<PAGE>   1
                                                                   Exhibit 10.35


                               BAY NETWORKS, INC.
                     EXECUTIVE RETENTION AND SEVERANCE PLAN

                            ADOPTED JANUARY 26, 1998


This Executive Retention and Severance Plan (the "Plan" or "Retention Plan") was
adopted by the Compensation Committee of the Board of Directors of Bay Networks,
Inc. (the "Company") at a meeting held in Santa Clara, California on January 26,
1998, and approved and ratified by the full Board of Directors on January 27,
1998.

BACKGROUND OF THE PLAN

 A.   The Company draws upon the knowledge, experience and objective advice of
      its executives, managers and employees in order to manage its business for
      the benefit of the Company's stockholders.

 B.   Due to the widespread awareness of the possibility of mergers,
      acquisitions and other strategic alliances in the telecommunications and
      data networking industry, change of control is increasingly an issue in
      competitive recruitment efforts.

 C.   The Company recognizes that if there occurred a change of control or other
      event that could substantially change the nature and structure of the
      Company, the resulting uncertainty regarding the consequences of such an
      event could adversely affect the Company's ability to attract, retain and
      motivate its executives and key employees.

 D.   The Company initiated a project in October, 1997, to evaluate industry
      practices and possible standard approaches to the retention and severance
      of executives, officers and key employees in the event of a change of
      control of the Company.

 E.   On January 15, 1998, the Compensation Committee reviewed a market analysis
      and preliminary recommendations with respect to the adoption of an
      executive retention plan, prepared by a team including the Chief Financial
      Officer, counsel to the Company, counsel to the Committee and a
      compensation consultant.

 F.   On January 26, 1998, the Compensation Committee of the Company's Board of
      Directors reviewed, approved and adopted the general terms of the
      Retention Plan, and directed the Company's counsel to prepare definitive
      documentation of the Plan.

 G.   On January 27, 1998 the Retention Plan was approved and ratified by the
      Company's Board of Directors.



<PAGE>   2

EXECUTIVE RETENTION AND SEVERANCE PLAN                                    PAGE 2
  ADOPTED BY THE COMPENSATION COMMITTEE
  OF THE BOARD OF DIRECTORS OF BAY NETWORKS, INC.


1.      GENERAL

        1.1 Purpose. The purpose of this Plan is to provide specified
compensation and benefits to selected Executives, Officers and Key Employees of
the Company in the event of a Termination Upon Change of Control.

        1.2 No employment agreement. This Agreement does not obligate the
Company to continue to employ a Plan Participant for any specific period of
time, or in any specific role or geographic location. Subject to the terms of
any applicable written employment agreement between Company and a Participant,
Company may assign a Participant to other duties, and either the Company or
Participant may terminate Participant's employment at any time for any reason.

        1.3 Defined terms. Capitalized terms used in this agreement shall have
the meanings set forth in section 4, unless the context clearly requires a
different meaning.

        1.4 Delivery of Agreements. The Executives of the Company are authorized
to deliver written Agreements confirming the provisions of this Plan. The
Company may elect not to deliver individual Agreements to each eligible Key
Employee, and shall not be required to deliver an individual agreement to every
Participant; however, the Company may condition a Participant's entitlement to
receive benefits under the Plan on execution of an Agreement.

2.      TERMINATION UPON CHANGE OF CONTROL

        2.1 Basic Severance Compensation. In the event of a Participant's
Termination Upon Change of Control, the Participant shall be entitled to the
basic severance compensation described below.

               2.1.1 Salary. All salary and accrued vacation earned through the
date of Participant's termination of employment shall be paid to Participant.

               2.1.2 Expense reimbursement. Within ten (10) days of submission
of proper expense reports, the Company shall reimburse a Participant for all
expenses reasonably and necessarily incurred by the Participant in connection
with the business of the Company prior to Participant's termination of
employment.

               2.1.3 Employee benefits. Participant shall receive the benefits,
if any, under the Company's 401(k) Plan, nonqualified deferred compensation
plan, employee stock purchase plan and other Company benefit plans to which
Participant may be entitled pursuant to the terms of such plans.

        2.2 Cash Severance Benefits. In the event of a Participant's Termination
Upon Change of Control, Participant shall be entitled to the additional
severance benefits described below.



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EXECUTIVE RETENTION AND SEVERANCE PLAN                                    PAGE 3
  ADOPTED BY THE COMPENSATION COMMITTEE
  OF THE BOARD OF DIRECTORS OF BAY NETWORKS, INC.


               2.2.1 Prorated bonus payment. A Participant who is an Executive
or Officer shall receive Participant's target bonus or incentive payment for the
year in which termination occurs, pro rated through the date of termination and
less applicable withholding, paid within thirty (30) days of termination of
employment.

               2.2.2 Cash severance payment. A lump sum cash severance payment
shall be made:

         (a)   to each Participant who is a Key Employee, in the amount which is
               the greater of (1) one week (i.e., 0.01923) of Target Annual
               Earnings for every $10,000.00 of Target Annual Earnings, plus one
               week of Target Annual Earnings for every year of Participant's
               service to the Company (rounded to the closest year), or (2)
               thirteen weeks of Target Annual Earnings;

         (b)   to each Participant who is an Officer, in the amount of 125% of
               annual Target Annual Earnings; and

         (c)   to each Participant who is an Executive, in the amount of 200% of
               Target Annual Earnings.

All cash severance payments shall be reduced by applicable federal and state
withholding, and paid within thirty (30) days of termination of employment.

        2.3    Stock option acceleration.

               2.3.1  Acceleration at Termination Upon Change of Control.

                     (a) All outstanding stock options granted and restricted
stock issued by the Company to a Key Employee prior to the Change of Control
shall have their vesting accelerated as to one year of additional vesting as of
the date of such Termination Upon Change of Control.

                     (b) All outstanding stock options granted and restricted
stock issued by the Company to an Officer prior to the Change of Control shall
have their vesting accelerated as to two years of additional vesting as of the
date of such Termination Upon Change of Control.

                     (c) All outstanding stock options granted and restricted
stock issued by the Company to an Executive prior to the Change of Control shall
have their vesting fully accelerated so as to be 100% vested on the date of a
Termination Upon Change of Control.

               2.3.2 Acceleration upon non-assumption in a Change of Control. If
there is a Change of Control transaction in which outstanding stock options
granted and restricted stock issued by the Company prior to the transaction are
not fully assumed by the Successor, or replaced by fully equivalent substitute
options or restricted stock, then (1) all such options and restricted stock
shall have their vesting fully accelerated to be 100% vested prior to the
effective



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EXECUTIVE RETENTION AND SEVERANCE PLAN                                    PAGE 4
  ADOPTED BY THE COMPENSATION COMMITTEE
  OF THE BOARD OF DIRECTORS OF BAY NETWORKS, INC.


date of the Change of Control and (2) the Company shall provide reasonable prior
written notice to Participant of (a) the date such unexercised options will
terminate and (b) the period during which Participant may exercise the fully
vested options. Alternatively, the Company may elect to deliver to Participant
on the effective date of the Change of Control a cash payment equal to the
difference between (i) the aggregate exercise price of Participant's unexercised
options or restricted stock, and (ii) the value of the consideration deliverable
for an equivalent number of shares as a result of the Change of Control
transaction.

        2.4    Extended medical and dental benefits.

               2.4.1 Benefit continuation. Participant shall receive continued
provision of the Company's standard employee medical and dental insurance
coverages, as elected by the Participant and in effect immediately prior to the
Change of Control, for the measuring period with respect to which Participant
receives a lump sum cash severance payment pursuant to section 2.2.2; plus, for
any Participant who is a consultant to the Company pursuant to section 2.5, an
additional six months.

               2.4.2 Continued medical coverage for U.S. residents. Thereafter,
if Participant resides in the United States, Participant shall be entitled to
elect continued medical insurance coverage in accordance with the applicable
provisions of U.S. federal law (COBRA). If such coverage included dependents of
Participant immediately prior to the date of termination, such dependents also
shall be covered at Company expense during the extension period. For purposes of
title X of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the
date of the "qualifying event" for Participant and his dependents shall be the
date upon which the Company-paid coverage terminates.

               2.4.3 Termination upon coverage under another medical plan.
Notwithstanding the preceding provisions of this section 2.4, in the event a
Participant becomes covered as a primary insured (that is, not as a beneficiary
under a spouse's or partner's plan) under another employer's group health plan
during the continuation period, Participant promptly shall inform the Company
and the Company shall cease provision of continued group health insurance for
Participant and any dependents.

        2.5    Consulting contract.

               2.5.1 Six-month Consulting Period. If Participant is an
Executive, or an Officer who is either (a) designated as subject to the
reporting requirements of Section 16 of the Securities Exchange Act, or (b)
deemed an affiliate of the Company by the Company's legal counsel prior to a
change of control, then Participant shall be engaged as a consultant to the
Company for a period of six (6) months after Participant's Termination Upon
Change of Control (the "Consulting Period") to provide advice and assist in the
transition occasioned by the Change of Control.

               2.5.2 Consulting Fee. A Participant who is engaged as a
consultant pursuant to section 2.5.1 shall receive during the Consulting Period
a consulting fee in the


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EXECUTIVE RETENTION AND SEVERANCE PLAN                                    PAGE 5
  ADOPTED BY THE COMPENSATION COMMITTEE
  OF THE BOARD OF DIRECTORS OF BAY NETWORKS, INC.


amount of fifty percent (50%) of Target Annual Earnings, payable in six equal
monthly installments.

               2.5.3 Option continuation during Consulting Period. The stock
options of a Participant entitled to be engaged as a consultant shall continue
in effect during the Consulting Period, in accordance with and to the maximum
extent permissible under the terms of the applicable option plans and
agreements.

               2.5.4 Other employment not precluded. During the Consulting
Period Participant shall not be precluded from accepting other employment,
provided Participant is available to the Company at such times and for such
consulting matters as the Company may reasonably request.

3.      FEDERAL EXCISE TAX UNDER IRC SECTION 280G

        3.1 Reimbursement of excise tax payable by an Executive. If (1) any
amounts payable under this Plan to an Executive are characterized as excess
parachute payments pursuant to Section 4999 of the Internal Revenue Code, and
(2) Executive thereby would be subject to any United States federal excise tax
due to that characterization, then (3) the Company shall reimburse the Executive
for the amount of such excise tax; provided, however, that, no reimbursement
shall be made for any excise tax payable with respect to the reimbursement made
pursuant to this section 3.1. The excise tax reimbursement made pursuant to this
section 3.1 shall be subject to all applicable withholding. The foregoing shall
be conditioned upon the Executive cooperating with the Company in such manner as
may be reasonably requested (other than reducing amounts payable hereunder) so
as to minimize the amount of such excise tax.

        3.2 Adjustment of excess payments payable to an Officer. If (1) any
amounts payable to an Officer under this Agreement are characterized as excess
parachute payments pursuant to Section 4999 of the Internal Revenue Code, and
(2) Officer thereby would be subject to any United States federal excise tax due
to that characterization, then (3) the Officer may elect, in Officer's sole
discretion, to reduce the amounts payable under this Agreement or to have any
portion of applicable options or restricted stock not vest in order to avoid any
"excess parachute payment" under Section 280G(b)(1) of the Internal Revenue Code
of 1986, as amended.

        3.3 Determination by independent public accountants. Unless the Company
and Participant otherwise agree in writing, any determination required under
this Section 3 shall be made in writing by independent public accountants agreed
to by the Company and the Participant (the "Accountants"), whose determination
shall be conclusive and binding upon Participant and the Company for all
purposes. For purposes of making the calculations required by this Section 3,
the Accountants may rely on reasonable, good faith interpretations concerning
the application of Sections 280G and 4999 of the Code. The Company and
Participant shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make the required
determinations. The Company shall bear all fees and expenses the


<PAGE>   6

EXECUTIVE RETENTION AND SEVERANCE PLAN                                    PAGE 6
  ADOPTED BY THE COMPENSATION COMMITTEE
  OF THE BOARD OF DIRECTORS OF BAY NETWORKS, INC.


Accountants may reasonably charge in connection with the services contemplated
by this Section 3.

4.      DEFINITIONS

        4.1 Capitalized terms defined. Capitalized terms used in this Plan shall
have the meanings set forth in this Section 4, unless the context clearly
requires a different meaning.

        4.2 "Agreement" shall mean a written agreement conforming to the Plan,
prepared and containing such additional terms and conditions as may be approved
by counsel to the Company prior to a Change of Control, delivered by the Company
to an Executive, Officer or other Participant in the Plan.

        4.3    "Cause" means:

               (a) theft; a material act of dishonesty or fraud; intentional
falsification of any employment or Company records; or the commission of any
criminal act which impairs Participant's ability to perform appropriate
employment duties for the Company;

               (b) improper disclosure or use of the Company's confidential,
business or proprietary information by Participant;

               (c) the Participant's conviction (including any plea of guilty or
nolo contendere) for a crime involving moral turpitude causing material harm to
the reputation and standing of the Company, as determined by the Company in good
faith; or

               (d) gross negligence or willful misconduct in the performance of
Participant's assigned duties (but not mere unsatisfactory performance).

        4.4    "Change of Control"   means:

               (a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
other than a trustee or other fiduciary holding securities of the Company under
an employee benefit plan of the Company, becomes the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of (A) the
outstanding shares of common stock of the Company or (B) the combined voting
power of the Company's then-outstanding securities;

               (b) the Company is party to a merger or consolidation which
results in the holders of voting securities of the Company outstanding
immediately prior thereto failing to continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation;


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EXECUTIVE RETENTION AND SEVERANCE PLAN                                    PAGE 7
  ADOPTED BY THE COMPENSATION COMMITTEE
  OF THE BOARD OF DIRECTORS OF BAY NETWORKS, INC.


               (c) the sale or disposition of all or substantially all of the
Company's assets (or consummation of any transaction having similar effect);

               (d) there occurs a change in the composition of the Board of
Directors of the Company within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors; or

               (e) the dissolution or liquidation of the Company.

        4.5 "Company" shall mean Bay Networks, Inc., and, following a Change of
Control, any Successor that agrees to assume, or otherwise becomes bound to by
operation of law, all the terms and provisions of this Agreement.

        4.6 "Effective Date" means (a) with respect to this Plan, January 27,
1998, and (b) with respect to an Agreement either (1) January 27, 1998 or (2)
such later date as a Participant becomes entitled to participate in the Plan as
a Key Employee, Officer or Executive.

        4.7 "Executive" shall mean each officer of the Company elected by the
Board of Directors to serve as an Executive Vice President or as the Chief
Executive Officer as of the Effective Date of the Plan, and such additional
individuals as may be designated thereafter by the Compensation Committee of the
Board of Directors.

        4.8 "Good Reason" means the occurrence of any of the following
conditions following a Change of Control, without Participant's informed written
consent, which condition(s) remain(s) in effect ten (10) days after written
notice to the Company from Participant of such condition(s):

               (a) a material decrease in Participant's base salary or target
bonus amount;

               (b) the relocation of Participant's work place for the Company to
a location more than 50 miles from the location of the work place prior to the
Change of Control;

               (c) in the case of an Executive or Officer, assignment to
responsibilities or duties that are not a Substantive Functional Equivalent (as
defined in this Plan or in an Agreement) of the position which the Executive or
Officer occupied prior to the Change of Control; or

               (d) with respect to any individual Participant, any material
breach by the Company of the terms of this Plan or of an Agreement with the
Participant.

        4.9 "Incumbent Director" shall mean a director who either (1) is a
director of the Company as of the Effective Date of this Agreement, or (2) is
elected, or nominated for election, to the Board of Directors of the Company
with the affirmative votes of at least a majority of the Incumbent Directors at
the time of such election or nomination, but (3) was not elected or


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EXECUTIVE RETENTION AND SEVERANCE PLAN                                    PAGE 8
  ADOPTED BY THE COMPENSATION COMMITTEE
  OF THE BOARD OF DIRECTORS OF BAY NETWORKS, INC.


nominated in connection with an actual or threatened proxy contest relating to
the election of directors to the Company.

        4.10 "Key Employee" shall mean each employee of the Company who is
designated as a participant in the Key Employees Incentive Plan (KEIP), and such
additional non-officer employees as may be designated from time to time by the
Chief Executive Officer or the Compensation Committee of the Board of Directors.

        4.11 "Officer" shall mean each officer of the Company serving with the
title of Senior Vice President or Vice President at the Effective Date of the
Plan, and such additional individuals as may be thereafter appointed to such
offices with the approval of the Compensation Committee of the Board of
Directors.

        4.12 "Participant" shall mean a Key Employee, Officer or Executive of
the Company, and such additional individuals as may be designated to participate
in the Plan by the Compensation Committee of the Board of Directors.

        4.13   "Permanent Disability" means that:

               (a) the Participant has been incapacitated by bodily injury,
illness or disease so as to be prevented thereby from engaging in the
performance of the Participant's duties;

               (b) such total incapacity shall have continued for a period of
six consecutive months; and

               (c) such incapacity will, in the opinion of a qualified
physician, be permanent and continuous during the remainder of the Employee's
life.

        4.14 "Substantive Functional Equivalent" means, with respect to a
Participant who is an Executive or Officer, an employment position occupied
after a Change of Control that:

               (a) is in a substantive area of competence (such as, accounting;
engineering management; executive management; finance; human resources;
marketing, sales and service; operations and manufacturing; etc.) that is
consistent with Participant's experience and not materially different from the
position occupied prior to the Change of Control;

               (b) requires Participant to serve in a role and perform duties
that are functionally equivalent to those performed prior to the Change of
Control;

               (c) carries a title that does not connote a lesser rank or
corporate role than the title held by Participant prior to the Change of
Control;

               (d) does not otherwise constitute a material, adverse change in
Participant's responsibilities or duties, as measured against Participant's
responsibilities or duties prior to the Change of Control, causing it to be of
materially lesser rank or responsibility;


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EXECUTIVE RETENTION AND SEVERANCE PLAN                                    PAGE 9
  ADOPTED BY THE COMPENSATION COMMITTEE
  OF THE BOARD OF DIRECTORS OF BAY NETWORKS, INC.


               (e) if prior to the Change of Control Participant was identified
as an executive officer of the Company for purposes of the rules promulgated
under Section 16 of the Securities Exchange Act of 1934, identifies Participant
as a Section 16 officer of a publicly traded Successor having net assets and
annual revenues no less than those of the Company prior to the Change of
Control; and

               (f) if prior to the Change of Control Participant was identified
as an executive officer of the Company, for purposes of the rules promulgated
under Section 16 of the Securities Exchange Act of 1934, requires Participant to
report directly to an executive officer, committee or board of the Successor
that is no less senior than the executive officer, committee or board, as the
case may be, to whom Participant reported at the Company prior to the Change of
Control.

        4.15 "Successor" means the Company as defined above and any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company.

        4.16 "Target Annual Earnings" means the sum of annual base salary plus
100% of annual bonus or incentive pay. If different sums would result from
calculations as of (a) the date thirty (30) days prior to the date that the
Company publicly announces it is conducting negotiations leading to a Change of
Control, (b) the date on which a Change of Control occurs or (c) the date of a
Participant's Termination Upon Change of Control, then Target Annual Earnings
shall be determined by the calculation as of the specified date that yields the
highest value.

        4.17 "Termination Upon Change of Control" means:

               (a) any termination of the employment of a Participant by the
Company without Cause during the period commencing thirty (30) days prior to the
earlier of (1) the date that the Company first publicly announces it is
conducting negotiations leading to a Change of Control, or (2) the date that the
Company enters into a definitive agreement that would result in a Change of
Control (even though still subject to approval by the Company's stockholders and
other conditions and contingencies); and ending on the date which is twelve (12)
months after the Change of Control; or

               (b) any resignation by a Participant for Good Reason, as defined
in this Plan or in an Agreement, within twelve (12) months after the occurrence
of any Change of Control; but

               (c) "Termination Upon Change of Control" shall not include any
termination of the employment of a Participant (1) by the Company for Cause; (2)
by the Company as a result of the Permanent Disability of the Participant; (3)
as a result of the death of the Participant; or (4) as a result of the voluntary
termination of employment by the Participant for reasons other than Good Reason.


<PAGE>   10
EXECUTIVE RETENTION AND SEVERANCE PLAN                                   PAGE 10
  ADOPTED BY THE COMPENSATION COMMITTEE
  OF THE BOARD OF DIRECTORS OF BAY NETWORKS, INC.


5.      EXCLUSIVE REMEDY

        5.1 Sole remedy for Termination Upon Change of Control. The payments and
benefits provided for in Sections 2 and 3 shall constitute the Participant's
sole and exclusive remedy for any alleged injury or other damages arising out of
the cessation of the employment relationship between the Participant and the
Company in the event of Participant's Termination Upon Change of Control.

        5.2 No other benefits payable. The Participant shall be entitled to no
other compensation, benefits, or other payments from the Company as a result of
any termination of employment with respect to which the payments and/or benefits
described in Sections 2 and 3 have been provided to the Participant, except as
expressly set forth in a written agreement or in a duly executed employment
agreement between Company and Participant.

        5.3 Release of Claims. The Company may condition payment of the cash
severance benefits described in section 2.2 of this Plan and the stock option
acceleration described in section 2.3 upon the delivery by Participant of a
signed release of claims in a form reasonably satisfactory to the Company.

6.      PROPRIETARY AND CONFIDENTIAL INFORMATION

The forms of Agreement shall provide that Participant agrees to continue to
abide by the terms and conditions of the Company's confidentiality and/or
proprietary rights agreement between the Participant and the Company.

7.      NON-SOLICITATION

        7.1 Agreement not to solicit. The forms of Agreement shall provide that
if the Company performs its obligations to deliver the severance benefits set
forth in sections 2 and 3 of the Plan, then for a period of one (1) year after
Participant's Termination Upon Change of Control, Participant will not, directly
or indirectly, solicit the services or business of or in any other manner
persuade any employee, distributor, vendor, representative or customer of the
Company to discontinue that person's or entity's relationship with or to the
Company.

        7.2 Other agreements not superseded. This provision shall not supersede
or limit the terms, including more restrictive terms, of any other agreement by
Participant to refrain from competition with or from soliciting the employees or
customers of Company.

8.      ARBITRATION

        8.1 Disputes subject to arbitration. Any claim, dispute or controversy
arising out of the Plan, the interpretation, validity or enforceability of an
Agreement or the alleged breach thereof shall be submitted by the parties to
binding arbitration by the American Arbitration Association; provided, however,
that (1) the arbitrator shall have no authority to make any ruling or judgment
that would confer any rights with respect to the trade secrets,


<PAGE>   11

EXECUTIVE RETENTION AND SEVERANCE PLAN                                   PAGE 11
  ADOPTED BY THE COMPENSATION COMMITTEE
  OF THE BOARD OF DIRECTORS OF BAY NETWORKS, INC.


confidential and proprietary information or other intellectual property of the
Company upon Participant or any third party; and (2) this arbitration provision
shall not preclude the Company from seeking legal and equitable relief from any
court having jurisdiction with respect to any disputes or claims relating to or
arising out of the misuse or misappropriation of the Company's intellectual
property. Judgment may be entered on the award of the arbitrator in any court
having jurisdiction.

        8.2 Site of arbitration. The site of the arbitration proceeding shall
be, at Participant's election, either (1) Santa Clara County, California or (2)
Middlesex County, Massachusetts or (3) if Participant's primary assigned work
place prior to the Change of Control was in neither California nor
Massachusetts, a mutually agreed site located within 25 miles of that work
place.

        8.3 Cost and expenses borne by Company. All costs and expenses of
arbitration or litigation arising out of the Plan or an Agreement, including but
not limited to reasonable attorneys fees and other costs reasonably incurred by
a Participant, shall be paid by the Company. Notwithstanding the foregoing, if a
Participant initiates the arbitration or litigation, and the finder of fact
finds that Participant's claims were totally without merit or frivolous, then
the Participant shall be responsible for Participant's own attorneys' fees.

9.      INTERPRETATION

The Plan and any Agreement shall be interpreted in accordance with and governed
by the laws of the State of California as applied to contracts entered into and
entirely to be performed within that state.

10.     CONFLICT IN BENEFITS; NONCUMULATION OF BENEFITS

        10.1 Effect of Agreement. A signed Agreement shall supersede all prior
arrangements, whether written or oral, and understandings regarding the subject
matter of this Plan and shall be the exclusive agreement for the determination
of any payments and accelerated option vesting due upon Participant's
Termination Upon Change of Control, except as provided in sections 10.2, 10.3
and 14.

        10.2 No limitation of regular benefit plans. This Plan is not intended
to and shall not affect, limit or terminate any plans, programs, or arrangements
of the Company that are regularly made available to a significant number of
employees, officers or executives of the Company, including without limitation
the Company's stock option plans.

        10.3 Noncumulation of benefits. Participant may not cumulate cash
severance payments, stock option acceleration and excise tax reimbursement
benefits under both this Plan and another agreement. If Participant has any
other binding written agreement with the Company which provides that upon a
Change of Control or termination of employment the Participant shall receive one
or more of the benefits described in sections 2 and 3 of this Plan (i.e., the
payment of cash compensation or prorated bonus, acceleration of vesting of stock
option or restricted stock


<PAGE>   12

EXECUTIVE RETENTION AND SEVERANCE PLAN                                   PAGE 12
  ADOPTED BY THE COMPENSATION COMMITTEE
  OF THE BOARD OF DIRECTORS OF BAY NETWORKS, INC.


rights, and adjustments or payments relating to federal excise tax), then with
respect to those benefits the aggregate amounts payable under this Plan shall be
reduced by the amounts paid or payable under such other and separate agreements.

11.     SUCCESSORS AND ASSIGNS

        11.1 Successors of the Company. The Company will require any Successor
expressly, absolutely and unconditionally to assume and agree to perform this
Plan in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
Failure of the Company to obtain such agreement shall be a material breach of
each Agreement.

        11.2 Heirs and representatives of Participant. Agreements issued under
the Plan shall inure to the benefit of and be enforceable by a Participant's
personal and legal representatives, executors, administrators, successors,
heirs, distributees, devises and legatees.

12.     NOTICES

For purposes of this Plan, notices and all other communications permitted or
provided for in an Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:

               if to the Company:           Bay Networks, Inc.
                                                   Attention: General Counsel
                                            4401 Great America Parkway
                                            Santa Clara, CA  95052

and if to the Participant at the most recent address recorded in the records of
the Company. Either party may provide the other with notices of change of
address, which shall be effective upon receipt.

13.     VALIDITY

        13.1 Invalid provisions. If any one or more of the provisions (or any
part thereof) of this Plan shall be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.

        13.2 Execution of Agreements by two Company executives or directors.
Each Agreement and any modifications or amendments shall require the signatures
of two executive officers or members of the Board of Directors to be binding on
Company.

14.     EFFECTIVE DATE

The Effective Date of this Plan is January 27, 1998.