##### 



EXHIBIT  10.7
 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
 CONFIDENTIAL INFORMATION




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##### 



TABLE OF CONTENTS
 SECTION 1 SCOPE OF THE RELATIONSHIP
    
    
    71.1
    
    
    Expectations
    
    
    71.2
    
    
    Opportunities
    
    
    71.3
    
    
    Commitments and Obligations
    
    
    71.3.1     Allocation
    
    
    71.3.2     Minimum Commitment
    
    
    81.3.3     Adjustments to the Minimum Commitment
    
    
    81.3.4     Remedy for Failure to Achieve Minimum Commitment
    
    
    101.3.5     Calculation of Reduction of Minimum Commitment
    
    
    101.3.6     ODM Products
    
    
    111.4
    
    
    Structure of the Agreement
    
    
    111.5
    
    
    Term
    
    
    12SECTION 2 GOVERNANCE PROCESS
    
    
    122.1
    
    
    Strategic Governance
    
    
    122.2
    
    
    Operations Governance
    
    
    132.3
    
    
    Site Operations Reviews
    
    
    132.4
    
    
    Report Cards and Liquidated Damages
    
    
    142.4.1     Report Cards
    
    
    142.4.2     Minimum Performance, and Liquidated Damages for Failure to Meet Metrics
    
    
    152.4.3     Continuous Improvement, and Liquidated Damages for Failure to Meet Metrics
    
    
    162.4.4     Pass-through of Liquidated Damages from Customers
    
    
    172.4.5     Termination for Breach of Metrics
    
    
    172.5
    
    
    Resources for Production Effort and Services
    
    
    182.6
    
    
    Management Resources and Support Infrastructure
    
    
    182.7
    
    
    Regulatory Compliance
    
    
    182.8
    
    
    Issue Resolution and Escalation Process
    
    
    19SECTION 3 FORECASTING, ORDERING AND DELIVERING
    
    
    193.1
    
    
    Regular Market Forecast of Requirements
    
    
    193.2
    
    
    Unscheduled Market Forecast Changes
    
    
    193.3
    
    
    Market Forecast Accuracy Improvement
    
    
    203.4
    
    
    Orders and Delivery
    
    
    203.5
    
    
    Minimum Purchases
    
    
    203.6
    
    
    Excess Inventory
    
    
    213.7
    
    
    Obsolete Inventory
    
    
    223.8
    
    
    Responsibility to Minimize Obsolete Inventory
    
    
    233.9
    
    
    Identification of Obsolete Inventory
    
    
    243.10
    
    
    Title and Risk of Loss and Delivery
    
    
    243.10.1     Title
    
    
    243.10.2     Risk of Loss
    
    
    243.11
    
    
    Packaging, Labelling and Trade-Marks
    
    
    243.12
    
    
    Exception Demand Negotiation Process
    
    
    25SECTION 4 MATERIALS MANAGEMENT PROCESS
    
    
    254.1
    
    
    Manufacturing Location
    
    
    254.2
    
    
    No Price Premiums
    
    
    264.3
    
    
    Transition of Material
    
    
    264.3.1     From Nortel Networks to Flextronics
    
    
    264.3.2     From Flextronics to Nortel Networks
    
    
    26
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4.3.3
    

    From Flextronics to a Third Party
    
    
    274.3.4
    

    INTENTIONALLY DELETED
    
    
    274.3.5
    

    From Third Party to Flextronics
    
    
    274.3.6
    

    Price for Transitioned Materials
    
    
    274.4
    
    
    Materials Management Services
    
    
    284.4.1
    

    Definition
    
    
    284.4.2
    

    Level 3 Planning
    
    
    284.4.2.1
    

    Flexibility Models
    
    
    284.4.3
    

    Supply Chain Management
    
    
    294.4.4
    

    Component Discontinuance and End-of-Life Inventory
    
    
    324.4.5
    

    Traceability of Products and Material
    
    
    334.4.5.1
    

    General Requirements
    
    
    344.4.5.2
    

    Material/Component Traceability
    
    
    344.4.5.3
    

    Product Traceability (Field Replaceable Units / Sub-Assemblies)
    
    
    354.4.6
    

    Performance Report Cards
    
    
    354.4.7
    

    Process and Systems Support
    
    
    354.4.8
    

    Order Management/Customer Service
    
    
    364.4.9
    

    Return Material Operation Services
    
    
    364.4.10
    

    Purchase of Products for Use in Lab Facilities
    
    
    374.5
    
    
    Material and Tier 2 Supplier Qualification
    
    
    374.6
    
    
    NC Suppliers
    
    
    384.7
    
    
    Purchase by Flextronics of Materials from Tier 2 Suppliers
    
    
    394.8
    
    
    Prices for Products Required by Other Nortel Networks Vendors
    
    
    404.9
    
    
    Supply of Materials to Nortel Networks Affiliates and Vendors
    
    
    414.10
    
    
    Material and Flextronics Account Management Reviews
    
    
    414.11
    
    
    Source Inspection
    
    
    414.12
    
    
    Manufacturing Technical Information and Support
    
    
    414.13
    
    
    EMS Supplier and Material Sourcing Control
    
    
    42SECTION 5 CHANGE MANAGEMENT
    
    
    425.1
    
    
    Joint Product Change Management Process
    
    
    425.2
    
    
    Changes in Corporate Standards
    
    
    43SECTION 6 SERVICES
    
    
    436.1
    
    
    Design and Sustaining Services
    
    
    436.2
    
    
    Integration Services
    
    
    456.2.1
    

    Product Level Testing
    
    
    456.2.2
    

    Module Integration
    
    
    456.2.3
    

    Configuration
    
    
    456.2.4
    

    ICT, Functional & System Level Testing
    
    
    456.2.5
    

    Final Quality Inspection
    
    
    456.2.6
    

    QET (Quality Evaluation Test)
    
    
    466.2.7
    

    Quality and Process Audit
    
    
    466.2.8
    

    Test Results and Monitoring
    
    
    466.2.9
    

    Installation Requests (IR)
    
    
    466.3
    
    
    System House Engineering Services
    
    
    466.3.1
    

    Test Engineering
    
    
    476.3.2
    
    Optimization of Testing for Products
    
    
    486.3.3
    

    System House Sustaining Engineering
    
    
    486.3.4
    

    Materials Engineering
    
    
    496.3.5
    

    Product and Material Yield and Performance Issue Resolution
    
    
    496.3.6
    

    Design Services for Cost Reduction Opportunities
    
    
    506.4
    
    
    SIF (System Integration & Fulfillment) Services
    
    
    50
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6.5
    
    
    Other System House Support Services
    
    
    516.6
    
    
    Payment for Services
    
    
    51SECTION 7 PRODUCT
LIFE-CYCLE PLANNING PROCESS (NPPI) AND TRANSFER PROCESS
    
    
    517.1
    
    
    Consistent Process at all Sites
    
    
    517.2
    
    
    Product Goals
    
    
    517.3
    
    
    DFx Services
    
    
    527.4
    
    
    Pre-production Products
    
    
    527.5
    
    
    Product End-of-life Scenarios
    
    
    537.6
    
    
    Geographic Location
    
    
    53SECTION 8 QUALITY STANDARDS AND QUALITY PROCESS
    
    
    548.1
    
    
    Quality Standards
    
    
    54SECTION 9 REWORK PRODUCT PROCESS
    
    
    549.1
    
    
    Rework Operation
    
    
    549.2
    
    
    Rework Procedure
    
    
    54SECTION 10 REPAIR PRODUCT PROCESS
    
    
    5510.1
    
    
    Repair Operation & Procedure
    
    
    55SECTION 11 PRODUCT COST MANAGEMENT PROCESS
    
    
    5511.1
    
    
    Prices for Products
    
    
    5511.1.1     Day One Pricing
    
    
    5611.2
    
    
    Payment, Taxes and Duties
    
    
    5711.2.1     Invoices
    
    
    5711.2.2     Payment
    
    
    5811.3
    
    
    Implementation of Price Changes
    
    
    5811.4
    
    
    Financial Review and Targets
    
    
    5911.5
    
    
    Operational
    
    
    6011.6
    
    
    Cost Modeling
    
    
    6011.7
    
    
    Budget
    
    
    6011.8
    
    
    Ongoing Cost Reduction
    
    
    6011.9
    
    
    Incremental Cost Reduction
    
    
    6011.9.1     Definition of ICR
    
    
    6111.9.2     ICR Commitment
    
    
    6111.9.3     Implementation of ICR
    
    
    6111.9.4     Year 4 Cost Reduction
    
    
    6111.9.5     Adjustments to ICR Commitment
    
    
    62SECTION 12 BUSINESS CONTINUITY
    
    
    6212.1
    
    
    Business Continuity Planning
    
    
    62SECTION 13 WARRANTIES
    
    
    6313.1
    
    
    Title
    
    
    6313.2
    
    
    Services and Production Effort
    
    
    6313.3
    
    
    Free from Defects
    
    
    6413.4
    
    
    Epidemic Condition
    
    
    6413.4.1     Procedure for Epidemic Condition
    
    
    6413.4.2     Remedies for Epidemic Condition
    
    
    6513.5
    
    
    Safety and Regulatory Issues
    
    
    66SECTION 14 INTELLECTUAL PROPERTY RIGHTS AND LICENSES
    
    
    66
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14.1
    
    
    License to Nortel Company Proprietary Information Granted
    
    
    6614.2
    
    
    Limitations on Grant of License
    
    
    6714.3
    
    
    Flextronics Inventions
    
    
    6714.4
    
    
    Specifications and Deliverables Owned by Nortel Networks
    
    
    6714.5
    
    
    Flextronics Retains Ownership of Flextronics Proprietary Information
    
    
    6714.6
    
    
    Assignment of Inventions Agreements with Employees
    
    
    67SECTION 15 INDEMNIFICATION
    
    
    6815.1
    
    
    Intellectual Property Indemnification
    
    
    6815.1.1     By Nortel Networks
    
    
    6815.1.2     By Flextronics
    
    
    6915.1.3     Measures to Safeguard Nortel Networks against Liability
    
    
    6915.2
    
    
    Other Indemnification
    
    
    7015.2.1     By Flextronics
    
    
    7015.2.2     By Nortel Networks
    
    
    70SECTION 16 LIMITATION OF LIABILITY
    
    
    70SECTION 17 COMMUNICATION AND INFORMATION TRANSFER
    
    
    7117.1
    
    
    Access to Nortel Networks Computer Systems by Flextronics
    
    
    7117.2
    
    
    Flextronics Compatibility with Nortel Networks Computer Systems
    
    
    7117.3
    
    
    Information Technology Services
    
    
    72SECTION 18 LOANED ASSETS
    
    
    7218.1
    
    
    Loaned Assets Procedure
    
    
    72SECTION 19 RESERVED ASSETS
    
    
    7219.1
    
    
    Reserved Assets Procedure
    
    
    72SECTION 20 LEGAL AND REGULATORY COMPLIANCE
    
    
    72SECTION 21 INTERNATIONAL TRADE
    
    
    7321.1
    
    
    Exports
    
    
    7321.2
    
    
    Country of Origin Declaration and Marking
    
    
    7321.3
    
    
    Customs Invoice
    
    
    7421.4
    
    
    Trade Treaties
    
    
    7421.5
    
    
    Duty Drawback
    
    
    74SECTION 22 ENVIRONMENTAL POLICIES
    
    
    7522.1
    
    
    ISO 14001
    
    
    7522.2
    
    
    VOC Free and Lead-Free Technology
    
    
    7522.3
    
    
    European Union (EU) Environmental Directives
    
    
    7622.3.1     Compliance
    
    
    7622.3.2     Indemnification
    
    
    7622.4
    
    
    Packaging Reusable and Recyclable
    
    
    7722.5
    
    
    Collaborate on Environmental Initiatives
    
    
    7722.6
    
    
    Hazardous Materials
    
    
    77SECTION 23 CONFIDENTIAL INFORMATION
    
    
    7723.1
    
    
    Restriction on Disclosure and Use of Confidential Information
    
    
    7723.2
    
    
    Publicity
    
    
    78SECTION 24 INSURANCE
    
    
    79
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24.1
    
    
    General Liability Insurance
    
    
    7924.2
    
    
    Property and Business Insurance
    
    
    8024.3
    
    
    Business Continuity
    
    
    8024.4
    
    
    Certificate of Insurance
    
    
    80SECTION 25 EXPIRATION OR TERMINATION
    
    
    8025.1
    
    
    Effect of Expiration or Termination
    
    
    8025.2
    
    
    Termination
    
    
    82SECTION 26 GENERAL PROVISIONS
    
    
    8326.1
    
    
    Access to Facilities
    
    
    8326.2
    
    
    Reporting
    
    
    8426.3
    
    
    Documentation
    
    
    8426.4
    
    
    Audits
    
    
    8426.4.1     Agreement Compliance
    
    
    8426.4.2     Control & Security Compliance
    
    
    8526.5
    
    
    Force Majeure
    
    
    8626.6
    
    
    Notices
    
    
    8626.7
    
    
    Independent Contractor
    
    
    8726.8
    
    
    Non-Solicitation of Employees
    
    
    8726.9
    
    
    Flextronics Responsible for its Contractors
    
    
    8826.10
    
    
    Assignment
    
    
    8826.11
    
    
    Severability
    
    
    8926.12
    
    
    Governing Law; Waiver of Jury Trial
    
    
    8926.13
    
    
    Consent to Jurisdiction
    
    
    8926.14
    
    
    Counterparts
    
    
    8926.15
    
    
    Entire Agreement; Amendments
    
    
    9026.16
    
    
    Construction
    
    
    9026.17
    
    
    Headings
    
    
    9026.18
    
    
    Time of Essence
    
    
    9026.19
    
    
    Agreement by All Flextronics Companies
    
    
    9026.20
    
    
    Most Favoured Customer
    
    
    9026.21
    
    
    Language
    
    
    90
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Amended and Restated Master Contract Manufacturing Services Agreement
      CONFIDENTIAL INFORMATION
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SECTION 1
SCOPE OF THE RELATIONSHIP


1.1 Expectations




1.2 Opportunities




1.3
    
    Commitments and Obligations 1.3.1 Allocation
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1.3.2 Minimum Commitment
  th)  
   1.3.3 Adjustments to the Minimum Commitment
 (A) Pre-Existing Commitments
   (B) Competitive Criteria
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  
 (C) Performance Issues
  (D) Local Content Requirements
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(E) Ability to Supply
   1.3.4 Remedy for Failure to Achieve Minimum Commitment
 
 1.3.5 Calculation of Reduction of Minimum Commitment
  Example:
    
    Nortel Networks Spend on Manufacturable Products = $1BMinimum Commitment []Product A revenue transferred to other supplier = $50MProduct A % of Manufacturable Products = 5%Adjusted Minimum Commitment []
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1.3.6 ODM Products
  1.4 Structure of the Agreement
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1.5 Term
  SECTION 2
GOVERNANCE PROCESS
 2.1 Strategic Governance
  (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, 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.
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2.2 Operations Governance
  (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
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2.4 Report Cards and Liquidated Damages
 2.4.1 Report Cards
    (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.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
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(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
 
  
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
  2.4.3 Continuous Improvement, and Liquidated Damages for Failure to Meet Metrics
  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.
   
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2.4.4 Pass-through of Liquidated Damages from Customers
  (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.
  (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).
  2.4.5 Termination for Breach of Metrics
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2.5 Resources for Production Effort and Services
   2.6 Management Resources and Support Infrastructure
  2.7 Regulatory Compliance
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2.8 Issue Resolution and Escalation Process
   SECTION 3
FORECASTING, ORDERING AND DELIVERING
 3.1 Regular Market Forecast of Requirements
  3.2 Unscheduled Market Forecast Changes
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3.3 Market Forecast Accuracy Improvement
  3.4 Orders and Delivery
     3.5 Minimum Purchases
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3.6 Excess Inventory
       
 
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(a)
    
    Unless Nortel Networks otherwise directs, Flextronics shall hold such
Inventory on behalf of and, in the ordinary course of business, 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.
  3.7 Obsolete Inventory
 Obsolete Inventory
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(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;
     3.8 Responsibility to Minimize Obsolete Inventory
    CONFIDENTIAL INFORMATION
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3.9 Identification of Obsolete Inventory
  3.10 Title and Risk of Loss and Delivery
 3.10.1 Title
    3.10.2 Risk of Loss
   3.11 Packaging, Labelling and Trade-Marks
  CONFIDENTIAL INFORMATION
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3.12 Exception Demand Negotiation Process
  SECTION 4
MATERIALS MANAGEMENT PROCESS
 4.1 Manufacturing Location
    CONFIDENTIAL INFORMATION
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4.2 No Price Premiums
  4.3 Transition of Material
 4.3.1 From Nortel Networks to Flextronics
  4.3.2 From Flextronics to Nortel Networks
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4.3.3 From Flextronics to a Third Party
  4.3.4 INTENTIONALLY DELETED
 4.3.5 From Third Party to Flextronics
  
 4.3.6 Price for Transitioned Materials
 
 CONFIDENTIAL INFORMATION
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4.4 Materials Management Services
 4.4.1 Definition
  4.4.2 Level 3 Planning
    4.4.2.1 Flexibility Models
    CONFIDENTIAL INFORMATION
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4.4.3 Supply Chain Management
   (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
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unless otherwise agreed. As set out in Section 4.5, qualify any SC Material and
qualify any SC Supplier that is not 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;
 CONFIDENTIAL INFORMATION




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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
  (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.
  CONFIDENTIAL INFORMATION




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 
 
  4.4.5 Traceability of Products and Material
  CONFIDENTIAL INFORMATION




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4.4.5.1 General Requirements
    4.4.5.2 Material/Component Traceability
  CONFIDENTIAL INFORMATION




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4.4.5.3 Product Traceability (Field Replaceable Units / Sub-Assemblies)
  4.4.6 Performance Report Cards
  4.4.7 Process and Systems Support
    CONFIDENTIAL INFORMATION




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4.4.8 Order Management/Customer Service
  4.4.9 Return Material Operation Services
   CONFIDENTIAL INFORMATION




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4.4.10 Purchase of Products for Use in Lab Facilities
  4.5 Material and Tier 2 Supplier Qualification
   CONFIDENTIAL INFORMATION




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(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
    4.6 NC Suppliers
  CONFIDENTIAL INFORMATION




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
 4.7 Purchase by Flextronics of Materials from Tier 2 Suppliers
    CONFIDENTIAL INFORMATION




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4.8 Prices for Products Required by Other Nortel Networks Vendors
  CONFIDENTIAL INFORMATION




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4.9 Supply of Materials to Nortel Networks Affiliates and Vendors
  4.10 Material and Flextronics Account Management Reviews
  4.11 Source Inspection
  4.12 Manufacturing Technical Information and Support
   CONFIDENTIAL INFORMATION




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4.13 EMS Supplier and Material Sourcing Control
 Vertical Integration of EMS Products  
 Supply Chain Material Control:  
     SECTION 5
CHANGE MANAGEMENT
 5.1 Joint Product Change Management Process
  CONFIDENTIAL INFORMATION




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5.2 Changes in Corporate Standards
  SECTION 6
SERVICES
 6.1 Design and Sustaining Services
  CONFIDENTIAL INFORMATION




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6.2 Integration Services
  6.2.1 Product Level Testing
  6.2.2 Module Integration
  6.2.3 Configuration
  6.2.4 ICT, Functional & System Level Testing
  6.2.5 Final Quality Inspection
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6.2.6 QET (Quality Evaluation Test)
  6.2.7 Quality and Process Audit
  6.2.8 Test Results and Monitoring
  6.2.9 Installation Requests (IR)
  6.3 System House Engineering Services
   CONFIDENTIAL INFORMATION




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##### 



6.3.1 Test Engineering
   (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.
  (a)
    
    perform test capacity planning / test equipment maintenance and
calibration and capability / test capability study and analysis/ operator
availability / equipment 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.
  CONFIDENTIAL INFORMATION




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##### 



(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
  6.3.3 System House Sustaining Engineering
  (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.
   (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;
 CONFIDENTIAL INFORMATION




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(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.
  6.3.4 Materials Engineering
  (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.
 6.3.5 Product and Material Yield and Performance Issue Resolution
  CONFIDENTIAL INFORMATION




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6.3.6 Design Services for Cost Reduction Opportunities
  (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
  (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.
 CONFIDENTIAL INFORMATION




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6.5 Other System House Support Services
  6.6 Payment for Services
  SECTION 7
PRODUCT LIFE-CYCLE PLANNING PROCESS (NPPI) AND TRANSFER PROCESS
 7.1 Consistent Process at all Sites
  7.2 Product Goals
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7.3 DFx Services
  7.4 Pre-production Products
  (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 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
 CONFIDENTIAL INFORMATION




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##### 



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
  7.6 Geographic Location
  CONFIDENTIAL INFORMATION




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SECTION 8
QUALITY STANDARDS AND QUALITY PROCESS
 8.1 Quality Standards
  SECTION 9
REWORK PRODUCT PROCESS
 9.1 Rework Operation
  9.2 Rework Procedure
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SECTION 10
REPAIR PRODUCT PROCESS
 10.1 Repair Operation & Procedure
  SECTION 11
PRODUCT COST MANAGEMENT PROCESS
 11.1 Prices for Products
  (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.(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.
   
 CONFIDENTIAL INFORMATION




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11.1.1 Day One Pricing
 
    CONFIDENTIAL INFORMATION




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(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).
   11.2 Payment, Taxes and Duties
 11.2.1 Invoices
  CONFIDENTIAL INFORMATION




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11.2.2 Payment
 
 
  
 11.3 Implementation of Price Changes
 Cost Plus Method (Traditional):
 st
 st
 Modified Product Level Pricing Method (MPLP):
 st
 CONFIDENTIAL INFORMATION




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st
 
 Product Level Pricing Method (PLP):
  11.4 Financial Review and Targets
  
  CONFIDENTIAL INFORMATION




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11.5 Operational
  11.6 Cost Modeling
  11.7 Budget
  11.8 Ongoing Cost Reduction
  11.9 Incremental Cost Reduction
  CONFIDENTIAL INFORMATION




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11.9.1 Definition of ICR
  11.9.2 ICR Commitment
 l
 11.9.3 Implementation of ICR
  l
  11.9.4 Year 4 Cost Reduction
 l
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11.9.5 Adjustments to ICR Commitment
    SECTION 12
BUSINESS CONTINUITY
 12.1 Business Continuity Planning
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SECTION 13
WARRANTIES
 13.1 Title
   13.2 Services and Production Effort
  ,
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13.3 Free from Defects
     13.4 Epidemic Condition
 13.4.1 Procedure for Epidemic Condition
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13.4.2 Remedies for Epidemic Condition
   (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;
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l l l
 l l l
  13.5 Safety and Regulatory Issues
  SECTION 14
INTELLECTUAL PROPERTY RIGHTS AND LICENSES
 14.1 License to Nortel Company Proprietary Information Granted
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14.2 Limitations on Grant of License
  14.3 Flextronics Inventions
  14.4 Specifications and Deliverables Owned by Nortel Networks
  14.5 Flextronics Retains Ownership of Flextronics Proprietary Information
  14.6 Assignment of Inventions Agreements with Employees
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SECTION 15
INDEMNIFICATION
 15.1 Intellectual Property Indemnification
 15.1.1 By Nortel Networks


(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).
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15.1.2 By Flextronics
    (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
  (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
 AMENDED &RESTATED MCMSA  FINALCONFIDENTIAL INFORMATION
    
    Page 69
       (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.
  15.2 Other Indemnification
 15.2.1 By Flextronics
  15.2.2 By Nortel Networks
  SECTION 16
LIMITATION OF LIABILITY
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l
 SECTION 17
COMMUNICATION AND INFORMATION TRANSFER
 17.1 Access to Nortel Networks Computer Systems by Flextronics
  17.2 Flextronics Compatibility with Nortel Networks Computer Systems
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17.3 Information Technology Services
  SECTION 18
LOANED ASSETS
 18.1 Loaned Assets Procedure
  SECTION 19
RESERVED ASSETS
 19.1 Reserved Assets Procedure
  SECTION 20
LEGAL AND REGULATORY COMPLIANCE
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SECTION 21
INTERNATIONAL TRADE
 21.1 Exports
  21.2 Country of Origin Declaration and Marking
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21.3 Customs Invoice
  21.4 Trade Treaties
  21.5 Duty Drawback
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SECTION 22
ENVIRONMENTAL POLICIES
 22.1 ISO 14001
    22.2 VOC Free and Lead-Free Technology
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22.3 European Union (EU) Environmental Directives
 22.3.1 Compliance
 Compliance Plan
   22.3.2 Indemnification
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22.4 Packaging Reusable and Recyclable
  22.5 Collaborate on Environmental Initiatives
  22.6 Hazardous Materials
 l
 SECTION 23
CONFIDENTIAL INFORMATION
 23.1 Restriction on Disclosure and Use of Confidential Information
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23.2 Publicity
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SECTION 24
INSURANCE
 24.1 General Liability Insurance
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24.2 Property and Business Insurance
  24.3 Business Continuity
  24.4 Certificate of Insurance
  SECTION 25
EXPIRATION OR TERMINATION
 25.1 Effect of Expiration or Termination
  (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
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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.(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
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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 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
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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
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
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26.2 Reporting
  26.3 Documentation
  26.4 Audits
 26.4.1 Agreement Compliance
   l
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26.4.2 Control & Security Compliance
      AMENDED &RESTATED MCMSA  FINALCONFIDENTIAL INFORMATION
    
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26.5 Force Majeure
  26.6 Notices
   
  
 
 AMENDED &RESTATED MCMSA  FINALCONFIDENTIAL INFORMATION
    
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26.7 Independent Contractor
  26.8 Non-Solicitation of Employees
  AMENDED &RESTATED MCMSA  FINALCONFIDENTIAL INFORMATION
    
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26.9 Flextronics Responsible for its Contractors
  26.10 Assignment
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26.11 Severability
  26.12 Governing Law; Waiver of Jury Trial
  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.
 26.13 Consent to Jurisdiction
  26.14 Counterparts
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26.15 Entire Agreement; Amendments
  26.16 Construction
   26.17 Headings
  26.18 Time of Essence
  26.19 Agreement by All Flextronics Companies
  26.20 [l   ]
 l
 26.21 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.
 AMENDED &RESTATED MCMSA  FINAL
CONFIDENTIAL INFORMATION
    
    Page 90




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Intentionally Left Blank
 AMENDED &RESTATED MCMSA  FINALCONFIDENTIAL INFORMATION
    
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FLEXTRONI
    
    CS TELECOM SYSTEMS, LTD.NORTEL NETWORKS LIMITEDBy:
    
    /s/ MANNY MARIMUTHUBy:
    
    /s/ CHAHRAM BOLOURI
    
    Name:
    
    Manny MarimuthuName:
    
    Chahram BolouriTitle:
    
    President, Global Operations
    
    Title:
    
    Authorized SignatoryBy:Name:Title:
 [Signature Page for Amended and Restated Master Contract
Manufacturing Services Agreement]




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##### 



List of Exhibits to the Agreement
 Exhibit 1
    
    DefinitionsExhibit 2
    
    Form of Virtual Systems House Agreement (VSHA)Exhibit 3
    
    Quality SystemExhibit 4
    
    Intentionally DeletedExhibit 5
    
    Issue Resolution and Escalation ProcessExhibit 6
    
    Intentionally DeletedExhibit 7
    
    Exception Demand Negotiation ProcessExhibit 8
    
    Material Transfer ProcedureExhibit 9-1
    
    Design ServicesExhibit 9-2
    
    Sustaining Design Services  OpticalExhibit 10
    
    New Product IntroductionExhibit 10-1
    
    NPPI NRE ChargesExhibit 11
    
    Rework ProcedureExhibit 12
    
    Intentionally DeletedExhibit 13-1
    
    Cost Plus Method (Traditional)Exhibit 13-2
    
    Modified Product Level Pricing Method (MPLP)Exhibit 13-3
    
    Cost Modeling  ExampleExhibit 14
    
    Ordering ProcessesExhibit 15
    
    Loaned AssetsExhibit 16
    
    Reserved AssetsExhibit 17-1
    
    Ongoing Cost Reduction ProcessExhibit 17-2
    
    Incremental Cost Reduction ProcessExhibit 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 ProcessExhibit 20
    
    Forecast Consumption
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Exhibit 21
    
    Forecasting ProcessExhibit 22
    
    List of Countries Eligible for DDP TermsExhibit 23
    
    EU Employment Provisions (Acquired Rights Directive)Exhibit 24
    
    Sourcing ControlExhibit 25
    
    Excess Uplift PercentagesExhibit 26
    
    Information Technology  ResponsibilitiesExhibit 27
    
    End State Calculation of NCExhibit 28
    
    NC to SC Transfer CriteriaExhibit 29
    
    Process to Establish Day One PricingExhibit 30
    
    Proposed Commodities for Transfer
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EXHIBIT 1
 DEFINITIONS
 Actively Solicit
 Allocation
 Affiliate
 (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
 Assembly Cost
 Asset Purchase Agreement APA
 AVL
 Backlog
 Blanket Purchase Order BPO
 BOM
 Broken Product
 BTO Products Build to Order Products
 BTS Products Build to Stock Products
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Business Continuity Plan
 Business Day
 Carrying Charge
 Commencement Date
 Confidential Information
 Consumable Material
 Control and Responsibility
 Consigned Inventory
 Conventional Purchase Order
 Competitor
 Corporate Standards
  CONFIDENTIAL INFORMATION
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Costed BOM
 Costed Methodology
 Cost Plus Method (Traditional)
 Currency Conversion
 Custom Equipment
 Customer
 Defective Product
 Delivery Location
 Delivery Facility
 Demand Pull Order
 Depreciated Cost
 Design Order
 Design Services
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DFx Process Design for x
 Direct Successor
 DOA Dead on Arrival
 ECO Engineering Change Order
 ECO Impact Form
 EDI
 Effective Date
 EMS Products
 EMS Suppliers
 End-of-Life Inventory
 Engagement
 Engineering Services
 Epidemic Condition
 (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, 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
 Exception Demand Negotiation Process
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Exceptional Excess Inventory
 Fees
 Flextronics
 Flextronics Company
 Flextronics Invention
 Flextronics Proprietary Information
 Flextronics Systems
 FTS Affiliate Canada Business Corporations Act
 Force Majeure
  CONFIDENTIAL INFORMATION
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Freight and Duty
 FTP
 General and Administrative Costs
 Government Entity
 ICT
 Initial Return Rates IRR
 Integrated OEM Products
 Integration Services
 Inventory
 IRM Products
 Issue
 Kanban Trigger
 Labour Cost
 Leadership Category
 LIBOR Rate
 Loaned Assets
  CONFIDENTIAL INFORMATION
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Logistics Operations Services
 Logistics Services Agreement
 Manufacturable Products
 Manufacturing Licensee
 Margin
 Market Forecast
 Material
 Material Cost
 Material Markup
 Material Overhead
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Material Lead Time
 Materials Management Services
 Minimum Commitment
 Modified Product Level Pricing
 MPLP Process
 MRP
 NC Material or NC
 NC Supplier
 New Product
 Non-integrated OEM Products
 Nortel Company
 Nortel Company Proprietary Information
 (a)
    
    Programs;(b)
    
    technology, designs or other information that enjoy issued or pending
statutory proprietary protection, including patents, copyrights, waivers of moral
rights, mask work rights or integrated circuit topography registrations, industrial
design registrations or design patents but not trade-marks or other indicia of
origin;(c)
    
    confidential or non public business information including ideas,
formulae, plans, proposals, designs, schematics, drawings, flow charts, product and
process and test specifications, trade secrets, know how, technical data, algorithms, databases,
and technical reports, and customer, marketing and financial information;
   CONFIDENTIAL INFORMATION
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Nortel Networks
 Nortel Networks Vendor
 No Warranty Product
 NPPI
 NPPI Services
 Obsolete Inventory
 ODM Products
 OEM Products
 Online System Order
 Order Fulfillment
 Out of Box Audit
 Overhead
 Packaging
 Party Parties
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Person
 Pilot
 Pre-Production Product
 Price
 Pricing Method
 Product
 Product Family
 Product Goals
 Product Level Pricing
 Product Life-cycle Planning
 Product Specific Inventions
 Product Quality
 Production Effort
 Profit
 Programs
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Proposal
 Prototype
 Purchase Order
 Quality Process
 Quarter quarter quarterly
 Quarterly Business Review QBR
 Repair Product
 Repair Services Agreement (RSA)
 Rework Services
 Reserved Assets
 Request for Proposal
 Rework Fee
 Rework Product
 RMA
 SC Material or SC
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SC Supplier
 Services
 SIF Services
 Ship-Loose
 Site
 Source Inspection
 Specification
 Standard Lead Time
 Subsidiary
 Sustaining Design Services
 System
 Systems House
 Tax
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TDI
 Term
 Test Cost
 Test Process
 Third Party Repair Operation
 Third Party Rework Operation
 Threshold Commitment
 Tier 1 Supplier
 Tier 2 Supplier
 Time-to-Cancel
 Time-to-Cancel Report
 Total Cost
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Trade-Marks
 Transformation Cost(s)
 Upgrade Fee
 Unique Inventory
 Virtual Systems House
 Virtual Systems House Agreement
 Warranty Cost
 Warranty Period
 Warranty Product
 Year One
 Year Two
 Year Three
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Year Four
  CONFIDENTIAL INFORMATION
 Page 109