Document:

exv10w6

 

Exhibit 10.6

NORTEL NETWORKS CORPORATION — RESTRICTED STOCK UNITS

INSTRUMENT OF AWARD

«COUNTRY»                    

	 	 	 
	NAME:
	 	«NAME» («GID»)
	 
	 	 
	EFFECTIVE DATE:
	 	«AWARD_DATE»
	 
	 	 
	NUMBER OF RSUs:
	 	«AWARDED»
	 
	 	 
	VESTING SCHEDULE:
	 	<VEST DESC>
	 
	 	 
	PLAN:
	 	NORTEL <PLAN> PLAN

This instrument (hereinafter the “Instrument of Award”) evidences an Award to you of the number
of Restricted Stock Units (“RSUs”) indicated above, on the Effective Date indicated above,
pursuant to the Nortel 2005 Stock Incentive Plan, As Amended and Restated and as may be further
amended from time to time (the “Plan”). Each RSU covered by this Instrument of Award generally
entitles you to receive one common share (a “Share”) of Nortel Networks Corporation (the
“Corporation”) upon or as soon as reasonably practicable following the date the RSU becomes
Vested in accordance with the Vesting schedule indicated above, or such earlier date as may be
applicable pursuant to the provisions of the Plan and this Instrument of Award. Capitalized
terms not otherwise defined in this Instrument of Award have the meanings set forth in the Plan.

1.     All RSUs covered by this Instrument of Award are subject to the terms and conditions stated
in the Plan, except as specifically or additionally provided in this Instrument of Award and/or
in any rules, regulations, determinations or interpretations prescribed and/or made by the
Committee (or its delegates) under the power and authority granted under the Plan (the “Rules
and Regulations”), and all of the provisions of the Plan and the Rules and Regulations are
incorporated by reference as if expressly restated herein. Different Rules and Regulations may
apply to you and/or the RSUs covered by this Instrument of Award depending on your country work
location, residency or payroll, whether on the Effective Date of the Award, on the date of
settlement of the RSUs, or otherwise. Accordingly, you should review the Plan and the Rules and
Regulations from time to time, which are available as indicated below, in conjunction with this
Instrument of Award.

2.     You will have the right to receive one Share in settlement of each RSU once the RSU has
become Vested in accordance with the Vesting schedule indicated above, provided that you have
been in the continuous employment of the Company from the Effective Date to the applicable
Vesting date.

3.     Vested RSUs will be settled by transfer of Shares to you on or as soon as reasonably
practicable following the Vesting date provided that you execute any required documentation as
provided in the Plan, this Instrument of Award or the Rules and Regulations, in such form or
manner as may be specified from time to time by the Corporation. You will remain responsible
for any local legal compliance requirements resulting from your receipt of RSUs, the subsequent
ownership and possible sale of Shares acquired upon settlement of RSUs, and the opening and
maintaining of a foreign brokerage account, if applicable.

4.     The terms and conditions in this paragraph apply to you only if one or both of the following
apply: (i) you are a “Reporting Insider” for the purpose of Corporate Procedure No. 320.28 — Use
of Undisclosed Material Information on the Effective Date indicated above; or (ii) the number of
RSUs evidenced by this Instrument of Award is equal to or in excess of 1,000 RSUs. In
consideration of the Award of RSUs, in the event that all or any part of the RSUs become Vested
at any time subsequent to the date which is twelve (12) months prior to the date of termination
of your employment (whether wrongful or for any other reason) (the “Applicable Period”), and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
your employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with the Company;
	 
	(ii)	 	you fail to comply with or otherwise breach the terms or conditions of any
confidentiality agreement or non-disclosure agreement with the Company;
	 
	(iii)	 	while employed or during the period of twelve (12) months following termination of
your employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/or was
supplying services to the Company, to terminate their employment or contractual
arrangements with the Company; or

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	(iv)	 	while employed or during the period of twelve (12) months following termination of your
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away the
business of any of the customers or accounts, or prospective customers or accounts, of the
Company or any of its distributors, representatives or vendors, which you have had contact
or communication with while employed at the Company;

you agree that you will, if required by the Company in its sole discretion, pay to the Company
within ten (10) days of written demand for payment from the Company an amount in cash equal to
the number of RSUs that Vested during the Applicable Period multiplied by the Market Value on
the applicable Vesting date (the “Applicable Amount”).

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the Vesting of the RSUs or your
receipt of Shares upon the settlement of Vested RSUs during the Applicable Period (and, where
applicable, in respect of the Award of such RSUs).

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the Vesting of the RSUs or your receipt of Shares upon
the settlement of Vested RSUs during the Applicable Period (such difference between the
Corresponding Tax Benefit and Tax, if any, is referred to herein as the “Tax Benefit
Deficiency”), the Applicable Amount shall be reduced by an amount equal to the Tax Benefit
Deficiency.

     For the purposes of this paragraph 4:

	 	 	 	“Corresponding Tax Benefit” means the amount of any deduction from or reduction or credit
to the amount of Taxes paid or payable by you or on your behalf in accordance with the
laws of the tax jurisdiction applicable to you as a result of or in connection with the
payment to the Company of all or any portion of the Applicable Amount by you; and
	 
	 	 	 	“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time of
Vesting of the RSUs or at the time you receive the Shares in settlement of the RSUs,
whichever is applicable (and, where applicable, at the time of the Effective Date of the
Award of such RSUs).

5.     The Company requires, as a condition on settlement of Vested RSUs, that you: (i) pay any
federal, provincial, state or local withholding taxes (collectively referred to herein as
“taxes”) which are required to be paid by you; (ii) pay or reimburse any taxes which are
required to be withheld and remitted by the Company; (iii) complete any forms or provide any
additional documents in connection with taxes; and (iv) otherwise comply with all applicable tax
laws; in each case in connection with the Award of the RSUs, the Vesting of the RSUs, the
settlement of the RSUs, and/or the forfeiture of the RSUs, and as may be specified in this
Instrument of Award, the Rules and Regulations or otherwise in accordance with the Plan. The
Company may require, as a condition of the settlement of Vested RSUs, that a portion of the
related Shares be sold by you or on your behalf (i) to generate proceeds sufficient to cover any
tax withholdings required to be withheld and remitted by the Company or its designee on account
of applicable taxes (hereinafter, “tax withholdings”), or (ii) to generate proceeds sufficient
to cover any tax withholdings if you do not pay such tax withholdings within the designated time
periods as may be specified in accordance with applicable requirements.

6.     If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that you have committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including RSUs, you shall, in accordance with the
terms of the Recoupment Policy, automatically forfeit any awards of RSUs received under this
Instrument of Award but not yet vested, or if vested, you shall reimburse the Company the amount
of monetary compensation received by you as a result of such vesting of RSUs, and/or the Company
shall be entitled to issue proceedings to recover damages against you in respect of any losses
incurred.

7.     In the event of your Termination prior to the date that all of the RSUs awarded to you
pursuant to this Instrument of Award have become Vested, (i) if such Termination is a Qualifying
Termination Without Cause, all then outstanding unvested RSUs awarded to you pursuant to this
Instrument of Award shall remain outstanding, shall continue to Vest in accordance with the
Vesting schedule indicated above during the Extension Period and, once Vested, shall be settled
in accordance with the terms of the Plan and this Instrument of Award and the remaining portion
of such RSU shall be forfeited and cancelled for no consideration; (ii) if such Termination is
due to your Retirement or death, a “pro rata portion” of the then outstanding unvested RSUs
awarded to you shall become immediately Vested and, in accordance with the terms of the Plan and
this Instrument of Award, settled and the remaining portion of such RSUs shall be forfeited and
cancelled for no consideration as of the Date of Termination; (iii) if such Termination is a
Qualifying Termination Without Cause and, immediately following the end of the Extension Period,
you commence or are eligible and remain eligible to commence Retirement, a “pro rata portion” of
the unvested RSUs awarded to you that are outstanding as of the end of the Extension Period
shall become immediately Vested and, in accordance with the terms of the Plan and this
Instrument of Award, settled and the remaining portion of any RSUs then outstanding shall be
forfeited and cancelled for no consideration as of the date you commence or are eligible and
remain eligible to commence Retirement and (iv) if such Termination is for any other reason
(including by your employer for Cause or by reason of your resignation for any reason), all then
outstanding unvested RSUs awarded to you pursuant to this Instrument of Award shall immediately
be forfeited and cancelled for no consideration; provided, however, that

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any Vesting pursuant to this paragraph shall be delayed until six months after your Retirement
or other type of Termination to the extent necessary to avoid adverse tax treatment under
Section 409A of the U.S. Internal Revenue Code.

     For purposes of this section 7, “pro rata portion” shall mean the product of one-third of
the RSUs awarded to you pursuant to the Plan and this Instrument of Award multiplied by a
fraction, the numerator of which equals the number of days which have elapsed at the relevant
date since the later of (i) the date 33 percent of the RSUs became Vested; and (ii) the date 66
percent of the RSUs became Vested; and the denominator of which is 365; provided, however, that
no portion of a RSU shall become vested earlier than the first anniversary of the Effective Date
of the Award.

     For the purposes of this section 7, the following shall be excluded from the definition of
“Extension Period” in the Plan: “the earlier of (x) the twenty-four month anniversary of the
Participant’s Date of Termination and (y)”.

8.     In the event you are a Specified Executive (as defined under the Nortel Networks Corporation
Executive Retention and Termination Plan (the “ERTP Plan”)) and are subject to a Termination Due
to Change in Control (as defined in the ERTP Plan), the RSUs awarded to you in accordance with
this Instrument of Award shall be included as RSUs (as defined under the ERTP Plan) and receive
all of the benefits provided to RSUs under the ERTP Plan in the event of a Termination Due to
Change in Control, provided, however, that no portion of a RSU shall be included, for the
purposes of any payments under the ERTP Plan, earlier than the first anniversary of the
Effective Date of an Award.

9.     This Instrument of Award: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Award and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Award of RSUs evidenced by this Instrument of Award are specifically recorded
as a variation from the terms and conditions of the Plan or the Rules and Regulations, as the
case may be.

     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the RSUs. You should check the Services@Work site frequently since it
may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Award.

10.     You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Award of RSUs does not create any right to receive future
Awards of RSUs, or benefits in lieu of RSUs, and the terms and conditions of any future Awards
of RSUs, if any, will be communicated if and when new Awards of RSUs are to be made; (iii) the
value of the RSUs is outside the scope of your employment contract and severance payments, if
any, and the Award of RSUs is not for labour performed nor does it guarantee future employment;
(iv) participation in the Plan is voluntary; (v) the Corporation is not responsible for foreign
exchange fluctuations between your local currency and the US dollar, if applicable, and the
future value of the Shares is unknown and cannot be predicted with certainty; (vi) the RSUs are
not part of remuneration for purposes of any compensation on termination of employment,
severance payments, indemnities or end of service payments or benefits of any nature; (vii) the
Vesting of the RSUs ceases upon termination of employment, whether lawful or otherwise, except
as provided in the Plan and this Instrument of Award, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the forfeiture of RSUs or the early
settlement thereof on any such termination of employment; and (viii) the Award of the RSUs does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Award or the RSUs, shall, to the
extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

11.     The various provisions and sub-provisions of this Instrument of Award are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Award, the Plan, the Rules and
Regulations, or any documents related to the Plan.

12.     Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the Award and/or settlement of RSUs, administering the Plan, and to
comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Award or the RSUs, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

13.     By accepting this Instrument of Award or the RSUs, you expressly consent that the Plan, the
Rules and Regulations and any other document relating thereto, including this Instrument of
Award, be drawn up and/or available in English only. Par votre acceptation de la

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présente Entente ou des RSUs, vous consentez expressément à ce que le Régime, les Règlements et
tout autre document connexe, y compris la présente Entente soient rédigés et/ou disponibles en
anglais seulement.

14.     By accepting this Instrument of Award or the RSUs, you (i) acknowledge and confirm that you
have read and understood the Plan, the Rules and Regulations and this Instrument of Award, and
that you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; and (ii) agree to be bound by the terms and conditions stated in this Instrument of
Award, including without limitation the terms and conditions of the Plan and the Rules and
Regulations incorporated by reference herein.

     Note: You should be aware that your acceptance of this Award of RSUs may have tax and
legal consequences for you. You are responsible for any and all compliance requirements under
local and national law related to these consequences and accordingly you are strongly
recommended to seek expert advice from a local duly qualified professional advisor.

     If you accept the terms and conditions of this Award of RSUs as described in this
Instrument of Award, please confirm your acceptance by signing where indicated below and
returning it to Nortel Global Equity Award Services at the address indicated below.

Signature of Employee:                            
                 
                 
    

Global Equity Award Services

Nortel Networks Corporation

195 The West Mall

Dept. C01G, MS T0504001

Toronto, Ontario, Canada M9C 5K1

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NORTEL NETWORKS CORPORATION — RESTRICTED STOCK UNITS

INSTRUMENT OF AWARD

«COUNTRY»                    

	 	 	 
	NAME:
	 	«NAME» («GID»)
	 
	 	 
	EFFECTIVE DATE:
	 	«AWARD_DATE»
	 
	 	 
	NUMBER OF RSUs:
	 	«AWARDED»
	 
	 	 
	VESTING SCHEDULE:
	 	<VEST DESC>
	 
	 	 
	PLAN:
	 	NORTEL <PLAN> PLAN

This instrument (hereinafter the “Instrument of Award”) evidences an Award to you of the number
of Restricted Stock Units (“RSUs”) indicated above, on the Effective Date indicated above,
pursuant to the Nortel 2005 Stock Incentive Plan, As Amended and Restated and as may be further
amended from time to time (the “Plan”). Each RSU covered by this Instrument of Award generally
entitles you to receive one common share (a “Share”) of Nortel Networks Corporation (the
“Corporation”) upon or as soon as reasonably practicable following the date the RSU becomes
Vested in accordance with the Vesting schedule indicated above, or such earlier date as may be
applicable pursuant to the provisions of the Plan and this Instrument of Award. Capitalized
terms not otherwise defined in this Instrument of Award have the meanings set forth in the Plan.

1.     All RSUs covered by this Instrument of Award are subject to the terms and conditions stated
in the Plan, except as specifically or additionally provided in this Instrument of Award and/or
in any rules, regulations, determinations or interpretations prescribed and/or made by the
Committee (or its delegates) under the power and authority granted under the Plan (the “Rules
and Regulations”), and all of the provisions of the Plan and the Rules and Regulations are
incorporated by reference as if expressly restated herein. Different Rules and Regulations may
apply to you and/or the RSUs covered by this Instrument of Award depending on your country work
location, residency or payroll, whether on the Effective Date of the Award, on the date of
settlement of the RSUs, or otherwise. Accordingly, you should review the Plan and the Rules and
Regulations from time to time, which are available as indicated below, in conjunction with this
Instrument of Award.

2.     You will have the right to receive one Share in settlement of each RSU once the RSU has
become Vested in accordance with the Vesting schedule indicated above, provided that you have
been in the continuous employment of the Company from the Effective Date to the applicable
Vesting date.

3.     Vested RSUs will be settled by transfer of Shares to you on or as soon as reasonably
practicable following the Vesting date provided that you execute any required documentation as
provided in the Plan, this Instrument of Award or the Rules and Regulations, in such form or
manner as may be specified from time to time by the Corporation. You will remain responsible
for any local legal compliance requirements resulting from your receipt of RSUs, the subsequent
ownership and possible sale of Shares acquired upon settlement of RSUs, and the opening and
maintaining of a foreign brokerage account, if applicable.

4.     The terms and conditions in this paragraph apply to you only if one or both of the following
apply: (i) you are a “Reporting Insider” for the purpose of Corporate Procedure No. 320.28 — Use
of Undisclosed Material Information on the Effective Date indicated above; or (ii) the number of
RSUs evidenced by this Instrument of Award is equal to or in excess of 1,000 RSUs. In
consideration of the Award of RSUs, in the event that all or any part of the RSUs become Vested
at any time subsequent to the date which is twelve (12) months prior to the date of termination
of your employment (whether wrongful or for any other reason) (the “Applicable Period”), and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
your employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with the Company;
	 
	(ii)	 	you fail to comply with or otherwise breach the terms or conditions of any
confidentiality agreement or non-disclosure agreement with the Company;
	 
	(iii)	 	while employed or during the period of twelve (12) months following termination of your
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to recruit,
induce or solicit, any current employee or other individual who is/or was supplying
services to the Company, to terminate their employment or contractual arrangements with the
Company; or

1

 

	(iv)	 	while employed or during the period of twelve (12) months following termination of your
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away the
business of any of the customers or accounts, or prospective customers or accounts, of the
Company or any of its distributors, representatives or vendors, which you have had contact
or communication with while employed at the Company;

you agree that you will, if required by the Company in its sole discretion, pay to the Company
within ten (10) days of written demand for payment from the Company an amount in cash equal to
the number of RSUs that Vested during the Applicable Period multiplied by the Market Value on
the applicable Vesting date (the “Applicable Amount”).

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the Vesting of the RSUs or your
receipt of Shares upon the settlement of Vested RSUs during the Applicable Period (and, where
applicable, in respect of the Award of such RSUs).

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the Vesting of the RSUs or your receipt of Shares upon
the settlement of Vested RSUs during the Applicable Period (such difference between the
Corresponding Tax Benefit and Tax, if any, is referred to herein as the “Tax Benefit
Deficiency”), the Applicable Amount shall be reduced by an amount equal to the Tax Benefit
Deficiency.

     For the purposes of this paragraph 4:

	 	 	 	“Corresponding Tax Benefit” means the amount of any deduction from or reduction or credit
to the amount of Taxes paid or payable by you or on your behalf in accordance with the
laws of the tax jurisdiction applicable to you as a result of or in connection with the
payment to the Company of all or any portion of the Applicable Amount by you; and
	 
	 	 	 	“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time of
Vesting of the RSUs or at the time you receive the Shares in settlement of the RSUs,
whichever is applicable (and, where applicable, at the time of the Effective Date of the
Award of such RSUs).

5.     The Company requires, as a condition on settlement of Vested RSUs, that you: (i) pay any
federal, provincial, state or local withholding taxes (collectively referred to herein as
“taxes”) which are required to be paid by you; (ii) pay or reimburse any taxes which are
required to be withheld and remitted by the Company; (iii) complete any forms or provide any
additional documents in connection with taxes; and (iv) otherwise comply with all applicable tax
laws; in each case in connection with the Award of the RSUs, the Vesting of the RSUs, the
settlement of the RSUs, and/or the forfeiture of the RSUs, and as may be specified in this
Instrument of Award, the Rules and Regulations or otherwise in accordance with the Plan. The
Company may require, as a condition of the settlement of Vested RSUs, that a portion of the
related Shares be sold by you or on your behalf (i) to generate proceeds sufficient to cover any
tax withholdings required to be withheld and remitted by the Company or its designee on account
of applicable taxes (hereinafter, “tax withholdings”), or (ii) to generate proceeds sufficient
to cover any tax withholdings if you do not pay such tax withholdings within the designated time
periods as may be specified in accordance with applicable requirements.

6.     If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that you have committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including RSUs, you shall, in accordance with the
terms of the Recoupment Policy, automatically forfeit any awards of RSUs received under this
Instrument of Award but not yet vested, or if vested, you shall reimburse the Company the amount
of monetary compensation received by you as a result of such vesting of RSUs, and/or the Company
shall be entitled to issue proceedings to recover damages against you in respect of any losses
incurred.

7.     In the event of your Termination prior to the date that all of the RSUs awarded to you
pursuant to this Instrument of Award have become Vested, (i) if such Termination is a Qualifying
Termination Without Cause, all then outstanding unvested RSUs awarded to you pursuant to this
Instrument of Award shall remain outstanding, shall continue to Vest in accordance with the
Vesting schedule indicated above during the Extension Period and, once Vested, shall be settled
in accordance with the terms of the Plan and this Instrument of Award and the remaining portion
of such RSU shall be forfeited and cancelled for no consideration; (ii) if such Termination is
due to your Retirement or death, a “pro rata portion” of the then outstanding unvested RSUs
awarded to you shall become immediately Vested and, in accordance with the terms of the Plan and
this Instrument of Award, settled and the remaining portion of such RSUs shall be forfeited and
cancelled for no consideration as of the Date of Termination; (iii) if such Termination is a
Qualifying Termination Without Cause and, immediately following the end of the Extension Period,
you commence or are eligible and remain eligible to commence Retirement, a “pro rata portion” of
the unvested RSUs awarded to you that are outstanding as of the end of the Extension Period
shall become immediately Vested and, in accordance with the terms of the Plan and this
Instrument of Award, settled and the remaining portion of any RSUs then outstanding shall be
forfeited and cancelled for no consideration as of the date you commence or are eligible and
remain eligible to commence Retirement and (iv) if such Termination is for any other reason
(including by your employer for Cause or by reason of your resignation for any reason), all then
outstanding unvested RSUs awarded to you pursuant to this Instrument of Award shall immediately
be forfeited and cancelled for no consideration; provided, however, that

2

 

any Vesting pursuant to this paragraph shall be delayed until six months after your Retirement
or other type of Termination to the extent necessary to avoid adverse tax treatment under
Section 409A of the U.S. Internal Revenue Code.

     For purposes of this section 7, “pro rata portion” shall mean the product of one-third of
the RSUs awarded to you pursuant to the Plan and this Instrument of Award multiplied by a
fraction, the numerator of which equals the number of days which have elapsed at the relevant
date since the later of (i) the date 33 percent of the RSUs became Vested; and (ii) the date 66
percent of the RSUs became Vested; and the denominator of which is 365; provided, however, that
no portion of a RSU shall become vested earlier than the first anniversary of the Effective Date
of the Award.

     For the purposes of this section 7, the following shall be excluded from the definition of
“Extension Period” in the Plan: “the earlier of (x) the twenty-four month anniversary of the
Participant’s Date of Termination and (y)”.

8.     In the event you are a Specified Executive (as defined under the Nortel Networks Corporation
Executive Retention and Termination Plan (the “ERTP Plan”)) and are subject to a Termination Due
to Change in Control (as defined in the ERTP Plan), the RSUs awarded to you in accordance with
this Instrument of Award shall be included as RSUs (as defined under the ERTP Plan) and receive
all of the benefits provided to RSUs under the ERTP Plan in the event of a Termination Due to
Change in Control, provided, however, that no portion of a RSU shall be included, for the
purposes of any payments under the ERTP Plan, earlier than the first anniversary of the
Effective Date of an Award.

9.     This Instrument of Award: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Award and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Award of RSUs evidenced by this Instrument of Award are specifically recorded
as a variation from the terms and conditions of the Plan or the Rules and Regulations, as the
case may be.

     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the RSUs. You should check the Services@Work site frequently since it
may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Award.

10.     You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Award of RSUs does not create any right to receive future
Awards of RSUs, or benefits in lieu of RSUs, and the terms and conditions of any future Awards
of RSUs, if any, will be communicated if and when new Awards of RSUs are to be made; (iii) the
value of the RSUs is outside the scope of your employment contract and severance payments, if
any, and the Award of RSUs is not for labour performed nor does it guarantee future employment;
(iv) participation in the Plan is voluntary; (v) the Corporation is not responsible for foreign
exchange fluctuations between your local currency and the US dollar, if applicable, and the
future value of the Shares is unknown and cannot be predicted with certainty; (vi) the RSUs are
not part of remuneration for purposes of any compensation on termination of employment,
severance payments, indemnities or end of service payments or benefits of any nature; (vii) the
Vesting of the RSUs ceases upon termination of employment, whether lawful or otherwise, except
as provided in the Plan and this Instrument of Award, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the forfeiture of RSUs or the early
settlement thereof on any such termination of employment; and (viii) the Award of the RSUs does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Award or the RSUs, shall, to the
extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

11.     The various provisions and sub-provisions of this Instrument of Award are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Award, the Plan, the Rules and
Regulations, or any documents related to the Plan.

12.     Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the Award and/or settlement of RSUs, administering the Plan, and to
comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Award or the RSUs, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

13.     By accepting this Instrument of Award or the RSUs, you expressly consent that the Plan, the
Rules and Regulations and any other document relating thereto, including this Instrument of
Award, be drawn up and/or available in English only. Par votre acceptation de la

3

 

présente Entente ou des RSUs, vous consentez expressément à ce que le Régime, les Règlements et
tout autre document connexe, y compris la présente Entente soient rédigés et/ou disponibles en
anglais seulement.

14.     By accepting this Instrument of Award or the RSUs, you (i) acknowledge and confirm that you
have read and understood the Plan, the Rules and Regulations and this Instrument of Award, and
that you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; and (ii) agree to be bound by the terms and conditions stated in this Instrument of
Award, including without limitation the terms and conditions of the Plan and the Rules and
Regulations incorporated by reference herein.

Note: You should be aware that your acceptance of this Award of RSUs may have tax and legal
consequences for you. You are responsible for any and all compliance requirements under local and
national law related to these consequences and accordingly you are strongly recommended to seek
expert advice from a local duly qualified professional advisor.

4

 

NORTEL NETWORKS CORPORATION — PERFORMANCE STOCK UNITS

INSTRUMENT OF AWARD

«COUNTRY»

	 	 	 
	NAME:
	 	«NAME» («GID»)
	 
	 	 
	EFFECTIVE DATE:
	 	«AWARD_DATE»
	 
	 	 
	NUMBER OF PSUs:
	 	«AWARDED»
	 
	 	 
	PERFORMANCE PERIODS:
	 	«PERIODS»
	 
	 	 
	PLAN:
	 	NORTEL 2005 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED

This instrument (hereinafter the “Instrument of Award”) evidences an Award to you of the number
of Performance Stock Units (“PSUs”) indicated above, on the Effective Date indicated above,
pursuant to the Nortel 2005 Stock Incentive Plan, As Amended and Restated and as may be further
amended from time to time (the “Plan”). Subject to and unless otherwise specified by the
Committee at the time it established the applicable Performance Criteria, each PSU covered by
this Instrument of Award generally entitles you to receive one common share (a “Share”) of
Nortel Networks Corporation (the “Corporation”) upon or as soon as reasonably practicable
following the Vesting of the PSUs, or such earlier date as may be applicable pursuant to the
provisions of the Plan and this Instrument of Award. Capitalized terms not otherwise defined in
this Instrument of Award have the meanings set forth in the Plan.

1.     All PSUs covered by this Instrument of Award are subject to the terms and conditions stated
in the Plan, except as specifically or additionally provided in this Instrument of Award and/or
in any rules, regulations, determinations or interpretations prescribed and/or made by the
Committee (or its delegates) under the power and authority granted under the Plan (the “Rules
and Regulations”), and all of the provisions of the Plan and the Rules and Regulations are
incorporated by reference as if expressly restated herein. Different Rules and Regulations may
apply to you and/or the PSUs covered by this Instrument of Award depending on your country work
location, residency or payroll, whether on the Effective Date of the Award, on the date of
settlement of the PSUs, or otherwise. Accordingly, you should review the Plan and the Rules and
Regulations from time to time, which are available as indicated below, in conjunction with this
Instrument of Award.

2.     Subject to the provisions below, each PSU represents the right to receive one Share in
settlement thereof, subject to the Committee determining the percentage target payout, if any,
based on the level of achievement of the Performance Criteria and the satisfaction of any other
terms and conditions of the Award, provided that you have been in the continuous employment of
the Company from the Effective Date to the end of the applicable Performance Period. The
Performance Criteria and the terms and conditions related to the potential settlement of PSUs
are those Performance Criteria and terms and conditions determined by the Committee or its
designee, from time to time.

3.     In the event the PSUs become vested, PSUs will be settled by transfer of Shares to you on or
as soon as reasonably practicable following the close of the applicable Performance Period
provided that you execute any required documentation as provided in the Plan, this Instrument of
Award or the Rules and Regulations, in such form or manner as may be specified from time to time
by the Corporation. You will remain responsible for any local legal compliance requirements
resulting from your receipt of PSUs, the subsequent ownership and possible sale of Shares
acquired on settlement of PSUs, and the opening and maintaining of a foreign brokerage account,
if applicable.

4.     In consideration of the Award of PSUs, in the event that all or any part of the PSUs become
Vested, at any time subsequent to the date which is twelve (12) months prior to the date of
termination of your employment (whether wrongful or for any other reason) (the “Applicable
Period”) and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with the Company,
	 
	(ii)	 	you fail to comply with or otherwise breach the terms and conditions of any
confidentiality agreement or non-disclosure agreement with the Company,
	 
	(iii)	 	while employed or during the period of twelve (12) months following the termination
of employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/was supplying
services to the Company, to terminate their employment or contractual arrangements with
the Company, or
	 
	(iv)	 	while employed or during the period of twelve (12) months following the termination of
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away, the
business of

1

 

	 	 	any of the customers or accounts, or prospective customers or accounts, of the Company or
any of its distributors, representatives or vendors which you had contact or communication
with while employed at the Company;

you agree that you will, if required by the Company in its sole discretion, pay to the Company
within ten (10) days of written demand for payment from the Company an amount in cash equal to
the number of Shares delivered to you upon the Committee’s determination of payout based on the
level of achievement of the Performance Criteria multiplied by the Market Value of a Share on
the applicable settlement date (the “Applicable Amount”);

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the issuance of Shares upon settlement
of the PSUs during the Applicable Period (and, where applicable, in respect of the Award of such
PSUs);

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the Vesting of the PSUs or your receipt of Shares upon
the settlement of Vested PSUs during the Applicable Period (such difference between the
Corresponding Tax Benefit and Tax, if any, is referred to herein as the “Tax Benefit
Deficiency”), the Applicable Amount shall be reduced by an amount equal to the Tax Benefit
Deficiency;

     For the purposes of this provision:

	 	 	 	“Corresponding Tax Benefit” means the amount of any deduction from or reduction or
credit to the amount of Taxes paid or payable by you or on your behalf in accordance
with the laws of the tax jurisdiction applicable to you as a result of or in
connection with the payment to the Company of all or any portion of the Applicable
Amount by you; and
	 
	 	 	 	“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time of
Vesting of the PSUs or at the time you receive Shares in settlement of the PSUs,
whichever is applicable (and, where applicable, at the time of the Effective Date of
the Award of such PSUs).

5.     The Company requires, as a condition on settlement of PSUs, that you: (i) pay any federal,
provincial, state or local withholding taxes (collectively referred to herein as “taxes”) which
are required to be paid by you; (ii) pay or reimburse any taxes which are required to be
withheld and remitted by the Company; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the Award of the PSUs, the Vesting of the PSUs, the settlement of
the PSUs, and/or the forfeiture of the PSUs, and as may be specified in this Instrument of
Award, the Rules and Regulations or otherwise in accordance with the Plan. The Company may
require, as a condition of the settlement of PSUs, that a portion of the related Shares be sold
by you or on your behalf (i) to generate proceeds sufficient to cover any tax withholdings
required to be withheld and remitted by the Company or its designee on account of applicable
taxes (hereinafter, “tax withholdings”), or (ii) to generate proceeds sufficient to cover any
tax withholdings if you do not pay such tax withholdings within the designated time periods as
may be specified in accordance with applicable requirements.

6.     If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that you have committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including PSUs, you shall, in accordance with the
terms of the Recoupment Policy, automatically forfeit any awards of PSUs received under this
Instrument of Award but not yet vested, or if vested, you shall reimburse the Company the amount
of monetary compensation received by you as a result of such vesting of PSUs, and/or the Company
shall be entitled to issue proceedings to recover damages against you in respect of any losses
incurred.

7.     In the event that you become subject to long-term disability benefits, a “pro rata portion”
of the PSUs to be settled shall become Vested on the third anniversary of the beginning of the
Performance Period based on the level of achievement of the Performance Criteria, as determined
by the Committee in its sole discretion, and provided you have been a regular full-time employee
of the Company for at least twelve (12) months since the Effective Date of the Award, and the
remaining portion of such PSUs shall be forfeited and cancelled for no consideration. In the
event of your Termination prior to the date that all of the PSUs awarded to you pursuant to
this Instrument of Award have become Vested, (i) if such Termination is a Qualifying Termination
Without Cause, all then outstanding unvested PSUs awarded to you pursuant to this Instrument of
Award shall be forfeited and cancelled for no consideration; (ii) if, notwithstanding (i)
above, such Termination is due to your Retirement, a “pro rata portion” of the PSUs to be
settled shall become Vested on the third anniversary of the beginning of the Performance Period,
based on the level of achievement of the Performance Criteria, as determined by the Committee in
its sole discretion, and provided you have been a regular full-time employee of the Company for
at least twelve (12) months since the Effective Date of the Award, and the remaining portion of
such PSUs shall be forfeited and cancelled for no consideration; (iii) if such Termination is
due to death and you have been a regular full-time employee of the Company for at least twelve
(12) months since the Effective Date of the Award, a “pro rata portion” of the outstanding
unvested PSUs awarded to you shall become immediately Vested and, in accordance with the terms
of the Plan and this Instrument of Award, settled based on the target amount and (iv) if such
Termination is for any other reason (including by your employer for Cause or by reason of your
resignation for any reason), all then outstanding unvested PSUs awarded to you pursuant to this
Instrument of Award shall immediately be forfeited and cancelled for no consideration; provided,
however, that any vesting pursuant to this paragraph shall be delayed until six months after
your Retirement or other type of Termination to the extent necessary to avoid adverse tax
treatment under Section 409A of the U.S. Internal Revenue Code.

2

 

     For purposes of this section 7, “pro rata portion” shall mean the full amount of the PSUs
awarded to you pursuant to the Plan and this Instrument of Award or the amount of PSUs to be
settled, as applicable, multiplied by a fraction, the numerator of which equals the number of
full months of continuous service provided since the commencement of the applicable Performance
Period and the denominator of which is 36; provided, however, that no portion of a PSU shall
become vested earlier than the first anniversary of the Effective Date of the Award.

8.     In the event you are a Specified Executive (as defined under the Nortel Networks Corporation
Executive Retention and Termination Plan (the “ERTP Plan”)) and are subject to a Termination Due
to Change in Control (as defined in the ERTP Plan), the PSUs awarded to you in accordance with
this Instrument of Award shall receive the same treatment as RSUs (as defined under the ERTP
Plan) and shall receive the same benefits as provided to RSUs under the ERTP Plan in the event
of a Termination Due to Change in Control, provided, however, that no portion of a PSU shall be
included, for the purposes of any payments under the ERTP Plan, earlier than the first
anniversary of the Effective Date of an Award.

9.     This Instrument of Award: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Award and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Award of PSUs evidenced by this Instrument of Award are specifically recorded
as a variation from the terms and conditions of the Plan or the Rules and Regulations, as the
case may be.

     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the PSUs. You should check the Services@Work site frequently since it
may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Award.

10.     You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Award of PSUs does not create any right to receive future
Awards of PSUs, or benefits in lieu of PSUs, and the terms and conditions of any future Awards
of PSUs, if any, will be communicated if and when new Awards of PSUs are to be made; (iii) the
value of the PSUs is outside the scope of your employment contract and severance payments, if
any, and the Award of PSUs is not for labour performed nor does it guarantee future employment;
(iv) participation in the Plan is voluntary; (v) the Corporation is not responsible for foreign
exchange fluctuations between your local currency and the US dollar, if applicable, and the
future value of the Shares is unknown and cannot be predicted with certainty; (vi) the PSUs are
not part of remuneration for purposes of any compensation on termination of employment,
severance payments, indemnities or end of service payments or benefits of any nature; (vii) the
Vesting of the PSUs ceases upon termination of employment, whether lawful or otherwise, except
as provided in the Plan and this Instrument of Award, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the forfeiture of PSUs or the early
settlement thereof on any such termination of employment; and (viii) the Award of the PSUs does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Award or the PSUs, shall, to the
extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

11.     The various provisions and sub-provisions of this Instrument of Award are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Award, the Plan, the Rules and
Regulations, or any documents related to the Plan.

12.     Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the Award and/or settlement of PSUs, administering the Plan, and to
comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Award or the PSUs, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

13.     By accepting this Instrument of Award or the PSUs, you expressly consent that the Plan, the
Rules and Regulations and any other document relating thereto, including this Instrument of
Award, be drawn up and/or available in English only. Par votre acceptation de la présente
Entente ou des PSUs, vous consentez expressément à ce que le Régime, les Règlements et tout
autre document connexe, y compris la présente Entente soient rédigés et/ou disponibles en
anglais seulement.

14.     By accepting this Instrument of Award or the PSUs, you (i) acknowledge and confirm that you
have read and understood the Plan, the Rules and Regulations and this Instrument of Award, and
that you have had an opportunity to seek separate fiscal, legal and taxation advice in

3

 

relation thereto; and (ii) agree to be bound by the terms and conditions stated in this
Instrument of Award, including without limitation the terms and conditions of the Plan and the
Rules and Regulations incorporated by reference herein.

     Note: You should be aware that your acceptance of this Award of PSUs may have tax and legal
consequences for you. You are responsible for any and all compliance requirements under local
and national law related to these consequences and accordingly you are strongly recommended to
seek expert advice from a local duly qualified professional advisor.

     If you accept the terms and conditions of this Award of PSUs as described in this
Instrument of Award, please confirm your acceptance by signing where indicated below and
returning it to Nortel Global Equity Award Services at the address indicated below.

Signature of Employee:                            
                 
                 
    

Global Equity Award Services

Nortel Networks Corporation

195 The West Mall

Dept. C01G, MS T0504001

Toronto, Ontario, Canada M9C 5K1

4

 

NORTEL NETWORKS CORPORATION — STOCK OPTIONS

INSTRUMENT OF GRANT

«COUNTRY»

	 	 	 
	NAME OF OPTIONEE:
	 	«NAME» («GID»)
	 
	 	 
	EFFECTIVE DATE:
	 	«GRANT_DATE»
	 
	 	 
	NUMBER OF OPTIONS:
	 	«GRANTED»
	 
	 	 
	SUBSCRIPTION PRICE:
	 	«PRICE» (USD)
	 
	 	 
	EXPIRATION DATE:
	 	«EXPIRY_DATE»
	 
	 	 
	VESTING SCHEDULE:
	 	«VESTING» - «Vest_Desc»
	 
	 	 
	VESTING START DATE:
	 	 
	 
	 	 
	PLAN:
	 	Nortel «PLAN» Plan

This instrument (hereinafter the “Instrument of Grant”) evidences a Grant to you of the number
of Options indicated above, on the Effective Date indicated above, pursuant to the Nortel 2005
Stock Incentive Plan, As Amended and Restated and as may be further amended from time to time
(the “Plan”). Each Option covered by this Instrument of Grant generally entitles you to
purchase one common share (a “Share”) of Nortel Networks Corporation (the “Corporation”), at the
Subscription Price per Share indicated above, no later than the Expiration Date indicated above,
or such earlier date as may be applicable pursuant to the provisions of the Plan. Capitalized
terms not otherwise defined in this Instrument of Grant have the meanings set forth in the Plan.

1.     All Options covered by this Instrument of Grant are subject to the terms and conditions
stated in the Plan, except as specifically or additionally provided in this Instrument of Grant
and/or in any rules, regulations, determinations or interpretations prescribed and/or made by
the Committee (or its delegates) under the power and authority granted under the Plan (the
“Rules and Regulations”), and all of the provisions of the Plan and the Rules and Regulations
are incorporated by reference as if expressly restated herein. Different Rules and Regulations
may apply to you and/or the Options covered by this Instrument of Grant depending on your
country work location, residency or payroll, whether on the Effective Date of the Grant of
Options, on the date of exercise of the Options, or otherwise. Accordingly, you should review
the Plan and the Rules and Regulations from time to time, which are available as indicated
below, in conjunction with this Instrument of Grant.

2.     The Options covered by this Instrument of Grant are U.S. Options, so the Subscription Price
and all other amounts to be calculated in accordance with the provisions of the Plan for
purposes of this Grant of Options shall be calculated and stated in U.S. dollars. The Options
are Non-Qualified Stock Options for the purposes of the Plan. Such designation is only relevant
in determining the U.S. federal income tax consequences, if any, applicable to the Options, and
has no bearing on the tax treatment applicable to Options in countries outside of the United
States. Optionees are urged to seek their own tax advice to assess the tax status of such
Options.

3.     You will have the right to exercise the Options after they have vested in such amounts and on
such dates in accordance with the vesting schedule indicated above, provided that you have been
in the continuous employment of the Corporation or any of its subsidiaries or affiliated
entities from the Effective Date. The exact amounts and dates for vesting are specified in your
Grant information available through the Nortel Intranet — WebStock site
(https://webstock.us.nortel.com:49701/webstock/docs/default.html), “Personal Summary of
Stock Options” web page, or such other web site or through such other means as may be specified
by the Corporation from time to time.

4.     Options may be exercised: (i) by irrevocable notice of exercise in writing, executed and
delivered by the Optionee to the Nortel Global Equity Award Services Department (at 195 The West
Mall, Toronto, Ontario, Canada M9C 5K1, or such other address as may be in effect from time to
time); and/or (ii) through such Internet-based or on-line system or such telephonic or voice
recognition system (whether provided by the Corporation or any third party on behalf of the
Corporation); in each case, in such form or manner as may be specified from time to time by the
Corporation on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Stock Options/Exercise Process, or otherwise in accordance
with the Plan. The date of exercise of the Options shall be the date on which the notice of
exercise, accompanied by payment of the Subscription Price and any other required documentation
as provided in the Plan or the Rules and Regulations, is received by the Corporation, in such
form or manner as may be specified from time to time by the Corporation.

5.     The terms and conditions in this paragraph apply to you only if one or both of the following
apply: (i) you are a “Reporting Insider” for the purpose of Corporate Procedure No. 320.28 — Use
of Undisclosed Material Information on the Effective Date indicated above; or (ii) the

 

 

2

number of Options evidenced by this Instrument of Grant is equal to or in excess of 1,500
Options. In consideration of the Grant of Options, in the event that you exercise all or any
part of the Options at any time subsequent to the date which is twelve (12) months prior to the
date of termination of your employment (whether wrongful or for any other reason) (the
“Applicable Period”), and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
your employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with any Nortel Company;
	 
	(ii)	 	you fail to comply with or otherwise breach the terms or conditions of any
confidentiality agreement or non-disclosure agreement with any Nortel Company;
	 
	(iii)	 	while employed or during the period of twelve (12) months following termination of
your employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/or was
supplying services to any Nortel Company, to terminate their employment or contractual
arrangements with any Nortel Company; or
	 
	(iv)	 	while employed or during the period of twelve (12) months following termination of your
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away the
business of any of the customers or accounts, or prospective customers or accounts, of any
Nortel Company or any of its distributors, representatives or vendors, which you have had
contact or communication with while employed at any Nortel Company;

you agree that you will, if required by the Corporation in its sole discretion, pay to the
Corporation within ten (10) days of written demand for payment from the Corporation an amount
equal to the amount of the excess of the Market Value, on the date of exercise of the Options,
of the Shares purchased as a result of the exercise of the Options over the Subscription Price
for the Shares covered by the Options (the “Applicable Amount”).

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the issuance of Shares upon the
exercise of options during the Applicable Period (and, where applicable      , in respect of
the Grant of such Options ) .

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the issuance of Shares upon the exercise of options
during the Applicable Period (such difference between the Corresponding Tax Benefit and Tax, if
any, is referred to herein as the “Tax Benefit Deficiency”), the Applicable Amount shall be
reduced by an amount equal to the Tax Benefit Deficiency.

     For the purposes of this paragraph 5:

	 	 	 	“Corresponding Tax Benefit” means the amount of any deduction from or reduction or credit
to the amount of Taxes paid or payable by you or on your behalf in accordance with the
laws of the tax jurisdiction applicable to you as a result of or in connection with the
payment to the Corporation of all or any portion of the Applicable Amount by the
Designated Employee;
	 
	 	 	 	“Nortel Company” means, collectively, Nortel Networks Corporation and its direct and
indirect Subsidiaries (as such term is defined by the Plan); and
	 
	 	 	 	“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time the
Shares are issued upon the exercise of Options (and, where applicable, at the time of the
Effective Date of the Grant of such Options).

6.     The Corporation may require, as a condition of exercise of the Options, that you: (i) pay any
applicable taxes, charges, duties, contributions or otherwise (hereinafter “taxes”) which are
required to be paid by you to any federal, provincial, state, local, foreign or other taxation
authority; (ii) pay or reimburse any taxes which are required to be withheld and remitted by the
Corporation or any of its subsidiaries; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the Grant of the Options, the vesting of the Options, the exercise
of the Options, and/or the expiration of the Options, and as may be specified in the Rules and
Regulations or otherwise in accordance with the Plan. The Corporation may also require, as a
condition of exercise of the Options, that all or a portion of the Shares issued to you upon the
exercise of the Options: (i) be withheld, until such time as payment for any tax withholdings
made by the Corporation or any of its subsidiaries on account of applicable taxes (hereinafter
“tax withholdings”) has been received; and/or (ii) be sold by you or on your behalf to generate
proceeds sufficient to cover tax withholdings, in each case if you do not pay such tax
withholdings within the designated time periods as may be specified in the Rules and Regulations
or otherwise in accordance with the Plan. You further acknowledge and agree that conditions or
restrictions on the transferability of the Shares issued to you upon the exercise of the Options
may be imposed on such Shares on account of taxes or tax withholdings in connection with the
Grant of the Options, the vesting of the Options, the exercise of the Options, and/or the
expiration of the Options, in each case as may be specified in the Rules and Regulations or
otherwise in accordance with the Plan.

7.     If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that the Optionee has committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including stock options, the Optionee shall, in
accordance with the terms of the Recoupment Policy, automatically forfeit any grants of Options
received under this Instrument of Grant but not yet exercised, or if exercised, the Optionee
shall reimburse the Company the amount of monetary compensation received by the Optionee as a
result of such exercise of Options, and/or the Company shall be entitled to issue proceedings to
recover damages against the Optionee in respect of any losses incurred.

 

3

8.     The Options are not transferable or assignable and shall only be exercisable by you or your
legal guardian while you are alive. In the event of your death, the right to exercise shall be
governed by the terms of the Plan, subject to any applicable Rules and Regulations.

9.     This Instrument of Grant: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Grant and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Grant of Options evidenced by this Instrument of Grant are specifically
recorded as a variation from the terms and conditions of the Plan or the Rules and Regulations,
as the case may be.

10.     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the Options. You should check the Services@Work site frequently since
it may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Grant.

11.     You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Grant of Options does not create any right to receive
future Grants of Options, or benefits in lieu of Options and the terms and conditions of any
future Grants of Options, if any, will be communicated if and when new Grants of Options are to
be made; (iii) the value of the Options is outside the scope of your employment contract, if
any, and the Grant of Options is not for labour performed; (iv) participation in the Plan is
voluntary; (v) the future value of the Shares is unknown and cannot be predicted with certainty;
(vi) the Options are not part of remuneration for purposes of any compensation on termination of
employment, severance payments, indemnities or end of service payments or benefits of any
nature; (vii) the vesting of the Options ceases upon termination of employment, whether lawful
or otherwise, except as provided in the Plan, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the expiration of Options or the early
exercise thereof on any such termination of employment; and (viii) the Grant of the Option does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Grant or the Options, shall, to
the extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

12.     The various provisions and sub-provisions of this Instrument of Grant are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Grant, the Plan, the Rules and
Regulations, or any documents related to the Plan.

13.     Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the grant and/or exercise of Options, administering the Plan, and
to comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Grant or the Options, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

14.     By accepting this Instrument of Grant or the Options, you expressly consent that the Plan,
the Rules and Regulations, the Prospectus for the Plan and any other document relating thereto,
including this Instrument of Grant and the information about the Grant available through the
Nortel Intranet — WebStock site, be drawn up and/or available in English only. Par votre
acceptation de la présente Entente ou des Options, vous consentez expressément à ce que le
Régime, les règlements et le prospectus relatifs au Régime et tout autre document connexe, y
compris la présente Entente et l’information concernant vos options disponible à la page «
WebStock » de l’intranet de Nortel soient rédigés et/ou disponibles en anglais seulement.

15.     By accepting this Instrument of Grant or the Options, you (i) acknowledge and confirm
that you have read and understood the Plan, the Rules and Regulations, this Instrument of
Grant and all information about the Grant available on WebStock Option Summary, and that
you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; and (ii) agree to be bound by the terms and conditions stated in this Instrument
of Grant, including without limitation the terms and conditions of the Plan and the Rules
and Regulations incorporated by reference herein.

If you accept the terms and conditions of this Grant of Options as described in this Instrument
of Grant, please confirm your acceptance by signing where indicated below and returning it to
Nortel Global Equity Award Services at the address indicated below.

Signature of Optionee:                      
         
         
         

 

4

Global Equity Award Services

Nortel Networks Corporation

195 The West Mall

Dept. C01G, MS T0504001

Toronto, Ontario, Canada M9C 5K1

 

NORTEL NETWORKS CORPORATION — STOCK OPTIONS

INSTRUMENT OF GRANT

«COUNTRY»

	 	 	 
	NAME OF OPTIONEE:
	 	«NAME» («GID»)
	 
	 	 
	EFFECTIVE DATE:
	 	«GRANT_DATE»
	 
	 	 
	NUMBER OF OPTIONS:
	 	«GRANTED»
	 
	 	 
	SUBSCRIPTION PRICE:
	 	«PRICE» (USD)
	 
	 	 
	EXPIRATION DATE:
	 	«EXPIRY_DATE»
	 
	 	 
	VESTING SCHEDULE:
	 	«VESTING» - «Vest_Desc»
	 
	 	 
	VESTING START DATE:
	 	 
	 
	 	 
	PLAN:
	 	Nortel «PLAN» Plan

This instrument (hereinafter the “Instrument of Grant”) evidences a Grant to you of the number
of Options indicated above, on the Effective Date indicated above, pursuant to the Nortel 2005
Stock Incentive Plan, As Amended and Restated and as may be further amended from time to time
(the “Plan”). Each Option covered by this Instrument of Grant generally entitles you to
purchase one common share (a “Share”) of Nortel Networks Corporation (the “Corporation”), at the
Subscription Price per Share indicated above, no later than the Expiration Date indicated above,
or such earlier date as may be applicable pursuant to the provisions of the Plan. Capitalized
terms not otherwise defined in this Instrument of Grant have the meanings set forth in the Plan.

1.     All Options covered by this Instrument of Grant are subject to the terms and conditions
stated in the Plan, except as specifically or additionally provided in this Instrument of Grant
and/or in any rules, regulations, determinations or interpretations prescribed and/or made by
the Committee (or its delegates) under the power and authority granted under the Plan (the
“Rules and Regulations”), and all of the provisions of the Plan and the Rules and Regulations
are incorporated by reference as if expressly restated herein. Different Rules and Regulations
may apply to you and/or the Options covered by this Instrument of Grant depending on your
country work location, residency or payroll, whether on the Effective Date of the Grant of
Options, on the date of exercise of the Options, or otherwise. Accordingly, you should review
the Plan and the Rules and Regulations from time to time, which are available as indicated
below, in conjunction with this Instrument of Grant.

2.     The Options covered by this Instrument of Grant are U.S. Options, so the Subscription Price
and all other amounts to be calculated in accordance with the provisions of the Plan for
purposes of this Grant of Options shall be calculated and stated in U.S. dollars. The Options
are Non-Qualified Stock Options for the purposes of the Plan. Such designation is only relevant
in determining the U.S. federal income tax consequences, if any, applicable to the Options, and
has no bearing on the tax treatment applicable to Options in countries outside of the United
States. Optionees are urged to seek their own tax advice to assess the tax status of such
Options.

3.     You will have the right to exercise the Options after they have vested in such amounts and on
such dates in accordance with the vesting schedule indicated above, provided that you have been
in the continuous employment of the Corporation or any of its subsidiaries or affiliated
entities from the Effective Date. The exact amounts and dates for vesting are specified in your
Grant information available through the Nortel Intranet — WebStock site
(https://webstock.us.nortel.com:49701/webstock/docs/default.html), “Personal Summary of
Stock Options” web page, or such other web site or through such other means as may be specified
by the Corporation from time to time.

4.     Options may be exercised: (i) by irrevocable notice of exercise in writing, executed and
delivered by the Optionee to the Nortel Global Equity Award Services Department (at 195 The West
Mall, Toronto, Ontario, Canada M9C 5K1, or such other address as may be in effect from time to
time); and/or (ii) through such Internet-based or on-line system or such telephonic or voice
recognition system (whether provided by the Corporation or any third party on behalf of the
Corporation); in each case, in such form or manner as may be specified from time to time by the
Corporation on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Stock Options/Exercise Process, or otherwise in accordance
with the Plan. The date of exercise of the Options shall be the date on which the notice of
exercise, accompanied by payment of the Subscription Price and any other required documentation
as provided in the Plan or the Rules and Regulations, is received by the Corporation, in such
form or manner as may be specified from time to time by the Corporation.

5.     The terms and conditions in this paragraph apply to you only if one or both of the following
apply: (i) you are a “Reporting Insider” for the purpose of Corporate Procedure No. 320.28 — Use
of Undisclosed Material Information on the Effective Date indicated above; or (ii) the

 

 

2

number of Options evidenced by this Instrument of Grant is equal to or in excess of 1,500
Options. In consideration of the Grant of Options, in the event that you exercise all or any
part of the Options at any time subsequent to the date which is twelve (12) months prior to the
date of termination of your employment (whether wrongful or for any other reason) (the
“Applicable Period”), and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
your employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with any Nortel Company;
	 
	(ii)	 	you fail to comply with or otherwise breach the terms or conditions of any
confidentiality agreement or non-disclosure agreement with any Nortel Company;
	 
	(iii)	 	while employed or during the period of twelve (12) months following termination of
your employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/or was
supplying services to any Nortel Company, to terminate their employment or contractual
arrangements with any Nortel Company; or
	 
	(iv)	 	while employed or during the period of twelve (12) months following termination of your
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away the
business of any of the customers or accounts, or prospective customers or accounts, of any
Nortel Company or any of its distributors, representatives or vendors, which you have had
contact or communication with while employed at any Nortel Company;

you agree that you will, if required by the Corporation in its sole discretion, pay to the
Corporation within ten (10) days of written demand for payment from the Corporation an amount
equal to the amount of the excess of the Market Value, on the date of exercise of the Options,
of the Shares purchased as a result of the exercise of the Options over the Subscription Price
for the Shares covered by the Options (the “Applicable Amount”).

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the issuance of Shares upon the
exercise of options during the Applicable Period (and, where applicable, in respect of
the Grant of such Options).

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the issuance of Shares upon the exercise of options
during the Applicable Period (such difference between the Corresponding Tax Benefit and Tax, if
any, is referred to herein as the “Tax Benefit Deficiency”), the Applicable Amount shall be
reduced by an amount equal to the Tax Benefit Deficiency.

     For the purposes of this paragraph 5:

	 	 	 	“Corresponding Tax Benefit” means the amount of any deduction from or reduction or credit
to the amount of Taxes paid or payable by you or on your behalf in accordance with the
laws of the tax jurisdiction applicable to you as a result of or in connection with the
payment to the Corporation of all or any portion of the Applicable Amount by the
Designated Employee;
	 
	 	 	 	“Nortel Company” means, collectively, Nortel Networks Corporation and its direct and
indirect Subsidiaries (as such term is defined by the Plan); and
	 
	 	 	 	“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time the
Shares are issued upon the exercise of Options (and, where applicable, at the time of the
Effective Date of the Grant of such Options).

6.     The Corporation may require, as a condition of exercise of the Options, that you: (i) pay any
applicable taxes, charges, duties, contributions or otherwise (hereinafter “taxes”) which are
required to be paid by you to any federal, provincial, state, local, foreign or other taxation
authority; (ii) pay or reimburse any taxes which are required to be withheld and remitted by the
Corporation or any of its subsidiaries; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the Grant of the Options, the vesting of the Options, the exercise
of the Options, and/or the expiration of the Options, and as may be specified in the Rules and
Regulations or otherwise in accordance with the Plan. The Corporation may also require, as a
condition of exercise of the Options, that all or a portion of the Shares issued to you upon the
exercise of the Options: (i) be withheld, until such time as payment for any tax withholdings
made by the Corporation or any of its subsidiaries on account of applicable taxes (hereinafter
“tax withholdings”) has been received; and/or (ii) be sold by you or on your behalf to generate
proceeds sufficient to cover tax withholdings, in each case if you do not pay such tax
withholdings within the designated time periods as may be specified in the Rules and Regulations
or otherwise in accordance with the Plan. You further acknowledge and agree that conditions or
restrictions on the transferability of the Shares issued to you upon the exercise of the Options
may be imposed on such Shares on account of taxes or tax withholdings in connection with the
Grant of the Options, the vesting of the Options, the exercise of the Options, and/or the
expiration of the Options, in each case as may be specified in the Rules and Regulations or
otherwise in accordance with the Plan.

7.     If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that the Optionee has committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including stock options, the Optionee shall, in
accordance with the terms of the Recoupment Policy, automatically forfeit any grants of Options
received under this Instrument of Grant but not yet exercised, or if exercised, the Optionee
shall reimburse the Company the amount of monetary compensation received by the Optionee as a
result of such exercise of Options, and/or the Company shall be entitled to issue proceedings to
recover damages against the Optionee in respect of any losses incurred.

 

3

8.     The Options are not transferable or assignable and shall only be exercisable by you or your
legal guardian while you are alive. In the event of your death, the right to exercise shall be
governed by the terms of the Plan, subject to any applicable Rules and Regulations.

9.     This Instrument of Grant: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Grant and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Grant of Options evidenced by this Instrument of Grant are specifically
recorded as a variation from the terms and conditions of the Plan or the Rules and Regulations,
as the case may be.

10.     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the Options. You should check the Services@Work site frequently since
it may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Grant.

11.     You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Grant of Options does not create any right to receive
future Grants of Options, or benefits in lieu of Options and the terms and conditions of any
future Grants of Options, if any, will be communicated if and when new Grants of Options are to
be made; (iii) the value of the Options is outside the scope of your employment contract, if
any, and the Grant of Options is not for labour performed; (iv) participation in the Plan is
voluntary; (v) the future value of the Shares is unknown and cannot be predicted with certainty;
(vi) the Options are not part of remuneration for purposes of any compensation on termination of
employment, severance payments, indemnities or end of service payments or benefits of any
nature; (vii) the vesting of the Options ceases upon termination of employment, whether lawful
or otherwise, except as provided in the Plan, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the expiration of Options or the early
exercise thereof on any such termination of employment; and (viii) the Grant of the Option does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Grant or the Options, shall, to
the extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

12.     The various provisions and sub-provisions of this Instrument of Grant are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Grant, the Plan, the Rules and
Regulations, or any documents related to the Plan.

13.     Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the grant and/or exercise of Options, administering the Plan, and
to comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Grant or the Options, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

14.     By accepting this Instrument of Grant or the Options, you expressly consent that the Plan,
the Rules and Regulations, the Prospectus for the Plan and any other document relating thereto,
including this Instrument of Grant and the information about the Grant available through the
Nortel Intranet — WebStock site, be drawn up and/or available in English only. Par votre
acceptation de la présente Entente ou des Options, vous consentez expressément à ce que le
Régime, les règlements et le prospectus relatifs au Régime et tout autre document connexe, y
compris la présente Entente et l’information concernant vos options disponible à la page «
WebStock » de l’intranet de Nortel soient rédigés et/ou disponibles en anglais seulement.

15.     By accepting this Instrument of Grant or the Options, you (i) acknowledge and confirm
that you have read and understood the Plan, the Rules and Regulations, this Instrument of
Grant and all information about the Grant available on WebStock Option Summary, and that
you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; and (ii) agree to be bound by the terms and conditions stated in this Instrument
of Grant, including without limitation the terms and conditions of the Plan and the Rules
and Regulations incorporated by reference herein.

 

NORTEL NETWORKS CORPORATION — STOCK OPTIONS

INSTRUMENT OF GRANT

«COUNTRY»

	 	 	 
	NAME OF OPTIONEE:
	 	«NAME» («GID»)
	 
	 	 
	EFFECTIVE DATE:
	 	«GRANT_DATE»
	 
	 	 
	NUMBER OF OPTIONS:
	 	«GRANTED»
	 
	 	 
	SUBSCRIPTION PRICE:
	 	«PRICE» (CDN)
	 
	 	 
	EXPIRATION DATE:
	 	«EXPIRY_DATE»
	 
	 	 
	VESTING SCHEDULE:
	 	«VESTING» - «Vest_Desc»
	 
	 	 
	VESTING START DATE:
	 	 
	 
	 	 
	PLAN:
	 	Nortel «PLAN» Plan

This instrument (hereinafter the “Instrument of Grant”) evidences a Grant to you of the number
of Options indicated above, on the Effective Date indicated above, pursuant to the Nortel 2005
Stock Incentive Plan, As Amended and Restated and as may be further amended from time to time
(the “Plan”). Each Option covered by this Instrument of Grant generally entitles you to
purchase one common share (a “Share”) of Nortel Networks Corporation (the “Corporation”), at the
Subscription Price per Share indicated above, no later than the Expiration Date indicated above,
or such earlier date as may be applicable pursuant to the provisions of the Plan. Capitalized
terms not otherwise defined in this Instrument of Grant have the meanings set forth in the Plan.

1.     All Options covered by this Instrument of Grant are subject to the terms and conditions
stated in the Plan, except as specifically or additionally provided in this Instrument of Grant
and/or in any rules, regulations, determinations or interpretations prescribed and/or made by
the Committee (or its delegates) under the power and authority granted under the Plan (the
“Rules and Regulations”), and all of the provisions of the Plan and the Rules and Regulations
are incorporated by reference as if expressly restated herein. Different Rules and Regulations
may apply to you and/or the Options covered by this Instrument of Grant depending on your
country work location, residency or payroll, whether on the Effective Date of the Grant of
Options, on the date of exercise of the Options, or otherwise. Accordingly, you should review
the Plan and the Rules and Regulations from time to time, which are available as indicated
below, in conjunction with this Instrument of Grant.

2.     The Options covered by this Instrument of Grant are Canadian Options, so the Subscription
Price and all other amounts to be calculated in accordance with the provisions of the Plan for
purposes of this Grant of Options shall be calculated and stated in Canadian dollars.

3.     You will have the right to exercise the Options after they have vested in such amounts and on
such dates in accordance with the vesting schedule indicated above, provided that you have been
in the continuous employment of the Corporation or any of its subsidiaries or affiliated
entities from the Effective Date. The exact amounts and dates for vesting are specified in your
Grant information available through the Nortel Intranet — WebStock site
(https://webstock.us.nortel.com:49701/webstock/docs/default.html), “Personal Summary of
Stock Options” web page, or such other web site or through such other means as may be specified
by the Corporation from time to time.

4.     Options may be exercised: (i) by irrevocable notice of exercise in writing, executed and
delivered by the Optionee to the Nortel Global Equity Award Services Department (at 195 The West
Mall, Toronto, Ontario, Canada M9C 5K1, or such other address as may be in effect from time to
time); and/or (ii) through such Internet-based or on-line system or such telephonic or voice
recognition system (whether provided by the Corporation or any third party on behalf of the
Corporation); in each case, in such form or manner as may be specified from time to time by the
Corporation on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Stock Options/Exercise Process, or otherwise in accordance
with the Plan. The date of exercise of the Options shall be the date on which the notice of
exercise, accompanied by payment of the Subscription Price and any other required documentation
as provided in the Plan or the Rules and Regulations, is received by the Corporation, in such
form or manner as may be specified from time to time by the Corporation.

5.     The terms and conditions in this paragraph apply to you only if one or both of the following
apply: (i) you are a “Reporting Insider” for the purpose of Corporate Procedure No. 320.28 — Use
of Undisclosed Material Information on the Effective Date indicated above; or (ii) the number of
Options evidenced by this Instrument of Grant is equal to or in excess of 1,500 Options. In
consideration of the Grant of Options, in the event that you exercise all or any part of the
Options at any time subsequent to the date which is twelve (12) months prior to the date of
termination of your employment (whether wrongful or for any other reason) (the “Applicable
Period”), and:

 

 

2

	(i)	 	while employed or during the period of twelve (12) months following the termination of
your employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with any Nortel Company;
	 
	(ii)	 	you fail to comply with or otherwise breach the terms or conditions of any
confidentiality agreement or non-disclosure agreement with any Nortel Company;
	 
	(iii)	 	while employed or during the period of twelve (12) months following termination of
your employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/or was
supplying services to any Nortel Company, to terminate their employment or contractual
arrangements with any Nortel Company; or
	 
	(iv)	 	while employed or during the period of twelve (12) months following termination of your
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away the
business of any of the customers or accounts, or prospective customers or accounts, of any
Nortel Company or any of its distributors, representatives or vendors, which you have had
contact or communication with while employed at any Nortel Company;

you agree that you will, if required by the Corporation in its sole discretion, pay to the
Corporation within ten (10) days of written demand for payment from the Corporation an amount
equal to the amount of the excess of the Market Value, on the date of exercise of the Options,
of the Shares purchased as a result of the exercise of the Options over the Subscription Price
for the Shares covered by the Options (the “Applicable Amount”).

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the issuance of Shares upon the
exercise of options during the Applicable Period (and, where applicable, in respect of
the Grant of such Options).

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the issuance of Shares upon the exercise of options
during the Applicable Period (such difference between the Corresponding Tax Benefit and Tax, if
any, is referred to herein as the “Tax Benefit Deficiency”), the Applicable Amount shall be
reduced by an amount equal to the Tax Benefit Deficiency.

     For the purposes of this paragraph 5:

	 	 	 	“Corresponding Tax Benefit” means the amount of any deduction from or reduction or credit
to the amount of Taxes paid or payable by you or on your behalf in accordance with the
laws of the tax jurisdiction applicable to you as a result of or in connection with the
payment to the Corporation of all or any portion of the Applicable Amount by the
Designated Employee;
	 
	 	 	 	“Nortel Company” means, collectively, Nortel Networks Corporation and its direct and
indirect Subsidiaries (as such term is defined by the Plan); and
	 
	 	 	 	“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time the
Shares are issued upon the exercise of Options (and, where applicable, at the time of the
Effective Date of the Grant of such Options).

6.     The Corporation may require, as a condition of exercise of the Options, that you: (i) pay any
applicable taxes, charges, duties, contributions or otherwise (hereinafter “taxes”) which are
required to be paid by you to any federal, provincial, state, local, foreign or other taxation
authority; (ii) pay or reimburse any taxes which are required to be withheld and remitted by the
Corporation or any of its subsidiaries; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the Grant of the Options, the vesting of the Options, the exercise
of the Options, and/or the expiration of the Options, and as may be specified in the Rules and
Regulations or otherwise in accordance with the Plan. The Corporation may also require, as a
condition of exercise of the Options, that all or a portion of the Shares issued to you upon the
exercise of the Options: (i) be withheld, until such time as payment for any tax withholdings
made by the Corporation or any of its subsidiaries on account of applicable taxes (hereinafter
“tax withholdings”) has been received; and/or (ii) be sold by you or on your behalf to generate
proceeds sufficient to cover tax withholdings, in each case if you do not pay such tax
withholdings within the designated time periods as may be specified in the Rules and Regulations
or otherwise in accordance with the Plan. You further acknowledge and agree that conditions or
restrictions on the transferability of the Shares issued to you upon the exercise of the Options
may be imposed on such Shares on account of taxes or tax withholdings in connection with the
Grant of the Options, the vesting of the Options, the exercise of the Options, and/or the
expiration of the Options, in each case as may be specified in the Rules and Regulations or
otherwise in accordance with the Plan.

7.     If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that the Optionee has committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including stock options, the Optionee shall, in
accordance with the terms of the Recoupment Policy, automatically forfeit any grants of Options
received under this Instrument of Grant but not yet exercised, or if exercised, the Optionee
shall reimburse the Company the amount of monetary compensation received by the Optionee as a
result of such exercise of Options, and/or the Company shall be entitled to issue proceedings to
recover damages against the Optionee in respect of any losses incurred.

 

3

8.     The Options are not transferable or assignable and shall only be exercisable by you or your
legal guardian while you are alive. In the event of your death, the right to exercise shall be
governed by the terms of the Plan, subject to any applicable Rules and Regulations.

9.     This Instrument of Grant: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Grant and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Grant of Options evidenced by this Instrument of Grant are specifically
recorded as a variation from the terms and conditions of the Plan or the Rules and Regulations,
as the case may be.

10.     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the Options. You should check the Services@Work site frequently since
it may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Grant.

11.     You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Grant of Options does not create any right to receive
future Grants of Options, or benefits in lieu of Options and the terms and conditions of any
future Grants of Options, if any, will be communicated if and when new Grants of Options are to
be made; (iii) the value of the Options is outside the scope of your employment contract, if
any, and the Grant of Options is not for labour performed; (iv) participation in the Plan is
voluntary; (v) the future value of the Shares is unknown and cannot be predicted with certainty;
(vi) the Options are not part of remuneration for purposes of any compensation on termination of
employment, severance payments, indemnities or end of service payments or benefits of any
nature; (vii) the vesting of the Options ceases upon termination of employment, whether lawful
or otherwise, except as provided in the Plan, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the expiration of Options or the early
exercise thereof on any such termination of employment; and (viii) the Grant of the Option does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Grant or the Options, shall, to
the extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

12.     The various provisions and sub-provisions of this Instrument of Grant are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Grant, the Plan, the Rules and
Regulations, or any documents related to the Plan.

13.     Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the grant and/or exercise of Options, administering the Plan, and
to comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Grant or the Options, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

14.     By accepting this Instrument of Grant or the Options, you expressly consent that the Plan,
the Rules and Regulations, the Prospectus for the Plan and any other document relating thereto,
including this Instrument of Grant and the information about the Grant available through the
Nortel Intranet — WebStock site, be drawn up and/or available in English only. Par votre
acceptation de la présente Entente ou des Options, vous consentez expressément à ce que le
Régime, les règlements et le prospectus relatifs au Régime et tout autre document connexe, y
compris la présente Entente et l’information concernant vos options disponible à la page «
WebStock » de l’intranet de Nortel soient rédigés et/ou disponibles en anglais seulement.

15.     By accepting this Instrument of Grant or the Options, you (i) acknowledge and confirm
that you have read and understood the Plan, the Rules and Regulations, this Instrument of
Grant and all information about the Grant available on WebStock Option Summary, and that
you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; and (ii) agree to be bound by the terms and conditions stated in this Instrument
of Grant, including without limitation the terms and conditions of the Plan and the Rules
and Regulations incorporated by reference herein.

 

NORTEL NETWORKS CORPORATION — STOCK OPTIONS

INSTRUMENT OF GRANT — BELGIUM

«COUNTRY»

	 	 	 
	NAME OF OPTIONEE:
	 	«NAME» («GID»)
	 
	 	 
	EFFECTIVE DATE:
	 	«GRANT_DATE»
	 
	 	 
	NUMBER OF OPTIONS:
	 	«GRANTED»
	 
	 	 
	SUBSCRIPTION PRICE:
	 	«PRICE» (USD)
	 
	 	 
	EXPIRATION DATE:
	 	«EXPIRY_DATE»
	 
	 	 
	VESTING SCHEDULE:
	 	«VESTING» - «Vest_Desc»
	 
	 	 
	VESTING START DATE:
	 	 
	 
	 	 
	PLAN:
	 	Nortel «PLAN» Plan

This instrument (hereinafter the “Instrument of Grant”) evidences a Grant to you of the number
of Options indicated above, on the Effective Date indicated above, pursuant to the Nortel 2005
Stock Incentive Plan, As Amended and Restated and as may be further amended from time to time
(the “Plan”). Each Option covered by this Instrument of Grant generally entitles you to
purchase one common share (a “Share”) of Nortel Networks Corporation (the “Corporation”), at the
Subscription Price per Share indicated above, no later than the Expiration Date indicated above,
or such earlier date as may be applicable pursuant to the provisions of the Plan. Capitalized
terms not otherwise defined in this Instrument of Grant have the meanings set forth in the Plan.

1.     All Options covered by this Instrument of Grant are subject to the terms and conditions
stated in the Plan, except as specifically or additionally provided in this Instrument of Grant
and/or in any rules, regulations, determinations or interpretations prescribed and/or made by
the Committee (or its delegates) under the power and authority granted under the Plan (the
“Rules and Regulations”), and all of the provisions of the Plan and the Rules and Regulations
are incorporated by reference as if expressly restated herein. Different Rules and Regulations
may apply to you and/or the Options covered by this Instrument of Grant depending on your
country work location, residency or payroll, whether on the Effective Date of the Grant of
Options, on the date of exercise of the Options, or otherwise. Accordingly, you should review
the Plan and the Rules and Regulations from time to time, which are available as indicated
below, in conjunction with this Instrument of Grant.

2.     The Options covered by this Instrument of Grant are U.S. Options, so the Subscription Price
and all other amounts to be calculated in accordance with the provisions of the Plan for
purposes of this Grant of Options shall be calculated and stated in U.S. dollars. The Options
are Non-Qualified Stock Options for the purposes of the Plan. Such designation is only relevant
in determining the U.S. federal income tax consequences, if any, applicable to the Options, and
has no bearing on the tax treatment applicable to Options in countries outside of the United
States. Optionees are urged to seek their own tax advice to assess the tax status of such
Options.

3.     You will have the right to exercise the Options after they have vested in such amounts and on
such dates in accordance with the vesting schedule indicated above, provided that you have been
in the continuous employment of the Corporation or any of its subsidiaries or affiliated
entities from the Effective Date. The exact amounts and dates for vesting are specified in your
Grant information available through the Nortel Intranet — WebStock site
(https://webstock.us.nortel.com:49701/webstock/docs/default.html), “Personal Summary of
Stock Options” web page, or such other web site or through such other means as may be specified
by the Corporation from time to time.

4.     Options may be exercised: (i) by irrevocable notice of exercise in writing, executed and
delivered by the Optionee to the Nortel Global Equity Award Services Department (at 195 The West
Mall, Toronto, Ontario, Canada M9C 5K1, or such other address as may be in effect from time to
time); and/or (ii) through such Internet-based or on-line system or such telephonic or voice
recognition system (whether provided by the Corporation or any third party on behalf of the
Corporation); in each case, in such form or manner as may be specified from time to time by the
Corporation on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Stock Options/Exercise Process, or otherwise in accordance
with the Plan. The date of exercise of the Options shall be the date on which the notice of
exercise, accompanied by payment of the Subscription Price and any other required documentation
as provided in the Plan or the Rules and Regulations, is received by the Corporation, in such
form or manner as may be specified from time to time by the Corporation.

5.     The terms and conditions in this paragraph apply to you only if one or both of the following
apply: (i) you are a “Reporting Insider” for the purpose of Corporate Procedure No. 320.28 — Use
of Undisclosed Material Information on the Effective Date indicated above; or (ii) the

 

 

2

number of Options evidenced by this Instrument of Grant is equal to or in excess of 1,500
Options. In consideration of the Grant of Options, in the event that you exercise all or any
part of the Options at any time subsequent to the date which is twelve (12) months prior to the
date of termination of your employment (whether wrongful or for any other reason) (the
“Applicable Period”), and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
your employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with any Nortel Company;
	 
	(ii)	 	you fail to comply with or otherwise breach the terms or conditions of any
confidentiality agreement or non-disclosure agreement with any Nortel Company;
	 
	(iii)	 	while employed or during the period of twelve (12) months following termination of
your employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/or was
supplying services to any Nortel Company, to terminate their employment or contractual
arrangements with any Nortel Company; or
	 
	(iv)	 	while employed or during the period of twelve (12) months following termination of your
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away the
business of any of the customers or accounts, or prospective customers or accounts, of any
Nortel Company or any of its distributors, representatives or vendors, which you have had
contact or communication with while employed at any Nortel Company;

you agree that you will, if required by the Corporation in its sole discretion, pay to the
Corporation within ten (10) days of written demand for payment from the Corporation an amount
equal to the amount of the excess of the Market Value, on the date of exercise of the Options,
of the Shares purchased as a result of the exercise of the Options over the Subscription Price
for the Shares covered by the Options (the “Applicable Amount”).

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the issuance of Shares upon the
exercise of options during the Applicable Period (and, where applicable, in respect of
the Grant of such Options).

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the issuance of Shares upon the exercise of options
during the Applicable Period (such difference between the Corresponding Tax Benefit and Tax, if
any, is referred to herein as the “Tax Benefit Deficiency”), the Applicable Amount shall be
reduced by an amount equal to the Tax Benefit Deficiency.

     For the purposes of this paragraph 5:

	 	 	 	“Corresponding Tax Benefit” means the amount of any deduction from or reduction or credit
to the amount of Taxes paid or payable by you or on your behalf in accordance with the
laws of the tax jurisdiction applicable to you as a result of or in connection with the
payment to the Corporation of all or any portion of the Applicable Amount by the
Designated Employee;
	 
	 	 	 	“Nortel Company” means, collectively, Nortel Networks Corporation and its direct and
indirect Subsidiaries (as such term is defined by the Plan); and
	 
	 	 	 	“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time the
Shares are issued upon the exercise of Options (and, where applicable, at the time of the
Effective Date of the Grant of such Options).

6.     The Corporation may require, as a condition of exercise of the Options, that you: (i) pay any
applicable taxes, charges, duties, contributions or otherwise (hereinafter “taxes”) which are
required to be paid by you to any federal, provincial, state, local, foreign or other taxation
authority; (ii) pay or reimburse any taxes which are required to be withheld and remitted by the
Corporation or any of its subsidiaries; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the Grant of the Options, the vesting of the Options, the exercise
of the Options, and/or the expiration of the Options, and as may be specified in the Rules and
Regulations or otherwise in accordance with the Plan. The Corporation may also require, as a
condition of exercise of the Options, that all or a portion of the Shares issued to you upon the
exercise of the Options: (i) be withheld, until such time as payment for any tax withholdings
made by the Corporation or any of its subsidiaries on account of applicable taxes (hereinafter
“tax withholdings”) has been received; and/or (ii) be sold by you or on your behalf to generate
proceeds sufficient to cover tax withholdings, in each case if you do not pay such tax
withholdings within the designated time periods as may be specified in the Rules and Regulations
or otherwise in accordance with the Plan. You further acknowledge and agree that conditions or
restrictions on the transferability of the Shares issued to you upon the exercise of the Options
may be imposed on such Shares on account of taxes or tax withholdings in connection with the
Grant of the Options, the vesting of the Options, the exercise of the Options, and/or the
expiration of the Options, in each case as may be specified in the Rules and Regulations or
otherwise in accordance with the Plan.

7.     If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that the Optionee has committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including stock options, the Optionee shall, in
accordance with the terms of the Recoupment Policy, automatically forfeit any grants of Options
received under this Instrument of Grant but not yet exercised, or if exercised, the Optionee
shall reimburse the Company the amount of monetary compensation received by the Optionee as a
result of such exercise of Options, and/or the Company shall be entitled to issue proceedings to
recover damages against the Optionee in respect of any losses incurred.

 

3

8.     The Options are not transferable or assignable and shall only be exercisable by you or your
legal guardian while you are alive. In the event of your death, the right to exercise shall be
governed by the terms of the Plan, subject to any applicable Rules and Regulations.

9.     This Instrument of Grant: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Grant and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Grant of Options evidenced by this Instrument of Grant are specifically
recorded as a variation from the terms and conditions of the Plan or the Rules and Regulations,
as the case may be.

10.     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the Options. You should check the Services@Work site frequently since
it may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Grant.

11.     You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Grant of Options does not create any right to receive
future Grants of Options, or benefits in lieu of Options and the terms and conditions of any
future Grants of Options, if any, will be communicated if and when new Grants of Options are to
be made; (iii) the value of the Options is outside the scope of your employment contract, if
any, and the Grant of Options is not for labour performed; (iv) participation in the Plan is
voluntary; (v) the future value of the Shares is unknown and cannot be predicted with certainty;
(vi) the Options are not part of remuneration for purposes of any compensation on termination of
employment, severance payments, indemnities or end of service payments or benefits of any
nature; (vii) the vesting of the Options ceases upon termination of employment, whether lawful
or otherwise, except as provided in the Plan, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the expiration of Options or the early
exercise thereof on any such termination of employment; and (viii) the Grant of the Option does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Grant or the Options, shall, to
the extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

12.     The various provisions and sub-provisions of this Instrument of Grant are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Grant, the Plan, the Rules and
Regulations, or any documents related to the Plan.

13.     Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the grant and/or exercise of Options, administering the Plan, and
to comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Grant or the Options, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

14.     By accepting this Instrument of Grant or the Options, you expressly consent that the Plan,
the Rules and Regulations, the Prospectus for the Plan and any other document relating thereto,
including this Instrument of Grant and the information about the Grant available through the
Nortel Intranet — WebStock site, be drawn up and/or available in English only. Par votre
acceptation de la présente Entente ou des Options, vous consentez expressément à ce que le
Régime, les règlements et le prospectus relatifs au Régime et tout autre document connexe, y
compris la présente Entente et l’information concernant vos options disponible à la page «
WebStock » de l’intranet de Nortel soient rédigés et/ou disponibles en anglais seulement.

15.     By accepting this Instrument of Grant or the Options, you (i) acknowledge and confirm
that you have read and understood the Plan, the Rules and Regulations, this Instrument of
Grant and all information about the Grant available on WebStock Option Summary, and that
you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; and (ii) agree to be bound by the terms and conditions stated in this Instrument
of Grant, including without limitation the terms and conditions of the Plan and the Rules
and Regulations incorporated by reference herein.

16.     The timing of taxation on your stock options is dependent upon when you accept this
Instrument of Grant;

	 	i)	 	if this Instrument of Grant is accepted greater than 60 days after the date of
offer/Formal Grant Notification Date (as defined below), your stock options will be taxable
at the date of exercise

 

4

	 	ii)	 	if this Instrument of Grant is accepted within 60 days of the date of offer/Formal Grant
Notification Date (as defined below) by checking one of the boxes below, your stock
options will be taxable at time of grant:
	 
	 	 	 	Any references in this Instrument of Grant to potential tax consequences are made solely for
general information purposes. Nortel is and shall not in any manner be responsible or in any
way liable for the accuracy of such information, or changes in Belgian tax law or
interpretations made by Belgian authorities which could potentially conflict with such
information.

	o 	 	I accept the terms and conditions of this Grant and commit not to exercise
the options prior to the end of the third calendar year after the year in which Moment of
Grant occurs (Moment of Grant is deemed to occur 60 days after the Formal Grant Notification
Date), which will result in a taxable fringe benefit equal to 10% of the value of the
underlying shares. I understand that if I exercise the options prior to this time I will be
deemed to have received an additional taxable fringe benefit equal to 10% of the value of the
underlying shares. Further, I acknowledge and agree that Nortel has not attested to or
otherwise certified or guaranteed the accuracy of information on potential tax consequences
and Nortel is and shall not in any manner be responsible or in any way liable for the
accuracy of such information, or changes in Belgian tax law or interpretations made by
Belgian authorities which could potentially conflict with such information.
	 
	o 	 	I accept the terms and conditions of this Grant and do not commit not to
exercise the options prior to the end of the third calendar year after the year in which
Moment of Grant occurs (Moment of Grant is deemed to occur 60 days after the Formal Grant
Notification Date). I understand that because I have not committed to refrain from
exercising the options prior to this time I will be deemed to have received a taxable fringe
benefit equal to 20% of the value of the underlying shares. Further, I acknowledge and agree
that Nortel has not attested to or otherwise certified or guaranteed the accuracy of
information on potential tax consequences and Nortel is and shall not in any manner be
responsible or in any way liable for the accuracy of such information, or changes in Belgian
tax law or interpretations made by Belgian authorities which could potentially conflict with
such information.

     If you accept this Grant and want to be taxed at grant please check the appropriate box
above, execute where indicated below and return within 60 days of the Formal Grant
Notification Date all pages of this Instrument of Grant to Global Equity Award Services, Nortel
Networks Corporation, Dept C01G, MS-T0504001, 195 The West Mall, Toronto, Ontario, Canada, M9C
5K1. The “Formal Grant Notification Date” of this Grant is the day on which Nortel Networks
Corporation sent you an e-mail notifying you of this Grant (regardless of when you read that
e-mail).

     If you accept this Grant and want to be taxed at exercise please execute where indicated
below and return after 60 days of the Formal
Grant Notification Date all pages of this
Instrument of Grant to Global Equity Award Services, Nortel Networks
Corporation, Dept C01G,
MS-T0504001, 195 The West Mall, Toronto, Ontario, Canada, M9C 5K1. The “Formal Grant Notification
Date” of this Grant is the day on which Nortel Networks Corporation sent you an e-mail notifying
you of this Grant (regardless of when you read that e-mail).

By default, taxation of your stock options will occur on the day of exercise.

	 	 	 	Signature of Optionee:       
           
           
           
           
        
	 
	 	 	 	Date:exv10w7

 

EXHIBIT  10.7

Confidential Portions omitted and filed separately with the Securities and Exchange

Commission. Bullet points denote omissions.

AMENDED AND RESTATED MASTER CONTRACT MANUFACTURING SERVICES

AGREEMENT

between

NORTEL NETWORKS LIMITED

and

FLEXTRONICS TELECOM SYSTEMS LTD.

Dated as of June 29, 2004

AMENDED &RESTATED MCMSA – FINAL

CONFIDENTIAL INFORMATION

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 	 	 
	SECTION 1 SCOPE OF THE RELATIONSHIP	 	 	7	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	1.1	 	 	Expectations
	 	 	7	 
	 

	 	 	1.2	 	 	Opportunities
	 	 	7	 
	 

	 	 	1.3	 	 	Commitments and Obligations
	 	 	7	 
	 

	 	 	 	 	 	1.3.1     Allocation
	 	 	7	 
	 

	 	 	 	 	 	1.3.2     Minimum Commitment
	 	 	8	 
	 

	 	 	 	 	 	1.3.3     Adjustments to the Minimum Commitment
	 	 	8	 
	 

	 	 	 	 	 	1.3.4     Remedy for Failure to Achieve Minimum Commitment
	 	 	10	 
	 

	 	 	 	 	 	1.3.5     Calculation of Reduction of Minimum Commitment
	 	 	10	 
	 

	 	 	 	 	 	1.3.6     ODM Products
	 	 	11	 
	 

	 	 	1.4	 	 	Structure of the Agreement
	 	 	11	 
	 

	 	 	1.5	 	 	Term
	 	 	12	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 2 GOVERNANCE PROCESS	 	 	12	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	2.1	 	 	Strategic Governance
	 	 	12	 
	 

	 	 	2.2	 	 	Operations Governance
	 	 	13	 
	 

	 	 	2.3	 	 	Site Operations Reviews
	 	 	13	 
	 

	 	 	2.4	 	 	Report Cards and Liquidated Damages
	 	 	14	 
	 

	 	 	 	 	 	2.4.1     Report Cards
	 	 	14	 
	 

	 	 	 	 	 	2.4.2     Minimum Performance, and Liquidated Damages for Failure to Meet Metrics
	 	 	15	 
	 

	 	 	 	 	 	2.4.3     Continuous Improvement, and Liquidated Damages for Failure to Meet Metrics
	 	 	16	 
	 

	 	 	 	 	 	2.4.4     Pass-through of Liquidated Damages from Customers
	 	 	17	 
	 

	 	 	 	 	 	2.4.5     Termination for Breach of Metrics
	 	 	17	 
	 

	 	 	2.5	 	 	Resources for Production Effort and Services
	 	 	18	 
	 

	 	 	2.6	 	 	Management Resources and Support Infrastructure
	 	 	18	 
	 

	 	 	2.7	 	 	Regulatory Compliance
	 	 	18	 
	 

	 	 	2.8	 	 	Issue Resolution and Escalation Process
	 	 	19	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 3 FORECASTING, ORDERING AND DELIVERING	 	 	19	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	3.1	 	 	Regular Market Forecast of Requirements
	 	 	19	 
	 

	 	 	3.2	 	 	Unscheduled Market Forecast Changes
	 	 	19	 
	 

	 	 	3.3	 	 	Market Forecast Accuracy Improvement
	 	 	20	 
	 

	 	 	3.4	 	 	Orders and Delivery
	 	 	20	 
	 

	 	 	3.5	 	 	Minimum Purchases
	 	 	20	 
	 

	 	 	3.6	 	 	Excess Inventory
	 	 	21	 
	 

	 	 	3.7	 	 	Obsolete Inventory
	 	 	22	 
	 

	 	 	3.8	 	 	Responsibility to Minimize Obsolete Inventory
	 	 	23	 
	 

	 	 	3.9	 	 	Identification of Obsolete Inventory
	 	 	24	 
	 

	 	 	3.10	 	 	Title and Risk of Loss and Delivery
	 	 	24	 
	 

	 	 	 	 	 	3.10.1     Title
	 	 	24	 
	 

	 	 	 	 	 	3.10.2     Risk of Loss
	 	 	24	 
	 

	 	 	3.11	 	 	Packaging, Labelling and Trade-Marks
	 	 	24	 
	 

	 	 	3.12	 	 	Exception Demand Negotiation Process
	 	 	25	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 4 MATERIALS MANAGEMENT PROCESS	 	 	25	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	4.1	 	 	Manufacturing Location
	 	 	25	 
	 

	 	 	4.2	 	 	No Price Premiums
	 	 	26	 
	 

	 	 	4.3	 	 	Transition of Material
	 	 	26	 
	 

	 	 	 	 	 	4.3.1     From Nortel Networks to Flextronics
	 	 	26	 
	 

	 	 	 	 	 	4.3.2     From Flextronics to Nortel Networks
	 	 	26	 

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	 	 	 	 	 	4.3.3	 	From Flextronics to a Third Party
	 	 	27	 
	 

	 	 	 	 	 	4.3.4	 	INTENTIONALLY DELETED
	 	 	27	 
	 

	 	 	 	 	 	4.3.5	 	From Third Party to Flextronics
	 	 	27	 
	 

	 	 	 	 	 	4.3.6	 	Price for Transitioned Materials
	 	 	27	 
	 	 	 	4.4	 	 	Materials Management Services	 	 	28	 
	 

	 	 	 	 	 	4.4.1	 	Definition
	 	 	28	 
	 

	 	 	 	 	 	4.4.2	 	Level 3 Planning
	 	 	28	 
	 

	 	 	 	 	 	4.4.2.1	 	Flexibility Models
	 	 	28	 
	 

	 	 	 	 	 	4.4.3	 	Supply Chain Management
	 	 	29	 
	 

	 	 	 	 	 	4.4.4	 	Component Discontinuance and End-of-Life Inventory
	 	 	32	 
	 

	 	 	 	 	 	4.4.5	 	Traceability of Products and Material
	 	 	33	 
	 

	 	 	 	 	 	4.4.5.1	 	General Requirements
	 	 	34	 
	 

	 	 	 	 	 	4.4.5.2	 	Material/Component Traceability
	 	 	34	 
	 

	 	 	 	 	 	4.4.5.3	 	Product Traceability (Field Replaceable Units / Sub-Assemblies)
	 	 	35	 
	 

	 	 	 	 	 	4.4.6	 	Performance Report Cards
	 	 	35	 
	 

	 	 	 	 	 	4.4.7	 	Process and Systems Support
	 	 	35	 
	 

	 	 	 	 	 	4.4.8	 	Order Management/Customer Service
	 	 	36	 
	 

	 	 	 	 	 	4.4.9	 	Return Material Operation Services
	 	 	36	 
	 

	 	 	 	 	 	4.4.10	 	Purchase of Products for Use in Lab Facilities
	 	 	37	 
	 	 	 	4.5	 	 	Material and Tier 2 Supplier Qualification	 	 	37	 
	 	 	 	4.6	 	 	NC Suppliers	 	 	38	 
	 	 	 	4.7	 	 	Purchase by Flextronics of Materials from Tier 2 Suppliers 	 	 	39	 
	 	 	 	4.8	 	 	Prices for Products Required by Other Nortel Networks Vendors	 	 	40	 
	 	 	 	4.9	 	 	Supply of Materials to Nortel Networks Affiliates and Vendors	 	 	41	 
	 	 	 	4.10	 	 	Material and Flextronics Account Management Reviews	 	 	41	 
	 	 	 	4.11	 	 	Source Inspection	 	 	41	 
	 	 	 	4.12	 	 	Manufacturing Technical Information and Support	 	 	41	 
	 	 	 	4.13	 	 	EMS Supplier and Material Sourcing Control	 	 	42	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SECTION 5 CHANGE MANAGEMENT	 	 	  42	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	5.1	 	 	Joint Product Change Management Process	 	 	42	 
	 	 	 	5.2	 	 	Changes in Corporate Standards	 	 	43	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SECTION 6 SERVICES	 	 	43	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	6.1	 	 	Design and Sustaining Services 	 	 	43	 
	 	 	 	6.2	 	 	Integration Services	 	 	45	 
	 

	 	 	 	 	 	6.2.1	 	Product Level Testing
	 	 	45	 
	 

	 	 	 	 	 	6.2.2	 	Module Integration
	 	 	45	 
	 

	 	 	 	 	 	6.2.3	 	Configuration
	 	 	45	 
	 

	 	 	 	 	 	6.2.4	 	ICT, Functional & System Level Testing
	 	 	45	 
	 

	 	 	 	 	 	6.2.5	 	Final Quality Inspection
	 	 	45	 
	 

	 	 	 	 	 	6.2.6	 	QET (Quality Evaluation Test)
	 	 	46	 
	 

	 	 	 	 	 	6.2.7	 	Quality and Process Audit
	 	 	46	 
	 

	 	 	 	 	 	6.2.8	 	Test Results and Monitoring
	 	 	46	 
	 

	 	 	 	 	 	6.2.9	 	Installation Requests (IR)
	 	 	46	 
	 	 	 	6.3	 	 	System House Engineering Services	 	 	46	 
	 

	 	 	 	 	 	6.3.1	 	Test Engineering
	 	 	47	 
	 

	 	 	 	 	 	6.3.2	 	Optimization of Testing for Products
	 	 	48	 
	 

	 	 	 	 	 	6.3.3	 	System House Sustaining Engineering
	 	 	48	 
	 

	 	 	 	 	 	6.3.4	 	Materials Engineering
	 	 	49	 
	 

	 	 	 	 	 	6.3.5	 	Product and Material Yield and Performance Issue Resolution
	 	 	49	 
	 

	 	 	 	 	 	6.3.6	 	Design Services for Cost Reduction Opportunities
	 	 	50	 
	 	 	 	6.4	 	 	SIF (System Integration & Fulfillment) Services	 	 	50	 

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CONFIDENTIAL INFORMATION

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	 	 	6.5	 	 	Other System House Support Services 
	 	 	51	 
	 

	 	 	6.6	 	 	Payment for Services
	 	 	51	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 7 PRODUCT
LIFE-CYCLE PLANNING PROCESS (NPPI) AND TRANSFER PROCESS	 	 	51	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	7.1	 	 	Consistent Process at all Sites
	 	 	51	 
	 

	 	 	7.2	 	 	Product Goals
	 	 	51	 
	 

	 	 	7.3	 	 	DFx Services
	 	 	52	 
	 

	 	 	7.4	 	 	Pre-production Products
	 	 	52	 
	 

	 	 	7.5	 	 	Product End-of-life Scenarios
	 	 	53	 
	 

	 	 	7.6	 	 	Geographic Location
	 	 	53	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 8 QUALITY STANDARDS AND QUALITY PROCESS	 	 	54	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	8.1	 	 	Quality Standards
	 	 	54	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 9 REWORK PRODUCT PROCESS	 	 	54	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	9.1	 	 	 Rework Operation
	 	 	54	 
	 

	 	 	9.2	 	 	Rework Procedure	 	 	54	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 10 REPAIR PRODUCT PROCESS	 	 	55	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	10.1	 	 	Repair Operation & Procedure
	 	 	55	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 11 PRODUCT COST MANAGEMENT PROCESS	 	 	55	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	11.1	 	 	Prices for Products
	 	 	55	 
	 

	 	 		 	 	11.1.1     Day One Pricing

	 	 	56	 
	 

	 	 	11.2	 	 	
Payment, Taxes and Duties
	 	 	
57	 
	 

	 	 	 	 	 	11.2.1     Invoices
	 	 	57	 
	 

	 	 	 	 	 	11.2.2     Payment
	 	 	58	 
	 

	 	 	11.3	 	 	Implementation of Price Changes
	 	 	58	 
	 

	 	 	11.4	 	 	Financial Review and Targets
	 	 	59	 
	 

	 	 	11.5	 	 	Operational
	 	 	60	 
	 

	 	 	11.6	 	 	Cost Modeling
	 	 	60	 
	 

	 	 	11.7	 	 	Budget
	 	 	60	 
	 

	 	 	11.8	 	 	Ongoing Cost Reduction
	 	 	60	 
	 

	 	 	11.9	 	 	Incremental Cost Reduction
	 	 	60	 
	 

	 	 	 	 	 	11.9.1     Definition of ICR
	 	 	61	 
	 

	 	 	 	 	 	11.9.2     ICR Commitment
	 	 	61	 
	 

	 	 	 	 	 	11.9.3     Implementation of ICR
	 	 	61	 
	 

	 	 	 	 	 	11.9.4     Year 4 Cost Reduction
	 	 	61	 
	 

	 	 	 	 	 	11.9.5     Adjustments to ICR Commitment
	 	 	62	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 12 BUSINESS CONTINUITY	 	 	62	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	12.1	 	 	Business Continuity Planning
	 	 	62	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 13 WARRANTIES	 	 	63	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	13.1	 	 	Title 
	 	 	63	 
	 

	 	 	13.2	 	 	 Services and Production Effort 
	 	 	63	 
	 

	 	 	13.3	 	 	Free from Defects
	 	 	64	 
	 

	 	 	13.4	 	 	Epidemic Condition
	 	 	64	 
	 

	 	 	 	 	 	13.4.1     Procedure for Epidemic Condition
	 	 	64	 
	 

	 	 	 	 	 	13.4.2     Remedies for Epidemic Condition
	 	 	65	 
	 

	 	 	13.5	 	 	Safety and Regulatory Issues
	 	 	66	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 14 INTELLECTUAL PROPERTY RIGHTS AND LICENSES 
	 	 	66	 

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CONFIDENTIAL INFORMATION

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	 	 	14.1	 	 	License to Nortel Company Proprietary Information Granted
	 	 	66	 
	 

	 	 	14.2	 	 	Limitations on Grant of License
	 	 	67	 
	 

	 	 	14.3	 	 	Flextronics Inventions
	 	 	67	 
	 

	 	 	14.4	 	 	Specifications and Deliverables Owned by Nortel Networks
	 	 	67	 
	 

	 	 	14.5	 	 	Flextronics Retains Ownership of Flextronics Proprietary Information
	 	 	67	 
	 

	 	 	14.6	 	 	Assignment of Inventions Agreements with Employees
	 	 	67	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 15 INDEMNIFICATION	 	 	68	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	15.1	 	 	Intellectual Property Indemnification
	 	 	68	 
	 

	 	 	 	 	 	15.1.1     By Nortel Networks
	 	 	68	 
	 

	 	 	 	 	 	15.1.2     By Flextronics
	 	 	69	 
	 

	 	 	 	 	 	15.1.3     Measures to Safeguard Nortel Networks against Liability
	 	 	69	 
	 

	 	 	15.2	 	 	Other Indemnification
	 	 	70	 
	 

	 	 	 	 	 	15.2.1     By Flextronics
	 	 	70	 
	 

	 	 	 	 	 	15.2.2     By Nortel Networks
	 	 	70	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 16 LIMITATION OF LIABILITY	 	 	70	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 17 COMMUNICATION AND INFORMATION TRANSFER	 	 	71	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	17.1	 	 	Access to Nortel Networks Computer Systems by Flextronics
	 	 	71	 
	 

	 	 	17.2	 	 	Flextronics Compatibility with Nortel Networks Computer Systems
	 	 	71	 
	 

	 	 	17.3	 	 	Information Technology Services
	 	 	72	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 18 LOANED ASSETS	 	 	72	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	18.1	 	 	Loaned Assets Procedure
	 	 	72	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 19 RESERVED ASSETS	 	 	72	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	19.1	 	 	Reserved Assets Procedure
	 	 	72	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 20 LEGAL AND REGULATORY COMPLIANCE	 	 	72	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 21 INTERNATIONAL TRADE	 	 	73	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	21.1	 	 	Exports
	 	 	73	 
	 

	 	 	21.2	 	 	Country of Origin Declaration and Marking
	 	 	73	 
	 

	 	 	21.3	 	 	Customs Invoice
	 	 	74	 
	 

	 	 	21.4	 	 	Trade Treaties
	 	 	74	 
	 

	 	 	21.5	 	 	Duty Drawback
	 	 	74	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 22 ENVIRONMENTAL POLICIES	 	 	75	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	22.1	 	 	ISO 14001
	 	 	75	 
	 

	 	 	22.2	 	 	VOC Free and Lead-Free Technology
	 	 	75	 
	 

	 	 	22.3	 	 	European Union (“EU”) Environmental Directives
	 	 	76	 
	 

	 	 	 	 	 	22.3.1     Compliance
	 	 	76	 
	 

	 	 	 	 	 	22.3.2     Indemnification
	 	 	76	 
	 

	 	 	22.4	 	 	Packaging Reusable and Recyclable
	 	 	77	 
	 

	 	 	22.5	 	 	Collaborate on Environmental Initiatives
	 	 	77	 
	 

	 	 	22.6	 	 	Hazardous Materials
	 	 	77	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 23 CONFIDENTIAL INFORMATION	 	 	77	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	23.1	 	 	Restriction on Disclosure and Use of Confidential Information 
	 	 	77	 
	 

	 	 	23.2	 	 	Publicity
	 	 	78	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 24 INSURANCE	 	 	79	 

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CONFIDENTIAL INFORMATION

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	 	 	24.1	 	 	General Liability Insurance
	 	 	79	 
	 

	 	 	24.2	 	 	Property and Business Insurance
	 	 	80	 
	 

	 	 	24.3	 	 	Business Continuity 
	 	 	80	 
	 

	 	 	24.4	 	 	Certificate of Insurance
	 	 	80	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 25 EXPIRATION OR TERMINATION	 	 	80	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	25.1	 	 	Effect of Expiration or Termination 
	 	 	80	 
	 

	 	 	25.2	 	 	Termination
	 	 	82	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 26 GENERAL PROVISIONS	 	 	83	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	26.1	 	 	Access to Facilities
	 	 	83	 
	 

	 	 	26.2	 	 	Reporting
	 	 	84	 
	 

	 	 	26.3	 	 	Documentation
	 	 	84	 
	 

	 	 	26.4	 	 	Audits
	 	 	84	 
	 

	 	 	 	 	 	26.4.1     Agreement Compliance
	 	 	84	 
	 

	 	 	 	 	 	26.4.2     Control & Security Compliance
	 	 	85	 
	 

	 	 	26.5	 	 	Force Majeure
	 	 	86	 
	 

	 	 	26.6	 	 	Notices
	 	 	86	 
	 

	 	 	26.7	 	 	Independent Contractor
	 	 	87	 
	 

	 	 	26.8	 	 	Non-Solicitation of Employees
	 	 	87	 
	 

	 	 	26.9	 	 	Flextronics Responsible for its Contractors
	 	 	88	 
	 

	 	 	26.10	 	 	Assignment
	 	 	88	 
	 

	 	 	26.11	 	 	Severability
	 	 	89	 
	 

	 	 	26.12	 	 	Governing Law; Waiver of Jury Trial
	 	 	89	 
	 

	 	 	26.13	 	 	Consent to Jurisdiction
	 	 	89	 
	 

	 	 	26.14	 	 	Counterparts
	 	 	89	 
	 

	 	 	26.15	 	 	Entire Agreement; Amendments
	 	 	90	 
	 

	 	 	26.16	 	 	Construction
	 	 	90	 
	 

	 	 	26.17	 	 	Headings
	 	 	90	 
	 

	 	 	26.18	 	 	Time of Essence
	 	 	90	 
	 

	 	 	26.19	 	 	Agreement by All Flextronics Companies
	 	 	90	 
	 

	 	 	26.20	 	 	Most Favoured Customer
	 	 	90	 
	 

	 	 	26.21	 	 	Language
	 	 	90	 

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CONFIDENTIAL INFORMATION

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Amended and Restated Master Contract Manufacturing Services Agreement

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

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

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

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

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

AMENDED &RESTATED MCMSA — FINAL

CONFIDENTIAL INFORMATION

Page 6

 

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

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

SECTION 1

SCOPE OF THE RELATIONSHIP

1.1 Expectations

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

1.2 Opportunities

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

	 	 	 	 	 	 	 
	1.3	 	Commitments and Obligations

1.3.1 Allocation

During the Amended Term, Nortel Networks shall purchase from Flextronics and Flextronics
shall supply the Allocation of the requirements of the Virtual Systems Houses for the
Products listed in the relevant Virtual Systems House Agreement as of the applicable VSHA
Effective Date.. Flextronics shall only sell or distribute the Products to Nortel Networks
or its designate. Nortel Networks will review each applicable Allocation every 3 months and
may increase or reduce such Allocation at its discretion, notice of which Nortel Networks
will give to Flextronics at least 30 days before the beginning of the next quarter, provided
however that if the Allocation is reduced more than 65% of the current Allocation, Nortel
Networks will give such notice to Flextronics at least 60 days before the beginning of the
next quarter. If Nortel Networks wishes to reduce the Allocation to 0%, it will give 180
days notice of such intention to Flextronics. If Nortel Networks wishes to source follow-on
or new products from Flextronics, the Parties will amend the relevant VSHA to add such
products. The supply of follow-ons to Products and new products shall be agreed in writing
between the Parties from time to time. Any changes to the Allocation shall not change
Nortel Networks obligations with respect to the Minimum Commitment as set out in Section
1.3.2.

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1.3.2 Minimum Commitment

During the first three (3) years of the Amended Term, Nortel Networks will source a minimum
of [•] of its spend on Manufacturable Products with Flextronics. In the fourth
(4th) year of the Amended Term, Nortel Networks will source a minimum of
[•] of its spend on Manufacturable Products with Flextronics. Nortel Networks,
through its auditor, has verified that the actual percentage of Manufacturable Products to
be transferred as of the Commencement Date is in the range of [•] based on the Nortel
Networks September 2003 version of the 2004 forecast for Manufacturable Products of its
forecasted spend on Manufacturable Products for the twelve months following such date. At
Flextronics’s option, it may request Nortel Networks’ current auditor to verify whether
Nortel Networks has met its Minimum Commitment on an annual basis. Flextronics shall be
entitled to request that Nortel Networks provide an unaudited confirmation of whether it has
satisfied the Minimum Commitment on a quarterly basis.

The Minimum Commitment will be represented in US dollars on annual basis. For the purposes
of calculating this Minimum Commitment, the numerator shall be comprised of Nortel Networks
spend with Flextronics on Manufacturable Products and the denominator shall be comprised of
Nortel Networks total spend on Manufacturable Products.

Nortel Networks commitment to source requirements for design services related to the
Transferred Business is set out in Section 6.

1.3.3 Adjustments to the Minimum Commitment

(A) Pre-Existing Commitments

Flextronics acknowledges that Nortel Networks has a contractual commitment to one other EMS
Supplier to provide a certain minimum level of revenue with respect to Manufacturable
Products. Nortel Networks acknowledges that as of the Execution Date, this contractual
commitment does not impact Nortel Networks ability to achieve the Minimum Commitment.

Nortel Networks failure to satisfy the Minimum Commitment due to its pre-existing commitment
to this EMS Supplier shall not relieve Nortel Networks of its obligations to Flextronics
under Section 1.3.4.

(B) Competitive Criteria

If Flextronics fails to remain Competitive with its competitors with respect to any Product,
then Nortel Networks may source such Product from another supplier. Records of any such
deductions from the Minimum Commitment will be made in writing and exchanged between the
Parties for full verification and agreement each quarter. Notwithstanding the foregoing,
Nortel Networks will not transfer the Product(s) if Flextronics becomes Competitive within
forty-five (45) days from notification by Nortel Networks that Flextronics has failed to
remain Competitive, as defined below.

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For the purposes of this Section, “Competitive” means terms and conditions taken as a whole
that are more favourable to Nortel Networks, as determined in a “bona fide benchmarking”
exercise or as provided in a bona fide quote from a third party considering
 price, product quality, lead times, delivery, warranty, technical support, and other
criteria identified by Nortel Networks in writing to Flextronics. A “bona fide benchmarking
exercise” shall be considered to be one performed by an independent recognized benchmarking
firm which is (i) selected by Nortel Networks from those companies which are regularly
engaged in the industry related to the Transferred Business, or other consultant as agreed
between the Parties, (ii) is not a competitor of Flextronics and (iii) which has executed a
non-disclosure agreement reasonably satisfactory to Flextronics. All fees and charges paid
to such benchmarking firm shall be borne by Nortel Networks, and such fees and charges shall
not be contingent upon reaching a conclusion favourable to Nortel Networks. Each party
shall have the opportunity to advise the benchmarking firm of any information or factors
that it deems relevant to the conduct of the benchmarking, with the intention of providing
an “apples to apples” comparison, so long as such information is disclosed to the other
Party. The benchmarking firm shall provide the written reports and the core data resulting
from the benchmarking to both Nortel Networks and Flextronics, including the factors
actually used to perform the benchmarking, data on participants and confidence factors
related to the accuracy of the data and the benchmarking methodology. Flextronics will be
entitled to challenge the accuracy of the results of the benchmarking exercise pursuant to
the Issue Resolution and Escalation Process.

Notwithstanding the above, the Parties agree that transformation costs for Products produced
in legacy Nortel Networks System Houses will not be subject to the cost portion of the
“Competitive” criteria will not be factored into the determination of whether Flextronics
is Competitive for a period of [•] after the applicable VSHA Effective Date. The
parties will review the transformation costs for such products after such [•] time
period to determine whether this exception will apply in the final [•] of the Amended
Term.

(C) Performance Issues

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

(D) Local Content Requirements

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

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

(E) Ability to Supply

Flextronics will provide Nortel Networks preferential treatment with respect to security of
supply of the Products. However, if Flextronics does not have sufficient supply of the
Products to meet Flextronics’s Allocation of Nortel Networks requirements, Nortel Networks
may source some or all of the portion of Flextronics’s Allocation that Flextronics is unable
to supply from other suppliers. If Flextronics continues to be able to supply 50% or more
of Flextronics’s Allocation of Nortel Networks requirements during the period when
Flextronics is unable to meet all of Nortel Networks requirements, then Nortel Networks will
return the sourcing of the affected Products to Flextronics at the end of this period. If
Flextronics is not able to supply such level of Nortel Networks requirements, then the
revenue associated with the affected Products will be subject to Section 1.3.5

Nortel Networks may exercise any of its rights to source from alternative suppliers as
provided in subsections (A) – (E) above, upon 90 days written notice. In any situation
where Flextronics disputes the reason for such exercise of Nortel Networks rights,
Flextronics shall, within fifteen days of receiving such notice, forward the dispute to the
Issue Resolution and Escalation Process.

1.3.4 Remedy for Failure to Achieve Minimum Commitment

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

1.3.5 Calculation of Reduction of Minimum Commitment

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

	 	 	 
	Example:

	 	Nortel Networks Spend on Manufacturable Products = $1B
	 

	 	Minimum Commitment [•]
	 

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

	 	Product “A” % of Manufacturable Products = 5%
	 

	 	Adjusted Minimum Commitment [•]

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1.3.6 ODM Products

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

1.4 Structure of the Agreement

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

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

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

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

1.5 Term

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

SECTION 2

GOVERNANCE PROCESS

2.1 Strategic Governance

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

	 	(a)	 	Forecasting of technology. The intent is to leverage Material suppliers’
and Flextronics’s technology roadmaps for linkage to Nortel Network’s product
development.
	 
	 	(b)	 	Goals and objectives for Flextronics. These goals will be made in
collaboration with selected Tier 2 Suppliers to assist Nortel Networks to achieve
performance against its competition for rendering market value that is
best-in-class, including planning for compliance with TL 9000.
	 
	 	(c)	 	Overall Quality System. The parties shall use as a guideline the
criteria for performance excellence as set forth in Section 2.4 and Exhibit 3.
	 
	 	(d)	 	Quarterly Business Reviews. The parties shall conduct quarterly business
reviews that are strategic and global in nature, to include but not limited to:
consolidated global Report Card performance, total business and Nortel Networks
business trends, financial health and key financial indicators, process
improvements, significant technology trends and advancements, organizational
alignments, and cost to market and time to market foot print and trends.

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2.2 Operations Governance

Nortel Networks and Flextronics shall:

	 	(a)	 	Dedicate business management teams, located at Sites and/or at Nortel
Networks’ premises, to provide consistent and efficient responses to Product Goals
and other requirements.
	 
	 	(b)	 	Conduct Site operations reviews on a quarterly or monthly basis, as
determined by the Parties.
	 
	 	(c)	 	Comply with the processes set out in Exhibit 5 to communicate about and
resolve issues promptly, and escalate as necessary, and to drive continuous
improvement of operational and supply chain performance.
	 
	 	(d)	 	Comply with all reporting and meeting requirements, including collecting
and reporting scorecard metrics as provided in this Agreement.
	 
	 	(e)	 	Review the total cost plan and provide the results of such review to
Nortel Networks on a timely basis.
	 
	 	(f)	 	Upon reasonable prior notice, provide open book access for Nortel
Networks at Flextronics’s premises to resources, documents, records, databases and
any other information that is not in violation of any third party agreements of
confidentiality and is directly relevant to Nortel Networks cost management,
including but not limited to, information relating to the on-going cost reduction
and continuous improvement, as more fully described in Section 11, Exhibits 13-1,
13-2 and 17-1 and 17-2. Each Party hereby covenants and agrees that it shall keep
confidential all information gathered in the open book process, including not
disclosing such information directly or indirectly to any competitor or supplier of
the disclosing Party, all subject to the provisions of Section 23. Any breach of
the preceding sentence shall be considered to be a material breach of this
Agreement.

2.3 Site Operations Reviews

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

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2.4 Report Cards and Liquidated Damages

2.4.1 Report Cards

Flextronics shall complete report cards as set out in section 3A in the applicable VSHA,
which shall be used as a method to measure against the goals of quality, service and cost,
as well as performance with respect to Product Life-cycle Planning, and shall deliver such
report cards to Nortel Networks at the frequency set out in applicable VSHA. The VSHA will
set out the metrics to be measured for each System House and which metrics will be eligible
for liquidated damages and how to determine breach (the “Metrics”). Nortel
Networks reserves the right to review the report cards and to conduct an audit to determine
their accuracy.

For each Metric, there will be two performance criteria: “Minimum Performance” and
“Continuous Improvement”. Minimum Performance criteria will be used to measure whether the
process is in control and meeting the minimum performance expectations. Continuous
Improvement criteria will be used to assess improvement of the average performance of the
applicable process and reduction of process variations.

The “Minimum Performance Baseline” and “Continuous Improvement Baseline” will be established
for each breachable metrics as follows, unless otherwise mutually agreed.

	 	(a)	 	an operational definition of each metric will be outlined in the
applicable VSHA,
	 
	 	(b)	 	Minimum Performance Baseline:

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

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

	 	(ii)	 	The Minimum Performance Baseline will be reviewed and adjusted
each calendar year as follows;

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

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House
or any Minimum Performance
Baseline in following years, which ever is better.

(c) Continuous Improvement Baseline:

	 	(i)	 	The initial Continuous Improvement Baseline will be the process
average from the six (6) months prior to the applicable VSHA Effective Date. In
the event that six (6) months of historical data is not available, the
Flextronics will measure the metric for six (6) months before establishing the
average and standard deviation. The calculation will be done at the Product
Family level.
	 
	 	(ii)	 	The Continuous Improvement Baseline will be reviewed and
adjusted each calendar year as follows;

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

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

The Parties acknowledge that the failure of Flextronics to obtain the Minimum Performance
Baseline on each metric of the report card with respect to the Product Family measured in
the aggregate on that Report Card, as a result any act or omission within Flextronics’s
Control and Responsibility, for a [•] period (measured as the weighted average of the
scorecards for that month), shall mean that Nortel Networks may place Flextronics on
“Supplier Watch” as referenced in section 8.1, that Flextronics must take corrective
actions, and that Nortel Networks would be entitled to receive the applicable liquidated
damages as set out below.

If Flextronics can demonstrate performance to the aggregated metric is skewed due to an
assignable cause that is beyond its Control and Responsibility at an individual Product
level (e.g. – a small number of NPPI DOA rates may skew an aggregate DOA metric), the
Parties will review and agree on suitable actions, which could include deducting the
applicable data for the purposes of measuring Flextronics’s performance as well as
calculating any resets to the performance criteria used to set the Metrics.

The assessment of liquidated damages shall be limited to one assessment per [•]. In
instances where Nortel Networks is entitled to receive damages for more than one metric,

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a single assessment (being the largest of the applicable assessments) shall apply. Liquidated
damages shall be assessed as follows:

[•]

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

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

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

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

If Flextronics can demonstrate performance to the aggregated metric is skewed due to an
assignable cause that is beyond its Control and Responsibility at an individual Product
level (e.g. – a small number of NPPI DOA rates may skew an aggregate DOA metric), the
Parties will review and agree on suitable actions, which could include deducting the
applicable data for the purposes of measuring Flextronics’s performance as well as
calculating any resets to the performance criteria used to set the Metrics.

If the metric on the date of transfer of System House is on a declining trend, as measured
by the last 3 months average of Nortel’s historical performance being less than the initial
Continuous Improvement Baseline, the Flextronics will not be subject to liquated damages
during the initial second quarter after transfer of the applicable System House. For greater
clarity this is only a one time grace period, and thereafter, it would be applicable on any
two consecutive quarters.

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

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

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2.4.4 Pass-through of Liquidated Damages from Customers

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

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

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

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

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

2.4.5 Termination for Breach of Metrics

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

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2.4.5, then such dispute will
be submitted to the Issue Resolution and Escalation Process in Section 2.8 prior to Nortel
Networks exercise of its termination rights or Flextronics’s obligation to pay any damages.

2.5 Resources for Production Effort and Services

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

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

2.6 Management Resources and Support Infrastructure

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

2.7 Regulatory Compliance

Unless otherwise specified in a Virtual Systems House Agreement or Design Order or Exhibit 9-2 or
9-3, Flextronics shall be responsible for the following: 1) to the extent Flextronics designs a
Product for manufacture, obtaining design and functional approvals from the appropriate Nortel
Networks design entities as identified in writing by Nortel Networks, and regulatory bodies, based
on the anticipated destination countries identified in the Design Order 2) maintaining all
necessary documentation regarding design of a Product, functionality, certification and
registration and 3) delivering to Nortel Networks the applicable documentation in accordance with
the requirements of the applicable regulatory body. Flextronics’s manufacturing processes

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shall
conform to the requirements of the applicable regulatory body. Where Nortel Networks has design
responsibility for a Product, Flextronics shall manage the regulatory compliance of SC Suppliers
supplying safety-related Materials listed in the Product safety files; however, where Flextronics
has performed Sustaining Design Services for a Product, it shall manage the regulatory compliance
of all Tier 2 Suppliers supplying safety-related Materials listed in the Product safety files.

2.8 Issue Resolution and Escalation Process

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

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

SECTION 3

FORECASTING, ORDERING AND DELIVERING

3.1 Regular Market Forecast of Requirements

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

3.2 Unscheduled Market Forecast Changes

Nortel Networks may update the Market Forecast for any Product on a weekly basis, or more
frequently on an as-needed basis, and Flextronics shall respond to such Market Forecast with a
preliminary Capacity Commitment to the changed requirements within two (2) Business Days.
Flextronics shall respond with a firm commitment to the changed requirements with completed

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forms
indicating the impact on Material and Products affected by the change within five (5) Business Days
of receipt or deemed receipt of such Market Forecast change. If the change in the Market Forecast
exceeds the flexibility requirement for the Products as specified in the relevant Virtual Systems
House Agreement, the Parties shall employ the Exception Demand Negotiation Process specified in
Exhibit 7 to address responsiveness to customer, pricing and delivery issues. The timing of
Flextronics’s responses to the Market Forecast may be changed by the Parties in the VSHAs.

3.3 Market Forecast Accuracy Improvement

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

3.4 Orders and Delivery

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

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

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

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

3.5 Minimum Purchases

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

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3.6 Excess Inventory

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

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

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

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

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

Exceptional Excess Inventory shall be defined as Inventory that is Unique to Nortel Networks, and
is on hand or on order but not within Time-to-Cancel, as a result of Forecast Consumption for a
Product Family that is lower than [•] for a Consumption Period. In these situations,
Exceptional Excess Inventory that will not be consumed in the current Market Forecast horizon of
[•], and cannot be mitigated and / or cancelled by Flextronics within 30 days of the end of
the Consumption Period, shall be purchased by Nortel Networks within 40 days of receipt by Nortel
Networks of the information identifying such Exceptional Excess Inventory.

[•]

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

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

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

3.7 Obsolete Inventory

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

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

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

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

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

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

3.8 Responsibility to Minimize Obsolete Inventory

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

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

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

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3.9 Identification of Obsolete Inventory

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

3.10 Title and Risk of Loss and Delivery

3.10.1 Title

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

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

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

3.10.2 Risk of Loss

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

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

3.11 Packaging, Labelling and Trade-Marks

Products shall be packaged and labelled in accordance with Nortel Networks’ practices as more
particularly set forth in Exhibit 3, the relevant Specifications, the Virtual Systems House
Agreement or as Nortel Networks may otherwise direct in writing, and consistent with the provisions
of Section 22.3. Flextronics shall not otherwise apply to or display on the Products

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Flextronics’s
trade–marks or other markings without the express written permission of Nortel Networks, which may
be withheld in its absolute discretion. Flextronics shall use the Trade-Marks only to apply to
Products on Nortel Networks’ behalf together with other legends, notices or markings as Nortel
Networks may direct.

3.12 Exception Demand Negotiation Process

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

SECTION 4

MATERIALS MANAGEMENT PROCESS

4.1 Manufacturing Location

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

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

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

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4.2 No Price Premiums

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

4.3 Transition of Material

4.3.1 From Nortel Networks to Flextronics

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

4.3.2 From Flextronics to Nortel Networks

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

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4.3.3 From Flextronics to a Third Party

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

4.3.4 INTENTIONALLY DELETED

4.3.5 From Third Party to Flextronics

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

4.3.6 Price for Transitioned Materials

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

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4.4 Materials Management Services

4.4.1 Definition

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

4.4.2 Level 3 Planning

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

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

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

4.4.2.1 Flexibility Models

The Parties acknowledge that there are two different flexibility models that may be in place
in the Virtual System Houses.

The Traditional Model is set out in Section 5.3 of the VSHA and sets out the flexibility
requirements as agreed to by the Parties for each applicable Product Family (the
“Traditional Model”).

Under The Dynamic Model, Flextronics will provide Nortel Networks, as part of the Level 3
Plan, with a flexibility plan, based on the Market Forecast and Market Forecast

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Agility
Requirements (“MFAR”) provided by Nortel Networks at the time of delivery of the Market
Forecast. The Parties will mutually accept and approve on a monthly or quarterly basis, as
agreed in the VSHA (the “Dynamic Model “). For clarity, the Dynamic Model can differ
between Leadership Categories and Product Families within the Leadership Categories.

The Parties will trial the Dynamic Model in one VSHA, as agreed between the Parties. The
Parties agree to work together to further define and clearly document the Dynamic Model and
create a plan to roll it out at the chosen Virtual System House before the applicable VSHA
Effective Date. At the end of the 6 months trial period, the Parties will review the
success of this Dynamic Model and agree to (a) revise the remaining VSHAs to institute the
Dynamic Model, or (b) revert to the Traditional Model for the VSHA which undertakes this
trial. If option (a) is chosen, the Parties will review the success of the Dynamic Model at
each System House and the Parties may mutually agree to continue with the Dynamic Model or
revert to the Traditional Model with respect to each System House; provided however if
Flextronics has not met the Report Card Metrics at an applicable System House, during the
applicable 6 month period, Nortel Networks may unilaterally decide to revert to the
Traditional Model for that System House If Flextronics has met the Report Card Metrics and
there is no mutual agreement on whether to continue with the Dynamic Model or not, the
Parties will use the Issue Resolution and Escalation Process to resolve the matter. If
option (b) is chosen at any time, then at such time the Parties will negotiate in good faith
and agree on the percentages to be used with the flexibility terms for the Traditional Model
in the applicable VSHA. The Parties will continue to review the success of a Dynamic Models
in place at any System House every 6 months, at which time the Parties may mutually agree to
revert to the Traditional Model.

For either flexibility model, Flextronics will provide to Nortel Networks a quarter-end
inventory target for all inventory types (current, excess, exceptional excess, end of life,
obsolete) based upon the Market Forecast and Level 3 Plan.

4.4.3 Supply Chain Management

Flextronics agrees to take responsibility to manage the supply chain to support the business
and Nortel Networks Customer deliveries and Customer service performance to the extent
provided below.

Flextronics will manage all elements of the supply chain, which activities shall include but
not be limited to the following:

	 	(a)	 	optimize the supply chain performance;
	 
	 	(b)	 	 perform short and long term capacity planning;
	 
	 	(c)	 	as further set out in Section 4.5, application test any SC Material at
Flextronics or at an other EMS Supplier, and perform application testing for NC
Material (as directed by Nortel Networks); provided however, Flextronics’s
obligation to perform NC application tests is subject to available capacity and will
be scheduled accordingly. There will be no separate charge for application testing

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	 	 	 	unless otherwise agreed. As set out in Section 4.5, qualify any SC Material and
qualify any SC Supplier that is not already approved on the BOM for any Product at
the time of the transfer or introduction of a production Product to Flextronics and
maintain the qualification of SC Supplier and SC Material (which includes component
product changes notices, known as PCN’s) on the BOM for any Product in the ordinary
course of business, subject to Nortel Networks’ approval and consistent with the
quality requirements of Exhibit 3;
	 
	 	(d)	 	manage Tier 2 Supplier contracts and relationships to obtain maximum
flexibility to respond to Market Forecasts and upside flexibility requirements as
set out in the relevant VSHA;
	 
	 	(e)	 	enter into contracts with SC Suppliers and administer Nortel Networks
contracts with NC Suppliers, as applicable, and where NC Supplier fails to perform
in accordance with the terms of its contract with Nortel Networks, and subject to
Section 4.6, request Nortel Networks assistance as necessary;
	 
	 	(f)	 	beginning 6 months after the transfer of a Product to Flextronics,
require in its contracts with SC Suppliers last-time buy notifications of at least
12 months and a delivery period of an additional 6 months;
	 
	 	(g)	 	enforce all applicable contracts with Tier 2 Suppliers, and in the case
of a NC Supplier, with the assistance of Nortel Networks if necessary, subject to
Section 4.6;
	 
	 	(h)	 	enter into vendor managed inventory programs where appropriate and
subject to Section 4.6 in the case of a NC Supplier, with Nortel Networks’
assistance where necessary;
	 
	 	(i)	 	manage cost reduction programs, implementation and operational
efficiencies, including documented benchmarking techniques for both Materials and
total supply chain and providing dedicated primes for each Leadership Category, as
set out in the applicable VSHA;
	 
	 	(j)	 	perform other purchasing services for consumable materials that are
required to for the Production Effort (e.g., solder paste);
	 
	 	(k)	 	perform tactical purchasing activity such as purchasing orders, price
management, invoicing issue resolution;
	 
	 	(l)	 	drive and achieve ongoing continuous improvement;
	 
	 	(m)	 	perform proactive measures to assure supply flow of long lead-time,
allocated, and constrained Materials;
	 
	 	(n)	 	manage End-of-Life Inventory and last time purchases, as set out in
Section 4.4.4;
	 
	 	(o)	 	perform proactive and timely identification of Obsolete/ End-of-Life
Inventory, including, identify, research, analysis of alternative, business case
development, design, prototypes, verification and project management and implement
solutions to address End-of-Life Inventory;
	 
	 	(p)	 	perform best-in-class inventory management, including FIFO practices;
	 
	 	(q)	 	implement effective phase out and in of Materials during change
management process;
	 
	 	(r)	 	employ prudent purchasing practices to mitigate against any excess
inventory Exceptional Excess, Consigned Inventory or Obsolete Inventory;

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

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4.4.4 Component Discontinuance and End-of-Life Inventory

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

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

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

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End-of-Life Inventory held by Flextronics set out hereunder will have a total End-of-Life
Inventory cap of [•] of the total of the costed aggregate Market Forecast for all
Flextronics business with Nortel Networks on a six month forward-looking basis plus
Flextronics’s global revenue under this Agreement for the previous six months (the
“End-of-Life Revenue Base”). If the End-of-Life Revenue Base declines causing the
End-of-Life Inventory currently held by Flextronics to exceed the then current [•] cap
for a six month period, then Nortel Networks will purchase the End-of-Life Inventory which
is excess to the current cap from Flextronics at Material Cost plus Material Overhead.
Flextronics will hold any such End-of-Life Inventory, which is excess to the cap and has
been purchased by Nortel Networks as Consigned Inventory.

Flextronics is not obligated to purchase additional End-of-Life Inventory above this
[•] cap, unless mutually agreed. For greater clarity End-of-Life Inventory will be
considered Unique Inventory.

Nortel Networks may from time to time purchase End-of-Life Inventory or require Flextronics
to sell it to a third party specified by Nortel Networks at a cost to Nortel Networks or
such third party equal to the Material Cost plus Material Overhead. Flextronics shall have
the right to sell to one or more third parties acceptable to Nortel Networks any End-of-Life
Inventory purchased by Flextronics. For greater clarity, Flextronics shall not dispose of
any End-of-Life Inventory without written authorization from Nortel Networks.

4.4.5 Traceability of Products and Material

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

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4.4.5.1 General Requirements

Flextronics shall mark all Products manufactured by Flextronics or a sub-contractor of
Flextronics, including sub-assemblies and units, and Significant Components (as defined
below) clearly; the format of the labels will be agreed upon by the Parties such that the
labels will identify the Product and/or Significant Components and the party responsible for
the manufacture of such Product and/or Significant Component in accordance with the
Specifications including Nortel Networks’ Corporate Standard 5014.00 Serialization Codes or
successor thereof. Flextronics is not responsible for traceability requirements on any
Material that is purchased from another EMS Supplier Labels shall identify appropriate
regulatory and safety compliance requirements. All Products, including sub-assemblies and
units, and Significant Components manufactured by Flextronics or a sub-contractor of
Flextronics for Nortel Networks shall have suitable identification for
Product and Material traceability. With respect to Material, Flextronics shall generate and
record all data necessary to enable Material traceability for “Significant Components”.
Nortel Networks and Flextronics will agree and specify which Materials will be designated as
Significant Components, as jointly agreed to by both Nortel Networks and Flextronics in the
applicable VSHA. Traceability data (including product identification, revision level,
in-process testing, final test, test step name, pass/fail, repair and manufacturing date
code) shall encompass acceptance through manufacturing, manufacturing site, storage,
logistics and, if applicable, installation.

Flextronics agrees to provide traceability and history of all Materials data including all
purchasing history, Material supplier name, Material supplier part number, quantities, date
received, and Material Cost. Flextronics shall also retain traceability data for a minimum
period of end of life plus three (3) years. Flextronics shall submit traceability data feeds
to Nortel Networks data warehouse in accordance with a schedule to be agreed on by the
Parties, if the Parties determine that it is necessary to keep duplicate data stores.
Historical data will be available on request in a media format to be determined by
Flextronics.

All available historical and traceability Material data will be transferred from Sending to
Receiving Supplier Site, or if not transferable, then data shall be maintained and remain
accessible at either Sending or Receiving Supplier Site, as applicable. If responsibility
for supply of a Product moves or upon termination of this Agreement, all Material historical
and traceability data shall be transferred to Nortel Networks or to a new supplier (other
than Material Cost), as requested by Nortel Networks.

4.4.5.2 Material/Component Traceability

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

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

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

4.4.6 Performance Report Cards

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

4.4.7 Process and Systems Support

The Flextronics will provide resources to support the following systems and process areas:
electronic communications with Nortel Networks, Customers and suppliers, system trouble
shooting, process improvements, system evolution and the migration from Nortel Networks
systems to the Flextronics’s own information technology infrastructure, application
environment and shall maintain the level of capability transferred from Nortel Networks and
work to provide improvements and enhancements to systems and processes as technology
evolves.

Nortel Networks will provide resources and processes to support electronics communications
with Flextronics in the following areas: customer orders, purchase orders, documentation,
and invoicing with the goal to support systems and processes which are best in class.

The Parties acknowledge that certain assets and resources have been transferred to
Flextronics pursuant to the APA to enable Flextronics to fulfill its support
responsibilities herein. Flextronics will determine by the end of 3 months after the System
House transfer date whether it is satisfied that these assets and resources, as transferred,
are sufficient for such purpose. If Flextronics is not so satisfied, it will notify Nortel
Networks and present reasonable evidence to support this determination along with a proposed
plan to address any deficiencies in a commercially reasonable manner. Nortel Networks may
not unreasonably withhold or delay its acceptance of Flextronics’s determination or of
Flextronics’s proposed plan to acquire capability in this area within a maximum of 12
months. If Nortel Networks accepts this determination and the plan to remedy the deficit in
assets and resources, then Flextronics shall not be liable for any Liquidated Damages or
direct damages related to this Section pending the

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implementation of Flextronics’s plan. If
Nortel Networks does not accept this determination or remedial plan, the Parties shall
follow the Issue Escalation and Dispute Resolution Process. If Flextronics can demonstrate
that implementation of a plan to satisfy the support requirements herein will result in
change to costs or delivery schedule, the Parties will agree on appropriate changes to the
Price and delivery schedule.

4.4.8 Order Management/Customer Service

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

4.4.9 Return Material Operation Services

In addition to Flextronics’s obligation under Section 9 and Section 10 for returned Products
other than Rework Products and Repair Products, Flextronics shall administer and manage a
return material operation for Products, including conducting diagnostic testing and upgrade
support relating thereto, all pursuant to the return material/RMA procedure set forth in
Exhibit 11, purge routing/processing (including segregation of materials), stock support on
and upgrade support for Nortel Networks. Costs of the foregoing shall be the responsibility
of Flextronics and shall be included as part of the Production Effort and Services provided
by Flextronics hereunder.

Product that has been returned from Nortel Networks or a Nortel Networks Customer for
reasons other than for quality or DOA, and is re-sellable to Nortel Networks as new Product,
shall not exceed the percentage of the value of all shipments within a quarter for a
Product Family as set out in the applicable VSHA (the “RMA Cap”). In the event that the RMA
Cap is exceeded, the Parties shall agree upon a reasonable re-stocking fee or other method
of compensation as appropriate. Such re-stocking fee shall be paid by Nortel Networks no
later than 40 days after the Parties agree upon such fee. Product that has been returned to
Flextronics due to quality issues or DOA is excluded from the RMA Cap. Flextronics shall
process RMA returns and associated credits to Nortel Networks in a timely fashion on an
ongoing basis to avoid any processing backlogs. For greater clarity, Lab Products are not
subject to the RMA Cap in Section 4.4.9.

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4.4.10 Purchase of Products for Use in Lab Facilities

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

4.5 Material and Tier 2 Supplier Qualification

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

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

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

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

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

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

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

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

4.6 NC Suppliers

Nortel Networks may enter into contracts with certain Tier 2 Suppliers, as specified by Nortel
Networks from time to time (“NC Suppliers”). Nortel Networks shall be responsible for ongoing cost
reduction related to such NC Suppliers and Flextronics shall perform Services and any other
services with respect to such NC Supplier that the Parties agree are relevant and appropriate to
meet Flextronics’s obligations under this Agreement. In the event of quality issues or Epidemic
Conditions related to the Material supplied by a NC Supplier, Flextronics agrees to use reasonable
efforts to pursue remedies against the applicable NC Supplier; provided that Flextronics will not
be required to pursue those remedies only available to Nortel Networks

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against the applicable Tier
2 Supplier. Flextronics will request Nortel Networks’ assistance for issue resolution where the NC
Supplier is unwilling or unable to resolve the issue and Nortel Networks will work with Flextronics
to resolve such issues.

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

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

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

4.7 Purchase by Flextronics of Materials from Tier 2 Suppliers

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

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

Flextronics, at a minimum, shall provide Materials to Nortel Networks in the same proportion as
Nortel Networks’ forecasted business is to Flextronics’s overall business. For Material supplied

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

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

4.8 Prices for Products Required by Other Nortel Networks Vendors

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

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4.9 Supply of Materials to Nortel Networks Affiliates and Vendors

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

4.10 Material and Flextronics Account Management Reviews

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

4.11 Source Inspection

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

4.12 Manufacturing Technical Information and Support

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

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

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4.13 EMS Supplier and Material Sourcing Control

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

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

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

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

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

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

SECTION 5

CHANGE MANAGEMENT

5.1 Joint Product Change Management Process

Upon Nortel Networks’ request, Flextronics shall participate in the formal change review process of
Nortel Networks. Either Party may propose in writing a change to the design,

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

5.2 Changes in Corporate Standards

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

SECTION 6

SERVICES

6.1 Design and Sustaining Services

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

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

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

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

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

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

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6.2 Integration Services

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

6.2.1 Product Level Testing

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

6.2.2 Module Integration

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

6.2.3 Configuration

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

6.2.4 ICT, Functional & System Level Testing

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

6.2.5 Final Quality Inspection

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

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6.2.6 QET (Quality Evaluation Test)

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

6.2.7 Quality and Process Audit

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

6.2.8 Test Results and Monitoring

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

6.2.9 Installation Requests (IR)

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

6.3 System House Engineering Services

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

Flextronics will be responsible for the following Product and process areas: project management;
communications with Nortel Networks, Customers and suppliers; building and processing test

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

6.3.1 Test Engineering

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

Flextronics will be responsible for the following key areas of test engineering related to
System House activities:

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

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

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

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

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

6.3.2 Optimization of Testing for Products

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

6.3.3 System House Sustaining Engineering

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

	 	(a)	 	reduce Product cost;

	 
	 	(b)	 	
enhance Product manufacturability;

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

These opportunities must be fully assessed and offer a high probability of implementation
before a request for implementation is sought from Nortel Networks Research & Development
group who retain all authority over Product definition. The forum to make recommendations on
Product change will be the scheduled Product design review, involving Flextronics and Nortel
Networks Research & Development group. These recommendations should be in the format of
engineering change requests, the content of which will be agreed between the participating
groups.

Flextronics will perform the following activities during all aspects of product lifecycle
management for all phases of a Product’s life:

	 	(a)	 	engineering documentation and change management;
	 
	 	(b)	 	
DDME, and similar database maintenance and network support;
	 
	 	(c)	 	Product design and Specification files transfers to users and
suppliers;
	 
	 	(d)	 	dependability and reliability studies;

	 
	 	(e)	 	
manage known product defects (KPD) as identified by Nortel Networks;

	 
	 	(f)	 	
test and validate Product change including component changes;

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	 	(g)	 	research, review and recommend to Nortel Networks for approval
(including business case, detailed cost analysis, design plans, last time buy plan,
qualification and verification plans, scope of intellectual property risk known to
Flextronics and the basis of Flextronics’s knowledge) of the best alternative
available, such as, last time buy, and/or component substitutions/replacements,
component packaging foot print changes, elimination of the component by
incorporating function into another component, specification relaxation to
eliminate the need for the component;
	 
	 	(h)	 	complete technical development, prototypes, verification and testing;
and
	 
	 	(i)	 	project management and implementation of solution including, the phase
in and phase out of all impacted materials.

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

6.3.4 Materials Engineering

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

	 	(a)	 	conduct strategic technical analysis of the supply base to proactively
warn of potential trouble areas with respect to End-of-Life Inventory by product
family;
	 
	 	(b)	 	monitor all aspects of Product and Material life cycle;
	 
	 	(c)	 	apply necessary material engineering resource to provide material
qualification;
	 
	 	(d)	 	qualify any source of supply managed by Flextronics, pursuant to
Section 4.4.3(c);
	 
	 	(e)	 	review and recommend material substitution opportunities;

	 
	 	(f)	 	
monitor and resolve Material performance to Specification issues; and

	 
	 	(g)	 	
drive and enhance Tier 2 Supplier’s Material quality and performance.

6.3.5 Product and Material Yield and Performance Issue Resolution

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

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Networks shall provide
Flextronics with prompt assistance in the development of corrective actions and project
plans in connection with the resolution of any yield or performance issues arising from
Nortel Networks designs for which Nortel Networks has the design authority.

6.3.6 Design Services for Cost Reduction Opportunities

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

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

6.4 SIF (System Integration & Fulfillment) Services

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

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

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

6.5 Other System House Support Services

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

6.6 Payment for Services

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

SECTION 7

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

7.1 Consistent Process at all Sites

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

7.2 Product Goals

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

The progress toward meeting those Product Goals shall be measured and managed by Flextronics using
the performance metrics as agreed between the parties in the VSHA in addition to those

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specified in
Section 2.4. Flextronics shall work with Nortel Networks to provide the NPPI reports specified in
the VSHA.

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

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

7.3 DFx Services

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

7.4 Pre-production Products

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

	 	(a)	 	The production pricing rates shall be agreed upon by the Parties.
	 
	 	(b)	 	The pricing rates referred to in (a) above include [ •], as provided
for generally in this Agreement. Except with respect to those services set out in
Exhibits 9-1,9-2 or 9-3, , no separate charges shall be levied for (i) any DFM/DFx
services performed by Flextronics in support of the NPPI process, (ii) sustaining
test engineering and EC change activities (except as provided in Section 5.1), or
(iii) development activities such as, but not limited to shop aid set-up,
manufacturing set-up, test process set-up and configuration, automated equipment
programming and set-up, quality inspection processes, BOM and MRP set-up, product
quoting & costing, supply chain design and set-up, supplier qualification and
project management. For greater certainty, refer to the NRE charges table in
Exhibit 10-1.
	 
	 	(c)	 	Pursuant to the Exception Demand Process, as set out in Section 3.12,
Nortel Networks will only reimburse Flextronics for premiums paid for labour or
expedited delivery of materials if Flextronics has obtained prior approval from
Nortel Networks for any such expenditure. In the event that such expenditures are
approved by Nortel Networks but Flextronics fails to meet any agreed upon

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	 	 	 	delivery
commitments and such failure is due to factors within Flextronics’s control,
Flextronics will refund the reimbursement of these expenditures in full.
	 
	 	(d)	 	[ •] If Nortel Networks requests a lead-time shorter that this
standard, the provisions of (c) above shall apply.
	 
	 	(e)	 	If Nortel Networks agrees that Flextronics must invest in equipment that
is unique to Nortel Networks in order to carry out a particular NPPI project, Nortel
Networks shall reimburse Flextronics for such unique equipment expenditures, which
are (i) necessary for the NPPI process, (ii) unique to the particular NPPI project,
and (iii) pre-approved by Nortel Networks (“Unique Equipment”). Nortel Networks
shall determine, in consultation with Flextronics, if the cost of the Unique
Equipment is to be paid for by one of the following methods: a) upfront at the
start of the project, b) amortized over a specific quantity of Product, c) in agreed
upon installation payments over a defined term or d) built into the Price of
Product. Nortel Networks’ preference for the applicable method of payment for
Unique Equipment shall be set out in the project plan provided by Nortel Networks
prior to start of the project. This project plan may include a mechanism to deal
with any unamortized or unrecovered expenses incurred by Flextronics under scenarios
b) above. In the case of scenario b) or c), the
calculation of the amortization costs will use the Carrying Charge as [ •].
Unique Equipment shall be deemed to be a Reserved Asset under this Agreement.

7.5 Product End-of-life Scenarios

Nortel Networks may, upon notice to Flextronics, plan the end-of-life of a Product. Nortel
Network’s notice of a Product end-of-life will include the End of Life Parameters as further set
forth in Section 4.4.4(g). Upon receipt of such notice, Flextronics shall prepare a proposal with
regard to the detailed cost/Inventory plans to address the end-of-life scenario (“End of Life
Plan”), and Flextronics and Nortel Networks shall agree upon the End of Life Plan. In the event
that a Product goes end of life, Flextronics shall return all Loaned Assets related to such
Product. Flextronics shall either return, destroy or erase all copies of such Nortel Company
Proprietary Information related to such Product in the possession of any Flextronics Company or any
of their respective employees, consultants, agents or representatives, including copies on paper or
other hard copy and copies on computer or other storage media, provided, however, that this
provision shall not apply to any such Nortel Company Proprietary Information in respect of which
Flextronics has a continuing license or obligation which are still required for other Products.

7.6 Geographic Location

In order to be competitive and provide timely fulfillment of NPPI Services, Flextronics shall
locate a certain level of employees, including those employees transferred pursuant to the APA, in
such a manner as to promote flexibility and the ultimate success of the projects. Employees who
directly interface with the Nortel Networks’ Design Centers in Calgary, Ottawa and Paris, France
will be located at Flextronics’s premises which are within regional proximity of such Design
Centers; for example the Ottawa Optical Design Centre may be supported from Montreal or Ottawa.
Flextronics must obtain Nortel Networks consent prior to choosing any primary

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location for NPPI
Services, which consent will not be unreasonably withheld, except for reasons of maintaining
geographic proximity or qualification under Section 4.1.

SECTION 8

QUALITY STANDARDS AND QUALITY PROCESS

8.1 Quality Standards

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

SECTION 9

REWORK PRODUCT PROCESS

9.1 Rework Operation

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

9.2 Rework Procedure

If Nortel Networks decides that a Prototype, Pre-Production Product or Product is a Rework Product,
then Nortel Networks may (i) return such Rework Product to Flextronics under the

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rework process;
(ii) service such Rework Product itself; or (iii) have such Rework Product reworked by a Third
Party Rework Operation, all as specified more fully in Exhibit 11.

SECTION 10

REPAIR PRODUCT PROCESS

10.1 Repair Operation & Procedure

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

SECTION 11

PRODUCT COST MANAGEMENT PROCESS

11.1 Prices for Products

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

	 	(a)	 	Cost Plus Method (Traditional): The Price for each Product shall be
calculated using the actual Material Cost for all Material in the Product and all
Transformation Costs, in accordance with the Cost Methodology identified in the
Virtual System House Agreement and set out in Exhibit 13.1. The Price for each
Product will be calculated monthly, or as otherwise stated in the VSHA.
	 
	 	(b)	 	Modified Product Level Pricing Method (MPLP): The Price for each Product
shall be calculated using the actual Material Cost for NC Material and a firm price
commitment for the SC Material and all Transformation Costs. The method for
calculating the Price will be in accordance with the Cost Methodology identified in
the Virtual System House Agreement and set out in Exhibit 13.2. The Price for each
Product will be calculated monthly, or as otherwise stated in the VSHA, taking into
account changes in Material Cost for NC Material, and appropriate adjustment to the
Transformation Cost.
	 
	 	(c)	 	Product Level Pricing Method (PLP): The Price for a Product shall be a
firm Price commitment for a specific time period and includes all Material Cost and
Transformation Costs, and shall be set out in Schedule A to the relevant VSHA for
the period of time as set out therein.

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

The Price for Prototype Products shall be agreed upon by the Parties under either the NPPI Process
or Design Services Agreement. Notwithstanding the foregoing, Flextronics shall provide up to
[ •] design prototypes at no more than [ •] in excess of the agreed upon production
pricing

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rates for SC Material and Transformation Costs for the Prototype Product. Nortel Networks
will manage the pricing for NC Material for Prototype Products directly with the NC Suppliers.

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

11.1.1 Day One Pricing

The Parties agree that the aggregate transaction price immediately after the transfer (‘Day
One Pricing”) for each Product Family or category of Services that are transferred by Nortel
Networks or another EMS Supplier to Flextronics [ •]. These prices will be set out in
the applicable VSHA executed by the Parties.

In order to establish Prices as of the applicable VSHA Effective Date, Nortel Networks shall
provide sufficient information to support current Total Costs to be included in Prices as at
such date. This process will be documented in Exhibit 29. Flextronics will determine by
the end of 4 months after the VSHA Effective Date whether it is satisfied that the resources
and cost responsibilities, as transferred, are accurately reflected in the Total Costs as
provided by Nortel Networks. If Flextronics is not so satisfied, it will
notify Nortel Networks and present reasonable evidence to support this determination. If
Nortel Networks accepts this determination, the Parties will mutually agree on restated
Prices for the applicable Products, which shall be retroactive to the first invoice. If
Nortel Networks does not accept this determination, the Parties shall follow the Issue
Escalation and Dispute Resolution Process. Upon acceptance or other resolution of the
revised Pricing, the Party which either overpaid or overcharged will pay the other Party the
difference between the amounts originally invoiced and the revised Product Prices 40 days
after receipt of invoice.

In the event that the initial Transformation Costs allocation methodology results in a
pricing inaccuracy greater than the Threshold Commitment during the first year following the
transfer, the Parties will negotiate in good faith amended pricing; provided however, that
if the pricing for one Product Family is increased due to more allocation absorption, the
pricing for other Product Families will be appropriately decreased due to less allocation
absorption.

Within the first 7 months after the applicable VSHA Effective Date, if Flextronics considers
that the initial MPLP cost reduction commitments provided by Nortel Networks as part of the
Day One Pricing contained an Error, as defined hereafter, that adversely impacts
Flextronics’s ability to meet such cost reduction commitments, Flextronics shall bring this
to Nortel Networks attention and the Parties will negotiate in

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good faith an appropriate
amendment to the applicable cost reduction commitment. An Error is defined as any one or
more of the following errors or any substantially similar errors:

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

Any conditions outside the scope of the Errors that contribute to Flextronics’s ability to
meet cost reduction commitments will be subject to Threshold Commitment.

Thereafter, Nortel Networks and Flextronics will set product prices using the Cost Plus,
MPLP or PLP Processes, as applicable.

11.2 Payment, Taxes and Duties

11.2.1 Invoices

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

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11.2.2 Payment

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

[ •].

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

[ •].

11.3 Implementation of Price Changes

Cost Plus Method (Traditional):

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

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

Modified Product Level Pricing Method (MPLP):

The Parties will review the Material Cost for all NC Material each month to calculate the Price for
implementation of new Price and any associated Transformation Costs on the first (1st)
Business Day of the following calendar month, unless otherwise agreed to in the VSHA. At least

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five
(5) Business Days prior to the review, Flextronics will provide to Nortel Networks a detailed
analysis of each cost change for all NC Material, including implementation timeframe, on-hand
Inventory and its obligations to Tier 2 Suppliers. Agreed upon changes to the Price shall be (a)
documented as set forth in the revised Costed BOM; (b) set forth in a new or amended Purchase Order
for any Prices to be implemented in the timeline as set out above.

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

[ •].

Product Level Pricing Method (PLP):

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

11.4 Financial Review and Targets

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

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

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11.5 Operational

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

11.6 Cost Modeling

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

11.7 Budget

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

11.8 Ongoing Cost Reduction

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

11.9 Incremental Cost Reduction

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

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11.9.1 Definition of ICR

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

11.9.2 ICR Commitment

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

11.9.3 Implementation of ICR

Incremental Cost Reduction (ICR) will be reflected in the Product price using the Cost Plus,
MPLP or PLP Process, as applicable, and not recovered as a lump sum payment (except in the
case of a true-up). It is a guaranteed percentage and is not subject to the Threshold
Commitment as defined in the MCMSA. If, as determined in an annual true-up process, the
annual guarantee is not achieved by means of the product pricing at the end of Years 2 and 3
respectively, Flextronics will pay Nortel Networks the amount of the shortfall as a lump-sum
payment. The Baseline (as defined below) at the end of Years 2 and 3 will be set to include
the guaranteed ICR; provided that the Baseline at the end of Year 3 will be for planning
purposes only for Year 4 and prices for Year 4 will be set according to market conditions.

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

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

11.9.4 Year 4 Cost Reduction

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

	 	 	 	 	 
	 

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11.9.5 Adjustments to ICR Commitment

The Parties acknowledge that Nortel Networks support and cooperation affect Flextronics’s
ability to actually achieve ICRs and the Flextronics vertical integration target set out in
Section 4.13.

If the failure of Nortel Networks to fulfill its obligations under Section 4.13 with respect
to such target adversely impacts Flextronics’s ability to actually achieve the ICR
Commitment, then Flextronics may be relieved of its obligation with regard to the affected
portion of the ICR Commitment.

Flextronics shall notify Nortel Networks if it determines that there has been such an
adverse impact and provide competent evidence to support Flextronics’s determination. If
Nortel Networks does not fulfill its applicable obligations within 45 days after receipt of
Flextronics’s notice or otherwise accepts Flextronics’s determination, the ICR Primes will
resolve the matter and, if they are unable to do so, the Parties shall follow the Issue
Escalation and Dispute Resolution Process.

SECTION 12

BUSINESS CONTINUITY

12.1 Business Continuity Planning

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

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

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

Throughout the Amended Term, Flextronics shall provide a copy of any changes in the Business
Continuity Plan to NNL within ten (10) days of any such change. A period of Force Majeure or

	 	 	 	 	 
	 

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other event causing inability to produce Products shall be deemed to commence on the date that the
event of Force Majeure or other such event first occurs.

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

SECTION 13

WARRANTIES

13.1 Title

Flextronics represents and warrants that: (i) it has and covenants that it shall pass to Nortel
Networks good title to the Products free and clear of all liens and encumbrances; (ii) no claim or
action is pending or threatened against Flextronics or, to Flextronics ‘s knowledge, against any
licensor or supplier of Flextronics that might, if adversely decided, adversely affect the ability
of Flextronics to produce the Products or the right of Nortel Networks or any Customer to use the
Products for their intended use; and (iii) it has all rights and powers necessary to perform its
obligations under this Agreement.

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

13.2 Services and Production Effort

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

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

Nortel Networks covenants and warrants that (a) it will perform its obligations under this
Agreement in a competent, professional and timely manner in accordance with the standards

	 	 	 	 	 
	 

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generally accepted in the telecommunications industry and the terms of this Agreement and the
applicable Virtual Systems House Agreement.

13.3 Free from Defects

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

Flextronics covenants and warrants that except for (a) Products transferred as finished goods,
work-in process or manufactured using Materials on hand (including any Consigned Inventory or
Inventory purchased from other suppliers pursuant to Section 4.3.5) as of the applicable VSHA
Effective Date, during the Warranty Period, subject to such longer period set out in Section 13.4
in respect of an Epidemic Condition, each Product shall be free from defects in Material supplied
by Flextronics under normal use and operation, and shall conform to the applicable Specifications.

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

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

13.4 Epidemic Condition

13.4.1 Procedure for Epidemic Condition

If a Product shows evidence of an Epidemic Condition, each Party shall notify the other
Party within two (2) Business Days of becoming aware of such Epidemic Condition. Nortel
Networks may also notify Flextronics of such a condition throughout the life of the Product.
Upon notification to Flextronics of the Epidemic Condition, Nortel Networks shall have the
right, pending correction of the Epidemic Condition as provided herein, to postpone further
shipments of such Product evidencing the Epidemic Condition, by giving notice of such
postponement to Flextronics. Until such Epidemic

	 	 	 	 	 
	 

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Condition is corrected, such postponement
shall relieve Flextronics of its shipment liability for such Products and relieve Nortel
Networks of all obligations relating to such Product except its obligation to respond or
work within the ECO procedure. Both Parties shall work together to prepare and propose a
corrective action plan with respect to such Product, addressing implementation and procedure
milestones for remedying such Epidemic Condition(s). Both parties shall co-operate with one
another and use their best efforts to identify and implement an agreed upon plan to remedy
the Epidemic Condition.

13.4.2 Remedies for Epidemic Condition

Nortel Networks shall pay the costs of implementing the remedy on Products to the extent
that the Epidemic Condition results from (a) Materials that were transferred as part of
finished goods, work-in process or as Inventory on hand as of the applicable VSHA Effective
Date or (b) Flextronics’s compliance with the Specifications or defects in NC components.
Flextronics shall pay the costs of implementing the remedy to the extent the Epidemic
Condition results from (i) Flextronics’s non-conformance with the Specifications; (ii)
defects in Material supplied by an SC Supplier, (iii) breach of Flextronics’s warranty
obligations set out in Exhibits 9-1, 9-2 or 9-3, or (iv) defects in workmanship or
manufacturing processes (other than as set out by Nortel Networks in any applicable
Specifications). The Parties shall use reasonable efforts to minimize the costs associated
with the recovery plan without compromising Nortel Networks’ ability to aggressively respond
to Customer needs.

Subject to the determination of liability as set out in the foregoing, Flextronics shall:

	 	(a)	 	Incorporate the remedy in the affected Products in accordance with
Nortel Networks’ ECO procedures;
	 
	 	(b)	 	Subsequently ship only Products incorporating the required modification
correcting the Epidemic Condition;
	 
	 	(c)	 	Rework, repair and/or replace any Product that has not been recalled
but shows evidence of the Epidemic Condition, in accordance with the terms and
conditions set forth in Exhibits 11 and 12, respectively;
	 
	 	(d)	 	Refund or credit, at Flextronics’s discretion, to Nortel Networks the
Price for such Products included in Systems that Nortel Networks, in its
discretion, has recalled because of the Epidemic Condition;
	 
	 	(e)	 	At Nortel Networks’ option, reimburse Nortel Networks for all costs
associated with the repair or replacement of Products for Nortel Networks, its
distributors and end users;
	 
	 	(f)	 	Accept the immediate return of all units of affected Products that
Nortel Networks has in stock and replace such Products with updated units in order
to facilitate the replacement of such Products;
	 
	 	(g)	 	Reimburse Nortel Networks for all field costs, which are reasonable
with respect to applicable industry standards and taking into consideration
Customer expectations, associated with the Epidemic Condition that Nortel Networks
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Flextronics’s obligations for Epidemic Condition relating to a Product unit shall continue
for a period of [l ] after the shipment of such Product Notwithstanding the foregoing,
with respect to Products not related to the Transferred Business only, [l ]. In the
event that a VSHA changes the time period for Flextronics’s obligations for Epidemic
Condition with respect to such Material, the time period of [l ] shall continue with
respect to all other Flextronics’s obligations under this Section 13.

Where Flextronics has had manufacturing responsibility for the Products effected by the
Epidemic Condition, and its liability has arisen from a breach of its warranty obligations
pursuant to Section 13.2 or 13.3 and/or to Section 44 of Exhibit 9 Flextronics’s liability
shall not exceed [l ] USD per occurrence. Where Flextronics has not had manufacturing
responsibility for such Products, and its liability has arisen from a breach of its warranty
obligations pursuant to Sections 72-75 of Exhibit 9-1 or Sections 65-67 of Exhibits 9-2 or
Sections X of Exhibit 9-3, Flextronics’s liability shall not exceed, per occurrence, the
greater of [l ] USD or [l ] the revenue Flextronics has received under the
applicable Design Orders.

The foregoing provisions shall survive termination and expiry of this Agreement.

13.5 Safety and Regulatory Issues

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

SECTION 14

INTELLECTUAL PROPERTY RIGHTS AND LICENSES

14.1 License to Nortel Company Proprietary Information Granted

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

	 	 	 	 	 
	 

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or repair Product or to
perform Services terminate under this Agreement, or as to a specific Product under a Virtual
Systems House Agreement, as applicable.

14.2 Limitations on Grant of License

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

14.3 Flextronics Inventions

Flextronics Inventions, including Flextronics Inventions relating solely to a manufacturing process
not specific to the manufacture of a Product, shall be the property of Flextronics. Flextronics
shall and does hereby grant Nortel Networks, subject to fulfillment of its payment obligation, a
limited, irrevocable, world-wide, non-exclusive, royalty-free license, but not as a standalone
license, solely to make or have made and use such Flextronics Invention and Nortel Networks shall
have the right to sub-license such rights to Nortel Networks Vendors for the purpose of
manufacturing Products or distributing Systems. Nortel shall be fully responsible for any damages
accrued to Flextronics arising out of any third party’s violation of the scope of the license
granted hereunder.

14.4 Specifications and Deliverables Owned by Nortel Networks

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

14.5 Flextronics Retains Ownership of Flextronics Proprietary Information

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

14.6 Assignment of Inventions Agreements with Employees

In respect of any inventions which are specific and related to the manufacture of Nortel’s
Products, Flextronics shall have agreements with its employees, consultants, agents or
representatives (individually “Counter-Party”), in which each such Counter-Party shall agree in
writing that any and all inventions, discoveries, developments, modifications, procedures, ideas,
innovations, systems, Programs, know-how or designs developed by any such Counter-Party

	 	 	 	 	 
	 

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

SECTION 15

INDEMNIFICATION

15.1 Intellectual Property Indemnification

15.1.1 By Nortel Networks

Except as otherwise provided in this Section 15, Nortel Networks shall, at its expense and
at Flextronics ‘s request, indemnify and defend Flextronics against any claim or action
brought against Flextronics by a third party to the extent that such claim is based on an
assertion that Flextronics ‘s activities as part of the Production Effort or Services
infringe, directly as a result of Flextronics ‘s compliance with the Specifications or
directions by Nortel Networks to Flextronics relating to a Product for use under this
Agreement, any patent, copyright or trademark, or violates any trade secret or other
proprietary right of a third party. Nortel Networks shall pay any pre-judgment and
pre-settlement costs as wells as any resulting costs and damages finally awarded against
Flextronics or agreed to in any settlement, and Flextronics ‘s reasonable attorneys’ or
patent agent’s or other expert’s fees incurred in connection therewith, provided that (i)
Flextronics promptly notifies Nortel Networks in writing of any such claim, (ii) Nortel
Networks has sole control of the defence and all related settlement negotiations, and (iii)
Flextronics reasonably cooperates, at Nortel Networks’ cost, in the defence and furnishes
all related evidence under its control.

 

Notwithstanding the foregoing, Nortel Networks shall have no liability under Section 15.1 to
the extent the alleged infringement or violation:

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

	 	 	 	 	 
	 

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15.1.2 By Flextronics

Flextronics shall, at its expense and at Nortel Networks’ request, indemnify and defend all
Nortel Companies against any claim or action brought against any Nortel Company by a third
party to the extent that such claim is based on an assertion that any method or process used
or practiced by Flextronics in or during the Production Effort or any Service provided by
Flextronics under this Agreement infringes any patent, copyright or trademark, or violates
any trade secret or other proprietary right of a third party, unless such method or process
was specifically requested by Nortel Networks or Flextronics has met its obligations under
Sections 4.4.4(g), 6.3.3(g) and 6.3.6(b).

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

Notwithstanding the foregoing, Flextronics shall have no liability under Section 15.1 to the
extent the alleged infringement or violation:

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

15.1.3 Measures to Safeguard Nortel Networks against Liability

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

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

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

15.2 Other Indemnification

15.2.1 By Flextronics

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

15.2.2 By Nortel Networks

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

SECTION 16

LIMITATION OF LIABILITY

NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT EXCEPT FOR THE PARTIES’ OBLIGATIONS UNDER SECTION
15 AND A BREACH OF THE OBLIGATIONS IN SECTIONS 13.4, AND 23, TO THE MAXIMUM EXTENT PERMITTED BY
LAW, UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY, WHETHER TORT (INCLUDING NEGLIGENCE), PRODUCT
LIABILITY, CONTRACT, OR OTHERWISE, SHALL ONE PARTY BE LIABLE TO THE SECOND PARTY OR ANY OTHER
PERSON FOR ANY LOSS OF PROFIT OR ANY INDIRECT, SPECIAL, INCIDENTAL, RELIANCE OR CONSEQUENTIAL
DAMAGES, EVEN IF THE FIRST PARTY SHALL HAVE BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES.
NOTHING IN THIS AGREEMENT SHALL ACT TO RESTRICT OR EXCLUDE LIABILITY FOR DEATH OR PERSONAL INJURY
CAUSED BY THE NEGLIGENCE OF ANY PARTY.

	 	 	 	 	 
	 

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FOR PURPOSES OF CLARITY, THE PARTIES AGREE THAT THE PAYMENT
OF PERFORMANCE LIQUIDATED DAMAGES AND CUSTOMER PASS-THROUGH LIQUIDATED DAMAGES SHALL NOT BE
RESTRICTED OR EXCLUDED BY THIS LIMITATION OF LIABILITY. [l ]

SECTION 17

COMMUNICATION AND INFORMATION TRANSFER

17.1 Access to Nortel Networks Computer Systems by Flextronics

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

17.2 Flextronics Compatibility with Nortel Networks Computer Systems

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

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

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

	 	 	 	 	 
	 

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17.3 Information Technology Services

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

SECTION 18

LOANED ASSETS

18.1 Loaned Assets Procedure

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

SECTION 19

RESERVED ASSETS

19.1 Reserved Assets Procedure

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

SECTION 20

LEGAL AND REGULATORY COMPLIANCE

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

	 	 	 	 	 
	 

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SECTION 21

INTERNATIONAL TRADE

21.1 Exports

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

21.2 Country of Origin Declaration and Marking

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

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

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

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

	 	 	 	 	 
	 

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21.3 Customs Invoice

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

21.4 Trade Treaties

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

21.5 Duty Drawback

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

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

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

	 	 	 	 	 
	 

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filing the drawback claim will be borne by the parties in proportion to their relative drawback
benefits and Nortel Networks will cooperate with Flextronics in any audit relating to this Section.

SECTION 22

ENVIRONMENTAL POLICIES

22.1 ISO 14001

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

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

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

22.2 VOC Free and Lead-Free Technology

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

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

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

	 	 	 	 	 
	 

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22.3 European Union (“EU”) Environmental Directives

22.3.1 Compliance

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

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

To the extent Flextronics is responsible under the Compliance Plan, Flextronics must be able
to demonstrate to Nortel Networks satisfaction by December 31, 2005 that no hexavalent
chromium, cadmium, mercury or polybrominated biphenyls (PBB)/polybrominated diphenyl ethers
(PBDE) are present in Products to be sold in the EU. To the extent Nortel Networks is
responsible under the Compliance Plan, Nortel must be able to demonstrate to Flextronics’s
satisfaction by December 31, 2005 that no hexavalent chromium, cadmium, mercury or
polybrominated biphenyls (PBB)/polybrominated diphenyl ethers (PBDE) are present in Products
to be sold in the EU. Flextronics will compensate Nortel Networks for any fines or
penalties that are levied by applicable regulatory bodies as result of Flextronics’s failure
to comply with its obligations under the Compliance Plan. Nortel Networks will compensate
Flextronics for any fines or penalties that are levied by applicable regulatory bodies as a
result of Nortel Networks failure to comply with its obligations under the Compliance Plan.
Nortel Networks and Flextronics agree to address jointly any problems of supply. If
Flextronics can demonstrate that compliance with any EU directives will result in change to
costs or delay in delivery, the Parties will agree on appropriate changes to the Price or
delivery schedule, only to the extent such costs or delays are directly related to the
Production Effort. Flextronics acknowledges that changes to EU directives may result in
decreases or increases to costs and that it will bring any such change to Nortel Networks
attention.

22.3.2 Indemnification

Flextronics agrees to indemnify, defend and hold Nortel Networks harmless from all losses,
liabilities, fines, penalties, costs and expenses (including reasonable legal fees) in

	 	 	 	 	 
	 

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connection with any claim or proceeding made by any Customer, governmental body or other
third party resulting from Flextronics’s failure to comply with its obligations under the
Compliance Plan.

Nortel Networks agrees to indemnify, defend, and hold Flextronics harmless from all losses,
liabilities, fines, penalties, costs and expenses (including reasonable legal fees) in
connection with any claim or proceeding made by any Customer, governmental body or other
third party resulting from Nortel Networks failure to comply with its obligations under the
Compliance Plan.

Each party understands that failure by it to follow the requirements of this clause may
expose the other party and its employees to criminal liability and that as a consequence any
such failure may therefore be considered as a material breach of this Agreement.

22.4 Packaging Reusable and Recyclable

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

22.5 Collaborate on Environmental Initiatives

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

22.6 Hazardous Materials

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

SECTION 23

CONFIDENTIAL INFORMATION

23.1 Restriction on Disclosure and Use of Confidential Information

Any Nortel Company Proprietary Information provided or made available by any Nortel Company to any
Flextronics Company and any Flextronics Proprietary Information provided or made available by
Flextronics to Nortel Networks shall be deemed for the purposes of this Agreement to be
“Confidential Information” of the person disclosing (“discloser”) such information to another
person (“recipient”), except if such information disclosed to recipient is

	 	 	 	 	 
	 

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(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 Company shall cause each of their respective
employees, consultants, agents and representatives who shall have access to Confidential
Information to sign a written agreement setting forth confidentiality obligations of each such
employee, consultant, agent and representative, substantially in the form of Exhibits 18-1 and 18-2
respectively, which Exhibits 18-1 and 18-2 are attached hereto and incorporated herein by
reference. Flextronics shall be liable for and shall indemnify each NNL and each Nortel Company,
its officers, directors, employees, subcontractors, agents against any losses, claims, costs or
expenses arising from the failure of each of Flextronics Company or Flextronics, its respective
employees, consultants, agents and representatives against any losses, claims, costs or expenses
arising from the failure of each Flextronics Company or its respective employees, consultants,
agents and representatives, for whatever reason, to execute the form of agreement set out in
Exhibit 18 hereof or to comply with the terms thereof, and Nortel Networks shall be liable for and
shall indemnify Flextronics or Flextronics Company, its officers, directors, employees,
subcontractors, agents against any losses, claims, costs or expenses arising from the failure of
each of Nortel Network Company or NNL, its respective employees, consultants, agents and
representatives for any corresponding failures by Nortel Company to Flextronics in respect of such
obligations. Each Party acknowledges that monetary damages may not be adequate in the event of a
default of this Section, and the discloser shall be entitled to injunctive or other affirmative
relief and/or to give notice of default pursuant to this Agreement, or both.

23.2 Publicity

No Flextronics Company shall in any advertising, sales promotion materials, press releases or any
other publicity matters use the name “NORTEL NETWORKS”, “Northern Telecom”, “BNR”, “Bell-Northern
Research”, “Nortel Networks Technology” or the name of any Affiliate, or any variation thereof or
language from which the connection of said names may be implied, nor shall any Flextronics Company
disclose or advertise in any manner the nature of Products or

	 	 	 	 	 
	 

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Services which are part of the
Production Effort or any order by Nortel Networks hereunder, or the fact that Flextronics has
entered into this Agreement, unless Flextronics is otherwise required to make
such disclosure under applicable law or Nortel Networks, in its sole discretion, grants Flextronics
Company prior written permission to do so.

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

SECTION 24

INSURANCE

24.1 General Liability Insurance

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

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

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

	 	 	 	 	 
	 

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24.2 Property and Business Insurance

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

24.3 Business Continuity

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

24.4 Certificate of Insurance

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

SECTION 25

EXPIRATION OR TERMINATION

25.1 Effect of Expiration or Termination

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

	 	(a)	 	Nortel Networks shall pay all applicable undisputed amounts or charges owed to
Flextronics as provided in this Agreement. Either Party shall have the right with prior
written notification and mutual agreement to set-off any such amounts or charges owed to
the Party against any amounts owing to the other Party pursuant to this Agreement. If the
aggregate amount owing by Nortel Networks to Flextronics is less than the aggregate amount

	 	 	 	 	 
	 

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	 	 	 	owing by Flextronics to Nortel Networks, Flextronics shall pay such net amount owing to
Nortel Networks promptly and in full within sixty (60) Business Days of the date which is
the earliest of expiry or termination, as the case may be.
	 
	 	(b)	 	So long as Nortel Networks has made all payments required pursuant to paragraph (a)
above, Flextronics shall complete all partially completed applicable Products and deliver
such Products in accordance with the terms of this Agreement that would have otherwise
applied to such Production Effort or Services, as applicable. Provided Nortel Networks has
made all payments required pursuant to paragraph (a) above, Flextronics shall deliver
within three (3) weeks of the later of the date of expiry or termination or such payment, if
required, to Nortel Networks all finished Pre-Production Products and Products and Material
relating thereto in exchange for payment by Nortel Networks of the Price for Products,
direct cost for work-in-process and Material Cost for Material, to the locations designated
by Nortel Networks. For greater certainty, the obligations of Flextronics in this Section
25.1 (b) shall be in addition to and not in substitution for the obligations of Flextronics
to report on Obsolete Inventory, including the obligations set forth in Section 3.9.
	 
	 	(c)	 	The provisions of this Agreement relating to Warranties (Section 13), Sections 18.1 in
respect of Loaned Assets, Sections 19 in respect of Reserved Assets, Confidential and
Proprietary Information (Section 23), Intellectual Property Rights (Section 14) except the
license granted to Flextronics in Section 14.1, Indemnification (Section 15) and Audit
(Section 26.4), shall remain in effect beyond any expiration or termination.
	 
	 	(d)	 	Flextronics shall return all Nortel Company Proprietary Information, Loaned Assets and
any Reserved Assets with respect to which Nortel Networks exercises its right to purchase
pursuant to Section 6 of Exhibit 16 to the locations designated by Nortel Networks and
under Nortel Networks’ supervision, either return, destroy or erase all copies of such
Nortel Company Proprietary Information in the possession of any Flextronics Company or any
of their respective employees, consultants, agents or representatives, including copies on
paper or other hard copy and copies on computer or other storage media, provided, however,
that this provision shall not apply to any such Nortel Company Proprietary Information in
respect of which Flextronics has a continuing license or obligation which survives the
expiry or termination of this Agreement as expressly provided herein.
	 
	 	(e)	 	Nortel Networks shall return to the locations designated by Flextronics Parent all
Flextronics Proprietary Information under Flextronics’s supervision, either return, destroy
or erase all copies of such Flextronics Proprietary Information in the possession of any
Nortel Company or any of their respective employees, consultants, agents or
representatives, including copies on paper or other hard copy and copies on computer or
other storage media; provided, however, that this provision shall not apply to any such
Flextronics Proprietary Information in respect of which Nortel Networks has a continuing
license or obligation which survives the expiry or termination of this Agreement as
expressly provided herein.
	 
	 	(f)	 	In the event that Nortel Networks exercises its right to terminate the purchase of any
Products pursuant to Section 1.3 or either Party exercises its right to terminate the
purchase or supply of any Products for convenience upon 180 days notice pursuant to Section
1.5, and in addition to Flextronics’s obligations in this Section 25.1, Flextronics

	 	 	 	 	 
	 

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	 	 	 	will
(a) at the beginning of the notice period, put in place a dedicated transition team to
manage the transfer of Services back to Nortel Networks or to a third party (b) fulfill all
obligations under this Agreement for the notice period at the same level required under
this Agreement (c) upon reasonable prior notice, allow Nortel Networks and any third party
designated by Nortel Networks access to Flextronics’s Sites and to data and information
necessary for a successful transition, and (d) actively support the transition of the
Products to Nortel Networks or a third party designated by Nortel Networks.
	 
	 	(g)	 	At Nortel Networks option but subject to Flextronics’s agreement, Flextronics shall
continue to perform any requested services for a period of time that continues beyond the
expiration or termination of the Amended Term, on terms and conditions to be mutually agreed
upon.

25.2 Termination

	 	(a)	 	In addition to any other right or remedy available to NNL or any Nortel Company under
this Agreement or at law or in equity, if Flextronics breaches any material term of this
Agreement or a Purchase Order and such breach is susceptible of cure but is not corrected
within fifteen (15) days after the delivery of written notice thereof by Nortel Networks to
Flextronics if Flextronics defaults in any payment to Nortel Networks and within thirty
(30) days after the date of notice of the breach to Flextronics, NNL may terminate this
Agreement and any Nortel Company may terminate any Virtual Systems House Agreement and the
terms of this Agreement applicable thereto and/or any Purchase Order. For greater
certainty, if any Blanket Purchase Order is terminated, all Demand Pull Orders, Kanban
Triggers and Online System Orders relating thereto shall be deemed to be concurrently
terminated. Notwithstanding the foregoing, (i) Nortel Networks and any Nortel Company shall
have the same rights and remedies without the requirement to wait for thirty (30) days for
cure if the breach by any Flextronics Company relates to Nortel Company Proprietary
Information under Section 14 or Section 23 hereof and such breach is not susceptible of
cure; and (ii) Flextronics and any Flextronics Company shall have the same rights and
remedies without the requirement to wait for thirty (30) days for cure if the breach by any
Nortel Company relates to Flextronics Company Proprietary Information under Section 14 or
Section 23 hereof and such breach is not susceptible of cure.
	 
	 	(b)	 	Regardless of the excuse of Force Majeure, if a Party is not able to perform within
ninety (90) days after such event which constitutes Force Majeure, the other Party may
terminate the relevant Virtual Systems House Agreement in accordance with this Section 25.2
provided such Party purporting to terminate is not otherwise in default of any of its
material obligations under this Agreement. Such termination of a Virtual Systems House
Agreement shall not release or diminish any other obligations of any Party hereunder under
any other Virtual Systems House Agreement and the applicable provisions of this Agreement
thereto.
	 
	 	(c)	 	If any Flextronics Company shall be declared insolvent or bankrupt, or if any
assignment of its property shall be made for the benefit of creditors or otherwise, or if
its interest herein shall be levied upon under execution or seized by virtue of any writ of
any court, or if a petition for assignment for the benefit of creditor is filed in a court
is filed by a

	 	 	 	 	 
	 

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	 	 	 	Flextronics Company to declare any Flextronics Company bankrupt, or if a
petition is filed by any person other than a Flextronics Company in any court to declare
any Flextronics Company bankrupt which is not dismissed within sixty (60) days of the
filing of such petition, or if a trustee in bankruptcy, receiver or receiver-manager or
similar officer is appointed for or in respect of any Flextronics Company or its assets,
then NNL may terminate this Agreement and/or any Purchase Order and any Nortel Company
which constitutes part of Nortel Networks may terminate any Virtual Systems House Agreement
and the terms of this Agreement applicable thereto and/or any Purchase Order, at its
option, and without charge, and shall thereupon be free from all liability and obligations
thereunder except as specifically provided in Section 25.1(c), all subject to applicable
bankruptcy and insolvency legislation which may otherwise provide. For greater certainty, if
any Blanket Purchase Order is terminated, all Demand Pull Orders, Kanban Triggers and Online
System Orders relating thereto shall be deemed to be concurrently terminated.
	 
	 	(d)	 	Flextronics may terminate a Purchase Order only if the Nortel Company which issued the
Purchase Order is in material breach of a term, including, without limitation, any payment
obligation of a VSHA or this Agreement or a Purchase Order, and such breach has not been
cured within fifteen (15) days after the delivery of written notice thereof by Flextronics
to Nortel Company defaults in any payment to Flextronics and for any other breach within
thirty (30) days after the date of Flextronics ‘s written notice thereof to the applicable
Nortel Company in respect of the particular breach, provided that Flextronics has sent a
copy of such notice to NNL. The failure of Nortel Networks to pay to Flextronics in a
timely manner any moneys in dispute shall not constitute a material breach hereof.
	 
	 	(e)	 	The Parties agree that the provisions of Exhibit 23 shall apply with respect to those
employees in the United Kingdom or European Union countries who were employed by Nortel
Networks prior to the VSHA Effective Date applicable to Monkstown and Chateaudun System
Houses, respectively, and were transferred to Flextronics pursuant to the Asset Purchase
Agreement.

SECTION 26

GENERAL PROVISIONS

26.1 Access to Facilities

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

	 	 	 	 	 
	 

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26.2 Reporting

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

26.3 Documentation

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

26.4 Audits

26.4.1 Agreement Compliance

Upon Nortel Networks’ prior reasonable request and at Nortel Networks’ cost, Flextronics
shall cooperate in the audit of its records in the manner set forth below, for the purpose
of confirming compliance with this Agreement. Nortel Networks may retain the services of a
major, independent accounting firm, other than the accounting firm(s) employed as primary
outside auditors of Nortel Networks’ or Flextronics Parent (the “Accounting Firm”). In
conducting any audit hereunder or in making a determination following such audit, the
Accounting Firm shall be directed to take into consideration all relevant aspects of the
matter being audited which may include, among other things, product scope, volume levels,
product complexity, regulatory requirements and Material Overhead for comparative purposes.

The Accounting Firm shall be required to maintain in confidence and not disclose to Nortel
Networks any and all Confidential Information concerning the business, affairs and products
of Flextronics that it may learn in the course of conducting its inspections, except to the
extent that it discovers information indicating that Flextronics has violated its
obligations under this Agreement; provided that in no event shall the Accounting Firm make
disclosure to Nortel Networks of information relating to any customer of Flextronics.
Flextronics agrees to permit the Accounting Firm to inspect any of Flextronics’s facilities
where Flextronics’s records are located or stored, and to fully cooperate with such audits
including, without limitation, giving the Accounting Firm full access to all such facilities
and all records, documents, and personnel related to the Products. Nortel Networks shall
give reasonable notice to Flextronics of its desire to conduct such an audit. Audits shall
occur during normal business hours and, except when Nortel Networks in its sole discretion
believes a violation of this Agreement has occurred, shall occur not more often than once in
any twelve (12) month period.

[l ]

	 	 	 	 	 
	 

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26.4.2 Control & Security Compliance

Upon five (5) Business Days notice to Flextronics and during normal business hours, Nortel
Networks shall be permitted to audit, inspect and/or verify relevant Flextronics’s
operations and other areas of service to confirm that (i) Flextronics is maintaining
controls and security measures specific to Flextronics’s fulfillment of its obligations to
Nortel Networks pursuant to this Agreement (ii) billings to Nortel Networks are correct,
(iii) reports relating to Flextronics’s performance are complete and accurate, (iv) records
relating to consigned inventory are accurate, complete, valid and appropriately valued, and
(v) proof of shipping are accurate, complete and valid (‘Inspections’). Nortel Networks
shall clearly state the nature of the Inspection being requested.

Such Inspections shall be limited to information that relates directly to Flextronics’s
fulfillment of its obligations pursuant to this Agreement. Nortel Networks may conduct
Inspections itself or with the assistance of a third party organization acceptable to
Flextronics, provided that the third party organization executes a confidentiality agreement
reasonably acceptable to Flextronics, at Nortel Networks expense, as appropriate.
Inspections may be made as frequently as Nortel Networks reasonably deems appropriate.

Flextronics will provide to Nortel Networks and its respective auditors (including internal
audit staff), inspectors, regulators, consultants and other representatives (collectively
‘Inspectors’) as Nortel Networks may from time to time designate in writing, reasonable
access to, without limitation: (i) Flextronics’ facilities where the services and/or
operations are being performed; (ii) Flextronics’s ‘ personnel and subcontractors providing
any of the services/operations; and (iii) data and records, and (iv) operational or security
audit reports and findings including remediation plans in the possession of Flextronics
relating to any of the relevant services and/or operations. Flextronics will provide such
access to Inspectors upon reasonable written notice by Nortel Networks during regular
business hours, provided that all such persons adhere to Flextronics’s customary security
and safety policies and have executed a confidentiality agreement reasonably acceptable to
Flextronics.

Upon request by Nortel Networks and with Flextronics’s prior consent, not to be unreasonably
withheld, delayed or conditioned, Flextronics will assist and cooperate with Nortel Networks
Inspectors in connection with Inspection functions, including the review and/or timely
remediation of audit issues. Such cooperation shall extend to agreed Sarbanes Oxley
regulatory compliance, as described below.

As the processes impacted by this Agreement and the Sarbanes Oxley rules and regulations
for Section 404 compliance are more fully understood, both Flextronics and Nortel Networks
will work together to determine the exact requirements needed to meet the Sarbanes Oxley
Section 404 legislation. The Parties will work together to determine a reasonable, cost
effective and mutually satisfactory solution to meet each Party’s compliance needs. Each
party will maximize the use of its own internal controls and internally available
information to minimize the impact on the other Party.

	 	 	 	 	 
	 

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All Inspections will be performed in a manner and frequency intended to minimize disruption
to the Parties’ respective businesses.

26.5 Force Majeure

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

26.6 Notices

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

Nortel Networks:

Nortel Networks

3500 Carling Avenue

Ottawa, Ontario

Canada K2H 8E9

Attention: Vice President Supply Management

with a copy to:

NNL Corporate Secretary

8200 Dixie Road, Suite 100,

Brampton, Ontario

Canada L6T 5P6

Flextronics:

Flextronics Telecom Systems Ltd.

802 St. James Court,

St. Denis Street,

Port Louis,

Mauritius

Phone: 230 212 7600

Fax: 230 210 9168

Attention: President

 

With a copy to:

	 	 	 	 	 
	 

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Flextronics International Inc.

Room 908, Dominion Centre,

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

Attention: President

with a copy to:

Corporate Legal Department at the address above

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

26.7 Independent Contractor

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

26.8 Non-Solicitation of Employees

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

	 	 	 	 	 
	 

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

26.9 Flextronics Responsible for its Contractors

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

26.10 Assignment

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

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

Flextronics Parent agrees to give NNL, to the extent legally permissible, notice of the direct or
indirect acquisition by any entity of (1) shares in the capital of Flextronics Parent or of any
Subsidiary of Flextronics Parent who is a party to any Virtual Systems House Agreement, if

	 	 	 	 	 
	 

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rights sufficient to elect a majority of the board of directors of such entity (pursuant to a shareholders
agreement or otherwise) are attached to such shares or such Subsidiary of Flextronics ceases to be
a Subsidiary of Flextronics Parent, or (2) substantially all of the assets of Flextronics Parent
or of such Subsidiary of Flextronics Parent.

26.11 Severability

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

26.12 Governing Law; Waiver of Jury Trial

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

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

26.13 Consent to Jurisdiction

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

26.14 Counterparts

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

	 	 	 	 	 
	 

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26.15 Entire Agreement; Amendments

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

26.16 Construction

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

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

26.17 Headings

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

26.18 Time of Essence

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

26.19 Agreement by All Flextronics Companies

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

26.20 [l   ]

[l ]

26.21 Language

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

	 	 	 	 	 
	 

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Intentionally Left Blank

	 	 	 	 	 
	 

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

	 	 	 	 	 	 	 
	 

	 	 	 	FLEXTRONI
	 	CS TELECOM SYSTEMS, LTD.
	NORTEL NETWORKS LIMITED	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ MANNY MARIMUTHU
	 

	 	 	 	 	 	 
	By:

	 	/s/ CHAHRAM BOLOURI
	 	Name:
	 	Manny Marimuthu
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Name:

	 	Chahram Bolouri

	 	 	 	 
	Title:

	 	President, Global Operations
	 	Title:
	 	Authorized Signatory
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

[Signature Page for Amended and Restated Master Contract

Manufacturing Services Agreement]

 

 

List of Exhibits to the Agreement

	 	 	 
	Exhibit 1

	 	Definitions
	 
	 	 
	Exhibit 2

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

	 	Quality System
	 
	 	 
	Exhibit 4

	 	Intentionally Deleted
	 
	 	 
	Exhibit 5

	 	Issue Resolution and Escalation Process
	 
	 	 
	Exhibit 6

	 	Intentionally Deleted
	 
	 	 
	Exhibit 7

	 	Exception Demand Negotiation Process
	 
	 	 
	Exhibit 8

	 	Material Transfer Procedure
	 
	 	 
	Exhibit 9-1

	 	Design Services
	 
	 	 
	Exhibit 9-2

	 	Sustaining Design Services — Optical
	 
	 	 
	Exhibit 10

	 	New Product Introduction
	 
	 	 
	Exhibit 10-1

	 	NPPI NRE Charges
	 
	 	 
	Exhibit 11

	 	Rework Procedure
	 
	 	 
	Exhibit 12

	 	Intentionally Deleted
	 
	 	 
	Exhibit 13-1

	 	Cost Plus Method (Traditional)
	 
	 	 
	Exhibit 13-2

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

	 	Cost Modeling — Example
	 
	 	 
	Exhibit 14

	 	Ordering Processes
	 
	 	 
	Exhibit 15

	 	Loaned Assets
	 
	 	 
	Exhibit 16

	 	Reserved Assets
	 
	 	 
	Exhibit 17-1

	 	Ongoing Cost Reduction Process
	 
	 	 
	Exhibit 17-2

	 	Incremental Cost Reduction Process
	 
	 	 
	Exhibit 18-1

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

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

	 	NC to SC Transfer Process
	 
	 	 
	Exhibit 20

	 	Forecast Consumption

	 	 	 	 	 
	 

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	Exhibit 21

	 	Forecasting Process
	 
	 	 
	Exhibit 22

	 	List of Countries Eligible for DDP Terms
	 
	 	 
	Exhibit 23

	 	EU Employment Provisions (Acquired Rights Directive)
	 
	 	 
	Exhibit 24

	 	Sourcing Control
	 
	 	 
	Exhibit 25

	 	Excess Uplift Percentages
	 
	 	 
	Exhibit 26

	 	Information Technology — Responsibilities
	 
	 	 
	Exhibit 27

	 	End State Calculation of NC
	 
	 	 
	Exhibit 28

	 	NC to SC Transfer Criteria
	 
	 	 
	Exhibit 29

	 	Process to Establish Day One Pricing
	 
	 	 
	Exhibit 30

	 	Proposed Commodities for Transfer

	 	 	 	 	 
	 

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EXHIBIT 1

DEFINITIONS

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

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

“Affiliate” means individually or collectively:

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

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

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

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

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

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

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

“BOM” means bill of material.

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

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

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

	 	 	 	 	 
	 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“EDI” means electronic data interchange.

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

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

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

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

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

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

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

	 	(a)	 	Failure reports, internal and from the field, or statistical samplings
show that [• ]or more of the same Product installed, or such percentage as set
out in the applicable VSHA or more of the same Product shipped during any one
month, contains an identical, repetitive defect[• ] including any defect affecting the safety or
regulatory compliance of a Product.
	 
	 	(b)	 	DOA Product failures equal or exceed [• ] of all shipments received
by Nortel Networks and its Customers for a given Product during any one-month
period.

“ESP” means electronic systems packaging.

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

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

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

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

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

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

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

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

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

“Force Majeure” means all acts or events beyond the reasonable control of a Party. This definition
shall not include any act or event that would have been prevented, or the effects of which would
have been substantially mitigated, by implementation of a Business Continuity Plan in accordance
with best practices in the relevant equipment manufacturing industry for telecommunications by
Supplier as required under Section 12.1, unless Supplier demonstrates that it has made a good faith effort to implement such a plan. For clarity, the following will be
considered an event of Force Majeure: an act of God, act or decree of governmental or military
bodies, strike, lock-out, fire, casualty, flood, earthquake, war, epidemic, destruction of
production facilities, riot, insurrection; provided however a Party’s failure to resolve its own
labour difficulties such as strike or lock-out shall only be considered an event of Force Majeure
if that Party (i) has included specific action plans related to strikes and lock-outs in its
Business Continuity Plan (ii) is in compliance with fair labour practices under the law of the
applicable jurisdiction, and (iii) has made commercially reasonable efforts to resolve such labour
difficulties.

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

“FTP” means file transfer protocol.

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

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

“ICT” means in-circuit testing.

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

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

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

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

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

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

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

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

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

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

“Loaned Assets” means test equipment, associated software control Programs, and ancillary equipment
which are owned by Nortel Networks and provided to Flextronics from time to time for the purposes
of facilitating the Production Effort undertaken by Flextronics, including test fixtures,
templates, meters, oscilloscopes, spares, tools, dies, jigs, fixtures, instruction manuals,
training materials and test samples, as set forth in the Virtual Systems House Agreement as

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amended by Nortel Networks from time to time. For greater certainty, Loaned Assets do not include Reserved
Assets.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“MRP” means material requirement plan.

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

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

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

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

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

“Nortel Company Proprietary Information” means:

	 	(a)	 	Programs;
	 
	 	(b)	 	technology, designs or other information that enjoy issued or pending
statutory proprietary protection, including patents, copyrights, waivers of moral
rights, mask work rights or integrated circuit topography registrations, industrial
design registrations or design patents but not trade-marks or other indicia of
origin;
	 
	 	(c)	 	confidential or non public business information including ideas,
formulae, plans, proposals, designs, schematics, drawings, flow charts, product and
process and test specifications, trade secrets, know how, technical data, algorithms, databases,
and technical reports, and customer, marketing and financial information;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“RMA” means a return material authorization.

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

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

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

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

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

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

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

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

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

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

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

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

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

“Tax” means any federal, state, provincial, local or foreign taxes or other impositions by any
Government Entity, including the following taxes and impositions: net income, gross income,
individual income, capital, value added, goods and services, gross receipts, sales, use, and

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valorem, transfer, franchise, profits, business, real property, gains, service, service use,
withholding, payroll, employment, excise, severance, occupation, premium, property, license, lease,
stamp, windfall profits, customs, duties or other type of fiscal levy and all other taxes, fees,
assessments, deductions, withholdings or charges of any kind whatsoever, together with any interest
and penalties, additions to tax or additional amounts imposed or assessed with respect thereto.

“TDI” means technical data interchange.

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

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

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

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

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

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

“Tier 1 Supplier” means Flextronics.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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“Year Four” means the twelve months following the third anniversary of the Commencement
Date. AMENDED &RESTATED MCMSA – FINAL

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