##### 



EXHIBIT 10.7 Confidential Portions omitted and filed separately with the Securities and Exchange
Commission. Bullet points denote omissions.  TO:
    
    FLEXTRONICS INTERNATIONAL LIMITED  Re:
    
    Asset Purchase Agreement (APA) and Amended and Restated Master Contract Manufacturing
Services Agreement (MCMSA) between Nortel Networks Limited (the Seller) and Flextronics
International Limited (the Purchaser) dated June 29, 2004  1.
    
    In connection with the transactions contemplated in the APA and the MCMSA, and in
recognition of the period in respect of which the Transferred Employees were employed as
employees of the Seller or Designated Seller, and in connection with an associated ICR
commitment made by the Purchaser or Designated Purchaser, the Seller or Designated Seller
wishes to set out in this Letter the terms and conditions of the parties agreement
relating to certain post-closing Severance Cost payments to be made by the Seller or
Designated Seller.2.
    
    Any capitalized term contained in this Letter which is not defined herein shall have
the meaning set out in the APA or the MCMSA, as the case may be. The following terms shall
have the following meanings:  Nortel Networks Systems Houses means the Operations housed in the Calgary
Westwinds Facility, Monkstown Facility, Montreal BAN 1 Facility, Montreal BAN 3
Facility, Montreal BAN 3 Facility and Montreal OPTO 1 Facility.Severance Costs means:  (i)
    
    for Alberta and Ontario Transferring Employees, the statutory and common law
entitlements of an employee whose employment is terminated by the Purchaser or
Designated Purchaser, based on the factors recognized by the relevant Government
Entities including, without limitation, courts of competent jurisdiction, and
reasonable outplacement fees;(ii)
    
    for Quebec Non-Union Transferring Employees, the entitlements under the Laws of
the Province of Quebec, of an employee whose employment is terminated by the Purchaser
or Designated Purchaser, based on the factors recognized by the relevant Government Entities including, without limitation, courts of
competent jurisdiction, and reasonable outplacement fees;(iii)
    
    for Quebec Union Transferring Employees, the entitlements under the relevant
Collective Labour Agreement and as provided under the Laws of the Province of Quebec of
an employee whose employment is terminated by the Purchaser or Designated Purchaser;(iv)
    
    for UK Transferring Employees, means;  (a)
    
    pay in lieu of contractual notice (where such notice is not worked);
including employers National Insurance contribution, where applicable. For the
absence of doubt, a payment in lieu of contractual notice shall include a
payment in lieu 1




---



##### 



of employee benefits in accordance with the Sellers or Designated Sellers
current UK policy and practice.(b)
    
    any required statutory redundancy payment(c)
    
    an additional payment calculated in accordance with the attached Schedule A.Such UK Severance Costs shall exclude, for the avoidance of doubt, any amount
claimed by or paid to a UK Transferring Employee in respect of unfair dismissal,
protective award or discrimination, or pursuant to the fair employment legislation
of Northern Ireland; and,(d)
    
    reasonable outplacement fees.  (v)
    for the U.S. Transferring Employees,
[] of the severance pay in accordance with
Purchasers obligations pursuant to Section D-9.9 of Exhibit D-9, and reasonable
outplacement fees.  Terminated, Terminates, Terminate or Termination refers to a cessation of employment
of a Transferring Employee initiated by the Purchaser or Designated Purchaser (including, but not
limited to a termination by reason of redundancy) and, without limiting the generality of the
foregoing, includes a layoff with no right of recall (applies only to Quebec Union Transferring
Employees), and temporary layoffs deemed to be a termination of employment under applicable law.3.
    
    Subject to the conditions of this Letter, in the event that:
(1) within a period of []
following the applicable Effective Date of the applicable Close the Purchaser or Designated
Purchaser Terminates the employment of any Transferring Employee; and (2) as a direct result
of said Termination, the Purchaser or Designated Purchaser incurs a cost within a period of
[] following the applicable Effective Date of the applicable Close, the Seller or Designated
Seller shall, in accordance with paragraph 5(e), reimburse the Purchaser or Designated
Purchaser for any Severance Costs it has actually incurred.4.
    
    Seller or Designated Seller agrees that:  (a)
    
    prior to providing notice of termination or Terminating the employment of any
Transferring Employee, the Purchaser or Designated Purchaser shall consult with Seller or
Designated Seller regarding its plans as early as practicable. It shall be a condition of
any reimbursement, however, that such consultation shall occur in no event later than
twenty (20) Business Days prior to the issuance of any notice of termination or redundancy
or, in the UK, on or about the date of commencement of the information and consultation
process with the relevant employee representatives, if earlier, in order to facilitate
discussion between the Seller or Designated Seller and the Purchaser or Designated
Purchaser regarding any potential alternatives to Termination of employment and regarding
strategies to reduce Severance Costs;(b)
    
    prior to providing notice of Termination, or Terminating the employment of any
Transferring Employee, if reimbursement is to be claimed hereunder for resulting costs, the
Purchaser or Designated Purchaser shall have made commercially reasonable efforts,
consistent with its cost reduction objectives, to avoid the 2




---



##### 



Termination of Transferring Employees, including but not limited to the termination
of the employment or services of individuals, other than Transferring Employees,
that are employed at the same facility and providing the same or substantially
similar services at an equivalent level of performance, to the extent permitted by
applicable Law;(c)
    
    in consideration of any payments it makes to Transferring Employees it has Terminated
in excess of their statutory termination entitlements, the Purchaser or Designated
Purchaser shall seek to obtain a general release from such Transferring Employee, including
a release of claims against the Seller and its Affiliates, and specifically in relation to
any UK Transferring Employee, a binding waiver of claims, in form(s) mutually satisfactory
to both the Purchaser and the Seller.  5.
    
    Notwithstanding anything in the foregoing to the contrary:  (a)
    
    Severance Costs do notinclude any amount claimed by, or paid to a Transferring Employee
on account of his/her wrongful or unlawful treatment by the Purchaser post-applicable Employment
Transfer Date, including, without limitation, unfair dismissal liability, discrimination or human
rights liability, extra-contractual or tort damages, Wallace-type damages (Canada only) or legal
fees and disbursements;(b)
    
    Notwithstanding subparagraph 5(f), Seller has no obligation to pay any Severance Costs
incurred by Purchaser resulting from: (i) operational efficiencies realized by the
Purchaser or Designated Purchaser in former Nortel Networks System Houses that are
unrelated to the considerations described in Section 5(f), unless approved by Seller or
Designated Seller in its sole discretion; (ii) reductions in headcount due to any change in
general economic, business or financial market conditions, or a decrease in the customer
demand for the Sellers or Designated Sellers products; (iii) any labour actions
including, without limitation, work stoppages or other industrial action to the extent such
labour actions are unrelated to measures taken for the achievement of ICR; (iv) war
(whether declared or
undeclared), (v) revolution, riot, insurrection, public demonstration or other civil
commotion, (vi) acts of terrorism, sabotage, criminal damage or threat of such acts, or
(vii) nuclear explosion, radioactive or chemical contamination or ionising radiation; and
(viii) any other force majeure events. This subsection 5(b) shall not apply to (a)
Severance Costs paid to Design Employees, or (b) Severance Costs incurred as a result of
any closure of the Monkstown Facility.(c)
    
    Severance Costs do not include any costs incurred by the Purchaser relating to: Brazil
Transferring Employees; France Transferring Employees; Design Employees (except as set out
in attached Schedule B), Logistics Employees, or Repair Employees as defined in Schedules
1.1(42), 1.1(128) and 1.1(190) respectively;(d)
    
    Purchaser shall invoice Seller quarterly and furnish supporting evidence, satisfactory
to the Seller, in reasonable detail, of Severance Costs it has incurred in the course of
terminating Transferring Employees, and in respect of which reimbursement is sought. Seller
shall pay approved invoices within thirty-eight (38) days of receipt provided, however,
that Seller shall have the right, without notice or other formality, to set-off and apply
any obligation, present or future, owed by Seller to Purchaser arising under or in
connection with this Letter, against any obligation, 3




---



##### 



present or future, owing by Purchaser to Seller under the APA with respect to the
Purchase Price, including amounts owed under the Promissory Notes.(e)
    
    the maximum liability of the Seller for Severance Costs pursuant to this Letter (other
than pursuant to Schedule B) shall not exceed [] (U.S.) in the aggregate (Severance Cost
Cap), and, provided that, up to a maximum percentage of the Severance Cost Cap as set
forth below shall become available to the Purchaser following the Closing of each of the
following tranches,:  (i)
    
    Montreal BAN 1 Facility, Montreal BAN 3 Facility, and Montreal OPTO 1 Facility  []  (ii)
    
    Calgary Westwinds Facility  [](iii)
    
    Monkstown Facility  []  In the event that
the tranches are other than as set out above, the Seller and the Purchaser shall mutually
agree on an appropriate change to the above apportionment of availability of the amounts
that comprise the Severance Cost Cap.(f)
    
    the maximum number of Transferring Employees whose Termination may trigger an
obligation by Seller or Designated Seller to pay Severance Costs pursuant to this
Letter is []. With respect to that number: (i) up to [] may be Alberta and
Ontario Transferring Employees, Quebec Union Transferring Employees, Quebec
Non-Union Transferring Employees or U.K. Transferring Employees related to the
implementation of the Transition Implementation Plan; (ii) up to [] may be Alberta
and Ontario Transferring Employees, Quebec Union Transferring Employees or Quebec
Non-Union Transferring Employees or U.K. Transferring Employees related to the
implementation of other Authorized Plans; and (iii) up to [] may be U.K.
Transferring Employees whose employment has been Terminated as a result of any
subsequent decision by Purchaser to close the Monkstown Facility.
The [] may include both direct manufacturing employees or indirect employees. None
of the [] will be Design Employees. Severance Costs with respect to Design
Employees are set out in Schedule B. An Authorized Plan means a plan, other than
the Transition Implementation Plan, that has a positive business case for the
achievement of ICR to the commercially reasonable satisfaction of the Seller.  (g)
    
    []  6.
    
    Purchaser or Designated Purchaser shall not, within a period of twelve (12) months from the
relevant Termination date, whether directly or indirectly, re-hire as an employee, or
otherwise engage the services (including, without limitation, as a consultant or independent
contractor) any Transferring Employee whose employment Purchaser or Designated Purchaser has
Terminated and in respect of whom reimbursement has been sought by Purchaser or Designated
Purchaser pursuant to this Letter, unless (a) Seller gives its express consent, or (b)
Purchaser or Designated Purchaser shall repay Seller for any amount that Seller reimbursed
Purchaser or Designated Purchaser as Severance Costs with respect to such Transferring
Employee in accordance with this Letter. 4




---



##### 



7.
    
    In the event that the APA and MCMSA are terminated in accordance with their terms prior to
the first Closing under the APA, this Letter shall also terminate and will have no further
force and effect.8.
    
    Limitations on Losses. Under no circumstance shall either party be liable to the other Party
under this Letter for punitive damages or indirect, special or incidental damages, or damage
to reputation, arising out of or in connection with any breach or alleged breach of any of the
terms herein, including damages alleged as a result of tortious conduct.9.
    
    Governing Law; Submission to Jurisdiction. This Letter is made under the laws of the Province
of Alberta and the Federal Laws of Canada applicable therein and shall for all purposes be
construed in accordance with and governed by the laws of the Province of Alberta and the
Federal Laws of Canada applicable therein (excluding the laws applicable to conflicts of law).
The parties hereto agree that all disputes and claims, whether for damages, specific
performance, injunction or otherwise, both at law and equity, arising out of or in any
connection with this letter shall be brought in the Courts of the Province of Alberta located
in the City of Calgary and hereby attorns to the exclusive jurisdiction of such court and
service of process in any such suit being made upon such person by mail at the address
specified in herein. Each Party hereby waives any objection that it may now or hereafter have
to the venue of any such suit or any such court or that such suit is brought in an
inconvenient court.10.
    
    Waiver of Jury Trial; Limitation on Damages. Each Party hereto hereby waives its right to a
jury trial with respect to any action or claim arising out of any dispute in connection with this
Letter or any rights or obligations hereunder or the performance of such rights and obligations.
Except as prohibited by law, each of the Party hereto hereby waives any right it may have pursuant
to this Letter to claim or recover in any litigation referred to in the preceding sentence any
special, exemplary, punitive or consequential damages or any
damages that are in excess of one times the losses incurred.11.
    
    Notices and correspondence relating to this Letter shall be addressed as follows:  To:
    
    Nortel Networks Limited 3500
Carling Avenue
Nepean, Ontario Canada K2H 8E9
Attention: Vice-President, Supply Management
Fax: 613-763-8946 with required copies to:  Nortel Networks Limited
8600 Dixie Road, Suite 100
Brampton, Ontario Canada L6T 5P6
Attention: Secretary
Fax: (905) 863-8386and:
    
    
    Nortel Networks Inc.
220 Athens Way, Suite 300
Nashville, Tennessee USA 37228-1397
Attention: Law Department
Fax: (615) 432-4067 5




---



##### 



To:
    
    Flextronics International LimitedAttention: [REMAINDER OF PAGE INTENTIONALLY BLANK] 6




---



##### 



DATED: June 29, 2004. NORTEL NETWORKS LIMITEDBy:
    /s/ CHAHRAM BOLOURIName:
    Chahram BolouriTitle:
    President, Global Operations By:Name:Title: AGREED TO: June 29, 2004. FLEXTRONICS INTERNATIONAL LTD.,
Acting through its Hong Kong branch By:
    /s/ MANNY MARIMUTHUName:
    Manny MarimuthuTitle:
Authorized Signatory FLEXTRONICS TELECOM SYSTEMS, LTD. By:
    /s/ MANNY MARIMUTHUName:
    Manny MarimuthuTitle:
Authorized Signatory [Signature page to Severance Side Letter]




---



##### 



SCHEDULE A  (i)
    
    In respect of those applicable UK Transferring Employees governed by the Manufacturing
Operations Collective Bargaining Redundancy Agreement between Standard Telephones and Cables
(Northern Ireland) Limited and the Amalgamated Union of Engineering Workers and others dated
1st February 1985 (the Operations Redundancy Agreement) such additional severance
costs as are required to be paid (for the absence of doubt, in addition to those severance costs
payable pursuant to clause 2 (iv)(a) and (b) of this Side Letter) in accordance with that
Operations Redundancy Agreement.(ii)
    
    In respect of those applicable UK Transferring Employees governed by the Test
Technicians Collective Bargaining Redundancy Agreement between Nortel Networks UK Limited
and Amicus dated 9th July 2002 (the Technicians Redundancy Agreement) such
additional severance costs as are required to be paid (for the absence of doubt, in
addition to those severance costs payable pursuant to clause 2 (iv)(a) and (b) of this Side
Letter) in accordance with that Technicians Redundancy Agreement.(iii)
    
    In respect of all other applicable UK Transferring Employees additional severance costs in
accordance with the calculation set out below;  
    (i)
    1/2 weeks Pay per year of completed service.PLUS
    (ii)
    for employees under 45 years of age, 1 weeks Pay per year of completed
service to a maximum 12 weeks Pay.
    (iii)
    for employees over 45 years of age, 1.5 weeks pay per year of completed
service to a maximum of 18 weeks Pay.  (iv)
    
    such additional ex gratiaamounts as the Seller and Purchaser shall mutually agree are
applicable to certain UK Transferring Employees between fifty (50) and sixty (60) years of age. Where Pay is defined as the applicable UK Transferring Employees contractual pay. 8




---



##### 



SCHEDULE B DESIGN EMPLOYEES Seller will pay Severance Costs incurred by Purchaser relating to the Termination of employment of
Design Employees subject to the following:  1.
    
    Notwithstanding Section 4 of the Letter, Seller has no obligation to pay Severance Costs
relating to Design Employees unless the Termination is as a result of a decrease in workload,
caused by a reduction in services required by the Seller and its Affiliates, to a level below
that which existed at the applicable Employment Transfer Date;2.
    
    []; and3.
    
    Seller will reimburse the Purchaser, or Designated Purchaser
as the case may be: (i[]
percent of the Severance Costs it may incur in [] period following the first Closing Date;
and [] percent of the Severance Costs it may incur in
the period that is between []4.
    
    following the first Closing Date. 4.      The following other provisions of the Letter shall apply to Design Employees mutatis mutandis:
Sections 1 through 3, 4(a), Section 4(c), Section 5(a), Section 5(d) and Sections 6 through 11. 9