Consolidated Financial Statements (unaudited)

EXHIBIT 10.4

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

AMENDED AND RESTATED MASTER CONTRACT MANUFACTURING SERVICES AGREEMENT

between

NORTEL NETWORKS LIMITED

and

FLEXTRONICS TELECOM SYSTEMS LTD.

Dated as of June 29, 2004

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TABLE OF CONTENTS

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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”);

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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

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.

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.

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

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

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

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

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

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

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Nortel Networks and Flextronics shall:

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

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

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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.

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.

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

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

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

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

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

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.

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

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

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

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

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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.

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

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

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

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

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

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

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

[•]

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

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

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

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.

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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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.

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

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

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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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.

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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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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.

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.

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.

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

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

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

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

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

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

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

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

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SECTION 5
CHANGE MANAGEMENT

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

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

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SECTION 6
SERVICES

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

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

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

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

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

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

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

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.

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

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

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

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

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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.

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.

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

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

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

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

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

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

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

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.

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

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

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

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

SECTION 8
QUALITY STANDARDS AND QUALITY PROCESS

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

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SECTION 9
REWORK PRODUCT PROCESS

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.

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

SECTION 10
REPAIR PRODUCT PROCESS

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

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:

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

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

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

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Cost Plus Method (Traditional):

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

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

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

Product Level Pricing Method (PLP):

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

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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.

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.

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.

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

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

“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.

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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SECTION 12 BUSINESS
CONTINUITY

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

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

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

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

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

SECTION 13
WARRANTIES

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

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

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

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

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

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

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

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

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

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

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

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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

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

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.

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

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

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.

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.

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

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SECTION 15
INDEMNIFICATION

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SECTION 16
LIMITATION OF LIABILITY

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

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SECTION 17

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.

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.

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

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SECTION 18
LOANED ASSETS

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

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

SECTION 20
LEGAL AND REGULATORY COMPLIANCE

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

SECTION 21
INTERNATIONAL TRADE

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

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

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.

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

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

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.

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

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

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

SECTION 22
ENVIRONMENTAL POLICIES

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

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

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

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

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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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.

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

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

SECTION 23
CONFIDENTIAL INFORMATION

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

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

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

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

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SECTION 24
INSURANCE

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.

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.

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

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

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

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:

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SECTION 26
GENERAL PROVISIONS

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.

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.

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

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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.

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

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

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

Flextronics:
          Flextronics Telecom Systems Ltd.
          802 St. James Court,

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          St. Denis Street,
          Port Louis,
          Mauritius
          Phone: 230 ###-###-####
          Fax: 230 ###-###-####
          Attention: President

With a copy to:
          Flextronics International Inc.
          Room 908, Dominion Centre,
          43-59 Queen’s Road East, Wanchai, Hong Kong
          Attention: President

With a copy to:
          Corporate Legal Department at the address above

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

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.

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

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

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

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.

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

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

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

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

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.

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

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

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

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.

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.

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”.

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.

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

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

[•]

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.

[Signature Page for Amended and Restated Master Contract Manufacturing
Services Agreement]