**Exhibit 10.1**
**Nortel 2005 Stock Incentive Plan**
     **Section 1.****Purpose of the Plan**. The purpose of the Plan is to promote the long-termsuccess of the Company by providing equity-based incentive awards to eligible employees. The Planis designed to provide eligible employees a proprietary interest in Nortel and thereby encouragesuch employees to perform the duties of their employment to the best of their abilities and todevote their business time and efforts to further the growth and development of the Company. ThePlan is also intended to assist the Company in attracting and retaining individuals with superiorexperience and ability.
     **Section 2.****Definitions**. For purposes of the Plan, the following terms shall have themeaning set forth below:
          **(a)**“**Award**” shall mean an award of Options, Stock Appreciation Rights, Restricted Stock Unitsor Performance Stock Units granted to a Participant under the Plan.
          **(b)**“**Base Price**” shall mean the base dollar amount used to calculate the amount, if any,payable to a Participant with respect to a Share subject to a Stand-Alone SAR upon exercisethereof, which base dollar amount shall not be less than 100 percent of the Market Value of a Shareon the Effective Date of the grant of the Stand-Alone SAR, subject to adjustment pursuant toSection 11.
          **(c)**“**Board of Directors**” shall mean the Board of Directors of Nortel.
          **(d)**“**Canadian Award**” shall mean an Award pursuant to which, as applicable, (i) in the case ofOptions (including any Tandem SARs), the Subscription Price is stated and payable in Canadiandollars (and, in the case of any Tandem SARs, any cash amount payable in settlement thereof shallbe paid in Canadian dollars), (ii) in the case of Stand-Alone SARs, the Base Price is stated inCanadian dollars and any cash amount payable in settlement thereof shall be paid in Canadiandollars or (iii) in the case of Restricted Stock Units or Performance Stock Units, any cash amountpayable in settlement thereof shall be paid in Canadian dollars.
          **(e)**“**Cause**” shall mean a Participant’s Termination, (i) for just cause or cause underapplicable law or (ii) following his or her (A) willful breach or neglect of the duties of his orher employment; (B) failure or refusal to perform such duties after demand for performance or tocomply with the Company’s rules, policies and practices, (C) dishonesty, (D) insubordination, (E)gross, serious or repeated misconduct, (F) conduct endangering, or likely to endanger, the healthor safety of another employee, (G) conviction of a crime constituting a felony or other indictableoffense, (H) serious breach of his or her contract of employment, where applicable, (I) grossincompetence, or (J) bringing the Company into disrepute; except that if, at the time of suchTermination, (1) the Participant is covered by any severance, termination or similar plan or policymaintained by the Company that employs the Participant, the term “cause” shall have the meaning, ifany, assigned thereto under such plan or policy or if there is no such definition of cause, theterm “cause” shall mean the Participant’s Termination under circumstances in which the Participantis not entitled to receive notice of termination or compensation in lieu of notice under such planor policy or (2) the Participant is party to an employment, severance, retention, or similarcontract or agreement with the Company that employs the Participant and that contains
 

 

a definition of the term “cause” or a similar term, the term “cause” shall have the meaning,if any, assigned thereto (or to such similar term) in such contract or agreement.
          **(f)**“**CBCA**” shall mean the Canada Business Corporations Act, R.S.C. 1985, c-C-44, as amended.
          **(g)**“**Code**” shall mean the United States Internal Revenue Code of 1986, as amended.
          **(h)**“**Committee**” shall mean the Joint Leadership Resources Committee of the Board of Directorsand the Board of Directors of Nortel Networks Limited, described in Section 3 hereof, or such othercommittee or joint committee as may be designated by the Board of Directors and, if applicable, theBoard of Directors of Nortel Networks Limited from time to time to administer the Plan that meetsthe requirements of Section 3 hereof.
          **(i)**“**Company**” shall mean, collectively, Nortel and its direct and indirect Subsidiaries, orany such Subsidiary individually, as the context requires.
          **(j)**“**Control**” shall mean, with respect to any Person, the possession, directly or indirectly,severally or jointly, of the power to direct or cause the direction of the management and policiesof such Person, whether through the ownership of voting securities, by contract or creditarrangement, as trustee or executor, or otherwise.
          **(k)**“**Effective Date**” shall mean the date as of which an Award shall take effect, provided thatthe Effective Date shall not be a date prior to the date the Committee determines an Award shall bemade and, unless otherwise specified by the Committee, the Effective Date will be the date theCommittee determines an Award shall be made.
          **(l)**“**Exchange Act**” shall mean the United States Securities Exchange Act of 1934, as amended.
          **(m)**“**Extension Period**” shall mean, with respect to a Participant whose employment Terminatesdue to a Qualifying Termination Without Cause, the period beginning on such Participant’s Date ofTermination and, unless determined otherwise by the Committee, ending on the earlier of (x) thetwenty-four month anniversary of the Participant’s Date of Termination and (y) the date determinedin accordance with the following:
 (i) in the case of a Participant who receives severance or other terminationcompensation pursuant to the terms of an individual agreement entered into by suchParticipant and the Company that employs the Participant or pursuant to the terms ofany plan, policy or practice of such Company, the last day of the period under (x) or(y), as determined by the Committee: (x) the period used to calculate the portion ofthe severance or other termination amount payable to the Participant under suchagreement, plan, policy or practice on the basis of his or her base salary rate or (y)a period of calendar weeks equal to (A) the severance or other termination amountpayable to the Participant under such agreement, plan, policy or practice, divided by(B) the Participant’s weekly base salary rate; and
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 (ii) in the case of a Participant who is party to a written contract of employmentwith the Company that employs the Participant that requires the Company to provide theParticipant prior notice of such Qualifying Termination Without Cause or pay in lieuthereof (including payment of continued compensation during any period of “gardenleave”), other than an individual agreement described in clause (i) above, the last dayof any such notice period, in the case of a notice period that ends after theParticipant’s Date of Termination, or the last day of the period for which theParticipant receives pay in lieu of notice.
          **(n)**“**Incentive Stock Option**” shall mean an Option that, on the Effective Date, is intended toqualify and is designated by the Committee in the applicable instrument of grant as an IncentiveStock Option within the meaning of Section 422 of the Code (or any successor provision).
          **(o)**“**Market Value**” of a Share shall mean the average of the high and low prices for a boardlot of Shares traded in Canadian dollars on the TSX during the relevant day or, if the volume ofShares traded on the composite tape during the relevant day in the United States exceeds the volumeof Shares traded on the TSX on such relevant day, the average of the high and low prices for aboard lot of Shares traded in U.S. dollars on the NYSE during the relevant day. The Market Valueso determined may be in Canadian dollars or in U.S. dollars. As a result, the Market Value of aShare covered by a Canadian Award shall be either (a) such Market Value as determined above, if inCanadian dollars, or (b) such Market Value as determined above converted into Canadian dollars atthe noon rate of exchange of the Bank of Canada on the relevant day, if in U.S. dollars. Similarly,the Market Value of a Share covered by a U.S. Award shall be either (a) such Market Value asdetermined above, if in U.S. dollars, or (b) such Market Value as determined above converted intoU.S. dollars at the noon rate of exchange of the Bank of Canada on the relevant day, if in Canadiandollars. If on the relevant day there is not a board lot trade in the Shares on each of the TSX andNYSE or there is not a noon rate of exchange of the Bank of Canada, then the Market Value of aShare covered by a Canadian Award and the Market Value of a Share covered by a U.S. Award shall bedetermined as provided above on the first day immediately preceding the relevant day for whichthere were such board lot trades in the Shares and a noon rate of exchange. The Market Value of aShare shall be rounded up to the nearest whole cent.
          **(p)**“**Nortel**” shall mean Nortel Networks Corporation, a Canadian corporation, or any Successorthereto.
          **(q)**“**NYSE**” shall mean the New York Stock Exchange.
          **(r)**“**Option**” shall mean an option, granted in accordance with Section 6 hereof, to purchase aShare.
          **(s)**“**Participants**” shall mean those individuals to whom Awards have been granted from time totime under the Plan.
          **(t)**“**Performance Criteria**” shall mean such financial and/or personal performance criteria asmay be determined by the Committee, including any Qualifying
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Performance Criteria. Performance Criteria may be applied to either the Company as a whole orto a business unit or single or group of Companies, either individually, alternatively or in anycombination, and measured either in total, incrementally or cumulatively over a specifiedperformance period, on an absolute basis or relative to a pre-established target, to previousyears’ results or to a designated comparison group, provided that the performance period formeasurement or achievement of any such Performance Criteria (or incremental element thereof) shallin all events exceed one year.
          **(u)**“**Performance Stock Unit**” shall mean a right, granted in accordance with Section 8 hereof,to receive one Share or a cash payment of the Market Value of a Share, as determined by theCommittee, that generally becomes Vested, if at all, subject to the attainment of PerformanceCriteria and satisfaction of such other conditions to Vesting, if any, as may be determined by theCommittee.
          **(v)**“**Person**” shall mean any natural person, firm, partnership, limited liability company,association, corporation, company, trust, business trust, governmental authority or other entity.
          **(w)**“**Plan**” shall mean this Nortel 2005 Stock Incentive Plan, as set forth herein and as thesame may be amended and in effect from time to time.
          **(x)**“**Prior Plan**” shall mean the Nortel Networks Corporation 1986 Stock Option Plan As Amendedand Restated and/or the Nortel Networks Corporation 2000 Stock Option Plan, individually orcollectively, as the context requires.
          **(y)**“**Prior Plan Available Shares**” shall mean those Shares that, on January 1, 2006, areauthorized for issuance and available for grant of new awards under a Prior Plan (for greatercertainty, excluding Unissued Prior Plan Option Shares) .
          **(z)**“**Prior Plan Option**” shall mean an option to purchase Shares granted to a participant undera Prior Plan that is outstanding, in whole or part, on January 1, 2006.
          **(aa)**“**Qualifying Performance Criteria**” shall mean any one or more of the following performancecriteria, either individually, alternatively or in any combination, applied to either the Companyas a whole or to a business unit or single or group of Companies, either individually,alternatively or in any combination, and measured either in total, incrementally or cumulativelyover a period of more than one year, on an absolute basis or relative to a pre-established target,to previous years’ results or to a designated comparison group, in each case as determined by theCommittee: (i) cash flow, (ii) earnings per share, (iii) earnings before interest, taxes and/oramortization, (iv) return on sales, (v) total shareholder return, (vi) share price performance,(vii) return on capital, (viii) return on assets or net assets, (ix) revenue, (x) income or netincome, (xi) operating income or net operating income, (xii) operating profit or net operatingprofit, (xiii) operating margin or profit margin, (xiv) return on operating revenue, (xv) return oninvested capital, (xvi) market segment share, (xvii) product release schedules, (xviii) new productinnovation, (xix) product cost reduction, (xx) brand recognition/acceptance, (xxi) product shiptargets, or (xxii) customer satisfaction, in any such case, before or after interest and/or taxes.The Committee may appropriately adjust any evaluation of performance under a
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Qualifying Performance Criteria to exclude any of the following events that occurs during aperformance period: (I) asset write-downs, (II) litigation or claim judgments or settlements, (III)the effect of changes in tax law, accounting principles or other such laws or provisions affectingreported results, (IV) accruals for reorganization and restructuring programs and (V) anyextraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/orin management’s discussion and analysis of financial condition and results of operations appearingin the annual report of Nortel to shareholders for the applicable year.
          **(bb)**“**Qualifying Termination Without Cause**” shall mean a Participant’s Termination WithoutCause if, as a result thereof, the Participant receives severance or other terminationcompensation, including pay in lieu of notice, from the Company that employs the Participantpursuant to the terms of any individual, written employment, severance or similar agreement enteredinto by and between the Participant and such Company or any severance or termination plan, policyor practice established and maintained by such Company.
          **(cc)**“**Restricted Stock Unit**” shall mean a right, granted in accordance with Section 8 hereof,to receive a Share or a cash payment of the Market Value of a Share, as determined by theCommittee, that generally becomes Vested, if at all, based on the Participant’s period ofemployment with the Company.
          **(dd)**“**Retirement**” shall mean a Participant’s Termination (including at the end of a period oflong-term disability, if applicable) in accordance with whichever of the following clauses isapplicable: (i) a Participant’s Termination after completing a number of full years of servicewith the Company that, when added to the Participant’s age at his or her Date of Termination,equals 65 or more; provided that the Participant has attained at least age 55 as of his or her Dateof Termination, unless determination of the Participant’s eligibility for enhanced rights inrespect of an Award on the basis of age (in whole or in part) is not permitted under the laws ofany jurisdiction that apply to the Participant, and (ii) in the case of a Participant described inthe exception under the foregoing clause (i), the Participant’s Termination (w) after havingsatisfied all eligibility and other requirements under any special pension arrangement applicableto the Participant to qualify for immediate commencement of retirement benefits in accordance withthe provisions of such special pension arrangement, in the case of a Participant who is party to aspecial pension arrangement with the Company that employs the Participant, (x) after havingcompleted at least ten full years of service with the Company and, in addition, having satisfiedall eligibility and other requirements under the pension or retirement plan of the Company thatemploys the Participant to qualify for immediate commencement of early or normal retirementbenefits in accordance with the provisions of such pension or retirement plan, in the case of aParticipant employed by a Company that maintains a pension or retirement plan, other than aParticipant party to a special pension arrangement subject to clause (w), (y) after havingsatisfied all eligibility and other requirements under a national or other government sponsoredpublic social security system covering such Participant to qualify for immediate commencement ofretirement income payments under such national or other government sponsored system, in the case ofa Participant who does not participate in any pension or retirement plan and is not party to anyspecial pension arrangement, as contemplated under the immediately preceding clause (ii)(w) or(ii)(x), or (z) in the case of any other Participant, as determined by the Committee**.**
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          **(ee)**“**Shares**” shall mean the common shares without nominal or par value of Nortel and “Share”shall mean one common share without nominal or par value of Nortel, in each such case, subject toadjustment pursuant to Section 11.
          **(ff)**“**Stand-Alone SAR**” shall mean a Stock Appreciation Right that is granted on a stand-alonebasis.
          **(gg)**“**Stock Appreciation Right**” or “**SAR**” shall mean a right, granted pursuant to Section 7hereof, representing the right to receive upon the exercise thereof payment, in cash, Shares or anycombination thereof, as determined by the Committee, equal to the excess of the Market Value of oneShare over the Base Price or Subscription Price, whichever is applicable, on the terms andconditions and calculated in accordance with the provision of Section 7 hereof.
          **(hh)**“**Stock Exchanges**” shall mean the NYSE and the TSX.
          **(ii)**“**Subsidiary**” shall mean, with respect to any Person, each corporation or other Person inwhich the first Person owns or Controls, directly or indirectly, capital stock or other ownershipinterests representing 50% or more of the combined voting power of the outstanding voting stock orother ownership interests of such corporation or other Person and each “affiliated body corporate,”within the meaning of Subsection 2(2) of the CBCA, with respect to such first Person.
          **(jj)**“**Subscription Price**” shall mean, (i) with respect to an Option, the price payable by aParticipant to purchase one Share on exercise of such Option, which shall not be less than 100percent of the Market Value of a Share on the Effective Date of the grant of the Option coveringsuch Share and (ii) with respect to a Tandem SAR, the Subscription Price applicable to the Optionto which the Tandem SAR relates, in each such case, subject to adjustment pursuant to Section 11.
          **(kk)**“**Successor**” shall mean, with respect to any Person, a Person that succeeds to the firstPerson’s assets and liabilities by amalgamation, merger, liquidation, dissolution or otherwise byoperation of law, or a Person to which all or substantially all the assets and/or business of thefirst Person are transferred.
          **(ll)**“**Tandem SAR**” shall mean a Stock Appreciation Right granted in tandem with an Option.
          **(mm)**“**Termination**” or “**Date of Termination**” (or any derivative thereof) shall mean (i) thedate of termination of a Participant’s active employment with the Company that employs theParticipant (other than in connection with the Participant’s transfer to employment with any otherCompany), whether such termination is lawful or otherwise, but not including a Participant’sabsence from active employment during a period of vacation, temporary illness, authorized leave ofabsence or short or long-term disability, and (ii) in the case of a Participant who does not returnto active employment with the Company immediately following a period of absence due to vacation,temporary illness, authorized leave of absence or short or long-term disability, the last day ofsuch period of absence.
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          **(nn)**“**Termination Without Cause**” shall mean a Participant’s Termination by the Company thatemploys the Participant for any reason other than Cause or due to the Participant’s Retirement,other than any such Qualifying Termination Without Cause.
          **(oo)**“**Third Party Trust**” shall mean a trust established pursuant to Section 3(c) with anindependent, unaffiliated bank or other trust company, as trustee, to hold Shares for delivery fromtime to time to Participants upon exercise or settlement of Awards, that is established andmaintained in accordance with the applicable banking and trust laws of the relevant jurisdictionand the requirements of Stock Exchanges.
          **(pp)**“**TSX**” shall mean The Toronto Stock Exchange.
          **(qq)**“**Unissued Prior Plan Option Shares**” shall mean those Shares that are subject to theunexercised portion of a Prior Plan Option on January 1, 2006, to the extent such portion of thePrior Plan Option thereafter expires or is forfeited, surrendered, cancelled or otherwiseterminated without the issuance or delivery of such Shares, but not including any Shares subject toa Prior Plan Option that are withheld or otherwise not issued or delivered upon exercise of suchPrior Plan Option in order to satisfy all or any portion of the holder’s obligation to pay thesubscription price and/or withholding amounts related to the exercise of such Prior Plan Option.
          **(rr)**“**Vested**” (or any applicable derivative term) shall mean, with respect to an Award, thatthe applicable conditions with respect to continued employment, passage of time, achievement ofPerformance Criteria and/or any other conditions established by the Committee have been satisfiedor, to the extent permitted under the Plan, waived, whether or not the Participant’s rights withrespect to such Award may be conditioned upon prior or subsequent compliance with anyconfidentiality, non-competition or non-solicitation obligations.
          **(ss)**“**U.S. Award**” shall mean an Award pursuant to which, as applicable, (i) in the case ofOptions (including any Tandem SARs), the Subscription Price is stated and payable in United Statesdollars (and, in the case of any Tandem SARs, any cash amount payable in settlement thereof shallbe paid in United States dollars), (ii) in the case of Stand-Alone SARs, the Base Price is statedin United States dollars and any cash amount payable in settlement thereof shall be paid in UnitedStates dollars or (iii) in the case of Restricted Stock Units or Performance Stock Units, any cashamount payable in settlement thereof shall be paid in United States dollars.
     **Section 3.****Administration**
          **(a)****Composition of Committee**. The Committee shall consist of two or more individuals,each of whom qualifies as an independent director, within the meaning of the rules of the StockExchanges and other applicable securities legislative and regulatory requirements, and at least twoof whom qualify as (i) a “non-employee director” within the meaning of Rule 16b-3 under theExchange Act, and (ii) an “outside director” within the meaning of United States TreasuryRegulation Section 1.162-27(e)(3)) under the Code. In addition, the composition of the Committeeshall comply with all other applicable securities legislation and rules of the Stock Exchanges andregulatory authorities.
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          **(b)****Powers of the Committee**. The Committee shall administer the Plan in accordancewith its terms. Subject to and consistent with the terms of the Plan, in addition to any authorityof the Committee specified under any other terms of the Plan, the Committee shall have full andcomplete discretionary authority to:
     **(i)**interpret the Plan and instruments of grant evidencing Awards;
     **(ii)**prescribe, amend and rescind such rules and regulations and make alldeterminations necessary or desirable for the administration and interpretation of the Planand instruments of grant evidencing Awards;
     **(iii)**determine those key employees of the Company who may be granted Awards, grant oneor more Awards to such employees and approve or authorize the applicable form and terms ofthe related instrument of grant;
     **(iv)**determine the terms and conditions of Awards granted to any Participant,including, without limitation, (A) the type, and number of Shares subject to, an Award,including whether the Award shall be a Canadian Award or a U.S. Award, (B) the SubscriptionPrice or Base Price for Shares subject to an Award, if applicable, (C) the conditions to theVesting of an Award or any portion thereof, including terms relating to lump sum orinstallment Vesting, the period for achievement of any applicable Performance Criteria as acondition to Vesting and the conditions, if any, upon which Vesting of any Award or portionthereof will be waived or accelerated without any further action by the Committee, (D) thecircumstances upon which an Award or any portion thereof shall be forfeited, cancelled orexpire, (E) the consequences of a Termination with respect to an Award, (F) the manner ofexercise or settlement of the Vested portion of an Award, including whether an Award shallbe settled on a current or deferred basis, (G) whether and the terms upon which an Awardshall be settled in cash, Shares or a combination thereof and (H) whether and the terms uponwhich any Shares delivered upon exercise or settlement of an Award must continue to be heldby a Participant for any specified period;
     **(v)**determine whether and the extent to which any Performance Criteria or otherconditions applicable to the Vesting of an Award have been satisfied or shall be waived ormodified;
     **(vi)**amend the terms of any instrument of grant or other documents evidencing Awards;and
     **(vii)**determine whether, and the extent to which, adjustments shall be made pursuant toSection 11 and the terms of any such adjustments.
          **(c)****Establishment of Third Party Trusts**. From time to time, the Committee may directone or more of the Companies to establish and maintain one or more Third Party Trusts, on suchterms and conditions as the Committee shall determine, and to contribute Shares and/or cash for thepurchase of Shares thereto, in such amounts as the Committee shall determine; provided that noThird Party Trust shall be established or maintained with respect to a
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Participant if the Committee reasonably determines that, as a result thereof, such Participantwill be subject to early taxation or any increased amount of tax with respect to his or herAward(s).
          **(d)****Effects of Committee’s Decision**. Any such interpretation, rule, regulation,determination or other act of the Committee shall be made in its sole discretion and shall beconclusively binding upon all Persons.
          **(e)****Liability Limitation**. No member of the Committee or the Board of Directors shallbe liable for any action or determination made in good faith pursuant to the Plan or any instrumentof grant evidencing any Award granted under the Plan. To the fullest extent permitted by law, theCompany shall indemnify and save harmless each person made, or threatened to be made, a party toany action or proceeding in respect of the Plan by reason of the fact that such person is or was amember of the Committee or is or was a member of the Board of Directors.
          **(f)****Delegation and Administration**. The Committee may, in its discretion, delegatesuch of its powers, rights and duties under the Plan, in whole or in part, to such committee,Person or Persons as it may determine, from time to time, on terms and conditions as it maydetermine, except the Committee shall not, and shall not be permitted to, delegate any such powers,rights or duties (i) with respect to the grant, amendment, administration or settlement of anyAward of a Participant subject to Section 16 of the Exchange Act or otherwise to the extentdelegation is not consistent with the CBCA or the rules of any Stock Exchange or (ii) with respectto the establishment or determination of the achievement of Qualifying Performance Criteria and anysuch purported delegation or action shall not be given effect. The Committee may also appoint orengage a trustee, custodian or administrator to administer or implement the Plan or any aspect ofit, subject to the exception of the immediately preceding sentence hereof.
     **Section 4.****Shares Subject to the Plan**.
          **(a)****Aggregate Plan Limits**. Subject to adjustment pursuant to Section 11, the maximumaggregate number of Shares that may be delivered in connection with Awards granted under the Planshall not exceed the sum of (i) 122 million Shares, (ii) the number of Prior Plan Available Sharesand (iii) the number of Unissued Prior Plan Option Shares. Subject to adjustment pursuant toSection 11, of such aggregate maximum number of Shares, (i) no more than an aggregate of 95 millionShares may be delivered in connection with Awards of Restricted Stock Units and/or PerformanceStock Units and (ii) no more than an aggregate of 122 million Shares may be delivered in connectionwith Awards of Incentive Stock Options. Any adjustment pursuant to Section 11 to the limitation onthe number of Shares available for Awards of Incentive Stock Option shall be consistent with therequirements of Section 425 of the Code.
          **(b)****Tax Code Limits**. During any five year period, a Participant may not be grantedAwards under the Plan of (i) Options and/or Stock Appreciation Rights covering more than anaggregate of 25 million Shares or (ii) Restricted Stock Units and/or Performance Stock Units withrespect to more than an aggregate of 15 million Shares, in each such case, subject to adjustmentpursuant to Section 11.
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          **(c)****Certain Additional Limits**. The number of Shares issuable to insiders of theCompany (as defined in the rules of the TSX for this purpose) under this Plan and all other Companysecurity-based compensation arrangements (also as defined in the rules of the TSX) shall not exceed10% of the issued and outstanding Shares and the number of Shares issued to insiders within any oneyear under all Company security-based compensation arrangements shall not exceed 10% of the issuedand outstanding Shares.
          **(d)****Computation of Available Shares**. For purposes of computing the total number ofShares available for grant under the Plan, Shares subject to any Award (or any portion thereof)that has expired or is forfeited, surrendered, cancelled or otherwise terminated prior to theissuance or transfer of such Shares and Shares subject to an Award (or any portion thereof) that issettled in cash in lieu of settlement in Shares shall again be available for grant under the Plan.Notwithstanding the foregoing, any Shares subject to an Award that are withheld or otherwise notissued upon exercise of any Option or Stock Appreciation Right or settlement of any Award tosatisfy the Participant’s withholding obligations or in payment of any Subscription Price shallreduce the number of Shares available for grant under the limitations set forth in this Section 4.
          **(e)****Source of Shares**. Shares delivered to Participants in connection with theexercise or settlement of Awards may be authorized but unissued Shares, Shares purchased in theopen-market or in private transactions or Shares held in one or more Third Party Trusts. From timeto time, the Board of Directors shall authorize the issuance, or the purchase of shares on the openmarket or in private transactions, of such number of Shares as may be necessary to permit Nortel tomeet its obligations under the Plan.
     **Section 5.****Terms of Awards In General**
          **(a)****Instrument of Grant****.**Each Award granted under the Plan shall be evidenced by aninstrument of grant, in such form or forms as the Committee shall approve from time to time, whichshall set forth such terms and conditions consistent with the terms of the Plan as the Committeemay determine. Each instrument of grant shall set forth, at a minimum, the type and Effective Dateof the Award evidenced thereby, the number of Shares subject to such Award, whether the Award is aCanadian Award or a U.S. Award and the applicable Vesting conditions and may specify such otherterms and conditions consistent with the terms of the Plan as the Committee shall determine or asshall be required under any other provision of the Plan. References in the Plan to an instrumentof grant shall include any supplements or amendments thereto.
          **(b)****Vesting Conditions**. Subject to the terms of the Plan, the Committee shalldetermine any and all conditions to the Vesting of all and/or any portion of Awards and shallspecify the material terms thereof in the applicable instrument of grant on, or as soon asreasonably practicable following, the Effective Date of the Award. Vesting of an Award, or portionthereof, may be conditioned upon passage of time, continued employment, satisfaction of PerformanceCriteria, or any combination of the foregoing, as determined by the Committee, provided that (i)except in connection with the death of a Participant, such conditions permit all or any portion ofany Award to become Vested no earlier than the first anniversary of the Effective Date of theAward, (ii) performance conditions to Vesting of any portion of an Award
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will be measured over a period greater than one year, (iii) except in connection with thedeath or Retirement of a Participant, Awards of Restricted Stock Units will not become Vested morerapidly than ratably over the three (3) year period following the Effective Date thereof and (iv)with respect to any Award that is intended to satisfy the requirements for “performance-basedcompensation” under Section 162(m) of the Code, the applicable Performance Criteria shall be ameasure based on one or more Qualifying Performance Criteria determined by the Committee on orprior to the Effective Date of such Award or as of any later time permitted under the applicableprovisions of Section 162(m) of the Code. Subject to compliance with Section 162(m) of the Code,if applicable, the Committee may modify or supplement any Performance Criteria applicable to theVesting of an outstanding Award to the extent the Committee deems appropriate to reflect anymaterial change after the Effective Date of the Award in the relevant business operations of theCompany or applicable business unit or individual or group of Companies.
          **(c)****Discretion of the Committee**. Notwithstanding any other provision hereof or of anyapplicable instrument of grant, the Committee may (i) accelerate or waive any condition to theVesting of any Award, all Awards, any class of Awards or Awards held by any group of Participantsor (ii) if the Committee has reason to believe that grounds exist to terminate a Participant’semployment for Cause, suspend the right of a Participant to exercise any Vested Award or receivepayment in settlement of any Vested Award pending resolution of such matter by the Company**,**provided, however, that the Committee shall not have or exercise any discretion under this Section5(c) or any other provision of the Plan (x) that would permit or result in Vesting of an Award (orportion thereof) prior to the first anniversary of the Effective Date of such Award (except in theevent of a Participant’s death) or (y) to modify the terms or conditions of any PerformanceCriteria or waive the satisfaction thereof with respect to any Award that is intended to satisfythe requirements for “performance-based compensation” under Section 162(m) of the Code.
          **(d)****No Repricing**. The Subscription Price for Shares subject to any Award of Optionsand any related Tandem SARs and the Base Price for Shares subject to any Award of Stand-Alone SARsmay not be reduced after the Effective Date of the Award thereof, either directly or indirectly,without prior shareholder approval, except for adjustments pursuant to Section 11 of the Plan.
          **(e)****Deferral of Payment or Other Settlement of Vested Awards**. The terms andconditions applicable to any Award (or portion thereof) granted to a Participant who is subject totaxation under the Code and that constitutes “deferred compensation” subject to Section 409A of theCode are intended to comply with Section 409A of the Code. The terms of any such Award (or portionthereof) permitting the deferral of payment or other settlement thereof or providing for settlementin cash in lieu of Shares shall be subject to such requirements and shall be administered in suchmanner as the Committee may determine to be necessary or appropriate to comply with the applicableprovisions of Code Section 409A as in effect from time to time.
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     **Section 6.****Stock Options**
          **(a)****General**. The Committee may from time to time grant one or more Awards of Optionsto key employees of the Company on such terms and conditions, consistent with the Plan, as theCommittee shall determine. The instrument of grant evidencing an Award of Options shall specifythe Subscription Price for each Share subject to such Option, the maximum term of such Option,whether Tandem SARs are granted with respect to all or any such Options and whether such Options(or any portion thereof) are intended to qualify as Incentive Stock Options.
          **(b)****Vesting Terms**. Options granted under the Plan shall become Vested at such times,in such installments and subject to such terms and conditions consistent with Section 5(b) hereof(including satisfaction of Performance Criteria and/or continued employment) as may be determinedby the Committee and set forth in the applicable instrument of grant.
          **(c)****Subscription Price**. The Subscription Price for each Share subject to an Optionshall not be less than 100% of the Market Value of a Share on the Effective Date of the Award ofsuch Option. The Subscription Price shall be stated and payable in Canadian dollars, if a CanadianAward, and in United States dollars, if a U.S. Award.
          **(d)****Exercise of Vested Options**. Vested Options may be exercised in accordance withsuch procedures as may be established by the Committee, including procedures permitting theexercise of Options through a broker-assisted sale and remittance program authorized by theCommittee. The Participant must pay or satisfy, in accordance with the terms of this Subsection(d) and Section 15(b), the full amount of the Subscription Price and withholding amounts withrespect to such exercise and the Company may require as a condition to such exercise and/or theissuance or delivery of Shares to a Participant upon the Participant’s payment or satisfaction ofsuch amounts in full in accordance with this Section 6(d) and Section 15(b) hereof. TheSubscription Price shall be payable on exercise of a Vested Option:
     **(i)**in Canadian dollars, if a Canadian Award, or in United States dollars, if a U.S.Award, unless the Committee determines otherwise, and may be paid in cash, or by wiretransfer, certified cheque, banker’s cheque or bank draft or other similar methods of cashequivalent payment acceptable to the Committee or any combination thereof;
     **(ii)**by the surrender and transfer of Shares then owned by the Participant to suchPerson as the Committee may direct;
     **(iii)**by the withholding of Shares otherwise issuable upon exercise of such VestedOption or by payment pursuant to a broker-assisted sale and remittance program authorized bythe Committee; or
     **(iv)**in any combination of the foregoing.
     Shares surrendered or withheld in accordance with clause (ii) or (iii) of this Subsection (d)shall be valued at the Market Value thereof on the date of exercise, determined in Canadian dollarsif used to purchase a Share subject to a Vested Canadian Award or in United States dollars if usedto purchase a Share subject to a Vested U.S. Award. The Committee may impose, at any time, suchlimitations and prohibitions on the use of Shares in payment of the Subscription
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Price as it deems appropriate and shall determine acceptable methods of surrendering orwithholding Shares as payment of the Subscription Price.
          **(e)****Option Period**. Unless the Committee provides for a shorter option period at orafter the Effective Date of an Award of Options and subject to Section 9 hereof, all or any part ofthe Options covered by an Award shall, to the extent Vested, be exercisable, from time to time,within the period commencing on the date such Option or part thereof becomes Vested and ending onthe day prior to the tenth anniversary of the Effective Date of such Award.
          **(f)****Incentive Stock Options**. Options intended to qualify as Incentive Stock Optionsmay only be granted to employees of the Company within the meaning of the Code, as determined bythe Committee. No Incentive Stock Option shall be granted to any Participant if immediately afterthe grant of such Award, such Participant would own stock, including stock subject to outstandingAwards held by such Participant under the Plan or any other plan established by the Company,amounting to more than ten percent (10%) of the total combined voting power or value of all classesof stock of the Company. To the extent that the instrument of grant evidencing the Award of anOption specifies that an Option is intended to be treated as an Incentive Stock Option, the Optionis intended to qualify to the greatest extent possible as an “incentive stock option” within themeaning of Section 422 of the Code, and shall be so construed; provided, however, that any suchdesignation shall not be interpreted as a representation, guarantee or other undertaking on thepart of the Company that the Option is or will be determined to qualify as an Incentive StockOption. If and to the extent that the aggregate Subscription Price of Options subject to anyportion of any Award of Incentive Stock Options that become Vested in any calendar year exceeds the$100,000 limitation of Section 422 of the Code, such Options shall not be treated as IncentiveStock Options notwithstanding any designation otherwise. Certain decisions, amendments,interpretations or other actions by the Committee and certain actions by a Participant may cause anOption to cease to qualify as an Incentive Stock Option pursuant to the Code and, by accepting anAward of Options hereunder, the Participant thereby consents and agrees in advance to any suchdisqualifying action.
     **Section 7.****Stock Appreciation Rights**
          **(a)****General**. The Committee may from time to time grant one or more Awards of StockAppreciation Rights to key employees of the Company on such terms and conditions, consistent withthe Plan, as the Committee shall determine.
          **(b)****Tandem SARs**. **(i)**Tandem SARs may be granted at or after the Effective Date ofthe related Award of Options, and each Tandem SAR shall be subject to the same terms and conditionsand denominated in the same currency as the Option to which it relates and the additional terms andconditions set forth in this Section 7.
     **(ii)**On exercise of a Tandem SAR, the related Option shall be cancelled and theParticipant shall be entitled to an amount in settlement of such Tandem SAR calculated andin such form as provided in Subsection (d) below.
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     **(iii)**Tandem SARs may be exercised only if and to the extent the Options related theretoare then Vested and exercisable and shall be exercised in accordance with such procedures asmay be established by the Committee.
          **(c)****Stand-Alone SARs**. **(i)**Stand-Alone SARs granted under the Plan shall becomeVested at such times, in such installments and subject to such terms and conditions consistent withSection 5(b) hereof (including satisfaction of Performance Criteria and/or continued employment) asmay be determined by the Committee and set forth in the applicable instrument of grant.
     **(ii)**The Base Price for each Share subject to a Stand-Alone SAR shall not be less than100% of the Market Value of a Share on the Effective Date of the Award of such Stand-AloneSAR.
     **(iii)**Unless the Committee provides for a shorter period at or after the Effective Dateof an Award of Stand-Alone SARs and subject to Section 9 hereof, all or any part of theStand-Alone SARs covered by an Award shall, to the extent Vested, be exercisable, from timeto time, within the period commencing on the date such Stand-Alone SARs or part thereofbecomes Vested and ending on the day prior to the tenth anniversary of the Effective Date ofsuch Award.
          **(d)****Exercise and Settlement**. Upon exercise thereof and subject to payment or othersatisfaction of all related withholding obligations in accordance with Section 15(b) hereof, StockAppreciation Rights (and, in the case of Tandem SARs, the related Options) shall be settled bypayment or delivery, in cash, Shares or any combination thereof, as determined by the Committee, ofan aggregate amount equal to:
          the product of
 (A) the excess of the Market Value of a Share onthe date of exercise over the Subscription Price or Base Price for aShare under the applicable Stock Appreciation Right,
          multiplied by
 (B) the number of Stock Appreciation Rightsexercised.
     Any cash payment in settlement of a Stock Appreciation Right shall be payable in Canadiandollars, if made with respect to a Canadian Award, and in United States dollars, if made withrespect to a U.S. Award. To the extent any portion of Stock Appreciation Rights are settled inShares, such settlement shall be made by delivery of the greatest number of Shares having a MarketValue on the date of exercise equal to the amount so settled.
     **Section 8.****Restricted Stock Units and Performance Stock Units**
          **(a)****General**. The Committee may from time to time grant one or more Awards ofRestricted Stock Units and/or Performance Stock Units to key employees of the Company on such termsand conditions, consistent with the Plan, as the Committee shall determine.
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          **(b)****Vesting Terms**. Restricted Stock Units and/or Performance Stock Units shall becomeVested at such times, in such installments and subject to such terms and conditions consistent withSection 5(b) hereof as may be determined by the Committee and set forth in the applicableinstrument of grant, provided that the conditions to Vesting of Restricted Stock Units shall bebased on the Participant’s continued employment, without regard to the satisfaction of anyPerformance Criteria, and the conditions to Vesting of Performance Stock Units shall be based onthe satisfaction of Performance Criteria either alone or in addition to any other Vestingconditions as may be determined by the Committee consistent with Section 5(b) hereof.
          **(c)****Settlement**. Unless deferral of payment in settlement of Restricted Stock Unitsand/or Performance Stock Units is permitted or required under the terms of the Award thereof,Restricted Stock Units and Performance Stock Units shall be settled upon or as soon as reasonablypracticable following the Vesting thereof, subject to payment or other satisfaction of all relatedwithholding obligations in accordance with Section 15(b) hereof. Settlement shall be made in cash,Shares or any combination thereof, as determined by the Committee. Settlement of Restricted StockUnits and/or Performance Stock Units in Shares shall be made by delivery of one Share for each suchRestricted Stock Unit or Performance Stock Unit then being settled. Settlement of Restricted StockUnits or Performance Stock Units in cash shall be made by payment of an aggregate amount equal to:
          the product of
 (A) the Market Value of a Share on the applicablesettlement date specified by the Committee,
          multiplied by
 (B) the number of Restricted Stock Units orPerformance Stock Units then being settled.
          Any cash payment in settlement of Restricted Stock Units or Performance Stock Units shall bepayable in Canadian dollars, if made with respect to a Canadian Award, and in United Statesdollars, if made with respect to a U.S. Award.
          **(d)****Dividend Equivalents****.**The terms of an Award of Restricted Stock Units orPerformance Stock Units may include provision for the accrual of dividend equivalent amounts withrespect to cash dividends paid in the ordinary course to shareholders in respect of outstandingShares. If the Committee determines that dividend equivalent amounts will be accrued in respect ofRestricted Stock Units or Performance Stock Units subject to an Award, if and when cash dividends are paid with respect to Shares (other than any extraordinary dividend) toshareholders of record as of a record date occurring during the period from the Effective Date ofthe applicable Award to the date of settlement thereof, a number of additional Restricted StockUnits or Performance Stock Units, as the case may be, shall be granted to the holder of such Awardequal to the greatest number of whole Shares having a Market Value, as of the payment date for suchdividend, equal to the product of (i) the cash dividend paid with respect to a Share multiplied by(ii) the number of Restricted Stock Units or Performance Stock Units subject to such Award as ofthe record date for the dividend. The additional Restricted
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Stock Units or Performance Stock Units granted to a Participant shall be subject to the sameterms and conditions, including Vesting and settlement terms, as the corresponding Restricted StockUnits or Performance Stock Units, as the case may be. The Committee may provide that, in lieu ofthe grant of additional Restricted Stock Units or Performance Stock Units, dividend equivalentamounts may be accrued and paid in cash, at the time and on the same terms and conditions, ofsettlement of the corresponding Restricted Stock Units or Performance Stock Units, as the case maybe.
     **Section 9.****Consequences of Termination**.
          **(a)****Options/Stock Appreciation Rights**. Unless otherwise determined by the Committee,outstanding Options and/or Stock Appreciation Rights held by a Participant (or the executors oradministrators of such Participant’s estate, any person or persons who acquire the right toexercise Options and/or Stock Appreciation Rights directly from the Participant by bequest orinheritance or any other permitted transferee of the Participant under Section 10 hereof) as of theParticipant’s Date of Termination shall be subject to the following clauses (i) though (iv), asapplicable; except that, (x) in all events, the period for exercise of Options and/or StockAppreciation Rights shall end no later than the last day of the maximum term thereof establishedunder Section 6(e) or 7(c)(iii), as applicable, and (y) unless otherwise determined by theCommittee, any outstanding Options and/or Stock Appreciation Rights that are subject to Vestingconditions based in whole or part upon the satisfaction of Performance Criteria and that have notbecome Vested prior to the Participant’s Date of Termination shall immediately be cancelled andforfeited and all rights and interests of the holder or beneficiary thereof shall thereuponterminate, in all cases, for no consideration.
     **(i)**In the case of a Participant’s Termination due to Retirement, (x) those of theParticipant’s outstanding Options and/or Stock Appreciation Rights that have become Vestedprior to the Participant’s Date of Termination shall continue to be exercisable during theperiod ending on the three (3) year anniversary of the Date of Termination and (y) those ofthe Participant’s outstanding Options and/or Stock Appreciation Rights that have not becomeVested prior to the Participant’s Date of Termination shall become Vested and exercisable asof the later of the Date of Termination and the one year anniversary of the Effective Dateof the Award thereof and thereafter shall continue to be exercisable for the remainingportion of the period ending on the three (3) year anniversary of the Date of Termination.
     **(ii)**In the case of a Participant’s Termination due to death, (x) those of theParticipant’s outstanding Options and/or Stock Appreciation Rights that have not becomeVested prior to the Participant’s Date of Termination shall become Vested and exercisable asof the Date of Termination and (y) all of the Participant’s outstanding Options and/or StockAppreciation Rights shall continue to be exercisable during the period ending on the two (2)year anniversary of the Date of Termination.
     **(iii)**In the case of a Participant’s Termination due to the Participant’s resignationor the Participant’s Termination Without Cause, (x) those of the Participant’s outstandingOptions and/or Stock Appreciation Rights that have not become Vested prior to the Date ofTermination shall be forfeited and cancelled as of such Date of
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Termination and (y) those of the Participant’s outstanding Options and/or StockAppreciation Rights that have become Vested prior to the Participant’s Date of Terminationshall continue to be exercisable during the ninety (90) day period following such Date ofTermination.
     **(iv)**In the case of a Participant’s Termination due to a Qualifying Termination WithoutCause, (x) those of the Participant’s outstanding Options and/or Stock Appreciation Rightsthat have become Vested prior to the Participant’s Date of Termination shall continue to beexercisable during the Participant’s Extension Period and during the period ending ninety(90) days immediately following the last day of such Extension Period, (y) those of theParticipant’s outstanding Options and/or Stock Appreciation Rights that have not becomeVested prior to the Participant’s Date of Termination but would have become Vested duringthe Participant’s Extension Period subject only to the Participant’s continued employmentwith the Company for all or a portion of the Extension Period shall remain outstanding andshall become Vested and exercisable as of the scheduled date for Vesting as if theParticipant’s employment had continued during the Extension Period, and thereafter shallcontinue to be exercisable during the remaining portion of the Extension Period and theninety (90) day period immediately following the last day of the Extension Period and (z)subject to the proviso below, all other outstanding Options and/or Stock Appreciation Rightsshall be forfeited and cancelled as of the Participant’s Date of Termination; providedhowever that if a Participant subject to this clause (iv) would have qualified forRetirement had his or her employment with the Company continued for all or a portion of theParticipant’s Extension Period, the rights of such Participant (or any permitted transfereethereof) with respect to his or her outstanding Options and/or Stock Appreciation Rightsshall be governed by clause (i) of this Section 9 effective as of the date the Participantwould have first qualified for Retirement.
Options and/or Stock Appreciation Rights that are not exercised prior to the expiration of theexercise period following a Participant’s Date of Termination permitted under this Section 9(a)shall automatically expire on the last day of such period.
          **(b)****Restricted Stock Units and Performance Stock Units**. Unless otherwise determinedby the Committee, upon a Participant’s Termination for any reason, any then outstanding RestrictedStock Units and Performance Stock Units that have not become Vested prior to the Participant’s Dateof Termination shall immediately be cancelled and forfeited and all rights and interests in respectof such Restricted Stock Units and Performance Stock Units of the Participant (and the executorsand administrators of such Participant’s estate, any person or persons acquiring any interestdirectly from the Participant by bequest or inheritance and any other permitted transferee of theParticipant under Section 10 hereof)) shall thereupon terminate, in all cases, for noconsideration.
          **(c)****Termination for Cause**. Notwithstanding any other provision hereof or in anyinstrument of grant, in the case of a Participant’s Termination for Cause, any and all thenoutstanding Awards granted to the Participant, whether or not Vested, shall be immediatelyforfeited and cancelled, without any consideration therefore, as of the commencement of the daythat notice of such termination is given.
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     **Section 10.****Transferability**.
          **(a)****Transfer Restrictions**. Unless otherwise provided in the instrument of grantevidencing an Award, no Award, and no rights or interests therein, shall or may be assigned,transferred, sold, exchanged, encumbered, pledged or otherwise hypothecated or disposed of by aParticipant other than by testamentary disposition by the Participant or the laws of intestatesuccession. No such interest shall be subject to execution, attachment or similar legal processincluding without limitation seizure for the payment of the Participant’s debts, judgments, alimonyor separate maintenance.
          **(b)****Permitted Transfers****.**Notwithstanding the foregoing, the Committee may provide inthe applicable instrument of grant that an Award is transferable or assignable (a) in the case of atransfer without the payment of any consideration, to the Participant’s spouse, former spouse,children, stepchildren, grandchildren, parent, stepparent, grandparent, sibling, persons having oneof the foregoing types of relationship with a Participant due to adoption and any entity in whichthese persons (or the Participant) own more than fifty percent of the voting interests and (b) toan entity in which more than fifty percent of the voting interests are owned by these persons (orthe Participant) in exchange for an interest in that entity. Following any such transfer orassignment, the Award shall remain subject to substantially the same terms applicable to the Awardwhile held by the Participant to whom it was granted, as modified as the Committee shall determineappropriate, and, as a condition to such transfer, the transferee shall execute an agreementagreeing to be bound by such terms. An Incentive Stock Option may be transferred or assigned onlyto the extent consistent with Section 422 of the Code. Any purported assignment or transfer thatdoes not qualify under this Section 10 shall be void and unenforceable against the Company.
     **Section 11.****Alteration of Share Capital**.
          **(a)****No Corporate Action Restriction**. The existence of the Plan and/or the Awardsgranted hereunder shall not limit, affect or restrict in any way the right or power of the Board ofDirectors or the shareholders of Nortel to make or authorize (i) any adjustment, recapitalization,reorganization or other change in the capital structure or business of any Company, (ii) anymerger, consolidation, amalgamation or change in ownership of any Company, (iii) any issue ofbonds, debentures, capital, preferred or prior preference stocks ahead of or affecting the capitalstock of any Company or the rights thereof, (iv) any dissolution or liquidation of any Company, (v)any sale or transfer of all or any part of the assets or business of any Company or (vi) any othercorporate act or proceeding with respect to any Company. No Participant or any other Person shallhave any claim against any member of the Board of Directors or the Committee, or any Company or anyemployees, officers or agents of any Company as a result of any such action.
          **(b)****Recapitalization Adjustment**.
     **(i)**In the event that (A) a dividend shall be declared upon the Shares or othersecurities of Nortel payable in Shares or other securities of Nortel, (B) the outstandingShares shall be changed into or exchanged for a different number or kind of shares or othersecurities of Nortel or of another corporation or entity, whether through an
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arrangement, plan of arrangement, amalgamation or other similar statutory procedure ora share recapitalization, subdivision, consolidation or otherwise, (C) there shall be anychange, other than those specified in (A) or (B) above, in the number or kind of outstandingShares or of any shares or other securities into which such Shares shall have been changedor for which they shall have been exchanged, or (D) there shall be a distribution of assetsor shares to shareholders of Nortel out of the ordinary course of business, then, if theBoard of Directors shall determine that an adjustment in the number or kind of Sharestheretofore authorized but not yet covered by Awards, in the number or kind of Sharestheretofore subject to outstanding Awards, in the Subscription Price or Base Priceapplicable under any outstanding Awards, in the number or kind of Shares generally availablefor Awards or available in any calendar year under the Plan and/or such other adjustment asmay be appropriate should be made, such adjustment shall be made by the Board of Directorsand shall be effective and binding for all purposes.
     **(ii)**In the case of any such adjustment as provided for in this Section, theSubscription Price or Base Price shall be adjusted appropriately to reflect such adjustment.No adjustment provided for in this Section shall require Nortel to issue a fractional Shareand the total adjustment with respect to each outstanding Award shall be limitedaccordingly.
     **(iii)**Any adjustment made pursuant to this Section with respect to the terms of anOption shall require a similar modification with respect to the terms of the StockAppreciation Right to which such Option relates.
     **Section 12.****Amendment and Termination** From time to time the Board of Directors may,in addition to its powers under the Plan, add to or amend any of the provisions of the Plan orsuspend or terminate the Plan or amend the terms of any then outstanding Award granted under thePlan or its related instrument of grant; provided, however, that **(a)**no such amendment, suspensionor termination shall be made at any time to the extent such action would materially adverselyaffect the existing rights of a Participant with respect to any then outstanding Award without hisor her consent in writing, provided that the Committee may amend the terms of, or suspend orterminate, an Award of Incentive Stock Options at any time after the Effective Date of such Awardin a manner that results or could result in the failure of such Options to qualify or continue toqualify as “incentive stock options” within the meaning of Section 422 of the Code without theconsent of the Participant, and **(b)**Nortel shall obtain shareholder approval of any amendment thatthe Company determines constitutes a material amendment within the meaning of the applicable rulesof the NYSE (other than an amendment pursuant to the adjustment provisions of Section 11), and suchamendment shall become effective only upon shareholder approval thereof, including, withoutlimitation, any such amendment that would:
     **(i)**increase the maximum number of Shares for which Awards may be granted under thePlan;
     **(ii)**reduce the Subscription Price or Base Price at which Options or Stock AppreciationRights may be granted below the price provided for in Sections 6(c) and 7(c);
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     **(iii)**reduce the Subscription Price or Base Price of outstanding Options or StockAppreciation Rights;
     **(iv)**extend the term of the Plan or the maximum term of Options granted under the Plan;
     **(v)**change the class of persons eligible for grants of Awards under the Plan;
     **(vi)**increase the limits in Section 4;or
     **(vii)**a change which would permit all or any portion of an Award to become Vested priorto the first anniversary of the Effective Date of such Award, other than in the event of thedeath of a Participant.
     **Section 13.****Regulatory Approval**. Notwithstanding anything herein to the contrary,Nortel shall not be obligated to cause to be issued any Shares or cause to be issued and deliveredany certificates evidencing Shares pursuant to the Plan, unless and until Nortel is advised by itslegal counsel that the issuance and delivery of the Shares and such Share certificates is incompliance with all applicable laws, regulations, rules, orders of governmental or regulatoryauthorities in Canada, the United States and any other applicable jurisdiction, and therequirements of the Stock Exchanges. Nortel shall in no event be obligated to take any action inorder to cause the issuance or delivery of Shares or such certificates to comply with any suchlaws, regulations, rules, orders or requirements. The Committee may require, as a condition of theissuance and delivery of such Shares or certificates and in order to ensure compliance with suchlaws, regulations, rules, orders and requirements, that the Participant, or any permittedtransferee of the Participant under Section 9 hereof or, after his or her death, the Participant’sestate, as described in Section 9 hereof, make such covenants, agreements and representations asthe Committee deems necessary or desirable.
     **Section 14.****No Additional Rights**. No Person shall have any claim or right to begranted Awards under the Plan, and the grant of any Awards under the Plan shall not be construed asgiving a Participant any right to continue in the employment of the Company or affect the right ofthe Company to terminate the employment of a Participant. Unless otherwise determined by theCommittee, neither any period of notice, if any, nor any payment in lieu thereof, upon Terminationshall be considered as extending the period of employment for the purposes of the Plan.
     **Section 15.****Miscellaneous Provisions**.
          **(a)****Shareholder Rights**. A Participant shall not have the right or be entitled toexercise any voting rights, receive any dividends or have or be entitled to any other rights as ashareholder in respect of Shares subject to an Award unless and until such Shares have been paidfor in full and issued and certificates therefor have been issued to the Participant. AParticipant entitled to Shares as a result of the exercise of an Option or Stock Appreciation Rightor the settlement of a Restricted Stock Unit or a Performance Stock Unit shall not be deemed forany purpose to be, or have any such rights as a shareholder of Nortel by virtue of such exercise orsettlement, except to the extent a Share certificate is issued therefor and then only from the datesuch certificate is issued. No adjustment shall be made for dividends or distributions or other
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rights for which the record date is prior to the date such share certificate is issued, otherthan adjustments for dividend equivalent amounts to the extent provided under Section 8(d) hereof.
          **(b)****Withholding**. The Company may withhold from any amount payable to a Participant,either under this Plan or otherwise, such amount as may be necessary so as to ensure that theCompany will be able to comply with the applicable provisions of any federal, provincial, state orlocal law relating to the withholding of tax or that any other required deductions are paid orotherwise satisfied, including withholding of the amount, if any, includable in the income of aParticipant. The Company shall also have the right in its discretion to satisfy any such liabilityfor withholding or other required deduction amounts by retaining or acquiring any Shares, orretaining any amount payable, which would otherwise be issued or delivered, provided or paid to aParticipant hereunder. The Company may require a Participant, as a condition to exercise of anOption or Stock Appreciation Right or the settlement of a Restricted Stock Unit or a PerformanceStock Unit, to pay or reimburse the Company for any such withholding or other required deductionamounts related to the exercise of Options or Stock Appreciation Rights or settlement of RestrictedStock Units or Performance Stock Units.
          **(c)****Governing Law**. The Plan, all instruments of grant evidencing Awards grantedhereunder and any other agreements or other documents relating to the Plan shall be interpreted andconstrued in accordance with the laws of the Province of Ontario, except to the extent the terms ofthe Plan or of any supplement or appendix to the Plan expressly provides for application of thelaws of another jurisdiction. The Committee may provide that any dispute as to any Award shall bepresented and determined in such forum as the Committee may specify, including through bindingarbitration. Any reference in the Plan, in any instrument of grant evidencing Awards grantedhereunder or in any other agreement or document relating to the Plan to a provision of law or to arule or regulation shall be deemed to include any successor law, rule or regulation of similareffect or applicability.
          **(d)****Compliance with Laws of Other Jurisdictions**. Awards may be granted toParticipants who are citizens or residents of a jurisdiction other than Canada or the United Stateson such terms and conditions different from those under the Plan as may be determined by theCommittee to be necessary or advisable to achieve the purposes of the Plan while also complyingwith applicable local laws, customs and tax practices, including any such terms and conditions asmay be set forth in any supplement or appendix to the Plan intended to govern the terms of any suchAward. In no event shall the eligibility, grant, exercise or settlement of an Award constitute aterm of employment, or entitlement with respect to employment, of any employee.
     **Section 16.****Effective Date and Term of Plan**.
          **(a)****Effective Date**. The Plan, and any amendments to the Plan, shall become effectiveupon its or their adoption by the Board of Directors, subject to approval by the shareholders ofNortel at the next annual meeting of shareholders of Nortel or any adjournment thereof, ifrequired. If the shareholders do not approve the Plan, or any amendments to the Plan requiringshareholder approval, the Plan or such amendments shall not be effective, and any and all actionstaken prior thereto, including the making of any Awards subject to such approval being obtained,shall be null and void or shall, if necessary, be deemed to have been fully rescinded.
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          **(b)****Termination**. The Plan shall terminate on the date determined by the Board ofDirectors pursuant to Section 12 hereof and no Awards may become effective under the Plan after thedate of termination, but such termination shall not affect any Awards that became effectivepursuant to the Plan prior to such termination. No Awards may be made after the tenth anniversaryof the effective date of the Plan.
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