Exhibit 10.37

(NORTEL NETWORKS LOGO) [t15067t1506747.gif]

NORTEL NETWORKS CORPORATION

DIRECTORS’ DEFERRED

SHARE COMPENSATION PLAN

AS AMENDED AND RESTATED

Amended and Restated on December 18, 2003

 

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NORTEL NETWORKS CORPORATION
DIRECTORS’ DEFERRED
SHARE COMPENSATION PLAN
AS AMENDED AND RESTATED

1. BACKGROUND; PURPOSE OF THE PLAN

On January 24, 2002, the Board approved this Nortel Networks Corporation
Directors’ Deferred Share Compensation Plan, effective as of January 1, 2002,
(i) to provide for the crediting of Share Units to Participants in respect of
all services rendered by such Participants as members of the Board; and (ii) to
provide that each member of the Board who qualifies as an Eligible Director
shall receive all annual fees payable to such member for services as a member of
the Board in the form of Share Units credited in respect of such member under
the Plan. On May 29, 2003, the Board approved an amendment to the Plan,
effective immediately, to permit Eligible Directors to elect to receive between
0-100% of all fees payable to such member for services as a member of the Board
in the form of Share Units, with the remainder of such fees to be settled in
cash. On December 18, 2003, the Board approved an amendment to the Plan,
effective immediately, with respect to the manner in which Eligible Directors
may elect to receive cash in lieu of Share Units under the Plan.

The purpose of the Plan is to assist Nortel Corporation in attracting and
retaining individuals with experience and ability to serve as members of the
Board and to promote a greater alignment of interests between Eligible Directors
and the shareholders of Nortel Corporation.

2. DEFINITIONS

For the purposes of the Plan, the terms contained in this Section shall have the
following meanings.

“Administrator” shall mean such administrator as may be appointed by Nortel
Corporation from time to time to assist in the administration of the Plan in
accordance with Section 3 hereof.

“affiliated companies” shall have the meaning ascribed to the term “affiliated
bodies corporate” in Section 2(2) of the CBCA or such other meaning, and shall
include such other entities, as may be determined by the Committee.

“Election Form and Agreement” shall mean the election form and agreement, as it
may be amended from time to time, entered into between Nortel Corporation and an
Eligible Director in accordance with Section 6 hereof.

“Aggregate Purchase Price” shall have the meaning assigned thereto in Section 8
hereof.

“Board” shall mean the Board of Directors of Nortel Corporation.

“Broker” shall have the meaning assigned thereto in Section 10 hereof.

 

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“Business Day” shall mean a day, other than a Saturday or Sunday, on which
banking institutions in Canada and the United States are not authorized or
obligated by law to close.

“CBCA” shall mean the Canada Business Corporations Act, R.S.C. 1985, c.C-44, as
amended from time to time.

“Committee” shall mean such committee of the Board comprised of members of the
Board as the Board shall from time to time appoint to administer the Plan;
provided, however, that if the Board does not appoint a Committee to administer
the Plan, all references to the Committee shall be deemed to be references to
the Board, mutatis mutandis.

“Common Share” shall mean a common share of Nortel Corporation, subject to
Section 16.

“Eligible Director” shall mean each member of the Board who, at the relevant
time, is not an employee of a Nortel Networks Company and such member shall
continue to be an Eligible Director for so long as such member continues to be a
member of the Board and is not an employee of a Nortel Networks Company;
provided, however, that the Committee, in its sole discretion, may determine
from time to time that one or more members of the Board who is or are employees
of a Nortel Networks Company shall be an Eligible Director or Eligible Directors
or that one or more members of the Board, who would otherwise be an Eligible
Director or Eligible Directors, shall not be.

“Fees” shall mean the amount, expressed in U.S. dollars, of all fees payable by
Nortel Corporation to an Eligible Director (i) for all services rendered as a
member of the Board, and/or any committees thereof, and (ii) for all services
rendered as an executive or non-executive chairperson of the Board, and/or any
committees thereof; except that, Fees shall not include any other fee that may
be payable by Nortel Corporation to the Eligible Director in connection with
services rendered by such Eligible Director to Nortel Corporation in any
capacity other than as a member or chairperson of the Board, and/or any
committees thereof.

“Market Value” of a Common Share shall mean the fair market value thereof, which
shall be the price per common share which is equal to the average of the high
and low prices for a board lot of the Common Shares traded in Canadian dollars
on The Toronto Stock Exchange (“TSE”) on the relevant day or, if the volume of
Common Shares traded on the composite tape in the United States exceeds the
volume of Common Shares traded in Canadian dollars on the TSE on such relevant
day, the average of the high and low prices for a board lot of Common Shares on
the New York Stock Exchange (“NYSE”). The Market Value so determined may be in
Canadian dollars or in U.S. dollars. As a result, the Market Value of a Common
Share covered by a Share Unit shall be either (a) such Market Value as
determined above, if in Canadian dollars, or (b) such Market Value as determined
above converted into Canadian dollars at the noon rate of exchange of the Bank
of Canada on the relevant day, if in U.S. dollars. If on the relevant day, there
is not a board lot trade in the Common Shares on the TSE or NYSE, any of such
exchanges are not open for trading, or there is not a noon rate of exchange of
the Bank of Canada, if required, then the Market Value of a Common Share shall
be determined as provided above on the first day immediately preceding the
relevant day for which there were such board lot trades in the Common Shares and
a noon rate of exchange. If at any time the Common Shares are no longer listed
or traded on the TSE or the NYSE, the Market Value shall be calculated in such

 

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manner as may be determined by the Committee from time to time, but shall always
be established in relation to the fair market value of a Common Share. The
Market Value of a Common Share shall be rounded up to the nearest whole cent.

“Nortel Corporation” shall mean Nortel Networks Corporation (known prior to
May 1, 2000 as New Nortel Inc.) or its successors.

“Nortel Limited” shall mean Nortel Networks Limited (known prior to May 1, 2000
as Nortel Networks Corporation) or its successors.

“Nortel Networks Companies” shall mean, collectively, Nortel Corporation, Nortel
Limited and their respective Subsidiaries and affiliated companies or,
individually, any corporate entity included within such group, as the context
indicates, and Nortel Networks Company shall mean any one of such corporate
entities.

“Participant” shall mean an Eligible Director who participates in the Plan.

“Plan” shall mean the Nortel Networks Corporation Directors’ Deferred Share
Compensation Plan (as amended and restated) set forth herein and as may be
further amended or restated from time to time.

“Price per Common Share” shall have the meaning assigned thereto in Section 8
hereof.

“Quarter” means any of the four quarters of any financial year of Nortel
Corporation as may be adopted from time to time and, until the financial year of
Nortel Corporation is changed, shall mean the quarters ending March 31, June 30,
September 30 and December 31.

“Quarterly Fee” shall mean the Fees earned for services rendered by an Eligible
Director in the applicable Quarter.

“Reference Date” shall mean, with respect to any Quarter, the date used to
determine the Market Value of a Common Share for purposes of determining the
number of Share Units to be credited in respect of such Quarter to a
Participant’s account and the Canadian dollar equivalent of the Quarterly Fee in
respect to such Quarter pursuant to Section 4 hereof; which date shall be,
unless otherwise determined by the Committee and approved by the Board,

  (i)  
the last trading day of such Quarter on which the Market Value of a Common Share
may be determined and on which the Bank of Canada published a noon rate of
exchange for U.S. dollars, or
    (ii)  
the Resignation Date of such Participant, if the Settlement Date with respect to
a Participant occurs during the Quarter prior to the last trading day of such
Quarter; provided that, if such Resignation Date is not a trading day on which
the Market Value of a Common Share or, if required, a day on which the Bank of
Canada noon rate of exchange for U.S. dollars may be determined, the Reference
Date shall be the immediately preceding trading day on which such Market Value
and, if required, the Bank of Canada noon rate of exchange for U.S. dollars may
be determined.

 

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“Resignation Date” shall mean, in respect of a Participant, the earliest date on
which both of the following conditions are met:

(a)  
the Participant has ceased to be a member of the Board for any reason
whatsoever, including the death of the Participant; and
  (b)  
the Participant is neither an employee nor a member of the board of directors of
any Nortel Networks Company.

“Settlement Date” shall mean, unless otherwise determined by the Committee for
the purpose of Section 8, the date on which Common Shares shall be delivered in
settlement of Share Units in accordance with Section 8 hereof.

“Share Unit” shall mean a unit credited to a Participant’s account in accordance
with the terms and conditions of the Plan.

“Subsidiary” shall mean a body corporate that is a subsidiary of Nortel
Corporation within the meaning of Section 2(5) of the CBCA.

3. ADMINISTRATION OF THE PLAN

Except as herein otherwise specifically provided, the Plan shall be administered
by the Committee in accordance with its terms, the whole subject to applicable
law. The Committee shall have full and complete authority to interpret the Plan,
to prescribe such rules and regulations and to make such other determinations as
it deems necessary or desirable for the administration of the Plan. The
Committee may from time to time, subject to the terms of the Plan, delegate to
officers or employees of a Nortel Networks Company or to third parties,
including an Administrator if one is appointed, the whole or any part of the
administration of the Plan and shall determine the scope and terms and
conditions of such delegation, including the authority to prescribe rules and
regulations. Any interpretation, rule, regulation or determination made or other
act of the Committee shall be final and binding on the Participants and their
beneficiaries and legal representatives and Nortel Corporation and its
shareholders.

No member of the Committee or the Board shall be liable for any action or
determination made in good faith pursuant to the Plan. To the full extent
permitted by law, Nortel Corporation shall indemnify and save harmless each
person made, or threatened to be made, a party to any action or proceeding by
reason of the fact that such person is or was a member of the Committee or is or
was a member of the Board and, as such, is or was required or entitled to take
action pursuant to the terms of the Plan.

Except as Participants may otherwise be advised by prior written notice of at
least thirty (30) days, all costs of the Plan, including any administration fees
and reasonable brokerage fees related to the purchase of Common Shares pursuant
to Section 8, shall be paid by Nortel Corporation. For greater certainty, Nortel
Corporation shall not pay or be responsible for brokerage or other fees incurred
by Participants in respect of the disposition of any Common Shares.

 

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4. PARTICIPATION

All Eligible Directors shall participate in the Plan. Each Eligible Director
shall be paid one hundred percent (100%) of his or her Fees in the form of Share
Units, in lieu of cash, unless the Eligible Director elects prior to the
beginning of a calendar year to receive between 0-100% of his or her Fees for
the next calendar year (and each calendar year thereafter unless and until such
Eligible Director changes such election with respect to Fees payable for the
calendar year commencing after such change in election is made) in the form of
Share Units, with the remainder of such Fees to be paid in cash. Fees payable to
an Eligible Director in the calendar quarter in which such Eligible Director is
first appointed or elected to the Board shall be paid one hundred percent (100%)
in the form of Share Units, in lieu of cash, and such Eligible Director may
elect within 30 days of his or her appointment or election (or the date he or
she otherwise becomes an Eligible Director) to receive between 0-100% of his or
her Fees for the remainder of such calendar year (and future calendar years) in
the Form of Share Units, with the remainder of such Fees to be paid in cash.

The number of Share Units (including fractional Share Units rounded to four
decimal places) to be credited on a quarterly basis with effect on the last day
of each Quarter to an Eligible Director’s account under Section 9 hereof with
respect to each Quarter shall be equal to the quotient determined by dividing:
(i) the entire amount, expressed in U.S. dollars, of the Eligible Director’s
Quarterly Fee for such Quarter which is to be paid in Share Units, converted
into Canadian dollars at the noon rate of exchange of the Bank of Canada on the
Reference Date for such Quarter; by (ii) the Market Value of a Common Share on
the Reference Date for such Quarter, expressed in Canadian dollars.

A Participant who becomes an employee of a Nortel Networks Company or who, as a
result of a determination by the Committee, shall no longer be eligible to
continue to participate in the Plan, shall not be entitled to receive Share
Units under this Section 4 in respect of any of his or her future Fees. Share
Units already credited to any such Participant’s account shall remain governed
by the Plan and the Election Form and Agreement, and such Participant shall be
entitled to continue to receive Share Units under Section 7 until such
Participant’s Settlement Date.

5. SHARES SUBJECT TO THE PLAN

Nortel Corporation shall not be required to cause to be delivered Common Shares
or certificates evidencing Common Shares pursuant to the Plan unless and until
such delivery is in compliance with all applicable laws, regulations, rules,
orders of governmental or regulatory authorities and the requirements of any
stock exchange upon which shares of Nortel Corporation are listed or traded.
Nortel Corporation shall not in any event be obligated to the Participants to
take any action to comply with any such laws, regulations, rules, orders or
requirements. Subject to the foregoing, Nortel Corporation may from time to time
provide a Broker with funds on the Settlement Date as herein provided to
purchase Common Shares on behalf of Participants on the open market or by
private transaction as required in order to administer the Plan in accordance
with its terms.

 

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In the event Nortel Corporation determines that Common Shares or certificates
evidencing Common Shares shall not be delivered to a Participant or Participants
in accordance with the foregoing, the Participant shall be entitled to receive
from Nortel Corporation, in cash, an amount equal to the Market Value of the
Common Shares that would otherwise be delivered in settlement of Share Units on
the Settlement Date, less any amounts withheld by Nortel Corporation in
accordance with Section 14 in respect of taxes payable or other source
deductions in respect of such cash payment.

6. EXECUTION OF ELECTION FORM AND AGREEMENT

Each Eligible Director shall, as soon as practicable after the date on which his
or her term as a member of the Board (or his or her status as an Eligible
Director) commences or at such other time as Nortel Corporation deems
appropriate, enter into an Election Form and Agreement in writing with Nortel
Corporation and, if applicable, the Administrator with respect to his or her
participation in the Plan. Such Election Form and Agreement shall set out
certain rights and obligations of the parties thereto pursuant to and in
accordance with the Plan, and shall remain in full force and effect until all
such Share Units credited to the account of such Participant shall have been
settled and/or cancelled.

7. DIVIDENDS AND RELATED AMOUNTS

A Participant shall, from time to time during such Participant’s period of
participation under the Plan, including the period following the Resignation
Date and until the Settlement Date referred to in Section 8 hereof, be credited
on each dividend payment date in respect of Common Shares with additional Share
Units, the number of which shall be equal to the quotient determined by
dividing: (i) the product determined by multiplying (a) one hundred percent
(100%) of each dividend declared and paid by Nortel Corporation on its Common
Shares on a per share basis (excluding stock dividends payable in Common Shares,
but including dividends which may be paid in cash or in shares at the option of
the shareholder), which, if declared in U.S. dollars, shall be converted into
Canadian dollars at the noon rate of exchange of the Bank of Canada on the
dividend payment date for such dividend, or if on such dividend payment date a
noon rate of exchange of the Bank of Canada is not available, converted into
Canadian dollars at the noon rate of exchange of the Bank of Canada on the
immediately preceding day on which such exchange rate may be determined, by
(b) the number of Share Units recorded in the Participant’s account on the
record date for the payment of any such dividend, by (ii) the Market Value of a
Common Share on the dividend payment date for such dividend, in each case, with
fractions computed to four decimal places.

8. SETTLEMENT OF SHARE UNITS

Except as may be otherwise determined by the Committee or except as set forth
below in this Section 8, the settlement date (“Settlement Date”) for a
Participant with respect to whom a Resignation Date shall have occurred shall be
the fourth trading day following the release of Nortel Corporation’s quarterly
or annual financial results immediately following the Resignation Date with
respect to such Participant, provided that, if such Resignation Date occurs on
the same date as the release of Nortel Corporation’s financial results, the
Settlement Date shall, in such a case, be the fifth trading day immediately
following such release of Nortel Corporation’s

 

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financial results. A Participant shall receive, in full satisfaction of the
number of Share Units recorded in the Participant’s account on the Settlement
Date, a whole number of Common Shares equal to the whole number of Share Units
then recorded in the account of the Participant (or as may be adjusted pursuant
to Section 16 hereof), reduced to reflect the amount of any applicable
withholding taxes and other source deductions withheld by Nortel Corporation in
connection with the satisfaction of the Participant’s Share Units in accordance
with Section 14. Any entitlement to fractional Common Shares shall be paid in
cash by Nortel Corporation based on the Price per Common Share (as defined
below) on the Settlement Date.

If the Settlement Date would otherwise fall between the record date for a
dividend on the Common Shares and the related dividend payment date, the
Settlement Date shall be the day immediately following the date of payment of
such dividend for purposes of recording in the account of the Participant the
additional Share Units referred to in Section 7 hereof and making the
calculation of Share Units recorded in the Participant’s account pursuant to
this Section 8. Notwithstanding any other provision of the Plan, the Settlement
Date shall not be later than the last day of the first calendar year that begins
after the Resignation Date.

In the event that Nortel Corporation is unable, by a Participant’s Settlement
Date, to compute the final number of Share Units credited to such Participant’s
account by reason of the fact that any of the data required in order to compute
the Market Value of a Common Share is not available to Nortel Corporation, then
the Settlement Date shall be the next following trading day on which such data
is available to Nortel Corporation.

On the Settlement Date, Nortel Corporation shall notify the Broker as to the
number of Common Shares to be purchased by the Broker on behalf of the
Participant on the TSE, the NYSE, or any other stock exchange approved by the
Committee. As soon as practicable thereafter, the Broker shall purchase the
number of Common Shares which Nortel Corporation has requested the Broker to
purchase on behalf of the Participant and shall notify the Participant and the
Corporation of:

(a)  
the aggregate purchase price (“Aggregate Purchase Price”) of the Common Shares;
  (b)  
the purchase price per Common Share or, if the Common Shares were purchased at
different prices, the average purchase price (computed on a weighted average
basis) per Common Share (“Price per Common Share”);
  (c)  
the amount of any reasonable brokerage commission related to such purchase of
Common Shares; and
  (d)  
the Settlement Date for such purchase of Common Shares.

On such Settlement Date, upon payment of the Aggregate Purchase Price and
related reasonable brokerage commission by Nortel Corporation, the Broker shall
deliver to the Participant, or to his designated representative, the certificate
representing the Common Shares purchased on behalf of such Participant or shall
cause such Common Shares to be transferred electronically to an account
designated by such Participant.

 

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If a Participant is a citizen or resident of a country other than Canada, Nortel
Corporation shall have the right, in its sole discretion, to pay entirely in
cash on the Settlement Date an amount equal to the Market Value of the Common
Shares as of the Settlement Date that would otherwise be delivered in settlement
of Share Units (less any applicable tax withholdings or required source
deductions), should it deem it desirable to do so in light of the regulatory or
other requirements of the applicable foreign jurisdiction associated with the
purchase of, or payment in, Common Shares.

9. PARTICIPANT’S ACCOUNT

Nortel Corporation shall maintain or cause to be maintained in its records an
account for each Participant recording at all times the number of Share Units
credited to the Participant. Upon payment in satisfaction of Share Units
pursuant to Section 8 herein, such Share Units shall be cancelled. A written
notification of the balance in the account maintained for each Participant shall
be mailed by Nortel Corporation or by an Administrator on behalf of Nortel
Corporation to each Participant at least annually. A Participant shall not be
entitled to any certificate or other document evidencing the Share Units.

10. PURCHASES ON THE OPEN MARKET

Purchases of Common Shares pursuant to the Plan shall be made on the open market
by a broker independent from Nortel Corporation designated by the Participant
and who is a member of the TSE, the NYSE, or any such other stock exchange as
may be determined by the Committee from time to time (the “Broker”). Any such
designation of a Broker may be changed from time to time. Upon designation of a
Broker or at any time thereafter, Nortel Corporation may elect to provide the
designated Broker with a letter agreement to be executed by the Broker, the
Participant and Nortel Corporation, setting forth, inter alia:

the Broker’s agreement with being so designated, to acting for the Participant’s
account in accordance with customary usage of the trade with a view to obtaining
the best share price for the Participant in respect of the Common Shares to be
purchased for the Participant, and to delivering to the Participant, or his or
her representative, the share certificate for, or to transferring electronically
to an account designated by the Participant, the Common Shares purchased upon
receipt from Nortel Corporation of payment of the Aggregate Purchase Price and
related reasonable brokerage commission; and

Nortel Corporation’s agreement to notify the Broker of the number of Common
Shares to be purchased and to pay the Aggregate Purchase Price and the related
reasonable brokerage commission,

provided, however, that none of the terms of such letter agreement shall have
the effect of making the Broker or deeming the Broker to be an affiliate of, or
not independent from, Nortel Corporation for purposes of any applicable
corporate, securities or stock exchange requirement.

The Share Units, and any related Common Shares that may be delivered under the
Plan, have not been registered under the U.S. Securities Act of 1933, as
amended, as of the effective date of the Plan and Nortel Corporation has no
obligation to register such Share Units or Common Shares. Accordingly, the
Common Shares delivered under the Plan may not be offered or sold in the

 

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United States unless they become registered or an exemption from registration is
otherwise available.

11. RIGHTS OF PARTICIPANTS

Except as specifically herein provided or provided in the Election Form and
Agreement, no Eligible Director, Participant or other person shall have any
claim or right to any Common Shares to be delivered in settlement of Share Units
credited pursuant to the Plan. Nothing herein shall provide any Participant with
an entitlement or right to be elected or appointed a director of Nortel
Corporation.

Under no circumstances shall Share Units be considered Common Shares nor shall
they entitle any Participant to exercise voting rights or any other rights
attaching to the ownership or control of Common Shares, nor shall any
Participant be considered the owner of any Common Shares to be delivered under
the Plan until after the date of purchase of such Common Shares for the account
of such Participant as specifically provided herein.

12. DEATH OF PARTICIPANT

In the event of a Participant’s death, any and all Share Units then credited to
the Participant’s account shall become payable to a dependant or relation of the
Participant designated in writing by the Participant and provided to Nortel
Corporation, failing which to the Participant’s legal representative.

13. COMPLIANCE WITH APPLICABLE LAWS

Any obligation of Nortel Corporation with respect to Common Shares pursuant to
the terms of the Plan is subject to compliance with all applicable laws,
regulations, rules, orders of governmental or regulatory authorities and the
requirements of any stock exchange upon which shares of Nortel Corporation are
listed or traded. Should Nortel Corporation, in its sole discretion, determine
that it is not desirable or feasible to provide for the settlement of Share
Units in Common Shares pursuant to Section 8 hereof, including by reason of any
such laws, regulations, rules, orders or requirements, such obligation shall be
satisfied by means of a cash payment by Nortel Corporation equal to the Market
Value of the Common Shares that would otherwise be delivered to a Participant in
settlement of Share Units on the Settlement Date (less any applicable tax
withholdings or required source deductions). Each Participant shall comply with
all such laws, regulations, rules, orders and requirements, and shall furnish
Nortel Corporation with any and all information and undertakings as may be
required to ensure compliance therewith.

14. WITHHOLDING TAXES

Nortel Corporation may withhold from any payment to or for the benefit of a
Participant any amount required to comply with the applicable provisions of any
federal, provincial, state or local law relating to the withholding of tax or
the making of any other source deductions, including on the amount, if any,
included in income of a Participant and may adopt and apply such rules and
regulations that in its opinion will ensure that Nortel Corporation will be able
to so comply.

 

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15. TRANSFERABILITY

The rights or interests of a Participant under the Plan, including the Share
Units, shall not be assignable or transferable, otherwise than in case of death
as set out in the Plan, and such rights or interests shall not be encumbered.

16. ALTERATION OF NUMBER OF SHARE UNITS SUBJECT TO THE PLAN

In the event that:

(a)  
a dividend shall be declared upon the Common Shares or other securities of
Nortel Corporation payable in Common Shares or other securities of Nortel
Corporation (other than a dividend which may be paid in cash or in Common Shares
at the option of the shareholder);
  (b)  
the outstanding Common Shares shall be changed into or exchanged for a different
number or kind of shares or other securities of Nortel Corporation or of another
corporation, whether through an arrangement, plan of arrangement, amalgamation
or other similar statutory procedure, or a share recapitalization, subdivision
or consolidation or otherwise;
  (c)  
there shall be any change, other than those specified in paragraphs (a) and
(b) of this Section 16, in the number or kind of outstanding Common Shares or of
any shares or other securities into which such Common Shares shall have been
changed or for which they shall have been exchanged; or
  (d)  
there shall be a distribution of assets or shares to shareholders of Nortel
Corporation out of the ordinary course of business,

then, if the Board shall in its sole discretion determine that such change
equitably requires an adjustment in the number of Share Units credited to
Participants pursuant to the Plan but not yet settled and cancelled, and/or a
substitution, for each Common Share, of the kind of securities into which each
outstanding Common Share has been so changed or exchanged and/or any other
adjustment, then such adjustment and/or substitution shall be made by the Board
and shall be effective and binding for all purposes.

In the case of any such substitution, change or adjustment as provided for in
this Section 16, the variation shall generally require that the dollar value of
the Share Units then recorded in the Participant’s account prior to such
substitution, change or adjustment will be proportionately and appropriately
varied so that it shall be approximately equal to such dollar value after the
variation.

No adjustment provided for in this Section shall entitle a Participant to
receive a fractional Common Share or other security and the total adjustment
with respect to each Share Unit shall be limited accordingly.

In the event that, at the time contemplated for the purchase of Common Shares
under the Plan, there is no public market for the Common Shares or for
securities substituted therefor as

 

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provided by this Section 16, the obligations of Nortel Corporation under the
Plan shall be met by a payment in cash on the Settlement Date in such amount as
is reasonably determined by the Committee to be fair and equitable in the
circumstances, but shall always be established in relation to the fair market
value of a Common Share within the period that begins one year before the
Resignation Date and ends on the Settlement Date.

17. UNSECURED PLAN

Unless otherwise determined by the Committee, the obligations of Nortel
Corporation under the Plan shall be general unsecured obligations of Nortel
Corporation.

18. EFFECTIVE DATE OF THE PLAN

The Plan shall be effective with respect to fees payable to Eligible Directors
on or after January 1, 2002. The Plan was amended and restated on May 29, 2003.
The Plan was amended and restated on December 18, 2003, effective immediately.

19. AMENDMENTS TO, SUSPENSION OR TERMINATION OF, THE PLAN

The Board may from time to time amend, suspend or terminate, in whole or in
part, the Plan or amend the terms of Share Units credited in accordance with the
Plan. If any such amendment will materially adversely affect the rights of a
Participant with respect to Share Units credited to such Participant or under
any Election Form and Agreement, the written consent of such Participant to such
amendment shall be obtained. Notwithstanding the foregoing, the obtaining of the
written consent of any Participant to an amendment which materially adversely
affects the rights of such Participant with respect to any credited Share Unit
or under any Election Form and Agreement shall not be required if such amendment
is required to comply with applicable laws, regulations, rules, orders of
governmental or regulatory authorities or the requirements of any stock exchange
on which shares of Nortel Corporation are listed or traded.

If the Board terminates the Plan, Share Units previously credited to
Participants shall, at the discretion of the Board, either (a) become
immediately payable in accordance with the terms of the Plan in effect at such
time, or (b) remain outstanding and in effect and settled subject to and in
accordance with their applicable terms and conditions.

20. GOVERNING LAW

Consent to membership on the Board and the resulting participation in the Plan
by any Participant shall be construed as acceptance of the terms and conditions
of the Plan by the Participant and as to the Participant’s agreement to be bound
thereby. The Plan shall be construed in accordance with and governed by the laws
of the Province of Ontario.