Document:

exv10w6

 

EXHIBIT 10.6

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

 

 

MASTER CONTRACT LOGISTICS SERVICES AGREEMENT

between

NORTEL NETWORKS LIMITED

and

FLEXTRONICS TELECOM SYSTEMS LIMITED

Dated as of June 29, 2004

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	Section 1	 	 	 	 
	SCOPE OF THE RELATIONSHIP	 	 	11	 
	     1.1	 	Expectations
	 	 	11	 
	     1.2	 	Information Access
	 	 	11	 
	     1.3	 	Commitments and Obligations
	 	 	11	 
	     1.4	 	Competitiveness
	 	 	11	 
	     1.5	 	Structure of the Agreement
	 	 	12	 
	     1.6	 	Term
	 	 	12	 
	Section 2	 	 	 	 
	GOVERNANCE PROCESS	 	 	13	 
	     2.1	 	Transition Planning
	 	 	13	 
	     2.2	 	Strategic Governance
	 	 	13	 
	     2.3	 	Operations Governance
	 	 	13	 
	     2.4	 	Monthly Operations Reviews
	 	 	14	 
	     2.5	 	Resources for Service Support
	 	 	14	 
	Section 3	 	 	 	 
	ORDERING AND DELIVERING	 	 	14	 
	     3.1	 	Blanket Purchase Orders
	 	 	14	 
	     3.2	 	Acceptance of Orders
	 	 	14	 
	     3.3	 	INTENTIONALLY LEFT BLANK
	 	 	14	 
	     3.4	 	Issuance of Orders via EDI
	 	 	14	 
	Section 4	 	 	 	 
	RISK OF LOSS	 	 	14	 
	     4.1	 	Risk of Loss
	 	 	15	 
	     4.2	 	Title
	 	 	15	 
	Section 5	 	 	 	 
	DELIVERY PROCESS	 	 	15	 
	     5.1	 	Delivery Method
	 	 	15	 
	     5.2	 	Packaging, Labelling and Nortel Networks Trade Marks
	 	 	15	 
	Section 6	 	 	 	 
	MATERIALS MANAGEMENT PROCESS	 	 	16	 
	     6.1	 	Delivery Facility
	 	 	16	 
	     6.2	 	Flextronics Management Services
	 	 	16	 
	     6.3	 	Warehousing
	 	 	16	 
	     6.4	 	Management of Third Party Contracts
	 	 	16	 
	Section 7	 	 	 	 
	CHANGE MANAGEMENT	 	 	18	 
	     7.1	 	Joint Change Management Process
	 	 	18	 
	     7.2	 	New Services
	 	 	18	 
	Section 8	 	 	 	 
	QUALITY	 	 	19	 
	     8.1	 	Performance Metrics and Report Cards
	 	 	19	 
	     8.2	 	Industry Standards
	 	 	20	 
	     8.3	 	Source Inspection
	 	 	21	 
	     8.4	 	Service Quality
	 	 	21	 
	Section 9	 	 	 	 
	SERVICE COST MANAGEMENT PROCESS	 	 	21	 
	     9.1	 	Prices for Services
	 	 	21	 
	     9.2	 	Payment, Taxes and Duties
	 	 	22	 
	     9.3	 	Financial Review and Targets
	 	 	23	 
	     9.4	 	Forecasting
	 	 	23	 
	     9.5	 	Audit
	 	 	24	 

i

 

	 	 	 	 	 	 	 
	     9.6	 	Cost Reduction with respect to Services described in Exhibit “1-A”
	 	 	25	 
	     9.7	 	Cost Reduction with respect to Services described in Exhibit “1-B”
	 	 	27	 
	Section 10	 	 	 	 
	BUSINESS CONTINUITY	 	 	29	 
	     10.1	 	Business Continuity Planning
	 	 	29	 
	Section 11	 	 	 	 
	WARRANTIES	 	 	29	 
	     11.1	 	Services
	 	 	29	 
	     11.2	 	Return of Orders
	 	 	30	 
	     11.3	 	General
	 	 	30	 
	Section 12	 	 	 	 
	INTELLECTUAL PROPERTY RIGHTS AND LICENSES	 	 	30	 
	     12.1	 	License to Nortel Company Product Information Granted
	 	 	30	 
	     12.2	 	Limitations on Grant of License
	 	 	31	 
	     12.3	 	Flextronics’ Inventions
	 	 	31	 
	     12.4	 	Flextronics Retains Ownership of Flextronics Proprietary Information
	 	 	31	 
	     12.5	 	Assignment of Inventions Agreements with Employees
	 	 	31	 
	Section 13	 	 	 	 
	INDEMNIFICATION	 	 	32	 
	     13.1	 	Intellectual Property Indemnification
	 	 	32	 
	     13.2	 	Other Indemnification
	 	 	33	 
	Section 14	 	 	34	 
	LIMITATION OF LIABILITY	 	 	34	 
	Section 15	 	 	 	 
	COMMUNICATION AND INFORMATION TRANSFER	 	 	34	 
	     15.1	 	Transmissions
	 	 	34	 
	     15.2	 	Access to Nortel Networks Computer Systems by Flextronics
	 	 	34	 
	     15.3	 	Flextronics Compatibility with Nortel Networks Computer Systems
	 	 	35	 
	Section 16	 	 	 	 
	EQUIPMENT FURNISHED BY NORTEL NETWORKS	 	 	35	 
	     16.1	 	Title to Equipment Furnished by Nortel Networks
	 	 	35	 
	     16.2	 	Risk, Insurance and Maintenance of Equipment Furnished by Nortel Networks
	 	 	35	 
	     16.3	 	Tracking of Equipment Furnished by Nortel Networks
	 	 	35	 
	Section 17	 	 	 	 
	LEGAL AND REGULATORY COMPLIANCE	 	 	36	 
	Section 18	 	 	 	 
	INTERNATIONAL TRADE	 	 	36	 
	     18.1	 	Exports
	 	 	36	 
	     18.2	 	Customs Invoice
	 	 	36	 
	     18.3	 	Duty Drawback and Minimization
	 	 	37	 
	Section 19	 	 	 	 
	ENVIRONMENTAL POLICIES	 	 	37	 
	     19.1	 	Corporate Policy
	 	 	37	 
	     19.2	 	European Union (“EU”) Environmental Directives
	 	 	38	 
	     19.3	 	Packaging Reusable and Recyclable
	 	 	38	 
	     19.4	 	Disposal Policies
	 	 	38	 
	     19.5	 	Collaborate on Environmental Initiatives
	 	 	38	 
	     19.6	 	Hazardous Materials
	 	 	39	 
	Section 20	 	 	 	 
	CONFIDENTIALITY AND PROPRIETARY INFORMATION	 	 	39	 
	     20.1	 	Restriction on Disclosure and Use of Confidential Information
	 	 	39	 
	     20.2	 	Publicity
	 	 	40	 

ii

 

	 	 	 	 	 	 	 
	Section 21	 	 	 	 
	INSURANCE	 	 	40	 
	     21.1	 	General Liability Insurance
	 	 	40	 
	     21.2	 	Property and Business Insurance
	 	 	41	 
	     21.3	 	Certificate of Insurance
	 	 	41	 
	     21.4	 	Business Continuity
	 	 	41	 
	Section 22	 	 	 	 
	EXPIRATION OR TERMINATION	 	 	41	 
	     22.1	 	Termination
	 	 	42	 
	     22.2	 	Intentionally left blank
	 	 	43	 
	     22.3	 	Intentionally left blank
	 	 	43	 
	     22.4	 	Effect of Expiration or Termination
	 	 	43	 
	Section 23	 	 	 	 
	TERMINATION ASSISTANCE SERVICES	 	 	44	 
	     23.1	 	Scope of Termination Assistance Services
	 	 	44	 
	     23.2	 	Limit on Obligation to Provide Termination Assistance Services
	 	 	45	 
	     23.3	 	Termination Assistance Period
	 	 	45	 
	Section 24	 	 	 	 
	ISSUE RESOLUTION AND ESCALATION PROCESS	 	 	45	 
	     24.1	 	Issue Resolution and Escalation Process
	 	 	45	 
	Section 25	 	 	 	 
	GENERAL PROVISIONS	 	 	45	 
	     25.1	 	Access to Facilities
	 	 	45	 
	     25.2	 	Reporting
	 	 	45	 
	     25.3	 	Documentation
	 	 	46	 
	     25.4	 	Audits
	 	 	46	 
	     25.5	 	Force Majeure
	 	 	46	 
	     25.6	 	Notices
	 	 	46	 
	     25.7	 	Independent Contractor
	 	 	47	 
	     25.8	 	Contractor Responsible for its Contractors
	 	 	47	 
	     25.9	 	Assignment
	 	 	48	 
	     25.10	 	Severability
	 	 	48	 
	     25.11	 	Governing Law
	 	 	48	 
	     25.12	 	Consent to Jurisdiction
	 	 	49	 
	     25.13	 	Entire Agreement; Amendments
	 	 	49	 
	     25.14	 	Construction
	 	 	49	 
	     25.15	 	Headings
	 	 	49	 
	     25.16	 	Time of Essence
	 	 	50	 
	     25.17	 	Agreement by All Contractor Entities
	 	 	50	 
	     25.18	 	Most Favoured Customer
	 	 	50	 
	     25.19	 	Language
	 	 	50	 
	     25.20	 	Counterparts
	 	 	50	 

iii

 

LOGISTICS EXHIBITS

	 	 	 
	Exhibit “1-A”

	 	Freight, Duty and Delivery Services
	 
	 	 
	Exhibit “1-B”

	 	Logistics Operations Services
	 
	 	 
	Exhibit “1-B”

	 	Schedule “A” Intentionally Left Blank
	 
	 	 
	Exhibit “1-C”

	 	Strategic Logistics Services
	 
	 	 
	Exhibit “2”

	 	Performance Metrics & Scorecard
	 
	 	 
	Exhibit “2”

	 	Schedule “A” — Service Level Reports
	 
	 	 
	Exhibit “3”

	 	Cost Reporting
	 
	 	 
	Exhibit “3”

	 	Schedule “A” Cost Reduction Baseline and Measurement (Exhibit “1-A” Services)
	 
	 	 
	Exhibit “3”

	 	Schedule “B” Cost Reduction Baseline and Measurement (Exhibit “1-B” Services)
	 
	 	 
	Exhibit “3”

	 	Schedule “C” Nortel Networks programs to deliver OCR
	 
	 	 
	Exhibit “3”

	 	Schedule “D” Flextronics programs to deliver ICR
	 
	 	 
	Exhibit “4”

	 	Managed Contracts
	 
	 	 
	Exhibit “5”

	 	Intentionally Left Blank
	 
	 	 
	Exhibit “6”

	 	Nortel Networks’ Non-Disclosure Form
	 
	 	 
	Exhibit “6-1”

	 	Flextronics’ Non-Disclosure Form
	 
	 	 
	Exhibit “7”

	 	Issue Resolution and Escalation Process
	 
	 	 
	Exhibit “8”

	 	UK Service Cessation

iv

 

Master Contract Logistics Services Agreement

This Agreement is entered into between Nortel Networks Limited (formerly
Nortel Networks Corporation), a Canadian corporation with a place of business
at 8200 Dixie Road, Suite 100, Brampton, Ontario (“NNL”) and Flextronics
Telecom Systems Limited, a company duly established under the laws of
Mauritius, and having its registered office located at Suite 802 St James
Court, St Denis Street, Port Louis, Mauritius, executed on June 29,
2004(“Execution Date”). As set out in the Phased Closing Side Letter, dated as
of the Execution Date, the Effective Date of this Master Contract Logistics
Services Agreement (the “Agreement”) shall be the date that the first Virtual
System House Agreement is executed (“Effective Date”). The Parties agree that
the terms and conditions of this Agreement shall come into effect for each VSHA
executed as such VSHAs are executed (“VSHA Effective Date(s)”).

WHEREAS NNL is transferring certain telecommunication, product assembly,
integration and test activities, and repair activities (including the
management or purchasing and other procurement activities and customer order
fulfillment activities) to Flextronics pursuant to the Asset Purchase Agreement
(the “Operations”).

WHEREAS Flextronics International Ltd., a company duly established under
the laws of Singapore, and having its registered office located at 2 Changi
South Lane, Singapore 486123 acting through its Hong Kong branch office with
offices at Room 908, Dominion Centre, 43-59 Queen’s Road East, Wanchai, Hong
Kong and NNL have executed that certain Performance Guarantee dated June 29,
2004;

WHEREAS NNL wishes Flextronics (in connection with the Operations) to
provide NNL certain transportation and logistics services (which services are
currently being provided by NNL’s internal staff or by certain third party
providers) relating to the material movement of Materials.

WHEREAS NNL has agreed to purchase and Flextronics has agreed, upon and
subject to the terms and conditions set out herein, to provide the services as
more particularly defined herein;

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

DEFINITIONS

“Affiliate” means individually or collectively:

	 	(a)	 	a joint venture or other cooperative business enterprise
formed between Nortel Networks and one (1) or more persons which are
not part of or related to Nortel Networks; and/or
	 	(b)	 	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.

5

 

“Asset Purchase Agreement” means the agreement between NNL and Flextronics
executed on June 29, 2004 pursuant to which Flextronics has purchased certain
assets pertaining to the business of NNL and has made offers of employment to
certain employees identified therein.

“Assists” means goods and services supplied directly or indirectly, free of
charge or at a reduced cost for use in connection with the production of
imported goods, such as raw materials, components, parts used incorporated into
the imported goods, tools, dies, moulds and other equipment used to produce the
finished goods, any materials used to produce the finished goods being
imported, engineering, development work, art work, designs, plans, sketches
undertaken anywhere other than the country of import.

“Blanket Purchase Order” means an Order for Services which does not set forth a
Delivery Date, Shipping Date and/or specific quantities.

“Business Continuity Plan” has the meaning set forth in Section 10.1.

“Business Day” means, for the purposes of dealings between NNL and Flextronics
hereunder, any day other than Sunday, or a statutory holiday or otherwise
scheduled holiday agreed to in writing by the Parties, on which either of such
Parties is closed for business.

“Class A” means items that are brand new and have not been installed in a
Customer’s live network.

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

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

“Confidential Information” means all information which can reasonably be
considered to be confidential and proprietary, whether transmitted
electronically or in written form, relating to the business, operations,
processes or technology of either Party or any of its affiliates, which shall
include but not be limited to all data, reports, interpretations, financial
statements, forecasts and records containing or otherwise reflecting
information concerning the Party or any of its affiliates which a Party may
receive from the other Party in connection with this Agreement, including
Flextronics Proprietary Information, Nortel Company Proprietary Information,
business and marketing strategies (including pricing policies, cost and profit
information, Customer information, supplier information), product development
plans, information relating to the design of equipment or facilities or
products, trade secrets, together with other documents, which contain or
otherwise reflect information regarding a Party and/or any of its affiliates.

“Contact Centre” means the point of contact designated by Nortel Networks for
its Customers.

“Control and Responsibility” means, for the purposes of Section 8.1.2 [•].

“Currency Conversion” means a factor used in calculating Price, or any part
thereof, for purchases in a currency other than the currency in which Nortel
Networks is required to pay

6

 

Flextronics hereunder, based on a rolling three (3)
month window for the exchange of such other currency into such payment currency
required from Nortel Networks as published by the Royal Bank of Canada from
time to time (the “Exchange Rate”). Currency fluctuations shall be measured
when the invoices are produced. If there is a fluctuation of ±5% in the
Exchange Rate from the preceding month, the Currency Conversion factor shall be
adjusted to reflect the Exchange Rate in the current months invoice.

“Customer” means Nortel Networks’ customers which receive Materials delivered
pursuant to the Services provided by Flextronics.

“Delivery Date” means the date when the Materials are to be delivered to the
Delivery Location.

“Delivery Facility” means the applicable Flextronics facility from which
Materials are shipped at the direction of Flextronics to the Delivery Location.

“Delivery Location” means the location specified in an Order For Materials to
which the Materials shall be delivered or to any applicable stocking location.

“Dollar” or “$” means U.S. dollars.

“EDI” means electronic data interchange of information related to Orders.

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

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

“Flextronics Proprietary Information” means information, technology, processes,
or other proprietary property, including copyrights, trade secrets, know-how,
mask work rights, any waiver to moral rights, patents and/or patent
applications in any form or medium developed or acquired by Flextronics or its
licensors other than Nortel Networks, but for greater certainty, does not
include the following: (i) Nortel Networks Proprietary Information or such
information or processes listed above which are derived from Nortel Networks
Proprietary Information; (ii) Product Specific Inventions; (iii) Orders for
Materials; (iv) Orders and all deliverables resulting from the provision of
Services; (v) Nortel Networks Product Information; (vi) property furnished by
Nortel Networks pursuant to Section 16; and (vii) such information, technology,
processes, or other methods developed or arising out of Services funded by
Nortel Networks under this Agreement.

“Flextronics System” means all software and systems used by Flextronics in the
performance of this Agreement.

“Force Majeure” means all acts or events beyond the reasonable control of a
Party. This definition shall not include any act or event that would have been
prevented, or the effects of

7

 

which would have been substantially mitigated, by
implementation of a Business Continuity Plan in accordance with best practices
in the logistics industry for telecommunications and electronics products by
Flextronics as required under Section 10.1, unless Flextronics demonstrates
that it has made a good faith effort to implement such a plan. For clarity,
the following will be considered an event of Force Majeure: an act of God, act
or decree of governmental or military bodies, strike, lock-out, fire, casualty, flood, earthquake, war, epidemic, destruction of logistics facilities,
riot, insurrection; provided however a Party’s failure to resolve its own labour difficulties such as
strike or lock-out shall only be considered an event of Force Majeure if that Party (i) has
included specific action plans related to strikes and lock-outs in its Business Continuity Plan (ii) is in compliance with fair labour practices under the law of the applicable jurisdiction, and (iii) has made commercially reasonable efforts to resolve such labour difficulties.

“Freight and
Duty” means the cost of freight and duty in respect of the
delivery of Materials from the Delivery Facility to the applicable Delivery
Location.

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

“Intellectual Property Rights” means all patents, copyrights, trade secrets and
other proprietary rights related to the Nortel Company Product Information.

“Materials” includes both products manufactured by Flextronics pursuant to the
MCMSA and material purchased by Flextronics on behalf of Nortel Networks.

“Materials Purchase Price” has the meaning given to the term “Price” in the
MCMSA.

“MCMSA” means the Amended and Restated Master Contract Manufacturing Agreement
dated June 29, 2004, between NNL and Flextronics with respect to manufacturing
services to be provided to Nortel Networks relating to the products specified
therein.

“Nortel Company” means NNL or a Subsidiary of NNL.

“Nortel Networks” means NNL or, as applicable, any Nortel Company that has
become a Party to this Agreement by issuing an Order, a Blanket Purchase Order
or an Order for Materials under this Agreement.

“Nortel Company Inventory” means Materials held and managed by Flextronics but
owned by Nortel Networks.

“Nortel Company Product Information” means all know-how, processes and
procedures, product architecture, specifications, designs, design information,
drawings, artwork, manufacturing information and data, circuit schematics,
stocklists, assembly drawings, drill data,
wiring diagrams, functional schematics, piece part drawings (magnetics, sheet
metal and cable assembly), tooling and test routines, programs and data, any
other information and materials, functional description and technical or
business information or data, computer programs, technology, inventions,
discoveries, techniques, which may be disclosed orally, visually, in writing,
in machine recognizable form or in any other fixed form relating to Materials
and required for the delivery of the Services.

8

 

“Nortel Company Proprietary Information” means:

	 	a)	 	Programs;
	 	b)	 	Nortel Company Product Information;
	 	c)	 	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;
	 	d)	 	confidential or non public business information including without
limitation, ideas, formulae, plans, proposals, designs, schematics,
drawings, flow charts, product and process specifications, trade
secrets, know how, technical data, algorithms, databases, and
technical reports, and customer, marketing and financial information;

embodied in any form or medium and owned or developed by or on behalf of a
Nortel Company or acquired from its licensors with rights to disclose or
sublicense that pertains to a Nortel Company’s business, including products and
their design, manufacture, use and testing, systems, specifications and all
deliverables resulting from the Services, and Product Specific Inventions or
any Flextronics Proprietary Information.

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

“Operations” means those certain telecommunication, product assembly,
integration and test activities and repair activities (including the management
or purchasing and other procurement activities and customer order fulfillment
activities) that Nortel Networks is transferring to Flextronics pursuant to the
Asset Purchase Agreement.

“Order(s)” means either the “hard copy” document or EDI used by Nortel Networks
to order Services under this Agreement. For purposes of this Agreement, a
reference to an Order shall include a Blanket Purchase Order.

“Order(s) For Materials” means an order placed by Nortel Networks to
Flextronics for the purchase of Materials.

“Order Fulfillment” means the preparation of Materials for shipment, including
all applicable documentation, in accordance with the provisions of this
Agreement.

“Party” means either Nortel Networks or Flextronics and “Parties” shall mean
both Nortel Networks and Flextronics.

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

9

 

“Price” means the price paid by Nortel Networks to Flextronics with respect to
any applicable Services provided under this Agreement, as such amount is
defined in Section 9.1.

“Product Specific Inventions” means Flextronics innovations, improvements,
ideas or features relating to or incorporated into the Materials, but not
including any such innovations, ideas or feature relating solely to the
material movement of the Materials.

“Programs” means software used or retained for use in the provision of
Services, in whatever form, including that which is ROM resident, listings,
flowcharts, logic diagrams, operating instructions, and any other related
documentation.

“Replacement Value” means the cost to Nortel Networks of replacing property
furnished to Flextronics pursuant to Section 16 of this Agreement.

“SCO” or “Service Change Order” means a direction in the form of a service
change order to make a change to Services.

“Service Change Impact Form” means the form to be completed by Flextronics in
response to a proposed change to the Services, which form shall contain, at a
minimum, an estimate of the time necessary to complete the change and the
increase or decrease, if any, in the Price of the relevant Services.

“Service Exhibits” means, collectively, Exhibit “1-A” — Freight, Duty and
Delivery Services, Exhibit “1-B” — Logistics Operations Services, and Exhibit
“1-C” — Management of Third Party Service Providers.

“Services” means transportation and logistics services (which services are
currently being provided by Nortel Networks’ internal staff or by certain third
party providers) relating to the material movement of Materials to an
applicable Delivery Location, such services as more particularly described in
the Service Exhibits.

“Shared Services Agreement” means the Shared Services Agreement entered into
between NNL and Flextronics as of the Effective Time.

“Shipping Date” means the date when Materials are tendered by Flextronics to a
carrier at the Delivery Facility for shipment to the Delivery Location.

“Subsidiary” means any corporation with respect to which a specified Person (or
a Subsidiary thereof) directly or indirectly owns more than fifty percent (50%)
of the issued and outstanding equity securities or securities convertible into
such securities or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.

“TDI” means technical data interchange by electronic means.

“Term” has the meaning set forth in Section 1.6.

“Virtual System House Agreement” or “VSHA” has the meaning set forth in the
MCMSA.

“Year” means any twelve month period following the Commencement Date or annual
anniversary of the Commencement Date.

10

 

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

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

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

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

Section 1

SCOPE OF THE RELATIONSHIP

	1.1	 	Expectations

Nortel Networks and Flextronics will collaborate to provide a variable cost
infrastructure to deliver Materials to Customers.

	1.2	 	Information Access

Flextronics will have access to the Nortel Networks Product Information, to the
extent it is relevant for the provision of the Services. To enable Flextronics
to perform the Services Nortel Networks shall provide relevant information
reasonably required by Flextronics.

	1.3	 	Commitments and Obligations

Nortel Networks shall maintain a central Contact Centre to which Customers
shall be instructed to contact Nortel Networks regarding the provision of
Services. During the Term of this Agreement, and provided Flextronics is not
in material breach of this Agreement, Nortel Networks agrees to purchase from
Flextronics [•].

Flextronics covenants and agrees to perform the Services in accordance with
terms of this Agreement and in accordance with Nortel Networks workmanship
standards as set out in this Agreement and any Exhibits attached hereto or any
more stringent standard indicated herein or mutually agreed to at a later date.

	1.4	 	Competitiveness

If Flextronics fails to remain Competitive with its competitors with respect to
the Services, then Nortel Networks may source such Service from another
supplier. Notwithstanding the foregoing, Nortel Networks will not transfer the
Service if Supplier becomes Competitive within forty-five (45) days from
notification by Nortel Networks that Supplier has failed to remain Competitive,
as defined below. For the purposes of this Section, “Competitive” means terms
and conditions taken as a whole that are more favourable to Nortel Networks, as
determined in a “bona fide benchmarking” exercise or as provided in a bona fide
quote from a third party considering price, service quality, delivery interval,
service commitments, and other criteria identified by Nortel Networks in
writing to Flextronics. A “bona fide benchmarking exercise” shall be considered
to be one performed by an independent recognized benchmarking firm which is (i)
selected by

11

 

Nortel Networks from those companies which are regularly engaged in
the logistics industry, or other consultant as agreed between the Parties, (ii)
is not a competitor of Flextronics and (iii) which has executed a
non-disclosure agreement reasonably satisfactory to Flextronics. All fees and
charges paid to such benchmarking firm shall be borne by Nortel Networks, and
such fees and charges shall not be contingent upon reaching a conclusion
favourable to Nortel Networks. Each Party shall have the opportunity to advise
the benchmarking firm of any information or factors that it deems relevant to
the conduct of the benchmarking, with the intention of providing an “apples to
apples” comparison, so long as such information is disclosed to the other
Party. The benchmarking firm shall provide the written reports and the core
data resulting from the benchmarking to both Nortel Networks and Flextronics,
including the factors actually used to perform the benchmarking, data on
participants and confidence factors related to the accuracy of the data and the
benchmarking methodology. Flextronics will be entitled to challenge the
accuracy of the results of the benchmarking exercise pursuant to the Issue
Resolution and Escalation Process.

	1.5	 	Structure of the Agreement

This Agreement sets out the terms and conditions of the relationship between
Nortel Networks and Flextronics and the Services to be performed by Flextronics
pursuant to this Agreement and the terms of performance of such Services by
Flextronics. Each Order, or Blanket Purchase Order issued to Flextronics shall
create rights and obligations between the Nortel Company which issues the Order
and Flextronics. No Nortel Company shall be liable to Flextronics for
performance of any obligation by another Nortel Company arising in connection
with this Agreement.

This Agreement shall continue to apply to an Order issued during the Term until
all obligations provided for in this Agreement are performed. Notwithstanding
that an Order does not refer to
this Agreement, any Order issued by a Nortel Company during the Term shall be
deemed to have been issued pursuant to this Agreement unless the Parties
expressly agree in writing to the contrary. In the event of any conflict or
inconsistency between the terms of this Agreement and any other document
ancillary or relating thereto, the following order of precedence shall apply,
but only to the extent of an express conflict or inconsistency: (1) this
Agreement and Exhibits, (2) Order(s), (3) Blanket Purchase Order(s), and (4)
Orders for Materials and related schedules as applicable to the particular
Delivery Facility.

	1.6	 	Term

This Agreement shall commence on the Effective Date and continue until
terminated in accordance with this Agreement (the “Term”). Either Party may
deliver a notice for termination for convenience to take effect [•] following
such notice; provided however, that no such notice may be delivered before a
date that is [•] before the fourth anniversary of the Commencement Date.

12

 

Section 2

GOVERNANCE PROCESS

	2.1	 	Transition Planning

The Parties will mutually agree to meet to discuss transition planning in
respect of the Services as frequently as is required, regarding the delivery of
the Services. Such discussions shall consider the terms of any transition
implementation plans developed by the Parties.

	2.2	 	Strategic Governance

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

	(a)	 	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, key financial indicators, process
improvements, significant technology trends and advancements,
organizational alignments, cost to market, time to market, foot print, and
trends.
	(b)	 	Cost Reduction Opportunities. The Parties shall discuss cost reduction
opportunities (in addition to those opportunities previously identified by
the Parties), and Flextronics shall identify such opportunities including
savings in the areas of transportation management, supply chain
optimization, freight, duty and logistics operating costs, warehousing
rationalization/labour and such other factors as the Parties may determine
from time to time.
	(c)	 	Performance Metrics and Report Card. The Parties shall use as a
guideline the criteria for performance excellence as set forth in Exhibit
“2”.

	2.3	 	Operations Governance

Nortel Networks and Flextronics shall:

	(a)	 	Dedicate business management teams to provide consistent and efficient
responses to mutually agreed upon goals and requirements.
	(b)	 	Create a process to communicate about and resolve issues promptly and to
drive continuous improvement of the day-to-day operation.
	(c)	 	Comply with all reporting and meeting requirements, including collecting
and reporting report card metrics, as provided in Exhibit “2” of this
Agreement.
	(d)	 	Upon reasonable advance written notice, provide open book access for
Nortel Networks at Flextronics’ premises to resources, documents, records,
databases and any other information that is not in violation of any third
party agreements of confidentiality and is relevant to Nortel Networks’
cost management, including but not limited to, information relating to
“On-going Cost Reduction”, “Incremental Cost Reduction” and continuous
improvement, as more fully described in Section 9 and Exhibit of this
Agreement. Each 

13

 

	 	 	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 20. Any breach of the preceding sentence shall be considered to
be a material breach of this Agreement.

	2.4	 	Monthly Operations Reviews

Flextronics and Nortel Networks shall conduct monthly operations reviews of the
business performance, processes and procedures of both Flextronics and Nortel
Networks (i) at each applicable Delivery Facility; (ii) from each Delivery
Facility to each applicable region; (iii) by individual region; and (iv) at the
Customer level, with the intent to improve the overall supply chain
performance. The review shall include, at a minimum, performance measurements
of quality, delivery, Customer satisfaction, corrective and preventive actions,
costs, capacity, supply constraints, intervals, actual versus forecasted
demand, innovations and cost reductions for the Services.

	2.5	 	Resources for Service Support

Throughout the Term of this Agreement, Flextronics shall provide the Services
in accordance with the terms of this Agreement. Flextronics shall maintain
sufficient resources for the purposes of achieving the strategic management of
the Services.

Section 3

ORDERING AND DELIVERING

	3.1	 	Blanket Purchase Orders

Nortel Networks may issue either; (i) an Order; or (ii) a Blanket Purchase
Order to Flextronics for Services. There shall be no minimum Order quantity.

	3.2	 	Acceptance of Orders

Flextronics shall accept any Order issued by Nortel Networks for the Services
under this Agreement.

	3.3	 	INTENTIONALLY LEFT BLANK

	3.4	 	Issuance of Orders via EDI

If Nortel Networks uses EDI to issue an Order, such transaction shall be
carried out in accordance with the provisions set forth in Exhibit “26” of the
MCMSA.

Section 4

RISK OF LOSS

14

 

	4.1	 	Risk of Loss

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

If Nortel Networks or a Customer returns Materials, risk of loss, damage or
theft for such Materials shall pass to Flextronics when the Materials are
delivered to Flextronics’ or Flextronics’ subcontractor’s premises.

	4.2	 	Title

For Orders for Materials that are shipped from Flextronics’ Delivery Facility
to a named destination within the same country, title shall pass to Nortel
Networks upon delivery to the named destination. For Orders for Materials that
are shipped from Flextronics’ Delivery Facility to a named destination in a
different country, title shall pass to Nortel Networks immediately prior to
importation into the country specified in the named destination.

Nortel Networks may make a written request that title pass to it at a point
other than as outlined above. Flextronics shall comply with such request
provided that the revised transfer point is no later in the delivery process
then the relevant points stated above.

For returns that are shipped from Nortel Networks or a Customer to Flextronics’
or Flextronics’ subcontractor’s premises within the same country, title shall
pass to Flextronics upon delivery to the agreed upon destination. For returns
that are shipped from Nortel Networks or a Customer to Flextronics’ or
Flextronics’ subcontractor’s premise in a different country, title shall pass
to Flextronics immediately prior to importation into the country specified in
the named agreed upon destination.

Section 5

DELIVERY PROCESS

	5.1	 	Delivery Method

Flextronics shall deliver the Materials in the manner set forth in Exhibit
“1-A” and Exhibit “1-B”.

	5.2	 	Packaging, Labelling and Nortel Networks Trade Marks

Materials shall be packaged and labeled in accordance with Nortel Networks’
packaging standards as more particularly set forth in Exhibit “1-B” and shall
be consistent with the provisions of Section 19.3 of this Agreement.
Notwithstanding anything to the contrary in Exhibit “1-B”, Flextronics shall
not apply to or display on the packaging, shipping

15

 

documentation or any other
identifiable medium any of Flextronics’ trade-marks or other markings without
the express written permission of Nortel Networks, which may be withheld in
its absolute discretion. Nothing in this Agreement shall be taken to grant
expressly or by implication a license to Flextronics to use Nortel Networks
trademarks. To enable Flextronics to comply with these requirements Nortel
Networks shall provide information to Flextronics with regard to the current
practices and guidelines, as of the Effective Date, in which Materials are to
be properly and sufficiently prepared, packed, stowed labeled and/ or marked,
and that the preparation, packing, stowage, labeling and marking are
appropriate to any operations or transactions affecting the Materials and the
characteristics of the Materials in compliance with any statutory regulations
or official or recognized standards. Within three months of the Effective
Date, Flextronics shall review, and revise as required, all practices and
guidelines to ensure Materials are properly and sufficiently prepared, packed,
stowed labeled and/ or marked, and that the preparation, packing, stowage,
labeling and marking are appropriate to any operations or transactions
affecting the Materials and the characteristics of the Materials in compliance
with any statutory regulations or official or recognized standards. Nortel
Networks shall be obliged to cooperate with Flextronics in order to enable
Flextronics to meet the objectives of this Section 5.2.

Section 6

MATERIALS MANAGEMENT PROCESS

	6.1	 	Delivery Facility

Flextronics shall only deliver Materials from the Delivery Facilities initially
agreed to by Flextronics and Nortel Networks, and Flextronics shall not change
such Delivery Facilities without Nortel Networks’ prior written consent such
consent shall not be unreasonably withheld by Nortel Networks.

	6.2	 	Flextronics Management Services

Flextronics shall perform material and supplier management services and
activities consistent with the Services described in the Service Exhibits and
any other related services the Parties agree to perform. Notwithstanding the
foregoing, Nortel Networks reserves the right to require Flextronics to provide
for specific Customer requirements in accordance with Section 1.11 of Exhibit
“1-B”.

	6.3	 	Warehousing

Flextronics shall deal with all Materials in accordance with the warehousing
standards as set out in Section 1.1 of Exhibit “1-B”.

	6.4	 	Management of Third Party Contracts

Flextronics agrees that pursuant to the terms of the Asset Purchase Agreement,
Nortel Networks will assign to it and Flextronics will assume all performance
and financial obligations in connection with all contracts or other documented
agreements relating to assets, facilities or Services to which Nortel Networks
is a party and which contracts or other documented

16

 

agreements relate to the
delivery of the Services. However, this Agreement shall not constitute an
agreement to assign any contracts or other documented agreements if any
assignment or attempted assignment of the same without the consent of the other
party would (i) constitute a breach thereof or otherwise not be permitted under
applicable law or environmental law, (ii) increase any obligation of Nortel
Networks thereunder, or (iii) create any additional obligation of Nortel
Networks thereunder (the “Non-Assignable Contracts”), such Non-Assignable
Contracts being those contracts listed in Exhibit “4”. Nortel Networks shall,
prior to and after the Effective Date, use its commercially reasonable efforts
(it being understood that such efforts shall not include any requirement of
Nortel Networks or any of its Affiliates to pay money, commence any litigation,
or offer or grant any accommodation, financial or otherwise, to any third
party), and Flextronics shall cooperate in all reasonable respects with Nortel
Networks to obtain all consents and waivers and to resolve all impracticalities
of assignments or transfers necessary to convey any Non-Assignable Contracts to
Flextronics. If any such Non-Assignable Contracts are not able to be assigned
or transferred (whether because a consent in respect of any Non-Assignable
Contracts could not be obtained or otherwise), (i) Nortel Networks shall use
its commercially reasonable efforts (it being understood that such efforts
shall not include any requirement of Nortel Networks or any of its Affiliates
to pay money, commence litigation, or
offer or grant any accommodation, financial or otherwise, to any third party)
to provide or cause to be provided to Flextronics, to the extent permitted by
applicable law or environmental law, the benefits of any such Non-Assignable
Contracts; (ii) Nortel Networks shall (to the extent Flextronics has undertaken
the responsibilities thereunder) promptly pay or cause to be paid to
Flextronics all monies received by Nortel Networks or any of its Affiliates
with respect to any such Non-Assignable Contracts; (iii) Flextronics shall
perform and discharge on behalf of Nortel Networks all of Nortel Networks’
debts, liabilities, obligations or commitments, if any, thereunder, and subject
to and in accordance with the provisions thereof; and (iv) Flextronics shall be
responsible for directing the third parties in performing the Services. In this
circumstance, Flextronics shall be responsible for any additional financial
liabilities caused by an error or omission of Flextronics in directing the
third parties under the Non-Assignable Contracts. On any Non-Assignable
Contract where the third party is unwilling to provide loss and damage coverage
at least equivalent to that provided to Nortel Networks under the
Non-Assignable Contract, for Materials held by the third party, Flextronics
shall be entitled forthwith to transfer the Materials to another site provided
that this transfer does not cause a reduction in service or increased costs to
Nortel Networks.

6.4.1 Where Nortel Networks has financial obligations in connection with
contracts or other documented agreements relating to assets, facilities or
Services to which Nortel Networks is a party for the performance of Services
contemplated under this Agreement with a third party and in the event that
Flextronics pursuant to such contracts or other documented agreements becomes
liable to discharge the financial obligations contained therein to any third
party due to a mutual decision by the Parties to terminate the relevant
contract or other documented agreement, then Nortel Networks shall have an
obligation to pay Flextronics a sum equal to the financial obligation required
to be discharged by Flextronics. Any sums due and not recovered under this
Section may be recovered by Flextronics from Nortel Networks as a debt. The
Parties hereby intend that this obligation shall survive the termination of
this Agreement and will remain in effect until fulfilled.

17

 

Section 7

CHANGE MANAGEMENT

	7.1	 	Joint Change Management Process

Either Party may propose in writing a change to the Services, pursuant to the
procedures set out below:

	 	7.1.1	 	Flextronics Proposal

In the event Flextronics has created a Service Change Order (“SCO”),
Nortel Networks shall provide an acknowledgement in writing within ten
(10) Business Days as to whether Flextronics is required to prepare and
provide Nortel Networks with a SCO Form. If Flextronics is required to
prepare and provide Nortel Networks with a SCO Form, Nortel Networks
shall, upon receipt of such SCO Form, promptly determine if it will agree
to go forward with the change. If Nortel Networks agrees to have the
change implemented, the Parties shall negotiate any open issues,
including additional liability
that shall be identified on a revised SCO Form, and set the
implementation date. Nortel Networks shall not pay charges unless
specifically identified by Flextronics on the SCO Form and agreed to by
Nortel Networks within ten (10) Business Days. Flextronics and Nortel
Networks shall each pay their own costs associated with the assessment
and implementation of the change to the Services. Nortel Networks may
not unreasonably withhold consent to a proposed change.

	 	7.1.2	 	Nortel Networks Proposal

In the event Nortel Networks has created a SCO, Flextronics shall, within
ten (10) Business Days of receipt of Nortel Networks’ proposal, respond
to such SCO with a Service Change Impact Form that will include but not
be limited to information relating to cost and timeline. Upon receipt by
Nortel Networks of the Service Change Impact Form, Nortel Networks shall
promptly determine if it wishes Flextronics to implement the change. If
Nortel Networks requires the change to be implemented, the Parties shall
negotiate any open issues, including additional liability that shall be
identified on a revised Service Change Impact Form, and set the
implementation date. Flextronics shall fully implement the SCO and
co-ordinate the activities of Flextronics’ sub-contractors, if necessary
for such implementation. Nortel Networks shall not pay charges unless
specifically identified by Flextronics on the original or the revised
Service Change Impact Form. Flextronics and Nortel Networks shall each
pay their own costs associated with the assessment and implementation of
the change to the Services.

	7.2	 	New Services

In the event that Nortel Networks desires to have additional services performed
that are materially similar to those Services covered by Exhibits 1-A, 1-B and
1-C (collectively, “New Services”), Nortel Networks may in its sole discretion
select to (i) perform such New Services itself; or (ii) enter into agreements
with third parties to perform such New Services provided that Nortel Networks
shall give adequate opportunity to Flextronics to submit a proposal for New
Services and provided the proposal is competitive and meets the other
stipulated requirements Nortel Networks shall give preference to a proposal
from Flextronics for New Services. In the event the Parties have agreed to
the provision of a New Service pursuant to the terms of a tender

18

 

process, the
New Service shall become a “Service” and any relevant Schedules shall be
updated accordingly.

Section 8

QUALITY

	8.1	 	Performance Metrics and Report Cards

	 	8.1.1	 	Report Card

Flextronics shall complete report cards, which shall be used as a method
to measure against the goals of quality, service and cost and shall
deliver such report cards to Nortel Networks on a monthly basis
coinciding with the monthly operations reviews provided for in Section
2.4. The metrics used to derive the report card scores and the formats
for
the report cards shall be as set out in Exhibit “2”. Nortel Networks
reserves the right to review the report cards and to conduct a joint
audit with Flextronics to determine their accuracy.

	 	8.1.2	 	Breach of Performance Metrics

	 	(i)	 	Breach of Performance Metrics Leading to Termination

The failure of Flextronics to obtain performance results above a
Passing Grade on any of the performance metrics (as defined in the
report cards as set out in Exhibit “2”) on the Global Report Card
in Table 1 of Exhibit “2” or on the Regional Report Card (but only
as it relates to North America and Europe, Middle East and Africa
regions) in Table 2 of Exhibit “2” with respect to an applicable
Service as a result of any act or omission within Flextronics’
Control and Responsibility, [•], constitutes a material breach of
Flextronics’ obligations under this Agreement. Such a material
breach shall entitle Nortel Networks, at its discretion, to
terminate this Agreement.

	 	(ii)	 	Breach of Performance Metrics Without Termination

The failure of Flextronics to obtain performance results above a
Passing Grade on any of the performance metrics (as defined in the
report cards as set out in Exhibit “2”) on the Regional Report Card
(but only as it relates to the Caribbean and Latin America, and
Asia Pacific regions) in Table 2 of Exhibit “2”, on the Delivery
Facility Site Report Card in Table 3 of Exhibit “2”, or on the
Delivery Facility Site by Region Report Card in Table 4 of Exhibit
“2” with respect to an applicable Service as a result of any act or
omission within Flextronics’ Control and Responsibility, [•],
constitutes a material breach of Flextronics’ obligations under
this Agreement. Such a material breach shall entitle Nortel
Networks, at its discretion, to perform the relevant Services
itself, engage a third party to perform the relevant Services, or
direct Flextronics on how specifically the relevant Services should
be performed.

19

 

	 	8.1.3	 	Transition Period Performance

Nortel Networks acknowledges that Flextronics’ ability to perform its
obligations at the Effective Date under the attached Exhibits is
dependent upon Flextronics ability to engage certain Nortel Networks
current 3PL providers to continue to perform the Services defined in this
Agreement at the metric levels required in Exhibit 2. In addition, as it
relates to Class A returns activity, Flextronics’ ability to perform its
obligations at the Effective Date is dependent upon Nortel Networks
timely transfer of the necessary Nortel Networks’ equipment, information,
processes and personnel, to satisfy the requirements set forth in the
Exhibit 1-B, Section 1.7.

Nortel Networks agrees to provide all reasonable assistance to
Flextronics including the assignment of certain agreements and, as
appropriate, the facilitation of discussions with other third parties
that Flextronics desires to engage, to assist Flextronics in gaining the
capability to deliver the Services in accordance with the stipulated
service levels.

Except where indicated in the relevant Service Exhibit, Flextronics shall
be obligated to deliver all of the Services as of the Effective Date,
provided however that during the four (4) month period after the
Effective Date, Nortel Networks shall not use any breachable metric
measured during this 4 month period to terminate this Agreement pursuant
to section 8.1.2 of this Agreement for Breach of Performance Metrics
unless the breach of the performance metric is solely attributable to an
action of Flextronics.

To the extent that during this four month period Flextronics is able to
demonstrate that any of the service levels were not achieved prior to the
Effective Date, then Flextronics shall be excused from achieving the
service level. In this circumstance, the Parties agree to meet and
negotiate in good faith a timeline for achieving the service level
including any associated cost issues and to amend the relevant Exhibit/s
to reflect the agreed resolution.

If subsequent to the agreed timeline to achieve the required service
level, Flextronics still cannot achieve the required service level then,
notwithstanding the commitments and obligations in Section 1.3 of this
Agreement, Nortel Networks shall be permitted to arrange for the Services
from another service provider or provide the Service itself until
Flextronics is able to reasonably demonstrate that Flextronics can
achieve the required service level.

	8.2	 	Industry Standards

If in existence on the Effective Date, Flextronics agrees to maintain the
industry standards set out below. If Nortel Networks requires Flextronics to
implement an industry standard not certified on the Effective Date, Flextronics
will pursue such standard, subject to the mutual agreement of the Parties on
the associated costs.

	(a)	 	ISO 14001 and ISO 9001 compliance at Delivery Facilities;
	(b)	 	applicable TL9000 requirements requested by Nortel Networks;

20

 

	(c)	 	effective assessments and corrective/preventive actions in respect of
processes;
	(d)	 	effective assessments and corrective/preventive actions in respect of
quality audits;
	(e)	 	senior management reviews are undertaken to discuss quality across all
processes.

	8.3	 	Source Inspection

Nortel Networks may perform source inspections of means and processes at any
Delivery Facility or subcontractor facility (if applicable) whenever Nortel
Networks decides it is necessary. The source inspection shall be conducted
during normal business hours and with reasonable prior written notice to
Flextronics.

	8.4	 	Service Quality

	(a)	 	Flextronics covenants and agrees to maintain a level of quality with
respect to workmanship, testing and packaging processes that shall result
in the achievement of the performance metrics as specified in Exhibit “2”,
measured on a monthly basis. For any breach of a performance metric,
Flextronics shall provide to Nortel Networks (a) a root cause analysis,
(b) an action plan detailing corrective actions required and (c) the
action register showing the status of the action plan.
	(b)	 	For each Delivery Facility, Flextronics will develop a quality
performance program no less stringent than the standards currently in
place in the relevant delivery facility of Nortel Networks. Flextronics’
compliance with these standards will be measured monthly pursuant to
Exhibit “2”.
	(c)	 	Nortel Networks may notify Flextronics in writing if Flextronics has
failed to meet the requirements set forth in either subsection (a) or (b)
above. If, during the Term, NNL so notifies Flextronics in each of three
(3) consecutive months, Flextronics shall be deemed to be in material
breach of this Agreement.

Section 9

SERVICE COST MANAGEMENT PROCESS

	9.1	 	Prices for Services

The Parties agree that Nortel Networks’ cost for Services will be variable in
nature. The Price for Services shall be calculated in accordance with the
following methods:

	 	(a)	 	Cost Method for Services in Exhibit “1-A”. The Price for the
Services in Exhibit “1-A” in or before Year 1 shall be equal to the
[•]. The Price for the Services in Exhibit “1-A” in or before Year 1
shall be adjusted on an ongoing basis to reflect any Ongoing Cost
Reductions as defined in section 9.6.2 below. In or before Year 1,
if no Nortel Networks rate exists for a given lane and service level
then Flextronics will charge Nortel Networks the [•] for the
relevant lane and service level.

21

 

In Year 2, Year 3, Year 4, and any Year thereafter during which
this Agreement continues in force the Price for the Services in
Exhibit “1-A” shall be the [•]. For the purpose of this clause,
“Actual Flextronics Costs” means the actual costs exclusive of
rebates paid by Flextronics to provide the Services.
Notwithstanding
the preceding, should [•] in Year 2, Year 3, and Year 4 not be at
least equal to or lower than the Price at the end of Year 1, then
Flextronics shall charge Nortel Networks the Price in effect at the
end of Year 1.

Additionally, in or before Year 1, Year 2, Year 3, Year 4, and any
Year thereafter during which this Agreement continues in force,
Flextronics shall be permitted to pass on to Nortel Networks any
temporary industry surcharges that are assessed against Nortel
Networks shipments. Flextronics shall only be entitled to recover
their actual costs as they relate to Nortel Networks shipments and
no Margin shall apply. These surcharges should be identified as
separate charges and shall only apply as long as the industry
surcharge exists.

	 	(i)	 	Flextronics must obtain Nortel Networks written
approval prior to making any changes to the delivery of
Services that will cause an increase in cost by more than [•],
unless such change in cost is related to an increased volume
of Services to be provided. Flextronics shall not make
changes that cause an increase in the Price for the Services
unless those increased costs are to offer new services or are
offset by reduced Material Purchase Prices in the MCMSA.

	 	(b)	 	Cost Method for Services in Exhibit “1-B”: The Price for the
Services in Exhibit “1-B” form part of the Materials Purchase Price.

	 	(c)	 	Cost Method for Services in Exhibit “1-C”: As of the
Effective Date, the Parties agree that the Services in Exhibit “1-C”
will be provided by a third party. The costs for the Services
provided by that third party will be paid directly by Nortel
Networks. If, after the Effective Date, Nortel Networks desires
Flextronics to provide certain of the Services described in Exhibit
“1-C”, and Flextronics and Nortel Networks agree that Flextronics
should begin to deliver all or part of the Services described in
Exhibit “1-C”, Nortel Networks agrees to pay Flextronics for agreed
to costs associated with Flextronics providing those Services [•].

	9.2	 	Payment, Taxes and Duties

	 	9.2.1	 	Invoices

After the Services in Exhibit “1-A” have been performed, Flextronics
shall issue invoices every other week in the currency specified in an
Order net of any discounts or initial overpayments made by Flextronics to
Flextronics’ sub-contractors. If Actual Flextronics’ Costs are paid by
Flextronics in a currency other than that which Flextronics will be
invoicing Nortel Networks, then Flextronics shall use the Currency
Conversion factor to calculate the invoice. Nortel Networks shall be
credited for any amounts resulting from audits which result in lower
costs after initial invoices are issued by Flextronics. On each invoice
submitted to Nortel Networks, Flextronics will reference the appropriate
Order.

22

 

Flextronics agrees not to assess any applicable excise tax, sales tax,
goods and services tax, value added or similar taxes where Nortel
Networks furnishes Flextronics a tax exemption certificate, a certificate
of authority, a direct pay permit and/or any equivalent acceptable to the
applicable taxing authority. Nortel Networks shall withhold any
applicable withholding tax from payments made to Flextronics pursuant to
this Agreement. To assist Flextronics in obtaining any tax credits for
the amounts withheld, Nortel Networks shall promptly provide Flextronics
with such evidence as may be reasonably required by the applicable taxing
authorities to establish that such withholding tax has been paid.

The Parties shall co-operate with each other to minimize the amount of
tax payable pursuant to this Agreement in accordance with applicable
laws. Each Party shall provide the other Party or any other Person with
any certificates, tax numbers, supplier invoices or any other documents,
which may reduce the taxes payable by a Party or entitle a Party to
recover taxes paid.

	 	9.2.2	 	Payment

Payment shall be made net [•] from the date of the invoice. In the event
that payment of the invoice has not been made by the due date and
Flextronics cannot provide a proof of delivery of said invoice, then
Nortel Networks shall not be considered in breach of this Agreement.

The Parties will agree to an accounts payable/accounts receivable process
to proactively resolve any payment and invoicing issues in a timely
manner.

Nortel Networks may deduct any undisputed credit due and owing it, upon
approval of Flextronics. Payment shall be made in the currency of the
invoice issued by Flextronics. Nortel Networks shall pay by wire transfer
in the jurisdictions where this is possible.

Nortel Networks shall identify any dispute with respect to an invoice
within thirty (30) days of its receipt of such invoice.

[•].

	9.3	 	Financial Review and Targets

Flextronics shall review quarterly as part of the quarterly business reviews
described in Section 2.2(a) [•]. As part of such review, Flextronics shall
provide key financial performance reports as detailed in Exhibit “3”.

	9.4	 	Forecasting

Flextronics shall present its forecasted expenditure plans that relate to the
Services, with the relevant cost quotes and budget for Services, quarterly to
Nortel Networks. The forecasted expenditures for Services expenses shall be
categorized by Delivery Facility. Freight expenditure forecasts will be based
on forecasted demand as provided by Nortel Networks.

23

 

Flextronics shall not be
required to provide forecasts that extend beyond the term of those forecasts
provided by Nortel Networks.

Current forecasts will be submitted for the current quarter plus two quarters
in the future. An operations budget will be itemized by categories outlined in
Exhibit “3”. Flextronics’ freight and duty budget forecast will be categorized
by items including, but not limited to: (i) Nortel Networks region; (ii) Nortel
Networks leadership category or business unit; and (iii) Delivery Facility.
The freight and duty budget will include estimates by transportation mode (air,
ground, sea) and service level (express, standard, deferred).

	9.5	 	Audit

	 	(a)	 	Nortel Networks shall have the right, upon five Business Days
notice, to conduct a cost audit of the costs related to the
Services. This may include the audit of purchase orders, invoices,
and financial records.
	 	(b)	 	Flextronics shall not be required to share any documents
where doing so would be a violation of any third party agreements of
confidentiality.
	 	(c)	 	Nortel Networks shall have the right, upon five Business Days
notice, to conduct a general audit of performance related to the
Services by Flextronics and the performance of Flextronics’
sub-contractors. This may include, but is not limited to, site
visits, inspection of quality, warehouse management, material
handling, and financial processes and systems, and inspection of the
business continuity policy and its implementation.
	 	(d)	 	Flextronics shall provide Nortel Networks access and
assistance to premises, facilities, employees, process
documentation, business records, financial records, suppliers,
contracts and agreements with suppliers, and other relevant
information and documentation.
	 	(e)	 	Nortel Networks and Flextronics will each bear their own
costs related to the audit except where the audit reveals that
Flextronics is materially in breach of it obligations under the
Agreement. In this case, the Flextronics will reimburse Nortel
Networks immediately (being not more than two (2) Business Days) for
its reasonable audit expense plus any amounts charged to Nortel
Networks incorrectly. In the case where Flextronics has invoiced
Nortel Networks by five thousand dollars more than it should have,
Flextronics in addition to refunding any overcharge shall also be
liable for Nortel Networks reasonable audit expenses.
	 	(f)	 	Each Party hereby covenants and agrees that it shall keep
confidential all information gathered in this audit process,
including not disclosing such information directly or indirectly to
any competitor or supplier of the disclosing Party.

Flextronics shall promptly remedy any non-compliance with its obligations
under this Agreement, which is revealed by the audit.

24

 

	9.6	 	Cost Reduction with respect to Services described in Exhibit “1-A”

The Parties agree that one of Flextronics’ primary goals is to reduce costs
while ensuring delivery of the Services at or above the performance standards
set out in this Agreement. At the end of Year 1, Year 2, Year 3, Year 4, and
any Year thereafter during which this Agreement continues in force, Flextronics
shall demonstrate to Nortel Networks the achievement of cost reductions related
to the Services in Exhibit “1-A” through a manual reconciliation exercise
whereby each program is assessed to determine the extent of the cost reduction.

Additionally, the model described in Schedule “A” to Exhibit “3” shall be used
to measure the achievement of cost reductions related to the Services in
Exhibit “1-A” at an aggregate level. At the end of each quarter, Flextronics
covenants and agrees to provide to Nortel Networks all data related to the
manual reconciliation exercise and the information required to complete the
model described in Schedule “A” to Exhibit “3” in preparation for the cost
reviews described in Section 9.3, in a prompt manner.

	 	9.6.1	 	Intentionally left blank

	 	9.6.2	 	On-Going Cost Reduction with respect to Services described in Exhibit “1-A”

“On-Going Cost Reduction” or “OCR” means cost reduction that Nortel
Networks would have been able to achieve through its own efforts and
through Nortel Networks’ existing supply chain, had it retained the
Operations. For greater certainty, (i) OCR is the universe of cost
reduction minus ICR (as defined below) and (ii) OCR cannot be used to
fulfill the ICR Commitment, as set out below. “OCR Commitment” is equal
to the cost reductions that Flextronics commits to achieving based on the
process defined below.

For Year 1, the Parties shall meet prior to the Commencement Date to
discuss the OCR Commitment for Year 1. Flextronics shall provide an OCR
Commitment applicable to the Services described in Exhibit “1-A”. OCR is
calculated by [•]. The programs that Flextronics agrees to implement to
deliver the OCR in Year 1 are listed in Schedule “C” to Exhibit “3”. OCR
programs with respect to the Services in Exhibit “1-A” include, but are
not limited to: mode and service levels (air, ground, sea, express,
deferred); transportation lanes; efficiencies; Flextronics’ or Nortel
Networks’ sub-contractor negotiations; and direct ship.

For each of Year 2, Year 3, Year 4, and any Year thereafter during which
this Agreement continues in force, the Parties shall meet ninety (90)
days prior to the start of the applicable Year to discuss the annually
set OCR Commitment for the upcoming Year. The purpose of these meetings
is to provide an opportunity for the Parties to brainstorm to identify
the OCR programs for the upcoming Year including but not limited to:
business cases defining savings; head count; investment; risk; timeframe;
capital; and implementation schedule. The meeting must produce an OCR
Commitment for the applicable Year based on the OCR programs identified
by the Parties that Flextronics must achieve.

Additionally, at any time during the term of this Agreement, Nortel
Networks or Flextronics may propose other intra-year OCR programs that
have not been identified

25

 

either in Schedule “C” to Exhibit “3” or during
the annual joint OCR planning sessions. The Parties agree to negotiate in
good faith any OCR Commitment and implementation timetable related to
these additional OCR programs.

If Flextronics is able to implement any OCR program prior to the
implementation date agreed to by the Parties such that the benefits of
the cost reduction program also begins to accrue prior to the planned
implementation date, then Nortel Networks agrees to share the incremental
benefit of the early implementation equally with Flextronics. In
addition, if the OCR program yields cost reductions during the first 90
days past the planned implementation date greater than that agreed to by
the Parties, then Flextronics shall be entitled to the benefit of this
greater than expected savings. [•].

If Flextronics does not achieve its annually set OCR Commitment for a
given Year such that the logistics costs have decreased by the applicable
OCR Commitment (as determined in the manual reconciliation process) then,
at the end of the respective Year, Nortel Networks shall be entitled, at
its option, either (i) to set-off such amount indicated below against the
Price for Services; or (ii) to require Flextronics to provide a certified
cheque to Nortel Networks, equal to the total Price for Services in
Exhibit “1-A” for the applicable Year as defined in section 9.1 (a) times
(OCR Commitment (expressed as a percentage) minus actual OCR achieved
(expressed as a percentage) in applicable Year).

If Flextronics does not achieve its intra-year OCR Commitment for any
additional OCR program agreed to by the Parties such that the logistics
costs have decreased by the applicable OCR Commitment (as determined in
the manual reconciliation process) then at the end of the 12 month period
following the planned implementation date of any additional OCR program
agreed to by the Parties, Nortel Networks shall be entitled, at its
option, either (i) to set-off such amount indicated below against the
Price for Services; or (ii) to require Flextronics to provide a certified
cheque to Nortel Networks, equal to the total cost of the Exhibit “1-A”
Services related to the OCR program times (OCR Commitment (expressed as a
percentage) minus actual OCR (expressed as a percentage) related to the
OCR program).

Additionally Flextronics shall achieve Flextronics Freight OCR in Year 3
and Year 4. “Flextronics Freight OCR” means that the Price for Services
in Exhibit “1-A” in Year 3
will be [•] than Price for Services in Exhibit
“1-A” for Year 2, and Price
for Services in Exhibit “1-A” in Year 4 will be [•] than Price for
Services in Exhibit “1-A” for Year 3. The Flextronics Freight OCR will
be measured by comparing the Price for Services in Exhibit
“1-A” in the
relevant Year to the Calculated Flextronics Cost to provide the same
Services. For purposes of this clause, the “Calculated Flextronics Cost”
is calculated by applying the rates that Flextronics has in place with
its suppliers in the previous Year to each shipment made in relevant
Year, using the same mode and service level used by Flextronics for those
same shipments. All temporary industry surcharges shall be netted out of
the costs.

[•].

Flextronics will pay all Flextronics’ costs associated with
identification of cost reduction opportunities.

26

 

Flextronics shall maintain lists of opportunities for On-Going Cost
Reduction. Flextronics shall, as part of its plan to reduce cost and
continuously improve processes, seek out other continuous improvement
opportunities within the logistics chain.

	 	9.6.3	 	Incremental Cost Reduction with respect to Services described in Exhibit “1-A”

“Incremental Cost Reduction” or “ICR” means cost reduction that Nortel
Networks would not have been able to achieve, through its own efforts
and/or its existing supply chain, if it had retained the Operations. For
greater certainty, (i) a list of the programs which may be used by
Flextronics to achieve ICR is set out in Schedule “D” to Exhibit “3”
(“ICR Programs”); and (ii) ICR cannot be used to fulfill OCR Commitments
in any Year. The ICR Programs generally relate to reductions in the
freight rates.

[•].

Flextronics shall track and report the achievement of the ICR Commitment.
The ICR Commitment in each of Year 2 and Year 3 will be measured by
comparing the Price for the Services in Exhibit “1-A” for the respective
Year to the Calculated Nortel Networks Cost to provide the same Services
in that Year. For purposes of this clause, the “Calculated Nortel
Networks Cost” is calculated by applying the rates that Nortel Networks
has in place with its current suppliers as of the Effective Date, minus
all of OCR associated with those rates that has been achieved up to the
start of the relevant Year, to each shipment made in the same Year, using
the same mode and service level used by Flextronics for those same
shipments. All temporary industry surcharges shall be netted out of the
costs.

	 	9.6.4	 	Other Cost Changes with respect to Services described in Exhibit “1-A”

The Parties recognize that there are variables that influence logistics
costs that fall outside of the control of those responsible for managing
these costs. These variables
would include such things as product design changes (i.e. product weighs
less or more), sourcing decisions (i.e. may need to ship a different
distance or across boarders), etc. The Parties agree that the cost impact
of these variables shall be excluded from OCR and ICR discussions under
this Agreement. However, for the purposes of supporting ICR discussions
under the MCMSA, Flextronics shall track and report on a project by
project basis the impact to cost for the Exhibit “1-A” Services due to
ICR initiatives under the MCMSA or if applicable, any VSHA.

	9.7	 	Cost Reduction with respect to Services described in Exhibit “1-B”

Nortel Networks will receive the benefit of OCR and ICR programs with respect
to Services described in Exhibit “1-B” as adjustments in the Materials Purchase
Price. The model in Schedule “B” to Exhibit “3” will be used to validate
whether the level of recovery of costs by Flextronics as part of the Materials
Purchase Price is consistent with the actual costs incurred by Flextronics. At
the end of each quarter, Flextronics covenants and agrees to provide to Nortel

27

 

Networks the information required to complete the model in preparation for the
cost reviews described in Section 9.3.

	 	9.7.1	 	On-Going Cost Reduction with respect to Services described in Exhibit “1-B”

For Year 1, the Parties shall meet prior to the Commencement Date to
discuss the OCR Commitment for Year 1. Flextronics shall provide an OCR
Commitment applicable to the Services described in Exhibit “1-B”. The
programs that Flextronics agrees to implement to deliver the OCR in Year
1 are listed in Schedule “C” to Exhibit 3. This OCR Commitment will be
built into the Materials Purchase Price for Year 1.

For each of Year 2, Year 3, Year 4, and any Year thereafter during which
this Agreement continues in force, the Parties shall meet ninety (90)
days prior to the start of the applicable Year to discuss the OCR
Commitment for the upcoming Year. The purpose of these meetings is to
provide an opportunity for the Parties to brainstorm to identify the OCR
programs for the upcoming Year including, but not limited to: business
cases defining savings; head count; investment; risk; timeframe; capital;
and implementation schedule. The meeting must produce an OCR Commitment
that will be built into the Materials Purchase Price for the applicable
Year based on the OCR programs identified by the Parties.

Additionally, at any time during the term of this Agreement, Nortel
Networks or Flextronics may propose other OCR programs that have not been
identified either in Schedule “C” to Exhibit “3” or during the annual
joint OCR planning sessions. The Parties agree to negotiate in good faith
any OCR Commitment and implementation timetable related to these
additional OCR programs.

Flextronics will pay all Flextronics’ costs associated with
identification of cost reduction opportunities.

Flextronics shall maintain lists of opportunities for On-Going Cost
Reduction. Flextronics shall, as part of its plan to reduce cost and
continuously improve processes, seek out other continuous improvement
opportunities within the logistics chain.

	 	9.7.2	 	Incremental Cost Reduction with respect to Services described in Exhibit “1-B”

A list of the programs which may be used by Flextronics to achieve ICR
with respect to the Services described in Exhibit “1-B” is set out in
Schedule “D” to Exhibit “3”. ICR cannot be used to fulfill OCR
Commitments in any Year. The ICR Programs generally relate to product
sourcing changes.

Flextronics shall provide an ICR Commitment related to Actual Logistics
Operations Cost in Year 2 and Year 3, respectively. “ICR Commitment”
means the Actual Logistics Operations Cost that Flextronics is committed
to saving related to ICR Programs. The ICR Commitment will be built into
the Materials Purchase Price for the applicable Years based on the ICR
programs identified in Schedule “D” to Exhibit “3”.

28

 

Section 10

BUSINESS CONTINUITY

	10.1	 	Business Continuity Planning

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

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

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

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

Nortel Networks and Flextronics shall review Flextronics’ Business Continuity
Plan annually.

Section 11

WARRANTIES

	11.1	 	Services

Flextronics covenants and warrants that:

	 	(i)	 	all Services performed under this Agreement shall be
performed in a competent, professional and timely manner in
accordance with the standards generally accepted in the
telecommunications industry and in accordance with the applicable
performance metrics and the terms of this Agreement;
	 	(ii)	 	it shall use adequate numbers of qualified individuals with
suitable training, education, experience and skill to perform
Services;

29

 

	 	(iii)	 	it shall provide the Services using proven, current
technology that will enable Nortel Networks to take advantage of
technological advancements in the telecommunications industry;
	 	(iv)	 	to the best of its knowledge, upon inquiry, it does not and
will not employ or contract the services of (i) forced or prison
labor or (ii) employees or contractors that are younger than the
minimum age legally entitled to work in each applicable jurisdiction
in which Services are provided; and
	 	(v)	 	to the best of its knowledge, upon inquiry, no subcontractor
of Flextronics employs or contracts, directly or indirectly, the
services (i) forced or prison labor or (ii) employees or contractors
that are younger than the minimum age legally entitled to work in
each applicable jurisdiction in which Services are provided.

Nortel Networks represents and warrants that: (i) no claim or action is pending
or threatened against Nortel Networks or, to Nortel Networks knowledge as of
the Effective Date, against any licensor or supplier of Nortel Networks that
might, if adversely decided, adversely affect the ability of Flextronics to
provide the Services; and (ii) this Agreement does not violate the terms of its
agreements with any suppliers.

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

	11.2	 	Return of Orders

The acceptance of Materials is subject to inspection at the Delivery Location.
If Materials do not conform to the Order for Material requirements (including
arrival of the Order for Material at Delivery Location in undamaged condition),
and it is established that Flextronics is responsible for the problem, the
Materials may be returned to Flextronics and Flextronics shall bear the expense
in respect of making Nortel Networks whole in respect of such Order for
Materials.

	11.3	 	General

Each Party represents and warrants that it has all rights and powers necessary
to (i) enter into this Agreement, (ii) grant any applicable licenses hereunder,
(iii) perform its obligations under this Agreement and; (iv) perform its
obligations in a manner that complies with all applicable laws.

Section 12

INTELLECTUAL PROPERTY RIGHTS AND LICENSES

	12.1	 	License to Nortel Company Product Information Granted

Flextronics shall have the right and Nortel Networks hereby grants to
Flextronics, to the extent of its legal right to do so, a world-wide,
non-exclusive, non-transferable, royalty-free license to use Nortel Company
Proprietary Information communicated to Flextronics by Nortel Networks as

30

 

appropriate for the conduct of the Services in question solely for internal use
for the purpose of performing the Services. Nortel Networks shall retain
exclusive rights and title to all Nortel Company Proprietary Information
provided hereunder. This license is non-transferable, may be used only in
connection with the performance of Services by Flextronics for Nortel Networks
under this Agreement, and shall expire on the date on which Flextronics
obligations to perform Services terminate under this Agreement.

	12.2	 	Limitations on Grant of License

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

	12.3	 	Flextronics’ Inventions

	 	12.3.1	 	Ownership of Flextronics Inventions

Flextronics Inventions, including Flextronics Inventions relating solely
to the delivery of the Services, shall be the property of Flextronics.

	 	12.3.2	 	License to Flextronics Proprietary Information

Flextronics shall and does hereby grant Nortel Networks, subject to
fulfillment of its payment obligation, a limited, irrevocable,
world-wide, non-exclusive, royalty-free license, but not as a standalone
license, solely to make or have made and use such Flextronics Invention
and Nortel Networks shall have the right to sub-license such rights to
Nortel Networks subcontractors for the purpose of the delivery of
services. Nortel shall be fully responsible for any damages accrued to
Flextronics arising out of any third party’s violation of the scope of
the license granted hereunder.

	12.4	 	Flextronics Retains Ownership of Flextronics Proprietary Information

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

	12.5	 	Assignment of Inventions Agreements with Employees

Flextronics shall have agreements with its employees, consultants, agents or
representatives (individually “Counter-Party”), in which each such
Counter-Party shall agree in writing that any and all inventions, discoveries,
developments, modifications, procedures, ideas, innovations, systems, Programs,
know-how or designs developed by any such Counter-Party during the term of its
relationship with Flextronics, shall be the property of Flextronics.
Furthermore, such

31

 

agreement between any such Counter-Party and Flextronics
shall contain usual clauses including an undertaking by such Counter-Party to
execute applications for patents, copyrights, industrial designs, mask work
rights, integrated circuit topographies and other registerable intellectual
property rights thereon to the extent so requested by Flextronics and/or to
assign the same to Flextronics.

Section 13

INDEMNIFICATION

	13.1	 	Intellectual Property Indemnification

	 	13.1.1	 	By Nortel Networks

Except as otherwise provided in this Section 13, Nortel Networks shall,
at its expense and at Flextronics’ request, indemnify and defend
Flextronics against any claim or action brought against Flextronics by a
third party to the extent that such claim is based on an assertion that
Flextronics’ activities as part of the Services infringe, directly as a
result of Flextronics’ compliance with instructions by Nortel Networks to
Flextronics relating to an Order under this Agreement, infringes any
patent, copyright or trademark, or violates any trade secret or other
proprietary right of a third party. Nortel Networks shall pay any
pre-judgment and pre-settlement costs as wells as any resulting costs and
damages finally awarded against Flextronics or agreed to in any
settlement, and Flextronics’ reasonable attorneys’ or patent agent’s or
other expert’s fees incurred in connection therewith, provided that (i)
Flextronics promptly notifies Nortel Networks in writing of any such
claim, (ii) Nortel Networks has sole control of the defense and all
related settlement negotiations, and (iii) Flextronics reasonably
cooperates, at Nortel Networks’ cost, in the defense and furnishes all
related evidence under its control.

Notwithstanding the foregoing, Nortel Networks shall have no liability
under Section 13.1 to the extent the alleged infringement or violation:

	 	(a)	 	arises from Flextronics’ modification or alteration of
the information supplied by Nortel Networks relating to an Order,
Blanket Purchase Order, or Order for Materials, or any other
materials provided by Nortel Networks, and such modification or
alteration is not authorized by Nortel Networks;
	 	(b)	 	arises from any method or process used in or practiced
as part of the Services provided by Flextronics under this
Agreement (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).

	 	13.1.2	 	By Flextronics

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

32

 

proprietary right of a third party, unless such method or
process was specifically requested by Nortel Networks.

In any such case Flextronics shall pay any pre-judgment and
pre-settlement costs as well as any resulting costs and damages finally
awarded against Nortel Networks or agreed to in any settlement, and
Nortel Networks’ reasonable attorneys’ or patent agent’s or other
expert’s fees incurred in connection therewith, provided that (a) Nortel
Networks promptly notifies Flextronics in writing of any such claim, (b)
Flextronics has sole control of the defense and all related settlement
negotiations, and (c) Nortel Networks reasonably cooperates, at
Flextronics’ cost, in the defense and furnishes all related evidence
under its control.

Notwithstanding the foregoing, Flextronics shall have no liability under
Section 13.1.2 to the extent the alleged infringement or violation arises
from Nortel Networks’ modification or alteration of the information
supplied by Flextronics relating to the Services, and such modification
or alteration is not authorized by Flextronics.

	 	13.1.3	 	Measures to Safeguard Nortel Networks against Liability

If, as a result of the continued use by Flextronics of any method or
process used in or practices as part of the Services or the continued use
of any intellectual property component of the Services, an injunction in
respect of the provision of the Services or the continued use of such
method or process or intellectual property component, or if either Party
reasonably determines on the advice of counsel that there is a likelihood
of such continued use exposing either Party to material liability,
Flextronics shall, unless otherwise requested by Nortel Networks,
forthwith at its option and expense, use its reasonable efforts to
either:

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

THE FOREGOING SECTION 13.1 STATES THE ENTIRE LIABILITY OF THE PARTIES TO
EACH OTHER CONCERNING INFRINGEMENT OF PATENT, COPYRIGHT, TRADE SECRET OR
OTHER INTELLECTUAL PROPERTY RIGHTS HELD BY THIRD PARTIES.

	13.2	 	Other Indemnification

	 	13.2.1	 	By Flextronics

With respect to matters not covered in Section 13.1, Flextronics shall
indemnify and hold Nortel Networks, its Customers, distributors and their
employees, harmless from any losses, damages, liabilities and costs
including reasonable attorney’s fees arising from any injury or death to
persons or loss of or damage to property to the extent caused by any

33

 

 method or process relating to the Services, any errors and omissions made
by Flextronics in connection with the delivery of the Services, or
Flextronics’ negligence or willful misconduct.

	 	13.2.2	 	By Nortel Networks

With respect to matters not covered in Section 13.1, Nortel Networks
shall indemnify and hold Flextronics, its customers, distributors and
their employees, harmless from any losses, damages, liabilities and costs
including reasonable attorney’s fees arising from any injury or death to
persons or loss of or damage to property to the extent caused by Nortel
Networks’ negligence or wilful misconduct.

Section 14

LIMITATION OF LIABILITY

NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT EXCEPT FOR THE PARTIES’
OBLIGATIONS UNDER SECTION 13 AND A BREACH OF THE OBLIGATIONS IN SECTION 20, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL
THEORY, WHETHER TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY, CONTRACT, OR
OTHERWISE, SHALL ONE PARTY BE LIABLE TO THE SECOND PARTY OR ANY OTHER PERSON
FOR ANY LOSS OF PROFIT OR ANY INDIRECT, SPECIAL, INCIDENTAL, RELIANCE OR
CONSEQUENTIAL DAMAGES, EVEN IF THE FIRST PARTY SHALL HAVE BEEN INFORMED OF THE
POSSIBILITY OF SUCH DAMAGES. NOTHING IN THIS AGREEMENT SHALL ACT TO RESTRICT
OR EXCLUDE LIABILITY FOR DEATH OR PERSONAL INJURY CAUSED BY THE NEGLIGENCE OF
ANY PARTY.

Section 15

COMMUNICATION AND INFORMATION TRANSFER

	15.1	 	Transmissions

If Nortel Networks decides to use TDI to exchange technical information, the
TDI transmissions regarding such transaction shall be made in accordance with
the provisions set forth in Exhibit 26 of the MCMSA.

	15.2	 	Access to Nortel Networks Computer Systems by Flextronics

Flextronics shall limit access and use of any Nortel Networks computer systems
solely to the supply of Services and shall not access or attempt to access any
intranet, computer systems, files, software or services other than those
required for the supply of Services. Flextronics shall limit such access to
those employees with an express requirement to have such access in connection
with supply of Services, and shall strictly follow all security rules and
procedures of Nortel Networks for restricting access to its computer systems.
All user identification numbers and passwords disclosed to Flextronics and any
information obtained by Flextronics as a result of

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Flextronics’ access to, and
use of Nortel Networks’ computer systems shall be deemed to be, and treated as,
Nortel Company Proprietary Information in accordance with the provisions set
forth in Section 20, with the same degree of care as such Flextronics uses for
its own information of a similar nature, but in no event a lower standard than
a reasonable standard of care. Flextronics shall cooperate in the
investigation of any apparent unauthorized access to any Nortel Networks
computer system. The requirements of this Section shall apply equally to any
access and use by Flextronics of any Nortel Networks intranet, electronic mail
system, of any Nortel Networks’ electronic switched network, either directly or
via a direct inward service access (DISA) feature or of any other property,
equipment or service of Nortel Networks.

	15.3	 	Flextronics Compatibility with Nortel Networks Computer Systems

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

Section 16

EQUIPMENT FURNISHED BY NORTEL NETWORKS

	16.1	 	Title to Equipment Furnished by Nortel Networks

Any equipment loaned by Nortel Networks in connection with the Services, with
or without charge to Flextronics, shall be deemed bailed to Flextronics, and
title thereto shall at all times remain with Nortel Networks. Upon the earlier
of such Nortel Networks request therefore or the completion of the Services,
Flextronics shall return, at its expense and risk, all such equipment in the
same condition it was when furnished to Flextronics, reasonable wear and tear
excepted. Nortel Networks makes no warranties with respect to any equipment
loaned by Nortel Networks to Flextronics, whether written or oral, statutory,
express or implied including, without limitation, any warranty or
merchantability or fitness for a particular purpose.

	16.2	 	Risk, Insurance and Maintenance of Equipment Furnished by Nortel Networks

All Nortel Networks equipment in Flextronics’ custody or control shall be held
at Flextronics’ risk and be kept insured by Flextronics at Flextronics’ expense
in an amount no less than the Book Value, with loss payable to the supplying
Nortel Company. Flextronics shall use such equipment solely in the performance
of its obligations under this Agreement, and with the consent of Nortel
Networks, Flextronics may use such equipment for other tasks. Upon the
expiration or termination of this Agreement, or upon the written request of
Nortel Networks at any time, Flextronics shall deliver such equipment to the
supplying Nortel Company in the same condition as originally received by
Flextronics, reasonable wear and tear excepted. The supplying Nortel Company
shall have the right upon prior request, to enter Flextronics’ premises to
inspect any and all of its equipment and any property or goods manufactured,
developed or created with the aid of its equipment.

	16.3	 	Tracking of Equipment Furnished by Nortel Networks

Flextronics shall maintain appropriate tracking and recording procedures to
guard against loss of equipment owned by Nortel Networks. If Nortel Networks’
equipment is lost, Flextronics will be responsible for providing a suitable
replacement, if required by Nortel Networks.

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Section 17

LEGAL AND REGULATORY COMPLIANCE

Flextronics shall at no additional charge to Nortel Networks, comply with and
obtain all licenses and permits necessary to provide the Services in accordance
with this Agreement and covenants and agrees that all Services shall conform
with all applicable laws, governmental orders and
regulations in effect in all countries where such Services are performed and
any other relevant international agreements relating to the Services provided.
Each Party shall provide all information under its control, which is necessary
or useful to obtain any export, or import license or document required to ship
or receive product, including but not limited to, U.S. Customs Certificates of
Delivery, Affidavits of Origin and U.S. Federal Communications Commission
Identifier, if applicable.

Section 18

INTERNATIONAL TRADE

	18.1	 	Exports

In addition to the requirements of Exhibit “1-B”, each Party agrees that it
shall not knowingly (i) export or re-export, tangibly or intangibly, any
technical data (as defined by the U.S. Export Administration Regulations or any
other jurisdiction with import or export restrictions), including software
received from the other under this Agreement or (ii) export or re-export,
tangibly or intangibly, any direct product of such technical data, including
software, to any destination to which such export or re-export is restricted or
prohibited by U.S. or applicable non-U.S. law without obtaining prior
authorization from the U.S. Department of Commerce and/or other competent
government authorities to the extent required by those laws. In addition, each
Party agrees to comply with all the requirements of the Export and Import
Permits Act (Canada) all export control laws and regulations of the exporting
country, and any other applicable legislation throughout the world. As it is
relevant to all outstanding shipments, this clause shall survive termination or
cancellation of this Agreement.

	18.2	 	Customs Invoice

In addition to the requirements of Exhibit “1-B” and unless otherwise set forth
in this Agreement, Flextronics shall produce customs invoices and country of
origin documents for all shipments crossing international borders which comply
with all laws, treaties and regulations of both the exporting country and the
importing country. If an Order for Materials includes Materials having
different countries of origin, the different countries of origin must be
identified on the customs invoice, along with the related quantities/serial
numbers of such Materials. If any upgrade of Material to the most recent
revision level in accordance with this Agreement is performed, the applicable
fee for this upgrade must be included on the customs invoice, or, if such
upgrade is performed at no charge to Nortel Networks, the value of such upgrade
shall be so indicated. Flextronics shall be solely responsible for all fines,
penalties and costs resulting from any customs invoice, document, or
declaration not being so compliant unless such non-compliance is the result of
an act or omission of Nortel Networks in which case, Nortel Networks shall be
responsible for the fine, penalty and costs or its proportionate share of that
fine and/or penalty and cost. Any cost related to Value Added Tax, duties and
fines will be charged to

36

 

Nortel Networks at Flextronics cost with no markup.
All customs invoices must indicate whether or not any Assists were provided and
the value of said Assists.

	18.3	 	Duty Drawback and Minimization

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

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

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

Flextronics will utilize duty minimization programs such as inward and outward
processing relief, ATA Carnets (An international customs document that permits
duty-free and tax-free temporary import of goods for up to one year), and
temporary imports to mitigate duty costs to Nortel Networks. Duty minimization
programs will be reviewed and agreed by both Parties. Flextronics shall not be
required to pursue a specific duty minimization program if that program is
unlikely to yield savings greater than the cost of implementing it.

Section 19

ENVIRONMENTAL POLICIES

	19.1	 	Corporate Policy

Flextronics agrees to maintain ISO 14001 registration for those Delivery
Facilities so registered as of the Effective Date. For those Delivery
Facilities not so registered as of the Effective Date, Flextronics agrees to
obtain such registration within [•] of the Effective Date. If Nortel Networks
requires Flextronics to obtain such registration for a Delivery Facility that
is managed by a party other than Flextronics, Nortel Networks agrees to
negotiate in good faith the cost of this registration.

37

 

	19.2	 	European Union (“EU”) Environmental Directives

	 	19.2.1	 	Compliance

Flextronics will engage with Nortel Networks or its designate in the
development and provision of a plan (the “Compliance Plan”) for the
implementation and management of the WEEE (Waste Electrical and
Electronic Equipment) Directive and the RoHS (Restriction of
Hazardous Substances) Directive, as well as any other EU
environmental directives that affect the Services to be delivered in
the EU. Flextronics will provide the Compliance Plan to Nortel
Networks for its approval, [•] on receipt of specific Nortel
Networks requirements, which shall include at a minimum: a) overall
objectives in regard to the directives, b) specifications and other
requirements that must be complied with, c) Services that are
impacted, d) an outline of Flextronics’ and Nortel Networks
responsibilities for achieving the foregoing objectives and
requirements and (e) allocation of any applicable increase in Price
to Nortel Networks unless otherwise agreed to by the Parties.
Nortel Networks shall be responsible for those associated costs that
result from Flextronics bringing operations in a legacy Delivery
Facility into initial compliance with regulations regarding any
applicable EU directives.

Flextronics will provide Nortel Networks with any changes to the
Compliance Plan within ten (10) days of the change coming into
effect. Nortel Networks reserves the right to inspect Flextronics’
facilities to validate compliance with the EU directives.

	 	19.2.2	 	Indemnification

[•]

	19.3	 	Packaging Reusable and Recyclable

In respect of the Materials, Flextronics shall use only packaging that complies
with Section 1.4 of Exhibit “1-B” and covenants and agrees to comply with
applicable legislative requirements in other relevant jurisdictions.
Flextronics shall strive to minimize all product packaging and to design
packaging that delivers reusable/returnable packaging options or is constructed
of recyclable materials.

	19.4	 	Disposal Policies

Flextronics covenants and agrees to comply with any relevant disposal policies,
directives, regulations and laws as mandated in any applicable jurisdiction.

	19.5	 	Collaborate on Environmental Initiatives

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

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	19.6	 	Hazardous Materials

Flextronics shall supply to Nortel Networks a list of all materials used in
respect of the Services which are classified as toxic or hazardous under
applicable laws and regulations, information on the safe handling of any
relevant product and any pertinent information concerning any adverse effects
on people or the environment that may result from use of, exposure to, or
disposal of in connection with the Services. [•]. Nortel Networks shall
cooperate with Flextronics to facilitate and minimize the damages, costs and
expenses of any recall or prohibition against such use.

Section 20

CONFIDENTIALITY AND PROPRIETARY INFORMATION

	20.1	 	Restriction on Disclosure and Use of Confidential Information

Any Nortel Company Proprietary Information provided or made available by any
Nortel Company to Flextronics and any Flextronics’ Proprietary Information
provided or made available by Flextronics to Nortel Networks shall be deemed
for the purposes of this Agreement to be “Confidential Information” of the
person disclosing (“discloser”) such information to another person
(“recipient”), except if such information disclosed to recipient is (a) in or
becomes part of the public domain through no fault of recipient; (b) disclosed
to recipient by a third party without breach of any obligation or other
restriction; (c) known to recipient at the time of disclosure and has been so
documented prior to receipt thereof; (d) independently developed by recipient
without access to any information furnished to it by discloser and has been or
is so documented; or (e) disclosed by recipient to the extent required to be
disclosed pursuant to any applicable law or order, decree or directive of any
competent judicial, legislative or regulatory body or authority, provided that
the recipient shall have provided prior notice to discloser of such requirement
and an opportunity for discloser to take action to contest or attempt to
prohibit or limit such disclosure as permitted by law and such information
shall continue to be Confidential Information for the purposes hereof to the
extent disclosure is prohibited or limited by law. All Confidential Information
shall be owned and remain the sole and exclusive property of discloser, and all
rights to Confidential Information made available to recipient by discloser
shall be held in trust by recipient for the exclusive benefit of discloser.
All Confidential Information of discloser shall be held in confidence by
recipient and, if in a form of any physical media of any kind, returned by
recipient upon request of discloser. Recipient shall not (i) reproduce the
Confidential Information of discloser without the written consent of discloser
or (ii) use the Confidential Information for any purpose other than the
performance by recipient of its obligations under this Agreement. Each Nortel
Company and Flextronics shall cause each of their respective employees,
consultants, agents and representatives who shall have access to Confidential
Information to sign a written agreement setting forth confidentiality
obligations of each such employee, consultant, agent and representative,
substantially in the form of Exhibit 6, which Exhibit 6 is attached hereto and
incorporated herein by reference. Flextronics shall be
liable for and shall indemnify Nortel Networks and each Nortel Company, its
officers, directors, employees, subcontractors, and agents against any losses,
claims, costs or expenses arising from the failure of Flextronics, its
respective employees, consultants, agents and representatives against any
losses, claims, costs or expenses arising from the failure of Flextronics or
its respective employees, consultants, agents and representatives, for whatever
reason, to execute the form of agreement set out in Exhibit 6 or Exhibit 6.1
hereof as applicable or to comply with the

39

 

terms thereof, and Nortel Networks
shall be liable for and shall indemnify Flextronics, its officers, directors,
employees, subcontractors, and agents against any losses, claims, costs or
expenses arising from the failure of each of Nortel Network Company or Nortel
Networks, its respective employees, consultants, agents and representatives for
any corresponding failures by Nortel Company to Flextronics in respect of such
obligations. Each Party acknowledges that monetary damages may not be adequate
in the event of a default of this Section, and the discloser shall be entitled
to injunctive or other affirmative relief and/or to give notice of default
pursuant to this Agreement, or both.

	20.2	 	Publicity

Flextronics shall not in any advertising, sales promotion materials, press
releases or any other publicity matters use the name “NORTEL NETWORKS”,
“Northern Telecom”, “BNR”, “Bell-Northern Research”, “Nortel Networks
Technology” or the name of any Affiliate, or any variation thereof or language
from which the connection of said names may be implied, nor shall Flextronics
disclose or advertise in any manner the nature of the Services or any Order by
Nortel Networks hereunder, or the fact that Flextronics has entered into this
Agreement, unless Flextronics is otherwise required to make such disclosure
under applicable law or Nortel Networks, in its sole discretion, grants
Flextronics prior written permission to do so.

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

Section 21

INSURANCE

	21.1	 	General Liability Insurance

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

Nortel Networks shall maintain during the Term, insurance coverage: 1) general
liability insurance (including contractual, products liability and broad form
vendors’ endorsement) with limits of either [•] combined single limit per
occurrence for bodily injury and property damage or [•] bodily injury per
occurrence and [•] property damage per occurrence, and 2) workers’

40

 

compensation
insurance and other employee insurance coverage required by law, and employer’s
liability insurance with limits of [•].

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

	21.2	 	Property and Business Insurance

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

	21.3	 	Certificate of Insurance

Prior to the commencement of the Term and upon demand of Nortel Networks
thereafter, Flextronics shall furnish to Nortel Networks a certificate or
certificates of insurance evidencing that all insurance required in this
Section 21 is in effect. Flextronics will endeavor to provide at least 30 days
notice of any change in insurance coverage which would impact compliance with
the requirements of this Section 21. Flextronics shall in such event furnish a
new certificate in the event of cancellation or expiration of any insurance
evidencing that replacement coverage is in effect.

	21.4	 	Business Continuity

Flextronics acknowledges that the existence, content and adequacy of its
Business Continuity Plan shall be used by Nortel Networks as part of initial
and ongoing assessment criteria for review of Flextronics overall performance
under this Agreement. Flextronics shall maintain its property conservation
program to address risks in its worldwide locations. Flextronics will share a
description of this program with Nortel Networks, and shall provide Nortel
Networks annually, or as requested upon reasonable notice, information related
to property protection and insurer’s engineering recommendations for the
locations relevant to logistics. Nortel Networks and/or its insurance
companies shall be allowed to inspect any site at any time upon reasonable
notice and during normal business hours and to recommend to Flextronics any
appropriate protection
improvements. Nortel Networks and Flextronics shall review any recommendations
made as a result of such inspection and Flextronics shall implement any
recommendations or alternative solutions which are mutually agreed.

Section 22

EXPIRATION OR TERMINATION

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	22.1	 	Termination

	 	22.1.1	 	In the event the MCMSA is terminated, the Parties agree to meet and
consider the continuance of this Agreement on terms that are mutually
acceptable. If the Parties are unable to agree, either Party has the
right to terminate this Agreement.
 
	 	22.1.2	 	In addition to any other right or remedy available to Nortel
Networks or any Nortel Company under this Agreement or at law or in
equity, if Flextronics breaches any material term of this Agreement
or an Order and such breach is susceptible of cure but is not
corrected within thirty (30) days after the delivery of written
notice thereof by Nortel Networks to Flextronics or if Flextronics
defaults in any payment to Nortel Networks and does not correct the
default in payment issue 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 Order. For greater
certainty, if any Blanket Purchase Order is terminated, all 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
Flextronics relates to Nortel Company Proprietary Information under
Section 12 or Section 20 hereof and such breach is not susceptible of
cure; and (ii) Flextronics 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 12 or Section 20 hereof and
such breach is not susceptible of cure.
 
	 	22.1.3	 	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 this Agreement in
accordance with this Section 22.1 provided such Party purporting to
terminate is not otherwise in default of any of its material
obligations under this Agreement. Termination of this Agreement shall
not release or diminish any other obligations of any Party hereunder
that exist as of the date of termination.
 
	 	22.1.4	 	If Flextronics 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 Flextronics to declare Flextronics bankrupt, or if
a petition is filed by any person other than Flextronics in any court
to declare Flextronics 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 Flextronics or its
assets, then Nortel Networks may terminate this Agreement and/or any
Order at its option, and without charge, and shall thereupon be
free from all liability and obligations thereunder except as
specifically provided in Section 22.4(c), all subject to applicable
bankruptcy and insolvency legislation which may otherwise provide.
For greater certainty, if any Blanket Purchase Order is terminated,
all Orders relating thereto shall be deemed to be concurrently
terminated.

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	 	22.1.5	 	Flextronics may terminate an Order only if the Nortel Company which
issued the Order is in material breach of a term, including, without
limitation, any payment obligation of this Agreement or an Order, and
such breach has not been cured within thirty (30) days after the
delivery of written notice thereof by Flextronics to Nortel Company
defaulting in any payment to Flextronics and for any other breach
within thirty (30) days after the date of Flextronics’ 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
Nortel Networks. The failure of Nortel Networks to pay to
Flextronics in a timely manner any moneys in dispute shall not
constitute a material breach hereof.
	 	22.1.6	 	The Parties agree that the provisions of Exhibit “8” shall apply
with respect to those employees in the United Kingdom who were
employed by Nortel Networks prior to Effective Date, and were
transferred to Flextronics pursuant to the Asset Purchase Agreement.

	22.2	 	Intentionally left blank

	22.3	 	Intentionally left blank

	22.4	 	Effect of Expiration or Termination

Upon expiration or any termination of this Agreement by either Party:

	(a)	 	Nortel Networks shall pay all applicable undisputed amounts or charges
owed to Flextronics as provided in this Agreement. Either Party shall have
the right with prior written notification and mutual agreement to set-off
any such amounts or charges owed to the Party against any amounts owing to
the other Party pursuant to this Agreement. If the aggregate amount owing
by Nortel Networks to Flextronics is less than the aggregate amount owing
by Flextronics to Nortel Networks, Flextronics shall pay such net amount
owing to Nortel Networks promptly and in full within [•] 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 Services and deliver
applicable Materials in accordance with the terms of this Agreement.
Provided Nortel Networks has made all payments required pursuant to
paragraph (a) above, Flextronics shall deliver to the Delivery Locations
designated by Nortel Networks within three (3) weeks of the later of the
date of expiry or termination or such payment, if required, all Materials
and any Nortel Networks property described in Section 16.
	(c)	 	The provisions of this Agreement relating to Warranties (Section 11);
Property Furnished by Nortel Networks (Section 16); Confidential and
Proprietary Information (Section 20); Intellectual Property Rights
(Section 12) except the license granted to Flextronics in 

43

 

	 	 	Section 12.1;
Indemnification (Section 13); and Audit (Section 25.4) shall remain in
effect beyond any expiration or termination.
	(d)	 	Flextronics shall return all Nortel Networks Proprietary Information and
property furnished by Nortel Networks pursuant to Section 16 to the
locations designated by Nortel Networks, and under Nortel Networks’
supervision, destroy or erase all copies of such Nortel Networks
Proprietary Information in the possession of Flextronics 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 Networks 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
all Flextronics Proprietary Information and under Flextronics’
supervision, either return, destroy or erase all copies of such
Flextronics Proprietary Information in the possession of Nortel Networks
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.

Section 23

TERMINATION ASSISTANCE SERVICES

	23.1	 	Scope of Termination Assistance Services.

On notice from Nortel Networks to Flextronics after a determination that an
expiration or termination of this Agreement will occur, Flextronics shall
provide to Nortel Networks any and all termination services (collectively, the
“Termination Assistance Services”) reasonably requested by Nortel Networks to
facilitate the orderly transfer of responsibility for the Services to Nortel
Networks or its designee. The Termination Assistance Services may include:

	 	(a)	 	cooperating with Nortel Networks in effecting the orderly
Services transfer to a third party or Services resumption by Nortel
Networks, provided that (i) such
third parties comply with Flextronics’ security and confidentiality
requirements, including executing a confidentiality agreement
reasonably acceptable to Flextronics, and (ii) Flextronics shall
not be required to disclose any of its Confidential Information or
Flextronics Proprietary Information;
	 	(b)	 	continuing to perform Services until the effective date of
expiration or termination of this Agreement (“Conclusion Date”); and
	 	(c)	 	continuing to perform those Services requested by Nortel
Networks after the Conclusion Date.

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	23.2	 	Limit on Obligation to Provide Termination Assistance Services.

Except as otherwise agreed within the scope of Termination Assistance Services,
Flextronics will have no obligation to provide Services or any part thereof
after the Conclusion Date.

	23.3	 	Termination Assistance Period.

Flextronics shall provide the Termination Assistance Services, and Nortel
Networks shall pay applicable fees for provision of Termination Assistance
Services for a period of up to four (4) months after the Conclusion Date
(“Termination Assistance Period”), at [•].

Section 24

ISSUE RESOLUTION AND ESCALATION PROCESS

	24.1	 	Issue Resolution and Escalation Process

If any disagreement of any kind or nature whatsoever arises between Flextronics
and Nortel Networks with respect to this Agreement, Flextronics and Nortel
Networks shall first attempt to resolve the disagreement informally. If the
Parties are unable to so resolve the disagreement, either Party may invoke the
Issue Resolution and Escalation Process, set out in Exhibit “7”. Flextronics
and Nortel Networks shall use reasonable efforts and shall conduct discussions
in good faith to resolve all disagreements.

Section 25

GENERAL PROVISIONS

	25.1	 	Access to Facilities

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

	25.2	 	Reporting

Flextronics shall provide Nortel Networks with the reports as set out in
Schedule A to Exhibit “2” and Exhibit “3”.

45

 

	25.3	 	Documentation

Flextronics shall maintain documentation and information relating to the
Services and Orders, and updates thereto consistent with industry best
practices, but in no event less than [•].

	25.4	 	Audits

	 	25.4.1	 	Agreement Compliance

[•].

	 	25.4.2	 	Control & Security Compliance

[•].

	25.5	 	Force Majeure

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

	25.6	 	Notices

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

	 	 	Nortel Networks:

	 	 	Nortel Networks
	 	 	3500 Carling Avenue
	 	 	Ottawa, Ontario
	 	 	Canada K2H 8E9
	 	 	Attention: Vice President Supply Management

	 	 	with a copy to:
	 	 	NNL Corporate Secretary
	 	 	8200 Dixie Road, Suite 100,
	 	 	Brampton, Ontario
	 	 	Canada L6T 5P6
	 	 	Flextronics:

46

 

	 	 	Flextronics Telecom Systems Ltd.
	 	 	802 St. James Court,
	 	 	St. Denis Street,
	 	 	Port Louis,
	 	 	Mauritius
	 	 	Phone: 230 212 7600
	 	 	Fax: 230 210 9168
	 	 	Attention: President

	 	 	With a copy to:
	 	 	Flextronics International Inc.
	 	 	Room 908, Dominion Centre,
	 	 	43-59 Queen’s Road East, Wanchai, Hong Kong
	 	 	Attention: President
	 	 	with a copy to:
	 	 	Corporate Legal Department at the address above

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

	25.7	 	Independent Contractor

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

	25.8	 	Contractor Responsible for its Contractors

Flextronics may subcontract Services only with Nortel Networks’ prior written
approval, which approval may not be unreasonably withheld in Nortel Networks’
sole discretion. The approval by Nortel Networks of any subcontractor chosen
by Flextronics shall in no way be construed to

47

 

relieve Flextronics of any of
its duties, responsibilities and obligations to Nortel Networks under this
Agreement.

	25.9	 	Assignment

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

Subject to the condition that Flextronics is satisfied, upon reasonable
evidence, that such future assignee possesses sufficient creditworthiness and
future assignee has accepted the assignment without reservation, NNL may assign
this Agreement or any portion thereof (i) to any of NNL’s Subsidiaries or
company of which NNL becomes a Subsidiary; or (ii) to a person or entity into
which it has merged or which has otherwise succeeded to all or substantially
all of its business and assets to which this Agreement pertains, by purchase of
stock, assets, merger, reorganization or otherwise, and which has assumed in
writing or by operation of law its obligations under this Agreement. Any
attempted assignment in violation of the provisions of this Section shall be
void. In any assignment in case (ii) above, the person or entity into which
NNL has merged or which has otherwise succeeded to all or substantially all of
NNL’s business and assets, shall agree in writing to be bound by the terms of
this Agreement.

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

	25.10	 	Severability

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

	25.11	 	Governing Law

All issues and questions concerning the construction, validity, enforcement,
interpretation and performance of this Agreement, the rights and obligations
arising hereunder and any purchase made hereunder shall be governed by the laws
of the Province of Ontario and the federal laws of Canada applicable therein,
without reference to the UNCITRAL Conventions on Contracts for the
International Sale of Goods and without giving effect to any choice of law or
conflict of law, rules or provisions (whether of such Province or any other
jurisdiction) that would cause the

48

 

application of the laws of any jurisdiction
other than the Province of Ontario. In furtherance of the foregoing, the
internal Laws of the Province of Ontario shall control the interpretation and
construction of this Agreement, even though under that jurisdiction’s choice of
Law or conflict of Law analysis, the substantive Law of some other jurisdiction
would ordinarily apply.

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

	25.12	 	Consent to Jurisdiction

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

	25.13	 	Entire Agreement; Amendments

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

	25.14	 	Construction

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

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

	25.15	 	Headings

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

49

 

	25.16	 	Time of Essence

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

	25.17	 	Agreement by All Contractor Entities

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

	25.18	 	Most Favoured Customer

[•]

	25.19	 	Language

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

	25.20	 	Counterparts

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

50

 

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

	 	 	 
	NORTEL NETWORKS LIMITED

	 	FLEXTRONICS TELECOM SYSTEMS, LTD.
	 
	 	 
	By: /s/ Chahram Bolouri                                                            

	 	By:                                                                         
                         
	 
	 	 
	Print Name: Chahram Bolouri

	 	Print Name:            
                   
                   
                   
            
	 
	 	 
	Title: President, Global Operations

	 	Title:                                                                          
                     
	 
	 	 
	By:         
                    
                    
                    
                    
       
	 	 
	 
	 	 
	Print Name:       
                
                 
                  
                    
   
	 	 
	 
	 	 
	Title:        
                    
                    
                    
                    
     
	 	 

[Signature page to
Logistics Agreement]

 

 

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

	 	 	 
	NORTEL NETWORKS LIMITED

	 	FLEXTRONICS TELECOM SYSTEMS, LTD.
	 
	 	 
	By:
/s/ Chahram Bolouri        
                    
                    
            

	 	By: /s/ Manny Marimuthu          
                    
                    
                    
         
	 
	 	 
	Print Name: Chahram Bolouri      
                    
                    
       

	 	Print Name: Manny Marimuthu         
                    
                                            
	 
	 	 
	Title:
President, Global Operations
                    
                    
    

	 	Title:            
                    
                    
                    
                    
                    
   
	 
	 	 
	By:         
                    
                    
                    
                    
       
	 	 
	 
	 	 
	Print Name:       
                    
                    
                    
               
	 	 
	 
	 	 
	Title:        
                    
                    
                    
                    
     
	 	 

[Signature page to Logistics Agreement]exv10w7

 

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 not include 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) 863-8386

	 
	and:	 	 	Nortel Networks Inc.

220 Athens Way, Suite 300

Nashville, Tennessee USA 37228-1397

Attention: Law Department

Fax: (615) 432-4067

5

 

	 	To:	 	Flextronics International Limited
	 
	 	 	 	Attention:

[REMAINDER OF PAGE INTENTIONALLY BLANK]

6

 

DATED: June 29, 2004.

	 	 	 	 	 
	 	NORTEL NETWORKS LIMITED
	 
	 
	 	By:  	/s/ CHAHRAM BOLOURI
 	 
	 
	 	Name:  	Chahram Bolouri  	 
	 
	 	Title:  	President, Global Operations 	 
	 

	 	 	 	 	 
	 	 	 
	 	By:  	 	 
	 
	 	Name:  	 	 
	 
	 	Title:  	 	 
	 

AGREED TO: June 29, 2004.

FLEXTRONICS INTERNATIONAL LTD.,

Acting through its Hong Kong branch

	 	 	 	 	 
	 	By:  	/s/ MANNY MARIMUTHU
 	 
	 	 	 
	 	Name:  	Manny Marimuthu 	 
	 	 	 
	 	Title:  	Authorized Signatory 	 
	 

FLEXTRONICS TELECOM SYSTEMS, LTD.

	 	 	 	 	 
	 	By:  	/s/ MANNY MARIMUTHU
 	 
	 	 	 
	 	Name:  	Manny Marimuthu 	 
	 	 	 
	 	Title:  	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 gratia amounts 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.	 	[•]; and
	 
	3.	 	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

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