information
obtained by Flextronics as a result of Flextronics’s access to, and use of Nortel Networks’
computer systems shall be deemed to be, and treated as, Nortel Company Proprietary Information in
accordance with the provisions set forth in Section 23, with the same degree of care as such
Flextronics uses for its own information of a similar nature, but in no event a lower standard than
a reasonable standard of care. Flextronics shall cooperate in the investigation of any apparent
unauthorized access to any Nortel Networks computer system. The requirements of this Section shall
apply equally to any access and use by Flextronics of any Nortel Networks intranet, electronic mail
system, of any Nortel Networks’ electronic switched network, either directly or via a direct inward
service access (DISA) feature or of any other property, equipment or service of Nortel Networks.




	17.2	 	Flextronics Compatibility with Nortel Networks Computer Systems



Flextronics shall use and maintain business systems capable of interfacing with Nortel Networks’
business systems in such a way that meets the Nortel Networks definition of managed access for
electronic information exchange as set out in Exhibit 26. Information to be exchanged as of the
Effective Date or Amendment Effective Date, as applicable, may include: on time shipment, on line
work-in-process status, Product Quality status, shipment notification, and Product design
information.


Nortel Networks will assist Flextronics with the integration of Flextronics’s information
technology systems with the Nortel Networks systems, as further set out in Exhibit 26.


Flextronics and Nortel Networks shall each take necessary precautions to put in place contingency
plans adequate to safeguard data and enable ongoing operations in the event of a systems outage.




	17.3	 	Information Technology Services




Flextronics shall be responsible for providing the information technology services as set out in
Exhibit 26.





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SECTION 18

LOANED ASSETS





	18.1	 	Loaned Assets Procedure



From time to time Nortel Networks may make available to any Flextronics Company Loaned Assets in
connection with this Agreement and, in such event, the provisions of Exhibit 15 shall apply.



SECTION 19

RESERVED ASSETS





	19.1	 	Reserved Assets Procedure



From time to time Nortel Networks may convey or otherwise transfer Reserved Assets in connection
with this Agreement and, in such event; the provisions of Exhibit 16 shall apply.



SECTION 20

LEGAL AND REGULATORY COMPLIANCE




Flextronics shall at no additional charge to Nortel Networks, comply with and obtain all licenses
and permits necessary to manufacture Products in accordance with this Agreement and, for Products
in respect of which Flextronics provides Design Services and logistics relating to shipment of
Products by Flextronics, Flextronics covenants and agrees that each Product shall conform with, all
applicable laws, governmental orders and regulations in effect in all countries to which such Product is shipped and any other relevant
international agreements relating to the Products, including those specifically set out in a Virtual
Systems House Agreement. Each Party shall provide all information under its control, which is
necessary or useful to obtain any export, or import license or document required to ship or receive
product, including but not limited to, U.S. Customs Certificates of Delivery, Affidavits or Origin
and U.S. Federal Communications Commission Identifier, if applicable.



SECTION 21

INTERNATIONAL TRADE





	21.1	 	Exports



Each Party agrees that it shall not knowingly (i) export or re-export, directly or indirectly, any
technical data (as defined by the U.S. Export Administration Regulations or any other jurisdiction
with import or export restrictions), including software received from the other under this
Agreement or (ii) export or re-export, directly or indirectly, any direct product of such technical
data, including software, to any destination to which such export or re-export is restricted or
prohibited by U.S. or applicable non-U.S. law without obtaining prior authorization from the U.S. Department of Commerce and/or other





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competent government authorities to the extent required by those laws. In addition, each Party
agrees to comply with all the requirements of the Export and Import Permits Act (Canada) and any
other applicable legislation throughout the world. As it is relevant to all outstanding shipments,
this clause shall survive termination or cancellation of this Agreement.




	21.2	 	Country of Origin Declaration and Marking



Flextronics shall certify quarterly or other period (not to exceed 90 days) as specified in the
applicable VSHA, to Nortel Networks the correct country of origin of each Product determined in
accordance with the rules of origin set out under the applicable laws and treaties. Flextronics
shall notify Nortel Networks at least ninety (90) days in advance of any change in the origin of a
Product. Flextronics shall maintain supporting documentation sufficient to meet the requirements of
any audit of the origin information by Nortel Networks or by any governmental entity. Flextronics
shall cooperate with Nortel Networks in any audit relating to this Section conducted in accordance
with the provisions of Section 26.4.


Flextronics shall obtain from each of its suppliers the appropriate certificate of origin of
Materials and shall provide to Nortel Networks quarterly a report identifying which suppliers of
Materials have, and which suppliers have not, certified the country of origin for all Materials
supplied by it to Flextronics for manufacture of the Products.


All Products must be marked with their country of origin as set out under the applicable laws and
treaties. The degree of permanence of the origin marking on the Product shall be sufficient that,
in any reasonably foreseeable circumstance, the marking shall remain on
the Product throughout its expected life. Both the Product’s immediate packaging and the
outermost containers shall also be marked to indicate the country of origin. Flextronics shall be
solely responsible for all fines, penalties, costs and seizures resulting from inadequate marking,
packaging or labelling.


The Parties agree that the cost for the services set out in this Section are part of the Total Cost
and will be included in the Price.




	21.3	 	Customs Invoice



Unless otherwise set forth in this Agreement, Flextronics shall take all administrative actions
required to produce customs invoices and country of origin documents for all shipments crossing
international borders which comply with all laws, treaties and regulations of both the exporting
country and the importing country. If a Product is manufactured in more than one country, then to
the extent required by applicable laws, the different countries of origin must be identified on the
customs invoices, along with the related quantities/serial numbers of such Materials. If any
upgrade of Products to the most recent revision level in accordance with Exhibit 11 or 12 is
performed, the applicable fee for this upgrade must be included on the customs invoice, or, if such
upgrade is performed at no charge to Nortel Networks, the value of such upgrade shall be so
indicated. Flextronics shall be solely responsible for all fines, penalties and costs resulting
from a customs invoice not being so compliant unless such non-compliance





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is solely the result of an action or omission of Nortel Networks. All customs invoices must
indicate whether or not any Assists were provided and the value of said Assists.




	21.4	 	Trade Treaties



Flextronics shall perform all administrative actions required to determine the eligibility of each
Product for preferential treatment under the rules of any applicable trade treaties/agreements and,
if eligible, provide the necessary documentation and obtain such preferential treatment.
Flextronics shall be responsible for all penalties and costs resulting from any such documents
subsequently determined to be invalid, shall maintain all documentation to support the eligibility
and shall respond in a timely manner to verification questionnaires or reviews.




	21.5	 	Duty Drawback



In the countries where Nortel Networks maintains a duty drawback program, Flextronics shall provide
Nortel Networks with a quarterly report of part numbers and import duties paid or refunded (at
entry and through subsequent adjustment) on behalf of Nortel Networks for all deliveries in country
and for which Nortel Networks may become a subsequent exporter entitled to duty drawback.
Flextronics shall provide a duty drawback waiver on the appropriate form for duty paid on any
materials imported by Flextronics and used or consumed in the manufacture of Products supplied to
Nortel Networks. Nortel Networks shall provide guidelines to Flextronics with respect to the data
required to be provided by Flextronics.


In the countries in which Nortel Networks does not currently maintain a duty drawback program, the
Parties shall work together with a view to implementing a similar duty drawback program as soon as
practicable and as mutually deemed required.


When Nortel Networks determines that duties warrant a drawback claim, Flextronics shall provide all
necessary and relevant data and/or documentation and shall cooperate with Nortel Networks in
pursuing the claim. Flextronics will cooperate with Nortel Networks in any audit relating to this
Section. Similarly, when Flextronics determines that duties warrant a drawback claim, Nortel
Networks shall provide all necessary and relevant data and/or documentation and shall cooperate
with Flextronics in pursuing the claim. In either case, the costs of preparing and filing the
drawback claim will be borne by the parties in proportion to their relative drawback benefits and
Nortel Networks will cooperate with Flextronics in any audit relating to this Section.



SECTION 22

ENVIRONMENTAL POLICIES





	22.1	 	ISO 14001



Flextronics agrees to maintain ISO 14001 registrations for those Sites so registered as of the
Effective Date. Flextronics agrees to obtain such registration for those Sites not so registered
within eighteen (18)





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months of the transition of the applicable System House for those Sites not so registered as of the
Effective Date.


With respect to any research and design activities undertaken pursuant to Section 6.1, Flextronics
agrees to obtain ISO 14001 certification within eighteen (18) months of the Effective Date.


Within sixty (60) days of the Effective Date, Flextronics shall produce for Nortel Networks’ review
and approval its corporate-wide Environmental Policy.




	22.2	 	VOC Free and Lead-Free Technology



Flextronics shall use VOC-free technology in the Production Effort.


Except in the circumstances where exemptions allowing the use of lead shall apply under applicable
law Flextronics agrees to have fully qualified and be ready to deploy lead-free technology in the
Sites by December 31, 2005. Such implementation shall include lead-free components to the extent
required in a Virtual Systems House Agreement or in the relevant BOM. The Parties acknowledge the
required use of lead-free components may involve different Material and costs attributable to these
different Materials in the Product Price, and the Parties will allocate such costs to Nortel
Networks unless otherwise agreed. Nortel Networks and Flextronics agree to address jointly any
problems of supply.


If Flextronics can demonstrate that compliance with any VOC-free or lead-free
requirements will result in change to costs or delay in delivery, the Parties will agree on
appropriate changes to the Price or delivery schedule, only to the extent such costs or delays are
directly related to the Production Effort. Flextronics acknowledges that changes to VOC-free and
lead-free requirements may result in decreases or increases to costs and that it will bring any
such change to Nortel Networks’ attention. Nortel Networks shall be responsible for those
associated costs that result from Flextronics bringing operations in legacy System House into
initial compliance with regulations regarding lead and VOC-free technology.




	22.3	 	European Union (“EU”) Environmental Directives





	 	 	22.3.1   Compliance





	 	 	Flextronics will engage with Nortel Networks or its designate in the development and
provision of a plan (the “Compliance Plan”) for the implementation and management of the
WEEE (Waste Electrical and Electronic Equipment) Directive and the RoHS (Restriction of
Hazardous Substances) Directive, as well as any other EU environmental directives that
affect Products to be sold in the EU. Flextronics will provide the Compliance Plan to
Nortel Networks for its approval, within 90 days on receipt of specific Nortel Networks
requirements, which shall include at a minimum: a) overall objectives in regard to the
directives, b) Specifications and other requirements that must be complied with, c)
Products that are impacted, d) an outline of Flextronics’s and Nortel Networks
responsibilities for achieving the foregoing objectives and requirements and (e) allocation
of any applicable increase in Product Cost to Nortel Networks





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	 	 	unless otherwise agreed to by the Parties. Nortel Networks shall be responsible for those
associated costs that result from Flextronics bringing operations in a legacy System House into
initial compliance with regulations regarding any applicable EU directives.
	 
	 	 	Flextronics will provide Nortel Networks with any changes to the Compliance Plan within ten (10)
days of the change coming into effect. Nortel Networks reserves the right to inspect Flextronics’s
facilities to validate compliance with the EU directives.
	 
	 	 	To the extent Flextronics is responsible under the Compliance Plan, Flextronics must be able to
demonstrate to Nortel Networks satisfaction by December 31, 2005 that no hexavalent chromium,
cadmium, mercury or polybrominated biphenyls (PBB)/polybrominated diphenyl ethers (PBDE) are
present in Products to be sold in the EU. To the extent Nortel Networks is responsible under the
Compliance Plan, Nortel must be able to demonstrate to Flextronics’s satisfaction by December 31,
2005 that no hexavalent chromium, cadmium, mercury or polybrominated biphenyls (PBB)/polybrominated
diphenyl ethers (PBDE) are present in Products to be sold in the EU. Flextronics will compensate
Nortel Networks for any fines or penalties that are levied by applicable regulatory bodies as
result of Flextronics’s failure to comply with its obligations under the Compliance Plan. Nortel
Networks will compensate Flextronics for any fines or penalties that are levied by applicable
regulatory bodies as a result of Nortel Networks failure to comply with its obligations under the
Compliance Plan. Nortel Networks and Flextronics agree to address jointly any problems of supply. If Flextronics can
demonstrate that compliance with any EU directives will result in change to costs or delay in
delivery, the Parties will agree on appropriate changes to the Price or delivery schedule, only to
the extent such costs or delays are directly related to the Production Effort. Flextronics
acknowledges that changes to EU directives may result in decreases or increases to costs and that
it will bring any such change to Nortel Networks attention.





	 	 	22.3.2   Indemnification





	 	 	Flextronics agrees to indemnify, defend and hold Nortel Networks harmless from all losses,
liabilities, fines, penalties, costs and expenses (including reasonable legal fees) in connection
with any claim or proceeding made by any Customer, governmental body or other third party resulting
from Flextronics’s failure to comply with its obligations under the Compliance Plan.
	 
	 	 	Nortel Networks agrees to indemnify, defend, and hold Flextronics harmless from all losses,
liabilities, fines, penalties, costs and expenses (including reasonable legal fees) in connection
with any claim or proceeding made by any Customer, governmental body or other third party resulting
from Nortel Networks failure to comply with its obligations under the Compliance Plan.
	 
	 	 	Each party understands that failure by it to follow the requirements of this clause may expose the
other party and its employees to criminal liability and that as a consequence any such failure may
therefore be considered as a material breach of this Agreement.





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	22.4	 	Packaging Reusable and Recyclable



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




	22.5	 	Collaborate on Environmental Initiatives



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




	22.6	 	Hazardous Materials



Flextronics shall supply to Nortel Networks a list of all Materials incorporated into a Product
which are classified as toxic or hazardous under applicable laws and regulations, information on
the safe handling of each Product and any pertinent information concerning any adverse effects on
people or the environment that may result from use of, exposure to, or disposal of such Product. In
addition to its obligations under Section 15, [•] Nortel Networks shall cooperate with Flextronics
to facilitate and minimize the damages, costs and expenses of any recall or prohibition against
such use.



SECTION 23

CONFIDENTIAL INFORMATION





	23.1	 	Restriction on Disclosure and Use of Confidential Information



Any Nortel Company Proprietary Information provided or made available by any Nortel Company to any
Flextronics Company and any Flextronics Proprietary Information provided or made available by
Flextronics to Nortel Networks shall be deemed for the purposes of this Agreement to be
“Confidential Information” of the person disclosing (“discloser”) such information to another
person (“recipient”), except if such information disclosed to recipient is (a) in or becomes part
of the public domain through no fault of recipient; (b) disclosed to recipient by a third party
without breach of any obligation or other restriction; (c) known to recipient at the time of
disclosure and has been so documented prior to receipt thereof; (d) independently developed by
recipient without access to any information furnished to it by discloser and has been or is so
documented; or (e) disclosed by recipient to the extent required to be disclosed pursuant to any
applicable law or order, decree or directive of any competent judicial, legislative or regulatory
body or authority, provided that the recipient shall have provided prior notice to discloser of
such requirement and an opportunity for discloser to take action to contest or attempt to prohibit
or limit such disclosure as permitted by law and such information shall continue to be Confidential
Information for the purposes hereof to the extent disclosure is prohibited or limited by law. All
Confidential Information shall be owned and remain the sole and exclusive property of discloser,
and all rights to Confidential Information made available to recipient by discloser shall be held
in trust by





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recipient for the exclusive benefit of discloser. All Confidential Information of discloser shall
be held in confidence by recipient and, if in a form of any physical media of any kind, returned by
recipient upon request of discloser. Recipient shall not (i) reproduce the Confidential Information
of discloser without the written consent of discloser or (ii) use the Confidential Information for
any purpose other than the performance by recipient of its obligations under this Agreement. Each
Nortel Company and Flextronics Company shall cause each of their respective employees, consultants,
agents and representatives who shall have access to Confidential Information to sign a written
agreement setting forth confidentiality obligations of each such employee, consultant, agent and
representative, substantially in the form of Exhibits 18-1 and 18-2 respectively, which Exhibits
18-1 and 18-2 are attached hereto and incorporated herein by reference. Flextronics shall be liable
for and shall indemnify each NNL and each Nortel Company, its officers, directors, employees,
subcontractors, agents against any losses, claims, costs or expenses arising from the failure of
each of Flextronics Company or Flextronics, its respective employees, consultants, agents and
representatives against any losses, claims, costs or expenses arising from the failure of each
Flextronics Company or its respective employees, consultants, agents and representatives, for
whatever reason, to execute the form of agreement set out in Exhibit 18 hereof or to comply with
the terms thereof, and Nortel Networks shall be liable for and shall indemnify Flextronics or
Flextronics Company, its officers, directors, employees, subcontractors, agents against any losses,
claims, costs or expenses arising from the failure of each of Nortel Network Company or NNL, its
respective employees, consultants, agents and representatives for any
corresponding failures by Nortel Company to Flextronics in respect of such obligations. Each Party
acknowledges that monetary damages may not be adequate in the event of a default of this Section,
and the discloser shall be entitled to injunctive or other affirmative relief and/or to give notice
of default pursuant to this Agreement, or both.




	23.2	 	Publicity



No Flextronics Company shall in any advertising, sales promotion materials, press releases or any
other publicity matters use the name “NORTEL NETWORKS”, “Northern Telecom”, “BNR”, “Bell-Northern
Research”, “Nortel Networks Technology” or the name of any Affiliate, or any variation thereof or
language from which the connection of said names may be implied, nor shall any Flextronics Company
disclose or advertise in any manner the nature of Products or Services which are part of the
Production Effort or any order by Nortel Networks hereunder, or the fact that Flextronics has
entered into this Agreement, unless Flextronics is otherwise required to make such disclosure under
applicable law or Nortel Networks, in its sole discretion, grants Flextronics Company prior written
permission to do so.


No Nortel Company shall in any advertising, sales promotion materials, press releases or any other
publicity matters use the name “FLEXTRONICS INTERNATIONAL LTD.”, “Flextronics” or the name of any
Flextronics Company, or any variation thereof or language from which the connection of said names
may be implied, nor shall any Nortel Company disclose or advertise in any manner the fact that
Nortel Networks has entered into this Agreement, unless Nortel Networks is otherwise required to
make such disclosure under applicable law or Flextronics Parent, in its sole discretion, grants
Nortel Networks prior written permission to do so.





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SECTION 24

INSURANCE




	24.1	 	General Liability Insurance



Flextronics shall maintain during the Amended Term, with insurers with an A.M. Best rating of A- or
better policies providing the following insurance coverage: 1) general umbrella liability insurance
(including contractual and products liability ) with limits of either (US) $10,000,000 combined
single limit per occurrence for bodily injury and property damage or (US) $6,000,000 bodily injury
per occurrence and (US) $4,000,000 property damage per occurrence, 2) workers’ compensation
insurance and other employee insurance coverage required by law, and employer’s liability insurance
with limits of (US) $1,000,000 3) owned or non-owned automobile liability with limits of (US)
$1,000,000 and 4) Errors & Omissions insurance with limits of
not less than (US) $10,000,000.


Nortel Networks shall maintain during the Amended Term, insurance coverage: 1) general liability
insurance (including contractual, products liability and broad form vendors’ endorsement) with
limits of either (US) $10,000,000 combined single limit per occurrence for bodily injury and
property damage or (US) $6,000,000 bodily injury per occurrence and (US) $4,000,000 property damage
per occurrence, 2) workers’ compensation insurance and other employee insurance coverage required by law, and employer’s
liability insurance with limits of (US) $1,000,000.


Flextronics’s insurance shall be primary and non-contributory (except with respect of Errors &
Omissions referred to in subparagraph 4) above, which may be primary and non-contributory as
regards negligence or negligent acts, as applicable) with respect to any insurance that Nortel
Networks may have and each applicable Nortel Company shall be named under Flextronics’s general
liability insurance as an additional insured.




	24.2	 	Property and Business Insurance



Flextronics shall provide evidence satisfactory to Nortel Networks that its property and business
are adequately insured up to at least One Hundred Million dollars limit against all risks of loss
or damage, including business interruption, for at least the amount of the Maximum Foreseeable Loss
as defined within the insurance industry.




	24.3	 	Business Continuity



Flextronics acknowledges that the existence, content and adequacy of its Business Continuity Plan
shall be used by Nortel Networks as part of initial and ongoing assessment criteria for review of
Flextronics’s overall performance under this Agreement. Flextronics shall maintain its property
conservation program to address risks in its worldwide locations. Flextronics will share a
description of this program with Nortel Networks, and shall provide Nortel Networks annually, or as
requested upon reasonable notice, information related to property protection and insurer’s
engineering recommendations for the locations relevant to the Production Effort. Nortel Networks
and/or its insurance companies shall be allowed to





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inspect any Site at any time upon reasonable notice and during normal business hours and to
recommend to Flextronics any appropriate protection improvements. Nortel Networks and Flextronics
shall review any recommendations made as a result of such inspection and Flextronics shall
implement any recommendations or alternative solutions which are mutually agreed.




	24.4	 	Certificate of Insurance



Prior to the commencement of the Initial Term and upon demand of Nortel Networks thereafter,
Flextronics shall furnish to Nortel Networks a certificate or certificates of insurance evidencing
that all insurance required in this Section 24 is in effect. Flextronics will endeavour to provide
at least 30 days notice of any change in insurance coverage which would impact compliance with the
requirements of this Section 24.4. Flextronics shall in such event furnish a new certificate in
the event of cancellation or expiration of any insurance evidencing that replacement coverage is in
effect.



SECTION 25

EXPIRATION OR TERMINATION





	25.1	 	Effect of Expiration or Termination



Upon expiration or any termination of this Agreement, or any termination of any VSHA or removal of
a Product from Schedule A of any VSHA pursuant to Section 1.3, by either Party:




	 	(a)	 	Nortel Networks
shall pay all applicable undisputed amounts or charges owed to Flextronics as provided in this
Agreement. Either Party shall have the right with prior written notification and mutual agreement
to set-off any such amounts or charges owed to the Party against any amounts owing to the other
Party pursuant to this Agreement. If the aggregate amount owing by Nortel Networks to Flextronics
is less than the aggregate amount owing by Flextronics to Nortel Networks, Flextronics shall pay
such net amount owing to Nortel Networks promptly and in full within sixty (60) Business Days of
the date which is the earliest of expiry or termination, as the case may be.
	 	(b)	 	So long as Nortel Networks has made all payments required pursuant to paragraph (a) above,
Flextronics shall complete all partially completed applicable Products and deliver such Products
in accordance with the terms of this Agreement that would have otherwise applied to such
Production Effort or Services, as applicable. Provided Nortel Networks has made all payments
required pursuant to paragraph (a) above, Flextronics shall deliver within three (3) weeks of
the later of the date of expiry or termination or such payment, if required, to Nortel Networks
all finished Pre-Production Products and Products and Material relating thereto in exchange for
payment by Nortel Networks of the Price for Products, direct cost for work-in-process and
Material Cost for Material, to the locations designated by Nortel Networks. For greater
certainty, the obligations of Flextronics in this Section 25.1 (b) shall be in addition to and
not in substitution for the obligations of Flextronics to report on Obsolete Inventory,
including the obligations set forth in Section 3.9.





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	 	(c)	 	The provisions of this Agreement relating to Warranties (Section 13), Sections 18.1 in
respect of Loaned Assets, Sections 19 in respect of Reserved Assets, Confidential and
Proprietary Information (Section 23), Intellectual Property Rights (Section 14) except the
license granted to Flextronics in Section 14.1, Indemnification (Section 15) and Audit (Section
26.4), shall remain in effect beyond any expiration or termination.
	 	(d)	 	Flextronics shall return all Nortel Company Proprietary Information, Loaned Assets and any
Reserved Assets with respect to which Nortel Networks exercises its right to purchase pursuant
to Section 6 of Exhibit 16 to the locations designated by Nortel Networks and under Nortel
Networks’ supervision, either return, destroy or erase all copies of such Nortel Company
Proprietary Information in the possession of any Flextronics Company or any of their respective
employees, consultants, agents or representatives, including copies on paper or other hard copy
and copies on computer or other storage media, provided, however, that this provision shall not
apply to any such Nortel Company Proprietary Information in respect of which Flextronics has a
continuing license or obligation which survives the expiry or termination of this Agreement as
expressly provided herein.
	 	(e)	 	Nortel Networks shall return to the locations designated by Flextronics Parent all
Flextronics Proprietary Information under Flextronics’s supervision, either return, destroy or
erase all copies of such Flextronics Proprietary Information in the possession of any Nortel
Company or any of their respective employees, consultants, agents or representatives, including
copies on paper or other hard copy and copies on computer or other storage media; provided,
however, that this provision shall not apply to any such Flextronics Proprietary Information in
respect of which Nortel Networks has a continuing license or obligation which survives the
expiry or termination of this Agreement as expressly provided herein.
	 	(f)	 	In the event that Nortel Networks exercises its right to terminate the purchase of any
Products pursuant to Section 1.3 or either Party exercises its right to terminate the purchase
or supply of any Products for convenience upon 180 days notice pursuant to Section 1.5, and in
addition to Flextronics’s obligations in this Section 25.1, Flextronics will (a) at the
beginning of the notice period, put in place a dedicated transition team to manage the transfer
of Services back to Nortel Networks or to a third party (b) fulfill all obligations under this
Agreement for the notice period at the same level required under this Agreement (c) upon
reasonable prior notice, allow Nortel Networks and any third party designated by Nortel Networks
access to Flextronics’s Sites and to data and information necessary for a successful transition,
and (d) actively support the transition of the Products to Nortel Networks or a third party
designated by Nortel Networks.
	 	(g)	 	At Nortel Networks option but subject to Flextronics’s agreement, Flextronics shall continue
to perform any requested services for a period of time that continues beyond the expiration or
termination of the Amended Term, on terms and conditions to be mutually agreed upon.





	25.2	 	Termination





	 	(a)	 	In addition to any other right or remedy available to NNL or any Nortel Company under this
Agreement or at law or in equity, if Flextronics breaches any material term of this Agreement or





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	 	 	 	a Purchase Order and such breach is susceptible of cure but is not corrected within fifteen
(15) days after the delivery of written notice thereof by Nortel Networks to Flextronics if
Flextronics defaults in any payment to Nortel Networks and within thirty (30) days after the
date of notice of the breach to Flextronics, NNL may terminate this Agreement and any Nortel
Company may terminate any Virtual Systems House Agreement and the terms of this Agreement
applicable thereto and/or any Purchase Order. For greater certainty, if any Blanket Purchase
Order is terminated, all Demand Pull Orders, Kanban Triggers and Online System Orders relating
thereto shall be deemed to be concurrently terminated. Notwithstanding the foregoing, (i)
Nortel Networks and any Nortel Company shall have the same rights and remedies without the
requirement to wait for thirty (30) days for cure if the breach by any Flextronics Company
relates to Nortel Company Proprietary Information under Section 14 or Section 23 hereof and
such breach is not susceptible of cure; and (ii) Flextronics and any Flextronics Company shall
have the same rights
and remedies without the requirement to wait for thirty (30) days for cure if the breach by
any Nortel Company relates to Flextronics Company Proprietary Information under Section 14 or
Section 23 hereof and such breach is not susceptible of cure.
	 	(b)	 	Regardless of the excuse of Force Majeure, if a Party is not able to perform within ninety (90)
days after such event which constitutes Force Majeure, the other Party may terminate the relevant
Virtual Systems House Agreement in accordance with this Section 25.2 provided such Party purporting
to terminate is not otherwise in default of any of its material obligations under this Agreement.
Such termination of a Virtual Systems House Agreement shall not release or diminish any other
obligations of any Party hereunder under any other Virtual Systems House Agreement and the
applicable provisions of this Agreement thereto.
	 	(c)	 	If any Flextronics Company shall be declared insolvent or bankrupt, or if any assignment of its
property shall be made for the benefit of creditors or otherwise, or if its interest herein shall
be levied upon under execution or seized by virtue of any writ of any court, or if a petition for
assignment for the benefit of creditor is filed in a court is filed by a Flextronics Company to
declare any Flextronics Company bankrupt, or if a petition is filed by any person other than a
Flextronics Company in any court to declare any Flextronics Company bankrupt which is not dismissed
within sixty (60) days of the filing of such petition, or if a trustee in bankruptcy, receiver or
receiver-manager or similar officer is appointed for or in respect of any Flextronics Company or
its assets, then NNL may terminate this Agreement and/or any Purchase Order and any Nortel Company
which constitutes part of Nortel Networks may terminate any Virtual Systems House Agreement and the
terms of this Agreement applicable thereto and/or any Purchase Order, at its option, and without
charge, and shall thereupon be free from all liability and obligations thereunder except as
specifically provided in Section 25.1(c), all subject to applicable bankruptcy and insolvency
legislation which may otherwise provide. For greater certainty, if any Blanket Purchase Order is
terminated, all Demand Pull Orders, Kanban Triggers and Online System Orders relating thereto shall
be deemed to be concurrently terminated.
	 	(d)	 	Flextronics may terminate a Purchase Order only if the Nortel Company which issued the Purchase
Order is in material breach of a term, including, without limitation, any payment





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	 	 	 	obligation of a VSHA or this Agreement or a Purchase Order, and such breach has not been
cured within fifteen (15) days after the delivery of written notice thereof by Flextronics
to Nortel Company defaults in any payment to Flextronics and for any other breach within
thirty (30) days after the date of Flextronics ‘s written notice thereof to the applicable
Nortel Company in respect of the particular breach, provided that Flextronics has sent a
copy of such notice to NNL. The failure of Nortel Networks to pay to Flextronics in a
timely manner any moneys in dispute shall not constitute a material breach hereof.
	 	(e)	 	The Parties agree that the provisions of Exhibit 23 shall apply with respect to those
employees in the United Kingdom or European Union countries who were employed by Nortel Networks
prior to the VSHA Effective Date applicable to Monkstown and Chateaudun System Houses,
respectively, and were transferred to Flextronics pursuant to the Asset Purchase Agreement.




SECTION 26

GENERAL PROVISIONS





	26.1	 	Access to Facilities



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




	26.2	 	Reporting



Flextronics shall submit to each Nortel Company which submitted a Purchase Order, a monthly report
showing for such location the orders issued and Product delivered during the immediately preceding
month, the status of the undelivered portion of an order and any other similar additional
information as may reasonably be requested by such Nortel Company from time to time. Flextronics
shall also submit to NNL a quarterly report showing all Products ordered by and delivered to each
Nortel Company during the immediately preceding quarter in a format to be agreed upon by the
parties.




	26.3	 	Documentation



Flextronics shall maintain documentation and information relating to Prototypes, Pre-Production
Products, Products, and Specifications relating thereto, the Production Effort, Services and
updates thereto consistent with industry best practices, but in no event less than ten (10) years.





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	26.4	 	Audits





	 	 	26.4.1  Agreement Compliance
	 
	 	 	[•]
	 
	 	 	26.4.2  Control & Security Compliance
	 
	 	 	[•]





	26.5	 	Force Majeure



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




	26.6	 	Notices



All demands, notices, communications and reports provided for in this Agreement shall be in writing
and shall be either sent by facsimile transmission with confirmation to the number specified below
or personally delivered or sent by reputable overnight courier services (delivery charges prepaid)
to any party at the address specified below, or at such address, to the attention of such other
person, and with such other copy as the recipient party has specified by prior written notice to
the sending party pursuant to the provisions of this Section:



Nortel Networks:

          Nortel Networks

          3500 Carling Avenue

          Ottawa, Ontario

          Canada K2H 8E9

          Attention: Vice President Supply Management




With a copy to:

          NNL Corporate Secretary

          8200 Dixie Road, Suite 100,

          Brampton, Ontario

          Canada L6T 5P6



Flextronics:

          Flextronics Telecom Systems Ltd.

          802 St. James Court,




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          St. Denis Street,

          Port Louis,

          Mauritius

          Phone: 230 212 7600

          Fax: 230 210 9168

          Attention:
President



With a copy to:

          Flextronics International Inc.

          Room 908, Dominion Centre,

          43-59 Queen’s Road East, Wanchai, Hong Kong

          Attention: President



With a copy to:

          Corporate
Legal Department at the address above




Any such demand, notice, communication or report shall be deemed to have been given pursuant to
this Agreement when delivered personally, when confirmed if by facsimile transmission, or on the
Business Day after deposit with a reputable overnight courier service, as the case may be.




	26.7	 	Independent Contractor



This Agreement shall not constitute Flextronics the agent or legal representative of Nortel
Networks for any purpose and Flextronics shall not hold itself out as an agent of Nortel Networks
other than as expressly provided in this Agreement. This Agreement creates no relationship of
joint venturers, partners, associates, employment or principal and agent between the Parties, and
both Parties are acting as independent contractors. Neither Party shall have the right to exercise
any control or direction over the operations, activities, employees or agents of the other Party in
connection with this Agreement. Other than as expressly permitted or provided elsewhere in this
Agreement, Flextronics is not granted any right or authority to, and shall not attempt to, assume
or create any obligation or responsibility for or on behalf of any Nortel Company or Affiliate.
Flextronics shall have no authority to bind any Nortel Company or Affiliate to any contract,
whether of employment or otherwise, and Flextronics shall bear all of its own expenses for its
operations, including the compensation of its employees, contractors, representatives and agents
and the maintenance of its offices, service, warehouse and transportation facilities. Flextronics
shall be solely responsible for its own employees and sales people and for their omissions, acts
and the things done by them. Other than as expressly permitted or provided elsewhere in this
Agreement, Nortel Networks expressly disclaims any liability for any commitments on behalf of
Nortel Networks made by Flextronics.




	26.8	 	Non-Solicitation of Employees



For the purposes of this Section, “Actively Solicit” shall mean to engage in recruitment activity
(a) by a Flextronics Company which specifically targets any employees of any Nortel Company
(“Nortel Company Personnel”) for the purpose of recruiting such Nortel Company Personnel for
Engagement (as





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defined in the second paragraph of this Section 26.8); or (b) by a Nortel Company which
specifically targets any employees of any Flextronics Company (“Flextronics Company Personnel”) for
the purpose of recruiting any Flextronics Company Personnel for Engagement. Notwithstanding the
foregoing, “Actively Solicit” shall not include generalized employment searches, by advertisements,
engaging firms to conduct searches or otherwise, as long as such searches are not focused on Nortel
Company Personnel or Flextronics Company Personnel. “Engagement” means engagement to supply
services, whether as an employee, independent contractor, consultant, or otherwise.


During the Amended Term and for twelve (12) months thereafter: (a) Flextronics, and each
Flextronics Company, shall not directly or indirectly Actively Solicit or hire Nortel Company
Personnel for Engagement with a Flextronics Company or its Subsidiaries or affiliates, or with
customers of any Flextronics Company or those of their respective Subsidiaries or affiliates; and
(b) Nortel Networks, and each Nortel Company, shall not directly or indirectly Actively Solicit or
hire Flextronics Company Personnel for Engagement with Nortel Networks for Engagement with such
Nortel Company or its Subsidiaries or affiliates, or with customers of any Nortel Company or those
of their respective Subsidiaries or affiliates, provided that this paragraph shall not apply to
Transferring Employees in respect of which Nortel Networks is subject to non-solicitation
provisions under the Asset Purchase Agreement which shall have precedence with respect to such
Transferring Employees. In no event shall the foregoing be construed to prevent Flextronics from
hiring Nortel Company Personnel if such hiring is not a result of Flextronics’s efforts to Actively
Solicit.




	26.9	 	Flextronics Responsible for its Contractors



FTS may subcontract Services or the Production Effort to any FTS Affiliate. Any FTS Affiliate may
also subcontract Services or Production Effort to any non-FTS Affiliate only with Nortel Networks’
prior written approval, which approval may be withheld in Nortel Networks’ sole discretion. The
approval by Nortel Networks of any non-FTS Affiliate subcontractor chosen by Flextronics shall in
no way be construed to relieve Flextronics of any of its duties, responsibilities and obligations
to Nortel Networks under this Agreement.




	26.10	 	Assignment



Except as expressly set forth in this Agreement, neither this Agreement nor any license or rights
hereunder, in whole or in part, shall be assignable or otherwise transferable whether by merger,
operation of law or otherwise, without the prior written consent of the other Party. Any change of
control in fact of a Party shall be deemed to constitute an assignment for the purposes of this
Section.


Subject to the condition that Flextronics is satisfied, upon reasonable evidence, that such future
assignee possesses sufficient creditworthiness and future assignee has accepted the assignment
without reservation, NNL may assign this Agreement or any portion thereof (i) to any of NNL’s
Subsidiaries or company of which NNL becomes a Subsidiary; or (ii) to a person or entity into which
it has merged or which has otherwise succeeded to all or substantially all of its business and
assets to which this Agreement pertains, by purchase of stock, assets, merger, reorganization or
otherwise, and which has





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assumed in writing or by operation of law its obligations under this Agreement. Any attempted
assignment in violation of the provisions of this Section shall be void. In any assignment in case
(ii) above, the person or entity into which NNL has merged or which has otherwise succeeded to all
or substantially all of NNL’s business and assets, shall agree in writing to be bound by the terms
of this Agreement.


Flextronics Parent agrees to give NNL, to the extent legally permissible, notice of the
direct or indirect acquisition by any entity of (1) shares in the capital of Flextronics Parent or
of any Subsidiary of Flextronics Parent who is a party to any Virtual Systems House Agreement, if
rights sufficient to elect a majority of the board of directors of such entity (pursuant to a
shareholders agreement or otherwise) are attached to such shares or such Subsidiary of Flextronics
ceases to be a Subsidiary of Flextronics Parent, or (2) substantially all of the assets of
Flextronics Parent or of such Subsidiary of Flextronics Parent.




	26.11	 	Severability



If any provision of this Agreement is held illegal, invalid or unenforceable by any competent
authority in any jurisdiction, such illegality, invalidity or unenforceability shall not in any
manner affect or render illegal, invalid or unenforceable such provision in any other jurisdiction
or any other provision of this Agreement in any jurisdiction, and such invalid or unenforceable
provision shall be replaced for the purposes of the jurisdiction in which it is held to be illegal,
invalid or unenforceable with an enforceable clause which most closely achieves the result intended
by the invalid provision.




	26.12	 	Governing Law; Waiver of Jury Trial



All issues and questions concerning the construction, validity, enforcement, interpretation and
performance of this Agreement, the rights and obligations arising hereunder and any purchase made
hereunder shall be governed by the laws of the Province of Ontario and the federal laws of Canada
applicable therein, without reference to the UNCITRAL Conventions on Contracts for the
International Sale of Goods and without giving effect to any choice of law or conflict of law,
rules or provisions (whether of such Province or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the Province of Ontario. In furtherance of
the foregoing, the internal Laws of the Province of Ontario shall control the interpretation and
construction of this Agreement, even though under that jurisdiction’s choice of Law or conflict of
Law analysis, the substantive Law of some other jurisdiction would ordinarily apply.


IN THE EVENT OF ANY DISPUTE BETWEEN THE PARTIES, WHETHER IT RESULTS IN PROCEEDINGS IN ANY COURT IN
ANY JURISDICTION OR IN ARBITRATION, THE PARTIES HEREBY KNOWINGLY AND VOLUNTARILY, AND HAVING HAD AN
OPPORTUNITY TO CONSULT WITH COUNSEL, WAIVE ALL RIGHTS TO TRIAL BY JURY, AND AGREE THAT ANY AND ALL
MATTERS SHALL BE DECIDED BY A JUDGE OR ARBITRATOR WITHOUT A JURY TO THE FULLEST EXTENT PERMISSIBLE
UNDER APPLICABLE LAW.





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	26.13	 	Consent to Jurisdiction



The parties hereto submit to and consent to the non-exclusive jurisdiction of Courts located in
each Province within Canada.




	26.14	 	Counterparts



The parties may execute this Agreement in two (2) or more counterparts (no one of which need
contain the signatures of all parties), each of which will be an original and all of which together
will constitute one and the same instrument.




	26.15	 	Entire Agreement; Amendments



This Agreement, including all Exhibits, Virtual Systems House Agreements and Schedules thereto, and
the other transaction documents referenced therein and herein, constitutes the entire agreement
between the parties pertaining to the subject matter thereof and such Exhibits, Virtual Systems
House Agreements and Schedules thereto are incorporated herein by reference. This Agreement
supersedes all prior agreements and understandings between the parties, written or oral, with
respect to such subject matter. No representation or statement of any kind made by a representative
of either Party that is not stated in this Agreement shall be binding. The provisions of this
Agreement may be amended or waived only by an instrument in writing signed by the authorized
representatives of each Party, except as otherwise expressly provided in this Agreement.




	26.16	 	Construction



Unless the context requires otherwise, all words used in this Agreement in the singular number
shall extend to and include the plural, all words in the plural number shall extend to and include
the singular, and all words in any gender shall extend to and include all genders.


Wherever the Agreement uses the expression “including” or “such as” or similar expressions denoting
examples, such expressions shall be interpreted as being “without limitation”.




	26.17	 	Headings



The headings used in this Agreement are for the purpose of reference only and shall not affect the
meaning or interpretation of any provision of this Agreement.




	26.18	 	Time of Essence



Time shall be of the essence of this Agreement, except as otherwise expressly provided in this
Agreement.




	26.19	 	Agreement by All Flextronics Companies





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FTS has entered into this Agreement for and on behalf of itself and its Subsidiaries. FTSs
represents and warrants that it has full power and authority to negotiate this Agreement for itself
and for and on behalf of each of its Subsidiaries.




	26.20	 	[•]




[•]




	26.21	 	Language



The parties have requested that this Agreement and all documents contemplated thereby or relating
thereto be drawn up in the English language. Les Parties ont requis que cette Convention ainsi que
tous les documents qui y sont envisagés ou qui s’y rapportent soient rédigés en langue anglaise.





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Intentionally Left Blank





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IN WITNESS WHEREOF, the parties hereto have signed this Agreement by their duly authorized
representatives, to be effective as of the Amended Effective Date, although actually signed by the
parties on the dates below their respective signatures.



	 	 	 	 	 
	NORTEL NETWORKS LIMITED
	 	FLEXTRONICS TELECOM SYSTEMS, LTD.
	 	 
	 	 	 
	 	 
	 	 	 
	By:	/s/ CHAHRAM BOLOURI	 	By:	/s/ MANNY MARIMUTHU
	 	 
	 	 	 
	Name: 	  Chahram Bolouri

	 	Name: 	  Manny Marimuthu
	 	 
	 	 	 
	Title: 	  President, Global Operations

	 	Title: 	  Authorized Signatory
	 	 
	 	 	 
	 	 
	 	 	 
	 	 
	 	 	 
	By:	 
	 	 	 
	 	 
	 	 	 
	Name:	 
	 	 	 
	 	 
	 	 	 
	Title:	 
	 	 	 






[Signature Page for Amended and Restated Master Contract Manufacturing

Services Agreement]




92









 







List of Exhibits to the Agreement




	 	 	 
	Exhibit 1

	 	Definitions
	 
	 	 
	Exhibit 2

	 	Form of Virtual Systems House Agreement (“VSHA”)
	 
	 	 
	Exhibit 3

	 	Quality System
	 
	 	 
	Exhibit 4

	 	Intentionally Deleted
	 
	 	 
	Exhibit 5

	 	Issue Resolution and Escalation Process
	 
	 	 
	Exhibit 6

	 	Intentionally Deleted
	 
	 	 
	Exhibit 7

	 	Exception Demand Negotiation Process
	 
	 	 
	Exhibit 8

	 	Material Transfer Procedure
	 
	 	 
	Exhibit 9-1

	 	Design Services
	 
	 	 
	Exhibit 9-2

	 	Sustaining Design Services — Optical
	 
	 	 
	Exhibit 10

	 	New Product Introduction
	 
	 	 
	Exhibit 10-1

	 	NPPI NRE Charges
	 
	 	 
	Exhibit 11

	 	Rework Procedure
	 
	 	 
	Exhibit 12

	 	Intentionally Deleted
	 
	 	 
	Exhibit 13-1

	 	Cost Plus Method (Traditional)
	 
	 	 
	Exhibit 13-2

	 	Modified Product Level Pricing Method (MPLP)
	 
	 	 
	Exhibit 13-3

	 	Cost Modeling — Example
	 
	 	 
	Exhibit 14

	 	Ordering Processes
	 
	 	 
	Exhibit 15

	 	Loaned Assets
	 
	 	 
	Exhibit 16

	 	Reserved Assets
	 
	 	 
	Exhibit 17-1

	 	Ongoing Cost Reduction Process
	 
	 	 
	Exhibit 17-2

	 	Incremental Cost Reduction Process
	 
	 	 
	Exhibit 18-1

	 	Form of Agreement to Intellectual Property and Confidentiality (Nortel Networks)
	 
	 	 
	Exhibit 18-2

	 	Form of Employee Confidential Information and Inventions Agreement (Flextronics)
	 
	 	 
	Exhibit 19

	 	NC to SC Transfer Process








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	Exhibit 20

	 	Forecast Consumption
	 
	 	 
	Exhibit 21

	 	Forecasting Process
	 
	 	 
	Exhibit 22

	 	List of Countries Eligible for DDP Terms
	 
	 	 
	Exhibit 23

	 	EU Employment Provisions (Acquired Rights Directive)
	 
	 	 
	Exhibit 24

	 	Sourcing Control
	 
	 	 
	Exhibit 25

	 	Excess Uplift Percentages
	 
	 	 
	Exhibit 26

	 	Information Technology — Responsibilities
	 
	 	 
	Exhibit 27

	 	End State Calculation of NC
	 
	 	 
	Exhibit 28

	 	NC to SC Transfer Criteria
	 
	 	 
	Exhibit 29

	 	Process to Establish Day One Pricing
	 
	 	 
	Exhibit 30

	 	Proposed Commodities for Transfer








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EXHIBIT 1




DEFINITIONS



“Actively
Solicit” shall have the meaning set forth in Section 26.8.


“Allocation” means the percentage of Nortel Networks’ requirements for applicable Products to be
supplied by Flextronics, as set out in the relevant VSHA.


“Affiliate” means individually or collectively:




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



“After Warranty Product” means a Product in which, after the Warranty Period and after such Product
has been shipped to a Customer, Nortel Networks discovers a defect.


“Assembly Cost” means the assembly time multiplied by the assembly rate, identified separately.


“Asset Purchase Agreement” or “APA” means the agreement referenced in the Preamble to this
Agreement.


“AVL” means the Approved Vendor List approved by Nortel Networks.


“Backlog” means the unfilled orders received by Nortel Networks from Customers for Systems or
Products.


“Blanket Purchase Order” or “BPO” means the mechanism by which Nortel Networks
actively issues an open order which specifies the quantities of Products to be built by Flextronics
within a particular time frame but which does not at the time of such order identify all other
information which otherwise would be required in a Conventional Purchase Order.


“BOM” means bill of material.


“Broken Product” means a Product in which Nortel Networks, before shipment to the Customer,
discovers a defect notwithstanding Flextronics’s compliance with the Specification.


“BTO Products” or “Build to Order Products” means Products built by Flextronics in response to
Backlog.





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“BTS Products” or “Build to Stock Products” means Products built by Flextronics in advance of
receipt by Nortel Networks of an order from a Customer.


“Business Continuity Plan” has the meaning set forth in Section 12.1, known to Flextronics as
Business Resumption Plan.


“Business Day” means, for the purposes of dealings between (i) NNL and Flextronics Parent
hereunder, any day other than Sunday, or a statutory holiday or otherwise scheduled holiday agreed
to in writing by the parties on which either of such parties is closed for business; and (ii)
parties to a Virtual Systems House Agreement, any day other than Sunday, or a statutory holiday or
otherwise scheduled holiday agreed to in writing by the parties to such Virtual Systems House
Agreement, on which either of such parties is closed for business.


“Carrying Charge”
means [•] per annum. For Carrying Charge applied to End-of-Life Inventory, the
Carrying Charge will be [•] divided by 4 multiplied by the weighted average Material Cost of the
End-of-Life Inventory over each ninety (90) day carrying period, and payable over such ninety (90)
day period.


“Commencement Date” means the VSHA Effective Date for the last of the following System Houses to be
transferred: Calgary, Montreal, Monkstown, or Chateaudun; provided that the optical designers in
Ottawa and Monkstown and the logistics management and embedded physical repair in St. Laurent and
Calgary must have been transferred.


“Confidential Information” has the meaning set out in Section 23.1.


“Consumable Material” means materials that are consumed in the manufacturing process, such as
solder, but which exclude such items as finished goods packaging, labels, skids, pallets and
shipping packaging materials.


“Control and Responsibility” means, for the purposes of Section 2.4, Flextronics’s performance of
its obligations under this Agreement, including Services and Production Effort, [•]


“Consigned Inventory” shall mean End-of-Life Inventory or Exceptional
Excess Inventory or other Inventory purchased by Nortel Networks but held by Flextronics under the
terms set out in Section 3.6.


“Conventional Purchase Order” means the mechanism by which Nortel Networks actively issues an order
for a Product to Flextronics which sets forth simultaneously in one document or other transmission
by Nortel Networks to Flextronics a description of each of the following in relation to such order:
(a) Product, (b) Price, (c) Delivery Location, (d) the location where the invoice shall be rendered
for payment, (e) method of shipment, (f) quantity and (g) delivery date. For greater certainty, a
Conventional Purchase Order shall not include a Demand Pull Order or other signal to Flextronics by
Nortel Networks which specifies all such information but which references a Blanket Purchase Order.


“Competitor” means any company with more than $50 million in revenues from the development or sale
of telecom, optical or wireless networking equipment.





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“Corporate Standards” means the corporate standards published by Nortel Networks from time to time,
including the Nortel Networks Corporate Standards contained in Schedule G attached to Exhibit 9-1.


“Costed BOM” means a BOM that sets forth the Material Cost.


“Costed Methodology” has the meaning set forth in Exhibit 13.


“Cost Plus Method (Traditional)” has the meaning set forth in Section 11.1 and Exhibit 13.1.


“Currency Conversion” means a factor used in calculating Price or Material Cost, or any part
thereof, for purchases in a currency other than the currency in which Nortel Networks is required
to pay Flextronics hereunder, based on the “FX Bench” forward currency rate as published
by Reuters 12.00 CET on the mutually agreed date for pricing (the “Exchange Rate”), or any other
benchmark as otherwise agreed in the applicable VSHA.


“Custom Equipment” means equipment that can be used only in the manufacture, operation or testing
of the Products, such as functional test fixtures, environmental stress screening racks, custom
hardware and unique power supplies.


“Customer” means a direct or indirect customer of Nortel Networks.


“Defective Product” means a Product in which, during the Warranty Period and before such Product is
shipped to a Customer Nortel Networks discovers a defect or non-conformance to the Specification
caused by Flextronics, Flextronics’s contractor or supplier.


“Delivery Location” means the location to which a Product is to be delivered by Flextronics as set
forth on the applicable Purchase Order, or Demand Pull Order, Kanban Trigger, Online System Order.


“Delivery Facility” means the applicable Flextronics facility from which Products are shipped to
the Delivery Location.


“Demand Pull Order” means any mechanism, other than a Kanban Trigger, by which Nortel Networks
actively issues any signal to Flextronics to provide Products to fulfill an outstanding Blanket
Purchase Order, which signal shall set forth a description of each of the following: (a) Product,
(b) a reference to the relevant Blanket Purchase Order number, (c) quantity, and (d) delivery date,
and (e) if not already specified in the applicable Blanket Purchase Order, (i) Delivery Location
(ii) the location where the invoice shall be rendered for payment, and (iii) method of shipment.


“Depreciated Cost” means Flextronics’s depreciated capital cost of the Reserved Assets and of
improvements thereto based on the price paid by Flextronics to Nortel Networks for the Reserved
Assets and the cost of improvements thereto made by Flextronics in accordance with Exhibit 16
established in accordance with generally accepted accounting principles applicable in Canada
consistently applied from the Effective Date or Amended Effective Date, as applicable, to the date
of repurchase.





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“Design Order” means an order for Services pursuant to Section 6.1 of this Agreement, but does not
include a Purchase Order.


“Design Services” means the services provided by Flextronics to Nortel Networks to produce pursuant
to a Design Order.


“DFx
Process” or “Design for x” means, collectively, design for manufacturability, design for
cost, design for supply chain optimization, design for test and design for any other parameter as
agreed by the Parties.


“Direct Successor” means all New Products that are not New Platforms. Direct Successors are
indicated by a change to the last two positions in the eight-position product engineering code
(“PEC”). For example, the PEC changes from NT9X10AA to NT9X10AB.


“DOA” or “Dead on Arrival” means a Product that fails upon first use to operate in conformance with
the Specification.


“ECO” or “Engineering Change Order” means a direction in the form of an engineering change order to
make a change to a Product including a change to the design, manufacture, or test procedure for a
Product.


“ECO Impact Form” means the form to be completed by Flextronics in response to an ECO.


“EDI” means electronic data interchange.


“Effective Date” means the date set out in the first recital of this Agreement.


“EMS Products” means Products/or products such as Printed Circuit Board Assemblies
(PCBAs), and electromechanical assemblies products which are sold under the Nortel Networks name
and Nortel Networks has exclusive manufacturing rights to the product. For additional clarity, EMS
Products are normally sourced from EMS Suppliers such as Flextronics, Solectron Sanmina-SCI or
Celestica and an example is the MFRM2 NTGY31HA sourced from Celestica.


“EMS Suppliers” means electronic manufacturing service suppliers, which supply EMS Products.
Examples of EMS Suppliers are Flextronics, Celestica, Solectron and Sanmina-SCI.


“End-of-Life Inventory” means Materials that are necessary for the manufacture of the Products or
for related repair Services and which have been or are scheduled to be discontinued by Tier 2
Suppliers.


“Engagement” shall have the meaning set forth in Section 26.8.


“Engineering Services” mean those Services described in Section 6.3.


“Epidemic Condition” means when one or more of the following conditions occur:




	 	(a)	 	Failure reports, internal and from the field, or statistical samplings show that
[•]or more of the same Product installed, or such percentage as set out in the
applicable VSHA or more of the same Product shipped during any one month, contains an
identical,






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	 	 	 	repetitive defect[•] including any defect affecting the safety or regulatory
compliance of a Product.
	 	(b)	 	DOA Product failures equal or exceed [·] of all shipments received by Nortel
Networks and its Customers for a given Product during any one-month period.



“ESP” means electronic systems packaging.


“Exception Demand Negotiation Process” means the process described in Exhibit 7.


“Exceptional Excess Inventory” shall have the meaning set out in Section 3.6.


“Fees” has the
meaning set out in Section 11.1.


“Flextronics” means Flextronics and, as applicable, any
Flextronics Company.



“Flextronics Company” means any FTS Affiliate that is to deliver Products to fulfill a Purchase
Order or Online System Order received pursuant to this Agreement and the relevant Virtual Systems
House Agreement.


“Flextronics Invention” means any innovation, improvement, idea or feature, whether or not
patentable or registerable, which is conceived or created in the course of the performance by
Flextronics of the Production Effort or any Services, but shall not include any Product Specific
Inventions.


“Flextronics Proprietary Information” means information, technology, processes, or
other proprietary property, including copyrights, trade secrets, know-how, mask work rights, any
waiver to moral rights, patents and/or patent applications in any form or medium developed or
acquired by Flextronics or its licensors other than Nortel Networks, but for greater certainty,
does not include the following: (i) Nortel Company Proprietary Information or such information or
processes listed above which are derived from Nortel Company Proprietary Information; (ii) the
Specifications and all deliverables resulting from the Production Effort and Services; (iii)
Reserved Assets; (iv) Loaned Assets; (v) Product Specific Inventions; and (vi) such information,
technology, processes, etc. developed or arising out of Services funded by Nortel Networks under
this Agreement, except as otherwise set out under the Design Order.


“Flextronics Systems ” shall mean all software and systems used by Flextronics in the supply of
Products or other performance of this Agreement.


“FTS Affiliate” means, as to Flextronics, any other Person that directly or indirectly Controls, or
is under common Control with, or is Controlled by, Flextronics. For the purposes of this
definition, “Control”, including, with its correlative meanings, “Controlled by” and “under common
Control with”, has the meaning ascribed thereto in the Canada Business Corporations Act.


“Force Majeure” means all acts or events beyond the reasonable control of a Party. This definition shall
not include any act or event that would have been prevented, or the effects of which would have
been substantially mitigated, by implementation of a Business Continuity Plan in accordance with
best practices in the relevant equipment manufacturing industry for telecommunications by Supplier
as





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required under Section 12.1, unless Supplier demonstrates that it has made a good faith effort to
implement such a plan. For clarity, the following will be considered an event of Force Majeure: an
act of God, act or decree of governmental or military bodies, strike, lock-out, fire, casualty,
flood, earthquake, war, epidemic, destruction of production facilities, riot, insurrection;
provided however a Party’s failure to resolve its own labour difficulties such as strike or
lock-out shall only be considered an event of Force Majeure if that Party (i) has included specific
action plans related to strikes and lock-outs in its Business Continuity Plan (ii) is in compliance
with fair labour practices under the law of the applicable jurisdiction, and (iii) has made
commercially reasonable efforts to resolve such labour difficulties.


“Freight and Duty” means incoming freight and applicable duty on incoming Material.


“FTP” means file transfer protocol.


“General and Administrative Costs” means costs attributable to finance, human resources, systems,
executives, and non-manufacturing facilities and excludes costs attributable to sales.


“Government Entity” means any federal, provincial, state, municipal or other governmental
authority, domestic or foreign, or any entity exercising executive, legislative, judicial,
regulatory, or administrative functions of government.


“ICT” means in-circuit testing.


“Initial Return
Rates” or (“IRR”) has the meaning set out in the VSHA.


“Integrated OEM Products” means OEM Products to be procured by Flextronics or other suppliers for
integration or assembly into Nortel Networks products. An example of an Integrated OEM Product is
the NTGY71AB power amplifier sourced from Powerwave.


“Integration Services” means those services described in Section 6.2.


“Inventory” means Material purchased by Flextronics, work-in-process and finished Products, to
which Flextronics is committed with a view to fulfilling the Market Forecast.


“IRM Products” means installer related Material or products used at the installation site.


“Issue” has the meaning set out in Section 2.8.


“Kanban Trigger” means the quantity threshold for a Kanban container that triggers the requirement
for Flextronics to deliver to Nortel Networks, in satisfaction of an outstanding Blanket Purchase
Order, such Product in order to replenish Products in a Kanban container, as specified in a Virtual
Systems House Agreement.


“Labour Cost” means the direct labour rate per hour specified in a Virtual Systems House Agreement
for Flextronics to perform an activity applicable to a Product at a Site. For greater certainty,
the Labour Cost may vary for each Site, for each Product, and/or specific activity relating to a
Product.





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“Leadership Category” means a business division within Nortel Networks, which is currently
designated as one of Wireless Networks, Optical Networks, Wireline Networks and Enterprise
Networks.


“LIBOR Rate” means, for any date of determination, the London Interbank offered rate for deposits
in U.S. dollars for an interest period of 30 days.


“Loaned Assets” means test equipment, associated software control Programs, and ancillary equipment
which are owned by Nortel Networks and provided to Flextronics from time to time for the purposes
of facilitating the Production Effort undertaken by Flextronics, including test fixtures,
templates, meters, oscilloscopes, spares, tools, dies, jigs, fixtures, instruction manuals,
training materials and test samples, as set forth in the Virtual Systems House Agreement as amended
by Nortel Networks from time to time. For greater certainty, Loaned Assets do not include Reserved
Assets.


“Logistics Operations
Services” means those services including i) warehouse services, ii)
transportation coordination and management, iii) export services, iv) packaging and labelling, v)
inventory control and reporting, vi) trade and compliance. All Logistics Operations Services shall
be included in the Transformation Costs. The Logistics Operations Services shall include all costs
up to the point that Products are shipped from
any Delivery Facility, plus any required post shipment support identified in Exhibit 1-B in the
Logistics Services Agreement.


“Logistics Services Agreement” means that certain agreement executed between the Parties as of the
June 29, 2004.


“Manufacturable Products” includes EMS Products and System House Transformation Costs but excludes
direct and indirect purchases of OEM Products, NI-OEM Products, I-OEM Products, IRM, ODM Products
and products sourced from Telrad (“Non-Manufacturable Products”).


“Manufacturing Licensee” means a third party which enters into an agreement with Nortel Networks to
manufacture, in modified or unmodified form, Products, whether or not associated with a right to
lease, sell, sublicense or otherwise distribute (directly or indirectly through distributors) such
Products under the brand name of a Nortel Company or that of the Manufacturing Licensee.


“Margin” means the difference between selling price and cost, expressed as a percentage of the
selling price. For instance, Margin @ 5.0% = $100 ÷ 0.95 -$100 = $5.26.


“Market Forecast” means a rolling, forward-looking, top-level twelve-month estimate of Nortel
Networks’ requirements for a Product as amended from time to time, which shall not be binding on
Nortel Networks. The level of detail included in the Market Forecast shall be consistent with
Flextronics’s activity level agreed to by the Parties and identified in the VSHA. The Market
Forecast requirements for a Product shall be shown in monthly increments.


“Material” means any material used in manufacturing a Product, or engineering, assembling, testing
or configuring of a Product, including any component(s) and Integrated and non-Integrated OEM
Products, installer-related material (“IRM”) and EMS Products (including any purchases from Telrad,
where applicable). Material does not include Consumable Material(s).





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“Material Cost” means Flextronics’s actual unburdened cost of Material as set forth and verifiable
by Flextronics’s purchase order with its Material supplier. This cost will take into consideration
all rebates and favourable payment terms (cash, term or other). Material Cost will be broken down
further into printed circuit assembly, box build, and configuration Material.


“Material Markup” means the difference between selling price and cost, expressed as a percentage of
cost. For instance, Material Markup @ 1.5% = 100 * 1.5% = $1.50.


“Material Overhead” means the combined percentage of inbound freight and duty plus the actual cost
of acquisition of Material.


“Material Lead Time” means the lead time recorded on Flextronics’s MRP system at the time of
procurement of Inventory or at the time of the cancellation of the Purchase Order or termination of
this Agreement, whichever is greater.


“Materials Management Services” means those services to be provided by Flextronics described in
Section 4.4.


“Minimum
Commitment” means of Nortel Networks spend on Manufacturable Products.


“Modified Product Level Pricing” shall have the meaning set out in Section 11.1.


“MPLP Process” means the process for determining the Modified Product Level Pricing, as set out in
Section 11 and Exhibit 17.


“MRP” means material requirement plan.


“NC Material” or “NC” means Material or services which are sourced under a contract or other
commercial relationship with Nortel Networks and Nortel Networks retains Sourcing Control.


“NC Supplier” means a supplier with which Nortel Networks has entered into a contract or other
commercial relationship for the supply of Material or services.


“New Product” means a Manufacturable Product not previously listed on a Schedule A to a VSHA or
sourced by Nortel Networks under an agreement with any EMS Supplier. For clarity, a New Product
includes New Platforms of a Manufacturable Product but not any Direct Successor.


“Non-integrated OEM
Products” or “NI-OEM Products” means OEM Products to be procured by Flextronics
but which are not integrated or assembled into Nortel Networks Products or products. An example of
a Non-Integrated OEM Product is a Sun Workstation A0747524.


“Nortel Company” means NNL or any of its Subsidiaries.


“Nortel Company Proprietary Information” means:




	 	(a)	 	Programs;
	 	(b)	 	technology, designs or other information that enjoy issued or pending statutory
proprietary protection, including patents, copyrights, waivers of moral rights, mask





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	 	 	 	work rights or integrated circuit topography registrations, industrial design
registrations or design patents but not trade-marks or other indicia of origin;
	 	(c)	 	confidential or non public business information including ideas, formulae, plans,
proposals, designs, schematics, drawings, flow charts, product and process and test
specifications, trade secrets, know how, technical data, algorithms, databases, and
technical reports, and customer, marketing and financial information;



embodied in any form or medium and owned or developed by or on behalf of a Nortel
Company or acquired from its licensors with rights to disclose or sublicense that pertains to
Nortel Company’s business, including Products and their design, manufacture, use and testing and
Pre-Production Products, Systems, Specifications and all deliverables resulting from the Production
Effort, Forecast, and Product Specific Inventions or any Flextronics Proprietary Information deemed
to be owned by a Nortel Company pursuant to Section 14.4 hereof;


“Nortel Networks” means NNL or, as applicable, any Nortel Company that has become a Party to this
Agreement by entering into a Virtual Systems House Agreement.


“Nortel Networks Vendor” means an Affiliate or any Person who supplies products or services to
Nortel Networks.


“No Warranty Product” means a Product which, after such Product has been shipped to a Customer,
Nortel Networks discovers a defect notwithstanding Flextronics’s compliance with the Specification.


“NPPI” means new product and process introduction. Nortel Networks’ NPPI process is further
described in Section 7 and Exhibit 10.


“NPPI
Services” are those Services set out in Section 7.


“Obsolete
Inventory” has the meaning set out in Section 3.7.


“ODM Products” means original design manufacturer products where a company other than Nortel
Networks designs in whole or in part a product or Product for Nortel Networks and Nortel Networks
does not have exclusive manufacturing rights to the product. Examples of ODM Products are (i)
Baystack 420 sourced from Accton, and (ii) i2004 VoIP phones from Wistron.


“OEM Products” means original equipment manufactured Material that Nortel Networks has no rights to
manufacture or have manufactured or to determine supply chain strategy.


“Online System Order” is an order for a product that is deemed to be issued by Nortel Networks to
Flextronics in reference to an outstanding Blanket Purchase Order issued for such Product under the
mechanism provided in Section 3.4.3 pursuant to which Flextronics is required to monitor Nortel
Networks requirements and supply Products to meet such requirements.


“Order Fulfillment” means preparation of Product for shipment, including all applicable
documentation, in accordance with the provisions of Section 3.11, excluding the cost of packaging.





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“Out of Box Audit” means the audit time multiplied by the audit rate, identified separately, to
perform an audit upon a random sampling of Product from Flextronics’s finished goods that is
audited per the Specification.


“Overhead” means the overhead cost specified in a Virtual Systems House Agreement attributable to
performance by Flextronics of an activity applicable to a Product at a Site. For greater
certainty, Overhead may vary for each Site, for each Product, and/or specific activity relating to
a Product.


“Packaging” means the cost of packaging materials required to ship a Product in accordance with
Section 3.11


“Party” means either NNL or Flextronics Parent and “Parties” shall mean both NNL and Flextronics
Parent.


“Person” means an individual, a partnership, a corporation, an association, a limited liability
company, a joint stock company, a trust, a joint venture, an unincorporated organization or a
Government Entity.


“Pilot” means a limited quantity of a product to be deployed on a trial basis, which product has
not yet been commercially released by Nortel Networks to its Customers.


“Pre-Production Product” means either a Pilot or a limited quantity of Product, sometimes known as
“Alpha” or “Beta” Product.


“Price” means the amount calculated as the sum of the following: Material Cost + Material Overhead
+ Assembly Cost + Test Cost + General and Administrative Costs + Out of Box Audit + Warranty Cost +
Order Fulfillment + Profit + Freight and Duty + Packaging + Currency Conversion + cost of Logistics
Operations Services.


“Pricing Method” means Cost Plus Method (Traditional), Modified Product Level Pricing Method (MPLP)
or Product Level Pricing (PLP), as set out in Section 11.1.


“Product” means the product to be manufactured, assembled or supplied by a Flextronics Company
pursuant to a specific Virtual Systems House Agreement, excluding Prototypes except to the extent
that such Prototypes have been ordered by Nortel Networks pursuant to a Virtual Systems House
Agreement, in which case they are deemed to be Products for the purposes of this Agreement.


“Product Family” means the grouping of Products as set out in Schedule A to the relevant Virtual
Systems House Agreement.


“Product Goals” means the goals stated in the business plan which is part of each Specification.


“Product Level Pricing” has the meaning set forth in Section 11.1.


“Product Life-cycle Planning” means, collectively, NPPI and end-of-life Product planning.


“Product Specific Inventions” means Flextronics innovations, improvements, ideas or features
relating to or incorporated in a Product, but not including any such innovations, ideas or feature
relating solely to manufacture processes for the Product.





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“Product Quality” means the extent of compliance of a Product to the Specifications.
Products are manufactured, assembled or created to an expected level of conformance or performance.


“Production Effort” means work using manufacturing process technology and administrative
processing, including Materials procurement and management, cost containment management, program
management, NPPI, planning, and assembly processes and Test Processes, to produce Prototypes,
Pre-Production Products and/or Products and includes rework and repair thereof.


“Profit” means a percentage applied to certain specified cost elements.


“Programs” means software used or retained for use in the Production Effort, Prototypes,
PreProduction Products, Products, or Services in whatever form, including that which is ROM
resident, listings, flowcharts, logic diagrams, operating instructions, and any other related
documentation, whether or not described in the Specification.


“Proposal” means the document prepared by Flextronics and provided to Nortel Networks in response
to a Request for Proposal, and which includes, at a minimum, Flextronics’s quotation for the Design
Services referenced in the applicable Request for Proposal for the price, delivery dates, and any
cost reduction opportunities relating to the specifications set forth in the Request for Proposal.


“Prototype” means a full scale, functional model or technology trial of a proposed Product
including a proof-of-concept, which is built by a Flextronics Company in accordance with
Specifications for the purpose of a NPPI.


“Purchase Order” means a Blanket Purchase Order or a Conventional Purchase Order, but does not
include a Design Order.


“Quality Process” means the quality assurance procedures, methods and mechanisms that assure
consistency and control in producing a product or service. It also includes appropriate reviews,
tests, and reports that provide for process evaluations and continuous improvements as more
completely specified and in Section 2.1(d), 2.2(e), 2.3 and 2.4, and in Exhibit 3, and in the
relevant Virtual Systems House Agreement.


“Quarter” or “quarter” means calendar quarter, and “quarterly” means on the basis of a calendar
quarter.


“Quarterly Business Review” or “QBR” means a review by the Parties together of the business
operations conducted in accordance with a formal process once each quarter.


“Repair Product” means, collectively, all Warranty Products, After Warranty Products and No
Warranty Products.


“Repair Services
Agreement” (RSA) means that agreement executed between the Parties June 29, 2004.


“Rework Services” are those Services set out in Section 9 and Exhibit 11.





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“Reserved Assets” means all test fixtures, functional test equipment, and system test equipment
unique to Nortel Networks as well as those assets included in the Subject Assets as defined in the
Asset Purchase Agreement which are identified in the Virtual Systems House Agreement and which may
be repurchased by Nortel Networks from Flextronics pursuant to the provisions of Section 19 of this
Agreement.


“Request for Proposal” means the document issued by Nortel Networks to Flextronics describing
design services required by Nortel Networks.


“Rework Fee” has the meaning set out in Exhibit 11.


“Rework Product” means, collectively, all Defective Products and Broken Products.


“RMA” means a return material authorization.


“SC
Material” or “SC” means Material or services sourced under a contract or other commercial
relationship with Flextronics, and Flextronics retains Sourcing Control.


“SC Supplier” means a supplier with which Flextronics has entered into a contract or other
commercial relationship for the supply of Material or services.


“Services” means work performed to enhance the Production Effort or provide additional value to
Nortel Networks as set out in this Agreement and includes, without limitation. Integration
Services, Engineering Services, Materials Management Services, Repair and Rework Services NPPI
Services, SIF Services and Other System House Support Services but shall not include Design
Services or Sustaining Design Services.


“SIF Services” means those Services described in Section 6.5.


“Ship-Loose” means a Product or Material that may be assembled, tested, configured and/or
disassembled by Integrator prior to delivery thereof in Product form.


“Site” means Flextronics’s facility identified in the relevant Virtual Systems House Agreement.


“Source Inspection” means a quality audit of a business process of Flextronics at the Site or a
part or assembly performed by Nortel Networks at the point of fabrication and/or assembly prior to
shipment.


“Specification” means technical information provided by Nortel Networks on the function and quality
goals relating to a Prototype, Pre-production Product, or Product, and as applicable may include
the BOM, AVL, test procedures, functional and quality goals, assembly documentation, circuit board
art work, Gerber files, assembly and fabrication drawings, schematics, other design documents,
Programs, business plan, manufacturing processes and related services, as applicable, as specified
in the relevant Virtual Systems House Agreement.


“Standard Lead Time” means the period of time agreed upon in the relevant Virtual Systems House
Agreement which shall be between the date that Flextronics receives a
Purchase Order or Online System Order from Nortel Networks and the date such Order is delivered to
Nortel Networks.





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“Subsidiary” means, with respect to any specified Person, means any corporation with respect which
the Person directly or indirectly owns more than fifty percent (50%) of the issued and outstanding
equity securities or securities convertible into such securities or has the power to vote or direct
the voting of sufficient securities to elect a majority of the directors. With respect to the
Parties, a specified Person shall be Nortel Networks Corporation and Flextronics International Ltd.


“Sustaining Design Services” means the services described in Exhibit 9-2


“System” means a Nortel Networks’ product comprised of various components and sub-assemblies and
which incorporates one (1) or more Products.


“Systems House” means Operations, as defined in the APA, relating to each of the Nortel Networks
facilities at Calgary, Montreal, Monkstown, Chateaudun and Campinas, respectively.


“Tax” means any federal, state, provincial, local or foreign taxes or other impositions by any
Government Entity, including the following taxes and impositions: net income, gross income,
individual income, capital, value added, goods and services, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, business, real property, gains, service, service use,
withholding, payroll, employment, excise, severance, occupation, premium, property, license, lease,
stamp, windfall profits, customs, duties or other type of fiscal levy and all other taxes, fees,
assessments, deductions, withholdings or charges of any kind whatsoever, together with any interest
and penalties, additions to tax or additional amounts imposed or assessed with respect thereto.


“TDI” means technical data interchange.


“Term” has the meaning set out in Section 1.5.


“Test Cost” means the test time multiplied by the test rate, identified separately, for any
applicable test associated with the testing of Product supplied to Nortel Networks.


“Test Process” means the process for testing Products, including test capacity planning, testing
Products, and performing preventative maintenance on the test equipment as more specifically set
forth in the relevant Virtual Systems House Agreement.


“Third Party Repair Operation” means a third party servicing operation that has been approved by
Flextronics and Nortel Networks such that Product sent to such entity for repair shall not
invalidate or otherwise affect the warranty obligations of Flextronics as set forth in this
Agreement. For greater certainty, in the event Nortel Networks elects to have a Product which is
listed as a product to be repaired by Flextronics pursuant to the MRSA, Flextronics shall be deemed
to be a Third Party Repair Operation for the purposes of such repair.


“Third Party Rework Operation” means a third party servicing operation that has been approved by
Flextronics and Nortel Networks such that Product sent to such entity for rework shall not
invalidate or affect any of the warranty obligations of Flextronics as set forth in this Agreement


“Threshold Commitment” shall have the meaning set out in Section 4.0 of Exhibit 17





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“Tier 1 Supplier” means Flextronics.


“Tier 2 Supplier” means a Material supplier to Flextronics which is either a NC Supplier or a SC
Supplier.


“Time-to-Cancel” means the time period within which Flextronics may cancel, without being required
to pay any penalty or additional charge, an order for Material placed by Flextronics with a Tier 2
Supplier, as more particularly described in the Time-to-Cancel Report.


“Time-to-Cancel Report” means the report referred to in the Virtual Systems House Agreement.


“Total Cost” means the manufacturing and sustaining total cost associated with providing the
Product, including, but not limited to direct and indirect Material cost, scrap, shrinkage, direct
and indirect labour and overhead, capital depreciation costs, corporate overhead, logistics
(excluding outbound freight and duty), and warranty costs.


“Trade-Marks” mean words, designs, shapes, configurations, guises or brands that serve as
indications that the origin of Products is Nortel Networks and includes model numbers and product
designations as used both internally and externally on the Products or in conjunction with their
sale or other distribution.


“Transformation Cost(s)” means the total difference between Price paid by Nortel Networks for the
Product and total Material Cost, and includes Material Overhead, Labour Cost, Overhead Cost,
Warranty Costs, Profit, Cost of Logistics Operations Services, sales and general administrative
costs, and any uplift percentages agreed upon.


“Upgrade Fee” has the meaning set out in Exhibits 11 and 12 hereof.


“Unique Inventory” means all Material that cannot be sold to other customers, suppliers or brokers
due to proprietary design or IP ownership or commercial Material that was altered by form, fit or
function to meet Nortel Networks requirements, such as Nortel Networks designed custom asic’s,
printed circuit boards, fabricated metal castings or plastic parts, documentation or literature,
custom packing (boxes), labelling, or Material with Nortel Networks logo or part number applied.
Unique Inventory does not include Material i) that is better than parts, such as tighter tolerances
or higher levels of gold plating, or ii) has unique packing requirements even though different
manufacturer part number, such as reel sizing, tubes versus tape and reel, or loose.
Notwithstanding the foregoing, commercially available Material that can be sold to someone else
other than Nortel Networks but where Flextronics does not have any other customers using this
Material and Nortel Networks demand is greater than 65% of the world wide demand shall also be
considered Unique Inventory. Unique Inventory may be supplied by both NC and SC Suppliers.


“Virtual Systems House” means a Nortel Networks location that shall receive Products.


“Virtual Systems House Agreement” shall mean any Virtual Systems House Agreement agreed upon in
writing between Nortel Networks and Flextronics, a form of which is attached hereto as Exhibit 2,
which when executed, together with its Schedules, shall form part of this Agreement.





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“Warranty Cost” means the percentage calculated to provision for the expected warranty costs of
Product in accordance with Section 13.


“Warranty Period” means twenty-four (24) months, or other period as set out in the Virtual Systems
House Agreement, following the date that Nortel Networks receives a Product at the Delivery
Location as agreed upon in the Virtual Systems House Agreement or Design Order.


“Warranty Product” means a Product in which, during the Warranty Period and after such Product has
been shipped to a Customer, Nortel Networks discovers a non-conformance to the Specification.


“Year One” means the twelve months following the Commencement Date.


“Year Two” means the twelve months following the first anniversary of the Commencement Date.


“Year Three” means the twelve months following the second anniversary of the Commencement Date.


“Year Four” means the twelve months following the third anniversary of the Commencement Date.




109