Confidential Portions omitted and filed separately with the Securities and Exchange Commission. Bullet points denote omissions.
MASTER CONTRACT LOGISTICS SERVICES AGREEMENT
NORTEL NETWORKS LIMITED
FLEXTRONICS TELECOM SYSTEMS LIMITED
Dated as of June 29, 2004
TABLE OF CONTENTS Section 1 SCOPE OF THE RELATIONSHIP 11 1.1 Expectations 11 1.2 Information Access 11 1.3 Commitments and Obligations 11 1.4 Competitiveness 11 1.5 Structure of the Agreement 12 1.6 Term 12 Section 2 GOVERNANCE PROCESS 13 2.1 Transition Planning 13 2.2 Strategic Governance 13 2.3 Operations Governance 13 2.4 Monthly Operations Reviews 14 2.5 Resources for Service Support 14 Section 3 ORDERING AND DELIVERING 14 3.1 Blanket Purchase Orders 14 3.2 Acceptance of Orders 14 3.3 INTENTIONALLY LEFT BLANK 14 3.4 Issuance of Orders via EDI 14 Section 4 RISK OF LOSS 14 4.1 Risk of Loss 15 4.2 Title 15 Section 5 DELIVERY PROCESS 15 5.1 Delivery Method 15 5.2 Packaging, Labelling and Nortel Networks Trade Marks 15 Section 6 MATERIALS MANAGEMENT PROCESS 16 6.1 Delivery Facility 16 6.2 Flextronics Management Services 16 6.3 Warehousing 16 6.4 Management of Third Party Contracts 16 Section 7 CHANGE MANAGEMENT 18 7.1 Joint Change Management Process 18 7.2 New Services 18 Section 8 QUALITY 19 8.1 Performance Metrics and Report Cards 19 8.2 Industry Standards 20 8.3 Source Inspection 21 8.4 Service Quality 21 Section 9 SERVICE COST MANAGEMENT PROCESS 21 9.1 Prices for Services 21 9.2 Payment, Taxes and Duties 22 9.3 Financial Review and Targets 23 9.4 Forecasting 23 9.5 Audit 24
9.6 Cost Reduction with respect to Services described in Exhibit " 1-A" 25 9.7 Cost Reduction with respect to Services described in Exhibit " 1-B" 27 Section 10 BUSINESS CONTINUITY 29 10.1 Business Continuity Planning 29 Section 11 WARRANTIES 29 11.1 Services 29 11.2 Return of Orders 30 11.3 General 30 Section 12 INTELLECTUAL PROPERTY RIGHTS AND LICENSES 30 12.1 License to Nortel Company Product Information Granted 30 12.2 Limitations on Grant of License 31 12.3 Flextronics' Inventions 31 12.4 Flextronics Retains Ownership of Flextronics Proprietary Information 31 12.5 Assignment of Inventions Agreements with Employees 31 Section 13 INDEMNIFICATION 32 13.1 Intellectual Property Indemnification 32 13.2 Other Indemnification 33 Section 14 34 LIMITATION OF LIABILITY 34 Section 15 COMMUNICATION AND INFORMATION TRANSFER 34 15.1 Transmissions 34 15.2 Access to Nortel Networks Computer Systems by Flextronics 34 15.3 Flextronics Compatibility with Nortel Networks Computer Systems 35 Section 16 EQUIPMENT FURNISHED BY NORTEL NETWORKS 35 16.1 Title to Equipment Furnished by Nortel Networks 35 16.2 Risk, Insurance and Maintenance of Equipment Furnished by Nortel Networks 35 16.3 Tracking of Equipment Furnished by Nortel Networks 35 Section 17 LEGAL AND REGULATORY COMPLIANCE 36 Section 18 INTERNATIONAL TRADE 36 18.1 Exports 36 18.2 Customs Invoice 36 18.3 Duty Drawback and Minimization 37 Section 19 ENVIRONMENTAL POLICIES 37 19.1 Corporate Policy 37 19.2 European Union (" EU" ) Environmental Directives 38 19.3 Packaging Reusable and Recyclable 38 19.4 Disposal Policies 38 19.5 Collaborate on Environmental Initiatives 38 19.6 Hazardous Materials 39 Section 20 CONFIDENTIALITY AND PROPRIETARY INFORMATION 39 20.1 Restriction on Disclosure and Use of Confidential Information 39 20.2 Publicity 40
Section 21 INSURANCE 40 21.1 General Liability Insurance 40 21.2 Property and Business Insurance 41 21.3 Certificate of Insurance 41 21.4 Business Continuity 41 Section 22 EXPIRATION OR TERMINATION 41 22.1 Termination 42 22.2 Intentionally left blank 43 22.3 Intentionally left blank 43 22.4 Effect of Expiration or Termination 43 Section 23 TERMINATION ASSISTANCE SERVICES 44 23.1 Scope of Termination Assistance Services 44 23.2 Limit on Obligation to Provide Termination Assistance Services 45 23.3 Termination Assistance Period 45 Section 24 ISSUE RESOLUTION AND ESCALATION PROCESS 45 24.1 Issue Resolution and Escalation Process 45 Section 25 GENERAL PROVISIONS 45 25.1 Access to Facilities 45 25.2 Reporting 45 25.3 Documentation 46 25.4 Audits 46 25.5 Force Majeure 46 25.6 Notices 46 25.7 Independent Contractor 47 25.8 Contractor Responsible for its Contractors 47 25.9 Assignment 48 25.10 Severability 48 25.11 Governing Law 48 25.12 Consent to Jurisdiction 49 25.13 Entire Agreement; Amendments 49 25.14 Construction 49 25.15 Headings 49 25.16 Time of Essence 50 25.17 Agreement by All Contractor Entities 50 25.18 Most Favoured Customer 50 25.19 Language 50 25.20 Counterparts 50
LOGISTICS EXHIBITS Exhibit " 1-A" Freight, Duty and Delivery Services Exhibit " 1-B" Logistics Operations Services Exhibit " 1-B" Schedule " A" Intentionally Left Blank Exhibit " 1-C" Strategic Logistics Services Exhibit " 2" Performance Metrics & Scorecard Exhibit " 2" Schedule " A" - Service Level Reports Exhibit " 3" Cost Reporting Exhibit " 3" Schedule " A" Cost Reduction Baseline and Measurement (Exhibit " 1-A" Services) Exhibit " 3" Schedule " B" Cost Reduction Baseline and Measurement (Exhibit " 1-B" Services) Exhibit " 3" Schedule " C" Nortel Networks programs to deliver OCR Exhibit " 3" Schedule " D" Flextronics programs to deliver ICR Exhibit " 4" Managed Contracts Exhibit " 5" Intentionally Left Blank Exhibit " 6" Nortel Networks' Non-Disclosure Form Exhibit " 6-1" Flextronics' Non-Disclosure Form Exhibit " 7" Issue Resolution and Escalation Process Exhibit " 8" UK Service Cessation
Master Contract Logistics Services Agreement
This Agreement is entered into between Nortel Networks Limited (formerly Nortel Networks Corporation), a Canadian corporation with a place of business at 8200 Dixie Road, Suite 100, Brampton, Ontario (" NNL" ) and Flextronics Telecom Systems Limited, a company duly established under the laws of Mauritius, and having its registered office located at Suite 802 St James Court, St Denis Street, Port Louis, Mauritius, executed on June 29, 2004(" Execution Date" ). As set out in the Phased Closing Side Letter, dated as of the Execution Date, the Effective Date of this Master Contract Logistics Services Agreement (the " Agreement" ) shall be the date that the first Virtual System House Agreement is executed (" Effective Date" ). The Parties agree that the terms and conditions of this Agreement shall come into effect for each VSHA executed as such VSHAs are executed (" VSHA Effective Date(s)" ).
WHEREAS NNL is transferring certain telecommunication, product assembly, integration and test activities, and repair activities (including the management or purchasing and other procurement activities and customer order fulfillment activities) to Flextronics pursuant to the Asset Purchase Agreement (the " Operations" ).
WHEREAS Flextronics International Ltd., a company duly established under the laws of Singapore, and having its registered office located at 2 Changi South Lane, Singapore 486123 acting through its Hong Kong branch office with offices at Room 908, Dominion Centre, 43-59 Queen' s Road East, Wanchai, Hong Kong and NNL have executed that certain Performance Guarantee dated June 29, 2004;
WHEREAS NNL wishes Flextronics (in connection with the Operations) to provide NNL certain transportation and logistics services (which services are currently being provided by NNL' s internal staff or by certain third party providers) relating to the material movement of Materials.
WHEREAS NNL has agreed to purchase and Flextronics has agreed, upon and subject to the terms and conditions set out herein, to provide the services as more particularly defined herein;
NOW THEREFORE, in consideration of the mutual promises hereinafter set forth (the receipt and sufficiency of which is hereby acknowledged), the Parties hereby agree as follows:
" Affiliate" means individually or collectively:
(a) a joint venture or other cooperative business enterprise formed between Nortel Networks and one (1) or more persons which are not part of or related to Nortel Networks; and/or (b) a corporation or other legal entity in which Nortel Networks, directly or indirectly, at any time, owns or controls twenty (20%) percent or more of the voting equity shares, or securities convertible into such shares.
" Asset Purchase Agreement" means the agreement between NNL and Flextronics executed on June 29, 2004 pursuant to which Flextronics has purchased certain assets pertaining to the business of NNL and has made offers of employment to certain employees identified therein.
" Assists" means goods and services supplied directly or indirectly, free of charge or at a reduced cost for use in connection with the production of imported goods, such as raw materials, components, parts used incorporated into the imported goods, tools, dies, moulds and other equipment used to produce the finished goods, any materials used to produce the finished goods being imported, engineering, development work, art work, designs, plans, sketches undertaken anywhere other than the country of import.
" Blanket Purchase Order" means an Order for Services which does not set forth a Delivery Date, Shipping Date and/or specific quantities.
" Business Continuity Plan" has the meaning set forth in Section 10.1.
" Business Day" means, for the purposes of dealings between NNL and Flextronics hereunder, any day other than Sunday, or a statutory holiday or otherwise scheduled holiday agreed to in writing by the Parties, on which either of such Parties is closed for business.
" Class A" means items that are brand new and have not been installed in a Customer' s live network.
" Commencement Date" means the VSHA Effective Date for the last of the following System Houses to be transferred: Calgary, Montreal, Monkstown, or Chateaudun; provided that the optical designers in Ottawa and Monkstown and the logistics management and embedded physical repair in St. Laurent and Calgary must have been transferred.
" Competitor" means any company with more than $50 million in revenues from the development or sale of telecom, optical or wireless networking equipment.
" Confidential Information" means all information which can reasonably be considered to be confidential and proprietary, whether transmitted electronically or in written form, relating to the business, operations, processes or technology of either Party or any of its affiliates, which shall include but not be limited to all data, reports, interpretations, financial statements, forecasts and records containing or otherwise reflecting information concerning the Party or any of its affiliates which a Party may receive from the other Party in connection with this Agreement, including Flextronics Proprietary Information, Nortel Company Proprietary Information, business and marketing strategies (including pricing policies, cost and profit information, Customer information, supplier information), product development plans, information relating to the design of equipment or facilities or products, trade secrets, together with other documents, which contain or otherwise reflect information regarding a Party and/or any of its affiliates.
" Contact Centre" means the point of contact designated by Nortel Networks for its Customers.
" Control and Responsibility" means, for the purposes of Section 8.1.2 [ullet ].
" Currency Conversion" means a factor used in calculating Price, or any part thereof, for purchases in a currency other than the currency in which Nortel Networks is required to pay
Flextronics hereunder, based on a rolling three (3) month window for the exchange of such other currency into such payment currency required from Nortel Networks as published by the Royal Bank of Canada from time to time (the " Exchange Rate" ). Currency fluctuations shall be measured when the invoices are produced. If there is a fluctuation of b15% in the Exchange Rate from the preceding month, the Currency Conversion factor shall be adjusted to reflect the Exchange Rate in the current months invoice.
" Customer" means Nortel Networks' customers which receive Materials delivered pursuant to the Services provided by Flextronics.
" Delivery Date" means the date when the Materials are to be delivered to the Delivery Location.
" Delivery Facility" means the applicable Flextronics facility from which Materials are shipped at the direction of Flextronics to the Delivery Location.
" Delivery Location" means the location specified in an Order For Materials to which the Materials shall be delivered or to any applicable stocking location.
" Dollar" or " $" means U.S. dollars.
" EDI" means electronic data interchange of information related to Orders.
" Flextronics" means Flextronics Telecom Systems Limited, and any other Person that directly or indirectly Controls, or is under common Control with, or is Controlled by, Flextronics Telecom Systems Limited. For the purposes of this definition, " Control" , including, with its correlative meanings, " Controlled by" and " under common Control with" , has the meaning ascribed thereto in the Canada Business Corporations Act .
" Flextronics Invention" means any innovation, improvement, idea or feature, whether or not patentable or registerable, which is conceived or created in the course of the performance by Flextronics of Services, but shall not include Product Specific Inventions.
" Flextronics Proprietary Information" means information, technology, processes, or other proprietary property, including copyrights, trade secrets, know-how, mask work rights, any waiver to moral rights, patents and/or patent applications in any form or medium developed or acquired by Flextronics or its licensors other than Nortel Networks, but for greater certainty, does not include the following: (i) Nortel Networks Proprietary Information or such information or processes listed above which are derived from Nortel Networks Proprietary Information; (ii) Product Specific Inventions; (iii) Orders for Materials; (iv) Orders and all deliverables resulting from the provision of Services; (v) Nortel Networks Product Information; (vi) property furnished by Nortel Networks pursuant to Section 16; and (vii) such information, technology, processes, or other methods developed or arising out of Services funded by Nortel Networks under this Agreement.
" Flextronics System" means all software and systems used by Flextronics in the performance of this Agreement.
" Force Majeure" means all acts or events beyond the reasonable control of a Party. This definition shall not include any act or event that would have been prevented, or the effects of
which would have been substantially mitigated, by implementation of a Business Continuity Plan in accordance with best practices in the logistics industry for telecommunications and electronics products by Flextronics as required under Section 10.1, unless Flextronics demonstrates that it has made a good faith effort to implement such a plan. For clarity, the following will be considered an event of Force Majeure: an act of God, act or decree of governmental or military bodies, strike, lock-out, fire, casualty, flood, earthquake, war, epidemic, destruction of logistics facilities, riot, insurrection; provided however a Party' s failure to resolve its own labour difficulties such as strike or lock-out shall only be considered an event of Force Majeure if that Party (i) has included specific action plans related to strikes and lock-outs in its Business Continuity Plan (ii) is in compliance with fair labour practices under the law of the applicable jurisdiction, and (iii) has made commercially reasonable efforts to resolve such labour difficulties.
" Freight and Duty" means the cost of freight and duty in respect of the delivery of Materials from the Delivery Facility to the applicable Delivery Location.
" Government Entity" means any federal, provincial, state, municipal or other governmental authority, domestic or foreign, or any entity exercising executive, legislative, judicial, regulatory or administrative function of government.
" Intellectual Property Rights" means all patents, copyrights, trade secrets and other proprietary rights related to the Nortel Company Product Information.
" Materials" includes both products manufactured by Flextronics pursuant to the MCMSA and material purchased by Flextronics on behalf of Nortel Networks.
" Materials Purchase Price" has the meaning given to the term " Price" in the MCMSA.
" MCMSA" means the Amended and Restated Master Contract Manufacturing Agreement dated June 29, 2004, between NNL and Flextronics with respect to manufacturing services to be provided to Nortel Networks relating to the products specified therein.
" Nortel Company" means NNL or a Subsidiary of NNL.
" Nortel Networks" means NNL or, as applicable, any Nortel Company that has become a Party to this Agreement by issuing an Order, a Blanket Purchase Order or an Order for Materials under this Agreement.
" Nortel Company Inventory" means Materials held and managed by Flextronics but owned by Nortel Networks.
" Nortel Company Product Information" means all know-how, processes and procedures, product architecture, specifications, designs, design information, drawings, artwork, manufacturing information and data, circuit schematics, stocklists, assembly drawings, drill data, wiring diagrams, functional schematics, piece part drawings (magnetics, sheet metal and cable assembly), tooling and test routines, programs and data, any other information and materials, functional description and technical or business information or data, computer programs, technology, inventions, discoveries, techniques, which may be disclosed orally, visually, in writing, in machine recognizable form or in any other fixed form relating to Materials and required for the delivery of the Services.
" Nortel Company Proprietary Information" means:
a) Programs; b) Nortel Company Product Information; c) technology, designs or other information that enjoy issued or pending statutory proprietary protection, including patents, copyrights, waivers of moral rights, mask work rights or integrated circuit topography registrations, industrial design registrations or design patents but not trade-marks or other indicia of origin; d) confidential or non public business information including without limitation, ideas, formulae, plans, proposals, designs, schematics, drawings, flow charts, product and process specifications, trade secrets, know how, technical data, algorithms, databases, and technical reports, and customer, marketing and financial information;
embodied in any form or medium and owned or developed by or on behalf of a Nortel Company or acquired from its licensors with rights to disclose or sublicense that pertains to a Nortel Company' s business, including products and their design, manufacture, use and testing, systems, specifications and all deliverables resulting from the Services, and Product Specific Inventions or any Flextronics Proprietary Information.
" Nortel Networks Trade-Marks" mean words, designs, shapes, configurations, guises or brands that serve as indications that the origin of packaging or Materials is Nortel Networks and includes model numbers and product designations as used both internally and externally on the packaging or Materials or in conjunction with their sale or other distribution.
" Operations" means those certain telecommunication, product assembly, integration and test activities and repair activities (including the management or purchasing and other procurement activities and customer order fulfillment activities) that Nortel Networks is transferring to Flextronics pursuant to the Asset Purchase Agreement.
" Order(s)" means either the " hard copy" document or EDI used by Nortel Networks to order Services under this Agreement. For purposes of this Agreement, a reference to an Order shall include a Blanket Purchase Order.
" Order(s) For Materials" means an order placed by Nortel Networks to Flextronics for the purchase of Materials.
" Order Fulfillment" means the preparation of Materials for shipment, including all applicable documentation, in accordance with the provisions of this Agreement.
" Party" means either Nortel Networks or Flextronics and " Parties" shall mean both Nortel Networks and Flextronics.
" Person" means an individual, a partnership, a corporation, an association, a limited liability company, a joint stock company, a trust, a joint venture, an unincorporated organization or a Government Entity.
" Price" means the price paid by Nortel Networks to Flextronics with respect to any applicable Services provided under this Agreement, as such amount is defined in Section 9.1.
" Product Specific Inventions" means Flextronics innovations, improvements, ideas or features relating to or incorporated into the Materials, but not including any such innovations, ideas or feature relating solely to the material movement of the Materials.
" Programs" means software used or retained for use in the provision of Services, in whatever form, including that which is ROM resident, listings, flowcharts, logic diagrams, operating instructions, and any other related documentation.
" Replacement Value" means the cost to Nortel Networks of replacing property furnished to Flextronics pursuant to Section 16 of this Agreement.
" SCO" or " Service Change Order" means a direction in the form of a service change order to make a change to Services.
" Service Change Impact Form" means the form to be completed by Flextronics in response to a proposed change to the Services, which form shall contain, at a minimum, an estimate of the time necessary to complete the change and the increase or decrease, if any, in the Price of the relevant Services.
" Service Exhibits" means, collectively, Exhibit " 1-A" - Freight, Duty and Delivery Services, Exhibit " 1-B" - Logistics Operations Services, and Exhibit " 1-C" - Management of Third Party Service Providers.
" Services" means transportation and logistics services (which services are currently being provided by Nortel Networks' internal staff or by certain third party providers) relating to the material movement of Materials to an applicable Delivery Location, such services as more particularly described in the Service Exhibits.
" Shared Services Agreement" means the Shared Services Agreement entered into between NNL and Flextronics as of the Effective Time.
" Shipping Date" means the date when Materials are tendered by Flextronics to a carrier at the Delivery Facility for shipment to the Delivery Location.
" Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) directly or indirectly owns more than fifty percent (50%) of the issued and outstanding equity securities or securities convertible into such securities or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors.
" TDI" means technical data interchange by electronic means.
" Term" has the meaning set forth in Section 1.6.
" Virtual System House Agreement" or " VSHA" has the meaning set forth in the MCMSA.
" Year" means any twelve month period following the Commencement Date or annual anniversary of the Commencement Date.
" Year One" means the twelve months following the Commencement Date.
" Year Two" means the twelve months following the first anniversary of the Commencement Date.
" Year Three" means the twelve months following the second anniversary of the Commencement Date.
" Year Four" means the twelve months following the third anniversary of the Commencement Date.
SCOPE OF THE RELATIONSHIP
Nortel Networks and Flextronics will collaborate to provide a variable cost infrastructure to deliver Materials to Customers.
1.2 Information Access
Flextronics will have access to the Nortel Networks Product Information, to the extent it is relevant for the provision of the Services. To enable Flextronics to perform the Services Nortel Networks shall provide relevant information reasonably required by Flextronics.
1.3 Commitments and Obligations
Nortel Networks shall maintain a central Contact Centre to which Customers shall be instructed to contact Nortel Networks regarding the provision of Services. During the Term of this Agreement, and provided Flextronics is not in material breach of this Agreement, Nortel Networks agrees to purchase from Flextronics [ullet ].
Flextronics covenants and agrees to perform the Services in accordance with terms of this Agreement and in accordance with Nortel Networks workmanship standards as set out in this Agreement and any Exhibits attached hereto or any more stringent standard indicated herein or mutually agreed to at a later date.
If Flextronics fails to remain Competitive with its competitors with respect to the Services, then Nortel Networks may source such Service from another supplier. Notwithstanding the foregoing, Nortel Networks will not transfer the Service if Supplier becomes Competitive within forty-five (45) days from notification by Nortel Networks that Supplier has failed to remain Competitive, as defined below. For the purposes of this Section, " Competitive" means terms and conditions taken as a whole that are more favourable to Nortel Networks, as determined in a " bona fide benchmarking" exercise or as provided in a bona fide quote from a third party considering price, service quality, delivery interval, service commitments, and other criteria identified by Nortel Networks in writing to Flextronics. A " bona fide benchmarking exercise" shall be considered to be one performed by an independent recognized benchmarking firm which is (i) selected by
Nortel Networks from those companies which are regularly engaged in the logistics industry, or other consultant as agreed between the Parties, (ii) is not a competitor of Flextronics and (iii) which has executed a non-disclosure agreement reasonably satisfactory to Flextronics. All fees and charges paid to such benchmarking firm shall be borne by Nortel Networks, and such fees and charges shall not be contingent upon reaching a conclusion favourable to Nortel Networks. Each Party shall have the opportunity to advise the benchmarking firm of any information or factors that it deems relevant to the conduct of the benchmarking, with the intention of providing an " apples to apples" comparison, so long as such information is disclosed to the other Party. The benchmarking firm shall provide the written reports and the core data resulting from the benchmarking to both Nortel Networks and Flextronics, including the factors actually used to perform the benchmarking, data on participants and confidence factors related to the accuracy of the data and the benchmarking methodology. Flextronics will be entitled to challenge the accuracy of the results of the benchmarking exercise pursuant to the Issue Resolution and Escalation Process.
1.5 Structure of the Agreement
This Agreement sets out the terms and conditions of the relationship between Nortel Networks and Flextronics and the Services to be performed by Flextronics pursuant to this Agreement and the terms of performance of such Services by Flextronics. Each Order, or Blanket Purchase Order issued to Flextronics shall create rights and obligations between the Nortel Company which issues the Order and Flextronics. No Nortel Company shall be liable to Flextronics for performance of any obligation by another Nortel Company arising in connection with this Agreement.
This Agreement shall continue to apply to an Order issued during the Term until all obligations provided for in this Agreement are performed. Notwithstanding that an Order doe