10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD FROM             TO            

COMMISSION FILE NUMBER: 0-23354

FLEXTRONICS INTERNATIONAL LTD.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

SINGAPORE	NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF	(I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)	IDENTIFICATION NO.)

MICHAEL E. MARKS
CHIEF EXECUTIVE OFFICER
FLEXTRONICS INTERNATIONAL LTD.
ONE MARINA BOULEVARD, #28-00
SINGAPORE 018989
(65) 6890-7188
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [   ]

     As of August 4, 2004, there were 556,111,183 shares of the Registrant’s ordinary shares outstanding.

FLEXTRONICS INTERNATIONAL LTD.

INDEX

		PAGE
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Report of Independent Registered Public Accounting Firm		3
	Condensed Consolidated Balance Sheets - June 30, 2004 and March 31, 2004		4
	Condensed Consolidated Statements of Operations - Three Months Ended June 30, 2004 and June 30, 2003		5
	Condensed Consolidated Statements of Cash Flows - Three Months Ended June 30, 2004 and June 30, 2003		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		31
Item 4.	Controls and Procedures		32
	PART II. OTHER INFORMATION
Item 1.	Legal proceedings		32
Item 6.	Exhibits and Reports on Form 8-K		33
	Signatures		34
EXHIBIT 10.01
EXHIBIT 10.02
EXHIBIT 10.03
EXHIBIT 23.01
EXHIBIT 31.01
EXHIBIT 31.02
EXHIBIT 32.01
EXHIBIT 32.02

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Flextronics International Ltd.:

We have reviewed the accompanying condensed consolidated balance sheet of Flextronics International Ltd. and subsidiaries as of June 30, 2004, and the related condensed consolidated statements of operations and cash flows for the three month periods ended June 30, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of March, 31, 2004 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated June 14, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2004 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

San Jose, California
August 4, 2004

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FLEXTRONICS INTERNATIONAL LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	As of			As of
	June 30, 2004			March 31, 2004
	(In thousands, except
	share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	664,624		$	615,276
Accounts receivable, net		1,896,907			1,871,637
Inventories		1,385,656			1,179,513
Deferred income taxes		6,363			14,244
Other current assets		537,670			581,063
Total current assets		4,491,220			4,261,733
Property, plant and equipment, net		1,616,919			1,625,000
Deferred income taxes		646,715			604,785
Goodwill		2,676,735			2,653,372
Other intangible assets, net		65,375			68,060
Prepayment related to pending acquisition		226,461			—
Other assets		470,137			370,987
Total assets	$	10,193,562		$	9,583,937
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank borrowings and current portion of long-term debt	$	57,529		$	96,287
Current portion of capital lease obligations		8,210			8,203
Accounts payable		2,439,961			2,145,174
Other current liabilities		1,080,719			1,127,253
Total current liabilities		3,586,419			3,376,917
Long-term debt, net of current portion:
Capital lease obligations, net of current portion		13,092			15,084
Zero coupon convertible junior subordinated notes due 2008		200,000			200,000
9 7/8% Senior subordinated notes due 2010, net of discount		7,659			7,659
9 3/4% Euro senior subordinated notes due 2010		181,884			181,422
1% Convertible Subordinated Notes due 2010		500,000			500,000
6 1/2% Senior Subordinated Notes due 2013		399,650			399,650
Outstanding under revolving line of credit		536,000			220,000
Other		99,067			100,446
Other liabilities		202,263			215,546
Commitments and contingencies (Note I)
Shareholders’ equity:
Ordinary shares, S$.01 par value, authorized - 1,500,000,000 shares; issued and outstanding - 531,319,762 and 529,944,282 shares as of June 30, 2004 and March 31, 2004, respectively		3,143			3,135
Additional paid-in capital		5,026,822			5,014,990
Accumulated deficit		(648,149	)		(722,471	)
Accumulated other comprehensive income		91,787			78,105
Deferred compensation		(6,075	)		(6,546	)
Total shareholders’ equity		4,467,528			4,367,213
Total liabilities and shareholders’ equity	$	10,193,562		$	9,583,937

The accompanying notes are an integral part of these condensed consolidated financial statements.

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FLEXTRONICS INTERNATIONAL LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended
	June 30, 2004			June 30, 2003
	(In thousands, except per share amounts)
Net sales	$	3,880,448		$	3,106,677
Cost of sales		3,633,516			2,941,636
Restructuring charges		20,991			308,835
Gross profit		225,941			(143,794	)
Selling, general and administrative expenses		141,596			116,415
Intangibles amortization		8,661			8,817
Restructuring charges		2,597			18,273
Interest and other expense, net		18,286			25,911
Loss on early extinguishment of debt		—			8,695
Income (loss) before income taxes		54,801			(321,905	)
Benefit from income taxes		(19,521	)		(32,190	)
Net income (loss)	$	74,322		$	(289,715	)
Earnings (loss) per share:
Basic	$	0.14		$	(0.56	)
Diluted	$	0.13		$	(0.56	)
Weighted average shares used in computing per share amounts:
Basic		530,626			521,100
Diluted		568,013			521,100

The accompanying notes are an integral part of these condensed consolidated financial statements.

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FLEXTRONICS INTERNATIONAL LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	June 30, 2004			June 30, 2003
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	74,322		$	(289,715	)
Depreciation and amortization		86,481			91,195
Change in working capital and other		5,416			444,801
Net cash provided by operating activities		166,219			246,281
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net of dispositions		(60,269	)		(32,316	)
Acquisitions of businesses, net of cash acquired		(33,424	)		(6,252	)
Prepayment relating to pending acquisition		(226,461	)		—
Other investments and notes receivable		(96,256	)		(24,102	)
Net cash used in investing activities		(416,410	)		(62,670	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings and long-term debt		414,814			425,745
Repayments of bank borrowings and long-term debt		(139,590	)		(180,275	)
Repayments of capital lease obligations		(2,140	)		(5,056	)
Net proceeds from issuance of ordinary shares		11,840			9,352
Net cash provided by financing activities		284,924			249,766
Effect of exchange rate on cash		14,615			2,354
Net increase in cash and cash equivalents		49,348			435,731
Cash and cash equivalents at beginning of period		615,276			424,020
Cash and cash equivalents at end of period	$	664,624		$	859,751

The accompanying notes are an integral part of these condensed consolidated financial statements

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FLEXTRONICS INTERNATIONAL LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A — ORGANIZATION OF THE COMPANY

Flextronics International Ltd. (“Flextronics” or the “Company”) was incorporated in the Republic of Singapore in May 1990. The Company is a leading provider of advanced electronics manufacturing services (EMS) to original equipment manufacturers (OEMs) that span a broad range of products and industry segments, including cellular phones, printers and imaging, telecom/datacom infrastructure, medical, automotive, industrial systems and consumer electronics. The Company’s strategy is to provide customers with a complete range of services that are designed to meet their product requirements throughout their product development life cycle. The Company provides customers with global end-to-end supply chain services that include design and related engineering, new product introduction, manufacturing, and logistics with the goal of delivering a complete packaged product. The Company also provides after-market services such as repair and warranty services as well as network and communications installation and maintenance.

In addition to the assembly of printed circuit boards and complete systems and products, the Company’s manufacturing services include the fabrication and assembly of plastic and metal enclosures, the fabrication of printed circuit boards and backplanes and the fabrication and assembly of photonics components. The Company also provides contract design and related engineering services which include all aspects of product design, including industrial and mechanical design, hardware design, embedded and application software development, semiconductor design, system validation and test development through which it offers its customers the choice of full product development, system integration, cost reductions and software application development.

In addition, the Company combines its design and manufacturing services to design, develop and manufacture complete products, such as cellular phones and other consumer-related devices that are sold by its OEM customers under the OEMs’ brand names. This service offering is referred to as original design manufacturing (ODM).

NOTE B — SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements, and should be read in conjunction with the Company’s audited consolidated financial statements as of and for the fiscal year ended March 31, 2004 contained in the Company’s Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months period ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending March 31, 2005.

The Company’s fiscal year ends on March 31 of each year. The first and second fiscal quarters end on the Friday closest to the last day of each such fiscal quarter, and the third and fourth fiscal quarters end on December 31 and March 31, respectively.

Amounts included in the financial statements are expressed in U.S. dollars unless otherwise designated as Singapore dollars (S$) or Euros (€).

The accompanying condensed consolidated financial statements include the accounts of Flextronics and its wholly and majority-owned subsidiaries, after elimination of all significant intercompany accounts and transactions.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.

Translation of Foreign Currencies

The financial position and results of operations of certain of the Company’s subsidiaries are measured using a currency other than the U.S. dollar as their functional currency. Accordingly, for these subsidiaries all assets and liabilities are translated into U.S. dollars at the current exchange rates as of the respective balance sheet date. Revenue and expense items are translated at the average exchange rates prevailing during the period. Cumulative gains and losses from the translation of these subsidiaries’ financial statements are reported as a separate component of shareholders’ equity.

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Revenue Recognition

Revenue from manufacturing services is recognized upon shipment of the manufactured product to the customers under contractual terms, which are FOB shipping point. Revenue from other services and after-market services is recognized when the services have been performed. Upon shipment, title transfers, and the customer assumes the risks and rewards of ownership of the product.

Inventories

Inventories are stated at the lower of cost (on a first-in, first-out basis) or market value. Cost is comprised of direct materials, labor and overhead. The components of inventories, net of applicable lower of cost or market provision, were as follows (in thousands):

	As of		As of
	June 30, 2004		March 31, 2004
Raw materials	$	757,711	$	622,905
Work-in-process		237,710		242,435
Finished goods		390,235		314,173
	$	1,385,656	$	1,179,513

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the related assets (three to thirty years), with the exception of building leasehold improvements, which are amortized over the term of the lease, if shorter. Repairs and maintenance costs are expensed as incurred.

The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of property and equipment is measured by comparing its carrying amount to the projected undiscounted cash flows the property and equipment are expected to generate. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds its fair value.

Goodwill and Other Intangibles

Goodwill of the reporting units is tested for impairment on an annual basis and between annual tests whenever events or changes in circumstance indicate that the carrying amount of goodwill may not be recoverable. In November 2002, the date of the test was changed from March 31st to January 31st to enable the Company to meet its public reporting requirements. The Company believes that the accounting change described above is to an alternative accounting principle that is preferable under the circumstances and that the change is not intended to delay, accelerate or avoid an impairment charge. Goodwill is tested for impairment at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. Reporting units represent components of the Company for which discrete financial information is available to management, and for which management regularly reviews the operating results. For purpose of the annual goodwill impairment evaluation, the Company has identified two separate reporting units: Electronic Manufacturing Services and Network Services. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to measure the amount of impairment loss, if any. Further, in the event that the carrying amount of the Company as a whole is greater than its market capitalization, there is a potential likelihood that some or all of its goodwill would be considered impaired.

The following table summarizes the activity in the Company’s goodwill account (in thousands):

	Three Months Ended
	June 30, 2004
Balance, beginning of the fiscal period	$	2,653,372
Additions		31,582
Foreign currency translation adjustments		(2,949	)
Reclassification to other intangibles(1)		(5,270	)
Balance, end of the fiscal period	$	2,676,735

⁽¹⁾ Reclassification resulting from the completion of final allocation of the Company’s intangible assets acquired through certain business combinations in a period subsequent to the respective period of acquisition, based on third-party valuations.

All of the Company’s acquired intangible assets are subject to amortization over their estimated useful lives. The Company’s intangible assets are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of an intangible may not be recoverable. Intangible assets are comprised of contractual agreements, patents and trademarks, developed technologies and other acquired intangibles. Contractual agreements, patents and trademarks, and developed technologies are amortized on a straight-line basis up to ten years. Other acquired intangibles related to favorable leases and customer lists are amortized on a straight-line basis over three to ten years. No residual value is estimated for the intangible assets. During the three months ended June 30, 2004, there was approximately $5.4 million of additions to intangible assets, primarily related to purchased patents and certain contractual agreements. The components of

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other intangible assets are as follows (in thousands):

	As of June 30, 2004							As of March 31, 2004
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Intangible assets:
Contractual agreements	$	82,976	$	(38,820	)		44,156	$	77,706	$	(31,584	)	$	46,122
Patents and trademarks		2,695		(898	)		1,797		2,611		(536	)		2,075
Developed technologies		500		(126	)		374		500		(84	)		416
Other acquired intangibles		30,573		(11,525	)		19,048		31,520		(12,073	)		19,447
Total	$	116,744	$	(51,369	)	$	65,375	$	112,337	$	(44,277	)	$	68,060

Total amortization expense recorded during the three months ended June 30, 2004 and June 30, 2003 was $8.7 million and $8.8 million, respectively. Expected future annual amortization expense is as follows (in thousands):

Fiscal years ending March 31,	Amount
2005	$	23,199	(1)
2006		16,270
2007		12,933
2008		5,251
2009		1,981
Thereafter		5,741
Total amortization expenses	$	65,375

⁽¹⁾ Represents estimated amortization for the nine-month period ending March 31, 2005

Deferred Income Taxes

The Company provides for income taxes in accordance with the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying the applicable statutory tax rate to such differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.

Accounting for Stock-Based Compensation

At June 30, 2004, the Company maintained six stock-based employee compensation plans. The Company accounts for its stock option awards to employees under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. No compensation expense is recorded for options granted in which the exercise price equals or exceeds the market price of the underlying stock on the date of grant in accordance with the provisions of APB Opinion No. 25. The following table illustrates the effect on net income (loss) and earnings (loss) per share had the Company applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation,” to stock-based employee compensation.

	Three Months Ended June 30,
	2004			2003
	(in thousands)
Net income (loss), as reported	$	74,322		$	(289,715	)
Fair value compensation costs, net of tax		(14,274	)		(17,356	)
Proforma net income (loss)		60,048			(307,071	)
Basic earnings (loss) per share:
As reported	$	0.14		$	(0.56	)
Proforma	$	0.11		$	(0.59	)
Diluted earnings (loss) per share:
As reported	$	0.13		$	(0.56	)
Proforma	$	0.11		$	(0.59	)

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The fair value of employee stock options granted and stock purchased under the Company’s employee share purchase plan were estimated at the date of grant using the Black-Scholes model and the following weighted average assumptions:

	Three Months Ended June 30,
	2004			2003
Volatility		82.8	%		83.0	%
Risk-free interest rate		3.1	%		0.9% - 2.4	%
Dividend yield		0.0	%		0.0	%
Expected option life	3.8 years			3.8 years

The following weighted average assumptions are used in estimating the fair value related to shares issued under the Company’s employee stock purchase plan:

	Three Months Ended June 30,
	2004			2003
Volatility		40.3	%		44.0	%
Risk-free interest rate		1.6	%		1.4	%
Dividend yield		0.0	%		0.0	%
Expected option life	0.5 years			0.5 years

Due to the subjective nature of the assumptions used in the Black-Scholes model, the proforma net income (loss) and earnings (loss) per share disclosures may not reflect the associated fair value of the outstanding options.

The Company provides restricted stock grants to key employees under its 2002 Interim Incentive Plan. Shares awarded under the plan vest in installments over a five-year period and unvested shares are forfeited upon termination of employment. During the first quarter of fiscal year 2005, 30,000 shares of restricted stock were granted with a fair value on the date of grant of $17.37 per share. The unearned compensation associated with the restricted stock grants was $6.1 million and $6.5 million as of June 30, 2004 and March 31, 2004, respectively. These amounts are included in shareholders’ equity. Grants of restricted stock are recorded as compensation expense over the vesting period at the fair market value of the stock at the date of grant. During the three months ended June 30, 2004 and June 30, 2003, compensation expense related to the restricted stock grants amounted to approximately $0.5 million and $0.4 million, respectively.

NOTE C — EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed using the weighted average number of ordinary shares outstanding during the applicable periods.

Diluted earnings (loss) per share is computed using the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the applicable periods. Ordinary share equivalents include ordinary shares issuable upon the exercise of stock options, and are computed using the treasury stock method, as well as shares issuable upon conversion of debt instruments.

Earnings (loss) per share data were computed as follows (in thousands, except per share amounts):

	Three Months Ended June 30,
	2004		2003
Basic earnings (loss) per share:
Net income (loss)	$	74,322	$	(289,715	)
Shares used in computation:
Weighted average ordinary shares outstanding		530,626		521,100
Basic earning (loss) per share	$	0.14	$	(0.56	)
Diluted earnings (loss) per share	$	74,322	$	(289,715	)
Net income (loss)
Shares used in computation:
Weighted average ordinary shares outstanding		530,626		521,100
Weighted average ordinary share equivalents from stock options and awards (1)		16,037		—
Weighted average ordinary share equivalents from convertible notes (2)		21,350		—
Weighted average ordinary shares and ordinary share equivalent shares outstanding		568,013		521,100
Diluted earning (loss) per share	$	0.13	$	(0.56	)

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(1)	Due to the Company’s reported net losses for the quarter ended June 30, 2003, the ordinary share equivalents from stock options to purchase 9,403,800 shares outstanding were excluded from the computation of diluted earnings per share during the three months ended June 30, 2003, as the inclusion would have been anti-dilutive for that period.
(2)	Ordinary share equivalents from the zero coupon convertible junior subordinated notes of 19,047,617 shares outstanding were anti-dilutive for the three months ended June 30, 2003, and therefore not assumed to be converted for diluted earnings per share computation. Such shares were included as common stock equivalents during the quarter ended June 30, 2004. The ordinary share equivalents from the principal portion of the 1% convertible subordinated notes due August 2010 are excluded from the computation of diluted earnings per share as the Company has the positive intent and ability to settle the principal amount of the notes in cash and to settle any conversion spread (excess of conversion value over face value) in stock. Accordingly, 2,302,349 ordinary share equivalents from the conversion spread are included in the shares used for computation above.
	Also, the ordinary share equivalents from stock options to purchase 20,755,279 and 21,974,605 shares outstanding during the three months ended June 30, 2004 and June 30, 2003, respectively, were excluded from the computation of diluted earnings per share because the exercise price of these options was greater than the average market price of the Company’s ordinary shares during the respective periods.

NOTE D — OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the components of other comprehensive income (loss) (in thousands):

	Three Months Ended June 30,
	2004			2003
Net income (loss)	$	74,322		$	(289,715	)
Other comprehensive income (loss):
Foreign currency translation adjustment, net of taxes		15,107			81,842
Unrealized holding gain (loss) on investments and derivative instruments, net of taxes		(1,432	)		800
Comprehensive income (loss)	$	87,997		$	(207,073	)

NOTE E — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

All derivative instruments are recorded on the balance sheet at fair value. If the derivative is designated as a cash flow hedge, the effective portion of changes in the fair value of the derivative is recorded in shareholders’ equity as a separate component of accumulated other comprehensive income and is recognized in the statement of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are immediately recognized in earnings. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings in the current period.

The Company is exposed to foreign currency exchange rate risk inherent in forecasted sales, cost of sales and assets and liabilities denominated in non-functional currencies. The Company has established currency risk management programs to protect against reductions in value and volatility of future cash flows caused by changes in foreign currency exchange rates. The Company enters into short-term foreign currency forward contracts to hedge only those currency exposures associated with certain assets and liabilities, mainly accounts receivable and accounts payable, and cash flows denominated in non-functional currencies.

As of June 30, 2004, the fair value of these short-term foreign currency forward contracts was recorded as an asset amounting to $4.0 million. At the same date, the Company had recorded in other comprehensive income deferred gains of approximately $3.0 million relating to the Company’s foreign currency forward contracts. These gains are expected to be recognized in earnings over the next twelve months. The gains and losses recognized in earnings due to hedge ineffectiveness were immaterial for all periods presented.

NOTE F — TRADE RECEIVABLES SECURITIZATION

The Company continuously sells a designated pool of trade receivables to a third party qualified special purpose entity, which in turn sells an undivided ownership interest to a conduit, administered by an unaffiliated financial institution. In addition to this financial institution, the Company participates in the securitization agreement as an investor in the conduit. The securitization agreement allows the operating subsidiaries participating in the securitization to receive a cash payment for sold receivables, less a deferred purchase price receivable. The

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Company’s share of the total investment varies depending on certain criteria, mainly the collection performance on the sold receivables. The agreement, which expires in March 2005, is subject to annual renewal. Currently, the unaffiliated financial institution’s maximum investment limit is $250.0 million. The Company has sold $462.6 million of its accounts receivable as of June 30, 2004, which represents the face amount of the total outstanding trade receivables on all designated customer accounts at that date. The Company received net cash proceeds of $219.5 million from the unaffiliated financial institution for the sale of these receivables. The Company has a recourse obligation that is limited to the deferred purchase price receivable, which approximates 5% of the total sold receivables, and its own investment participation, the total of which was $219.5 million as of June 30, 2004.

The Company continues to service, administer and collect the receivables on behalf of the special purpose entity and receives a servicing fee of 1.0% of serviced receivables per annum. The Company pays facility and commitment fees of up to 0.24% for unused amounts and program fees of up to 0.34% of outstanding amounts.

The accounts receivable balances that were sold were removed from the consolidated balance sheet and are reflected as cash provided by operating activities in the consolidated statement of cash flows.

NOTE G — RESTRUCTURING CHARGES

In recent years, the Company has initiated a series of restructuring activities in light of the global economic downturn. These activities, which are intended to realign the Company’s global capacity and infrastructure with demand by its OEM customers and thereby improve operational efficiency, include reducing excess workforce and capacity, and consolidating and relocating certain manufacturing and administrative facilities to lower cost regions.

The restructuring costs include employee severance, costs related to leased facilities, owned facilities that are no longer in use and are to be disposed of, leased equipment that is no longer in use and will be disposed of, and other costs associated with the exit of certain contractual agreements due to facility closures. The overall impact of these activities is that the Company has shifted its manufacturing capacity to locations with higher efficiencies and, in some instances, lower costs, and are better utilizing its overall existing manufacturing capacity. This has enhanced the Company’s ability to provide cost-effective manufacturing service offerings, which enables it to retain and expand the Company’s existing relationships with customers and attract new business. These restructuring activities were substantially complete as of March 31, 2004, with some smaller-scale activities occurring in fiscal year 2005.

The Company accounts for costs associated with restructuring activities initiated after December 31, 2002 in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” which supersedes previous accounting guidance, principally Emerging Issues Task force Issue (EITF) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activities.” SFAS 146 requires that the liability for costs associated with exit or disposal of activities be recognized when the liability is incurred.

Fiscal Year 2005

The Company recognized restructuring charges of approximately $23.6 million during the first quarter of fiscal year 2005 related to the impairment of certain long-term assets and other costs resulting from closures and consolidations of various manufacturing facilities. The Company has classified $21.0 million of the charges associated with facility closures as a component of cost of sales during the first quarter of fiscal year 2005.

The Company currently anticipates that the facility closures and activities to which all of these charges relate will be substantially completed within one year of the commitment dates of the respective activities, except for certain long-term contractual obligations. During the first quarter of fiscal year 2005, the Company recorded approximately $3.9 million of other exit costs associated with contractual obligations, of which approximately $1.0 million is classified as long-term obligation and will be paid throughout the term of the leases terminated.

As of June 30, 2004, assets that were no longer in use and held for sale totaled approximately $62.2 million of which $29.5 million represents manufacturing facilities located in the Americas and Europe that have been closed as part of the facility consolidations, while the remaining balance of $32.7 million represents idle assets under synthetic leases.

The components of the restructuring charges during the first quarter of fiscal year 2005 were as follows (in thousands):

	Americas		Europe		Total		Nature
Severance	$	1,793	$	17,447	$	19,240	Cash
Long-lived assets impairment		365		100		465	Non-Cash
Other exit costs		1,598		2,285		3,883	Cash & Non-Cash
Total restructuring charges	$	3,756	$	19,832	$	23,588

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During the first quarter of fiscal year 2005 the Company recorded approximately $19.2 million of employee termination costs associated with the involuntary terminations of 954 identified employees in connection with the various facility closures and consolidations. The identified involuntary employee terminations by reportable geographic region amounted to 270 and 684 for the Americas and Europe, respectively. Approximately $16.7 million of the net charges were classified as a component of cost of sales.

During the first quarter of fiscal year 2005 the Company also recorded approximately $0.5 million for the write-down of property and equipment associated with various manufacturing and administrative facility closures. Approximately $0.4 million of this amount was classified as a component of cost of sales.

The restructuring charges recorded during the first quarter of fiscal year 2005 also included approximately $3.9 million for other exit costs. The entire amount was classified as a component of cost of sales. Of this amount, facility lease obligations accounted for approximately $2.1 million, while facility abandonment and refurbishment costs accounted for approximately $1.4 million.

The following table summarizes the provisions, payments and the accrual balance relating to restructuring costs incurred during the three months ended June 30, 2004 (in thousands):

				Long-Lived
				Asset			Other
	Severance			Impairment			Exit Costs			Total
Activities during the quarter:
Provision	$	19,240		$	465		$	3,883		$	23,588
Cash payments		(16,353	)		—			(949	)		(17,302	)
Non-cash charges		—			(465	)		—			(465	)
Balance as of June 30, 2004		2,887			—			2,934			5,821
Less:
Current portion (classified as other current liabilities)		(2,887	)		—			(1,894	)		(4,781	)
Accrued facility closure costs, net of current portion (classified as other long-term liabilities)	$	—		$	—		$	1,040		$	1,040

Fiscal Year 2004

The Company recognized restructuring charges of approximately $540.3 million during fiscal year 2004 related to the impairment of certain long-term assets and other costs resulting from closures and consolidations of various manufacturing facilities. The Company has classified $477.3 million of the charges associated with facility closures as a component of cost of sales during fiscal year 2004.

The Company anticipates that the facility closures and activities to which all of these charges relate will be substantially completed within one year of the commitment dates of the respective exit plans, except for certain long-term contractual obligations. The components of the restructuring charges during the quarters of fiscal year 2004 were as follows (in thousands):

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter		Total		Nature
Americas:
Severance	$	3,691	$	14,072	$	5,023	$	3,623	$	26,409
Long-lived asset impairment		64,844		18,024		2,273		8,247		93,388
Other exit costs		17,736		18,492		18,978		25,772		80,978
Total restructuring charges		86,271		50,588		26,274		37,642		200,775
Asia:
Severance		—		—		—		—		—
Long-lived asset impairment		111,340		—		—		—		111,340
Other exit costs		—		—		—		—		—
Total restructuring charges		111,340		—		—		—		111,340
Europe:
Severance		8,200		6,003		28,081		35,040		77,324
Long-lived asset impairment		114,388		1,497		8,008		2,539		126,432
Other exit costs		6,909		2,164		8,656		6,748		24,477
Total restructuring charges		129,497		9,664		44,745		44,327		228,233
Total
Severance		11,891		20,075		33,104		38,663		103,733	cash
Long-lived asset impairment		290,572		19,521		10,281		10,786		331,160	non-cash
Other exit costs		24,645		20,656		27,634		32,520		105,455	cash & non-cash
Total restructuring charges	$	327,108	$	60,252	$	71,019	$	81,969	$	540,348

13

During fiscal year 2004, the Company recorded approximately $103.7 million of employee termination costs associated with the involuntary terminations of 5,176 identified employees in connection with the various facility closures and consolidations. The identified involuntary employee terminations by reportable geographic region amounted to 2,083 and 3,093 for the Americas and Europe, respectively. As of June 30, 2004, the total employees terminated under these plans had reached approximately 4,600, while approximately 600 employees have been notified but not yet terminated. Approximately $84.6 million of the net charges were classified as a component of cost of sales during fiscal year 2004.

During fiscal year 2004 the Company also recorded approximately $331.2 million for the write-down of property and equipment associated with various manufacturing and administrative facility closures. Approximately $317.4 million of this amount was classified as a component of cost of sales in fiscal year 2004. Certain assets will remain in service until their anticipated disposal dates pursuant to the exit plans. For assets being held for use, impairment is measured as the amount by which the carrying amount exceeds the fair value of the asset. This calculation is measured at the asset group level, which is the lowest level for which there are identifiable cash flows. The fair value of assets held for use was determined based on projected discounted cash flows of the asset, plus salvage value. Certain other assets are held for sale, as these assets are no longer required in operations. For assets held for sale, depreciation ceases and an impairment loss is recognized if the carrying amount of the asset exceeds its fair value less cost to sell. Assets held for sale are included in other assets on the consolidated balance sheet.

The restructuring charges recorded during fiscal year 2004 also included approximately $105.5 million for other exit costs. Approximately $75.3 million of this amount was classified as a component of cost of sales in fiscal year 2004. Other exit costs included contractual obligations totaling $59.1 million, which were incurred directly as a result of the various exit plans. The contractual obligations consisted of facility lease terminations amounting to $46.2 million, equipment lease terminations amounting to $7.3 million and payments to suppliers and third parties to terminate contractual agreements amounting to $5.6 million. Expenses associated with lease obligations are estimated based on future lease payment, less any estimated sublease income. The Company expects to make payments associated with its contractual obligations with respect to facility and equipment leases through the end of fiscal year 2024, and through the end of 2005 with respect to the other contractual obligations with suppliers and third parties. Other exit costs also included charges of $17.7 million relating to asset impairments resulting from customer contracts that were terminated by the Company as a result of various facility closures. The Company has disposed of the impaired assets, primarily through scrapping and write-offs, by the end of fiscal year 2004. Other exit costs also included $4.1 million of net facility refurbishment and abandonment costs related to certain building repair work necessary to prepare the exited facilities for sale or to return the facilities to their respective landlords. The remaining $24.6 million primarily related to legal and consulting costs, and various government obligations for which the Company is liable as a direct result of its facility closures. The legal costs mainly relate to a settlement reached in November 2003 in the lawsuit with Beckman Coulter, Inc., relating to a contract dispute involving a manufacturing relationship between the companies. Pursuant to the terms of the settlement agreement, Flextronics agreed to a $23.0 million cash payment to Beckman Coulter to resolve the matter, and Beckman Coulter agreed to dismiss all pending claims against the Company and release the Company from any future claims relating to this matter.

The following table summarizes the provisions, payments and the accrual balance relating to restructuring costs incurred during fiscal year ended March 31, 2004 (in thousands):

				Long-Lived
				Asset			Other
	Severance			Impairment			Exit Costs			Total
Activities during the year:
Provision	$	103,733		$	331,160		$	105,455		$	540,348
Cash payments		(81,357	)		—			(48,852	)		(130,209	)
Non-cash charges		—			(331,160	)		(17,872	)		(349,032	)
Balance as of March 31, 2004		22,376			—			38,731			61,107
Activities during the first quarter of fiscal year 2005:
Cash payments		(9,116	)		—			(7,999	)		(17,115	)
Balance as of June 30, 2004		13,260			—			30,732			43,992
Less:
Current portion (classified as other current liabilities)		(12,774	)		—			(14,381	)		(27,155	)
Accrued facility closure costs, net of current portion (classified as other long-term liabilities)	$	486		$	—		$	16,351		$	16,837

Fiscal Year 2003

The Company accounted for costs associated with restructuring activities initiated prior to December 31, 2002 in accordance with EITF No. 94-3.

The Company recognized restructuring and other charges of approximately $304.4 million during fiscal year 2003, of which $297.0 million related to the closures and consolidations of various manufacturing facilities and $7.4 million related to the impairment of investments in certain technology companies. As further discussed below, $179.4 million and $86.9 million of the charges relating to facility closures were classified as a component of cost of sales in the first and third quarters of fiscal year 2003, respectively.

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The components of the net restructuring and other charges recorded during the first and third quarters of fiscal year 2003 were as follows (in thousands):

	First		Third
	Quarter		Quarter			Total			Nature
Americas:
Severance	$	21,053	$	11,654		$	32,707
Long-lived asset impairment		31,061		30,017			61,078
Other exit costs		42,287		31,086			73,373
Total restructuring charges		94,401		72,757			167,158
Asia:
Severance		2,306		183			2,489
Long-lived asset impairment		5,072		(5,397	)		(325	)
Other exit costs		1,349		(1,677	)		(328	)
Total restructuring charges		8,727		(6,891	)		1,836
Europe:
Severance		53,542		29,737			83,279
Long-lived asset impairment		20,146		(10,335	)		9,811
Other exit costs		23,551		11,320			34,871
Total restructuring charges		97,239		30,722			127,961
Total:
Severance		76,901		41,574			118,475		cash
Long-lived asset impairment		56,279		14,285			70,564		non-cash
Other exit costs		67,187		40,729			107,916		cash & non-cash
Total restructuring charges		200,367		96,588			296,955
Other charges		7,456		—			7,456
Total restructuring charges and other charges	$	207,823	$	96,588		$	304,411

In connection with the facility closures, the Company developed plans to exit certain activities and involuntarily terminate employees. Management’s plan to exit an activity included the identification of duplicate manufacturing and administrative facilities for closure or consolidation into other facilities. The facility closures and activities to which all of these charges relate were substantially completed within one year of the commitment dates of the respective exit plans, except for certain long-term contractual obligations.

During fiscal year 2003, the Company recorded approximately $118.5 million of net employee termination costs associated with the involuntary terminations of 8,108 identified employees in connection with the various facility closures and consolidations. The identified involuntary employee terminations by reportable geographic region are as follows: 2,922 for the Americas, 4,896 for Asia and 290 for Europe. Approximately $59.6 million and $34.6 million of the net charges were classified as a component of cost of sales in the first and third quarters of fiscal year 2003, respectively. The third quarter charges reflect a reversal of prior period termination costs of approximately $5.8 million due to changes in estimated severance payment amounts and a reduction in the number employees that were previously identified for termination.

The restructuring charges recorded during fiscal year 2003 included $70.6 million for the net write-down of property, plant and equipment associated with various manufacturing and administrative facility closures from their carrying value of $121.4 million. Approximately $55.3 million and $9.5 million of this net amount were classified as a component of cost of sales in the first and third quarters of fiscal year 2003, respectively. Also included in long-lived asset impairment is approximately $1.0 million for the write-off of goodwill. The third quarter charges reflect a reversal of prior period restructuring charges of approximately $26.1 million due to changes in previously estimated fair values of certain property, plant and equipment. Certain assets were held for use and remained in service until their anticipated disposal dates pursuant to the exit plans. For assets being held for use, impairment is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value of assets held for use was determined based on projected discounted cash flows of the asset, plus salvage value. Certain other assets were held for sale, as these assets were no longer required in operations. For assets being held for sale, depreciation ceases and an impairment loss was recognized if the carrying amount of the asset exceeds its fair value less cost to sell. Assets held for sale were included in Other Assets on the consolidated balance sheet.

The restructuring charges recorded during fiscal year 2003, also included approximately $107.9 million for other exit costs. Approximately $64.4 million and $42.8 million of this amount were classified as a component of cost of sales in the first and third quarters of fiscal year 2003, respectively. The third quarter charges reflect a reversal of prior period restructuring charges of approximately $7.3 million relating to revisions of previous estimates, primarily related to our ability to subsequently successfully negotiate reductions in certain contractual obligations. Other exit costs included contractual obligations totaling $75.6 million, which were incurred directly as a result of the various exit plans. The contractual obligations consisted of facility lease terminations amounting to $49.9 million, equipment lease terminations amounting to $14.4 million and payments to suppliers and third parties to terminate contractual agreements amounting to $11.3 million. Expenses associated with lease obligations are estimated based on future lease payment, less any estimated sublease income. The Company expects to make payments associated with its contractual obligations with respect to facility and equipment leases through the end of fiscal

15

year 2017. Other exit costs also included charges of $19.7 million relating to asset impairments resulting from customer contracts that were terminated by the Company as a result of various facility closures. These asset impairments were determined based on the difference between the carrying amount and the realizable value of the impaired inventory and accounts receivable. The Company disposed of the impaired assets, primarily through scrapping and write-offs, by the end of fiscal year 2003. Other exit costs also included $11.0 million of net facility refurbishment and abandonment costs related to certain building repair work necessary to prepare the exited facilities for sale or to return the facilities to their respective landlords. The remaining $1.6 million primarily included incremental amounts of legal and consulting costs, and various government obligations for which the Company is liable as a direct result of its facility closures.

The following table summarizes the provisions, payments and the accrual balance relating to restructuring costs initiated prior to March 31, 2003 (in thousands):

				Long-Lived
				Asset			Other
	Severance			Impairment			Exit Costs			Total
Balance as of March 31, 2002	$	91,879		$	—		$	68,668		$	160,547
Activities during fiscal year 2003:
Provision		118,475			70,564			107,916			296,955
Cash payments		(160,563	)		—			(90,204	)		(250,767	)
Non-cash charges		—			(70,564	)		(16,576	)		(87,140	)
Balance as of March 31, 2003		49,791			—			69,804			119,595
Activities during fiscal year 2004:
Cash payments		(45,071	)		—			(54,146	)		(99,217	)
Balance as of March 31, 2004		4,720			—			15,658			20,378
Activities during the first quarter of fiscal year 2005:
Cash payments		(1,028	)		—			(4,127	)		(5,155	)
Balance as of June 30, 2004		3,692			—			11,531			15,223
Less:
Current portion (classified as other current liabilities)		(2,092	)		—			(9,042	)		(11,134	)
Accrued facility closure costs, net of current portion (classified as other long-term liabilities)	$	1,600		$	—		$	2,489		$	4,089

NOTE H — GEOGRAPHIC REPORTING

The Company operates and is managed internally by two operating segments that have been combined for operating segment disclosures, as they do not meet the quantitative thresholds for separate disclosure established in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer.

Geographic information as of and for the periods presented is as follows (in thousands):

	Three Months Ended June 30,
	2004			2003
Net sales
Asia	$	1,924,002		$	1,398,265
Americas		622,294			472,434
Europe		1,556,755			1,395,121
Intercompany eliminations		(222,603	)		(159,143	)
	$	3,880,448		$	3,106,677

	Three Months Ended June 30,
	2004			2003
Income (loss) before income taxes:
Asia	$	81,112		$	(60,816	)
Americas		11,759			(95,065	)
Europe		(15,408	)		(131,743	)
Intercompany eliminations		(22,662	)		(34,281	)
	$	54,801		$	(321,905	)

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	As of		As of
	June 30, 2004		March 31, 2004
Long-lived assets, net
Asia	$	710,266	$	700,262
Americas		399,927		402,031
Europe		506,726		522,707
	$	1,616,919	$	1,625,000

Revenues are generally attributable to the country in which the product is manufactured.

For purposes of the preceding tables, “Asia” includes China, Japan, India, Malaysia, Mauritius, Singapore, Taiwan and Thailand; “Americas” includes Brazil, Canada, Mexico and the United States, “Europe” includes Austria, the Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Israel, Italy, Netherlands, Norway, Poland, Portugal, Scotland, Spain, Sweden, Switzerland and the United Kingdom.

During the three months ended June 30, 2004, net sales generated from Singapore, the principal country of domicile, was approximately $57.0 million.

NOTE I — COMMITMENTS AND CONTINGENCIES

Between June and August 2002, Flextronics and certain of its officers and directors were named as defendants in several securities class action lawsuits that seek an unspecified amount of damages, which were filed in the United States District Court for the Southern District of New York. These actions, which were filed on behalf of those who purchased, or otherwise acquired, the Company’s ordinary shares between January 18, 2001 and June 4, 2002, including those who purchased ordinary shares in our secondary offerings on February 1, 2001 and January 7, 2002. These actions generally allege that, during this period, the defendants made misstatements to the investing public about the financial condition and prospects of the Company. On April 23, 2003, the Court entered an order transferring these lawsuits to the United States District Court for the Northern District of California. On July 16, 2003, Flextronics filed a motion to dismiss on behalf of the Company and its officers and directors named as defendants. On November 17, 2003, the Court entered an order granting defendants’ motion to dismiss without prejudice. On January 28, 2004, plaintiffs filed an amended complaint. Flextronics’ motion to dismiss the amended complaint was filed on March 10, 2004.

In May 2004, the parties reached a tentative settlement of all claims in the lawsuit and the defendants withdrew their motion to dismiss. The settlement would be funded entirely by funds from the Company’s Officers’ and Directors’ insurance. On July 28, 2004, the Court entered an order preliminarily approving the settlement. The settlement agreement is subject to final Court approval and a hearing on final approval is scheduled for October 27, 2004. If the settlement is not finalized, there can be no assurance the Company will be successful in defending the lawsuits, and, if it was unsuccessful, the Company may be subject to significant damages. Even if the Company were to be successful, defending the lawsuits may be expensive and may divert management’s attention from other business concerns and harm the Company’s business.

The Company is also subject to legal proceedings, claims, and litigation arising in the ordinary course of business. The Company defends itself vigorously against any such claims. While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

NOTE J — ACQUISITIONS AND STRATEGIC INVESTMENTS

Strategic Transaction with Nortel Networks.

On June 29, 2004, the Company entered into a definitive asset purchase agreement with Nortel Networks (Nortel) providing for the purchase of certain Nortel optical, wireless, wireline and enterprise manufacturing operations and optical design operations by Flextronics.

Subject to closing the asset acquisition, Flextronics will provide the majority of Nortel’s systems integration activities, final assembly, testing and repair operations, along with the management of the related supply chain and suppliers, under a four-year manufacturing agreement. Additionally, under a three-year design services agreement, Flextronics will provide Nortel Networks with design services for end-to-end, carrier grade optical network products. As part of this transaction, Flextronics anticipates hiring approximately 2,350 Nortel manufacturing employees and approximately 150 optical design engineers.

The assets to be acquired consist primarily of inventory and capital equipment currently in use. The transfer of assets is expected to begin in November 2004 and to take approximately six months to complete.

The Company anticipates that the aggregate purchase price for the assets acquired will be in the range of approximately $675 million to $725 million. The purchase price will be allocated to the fair value of the acquired assets, which management currently estimates will be approximately $415 million to $465 million for inventory, approximately $60 million for fixed assets, and the remaining $200 million for intangible assets and goodwill. Management expects that approximately $75 million of the cash purchase price will be paid to Nortel in November 2004, and approximately $600 million to $650 million will be paid in four quarterly installments in calendar 2005. If any of the

17

acquired inventory has not been used by the first anniversary of the applicable closing date, the Company will have a “put” right under which, subject to certain closing conditions, it may then sell that inventory back to Nortel. Similarly, if any of the acquired equipment is unused at the first anniversary of the applicable closing date, then subject to certain conditions, the Company will be entitled to sell it back to Nortel. The Company intends to use its working capital balances and borrowings under its revolving credit facilities to fund the purchase price for the assets to be acquired. The acquisition is subject to certain closing conditions.

Hughes Software Acquisition.

On June 8, 2004, the Company entered into a definitive share purchase agreement with Hughes Network Systems, Inc. providing for the purchase of approximately fifty-five percent (55%) of the outstanding shares of Hughes Software Systems Limited (HSS). HSS is based in India and provides software for fixed and mobile networks for both voice and data. On June 8, 2004, approximately $226 million in cash consideration was paid to Hughes Network Systems, Inc. The Company then made an open offer to purchase an additional twenty percent (20%) of the outstanding shares of HSS from the other shareholders of HSS for approximately $83 million in the aggregate, which has been deposited into escrow as required pursuant to Indian securities regulations. On July 9, 2004, the Company appointed its nominees to a majority of the seats on the board of directors of HSS. This transaction is expected to be completed in November 2004, subject to obtaining regulatory approval, the satisfaction of requirements under the Indian securities regulations with respect to the offer and the satisfaction of other customary closing conditions.

NOTE K — SUBSEQUENT EVENTS

On July 27, 2004, the Company completed a follow-on offering of 24,330,900 of its ordinary shares for which the Company received net proceeds of approximately $299.8 million.

18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words “expects,” “anticipates,” “believes,” “intends,” “plans” and similar expressions identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form 10-Q with the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed below in “Certain Factors Affecting Operating Results.” Accordingly, our future results may differ materially from historical results or from those discussed or implied by these forward-looking statements.

OVERVIEW

We are a leading provider of advanced electronics manufacturing services (EMS) to original equipment manufacturers (OEMs) that span a broad range of products and industry segments, including cellular phones, printers and imaging, telecom/datacom infrastructure, medical, automotive, industrial systems and consumer electronics.

We provide a complete range of services that are designed to meet our customers’ product requirements throughout their product development life cycle. Our strategy is to provide customers with global end-to-end supply chain services that include design and related engineering, new product introduction, manufacturing, and logistics with the goal of delivering a complete product solution. We also provide after-market services such as repair and warranty services, as well as network and communications installation and maintenance. By working closely with our customers and being highly responsive to their requirements throughout the design and supply chain process, we believe that we can be an integral part of their operations, accelerate their time-to-market and time-to-volume production, and reduce their product costs.

We have become one of the world’s largest EMS providers, with revenues of $14.5 billion in fiscal year 2004 and over 12.5 million manufacturing square feet in 29 countries across five continents as of March 31, 2004. We believe that our size, global presence, broad service offerings and expertise, and advanced engineering and design capabilities enable us to win large programs from leading multinational OEMs for the design and manufacture of electronic products.

Our revenue is generated from sales of our services to our customers, which include industry leaders such as Alcatel SA, Casio Computer Co., Ltd., Dell Computer Corporation, Ericsson Telecom AB, Hewlett-Packard Company, Microsoft Corporation, Motorola, Inc., Siemens AG, Sony-Ericsson, Telia Companies, and Xerox Corporation. A majority of our sales come from a small number of customers. Our ten largest customers during the three months ended June 30, 2004 accounted for approximately 64%, with Sony-Ericsson accounting for approximately 15% of the total net sales. No other customer accounted for more than 10% of net sales in the three months ended June 30, 2004. For any particular customer, we may be engaged in programs to manufacture a number of products, or may be manufacturing a single product or product line. Our gross profit is affected by a number of factors, including the number and size of new manufacturing programs, product mix, capacity utilization and the expansion and consolidation of manufacturing facilities. Typically, a new program will contribute relatively less to our gross profit in its early stages, as manufacturing volumes are low and result in inefficiencies and unabsorbed manufacturing overhead costs. As volumes increase, the contribution to gross profit and to profit margin often increases due to the ability to leverage improved utilization rates and overhead absorption. In addition, different programs can contribute different gross margins depending on factors such as the types of services involved, location of production, size of the program, complexity of the product, and level of material costs associated with the associated products. As a result, our gross margin varies from period to period.

The EMS industry has experienced rapid change and growth over the past decade. The demand for advanced manufacturing capabilities and related supply chain management services has escalated, as an increasing number of OEMs outsource some or all of their manufacturing requirements. However, many OEMs experienced a significant reduction in demand beginning in 2000, due to the technology and the worldwide downturns. This resulted in significant reductions in EMS industry production requirements. In fiscal year 2004, several OEMs began to experience a return to growth, while others experienced a continued economic downturn. Additionally, severe price pressure on our customers in their end markets has led to increased demand for EMS production capacity in the lower cost regions of the world, such as China, Mexico, and Eastern Europe, where Flextronics has a significant presence. We have responded by making strategic decisions to exit certain activities and involuntarily terminate employees to optimize the operating efficiencies that can be provided by our global presence and to reduce our workforce and our manufacturing capacity.

Over the past several years, we have completed numerous strategic transactions with OEM customers, including, among others, Xerox, Alcatel, Casio and Ericsson. These strategic transactions have expanded our customer base, provided end-market diversification, and contributed to a significant portion of our revenue growth. Under these arrangements, we generally acquire inventory, equipment and other assets from the OEMs, and lease or acquire their manufacturing facilities, while simultaneously entering into multi-year supply agreements for the production of their products. These agreements generally do not require any minimum volumes of purchases by the OEM. We intend to continue to pursue these OEM divestiture transactions in the future.

On June 29, 2004, we entered into a definitive asset purchase agreement with Nortel Networks providing for the purchase of certain Nortel optical, wireless, wireline and enterprise manufacturing operations and optical design operations by us.

Subject to closing the asset acquisition, we will provide the majority of Nortel Networks’ systems integration activities, final assembly, testing and repair operations, along with the management of the related supply chain and suppliers, under a four-year manufacturing

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agreement. Additionally, under a three-year design services agreement, Flextronics will provide Nortel Networks with design services for end-to-end, carrier grade optical network products. As part of this transaction, Flextronics anticipates hiring approximately 2,350 Nortel manufacturing employees and approximately 150 optical design engineers.

The assets to be acquired consist primarily of inventory and capital equipment currently in use. The transfer of assets is expected to begin in November 2004 and to take approximately six months to complete. During this time period, Flextronics’ revenues from Nortel Networks will increase each quarter, and we anticipate approximately $400 million in revenues from Nortel in fiscal 2005. Following completion of the asset transfers, we expect that our revenues from Nortel Networks should reach approximately $2.5 billion on an annualized basis (assuming Nortel’s sales of those products that the Company will manufacture remain at current levels). However, our sales to Nortel may differ from our current expectations.

We anticipate that the aggregate purchase price for the assets acquired will be in the range of approximately $675 million to $725 million. We will allocate the purchase price to the fair value of the acquired assets, which we currently estimate will be approximately $415 million to $465 million for inventory, approximately $60 million for fixed assets, and the remaining $200 million for intangible assets and goodwill. We expect that approximately $75 million of the cash purchase price will be paid to Nortel in November 2004, and approximately $600 million to $650 million will be paid in four quarterly installments in calendar 2005. If any of the acquired inventory has not been used by the first anniversary of the applicable closing date, we will have a “put” right under which, subject to certain closing conditions, we may then sell that inventory back to Nortel. Similarly, if any of the acquired equipment is unused at the first anniversary of the applicable closing date, then subject to certain conditions, we will be entitled to sell it back to Nortel. We intend to use our working capital balances and borrowings under our revolving credit facilities to fund the purchase price for the assets to be acquired.

As a result of the transaction, we will acquire or lease approximately 1.1 million square feet of facilities from Nortel Networks, which represents approximately 50% of the space currently used by Nortel Networks for the activities to be transferred to Flextronics. We will initially occupy portions of the facilities from Nortel Networks in Canada and the United Kingdom under three-year leases, and will purchase Nortel’s manufacturing facility in France. The space we lease may be further reduced by us over the three-year term of the leases.

Nortel Networks currently uses the facilities and assets that will be transferred to Flextronics primarily for systems integration and final assembly of products that it then sells to its customers, which include wireless service providers, large businesses, small businesses and home offices, government agencies, educational institutions, utility organizations, local and long-distance telephone companies, cable multiple system operators, Internet service providers and other communications service providers. These facilities are currently operated by Nortel Networks as cost centers for internal reporting purposes, with no allocation of revenues when the products manufactured at the manufacturing facilities are transferred to other Nortel operations.

The manufacturing activities that will be performed by Flextronics for Nortel Networks include not only systems integration activities, final assembly, testing and repair operations, but also the fabrication of printed circuit boards, fabrication of enclosures and printed circuit board assembly. After we acquire these facilities, the operations will be operated as profit centers by Flextronics and we will generate revenue and earnings from the sale of products to Nortel Networks. Flextronics will have no contact with Nortel’s end user customers with regards to the sale of these products, and sales to Nortel’s customers will continue to be made by Nortel in the same manner as currently conducted by Nortel.

The nature of the revenue producing activities currently performed by Nortel Networks is substantially different from the nature of such activities to be performed by Flextronics after the transfer of assets. Flextronics does not believe there is sufficient continuity of operations prior to and after the transaction with Nortel Networks such that disclosure of historical and pro forma financial information relating to the manufacturing operations would be material to an understanding of Flextronics’ future operations. There will be fundamental differences regarding the revenue producing activities, manufacturing costs, manufacturing locations, personnel, sales force, customer base, and distribution and marketing efforts, as a result of which historical and pro forma financial information would not be comparable or meaningful.

On June 8, 2004, we entered into a definitive share purchase agreement with Hughes Network Systems, Inc. providing for our purchase of approximately fifty-five percent (55%) for approximately $226.5 million in cash, of the outstanding shares of Hughes Software Systems Limited. We then made an open offer to purchase an additional twenty percent (20%) of the outstanding shares of Hughes Software from the other shareholders of Hughes Software for approximately $83 million in the aggregate, which we have deposited into escrow as required pursuant to Indian securities regulations. On July 9, 2004, we appointed our nominees to a majority of the seats on the board of directors of Hughes Software. Hughes Software is based in India and provides software for fixed and mobile networks for both voice and data. Hughes Software offers Voice over Packets (VoP), SS7, broadband and wireless (GPRS/UMTS) products that provide customers with open architecture solutions, and also develops custom applications for customers. Hughes Software employs approximately 2,400 employees worldwide, with development centers located in New Delhi and Bangalore, India and Nuremberg, Germany. This transaction is expected to be completed in November 2004, at which time we will obtain ownership of the shares of HSS, subject to obtaining regulatory approval, the satisfaction of requirements under the Indian securities regulations with respect to the offer and the satisfaction of other customary closing conditions.

Hughes Software offers Voice over Packets (VoP), SS7, broadband and wireless (GPRS/UMTS) products that provide customers with open architecture solutions, and also develops custom applications for customers. Hughes Software employs approximately 2,400 employees worldwide, with development centers located in New Delhi and Bangalore, India and Nuremberg, Germany.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. For further discussion of our significant accounting policies, refer to Note 2, “Summary of Accounting Policies,” of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2003. See also the Notes to Condensed Consolidated Financial Statements in this report on Form 10-Q.

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Long-Lived Assets

We review property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds its fair value. Recoverability of property and equipment is measured by comparing its carrying amount to the projected discounted cash flows the property and equipment are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property and equipment exceeds its fair value.

We evaluate goodwill and other intangibles for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable from its estimated future cash flows. Recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second test is performed to measure the amount of impairment loss. If, at the time of our annual evaluation, the net asset value (or “book value”) of any reporting unit is greater than its fair value, some or all of the related goodwill would likely be considered to be impaired. To date, we have not recognized any impairment of our goodwill and other intangible assets in connection with our impairment evaluations. However, we have recorded impairment charges in connection with our restructuring activities.

Allowance for Doubtful Accounts

We perform ongoing credit evaluations of our customers’ financial condition and make provisions for doubtful accounts based on the outcome of our credit evaluations. We evaluate the collectibility of our accounts receivable based on specific customer circumstances, current economic trends, historical experience with collections and the age of past due receivables. Unanticipated changes in the liquidity or financial position of our customers may require additional provisions for doubtful accounts.

Inventory Valuation

Our inventories are stated at the lower of cost (on a first-in, first-out basis) or market value. Our industry is characterized by rapid technological change, short-term customer commitments and rapid changes in demand. We make provisions for estimated excess and obsolete inventory based on our regular reviews of inventory quantities on hand and the latest forecasts of product demand and production requirements from our customers. If actual market conditions or our customers’ product demands are less favorable than those projected, additional provisions may be required. In addition, unanticipated changes in liquidity or financial position of our customers and/or changes in economic conditions may require additional provisions for inventories due to our customers’ inability to fulfill their contractual obligations with regard to inventory purchased on their behalf.

Exit Costs

We recognized restructuring charges during the first quarter of fiscal year 2005, in fiscal year 2004 and fiscal year 2003, related to our plans to close or consolidate duplicate manufacturing and administrative facilities. In connection with these activities, we recorded restructuring charges for employee termination costs, long-lived asset impairment and other exit-related costs.

The recognition of the restructuring charges required that we make certain judgments and estimates regarding the nature, timing and amount of costs associated with the planned exit activity. If our actual results in exiting these facilities differ from our estimates and assumptions, we may be required to revise the estimates of future liabilities, requiring the recording of additional restructuring charges or the reduction of liabilities already recorded. At the end of each reporting period, we evaluate the remaining accrued balances to ensure that no excess accruals are retained and the utilization of the provisions are for their intended purpose in accordance with developed exit plans.

Refer to Note G — Restructuring Charges, of the Notes to Condensed Consolidated Financial Statements for further discussion of our restructuring activities.

Deferred Income Taxes

Our deferred income tax assets represent temporary differences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result in deductible amounts in future years, including net operating loss carryforwards. Based on estimates, the carrying value of our net deferred tax assets assumes that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. If these estimates and related assumptions change in the future, we may be required to increase our valuation allowance against the deferred tax assets resulting in additional income tax expense.

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RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain statements of operations data expressed as a percentage of net sales. The financial information and the discussion below should be read in conjunction with the consolidated financial statements and notes thereto included in this document.

	Three Months Ended June 30,
	2004			2003
Net sales		100.0	%		100.0	%
Cost of sales		93.7			94.7
Restructuring charges		0.5			9.9
Gross profit		5.8			(4.6	)
Selling, general and administrative expenses		3.6			3.7
Intangibles amortization		0.2			0.3
Restructuring charges		0.1			0.6
Interest and other expense, net		0.5			0.8
Loss on early extinguishment of debt		0.0			0.3
Income (loss) before income taxes		1.4			(10.3	)
Benefit from income taxes		(0.5	)		(1.0	)
Net income (loss)		1.9			(9.3	)

Net Sales

Net sales for the first quarter of fiscal year 2005 increased $773.8 million, or 25%, to $3.9 billion from $3.1 billion in the first quarter of fiscal year 2004. The increase in net sales was primarily attributable to (i) the expansion of existing customer programs in the handheld device industry, which increased $450.2 million, (ii) an increase of $181.8 million in net sales to providers of communication infrastructure products, and (iii) an increase of $98.4 million in net sales to customers in a variety of industries, including industrial, medical and automotive industries. The $773.8 million increase in net sales by region is as follows: Asia $466.6 million, Americas $153.7 million, and Europe $153.5 million.

Our ten largest customers during the three months ended June 30, 2004 accounted for approximately 64% of net sales, with Sony-Ericsson accounting for 15% of our net sales. In the first quarter of fiscal year 2004, our ten largest customers accounted for approximately 61% of net sales, with Sony-Ericsson and Hewlett-Packard Company accounting for 12% and 11% of net sales, respectively. No other customer accounted for more than 10% of net sales during these periods.

Gross Margin

Gross margin for first quarter of fiscal year 2005 increased to 5.8% from negative 4.6% in the first quarter of fiscal year 2004. The increase of 1,040 basis points in gross margin is mainly attributable to a 940 basis-point decrease in restructuring charges, combined with a 100 basis-point decrease in cost of sales, resulting primarily from better absorption of fixed costs that resulted from the restructuring activities and the increase in net sales. The restructuring charges related to the consolidation and closure of various facilities, which is described in more detail below in the section entitled, “Restructuring Charges ”.

Restructuring Charges

In recent years, we have initiated a series of restructuring activities in light of the global economic downturn. These activities, which are intended to realign our global capacity and infrastructure with demand by our OEM customers and thereby improve our operational efficiency, include reducing excess workforce and capacity, consolidating and relocating certain manufacturing facilities to lower-cost regions, and consolidating and relocating certain administrative facilities.

The restructuring costs include employee severance, costs related to leased facilities, owned facilities that are no longer in use and are to be disposed of, leased equipment that is no longer in use and will be disposed of, and other costs associated with the exit of certain contractual agreements due to facility closures. The overall impact of these activities is that we have shifted our manufacturing capacity to locations

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with higher efficiencies and, in some instances, lower costs, and are better utilizing our overall existing manufacturing capacity. This has enhanced our ability to provide cost-effective manufacturing service offerings, which enables us to retain and expand our existing relationships with customers and attract new business. Our restructuring activities were substantially complete as of March 31, 2004, and we believe we are realizing our anticipated benefits from these efforts. We continue to monitor our operational efficiency and may utilize similar measures in the future to realign our operations relative to future customer demand. As a result, we may be required to take additional charges in the future. We cannot predict the timing or amount of any future restructuring charges. If we are required to take additional restructuring charges in the future, it could have a material adverse impact on operating results, financial position and cash flows.

During the first quarter of fiscal year 2005, we recognized restructuring charges of approximately $23.6 million relating to the closure and consolidations, and impairment of certain long-lived assets, at various manufacturing facilities. Restructuring charges recorded by reportable geographic regions totaled $3.8 million and $19.8 million for Americas and Europe, respectively. The associated involuntary employee terminations identified by geographic regions were 270 and 684 for Europe and Americas, respectively. Approximately $21.0 million of the restructuring charges were classified as a component of cost of sales.

During fiscal year 2004, we recognized restructuring charges of approximately $540.3 million, which related to the closures and consolidations, and impairment of certain long-lived assets, at various manufacturing facilities. Restructuring charges recorded by reportable geographic region amounted to $200.8 million, $111.3 million and $228.2 million, for the Americas, Asia and Europe, respectively. The associated involuntary employee terminations identified by reportable geographic region amounted to 2,083 and 3,093 for the Americas and Europe, respectively. Approximately $477.3 million of the restructuring charges were classified as a component of cost of sales.

We believe that the potential savings in cost of goods sold achieved through lower depreciation and reduced employee expenses will be offset in part by reduced revenues at the affected facilities. In addition, we may incur further restructuring charges in the future as we continue to reconfigure our operations in order to address excess capacity concerns that may arise, which may materially affect our results of operations in future periods.

Refer to Note G — Restructuring and Other Charges, of the Notes to Condensed Consolidated Financial Statements in Item 1, “Financial Information” for further discussion of our restructuring activities.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, or SG&A, for the first quarter of fiscal year 2005 increased to $141.6 million compared to $116.4 million in the first quarter of fiscal year 2004. The absolute dollar increase in SG&A was primarily attributed to the continuing expansion of our ODM service offering, combined with the growth in our net sales, offset by savings generated by our control over discretionary spending and efficiencies realized from our restructuring activities. SG&A as a percentage of net sales decreased to 3.6% for the first quarter of fiscal year 2005 from 3.7% for the same quarter in fiscal year 2004, and was the result of the increase in net sales.

Intangibles Amortization

Intangibles amortization for the first quarter of fiscal year 2005 amounted to $8.7 million, which remained relatively unchanged compared to $8.8 million in the first quarter of fiscal year 2004.

Interest and Other Expense, Net

Interest and other expense, net was $18.3 million for the first quarter of fiscal year 2005 compared to $25.9 million for first quarter of fiscal year 2004. The decrease in net expense was primarily driven by reduced interest expense due to the redemption of $150.0 million aggregate principal amount of our 8.75% notes in June 2003 and the repurchase of $492.3 million aggregate principal amount of our 9.875% notes in August 2003. During fiscal year 2004, we issued $400.0 million aggregate principal amount of 6.5% senior subordinated notes due May 2013 and $500.0 million aggregate principal amount of 1% convertible subordinated notes due August 2010.

Loss on Early Extinguishment of Debt

We recognized a loss on early extinguishment of debt of $8.7 million during the first quarter of fiscal year 2004 associated with the early redemption of notes. In June 2003, we used a portion of the net proceeds from our issuance of $400.0 million of 6.5% senior subordinated notes in May 2003 to redeem all of our $150.0 million aggregate principal amount of 8.75% senior subordinated notes due October 2007.

Provision for Income Taxes

Certain of our subsidiaries have, at various times, been granted tax relief in their respective countries, resulting in lower income taxes than would otherwise be the case under ordinary tax rates.

Our consolidated effective tax rate was a benefit of 35.6% for the first quarter of fiscal year 2005 and a benefit of 10% for the first quarter of fiscal year 2004. The tax benefit for the first quarter of fiscal year 2005 is primarily due to the establishment of a $25.0 million deferred tax asset resulting from a tax law change in Hungary that replaced a tax holiday incentive with a tax credit incentive. The consolidated effective tax rate for a particular period varies depending on the amount of earnings from different jurisdictions, operating loss

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carryforwards, income tax credits, changes in previously established valuation allowances for deferred tax assets based upon management’s current analysis of the realizability of these deferred tax assets, as well as certain tax holidays and incentives granted to us and our subsidiaries in China, Hungary and Malaysia.

In evaluating the realizability of the deferred tax assets, management considers the recent history of operating income and losses by jurisdiction, exclusive of items that it believes are non-recurring in nature such as restructuring charges and losses associated with early extinguishment of debts. Management also considers the future projected operating income in the relevant jurisdiction and the effect of any tax planning strategies.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2004, we had cash and cash equivalents totaling $664.6 million and total bank and other debts totaling $2.0 billion. Also, we have a revolving credit facility of $1.1 billion, which is subject to compliance with certain financial covenants, under which we had $536.0 million borrowings outstanding as of June 30, 2004.

Cash provided by operating activities was $166.2 million and $246.3 million during the three months ended June 30, 2004 and June 30, 2003, respectively. During the first quarter of fiscal year 2005, cash provided by operating activities reflected an increase in trade payable and other accrued liabilities of approximately $165.5 million, offset by a $201.8 million increase in inventory and a $22.0 million increase in accounts receivable. The increase in inventory reflects growth in certain new customer programs, and the expansion of our logistics operations. During the first quarter of fiscal year 2004, cash provided by operating activities reflected increase in trade payable and other accrued liabilities of approximately $588.5 million, offset by increases in accounts receivable, inventory and other current assets of approximately $119.4 million.

Cash used in investing activities was $416.4 million and $62.7 million for the first three months of fiscal year 2005 and fiscal year 2004, respectively. Cash used in investing activities during the three months ended June 30, 2004 primarily related to (i) the prepayment relating to the pending acquisition of 55% of Hughes Software Systems, (ii) net capital expenditures of $60.3 million to purchase equipment and for continued expansion of various manufacturing facilities in certain low-cost, high volume centers, primarily in Asia, and (iii) net payments of $96.3 million for investments and notes receivable, including our participation in our trade receivables securitization program.

Our financing activities provided net cash of $284.9 million in the first three months of fiscal year 2005, compared to $249.8 million for the same period in fiscal year 2004. Cash provided by financing activities during the three months ended June 30, 2004 primarily related to proceeds from bank borrowings and the utilization of our revolving line of credit, which generated net proceeds of approximately $275.2 million, compared to net proceeds of $245.5 million for the three months ended June 30, 2003. Additionally, proceeds from the sale of ordinary shares under our employee stock plans generated cash of approximately $11.8 million and $9.4 million for the three months ended June 30, 2004 and June 30, 2003, respectively.

On June 29, 2004, we entered into a definitive asset purchase agreement with Nortel Networks providing for the purchase of certain Nortel optical, wireless, wireline and enterprise manufacturing operations and optical design operations by Flextronics. We anticipate that the aggregate purchase price for the assets acquired will be in the range of approximately $675 million to $725 million. We will allocate the purchase price to the fair value of the acquired assets, which we currently estimate will be approximately $415 million to $465 million for inventory, approximately $60 million for fixed assets, and the remaining $200 million for intangible assets and goodwill. We expect that approximately $75 million of the cash purchase price will be paid to Nortel in November 2004, and approximately $600 million to $650 million will be paid in four quarterly installments in calendar 2005. If any of the acquired inventory has not been used by the first anniversary of the applicable closing date, we will have a “put” right under which, subject to certain closing conditions, we may then sell that inventory back to Nortel. Similarly, if any of the acquired equipment is unused at the first anniversary of the applicable closing date, then subject to certain conditions, we will be entitled to sell it back to Nortel. We intend to use our working capital balances and borrowings under our revolving credit facilities to fund the purchase price for the assets to be acquired.

Subsequent to June 30, 2004, we completed a follow-on offering of 24,330,900 of our ordinary shares for which we received net proceeds of approximately $299.8 million. We intend to use the net proceeds from the offering to fund the further expansion of our business, including additional working capital and capital expenditures, to repay borrowings under our revolving credit facility, and for general corporate purposes.

Our working capital requirements and capital expenditures could continue to increase in order to support future expansions of our operations. It is possible that future acquisitions may be significant and may require the payment of cash, including our recent announcement regarding the Nortel Networks acquisition as further discussed above. Future liquidity needs will also depend on fluctuations in levels of inventory, accounts receivable and accounts payable, the timing of capital expenditures by us for new equipment, the extent to which we utilize operating leases for the new facilities and equipment, the extent of cash charges associated with future restructuring activities and levels of shipments and changes in volumes of customer orders.

We believe that our existing cash balances, together with anticipated cash flows from operations and borrowings available under our credit facility will be sufficient to fund our operations and anticipated transactions through at least the next twelve months. Historically, we have funded our operations from the proceeds of public offerings of equity and debt securities, cash and cash equivalents generated from operations, bank debt, sales of accounts receivable and capital equipment lease financings. We anticipate that we will continue to enter into debt and equity financings, sales of accounts receivable and lease transactions to fund our acquisitions and anticipated growth. The sale of equity or convertible debt securities could result in dilution to our current shareholders. Further, we may issue debt securities that have

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rights and privileges senior to those of holders of our ordinary shares, and the terms of this debt could impose restrictions on our operations. Such financings and other transactions may not be available on terms acceptable to us or at all.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Information regarding our long-term debt payments, operating lease payments, capital lease payments and other commitments is provided in Item 7 “Management’s Discussion and Analysis of Results of Operations and Financial Condition” of our Annual Report on our Form 10-K for the fiscal year ended March 31, 2004. There have been no material changes in contractual obligations since March 31, 2004. Information regarding our other financial commitments at June 30, 2004 is provided in “Notes to Condensed Consolidated Financial Statements, Note F — Trade Receivables Securitization.”

RELATED PARTY TRANSACTIONS

Since June 30, 2003, neither we nor any of our subsidiaries have made or will make any loans to our executive officers. Prior to that time, we made loans to several of our executive officers. Each loan is evidenced by a promissory note in favor of Flextronics and is generally secured by a deed of trust on property of the officer. Certain notes are non-interest bearing and others have interest rates ranging from 2.48% to 5.85%. The remaining outstanding balance of the loans, including accrued interest, as of June 30, 2004, was approximately $14.4 million. Additionally, in connection with an investment partnership, we made loans to several of our executive officers to fund their contributions to the investment partnership. Each loan is evidenced by a full-recourse promissory note in favor of the subsidiary. Interest rates on the notes range from 5.05% to 6.40%. The remaining balance of these loans, including accrued interest, as of June 30, 2004 was approximately $2.9 million.

RISK FACTORS

If we do not effectively manage changes in our operations, our business may be harmed.

In the last ten years, we have experienced significant growth in our business through a combination of internal growth and acquisitions, and we expect to make additional acquisitions in the future, including our recently announced pending acquisition of the majority ownership stake in Hughes Software Systems and our recently announced acquisition of assets from Nortel Networks described under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview”. Our global workforce has more than doubled in size since the beginning of fiscal year 2001. During that time, we have also reduced our workforce at some locations and closed certain facilities in connection with our restructuring activities. These changes have placed considerable strain on our management control systems and resources, including decision support, accounting management, information systems and facilities. If we do not continue to improve our financial and management controls, reporting systems and procedures to manage our employees effectively and to expand our facilities, our business could be harmed.

We plan to continue to transition manufacturing to lower cost locations. We plan to increase our manufacturing capacity in our low-cost regions by expanding our facilities and adding new equipment. This expansion involves significant risks, including, but not limited to, the following:

• we may not be able to attract and retain the management personnel and skilled employees necessary to support expanded operations;

• we may not efficiently and effectively integrate new operations and information systems, expand our existing operations and manage geographically dispersed operations;

• we may incur cost overruns;

• we may incur charges related to our expansion activities;

• we may encounter construction delays, equipment delays or shortages, labor shortages and disputes and production start-up problems that could harm our growth and our ability to meet customers’ delivery schedules; and

• we may not be able to obtain funds for this expansion, and we may not be able to obtain loans or operating leases with attractive terms.

In addition, we expect to incur new fixed operating expenses associated with our expansion efforts that will increase our cost of sales, including increases in depreciation expense and rental expense. If our revenues do not increase sufficiently to offset these expenses, our operating results could be seriously harmed. Our transition to low-cost manufacturing regions has contributed to significant restructuring and other charges that have resulted from reducing our workforce and capacity at higher-cost locations. We recognized restructuring charges of approximately $540.3 million in fiscal year 2004 and $297.0 million in fiscal year 2003 associated with the consolidation and closure of several manufacturing facilities, and impairment of certain long-lived assets at several manufacturing facilities. We may be required to take additional charges in the future as a result of these activities. We cannot assure you as to the timing or amount of any future restructuring charges. If we are required to take additional restructuring charges in the future, it could have a material adverse impact on our operating results, financial position and cash flows.

We depend on industries that continually produce technologically advanced products with short life cycles; our inability to continually manufacture such products on a cost-effective basis could harm our business.

For the three months ended June 30, 2004, we derived:

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• approximately 37% of our revenues from customers in the handheld devices industry, whose products include cellular phones, pagers and personal digital assistants;

• approximately 21% of our revenues from customers in the computers and office automation industry, whose products include copiers, scanners, graphic cards, desktop and notebook computers, and peripheral devices such as printers and projectors;

• approximately 16% of our revenues from providers of communications infrastructure, whose products include equipment for optical networks, cellular base stations, radio frequency devices, telephone exchange and access switches, and broadband devices;

• approximately 9% of our revenues from the consumer devices industry, whose products include set-top boxes, home entertainment equipment, cameras and home appliances;

• approximately 8% of our revenues from providers of information technologies infrastructure, whose products include servers, workstations, storage systems, mainframes, hubs and routers; and

• approximately 9% of our revenues from customers in a variety of other industries, including the medical, automotive, industrial and instrumentation industries.

Factors affecting these industries in general could seriously harm our customers and, as a result, us. These factors include:

• rapid changes in technology, which result in short product life cycles;

• seasonality of demand for our customers’ products;

• the inability of our customers to successfully market their products, and the failure of these products to gain widespread commercial acceptance; and

• recessionary periods in our customers’ markets.

Our customers have and may continue to cancel their orders, change production quantities or locations, or delay production.

As a provider of electronics manufacturing services, we must provide increasingly rapid product turnaround for our customers. We generally do not obtain firm, long-term purchase commitments from our customers, and we often experience reduced lead-times in customer orders. Customers cancel their orders, change production quantities and delay production for a number of reasons. Uncertain economic and geopolitical conditions have resulted, and may continue to result, in some of our customers delaying the delivery of some of the products we manufacture for them, and placing purchase orders for lower volumes of products than previously anticipated. Cancellations, reductions or delays by a significant customer or by a group of customers have harmed, and may continue to harm, our results of operations by reducing the volumes of products we manufactured for these customers and delivered in that period, by causing a delay in the repayment of our expenditures for inventory in preparation for customer orders and lower asset utilization resulting in lower gross margins. In addition, customers often require that manufacturing of their products be transitioned from one facility to another to achieve cost and other objectives. Such transfers result in inefficiencies and costs due to resulting excess capacity and overhead at one facility and capacity constraints and related stresses at the other.

In addition, we make significant decisions, including determining the levels of business that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements, based on our estimates of customer requirements. The short-term nature of our customers’ commitments and the rapid changes in demand for their products reduce our ability to estimate accurately future customer requirements. This makes it difficult to schedule production and maximize utilization of our manufacturing capacity. We often increase staffing, increase capacity and incur other expenses to meet the anticipated demand of our customers, which cause reductions in our gross margins if customer orders are or cancelled. Anticipated orders may not materialize, and delivery schedules may be deferred as a result of changes in demand for our customers’ products. On occasion, customers require rapid increases in production, which stress our resources and reduce margins. Although we have increased our manufacturing capacity, and plan further increases, we may not have sufficient capacity at any given time to meet our customers’ demands. In addition, because many of our costs and operating expenses are relatively fixed, a reduction in customer demand harms our gross profit and operating income.

Our operating results vary significantly from period to period.

We experience significant fluctuations in our results of operations. Some of the principal factors that contribute to these fluctuations are:

• changes in demand for our services;

• our effectiveness in managing manufacturing processes and costs in order to decrease manufacturing expenses;

• the mix of the types of manufacturing services we provide, as high-volume and low-complexity manufacturing services typically have lower gross margins than lower volume and more complex services;

• changes in the cost and availability of labor and components, which often occur in the electronics manufacturing industry and which affect our margins and our ability to meet delivery schedules;

• the degree to which we are able to utilize our available manufacturing capacity;

• our ability to manage the timing of our component purchases so that components are available when needed for production, while avoiding the risks of purchasing inventory in excess of immediate production needs;

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• local conditions and events that may affect our production volumes, such as labor conditions, political instability and local holidays; and

• changes in demand in our customers’ end markets.

Two of our significant end-markets are the handheld electronics devices market and the consumer devices market. These markets exhibit particular strength toward the end of the calendar year in connection with the holiday season. As a result, we have historically experienced stronger revenues in our third fiscal quarter as compared to our other fiscal quarters.

Our increased original design manufacturing (ODM) activity may reduce our profitability.

We have recently begun providing ODM services, where we design and develop products that we then manufacture for OEM customers. We are actively pursuing ODM projects, focusing primarily on consumer related devices, such as cellular phones and related products, which requires that we make investments in research and development, technology licensing, test and tooling equipment, patent applications, facility expansion, and recruitment.

Although we enter into contracts with our ODM customers, we may design and develop products for these customers prior to receiving a purchase order or other firm commitment from them. We are required to make substantial investments in the resources necessary to design and develop these products, and no revenue may be generated from these efforts if our customers do not approve the designs in a timely manner or at all, or if they do not then purchase anticipated levels of products. In addition, ODM activities often require that we purchase inventory for initial production runs before we have a purchase commitment from a customer. Even after we have a contract with a customer with respect to an ODM product, these contracts may allow the customer to delay or cancel deliveries and may not obligate the customer to any volume of purchases. These contracts can generally be terminated by either party on short notice. There is no assurance that we will be able to maintain our current level of ODM activity at all or for an extended period of time. Due to the initial costs of investing in the resources necessary for this business, our increased ODM activities adversely affected our profitability during fiscal year 2004. We continue to make investments in our ODM services, which could adversely affect our profitability during fiscal year 2005 and beyond. Further, the products we design must satisfy safety and regulatory standards and some products must also receive government certifications. If we fail to obtain these approvals or certifications on a timely basis, we would be unable to sell these products, which would harm our sales, profitability and reputation.

The success of our ODM activity depends on our ability to protect our intellectual property rights.

We retain certain intellectual property rights to our ODM products. As the level of our ODM activity is increasing, the extent to which we rely on rights to intellectual property incorporated into products is increasing. Despite our efforts, we cannot be certain that the measures we have taken to prevent unauthorized use of our technology will be successful. If we are unable to protect our intellectual property rights, this could reduce or eliminate the competitive advantages of our proprietary technology, which would harm our business.

Intellectual property infringement claims against our customers or us could harm our business.

Our ODM products often face competition from the products of OEMs, many of whom may own the intellectual property rights underlying those products. As a result, we could become subject to claims of intellectual property infringement as the number of our competitors increases. In addition, customers for our ODM services typically require that we indemnify them against the risk of intellectual property infringement. If any claims are brought against us or our customers for such infringement, whether or not these have merit, we could be required to expend significant resources in defense of such claims. In the event of such an infringement claim, we may be required to spend a significant amount of money to develop non-infringing alternatives or obtain licenses. We may not be successful in developing such alternatives or obtaining such a license on reasonable terms or at all.

If our ODM products are subject to design defects, our business may be damaged and we may incur significant fees.

In our contracts with ODM customers, we generally provide them with a warranty against defects in our designs. If an ODM product or component that we design is found to be defective in its design, this may lead to increased warranty claims. Although we have product liability insurance coverage, it is expensive and may not be available on acceptable terms, in sufficient amounts, or at all. A successful product liability claim in excess of our insurance coverage or any material claim for which insurance coverage was denied or limited and for which indemnification was not available could have a material adverse effect on our business, results of operations and financial condition.

We are exposed to intangible asset risk.

We have a substantial amount of intangible assets. These intangible assets are attributable to acquisitions and represent the difference between the purchase price paid for the acquired businesses and the fair value of the net tangible assets of the acquired businesses. We are required to evaluate goodwill and other intangibles for impairment on at least an annual basis, and whenever changes in circumstances indicate that the carrying amount may not be recoverable from estimated future cash flows. As a result of our annual and other periodic evaluations, we may determine that the intangible asset values need to be written down to their fair values, which could result in material charges that could be adverse to our operating results and financial position.

We may encounter difficulties with acquisitions, which could harm our business.

We have completed numerous acquisitions of businesses and we expect to continue to acquire additional businesses in the future. We are currently in preliminary discussions with respect to potential acquisitions and strategic customer transactions, and we have entered into definitive agreements for the acquisition of the majority ownership stake in Hughes Software Systems and the acquisition of Nortel Networks’ optical, and wireless and enterprise manufacturing operations and related supply chain activities, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview”. We do not have any other definitive agreements

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to make any material acquisitions or strategic customer transactions. Any future acquisitions may require additional debt or equity financing. This could increase our leverage or be dilutive to our existing shareholders. We may not be able to complete acquisitions or strategic customer transactions in the future to the same extent as in the past, or at all.

In addition, acquisitions involve numerous risks and challenges, including:

• difficulties in integrating acquired businesses and operations;

• diversion of management’s attention from the normal operation of our business;

• potential loss of key employees and customers of the acquired companies;

• difficulties in managing and integrating operations in geographically dispersed locations;

• lack of experience operating in the geographic market or industry sector of the acquired business;

• increases in our expenses and working capital requirements, which reduce our return on invested capital; and

• exposure to unanticipated contingent liabilities of acquired companies.

These and other factors have harmed, and in the future could harm, our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, and could adversely affect our business and operating results.

Our new strategic relationship with Nortel Networks involves a number of risks, and we may not succeed in realizing the anticipated benefits of this relationship.

The transaction with Nortel Networks described under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview” is subject to a number of closing conditions, including regulatory approvals, conversion of information technology systems, and the completion of the required information and consultation process with employee representatives in Europe. Some of the processes involved in converting information technology systems (including the integration of related systems and internal controls) are complex and time consuming, and may present unanticipated difficulties. As a result, we expect that the closings of this transaction will not begin until November 2004 and they are not expected to be completed until May 2005. Further delays may arise if the conversion of information technology systems requires more time than presently anticipated. In addition, completion of required information and consultation process with employee representatives in Europe may result in additional delays and in difficulties in retaining employees.

After closing, the success of this transaction will depend on our ability to successfully integrate the acquired operations with our existing operations. This will involve integrating Nortel Networks’ information technology systems with our other systems, integrating their operations into our existing procurement activities, and assimilating and managing existing personnel. In addition, this transaction will increase our expenses and working capital requirements, and place burdens on our management resources. In the event we are unsuccessful in integrating the acquired operations, we would not achieve the anticipated benefits of this transaction, and our results of operations would be adversely affected.

As a result of the new strategic relationship, we expect that Nortel Networks will become our largest single customer, representing over ten percent of our net sales. The manufacturing relationship with Nortel Networks is not exclusive, and they are entitled to use other suppliers for a portion of their requirements of these products. While Nortel Networks has agreed to use Flextronics to manufacture a majority of its requirements of these existing products, so long as Flextronics’ services are competitive, our services may not remain competitive, and there can be no assurance that we will continue to manufacture a majority of Nortel Networks requirements of these products. In addition, sales of these products depend on a number of factors, including global economic conditions, competition, new technologies that could render these products obsolete, the level of sales and marketing resources devoted by Nortel Networks with respect to these products, and the success of these sales and marketing activities. If demand for these products should decline, we would experience reduced sales and gross margins from these products.

We have agreed to cost reduction targets and price limitations and to certain manufacturing quality requirements. We may not be able to reduce costs over time as required, and Nortel Networks would be entitled to certain reductions in their product prices, which would adversely affect our margins from this program. In addition, we may encounter difficulties in meeting Nortel Networks’ expectations as to product quality and timeliness. If Nortel Networks’ requirements exceed the volume we anticipate, we may be unable to meet these requirements on a timely basis. Our inability to meet Nortel Networks volume, quality, timeliness and cost requirements, could have a material adverse effect on our results of operations. Nortel Networks may not purchase a sufficient quantity of products from us to meet our expectations and we may not utilize a sufficient portion of the acquired capacity to achieve profitable operations.

In addition, one of the anticipated benefits to us of the transaction with Nortel Networks is the advanced expertise that we will obtain by employing approximately 150 of Nortel Networks’ optical design employees. Nortel Networks may not be successful in retaining these employees until closing, and we may fail to retain and motivate these employees after closing or to integrate them into our other design operations.

Although we expect that our gross margin and operating margin on sales to Nortel Networks will initially be less than that generally realized by the Company in fiscal 2004, we also expect that we will be able to increase these gross margins over time through cost reductions and by internally sourcing our vertically integrated supply chain solutions, which include the fabrication and assembly of printed circuit boards and enclosures, as well as logistics and repair services. Additionally, the impact of lower gross margins may be partially offset by the effect of anticipated lower selling, general and administrative expenses, as a percentage of net sales. There can be no assurance that we will realize lower expenses or increased operating efficiencies as anticipated.

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Our strategic relationships with major customers create risks.

Over the past several years, we have completed numerous strategic transactions with OEM customers, including, among others, Xerox, Alcatel, Casio and Ericsson, and we have entered into a definitive agreement with Nortel Networks as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview.” Under these arrangements, we generally acquire inventory, equipment and other assets from the OEM, and lease or acquire their manufacturing facilities, while simultaneously entering into multi-year supply agreements for the production of their products. We intend to continue to pursue these OEM divestiture transactions in the future. There is strong competition among EMS companies for these transactions, and this competition may increase. These transactions have contributed to a significant portion of our revenue growth, and if we fail to complete similar transactions in the future, our revenue growth could be harmed. As part of these arrangements, we typically enter into manufacturing services agreements with these OEMs. These agreements generally do not require any minimum volumes of purchases by the OEM, and the actual volume of purchases may be less than anticipated. The arrangements entered into with divesting OEMs typically involve many risks, including the following:

• we may need to pay a purchase price to the divesting OEMs that exceeds the value we may realize from the future business of the OEM;

• the integration of the acquired assets and facilities into our business may be time-consuming and costly;

• we, rather than the divesting OEM, bear the risk of excess capacity at the facility;

• we may not achieve anticipated cost reductions and efficiencies at the facility;

• we may be unable to meet the expectations of the OEM as to volume, product quality, timeliness and cost reductions; and

• if demand for the OEMs’ products declines, the OEM may reduce its volume of purchases, and we may not be able to sufficiently reduce the expenses of operating the facility or use the facility to provide services to other OEMs.

As a result of these and other risks, we have been, and in the future may be, unable to achieve anticipated levels of profitability under these arrangements. In addition, these strategic arrangements have not, and in the future may not, result in any material revenues or contribute positively to our earnings per share.

We depend on the continuing trend of outsourcing by OEMs.

Future growth in our revenue depends on new outsourcing opportunities in which we assume additional manufacturing and supply chain management responsibilities from OEMs. To the extent that these opportunities are not available, either because OEMs decide to perform these functions internally or because they use other providers of these services, our future growth would be limited.

The majority of our sales come from a small number of customers; if we lose any of these customers, our sales could decline significantly.

Sales to our ten largest customers have represented a significant percentage of our net sales in recent periods. Our ten largest customers accounted for approximately 64% and 67% of net sales in fiscal year 2004 and fiscal year 2003, respectively. Our largest customers during fiscal year 2004 were Hewlett-Packard and Sony-Ericsson, each accounting for approximately 12% of net sales, respectively. No other customer accounted for more than 10% of net sales in fiscal year 2004 or fiscal year 2003.

Our principal customers have varied from year to year, and our principal customers may not continue to purchase services from us at current levels, if at all. Significant reductions in sales to any of these customers, or the loss of major customers, would seriously harm our business. If we are not able to timely replace expired, canceled or reduced contracts with new business, our revenues could be harmed.

Our industry is extremely competitive.

The EMS industry is extremely competitive and includes many companies, several of which have achieved substantial market share. Current and prospective customers also evaluate our capabilities against the merits of manufacturing products themselves. Some of our competitors may have greater design, manufacturing, and financial or other resources than we do. Additionally, we face competition from Taiwanese ODM suppliers, who have a substantial share of the global market for information technology hardware production, primarily related to notebook and desktop computers and personal computer motherboards, in addition to providing consumer products and other technology manufacturing services.

The overall demand for electronics manufacturing services decreased in recent years, resulting in increased capacity and substantial pricing pressures, which have harmed our operating results. Certain sectors of the EMS industry have experienced increased price competition, and if we experience such increased level of competition in the future, our revenues and gross margin may continue to be adversely affected.

We may be adversely affected by shortages of required electronic components.

At various times, there are shortages of some of the electronic components that we use, as a result of strong demand for those components or problems experienced by suppliers. These unanticipated component shortages have resulted in curtailed production or delays in production, which prevented us from making scheduled shipments to customers in the past and may do so in the future. Our inability to make scheduled shipments could cause the Company to experience a reduction in sales, increase in inventory levels and costs, and could adversely affect relationships with existing and prospective customers. Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components. As a result, component shortages could adversely affect our operating results for a particular period due to the resulting revenue shortfall and increased manufacturing or component costs.

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Our customers may be adversely affected by rapid technological change.

Our customers compete in markets that are characterized by rapidly changing technology, evolving industry standards and continuous improvement in products and services. These conditions frequently result in short product life cycles. Our success will depend largely on the success achieved by our customers in developing and marketing their products. If technologies or standards supported by our customers’ products become obsolete or fail to gain widespread commercial acceptance, our business could be adversely affected.

We are subject to the risk of increased income taxes.

We have structured our operations in a manner designed to maximize income in countries where:

• tax incentives have been extended to encourage foreign investment; or

• income tax rates are low.

We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. However, our tax position is subject to review and possible challenge by taxing authorities and to possible changes in law, which may have retroactive effects. We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments in lieu of taxes.

Several countries in which we are located allow for tax holidays or provide other tax incentives to attract and retain business. These tax incentives expire over various periods from 2004 to 2010 and are subject to certain conditions with which we expect to comply. We have obtained tax holidays or other incentives where available, primarily in China, Malaysia and Hungary. In these three countries, we generated an aggregate of approximately $8.4 billion of our total revenues for the fiscal year ended March 31, 2004. Our taxes could increase if certain tax holidays or incentives are not renewed upon expiration, or tax rates applicable to us in such jurisdictions are otherwise increased. In addition, further acquisitions of businesses may cause our effective tax rate to increase.

We conduct operations in a number of countries and are subject to risks of international operations.

The geographical distances between the Americas, Asia and Europe create a number of logistical and communications challenges for us. These challenges include managing operations across multiple time zones, directing the manufacture and delivery of products across distances, coordinating procurement of components and raw materials and their delivery to multiple locations, and coordinating the activities and decisions of the core management team, which is based in a number of different countries. Facilities in several different locations may be involved at different stages of the production of a single product, leading to additional logistical difficulties.

Because our manufacturing operations are located in a number of countries throughout the Americas, Asia and Europe, we are subject to the risks of changes in economic and political conditions in those countries, including:

• fluctuations in the value of local currencies;

• labor unrest and difficulties in staffing;

• longer payment cycles;

• cultural differences;

• increases in duties and taxation levied on our products;

• imposition of restrictions on currency conversion or the transfer of funds;

• limitations on imports or exports of components or assembled products, or other travel restrictions;

• expropriation of private enterprises; and

• a potential reversal of current favorable policies encouraging foreign investment or foreign trade by our host countries.

The attractiveness of our services to U.S. customers can be affected by changes in U.S. trade policies, such as most favored nation status and trade preferences for some Asian countries. In addition, some countries in which we operate, such as Brazil, Hungary, Mexico, Malaysia and Poland, have experienced periods of slow or negative growth, high inflation, significant currency devaluations or limited availability of foreign exchange. Furthermore, in countries such as China and Mexico, governmental authorities exercise significant influence over many aspects of the economy, and their actions could have a significant effect on us. Finally, we could be seriously harmed by inadequate infrastructure, including lack of adequate power and water supplies, transportation, raw materials and parts in countries in which we operate.

We are exposed to fluctuations in foreign currency exchange rates.

We transact business in various foreign countries. As a result, we are exposed to fluctuations in foreign currencies. We have currency exposure arising from both sales and purchases denominated in currencies other than the functional currencies of our entities. Volatility in the exchange rates between the foreign currencies and the functional currencies of our entities could seriously harm our business, operating results and financial condition. We try to manage our foreign currency exposure by borrowing in various foreign currencies and by entering into foreign exchange forward contracts. Mainly, we enter into foreign exchange forward contracts intended to reduce the short-term impact of foreign currency fluctuations on current assets and liabilities denominated in foreign currency. These exposures are primarily, but not limited to, cash, receivables, payables and inter-company balances, in currencies other than the functional currency of the operating entity. We will first evaluate and, to the extent possible, use non-financial techniques, such as currency of invoice, leading and lagging

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payments, receivable management or local borrowing to reduce transactions exposure before taking steps to minimize remaining exposure with financial instruments. Foreign exchange forward contracts intended to hedge forecasted transactions are treated as cash flow hedges and such contracts generally expire within three months. The credit risk of these forward contracts is minimized since the contracts are with large financial institutions. The gains and losses on forward contracts generally offset the gains and losses on the assets, liabilities and transactions hedged.

We depend on our executive officers and skilled management personnel.

Our success depends to a large extent upon the continued services of our executive officers. Generally our employees are not bound by employment or non-competition agreements, and we cannot assure you that we will retain our executive officers and other key employees. We could be seriously harmed by the loss of any of our executive officers. In order to manage our growth, we will need to recruit and retain additional skilled management personnel and if we are not able to do so, our business and our ability to continue to grow could be harmed. In addition, in connection with expanding our ODM activities, we must attract and retain experienced design engineers. Although we and a number of companies in our industry have implemented workforce reductions, there remains substantial competition for highly skilled employees. Our failure to recruit and retain experienced design engineers could limit the growth of our ODM activities, which could adversely affect our business.

We are subject to environmental compliance risks.

We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. In addition, we are responsible for cleanup of contamination at some of our current and former manufacturing facilities and at some third party sites. If more stringent compliance or cleanup standards under environmental laws or regulations are imposed, or the results of future testing and analyses at our current or former operating facilities indicate that we are responsible for the release of hazardous substances, we may be subject to additional remediation liability. Further, additional environmental matters may arise in the future at sites where no problem is currently known or at sites that we may acquire in the future. Currently unexpected costs that we may incur with respect to environmental matters may result in additional loss contingencies, the quantification of which cannot be determined at this time.

We are a defendant in several securities class action lawsuits and this litigation could harm our business whether or not determined adversely to us.

Between June and August 2002, Flextronics and certain of our officers and directors were named as defendants in several securities class action lawsuits that seek an unspecified amount of damages, which were filed in the Untied States District Court for the Southern District of New York. These actions, which were filed on behalf of those who purchased, or otherwise acquired, Flextronics’ ordinary shares between January 18, 2001 and June 4, 2002, including those who purchased ordinary shares in our secondary offerings on February 1, 2001 and January 7, 2002. These actions generally allege that, during this period, the defendants made misstatements to the investing public about the financial condition and prospects of Flextronics. On April 23, 2003, the Court entered an order transferring these lawsuits to the United States District Court for the Northern District of California. On July 16, 2003, Flextronics filed a motion to dismiss on behalf of the Company and its officers and directors named as defendants. On November 17, 2003, the Court entered an order granting defendants’ motion to dismiss without prejudice. On January 28, 2004, plaintiffs filed an amended complaint. Flextronics’ motion to dismiss the amended complaint was filed on March 10, 2004.

In May 2004, the parties reached a tentative settlement of all claims in the lawsuit and the defendants withdrew their motion to dismiss. The settlement would be funded entirely by funds from our Officers’ and Directors’ insurance. The settlement agreement is subject to negotiation and documentation of a formal stipulation of settlement, as well as Court approval. If the settlement is not finalized, there can be no assurance we will be successful in defending the lawsuits, and, if we are unsuccessful, we may be subject to significant damages. Even if we were to be successful, defending the lawsuits may be expensive and may divert management’s attention from other business concerns and harm our business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes during the three months ended June 30, 2004 to our exposure to market risk for changes in interest rates and foreign currency exchange rates.

We have a portfolio of fixed and variable rate debt, primarily consisting of fixed rate debt obligations. Our variable rate debt instruments create exposures for us related to interest rate risk. A hypothetical 10% change in interest rates from those as of June 30, 2004 would not have a material effect on our financial position, results of operations and cash flows over the next twelve months.

We transact business in various foreign countries and are, therefore, subject to risk of foreign currency exchange rate fluctuations. We have established a foreign currency risk management policy to manage this risk. Based on our overall currency rate exposures, including derivative financial instruments and nonfunctional currency-denominated receivables and payables, a near-term 10% appreciation or depreciation of the U.S. dollar from the rate as of June 30, 2004 would not have a material effect on our financial position, results of operations and cash flows over the next twelve months.

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ITEM 4. CONTROLS AND PROCEDURES

(a)

Regulations under the Securities Exchange Act of 1934 require public companies to maintain “disclosure controls and procedures,” which are defined to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Our chief executive officer and chief financial officer, based on their evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, concluded that our disclosure controls and procedures were effective for this purpose.

(b)

During the first quarter of fiscal year 2005, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Between June and August 2002, Flextronics and certain of our officers and directors were named as defendants in several securities class action lawsuits that seek an unspecified amount of damages, which were filed in the United States District Court for the Southern District of New York. These actions, which were filed on behalf of those who purchased, or otherwise acquired, Flextronics’ ordinary shares between January 18, 2001 and June 4, 2002, including those who purchased ordinary shares in our secondary offerings on February 1, 2001 and January 7, 2002. These actions generally allege that, during this period, the defendants made misstatements to the investing public about the financial condition and prospects of Flextronics. On April 23, 2003, the Court entered an order transferring these lawsuits to the United States District Court for the Northern District of California. On July 16, 2003, Flextronics filed a motion to dismiss on behalf of the Company and its officers and directors named as defendants. On November 17, 2003, the Court entered an order granting defendants’ motion to dismiss without prejudice. On January 28, 2004, plaintiffs filed an amended complaint. Flextronics’ motion to dismiss the amended complaint was filed on March 10, 2004.

In May 2004, the parties reached a tentative settlement of all claims in the lawsuit and the defendants withdrew their motion to dismiss. The settlement would be funded entirely by funds from Flextronics Officers’ and Directors’ insurance. On July 28, 2004, the Court entered an order preliminarily approving the settlement. The settlement agreement is subject to final Court approval and a hearing on final approval is scheduled for October 27, 2004. If the settlement is not finalized, there can be no assurance we will be successful in defending the lawsuits, and, if we are unsuccessful, we may be subject to significant damages. Even if we were to be successful, defending the lawsuits may be expensive and may divert management’s attention from other business concerns and harm our business.

We are also subject to legal proceedings, claims, and litigation arising in the ordinary course of business. We defend ourselves vigorously against any such claims. While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8K

(a) Exhibits

Exhibit No.	Exhibit
10.01	Asset Purchase Agreement, dated as of June 29, 2004, by and among the Registrant and Nortel Networks Limited. † **
10.02	Amendment No. 2 dated as of July 14, 2004, to the Credit Agreement dated as of March 3, 2004, among Flextronics International, Ltd., each of the subsidiaries of the Registrant designated as borrowers from time to time, Fleet National Bank and the guarantors thereunder, the financial institutions party to the Credit Agreement as Lenders and ABN AMRO Bank N.V., as agent.
10.03	Amendment No. 2 dated as of July 14, 2004, to the Credit Agreement dated as of March 3, 2004, among Flextronics International USA, Inc., the financial institutions party to the Credit Agreement as Lenders, and ABN AMRO Bank N.V., as Agent.
23.01	Letter in lieu of consent of Deloitte & Touche LLP.
31.01	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.
31.02	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
32.01	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.02	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

* As contemplated by SEC Release No. 33-8238, these exhibits are furnished with this Quarterly Report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of Flextronics International Ltd. under the Securities Exchange Act of 1933 or the Securities Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in such filings.

** Certain schedules have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.

† Portions of this exhibit have been omitted pursuant to a request for confidential treatment and that material has been filed separately with the Securities and Exchange Commission.

(b) Reports on Form 8-K

On April 27, 2004, we filed a current report on Form 8-K relating to the announcement of our results of operations for the fiscal quarter ended March 31, 2004, as presented in a press release on April 27, 2004.

On July 19, 2004 we filed a current report on Form 8-K relating to the announcement of our results of operations for the fiscal quarter ended June 30, 2004, as presented in a press release on July 19, 2004.

On July 22, 2004, we filed a current report on Form 8-K reaffirming the guidance for the September 2004 and December 2004 fiscal quarters set forth in our press release dated July 19, 2004.

On July 26, 2004, we filed a current report on Form 8-K announcing the underwriting agreement we entered into with Citigroup Global Markets Inc. and Banc of America Securities LLC, as representatives of the several underwriters, providing for the public offering of 24,330,900 of our ordinary shares at a public offering price of $12.50 per share.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FLEXTRONICS INTERNATIONAL LTD.
	(Registrant)
Date: August 6, 2004	/s/ Michael E. Marks
	Michael E. Marks
	Chief Executive Officer
	(Principal Executive Officer)
Date: August 6, 2004	/s/ Robert R.B. Dykes
	Robert R.B. Dykes
	President, Systems Group and
	Chief Financial Officer
	(Principal Financial Officer)
Date: August 6, 2004	/s/ Thomas J. Smach
	Thomas J. Smach
	Senior Vice President, Finance
	(Principal Accounting Officer)

34

EXHIBIT INDEX

Exhibit No.	Exhibit
10.01	Asset Purchase Agreement, dated as of June 29, 2004, by and among the Registrant and Nortel Networks Limited. † **
10.02	Amendment No. 2 dated as of July 14, 2004, to the Credit Agreement dated as of March 3, 2004, among Flextronics International, Ltd., each of the subsidiaries of the Registrant designated as borrowers from time to time, Fleet National Bank and the guarantors thereunder, the financial institutions party to the Credit Agreement as Lenders and ABN AMRO Bank N.V., as agent.
10.03	Amendment No. 2 dated as of July 14, 2004, to the Credit Agreement dated as of March 3, 2004, among Flextronics International USA, Inc., the financial institutions party to the Credit Agreement as Lenders, and ABN AMRO Bank N.V., as Agent.
23.01	Letter in lieu of consent of Deloitte & Touche LLP.
31.01	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.
31.02	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
32.01	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.02	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

* As contemplated by SEC Release No. 33-8238, these exhibits are furnished with this Quarterly Report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of Flextronics International Ltd. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in such filings.

** Certain schedules have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.

† Portions of this exhibit have been omitted pursuant to a request for confidential treatment and that material has been filed separately with the Securities and Exchange Commission.

35

EX-10.01

                                                                   EXHIBIT 10.01


                                                CONFIDENTIAL TREATMENT REQUESTED


                             NORTEL NETWORKS LIMITED

                                    as Seller

                                       and

                        FLEXTRONICS TELECOM SYSTEMS, LTD.

                                  as Purchaser

- --------------------------------------------------------------------------------

                            ASSET PURCHASE AGREEMENT

                                 June 29th, 2004

- --------------------------------------------------------------------------------

                              STIKEMAN ELLIOTT LLP



                                TABLE OF CONTENTS

                                                                            
                                    ARTICLE 1
                                   DEFINITIONS

Section 1.1      Definitions ................................................   1
Section 1.2      Including ..................................................  31
Section 1.3      Material ...................................................  31
Section 1.4      Articles and Sections ......................................  31

                                    ARTICLE 2
                    PURCHASE AND SALE OF ASSETS: THE CLOSING

Section 2.1      Purchase and Sale ..........................................  31
Section 2.2      Assumed Liabilities ........................................  36
Section 2.3      Purchase Price and Payment Procedures ......................  39
Section 2.4      Adjustment of Purchase Price................................  42
Section 2.5      The Closings ...............................................  45
Section 2.6      Personal Computers .........................................  46

                                    ARTICLE 3
                 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

Section 3.1      Organization and Corporate Power ...........................  48
Section 3.2      Authorization; Binding Effect; No Breach ...................  48
Section 3.3      Tax ........................................................  49
Section 3.4      Litigation .................................................  49
Section 3.5      Financial Capability .......................................  49
Section 3.6      Purchaser's Employee Plans .................................  50
Section 3.7      Labour Matters .............................................  50
Section 3.8      Compliance with Laws .......................................  50

                                    ARTICLE 4
                  REPRESENTATIONS AND WARRANTIES OF THE SELLER

Section 4.1      Organization and Corporate Power ...........................  51
Section 4.2      Authorization; Binding Effect; No Breach ...................  51
Section 4.3      Financial Information ......................................  52
Section 4.4      Title to Personal Property .................................  52
Section 4.5      Absence of Certain Developments ............................  52
Section 4.6      Compliance With Laws, Permits and Licenses .................  53
Section 4.7      Tax Matters ................................................  53
Section 4.8      Contracts and IS Software ..................................  54
Section 4.9      Intellectual Property Rights ...............................  56
Section 4.10     Litigation .................................................  56



                                      (i)

                                                                  Execution Copy



                                                                            
Section 4.11      Employee Plans ............................................   56
Section 4.12      Employee Matters ..........................................   57
Section 4.13      Residence .................................................   59
Section 4.14      Insurance .................................................   60
Section 4.15      Inventory .................................................   60
Section 4.16      Environmental Matters .....................................   60
Section 4.17      Equipment .................................................   62
Section 4.18      Chateaudun Real Estate ....................................   62
Section 4.19      Sufficiency of Assets .....................................   64
Section 4.20      No Other Purchase Agreements ..............................   64
Section 4.21      Government Assistance .....................................   64
Section 4.22      Leased Equipment ..........................................   64
Section 4.23      Representations and Warranties ............................   64

                                    ARTICLE 5
                          COVENANTS AND OTHER AGREEMENTS

Section 5.1       General ...................................................   65
Section 5.2       Conduct of Operations .....................................   68
Section 5.3       Access and Information ....................................   70
Section 5.4       Litigation Support ........................................   71
Section 5.5       Record Retention; Post Closing Access .....................   71
Section 5.6       Transaction Expenses; Filings and Certificates ............   73
Section 5.7       Confidentiality ...........................................   75
Section 5.8       Forward Looking Information ...............................   75
Section 5.9       Necessary Consents ........................................   75
Section 5.10      Maintain Insurance ........................................   77
Section 5.11      Operations at the Chateaudun Facility .....................   77
Section 5.12      Cooperation ...............................................   77
Section 5.13      Purchaser's Acquisition of Software .......................   77
Section 5.14      Transferable Equipment ....................................   78
Section 5.15      Inventory Put Option ......................................   79
Section 5.16      Equipment Put Option ......................................   83
Section 5.17      Consignment Obligations ...................................   85
Section 5.18      Transition Expense Payment ................................   86
Section 5.19      Operations at Chateaudun Facility .........................   86
Section 5.20      GDNT Asset Sale Discussions ...............................   86
Section 5.21      Monkstown Incentive Grant .................................   86
Section 5.22      VSHA Price Setting ........................................   87
Section 5.23      Equipment at Third Party Locations ........................   87
Section 5.24      CUCW Collective Labour Agreement ..........................   87
Section 5.25      Covenant Not to Sue .......................................   88
Section 5.26      Post Closing Tax Liens ....................................   88



                                     (ii)

                                                                  Execution Copy


                                                                                       
Section 5.27      Employer Payroll Contribution Reimbursement ..................           88
Section 5.28      Transfer of Assets to French Newco ...........................           89
Section 5.29      Reimbursement for French Accruals ............................           91
Section 5.30      Restatement Adjustments ......................................           91
Section 5.31      Mind ready Employees .........................................           91
Section 5.32      Security Documentation .......................................           93
Section 5.33      Facilities Licenses ..........................................           93
Section 5.34      Annual Incentive Bonus .......................................           94

                                    ARTICLE 6
                     EMPLOYMENT AND EMPLOYEE BENEFIT MATTERS

Section 6.1       General ......................................................           95

                                    ARTICLE 7
                          SURVIVAL AND INDEMNIFICATION

Section 7.1       Survival of Representations and Warranties ...................           96
Section 7.2       Indemnification Obligations of the Seller ....................           98
Section 7.3       Indemnification Obligations of the Purchaser .................           99
Section 7.4       Limitations on Indemnification ...............................          101
Section 7.5       Defence of Third Party Actions ...............................          103
Section 7.6       Sole Remedy ..................................................          105
Section 7.7       Indemnification after Insurance and Other Recoveries .........          105
Section 7.8       Termination of Indemnification ...............................          106
Section 7.9       Limitations on Losses ........................................          106
Section 7.10      Characterization of Indemnity Payments .......................          107
Section 7.11      Assignment of Claims .........................................          107

                                    ARTICLE 8
                            CONDITIONS TO THE CLOSING

Section 8.1       Conditions of the Purchaser's Obligation for Each Closing ....          107
Section 8.2       Conditions of the Seller's Obligation for Each Closing .......          112

                                    ARTICLE 9
                                  MISCELLANEOUS

Section 9.1       Effectiveness of Agreement ...................................          116
Section 9.2       Termination ..................................................          116
Section 9.3       Rights on Termination ........................................          117
Section 9.4       Set Off ......................................................          118
Section 9.5       Remedies .....................................................          118
Section 9.6       Consent to Amendments; Waivers ...............................          118
Section 9.7       Successors and Assigns .......................................          119



                                     (iii)

                                                                  Execution Copy


                                                                                  
Section 9.8       Governing Law; Submission to Jurisdiction .................        119
Section 9.9       Waiver of Jury Trial; Limitation on Damages ...............        119
Section 9.10      Notices ...................................................        120
Section 9.11      Bulk Sales Waiver .........................................        122
Section 9.12      Schedules and Exhibits ....................................        122
Section 9.13      Counterparts ..............................................        122
Section 9.14      Construction ..............................................        122
Section 9.15      Severability ..............................................        122
Section 9.16      No Third-Party Beneficiaries ..............................        122
Section 9.17      Currency ..................................................        123
Section 9.18      Headings ..................................................        123
Section 9.19      Entire Agreement ..........................................        123
Section 9.20      Seller References .........................................        123
Section 9.21      Brokerage .................................................        124
Section 9.22      Time of Essence ...........................................        124
Section 9.23      Judgment Currency .........................................        124
Section 9.24      Further Assurances ........................................        125
Section 9.25      English Language ..........................................        125
Section 9.26      Contra Proferentum ........................................        125
Section 9.27      Expenses for Dispute Resolution ...........................        125
Section 9.28      Guarantee of Performance ..................................        126



                                     ADDENDA

SCHEDULE 1.1            DESIGNATED SELLERS AND DESIGNATED PURCHASERS AND
                        FACILITY PURCHASE PRICES
SCHEDULE 1.1(33)        COLLECTIVE LABOUR AGREEMENTS
SCHEDULE 1.1(37)        CONTRACTS
SCHEDULE 1.1(44)        DESIGN EMPLOYEES
SCHEDULE 1.1(57)        END OF LIFE INVENTORY
SCHEDULE 1.1(63)        EQUIPMENT THAT THIRD PARTY LOCATIONS
SCHEDULE 1.1(113)       INVENTORY
SCHEDULE 1.1(118)       IS SOFTWARE
SCHEDULE 1.1(122)       KEY EMPLOYEES
SCHEDULE 1.1(123)(i)    SELLER'S "KNOWLEDGE" LIST
SCHEDULE 1.1(123)(ii)   PURCHASER'S "KNOWLEDGE" LIST
SCHEDULE 1.1(124)       LAW
SCHEDULE 1.1(125)       LEASED EQUIPMENT
SCHEDULE 1.1(133)       LOGISTICS EMPLOYEES
SCHEDULE 1.1(173)       PERMITTED ENCUMBRANCES
SCHEDULE 1.1(199)       REPAIR EMPLOYEES
SCHEDULE 1.1(200)       REPAIR INVENTORY

                                     (iv)

                                                                  Execution Copy


SCHEDULE 2.1(1)(d)            OWNED EQUIPMENT
SCHEDULE 2.1(1)(l)            OPERATING PERMITS
SCHEDULE 2.1(1)(n)            SECURITY DEPOSITS
SCHEDULE 2.1(1)(q)            PREPAID EXPENSES
SCHEDULE 2.1(2)(p)            OTHER EXCLUDED ASSETS
SCHEDULE 2.3(2)               CASH FLOW PAYMENTS
SCHEDULE 2.6                  LIST OF PCs AND ANCILLARY EQUIPMENT TO BE
                              TRANSFERRED
SCHEDULE 3.2(2)               PURCHASER'S CONFLICTS EXCEPTIONS
SCHEDULE 3.6                  PURCHASER'S EMPLOYEE PLANS AND ACTIONS
SCHEDULE 4.1(3)               NORTEL SUBSIDIARIES CONDUCTING OPERATIONS
SCHEDULE 4.2(2)               SELLER'S CONFLICTS EXCEPTIONS
SCHEDULE 4.3                  FINANCIAL INFORMATION
SCHEDULE 4.5                  ABSENCE OF CERTAIN DEVELOPMENTS
SCHEDULE 4.6                  COMPLIANCE WITH LAWS, PERMITS AND LICENSES
                              EXCEPTIONS
SCHEDULE 4.8                  CONTRACTS EXCEPTIONS
SCHEDULE 4.8(9)               OTHER THIRD PARTY PAYMENT EXCEPTIONS
SCHEDULE 4.8(10)              COMPANY-WIDE CONTRACTS RIGHTS OR LICENSES
SCHEDULE 4.9(1)               OTHER INTELLECTUAL PROPERTY
                              AGREEMENTS/ OBLIGATIONS
SCHEDULE 4.9(2)               INTELLECTUAL PROPERTY RIGHTS CLAIMS
                              EXCEPTIONS
SCHEDULE 4.9(3)               INTELLECTUAL PROPERTY RIGHTS INFRINGEMENT
                              EXCEPTIONS
SCHEDULE 4.10                 LITIGATION
SCHEDULE 4.11(1)              SELLER'S EMPLOYEE PLANS
SCHEDULE 4.11(2)              COMPENSATION AND BENEFIT CLAIMS
SCHEDULE 4.12(1)              EMPLOYEES
SCHEDULE 4.12(2)              WORK STOPPAGES
SCHEDULE 4.12(3)              COMPLIANCE WITH EMPLOYMENT LAW
                              EXCEPTION
SCHEDULE 4.12(4)              LEAVE EMPLOYEES
SCHEDULE 4.12(5)              LONG-TERM DISABILITY LEAVE EMPLOYEES
SCHEDULE 4.12(6)              LABOUR RELATIONS EXCEPTIONS
SCHEDULE 4.12(7)              VISA EMPLOYEES
SCHEDULE 4.12(8)              WORKERS' COMPENSATION LAW EXCEPTIONS
SCHEDULE 4.12(9)              EMPLOYEE ACCRUED AND UNUSED VACATION
SCHEDULE 4.12(10)             DESIGN EMPLOYEES, REPAIR EMPLOYEES AND
                              LOGISTICS EMPLOYEES
SCHEDULE 4.12(11)             COLLECTIVE LABOUR AGREEMENT

                                      (v)

                                                                  Execution Copy



SCHEDULE 4.12(13)         U.S. EMPLOYEE JOB-RELATED FELONY CONVICTIONS
SCHEDULE 4.15             INVENTORY EXCEPTIONS
SCHEDULE 4.15(1)          INVENTORY FORECAST
SCHEDULE 4.16             ENVIRONMENTAL MATTERS
SCHEDULE 4.17             EQUIPMENT EXCEPTIONS
SCHEDULE 4.18             REAL ESTATE EXCEPTIONS
SCHEDULE 4.19             SUFFICIENCY OF EMPLOYEES EXCEPTION
SCHEDULE 4.20             OTHER PURCHASE AGREEMENTS
SCHEDULE 4.21             GOVERNMENT ASSISTANCE PROGRAMS
SCHEDULE 5.1(2)           FILINGS AND APPROVALS
SCHEDULE 5.2              OPERATION OF BUSINESS EXCEPTION
EXHIBIT A                 AMENDED AND RESTATED MASTER CONTRACT
                          MANUFACTURING SERVICES AGREEMENT
EXHIBIT B                 SHARED SERVICES AGREEMENT
EXHIBIT C                 REAL PROPERTY LEASE
EXHIBIT D                 EMPLOYMENT PROVISIONS
EXHIBIT D-1               EMPLOYMENT PROVISIONS FOR UNITED KINGDOM
                          EMPLOYEES ("UK EMPLOYEES")
EXHIBIT D-1A              UK SEVERANCE
EXHIBIT D-1B              ACTUARIES LETTER
EXHIBIT D-2               EMPLOYMENT PROVISIONS FOR FRANCE
                          EMPLOYEES
EXHIBIT D-3               EMPLOYMENT PROVISIONS FOR ALBERTA AND
                          ONTARIO EMPLOYEES
EXHIBIT D-3A              TERMS AND CONDITIONS OF EMPLOYMENT OF
                          ALBERTA AND ONTARIO EMPLOYEES
EXHIBIT D-3B              FORM OF EMPLOYMENT OFFER, ALBERTA AND
                          ONTARIO And FORM OF EMPLOYMENT OFFER
                          (ALBERTA AND ONTARIO), LEAVE EMPLOYEES
EXHIBIT D-4               PENSION AND RETIREMENT BENEFITS AGREEMENT
                          ("PRBA")
EXHIBIT D-4A              SELLER'S PENSION AND RETIREMENT BENEFITS
                          PLANS
EXHIBIT D-4B              BENEFIT CHANGES AND INTRODUCTIONS UNDER
                          SELLER'S PENSION AND RETIREMENT BENEFITS
                          PLANS
EXHIBIT D-4C              PURCHASER'S PENSION AND RETIREMENT
                          BENEFITS PLANS
EXHIBIT D-4D              POST-RETIREMENT BENEFIT COST FACTORS
EXHIBIT D-5               QUEBEC EMPLOYMENT PROVISIONS

                                     (vi)

                                                                  Execution Copy



EXHIBIT D-5A                 TERMS AND CONDITIONS OF EMPLOYMENT OF
                             QUEBEC EMPLOYMENT (NON-UNION )
EXHIBIT D-5B                 FORMS OF QUEBEC EMPLOYMENT NOTICES
EXHIBIT D-5C                 QUEBEC RECALL EMPLOYEES
EXHIBIT D-5D                 PURCHASER STOCK OPTION GRANTS
EXHIBIT D-8                  INTENTIONALLY DELETED
EXHIBIT D-8A                 INTENTIONALLY DELETED
EXHIBIT D-9                  EMPLOYMENT PROVISIONS FOR UNITED STATES
                             EMPLOYEES
EXHIBIT D-9A                 TERMS AND CONDITIONS OF EMPLOYMENT OF
                             UNITED STATES EMPLOYEES
EXHIBIT D-9B                 FORM OF U.S. EMPLOYMENT OFFER
EXHIBIT E                    LOCAL SALE AGREEMENTS
EXHIBIT F                    NORTEL PROPRIETARY SOFTWARE LICENSE
                             AGREEMENT
EXHIBIT G                    REPAIR SERVICES AGREEMENT
EXHIBIT H                    INTENTIONALLY DELETED
EXHIBIT I                    INTENTIONALLY DELETED
EXHIBIT J                    INTENTIONALLY DELETED
EXHIBIT K                    LICENCES OF SPACE
EXHIBIT L                    INTENTIONALLY DELETED
EXHIBIT M                    LOGISTICS SERVICES AGREEMENT
EXHIBIT N                    INTENTIONALLY DELETED
EXHIBIT O                    FORM OF PROMISSORY NOTE

                                     (vii)

                                                                  Execution Copy


                            ASSET PURCHASE AGREEMENT

         THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is dated as of June
29, 2004, by and among Flextronics Telecom Systems, Ltd., a Mauritius
corporation ("PURCHASER"), Flextronics International Ltd., a Singapore
corporation acting through its Hong Kong office (the "GUARANTOR") and Nortel
Networks Limited, a Canadian corporation ("SELLER").

         WHEREAS each of the companies listed in Schedule 1.1 as a Designated
Seller is a direct or indirect Affiliate (as defined below ) of the Seller
(the "DESIGNATED SELLERS");

         WHEREAS each of the companies listed in Schedule 1.1 as a Designated
Purchaser is a direct or indirect Affiliate (as defined below ) of the
Purchaser (the "DESIGNATED PURCHASERS");

         WHEREAS the Purchaser is, directly or indirectly, a wholly-owned
Affiliate of the Guarantor;

         WHEREAS with a view to selling the Operations (as defined below ) to
the Purchaser and, in connection with the Amended and Restated Master
Contract Manufacturing Services Agreement (as defined below ), the Seller has
agreed to sell, or cause the Designated Sellers to sell, and the Purchaser has
agreed to purchase, or cause the Designated Purchasers to purchase, as the case
may be, the Assets (as defined below ) upon the terms and conditions
hereinafter set forth; and

         WHEREAS the Designated Sellers have agreed to the various terms of this
Agreement, the Amended and Restated Master Contract Manufacturing Services
Agreement, and the other Transaction Documents (as defined below ) in order
to focus on their core capabilities required to deliver converged networks
while meeting their time-to-market, quality and cost-reduction objectives.

         NOW, THEREFORE, in consideration of the respective covenants,
representations and warranties made herein, and of the mutual benefits to be
derived hereby, the Parties (as defined below) agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

SECTION 1.1 DEFINITIONS

         For the purposes of this Agreement, the following terms have the
meanings set forth below :

                                                                  Execution Copy


                                      - 2 -

(1)      "ACTION" means any litigation, action, suit, grievance, claim,
         written complaint or demand, assessment, charge, arbitration, audit,
         investigation, or other legal, administrative or judicial proceeding.

(2)      "ADJUSTMENT REQUEST" shall have the meaning set forth in Section
         2.4(3).

(3)      "AFFILIATE" means, as to any Person, any other Person that directly
         or indirectly Controls, or is under common Control with, or is
         Controlled by, such Person.

(4)      "AGGREGATE ASSET AMOUNT" means the aggregate amount shown as the "
         AGGREGATE ASSET AMOUNT" on the Closing Statement of Assets and
         Liabilities.

(5)      "AGREEMENT" means this asset purchase agreement and all schedules and
         exhibits attached hereto.

(6)      "ALBERTA AND ONTARIO EMPLOYMENT OFFER" has the meaning set forth in
         Exhibit D-3.

(7)      "ALBERTA AND ONTARIO TRANSFERRING EMPLOYEE" has the meaning set forth
         in Exhibit D-3.

(8)      "ALBERTA AND ONTARIO VISA EMPLOYEE" has the meaning set forth in
         Exhibit D-3.

(9)      "ALBERTA EMPLOYEE" has the meaning set forth in Exhibit D-3.

(10)     "AMENDED AND RESTATED MASTER CONTRACT MANUFACTURING SERVICES AGREEMENT"
         means the revised Master Contract Manufacturing Services Agreement
         between the Seller and the Purchaser to be executed on the first
         Closing Date related to the Purchaser manufacturing the Products for,
         and providing the Services to, the Seller, in the form attached hereto
         as Exhibit A.

(11)     "ANTITRUST APPROVALS" has the meaning set forth in Section 5.1(2).

(12)     "APPLICABLE NOTICE DATE" has the meaning set forth in Section
         7.1.

(13)     "ASSETS" has the meaning set forth in Section 2.1(1).

(14)     "ASSUMED CONTRACTS" means those Contracts which are identified on
         Schedule 1.1(37) as Contracts that the Seller, or applicable
         Designated Seller, as the case may be, shall assign to the Purchaser,
         or applicable Designated Purchaser, as the case may be, at the
         applicable Closing.

(15)     "ASSUMED LIABILITIES" has the meaning set forth in Section 2.2.

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                                      - 3 -

(16)     "ATES" means the Association of Telecom Engineers and Scientists.

(17)     "BONEPILE INVENTORY" refers to inventory (including applicable labour
         and overhead and other capitalized costs, if any) that is found (a) to
         be defective or otherwise does not conform to the applicable
         specifications (commonly known in the industry as "bonepile" ), and
         (b) with assembly dates less than ninety (90) days prior to the
         Applicable Closing Date, all of which is listed and located at the
         locations referred to on Schedule 1.1(113).

(18)     "BONEPILE INVENTORY PUT OPTION" has the meaning set forth in Section
         5.14(1).

(19)     "BONEPILE INVENTORY PUT PERIOD" means the ninety (90) day period after
         the applicable Closing Date.

(20)     "BRAZIL ASSET PURCHASE AGREEMENT" means an asset purchase agreement,
         dated as of the same date as the Agreement, entered into between Nortel
         Telecom Do Brasil Industria E Comercio Ltda. and Northern Telecom Do
         Brasil Comercio E Servicios Ltda., as vendor, and Flextronics
         International Tecnologia Ltda., as purchaser.

(21)     "BUSINESS DAY" means any day (other than Saturday or Sunday) in
         which major banks in the City of Toronto, Province of Ontario, Canada,
         and the City of San Jose, State of California, USA, are open for
         business in the ordinary course.

(22)     "CALGARY WESTWINDS FACILITY" means the facility located at 5111 47th
         Street N .E., Calgary Alberta, Canada T3J 3R2.

(23)     "CANADA DESIGN EMPLOYEES" means a Design Employee of the Seller or the
         Designated Sellers based in Canada and listed on Schedule 1.1(44) as
         such schedule may be updated at or immediately prior to the
         applicable Employment Transfer Date.

(24)     "CANADA EMPLOYEE" means an employee of the Seller or the Designated
         Sellers based in Canada and listed on Schedule 4.12(1), as such
         schedule may be updated on or immediately prior to the applicable
         Employment Transfer Date.

(25)     "CANADIAN COMPETITION COMMISSIONER" means the Commissioner of
         Competition appointed under the Competition Act (Canada).

(26)     "CASH FLOW PAYMENTS" has the meaning set forth in Section 2.3(2).

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                                      - 4 -

(27)     "CHATEAUDUN FACILITY" means the facilities located at 5 rue des
         Treize Langues, BP 89 and 8 rue de la Fosse aux Canes, Chateaudun,
         France 28200.

(28)     "CLOSING" has the meaning set forth in Section 2.5.

(29)     "CLOSING DATE" means, with respect to any Facility/ Design Closing,
         the date upon which such Facility/ Design Closing occurs.

(30)     "CLOSING SCHEDULES" means:

         Schedule 1.1(37)             Contracts
         Schedule 1.1(122)            Key Employees
         Schedule 1.1(123)(i)         Seller's "Knowledge" List
         Schedule 1.1(123)(ii)        Purchaser's "Knowledge" List
         Schedule 2.1(1)(l)           Operating Permits
         Schedule 2.6                 List of PCS and Ancillary Equipment To Be
                                      Transferred

(31)     "CLOSING STATEMENT OF ASSETS AND LIABILITIES" has the meaning set forth
         in Section 2.4(2).

(32)     "COEU" means the Canadian Office Employees' Union.

(33)     "COLLECTIVE LABOUR AGREEMENTS" means the bargaining agreements listed
         in Schedule 1.1(33).

(34)     "COMPANY-WIDE CONTRACTS" means any agreement between the Seller or any
         of its Affiliates, on the one hand, and any other Person (other than
         the Seller or an Affiliate of the Seller), on the other hand, with
         respect to goods or services that are used, sold or licensed in
         connection with both (a) any part of the Operations, and (b) the
         businesses of the Seller or its Affiliates that are not part of the
         Operations and which are not used primarily in or do not relate
         primarily to the Operations; provided, however, that " Company-Wide
         Contracts" shall not include (i) contracts material to the procurement
         of goods used in the conduct of the Operations, (ii) contracts related
         to leased equipment used in the Operations, (iii) licence agreements
         for the Transferred Business Applications, or (iv) Excluded Business
         Applications all of which are listed on Schedule 1.1(37), but shall
         include all license agreements (including royalty-based licenses) for
         software incorporated into the Products (provided the costs of such
         software, to the extent that the Purchaser or Designated Purchasers
         incur such costs, are reflected in the Product pricing in the Amended
         and Restated Master Contract Manufacturing Services Agreement).

(35)     "COMPETITION ACT (CANADA)" means the Canadian Competition Act, R.S.C.
         1985, c. C-34, as amended.

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                                      - 5 -

(36)     "CONFIDENTIALITY AGREEMENT" means the confidentiality agreement between
         the Purchaser and the Seller dated May 19, 2004, with effect as of
         December 1, 2003.

(37)     "CONTRACTS" means, other than employment contracts and the license
         agreements for IS Software, all contracts, agreements, personal
         property leases, indentures or other legally binding arrangements
         hereto between the Seller or the Designated Sellers, on the one hand
         and any other Person other than the Seller or an Affiliate of the
         Seller on the other hand, that are used primarily in or relate
         primarily to the conduct of the Operations or, except for the
         Company-Wide Contracts, which are material to the conduct of the
         Operations, all of which are listed on Schedule 1.1(37) (except that
         Schedule 1.1(37) need not specifically identify those non-Assumed
         Contracts that involve payments of less than $100,000 during the
         current term of such Contract. Contracts include, without limitation,
         the Assumed Contracts).

(38)     "CONTROL", including, with its correlative meanings, "CONTROLLED
         BY" and "UNDER COMMON CONTROL WITH", has the meaning ascribed thereto
         in the Canada Business Corporations Act.

(39)     "CORPORATE DESKTOP SOFTWARE" means software which (i) is licensed to
         the Seller or Designated Seller under a corporate licence, (ii) at the
         Effective Time, is installed on any of the PCs or other computing
         equipment, other than test equipment, forming part of the Equipment,
         and which is identified as such on Schedule 1.1(118).

(40)     "CPP/QPP/EI TAX" shall mean the amounts required by Law to be paid by
         employers with respect to the Canada Pension Plan, the Quebec Pension
         Plan and the Employment Insurance Act (Canada).

(41)     "CUCW" means the Canadian Union of Communication Workers, Unit 1.

(42)     "CURRENCY OF THE AGREEMENT" has the meaning set forth in Section 9.23.

(43)     "DAMAGES" means any loss, liability, claim, damage (excluding
         incidental and consequential damage and lost profits or revenues) or
         expense (including legal expenses), whether or not involving a Third
         Party Action.

(44)     "DESIGN EMPLOYEE" means an Employee who is identified as such and whose
         name is listed in Schedule 1.1(44), as such schedule may be updated at
         or immediately prior to the applicable Employment Transfer Date.

(45)     "DESIGN OPERATIONS" means certain development and sustaining design
         operations related to world-class, carrier grade optical products used
         in telecommunications networks. These Design Operations relate to
         certain

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         edge, core switching and transport line optical products and are
         specifically (a) the optical hardware and software product design and
         verification activities for OM3300/ 3400/ 3500, OC-48 and DX/ LH
         carried on by the Canada Design Employees at the Ottawa Lab 2/ Lab 10
         Facility, and (b) the hardware design activities, embedded software
         design activities and verification activities for OM4000/ TN-1X, DX,
         and new product development activities for OPTera Optical
         Multi-Service Edge (" OME" ), all carried on by the UK Design Employees
         at the Monkstown Facility. Capabilities of the Canada Design Employees
         and the UK Design Employees include, to varying degrees, product
         architecture, product characterization, ASIC and FPGA design, hardware
         design, management of physical design, software design and product
         design verification.

(46)     "DESIGN TOOLS" means the software applications which are either owned
         by Seller or a Designated Seller or are licensed to the Seller or a
         Designated Seller and which are identified as such in Schedule
         1.1(118).

(47)     "DESIGNATED PURCHASERS" has the meaning set forth in the preamble to
         this Agreement.

(48)     "DESIGNATED SELLERS" has the meaning set forth in the preamble to this
         Agreement.

(49)     "EC MERGER REGULATION" means the EC Merger Regulation of the
         Commission of the European Communities.

(50)     "EFFECTIVE DATE" means the applicable Closing Date with respect to any
         Facility/ Design Closing.

(51)     "EFFECTIVE TIME" means, with respect to any Effective Date, 12:01 a.m.
         (applicable local time) on such Effective Date.

(52)     "EMPLOYEE" means an employee of the Seller or the Designated Sellers
         listed on Schedule 4.12(1), as such schedule may be updated at or
         immediately before the applicable Closing.

(53)     "EMPLOYEE INFORMATION" means the employee data listed or described on
         any Employee Schedule relating to the Transferring Employees, as such
         schedule may be updated pursuant to Section 5.1(3) hereof.

(54)     "EMPLOYEE SCHEDULES" means Schedule 1.1(44) (Design Employees);
         Schedule 1.1(133) (Logistics Employees); Schedule 1.1(199) (Repair
         Employees); Schedule 1.1(122) (Key Employees); Schedule 4.12(1)
         (Employees); Schedule 4.12(5) (Long-Term Disability Leave Employees);
         Schedule 4.12(7) (Visa Employees); Schedule 4.12(10) (Design
         Employees,

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         Repair Employees and Logistics Employees), and Schedule 4.12(4)
         (Leave Employees).

(55)     "EMPLOYMENT OFFER" means that document, in applicable form, which
         Purchaser or the applicable Designated Purchaser is required under the
         terms of this Agreement to deliver to Employees whose employment or
         employment contract does not otherwise transfer to Purchaser or the
         applicable Designated Purchaser under applicable Law.

(56)     "EMPLOYMENT TRANSFER DATE" means the date on which the employment of
         a Transferring Employee (i) commences with the Purchaser or the
         relevant Designated Purchaser pursuant to this Agreement, or (ii)
         transfers to the Purchaser or the relevant Designated Purchaser
         pursuant to this Agreement, the CUCW Collective Labour Agreement and /
         or applicable law.

(57)     "END OF LIFE INVENTORY" means any inventory (including applicable
         labour and overhead and other capitalized costs, if any, and excluding
         materials consumed in the manufacturing process) owned by the Seller
         or the Designated Sellers to the extent used, (i) in manufacturing,
         engineering, assembling, testing or configuring of Products, or (ii)
         for repair services, in each case which is scheduled to be, or has
         been, discontinued by a supplier of the Seller or the Purchaser, as
         set forth in Schedule 1.1(57), in each case which is located at the
         locations referenced in Schedule 1.1(57).

(58)     "END OF LIFE/INVENTORY CAP" has the meaning set forth in Section
         2.1(1)(b).

(59)     "Environmental Laws" mean all domestic and foreign federal, state,
         provincial, local or municipal statutes, laws, EU directives, by-laws,
         common laws, ordinances, codes, rules, regulations, treaties,
         conventions, licenses, consents, orders, writs, injunctions,
         directives, judgments, decrees, policies and guidelines having force of
         law, and other requirements of all governmental entities relating to
         the environment and the health and safety of the workplace, including
         those relating to the existence, storage, generation, use, handling,
         manufacture, processing, labelling, sale, display, transportation,
         treatment, emission, discharge, release or threatened release,
         remediation, amelioration or monitoring of Hazardous Substances, but in
         each case solely to the extent having the force of law.

(60)     "ENVIRONMENTAL LIABILITIES OF THE PURCHASER" means any and all
         liabilities arising in connection with or relating to the Operations or
         the Facility/ Design Assets conveyed to Purchaser or a Designated
         Purchaser at any Closing, whether accrued, contingent, absolute,
         determined, determinable or otherwise, that (i) arise under or
         relate to any Environmental Law (including changes in Environmental
         Laws or exceedance levels prescribed thereunder)

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         or to any operating permit in effect after the Effective Time for such
         Closing in relation to acts occurring or conditions arising after the
         Effective Time for such Closing; (ii) arise under or relate to any
         changes in Environmental Laws or exceedance levels prescribed
         thereunder in effect after the Effective Time for such Closing in
         relation to (x) actions occurring or conditions arising prior to the
         Effective Time for such Closing, but only to the extent that the
         actions or conditions giving rise to such liability were in compliance
         with French Environmental Laws at the time they occurred or arose, or
         (y) actions occurring or conditions arising after the Effective Time
         for such Closing and attributable to the acts of the Seller or any of
         its Affiliates, but only to the extent that such acts were in
         compliance with French Environmental Laws at the time they occurred;
         (iii) relate to actions occurring or conditions arising after the
         Effective Time for such Closing, attributable to the acts of the
         Purchaser or any of its Affiliates; or (iv) arise as a result of (w)
         the failure of the Purchaser or any of its Affiliates to comply with
         the Environmental Laws in relation to acts occurring or conditions
         arising after the such Effective Time; (x) the presence of any
         Hazardous Substance that is introduced by, or caused by human error of,
         the employees, agents or representatives of the Purchaser or any of its
         Affiliates after such Effective Time; or (y) the presence of any
         Hazardous Substance caused by a decision by the Purchaser or any of its
         Affiliates to use, manufacture, generate or release a Hazardous
         Substance that was not previously used, manufactured, generated or
         released by the Operations when it was operated by the Seller or any of
         its Affiliates before such Effective Time; or (z) a change in the use
         of the Chateaudun Facility from its current use; but excluding, in the
         case of (i) and (iv) above, liabilities mentioned under (iii) of the
         Environmental Liabilities of the Seller.

(61)     "ENVIRONMENTAL LIABILITIES OF THE SELLER" means any and all liabilities
         arising in connection with or relating to the Operations or the
         Facility/ Design Assets conveyed by Seller or a Designated Seller at
         any Closing, whether accrued, contingent, absolute, determined,
         determinable or otherwise, that (i) arise under or relate to any
         Environmental Law or to any Operating Permit in effect before the
         Effective Time for such Closing in relation to acts occurring or
         conditions arising prior to the Effective Time for such Closing; (ii)
         relate to actions occurring or conditions existing prior to the
         Effective Time for such Closing, whether or not attributable to the
         acts of the Seller or any of its Affiliates; (iii) relate to actions
         occurring or conditions arising after the Effective Time for such
         Closing, attributable to the acts of the Seller or any of its
         Affiliates; or (iv) arise as a result of (x) the presence of any
         Hazardous Substance that is introduced by, or caused by human error of,
         the employees, agents or representatives of the Seller or any of its
         Affiliates before such Effective Time; or (y) the presence of any
         Hazardous Substance caused by a decision by the Seller or any of its
         Affiliates to use, manufacture, generate or

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         release a Hazardous Substance before such Effective Time; but
         excluding (v) any liability directly arising from the matters disclosed
         in Schedule 4.16, other than items the Seller has agreed to remedy as
         set forth therein, and (vi) in the cases of (ii), (iii) and (iv) above,
         liabilities mentioned under (ii) of the Environmental Liabilities of
         the Purchaser.

(62)     "EQUIPMENT" means the Owned Equipment, the Leased Equipment and the
         Equipment at Third Party Locations.

(63)     "EQUIPMENT AT THIRD PARTY LOCATIONS" means the machinery, equipment,
         furniture, tools and test sets, and associated spare parts and
         supplies, if any, owned by the Seller or the Designated Sellers or
         French Newco and used primarily in Operations which is located at a
         premise other than a premise owned or leased by the Seller or the
         Designated Sellers, all of which is listed, and is located at the
         locations referenced on Schedule 1.1(63).

(64)     "EQUIPMENT PUT OPTION" has the meaning set forth in Section 5.16(1).

(65)     "EQUIPMENT PUT PURCHASE PRICE" has the meaning set forth in Section
         5.16(4).

(66)     "EQUIPMENT USAGE PERIOD" shall mean the period which starts at the end
         of the ninth (9th) month after the applicable Closing Date and
         continues through to the end of the twelfth (12th) month after the
         applicable Closing Date.

(67)     "EQUIPMENT WARRANTIES" has the meaning set forth in Section 2.1(1)(o).

(68)     "EUROPEAN CONTRACT OF EMPLOYMENT OFFER" means the UK and France offer
         of a contract of employment as set forth in Section D-1.1 of Exhibit
         D-1 and Section D-2.1 of Exhibit D-2, respectively.

(69)     "EXCESS CPP/QPP/EI AMOUNT" shall mean an amount equal to (i) the sum of
         (a) the Total Seller CPP/ QPP/ EI Payments and (b) the Total Purchaser
         CPP/ QPP/ EI Payments less (ii) the Maximum CPP/ QPP/ EI Amount.

(70)     "EXCLUDED ASSETS" has the meaning set forth in Section 2.1(2).

(71)     "EXCLUDED BONEPILE INVENTORY" refers to inventory that is (a) defective
         or otherwise does not conform to the applicable specifications
         (commonly known in the industry as " bonepile" ), and (b) with assembly
         dates greater than ninety (90) days prior to the applicable Closing
         Date.

(72)     "EXCLUDED BUSINESS APPLICATIONS" means the software applications or
         systems owned by the Seller or a Designated Seller or licensed to the
         Seller or Designated Seller and used in the Operations which are not
         transferring or

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         not to be licensed to the Purchaser or a Designated Purchaser, which
         are identified as such on Schedule 1.1(118).

(73)     "EXCLUDED LIABILITIES" has the meaning set forth in Section 2.2(2).

(74)     "EXECUTION SCHEDULES" means:

                           
Schedule 1.1                  Designated Sellers and Designated Purchasers and
                              Facility/ Design Purchase Prices
Schedule 1.1(33)              Collective Labour Agreements
Schedule 1.1(37)              Contracts
Schedule 1.1(44)              Design Employees
Schedule 1.1(118)             IS Software
Schedule 1.1(122)             Key Employees
Schedule 1.1(123)(i)          Seller's " Knowledge" List
Schedule 1.1(173)             Permitted Encumbrances
Schedule 2.1(1)(l)            Operating Permits
Schedule 2.3(2)               Cash Flow Payments
Schedule 3.6                  Purchaser's Employee Plans
Schedule 4.1(3)               Nortel Subsidiaries Conducting Operations
Schedule 4.6                  Compliance with Laws, Permits and Licenses
                              Exceptions
Schedule 4.8                  Contracts Exceptions
Schedule 4.8(9)               Other Third Party Payment Exceptions
Schedule 4.8(10)              Company-Wide Contracts Rights or Licenses
Schedule 4.9(1)               Other Intellectual Property Agreements/ Obligations
Schedule 4.9(2)               Intellectual Property Rights Claims Exceptions
Schedule 4.9(3)               Intellectual Property Rights Infringement Exceptions
Schedule 4.10                 Litigation
Schedule 4.11(1)              Seller's Employee Plans
Schedule 4.11(2)              Compensation and Benefit Claims
Schedule 4.12(1)              Employees
Schedule 4.12(2)              Work Stoppages
Schedule 4.12(3)              Compliance with Employment Law Exception
Schedule 4.12(4)              Leave Employees
Schedule 4.12(6)              Labour Relations Exceptions
Schedule 4.12(8)              Workers' Compensation Law Exceptions
Schedule 4.12(11)             Collective Labour Agreement
Schedule 4.16                 Environmental Matters
Schedule 4.18                 Real Estate Exceptions
Schedule 4.20                 Other Purchase Agreements
Schedule 4.21                 Government Assistance Programs
Schedule 5.1(2)               Filings and Approvals
Schedule 5.2                  Operation of Business Exception



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(75)     "FACILITIES" means, collectively, the Calgary Westwinds Facility, the
         Chateaudun Facility, the Monkstown Facility, the Montreal OPTO 1
         Facility, Montreal Ban 1 Facility, Montreal Ban 3 Facility and the
         Ottawa Lab 2/Lab 10 Facility.

(76)     "FACILITY/DESIGN ASSETS" has the meaning set forth in Section 2.1(1).

(77)     "FACILITY/DESIGN ASSUMED LIABILITIES" has the meaning set forth in
         Section 2.2(1).

(78)     "FACILITY/DESIGN CLOSING" has the meaning set forth in Section 2.5 and
         for greater certainty includes separate Closings for the purchase and
         sale of the applicable Assets and assumption of the applicable Assumed
         Liabilities related to (i) each Facility, (ii) the Design Operations
         and (iii) other repair and logistics Operations that are not located in
         a Facility.

(79)     "FACILITY/DESIGN CLOSING NET ASSETS VALUE" means the aggregate value,
         determined in accordance with the terms of this Agreement and, to the
         extent consistent therewith, GAAP (save and except in relation to the
         Chateaudun Facility and End of Life Inventory), of the net book value
         of the Facility/Design Assets transferred by Seller and the applicable
         Designated Seller at a Closing, minus the Facility/Design Assumed
         Liabilities assumed from Seller and the applicable Designated Seller at
         same applicable Closing. Subject to the foregoing, for purposes of
         calculating the Facility/Design Closing Net Assets Value, (a) the
         value of the shares of French Newco shall be equal to the net book
         value of the assets of French Newco (except that the value of the
         Chateaudun Facility shall be deemed equal to six million dollars
         ($6,000,000) for such purpose) minus the value of the liabilities of
         French Newco, (b) the value of each item of Inventory, End of Life
         Inventory or Repair Inventory, as the case may be, shall be the price
         at which such Inventory, End of Life Inventory or Repair Inventory, as
         the case may be, is to be sold to Seller as part of the Product price
         (in the case of the Inventory and End of Life Inventory pursuant to the
         Amended and Restated Master Contract Manufacturing Services Agreement
         or, in the case of Repair Inventory, pursuant to the Repair Services
         Agreement), as determined in accordance with the books and records of
         the Seller or Designated Seller (except that the value of End of Life
         Inventory shall exclude any related provision for such purpose), and
         (c) the value of the Equipment will be calculated using a straight line
         depreciation methodology.

(80)     "FACILITY/DESIGN ESTIMATED NET ASSETS VALUE" has the meaning set forth
         in Section 2.3(1).

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(81)     "FACILITY/DESIGN NET ASSET STATEMENT" has the meaning set forth in
         Section 2.3(1).

(82)     "FACILITY/DESIGN OPERATIONS" means the Operations conducted in and
         from the Facilities or in relation to the Design Operations, as
         applicable.

(83)     "FACILITY/DESIGN PURCHASE PRICE" has the meaning set forth in Section
         2.3(1).

(84)     "FIRST PARTY" has the meaning set forth in Section 7.4(5).

(85)     "FLEXTRONICS CANADA" means Flextronics (Canada) Inc.

(86)     "FLEXTRONICS FRANCE" means Flextronics France S.A.

(87)     "FLEXTRONICS MAURITIUS" means Flextronics Telecom Systems, Ltd.

(88)     "FLEXTRONICS U.K." means Flextronics International (U.K.) Limited.

(89)     "FLEXTRONICS U.S." means Flextronics International U.S.A. Inc.

(90)     "FORWARD LOOKING INFORMATION" has the meaning set forth in Section 5.8.

(91)     "FRANCE COLLECTIVE LABOUR AGREEMENT" has the meaning set forth in
         Exhibit D-2.2.

(92)     "FRANCE EMPLOYEE" means an employee of the Seller or the Designated
         Sellers based in France as of the date hereof, and an Employee of
         France Newco as of the applicable Closing Date, and listed on Schedule
         4.12(1), as such schedule may be updated on or immediately prior to
         the applicable Employment Transfer Date.

(93)     "FRANCE EMPLOYMENT COMMITMENT" has the meaning set forth in Exhibit
         D-2.

(94)     "FRANCE EMPLOYMENT OFFER" has the meaning set forth in Exhibit D-2.

(95)     "FRANCE TRANSFERRING EMPLOYEES" has the meaning set forth in Exhibit
         D-2.

(96)     "FRENCH CONTRIBUTED ASSETS" means the Assets relating to the Operations
         at the Chateaudun Facility, including the real estate titles to the
         Chateaudun Facility but excluding the goodwill described in the
         applicable Local Sale Agreement.

(97)     "FRENCH NEWCO" means a newly formed entity organized as a societe par
         actions simplifee under French Law to which the Seller shall cause the

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      transfer of the French Contributed Assets and any associated Assumed
      Liabilities pursuant to Section 5.28.

(98)  "GAAP" means the United States generally accepted accounting principles.

(99)  "GDNT ASSETS" has the meaning set forth in Section 5.20.

(100) "GOVERNMENT ASSISTANCE PROGRAMS" has the meaning set forth in Section
      4.21.

(101) "GOVERNMENT ENTITY" or "GOVERNMENT ENTITIES" means any foreign, domestic,
      federal, territorial, state or local governmental authority,
      quasi-governmental authority, instrumentality, court, government or
      self-regulatory organization, commission, tribunal or organization or any
      regulatory, administrative or other agency, or any political or other
      subdivision, department or branch of any of the foregoing, which is
      entitled to issue or to improve the implementation of the Laws or
      Environmental Laws.

(102) "GRIEVANCE" has the meaning set forth in Section 5.31.

(103) "GST" means the Goods and Services Tax imposed by the GST Legislation.

(104) "GST LEGISLATION" means the Excise Tax Act (Canada).

(105) "GUARANTOR" has the meaning set forth in the preamble to this Agreement.

(106) "HAZARDOUS SUBSTANCE" means any substance, waste or other material that
      is identified, classified or described in or otherwise determined to be,
      hazardous, radioactive or toxic, or a pollutant or a contaminant, under or
      pursuant to any local, national and / or international Environmental Law
      applicable in France, the storage, manufacture, disposal, treatment,
      generation, use, transportation or remediation of which, or release of
      which into or concentration of which in the environment, is prohibited,
      controlled, regulated or licensed by any Governmental Entity having
      jurisdiction over the French territory or under any local, national or
      international Environmental Law applicable in France.

(107) "INDEMNIFIED PARTY" has the meaning set forth in Section 7.5.

(108) "INDEMNIFYING PARTY" has the meaning set forth in Section 7.5.

(109) "INDEPENDENT ACCOUNTANT" has the meaning set forth in Section 2.4(3).

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(110) "INITIAL OBSOLETE EQUIPMENT" means all equipment that (a) is not yet fully
      depreciated at the end of the Equipment Usage Period, (b) was not used in
      the Operations, or otherwise used by the Purchaser or Designated Purchaser
      or Affiliates, during the Equipment Usage Period, and (c) is not
      forecasted at the end of the Equipment Usage Period by the Purchaser or
      Designated Purchasers or Affiliates to be used at any time during the
      Subsequent Equipment Usage Period to meet Product supply requirements, or
      otherwise to be used by the Purchaser or Designated Purchasers or
      Affiliates.

(111) "INITIAL OBSOLETE EQUIPMENT PUT OPTION" has the meaning set forth in
      Section 5.16(1).

(112) "INTELLECTUAL PROPERTY" means all proprietary and intellectual property
      rights, in any jurisdiction, whether owned or held for use under license
      by Seller or its Affiliates, including such rights in and to (i)
      trademarks, service marks, brand names, distinguishing guises, trade
      dress, trade names, words, symbols, color schemes, business names,
      internet domain names and other indications of origin; (ii) patents and
      pending and filed patent applications (including all provisional,
      divisional, continuation in part and reissue patents), utility models,
      inventors' certificates and invention disclosures; (iii) trade secrets and
      other confidential or non-public business or technical information,
      including ideas, formulas, compositions, program devices, compilations,
      patterns, discoveries and improvements, know-how, show-how, manufacturing
      and production methods, processes and techniques, and research and
      development information; drawings, designs, specifications, plans,
      proposals and technical and system data; analytical models, investment and
      lending strategies and records, financial and other products; financial,
      marketing and business data, pricing and cost information; business and
      marketing plans and customer and supplier lists and information; in each
      case whether patentable, copyrightable or not; (iv) computer programs and
      databases, including all object code, source code, algorithms,
      subroutines, specifications, data and documentation and all translations,
      compilations, arrangements, adaptations, and derivative works thereof, in
      each case whether patentable, copyrightable or not, and all documentation
      thereof; (v) Network Identifiers; (vi) writings and other works of
      authorship, including marketing materials, brochures, training materials,
      including all copyrights and moral rights related to each of the
      foregoing; (vii) mask works or integrated circuit topographies; (viii)
      industrial designs; and (ix) rights to limit the access, use or disclosure
      of confidential information by any Person; in each case including all
      registrations of, and applications to register, any of the foregoing with
      any Government Entity and any renewals or extensions thereof; the goodwill
      associated with each of the foregoing; and any claims or causes of action
      or defences arising out of or related to any of the foregoing.


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(113) "INVENTORY" means, as of any date, all inventories of raw materials,
      manufactured and purchased parts, work-in-process, packaging, stores,
      supplies and Unassigned Finished Goods Inventory (including applicable
      labour and overhead and other capitalized costs, if any), purchased or
      acquired exclusively for use in connection with the conduct of the
      Operations as of such date, and Bonepile Inventory, in each case which
      are listed, and are located at, the locations referenced on Schedule
      1.1(113), but expressly excludes End of Life Inventory and Repair
      Inventory.

(114) "INVENTORY PUT OPTION" has the meaning set forth in Section 5.15(1)(a).

(115) "INVENTORY PUT PERIOD" means the twelve (12) month period after the
      applicable Closing Date.

(116) "INVENTORY PUT PURCHASE PRICE" has the meaning set forth in Section
      5.15(3).

(117) "INVESTMENT CANADA ACT" means the Investment Canada Act (Canada).

(118) "IS SOFTWARE" means the software applications or systems owned by Seller
      or licensed to the Seller or a Designated Seller as listed on Schedule
      1.1(118) which includes all of the Corporate Desktop Software, the Design
      Tools, the Excluded Business Applications and Transferred Business
      Applications and the Licensed Business Applications.

(119) "ITA" means the Income Tax Act (Canada).

(120) "JUDGMENT CONVERSION DATE" has the meaning set forth in Section 9.23.

(121) "JUDGMENT CURRENCY" has the meaning set forth in Section 9.23.

(122) "KEY EMPLOYEES" means all Employees whose names are listed on Schedule
      1.1(122).

(123) "KNOWLEDGE" or "AWARE OF" or "NOTICE OF" or a similar phrase shall mean,
      with reference to Seller or the Designated Sellers, the actual knowledge
      of those Persons listed on Schedule 1.1(123)(i), and with reference to
      Purchaser or the Designated Purchasers, the actual knowledge of those
      persons listed on Schedule 1.1(123)(ii).

(124) "LAW" means, with respect to any Person, any domestic or foreign, federal,
      state, provincial, local or municipal statute, law, by-law having the
      force of law, common law including, without limitation, the law of
      contract, ordinance, rule, regulation, order, writ, injunction, directive,
      judgment, decree, policy or guideline having the force of laws, or
      other requirement of any Government Entity applicable to such Person or
      any of its Affiliates or

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      any of their respective properties, assets, officers, directors,
      employees, consultants or agents (in connection with such officer's,
      director's, employee's, consultant's or agent's activities on behalf of
      such Person or any of its Affiliates); provided, however, that "LAW" shall
      not include any "ENVIRONMENTAL LAWS".

(125) "LEASED EQUIPMENT" means the machinery, equipment, furniture, tools and
      test sets, associated spare parts and supplies, if any, and all other
      tangible personal property leased by the Designated Seller or the Sellers
      and used primarily in the Operations, which is listed, and is located at
      the locations referenced on Schedule 1.1(125), but excludes equipment
      used in Shared Labs and Leased PC Equipment.

(126) "LEASED PC EQUIPMENT" has the meaning ascribed thereto in Section 2.6(1).

(127) "LEAVE EMPLOYEE" has the meaning set forth in Section 4.12(4).

(128) "LICENSES OF SPACE" means the agreements to be entered into by the Parties
      for the licenses space by the Purchaser at those facilities that are not
      the subject of Real Property Leases and which the Seller and Purchaser
      agree will be licenses as provided in Section 5.33 for a term of up to
      twelve (12) months in the case of the Ottawa Lab 2/ Lab 10 Facility and
      up to three (3) years in the case of the Monkstown Facility and for a
      term of six (6) months (or such other term as the Purchaser and Seller
      may agree) in the case of any other facilities, each, in the form attached
      hereto as Exhibit K.

(129) "LICENSED BUSINESS APPLICATIONS" means the software applications or
      systems owned by the Seller or Designated Sellers and used primarily in
      the Operations, which are to be licensed to the Purchaser or Designated
      Purchaser under the Nortel Proprietary Software License Agreement, all of
      which are listed on Schedule 1.1(118).

(130) "LIEN" means any lien, mortgage, hypothec, pledge, security interest,
      encumbrance, easement, encroachment, right-of-way, restrictive covenant,
      real property license, charge, prior claim, lease or conditional sale
      arrangement.

(131) "LOANED EMPLOYEE AGREEMENT" means the agreement, if any, that the parties
      may enter into on mutually acceptable terms providing for the temporary
      provision of services of certain Employees between the Seller or any of
      the Designated Sellers and the Purchaser or any of the Designated
      Purchasers.

(132) "LOCAL SALE AGREEMENTS" means the agreements providing for the sale and
      purchase of the Facility/ Design Assets and the assumption of the
      Facility/ Design Assumed Liabilities of each Designated Seller, or the
      sale of

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      all of the shares of French Newco, as the case may be, which will be
      consistent with the terms of this Agreement in substantially the form as
      set forth in Exhibit E (with such variations as are necessary to reflect
      local law, but which variations shall not impose any additional
      material obligations on any Party, or materially reduce the rights of any
      Party in relation to the terms and conditions of this Agreement, without
      such Party's consent).

(133) "LOGISTICS EMPLOYEE" means an Employee who is identified as such and whose
      name is listed on Schedule 1.1(133), as such schedule may be updated at
      or immediately prior to the applicable Employment Transfer Date.

(134) "LOGISTICS SERVICES AGREEMENT" has the meaning set forth in Exhibit M.

(135) "LONG-TERM DISABILITY LEAVE EMPLOYEES" has the meaning set forth in
      Section 4.12(5).

(136) "LOSSES" means all demands, claims, actions or causes of action,
      assessments, losses, damages, costs, expenses, liabilities, judgments,
      awards, fines, sanctions, penalties, charges and amounts paid in
      settlement, including (i) interest on cash disbursements in respect of
      any of the foregoing at the prevailing commercial interest rate in effect
      from time to time, compounded quarterly, from the date each such cash
      disbursement is made until the Party incurring the same shall have been
      indemnified in respect thereof; and (ii) the reasonable out-of-pocket
      costs, fees and expenses of attorneys, experts, accountants, appraisers,
      consultants, witnesses, investigators and any other agents of such Party.

(137) "MANUFACTURER" shall have the meaning defined in the Amended and Restated
      Master Contract Manufacturing Services Agreement.

(138) "MATERIAL ADVERSE EFFECT" means a material adverse change in, or effect
      on, the net Assets or the Operations taken as a whole; provided, however,
      that a Material Adverse Effect shall not include an effect resulting from
      (i) any change in Law, Environmental Law, GAAP or interpretations thereof
      that apply to the Operations; (ii) any change in general economic,
      business or financial market conditions or any change in the
      telecommunications or data networking industries that does not affect the
      Operations disproportionately to the other participants in such
      industries; or (iii) discussions or consultations with workers' councils,
      Employees representatives and collective bargaining agents or the
      Employees, regarding the transaction contemplated in this Agreement.

(139) "MAXIMUM CPP/QPP/EI AMOUNT" shall mean the maximum amount of CPP/ QPP/ EI
      Tax that would be required to be paid by the Seller or a

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      Designated Seller with respect to the Transferring Employees if the
      Transferring Employees were to be employed by the Seller or a Designated
      Seller for the entire calendar year in which the applicable Closing
      occurs.

(140) "MINDREADY" has the meaning set forth in Section 5.31.

(141) "MONKSTOWN AGREEMENT" has the meaning set forth in Section 7.3(3).

(142) "MONKSTOWN DEVELOPMENT AGENCY" has the meaning set forth in Section 5.21.

(143) "MONKSTOWN FACILITY" means the facility located at Doagh Road, New-
      townabbey, Northern Ireland BT36 6XA.

(144) "MONKSTOWN GRANT" has the meaning set forth in Section 5.21.

(145) "MONKSTOWN PERMITTED ASSIGNEE" has the meaning set forth in Section
      7.3(3).

(146) "MONKSTOWN TERMINATION DATE" has the meaning set forth in Section 7.3(3).

(147) "MONTREAL BAN 1 FACILITY" means the facility located at 2351 Boulevard
      Alfred Nobel, Montreal, Quebec, Canada H4S 2A9.

(148) "MONTREAL BAN 3 FACILITY" means the facility located at 2311 Boulevard
      Alfred Nobel, Montreal, Quebec, Canada H4S 2A9.

(149) "MONTREAL OPTO 1 FACILITY" means the facility located at 7055 Alexander
      Fleming, Montreal, Quebec, Canada H4S 2A9.

(150) "NECESSARY CONSENTS" has the meaning set forth in Section 5.9.

(151) "NETWORK IDENTIFIERS" means all internet protocol addresses and
      networks, including DNS domain names, e-mail addresses, world wide
      web (www) and http addresses, network names, network addresses
      (such as IPv4 and Ipv6) and services (such as mail or website) whether
      or not used or currently in service, and including all registrations
      relating thereto in or with all registration bodies or organizations.

(152) "NDBC" means Northern Telecom do Brasil Comercio E Servicios Ltda.

(153) "NNCI" means Nortel Networks (CALA) Inc.

(154) "NNI" means Nortel Networks Inc.

(155) "NNL" means Nortel Networks Limited.

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(156) "NNSA" means Nortel Networks, S.A.

(157) "NNTC" means Nortel Networks Technology Corporation.

(158) "NNUK" means Nortel Networks U.K. Limited.

(159) "NON-ASSIGNABLE ASSETS" has the meaning set out in Section 2.1(3).

(160) "NORTEL PROPRIETARY SOFTWARE LICENCE AGREEMENT" means the licence
      agreement between the Seller and the Purchaser to be executed on the
      first Closing Date, related to the Seller's proprietary software to be
      licensed to the Purchaser or Designated Purchaser asset forth in Schedule
      1.1(118), in the form attached hereto as Exhibit F.

(161) "NTBI" means Northern Telecom do Brasil Industria e Comercio Ltda.

(162) "OBSOLETE EQUIPMENT" means Equipment at the applicable Closing Date that
      is used exclusively for discontinued Product (as the term "discontinued"
      is determined in accordance with the Amended and Restated Master Contract
      Manufacturing Services Agreement).

(163) "ONTARIO EMPLOYEE" has the meaning set forth in Exhibit D-3.

(164) "OPEN PURCHASE ORDERS" means, with respect to any Closing, all purchase
      orders or other commitments issued by Seller or any of its Affiliates
      before such Closing Date for the supply of tangible assets (including
      inventory) and services (including maintenance and other incidental
      services but excluding design services) to or for use in the part of the
      Operations that is then being transferred and assigned by the Seller or
      the Designated Seller and assumed by the Purchaser or the relevant
      Designated Purchaser to the extent that such tangible assets have not
      already been supplied and accepted or services performed, respectively,
      to such part of the Operations on or prior to the Effective Time for such
      Closing.

(165) "OPERATING PERMITS" means, with respect to the Facility/ Design Assets
      being conveyed at any Closing, each permit, certificate, approval,
      consent, authorization, registration and license issued by any Government
      Entity pursuant to any Law (or in the case of environmental matters,
      Environmental Laws), in connection with the use or operation of such
      Facility/ Design Assets or the conduct of the Operations at the relevant
      Facility, each of which is listed on Schedule 2.1(1)(l) hereto.

(166) "OPERATIONS" means (i) the production activities including product
      assembly, integration and test as well as the product repair activities
      carried on at the Calgary Westwinds Facility, the Chateaudun Facility,
      the Monkstown Facility

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      and the Montreal OPTO 1 Facility (ii) the following support activities
      associated with production and repair at the Calgary Westwinds,
      Chateaudun, Monkstown, and Montreal OPTO 1 facility: supply and demand
      planning and procurement, production planning and control, factory order
      management and order fulfillment, supply chain execution and inventory
      management, quality planning and assurance, test engineering including
      test development, test process support, product verification and failure
      analysis, manufacturing engineering including production process
      development and support, engineering change management, new product
      project management, cost reduction management and build management
      including phase-in phase-out management, (iii) the GSM base station light
      reconfiguration and merchandise kitting currently carried on at the
      Raleigh Facility, (iv) the management of the Class A RMA material return
      activities by the Logistics Employees and the management of certain Third
      Party logistics services with respect to the Products (v) the management
      of Third Party repair services for all products, (vi) the Design
      Operations, but excluding the operations conducted with the GDNT Assets.
      Notwithstanding the foregoing, the tangible assets owned or leased by
      Seller or any Designated Seller and used in, the contracts and licenses
      relating to and the employees engaged in, the provision of the following
      corporate overhead services for or on behalf of Nortel Networks
      Corporation, Seller, any Designated Seller or any of Seller's Affiliates,
      are not a part of the "Operations" unless such tangible assets, contract
      or licenses or employees are specifically identified as being transferred
      or assigned on a Schedule to this Agreement: treasury, legal, tax, human
      resources, risk management, corporate marketing, corporate finance,
      accounts payables and receivables, employee expense vouchering, travel,
      purchasing (except for procurement carried out in the Facilities),
      information systems support, finance, corporate communications, investor
      relations, intellectual property support, group marketing plans, group
      purchasing plans, corporate employee benefit and pension plans, facilities
      management, real estate brokerage, architecture and program management,
      health and wellness, environment and safety, workplace; food; security and
      fire alarm monitoring; reprographics and mail distribution, janitorial,
      mechanical preventive maintenance; waste management, landscaping, pest
      control and parking lot and lighting maintenance services.

(167) "OPERATIONS INFORMATION" means, subject to applicable limitations
      necessary for compliance with applicable Facility based country privacy
      Laws, governing employee information, originals or copies of all books,
      records, files and documentation, used or held for use primarily with
      respect to the Operations or the Assets, including information, policies
      and procedures, Equipment manuals and materials procurement documentation
      utilized in connection with the Operations, but excluding (i) any
      Intellectual Property

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      rights of the Seller or the Designated Sellers related to the Operations
      or otherwise, (ii) any and all technical information, including relating
      to Products, designs, specifications, test software, testing tools,
      testing processes or system architecture together with any and all
      Intellectual Property rights therein; (iii) employee data, except for
      the Employee Information; and (iv) Contracts, the Company-Wide Contracts
      and the IS Software.

(168) "OTTAWA LAB 2/LAB 10 FACILITY" means the facility located at 3500 Carling
      Avenue, Ottawa, Ontario, Canada K2H 8E9.

(169) "OWNED EQUIPMENT" means the machinery, equipment, furniture, hardware
      tools and test sets, associated spare parts and supplies and all other
      tangible personal property owned by the Seller, any of the Designated
      Sellers or French Newco and used primarily in the Operations, all of which
      are listed, and are located at, the locations referenced on Schedule
      2.1(1)(d), including assets forming the subject of Open Purchase Orders
      for equipment that has been delivered to the Seller or the Designated
      Sellers French Newco as of the relevant Closing Date, together with all of
      Seller's and Designated Seller's rights as a licensee with respect to any
      operating software forming part of such equipment at the time of its
      purchase by the Seller or Designated Seller French Newco, but excluding
      Equipment at Third Party Locations and equipment located at the Shared
      Labs.

(170) "PARTY" or "PARTIES" means individually or collectively, as the case may
      be, the Seller, the Designated Sellers, the Purchaser and the Designated
      Purchasers.

(171) "PATENT CROSS LICENCES" means the reciprocal patent and patent rights
      cross licence agreements between the Seller or any of its Affiliates and
      third Persons.

(172) "PCS" means, with respect to any Closing, those personal computers and
      UNIX workstations, including lap-top and desk-top computers, used
      primarily by Employees of the relevant Designated Seller or the Seller in
      the relevant part of the Operations.

(173) "PERMITTED ENCUMBRANCES" means (i) real property Liens, if any, attaching
      to the Chateaudun Facility not material in nature and that, individually
      or in the aggregate, do not materially interfere with or affect the
      conduct of the Operations or the use or value of the Assets; (ii) Liens
      for Taxes or governmental assessments, charges or claims the payment of
      which is not yet due, or for Taxes the validity of which are being
      contested in good faith by appropriate proceedings or arising or
      potentially arising under statutory provisions that have not at the time
      been filed and of which written notice has

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      not been served pursuant to Law; (iii) statutory Liens of landlords
      and Liens of carriers, warehousemen, mechanics, materialmen and other
      similar Persons and other Liens imposed by Law incurred in the ordinary
      course of business for sums not yet delinquent or overdue or which are
      being contested in good faith; (iv) Liens relating to deposits made in
      the ordinary course of business in connection with workers' compensation,
      unemployment insurance and other types of social security; (v) Liens
      relating to the executory obligations of Seller or any Designated Seller
      under any leases intended as security; and (vi) any other Liens set forth
      in Schedule 1.1(173); provided, however, that, with respect to each of
      clauses (i) through (vi), to the extent that any such Lien relates to, or
      secures the payment of, a liability that is required to be accrued under
      GAAP, such Lien shall only be a Permitted Encumbrance to the extent that
      such liability is included in the Facility/ Design Closing Net Assets
      Statement (or, in the case of any such liability existing or the Closing
      Date, the Closing Statement of Assets and Liabilities) in conformity with
      GAAP, or such liability constitutes an Excluded Liability for which Seller
      remains responsible.

(174) "PERSON" means an individual, a partnership, a corporation, an
      association, a limited or unlimited liability company, a joint stock
      company, a trust, a joint venture, an unincorporated organization or a
      Government Entity.

(175) "POST-EXECUTION SCHEDULES" means Schedule 1.1(125) (Leased Equipment),
      Schedule 1.1(63) (Equipment at Third Party Locations) and Schedule 2.6
      (List of PCS and Ancillary Equipment to be Transferred).

(176) "POTENTIAL CONTRIBUTOR" has the meaning set forth in Section 7.11.

(177) "PRBA" has the meaning set forth in Exhibit D-4.

(178) "PRE-CLOSING SCHEDULES" means

      Schedule 1.1(57)   End of Life Inventory

      Schedule 1.1(63)   Equipment at Third Party Locations

      Schedule 1.1(113)  Inventory

      Schedule 1.1(125)  Leased Equipment

      Schedule 1.1(200)  Repair Inventory

      Schedule 2.1(1)(d) Owned Equipment

      Schedule 2.1(1)(n) Security Deposits

      Schedule 2.1(1)(q) Prepaid Expenses

      Schedule 4.12(9)   Employee Accrued and Unused Vacation

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      Schedule 4.15(1) Inventory Forecast

(179) "PREPAID EXPENSES" has the meaning set forth in Section 2.1(1)(q).

(180) "PRIMARY PARTY" means each of the Seller and the Purchaser.

(181) "PRODUCTS" means the products listed in the exhibits VSHA which related to
      the applicable Facility/ Design Closing.

(182) "PROMISSORY NOTES" means the promissory notes evidencing the obligation
      of each respective Designated Purchaser to pay any amount of the Purchase
      Price, which is due and payable by it after the relevant Facility/
      Design Closing Date, in the form attached hereto as Exhibit O.

(183) "PURCHASE PRICE" has the meaning set forth in Section 2.3(1).

(184) "PURCHASER" has the meaning set forth in the preamble to this Agreement.

(185) "PURCHASER CAP" has the meaning set forth in Section 7.4(3).

(186) "PURCHASER INDEMNITEES" has the meaning set forth in Section 7.2.

(187) "PURCHASER ONE-TIME DEDUCTIBLE" has the meaning set forth in Section
      7.4(3).

(188) "PURCHASER THRESHOLD" has the meaning set forth in Section 7.4(3).

(189) "PURCHASER'S EMPLOYEE PLANS" means any pension plan, supplemental pension
      plan, profit sharing plan, savings plan, retirement savings plan, bonus
      plan, incentive compensation plan, deferred compensation plan, stock
      purchase plan, stock option plan, employee benefit plan, vacation plan,
      leave of absence plan, employee assistance plan, automobile leasing/
      subsidy/ allowance plan, relocation plan, family support plan, retirement
      plan, medical, hospitalization or life insurance plan, disability plan,
      sick leave plan, redundancy or severance plan, retention agreement, death
      benefit plan, compensation arrangement, including any base salary
      arrangement, overtime policy, on-call policy or call-in policy, or any
      other plan, program, arrangement, policy or practice that is or will be
      maintained or otherwise contributed to, or is or will be required to be
      contributed to, by or on behalf of the Purchaser or Purchaser's
      Affiliates, and in respect of which Transferring Employees will be
      eligible to participate on or immediately after the applicable Employment
      Transfer Date.

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(190) "QUEBEC EMPLOYEE" means an employee of the Seller or Designated Sellers
      based in Quebec and listed on Schedule 4.12(1), as such schedule may
      be updated at or immediately prior to the applicable Employment Transfer
      Date.

(191) "QUEBEC EMPLOYMENT NOTICE" has the meaning set forth in Exhibit D-5.

(192) "QUEBEC TRANSFERRING EMPLOYEE" has the meaning set forth in Exhibit D-5.

(193) "REAL ESTATE" means the buildings and land located at the Chateaudun
      Facility that is owned by Nortel or an Affiliate thereof.

(194) "REAL PROPERTY LEASE" means the lease agreements to be entered into by the
      Parties for the lease of space by the Purchaser at the Montreal OPTO 1
      Facility, Montreal BAN 3 Facility, the Calgary Westwinds Facility and
      the Monkstown Facility, and by the Seller or Designated Seller as lessee
      of the Chateaudun Facility, in the form attached hereto as Exhibit C
      (with such variations as are necessary to reflect local law, but which
      variations shall not impose any additional material obligations on any
      Party, or materially reduce the rights of any Party in relation to the
      terms and conditions of this Agreement, without such Party's consent).

(195) "REFERENCE DATE" means the applicable date of reference for each Facility/
      Design Net Asset Statement which shall be the last day of the most recent
      month which is at least thirty (30) days before each applicable Facility/
      Design Closing.

(196) "REFUNDABLE TRANSFER TAX" means any Transfer Tax (or portion thereof)
      incurred in connection with the transactions contemplated in this
      Agreement which is refundable to (or can be taken as a credit against
      other taxes owed by) the Purchaser or Designated Purchaser, as applicable.
      For the avoidance of doubt, value-added and goods and services taxes shall
      be treated as Refundable Transfer Taxes and U.S. and Canadian sales taxes,
      stamp duty or registration taxes shall not be treated as Refundable
      Transfer Taxes.

(197) "REGULATION" has the meaning set forth in Section 8.2(4)(b).

(198) "REMEDIATION WORK" has the meaning set forth in Section 5.11.

(199) "REPAIR EMPLOYEE" means an Employee who is identified as such and whose
      name is listed on Schedule 1.1(199), as such schedule may be updated at
      or immediately prior to the applicable Employment Transfer Date.

(200) "REPAIR INVENTORY" means repair inventory (including applicable labour
      and overhead and other capitalized costs, if any) listed on, and located
      at the locations referenced in Schedule 1.1(200).

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(201) "REPAIR SERVICES AGREEMENT" means the agreement in the form attached
      hereto as Exhibit G.

(202) "RESIDUAL KNOWLEDGE" means the concepts or ideas related to, but not
      embodied in tangible form, the Operations, and unintentionally retained
      in the unaided memory of a Transferring Employee who has or has had
      access to such concepts or ideas; provided, however, that neither
      Purchaser nor Designated Purchasers, nor their Affiliate, shall encourage,
      or shall have encouraged, the Transferring Employees to commit such
      concepts or ideas to memory for later use.

(203) "REWORKED BONEPILE INVENTORY" refers to Bonepile Inventory that the
      Purchaser or Designated Purchasers has re-worked (including returning to
      supplier for credit) or re-treated to become useable Inventory.

(204) "SECOND PARTY" has the meaning set forth in Section 7.4(5).

(205) "SECURED ASSETS" has the meaning set forth in Section 5.32.

(206) "SECURITY DOCUMENTATION" refers to a general security agreement and
      ancillary instruments and registrations (including requisite
      acknowledgments and subordinations from existing secured creditors)
      provided by the Purchaser and Designated Purchasers in favour of the
      Seller and Designated Sellers sufficient to obtain a first priority
      (subject to permitted encumbrances) fully perfected security interest in
      the shares of French Newco, Equipment, and Inventory (for as long as any
      of the Purchase Price has not been paid by Purchaser and Designated
      Purchasers) securing the indebtedness evidenced by the Promissory Notes,
      minus one hundred million dollars ($100,000,000).

(207) "SELLER" has the meaning set forth in the preamble to this Agreement.

(208) "SELLER CAP" has the meaning set forth in Section 7.4(1).

(209) "SELLER INDEMNITEES" has the meaning set forth in Section 7.3.

(210) "SELLER ONE-TIME DEDUCTIBLE" has the meaning set forth in Section 7.4(1).

(211) "SELLER THRESHOLD" has the meaning set forth in Section 7.4(1).

(212) "SELLER'S EMPLOYEE PLANS" means any pension plan, supplemental pension
      plan, profit sharing plan, savings plan, retirement savings plan, bonus
      plan, incentive compensation plan, deferred compensation plan, stock
      purchase plan, stock option plan, employee benefit plan, vacation plan,
      leave of absence plan, employee assistance plan, automobile
      leasing/subsidy/allowance plan, relocation plan, family support plan,
      retirement plan,

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      medical, hospitalization or life insurance plan, disability plan, sick
      leave plan, redundancy or severance plan, retention agreement, death
      benefit plan, compensation arrangement, including any base salary
      arrangement, overtime policy, on-call policy or call-in policy, or any
      other plan, program, arrangement, policy or practice that is maintained or
      otherwise contributed to, or required to be contributed to, by or on
      behalf of the Seller or any of the Designated Sellers with respect to
      Employees in effect as at of the Employment Transfer Date.

(213) "SELLER'S STOCK PLANS" means Nortel Networks 1986 and 2000 stock option
      plans, the Nortel Networks Stock Purchase Plans and the Plan d'Epargne
      D'Enterprise (i.e., the Nortel Networks French company savings plan).

(214) "SHARED LABS" means laboratories owned by the Seller or Designated
      Sellers and used by the Design Employees and other Seller or Designated
      Sellers design employees (including the Ottawa hardware sustaining
      lab, the Ottawa software sustaining lab and Monkstown hardware and
      software sustaining labs).

(215) "SHARED SERVICES AGREEMENT" means the Shared Services Agreement between
      the Seller and the Purchaser to be executed on the first Closing Date, in
      the form attached hereto as Exhibit B.

(216) "SINGLE USE DESKTOP SOFTWARE" means the software which is licensed to
      the Seller or its Affiliates under a transferable, shrink-wrap or
      click-wrap license agreement for use on a single computer and is, as of
      the Effective Time, installed on any of the PCs.

(217) "SKILLED TRADE EMPLOYEE" means an Employee who is employed in a position
      that is recognized as a skilled trade occupation under the CUCW
      Collective Labour Agreement.

(218) "SUBSEQUENT EQUIPMENT PUT PERIOD" has the meaning set forth in Section
      5.16(1).

(219) "SUBSEQUENT EQUIPMENT USAGE PERIOD" shall mean the period which starts at
      the end of the twelfth (12th) month after the applicable Closing Date and
      continues through to the end of the fifteenth (15th) month after the
      applicable Closing Date.

(220) "SUBSEQUENT OBSOLETE EQUIPMENT" means all Equipment that (a) is not yet
      fully depreciated at the end of the Equipment Usage Period, (b) was
      forecasted by the Purchaser or Designated Purchasers or Affiliates at the
      end of the Equipment Usage Period to be used to meet Product supply
      requirements, or otherwise to be in use by the Purchaser or Designated

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      Purchasers or Affiliates, and (c) was not used in the Operations, or
      otherwise in use by the Purchaser or Designated Purchasers or Affiliates
      during the Subsequent Equipment Usage Period.

(221) "SUBSEQUENT OBSOLETE EQUIPMENT PUT OPTION" has the meaning set forth in
      Section 5.16(1).

(222) "SUSTAINING DESIGN SERVICES" shall have the meaning set forth in the
      Amended and Restated Contract Manufacturing Services Agreement.

(223) "SUBSTITUTABLE EQUIPMENT" means, with respect to any Equipment which
      ceases to be in use by Purchaser or one of its Affiliates thereof during
      the applicable put period, any equipment which the Purchaser or one of its
      Affiliates thereof purchases or leases after such Equipment has ceased
      being in use by Purchaser or one of its Affiliates thereof, if (i) such
      Equipment is of the same kind, or suitable for the same purpose, as such
      other equipment, and is configured (or is readily configurable without
      significant cost or delay) for the same purpose as such other equipment,
      and (ii) either is located at the same Facility as such Equipment or at
      another facility of Purchaser or one of its Affiliates thereof to which
      such Equipment could have been transported at reasonable cost and without
      significant disruption to operations.

(224) "TAX" means any domestic or foreign federal, state, local, provincial, or
      municipal taxes or other impositions by any Government Entity, including
      the following taxes and impositions: net income, gross income, individual
      income, capital, value added, goods and services, gross receipts, sales,
      use, advalorem, business rates, transfer, franchise, profits, business,
      real property, gains, service, service use, withholding, payroll,
      employment, social security, excise, severance, occupation, premium,
      property, customs, duties or other type of fiscal levy and all other
      taxes, fees, assessments, deductions, withholdings or charges of any kind
      whatsoever, together with any interest and penalties, additions to tax or
      additional amounts imposed or assessed with respect thereto.

(225) "TAX BENEFIT" means, with respect to any Loss incurred by an Indemnified
      Party, the present value of all Tax deductions, other reductions in
      taxable income and Tax credits to the Indemnified Party as a result of
      incurring or paying the Loss indemnified, net of any reduction in Tax
      credit or Tax deduction, or increase in taxable income incurred by the
      Indemnified Party as a result of receiving the indemnification payment
      hereunder with respect to such Loss.

(226) "TAX RETURN" means any return, declaration (including estimated Tax),
      report, statement, claim for refund or credit, or information return or

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      statement relating to Taxes, including information returns or reports with
      respect to backup withholding and payments to Third Parties, and any
      schedule or attachment relating to any of the foregoing or any amendment
      thereof.

(227) "THIRD PARTY" means any non-Affiliate of the Parties.

(228) "THIRD PARTY ACTION" has the meaning set forth in Section 7.5(1).

(229) "THIRD PARTY LICENSES" means licenses and other agreements, other than the
      Patent Cross Licences and the Corporate Desktop Software, and licenses
      for the Transferred Business Applications, pursuant to which any Third
      Party has granted the Seller or any Affiliates of the Seller any rights in
      Intellectual Property used in the Operations.

(230) "TOTAL PURCHASER CPP/QPP/EI PAYMENTS" shall mean the total amount of CPP/
      QPP/ EI Tax paid by the Purchaser or a Designated Purchaser with respect
      to the Transferring Employees in the calendar year in which the Closing
      applicable to such Transferring Employees occurs.

(231) "TOTAL SELLER CPP/QPP/EI PAYMENTS" shall mean, with respect to the
      Employees who following the applicable Closing become Transferring
      Employees, the total amount of CPP/ QPP/ EI Tax paid by the Seller or a
      Designated Seller in the calendar year in which the Closing applicable
      to such Transferring Employees occurs.

(232) "TRANSACTION DOCUMENTS" means this Agreement, each Local Sale Agreement,
      each Real Property Lease, the Amended and Restated Master Contract
      Manufacturing Services Agreement, the Confidentiality Agreement, the
      Shared Services Agreement, the Licenses of Space, the Nortel Propriety
      Software License Agreement, the Repair Services Agreement, the Logistics
      Services Agreement, the Brazil Asset Purchase Agreement and all other
      ancillary agreements to be entered into or documentation delivered by
      any Party pursuant to this Agreement or any Local Sale Agreement.

(233) "TRANSFER DATE" has the meaning set forth in Section 2.6(3).

(234) "TRANSFER FEES" means all registration, transfer, conveyance, recording,
      license and other similar fees, expenses or charges.

(235) "TRANSFER REGULATIONS" means the legislation implementing or having the
      effect of implementing the provisions of the European Union Directive
      2001/ 23/ EEC (March 12, 2001), as amended, and any other applicable
      provision affecting the transfer of employees under applicable Law
      (including but not limited to the Transfer of Undertakings (Protection of

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      Employment) Regulation 1981 as enacted by Northern Ireland legislation
      and as amended, article 122.12 of the French Labour Code.

(236) "TRANSFER TAXES" means all goods and services, sales, land transfer, gross
      receipt, documentary, value-added, stamp duties, and all other similar
      taxes, duties, registration charges or other like charges related to the
      transactions contemplated in this Agreement together with any interest
      and penalties, additions to tax or additional amounts imposed or assessed
      with respect thereto.

(237) "TRANSFER VALUE" has the meaning set forth in Section 2.6(3).

(238) "TRANSFERABLE EQUIPMENT" has the meaning set forth in Section 5.14(2).

(239) "TRANSFERABLE EQUIPMENT TRANSFER DATE" has the meaning set forth in
      Section 5.14(2).

(240) "TRANSFERABLE EQUIPMENT TRANSFER VALUE" has the meaning set forth in
      Section 5.14(2).

(241) "TRANSFERRED BUSINESS APPLICATIONS" means the software applications
      licensed to the Seller or a Designated Seller and used primarily in the
      Operations, all of which are identified on Schedule 1.1(118).

(242) "TRANSFERRING EMPLOYEE" means, with respect to any Closing, any Employee
      who (i) accepts an Employment Offer by the Purchaser or the relevant
      Designated Purchaser and commences employment with the Purchaser or one of
      the Designated Purchasers on the Employment Transfer Date; or (ii) whose
      employment is otherwise transferred on the Employment Transfer Date to the
      Purchaser or one of the Designated Purchasers pursuant to this Agreement
      the CUCW Collective Labour Agreement and/or applicable Law; (iii) or is
      an employee of French Newco at the time of the applicable Closing Date.

(243) "TRANSITION PAYMENT" has the meaning set forth in Section 5.18.

(244) "TRUED UP EMPLOYEE SCHEDULES" has the meaning set forth in Section 5.1
      (3)(b).

(245) "UK DESIGN EMPLOYEES" means a Design Employee of the Seller or Designated
      Sellers based in the U.K. and listed on Schedule 1.1(44), as such schedule
      may be updated at or immediately prior to the applicable Employment
      Transfer Date.



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(246) "UK EMPLOYEE" means an employee of the Seller or the Designated Sellers
      based in the UK and listed on Schedule 4.12(1), as such schedule may
      be updated at or immediately prior to the applicable Employment Transfer
      Date.

(247) "UK EMPLOYMENT COMMITMENT" has the meaning set forth in Exhibit D-1.

(248) "UK EMPLOYMENT OFFER" has the meaning set forth in Exhibit D-1.

(249) "UK TRANSFERRING EMPLOYEES" has the meaning set forth in Exhibit D-1.

(250) "UNASSIGNED FINISHED GOODS INVENTORY" means all Inventory purchased by the
      Purchaser and the Designated Purchasers under this Agreement that is
      finished goods not assigned to a specific customer order as of the
      applicable Closing, referenced as such on Schedule 1.1(113).

(251) "UNASSIGNED FINISHED GOODS PUT OPTION" has the meaning set forth in
      Section 5.15(1).

(252) "UNASSIGNED FINISHED GOODS PUT PERIOD" means the ninety (90) day period
      after the applicable Closing Date.

(253) "UNREPAIRABLE BONEPILE INVENTORY" means Bonepile Inventory which is not
      subsequently converted to Reworked Bonepile Inventory during the Bonepile
      Inventory Put Period.

(254) "UNUSED INVENTORY" means (i) Inventory purchased by the Purchaser or
      Designated Purchasers under this Agreement; and (ii) other materials on
      order through Open Purchase Orders, referenced as such on Schedule
      1.1(113), and that are not cancellable at any time during the Inventory
      Put Period, and, in each case, which are not sold during the Inventory Put
      Period and are physically held and usable by the Purchaser or Designated
      Purchaser at the end of the Inventory Put Period.

(255) "UNUSED INVENTORY PUT OPTION" has the meaning set forth in Section
      5.15(1).

(256) "UNUSED UNASSIGNED FINISHED GOODS INVENTORY" means Unassigned Finished
      Goods Inventory that is not sold during the Unassigned Finished Goods Put
      Period and is physically held and [USABLE] by the Purchaser or Designated
      Purchaser at the end of the Unassigned Finished Goods Put Period.

(257) "U.S. EMPLOYEE" means an employee of the Seller or the Designated Sellers
      based in the U.S. and listed on Schedule 4.12(1), as updated on or
      immediately prior to the applicable Employment Transfer Date.

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(258) "U.S. EMPLOYMENT OFFER" has the meaning set forth in Exhibit D-9A.

(259) "U.S. Leave Employee" has the meaning set forth in Exhibit D-9A.

(260) "U.S. Transferring Employee" has the meaning set forth in Exhibit D-9A.

(261) "U.S. Visa Employee" has the meaning set forth in Exhibit D-9A.

(262) "Visa Employees" has the meaning set forth in Section 4.12(6).

(263) "VSHA" means individually or collectively the virtual systems house
      agreements attached as exhibits to the Amended and Restated Master
      Contract Manufacturing Services Agreement.

SECTION 1.2 INCLUDING

      The words "including", "includes" and "include" shall be deemed to be
followed by the words "without limitation".

SECTION 1.3 MATERIAL

      The word "material" shall be interpreted having regard inter alia to the
quantum of the Purchase Price.

SECTION 1.4 ARTICLES AND SECTIONS

      The words "Article" or "Section" followed by a number mean and refer to
the specified Article or Section of this Agreement, unless otherwise noted.

                                    ARTICLE 2
                    PURCHASE AND SALE OF ASSETS: THE CLOSING

SECTION 2.1 PURCHASE AND SALE

(1)   Assets. On the terms and subject to the conditions set forth in this
      Agreement and each Local Sale Agreement, at each applicable Facility/
      Design Closing the Purchaser shall cause the relevant Designated Purchaser
      set forth in Schedule 1.1 to purchase from the relevant Designated Seller
      (the name of which is set forth opposite the Designated Purchaser in
      Schedule 1.1), and the Seller shall cause the relevant Designated Seller
      to sell, convey, assign, transfer and deliver to the relevant Designated
      Purchaser, all of the Seller's and such Designated Seller's rights, title
      and interest in and to the following assets (such assets referred to
      herein individually as the "FACILITY/DESIGN ASSETS" for each applicable
      Facility/Design Closing, and collectively herein as the "ASSETS"):

      (a)   the Inventory as of the Effective Time, excluding (i) any Inventory
            not forecasted to be used in the twelve (12) months immediately
            following

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            the applicable Closing Date based on the Seller's forecasts of
            orders to be fulfilled (which forecast is set forth in Schedule
            4.15(1)), and (ii) Excluded Bonepile Inventory;

      (b)   the End of Life Inventory as of the Effective Time; provided,
            however, that:

            (i)   any End of Life Inventory exceeding 3% of the total projected
                  annual global revenue for the Purchaser and its Affiliates
                  from the Products as set forth in Schedule 4.15(1) (which
                  shall include for the purpose of calculating the 3% cap all
                  End of Life Inventory sold pursuant to the provisions of the
                  Brazil Asset Purchase Agreement) shall not be an Asset and
                  shall be dealt with on a consignment basis as set forth in the
                  Amended and Restated Master Contract Manufacturing Services
                  Agreement ("END OF LIFE INVENTORY CAP"); and

            (ii)  should any of Facility/Design Closings not occur as a result
                  of a termination of the Agreement in accordance with Section
                  9.2, the Parties shall negotiate in good faith to read just
                  the End of Life Inventory Cap to reflect the impact of the
                  Facility/ Design Closings that did not occur;

      (c)   the Repair Inventory as of the Effective Time, excluding any Repair
            Inventory not forecasted to be used in the twelve (12) months
            immediately following the applicable Closing Date based on Seller's
            forecasts of repair orders to be fulfilled (which forecast is set
            forth in Schedule 4.15(1));

      (d)   the Owned Equipment;

      (e)   the Equipment at Third Party Locations;

      (f)   the Assumed Contracts (but excluding any amounts owing prior to or
            with respect to periods prior to, or goods purchased or services
            performed prior to, the applicable Closing pursuant to an Assumed
            Contract, save and except with respect to Open Purchase Orders;

      (g)   the Transferred Business Applications;

      (h)   Single Use Desktop Software;

      (i)   the Open Purchase Orders as of the Effective Time;

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      (j)   the Operations Information currently used in or relating to the
            country to which such Closing relates, subject to the Seller's or
            Designated Sellers' right to retain a copy of such material to
            comply with applicable Law or with a third party agreement;

      (k)   the Employee Information;

      (l)   to the extent assignable, the Operating Permits;

      (m)   certain owned PCs and ancillary equipment in accordance with the
            terms of Section 2.6(3);

      (n)   the security deposits or advances deposited or paid by or on behalf
            of the Seller or the applicable Designated Seller as lessee or
            sublessee or pursuant to any Assumed Contract all of which will be
            listed or otherwise described on Schedule 2.1(1)(n);

      (o)   to the extent assignable, all warranty rights and associated claims
            of the Seller or the applicable Designated Seller with respect to
            all manufacturers' warranties covering the Owned Equipment (the
            "EQUIPMENT WARRANTIES");

      (p)   all of the share capital, and any outstanding indebtedness owed
            to Seller or any Designated Seller, of French Newco;

      (q)   The prepaid expenses of the Seller or the applicable Designated
            Seller relating to the Operations or the Assets (the "PREPAID
            EXPENSES"), all of which will be listed on Schedule 2.1(1)(q); and

      (r)   goodwill (which shall not be deemed to include any Intellectual
            Property).

(2)   Excluded Assets. Notwithstanding anything in this Section 2.1 or
      elsewhere in this Agreement to the contrary or anything to the contrary in
      any other Transaction Document, the Assets shall not include the following
      (collectively, the "EXCLUDED ASSETS"):

      (a)   any cash and cash equivalents, accounts and notes receivable and
            securities (including capital stock of Affiliates) of the Seller or
            any of its Affiliates (including all intercompany and intracompany
            receivables, all bank account balances and all petty cash);

      (b)   any amounts payable to or claims or causes of action of the Seller
            or any of its Affiliates in respect of Taxes, including duty
            drawbacks, Tax credits and Taxes refundable to the Seller or any of
            its Affiliates in

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            respect of transactions prior to the Effective Time or in respect of
            the period or portion thereof ending on or prior to the Effective
            Time;

      (c)   any refunds due from, or payments due on, claims with the
            insurers of Seller or any of its Affiliates in respect of losses
            arising prior to the Effective Time;

      (d)   all books, documents, records and files prepared in connection with
            or relating to the transactions contemplated by this Agreement,
            including bids received from other parties and analyses relating
            to the Operations;

      (e)   other than the Assumed Contracts and the license agreements for
            Transferred Business Applications, any rights of the Seller or any
            of its Affiliates under any contract, arrangement or agreement
            (including this Agreement, any other Transaction Document or any of
            the Company-Wide Contracts);

      (f)   any and all Intellectual Property owned by or licensed to the
            Seller or any of its Affiliates (and any tangible embodiments of
            any such property), including any rights in the Third Party
            Licenses, any Patent Cross License, Design Tools, any computer
            software and the Network Identifiers, other than Sellers' or
            Designated Sellers' rights or interests in Intellectual Property
            licensed to the Seller or its Affiliates in a Transferred Business
            Applications;

      (g)   any and all employee data, other than the Employee Information;

      (h)   such portion of the Operations Information that the Seller or
            Seller's Affiliates are, in the reasonable opinion of Seller's
            counsel, required by Law or by agreement with a Third Party to
            retain and competitively sensitive information regarding Contracts
            which are not Assumed Contracts, or license agreements for
            Transferred Business Applications, provided that the Purchaser shall
            be provided copies of such material unless contrary to Law or
            agreement with a Third Party;

      (i)   any asset of the Seller or any of the Seller's Affiliates that would
            constitute an Asset (if owned by the Seller or a Designated Seller
            on the relevant Closing Date) that is conveyed or otherwise disposed
            of during the period from the date hereof until the relevant Closing
            Date (y) in the ordinary course of business and not in violation of
            the terms of this Agreement or (z) as otherwise expressly permitted
            by the terms of this Agreement;

      (j)   the Seller's Employee Plans;

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      (k)   title to the Leased Equipment;

      (l)   the Corporate Desktop Software;

      (m)   the Excluded Business Applications and the Licensed Business
            Applications;

      (n)   the Shared Labs and the equipment located therein;

      (o)   Obsolete Equipment;

      (p)   the other assets and rights listed or described in Schedule
            2.1(2)(p); and

      (q)   any and all other assets or rights of the Seller or the Seller's
            Affiliates not specifically included in Section 2.1(1).

(3)   Non-Assignable Assets. Notwithstanding anything contained herein to the
      contrary, Section 2.1 of this Agreement shall not require the assignment
      or sublicense of any of the Assumed Contracts, or license agreement for
      the Transferred Business Applications licensed to Seller or Designated
      Sellers by Third Parties, if any assignment or attempted assignment of the
      same without the consent of any Person, other than of the Seller or any of
      its Affiliates, would constitute a breach thereof, or if such Assumed
      Contract or license agreements for the Transferred Business Applications
      may not, by virtue of Law, be assigned or sublicensed and (the requirement
      for such consent is disclosed with respect to such Assumed Contract or
      Transferred Business Applications in Schedule 1.1(37) (the "NON-ASSIGNABLE
      ASSETS"). The Seller shall, prior to and after the applicable Closing
      Date, and shall cause the Designated Sellers to, use their commercially
      reasonable efforts, and the Purchaser shall cooperate in all reasonable
      respects with the Seller, to obtain all consents and waivers and to
      resolve all impracticalities of assignments or transfers necessary to
      convey (or sublicense, in the case of Assumed Contracts, or license
      agreements for the Transferred Business Applications consisting of
      licenses that are not assignable without the consent of the licensor) any
      of the Assets to the Purchaser; provided, however, that except as
      otherwise provided in Section 5.9, such efforts by the Seller or any
      Designated Seller shall not include any requirement of the Seller or any
      of its Affiliates to pay money, commence any litigation, or offer or grant
      any accommodation, financial or otherwise, to any Third Party, except that
      the Seller and the applicable Designated Seller, on the one hand, and the
      Purchaser and applicable Designated Purchaser, on the other hand, shall
      each pay half of any amounts that are required under the terms of such
      Assumed Contracts or Transferred Business Applications to be paid in
      connection with such assignment or sublicense, or provided to have been
      paid prior to the

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      applicable Closing Date (including any payments for maintenance and
      support for periods, or portions, therefore, ending before the
      applicable Closing Date). If any such Non-Assignable Assets are not able
      to be assigned or transferred (whether because a consent in respect of
      any Non-Assignable Assets could not be obtained or otherwise), (x) the
      Seller shall (and shall cause the Designated Sellers to) use their
      commercially reasonable efforts (it being understood that such efforts
      shall not include any requirement of the Seller or any of its Affiliates
      to pay money, commence litigation, or offer or grant any accommodation,
      financial or otherwise, other than provided above, to provide or cause
      to be provided to the Purchaser, to the extent permitted by applicable
      Law, the benefits of any such Non-Assignable Assets and cooperate with
      Purchaser or the applicable Designated Purchaser in any reasonable
      arrangement designed to provide Purchaser or the applicable Designated
      Purchaser the material benefits intended to be assigned under the
      relevant Asset, including enforcement at the cost and for the account of
      Purchaser or a Designated Purchaser of any and all rights of Seller or the
      applicable Designated Seller against the other party thereto arising out
      of the breach or cancellation thereof by such other party or otherwise;
      (y) the Seller shall (to the extent the Purchaser has undertaken the
      responsibilities thereunder) promptly pay or cause to be paid to the
      Purchaser all monies received by the Seller or any of its Affiliates with
      respect to any such Non-Assignable Asset; and (z) the Purchaser shall, to
      the extent the Seller or Seller's Affiliates are able to provide the
      benefits of such Non-Assignable Assets and comply with (y) above, perform
      and discharge on behalf of each of the Seller or any Designated Seller all
      of the Seller's or such Designated Seller's debts, liabilities,
      obligations or commitments, if any, thereunder, and subject to and in
      accordance with the provisions thereof.

SECTION 2.2 ASSUMED LIABILITIES

(1)   On the terms and subject to the conditions set forth in this Agreement and
      the Local Sale Agreements, at each applicable Facility/ Design Closing the
      Purchaser shall cause the relevant Designated Purchaser to assume and
      become responsible for, and to perform, discharge and pay when due, and
      indemnify the Seller and its Affiliates against and hold each of them
      harmless from, the following obligations and liabilities, whether known or
      unknown, absolute, contingent, determined, determinable or otherwise, if
      the grounds or facts for such obligations and liabilities came into
      existence or arose after the applicable Facility/ Design Closing (or, in
      the case of Section 2.2(1)(a), whether accrued, presently in existence or
      arising hereafter) and were relating to or arising out of the applicable
      Facility/ Design Assets (such obligations and liabilities are referred to
      individually herein as the "FACILITY/DESIGN ASSUMED LIABILITIES" for each
      applicable Facility/ Design

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       Closing and all Facility/ Design Assumed Liabilities are collectively
       referred to herein as the "ASSUMED LIABILITIES"):

      (a)   except as otherwise specified in Section 2.2(2)(d ) or elsewhere
            in this Agreement or the Local Sale Agreements, all obligations and
            liabilities related to or arising from or in connection with: (A)
            the employment (or termination of employment) by the Purchaser or
            the Designated Purchaser of the Transferring Employees (or any of
            them) that arise or accrue on and after such Transferring Employees'
            Employment Transfer Date; (B) the Purchaser's or the relevant
            Designated Purchaser's Employment Offer, Quebec Employment Notice,
            and European Contract of Employment Offer, as applicable, to any
            Employee; or (C) the failure of the Purchaser or any of the
            Designated Purchasers to satisfy their respective obligations as
            provided in Article 6, including Exhibit D-1 et. seq.;

      (b)   all obligations or liabilities of Seller or any of its Affiliates
            with respect to accrued and unused vacation days, as set out in
            Schedule 4.12(9), of Transferring Employees as at the applicable
            Employment Transfer Date;

      (c)   all executory obligations and liabilities of the Seller or any of
            its Affiliates arising from or in connection with the Open Purchase
            Orders;

      (d)   personal property taxes, other ad valorem taxes, with respect to the
            Facility/ Design Assets and any other liabilities or obligations
            relating to Taxes for any period or portion thereof ending after the
            Effective Time. For the avoidance of doubt, such Taxes for the year
            that includes the applicable Closing Date shall be allocated pro
            rata based on the number of days that occur before and after such
            Closing, with such Taxes being borne by the Seller based on the
            ratio of the number of days in the relevant period prior to the
            relevant Closing Date to the total number of days in the actual
            taxable period with respect to which such Taxes are assessed,
            irrespective of when such Taxes are due, become a lien or are
            assessed, and such Taxes being borne by the Purchaser based on the
            ratio of the number of days in the relevant period after the
            relevant Closing Date to the total number of days in the actual
            taxable period with respect to which such Taxes are assessed,
            irrespective of when such Taxes are due, become a lien or are
            assessed.

(2)   Notwithstanding anything in this Section 2.2 or elsewhere in this
      Agreement or any other Transaction Document to the contrary, the Assumed
      Liabilities

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shall not include, and neither the Purchaser nor any of its Affiliates will
assume at any of the Closings, any of the following liabilities or obligations
(collectively, "EXCLUDED LIABILITIES"):

      (a)   liabilities or obligations for indebtedness for borrowed money or
            guarantees, or other financial assistance obligations incurred by
            the Seller or any of its Affiliates or relating to the Assets;

      (b)   warranty and other liabilities or obligations with respect to
            products sold by Seller or any Designated Seller prior to the
            Effective Time for the relevant Closing;

      (c)   liabilities or obligations of the Seller or the Designated Sellers
            relating to the execution, delivery and consummation of this
            Agreement or the other Transaction Documents and the transactions
            contemplated hereby and thereby;

      (d)   liabilities or obligations of the Seller or any of its Affiliates
            relating to Taxes for any period or portion thereof ending on or
            before the Effective Time for the relevant Closing (except Taxes
            specifically allocated to or assumed by the Purchaser or the
            Designated Purchasers under this Agreement or the Local Sale
            Agreements);

      (e)   except as specified otherwise in this Agreement or as may otherwise
            be required by Law, the liabilities or obligations of the Seller or
            any of its Affiliates that relate to or arise from or in connection
            with the employment or termination of employment by the Seller or
            the Designated Sellers of Transferring Employees on or prior to such
            Transferring Employees' Employment Transfer Date, or the employment
            or termination of employment of any of Seller's or such Designated
            Seller's employees who are not Transferring Employees;

      (f)   liabilities or obligations arising out of a failure of the Seller or
            the Designated Sellers to fulfill their respective obligations as
            provided for in Article 6;

      (g)   the Environmental Liabilities of the Seller;

      (h)   any amounts owing prior to, or with respect to periods prior to, or
            goods purchased or services performed prior to, the applicable
            Closing pursuant to an Assumed Contract, save and except with
            respect to Open Purchase Orders;

      (i)   any and all other liabilities or obligations of the Seller or any of
            its Affiliates, whether known or unknown, accrued, absolute,
            contingent,

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      determined, determinable or otherwise, that are not expressly assumed
      by the Purchaser or the Purchaser's Affiliates pursuant to Section 2.2(1);
      and

(j)   any liabilities or obligations of the Seller or Designated Sellers
      relating primarily to, or arising under, the Excluded Assets.

Nothing in this Section 2.2(2) shall be construed to negate any liability or
obligation explicitly assumed by the Purchaser or a Designated Purchaser, or
expressly indemnified by either Party, elsewhere in this Agreement.

SECTION 2.3 PURCHASE PRICE AND PAYMENT PROCEDURES

(1)   In full consideration for the transfer of the Facility/ Design Assets for
      each Facility or for the Design Operations, as the case may be, on the
      terms and subject to the conditions of this Agreement and the Local Sale
      Agreement at each Facility/ Design Closing, the Purchaser shall cause the
      relevant Designated Purchaser to assume, the Facility/ Design Assumed
      Liabilities, attributable to such Closing and pay, or cause to be paid on
      behalf of the Designated Purchaser, to the Seller or the relevant
      Designated Seller, at such Closing, an amount equal to the estimated
      Facility/ Design Estimated Net Assets Value as of the Reference Date
      referred to in the Facility/ Design Net Asset Statement (the "FACILITY/
      DESIGN ESTIMATED NET ASSETS VALUE") together with the additional purchase
      price set forth in Schedule 1.1 with respect to such Designated Purchaser.
      No more than ten (10) nor less than seven (7) Business Days prior to each
      Closing Date, Seller shall deliver to Purchaser a statement (the
      "FACILITY/DESIGN NET ASSET STATEMENT"), executed on behalf of Seller,
      setting forth in reasonable detail the calculation of the Facility/ Design
      Estimated Net Assets Value in respect of the Assets that are the subject
      of such Closing, which shall be accompanied by the applicable schedules of
      the relevant Facility/ Design Assets and Facility/ Design Assumed
      Liabilities. The Facility/ Design Estimated Net Assets Value together with
      the additional purchase price of two hundred million dollars
      ($200,000,000) as set forth in Schedule 1.1 with respect to such
      Designated Purchaser for such Closing, shall be referred to herein as the
      "FACILITY/ DESIGN PURCHASE PRICE". The sum of Facility/ Design Purchase
      Prices for all Facilities and the Design Operations, less the sum of
      Facility/ Design Purchase Prices in respect of Facility/ Design Closings
      which have not occurred by the date specified in Section 9.2(4), shall be
      referred to herein as the "PURCHASE PRICE".

(2)   The Parties have agreed as of the date hereof to certain advanced cash
      payments between the Parties related to the amounts payable pursuant to
      the terms of this Agreement (the "CASH FLOW PAYMENTS") as set forth in
      Schedule 2.3(2). The Parties acknowledge that the Cash Flow Payments
      strictly relate

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      to optimization of each Parties cash management objectives in relation to
      the transactions contemplated by the Agreement and do not represent
      agreement between the Parties as to the amount of any additional
      purchase price payable in relation to any of the Facility/Design
      Closings. As such, the Parties agree that the Cash Flow Payments may
      represent an advance or instalment of the two hundred million dollars
      ($200,000,000) referenced in Section 2.3(1).

(3)   Subject to the provisions of Section 2.3(2), at each Facility/Design
      Closing, the relevant Designated Purchaser shall pay by wire transfer, to
      the Seller or applicable Designated Seller as the case may be, an amount
      equal to twenty-five percent (25%) of (i) the applicable Facility/Design
      Estimated Net Assets Value, plus (ii) the applicable Cash Flow Payment
      Amount referenced for such Facility/Design Closing in Schedule 2.3(2)
      (collectively the "INITIAL PAYMENT"). Thereafter, subject to appropriate
      adjustments to the Facility/Design Purchase Price for each Facility/Design
      Closing pursuant to the provisions of Section 2.4, Section 7.2 and Section
      7.3, the Purchaser shall pay, or cause to be paid, to Seller (which
      Seller will accept on behalf of itself and/or the relevant Designated
      Seller) the amount of (i) the applicable Facility/Design Estimated Net
      Assets Value, plus (ii) the applicable Cash Flow Payment Amount referenced
      for such Facility/Design Closing in Schedule 2.3(2), less the Initial
      Payment (the "REMAINING CLOSING AMOUNT") in three (3) equal instalments
      according to the following payment schedule:



    PAYMENT AMOUNT                               PAYMENT DUE DATE
    --------------                               ------------------
                                  
1/3 of Remaining Closing Amount      Applicable Closing Date + 91 days

1/3 of Remaining Closing Amount      Applicable Closing Date + 181 days

1/3 of Remaining Closing Amount      Applicable Closing Date + 271 days


      Notwithstanding the above, for any applicable Facility/Design Closing
      that occurs on or after May 1, 2005, the amount of the Initial Payment
      shall be one-third (1/3) of the (i) the applicable Facility/Design
      Estimated Net Assets Value, plus (ii) the applicable Cash Flow Payment
      Amount referenced for such Facility/Design Closing in Schedule 2.3(2),
      and the Remaining Closing Amount shall be paid in two (2) equal
      instalments according to the following payment schedule:

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    PAYMENT AMOUNT                               PAYMENT DUE DATE
    --------------                               ------------------
                                  
1/2 of Remaining Closing Amount      Applicable Closing Date + 91 days

1/2 of Remaining Closing Amount      Applicable Closing Date + 181 days


      The obligation to pay each Remaining Closing Amount in respect of each
      Facility/Design Closing shall be evidenced by a Promissory Note.

      All payments made pursuant to this Section 2.3 shall be made in the
      currency referenced in the applicable VSHA, or otherwise in United
      States dollars.

      Notwithstanding the above, the amount of each outstanding quarterly
      payment for each Facility/Design Closing will be adjusted up or down, as
      the case may be, to reflect any adjustments to the Facility/Design
      Purchase Price, if any, required pursuant to the provisions of Section
      2.4, Section 7.2 and Section 7.3 of this Agreement.

(4)   Allocation of Purchase Price.

      (a)   The Seller and the Purchaser have allocated on a preliminary basis,
            each Facility/Design Purchase Price, for each Facility and the
            Design Operations as set forth in Schedule 1.1.

      (b)   Such allocations shall be finalized, in accordance with the
            preliminary allocations methodology, as promptly as practicable
            following the last Closing Date, but in any event not later than
            ten (10) Business Days following the final determination of the
            Purchase Price pursuant to Section 2.4.

      (c)   The Seller and the Purchaser hereby agree to execute and file or
            cause to be executed and filed all relevant Tax Returns and prepare
            or cause to be prepared all financial statements, returns and other
            instruments on the basis of the allocations referred to in Section
            2.3(1). None of the Seller, the Designated Sellers, the Purchasers
            or the Designated Purchasers shall take any position on any Tax
            Return, before any Government Entity charged with the collection of
            any Tax, or in any judicial proceeding that is inconsistent with
            the allocation of the Purchase Price established pursuant to Section
            2.3(1).

      (d)   Except as otherwise provided in this Agreement, neither the
            Purchaser nor any of the Designated Purchasers, nor the Seller nor
            any of the Designated Sellers, if applicable, shall be responsible
            for any Tax liability or any other expense of, in the case of the
            Purchaser or any Designated Purchasers, the Seller or any Designated
            Seller and, in the case of the Seller or any Designated Seller, the
            Purchaser or any

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            Designated Purchaser, resulting from the reporting and allocations
            made by such Party as contemplated by Section 2.3(1).

SECTION 2.4 ADJUSTMENT OF PURCHASE PRICE.

(1)   Physical Count and Inspection. Within seven (7) calendar days before each
      Facility/ Design Closing, the Seller or Designated Seller, as the case may
      be, shall take a physical count and inspection of the Facility/ Design
      Assets, as of the Effective Date in accordance with a mutually agreed
      upon procedure for conducting such physical count and inspection, to
      confirm the amount of each item of Facility/ Design Assets and their
      conformity to any criteria set forth in this Agreement. Representatives of
      the Purchaser or the Designated Purchaser, as the case may be, will be
      entitled to participate in all aspects of such physical count and
      inspection. The Closing Statement of Assets and Liabilities shall, in
      respect of the Aggregate Asset Amount, reflect the results of each of the
      physical counts of the Assets in respect of each Facility and the Design
      Operations, as the case may be, as contemplated in this Section 2.4(1).

(2)   Closing Statement of Assets and Liabilities. Within sixty (60) days
      following the Closing Date for each Facility/ Design Closing, the Seller
      shall prepare and submit to the Purchaser in accordance with the form set
      out in Schedule 1.1 a final statement of the Facility/ Design Estimated
      Net Asset Value, including Assets acquired, and Assumed Liabilities
      assumed, at such Closing as at the applicable Closing Date (the "CLOSING
      STATEMENT OF ASSETS AND LIABILITIES"), which shall contain specific lists
      of Assets and Assumed Liabilities and shall be prepared (i) from the books
      and records maintained by the Seller or the Designated Sellers, as the
      case may be, in connection with the Operations (to the extent consistent
      with clauses (ii) and (iii) below ); (ii) reflecting the results of the
      physical inspections contemplated by Section 2.4(1) and any variances
      therein from the information set forth in the Facility/ Design Net Asset
      Statement, and (iii) in accordance with the definitions, guidelines and
      assumptions set forth in Section 1.1(79), this Section 2.4(2) and
      elsewhere in this Agreement. The Closing Statement of Assets and
      Liabilities shall fairly present the aggregate Facility/ Design Closing
      Net Assets Value in accordance with the terms of this Agreement. Provided
      the Closing Statement of Assets conforms to the requirements set forth in
      Section 1.1(79), the preparation and examination of the Closing Statement
      of Assets and Liabilities is not intended to permit the introduction of
      different judgments, accounting methods, policies, practices, procedures,
      classifications or estimation methodology for purposes of determining the
      asset and liability balances from those used in the Facility/ Design Net
      Asset Statement. Each Party shall provide the other Party and its
      representatives with access (on reasonable prior notice) to all relevant
      books and records and relevant personnel during the preparation of each
      Closing Statement of

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      Assets and Liabilities and the resolution of any disputes that may arise
      under this Section 2.4.

(3)   Review of the Closing Statement of Assets and Liabilities. The Purchaser
      and its representatives shall have sixty (60) days following receipt of
      the Closing Statement of Assets and Liabilities in which to review and
      examine the Closing Statement of Assets and Liabilities and all accounting
      procedures, books, records and work papers used in the preparation of the
      Closing Statement of Assets and Liabilities and to verify the accuracy,
      presentation and other matters related to the preparation of the Closing
      Statement of Assets and Liabilities and the conformity of the Facility/
      Design Estimated Net Assets Value to the terms of Section 1.1(79). If the
      Purchaser determines that the Closing Statement of Assets and Liabilities
      (a) does not fairly present any items on such Closing Statement of Assets
      and Liabilities or reflects a value for any assets or liabilities that
      does not conform to the terms of Section 1.1(79) or includes any Excluded
      Assets or Excluded Liabilities, or excludes any Assets or Assumed
      Liabilities, the Purchaser shall have the right to propose any adjustment
      thereto within such sixty (60) day period. Any such proposed adjustment
      (an "ADJUSTMENT REQUEST") shall be submitted by the Purchaser to the
      Seller within such sixty (60) day period and shall specify (i) the
      amount(s) of the Adjustment Request; (ii) the item(s) to which such
      Adjustment Request relates; and (iii) the facts and circum stances
      supporting such Adjustment Request. Subject to any intentional
      misrepresentation and/or fraud, unless the Purchaser notifies the
      Seller within such sixty (60) day period that it objects to the Closing
      Statement of Assets and Liabilities, such Closing Statement of Assets and
      Liabilities shall be binding upon the Seller and the Purchaser. After the
      end of such sixty (60) day period, the Purchaser may not introduce
      additional disagreements with respect to any item in the Closing Statement
      of Assets and Liabilities or increase the amount of any disagreement, and
      any item not so identified shall be deemed to be agreed to by the
      Purchaser and will be final and binding upon the Parties. Similarly, a
      disagreement by the Purchaser does not provide any right to the Seller to
      introduce any changes to the Closing Statement of Assets and Liabilities
      not directly related to the disputed item. To the extent that a
      disagreement relates to an error in the Closing Statement of Assets and
      Liabilities and a similar error also exists in the Facility/Design Net
      Asset Statement, then, to the extent that such disagreement is determined
      to be an error, the error in the Closing Statement of Assets and
      Liabilities and the error in the Facility/Design Net Asset Statement
      shall both be corrected in determining the adjustment under Section
      2.4(4). The Seller and the Purchaser shall use their commercially
      reasonable efforts for forty-five (45) Business Days following the
      Seller's receipt of any Adjustment Request to agree upon any proposed
      adjustments to the Closing Statement of Assets and Liabilities

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      at issue. If the Purchaser and the Seller, each acting reasonably and in
      good faith, are unable to resolve all disagreements properly identified by
      the Purchaser pursuant to this Section 2.4(3) within such period, then the
      disputed matters shall be submitted to a mutually agreed upon expert from
      one of the nationally recognized firms of certified public accountants in
      the United States of America that is not the independent auditor of either
      Party (the "INDEPENDENT ACCOUNTANT") for resolution. The Independent
      Accountant will only consider those items and amounts set forth in the
      Closing Statement of Assets and Liabilities as to which the Purchaser and
      the Seller have disagreed within the time periods and on the terms
      specified above, and must resolve the matter in accordance with the terms
      and provisions of this Agreement. The Independent Accountant shall deliver
      to the Purchaser and the Seller, as promptly as practicable and in any
      event within one hundred and twenty (120) days after its appointment, a
      written report setting forth the resolution of any such disagreement
      determined in accordance with the terms of this Agreement. The Independent
      Accountant shall select as a resolution the position of either the
      Purchaser or the Seller for each item of disagreement (based solely on
      presentations and supporting material provided by the Parties and not
      pursuant to any independent review) and may not impose an alternative
      resolution. The Independent Accountant's determination shall be final and
      binding on the parties. The fees, costs and expenses of the Independent
      Accountant relating to this Section 2.4(3) shall be paid as set forth in
      Section 9.27.

(4)   Adjustment and Payment Procedures. If the Facility/Design Closing Net
      Assets Value set forth on the Closing Statement of Assets and Liabilities,
      as finally determined pursuant to Section 2.4(3), exceeds the
      Facility/Design Estimated Net Assets Value, the Purchase Price shall be
      increased dollar for dollar by the amount of such excess and the Purchaser
      shall pay (as noted below in this Section 2.4(4)) to the Seller on behalf
      of itself and any applicable Designated Sellers the amount of such excess.
      If the value of the Facility/Design Closing Net Assets Value set forth on
      the Closing Statement of Assets and Liabilities, as finally determined
      pursuant to Section 2.4(3), is less than the Estimated Net Assets Value,
      the Purchase Price shall be decreased dollar for dollar by the amount of
      such deficit and the Seller shall pay (as noted below in this Section
      2.4(4)) to the Purchaser the amount of such deficit. Once determination of
      the Facility/Design Closing Net Assets Value is deemed final in accordance
      with Section 2.4(3), any amounts payable pursuant to this Section 2.4(4)
      shall be made by adjusting the outstanding quarterly payment amounts of
      the Purchase Price, if any, owing to the Seller pursuant to the provision
      of Section 2.3. If no amounts remain owing pursuant to the provisions of
      Section 2.3, such amount shall be paid forthwith by the applicable Party
      to the other by wire transfer.

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Section 2.5 The Closings

(1)   Except to the extent otherwise provided in the applicable Local Sale
      Agreement, each closing of the purchase and sale of the Facility/Design
      Assets and the assumption of the Facility/Design Assumed Liabilities (each
      a "Facility/Design Closing" or a "Closing" and collectively with all
      Facility/Design Closings, the "Closings") shall take place at the offices
      of Stikeman Elliott LLP in Toronto, Ontario (or such other place as may be
      agreed by the Seller and the Purchaser) commencing at noon local time on
      the applicable Closing Date, with effect as of the Effective Time for such
      Closing (subject to satisfaction or waiver in writing by the Purchaser
      and the Seller of their respective conditions of such Facility/Design
      Closing set forth in Section 8.1 and Section 8.2 and the relevant Local
      Asset Sales Agreement) or as soon thereafter as practicable after the
      satisfaction or waiver in writing by the Purchaser and the Seller of their
      respective conditions relating to such Facility/Design Closing set forth
      in Section 8.1 and Section 8.2 and the relevant Local Asset Sales
      Agreement, or on such other date as shall be mutually agreed upon by the
      Purchaser and the Seller. As of the date of this Agreement, the Parties
      anticipate that the Closing for the Design Operations and the Montreal BAN
      1 Facility, Montreal BAN 3 Facility, and Montreal OPTO 1 Facility will
      occur on or about November 1, 2004, the Closing for the Calgary Westwinds
      Facility will occur on or about February 1, 2005, and the Closing for the
      Chateaudun Facility, the Monkstown Facility (other than Design
      Operations) and for repair Operations and logistics Operations that are
      not located at a Facility, will occur on or about May 1, 2005. The Parties
      presently intend that the Design Operations will all be transferred at the
      same Closing.

(2)   At each Facility/Design Closing:

      (a)   the Purchaser shall deliver, or cause to be delivered, to the
            Seller as agent for the Designated Seller, the Facility/Design
            Purchase Price as determined in accordance with Section 2.3(1);

      (b)   each Primary Party shall deliver to the other Primary Party
            customary reasonable evidence of the due fulfillment or waiver
            of each of the conditions to performance of its obligations set
            forth in Section 8.1 and Section 8.2, as the case may be, with
            respect to such Facility/Design Closing;

      (c)   the Seller shall, and shall cause the relevant Designated Sellers
            to, and the Purchaser shall, and shall cause the relevant Designated
            Purchasers to, enter into and perform their respective obligations
            to be

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            performed at such Facility/Design Closing under the relevant Local
            Sale Agreement to which such Facility/Design Closing relates;

      (d)   subject to and on the terms and conditions set forth in this
            Agreement, the relevant Local Sale Agreement, and in accordance with
            applicable Laws, the Purchaser shall deliver, or cause to be
            delivered, to the Seller and the relevant Designated Seller
            instruments of assumption in form and substance reasonably
            satisfactory to the Seller and its counsel evidencing and effecting
            the assumption by the Purchaser or its Affiliates of the
            Facility/Design Assumed Liabilities to be assumed by the Purchaser
            and the relevant Designated Purchaser at such Facility/Design
            Closing and such other documents as are specifically required by
            this Agreement, any other Transaction Document or applicable Law (it
            being understood, however, that such instruments shall not require
            the Purchaser, its Affiliates or any other Person to make any
            additional representations, warranties or covenants, express or
            implied, not contained in this Agreement or the relevant Local Sale
            Agreement); and

      (e)   subject to and on the terms and conditions set forth in this
            Agreement, the relevant Local Sale Agreement and in accordance with
            applicable Laws, the Seller shall deliver or cause to be delivered
            to the Purchaser or the relevant Designated Purchaser such
            appropriately executed instruments of sale, assignment, transfer and
            conveyance in form and substance reasonably satisfactory to the
            Purchaser and its counsel evidencing and effecting the sale and
            transfer to the Purchaser or the relevant Designated Purchaser of
            the Facility/Design Assets to which such Facility/Design Closing
            relates (it being understood, however, that such instruments shall
            not require the Seller or any other Person to make any additional
            representations, warranties or covenants, express or implied, not
            contained in this Agreement or the relevant Local Sale Agreement).

SECTION 2.6 PERSONAL COMPUTERS

(1)   Seller or the Designated Seller lease certain of the PCs and ancillary
      equipment used by the Employees in the Operations (collectively, the
      "LEASED PC EQUIPMENT"). The Parties agree that these PCs and ancillary
      equipment are not intended to form part of the Facility/Design Assets.
      The temporary use by the Purchaser and the Designated Purchaser, as the
      case may be, following the applicable Closing Date of Leased PC Equipment
      shall be governed by the Shared Services Agreement.

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(2)   The Parties acknowledge the Purchaser and its Affiliates may, but shall
      not be obligated to, contract with the lessors of such Leased PC Equipment
      for the purchase or continued use of such equipment following the expiry
      of the Shared Services Agreement.

(3)   Schedule 2.6 lists and separately identifies each piece of Leased PC
      Equipment used in the Operations. No later than (30) days prior to the
      termination of the applicable "SSA Period" (as that term is defined in the
      Shared Services Agreement), the Purchaser shall be entitled to request
      that (i) Seller approach the lessor(s) and negotiate on behalf of
      Purchaser or a Designated Purchaser, either a buyout of such equipment (in
      which case such equipment shall be deemed to Owned Equipment and
      transferred pursuant to the terms of this Agreement as part of the
      transfer of the Facility/Design Assets for the applicable Facility or the
      Design Operations, as the case may be); or (ii) the assignment in whole or
      in part, and assumption by the Purchaser of the applicable lease
      agreements, in which case Seller or the applicable Designated Seller shall
      use commercially reasonable efforts to achieve either (i) or (ii) above,
      as requested by Purchaser, and in the case of clause (i) shall make any
      buy-out payments required under the terms of the applicable lease to be
      provided to any applicable lessor. In respect of the Leased PC Equipment
      listed on Schedule 2.6 for which title or the lease in respect thereof is
      to be transferred, when and if the Seller is able to transfer, or to cause
      to be transferred, title to such equipment or the lease in respect thereof
      to the Purchaser or the relevant Designated Purchasers, the Seller will
      notify the Purchaser of the proposed transfer date (the "TRANSFER DATE" )
      and the value (the "TRANSFER VALUE" ) in the case of a buyout of Leased PC
      Equipment so being transferred (which amount will be provided by the
      lessor of such equipment). Upon receipt of such notification, the
      Purchaser or relevant Designated Purchasers shall promptly advise the
      Seller whether it wishes to buy out the Leased PC Equipment and, if it
      wishes to make such a buy out, upon receipt of a bill of sale from the
      Seller evidencing transfer of title of such Leased PC Equipment, the
      Purchaser agrees to pay to the Seller as agent for the relevant Designated
      Seller on the relevant Transfer Date, (in immediately available funds in
      the currency of the applicable equipment contract), the Transfer Value of
      the Leased PC Equipment being transferred (and any applicable Transfer
      Taxes arising out of either the purchase of Leased PC Equipment by the
      Seller or any of its Affiliates or out of the transfer of such Leased PC
      Equipment to the Purchaser or the relevant Designated Purchaser hereunder)

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                                    ARTICLE 3
                 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

      The Purchaser hereby represents and warrants to the Seller that as of the
date of the Agreement (or, if made as of a specified date, as of such date):

SECTION 3.1 ORGANIZATION AND CORPORATE POWER

(1)   The Purchaser is a corporation organized and validly existing under the
      laws of Mauritius. Each Designated Purchaser is a corporation organized
      and validly existing under the laws of the jurisdiction identified next to
      such entity on Schedule 1.1. Each of the Purchaser and the Designated
      Purchasers has the requisite corporate power and authority to enter into,
      deliver and perform its obligations pursuant to each of the Transaction
      Documents to which it is or will become a Party.

(2)   The Purchaser is, and each of the Designated Purchasers is or on the
      relevant Closing Date will be, qualified to do business as contemplated
      by this Agreement and the Transaction Documents and to own or lease and
      operate its properties and assets, including the Assets or the relevant
      Facility/Design Assets, as applicable, except to the extent that the
      failure to be so qualified would not have a material adverse effect on the
      Purchaser's business.

SECTION 3.2 AUTHORIZATION; BINDING EFFECT; NO BREACH

(1)   The execution, delivery and performance of each Transaction Document to
      which the Purchaser or any of the Designated Purchasers is, or on the
      Closing Date will be, a Party have been duly authorized by the Purchaser
      and the relevant Designated Purchaser, as applicable. Each Transaction
      Document to which the Purchaser or a Designated Purchaser is a Party
      constitutes, or upon execution thereof will constitute, a valid and
      binding obligation of the Purchaser or the Designated Purchaser, as
      applicable, enforceable against such Person in accordance with its
      respective terms, except as such enforcement may be limited by applicable
      bankruptcy, insolvency, reorganization and other similar Laws affecting
      generally the enforcement of the rights of contracting Parties, by
      provision of Laws regarding the currency of judgments, and subject to a
      court's discretionary authority with respect to the granting of a decree
      ordering specific performance or other equitable remedies.

(2)   Except as set forth in Schedule 3.2(2), the execution, delivery and
      performance by each of the Purchaser and the Designated Purchasers of the
      Transaction Documents to which the Purchaser or such Designated Purchaser
      is, or on the Closing Date will be, a Party do not and will not conflict
      with or result in a breach of the terms, conditions or provisions of,
      constitute a default under, result in a violation of, or require any
      authorization, consent,

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      approval, exemption or other action by or declaration or notice to any
      third Person pursuant to (i) the articles, charter or by-laws of the
      Purchaser or the relevant Designated Purchaser, (ii) any material
      agreement, instrument, or other document to which the Purchaser or the
      relevant Designated Purchaser is a party or to which any of its assets is
      subject or (iii) any Laws to which the Purchaser, the Designated
      Purchaser, or any of their assets is subject, except, in the case of (ii)
      and (iii) above, for such defaults, violations, actions and notifications
      that would not individually or in the aggregate materially hinder or
      impair the performance by the Purchaser or the Designated Purchasers of
      any of their obligations under any Transaction Document.

SECTION 3.3 TAX

      Each of the Purchaser and the relevant Designated Purchasers is registered
as follows:

      (a)   Flextronics (Canada) Inc. is registered for purposes of the GST
            legislation under registration number 859098303-RT0001, the Retail
            Sales Tax Act (Ontario) under registration number 4949-4287, the Act
            respecting the Quebec Sales Tax and regulations thereunder under
            registration 1207205032-TQ0001, and under any other similar
            legislation (including value added legislation) in any other
            jurisdiction of Canada where the Assets which it is purchasing are
            located .

      (b)   Flextronics U.K. is registered for VAT in the United Kingdom under
            registration number 692231046.

      (c)   Flextronics France is registered for VAT in France under
            registration number 435 168 091 00013.

      (d)   Flextronics U.S. is registered for Tennessee sales tax in the United
            States.

SECTION 3.4 LITIGATION

      There is no Action involving or affecting the Purchaser or any Designated
Purchaser that seeks to enjoin, prevent, alter or delay any of the transactions
contemplated by the Transaction Documents before any Government Entity or
arbitration tribunal and, to the Purchaser's Knowledge, no such Action has been
threatened in writing.

SECTION 3.5 FINANCIAL CAPABILITY

      Each of the Purchaser and the Designated Purchasers has and will have on
each Closing Date and at all times thereafter, sufficient funds available or
financing in place to consummate the transactions contemplated by this Agreement
and the other Transaction Documents and to fulfill all of such Persons'
respective obligations

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hereunder and thereunder as such obligations become due, including the purchase
of the Assets or the Facility/ Design Assets and the assumption of the Assumed
Liabilities or the Facility/ Design Assumed Liabilities, as applicable.

SECTION 3.6 PURCHASER'S EMPLOYEE PLANS

      Schedule 3.6 contains a complete and accurate list of all Purchaser's
Employee Plans. The Purchaser has provided the Seller with a true and complete
copy of the plan document or summary plan description of such plan or, if such
plan document or summary plan description does not exist, an accurate written
summary of such Purchaser's Employee Plans. No promises or commitments have been
made by the Purchaser or the Purchaser's Affiliates to amend materially or
terminate any of Purchaser Employee Plans, to decrease materially the
compensation or benefits thereunder or to establish new Purchaser's Employee
Plans, except as required by Law, or as disclosed in the applicable plan
document, summary plan description, written summary or other written document
provided by the Purchaser to the Seller. Purchaser's Employee Plans are
administered in all material respects in accordance with their terms and the
Purchaser and the Designated Purchaser meet their obligations in all materials
respects with respect to Purchaser's Employer Plans. The Purchaser and the
Designated Purchaser maintain and perform under Purchaser's Employee Plans in
material compliance with all applicable Laws. Except as set forth in Schedule
3.6, there are no Actions pending (except claims for benefits payable in the
normal operations of Purchaser's Employee Plans) against or involving the
Purchaser's Employment Plans or asserting any rights or claims to benefits under
Purchaser's Employee Plans, or Purchaser, to the Purchaser's Knowledge, Actions
involving Purchaser's Employee Plans that have or could be expected to have,
either individually or in the aggregate, a material effect. None of the
Purchaser's Employee Plans contain any provision for any of the benefits
thereunder to vest, other than vesting of exercisability under Purchaser's stock
option plan and vesting under pension plans established in accordance with
Exhibits D-1, D-3 and D-5.

SECTION 3.7 LABOUR MATTERS

      Other than the general collective labour agreement (metullargie)
applicable to the Purchaser's and Designated Purchasers' employees in France,
neither Purchaser nor any Designated Purchaser is a party to or bound by any
collective bargaining agreement that shall apply to the terms and conditions of
employment of Transferring Employees at the Employment Transfer Date.

SECTION 3.8 COMPLIANCE WITH LAWS

      Each of the Purchaser and the Designated Purchasers is in compliance with
all applicable Laws, except where failure to so comply, individually or in the
aggregate, does not have a material adverse effect on the business, operations
or financial condition of the Purchaser.

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                                    ARTICLE 4
                  REPRESENTATIONS AND WARRANTIES OF THE SELLER

      The Seller hereby represents and warrants to the Purchaser that as of the
date of this Agreement (or, if made as of a specified date, as of such date):

SECTION 4.1 ORGANIZATION AND CORPORATE POWER

(1)   The Seller is organized and validly existing under the Laws of Canada.
      Each Designated Seller is a corporation organized and validly existing
      under the laws of the jurisdiction identified next to such entity on
      Schedule 1.1. The Seller has, and each of the Designated Sellers shall
      have at the applicable Facility/ Design Closing, the requisite corporate
      power and authority to enter into, deliver and perform its obligations
      pursuant to each of the Transaction Documents to which it is or will
      become a Party.

(2)   Each of the Seller and the Designated Sellers is qualified to do business
      and to own and operate its assets, including the Assets or the
      Facility/ Design Assets, as applicable in each jurisdiction in which its
      ownership of property or conduct of business relating to the Operations
      requires it to so qualify, except to the extent that the failure to be so
      qualified would not have a Material Adverse Effect.

(3)   The Seller is a direct subsidiary of Nortel Networks Corporation. None of
      the Operations are conducted by any direct or indirect Subsidiary of
      Nortel Networks Corporation other than the Seller and the Designated
      Sellers, except as disclosed in Schedule 4.1(3).

SECTION 4.2 AUTHORIZATION; BINDING EFFECT; NO BREACH

(1)   The execution, delivery and performance of each Transaction Document to
      which the Seller or any of the Designated Sellers is, or on the Closing
      Date will become, a Party have been duly authorized by the Seller, or
      shall at the applicable Closing be duly authorized by the relevant
      Designated Sellers, as applicable. Each Transaction Document to which the
      Seller or a Designated Seller is a Party constitutes, or upon execution
      thereof will constitute, a valid and binding obligation of the Seller or
      the Designated Seller, as applicable, enforceable against it in accordance
      with its terms, except as such enforcement may be limited by applicable
      bankruptcy, insolvency, reorganization and similar Law s affecting
      generally the enforcement of the rights of contracting parties, by
      provisions of the Laws regarding the currency of judgments and subject to
      a court's discretionary authority with respect to the granting of a decree
      ordering specific performance or other equitable remedies.

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(2)   Except as set forth in Schedule 4.2(2), the execution, delivery and
      performance by each of the Seller and the Designated Sellers of the
      Transaction Documents to which the Seller or such Designated Seller is,
      or on the Closing Date will be, a Party do not and will not conflict
      with or result in a breach of the terms, conditions or provisions of,
      constitute a default under, result in a violation of, result in the
      creation or imposition of any Lien upon any of the Assets, or require any
      authorization, consent, approval, exemption or other action by or
      declaration or notice to any third Person pursuant to (i) the articles,
      charter or by-laws of the Seller or the relevant Designated Seller, (ii)
      Assumed Contracts or any other material agreement, instrument or other
      document to which the Seller or the relevant Designated Seller is a party
      or to which any of its assets is subject or (iii) any Laws to which
      the Seller, the Designated Sellers or any of the Assets are subject,
      except, in the case of (ii) and (iii) above, for such defaults,
      violations, actions and notifications that would not individually or in
      the aggregate materially hinder or impair the performance by the Seller
      or the Designated Sellers of any of their obligations under any
      Transaction Document.

SECTION 4.3 FINANCIAL INFORMATION

      Except as set forth in Schedule 4.3, each Facility/Design Net Asset
Statement was derived from books and records, maintained by Seller in
connection with the Operations, and was prepared in accordance with the
principles set forth in Section 1.1(79) and , to the extent consistent therein,
with GAAP, and fairly and accurately represents the Facility/Design Estimated
Net Assets Value of the Assets and Assumed Liabilities, in accordance with
the provisions of this Agreement, subject to any adjustments made pursuant to
Section 2.4.

SECTION 4.4 TITLE TO PERSONAL PROPERTY

      Except for the Permitted Encumbrances, other than those Permitted
Encumbrances listed on Schedule 1.1(173), the tangible Assets will be, at the
applicable Closing Date relating to such Assets, owned beneficially by the
Seller or one of the Designated Sellers, free and clear of all Liens and the
Seller or such Designated Seller shall have good and marketable title thereto.

SECTION 4.5 ABSENCE OF CERTAIN DEVELOPMENTS

      Since the date hereof for each Facility/Design Closing, except as set
forth in Schedule 4.5, the Operations have been conducted only in the ordinary
course, and :

      (a)   there has not been any change in the Operations, financial
            condition, results of operations, or Assets that, individually or in
            the aggregate, has had , or could reasonably be expected to have, a
            Material Adverse Effect;

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      (b)   neither the Operations nor the Assets has suffered any damage,
            destruction or other casualty that has had individually or in the
            aggregate, a Material Adverse Effect; and

      (c)   neither the Seller nor any of the Designated Sellers has incurred or
            agreed to incur, with respect to the Operations or the Assets, any
            liability or obligation except those incurred or agreed to be
            incurred in the ordinary course of their business and such
            liabilities and obligations have not had and could not reasonably be
            expected to have, either individually or in the aggregate, a
            Material Adverse Effect.

SECTION 4.6 COMPLIANCE WITH LAWS, PERMITS AND LICENSES

      Except as set forth in Schedule 4.6 and Schedule 4.16:

      (a)   Each of the Seller and the Designated Sellers has complied in all
            material respects with all Laws applicable to the Operations or
            the Assets.

      (b)   The Operating Permits are all the material permits, licenses,
            certificates and authorizations of, and registrations with, any
            Government Entity necessary for the Seller and the Designated
            Sellers to conduct the Operations as presently conducted, and the
            Operating Permits are in good standing and each of the Seller and
            the relevant Designated Sellers is in compliance in all material
            respects thereunder.

SECTION 4.7 TAX MATTERS

      The Seller is registered for purposes of the GST legislation under
registration number (119 409 258-RT0001), the Retail Sales Tax Act (Ontario)
under registration number 7947-0009, the Act respecting the Quebec Sales Tax
under registration number 1001830151-TQ, and under similar legislation in any
other jurisdiction where the Assets are located .

      NNTC is registered for purposes of the GST legislation under registration
number 118802974-RT0001, the Retail Sales Tax Act (Ontario) under registration
number 0274-3442, the Act respecting the Quebec Sales Tax under registration
number 1000242965-TQ.

      NNUK Limited is registered for VAT in the United Kingdom under
registration number GB 229 5608 45.

      NNSA is registered for VAT in France under registration number
FR62389516741.

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SECTION 4.8 CONTRACTS AND IS SOFTWARE

(1)   Except as set forth in Schedule 4.8, each Contract (as amended to the date
      hereof) is a valid and binding obligation of the Seller or a Designated
      Seller, as the case may be, and is in full force and effect, except as
      enforcement may be limited by applicable bankruptcy, insolvency,
      reorganization and similar laws affecting generally the enforcement of
      the rights of contracting parties, and subject to a court's discretionary
      authority with respect to the granting of a decree ordering specific
      performance or other equitable remedies and further subject to the
      Currency Act (Canada) precluding a court in Canada from awarding a
      judgment for an amount expressed in a currency other than Canadian
      dollars; and (b) no event, condition or occurrence has occurred that with
      or without notice, lapse of time or both would constitute a material
      breach or default or permit termination, material modification or
      acceleration of any Contract (other than any breach by any party other
      than Seller or any Designated Seller of which Seller has no Knowledge);

(2)   Except as set forth in Schedule 4.8, each license agreement for IS
      Software (as amended to the date hereof) is a valid and binding obligation
      of the Seller or a Designated Seller, as the case may be, and is in full
      force and effect, except as enforcement may be limited by applicable
      bankruptcy, insolvency, reorganization and similar laws affecting
      generally the enforcement of the rights of contracting parties, and
      subject to a court's discretionary authority with respect to the granting
      of a decree ordering specific performance or other equitable remedies and
      further subject to the Currency Act (Canada) precluding a court in Canada
      from awarding a judgment for an amount expressed in a currency other than
      Canadian dollars; and (b) no event, condition or occurrence has occurred
      that with or without notice, lapse of time or both would constitute a
      material breach or default or permit termination, material modification or
      acceleration of any license agreement for IS Software (other than any
      breach by any party other than Seller or any Designated Seller of which
      Seller has no Knowledge);

(3)   Schedule 1.1(37) is a true and complete list, other than employment
      contracts and IS Software, of all contracts, agreements, personal property
      leases, indentures or other legally binding arrangements hereto between
      the Seller or the Designated Sellers on the one hand, and any other Person
      other that the Seller or an Affiliate of the Seller on the other hand,
      that are used primarily in or related primarily to the conduct of the
      Operations or which are material to the conduct of the Operations (save
      and except for (i) the Company-Wide Contracts, and (ii) those contracts
      that involve payments of less than $100,000 during the current term of
      such contract);

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(4)   Schedule 1.1(37) identifies any Assumed Contracts for which the
      assignment to Purchaser or a Designated Purchaser would require the
      consent of any third Person under such Contract, or for which any such
      assignment would be ineffective, would result in the termination of such
      Contract, or would materially change any of the rights of any party
      thereunder;

(5)   Schedule 1.1(118) is a true and complete list of the software
      applications or systems owned by the Seller or licensed to the Seller or
      a Designated Seller and used in the Operations, including all of the
      Corporate Desktop Software, the Design Tools and the Excluded Business
      Applications and Transferred Business Applications;

(6)   Schedule 1.1(118) identifies any license agreements with Third Parties
      for the Transferred Business Applications for which the assignment to
      Purchaser or a Designated Purchaser requires the consent of any third
      person under such licence, or for which any such assignment would be
      ineffective, would result in the termination of such license, or would
      materially change any of the rights of any party thereunder;

(7)   neither the Seller nor any of the Designated Sellers has been notified of
      any cancellation or intention to cancel or not to renew or extend any
      Assumed Contract or any license agreement for any Transferred Business
      Application;

(8)   except to the extent indicated on Schedule 1.1(37) or on Schedule
      1.1(118) the Purchaser has been provided with complete and correct
      copies (including all amendments) of all Assumed Contracts set forth on
      Schedule 1.1(37), a summary, accurate in all material respects, of
      certain tactical terms of all non-Assumed Contracts (subject to applicable
      confidentiality and disclosure limitations) and all license agreements
      with third parties for the Transferred Business Applications which are to
      be assigned to the Purchaser or Designated Purchaser as set forth in
      Schedule 1.1(118);

(9)   other than with respect to fees and asset forth in Schedule 4.8(9), if
      any, relating to the assignment of the Assumed Contracts and the Transfer
      Taxes, at Closing there are no fees or other payments payable by Seller in
      excess of five thousand dollars ($5,000) to any third Person under any
      of the Contracts as a result of the disposition of any of the Assets or
      the Operations, and none will become payable as a result of the
      consummation of the transactions contemplated hereby; provided , however,
      that the foregoing does not apply to fees or payments relating to
      the buy-out of Leased Equipment as may be requested by Purchaser or a
      Designated Purchaser; and except as disclosed on Schedule 4.8(10), there
      are no rights or licenses granted to Seller or a Designated Seller under
      any of the Company-Wide Contracts, which are

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      material to the purchasing of Inventory or the maintenance of Equipment or
      obtaining of temporary employees used in the Operations.

SECTION 4.9 INTELLECTUAL PROPERTY RIGHTS

(1)   Except as disclosed on Schedule 4.9(1), the Seller has no Knowledge of
      any other agreement or obligation, written or oral, relating to
      Intellectual Property of the Seller or any Designated Seller, whether
      owned or licensed , that is material to the use and enjoyment of the Owned
      Equipment as of Closing.

(2)   Except as disclosed on Schedule 4.9(2), the Seller has no Knowledge of
      any claims made in writing to the Seller or any of its Affiliates during
      the past two (2) years that the Seller's or any of its Affiliates'
      use of the Owned Equipment or the software applications being licensed to
      the Purchaser or Designated Purchasers pursuant to the Nortel Proprietary
      Software License Agreement infringes any Intellectual Property right of
      any Third Party.

(3)   Except as disclosed on Schedule 4.9(3), the Seller has no Knowledge that
      the use of the Owned Equipment in the operation of the Operations as of
      the relevant Closing Date infringes upon or violates the intellectual
      property rights of any Third Party.

SECTION 4.10 LITIGATION

      Except as disclosed in Schedule 4.10, there is no Action pending before
any Government Entity or arbitration tribunal involving or affecting the
Operations or Assets, or that seeks to enjoin, prevent, alter or delay any of
the transactions contemplated by the Transaction Documents, and, to the Seller's
Knowledge, no such Action has been threatened in writing.

SECTION 4.11 EMPLOYEE PLANS

(1)   Schedule 4.11(1) contains a complete and accurate list of all Seller's
      Employee Plans. The Seller has provided the Purchaser with a true and
      complete copy of the current plan document and summary plan description of
      each of Seller's Employee Plans or, if such plan document or summary plan
      description does not exist, an accurate written summary of Seller's
      Employee Plans. No promises or commitments have been made by the Seller or
      any Affiliates of the Seller to materially amend or terminate any of
      Seller's Employee Plans, to increase materially, or decrease materially,
      the compensation or benefits thereunder or to establish new Seller's
      Employee Plans, except as required by applicable Law (as disclosed in
      Schedule 4.11(1)) or as disclosed in the applicable plan document, summary
      plan description, written summary or other written document provided by
      the Seller to the Purchaser. Seller's Employee Plans have been
      administered in all material respects in accordance with their terms and
      the Seller and the Seller's

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      Affiliates have met their obligations in all material respects with
      respect to Seller's Employee Plans. The Seller and the Seller's Affiliates
      maintain and perform under Seller's Employee Plans in material compliance
      with all applicable Laws.

(2)   Except as disclosed in Schedule 4.11(2), there are no Actions pending
      (except claims for benefits payable in the normal operation of Seller's
      Employee Plans) against or involving Seller's Employee Plans or asserting
      any rights or claims to benefits under Seller's Employee Plans, or, to the
      Seller's Knowledge, Actions involving Seller's Employee Plans that have or
      could reasonably be expected to have, either individually or in the
      aggregate, a material effect.

SECTION 4.12 EMPLOYEE MATTERS

(1)   Schedule 4.12(1) is an accurate and complete list as of the date hereof
      and, when updated in accordance with Section 5.1(3), will be an accurate
      and complete list of Employees, setting forth with respect to each
      Employee: (i) name, (ii) home address (except with respect to UK and
      France Employees), (iii) work location, (iv) continuous service date, (v)
      local service date, where applicable, (vi) job title, (vii) JCI (Job
      Complexity Indicator), (viii) annual base salary (in local currency), (ix)
      last pay review date, (x) target incentive compensation (SUCCESS), (xi)
      any other compensation or allowances, including, but not limited to, pay
      premium, expat provisions, reimbursement, relocation, etc., (xii) Capital
      Accumulation and Retirement Plan (CARP) participation, (xiii) language
      preference (Quebec and France, and (xiv) regular full-time (" RFT" ),
      regular part time (" RPT" ) or co-op, as applicable, and (xv) Skilled
      Trade Employee indicator, and (xvi) Collective Labour Agreement
      identifier. With respect to the data set forth in Schedule 4.12(1),
      including any updates thereto pursuant to Section 5.1(3), the Purchaser
      undertakes that such personal data shall be held in confidence and that
      until the applicable Closing with respect to the country in which such
      Employee is employed ;

      (a)   the Purchaser and its Affiliates shall restrict the disclosure of
            such personal data to such of its employees, agents and advisors
            as is necessary for the purposes of complying with its obligations
            pursuant to the Transaction Documents prior to Closing, including
            Section 5.3 of this Agreement;

      (b)   such personal data shall not be disclosed to any other Person
            (including, for the avoidance of doubt, any other employee of
            the Purchaser or any Purchaser Affiliate) without the consent of
            the Seller, such consent not unreasonably to be withheld ; and

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      (c)   such personal data shall not be used save for the purposes of
            complying with the Purchaser's obligations pursuant to the
            Transaction Documents, and shall be returned to the Seller or
            destroyed if this Agreement is terminated.

      Save for the Key Employees, it is agreed that as a result of data privacy
      requirements in Europe, the name of each of the UK Employees and France
      Employees shall not be disclosed until the appropriate time in the
      information and consultation process.

(2)   Except as set forth in Schedule 4.12(2), there has not been for a period
      of twelve (12) consecutive months prior to the date hereof, nor is there
      existent or, to the Knowledge of the Seller, threatened, any strike,
      slowdown, picketing or work stoppage by Employees.

(3)   Except as set forth in Schedule 4.12(3), the Seller and each of the
      Designated Sellers is, to the Seller's Knowledge, in material compliance
      with all Laws applicable to the employment of the Employees. Except as set
      forth in Schedule 4.12(3), there are no Actions related to the employment
      of the Employees pending against the Seller or the Designated Seller and,
      to the Seller's Knowledge, no such Actions have been threatened in
      writing.

(4)   All Employees on leave approved by the Seller or Designated Sellers,
      including, but not limited to, parental or pregnancy leave, or leave
      related to receipt of short-term disability benefits or workers'
      compensation benefits, are identified in Schedule 4.12(4) (collectively, "
      LEAVE EMPLOYEES" ), along with the type of leave and their expected date
      of return to work, if known, and the information set forth on such
      Schedule is in relation to the names of the Leave Employees, or, to the
      Seller's Knowledge in all other respects, accurate.

(5)   All Operations employees in Canada and the U.S. who are on long-term
      disability leave approved by Seller or Designated Sellers, and associated
      information, are identified in Schedule 4.12(5) (collectively "LONG-TERM
      DISABILITY LEAVE EMPLOYEES" ), and is in relation to the names of the
      Long-Term Disability Leave Employees, or, to the Seller's Knowledge in all
      other respects, accurate.

(6)   Except as set forth in Schedule 1.1(33), there are no collective
      bargaining agreements covering any Employees and save and except as set
      forth in Schedule 4.12(6), no petition or proceedings are pending before
      any Government Entity seeking either recognition of a bargaining
      representative with respect to such Employee or to include any Employee
      within the bargaining unit, and, to Seller's Knowledge, no organizational
      effort is

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      currently being made or threatened by or on behalf of any labour union
      to organize any Employees.

(7)   All Employees currently on a work authorization or visa approved by a
      Government Entity in accordance with applicable Laws concerning
      immigration are identified in Schedule 4.12(7) (collectively " VISA
      EMPLOYEES" ), along with the type of work authorization and expiration
      date.

(8)   Except as set forth in Schedule 4.12(8), (i) there are no outstanding
      assessments, penalties, fines, levies, charges, surcharges or other
      amounts due or owing pursuant to any applicable workers' compensation
      Laws in respect of the Operations or Employees; and (ii) the Seller has no
      Knowledge of any audit of the Operations currently being performed
      pursuant to any applicable workers' compensation Law.

(9)   Schedule 4.12(9), which is a Pre-Closing Schedule, is an estimate and when
      updated by Seller as of the applicable Closing Date, in accordance with
      Section 2.4(2) herein, will be an accurate and complete list of each
      Employee's accrued and unused vacation and vacation accrual rate.

(10)  Schedule 4.12(10) is an accurate and complete list of Design Employees,
      Repair Employees and Logistics Employees, as such schedule may be updated
      at or immediately prior to the applicable Employment Transfer Date.

(11)  Schedule 4.12(11) is an accurate and complete copy of the Collective
      Labour Agreement between the Seller and CUCW as in effect on the date
      hereof.

(12)  The data elements listed in Schedule 4.12(1)(viii), (x) and (xi) are all
      of the material elements of compensation relating to Employees. All other
      data elements of compensation relating to the Employees have been provided
      to the Purchaser by the Seller.

(13)  Seller represents that human resources recruitment practices in the United
      States include background checks. Except as set forth in
      Schedule 4.12(13), to Seller's Knowledge no U.S. Employee has a job-
      related felony conviction.

SECTION 4.13 RESIDENCE

      Each of the Seller and NNTC is a resident of Canada for the purposes of
the ITA. None of the Assets to be purchased by the Purchaser under this
Agreement, which are sold by any other Designated Seller is taxable Canadian
property as that term is defined for purposes of the ITA.

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SECTION 4.14 INSURANCE

      The Seller and the Designated Sellers maintain adequate insurance with
respect to the Assets and the Operations. The Seller and the Designated Sellers
are not to Seller's Knowledge in default of any material obligation pursuant to
any of the insurance policies.

SECTION 4.15 INVENTORY

(1)   Except as set forth in Schedule 4.15, the Inventory has been acquired in
      the ordinary course of business. Save and except for the Bonepile
      Inventory and components dealt with in accordance with the provisions of
      Section 5.15(2)(b), the Inventory forming part of the Assets is at the
      Closing useable and saleable to, the Seller or Designated Sellers, in the
      ordinary course of business. The Inventory is forecasted to be used in the
      twelve (12) months immediately following the applicable Closing Date based
      on the Seller's forecasts of orders to be fulfilled (which forecast is set
      forth in Schedule 4.15(1) which is to be provided on the relevant
      Facility/ Design Closing Date); provided, however, that all Inventory not
      forecasted to be used in twelve (12) months from Closing by the Purchaser
      will be managed by Purchaser on a consignment basis, the terms and
      conditions of which are set out in the Amended and Restated Master
      Contract Manufacturing Services Agreement.

(2)   The Repair Inventory forming part of the Assets is useable by and saleable
      to, the Seller or Designated Sellers, in the ordinary course of business.
      The Repair Inventory is forecasted to be used in the twelve (12) months
      immediately following the applicable Closing Date based on the Seller's
      forecasts of orders to be fulfilled (which forecast is set forth in
      Schedule 4.15(1)) which is to be provided on the relevant Facility/ Design
      Closing Date); provided, however, that all Repair Inventory not forecasted
      to be used in twelve (12) months from Closing by the Purchaser will be
      managed by the Purchaser on a consignment basis, the terms and conditions
      of which are set out in the Repair Services Agreement.

(3)   The End of Life Inventory forming part of the Assets is useable by and
      saleable to, the Seller or Designated Sellers, in the ordinary course of
      business.

SECTION 4.16 ENVIRONMENTAL MATTERS

(1)   In accordance with Article 514-20 of the French Environmental Code, the
      Seller represents that the Chateaudun Facility includes " CLASSIFIED
      INSTALLATIONS FOR PURPOSES OF THE PRESERVATION OF THE ENVIRONMENT"
      (installations classees pour la protection de l'environnement), the
      operation of which is governed by Law n degrees 76-663 of July 19, 1976
      and Decree n degrees 77-1133 of

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      September 21, 1977. The Chateaudun Facility and the impact of the
      operation thereof on the environment are described in Schedule 4.16.

(2)   Except as set forth in Schedule 4.16 and to the Seller's knowledge, no
      Hazardous Substance or other polluting material used in or generated by
      the Operations or the Chateaudun Facility have been or are currently
      placed, used, stored, treated, manufactured, disposed of, released,
      discharged, spilled or emitted in violation of any French Environmental
      Law. Except as set forth in Schedule 4.16, all Hazardous Substances
      generated, used, handled, stored on, disposed of, removed, emitted,
      released, discharged or spilled from or treated on the Chateaudun Facility
      were and are documented, handled, transported and disposed of in
      compliance with all French Environmental Laws and Operating Permits.

(3)   Except as set forth in Schedule 4.16 and to the Seller's Knowledge, the
      Seller and the applicable Designated Seller have complied in all material
      respects with all French Environmental Laws applicable to the Operations
      at the Chateaudun Facility.

(4)   Except as set forth in Schedule 4.16, all of the installations on the
      Chateaudun Facility that were or are used for the disposal of Hazardous
      Substances or other polluting material used in or generated by the
      Chateaudun Facility have been and are properly permitted and operated in
      compliance in all material respects with all French Environmental Laws and
      Operating Permits. Except as set forth in Schedule 4.16, and to the
      Seller's Knowledge, the Chateaudun Facility has not produced and the
      Chateaudun Facility does not currently produce, any Hazardous Substance.

(5)   Except as set forth in Schedule 4.16, there have been no orders issued or,
      to the Seller's Knowledge, threatened and no investigations conducted,
      taken or, to the Seller's Knowledge, threatened under or pursuant to any
      French Environmental Laws or Operating Permits with respect to the
      Chateaudun Facility is aware other than routine inspections. Except as set
      forth in Schedule 4.16, the Seller is not aware of any circumstances or
      events that have any reasonable prospect of resulting in any claim, action
      or other proceeding with respect to Hazardous Substances or in an order or
      investigation under or pursuant to any French Environmental Laws or any
      Operating Permit.

(6)   Except as set forth in Schedule 4.16, all permits, licences, approvals,
      authorizations, consents, registrations, privileges, waivers, exemptions,
      orders, certificates, rulings, agreements or other concessions required
      under French Environmental Laws to own or operate the Chateaudun Facility
      have been obtained and all terms and conditions attached thereto have been
      and are duly complied in all material respects and all such permits,
      licences,

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      approvals, authorizations, consents, privileges, waivers, exemptions,
      orders, certificates, rulings, agreements and registrations are in full
      force and effect and in good standing.

(7)   Except as set forth in Schedule 4.16, neither the Seller nor the
      applicable Designated Seller has received any written notice or
      communication by any French Governmental Entity to the effect that it is
      not in compliance with, or is in violation of, any of such permits,
      licences, approvals, authorizations, consents, privileges, waivers,
      exemptions, orders, certificates, rulings, agreements and registrations.

(8)   Except as set forth in Schedule 4.16, there have been no Actions
      commenced or, to the Seller's Knowledge, threatened with respect to
      Chateaudun Facility pursuant to French Environmental Laws or with respect
      to Hazardous Substances.

(9)   Except as set forth in Schedule 4.16 and to the Seller's Knowledge, the
      use of, and operations relating to, the Chateaudun Facility do not
      constitute a nuisance such as would trigger the Seller's or applicable
      Designated Seller's liability in tort towards any Person, nor has any
      claim been made on such ground in respect of such use and operations by
      any Person.

(10)  Except as set forth in Schedule 4.16, there are no underground storage
      tanks on or under the Chateaudun Facility.

SECTION 4.17 EQUIPMENT

      Except as set forth in Schedule 4.17: the Equipment is in good working
order and condition, ordinary wear and tear excepted, is operational and has
been maintained in accordance with normal industry standards. None of the
Equipment which is material to the current operation of the Operations requires
any repairs which are material in the context of such assets and their continued
use; and all of the Equipment is used primarily in the Operations. As at
Closing, Schedule 1.1(63) is a complete list of the Equipment at Third Party
Locations and the Seller (and the applicable Designated Seller have reasonable
access to all Equipment at the Third Party Locations) and Schedule 2.1(1)(d) is
a complete list of all the Owned Equipment.

SECTION 4.18 CHATEAUDUN REAL ESTATE

      Except as set forth on Schedule 4.18:

      (a)   as of the date hereof, the Seller or a Designated Seller is (and at
            the applicable Closing, French Newco will be) the registered and
            beneficial owner of, and has good and marketable title to, the
            Chateaudun Facility, free and clear of any Lien except for Permitted
            Encumbrances;

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      (b)   there are no leases, subleases, licences, concessions, or other
            agreements, written or oral, granting to any Person the right of
            use or occupancy of any portion of the Chateaudun Facility;

      (c)   the properties set out in Schedule 4.18 comprise all the real
            property that will be owned at the applicable Closing by French New
            co, which include all of the real estate property owned or leased by
            any Affiliate of Seller in France that are used in the Operations.
            Copies of all the contracts and administrative documents relating to
            the Chateaudun Facility;

      (d)   the Chateaudun Facility is not subject to any procedure or action
            which may affect its quiet use. To the Seller's Knowledge, there is
            no proposed planning regulation or decision of a French Government
            Entity which would materially and adversely impact the Designated
            Seller's quiet use of the Chateaudun Facility;

      (e)   the Chateaudun Facility is sufficient and suited, in all material
            respects, for the Operations as presently conducted by the
            Designated Seller at the Chateaudun Facility;

      (f)   to the Seller's Knowledge, there are no major repairs (any single
            repair costing in excess of $50,000), or repairs costing in
            aggregate in excess of $250,000) required to the structure or
            building systems of the buildings located on the Chateaudun Facility
            and the electrical, mechanical, plumbing, heating, air-conditioning,
            ventilating, security and other systems serving the buildings
            located on the Chateaudun Facility are in good working order;

      (g)   neither the Seller nor any Designated Seller has received actual
            notice of any threatened special assessments or improvements or
            activities of any French public or quasi-public body either planned,
            in process, or completed which may give rise to any special
            assessment against the Chateaudun Facility or any portion thereof;

      (h)   neither the Seller nor any Designated Seller has received actual
            notice of any pending or threatened condemnation or similar
            proceeding affecting the Chateaudun Facility or any portion thereof;
            and

      (i)   neither the Seller nor any Designated Seller has received actual
            notice of any judicial or administrative action, or action by any
            adjacent landowners, affecting the Chateaudun Facility that would
            materially and adversely impact the operation of the Operations at
            the Chateaudun Facility.

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SECTION 4.19 SUFFICIENCY OF ASSETS

      With the exception of (i) the Excluded Assets listed in Section 2.1(2)(a)
through to (p), inclusive, (ii) the Contracts other than the Assumed Contracts,
(iii) the Company-Wide Contracts, (iv) Excluded Business Applications, and (v)
the Facilities (except for Chateaudun Facility), the Assets to be transferred
at Facility/ Design Closings, and the Assets of French Newco, collectively
comprise all of the Assets used by the Seller or the Designated Sellers in the
Operations as presently conducted . Except as set forth on Schedule 4.19 and
provided that the Canada Design Employees and the U.K. Design Employees become
Transferring Employees at the applicable Closing Date, then such employees would
be sufficient in number and would have sufficient skills to permit the Purchaser
and Designated Purchasers to perform the Sustaining Design Services to the
degree required or requested by the Seller or Designated Sellers pursuant to the
Amended and Restated Master Contract Manufacturing Services Agreement at the
 applicable Facility/ Design Closing Date.

SECTION 4.20 NO OTHER PURCHASE AGREEMENTS

      Except as disclosed in Schedule 4.20, no other Person has any agreement
or other right for the purchase or other acquisition from the Seller or any of
its Affiliates of any of the Assets other than agreements for acquisition of
Inventory in the ordinary course of the Operations.

SECTION 4.21 GOVERNMENT ASSISTANCE

      Schedule 4.21 attached hereto describes all agreements, loans, other
funding arrangements and assistance programs (collectively called " GOVERNMENT
ASSISTANCE PROGRAMS") which have been provided to the Seller and its Affiliates
in respect of the Operations from any Government Entity.

SECTION 4.22 LEASED EQUIPMENT

      Schedule 1.1(125) contains an accurate and complete list of all Leased
Equipment. True and complete copies of the leases with respect to all Leased
Equipment have been provided to Purchaser.

SECTION 4.23 REPRESENTATIONS AND WARRANTIES

      Neither the Seller nor any of the Designated Sellers makes any
representation or warranty with respect to the Assets or the Operations,
express or implied , beyond those expressly made by the Seller in this Article
4 and the relevant Transaction Documents, including any implied representation
or warranty as to the condition, merchantability, suitability or fitness for a
particular purpose of any of the Assets, and it is understood that, except for
the express representations and warranties of the Seller contained in this
Article 4, the Purchaser takes the Assets on an " AS IS" and " WHERE IS" basis.

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                                    ARTICLE 5
                         COVENANTS AND OTHER AGREEMENTS

SECTION 5.1 GENERAL

(1)   Closing Cooperation. Each of the Parties shall use its commercially
      reasonable efforts to satisfy the closing conditions for each Closing set
      forth in Article 8 and to take, or cause to be taken, or to do, or cause
      to be done, all things necessary to satisfy the conditions to the
      obligations under the Transaction Documents of the Parties over which
      each has Control and to cause the transactions contemplated under the
      Transaction Documents to be consummated, in accordance with the terms
      thereof, and, where required by the Transaction Documents, prior to the
      applicable Closing.

(2)   Filings and Approvals. The Purchaser and the Seller shall, as promptly as
      practicable, file or supply, or cause to be filed or supplied , all
      applications, notifications and information required to be filed or
      supplied by any of them pursuant to applicable Laws in connection with
      the consummation of the transactions contemplated by this Agreement,
      including, if necessary, those required by the Competition Act (Canada),
      the EC Merger Regulation, the U.S. Hart Scott Rodino Anti-Trust
      Improvements Act of 1976 (the " Antitrust Approvals" ). The Purchaser and
      the Seller shall each be responsible for half of any filing fees or other
      fees payable to a Government Entity as referred on Schedule 5.1(2) and,
      in respect of all other fees, the Party obligated to pay by Law in
      connection with any such filings and approvals shall be solely
      responsible for such fees. The Purchaser and the Seller shall keep each
      other informed as to the status of all such filings and requests for all
      licenses, permits, certificates, registrations, authorizations, consents
      and approvals of Government Entities necessary for the lawful consummation
      of the transactions contemplated by this Agreement and shall co-ordinate
      and cooperate in providing any information concerning their respective
      businesses, operations, prospects or affairs required or requested to be
      provided to or by any Government Entity in connection with the
      transactions contemplated by this Agreement; provided , however, that (x)
      no such information shall be required to be provided by the Purchaser
      or the Seller to the other if the Person required to provide such
      information determines, acting reasonably, that, such information is
      competitively sensitive or that the provision of such information could
      reasonably be expected to have a material adverse effect upon it if the
      transactions contemplated by this Agreement were not completed, and (y)
      in any such case the Purchaser and the Seller shall cooperate with a view
      to establishing a mutually satisfactory procedure for providing such
      information directly to the Government Entity requiring or requesting
      such information, and the Person required to provide such information
      shall provide it directly to such Governmental Entity, unless

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      competitively sensitive information, in which case it shall be provided
      directly to such Governmental Entity by the possessor of such information.

(3)   Delivery and Revision of Schedules.

      DELIVERY

      (a)   Concurrent with the execution of this Agreement the Seller shall
            deliver to the Purchaser the Execution Schedules.

      (b)   Within thirty (30) days of execution of this Agreement the Seller
            shall deliver to the Purchaser the Post Execution Schedules.

      (c)   Between seven (7) and ten (10) Business Days before the Applicable
            Closing the Seller shall deliver to the Purchaser the Pre-Closing
            Schedules.

      (d)   Two (2) Business Days prior to the applicable Closing Date the
            Seller shall deliver to the Purchaser the Closing Schedules;
            provided Seller has delivered copies to the Purchaser seven (7) and
            ten (10) Business Days prior to the applicable Closing Date a draft
            of such schedules, which shall be identical to the final Closing
            Schedules except with respect to (i) changes to reflect events or
            conditions of which Seller did not have Knowledge prior to the
            delivery of the draft, (ii) events or changes in conditions arising
            after delivery of the draft, and (iii) changes approved or requested
            by Purchaser.

      REVISING

      (a)   Employee Schedules. On or before the end of each month after
            execution of this Agreement (beginning with the month of June 2004)
            until the last Facility/ Design Closing, the Seller shall update the
            Employee Information entered on Schedule 4.12(1) with the respect to
            all Employees who have, as at the time of such update, not yet
            transferred to Purchaser's or Designated Purchaser's employ as part
            of a Facility/ Design Closing. Each update shall reflect: (i)
            deletion of the name and associated Employee Information of any
            individual who is no longer an Employee, (ii) addition of the name
            and associated Employee Information of any individual who has become
            an Employee primarily engaged in the Operations. Seller shall also:
            not less than (5) five Business Days nor more than ten (10) Business
            Days prior to issuance to Employees of an Employment Offer, Quebec
            Employment Notice or European Contract of Employment Offer, update
            the Employee Information entered in Schedule 4.12(1) with respect to
            all Employees who would become a Transferring Employee

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            following a Facility/ Design Closing; and, following the
            execution of this Agreement, reasonably regularly update all other
            Employee Schedules other than Schedule 4.12(1).

      (b)   Notwithstanding the foregoing paragraph, within fifteen (15)
            calendar days of the date hereof, Seller will deliver to
            Purchaser revised Employee Schedules. Following delivery of said
            schedules ("THE TRUED-UP EMPLOYEE SCHEDULES" ): (i) Seller will
            obtain the Purchaser's consent if Seller proposes to revise Trued-Up
            Employee Schedule 4.12(1) (and make corresponding changes to the
            other Employee Schedules) where the proposed revision to that
            Trued-Up Employee Schedule would result in a net increase of greater
            than ten (10) percent in the number of Employees listed in Trued-Up
            Employee Schedule 4.12(1) in any of the following categories:
            Calgary Westwinds Facility; the Montreal facilities referred to as
            Montreal BAN 1, 3 and OPTO 1; Monkstown Facility; Chateaudun
            Facility; or Design Employees; and (ii) Seller and Purchaser will
            abide by the mobility principles as agreed by the Parties.

      (c)   Exception Schedules.

            (i)   The Seller shall have the right to deliver to the Purchaser,
                  at least five (5) Business Days prior, to the applicable
                  Closing Date, updated Schedules setting forth exceptions to
                  the representations and warranties set forth in Article 4 and
                  the Local Sales Agreement (if applicable), or any covenants
                  set forth in Section 5.2 and the Local Sales Agreements (if
                  applicable) to reflect any matters related to the Closing at
                  issue that have occurred from and after the date of this
                  Agreement, that, if existing on the date of execution of this
                  Agreement, would have resulted in a disclosure or exception
                  with regard to any such representation, warranty or covenant.

            (ii)  If the new or changed information disclosed in the updated
                  Schedules by the Seller pursuant to this Section 5.1(3)(b)
                  would have, or could reasonably have been expected to have,
                  affected the Product pricing had such information been
                  disclosed prior to the completion of the VSHA pricing setting
                  process set for in Section 5.22, then, if the applicable
                  parties proceed with such Closing, the applicable Parties
                  agree to follow, after the applicable Closing, the process set
                  forth in Section 11.1.1 of the Amended and Restated Master
                  Contract Manufacturing Services Agreement for renegotiating
                  "Prices" (as that term is

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                  defined therein) to reflect the new or changed information set
                  forth in such disclosure.

            (iii) If Purchaser determines in good faith that any updated
                  Schedules delivered by the Seller pursuant to this Section
                  5.1(3)(b) are not acceptable to the Purchaser, then Purchaser
                  shall so notify the Seller in writing prior to the applicable
                  Closing.

            (iv)  The Seller undertakes in good faith to advise the Purchaser
                  as soon as reasonably practicable of any information that to
                  the Seller's Knowledge results in an update to the Schedules
                  in accordance with the provisions of this Section 5.1(3)(b).

      (d)   Any updated Schedules referenced in this Section 5.1(3) which are
            acceptable to both Parties shall be incorporated into a writing
            designated as an Amendment to this Agreement, and executed by the
            Purchaser and the Seller in accordance with Section 9.6 hereof prior
            to the applicable Closing. For purposes of Article 7 hereof, the
            representations and warranties of the Seller set forth in Article 4
            and the Local Sales Agreement (if applicable), and the covenants set
            forth in Section 5.2, shall be deemed qualified by, and subject to,
            any such updated Schedules delivered by the Seller pursuant to this
            Section 5.1(3).

(4)   Public Announcements. From time to time prior to the final Closing Date
      effected pursuant to this Agreement, subject to each Primary Party's
      disclosure obligations imposed by Law, the Purchaser and the Seller shall
      cooperate, and shall cause each of the Designated Purchasers and
      Designated Sellers to cooperate, with each other in the development and
      distribution of all news releases, other public information disclosures
      and announcements, including announcements and notices to customers,
      suppliers and Employees, with respect to this Agreement, or any of the
      transactions contemplated by this Agreement and the other Transaction
      Documents and shall not issue any such announcement or statement prior to
      consultation with, and the approval of, the other Primary Party (such
      approval not to be unreasonably withheld or delayed; provided that
      approval shall not be required where the disclosing party reasonably
      determines, after consultation with such other Primary Party, that such
      disclosure is required by Law).

SECTION 5.2 CONDUCT OF OPERATIONS

      The Seller covenants that, except as set forth in Schedule 5.2, from the
date hereof to the applicable Effective Time, except as the Purchaser may
approve otherwise in writing (such approval not to be unreasonably withheld or
delayed) or

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as otherwise expressly contemplated by this Agreement or the applicable Local
Sales Agreement, the Seller shall conduct the Operations or cause the
Facility/ Design Operations, as conducted by the applicable Designated Seller,
to be conducted in the ordinary course consistent with past practice and
will make all commercially reasonable efforts consistent with past practice to
maintain the Operations and Assets, and to preserve its relationship with the
Transferring Employees, suppliers, contractors and other service providers
with whom the Seller or such Designated Seller deals in connection with the
Operations, and so as to ensure all representations and warranties of the
Seller remain true and correct in all material respects as of such Closing.
Except as expressly contemplated or permitted by this Agreement or set forth in
Schedule 5.2 (which Schedule may not be amended after the date hereof),
from the date hereof until the applicable Effective Time, the Seller will not
do, and will cause the applicable Designated Seller not to do, any of the
following without the prior written consent of the Purchaser, not to be
unreasonably withheld :

      (a)   sell, lease, license or otherwise dispose of, or agree to sell,
            lease, license or otherwise dispose of, any interest in any of the
            Facility/ Design Assets, except for sales of Inventory in the ord-
            inary course and Equipment no longer required in the Operations;

      (b)   permit, allow or subject any of the Facility/ Design Assets or any
            part thereof to any material Lien, or suffer such to be imposed,
            except for Permitted Encumbrances;

      (c)   amend any Assumed Contracts in a manner that is not in the ordinary
            course of business or that is material to the Operations, or
            terminate any Assumed Contracts, or enter into any Contracts which
            would be Assumed Contracts;

      (d)   announce or make any material modification to any of the Seller's
            Employees Plans applicable to any Transferred Employee, except as
            required by applicable Law or in the ordinary course of business;

      (e)   increase the base salary or wage rate payable to any Employee,
            except for increases required by a Collective Labour Agreement or
            otherwise required by Law, or made in the ordinary course of
            business consistent with past practice;

      (f)   terminate, other than for cause, greater than fifteen (15) percent
            of the Key Employees, or greater than fifteen (15) percent of the
            Design Employees, provided, however, that Seller or Designated
            Seller shall inform Purchaser as soon as practicable prior to
            terminating, other that for cause, the employment of any such
            Employee.

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      During the period from the date of this Agreement until the final Closing
Date effected pursuant to this Agreement, both the Seller and the Purchaser
shall advise on a regular and frequent basis the designated representative(s)
of the Purchaser or a Designated Purchaser or Seller or Designated Seller, as
the case may be, on the general status of ongoing operations and any Employee
terminations and labour relations matters in relation to the portion of the
Operations that remains to be transferred to Purchaser as of such date, or any
circumstance or event which to the Knowledge of the applicable Primary Party
constitutes either a Material Adverse Effect on the Operations or the Assets,
or a material adverse effect on the Purchaser's or the Designated Purchaser's
ability to perform its obligations pursuant to the Amended and Restated Master
Contract Manufacturing Services Agreement. Notwithstanding the foregoing, the
Seller shall be entitled to terminate any Open Purchase Orders and the purchase
orders relating to contract workers, with notice to the Purchaser. In addition,
Seller shall consult with Purchaser to the extent reasonable practicable prior
to any amendment of an Assumed Contract, and shall advise as soon as reasonably
practicable following any execution of such amendment.

SECTION 5.3 ACCESS AND INFORMATION

      From the date the transaction is disclosed to the Employees (or, if
earlier, the date five (5) days after execution of this Agreement) up to the
applicable Closing Date, the Seller shall, on reasonable notice and subject to
applicable Law, attorney privilege rights and competitively sensitive
information regarding Contracts which are not Assumed Contracts, (i) give the
Purchaser and its accountants, counsel, consultants, employees and agents,
access for inspection for reasonable periods of time during normal business
hours to all documents, records and information relating to the extent
applicable to the Operations, the Transferring Employees (other than the
employee data that is an Excluded Asset under Section 2.1(2)(g)) currently
employed in the Operations conducted by such Designated Seller, and the
Facility/ Design Assets as the Purchaser shall reasonably request, and (ii) give
the Purchaser and its employees reasonable access to employees of the Seller or
the Designated Seller involved in the transition of the Operations from the
Seller and the Designated Seller to the Purchaser and the Designated Purchaser.
In addition, the Seller shall, on reasonable notice, permit the Purchaser and
its accountants, counsel, consultants, employees and agents reasonable access
during normal business hours to the Facility/ Design Assets for the purpose of
conducting such inspections and performing such investigations as the Purchaser
may reasonably require to satisfy itself as to the condition, quality, quantity
and state of repair of the Facility/ Design Assets as the Purchaser may
reasonably request in its review of the properties, assets and business affairs
of the Operations and the above-mentioned documents, records and information.
All information that is made available, disclosed or provided to the Purchaser
and its representatives shall be subject to the terms of the Confidentiality
Agreement. The Purchaser shall conduct any inquiries pursuant to

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this Section 5.3 in such a manner so as not to unreasonably interfere with the
normal operations of the Operations or the Seller. All requests for access shall
be directed to Joseph Grubic, Nortel Networks Limited, or his delegates.

SECTION 5.4 LITIGATION SUPPORT

      In the event and for so long as any Primary Party to this Agreement is
actively contesting or defending against any Third Party Action in connection
with (a) any transaction contemplated under any Transaction Document or (b)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction, with
respect to the Seller or any of its Affiliates on or prior to the applicable
Closing Date, or with respect to the Purchaser and any of its Affiliates on or
after such Closing Date, as applicable, the Primary Party not so contesting or
defending agrees to (and each of the Seller and Purchaser shall cause its
Affiliates to) (i) cooperate as reasonably requested with the contesting or
defending Party and its counsel, (ii) use commercially reasonable efforts to
make available its employees, as reasonably necessary, to provide testimony, to
be deposed, to act as witnesses and to assist counsel, and (iii) as permitted
by Law, provide reasonable access to its books and records as shall be
reasonably necessary in connection with the defence, contestation or
participation, all at the sole cost and expense of the Primary Party so
contesting, defending or participating; provided, however, that such
assistance does not prejudice any rights of the assisting Party, and provided,
further, that the foregoing provisions in this Section 5.4 shall not apply if
the Primary Party contesting, defending or participating is entitled to ind-
emnification therefore under Article 7, in which case such article shall
govern.

SECTION 5.5 RECORD RETENTION; POST CLOSING ACCESS

(1)   Purchaser's Obligations. From and after each applicable Closing Date but
      subject to any limitations imposed by the privacy Laws of the countries
      where the Facilities/ Design Employees are located and applicable
      attorney-client privilege, the Purchaser shall make available to the
      Seller, its agents and employees, for inspection all books, records and
      documents in its possession or that of the applicable Designated Purchaser
      relating to or used in the Operations or the Facility/ Design Operations,
      respectively, or to the Assets, Assumed Liabilities and the Transferring
      Employees (and the reasonable assistance of the employees of the Purchaser
      and the Designated Purchaser responsible for such books, records and
      documents) during regular business hours as may be reasonably necessary
      for the purposes of: (i) preparing Tax Returns and financial statements
      and responding to tax audits covering operations and transactions at or
      prior to the Closings, (ii) investigating, preparing for the defence or
      prosecution of, prosecuting or defending any Action pending, threatened or
      anticipated by or against the Seller or any Affiliate or any of their
      properties, officers and directors before any Government Entity or
      arbitration tribunal, that is based upon, arises out of or

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      otherwise is in respect of the Operations, any of the Excluded
      Liabilities or any of the Excluded Assets, (iii) preparing, auditing or
      reviewing financial statements and preparing reports to shareholders and
      Government Entities, (iv) preparing the Closing Statement of Assets and
      Liabilities, or (v) for such other purposes for which access to such
      documents is believed by the Seller to be reasonably necessary; provided,
      however, access to such books, records and documents shall not
      unreasonably interfere with the normal operation by the Purchaser of the
      Operations. The Purchaser shall maintain and preserve all such books, and
      records and other documents for the longer of (x) four (4) years from
      the relevant Closing Date, or (y) any applicable statutory or regulatory
      retention period, as the same may be extended, or any applicable
      limitation period .

(2)   Seller's Obligations. From and after each applicable Closing Date, as
      permitted by Law but subject to applicable attorney-client privilege, the
      Seller shall make or cause to be made available to the Purchaser for
      inspection all books, records and documents in the possession of the
      Seller or the applicable Designated Seller relating exclusively to or used
      exclusively in the Operations or the Facility/ Design Operations,
      respectively, or to the Assets, Assumed Liabilities and the Transferring
      Employees at issue prior to the relevant Closing Date (and the reasonable
      assistance of the employees of the Seller and the Designated Seller
      responsible for such books, records and documents) for the purposes of (i)
      investigating, preparing for the defence or prosecution of, prosecuting or
      defending any Action by or against the Purchaser, the Designated Purchaser
      or any of their properties, officers and directors before any Government
      Entity or arbitration tribunal, that is based upon, arises out of or
      otherwise is in respect of the Operations, any of the Facility/ Design
      Assumed Liabilities or any of the Facility/ Design Assets, (ii) preparing,
      auditing or reviewing financial statements and preparing reports to
      shareholders and Government Entities, (iii) reviewing the Closing
      Statements of Assets and Liabilities, or (iv) for such other purposes for
      which access to such documents is believed by the Purchaser to be
      reasonably necessary; provided, however, access to such books, records and
      documents shall not unreasonably interfere with the normal operation by
      the Seller of its business and shall not include employee data that is an
      Excluded Asset under Section 2.1(2)(g). The Seller shall maintain and
      preserve all such books, and records and other documents for the longer of
      (x) four (4) years from the relevant Closing Date, or (y) any applicable
      statutory or regulatory retention period, as the same may be extended, or
      any applicable limitation period. The Seller shall take such action as may
      be necessary to make any audit workpapers of its auditors relating to the
      Operations and the Assets available to the Purchaser and its auditors, to
      the extent such material is reasonably

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         required for the above-noted purposes and not subject to
         attorney-client privilege that would be waived by making such
         disclosure.

         As permitted by Law and subject to applicable attorney-client
         privilege, Seller agrees to provide the Purchaser (at the Purchaser's
         cost) with reasonable access to Seller's and its Affiliates' books and
         records related to the Operations and the Assets and Assumed
         Liabilities, to its non-officer employees, to its officers to the
         extent reasonable and customary, and to its independent accountants, in
         order to assist the Purchaser with its regulatory filings; provided,
         however, that such access shall not be unduly burdensome to the Seller
         or its Affiliates or shall not unduly disrupt the Seller's or its
         Affiliates' ongoing business or financial reporting obligations.

SECTION 5.6 TRANSACTION EXPENSES; FILINGS AND CERTIFICATES

(1)      Each of the Purchaser and the Seller shall bear its own costs and
         expenses (including brokerage commissions, finders' fees or similar
         compensation, and legal fees and expenses) incurred in connection with
         this Agreement, the Transaction Documents and the transactions
         contemplated hereby except as otherwise expressly provided herein or in
         any other Transaction Document.

(2)      The Parties agree that the Purchase Price is exclusive of any Transfer
         Taxes and Transfer Fees. Any Transfer Taxes incurred in connection with
         the transactions contemplated in this Agreement shall be allocated
         among, and paid by, the Parties in accordance with Section 5.6.

(3)      The Purchaser or Designated Purchaser, as applicable, shall pay
         directly to the appropriate taxing authority, within the time
         prescribed all applicable Refundable Transfer Taxes payable in
         connection with the transactions contemplated in this Agreement,
         provided that if any such Refundable Transfer Taxes are required to be
         collected, remitted or paid by the Seller or the Designated Seller, as
         applicable, such Refundable Transfer Taxes shall be paid by the
         Purchaser or the Designated Purchaser, to the Seller or the Designated
         Seller, at the Closing, or thereafter as requested of or by the Seller
         or the Designated Seller. The Purchaser or Designated Purchaser, as
         applicable, shall be entitled to all refunds of any Refundable Transfer
         Taxes.

(4)      All Transfer Taxes incurred in connection with the transactions
         contemplated in this Agreement, other than those paid or payable by the
         Purchaser or Designated Purchaser, as applicable, pursuant to Section
         5.6(3) shall be allocated one-half to the Purchaser, the Designated
         Purchaser or French Newco, as applicable, and one-half to the Seller or
         the Designated Seller, as applicable. All such Transfer Taxes shall be
         paid by the Purchaser, the Designated Purchaser or French Newco to the
         appropriate taxing authority, within the time prescribed, and the
         Seller or Designated Seller, shall remit

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         payment to the Purchaser, Designated Purchaser or French Newco its
         allocable share of such Transfer Taxes in accordance with the terms of
         Section 5.6(5); provided, however, if such Transfer Taxes are required
         to be collected, remitted or paid by the Seller or Designated Seller,
         the Purchaser, Designated Purchaser or French Newco shall pay its
         allocable share of such Transfer Taxes to the Seller or Designated
         Seller, in accordance with the terms of Section 5.6(5).

(5)      Any Refundable Transfer Taxes or Transfer Taxes required to be
         remitted by the Purchaser, the Designated Purchaser or French Newco,
         as applicable, to the Seller or Designated Seller, as applicable, or by
         the Seller or Designated Seller, to the Purchaser, the Designated
         Purchaser or French Newco shall be paid to the appropriate party in
         immediately available funds on the Closing Date. The Parties
         acknowledge and agree that the amounts paid on the Closing Date
         pursuant to this Section 5.6(5) will be based upon estimates and that
         the amounts paid at the Closing will be subsequently adjusted to take
         into account the final purchase price allocation pursuant to Section
         2.3 or after a taxing authority has finally determined the amount of
         Taxes to be paid. Any Tax amounts due and owing in connection with the
         final purchase price allocation or pursuant to the final determination
         of a taxing authority shall be paid by the party owing such amounts
         promptly (and in any event within fifteen (15) Business Days) following
         receipt of written notice from the other party of the amount due,
         together with appropriate documentation thereof.

(6)      The Parties agree to allocate one-half (1/2) of all out-of-pocket costs
         to the Purchaser, Designated Purchaser, on the one hand, and one-half
         (1/2) to the Seller, Designated Seller, on the other, of related to the
         formation of French Newco and the transfer of the French Contributed
         Assets to French Newco, such costs to include fees and expenses of
         counsel, accountants and other advisors (provided (i) the Seller and
         the Designated Seller will endeavour to minimize such costs and (ii)
         with respect to French Newco accounting fees, such costs shall only be
         out-of-pocket costs to the extent incremental to Purchaser's ordinary
         accounting fees associated with audits). In addition, the Parties agree
         to allocate all Transfer Taxes related to the transfer of the French
         Contributed Assets to French Newco in accordance with the applicable
         provisions of this Section 5.6 and subject to the limitations set forth
         in Section 5.28(5).

(7)      The Parties acknowledge that certain exemptions from Transfer Taxes may
         be available in certain taxing jurisdictions. If the Purchaser or any
         Designated Purchaser, as applicable, wishes to claim any such exemption
         for the purposes hereof, the Purchaser or Designated Purchaser will be
         solely responsible for ensuring that any such exemption applies and, in
         that regard, shall provide the Seller or Designated Seller, as
         applicable, prior to each

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         applicable Closing with its or the Designated Purchaser's vendor permit
         number and the applicable certificate of exemption or election form
         under such law to support the Purchaser's or Designated Purchaser's
         claim to entitlement to such exemption or election. The Seller or
         Designated Seller will cooperate with the Purchaser or Designated
         Purchaser in its claiming of any such exemption, provided such
         exemption or election is lawful and appropriate under the local tax
         legislation. The Purchaser and such Designated Purchaser shall
         indemnify and hold harmless the Seller and the applicable Designated
         Seller for the Purchaser's and such Designated Purchaser's allocable
         share of the Transfer Taxes pursuant to this Section, interest,
         penalties and Damages relating to Transfer Taxes (including legal,
         accounting and other expense) payable by the Purchaser pursuant to this
         Section 5.6(7) to the extent the Seller and the applicable Designated
         Seller pays, and does not charge the Purchaser or any Designated
         Purchaser, any such Transfer Tax at the applicable Closing and the
         Purchaser's and such Designated Purchaser's claimed entitlement to an
         exemption or election is subsequently disallowed or not accepted by the
         relevant authorities.

(8)      Each of the Purchaser and the Designated Purchaser, the Seller and the
         Designated Seller shall, if applicable, register on or before Closing
         for Transfer Taxes in each of the jurisdictions where the Assets are
         located.

SECTION 5.7 CONFIDENTIALITY

         The Parties acknowledge that the Confidentiality Agreement remains in
full force and effect in accordance with its terms, which are incorporated
herein by reference, and the Parties agree to be bound thereby in the same
manner and to the same extent as if the terms had been set forth herein in full.

SECTION 5.8 FORWARD LOOKING INFORMATION

         In connection with the Purchaser's investigation of the Operations, the
Purchaser has received certain estimates, projections and other forecasts for
the Operations, and certain plan and budget information (collectively, or
individually, " Forward Looking Information" ). The Purchaser acknowledges that
there are uncertainties inherent in attempting to make such estimates,
projections, forecasts, plans and budgets and that the Purchaser is familiar
with such uncertainties. The Seller makes no representation or warranty in any
Transaction Document herein with respect to any Forward Looking Information
referred to in this Section 5.8.

SECTION 5.9 NECESSARY CONSENTS

         Between the date hereof and each Facility/ Design Closing Date with
respect to the Operations and Assets that are the subject of such Closing:

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(a)      The Seller, for itself and on behalf of the applicable Designated
         Seller agrees to use commercially reasonable efforts to:

         (i)      make all notifications and obtain all consents to the Assumed
                  Contracts and license agreements for the Transferred
                  Applications that are required under the terms thereof in
                  order to assign the same to the Purchaser or the applicable
                  Designated Purchaser (collectively, the " NECESSARY
                  CONSENTS"); and

         (ii)     comply with applicable Law to commence and pursue diligently
                  such information and consultation process and procedures with
                  workers' councils and employee representatives as are within
                  its control, in accordance with Sections D-1.3 and D-2.3 of
                  Exhibits D-1 and D-2, respectively.

(b)      The Purchaser, for itself and on behalf of the applicable Designated
         Purchaser, agrees to use commercially reasonable efforts to comply with
         applicable Law to provide diligently sufficient information to enable
         the Seller itself, and on behalf of the applicable Designated Seller,
         as necessary to comply with its obligations under Section 5.9(a),

         (collectively, the " NECESSARY CONSENTS" ).

(c)      In the event that either Party becomes aware at any time within four
         (4) months following the applicable Facility/ Design Closing of any
         Third Party software application that was used by Seller or a
         Designated Seller primarily in the Operations that is not identified in
         Schedule 1.1(118), such software application will be treated as a
         Transferred Business Application and Seller, for itself and on behalf
         of the applicable Designated Seller, agrees to use commercially
         reasonable efforts to transfer and assign such software application and
         any license agreements related thereto to Purchaser.

(d)      Notwithstanding anything in Section 2.1(3) of this Agreement to the
         contrary, in the event that obtaining consent to assignment of a
         license agreement for a Transferred Business Application would require
         Seller or any Designated Seller or Purchaser or Designated Purchaser to
         pay money to a Third Party, including any requirement by a licensor
         that the Seller or Designated Seller make any payments for maintenance
         for prior periods or the current period, the Parties will cooperate in
         good faith to negotiate the amount of such payments and each Party will
         pay either (i) fifty percent (50%) of such amount in order to obtain
         such consent provided that such payment need not be made if the amount
         is unreasonable compared to the cost of obtaining a new license or

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                  (ii) fifty percent (50%) of costs incurred to obtain
                  comparable software licences if consent cannot be obtained or
                  the cost of obtaining consent is unreasonable compared to the
                  cost of obtaining a new license.

SECTION 5.10 MAINTAIN INSURANCE

         The Seller shall continue to maintain or cause to be continued in full
force and effect until each applicable Closing Date sufficient insurance
coverage with respect to the Operations and the Assets.

SECTION 5.11 OPERATIONS AT THE CHATEAUDUN FACILITY

         Prior to the applicable Closing Date, the Designated Seller shall
complete the corrective actions to address the following matters described
in Schedule 4.16: Item 1(A) (new cooling system); Item 1(B) (battery charging
facility, redesign or outsourcing); Item 3 (oil/ water separator); and Item 4
(hydrocarbon containment).

SECTION 5.12 COOPERATION

(1)      The Purchaser and the Seller shall cooperate in commercially reasonable
         fashion with each other and shall cause the Designated Purchasers and
         the Designated Sellers and their respective officers, employees, agents
         and representatives to cooperate with each other following each Closing
         Date to provide for an orderly transition of the Transferring
         Employees, the Assets and the Assumed Liabilities to the Purchaser and
         the Designated Purchasers. Save and except for the Transition Payment,
         each Party shall bear its own out-of-pocket costs and expenses incurred
         in assisting the other pursuant to this Section 5.11. No Party shall be
         required by this Section 5.11 to take any action that would
         unreasonably interfere with the conduct of its business.

(2)      Subject to the other provisions of this Agreement and provided it does
         not interfere with the Seller's, commercial interests or require any
         payments to any Third Parties, the Seller will provide for a reasonable
         period of time after the date of this Agreement, reasonable assistance
         to the Purchaser in encouraging the suppliers and other business
         associates of the Operations to maintain a similar business arrangement
         with the Purchaser after the Closing Date as the Seller maintained with
         such party prior to the Closing Date.

SECTION 5.13 PURCHASER'S ACQUISITION OF SOFTWARE

         The Purchaser acknowledges that, except for the Single Use Desktop
Software and the Transferred Business Applications licensed from Third Parties
which are to be assigned to the Purchaser or Designated Purchasers as set forth
in Schedule 1.1(118), it is not acquiring any right, title or interest in
software contained in any computer equipment, which may form part of the Assets.
Subject to the provisions of the Shared Services Agreement, if such a license is
required to use any Third Party software so contained and the Purchaser is not
able to renew or obtain its own

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license for such software, the Purchaser agrees to remove such software from
any computer equipment forming part of the Assets no later than sixty (60) days
after the applicable Closing Date.

SECTION 5.14 TRANSFERABLE EQUIPMENT

(1)      Except to the extent described in Section 2.6 and the remainder of
         this Section 5.14, Seller does not intend to purchase, or cause to be
         purchased , any of the Leased Equipment out of lease or to convey, or
         cause to be conveyed , title to such Leased Equipment to Purchaser or
         the Designated Purchasers on a country by country basis as part of the
         transfer of the Facility/ Design Assets for each Facility or the Design
         Operations, as applicable. Subject to the buyout provision in Section
         5.14(2), the Parties agree that the Leased Equipment (as opposed to the
         leasehold rights related thereto) itself is not intended to form part
         of the Facility/ Design Assets for such Facility or Design Operations,
         as applicable, hereunder. The Seller's inability to transfer, or to
         cause to be transferred, title to any of the Leased Equipment for any
         particular Facility or the Design Operations, as applicable, as at the
         relevant Effective Time shall not be considered to constitute a
         Material Adverse Effect.

(2)      If any of the Leased Equipment shall not have been transferred to the
         Purchaser or the Designated Purchaser within forty-five (45) days after
         the relevant Closing Date (" TRANSFERABLE EQUIPMENT" ), then the Seller
         or the Designated Seller, as the case may be, shall promptly initiate
         the buy-out provisions under the relevant lease agreement in order to
         transfer, or to cause to be transferred , title to the Transferable
         Equipment to the Purchaser or the relevant Designated Purchasers within
         the next forty-five (45) days. The Seller will notify the Purchaser
         of the proposed transfer date (the "TRANSFERABLE EQUIPMENT TRANSFER
         DATE" ) and a proposed determination of the fair market value thereof
         for each piece of Transferable Equipment so being transferred. In the
         event that the Purchaser does not agree with Seller's proposed fair
         market value, Purchaser shall so notify Seller and Purchaser and Seller
         shall use commercially reasonable effects to agree on such fair market
         value, and if the parties are not able to so agree, then the fair
         market value shall be determined by the Independent Accountant pursuant
         to Section 2.4(3) (the " TRANSFERABLE EQUIPMENT TRANSFER VALUE" ). Upon
         receipt of a bill of sale from the Seller evidencing transfer of title
         of the Transferable Equipment, the Purchaser agrees to pay to the
         Seller on the relevant Transferable Equipment Transfer Date, in
         immediately available US dollar funds, the fair market value (and
         applicable Transfer Taxes in accordance with Section 5.6 arising out of
         either the purchase of such Transferable Equipment by the Seller or any
         of its Affiliates or out of the transfer of such Transferable Equipment
         to the Purchaser or the relevant Designated Purchaser hereunder). The
         Seller's ability to only recoup from the Purchaser

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         the Transferable Equipment Transfer Value Portion of any payment to the
         applicable lessor (and not to recoup from the Purchaser the full buyout
         payment) pursuant to this Section 5.14(2) is limited only so long as,
         (i) the Purchaser meets the applicable lessor's standard of
         creditworthiness for its lessees, and (ii) any applicable lessor
         contractual limitations regarding asset movement outside of North
         America (i.e., Canada, the United States and Mexico). Once transferred,
         the Transferable Equipment shall be deemed by the parties to this
         Agreement to be included with the Owned Equipment and transferred
         pursuant to the terms of this Agreement as part of the transfer of the
         Facility/Design Assets for each Facility.

(3)      Any temporary use of the Transferable Equipment by the Purchaser and
         the Designated Purchaser, as the case may be, following the applicable
         Closing Date and pending the Transferable Equipment Transfer Date shall
         be governed by the Shared Services Agreement.

SECTION 5.15 INVENTORY PUT OPTION

(1)      The Purchaser and the Designated Purchasers shall have the following
         options to sell to the Seller or the Designated Sellers:

         (a)      all Unused Inventory (the "INVENTORY PUT OPTION" );

         (b)      all Unused Unassigned Finished Goods Inventory (the
                  "UNASSIGNED FINISHED GOODS PUT OPTION" ); and

         (c)      all Unrepairable Bonepile Inventory (the "BONEPILE INVENTORY
                  PUT OPTION").

(2)      Notwithstanding the foregoing:

         (a)      Unused Inventory and the Unused Unassigned Finished Goods
                  Inventory shall be deemed to be reduced by (i) the amount of
                  inventory, if any, of the same kind, or suitable for the same
                  purpose, that is acquired for use by the same Facility (after
                  the applicable Closing) and sold to Seller or Designated
                  Seller during the applicable put period, and (ii) the amount
                  of inventory, if any, of the same kind, or suitable for the
                  same purpose, that is acquired (other than from the same
                  Facility and after the applicable Closing) for use by another
                  facility to which manufacturing is transferred or has been
                  transferred in whole or in part;

         (b)      components that are Inventory and subsequently revealed during
                  the Inventory Put Period to have shelf life that has expired
                  as at the applicable Closing Date, or which have a date code
                  expiring during the

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                  Inventory Put Period, shall be reported to the Seller or
                  Designated Seller as soon as reasonably practicable following
                  discovery. Seller or Designated Seller shall either, (i) pay
                  the Purchaser or Designated Purchaser to rework such
                  components in an amount equal to their costs incurred in
                  reworking, (ii) repurchase as soon as reasonably possible such
                  components for the price paid by the Purchaser or Designated
                  Purchaser for such components, or (iii) authorize their use in
                  the Products (provided that to the extent such components
                  are authorized for use in the Products, the Seller or
                  Designated Seller waives any indemnification or warranty
                  rights it may have against the Purchaser or Designated
                  Purchaser in relation to the usage of such components), with
                  respect to the specific condition waived, and the Seller or
                  Designated Seller shall be entitled to select the applicable
                  clause of this sentence that shall apply; and

         (c)      components that are Inventory and have a shelf life that
                  expires prior to the end of the applicable Put Period and
                  because of such expired shelf life cannot be consumed within
                  the Put Period in the ordinary course of business, shall be
                  reported to the Seller or Designated Seller as soon as
                  reasonably practicable following discovery. Seller or
                  Designated Seller shall either (i) pay the Purchaser or
                  Designated Purchaser to rework such components in an amount
                  equal to their costs incurred in reworking, (ii) repurchase
                  such components for the price paid by the Purchaser or
                  Designated Purchaser for such components, or (iii) authorize
                  their use in the Products (provided that to the extent such
                  components are authorized for use in the Products, the
                  Seller or Designated Seller waives any indemnification or
                  warranty rights it may have against the Purchaser or
                  Designated Purchaser in relation to the usage of such
                  components with respect to the specific condition waived,
                  and the Seller or Designated Seller shall be entitled to
                  select the applicable clause of this sentence that shall
                  apply). Not withstanding the foregoing, the Purchaser or
                  Designated Purchaser shall use or be deemed to have used such
                  components, assuming they have a useable shelf life, prior to
                  components of the same kind, or suitable for the same
                  purpose, that are acquired by the Purchaser or Designated
                  Purchaser from other than the Seller or Designated Seller.

         (d)      At the end of the Inventory Put Period, if the Purchaser or
                  Designated Purchaser physically holds Unused Inventory that
                  has been used, transformed, or otherwise consumed, but has
                  not been sold to the Seller or Designated Seller and cannot be
                  sold to the Seller or Designated Seller in its original state,
                  the Purchaser or Designated Purchaser shall have the right to
                  deem a piece of inventory of the same

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                  kind, or suitable for the same purpose, and equivalent value
                  to be Unused Inventory and can be sold back to the Seller or
                  Designated Seller in place of the original Unused Inventory
                  item.

         (e)      At the end of the Unassigned Finished Goods Put Period, if
                  the Purchaser or Designated Purchaser physically holds Unused
                  Unassigned Finished Goods Inventory that has been used,
                  transformed, or otherwise consumed, but has not been sold to
                  the Seller or Designated Seller and cannot be sold to the
                  Seller or Designated Seller in its original state, the
                  Purchaser or Designated Purchaser shall have the right to deem
                  a piece of inventory of the same kind, or suitable for the
                  same purpose, and equivalent value to be Unused Unassigned
                  Finished Goods Inventory and can be sold back to the Seller
                  or Designated Seller in place of the original Unused
                  Unassigned Finished Goods Inventory item.

(3)      The applicable put option may be exercised by the Purchaser within
         ninety (90) days after the expiration of the applicable Inventory Put
         Period, Unassigned Finished Goods Put Period, or Bonepile Inventory
         Put Period, as the case may be, by sending a notice in writing to
         the Seller specifying (i) the identity of the Unused Inventory, Unused
         Unassigned Finished Goods, or Unrepairable Bonepile Inventory; (ii)
         the quantity of the Unused Inventory, Unused Unassigned Finished Good s
         or Unrepairable Bonepile Inventory; and (iii) the original purchase
         price for the Unused Inventory, Unused Unassigned Finished Goods or
         Unrepairable Bonepile Inventory paid pursuant to this Agreement
         (individually, or collectively, the "INVENTORY PUT PURCHASE PRICE" )
         and (iv) that the Unused Inventory, Unused Unassigned Finished Goods or
         Unrepairable Bonepile Inventory, has been calculated and determined in
         accordance with Section 5.14(1) above. The Seller shall have ten (10)
         Business Days within which to discuss with the Purchaser and the
         Purchaser shall make itself available to discuss with the Seller any
         questions or outstanding issues with respect to the Purchaser's
         exercise of the applicable put option. The Seller shall either (i) pay,
         or cause the applicable Designated Seller to pay, to the Purchaser the
         Inventory Put Purchase Price, within thirty (30) Business Days of
         receipt of each notice of exercise of the applicable put option, or
         (ii) send a written notice to the Purchaser within twenty (20) Business
         Days of receipt of each notice of exercise of the applicable put option
         that it objects to the calculation of the Inventory Put Purchase Price,
         failing which the Seller shall be deemed to have accepted the Inventory
         Put Purchase Price calculation. Any such written notice of objection
         from the Seller must state (a) the specific items of Unused Inventory,
         Unused Unassigned Finished Goods or Unrepairable Bonepile Inventory,
         which the Seller contends should not be repurchased, and (b) the

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         basis for its position with respect to each of such items of Unused
         Inventory, Unused Unassigned Finished Goods or Unrepairable Bonepile
         Inventory, which will be limited to mathematical errors or matters
         of the nature described in Section 5.14(1) and Section 5.14(2) above.
         In addition, any such written notice of objection must be accompanied
         within ten (10) Business Days by payment in full for the items of
         Unused Inventory, Unused Unassigned Finished Goods or Unrepairable
         Bonepile Inventory which are not subject to such written notice of
         objection.

(4)      If the Seller objects to the Inventory Put Purchase Price calculation
         pursuant to Section 5.15(3) above then either the Seller or the
         Purchaser may refer the matter in writing to the Independent
         Accountant, who will promptly resolve the issue after discussions with
         each of the Seller and the Purchaser and in consideration of the
         concerns of each of the Seller and the Purchaser, and will prepare an
         Inventory Put Purchase Price schedule which shall be final and binding
         on the Seller and the Purchaser and their respective Affiliates. The
         Seller shall pay, or cause the applicable Designated Seller to pay, to
         the Purchaser the balance of the Inventory Put Purchase Price
         determined by the Independent Accountant (in his capacity as an expert)
         within ten (10) Business Days of any such determination, together with
         interest thereon at a rate equal to six percent (6%) per annum,
         calculated from the last date notice of objection was due pursuant
         to Section 5.15(3) above.

(5)      The foregoing provisions of this Section 5.15 shall not apply to End of
         Life Inventory or Repair Inventory which shall be dealt with in
         accordance with the terms and conditions of the Amended and
         Restated Master Contract Manufacturing Services Agreement and the
         Repair Services Agreement.

(6)      The Purchaser shall provide to the Seller commencing from the first
         Closing Date until the end of the Inventory Put Period, monthly
         reports (by part number of the unit quantity and the dollar amount)
         of the Inventory consumed and Unused Inventory, Bonepile Inventory, and
         Unassigned Finished Goods remaining at such month end in each
         Facility. In addition, the Purchaser shall provide, for each
         Facility and for each facility to which the Purchaser or a Designated
         Purchaser has transferred Products during the Inventory Put Period,
         at the end of the applicable put period a list of all inventory of
         the Purchaser or Designated Purchaser of the same kinds as the
         Inventory (by a format similar to Schedule 1.1(113)). At any time
         prior to exercising the applicable put option, if the Purchaser
         believes any Inventory purchased hereunder is likely to be Unused
         Inventory or Unused Unassigned Finished Goods, it shall advise the
         Seller on a reasonably timely basis of such likely Unused Inventory or
         Unused Unassigned Finished Goods, and shall act in good faith to (a)
         assist the Seller to identify opportunities (such as demand trends,
         current forecasts or cross sales) to use or consume such likely Unused

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         Inventory or Unused Unassigned Finished Goods prior to exercising of
         the applicable put option, and (b) identify any cost-effective
         opportunities for Purchaser to use or consume such likely Unused
         Inventory at other Facilities or sites, to the extent practicable;
         provided, however, that such action by Purchaser and Seller shall not
         be a condition to the exercise of the applicable put option and the
         failure by Purchaser to take any such action shall not limit
         Purchaser's rights under this Section 5.15.

(7)      After exercising the applicable put option, the Unused Inventory or
         Unused Unassigned Finished Goods Inventory, as the case may be, shall
         at the option of the Seller or Designated Seller be managed on a
         consignment basis by the applicable provisions of the Amended and
         Restated Master Contract Manufacturing Services Agreement.

SECTION 5.16 EQUIPMENT PUT OPTION

(1)      The Purchaser and the Designated Purchasers shall have the following
         options to sell to Seller or the Designated Sellers:

         (a)      all Initial Obsolete Equipment (" INITIAL OBSOLETE EQUIPMENT
                  PUT OPTION" ); and

         (b)      all Subsequent Obsolete Equipment (" SUBSEQUENT OBSOLETE
                  EQUIPMENT PUT OPTION" ).

(2)      Notwithstanding the foregoing, the amount of the Initial Obsolete
         Equipment and Subsequent Obsolete Equipment shall be deemed to be
         reduced by:

         (a)      the amount of Substitutable Equipment purchased or leased by
                  the Purchaser or Designated Purchasers or one of its
                  Affiliates, if any, during the applicable put period , unless
                  such purchased or leased Substitutable Equipment is required
                  to support forecasted requirements in excess of that support
                  by the Initial Obsolete Equipment and Subsequent Obsolete
                  Equipment;

         (b)      Equipment which is lost, stolen, destroyed or otherwise
                  damaged (ordinary wear and tear excluded) during the
                  applicable put period ; and

         (c)      Equipment that has a depreciated value at the end of the
                  applicable put period of less than five thousand dollars
                  ($5,000) (as calculated in accordance with the provisions of
                  Section 1.1(79)) shall be excluded from the Initial Obsolete
                  Equipment Put Option or the Subsequent Equipment Put Option.

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(3)      If the Purchaser believes at any time prior to the applicable Equipment
         Usage Period or Subsequent Equipment Usage Period that any Equipment is
         likely to be Initial Obsolete Equipment or Subsequent Obsolete
         Equipment, the Purchaser shall advise the Seller on a reasonably
         timely basis of such likely Initial Obsolete Equipment or Subsequent
         Obsolete Equipment and the Purchaser agrees to act in good faith to (a)
         assist the Seller to identify opportunities to use such Initial
         Obsolete Equipment or Subsequent Obsolete Equipment prior to such
         exercise of the applicable put option and (b) identify any
         cost-effective opportunities for Purchaser to use such Initial Obsolete
         Equipment or Subsequent Obsolete Equipment including at other
         Facilities or Purchaser sites, to the extent practicable, provided
         that such action by Purchaser and Seller shall not be a condition to
         the exercise of the applicable put option, and the failure by Purchaser
         to take any such action shall not limit Purchaser's rights under this
         Section 5.16.

(4)      The applicable put option may be exercised by the Purchaser within
         sixty (60) days after the expiration of the Equipment Put Usage Period
         or Subsequent Equipment Usage Period, as the case may be, by sending a
         notice in writing to the Seller specifying (i) the identity of the
         Initial Obsolete Equipment or Subsequent Obsolete Equipment; (ii) the
         purchase price for the Initial Obsolete Equipment or Subsequent
         Obsolete Equipment paid pursuant to this Agreement, less applicable
         depreciation under GAAP (individually or collectively, the "EQUIPMENT
         PUT PURCHASE PRICE"); and (iii) that the Initial Obsolete Equipment or
         Subsequent Obsolete Equipment has been calculated and determined in
         accordance with Section 5.16(1) and Section 5.16(2). The Seller shall
         have ten (10) Business Days within which to discuss with the Purchaser
         and the Purchaser shall make itself available to discuss with the
         Seller any questions or outstanding issues with respect to the
         Purchaser's exercise of the applicable put option. The Seller shall
         either (i) pay, or cause the applicable Designated Seller to pay, to
         the Purchaser the Equipment Put Purchase Price, within thirty (30)
         Business Days of receipt of each notice of exercise of the applicable
         put option, or (ii) send a written notice to the Purchaser within
         twenty (20) Business Days of receipt of each notice of exercise of the
         applicable put option that it objects to the calculation of the
         Equipment Put Purchase Price, failing which the Seller shall be deemed
         to have accepted the Equipment Put Purchase Price calculation. Any such
         written notice of objection from the Seller must state (a) the specific
         items of Initial Obsolete Equipment or Subsequent Obsolete Equipment
         which the Seller contends should not be included within the Equipment
         to be repurchased, and (b) the basis for its position with respect to
         each of such items of Initial Obsolete Equipment or Subsequent Obsolete
         Equipment which will be limited to mathematical errors or matters of
         the nature described in Section 5.16(1) and Section 5.16(2) above. In
         addition, any such

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         written notice of objection must be accompanied within ten (10)
         Business Days by payment in full for the items of Initial Obsolete
         Equipment or Subsequent Obsolete Equipment which are not subject to
         such written notice of objection.

(5)      If any of the Initial Obsolete Equipment or Subsequent Obsolete
         Equipment subject to put option by the Purchaser or applicable
         Designated Purchaser is not Transferable Equipment (i.e., a leasehold
         interest only in favour of the Purchaser or Designated Purchaser), then
         the remedy for exercising the Initial Obsolete Equipment Put Option or
         Subsequent Obsolete Equipment Put Option, as the case may be, is not
         for the Seller or Designated Seller to pay an Equipment Purchase Price
         for such equipment, but rather for the Purchaser or Designated
         Purchaser, as determined by the Purchaser in its sole reasonable
         discretion, (i) to terminate the applicable lease without cost or
         penalty to the Purchaser or Designated Purchaser, or (ii) to reassign
         the applicable lease back to the Seller or Designated Seller without
         cost or penalty to the Purchaser or Designated Purchaser.

(6)      If the Seller objects to the Equipment Put Purchase Price calculation
         pursuant to Section 5.16(1) and Section 5.16(2) above then either the
         Seller or the Purchaser may refer the matter in writing to the
         Independent Accountant, who will promptly resolve the issue after
         discussions with each of the Seller and the Purchaser and in
         consideration of the concerns of each of the Seller and the Purchaser,
         and will prepare an Equipment Put Purchase Price schedule which
         shall be final and binding on the Seller and the Purchaser. The Seller
         shall pay, or cause the applicable Designated Seller to pay, to the
         Purchaser the balance of the Equipment Put Purchase Price determined
         by the Independent Accountant (acting as an expert and not as an
         arbitrator) within ten (10) Business Days of any such determination,
         together with interest thereon at a rate equal to six percent (6%) per
         annum, calculated from the last date notice of objection was due
         pursuant to Section 5.16(1) and Section 5.16(2) above.

(7)      At the request of the Seller, the Purchaser shall provide to the
         Seller, to the extent reasonably practicable, such regular written
         reports relating to the Equipment (including Transferable Equipment
         deemed included in Owned Equipment pursuant to Section 5.14) as
         Seller may reasonably request as may be necessary to enable the Seller
         to comply with its statutory financial reporting requirements in
         relation to the accounting of the Equipment.

SECTION 5.17 CONSIGNMENT OBLIGATIONS

         All Inventory and Repair Inventory used in connection with the Products
and not purchased by the Purchaser or Designated Purchaser because it is not
forecasted

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to be used by the Purchaser in the twelve (12) months from the applicable
Closing will be deemed "Consigned Inventory" as defined in the Amended and
Restated Master Contract Manufacturing Services Agreement and the Repair
Services Agreement, respectively, and as of the applicable Closing Date is
consigned to the Purchaser or Designated Purchaser in accordance with such
agreements.

SECTION 5.18 [***]

         [***]

SECTION 5.19 OPERATIONS AT CHATEAUDUN FACILITY

         Except as otherwise provided for in Section 5.28, prior to the Closing
with respect to the Assets located at the Chateaudun Facility, the Seller shall
cause the entity owning such Assets to contribute such Assets (including the
French Real Estate but excluding the intangible assets described in Section
2.1(1) to French Newco, and shall cause such entity to assume any associated
Assumed Liabilities. The Purchaser and the Seller each undertakes to comply with
the provisions of Article 34 of Decree no. 77-1133 of September 21, 1977 .by
notifying the relevant prefect (prefet) of the change in the operation of the
Chateaud  Facility as soon as practicable, and in any event within thirty
(30) days the contribution of the French Assets to French New co.

SECTION 5.20 GDNT ASSET SALE DISCUSSIONS

         The Primary Parties agree to enter into principled negotiations within
one hundred and eighty (180) days of the initial Closing to discuss a
possible transaction whereby the Seller would transfer to the Purchaser
certain assets of Guandong-Nortel Limited Liability Company ("GDNT ASSETS")
on mutually beneficial terms and conditions. The Primary Parties acknowledge
that there is no positive obligation to transfer the GDNT Assets arising from
this Section 5.20 and this covenant does not constitute a right of refusal for
either Purchaser or the Designated Purchasers to purchase the GDNT Assets.

SECTION 5.21 MONKSTOWN INCENTIVE GRANT

         The Seller received certain financial incentives from the Department of
Enterprise, Trade and Investment acting through the Executive of the Industrial
Development Board of Northern Ireland ("MONKSTOWN DEVELOPMENT AGENCY"),
pursuant to a financial assistance agreement dated February 14, 2001 between
Nortel PLC and the Department of Enterprise ("MONKSTOWN GRANT") in exchange
for agreeing to maintain certain employment levels at the Monkstown Facility.
The Seller and the Purchaser agree to approach the Monkstown Development Agency

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*** Portions of this exhibit have been omitted pursuant to a request for
    confidential treatment and that material has been filed separately with the
    Securities and Exchange Commission.


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within two (2) weeks of the date hereof to negotiate in good faith an
apportionment between the Parties of the repayment obligations related to the
Monkstown Grant, in order that Purchaser or a Designated Purchaser shall
assume a share of the financial obligations thereunder based upon the
proportion that the Transferring Employees at Monkstown Facility, represent of
the total number of Designated Seller employees at Monkstown. If the Monkstown
Development Agency agrees to such apportionment, the execution and delivery of
the appropriate assumption document by Purchaser or a Designated Purchaser
shall be added as a Closing condition to this Agreement under Article 8,
provided, however, the Seller shall indemnify and hold harmless the
Purchaser and its Affiliates from and against all Losses that the Purchaser or
any of its Affiliates may suffer, sustain or become subject to as a result of
the Monkstown Grant (including any portion thereof assumed by Purchaser or a
Designated Purchaser) or as a result of the failure by Seller or its Affiliates
to comply with the terms and conditions thereof or maintain any required level
of employment. The Purchaser or a Designated Purchaser shall promptly notify
Seller of (1) any anticipated reduction in the number of employees at the
Monkstown Facility; and (2) any claim asserted by the Monkstown Development
Agency, and shall permit Seller to negotiate with the Monkstown Development
Agency in order to reduce or eliminate any amounts claimable or claimed.

SECTION 5.22 VSHA PRICE SETTING

         No later than forty-five (45) days prior to the anticipated initial
Closing Date, each of Seller and Purchaser shall cause their respective pricing
teams to meet and negotiate in good faith, and in accordance with the pricing
process agreed upon by the Parties prior to the date hereof, the prices for the
Products to be ordered by Seller pursuant to the Amended and Restated Master
Contract Manufacturing Services Agreement's Virtual Systems House Agreements
related to the respective Facility VSHA's. The Parties acknowledge that their
intent is to have the VSHA Product prices set no later than ten (10) days prior
to the anticipated Facility applicable Closing Date.

SECTION 5.23 EQUIPMENT AT THIRD PARTY LOCATIONS

         The Seller shall take such action as may be necessary or appropriate in
order that the Purchaser and the applicable Designated Purchaser shall have
reasonable access to any Equipment at Third Party Locations, and Seller shall
after the relevant Closing Date cooperate with the Purchaser as reasonably
requested to facilitate access to such Equipment at Third Party Location in
order for the Purchaser or Designated Purchaser to relocate such Equipment at
Third Party Locations to a Facility.

SECTION 5.24 CUCW COLLECTIVE LABOUR AGREEMENT

         The Seller and its Affiliates shall not enter into any amendment,
modification, replacement or supplement to the Collective Labour Agreement
between the Seller

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and the CUCW without the prior written consent of Purchaser, which consent
shall not be unreasonably withheld.

SECTION 5.25 COVENANT NOT TO SUE

         Notwithstanding any other provisions of this Agreement, Purchaser,
Designated Purchasers and its or their respective Affiliates and employees,
agents or customers shall have the unrestricted right to use for any purpose the
Residual Knowledge. Each of the Seller and each of the Designated Sellers, on
behalf of themselves and their Affiliates irrevocably release Purchaser,
Designated Purchasers and its or their respective Affiliates, agents, employees
or customers, from any and all causes of action, claims, of any kind whatsoever
which it may have, arising after the first Closing Date, with respect to the
use by the Purchaser, any Designated Purchaser or any of its or their
Affiliates, agents, employees or customers, of the Residual Knowledge and
agrees not to claim or assert that any such use violates any Intellectual
Property rights of Seller or any Designated Seller. The rights of Purchaser,
Designated Purchasers and its or their respective Affiliates, employees, agents
and customers to use Residual Knowledge in accordance with this Agreement will
not be deemed to grant to Purchaser, Designated Purchasers and its or their
respective Affiliates, agents or customers any rights or licenses under the
Seller's or any of its Affiliate's patents, copyrights or trademarks.

SECTION 5.26 POST CLOSING TAX LIENS

         If after the relevant Closing Date a Lien, other than a Permitted
Encumbrance, which relates to Taxes for any period or portion thereof ending
prior to the relevant Effective Time is asserted against or placed on any of the
Assets, Seller shall, or shall use its reasonable best efforts to cause the
appropriate Designated Seller to, satisfy such Lien and cause it to be released;
provided, however, that if the Seller or Designated Seller, as applicable, is in
good faith contesting a Lien in accordance with applicable Law, then so long as
Seller or Designated Seller, as applicable, is diligently pursuing such action
it may continue to dispute such Lien to the conclusion of the action (but shall
take all steps, including but not limited to the posting of a bond or other
security, that may be necessary to enable the Purchaser or a Designated
Purchaser, as applicable, may have the use and benefits of such Assets while the
action is proceeding and may dispose of or sell such Assets free of such Lien).

SECTION 5.27 EMPLOYER PAYROLL CONTRIBUTION REIMBURSEMENT

(1)      To the extent that the Excess CPP/ QPP/ EI Amount is not recovered by
         the Purchaser or Designated Purchaser under the Product prices
         (although the intent of the Parties is not to include it at this time)
         under the Amended and Restated Contract Manufacturing Services
         Agreement, the Seller agrees to pay one half (1/2) of the Excess CPP/
         QPP/ EI Amount to the Purchaser.

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(2)      Within ninety (90) days following the end of the calendar year in which
         an applicable Closing has occurred, Seller shall send to Purchaser a
         statement showing the Total Seller CPP/ QPP/ EI Payments and the
         Maximum CPP/ QPP/ EI Amounts for such year and Purchaser shall send to
         Seller a statement showing the Total Purchaser CPP/ QPP/ EI Payments
         for such year. If a Party desires to review the basis for the statement
         from the other Party it shall have thirty (30) days following receipt
         of such statement in which to do so, and the Party which sent the
         statement shall allow the other Party access to such information as may
         be reasonably required to allow the receiving Party to review the
         amounts indicated in such statement. Following the end of such thirty
         (30) day period, the Seller shall promptly prepare a final statement
         listing the Total Seller CPP/ QPP/ EI Payments, the Total Purchaser
         CPP/ QPP/ EI Payments, the Maximum CPP/ QPP/ EI Amount and the Excess
         CPP/ QPP/ EI Amount, and shall send such final statement and one-half
         (1/2) of the Excess CPP/ QPP/ EI Amount, if any, to the Purchaser.

(3)      If either Party disputes the amount shown on the other Party's initial
         statement (e.g., the Total Seller CPP/ QPP/ EI Payment or the Total
         Purchaser CPP/ QPP/ EI Payments), any such dispute shall be submitted
         to the Independent Accountant for resolution, and the cost relating
         thereto shall be borne as set forth in Section 9.27.

SECTION 5.28 TRANSFER OF ASSETS TO FRENCH NEWCO

(1)      No later than the French Facility/ Design Closing, the Seller shall
         cause the applicable Designated Seller to transfer all of the French
         Contributed Assets to French Newco by way of contribution, and shall
         cause French Newco to assume any associated Assumed Liabilities. The
         Seller shall consult with the Purchaser to the extent practicable
         regarding the formation of French Newco.

(2)      As of the French Designated Closing, French Newco shall (i) have no
         activity other than the Operations at the Chateaudun Facility, (ii)
         hold no assets other than its share capital and the French Contributed
         Assets, and (iii) not have carried on the business as a going concern
         for more than three (3) Business Days prior to the applicable Effective
         Date and any liability, not incurred in the ordinary course, for any
         such short period shall be addressed through an appropriate adjustment
         mechanism to the French Newco share value or an appropriate asset/
         liability adjustment.

(3)      The Seller shall be responsible to complete or cause to complete all
         formalities required by French law with respect to the contribution to
         French Newco (i) that have to be carried out prior to or concurrent
         with the completion of such contribution, or (ii) that have to be
         carried out subsequent to the completion of such contribution and may
         practically be completed prior to or


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         concurrent with the French Facility/Design closing. The Seller and the
         Purchaser each undertake to cooperate in order to complete or cause to
         complete all formalities required by French law with respect to the
         contribution to French Newco that have to be carried out subsequent to
         the completion of such contribution and could not practically be
         completed prior to or concurrent with the French Facility/ Design
         Closing.

(4)      The Seller undertakes to cause French Newco to comply with the
         provisions of Article 34 of Decree no. 77-1133 of September 21, 1977 by
         notifying the relevant prefect (prefet) of the change in the operation
         of the Chateaudun Facility as soon as practicable after the completion
         of the contribution to French Newco, and in any event no later than the
         French Facility/ Design Closing.

(5)      Notwithstanding the other provisions of this Section 5.28 or otherwise
         in this Agreement, in the event (i) the Parties have mutually agreed to
         proceed with the establishment of French Newco as set forth in Section
         5.28(i) , and (ii) that the applicable Designated Seller is unable
         prior to August 1, 2005 to produce the audited financial statements
         required to effect the transfer the French Contributed Assets to French
         Newco as set forth in Section 5.28(1), the Parties acknowledge and
         agree that instead of a sale of the shares of French Newco as
         contemplated in Section 2.1(1)(p), the French Contributed Assets shall
         be sold instead through an asset transaction in the same manner as for
         the other Facility/ Design Closings referenced in Article 2. In such
         case, notwithstanding Section 5.6(6), Purchaser shall not be
         responsible for any of the costs of establishing French Newco and the
         Seller shall also reimburse the Purchaser for one-half (1/2) of the
         carry costs of any Refundable Taxes for up to a nine (9) month period
         arising as a result thereof, based on an assumed carrying cost interest
         rate for this period equal to six (6%) percent per annum.

(6)      Notwithstanding the other provisions of this Section 5.28 or otherwise
         in this Agreement, in the event the Parties do not proceed with the
         establishment of French Newco as set forth in Section 5.28(1) on the
         basis that either (i) the transfer of the French Contributed Assets
         cannot be made effective within three (3) Business Days of the
         Effective Time of the French/ Design Closing or, (ii) either Party
         determines not to proceed with the establishment of French Newco within
         two (2) weeks of the signing of this Agreement, the Parties acknowledge
         and agree that instead of a sale of the shares of French Newco as
         contemplated in Section 2.1(1)(p), the French Contributed Assets shall
         be sold instead through an asset transaction in the same manner as for
         the other Facility/ Design Closings referenced in Article 2. In such
         case, the costs of establishing French Newco, including the allocation
         of all the related Transfer Taxes, shall be as set forth in Section
         5.6(6).

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SECTION 5.29 REIMBURSEMENT FOR FRENCH ACCRUALS

         The Seller shall reimburse the Purchaser and the Designated Purchasers
at any time after Closing for amounts accrued as of Closing for the French
Transferring Employees (and subsequently paid out to these French Transferring
Employees) in relation to any retraite and medaille du travail entitlements,
determined in accordance with GAAP and such amounts jointly reviewed by the
Parties prior to the applicable Facility/ Design Closing. The Seller maintains
the right in its sole discretion to pay out to the Purchaser at any time the per
employee lump sum amount (as such amounts are updated using the calculation
methodology used by and consistent with the books and records of the
Designated Seller and confirmed as at the applicable Facility/ Design Closing
Date, provided that such methodology is in accordance with GAAP) for each
French Transferring Employee who at that time is employed by Purchaser or
Designated Purchasers.

SECTION 5.30 RESTATEMENT ADJUSTMENTS

         To the extent that completion of the restatement of the Seller's
financial statements disclosed in Schedule 4.3 occurs after an applicable
Closing Date and results in further adjustment to the books and records of the
Seller or Designated Sellers such that the values set forth in the applicable
Closing Statement of Assets and Liabilities would have been more favourable to
the Purchaser if such Statement had reflected the restated amounts, then,
notwithstanding the period for adjustments or disputes set forth in Section 2.4
shall have passed, there shall be a corresponding adjustment to the applicable
Closing Statement of Assets and Liabilities in accordance with the provisions
set forth in Section 2.4.

SECTION 5.31 MINDREADY EMPLOYEES

         The Parties intend a Master Services Agreement between Nortel Networks
Limited and Mindready Solutions Inc. " MINDREADY" ) dated January 27, 2002 for
the provision of calibration and test building services be assigned to Purchaser
or a Designated Purchaser. However, as the CUCW filed a labour grievance against
Seller, regarding Seller's business transaction with Mindready (" THE GRIEVANCE"
), which has not yet been finally adjudicated, the Parties agree as follows:

(1)      If prior to the applicable Closing Date, Arbitrator Lussier's
         arbitration decision (relating to the Grievance) is upheld following
         judicial review, or alternatively, Seller settles the Grievance with
         the CUCW and, as a consequence, certain Mindready employees become
         employees of Seller or Designated Seller, then:

         (a)      the names and related Employee Information of such individuals
                  (or their replacements, given that the list of individuals is
                  subject at all times to change in accordance with the
                  provisions of the CUCW Collective Labour Agreement) will be
                  added to the Employee

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                  Schedules as contemplated in Section 5.1(3)(a), and they shall
                  become Transferring Quebec Employees and be employed by
                  Purchaser or Designated Purchaser on the terms and conditions
                  of the CUCW Collective Labour Agreement and in accordance with
                  the provisions of Article 6 and Exhibit D-5, and

         (b)      the Mindready contract will be removed from the list of
                  "Assumed Contracts" and will be retained by Seller.

(2)      If on the applicable Closing Date, Arbitrator Lussier's arbitration
         decision has not been finally adjudicated or settled and, as a
         consequence, the individuals remain employees of Mindready, then the
         Mindready contract shall be an Assumed Contract, with the result that
         Flextronics will be required to use such Mindready employees to perform
         calibration and test set build work.

(3)      If subsequent to the applicable Closing Date, and thus following
         Purchaser or Designated Purchaser's assumption of the Mindready
         contract, Arbitrator Lussier's arbitration decision is upheld following
         judicial review, or alternatively, Seller settles that Grievance with
         the CUCW and, as a consequence, certain Mindready employees become
         employees of Seller or Designated Seller, then:

         (a)      the Parties will enter into a post-Closing amendment to this
                  Agreement in order that the individuals be treated in the same
                  manner as if they had been Transferring Quebec Employees as of
                  the applicable Closing Date, and they shall be employed by
                  Purchaser or Designated Purchaser on the terms and conditions
                  of the CUCW Collective Labour Agreement and in accordance with
                  the provisions of Article 6 and Exhibit D-5, and

         (b)      if the Mindready contract cannot, as a result of any terms and
                  conditions existing in such contract at the applicable Closing
                  Date and not as a result of any actions or omission by
                  Purchaser or Designated Purchaser, be terminated by Purchaser
                  or Designated Purchaser without additional cost, the Purchaser
                  or Designated Purchaser shall assign the Mindready contract
                  back to Seller.

(4)      If subsequent to the applicable Closing Date Arbitrator Lussier's
         arbitration decision is reversed following final judicial review and,
         as a consequence, the individuals remain employees of Mindready, then
         the Mindready contract shall remain an Assumed Contract of Purchaser or
         Designated Purchaser.

(5)      If any action taken by the parties pursuant to this Section 5.31 would
         have, or could reasonably have been expected to have, affected the
         Product pricing

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         (whether upward or downward) had such action been taken prior to the
         completion of the VSHA pricing setting process set forth in Section
         5.22, then the applicable Parties agree to follow, after the applicable
         Closing, the process set forth in Section 11.1.1 of the Amended and
         Restated Master Contract Manufacturing Services Agreement for
         renegotiating "Prices" (as that term is defined therein) to reflect
         such action.

SECTION 5.32 SECURITY DOCUMENTATION

         The Purchaser shall deliver at the first Facility/ Design Closing the
Security Documentation in customary form acceptable to the Seller and the
Purchaser and containing such provisions as are necessary or appropriate to
provide the Seller with a first priority (subject to permitted encumbrances)
fully perfected security interest in the shares of French Newco, the Equipment
and the Inventory (collectively, the "SECURED ASSETS"). If and to the extent
the Purchaser causes a Designated Purchaser (other than the Purchaser) to
purchase all or a portion of the Secured Assets, then the Purchaser shall cause
such Designated Purchaser, on or prior to the Closing in respect of the relevant
Secured Assets, to agree to be bound by this Agreement in respect of such
Secured Assets as if it were the Purchaser under this Agreement, but without
prejudice to the liabilities of the Purchaser hereunder, or enter into with the
Seller or applicable Designated Seller of the relevant Secured Assets an asset
purchase agreement in substantially the form of this agreement and the Purchaser
shall guarantee, and cause such Designated Purchaser to perform, all of the
obligations of such Designated Purchaser under this Agreement, any other asset
purchase agreement executed and delivered pursuant hereto and any other
agreement or instrument delivered pursuant to this Agreement or any such other
asset purchase agreement. The Purchaser or applicable Designated Purchaser shall
also be permitted after the first Facility/ Design Closing to have an Affiliate
of the Purchaser purchase all or a portion of the Secured Assets provided the
same procedure in relation to the sale of the Secured Assets from the Purchaser
to the Designated Purchaser (other than the Purchaser) is followed, mutatis
mutandis.

SECTION 5.33 FACILITIES LICENSES

         No later than forty-five (45) days prior to the anticipated first
Closing Date, each of Seller and Purchaser shall determine, and in the event of
any disagreements shall negotiate in good faith with a view towards reaching
agreement by such date as to use (i) which sites, in addition to those at which
the Design Operations are conducted at the Ottawa Lab 2/ Lab 10 Facility and the
Monkstown Facility, will be the subject Licenses of Space, (ii) the space to be
licensed in each such site, (iii) the fees to be paid under each License of
Space (which represent the Seller's costs of owning and maintaining the space to
be licensed); (iv) the term of each License of Space; and (v) any other
modifications that may be appropriate to the form of License of Space. The
Parties acknowledge that their intent is to have the cost of the Licenses of
Space determined prior to the establishment of the initial VSHA Product

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prices. Notwithstanding any general obligation of the Parties to mitigate Losses
pursuant to the terms of this Agreement or otherwise under applicable Law, the
Parties expressly acknowledge and agree that, if the Seller or its Affiliate
intends to market the Monkstown Facility either (i) for lease as a complete
facility, or (ii) for sale, then the Seller and its Affiliates shall not be
required to mitigate the Monkstown Real Property Losses through the leasing or
licensing of space at the Monkstown Facility to any third party (which for
greater certainty includes any Affiliate of the Seller or Designated Sellers.)

SECTION 5.34 ANNUAL INCENTIVE BONUS

(1)      In the event that Seller decides to award SUCCESS bonuses to eligible
         Employees in respect of SUCCESS Plan year 2004, such Employees whose
         Employment Transfer Date occurs in calendar year 2004 will receive a
         bonus payment at or about the same time in 2005 that other eligible
         Seller employees receive their bonus payment. Transferred Employees'
         bonus will be paid by Purchaser or Designated Purchaser in an amount
         that is equal to the amount such Transferred Employee would have
         received, in Seller's sole discretion, had he or she remained an
         employee of Seller or Seller Affiliate through calendar year 2004, and
         satisfied any and all other criteria required by Seller. Any such
         payment is deemed not to be a payment under the Nortel Networks SUCCESS
         Plan.

         The amount of the bonus that will be paid by the Purchaser or
         Designated Purchaser and the rules for determining the amount of the
         bonus, shall be determined by Seller in its sole discretion. The
         Purchaser or Designated Purchaser agree to make payment of the bonus to
         each Transferred Employee within forty five (45) calendar days
         following written notice from Seller as to the amount of the bonus with
         respect to each Transferred Employee. For the avoidance of doubt, the
         Purchaser or Designated Purchaser's obligation to make payment of the
         bonuses shall be an Assumed Liability.

         Seller shall reimburse Purchaser the Seller's pro-rata share of any
         bonus amounts paid, together with any payroll taxes required to be paid
         by Purchaser or the Designated Purchaser with respect to such bonus
         amounts paid based on the number of months in 2004 the Transferred
         Employee was employed by Seller or Designated Seller. For the avoidance
         of doubt, Seller's pro-rata share of the bonus payments shall be an
         Excluded Liability.

(2)      In the event that Seller decides to award SUCCESS bonuses to eligible
         Employees in respect of SUCCESS Plan year 2004, such Employees whose
         Employment Transfer Date occurs in calendar year 2005 will receive a
         2004 bonus payment at or about the same time in 2005 that other
         eligible Seller

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         employees receive their bonus payment. The bonus will be paid directly
         by Seller to the Employees.

(3)      In the event that Seller decides to award SUCCESS bonuses to eligible
         Employees in respect of SUCCESS Plan year 2005, any such Employee whose
         Employment Transfer Date occurs in calendar year 2005 will receive a
         bonus payment at or about the same time in 2006 that other eligible
         Seller employees receive their bonus payment. Transferred Employees'
         bonus will be paid by Purchaser or Designated Purchaser. Any such
         payment is deemed not to be a payment under the Nortel Networks SUCCESS
         Plan and the payment will be equal to a pro rata portion of the bonus
         that would have been payable for the full year, based on the number of
         months in 2005 that the Transferred Employee was employed by Seller or
         Seller Affiliate. The actual amount of the bonus that is paid by the
         Purchaser or Designated Purchaser and the rules for determining the
         amount of the bonus, shall be determined by Seller in its sole
         discretion. The Purchaser or Designated Purchaser agrees to make the
         bonus payment to each Transferred Employee within forty five (45)
         calendar days following written notice from Seller as to the amount of
         the bonus with respect to each Transferred Employee. For the avoidance
         of doubt, the Purchaser or Designated Purchaser's obligation to make
         payment of the bonuses pursuant to this subsection shall be an Assumed
         Liability.

         Seller shall reimburse Purchaser the bonus amounts paid by Purchaser
         pursuant to this subsection together with any payroll taxes required to
         be paid by Purchaser or the Designated Purchaser with respect to each
         bonus amount paid. For the avoidance of doubt the bonus payments paid
         by Purchaser pursuant to this subsection are an Excluded Liability.

                                    ARTICLE 6
                     EMPLOYMENT AND EMPLOYEE BENEFIT MATTERS

SECTION 6.1 GENERAL

         Each of the Parties agrees as follows in connection with matters
relating to employment and employee benefits:

         (a)      The Parties agree to, and agree to cause their Affiliates to,
                  comply with the provisions set forth in Article 6 and Exhibit
                  D-1 through D-9B and the other Transaction Documents with
                  regard to the treatment of the Transferring Employees;

         (b)      Seller and Purchaser agree as to certain employment and
                  employee benefit matters including the allocation of
                  responsibility for certain associated liabilities as set forth
                  in Article 6 and Exhibit D-1 through D-9B;

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         (c)      For a period not less than eighteen (18) months following the
                  Effective Date, the Purchaser and the Designated Purchasers
                  shall not, except with the Seller's prior written consent,
                  solicit for employment or hire any of the employees of the
                  Seller or Designated Sellers who continue employment with or
                  voluntarily terminate employment with the Seller or Designated
                  Sellers or any Employees who have rejected the employment
                  offer of the Purchaser or Designated Purchasers or objected to
                  their transfer of employment to the Purchaser or Designated
                  Purchasers pursuant to this Agreement. Notwithstanding the
                  foregoing, nothing in this Section 6.1(c) shall prevent the
                  Purchaser or the Designated Purchasers from (i) conducting
                  generalized employment searches that are not focused on such
                  employees or former employees of the Seller or Designated
                  Sellers or (ii) hiring such employees or former employees of
                  the Seller or Designated Sellers identified through such
                  employment searches;

         (d)      For a period not less than eighteen (18) months following the
                  Effective Date, the Seller and the Designated Sellers shall
                  not, except with the Purchaser's prior written consent,
                  solicit for employment or hire any Transferring Employee; and

         (e)      Seller and Purchaser agree that there will be no transfer
                  (from Seller to Purchaser) of any assets or liabilities with
                  respect to any accrued pension benefits or other
                  employment-related benefits accrued as of the applicable
                  Closing Date, with the exception of vacation days as set out
                  in Schedule 4.12(9) or as otherwise required by applicable
                  Law.

                                   ARTICLE 7
                          SURVIVAL AND INDEMNIFICATION

SECTION 7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES

         All representations, warranties, covenants and agreements set forth in
this Agreement, the Local Sale Agreements, the Shared Services Agreement, the
Nortel Proprietary Software License Agreement, or in any writing or certificate
delivered at a Closing in connection with such Closing shall survive the
Closings. Notwithstanding anything to the contrary in this Agreement, the Local
Sale Agreement, the Shared Services Agreement, the Brazil Asset Purchase
Agreement or the Nortel Proprietary Software License Agreement with respect to
(i) the representations and warranties contained in any such agreement and (ii)
the covenants and agreements contained in any such agreement that by their terms
contemplate compliance or performance prior to or concurrent with the applicable
Closing, no Party will have any liability with respect thereto and no Party will
be entitled to recover any indemnification for any Losses pursuant to any such
agreement or otherwise recover in respect thereof unless written notice of a
claim for

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Losses (given in good faith and specifying, in reasonable detail, the nature
thereof) is delivered to the applicable Party pursuant to the notice provisions
of Section 9.10 before the Applicable Notice Date. For purposes of this
Agreement, the term "APPLICABLE NOTICE DATE" shall mean the date eighteen (18)
months after the last Closing Date; provided, however, that with respect to any
Loss arising from or related to:

         (a)      a breach of the representations and warranties of the
                  Purchaser set forth in Section 3.1 and Section 3.2, or a
                  breach of the representations and warranties of the Seller set
                  forth in Section 4.1, Section 4.2, Section 4.3, Section 4.16,
                  Section 4.18(a) and Section 4.20, or a breach of the covenants
                  of the Purchaser and the Seller set forth in Section 5.3, the
                  Applicable Notice Date shall be three (3) years following the
                  last Closing Date;

         (b)      a breach of the representations and warranties of the Seller
                  set forth in Section 4.11 and Section 4.12 and a breach of the
                  representations and warranties of the Purchaser set forth in
                  Section 3.6, the Applicable Notice Date shall mean the two (2)
                  year anniversary of the relevant Employee Transfer;

         (c)      a breach of the representations and warranties of the Seller
                  set forth in Section 4.7, a breach of the representations and
                  warranties of the Purchaser set forth in Section 3.3, and a
                  breach of the covenants of the Purchaser and the Seller set
                  forth in Section 5.6(2), the Applicable Notice Date shall be
                  no later than the expiry of the applicable statute bar date or
                  upon a final determination either by a Tax authority or a
                  court or tribunal of competent jurisdiction;

         (d)      a breach of the payment obligation of the Seller pursuant to
                  Section 5.15 and Section 5.16, the Applicable Notice Date
                  shall mean the two (2) year anniversary from the relevant
                  Closing Date; and

         (e)      any obligation or liability of the Seller or a Designated
                  Seller to Third Parties which arises out of or is related to
                  the Assets or the conduct of any part of the Operations by the
                  Seller, any Designated Seller or any of the Seller's
                  Affiliates prior to the relevant Effective Time and that is
                  not an Assumed Liability or otherwise assumed by the Purchaser
                  or a Designated Purchaser pursuant to this Agreement, the
                  Local Sale Agreements, the Shared Services Agreement, the
                  Brazil Asset Purchase Agreement and the Nortel Proprietary
                  Software License Agreement the Applicable Notice Date shall be
                  the expiry of the applicable statute bar date;

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         (f)      any obligation or liability of the Purchaser or a Designated
                  Purchaser to Third Parties which arises out of or is related
                  to the Assets, the Assumed Liabilities, or the conduct of any
                  part of the Operations by the Purchaser, any Designated
                  Purchaser or any of Seller's Affiliates from and after the
                  relevant Effective Time except to the extent such liability or
                  obligation is a liability or obligation of the Seller or any
                  Designated Seller pursuant to this Agreement, the Local Sale
                  Agreements, Shared Services Agreement, the Brazil Asset
                  Purchase Agreement and the Nortel Proprietary Software License
                  Agreement the Applicable Notice Date shall be the expiry of
                  the applicable statute bar date; and

         (g)      any intentional misrepresentation or fraud, the Applicable
                  Notice Date shall be the expiry of the applicable statute bar
                  date.

         For greater certainty, the provisions of this Article 7 shall not
         apply, without limitation, to the PRBA, the Amended and Restated Master
         Contract Manufacturing Services Agreement, each Real Property Lease,
         the Confidentiality Agreement, the Repair Services Agreement, and the
         Logistics Services Agreement.

SECTION 7.2 INDEMNIFICATION OBLIGATIONS OF THE SELLER

(1)      Subject to the other provisions of this Article 7, the Seller shall
         indemnify and hold harmless the Purchaser and its Affiliates and, to
         the extent named in any Third Party Action, any of the Purchaser's or
         its Affiliates' employees (other than Transferring Employees themselves
         with respect to their actions or inactions on or prior to their
         Employment Transfer Date), officers or directors (collectively, the
         "PURCHASER INDEMNITEES") from and against any Losses that any Purchaser
         Indemnitee may suffer, sustain or become subject to, as a result of:

         (a)      the breach by the Seller or any of its Affiliates of any
                  representation or warranty made by the Seller or any of its
                  Affiliates in this Agreement, each Local Sale Agreement, the
                  Shared Services Agreement, the Brazil Asset Purchase Agreement
                  and the Nortel Proprietary Software License Agreement as
                  applicable, or any certificate delivered at a Closing pursuant
                  to any such agreement;

         (b)      the breach prior to or concurrent with an applicable Closing
                  by the Seller or any of its Affiliates of any covenant or
                  agreement made by the Seller or any of its Affiliates in this
                  Agreement, any of the Local Sale Agreements, the Shared
                  Services Agreement, the Brazil Asset Purchase Agreement, the
                  Nortel Proprietary Software License Agreement or any
                  certificate delivered at such Closing pursuant to any such
                  agreement

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                  that, in any such case, by its terms contemplates compliance
                  or performance at or prior to such relevant Closing;

         (c)      any obligation or liability of Seller or a Designated Seller
                  to Third Parties which arises out of or is related to the
                  Assets or the conduct of any part of the Operations by the
                  Seller, any Designated Seller or any of Seller's Affiliates,
                  prior to the relevant Effective Time except to the extent such
                  liability or obligation is an Assumed Liability or otherwise
                  assumed by the Purchaser or any Designated Purchaser pursuant
                  to this Agreement, the Local Sale Agreements, the Shared
                  Services Agreement, the Brazil Asset Purchase Agreement or the
                  Nortel Proprietary Software License Agreement;

         (d)      the breach after a relevant Closing by the Seller or any of
                  its Affiliates of any covenant or agreement made by the Seller
                  or any of its Affiliates in this Agreement, any of the Local
                  Sale Agreements, the Shared Services Agreement, the Brazil
                  Asset Purchase Agreement or the Nortel Proprietary Software
                  License Agreement; and

         (e)      or any certificate delivered at such Closing pursuant to any
                  such agreement that, in any such case, by its terms
                  contemplates compliance or performance after such relevant
                  Closing.

(2)      The Seller and the Designated Sellers shall discharge all of their
         respective obligations in respect of the Transferring Employees for
         their own account prior to the applicable Effective Time, and shall
         indemnify the Purchaser Indemnitees and keep the Purchaser Indemnitees
         indemnified against all Losses that the Purchaser or Designated
         Purchaser, as the case may be, suffer in connection with the employment
         by the Seller, or the Designated Seller, as the case may be, of any
         Transferring Employees arising before the applicable Effective Time,
         including any act, fault or omission by the Seller or the Designated
         Sellers, as the case may be, in relation to a failure to discharge such
         obligations in respect of the Transferring Employees arising before the
         applicable Effective Date.

SECTION 7.3 INDEMNIFICATION OBLIGATIONS OF THE PURCHASER

(1)      Subject to the other provisions of this Article 7, the Purchaser shall
         indemnify and hold harmless the Seller and its Affiliates and, to the
         extent named in any Third Party Action, any of the Seller's or its
         Affiliates' employees, officers or directors (collectively, the "SELLER
         INDEMNITEES"), from and against any Losses that any Seller Indemnitee
         may suffer, sustain or become subject to, as a result of:

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         (a)      a breach by the Purchaser or any of its Affiliates of any
                  representation or warranty made by the Purchaser or any of its
                  Affiliates, as the case may be, in this Agreement, any Local
                  Sale Agreement, the Shared Services Agreement, the Brazil
                  Asset Purchase Agreement, the Nortel Proprietary Software
                  License Agreement, or any certificate delivered at a Closing
                  pursuant to any such agreement;

         (b)      a breach prior to or concurrent with an applicable Closing by
                  the Purchaser or any of its Affiliates of any covenant or
                  agreement made by the Purchaser or any of its Affiliates in
                  this Agreement, any Local Sale Agreement, the Shared Services
                  Agreement, the Brazil Asset Purchase Agreement or the Nortel
                  Proprietary Software License Agreement, as applicable, or any
                  certificate delivered at such Closing pursuant to any such
                  agreement that, in any such case, by its terms contemplates
                  compliance or performance at or prior to such relevant
                  Closing;

         (c)      the breach after a relevant Closing by the Purchaser or any of
                  its Affiliates of any covenant or agreement made by the
                  Purchaser or any of its Affiliates in this Agreement, any
                  Local Sale Agreement, the Shared Services Agreement, the
                  Brazil Asset Purchase Agreement, or the Nortel Proprietary
                  Software License Agreement, as applicable, or any certificate
                  delivered at such Closing pursuant to any such agreement that,
                  in any such case, by its terms contemplates compliance or
                  performance after such relevant Closing;

         (d)      the failure of the Purchaser or the relevant Designated
                  Purchaser or any of the Purchaser's other Affiliates to
                  discharge the Assumed Liabilities in accordance with their
                  terms; and

         (e)      any liability or obligation to Third Parties arising out of or
                  related to the conduct of any part of the Operations by the
                  Purchaser, any Designated Purchaser or any of Purchaser's
                  other Affiliates after the relevant Effective Time of its
                  acquisition of the Assets, except to the extent such liability
                  or obligation is a liability or obligation of the Seller or
                  any Designated Seller pursuant to any Local Sale Agreement,
                  the Shared Services Agreement, the Brazil Asset Purchase
                  Agreement, or the Nortel Proprietary Software License
                  Agreement.

(2)      The Purchaser agrees to indemnify the Seller or the Designated Sellers,
         as the case may be, pursuant to this Section 7.3 against all Losses
         that the Seller and the Designated Sellers, as the case may be, suffer
         in connection with (a) the employment, or the continuation of
         employment, or termination of employment by the Purchaser, or the
         Designated Purchaser, as the case may

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         be, of any Transferring Employees after the applicable Effective Time,
         including any act, fault or omission by the Purchaser or the Designated
         Purchasers, as the case may be, in relation to same; and (b) any claim
         by a Transferring Employee related to any change or proposed change by
         the Purchaser or the Designated Purchasers, as the case may be, to the
         remuneration, benefits (including to any pensions benefits), terms and
         conditions of employment, or the working conditions of any such
         Transferring Employee following the applicable Effective Time.

(3)      The Purchaser agrees to indemnify the Seller and its Affiliates against
         all Losses (the "MONKSTOWN REAL PROPERTY LOSSES") that the Seller and
         its Affiliates, as the case may be, incur in connection with the Real
         Property Lease and the License of Space for the Monkstown Facility
         (collectively, the "MONKSTOWN AGREEMENTS") for any period when the
         Purchaser, its Affiliate or permitted assignee under the Monkstown
         Agreements (or either of them) (a "MONKSTOWN PERMITTED ASSIGNEE")
         continues to occupy space at the Monkstown Facility beyond the Term in
         the Monkstown Agreements (the "MONKSTOWN TERMINATION DATE") and that
         are (a) those costs and other amounts included in the calculation of
         Gross Rent and the License Fee under the Monkstown Agreements, in
         respect of the space at the Monkstown Facility occupied by the
         Purchaser or its Affiliate at the commencement of the respective terms
         of the Monkstown Agreements but which is not then occupied by the
         Purchaser, its Affiliates or Monkstown Permitted Assignees, the Seller,
         its Affiliates or any other party let space at the Monkstown Facility
         by the Seller or its Affiliate; and/ or (b) Losses directly relating to
         the holding over at the Monkstown Facility by any of the Purchaser, its
         Affiliate or a Monkstown Permitted Assignee beyond the Monkstown
         Termination Date, including but not limited to payments required under
         applicable legislation in relation to the termination of a tenancy or
         right of occupation. The parties acknowledge and agree that the
         Monkstown Real Property Losses shall not be included in the calculation
         of any pricing for any of the Products sold by the Purchaser or its
         Affiliates to the Seller or its Affiliates pursuant to the Amended and
         Restated Master Contract Manufacturing Services Agreement,
         notwithstanding that Gross Rent and the License Fee under the Monkstown
         Agreements for space occupied by the Purchaser or its Affiliates may be
         included in such calculations. The parties acknowledge and agree that
         the Monkstown Real Property Losses shall not be deemed to be special,
         incidental or consequential damages of Seller or any of its Affiliates.

SECTION 7.4 LIMITATIONS ON INDEMNIFICATION

(1)      The Seller shall not have any liability under Section 7.2 unless and
         until the aggregate amount of all Losses arising thereunder exceeds one
         half of one percent (0.50%) the aggregate of the Facility Purchase
         Prices received by

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         Seller and the Designated Sellers at the time of written notice of
         claim of Loss by the Purchaser (the "SELLER THRESHOLD"); at which point
         the Seller shall be liable for all Losses above one quarter of one
         percent (0.25%) of the aggregate of the Facility Purchase Prices (the
         "SELLER ONE-TIME DEDUCTIBLE"). Notwithstanding the foregoing, the
         maximum liability of the Seller for Losses pursuant to Section 7.2
         shall not exceed one hundred and fifty million dollars ($150,000,000)
         (the "SELLER CAP").

(2)      Notwithstanding the provisions of Section 7.4(1), neither the Seller
         Threshold, the Seller One-Time Deductible nor the Seller Cap will apply
         to any Losses incurred by the Purchaser or its Affiliates as a result
         of (a) any obligations of the Seller or Designated Seller in relation
         to the Operations or any of the Assets that are not expressly assumed
         by the Purchaser or Designated Purchasers pursuant to this Agreement,
         (b) a breach by Seller of any of its obligations pursuant to: any of
         the provisions of Article 2 hereof ; Section 4.3: Financial
         Information; Section 4.15; any covenants of the Seller or Designated
         Sellers pursuant to Article 5 or Article 6 that by their terms
         contemplate compliance or performance by the Seller or Designated
         Sellers on or after the applicable Closing (except that in the case of
         the Inventory Put Purchase Price and the Equipment Put Purchase Price
         the Seller's total indemnification obligations thereunder shall be
         limited to such amounts); Article 6: Employment and Employee Benefit
         Matters; Section 9.11: Bulk Sales Waiver; Section 9.21: Brokerage;
         Exhibits D-1 to D-3(b), inclusive and Exhibits D-5 to D-9(b),
         inclusive; Section 5.9(d) as it relates to payments for obtaining
         consents to assignment of license agreements for the Transferred
         Business Applications; and Section 1.5.5(ii) (second paragraph) of the
         Shared Services Agreement.

(3)      The Purchaser shall have no liability under Section 7.3 unless and
         until the aggregate amount of all Losses relating thereto exceeds one
         half of one percent (0.50%) of the aggregate of the aggregate of the
         Facility Purchase Prices received by the Seller at the time of written
         notice of claim of Loss by the Seller (the "PURCHASER THRESHOLD"); at
         which point the Purchaser shall be liable for all Losses above one
         quarter of one percent (0.25%) of the aggregate of the Facility
         Purchase Prices (the "PURCHASER ONE-TIME DEDUCTIBLE). Notwithstanding
         the foregoing, the maximum liability of the Purchaser for Losses
         pursuant to this Section 7.3 shall not exceed one hundred and fifty
         million dollars ($150,000,000) (the "PURCHASER CAP").

(4)      Notwithstanding the provisions of Section 7.4(3), neither the Purchaser
         One-Time Deductible, the Purchaser Threshold nor the Purchaser Cap
         will apply to any breach by Purchaser or Designated Purchasers of any
         of its obligations in relation to the Operations or any of the Assets
         assumed by the Purchaser or Designated Purchasers pursuant to this
         Agreement; any of the provisions of

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         Article 2 hereof; any covenants of the Purchaser or Designated
         Purchaser pursuant to Article 5 that by their terms contemplate
         compliance or performance by the Purchaser or Designated Purchaser on
         or after the applicable Closing; Article 6: Employees and Exhibits D-1
         - D-3(b), inclusive and Exhibits D-5 - D-9(b), inclusive; and Section
         5.9 as it relates to payments for obtaining consents to assignment of
         license agreements for the Transferred Business Applications; and
         Section 1.5.5(ii) (second paragraph) of the Shared Services Agreement.

(5)      Subject to the provisions of Section 7.4(6) below, the right of a Party
         to indemnification hereunder with respect to the accuracy or inaccuracy
         of, any representation or warranty or the compliance or failure to
         comply with any covenant or obligation shall not be affected by any
         investigation conducted by such Party or any knowledge acquired, or
         capable of being acquired by such Party at any time, whether before or
         after the execution and delivery of this Agreement or the relevant
         Closing Date; provided, however, that, notwithstanding the foregoing,
         if a Party (i) has Knowledge of a Loss, (ii) delays notifying the other
         Party of such Loss, or fails to take commercially reasonable actions to
         mitigate such Loss, and (iii) as a direct result of such delay or
         failure the rights of the Indemnifying Party are adversely affected or
         additional costs or obligations are imposed upon the Indemnifying
         Party, then the indemnification obligations of Indemnifying Party shall
         be reduced commensurate to such adverse affect and/or additional costs
         or other obligations.

(6)      Notwithstanding any other provision in this Agreement, if on or before
         the applicable Closing Date, either Primary Party (the "FIRST PARTY")
         has advised the other Party (the "SECOND PARTY") in writing of (i)
         the inaccuracy of one or more of the representations and warranties
         made by the First Party in this Agreement as of the date made or as of
         the applicable Closing Date, or (ii) the breach of any covenant or
         agreement made by the First Party in Section 5.2 of this Agreement
         that, in any such case, by its terms contemplates compliance or
         performance at or prior to the relevant Closing, and if the Second
         Party enters into a written agreement to accept such disclosure and
         nonetheless effect the relevant Closing, then unless the Parties have
         expressly otherwise agreed in writing, the representations and
         warranties of the First Party set forth in this Agreement, and the
         covenants set forth in Section 5.2, shall be deemed qualified by, and
         subject to, such disclosure for purposes of this Article 7.

SECTION 7.5 DEFENCE OF THIRD PARTY ACTIONS

(1)      Promptly upon receipt by a Party of notice of any Action or threatened
         in writing Action by a Third Party against an Indemnified Party that
         could

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         reasonable give use to a right to indemnification pursuant to Section
         7.2 or Section 7.3 ("THIRD PARTY ACTION"), such Party shall promptly
         give written notice describing the Third Party Action in reasonable
         detail to the Party who may become obligated to provide indemnification
         pursuant to Section 7.2 or Section 7.3 (the "INDEMNIFYING PARTY").
         Failure to provide such notice by a Party pursuant to this Section
         7.5(1), however, shall not relieve the Indemnifying Party of its
         indemnification obligations pursuant to this Agreement, except to the
         extent that the Indemnifying Party is actually prejudiced as a result
         of such failure.

(2)      In connection with any Third Party Action, the Indemnifying Party shall
         have the right, at its option, to assume the defence of such Third
         Party Action at any time upon delivery of written notice to the Party
         seeking indemnity (the "INDEMNIFIED PARTY") in respect thereof. If the
         Indemnifying Party assumes the defence of any such Third Party Action,
         the Indemnifying Party shall be deemed to have irrevocably waived any
         right to assert it is not required to indemnify the Indemnified Party
         for Losses arising with respect to such Third Party Action (subject to
         the deductible thresholds and caps set forth in Section 7.4) (unless
         the Indemnifying Party and the Indemnified Party expressly agree, in
         writing, at such time to a different resolution of such matter). The
         Indemnifying Party shall select counsel reasonably acceptable to the
         Indemnified Party to conduct the defence of such Third Party Action,
         shall take all steps reasonably necessary in the defence or settlement
         thereof and shall at all times diligently and promptly pursue the
         resolution thereof.

(3)      If the Indemnifying Party shall assume the control of the defence of
         any Third Party Action in accordance with the provisions of this
         Section 7.5, (i) the Indemnifying Party shall obtain the prior written
         consent of the Indemnified Party (which shall not be unreasonably
         withheld) before entering into any settlement of such Third Party
         Action, if the settlement does not unconditionally release the
         Indemnified Party from all liabilities and obligations with respect to
         such Third Party Action or the settlement imposes injunctive or other
         equitable relief against the Indemnified Party or the settlement would
         establish future obligations under which the Indemnified Party or any
         of its Affiliates would be required to operate, (ii) the Indemnified
         Party shall be entitled to participate with counsel in the defence of
         such Third Party Action and to employ separate counsel of its choice
         for such purpose, (iii) the Indemnifying Party shall consult with the
         Indemnified Party with respect to any reasonable settlement offer
         received by the Indemnifying Party with respect to such Third Party
         Action and (iv) the Indemnifying Party shall use its reasonable efforts
         to otherwise consult regularly with the Indemnified Party during the
         pendency of any Third Party Action. The fees and expenses of such
         separate counsel to the Indemnified Party shall be paid by the

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         Indemnified Party; provided, however, that such separate counsel fees
         shall be payable by the Indemnifying Party pursuant to the provisions
         of Section 5.6(2). Notwithstanding that the Indemnified Party so
         participates in any such defence of a Third Party Action, the
         Indemnifying Party shall have full authority to determine all actions
         to be taken with respect thereto.

(4)      Each Primary Party shall cooperate, and cause its respective Affiliates
         to cooperate, in the defence of any Third Party Action and shall
         furnish or cause to be furnished such records, information and
         testimony, and attend such conferences, discovery proceedings,
         hearings, trials or appeals, as may be reasonably requested in
         connection therewith. All costs and expenses incurred in connection
         with such cooperation shall be borne by the Indemnifying Party. Under
         no circumstances shall the Indemnified Party compromise any such Third
         Party Action without the written consent of the Indemnifying Party.

SECTION 7.6 SOLE REMEDY

         From and after the applicable Closing Date, except for claims by any
Primary Party resulting from Section 9.11, and Section 5.7, or as a consequence
of intentional misrepresentation, wilful breach or fraud on the part of the
other Primary Party or its Affiliates, the sole and exclusive remedy for money
damages of the Primary Parties hereto in connection with the purchase and sale
of the Assets, the assumption of the Assumed Liabilities and the other
transactions contemplated by this Agreement, the Local Sale Agreements, the
Shared Services Agreement, the Brazil Asset Purchase Agreement and the Nortel
Proprietary Software License Agreement, shall be pursuant to the indemnification
provisions set forth in this , and no Primary Party or its Affiliates shall have
the right to bring any proceeding against any other Primary Party or its
Affiliates for a breach of any representation, warranty, covenant or agreement
contained in any such agreement, whether in contract, tort or otherwise, except
pursuant to this Article 7; provided, however, that this Section 7.6 shall not
limit the right of any Party under applicable Law to seek an injunction or other
equitable relief for a breach of any covenant or agreement.

SECTION 7.7 INDEMNIFICATION AFTER INSURANCE AND OTHER RECOVERIES

         The amount of indemnification payable in respect of Losses under
Article 7 by the Indemnifying Party shall be net of (i) any amounts recovered or
recoverable without material cost or increase in premiums by the Indemnified
Party under applicable insurance policies and (ii) any Tax Benefit allowable to
the Indemnified Party arising from the incurrence or payment of any such Losses,
multiplied by the marginal tax rate then in effect applicable to the Indemnified
Party or, in the case of a credit, by one hundred percent; provided that any
such Tax Benefit shall be netted against any Losses (or paid to the Indemnifying
Party, as applicable) only when received or realized by the Indemnified Party;
and provided further that the

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Indemnified Party shall use its commercially reasonable efforts to realize or
obtain such Tax Benefit as promptly as possible and pay the amount of such Tax
Benefit to the Indemnifying Party, if applicable, promptly upon receipt if such
Tax Benefit would reduce the amount already paid by the Indemnifying Party
pursuant to this Article 7.

SECTION 7.8 TERMINATION OF INDEMNIFICATION

(1)      Save and except for covenants performed after the applicable Closing
         Date and subject to the provisions of Section 7.8(2), the obligations
         to indemnify and hold harmless an Indemnified Party shall terminate on
         the corresponding Applicable Notice Date;

(2)      If notice in good faith of the inaccuracy or breach of the applicable
         representation or warranty or the breach of the applicable covenant or
         agreement, as the case may be, giving rise to such right of indemnity
         and specifying, in reasonable detail, the nature thereof, shall have
         been given to the Party against whom such indemnity may be sought prior
         to the Applicable Notice Date then, notwithstanding the provisions of
         Section 7.8(1) above, the right to enforce the claim for such Losses in
         court proceedings shall survive the time at which it would otherwise
         terminate until the applicable limitation period(s) relating to such
         claim as are imposed by Law.

SECTION 7.9 LIMITATIONS ON LOSSES

         Except by way of indemnification arising out of any Third Party Action
and notwithstanding anything in this Agreement or other agreement entered into
pursuant to the Closings to the contrary, under no circumstances shall any Party
be liable to any Indemnified Party under this Article 7 or any other provision
of this Agreement, any Local Sale Agreement, the Shared Services Agreement, the
Brazil Asset Purchase Agreement or the Nortel Proprietary Software License
Agreement, for punitive damages or indirect, special, incidental or
consequential damages or for any loss of profits, revenues or sales or damage to
reputation, arising out of or in connection with any such agreement or the
transactions contemplated thereby or any breach or alleged breach of any of the
terms thereof, including damages alleged as a result of tortious conduct.
Without limiting the foregoing, neither the Purchaser nor the Seller shall be
liable under Article 7 for any Losses relating to any matter (A) to the extent
there is included in the Closing Statement of Assets and Liabilities a liability
relating to such Loss which reduces the Purchase Price or (B) to extent the
Purchaser or the other Indemnified Parties had otherwise been compensated
pursuant to the Purchase Price adjustment provisions under Section 2.4.

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SECTION 7.10 CHARACTERIZATION OF INDEMNITY PAYMENTS

         All amounts paid by the Seller or the Purchaser, as applicable, under
this Article 7, including Third Party payments, shall be treated as adjustments
to the Purchase Price for all Tax purposes.

SECTION 7.11 ASSIGNMENT OF CLAIMS

         If the Indemnified Party receives any payment from an Indemnifying
Party in respect of any Losses pursuant to Article 7 and the Indemnified Party
could have recovered all or a part of such Losses from a Third Party (a
"POTENTIAL CONTRIBUTOR") based on the underlying claim for indemnification
asserted against the Indemnifying Party, the Indemnified Party shall assign, on
a non-recourse basis and without any representation or warranty, such of its
rights to proceed against the Potential Contributor as are necessary to permit
the Indemnifying Party to recover from the Potential Contributor the amount paid
by it as indemnification to the Indemnified Party. Any payment subsequently
received by the Indemnifying Party from a Potential Contributor in relation to
the payment to the Indemnified Party shall be distributed, (i) first to the
Indemnified Party in the amount of any insurance deductible or similar payment
required to be paid by the Indemnified Party prior to the Indemnifying Party
being required to make any payment to the Indemnified Party, (ii) second to the
Indemnifying Party in an amount equal to the payments made to the Indemnified
Party, plus reasonable costs and expenses incurred in investigating, defending
or otherwise incurred in connection with addressing such claim, and (iii) the
balance, if any, to the Indemnified Party.

                                    ARTICLE 8
                            CONDITIONS TO THE CLOSING

SECTION 8.1 CONDITIONS OF THE PURCHASER'S OBLIGATION FOR EACH CLOSING

         The Purchaser's obligation to effect, or to cause the Designated
Purchasers to effect, a Closing with respect to a Facility or the Design
Operations is subject to the satisfaction as of the relevant Closing Date of the
following conditions precedent:

(1)      Representations and Warranties; Covenants. (i) Subject to Section
         5.1(3), each representation and warranty set forth in Article 4 or in
         the relevant Local Sale Agreement relating to such Closing or to the
         part of the Operations or the Assets being conveyed to the Purchaser or
         the Designated Purchaser at such Closing shall be true and correct in
         all material respects at and as of the date of such Closing as though
         then made (except to the extent such representations and warranties
         relate solely to an earlier date, in which case such representations
         and warranties shall have been true and correct in all material
         respects as of such earlier date); (ii) the Seller shall have performed
         or caused the performance of and observed in all material respects each
         covenant or other obligation required to be performed or observed by
         the

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         Seller or the Designated Sellers pursuant to this Agreement or the
         other Transaction Documents prior to or at the applicable Closing; and
         (iii) the Purchaser shall have received a certificate executed by an
         officer of the Seller to such effect.

(2)      Proceedings. No provision of any applicable Law and no judgment,
         injunction, order or decree shall prohibit the consummation of such
         Closing.

(3)      Seller Closing Documents. The Seller shall have delivered the following
         documents, each properly executed by the Seller or the relevant
         Designated Seller, as required:

         (a)      if such Closing is the first Closing, the Amended and Restated
                  Master Contract Manufacturing Services Agreement;

         (b)      if such Closing is the first Closing, the Shared Services
                  Agreement;

         (c)      the applicable Local Sale Agreements;

         (d)      if such Closing is the first Closing, the Loaned Employee
                  Agreement, if any;

         (e)      the Licenses of Space, if any;

         (f)      the Real Property Leases, if any;

         (g)      if such Closing is the first Closing, the Nortel Propriety
                  Software License Agreement;

         (h)      if such Closing in the first Closing, the Repair Services
                  Agreement;

         (i)      if such Closing in the first Closing, the Logistics Services
                  Agreement;

         (j)      the documents contemplated in Section 2.5(2) relating to such
                  Closing; and

         (k)      the Inventory forecast (Schedule 4.15(1) as contemplated in
                  Section 4.15).

(4)      Government Approvals.

         (a)      The Purchaser and the Seller shall each have filed all notices
                  and information required to be filed under Part IX of the
                  Competition Act (Canada), except if such requirement shall
                  have been waived pursuant to paragraph 113(b) or 113(c) of the
                  Competition Act (Canada), and any information the Purchaser or
                  the Seller elects to file with the Canadian

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                  Competition commissioner in its sole discretion under the
                  Competition Act (Canada), including, without limiting the
                  foregoing, a competitive impact statement and (i) the Canadian
                  Competition Commissioner shall have issued an Advance Ruling
                  Certificate in accordance with Section 102 of the Competition
                  Act (Canada) in connection with the transactions contemplated
                  by this Agreement, or (ii) the Canadian Competition
                  Commissioner shall have confirmed, in writing, that she has no
                  intention to file an application under Part VIII of the
                  Competition Act (Canada) in connection with the transactions
                  contemplated by this Agreement.

         (b)      Insofar as the transactions to be consummated at such Closing
                  constitute a concentration with a Community dimension within
                  the scope of Council Regulation (EC) No. 139/ 2004 (January
                  20, 2004) (as amended) (the "REGULATION"), in relation to
                  such transactions either:

                  (i)      the European Commission shall have issued a decision
                           declaring the concentration compatible with the
                           Common Market under Article 6(1)(b) of the
                           Regulation; or

                  (ii)     following the initiation of proceedings under Article
                           6(1)(c) of the Regulation, the European Commission
                           shall have issued a decision pursuant to Article 8(2)
                           of the Regulation declaring the concentration
                           compatible with the Common Market; or

                  (iii)    such transactions shall have been deemed compatible
                           with the Common Market in accordance with Article
                           10(6) of the Regulation.

         (c)      Insofar as the transaction to be consummated at such Closing
                  constitutes the acquisition of a "CANADIAN BUSINESS" as
                  contemplated in the Investment Canada Act and an application
                  for review is required under the Investment Canada Act in
                  relation to such transactions the Purchaser shall have filed
                  an Application for Review and received a determination from
                  the Minister responsible for the administration of the
                  Investment Canada Act that the transactions contemplated
                  herein are of net benefit to Canada pursuant to the Investment
                  Canada Act, on terms satisfactory to the Purchaser in its
                  reasonable commercial discretion;

(5)      Consents and Approvals. Subject to the provisions of Section 2.1(3),
         the Purchaser shall have received from the Seller executed counterparts
         of all consents required for the consummation of the transactions to be
         consummated at such Closing, including all consents of Third Parties
         relating

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         to the Facility/ Design Assets or the Facility/ Design Assumed
         Liabilities and all consents or approvals that may be necessary under
         the competition laws or foreign investment review laws of any
         jurisdiction where a filing or notification to the appropriate
         Government Entity may be necessary in order to complete the
         transactions contemplated by this Agreement. All consents required
         pursuant to this Section 8.1(5) shall be in a form and substance
         reasonably satisfactory to the Purchaser and its counsel.

(6)      Employee Consultation.

         (a)      The Seller shall have delivered to the Purchaser as applicable
                  to the relevant Facility/ Design Closing:

                  (i)      a certificate confirming that the information and
                           consultation process with the representatives of the
                           UK Employees required by applicable Law shall have
                           taken place, in accordance with Section D-1.3 of
                           Exhibit D-1; and

                  (ii)     a document stating the opinion of the representatives
                           of the France Employees provided following the
                           completion of the information and consultation
                           process with the representatives of the France
                           Employees, in accordance with Section D-2.3 of
                           Exhibit D-2;

(7)      Systems Readiness. The Purchaser shall have satisfied itself, in its
         reasonable discretion, that at the relevant Closing Date the
         information technology systems and other business processes necessary
         or appropriate to transact business with Seller, any Designated Seller
         or any of Seller's Affiliates from and after the relevant Closing Date
         pursuant to the Amended and Restated Master Contract Manufacturing
         Services Agreement, the Repair Services Agreement and the Logistics
         Agreement, are implemented and functioning sufficiently for their
         intended purposes.

(8)      No Material Adverse Change in the Operations. There shall not have been
         any event or occurrence or any change that, individually or in the
         aggregate with any other such events or occurrences, has had or could
         reasonably be expected to have a materially adverse effect on the
         aggregate demand for the Products; provided, however, that no material
         adverse effect shall be deemed to have occurred for the purpose of this
         condition if resulting from (i) any change in Law, Environmental Law,
         GAAP or interpretations thereof that apply to the Operations; (ii) any
         change in general economic, business or financial market conditions or
         any change in the telecommunications or data networking industries that
         does not affect the Operations disproportionately to the other
         participants in such industries; or (iii) discussions, or

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         consultations with workers' councils, Employees' representatives and
         collective bargaining agents or the Employees shall not be, or be
         deemed to be, a materially adverse event, occurrence or change for the
         purpose of this condition.

(9)      With respect to the portion of the Operations in France at the
         Chateaudun Facility only, an operating permit ("ARRETE D'AUTORISATION
         D'EXPLOITER") shall have been issued by the Prefecture, as well as any
         required complementary operating permits ("ARRETES COMPLEMENTAIRES").

(10)     Montreal Matters. With respect to any Closing involving Quebec
         Employees who are subject to a Collective Labour Agreement with the
         CUCW, there shall be no lock out of, or strike by the CUCW which is
         material to the Operations at the BAN 1 Facility, BAN 3 Facility and
         OPTO 1 Facility; provided, however, that if there is such a lock out or
         strike, the Parties agree that this condition (i) shall only apply to
         the Assets or Operations at the BAN 1 Facility, BAN 3 Facility and the
         OPTO 1 Facility and not to any other Assets or Operations which may
         also be scheduled to Close at such time, and (ii) shall only delay the
         Closing relating to the BAN 1 Facility, BAN 3 Facility and OPTO 1
         Facility until the conclusion of such strike or lock out.

(11)     VSHA Pricing. All VSHA Product prices shall have been finalized.

(12)     Sufficient Number of Employees. There shall be a sufficient number of
         Employees who, upon the applicable Closing, shall become Transferring
         Employees. Immediately prior to the Closing Date (i) Purchaser shall
         advise Seller of the number of Employees employed (a) in jurisdictions
         other than the U.K. and France and (b) in the province of Quebec who
         are not subject to a Collective Labour Agreement, who have indicated
         their intention to accept the offers of employment, and (ii) Seller
         shall advise Purchaser of the number of Employees employed (a) in the
         U.K. and France and (b) in the province of Quebec who are subject to a
         Collective Labour Agreement, whose employment at Closing shall transfer
         by operation of Law. If the total number of Employees in (i) and (ii)
         above are, in the judgment of Seller, acting reasonably, sufficient to
         conduct the Operations immediately post-Closing in substantially the
         same manner as such Operations are then currently being conducted, then
         this condition shall be deemed to have been satisfied.

(13)     If Seller shall have delivered any updated Schedules pursuant to
         Section 5.1(3)(b), Purchaser shall either (i) not have notified Seller
         in writing that such updated Schedules are not acceptable to the
         Purchaser, or (ii) if Purchaser has provided such notice, subsequently
         withdrawn such written objection to such updated Schedules.

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(14)     Delivery by Seller of Phase II environmental report for the Chateaudun
         Facility.

Any condition set forth in this Section 8.1 may be waived only in a writing
executed by the Purchaser.

SECTION 8.2 CONDITIONS OF THE SELLER'S OBLIGATION FOR EACH CLOSING

         The Seller's obligation to effect each Closing is subject to the
satisfaction as of the Closing Date of the following conditions precedent:

(1)      Representations and Warranties; Covenants. (i) Each representation and
         warranty set forth in Article 3 or in the relevant Local Sale Agreement
         relating to such Closing, shall be true and correct in all material
         respects at and as of the date of such Closing as though then made
         (except to the extent such representations and warranties relate solely
         to an earlier date, in which case such representations and warranties
         shall have been true and correct in all material respects as of such
         earlier date); (ii) the Purchaser shall have performed or caused the
         performance of and observed in all material respects each covenant or
         other obligation required to be performed or observed by the Purchaser
         and the Designated Purchasers pursuant to this Agreement or the other
         Transaction Documents prior to or at the applicable Closing; and (iii)
         the Seller shall have received a certificate executed by an officer of
         the Purchaser to such effect.

(2)      Proceedings. No provision of any applicable Law and no judgment,
         injunction, order or decree shall prohibit the consummation of the
         Closing.

(3)      Purchaser Closing Documents. The Purchaser will have delivered the
         following documents, each properly executed by the Purchaser or the
         relevant Designated Purchaser, as required:

         (a)      if such Closing is the first Closing, the Amended and Restated
                  Master Contract Manufacturing Services Agreement;

         (b)      if such Closing is the first Closing, the Shared Services
                  Agreement;

         (c)      if such Closing is the first Closing, the Promissory Notes;

         (d)      if such Closing is the first Closing, the Security
                  Documentation;

         (e)      if such Closing is the first Closing, the Share Transaction
                  Documentation;

         (f)      the applicable Local Sale Agreement;

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      (g)   if such Closing is the first Closing, the Loaned Employee Agreement,
            if any;

      (h)   the Licenses of Space, if any;

      (i)   the Real Property Lease, if any;

      (j)   if such Closing is the first Closing, the Nortel Propriety Software
            License Agreement;

      (k)   if such Closing in the first Closing, the Repair Services Agreement;

      (l)   if such Closing in the first Closing, the Logistics Services
            Agreement; and

      (m)   the documents contemplated in Section 2.5(2) relating to such
            Closing.

(4)   Government Approvals.

      (a)   The Purchaser and the Seller shall each have filed all notices and
            information required to be filed under Part IX of the Competition
            Act (Canada), except if such requirement shall have been waived
            pursuant to paragraph 113(b) or 113(c) of the Competition Act
            (Canada), and any information the Purchaser or the Seller elects to
            file with the Canadian Competition commissioner in its sole
            discretion under the Competition Act (Canada), including, without
            limiting the foregoing, a competitive impact statement and (i) the
            Canadian Competition Commissioner shall have issued an Advance
            Ruling Certificate in accordance with Section 102 of the Competition
            Act (Canada) in connection with the transactions contemplated by
            this Agreement, or (ii) the Canadian Competition Commissioner shall
            have confirmed, in writing, that she has no intention to file an
            application under Part VIII of the Competition Act (Canada) in
            connection with the transactions contemplated by this Agreement.

      (b)   Insofar as the transactions to be consummated at such Closing
            constitute a concentration with a Community dimension within the
            scope of Council Regulation (EC) No. 139/ 2004 (January 20, 2004)
            (as amended) (the "REGULATION" ), in relation to such transactions
            either:

            (i)   the European Commission shall have issued a decision declaring
                  the concentration compatible with the Common Market under
                  Article 6(1)(b) of the Regulation; or

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            (ii)  following the initiation of proceedings under Article 6(1)(c)
                  of the Regulation, the European Commission shall have issued a
                  decision pursuant to Article 8(2) of the Regulation declaring
                  the concentration compatible with the Common Market; or

            (iii) such transactions shall have been deemed compatible with the
                  Common Market in accordance with Article 10(6) of the
                  Regulation.

(5)   Consents and Approvals. Subject to the provisions of Section 2.1(3), the
      Seller shall have received all consents required for the consummation of
      the transactions to be consummated at such Closing, including all consents
      of Third Parties relating to the Facility/Design Assets or the Facility/
      Design Assumed Liabilities and all consents or approvals that may be
      necessary under the competition laws or foreign investment review laws of
      any jurisdiction where a filing or notification to the appropriate
      Government Entity may be necessary in order to complete the transactions
      contemplated by this Agreement. All consents required pursuant to this
      Section 8.2(5) shall be in a form and substance reasonably satisfactory to
      the Seller and its counsel.

(6)   Employee Consultation. The Seller shall be satisfied that a reasonable
      information and consultation process has taken place as required by
      applicable Law:

      (a)   with UK Employees or the representatives of the UK Employees, in
            accordance with Section D-1.3 of Exhibit D-1 ; and

      (b)   with the representatives of the France Employees, in accordance with
            Section D-2.3 of Exhibit D-2.

(7)   Purchaser's Employee Plans. The Purchaser shall have supplied
      documentation and evidence reasonably satisfactory to the Seller
      concerning employee benefit plans prescribed by Exhibit D-1 et seq.

(8)   VSHA Pricing Completed. All VHSA Product prices shall have been finalized.

(9)   Systems Readiness. The Seller shall have satisfied itself, in its
      reasonable discretion, that at the relevant Closing Date the information
      technology systems and other business processes necessary or appropriate
      to transact business with Purchaser, any Designated Purchaser or any of
      Purchaser's Affiliates from and after the relevant Closing Date pursuant
      to the Amended and Restated Master Contract Manufacturing Services
      Agreement, the Repair

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      Services Agreement and the Logistics Agreement, are implemented and
      functioning sufficiently for their intended purposes.

(10)  Purchaser's Ability to Perform Pursuant to the Amended and Restated Master
      Contract Manufacturing Services Agreement. There shall not have been any
      event or occurrence or any change in the business, operations, assets,
      financial condition or results of operations of the Purchaser or any
      Designated Purchaser, taken as a whole, that, individually or in the
      aggregate with any such other event or occurrences, has had or could
      reasonably be expected to have a materially adverse effect on or change in
      the Purchaser's or any Designated Purchasers' ability to perform its
      obligations pursuant to the terms of the Amended and Restated Master
      Contract Manufacturing Services Agreement, provided, however, that no
      material adverse effect shall be deemed to have occurred for the purpose
      of this condition if resulting from (i) any change in Law, Environmental
      Law, GAAP or interpretations thereof that apply to the Operations; (ii)
      any change in general economic, business or financial market conditions;
      or any change in the telecommunications or data networking industries that
      does not affect the Operations disproportionately to the other
      participants in such industries; or (iii) discussions, or consultations
      with workers' councils, Employees' representatives and collective
      bargaining agents or the Employees shall not be, or be deemed to be, a
      materially adverse event, occurrence or change for the purpose of this
      condition.

(11)  If Seller shall have delivered any updated Schedules pursuant to Section
      5.1(3)(b) and, Purchaser shall either (i) not have notified Seller in
      writing that such updated Schedules are not acceptable to the Purchaser,
      or (ii) if Purchaser has provided such notice and then, subsequently
      withdrawn such written objection to such updated Schedules.

(12)  Prior to the applicable Closing Date, Flextronics Mauritius shall be
      registered for VAT in the United Kingdom and France and shall be
      registered for purposes of the GST legislation, the Retail Sales Tax Act
      (Ontario), the Act respecting the Quebec Sales Tax and regulations
      thereunder, and under any other similar legislation (including value added
      legislation) in any other jurisdiction of Canada where the Assets that it
      is purchasing are located, and all related registration numbers shall have
      been provided to the Seller.

Any condition set forth in this Section 8.2 may be waived only in a writing
executed by the Seller.

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                                   ARTICLE 9
                                 MISCELLANEOUS

SECTION 9.1 EFFECTIVENESS OF AGREEMENT

(1)   Notwithstanding the execution of this Agreement on the date hereof, but
      only to the extent required by Law, the provisions of this Agreement
      relating directly or indirectly to (i) the sale, conveyance or assignment,
      transfer or delivery of the right, title and interest of NNUK and NNSA, in
      the Assets and the shares of French Newco, (ii) the granting of rights
      under the Transaction Documents by NNUK and NNSA with respect to property
      or assets located in France or the United Kingdom, or (iii) the transfer
      of the UK Employees or France Employees employed by NNUK and NNSA shall
      not be binding or effective against the Designated Sellers or such France
      Employees or UK Employees until and unless the representatives of such
      France Employees and UK Employees, as applicable, are provided with the
      information required to be provided, and consulted by Seller or the
      Designated Sellers, as applicable, pursuant to and in compliance with the
      Law in France and the United Kingdom and, instead, with respect to such
      Designated Sellers and such France Employees and UK Employees, this
      Agreement shall constitute only an irrevocable binding offer by Purchaser
      to effect the transactions contemplated hereby, which offer shall be
      deemed accepted, automatically and without further action on the part of
      any Person, upon due completion of such consultation process.

(2)   For such purposes, and solely for the benefit of the France Employees and
      UK Employees located in the United Kingdom and France, respectively, the
      Seller shall cause the applicable Designated Seller or Designated Sellers
      to initiate such information and consultation procedure with the
      applicable employee representatives as soon as practicable. Purchaser
      shall reasonably cooperate with Seller and the Designated Sellers in
      respect of such consultations and shall provide all information reasonably
      requested by Seller or the applicable works councils or employee
      representatives in connection with such consultations. Upon completion of
      such consultation process in each of such jurisdictions, Seller shall
      deliver to Purchaser a certificate/ document to that effect, and, upon
      delivery of such certificate/ document, this Agreement shall become
      binding and effective against the Designated Sellers and the France
      Employees and UK Employees, respectively, located in the United Kingdom
      and France, and, subject to the other applicable terms of this Agreement,
      the transactions contemplated by this Agreement may occur.

SECTION 9.2 TERMINATION

      This Agreement may be terminated:

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(1)   by mutual written consent of the Seller and the Purchaser;

(2)   by either Primary Party upon written notice to the other at any time if a
      condition for the benefit of such Primary Party set forth in Article 8 is
      not satisfied by the applicable Closing so long as such Primary Party has
      not principally caused such failure;

(3)   in whole, by either the Seller or the Purchaser upon written notice to the
      other if the first Closing does not occur on or prior to May 1, 2005;

(4)   in part, with regard to any Closings that do not occur on or prior to
      September 1, 2005, by either the Seller or the Purchaser upon written
      notice to the other;

provided, however, that the right to terminate this Agreement in whole pursuant
to Section 9.2(3) and the right to terminate this Agreement in part pursuant to
Section 9.2(4) shall not be available to any Party whose action or failure to
act has been a principal cause of or resulted in the failure of the first
Closing or the applicable Closing, respectively, to occur on or before the
applicable dates set forth in Section 9.2(3) and Section 9.2(4), and such action
or failure to act constitutes a material breach of this Agreement or any of the
other Transaction Documents.

     SECTION 9.3 RIGHTS ON TERMINATION

     If this Agreement and the other Transaction Documents are terminated in
full pursuant to Section 9.2, all further obligations of the Parties under or
pursuant to this Agreement shall terminate without further liability of any
party to the other except for the provisions of (i) Section 5.7 relating to the
obligation of the Purchaser to keep confidential certain information and data
obtained by it, (ii) Section 5.1(4) relating to public announcements, (iii)
Section 5.3 relating to indemnification in connection with the matters
contemplated thereby and to Purchaser's obligations with respect to Employee
data set out in Schedule 4.12(1), (iv) Section 5.6(1) relating to certain
expenses, (v) Article 9 and (vi) the Confidentiality Agreement; provided, that
nothing herein shall relieve any party hereto from liability for any breach of
this Agreement or any of the other Transaction Documents occurring before the
termination hereof and thereof. If this Agreement and the other Transaction
Documents are terminated in part pursuant to Section 9.2(4), this Agreement and
the other Transaction Documents shall be deemed to be automatically amended to
remove from the scope of the transaction the transfer of those parts of the
Operations and the related Facility/ Design Assets contemplated to be
transferred at such Closings as do not occur on or prior to such termination of
this Agreement, including (x) reduction of the Purchase Price by the applicable
Facility/ Design Purchase Price, (y) the retention by the applicable Designated
Seller of the Facility/ Design Assets and the Facility/ Design Assumed
Liabilities, and (z) the

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continued employment by Seller or the applicable Designated Seller of the
Employees employed in such part of the Operations so retained

SECTION 9.4 SET OFF

     The Parties agree that the Seller and any Affiliate of the Seller which is
at any time owed any obligation (whether or not then due and payable) by the
Purchaser or any Affiliate of the Purchaser, which obligation is related to this
Agreement or any of the transactions contemplated hereby or connected hereto,
shall be entitled to set-off (or the equivalent in each relevant jurisdiction)
such obligation against any obligation then owed (whether or not then due and
payable) by the Seller or any Affiliate of the Seller to the Purchaser or any
Affiliate of the Purchaser, which obligation is related to this Agreement or any
of the transactions contemplated hereby or connected hereto. To that end, the
Seller shall, and shall cause each Affiliate which at any time owes or is owed
any such obligations, and the Purchaser shall, and shall cause each Affiliate
which at any time owes or is owed any such obligation, to enter into an
agreement on or before the first applicable Closing (or at the time such
Affiliate owes or is owed such an obligation) effectively providing for such
right of set-off (and the equivalent in each relevant jurisdictions) and the
parties acknowledge and agree that such agreement may include provisions
creating joint and several liabilities among the Purchaser and its Affiliates,
on the one hand, and the Seller, and its Affiliates, on the other. Such
agreement shall not affect the flow of funds between the parties primarily
liable therefor and entitled thereto in the ordinary course of business. The
parties agree to use commercially reasonable efforts to agree to the terms of
such an agreement.

SECTION 9.5 REMEDIES

     Except as specifically provided in Section 7.1 and Section 7.5(1), no
failure to exercise, and no delay in exercising, any right, remedy, power or
privilege under this Agreement by any Party will operate as a waiver of such
right, remedy, power or privilege, nor will any single or partial exercise of
any right, remedy, power or privilege under this Agreement preclude any other or
further exercise of such right, remedy, power or privilege or the exercise of
any other right, remedy, power or privilege; provided, however, that all of the
foregoing is subject to the express limitations referenced in Section 7.6.

SECTION 9.6 CONSENT TO AMENDMENTS; WAIVERS

     No Party to this Agreement shall be deemed or taken to have waived any
provision of this Agreement or any of the other Transaction Documents unless
such waiver is in writing, and then such waiver shall be limited to the
circumstances set forth in such written waiver. This Agreement and the other
Transaction Documents shall not be amended, altered or qualified except by an
instrument in writing signed by all the Parties hereto or thereto, as the case
may be.

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SECTION 9.7 SUCCESSORS AND ASSIGNS

      Except as otherwise expressly provided in this Agreement, all
representations, warranties, covenants and agreements set forth in this
Agreement by or on behalf of the Parties hereto will be binding upon and inure
to the benefit of the Parties and their respective successors and permitted
assigns, whether so expressed or not. None of this Agreement, or any of the
rights, interests or obligations hereunder may be assigned by any Party hereto
or thereto without the prior written consent of the other Party hereto, which
consent may be withheld in such Party's sole discretion; provided that the
Designated Purchasers shall be entitled to assign their rights hereunder to one
or more other Affiliates of Purchaser, provided that such assignment does not
adversely affect the rights of, or impose any additional costs, including Taxes
or obligations on, Seller or any Designated Seller.

SECTION 9.8 GOVERNING LAW; SUBMISSION TO JURISDICTION

      THIS AGREEMENT ARE CONTRACTS MADE UNDER THE LAWS OF THE PROVINCE OF
ALBERTA AND THE FEDERAL LAWS OF CANADA APPLICABLE THEREIN AND SHALL FOR ALL
PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
PROVINCE OF ALBERTA AND THE FEDERAL LAWS OF CANADA APPLICABLE THEREIN (EXCLUDING
THE LAWS APPLICABLE TO CONFLICTS OF LAW). EACH OF THE PARTIES HERETO AGREES THAT
ALL DISPUTES AND CLAIMS, WHETHER FOR DAMAGES, SPECIFIC PERFORMANCE, INJUNCTION
OR OTHERWISE, BOTH AT LAW AND EQUITY, ARISING OUT OF OR IN ANY CONNECTION WITH
THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE PROVINCE OF ALBERTA LOCATED
IN THE CITY OF CALGARY AND HEREBY ATTORNS TO THE EXCLUSIVE JURISDICTION OF SUCH
COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON SUCH PERSON BY
MAIL AT THE ADDRESS SPECIFIED IN SECTION 9.10 OR IN THE RELEVANT LOCAL SALE
AGREEMENT. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT
SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

SECTION 9.9 WAIVER OF JURY TRIAL; LIMITATION ON DAMAGES

      EACH OF THE PARTIES HERETO HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH
THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH
RIGHTS AND OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, EACH OF THE PARTIES HERETO
HEREBY WAIVES ANY RIGHT IT MAY HAVE PURSUANT TO THIS AGREEMENT TO CLAIM OR
RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL,
EXEMPLARY, PUNITIVE OR

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CONSEQUENTIAL DAMAGES OR ANY DAMAGES THAT ARE IN EXCESS OF ONE TIMES THE LOSSES
INCURRED.

SECTION 9.10 NOTICES

      All demands, notices, communications and reports provided for in this
Agreement shall be in writing and shall be either sent by facsimile transmission
with confirmation to the number specified below or personally delivered or sent
by reputable overnight courier service (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 9.10.

If to the Purchaser to:

      Flextronics Telecom Systems Ltd.
      802 St. James Court,
      St. Denis Street
      Port Louis, Mauritius

      Facsimile: 230-212-7600
      Fax: 230-210-9168
      Attention: President

with a copy, that does not constitute notice, to:

      Flextronics International Inc.
      Room 908, Dominion Centre
      43 - 59 Queen's Road East
      Wanchai, Hong Kong

      Facsimile: 852-2276-1804
      Attention: President

      - and

      Flextronics International Ltd.
      6328 Monarch Park Place
      Niwot, CO 80503

      Facsimile: 303-652-4716
      Attention: General Counsel

      - and -

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      Fenwick & West
      Embarcadero Center West
      275 Battery Street
      San Francisco, CA 94111
      U.S.A.

      Facsimile: (415) 281-1350
      Attention: David Michaels

If to the Seller, to:

      Nortel Networks Limited
      8200 Dixie Road
      Suite 100
      Brampton, Ontario
      Canada
      L6T 5P6

      Facsimile: (905) 863-8386
      Attention: Corporate Secretary

with copies, that do not constitute notice, to:

      Nortel Networks Inc.
      5404 Windward Parkway,
      Alpharetta, Georgia 30004

      Facsimile: (770) 708-4850
      Attention: Peter Murphy

and:  Nortel Networks Inc.
      220 Athens Way, Suite 300
      Nashville, Tennessee
      USA 37228

      Facsimile: (615) 432-4067
      Attention: Law Department

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 applicable.

                                                                  Execution Copy

                                    - 122 -

SECTION 9.11 BULK SALES WAIVER

      Each of the Purchaser and the Designated Purchasers hereby waives
compliance with the provisions of any applicable Laws, including the Bulk Sales
Act (Ontario), Section 6 of the Retail Sales Tax Act (Ontario) and any similar
tax related bulk sales rules, relating to the sale of property in bulk in
connection with the transfer of the Assets to the Purchaser. The Seller hereby
covenants and agrees to indemnify and hold the Purchaser harmless from and
against any and all Losses, which any of the Purchaser or the Designated
Purchasers may incur as a result of any failure to comply with any applicable
Laws relating to such bulk transfers.

SECTION 9.12 SCHEDULES AND EXHIBITS

      The Schedules and Exhibits constitute a part of this Agreement and are
incorporated into this Agreement for all purposes as if fully set forth herein.
Any disclosure made in any Schedule to this Agreement that may be applicable to
another Schedule to this Agreement shall be deemed to be made with respect to
such other Schedule to the extent that it is reasonably apparent from a reading
of such Schedule it would also qualify or apply to other such Schedule.

SECTION 9.13 COUNTERPARTS

      The Parties may execute this Agreement in two 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.

SECTION 9.14 CONSTRUCTION

      Unless the context requires otherwise, all words used in this Agreement in
the singular number shall extend to and include the plural, all words in the
plural number shall extend to and include the singular, and all words in any
gender shall extend to and include all genders. All references to domestic,
foreign, federal, state or provincial statutes herein are references to such
statutes as amended and in effect at the applicable time.

SECTION 9.15 SEVERABILITY

      If any provision, clause, or part of this Agreement or any of the other
Transaction Documents, or the application thereof under certain circumstances,
is held invalid, the remainder of this Agreement or such other Transaction
Document, or the application of such provision, clause or part under other
circumstances, shall not be affected thereby unless such invalidity materially
impairs the ability of the Parties to consummate the transactions contemplated
by this Agreement and the other Transaction Documents.

SECTION 9.16 NO THIRD-PARTY BENEFICIARIES

      Except as specifically contemplated by Section 7.2 and Section 7.3 no
Person that is not a Party to this Agreement or any one or more of the other
Transaction

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                                     - 123 -

Documents shall have any rights or obligations pursuant to this Agreement or any
of the other Transaction Documents.

SECTION 9.17 CURRENCY

      Unless otherwise specifically stated to the contrary, all currency amounts
expressed herein or in any other Transaction Document or in any exhibit or
schedule attached hereto or thereto (whether or not preceded by US$) are in the
currency of the United States of America.

SECTION 9.18 HEADINGS

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

SECTION 9.19 ENTIRE AGREEMENT

      The Transaction Documents and the Confidentiality Agreement set forth the
entire understanding of the Parties relating to the subject matter thereof, and
all prior or contemporaneous understandings, agreements, representations and
warranties, whether written or oral, are superseded by the Transaction Documents
and the Confidentiality Agreement, and all such prior or contemporaneous
understandings, agreements, representations and warranties are hereby
terminated. In the event of any irreconcilable conflict between this Agreement
and any of the other Transaction Documents (other than the Amended and Restated
Master Contract Manufacturing Services Agreement) or the Confidentiality
Agreement, the provisions of this Agreement shall prevail, regardless of the
fact that certain Transaction Documents, such as the Local Sale Agreement, may
be executed after the date of this Agreement, by different Parties and subject
to different governing laws.

SECTION 9.20 SELLER REFERENCES

      Except as may be permitted by the Amended and Restated Master Contract
Manufacturing Services Agreement, no written or printed sales, promotional or
selling materials, including any catalogue or brochure, and no other tangible
asset acquired by the Purchaser or the Designated Purchasers from the Seller or
the Designated Sellers pursuant to this Agreement that contains the name of or
references to the Seller, any Affiliate of the Seller or the Operations shall be
used publicly or distributed by the Purchaser or its Affiliates until such names
or references are deleted or covered by a sticker reasonably acceptable to the
Seller. The Purchaser shall not permit the name of the Seller or any Affiliate
of the Seller (or any variance thereof) to be used in any electronic addresses
or sites, including addresses, and internet urls.

                                                                  Execution Copy

                                     - 124 -

SECTION 9.21 BROKERAGE

(1)   Neither the Purchaser nor any of its Affiliates has used or retained a
      broker or finder or other similar advisor in connection with the
      transactions contemplated by this Agreement or the other Transaction
      Documents, and there are no claims for or liabilities owed for brokerage
      commissions, finders' fees or similar compensation in connection with the
      transactions contemplated by this Agreement or the other Transaction
      Documents based on any arrangement or agreement by or on behalf of the
      Purchaser or any of its Affiliates. Notwithstanding the provisions of
      Section 7.4, the Purchaser shall indemnify and hold the Seller harmless
      from any breach of its representation in this Section 9.21, without regard
      to the Purchaser One-Time Deductible and Purchaser Cap in Section 7.4(3).

(2)   Neither Seller nor any of its Affiliates has used or retained any broker
      or finder or other similar advisor in connection with the transactions
      contemplated by this Agreement or the other Transaction Documents and
      there are no claims for or liabilities owed for brokerage commissions,
      finders' fees or similar compensation in connection with the transactions
      contemplated by this Agreement or the other Transaction Documents based on
      any arrangement or agreement by or on behalf of the Purchaser or any of
      its Affiliates. Notwithstanding the provisions of Section 7.4, the Seller
      shall indemnify and hold the Purchaser harmless for any breach of its
      representation in this Section 9.21, without regard to the Seller One-Time
      Deductible and Seller Cap in Section 7.4(1).

SECTION 9.22 TIME OF ESSENCE

      Time shall be of the essence of this Agreement.

SECTION 9.23 JUDGMENT CURRENCY

      If for the purpose of obtaining judgment against a Party hereto in any
court in any jurisdiction with respect to this Agreement or any of the other
Transaction Documents, it becomes necessary to convert into the currency of such
jurisdiction (in this Section referred to as the " JUDGMENT CURRENCY" ) any
amount due hereunder in any currency other than the Judgment Currency (in this
Section referred to as the " CURRENCY OF THE AGREEMENT" ), then conversion shall
be made at the rate of exchange prevailing on the Business Day preceding (i) the
date of actual payment of the amount due, in the case of proceedings in the
courts of any jurisdiction that will give effect to such conversion being made
on such day, or (ii) the day on which the judgment is given, in the case of
proceedings in the courts of the Province of Alberta or of any other
jurisdiction (the applicable date as of which such conversion is made pursuant
to this Section being referred to as the " JUDGMENT CONVERSION DATE" ). For this
purpose, " RATE OF EXCHANGE" means the rate at which the Canadian Imperial Bank
of Commerce (or its successor) would be prepared at 12:00 noon (or as close as

                                                                  Execution Copy

                                    - 125 -

possible to such time) on the relevant date, to sell the Currency of the
Agreement in the amount in question to obtain the Judgment Currency. In the
event that there is a change in the rate of exchange prevailing between the
Judgment Conversion Date and the date of payment of the amount due, the Party
against which judgment is rendered shall, on the date of payment, pay such
additional amounts (if any) as may be necessary to ensure that the amount paid
on such date is the amount in the Judgment Currency which, when converted at the
rate of exchange prevailing on the date of payment, is the amount then due under
this Agreement in the Currency of the Agreement. Any additional amount due under
this Section 9.23 will be due as a separate debt and shall not be affected by
judgment being obtained for any other sums due or in respect of this Agreement
or any of the other Transaction Documents.

SECTION 9.24 FURTHER ASSURANCES

      From time to time after a Closing, each of the Parties will, without
further consideration, execute and deliver such other instruments of conveyance
and transfer, and take such other actions as the other Party may reasonably
request to give effect to the transactions contemplated by this Agreement or any
of the other Transaction Documents.

SECTION 9.25 ENGLISH LANGUAGE

      The Primary Parties declare that they have required that this Agreement
and each of the other Transaction Documents and any documents relating thereto
be drawn up in the English language. Les parties aux presentes declarent
qu'elles ont exige que cette entente et tous les documents y afferent soient
rediges en langue anglaise.

SECTION 9.26 CONTRA PROFERENTUM

      This Agreement is the result of mutual negotiations between the Primary
Parties, and each Primary Party agrees that no part of this Agreement shall be
interpreted against the other Primary Party (or its Affiliates) on the grounds
that particular language was drafted by such Party.

SECTION 9.27 EXPENSES FOR DISPUTE RESOLUTION

      Each party shall pay their own expenses in connection with the resolution
of disagreements pursuant to this Agreement, including Section 2.4, Section 5.14
and Section 5.15, including attorneys' fees. Notwithstanding the foregoing: (1)
the fees and expenses of any Independent Accountant shall be (A) borne by Seller
and Purchaser in inverse proportion to the amount that the Independent
Accountant's determination in favor of Seller and/ or Purchaser bears to the
total amount of the items in dispute (for illustration purposes for this Section
9.27 only, (X) if the total amount of items in dispute is $1,000,000.00, and
Seller prevails on $500,000.00 as determined by the Independent Accountant,
Seller and Purchaser shall bear the

                                                                  Execution Copy

                                    - 126 -

Independent Accountant's fees and expenses equally, or (Y) if the total amount
of items in dispute is $1,000,000.00, and Seller prevails on $250,000.00 as
determined by the Independent Accountant, Seller shall bear 75% and Purchaser
shall bear 25% of the fees and expenses of the Independent Accountant; and (2)
the fees and expenses incurred by the prevailing party to enforce this Section
9.27 or the enforcement of any award shall be paid by the other party.

SECTION 9.28 GUARANTEE OF PERFORMANCE

      The Guarantor, as principal obligor and not as surety, unconditionally and
irrevocably covenants with the Seller:

      (a)   to cause the Purchaser to effect prompt and complete performance of
            all the terms, covenants, conditions and provisions of the
            Transaction Documents that are to be kept, observed and performed by
            the Purchaser;

      (b)   that, if for any reason whatsoever, including the insolvency or
            bankruptcy of the Purchaser, or if the Purchaser shall at any time
            or from time to time fail to keep, perform or observe any term,
            covenant, condition or provision of any of the Transaction Documents
            that is to be kept, observed or performed by the Purchaser, then the
            Guarantor shall forthwith on demand of the Seller, perform or
            observe, as the case may be, such term, covenant, condition or
            provision in accordance with the relevant provisions of the
            Transaction Documents; and

      (c)   that the Guarantor is jointly and severally bound with the Purchaser
            to perform the terms, covenants, obligations (including
            indemnification), conditions and provisions of the Transaction
            Documents that are to be kept, observed and performed by the
            Purchaser and, in the enforcement of its rights pursuant to this
            Section 9.28 the Seller may proceed against the Guarantor as if the
            Guarantor was a principal party under this Agreement with respect to
            such terms, covenants, conditions and provisions applicable to the
            Purchaser.

      In the event of a default by the Purchaser under any of the Transaction
Documents, the Guarantor waives notice, presentment and any right to require the
Seller to:

      (d)   proceed against the Purchaser or pursue any rights or remedies with
            respect to the Transaction Documents against the Purchaser, or

      (e)   pursue any other remedy whatsoever in the power of the Seller prior
            to the Seller pursuing any rights it may have under the Transaction
            Documents against the Guarantor.

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                                    - 127 -

      Without limiting the generality of the foregoing, the liability of the
Guarantor shall not be deemed to have been waived, released, discharged,
impaired or affected by reason of the release or discharge of the Purchaser in
any receivership, bankruptcy, winding-up or other creditors' proceedings or the
rejection, disaffirmance or disclaimer of any of the Transaction Documents in
any proceeding or any other matter, and shall continue with respect to the
periods prior thereto and thereafter, for and with respect to the Transaction
Documents.

      This guarantee shall continue notwithstanding any assignment of this
Agreement by the Purchaser to an Affiliate or otherwise pursuant to Section 9.28
and shall apply, mutatis, mutandis, in respect of any Affiliate of the Purchaser
in the event any such Affiliate is a party to any Transaction Document in lieu
of the Purchaser.

      IN WITNESS WHEREOF, the Parties have duly executed this Asset Purchase
Agreement as of the date first written above.

                                        FLEXTRONICS TELECOM SYSTEMS, LTD.

                                        By: /s/ Manny Marimuthu
                                            -----------------------------------
                                            Name: Manny Marimuthu
                                            Title: Director


                                        By:____________________________________
                                            Name:
                                            Title:


                                        NORTEL NETWORKS LIMITED

                                        By: /s/ Chahram Bolouri
                                            -----------------------------------
                                            Name: Chahram Bolouri
                                            Title: President, Global Operations


                                        By:____________________________________
                                            Name:
                                            Title:


                                        FLEXTRONICS INTERNATIONAL LTD,
                                        acting through its Hong Kong branch


                                        By: /s/ Manny Marimuthu
                                            -----------------------------------
                                            Title: Authorized Signatory


                                        By:____________________________________
                                            Name:
                                            Title:


                                                                  Execution Copy

EX-10.02

                                                                   Exhibit 10.02


                        AMENDMENT NO. 2 dated as of July 14,2004 (this
                  "Amendment"), to the Credit Agreement dated as of March 3,
                  2004 (as amended, supplemented or otherwise modified from time
                  to time, the "Credit Agreement"), among FLEXTRONICS
                  INTERNATIONAL LTD., a Singapore corporation (the "Borrower"),
                  each of the subsidiaries of the Borrower designated as
                  borrowers from time to time, as approved by each Lender, the
                  Issuing Bank and the guarantors thereunder (collectively, the
                  "Designated Borrowers" and, together with the Borrower, the
                  "Borrowers"), the financial institutions party to the Credit
                  Agreement as Lenders (the "Lenders"), and ABN AMRO BANK N.V.,
                  as Agent.

            A. Pursuant to the Credit Agreement, the Lenders have extended and
agreed to extend credit to the Borrowers on the terms and subject to the
conditions set forth therein. Capitalized terms used and not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement.

            B. The Borrower has requested that the Lenders amend the Credit
Agreement to, among other things (a) provide for an increase in the Total
Commitment and an increase in the Commitment of each Lender as set forth on
Annex I hereto and (b) permit the Borrower to further increase or decrease the
Total Commitment after the date of this Amendment upon written notice to the
Lenders, provided that the Combined Total Commitment does not exceed
$1,100,000,000. The Lenders are willing so to amend the Credit Agreement on the
terms and subject to the conditions set forth herein.

            Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto agree as follows:

            SECTION 1. Amendments to Section 1.01. (a) Section 1.01 of the
Credit Agreement is hereby amended by deleting the definition of the term
"Currencies" in its entirety and replacing it with the following:

            "Currencies" shall mean United States Dollars, United Kingdom
      pounds, Euros, Swedish Krona and Japanese Yen.

            (b) Section 1.01 of the Credit Agreement is hereby amended by
deleting the definition of the term "Total Commitment" in its entirety and
replacing it with the following:

            "Total Commitment" shall mean, at any time, the sum at such time of
      the Lenders' Commitments. The Total Commitment as of July 14, 2004 is Nine
      Hundred Million Dollars ($900,000,000).


                                                                               2

            (c) The term "EBITDA" in Section 1.01 of the Credit Agreement is
hereby amended by deleting the text "September 30, 2004" in clause (d) thereof
and substituting "June 28, 2004" therefore.

            (d) The definition of the term "Designated Borrower" in Section 1.01
of the Credit Agreement is hereby amended by adding the following text at the
end of such definition", provided that FIUI may not be a Designated Borrower."

            SECTION 2. Amendment to Section 2.01. Clause (A) of Subparagraph
2.01(b) is hereby amended by inserting the text "the lesser of (i) the Total
Commitment and (ii)" after the text "shall not exceed."

            SECTION 3. Amendment to Section 2.05. (a) Section 2.05 of the Credit
Agreement is hereby amended by adding the following Subparagraph 2.05(e) at the
end of such Section:

            "(e) Increases and Decreases in Commitments. Upon five (5) Business
      Days prior written notice to the Lenders and Agent in the form attached
      hereto as Exhibit A-2 or another form acceptable to Agent, the Borrowers
      may (without the consent of any Lender) increase or decrease the Total
      Commitment by Five Million Dollars ($5,000,000) or integral multiples
      thereof by reallocating between "Commitments" under the FIUI Credit
      Agreement and "Commitments" under this Agreement; provided, however that:

            (i) any increase (or decrease) in the Total Commitment pursuant to
            this Subparagraph 2.05(e) shall automatically result in (and be
            subject to) a corresponding decrease (or increase) in the "Total
            Commitment" under the FIUI Credit Agreement;

            (ii) any increase (or decrease) in a Lender's Commitment pursuant to
            this Subparagraph 2.05(e) shall automatically result in (and be
            subject to) a corresponding decrease (or increase) in such Lender's
            "Commitment" under the FIUI Credit Agreement;

            (iii) the Combined Total Commitment shall not exceed One Billion One
            Hundred Million Dollars ($1,100,000,000) as permanently reduced
            pursuant to Subparagraph 2.05(c) of this Agreement and Subparagraph
            2.05(b) of the FIUI Credit Agreement;

            (iv) each Lender's Combined Commitment shall not exceed the amount
            set forth under the caption "Combined Commitment" in Part A of
            Schedule I, as permanently reduced pursuant to Subparagraph 2.05(c)
            of this Agreement and Subparagraph 2.05(b) of the FIUI Credit
            Agreement;

            (v) the Borrowers may not reduce the Total Commitment prior to the
            Maturity Date if, after giving effect to such reduction, the Dollar
            amount or Dollar Equivalent of the aggregate principal amount of all
            Loans then outstanding plus the aggregate amount available for
            drawing under all


                                                                               3

            Letters of Credit plus the aggregate amount of all Reimbursement
            Obligations outstanding at such time would exceed the Total
            Commitment; and

            (vi) no Default or Event of Default under this Agreement or and no
            "Default" or "Event of Default" under the FIUI Credit Agreement has
            occurred and is continuing or would result from such increase or
            decrease in the Total Commitment.

            (b) Subparagraph 2.05(c)(i) is hereby amended by adding the text
"Dollar amount or" immediately after the text "giving effect to such reduction,"
in clause (i) thereof.

            (c) Subparagraph 2.05(d) is hereby amended by (i) adding the text
"(except as set forth in Subparagraph 2.05(e))" after the text "reduced or
cancelled" and (ii) adding the following text at the end of such Subparagraph.

            "Any increase in the Total Commitment shall be applied to increase
      each Lender's Commitment pro rata according to such Lender's Proportionate
      Share."

            SECTION 4. Amendment to Section 2.06. Section 2.06 of the Credit
Agreement is hereby amended by adding the following new Subparagraph (d) at the
end of such Section:

            "(d) Utilization Fee. For each day on which the sum of (i) the Used
      Commitment and (ii) the "Used Commitment" as defined in the FIUI Credit
      Agreement is equal to or greater than 33% of the Combined Total Commitment
      on such day (and for each day after the day on which the Commitments
      terminate), the Borrowers agree to pay to the Agent, in US Dollars, for
      the account of each Lender, a utilization fee, which shall accrue at the
      rate under the column "Utilization Fee" on Schedule II on the daily amount
      of the Used Commitment, to be paid to the Lenders based on each Lender's
      Proportionate Share. Accrued utilization fees shall be payable in arrears
      on the last day of March, June, September and December of each year, on
      any date prior to the Maturity Date on which the Commitments terminate and
      on the Maturity Date commencing on September 30,2004, provided that any
      utilization fees accruing after the Maturity Date shall be payable on
      demand. All utilization fees shall be computed on the basis of a year of
      360 days and shall be payable for the actual number of days elapsed
      (including the first day but excluding the last day)."

            SECTION 5. Amendment to Section 5.01. Section 5.01 is hereby amended
by deleting Subparagraph 5.0 l(k) in its entirety and substituting the following
therefor:

            "(k) Flextronics Hungaria Kft. In the event that Flextronics
      Hungaria Kft. (x) has not been liquidated or dissolved by September 30,
      2004, and (y) is a "Material Subsidiary" as of such date, then, within
      five (5) Business Days of such date, Borrowers shall cause Flextronics
      Hungaria Kft. to (i) complete and execute




                                                                               4

      a Subsidiary Joinder and (ii) deliver or cause to be delivered such other
      instruments, agreements, certificates, opinions and documents as Agent may
      reasonably request."

            SECTION 6. Amendment to Section 8.04. Subparagraph 8.04(i) is hereby
amended by inserting the text "(other than as provided in Subparagraph 2.05(d))"
after the text "(A) increase the Total Commitment."

            SECTION 7. Amendments to Section 8.05. Subparagraph 8.05(c) is
hereby amended by deleting clause (iv) in its entirety and replace it with the
following:

            "(iv) No Lender may make any Assignment of its Commitment and Loans
      under this Agreement to any Assignee Lender unless such Lender
      concurrently assigns and delegates to such Assignee Lender an equal pro
      rata interest in such Lender's "Commitment" and "Loans" under the FIUI
      Credit Agreement; and"

            SECTIONS 8. Amendments to Schedules and Exhibits (a) Part A of
Schedule I of the Credit Agreement is hereby deleted in its entirety and
replaced with the revised "Schedule I - Part A" attached hereto as Annex I.

            (b) A new Exhibit A-2 is hereby added to the Credit Agreement in the
form attached hereto as Annex II.

            (c) Schedule II of the Credit Agreement is hereby deleted in its
entirety and replaced with the revised Schedule II attached hereto as Annex III.

            SECTION 9. Representations and Warranties. To induce the other
parties to enter into this Amendment, each of the Borrowers represents and
warrants to the Agent and to each Lender that:

            (a) This Amendment has been duly authorized, executed and delivered
by it and constitutes a legal, valid and binding obligation of such party
hereto, enforceable against it in accordance with its terms.

            (b) After giving effect to this Amendment, the representations and
warranties set forth in Section IV of the Credit Agreement are true and correct
in all material respects on and as of the date hereof with the same effect as if
made on and as of the date hereof, except to the extent such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties were true and correct as of such earlier date).

            (c) The acquisition by the Borrower of a fifty-five percent (55%)
ownership interest in Hughes Software Systems is permitted under the Credit
Agreement.

            (d) After giving effect to this Amendment, no Event of Default or
Default has occurred and is continuing.



                                                                               5

            SECTION 10. Conditions to Effectiveness. This Amendment shall become
effective as of the date first above written when (a) the Agent shall have
received (i) counterparts of this Amendment that, when taken together, bear the
signatures of each Borrower and each Lender and (ii) counterparts of Amendment
No. 2 to the FIUI Credit Agreement dated the date hereof that, when taken
together, bear the signatures of FIUI and each Lender party thereto, (b) the
representations and warranties set forth in Section 9 of this Amendment are true
and correct and (c) all expenses required to be paid or reimbursed by the
Borrower pursuant to this Amendment, the Credit Agreement, the FIUI Credit
Agreement or otherwise, including all reasonable invoiced fees and expenses of
counsel to the Agent, shall have been paid or reimbursed, as applicable.

            SECTION 11. Effect of Amendment. This Amendment shall apply and be
effective only with respect to the provisions of the Credit Agreement
specifically referred to herein and only for the circumstances referred to
herein. Any default under this Amendment shall constitute an Event of Default
under the Credit Agreement.

            SECTION 12. APPLICABLE LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

            SECTION 13. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement. Delivery of an executed
signature page to this Amendment by facsimile transmission shall be effective as
delivery of a manually signed counterpart of this Amendment.

            SECTION 14. Expenses. The Borrowers agree to reimburse the Agent for
its reasonable out-of-pocket expenses in connection with this Amendment,
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore LLP, counsel for the Agent.

            SECTION 15. Headings. The headings of this Amendment are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.



            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.

                                             FLEXTRONICS INTERNATIONAL LTD.,

                                                by /s/ Manny Marimuthu
                                                   ---------------------------
                                                   Name:  Manny Marimuthu
                                                   Title: Authorized Signatory



                                 ABN AMRO BANK N.V., individually and
                                 as Agent,

                                  by /s/ William W. Davidson
                                     --------------------------
                                     Name:  William W. Davidson
                                     Title: Vice President



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution  ABN-AMRO BANK N.V.

                                                by /s/ William W. Davidson
                                                   --------------------------
                                                   Name:  William W. Davidson
                                                   Title: Vice President



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution  ALLIED IRISH BANKS PLC.

                                              by  /s/ Michael Doyle
                                                  ----------------------------
                                                  Name: Michael Doyle
                                                  Title: Senior Vice President





                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution  U.S. Bank National Association

                                                by  /s/ Janet E. Jordan
                                                   ---------------------
                                                   Name: Janet E. Jordan
                                                   Title:  Vice President



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution BANK AUSTRIA CREDITANSTALT AG

                                                 by  /s/ K. Prauckl
                                                    ----------------------
                                                    Name:  K. Prauckl
                                                    Title: Ingo Bleler



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Bank of America, N.A.

                                                by  /s/ James P. Johnson
                                                  -----------------------
                                                  Name:  JAMES P. JOHNSON
                                                  Title: Managing Director



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution BNP PARIBAS

                                                by  /s/ Rafael Lumanlan
                                                  -------------------------
                                                  Name:  Rafael Lumanlan
                                                  Title: Director

                                                by  /s/ Stuart Darby
                                                   -------------------------
                                                   Name:  Stuart Darby
                                                   Title: Vice President



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Citicorp USA, Inc.

                                               by  /s/ [ILLEGIBLE] Spiegel
                                                  ----------------------------
                                                  Name:  [ILLEGIBLE] Spiegel
                                                  Title: V.P.



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT
To Approve the Amendment:

                                               CREDIT SUISSE FIRST BOSTON ACTING
                                               THROUGH ITS CAYMAN ISLANDS BRANCH

                                               by:  /s/ Peter Chauvin
                                                   -----------------------------
                                                        Peter Chauvin
                                                        Vice President

                                               by:  /s/ Alain Daoust
                                                   -----------------------------
                                                        Alian Daoust
                                                        Director



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Deutsche Bank AG, New York Branch

                                       by  /s/ Paul O'Leary
                                          ----------------------------
                                          Name:  Paul O'Leary
                                          Title: Vice President

                                           /s/ Gregory Shefrin
                                          ------------------------------
                                          Name:  Gregory Shefrin
                                          Title: Director



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution FLEET NATIONAL BANK

                                       by /s/ James P. Johnson
                                          -----------------------------
                                          Name:  JAMES P. JOHNSON
                                          Title: Managing Director

                                          Attention:  Bank of America, N.A.
                                                      Technology Group



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution HSBC Bank USA, NA

                                        by  /s/ David Wagstaff
                                          ---------------------------
                                          Name:  David Wagstaff
                                          Title: Senior Vice President



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Kereskedelmi e's Hitelbank Rt.

                                         by ____________________________
                                            Name:
                                            Title:

              /s/ Attila Peczoll            /s/ Zoltan Petrov
              ----------------------------  ----------------------------
              Name:  Attila Peczoll         Name:  Zoltan Petrov
              Title: Director               Title: Relationship Manager


                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Key Bank National Association

                                         by  /s/ Robert W. Boswell
                                            ---------------------------
                                            Name:  ROBERT W. BOSWELL
                                            Title: VICE PRESIDENT



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution LEHMAN COMMERCIAL PAPER, INC.

                                        by  /s/ Frances J. Chang
                                           ----------------------------
                                           Name:  Frances J. Chang
                                           Title: Authorized Signatory



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Mizuho Corporate Bank, Ltd.

                                          by  /s/ Yuichi Hirashima
                                            ---------------------------
                                            Name:  Yuichi Hirashima
                                            Title: Deputy General Manager



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Royal Bank of Canada

                                        by  /s/ Stephanie Babich-Allegra
                                            ----------------------------------
                                            Name:  Stephanie Babich-Allegra
                                            Title: Authorized Signatory



                                                               SIGNATURE PAGE TO
                                                  F1L CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Skandinaviska Enskilda Banken AB (publ)

                                        by /s/ Michael I Dicks
                                           -----------------------------
                                        Name:  Michael I Dicks
                                        Title: Head of DCM, London

                                        by /s/ Martin Lindeberg
                                           -------------------------
                                        Name:  Martin Lindeberg
                                        Title: Transaction Manager



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Sumitomo Mitsui Banking Corporation

                                          by /s/ Leo E. Pagarigan
                                            -----------------------------
                                             Name:  Leo E. Pagarigan
                                             Title: Senior Vice President



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution The Bank of Nova Scotia

                                         by /s/ Kemp Leonard
                                           ---------------------------
                                           Name:  Kemp Leonard
                                           Title: Director



                                                               SIGNATURE PAGE TO
                                                  FIL CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

                        UBS LOAN FINANCE LLC

                        By: /s/ Doris Mesa
                           -----------------------------
                                  Doris Mesa
                                  Associate Director
                                  Banking Products
                                  Services, US

                        By: /s/ Joselin Fernandes
                           ---------------------------------
                                  Joselin Fernandes
                                  Associate Director
                                  Banking Products
                                  Services, US



                                                               SIGNATURE PAGE TO
                                                  P1L CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Union Bank of California, N.A.

                                        by /s/ Sarabelle Hitchner
                                          --------------------------------
                                          Name:  Sarabelle Hitchner
                                          Title: Vice President



                                                                         ANNEX I

                               SCHEDULE I - PART A



                                                      NEW ALLOCATION
                                                      --------------
                                       Combined
Institution                           Commitment            FIL              FIUI
- ------------                        --------------    --------------    ------------
                                                               
ABN AMRO                            $   85,000,000     $ 69,545,456     $ 15,454,544
Fleet                               $   85,000,000     $ 69,545,455     $ 15,454,545
Bank of America                     $   81,500,000     $ 66,681,818     $ 14,818,182
Citibank                            $   81,500,000     $ 66,681,818     $ 14,818,182
Deutsche Bank AG, New York Branch   $   81,500,000     $ 66,681,818     $ 14,818,182
Credit Suisse First Boston          $   81,500,000     $ 66,681,818     $ 14,818,182
Scotia Capital                      $   81,500,000     $ 66,681,818     $ 14,818,182
BNP Paribas                         $   62,500,000     $ 51,136,364     $ 11,363,636
Key Bank                            $   60,000,000     $ 49,090,909     $ 10,909,091
HSBC                                $   50,000,000     $ 40,909,091     $  9,090,909
UBS                                 $   50,000,000     $ 40,909,091     $  9,090,909
Royal Bank of Canada                $   50,000,000     $ 40,909,091     $  9,090,909
Lehman Brothers                     $   50,000,000     $ 40,909,091     $  9,090,909
Mizuho                              $   35,000,000     $ 28,636,364     $  6,363,636
Union Bank of California            $   30,000,000     $ 24,545,455     $  5,454,545
Bank Austria                        $   25,000,000     $ 20,454,545     $  4,545,455
K&H Bank                            $   25,000,000     $ 20,454,545     $  4,545,455
US Bank                             $   25,000,000     $ 20,454,545     $  4,545,455
SE Banken                           $   25,000,000     $ 20,454,545     $  4,545,455
Sumitomo Mitsui                     $   25,000,000     $ 20,454,545     $  4,545,455
Allied Irish Bank                   $   10,000,000     $  8,181,818     $  1,818,182
                                    --------------     ------------     ------------
                                    $1,100,000,000     $900,000,000     $200,000,000
                                    --------------     ------------     ------------




                                                                        ANNEX II

                                   EXHIBIT A-2

                         NOTICE OF INCREASE OR DECREASE
                              IN TOTAL COMMITMENTS

                                     [Date]
ABN AMRO Bank N.V.

as Agent

[_______________]

Attn: [_________________]

      1.    Reference is made to that certain Credit Agreement, dated as of
March 3, 2004 (as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement"), among Flextronics International Ltd. ("Borrower"), each
of the subsidiaries of the Borrower designated as borrowers from time to time,
as approved by each Lender, the Issuing Bank and the guarantors thereunder
(collectively, the "Designated Borrowers" and, together with the Borrower, the
"Borrowers"), the Lenders, Fleet National Bank, as Issuing Bank, and ABN AMRO
Bank N.V., as Agent. Lenders have agreed to extend credit to Borrowers upon the
terms and subject to the conditions set forth therein. Unless otherwise
indicated, all terms defined in the Credit Agreement have the same respective
meanings when used herein.

      2.    Pursuant to Paragraph 2.05(e) of the Credit Agreement, Borrowers
hereby request [an increase] [a decrease] in the Total Commitment in the amount
of $[      ] and a corresponding [decrease] [increase] in the "Total Commitment"
under the FIUI Credit Agreement.

      3.    Borrowers hereby certify to Lenders and Agent that, on the date of
this Notice and after giving effect to the requested [increase] [decrease] in
the Total Commitment:

            (a) The representations and warranties set forth in Paragraph 4.01
of the Credit Agreement and in the other Credit Documents are true and correct
in all material respects as if made on such date (except for representations and
warranties expressly made as of a specified date, which shall be true as of such
date); and

            (b) No Default has occurred and is continuing or will result from
such [increase] [decrease] in the Total Commitment.

            (c) After giving effect to such [increase] [decrease] in the Total
Commitment (i) the Combined Total Commitment does not exceed $1,100,000,000 and
(ii) the Total Commitment is not less than the sum of (x) the Dollar amount or
Dollar Equivalent of the then aggregate principal amount of Loans outstanding,
(y) the





                                                                        ANNEX II

aggregate amount available for drawing under all Letters of Credit and (z) the
aggregate amount of all Reimbursement Obligations then outstanding.

            IN WITNESS WHEREOF, Borrower has executed this Notice on the date
set forth above.

                                        FLEXTRONICS INTERNATIONAL LTD.,

                                        By:___________________________________
                                           Name:______________________________
                                           Title:_____________________________

                                        FLEXTRONICS INTERNATIONAL USA,
                                        INC.,

                                        By:___________________________________
                                           Name:______________________________
                                           Title:_____________________________



                                                                       ANNEX III

                                   SCHEDULE II

                                  PRICING GRID


                                             APPLICABLE
                                               MARGIN
                                APPLICABLE      FOR
      FIL'S                       MARGIN     LIBOR RATE
      SENIOR                       FOR       BORROWINGS                 COMMITMENT
       DEBT           PRICING    BASE RATE     AND LC     UTILIZATION      FEE
      RATING           LEVEL    BORROWINGS    USAGE FEE       FEE       PERCENTAGE
   -----------        -------   ----------  ------------  -----------   ----------
                                                         
> or = BBB / Baa2        1             0%        0.750%      0.250%       0.150%
   BBB- / Baa3           2             0%        1.000%      0.250%       0.200%
     BB+ / Ba1           3         0.250%        1.250%      0.250%       0.250%
      BB / Ba2           4         0.500%        1.500%      0.250%       0.350%
< or =  BB- / Ba3        5         1.000%        2.000%      0.250%       0.500%





                                                                       ANNEX III

                                   EXPLANATION

The Applicable Margin with respect to the LIBOR Rate Loans, the LC Usage Fee (as
applicable) and the Commitment Fee Percentage will be determined based on FIL's
Senior Debt Rating assigned by S&P and Moody's as follows:

1.    In the event FIL does not have a Senior Debt Rating from either S&P or
      Moody's, then such rating agency will be deemed for purposes hereof to
      have established a Senior Debt Rating for FIL below BB- and Ba3,
      respectively.

2.    If the Senior Debt Rating established or deemed to have been established
      by S&P and Moody's are split within different categories above, then the
      lower rating shall apply (with Pricing Level 3 being lower than Pricing
      Level 2).

3.    Any change in FIL's Senior Debt Rating shall be effective on the date such
      change is first announced by the rating agency making such change.

In addition, the Borrowers will pay the utilization fee specified in the fifth
column above as provided in Section 2.06 of the Credit Agreement.

EX-10.03

                                                                   Exhibit 10.03


                        AMENDMENT NO. 2 dated as of July 14, 2004 (this
                  "Amendment"), to the Credit Agreement dated as of March 3,
                  2004 (as amended, supplemented or otherwise modified from time
                  to time, the "Credit Agreement"), among FLEXTRONICS
                  INTERNATIONAL USA, INC., a California corporation (the
                  "Borrower"), the financial institutions party to the Credit
                  Agreement as Lenders (the "Lenders"), and ABN AMRO BANK N.V.,
                  as Agent.

            A. Pursuant to the Credit Agreement, the Lenders have extended and
agreed to extend credit to the Borrower on the terms and subject to the
conditions set forth therein. Capitalized terms used and not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement.

            B. The Borrower has requested that the Lenders amend the Credit
Agreement to, among other things (a) provide for a decrease in the Total
Commitment and a decrease in the Commitment of each Lender as set forth on Annex
I hereto and (b) permit the Borrower to further decrease or increase the Total
Commitment after the date of this Amendment upon written notice to the Lenders,
provided that the Combined Total Commitment does not exceed $1,100,000,000. The
Lenders are willing so to amend the Credit Agreement on the terms and subject to
the conditions set forth herein.

            Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto agree as follows:

            SECTION 1. Amendments to Section 1.01. (a) Section 1.01 of the
Credit Agreement is hereby amended by deleting the definition of the term "Total
Commitment" in its entirety and replacing it with the following:

            "Total Commitment" shall mean, at any time, the sum at such time of
      the Lenders' Commitments. The Total Commitment as of July 14, 2004 is Two
      Hundred Million Dollars ($200,000,000).

            (b) The term "EBITDA" in Section 1.01 of the Credit Agreement is
hereby amended by deleting the text "September 30, 2004" in clause (d) thereof
and substituting "June 28, 2004" therefore.

            SECTION 2. Amendment to Section 2.01. Clause (i)(A) of Subparagraph
2.01 (b) is hereby amended by inserting the text "the lesser of (i) the Total
Commitment and (ii)" after the text "shall not exceed."

            SECTION 3. Amendment to Section 2.05. (a) Section 2.05 of the Credit
Agreement is hereby amended by adding the following Subparagraph 2.05(d) at the
end of such Section:



                                                                               2

            "(d) Increases and Decreases in Commitments. Upon five (5) Business
      Days prior written notice to the Lenders and Agent in the form attached
      hereto as Exhibit A-2 or another form acceptable to Agent, the Borrower
      may (without the consent of any Lender) increase or decrease the Total
      Commitment by Five Million Dollars ($5,000,000) or integral multiples
      thereof by reallocating between "Commitments" under the FIL Credit
      Agreement and "Commitments" under this Agreement; provided, however that:

            (i) any increase (or decrease) in the Total Commitment pursuant to
            this Subparagraph 2.05(d) shall automatically result in (and be
            subject to) a corresponding decrease (or increase) in the "Total
            Commitment" under the FIL Credit Agreement;

            (ii) any increase (or decrease) in a Lender's Commitment pursuant to
            this Subparagraph 2.05(d) shall automatically result in (and be
            subject to) a corresponding decrease (or increase) in such Lender's
            "Commitment" under the FIL Credit Agreement;

            (iii) the Combined Total Commitment shall not exceed One Billion One
            Hundred Million Dollars ($1,100,000,000), as permanently reduced
            pursuant to Subparagraph 2.05(b) of this Agreement and Subparagraph
            2.05(c) of the FIL Credit Agreement;

            (iv) each Lender's Combined Commitment shall not exceed the amount
            set forth under the caption "Combined Commitment" in Part A of
            Schedule I, as permanently reduced pursuant to Subparagraph 2.05(b)
            of this Agreement and Subparagraph 2.05(c) of the FIL Credit
            Agreement;

            (v) the Borrower may not reduce the Total Commitment prior to the
            Maturity Date if, after giving effect to such reduction, the
            aggregate principal amount of all Loans then outstanding plus the
            aggregate amount available for drawing under all Letters of Credit
            plus the aggregate amount of all Reimbursement Obligations
            outstanding at such time would exceed the Total Commitment; and

            (vi) no Default or Event of Default under this Agreement and no
            "Default" or "Event of Default" under the FIL Credit Agreement has
            occurred and is continuing or would result from such increase or
            decrease in the Total Commitment.

            (b) Subparagraph 2.05(c) is hereby amended by (i) adding the text
"(except as set forth in Subparagraph 2.05(d))" after the text "reduced or
cancelled" and (ii) adding the following text at the end of such Subparagraph:

            "Any increase in the Total Commitment shall be applied to increase
      each Lender's Commitment pro rata according to such Lender's Proportionate
      Share."



                                                                               3

            SECTION 4. Amendment to Section 2.06. Section 2.06 of the Credit
Agreement is hereby amended by adding the following new Subparagraph (d) at the
end of such Section:

            "(d) Utilization Fee. For each day on which the sum of (i) the Used
      Commitment and (ii) the "Used Commitment" as defined in the FIL Credit
      Agreement is equal to or greater than 33% of the Combined Total Commitment
      on such day (and for each day after the day on which the Commitments
      terminate), the Borrowers agree to pay to the Agent, in US Dollars, for
      the account of each Lender, a utilization fee, which shall accrue at the
      rate under the column "Utilization Fee" on Schedule II on the daily amount
      of the Used Commitment, to be paid to the Lenders based on each Lender's
      Proportionate Share. Accrued utilization fees shall be payable in arrears
      on the last day of March, June, September and December of each year, on
      any date prior to the Maturity Date on which the Commitments terminate and
      on the Maturity Date commencing on September 30,2004, provided that any
      utilization fees accruing after the Maturity Date shall be payable on
      demand. All utilization fees shall be computed on the basis of a year of
      360 days and shall be payable for the actual number of days elapsed
      (including the first day but excluding the last day)."

            SECTION 5. Amendment to Section 5.01. Section 5.01 is hereby amended
by deleting Subparagraph 5.01(k) in its entirety and substituting the following
therefor:

            "(k) Flextronics Hungaria Kft. In the event that Flextronics
      Hungaria Kft. (x) has not been liquidated or dissolved by September 30,
      2004, and (y) is a "Material Subsidiary" as of such date, then, within
      five (5) Business Days of such date, Borrower shall cause Flextronics
      Hungaria Kft. to (i) complete and execute a Subsidiary Joinder and (ii)
      deliver or cause to be delivered such other instruments, agreements,
      certificates, opinions and documents as Agent may reasonably request."

            SECTION 6. Amendment to Section 8.04. Subparagraph 8.04(i) is hereby
amended by inserting the text "(other than as provided in Subparagraph 2.05(e))"
after the text "(A) increase the Total Commitment."

            SECTION 7. Amendments to Section 8.05. Subparagraph 8.05(c) is
hereby amended by deleting clause (iv) in its entirety and replace it with the
following:

            "(iv) No Lender may make any Assignment of its Commitment and Loans
      under this Agreement to any Assignee Lender unless such Lender
      concurrently assigns and delegates to such Assignee Lender an equal pro
      rata interest in such Lender's "Commitment" and "Loans" under the FIL
      Credit Agreement; and"

            SECTION 8. Amendments to Schedules and Exhibits (a) Part A of
Schedule I of the Credit Agreement is hereby deleted in its entirety and
replaced with the revised "Schedule I - Part A" attached hereto as Annex I.



                                                                               4

            (b) A new Exhibit A-2 is hereby added to the Credit Agreement in the
form attached hereto as Annex II.

            (c) Schedule II of the Credit Agreement is hereby deleted in its
entirety and replaced with the revised Schedule II attached hereto as Annex III.

            SECTION 9. Representations and Warranties. To induce the other
parties to enter into this Amendment, the Borrower represents and warrants to
the Agent and to each Lender that:

            (a) This Amendment has been duly authorized, executed and delivered
by it and constitutes a legal, valid and binding obligation of such party
hereto, enforceable against it in accordance with its terms.

            (b) After giving effect to this Amendment, the representations and
warranties set forth in Section IV of the Credit Agreement are true and correct
in all material respects on and as of the date hereof with the same effect as if
made on and as of the date hereof, except to the extent such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties were true and correct as of such earlier date).

            (c) The acquisition by the Borrower of a fifty-five percent (55%)
ownership interest in Hughes Software Systems is permitted under the Credit
Agreement.

            (d) After giving effect to this Amendment, no Event of Default or
Default has occurred and is continuing.

            SECTION 10. Conditions to Effectiveness. This Amendment shall become
effective as of the date first above written when (a) the Agent shall have
received (i) counterparts of this Amendment that, when taken together, bear the
signatures of each Borrower and each Lender and (ii) counterparts of Amendment
No. 2 to the FIL Credit Agreement dated the date hereof that, when taken
together, bear the signatures of FIL and each Lender party thereto, (b) the
representations and warranties set forth in Section 9 of this Amendment are true
and correct and (c) all expenses required to be paid or reimbursed by the
Borrower pursuant to this Amendment, the Credit Agreement, the FIL Credit
Agreement or otherwise, including all reasonable invoiced fees and expenses of
counsel to the Agent, shall have been paid or reimbursed, as applicable.

            SECTION 11. Effect of Amendment. This Amendment shall apply and be
effective only with respect to the provisions of the Credit Agreement
specifically referred to herein and only for the circumstances referred to
herein. Any default under this Amendment shall constitute an Event of Default
under the Credit Agreement.

            SECTION 12. APPLICABLE LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.



                                                                               5

            SECTION 13. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement. Delivery of an executed
signature page to this Amendment by facsimile transmission shall be effective as
delivery of a manually signed counterpart of this Amendment.

            SECTION 14. Expenses. The Borrower agrees to reimburse the Agent for
its reasonable out-of-pocket expenses in connection with this Amendment,
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore LLP, counsel for the Agent.

            SECTION 15. Headings. The headings of this Amendment are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.



            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.

                                     FLEXTRONICS INTERNATIONAL USA,
                                     INC.,

                                         by /s/ THOMAS J. SMACH
                                            ------------------------------------
                                            Name: THOMAS J. SMACH
                                            Title: CFO



                                     ABN AMRO BANK N.V., individually and
                                     as Agent,
                                         by /s/ WILLIAM W. DAVIDSON
                                            ------------------------------------
                                            Name: WILLIAM W. DAVIDSON
                                            Title: VICE PRESIDENT



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of institution Bank of America, N.A.

                                         by /s/ JAMES P. JOHNSON
                                            ------------------------------------
                                            Name: JAMES P. JOHNSON
                                            Title: Managing Director



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution ALLIED IRISH BANKS Plc.

                                         by /s/ Michael Doyle
                                            ------------------------------------
                                            Name: MICHAEL DOYLE
                                            Title: SENIOR VICE PRESIDENT



                                                               SIGNATURE PAGE TO
                                                 FUJI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution BANK AUSTRIA CREDITANSTALT AG

                                         by /s/ K. Prauckl
                                            ------------------------------------
                                            Name:  K. Prauckl
                                            Title: Ingo Bleler



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution BNP PARIBAS

                                         by /s/ Rafael Lumanlan
                                            ------------------------------------
                                            Name: Rafael Lumanlan
                                            Title: Director

                                         by /s/ Stuart Darby
                                            ------------------------------------
                                            Name: Stuart Darby
                                            Title: Vice President



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name Of Institution ABN-AMRO BANK N.V.

                                         by /s/ WILLIAM W. DAVIDSON
                                            ------------------------------------
                                            Name: WILLIAM W. DAVIDSON
                                            Title: VICE PRESIDENT



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Citicorp USA, Inc.

                                         by /s/ Spiegel
                                            ------------------------------------
                                            Name: Spiegel

                                            Title: V.P.



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

                                     CREDIT SUISSE FIRST BOSTON ACTING
                                     THROUGH ITS CAYMAN ISLANDS BRANCH

                                     by: /s/ Peter Chauvin
                                         -----------------------------
                                         Peter Chauvin
                                         Vice President

                                     by: /s/ Alain Daoust
                                         -----------------------------
                                         Alain Daoust
                                         Director



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Deutsche Bank AG, New York Branch

                                         by /s/ Paul O'Leary
                                            ------------------------------------
                                            Name: Paul O'Leary
                                            Title: Vice President

                                         /s/ Gregory Shefrin
                                         ---------------------------------------
                                             Name: Gregory Shefrin
                                             Title: Director



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution FLEET NATIONAL BANK

                                         by /s/ JAMES P. JOHNSON
                                            ------------------------------------
                                            Name: JAMES P. JOHNSON
                                            Title: Managing Director

                                            Attention: Bank of America, N.A.
                                                       Technology Group



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution HSBC Bank USA, NA

                                         by /s/ David Wagstaff
                                            ------------------------------------
                                            Name: David Wagstaff
                                            Title: Senior Vice President



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Kereskedelmi es Hitel bank Rt.

                                         by ___________________________________
                                            Name:
                                            Title:

                                /s/ Attila Paczoli         /s/ Zoltan Petrov
                                -------------------     ------------------------
                                 Attila Paczoli             Zoltan Petrov
                                   Director               Relationship Manager



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Key Bank National Association

                                         by /s/ Robert W. Boswell
                                            ------------------------------------
                                            Name: ROBERT W. BOSWELL
                                            Title: VICE PRESIDENT



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution LEHMAN COMMERCIAL PAPER, INC.

                                         by /s/ Francis J. Chang
                                            ------------------------------------
                                            Name: Francis J. Chang
                                            Title: Authorized Signatory



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Mizuho Corporate Bank, Ltd.

                                         by /s/ Yuichi Hirashima
                                            ------------------------------------
                                            Name: Yuichi Hirashima
                                            Title: Deputy General Manager



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

TO Approve the Amendment:

Name of Institution Royal Bank of Canada

                                         by /s/ Stephanie Babich-Allegra
                                            ------------------------------------
                                            Name: Stephanie Babich-Allegra
                                            Title: Authorized Signatory



                                                               SIGNATURE PAGE TO
                                                 FIU1 CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Skandinaviska Enskilda Banken AB (publ)

                                         by /s/ Michael I Dicks
                                            ------------------------------------
                                            Name: Michael I Dicks
                                            Title: Head of DCM, London

                                         by /s/ Martin Lindeberg
                                            ------------------------------------
                                            Name: Martin Lindeberg
                                            Title: Transaction Manager



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Sumitomo Mitsui Banking Corporation

                                         by /s/ Leo E. Pagarigan
                                            ------------------------------------
                                            Name: Leo E. Pagarigan
                                            Title: Senior Vice President



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution The Bank of Nova Scotia

                                         by /s/ Kemp  Leonard
                                            ------------------------------------
                                            Name: Kemp  Leonard
                                            Title: Director



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

                           UBS LOAN FINANCE LLC

                           By: /s/ Doris Mesa
                               ------------------------------
                                   Doris Mesa
                                   Associate Director
                                   Banking Products
                                   Services, US

                           By: /s/ JOSELIN FERNANDES
                               ------------------------------
                                   Joselin Fernandes
                                   Associate Director
                                   Banking Products
                                   Services, US



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution Union Bank of California, N.A.

                                         by /s/ Sarabelle Hitchner
                                            ------------------------------------
                                            Name: Sarabelle Hitchner
                                            Title: Vice President



                                                               SIGNATURE PAGE TO
                                                 FIUI CREDIT AGREEMENT AMENDMENT

To Approve the Amendment:

Name of Institution U.S. Bank National Association

                                         by /s/ Janet E. Jordan
                                            ------------------------------------
                                            Name: Janet E. Jordan
                                            Title: Vice President



                                                                         ANNEX I

                               SCHEDULE I - PART A



                                                                NEW ALLOCATION
                                            ---------------------------------------------------
                                                Combined
        Institution                            Commitment             FIL              FIUI
- ---------------------------------           ---------------      -------------    -------------
                                                                         
ABN AMRO                                    $    85,000,000      $  69,545,456    $  15,454,544
Fleet                                       $    85,000,000      $  69,545,455    $  15,454,545
Bank of America                             $    81,500,000      $  66,681,818    $  14,818,182
Citibank                                    $    81,500,000      $  66,681,818    $  14,818,182
Deutsche Bank AG, New York Branch           $    81,500,000      $  66,681,818    $  14,818,182
Credit Suisse First Boston                  $    81,500,000      $  66,681,818    $  14,818,182
Scotia Capital                              $    81,500,000      $  66,681,818    $  14,818,182
BNP Paribas                                 $    62,500,000      $  51,136,364    $  11,363,636
Key Bank                                    $    60,000,000      $  49,090,909    $  10,909,091
HSBC                                        $    50,000,000      $  40,909,091    $   9,090,909
UBS                                         $    50,000,000      $  40,909,091    $   9,090,909
Royal Bank of Canada                        $    50,000,000      $  40,909,091    $   9,090,909
Lehman Brothers                             $    50,000,000      $  40,909,091    $   9,090,909
Mizuho                                      $    35,000,000      $  28,636,364    $   6,363,636
Union Bank of California                    $    30,000,000      $  24,545,455    $   5,454,545
Bank Austria                                $    25,000,000      $  20,454,545    $   4,545,455
K&H Bank                                    $    25,000,000      $  20,454,545    $   4,545,455
US Bank                                     $    25,000,000      $  20,454,545    $   4,545,455
SE Banken                                   $    25,000,000      $  20,454,545    $   4,545,455
Sumitomo Mitsui                             $    25,000,000      $  20,454,545    $   4,545,455
Allied Irish Bank                           $    10,000,000      $   8,181,818    $   1,818,182
                                            ---------------      -------------    -------------
                                            $ 1,100,000,000      $ 900,000,000    $ 200,000,000




                                                                        ANNEX II

                                   EXHIBIT A-2

                         NOTICE OF INCREASE OR DECREASE
                              IN TOTAL COMMITMENTS

                                     [Date]

ABN AMRO Bank N.V.

as Agent

[_______________]

Attn: [_________________]

      1. Reference is made to that certain Credit Agreement, dated as of March
3, 2004 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Flextronics International USA, Inc. ("Borrower").
Lenders, Fleet National Bank, as Issuing Bank, and ABN AMRO Bank N.V., as Agent.
Lenders have agreed to extend credit to Borrower upon the terms and subject to
the conditions set forth therein. Unless otherwise indicated, all terms defined
in the Credit Agreement have the same respective meanings when used herein.

      2. Pursuant to Paragraph 2.05(d) of the Credit Agreement, Borrower hereby
requests [an increase] [a decrease] in the Total Commitment in the amount of
$[ ] and a corresponding [decrease] [increase] in the "Total Commitment" under
the FIL Credit Agreement.

      3. Borrower hereby certifies to Lenders and Agent that, on the date of
this Notice and after giving effect to the requested [increase] [decrease] in
the Total Commitment:

            (a) The representations and warranties set forth in Paragraph 4.01
of the Credit Agreement and in the other Credit Documents are true and correct
in all material respects as if made on such date (except for representations and
warranties expressly made as of a specified date, which shall be true as of such
date); and

            (b) No Default has occurred and is continuing or will result from
such [increase] [decrease] in the Total Commitment.

            (c) After giving effect to such [increase] [decrease] in the Total
Commitment (i) the Combined Total Commitment does not exceed $1,100,000,000 and
(ii) the Total Commitment is not less than the sum of (x) the then aggregate
principal amount of Loans outstanding, (y) the aggregate amount available for
drawing under all Letters of Credit and (z) the aggregate amount of all
Reimbursement Obligations then outstanding.



                                                                        ANNEX II

            IN WITNESS WHEREOF, Borrower has executed this Notice on the date
set forth above.

                                         FLEXTRONICS INTERNATIONAL USA, INC.,

                                         By: ___________________________________
                                             Name: _____________________________
                                             Title: ____________________________

                                         FLEXTRONICS INTERNATIONAL LTD.,

                                         By: ___________________________________
                                             Name: _____________________________
                                             Title: ____________________________



                                                                       ANNEX III

                                   SCHEDULE II

                                  PRICING GRID



                                                APPLICABLE
                                                  MARGIN
                                APPLICABLE         FOR
      FIL'S                       MARGIN        LIBOR RATE
     SENIOR                         FOR         BORROWINGS                      COMMITMENT
      DEBT          PRICING      BASE RATE        AND LC     UTILIZATION            FEE
     RATING          LEVEL      BORROWINGS      USAGE FEE         FEE           PERCENTAGE
- -----------------   -------     ----------      -----------  -----------        ----------
                                                                 
> or = BBB / Baa2      1              0%          0.750%          0.250%          0.150%
      BBB- / Baa3      2              0%          1.000%          0.250%          0.200%
       BB+ / Bal       3          0.250%          1.250%          0.250%          0.250%
        BB / Ba2       4          0.500%          1.500%          0.250%          0.350%
< or = BB- / Ba3       5          1.000%          2.000%          0.250%          0.500%




                                                                       ANNEX III

                                   EXPLANATION

The Applicable Margin with respect to the LIBOR Rate Loans, the LC Usage Fee (as
applicable) and the Commitment Fee Percentage will be determined based on FIL's
Senior Debt Rating assigned by S&P and Moody's as follows:

1.    In the event FIL does not have a Senior Debt Rating from either S&P or
      Moody's, then such rating agency will be deemed for purposes hereof to
      have established a Senior Debt Rating for FIL below BB- and Ba3,
      respectively.

2.    If the Senior Debt Rating established or deemed to have been established
      by S&P and Moody's are split within different categories above, then the
      lower rating shall apply (with Pricing Level 3 being lower than Pricing
      Level 2).

3.    Any change in FIL's Senior Debt Rating shall be effective on the date such
      change is first announced by the rating agency making such change.

In addition, the Borrower will pay the utilization fee specified in the fifth
column above as provided in Section 2.06 of the Credit Agreement.

EX-23.01

                                                                   EXHIBIT 23.01

August 4, 2004

Flextronics International Ltd.
One Marina Boulevard, #28-00
Singapore 018989

We have made a review, in accordance with standards of the Public Company
Accounting Oversight Board (United States), of the unaudited interim financial
information of Flextronics International Ltd. and subsidiaries for the
three-month periods ended June 30, 2004 and 2003, as indicated in our report
dated August 4, 2004; because we did not perform an audit, we expressed no
opinion on that information.

We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 is
incorporated by reference in Registration Statement Nos. 333-46166, 333-55528,
333-55850, 333-57680, 333-60270, 333-69452, 333-75526, 333-101327, 333-103189,
and 333-110430 on Form S-8 and Nos. 333-41646, 333-46200, 333-46770, 333-55530,
333-56230, 333-60968, 333-68238, 333-70492, 333-89944, 333-109542 and 333-114970
on Form S-3.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ DELOITTE & TOUCHE LLP

San Jose, California

                                       36

EX-31.01

                                                                   EXHIBIT 31.01

              CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
                         THE SARBANES-OXLEY ACT OF 2002

I, Michael E. Marks, certify that:

     1.       I have reviewed this quarterly report on Form 10-Q of Flextronics
              International Ltd.;

     2.       Based on my knowledge, this report does not contain any untrue
              statement of a material fact or omit to state a material fact
              necessary to make the statements made, in light of the
              circumstances under which such statements were made, not
              misleading with respect to the period covered by this report;

     3.       Based on my knowledge, the financial statements, and other
              financial information included in this report, fairly present in
              all material respects the financial condition, results of
              operations and cash flows of the registrant as of, and for, the
              periods presented in this report;

     4.       The registrant's other certifying officer and I are responsible
              for establishing and maintaining disclosure controls and
              procedures (as defined in Exchange Act Rules 13a-15(e) and
              15d-15(e)) for the registrant and have:

         a.   Designed such disclosure controls and procedures, or caused such
              disclosure controls and procedures to be designed under our
              supervision, to ensure that material information relating to the
              registrant, including its consolidated subsidiaries, is made known
              to us by others within those entities, particularly during the
              period in which this report is being prepared;

         b.   Evaluated the effectiveness of the registrant's disclosure
              controls and procedures and presented in this report our
              conclusions about the effectiveness of the disclosure controls and
              procedures, as of the end of the period covered by this report
              based on such evaluation; and

         c.   Disclosed in this report any change in the registrant's internal
              control over financial reporting that occurred during the
              registrant's most recent fiscal quarter that has materially
              affected, or is reasonably likely to materially affect, the
              registrant's internal control over financial reporting; and

     5.       The registrant's other certifying officer and I have disclosed,
              based on our most recent evaluation of internal control over
              financial reporting, to the registrant's auditors and the audit
              committee of the registrant's board of directors:

              a.  All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

              b.  Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: August 6, 2004

/s/ Michael E. Marks
- -----------------------------
Michael E. Marks
Chief Executive Officer
Flextronics International Ltd.

EX-31.02

                                                                   EXHIBIT 31.02

              CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
                         THE SARBANES-OXLEY ACT OF 2002

I, Robert R.B. Dykes, certify that:

      1.    I have reviewed this quarterly report on Form 10-Q of Flextronics
            International Ltd.;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

            a.    Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            b.    Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            c.    Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter that has
                  materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors:

            a.    All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b.    Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: August 6, 2004

/s/ Robert R.B. Dykes
- -----------------------------
Robert R.B. Dykes
President, Systems Group, and
Chief Financial Officer
Flextronics International Ltd.

EX-32.01

                                                                   EXHIBIT 32.01

            CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
                             18 U.S.C. SECTION 1350
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

I, Michael E. Marks, Chief Executive Officer of Flextronics International Ltd.
(the "Company"), does hereby certify, pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      -     the Quarterly Report on Form 10-Q of the Company for the period
            ended June 30, 2004, as filed with the Securities and Exchange
            Commission (the "Report"), fully complies with the requirements of
            Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      -     the information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

Date: August 6, 2004

/s/ Michael E. Marks
- -----------------------------
Michael E. Marks
Chief Executive Officer
(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been
provided to Flextronics International Ltd. and will be retained by it and
furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.02

                                                                   EXHIBIT 32.02

            CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
                             18 U.S.C. SECTION 1350
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

I, Robert R.B. Dykes, President, Systems Group, and Chief Financial Officer of
Flextronics International Ltd. (the "Company"), does hereby certify, pursuant to
18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:

      -     the Quarterly Report on Form 10-Q of the Company for the period
            ended June 30, 2004, as filed with the Securities and Exchange
            Commission (the "Report"), fully complies with the requirements of
            Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      -     the information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

Date: August 6, 2004

/s/ Robert R.B. Dykes
- -----------------------------
Robert R.B. Dykes
President, Systems Group and
Chief Financial Officer
(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been
provided to Flextronics International Ltd. and will be retained by it and
furnished to the Securities and Exchange Commission or its staff upon request.

                                       40