Document:

EXHIBIT 4.1

WASHINGTON
MUTUAL, INC.

2003
EQUITY INCENTIVE PLAN

SECTION
1. PURPOSES OF THE PLAN

        The
purposes of the Washington Mutual, Inc. 2003 Equity Incentive Plan (the
"Plan") are (a) to promote the long-term interests of Washington
Mutual, Inc. (the "Company") and its shareholders by strengthening the
Company's ability to attract, motivate and retain employees, officers,
directors, consultants, agents, advisors and independent contractors and
(b) to provide additional incentive for those persons through stock
ownership and other incentives to improve operations, increase profits and
strengthen the mutuality of interest between those persons and the Company's
shareholders.

SECTION
2. DEFINITIONS

      As
used in the Plan:

        "Acquisition
Price" means the fair market value of the securities, cash or other
property, or any combination thereof, receivable upon consummation of a Company
Transaction in respect of a share of Common Stock.

        "Award"
means any Option, Stock Appreciation Right, Restricted Stock, Stock Unit,
Performance Share, Performance Unit, dividend equivalent, cash-based award or
other incentive payable in cash or in shares of Common Stock as may be
designated by the Committee from time to time under the Plan.

        "Board"
means the Board of Directors of the Company.

        "Cause,"
unless otherwise defined in the instrument evidencing the Award or in a written
employment, services or other agreement between the Participant and the Company
or a Related Company, means (a) conviction of any felony or a misdemeanor
involving moral turpitude (including forgery, fraud, theft or embezzlement), or
conviction or entry into a pretrial diversion or similar program in connection
with prosecution for an offense involving dishonesty, breach of trust or money
laundering, or (b) dishonesty, fraud, theft of property of the Company or a
Related Company, willful destruction of property of the Company or a Related
Company, physical attack on an employee, customer, agent or director of the
Company or a Related Company, willful malfeasance in the performance of duties
or willful misconduct materially injurious to the Company or a Related Company,
in each case as determined by the chief human resources officer of the Company
or other person performing that function or, in the case of directors and
executive officers, the Committee, whose determinations shall be conclusive and
binding.

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        "Code"
means the Internal Revenue Code of 1986, as amended from time to time.

        "Committee"
has the meaning set forth in Section 3.1.

        "Common
Stock" means the common stock, no par value, of the Company.

        "Company"
means Washington Mutual, Inc., a Washington corporation.

        "Company
Transaction," unless otherwise defined in the instrument
evidencing the Award or in a written employment, services or other agreement
between the Participant and the Company or a Related Company, means consummation
of either

    (a)       
a merger or consolidation of the Company with or into any other company or other
entity or

    (b)       
a sale, lease, exchange or other transfer in one transaction or a series of
related transactions undertaken with a common purpose of all or substantially
all of the Company's then outstanding securities or all or substantially all of
the Company's assets;

        provided,
however, that a Company Transaction shall not include a Related Party
Transaction.

        "Covered
Employee" means a "covered employee" as that term is defined
in Section 162(m)(3) of the Code, or any successor provision.

        "Disability,"
unless otherwise defined by the Committee or in the instrument evidencing the
Award or in a written employment, services or other agreement between the
Participant and the Company or a Related Company, means a mental or physical
impairment of the Participant that is expected to result in death or that has
lasted or is expected to last for a continuous period of 12 months or more
and that causes the Participant to be unable to perform his or her material
duties for the Company or a Related Company and to be engaged in any substantial
gainful activity, in each case as determined by the chief human resources
officer of the Company or other person performing that function or, in the case
of directors and executive officers, the Committee, whose determinations shall
be conclusive and binding.

        "Effective
Date" has the meaning set forth in Section 18.

        "Exchange
Act" means the Securities Exchange Act of 1934, as amended from time to
time.

        "Extraordinary
Items" means (a) extraordinary, unusual and/or nonrecurring items
of gain or loss, (b) gains or losses on the disposition of a business,
(c) changes in tax or accounting regulations or laws, or (d) the effects of
a merger or acquisition, all of which must be identified in the audited
financial statements, including footnotes, or the Management's Discussion and
Analysis section of the Company's annual report.

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        "Fair
Market Value" means the closing price for the Common Stock on the New
York Stock Exchange during regular session trading for a single trading day as
reported for such day in The Wall Street Journal or such other source the
Committee deems reliable. The applicable trading day for determining Fair Market
Value (a) in connection with the grant of Awards shall be the trading day
immediately preceding the Grant Date and (b) otherwise shall be as
determined by the Committee in its sole discretion. If no reported price for the
Common Stock exists for the applicable trading day, then such price on the last
preceding date for which such price exists shall be determinative of Fair Market
Value.

        "Grant
Date" means the date on which the Committee completes the corporate
action authorizing the grant of an Award or such later date specified by the
Committee, provided that conditions to the exercisability or vesting of Awards
shall not defer the Grant Date.

        "Incentive
Stock Option" means an Option granted with the intention that it
qualify as an "incentive stock option" as that term is defined in
Section 422 of the Code or any successor provision.

        "Nonemployee
Director" has the meaning set forth in Rule 16b-3 promulgated under the
Exchange Act, or any successor definition adopted by the Securities and Exchange
Commission.

        "Nonqualified
Stock Option" means an Option other than an Incentive Stock Option.

        "Option"
means a right to purchase Common Stock granted under Section 7.

        "Participant"
means any eligible person set forth in Section 5 to whom an Award is granted.

        "Performance
Criteria" has the meaning set forth in Section 11.1.

        "Performance
Share" has the meaning set forth in Section 10.1.

        "Performance
Unit" has the meaning set forth in Section 10.2.

        "Plan"
means the Washington Mutual, Inc. 2003 Equity Incentive Plan.

        "Related
Company" means any entity that is directly or indirectly controlled by
the Company or any entity in which the Company has a significant equity
interest, as determined by the Committee.

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        "Related
Party Transaction" means (a) a merger or consolidation of the
Company in which the holders of the outstanding voting securities of the Company
immediately prior to the merger or consolidation hold at least a majority of the
outstanding voting securities of the Successor Company immediately after the
merger or consolidation; (b) a sale, lease, exchange or other transfer of
all or substantially all of the Company's assets to a majority-owned subsidiary
company; (c) a transaction undertaken for the principal purpose of
restructuring the capital of the Company, including but not limited to,
reincorporating the Company in a different jurisdiction or creating a holding
company, so long as, immediately after the transaction, at least a majority of
the outstanding securities of the successor company are held by holders of the
outstanding voting securities of the Company immediately prior to the
transaction; or (d) a corporate dissolution or liquidation.

        "Restricted
Stock" means an Award of shares of Common Stock granted under
Section 9, the rights of ownership of which may be subject to restrictions
prescribed by the Committee.

        "Retirement,"
unless otherwise defined by the Committee or in the instrument evidencing the
Award or in a written employment, services or other agreement between the
Participant and the Company or a Related Company, means Termination of Service
on or after the date the Participant reaches age 55 and has served, as
applicable, either (a) ten years as an employee of the Company or a Related
Company or (b) five years as a member of the Board.

        "Securities
Act" means the Securities Act of 1933, as amended from time to time.

        "Stock
Appreciation Right" has the meaning set forth in Section 8.1.

        "Stock
Unit" means an Award granted under Section 9 denominated in units of
Common Stock.

        "Successor
Company" means the surviving company, the successor company or its
parent, as applicable, in connection with a Company Transaction.

        "Termination
of Service," means a termination of employment or service
relationship with the Company or a Related Company for any reason, whether
voluntary or involuntary, including by reason of death, Disability or
Retirement. Any question as to whether and when there has been a Termination of
Service for the purposes of an Award and the cause of such Termination of
Service shall be determined by the chief human resources officer of the Company
or other person performing that function or, in the case of directors and
executive officers, the Committee, whose determinations shall be conclusive and
binding. Transfer of a Participant's employment or service relationship between
Related Companies, or between the Company and any Related Company, shall not be
considered a Termination of Service for purposes of an Award. Unless the
Committee determines otherwise, a Termination of Service shall be deemed to
occur if the Participant's employment or service relationship is with an entity
that has ceased to be a Related Company.

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SECTION
3. ADMINISTRATION

3.1
Administration of the Plan

        The
Plan shall be administered by the Human Resources Committee of the Board, or any
successor thereto; provided, however, that with respect to Nonemployee
Directors, the Plan shall be administered by the Governance Committee of the
Board, or any successor thereto. Notwithstanding the foregoing, the Board may
delegate the responsibility for administering the Plan with respect to
designated classes of eligible persons to different committees consisting of two
or more members of the Board, subject to such limitations as the Board deems
appropriate. Members of any committee shall serve for such term as the Board may
determine, subject to removal by the Board at any time. To the extent consistent
with applicable law, the Board or the Human Resources Committee may authorize
one or more senior executive officers of the Company to grant Awards to
designated classes of eligible persons, within limits specifically prescribed by
the Board or the Human Resources Committee, as applicable; provided, however,
that no such officer shall have or obtain authority to grant Awards to himself
or herself or to any person subject to the reporting requirements of Section 16
of the Exchange Act. All references in the Plan to the "Committee"
shall be, as applicable, to the Human Resources Committee, the Governance
Committee, or any other committee or officer to whom the Board or the Human
Resources Committee has delegated authority to administer the Plan.

        Notwithstanding
the foregoing, the chief human resources officer of the Company or other person
performing that function shall be authorized, in addition to the Committee, to
determine the effect on the vesting of an Award of a Company-approved leave of
absence or a Participant's working less than full-time.

3.2
Administration and Interpretation by Committee

        Except
for the terms and conditions explicitly set forth in the Plan, the Committee
shall have full power and exclusive authority, subject to such orders or
resolutions not inconsistent with the provisions of the Plan as may from time to
time be adopted by the Board, to (a) select the eligible persons as set
forth in Section 5 to whom Awards may from time to time be granted under the
Plan; (b) determine the type or types of Award to be granted to each
Participant under the Plan; (c) determine the number of shares of Common
Stock to be covered by each Award granted under the Plan; (d) determine the
terms and conditions of any Award granted under the Plan; (e) approve the forms
of agreements for use under the Plan; (f) determine whether, to what extent
and under what circumstances Awards may be settled in cash, shares of Common
Stock or other property or canceled or suspended; (g) determine whether, to
what extent and under what circumstances cash, shares of Common Stock, other
property and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the Participant; (h) interpret
and administer the Plan and any instrument or agreement entered into under the
Plan; (i) establish such rules and regulations and appoint such agents as
it shall deem appropriate for the proper administration of the Plan; and
(j) make any other determination and take any other action that the
Committee deems necessary or desirable for administration of the Plan. Decisions
of the Committee shall be final, conclusive and binding on all persons,
including the Company, any Participant, any shareholder and any eligible person.
A majority of the members of the Committee may determine its actions and fix the
time and place of its meetings.

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SECTION
4. STOCK SUBJECT TO THE PLAN

4.1
Authorized Number of Shares

        Subject
to adjustment from time to time as provided in Section 15.1, the maximum
number of shares of Common Stock available for issuance under the Plan shall be

    (a)       
29,035,000 shares plus

    (b)       
(i) any authorized shares not issued or subject to outstanding awards under
the Company's Equity Incentive Plan and the 1994 Stock Option Plan (the
"Prior Plans") as of the Effective Date and (ii) any shares
subject to outstanding awards under the Prior Plans as of the Effective
Date that on or after the Effective Date cease for any reason to be subject to
such awards (other than by reason of exercise or settlement of the awards to the
extent they are exercised for or settled in vested and nonforfeitable shares),
up to an aggregate maximum of 55,745,000 shares.

4.2 Share
Usage

    (a)       
Shares of Common Stock covered by an Award shall not be counted as used unless
and until they are actually issued and delivered to a Participant. If any Award
lapses, expires, terminates or is canceled prior to the issuance of shares
thereunder or if shares of Common Stock are issued under the Plan to a
Participant and are thereafter reacquired by the Company, the shares subject to
such Awards and the reacquired shares shall again be available for issuance
under the Plan. Any shares of Common Stock tendered by a Participant or retained
by the Company as full or partial payment to the Company for the purchase price
of an Award or to satisfy tax withholding obligations in connection with an
Award shall be available for the Awards under the Plan. The number of shares
available for issuance under the Plan shall not be reduced to reflect any
dividends or dividend equivalents that are reinvested into additional shares or
credited as additional Restricted Stock, Stock Units, Performance Shares or
Performance Units. All shares issued under the Plan may be either authorized and
unissued shares or issued shares reacquired by the Company.

    (b)       
The Committee shall have the authority to grant Awards as an alternative to or
as the form of payment for grants or rights earned or due under other
compensation plans or arrangements of the Company.

    (c)       
Notwithstanding the foregoing, the maximum number of shares that may be issued
upon the exercise of Incentive Stock Options shall equal the aggregate share
number stated in Section 4.1, subject to adjustment as provided in
Section 15.1; and provided, further, that for purposes of Section 4.3,
any such shares shall be counted in accordance with the requirements of
Section 162(m) of the Code.

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4.3
Limitations

    (a)       
Subject to adjustment as provided in Section 15.1, no Participant shall be
eligible to receive in any one calendar year Awards relating to more than
5,000,000 shares of Common Stock.

    (b)       
Subject to adjustment as provided in Section 15.1 and without regard to Options
or Stock Appreciations Rights: (i) the maximum aggregate number of shares that
may be issued pursuant to non-performance based Awards shall not exceed
13,000,000, and (ii) the maximum aggregate number of shares that may be issued
pursuant to Awards that either contain no restrictions or are subject to
restrictions based solely on continuous employment or services for less than
three years (except where Termination of Service occurs by reason of death,
Retirement, or Disability) shall not exceed 4,350,000.

SECTION
5. ELIGIBILITY

        An
Award may be granted to any employee, officer or director of the Company or a
Related Company whom the Committee from time to time selects. An Award may also
be granted to any consultant, agent, advisor or independent contractor who
renders bona fide services to the Company or any Related Company that
(a) are not in connection with the offer and sale of the Company's
securities in a capital-raising transaction and (b) do not directly or
indirectly promote or maintain a market for the Company's securities.

SECTION
6. AWARDS

6.1 Form
and Grant of Awards

        The
Committee shall have the authority, in its sole discretion, to determine the
type or types of Awards to be granted under the Plan. Such Awards may be granted
either alone, in addition to or in tandem with any other type of Award.

6.2
Evidence of Awards

        Awards
granted under the Plan shall be evidenced by a written instrument that shall
contain such terms, conditions, limitations and restrictions as the Committee
shall deem advisable and are not inconsistent with the Plan.

6.3 Ten
Percent Limitation on Ownership

        Unless
requisite approvals are obtained from the primary federal regulator(s) of the
Company's banking subsidiary or subsidiaries, no person shall be eligible to
receive any Award that, if exercised (in the case of Options) or otherwise
settled in shares of Common Stock, would result in such person's holding
beneficially or of record in excess of 10% of the outstanding voting stock of
the Company.

 

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6.4
Deferrals

        The
Committee may permit or require a Participant to defer receipt of the payment of
any Award. If any such deferral election is permitted or required, the
Committee, in its sole discretion, shall establish rules and procedures for such
payment deferrals, which may include provisions for the payment or crediting of
interest, or dividend equivalents, including converting such credits to deferred
stock unit equivalents.

SECTION
7. OPTIONS

7.1 Grant
of Options

        The
Committee may grant Options designated as Incentive Stock Options or
Nonqualified Stock Options.

7.2 Option
Exercise Price

        The
exercise price for shares purchased under an Option shall be as determined by
the Committee, but shall not be less than the Fair Market Value of the Common
Stock for the Grant Date, except in the case of substitute awards issued by the
Company in connection with a Company Transaction or a Related Company
Transaction. In no event shall the Committee cancel any outstanding Option for
the purpose of reissuing the Option to the Participant at a lower exercise price
or reduce the exercise price of an outstanding Option.

7.3 Term of
Options

        Subject
to earlier termination in accordance with the terms of the Plan and the
instrument evidencing the Option, the maximum term of an Option shall be as
established for that Option by the Committee or, if not so established, shall be
ten years from the Grant Date.

7.4
Exercise of Options

        The
Committee shall establish and set forth in each instrument that evidences an
Option the time at which, or the installments in which, the Option shall vest
and become exercisable, any of which provisions may be waived or modified by the
Committee at any time. To the extent an Option has vested and become
exercisable, the Option may be exercised in whole or from time to time in part
by delivery to the Company of a written stock option exercise agreement or
notice, in a form and in accordance with procedures established by the
Committee, setting forth the number of shares with respect to which the Option
is being exercised, the restrictions imposed on the shares purchased under such
exercise agreement, if any, and such representations and agreements as may be
required by the Committee, accompanied by payment in full as described in
Section 7.5. An Option may be exercised only for whole shares and may not
be exercised for less than a reasonable number of shares at any one time, as
determined by the Committee.

 

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7.5 Payment
of Exercise Price

        The
exercise price for shares purchased under an Option shall be paid in full to the
Company by delivery of consideration equal to the product of the Option exercise
price and the number of shares purchased. Such consideration must be paid before
the Company will issue the shares being purchased and must be in a form or a
combination of forms acceptable to the Committee for that purchase, which forms
may include

    (a)       
cash;

    (b)       
check or wire transfer;

    (c)       
tendering (either actually or by attestation) shares of Common Stock already
owned by the Participant, provided that the shares have been held for the
minimum period required by applicable accounting rules to avoid a charge to the
Company's earnings for financial reporting purposes or were not acquired from
the Company as compensation;

    (d)       
to the extent permitted by applicable law, delivery of a properly executed
exercise notice, together with irrevocable instructions to a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise, all
in accordance with the regulations of the Federal Reserve Board; or

    (e)       
such other consideration as the Committee may permit in its sole discretion.

7.6
Post-Termination Exercises

        The
Committee shall establish and set forth in each instrument that evidences an
Option whether the Option shall continue to be exercisable, and the terms and
conditions of such exercise, after a Termination of Service, any of which
provisions may be waived or modified by the Committee at any time.

        A
Participant's change in status from an employee to a consultant, agent, advisor
or independent contractor, or a change in status from a consultant, agent,
advisor or independent contractor to an employee, shall not be considered a
Termination of Service for purposes of this Section 7.

 

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7.7
Incentive Stock Options

        The
terms of any Incentive Stock Options shall comply in all respects with the
provisions of Section 422 of the Code, or any successor provision, and any
regulations promulgated thereunder. Individuals who are not employees of the
Company or one of its parent or subsidiary corporations (as such terms are
defined for purposes of Section 422 of the Code) may not be granted Incentive
Stock Options. To the extent that the aggregate Fair Market Value of Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by a Participant during any calendar year exceeds $100,000 or, if
different, the maximum limitation in effect at the time of grant under the Code
(the Fair Market Value being determined as of the Grant Date for the Option),
such portion in excess of $100,000 shall be treated as Nonqualified Stock
Options. This provision shall be applied by taking Incentive Stock Options into
account in the order in which they were granted.

SECTION
8. STOCK APPRECIATION RIGHTS

8.1 Grant
of Stock Appreciation Rights

        The
Committee may grant stock appreciation rights ("Stock Appreciation
Rights" or "SARs") to Participants at any time. An SAR may be
granted in tandem with an Option or alone ("freestanding"). The grant
price of a tandem SAR shall be equal to the exercise price of the related
Option, and the grant price of a freestanding SAR shall be equal to the Fair
Market Value of the Common Stock for the Grant Date. An SAR may be exercised
upon such terms and conditions and for the term as the Committee may determine,
in its sole discretion; provided, however, that, subject to earlier termination
in accordance with the terms of the Plan and the instrument evidencing the SAR,
the term of a freestanding SAR shall be as established for that SAR by the
Committee or, if not so established, shall be ten years, and in the case of a
tandem SAR, (a) the term shall not exceed the term of the related Option
and (b) the tandem SAR may be exercised for all or part of the shares
subject to the related Option upon the surrender of the right to exercise the
equivalent portion of the related Option, except that the tandem SAR may be
exercised only with respect to the shares for which its related Option is then
exercisable.

8.2 Payment
of SAR Amount

        Upon
the exercise of an SAR, a Participant shall be entitled to receive payment from
the Company in an amount determined by multiplying: (a) the difference
between the Fair Market Value of the Common Stock for the date of exercise over
the grant price by (b) the number of shares with respect to which the SAR
is exercised. At the discretion of the Committee, the payment upon exercise of
an SAR may be in cash, in shares of Common Stock of equivalent value, in some
combination thereof or in any other manner approved by the Committee in its sole
discretion.

 

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SECTION
9. RESTRICTED STOCK AND STOCK UNITS

9.1 Grant
of Restricted Stock and Stock Units

        The
Committee may grant Restricted Stock and Stock Units on such terms and
conditions and subject to such repurchase or forfeiture restrictions, if any
(which may be based on continuous service with the Company or a Related Company
or the achievement of any of the Performance Criteria set forth in Section
11.1), as the Committee shall determine in its sole discretion, which terms,
conditions and restrictions shall be set forth in the instrument evidencing the
Award.

9.2
Issuance of Shares

        Upon
the satisfaction of any terms, conditions and restrictions prescribed with
respect to Restricted Stock or Stock Units, or upon a Participant's release from
any terms, conditions and restrictions of Restricted Stock or Stock Units, as
determined by the Committee, and subject to the provisions of Section 13,
(a) the shares of Restricted Stock covered by each Award of Restricted
Stock shall become freely transferable by the Participant and (b) Stock
Units shall be paid in cash, shares of Common Stock or a combination of cash and
shares of Common Stock as the Committee shall determine in its sole discretion.
Any fractional shares subject to such Awards shall be paid to the Participant in
cash.

9.3
Dividends and Distributions

        Participants
holding shares of Restricted Stock or Stock Units may, if the Committee so
determines, be credited with dividends paid with respect to the underlying
shares or dividend equivalents while they are so held in a manner determined by
the Committee in its sole discretion. The Committee may apply any restrictions
to the dividends or dividend equivalents that the Committee deems appropriate.
The Committee, in its sole discretion, may determine the form of payment of
dividends or dividend equivalents, including cash, shares of Common Stock,
Restricted Stock or Stock Units.

9.4 Waiver
of Restrictions

        Notwithstanding
any other provisions of the Plan, the Committee, in its sole discretion, may
waive the repurchase or forfeiture period and any other terms, conditions or
restrictions on any Restricted Stock or Stock Unit under such circumstances and
subject to such terms and conditions as the Committee shall deem appropriate;
provided, however, that the Committee may not adjust performance goals for any
Restricted Stock or Stock Unit intended to be exempt under Section 162(m)
of the Code for the year in which the Restricted Stock or Stock Unit is settled
in such a manner as would increase the amount of compensation otherwise payable
to a Participant.

 

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SECTION
10. PERFORMANCE SHARES AND PERFORMANCE UNITS

10.1 Grant
of Performance Shares

        The
Committee may grant Awards of performance shares ("Performance
Shares") and designate the Participants to whom Performance Shares are to
be awarded and determine the number of Performance Shares, the length of the
performance period and the other terms and conditions of each such Award. Each
Award of Performance Shares shall entitle the Participant to a payment in the
form of shares of Common Stock upon the attainment of performance goals and
other terms and conditions specified by the Committee. Notwithstanding
satisfaction of any performance goals, the number of shares issued under an
Award of Performance Shares may be adjusted on the basis of such further
consideration as the Committee shall determine, in its sole discretion. However,
the Committee may not, in any event, increase the number of shares earned upon
satisfaction of any performance goal by any Covered Employee. The Committee, in
its discretion, may make a cash payment equal to the Fair Market Value of the
Common Stock otherwise required to be issued to a Participant pursuant to an
Award of Performance Shares.

10.2 Grant
of Performance Units

        The
Committee may grant Awards of performance units ("Performance Units")
and designate the Participants to whom Performance Units are to be awarded and
determine the number of Performance Units and the terms and conditions of each
such Award. Performance Units shall entitle the Participant to a payment in cash
upon the attainment of performance goals and other terms and conditions
specified by the Committee. Notwithstanding the satisfaction of any performance
goals, the amount to be paid under an Award of Performance Units may be adjusted
on the basis of such further consideration as the Committee shall determine, in
its sole discretion. However, the Committee may not, in any event, increase the
amount earned under Performance Unit Awards upon satisfaction of any performance
goal by any Covered Employee, and the maximum amount earned by such Covered
Employee in any calendar year may not exceed $1,000,000. The Committee, in its
discretion, may substitute actual shares of Common Stock for the cash payment
otherwise required to be made to a Participant pursuant to a Performance Unit.

SECTION
11. PERFORMANCE GOALS

11.1 Awards
Subject to Performance Goals

        Awards
of Restricted Stock, Stock Units, Performance Shares, Performance Units and
other Awards made pursuant to the Plan may be made subject to the attainment of
performance goals relating to one or more business criteria within the meaning
of Section 162(m) of the Code: return on average common shareholders'
equity; return on average equity; total shareholder return; stock price
appreciation; efficiency ratio (other expense as a percentage of other income
plus net interest income); net operating expense (other income less other
expense); earnings per diluted share of Common Stock; per share earnings before
transaction-related expense; per share earnings after deducting
transaction-related expense; return on average assets; ratio of nonperforming to
performing assets; return on an investment in an affiliate; net interest income;
net interest margin; ratio of common equity to total assets; regulatory
compliance metrics; and customer service metrics (the "Performance
Criteria"). Performance Criteria may be stated in absolute terms or
relative to comparison companies or indices to be achieved during a period of
time.

 

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11.2 Use
and Calculation of Performance Criteria

        Any
Performance Criteria may be used to measure the performance of the Company as a
whole or any business unit of the Company. Any Performance Criteria may include
or exclude Extraordinary Items. Performance Criteria shall be established by the
Committee and shall be derived from the Company's audited financial statements,
including footnotes, or the Management's Discussion and Analysis section of the
Company's annual report. The Committee may not in any event increase the amount
of compensation payable to a Covered Employee upon the satisfaction of any
Performance Criteria.

SECTION
12. OTHER STOCK OR CASH-BASED AWARDS

        In
addition to the Awards described in Sections 7 through 10, and subject to the
terms of the Plan, the Committee may grant other incentives payable in cash or
in shares of Common Stock under the Plan as it determines to be in the best
interests of the Company and subject to such other terms and conditions as it
deems appropriate.

SECTION
13. WITHHOLDING

        The
Company may require the Participant to pay to the Company the amount of any
taxes that the Company is required by applicable federal, state, local or
foreign law to withhold with respect to the grant, vesting or exercise of an
Award. The Company shall not be required to issue any shares of Common Stock
under the Plan until such obligations are satisfied.

        The
Committee may permit or require a Participant to satisfy all or part of his or
her tax withholding obligations by (a) paying cash to the Company,
(b) having the Company withhold an amount from any cash amounts otherwise
due or to become due from the Company to the Participant, (c) having the
Company withhold a number of shares of Common Stock that would otherwise be
issued to the Participant (or become vested in the case of Restricted Stock),
having a Fair Market Value equal to the tax withholding obligations, or
(d) surrendering a number of shares of Common Stock the Participant already
owns, having a Fair Market Value equal to the tax withholding obligations. The
value of any shares so withheld may not exceed the employer's minimum required
tax withholding rate, and the value of any shares so tendered may not exceed
such rate to the extent the Participant has owned the tendered shares for less
than six months, if such limitations are required to avoid a charge to the
Company's earnings for financial reporting purposes under applicable accounting
rules. The value of any shares withheld or surrendered may not exceed the
employer's minimum tax withholding obligation and, to the extent such shares
were acquired by the Participant from the Company as compensation, the shares
must have been held for the minimum period required by applicable accounting
rules to avoid a charge to the Company's earnings for financial reporting
purposes.

 

13

 

SECTION
14. ASSIGNABILITY

        No
Award or interest in an Award may be sold, assigned, pledged (as collateral for
a loan or as security for the performance of an obligation or for any other
purpose) or transferred by the Participant or made subject to attachment or
similar proceedings otherwise than by will or by the applicable laws of descent
and distribution, except to the extent a Participant designates one or more
beneficiaries on a Company-approved form who may exercise the Award or receive
payment under the Award after the Participant's death. During a Participant's
lifetime, an Award may be exercised only by the Participant. Notwithstanding the
foregoing and to the extent permitted by Section 422 of the Code, the
Committee, in its sole discretion, may permit a Participant to assign or
transfer an Award; provided, however, that any Award so assigned or transferred
shall be subject to all the terms and conditions of the Plan and the instrument
evidencing the Award.

SECTION
15. ADJUSTMENTS

15.1
Adjustment of Shares

        In
the event, at any time or from time to time, a stock dividend, stock split,
spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to shareholders other than a normal cash dividend,
or other change in the Company's corporate or capital structure results in
(a) the outstanding shares of Common Stock, or any securities exchanged
therefor or received in their place, being exchanged for a different number or
kind of securities of the Company or any other company or (b) new,
different or additional securities of the Company or any other company being
received by the holders of shares of Common Stock, then the Committee shall make
proportional adjustments in (i) the maximum number and kind of securities
available for issuance under the Plan; (ii) the maximum number and kind of
securities issuable as Incentive Stock Options as set forth in Section 4.2;
(iii) the maximum number and kind of securities that may be issued to an
individual in any one calendar year as set forth in Section 4.3; (iv) the
maximum number and kind of securities that may be made subject to the different
types of Awards available under the Plan; and (v) the number and kind of
securities that are subject to any outstanding Award and the per share price of
such securities, without any change in the aggregate price to be paid therefor.

        The
determination by the Committee as to the terms of any of the foregoing
adjustments shall be conclusive and binding.

        Notwithstanding
the foregoing, the issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services rendered, either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, outstanding Awards. Also notwithstanding the foregoing, a dissolution or
liquidation of the Company or a Company Transaction shall not be governed by
this Section 15.1 but shall be governed by Sections 15.2 and 15.3,
respectively.

 

14

 

15.2
Dissolution or Liquidation

        To
the extent not previously exercised or settled, and unless otherwise determined
by the Committee in its sole discretion, Options and Stock Units shall terminate
immediately prior to the dissolution or liquidation of the Company. To the
extent a forfeiture provision or repurchase right applicable to an Award has not
been waived by the Committee, the Award shall be forfeited immediately prior to
the consummation of the dissolution or liquidation.

15.3
Company Transaction

      15.3.1
Options

        In
the event of a Company Transaction, except as otherwise provided in the
instrument evidencing an Option or in any other written agreement between a
Participant and the Company or a Related Company, each outstanding Option shall
terminate, provided that, immediately prior to any such Company Transaction, the
vesting of all Options held by a Participant shall accelerate and the
Participant shall have the right to exercise his or her Options in whole or in
part whether or not the vesting requirements set forth in the instrument
evidencing the Option have been satisfied. Notwithstanding the foregoing, the
Committee, in its sole discretion, may instead provide that a Participant's
outstanding Options shall terminate upon consummation of such Company
Transaction and that each such Participant shall receive, in exchange therefor,
a cash payment equal to the amount (if any) by which (a) the Acquisition
Price multiplied by the number of shares of Common Stock subject to such
outstanding Options (whether or not then exercisable) exceeds (b) the
aggregate exercise price for such Options. Also notwithstanding the foregoing,
the Committee, in its sole discretion, may instead provide that Options shall be
assumed or that an equivalent option or right shall be substituted by a
Successor Company, in which case the amount and price of such assumed or
substituted options shall be determined by adjusting the amount and price of the
Options in the same proportion as used for determining the number of shares of
stock of the Successor Company the holders of shares of Common Stock receive in
such Company Transaction, and the vesting schedule set forth in the instrument
evidencing the Option shall continue to apply to the assumed or substituted
options.

      15.3.2
Restricted Stock

        In
the event of a Company Transaction, except as otherwise provided in the
instrument evidencing the Award and unless otherwise provided in any written
agreement between a Participant and the Company or a Related Company, the
vesting of shares subject to Restricted Stock that is based on continuous
service with the Company or a Related Company shall accelerate, and the
forfeiture provisions to which such shares are subject shall lapse, if and to
the same extent that the vesting of outstanding Options accelerates in
connection with the Company Transaction. If unvested Options are to be assumed
or substituted by a Successor Company without acceleration upon the occurrence
of a Company Transaction, the terms and conditions of the foregoing Awards shall
continue with respect to shares of the Successor Company that may be issued in
exchange or upon settlement of such Awards, and the number of shares subject to
such assumed or substituted restricted stock awards shall be adjusted in the
same manner as provided in Section 15.3.1 for Options.

 

15

 

15.4
Further Adjustment of Awards

        Subject
to Sections 15.2 and 15.3, the Committee shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation, dissolution or change in control of the Company, as defined by the
Committee, to take such further action as it determines to be necessary or
advisable with respect to Awards. Such authorized action may include (but shall
not be limited to) establishing, amending or waiving the type, terms, conditions
or duration of, or restrictions on, Awards so as to provide for earlier, later,
extended or additional time for exercise, lifting restrictions and other
modifications, and the Committee may take such actions with respect to all
Participants, to certain categories of Participants or only to individual
Participants. The Committee may take such action before or after granting Awards
to which the action relates and before or after any public announcement with
respect to such sale, merger, consolidation, reorganization, liquidation,
dissolution or change in control that is the reason for such action.

15.5
Limitations

        The
grant of Awards shall in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

15.6 No
Fractional Shares

        In
the event of any adjustment in the number of shares covered by any Award, each
such Award shall cover only the number of full shares resulting from such
adjustment.

SECTION
16. AMENDMENT AND TERMINATION

16.1
Amendment, Suspension or Termination of the Plan

        The
Board or the Human Resources Committee of the Board may amend, suspend or
terminate the Plan or any portion of the Plan at any time and in such respects
as it shall deem advisable; provided, however, that, to the extent required by
applicable law, regulation or stock exchange rule, shareholder approval shall be
required for any amendment to the Plan.

 

16

 

16.2 Term
of the Plan

        Unless
sooner terminated as provided herein, the Plan shall terminate ten years from
the Effective Date. Notwithstanding the foregoing, no Incentive Stock Options
may be granted more than ten years after the earlier of (a) the adoption of
the Plan by the Board and (b) the Effective Date.

        After
the Plan is terminated, no future Awards may be granted, but Awards previously
granted shall remain outstanding in accordance with their applicable terms and
conditions and the Plan's terms and conditions.

16.3
Consent of Participant

        The
amendment, suspension or termination of the Plan or a portion thereof or the
amendment of an outstanding Award shall not, without the Participant's consent,
materially adversely affect any rights under any Award theretofore granted to
the Participant under the Plan. Any change or adjustment to an outstanding
Incentive Stock Option shall not, without the consent of the Participant, be
made in a manner so as to constitute a "modification" that would cause
such Incentive Stock Option to fail to continue to qualify as an Incentive Stock
Option. Notwithstanding the foregoing, any adjustments made pursuant to
Sections 15.1 through 15.3 shall not be subject to these restrictions.

SECTION
17. GENERAL

17.1 No
Individual Rights

        No
individual or Participant shall have any claim to be granted any Award under the
Plan, and the Company has no obligation for uniformity of treatment of
Participants under the Plan.

        Furthermore,
nothing in the Plan or any Award granted under the Plan shall be deemed to
constitute an employment contract or confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Related Company or limit in any way the
right of the Company or any Related Company to terminate a Participant's
employment or other relationship at any time, with or without Cause.

17.2
Issuance of Shares

        Notwithstanding
any other provision of the Plan, the Company shall have no obligation to issue
or deliver any shares of Common Stock under the Plan or make any other
distribution of benefits under the Plan unless, in the opinion of the Company's
counsel, such issuance, delivery or distribution would comply with all
applicable laws (including, without limitation, the requirements of the
Securities Act or the laws of any state or foreign jurisdiction) and the
applicable requirements of any securities exchange or similar entity.

 

17

 

        The
Company shall be under no obligation to any Participant to register for offering
or resale or to qualify for exemption under the Securities Act, or to register
or qualify under the laws of any state or foreign jurisdiction, any shares of
Common Stock, security or interest in a security paid or issued under, or
created by, the Plan, or to continue in effect any such registrations or
qualifications if made. The Company may issue certificates for shares with such
legends and subject to such restrictions on transfer and stop-transfer
instructions as counsel for the Company deems necessary or desirable for
compliance by the Company with federal, state and foreign securities laws. The
Company may also require such other action or agreement by the Participants as
may from time to time be necessary to comply with applicable securities laws.

        To
the extent the Plan or any instrument evidencing an Award provides for issuance
of stock certificates to reflect the issuance of shares of Common Stock, the
issuance may be effected on a noncertificated basis, to the extent not
prohibited by applicable law or the applicable rules of any stock exchange.

17.3
Indemnification

        Each
person who is or shall have been a member of the Board, or a Committee appointed
by the Board, or an officer of the Company to whom authority was delegated in
accordance with Section 3 shall be indemnified and held harmless by the Company
against and from any loss, cost, liability or expense that may be imposed upon
or reasonably incurred by him or her in connection with or resulting from any
claim, action, suit or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such claim, action, suit or proceeding
against him or her; provided that he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf, unless such loss,
cost, liability or expense is a result of his or her own willful misconduct or
except as expressly provided by statute.

        The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
articles of incorporation or bylaws, as a matter of law, or otherwise, or of any
power that the Company may have to indemnify them or hold them harmless.

17.4 No
Rights as a Shareholder

        Unless
otherwise provided by the Committee or in the instrument evidencing the Award or
in a written employment agreement, no Option or Award denominated in units shall
entitle the Participant to any cash dividend, voting or other right of a
shareholder unless and until the date of issuance under the Plan of the shares
that are the subject of such Award.

 

18

 

17.5
Compliance With Laws and Regulations

        Notwithstanding
anything in the Plan to the contrary, the Committee, in its sole discretion, may
bifurcate the Plan so as to restrict, limit or condition the use of any
provision of the Plan to Participants who are officers or directors subject to
Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Participants. Additionally, in
interpreting and applying the provisions of the Plan, any Option granted as an
Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "incentive stock option" within the meaning of
Section 422 of the Code.

17.6
Participants in Other Countries

        The
Committee shall have the authority to adopt such modifications, procedures and
subplans as may be necessary or desirable to comply with provisions of the laws
of other countries in which the Company or any Related Company may operate to
ensure the viability of the benefits from Awards granted to Participants
employed in such countries, to comply with applicable foreign laws and to meet
the objectives of the Plan.

17.7 No
Trust or Fund

        The
Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.

17.8
Successors

        All
obligations of the Company under the Plan with respect to Awards shall be
binding on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all the business and/or assets of the
Company.

17.9
Severability

        If
any provision of the Plan or any Award is determined to be invalid, illegal or
unenforceable in any jurisdiction, or as to any person, or would disqualify the
Plan or any Award under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform to applicable laws,
or, if it cannot be so construed or deemed amended without, in the Committee's
determination, materially altering the intent of the Plan or the Award, such
provision shall be stricken as to such jurisdiction, person or Award, and the
remainder of the Plan and any such Award shall remain in full force and effect.

 

19

 

17.10
Choice of Law

        The
Plan, all Awards granted thereunder and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the laws of the
United States, shall be governed by the laws of the State of Washington without
giving effect to principles of conflicts of law.

SECTION
18. EFFECTIVE DATE

        The
Plan shall become effective (the "Effective Date") immediately
following shareholder approval of the Plan.

        Adopted
by the Board on __________, 2003, and approved by the Company's shareholders on
__________, 2003.

 

 

 

20

 

PLAN
ADOPTION AND AMENDMENTS/ADJUSTMENTS

SUMMARY PAGE

	Date
               of Board

               Action	Action	Section/Effect

               of Amendment	Date
               of Shareholder

               Approval
	________,
               2003	Initial
               Plan Adoption		_________,
               2003exv4w4

 

Exhibit 4.4

NORTEL NETWORKS

LONG-TERM INVESTMENT PLAN

EFFECTIVE JULY 1, 1979

Amended and Restated effective August 15, 2002,

except as otherwise indicated herein

 

 

INDEX

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 	 	 	 	 	 	

	 	 	 	 	ARTICLE
1 - PURPOSE AND DEFINITIONS
	 	 	 	 
	 	1.1.	 	 	Purpose
	 	 	1	 
	 	1.2.	 	 	Definitions
	 	 	1	 
	 	1.3.	 	 	Use of Pronouns and Numbers
	 	 	9	 
	 	 	 	 	ARTICLE
2 - PARTICIPATION
	 	 	 	 
	 	2.1.	 	 	Eligibility for Plan Participation
	 	 	10	 
	 	2.2.	 	 	Active Participation in the Plan
	 	 	10	 
	 	2.3.	 	 	Termination of Active Participation in the Plan
	 	 	11	 
	 	 	 	 	ARTICLE
3 - THE FUND
	 	 	 	 
	 	3.1.	 	 	Plan Fund
	 	 	13	 
	 	3.2.	 	 	Constituency of the Fund
	 	 	13	 
	 	 	 	 	ARTICLE
4 - CONTRIBUTIONS
	 	 	 	 
	 	4.1.	 	 	Participant Contributions
	 	 	14	 
	 	4.2.	 	 	Company Contributions
	 	 	15	 
	 	4.3.	 	 	Reemployed Veterans
	 	 	17	 
	 	4.4.	 	 	Amounts Contributed in Error By the Company
	 	 	17	 
	 	4.5.	 	 	Account Transfers
	 	 	18	 
	 	4.6.	 	 	Valuation of Investments
	 	 	18	 
	 	4.7.	 	 	Short Term Investment Fund
	 	 	18	 
	 	 	 	 	ARTICLE 5 - ALLOCATION OF CONTRIBUTIONS AND EARNINGS
	 	 	 	 
	 	5.1.	 	 	Deposit of Contributions in the Fund
	 	 	19	 
	 	5.2.	 	 	Separate Participant Accounts
	 	 	19	 
	 	5.3.	 	 	Report to Participants
	 	 	19	 
	 	5.4.	 	 	Allocation of Earnings
	 	 	19	 
	 	 	 	 	ARTICLE 6 - VESTING
	 	 	 	 
	 	6.1.	 	 	Vesting of Participant Account Value
	 	 	20	 
	 	6.2.	 	 	Vesting of Company Contributions Account Value
	 	 	20	 

-i-

 

INDEX (Continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 	 	 	 	 	 	

	 	6.3.	 	 	Distribution of Vested Amounts; Forfeitures
	 	 	20	 
	 	6.4.	 	 	Disposition of Forfeitures
	 	 	20	 
	 	 	 	 	ARTICLE 7 - WITHDRAWAL OF ACCOUNT VALUES
WHILE AN EMPLOYEE
	 	 	 	 
	 	7.1.	 	 	In-Service Withdrawals
	 	 	21	 
	 	7.2.	 	 	Withdrawal for Reasons of Financial Hardship
	 	 	21	 
	 	7.3.	 	 	Effect of Hardship Withdrawals
	 	 	22	 
	 	7.4.	 	 	Company Contributions Not Withdrawn
	 	 	22	 
	 	7.5.	 	 	Effective Date of Withdrawal
	 	 	22	 
	 	7.6.	 	 	Loans
	 	 	22	 
	 	7.7.	 	 	Other Eligible Participants
	 	 	23	 
	 	7.8.	 	 	Age 59 1/2 Withdrawals
	 	 	23	 
	 	 	 	 	ARTICLE 8 - PAYMENT OF BENEFITS
	 	 	 	 
	 	8.1.	 	 	Form of Payments
	 	 	24	 
	 	8.2.	 	 	Facility of Payment
	 	 	24	 
	 	8.3.	 	 	Time of Payment
	 	 	24	 
	 	8.4.	 	 	Effective Date of Distribution
	 	 	25	 
	 	 	 	 	ARTICLE 9 - BENEFICIARIES AND ALTERNATE PAYEES
	 	 	 	 
	 	9.1.	 	 	Beneficiaries
	 	 	26	 
	 	9.2.	 	 	Alternate Payees
	 	 	26	 
	 	9.3.	 	 	Plan Participation by Beneficiaries and Alternate Payees
	 	 	27	 
	 	9.4.	 	 	Facility of Payment
	 	 	27	 
	 	9.5.	 	 	Death of Beneficiary or Alternate Payee
	 	 	27	 
	 	 	 	 	ARTICLE 10 - ELIGIBLE ROLLOVER DISTRIBUTIONS
	 	 	 	 
	 	10.1.	 	 	Effective Date
	 	 	28	 
	 	10.2.	 	 	Definitions
	 	 	28	 
	 	10.3.	 	 	Eligibility
	 	 	29	 
	 	10.4.	 	 	Direct Rollover Election
	 	 	29	 

-ii-

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 	 	 	 	 	 	

	 	 	 	 	ARTICLE 11 - ADMINISTRATION
	 	 	 	 
	 	11.1.	 	 	Form of Trust
	 	 	30	 
	 	11.2.	 	 	Named Fiduciaries
	 	 	30	 
	 	11.3.	 	 	Plan Administrator
	 	 	30	 
	 	11.4.	 	 	Employee Benefits Committee
	 	 	30	 
	 	11.5.	 	 	Trustee
	 	 	32	 
	 	11.6.	 	 	Appeals Procedure
	 	 	32	 
	 	11.7.	 	 	Company to Supply Information
	 	 	34	 
	 	11.8.	 	 	Costs and Expenses
	 	 	34	 
	 	 	 	 	ARTICLE 12 - AMENDMENT, DURATION
TERMINATION AND MERGER
	 	 	 	 
	 	12.1.	 	 	Amendment and Duration of the Plan
	 	 	35	 
	 	12.2.	 	 	Termination of the Plan
	 	 	35	 
	 	12.3.	 	 	Merger of the Plan
	 	 	35	 
	 	 	 	 	ARTICLE 13 - LIMITATIONS ON BENEFITS
AND CONTRIBUTIONS
	 	 	 	 
	 	13.1.	 	 	Maximum Annual Addition
	 	 	36	 
	 	13.2.	 	 	Limitation on Annual Deferrals and
Nondiscrimination Requirements
	 	 	37	 
	 	13.3.	 	 	Adjustments by Administrator
	 	 	39	 
	 	13.4.	 	 	Company Safe Harbor Contributions
	 	 	39	 
	 	13.5.	 	 	Aggregation of Defined Contribution Plans
	 	 	40	 
	 	 	 	 	ARTICLE 14 - MISCELLANEOUS
	 	 	 	 
	 	14.1.	 	 	Inalienability of Benefits
	 	 	41	 
	 	14.2.	 	 	Rights of Participants
	 	 	41	 
	 	14.3.	 	 	Applicable Law
	 	 	41	 
	 	14.4.	 	 	Voting of Common Shares
	 	 	41	 
	 	14.5.	 	 	Leased Employee Coverage
	 	 	42	 
	 	14.6.	 	 	Single Plan
	 	 	42	 
	 	14.7.	 	 	Military Service
	 	 	42	 

-iii-

 

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 	 	 	 	 	 	 	 	

	 	 	 	 	ARTICLE 15 - TOP HEAVY RESTRICTIONS
	 	 	 	 
	 	15.1.	 	 	Article Controls
	 	 	43	 
	 	15.2.	 	 	Definitions
	 	 	43	 
	 	15.3.	 	 	Top-Heavy Status
	 	 	45	 
	 	15.4.	 	 	Vesting
	 	 	46	 
	 	15.5.	 	 	Termination of Top-Heavy Status
	 	 	46	 
	 	15.6.	 	 	Effect of Article
	 	 	46	 
	 
	 	Appendix A
	Transferred Accounts	 	 	47	 
	 	Appendix B
	 Investment Options	 	 	50	 
	 
	 	 	 	 	 	 	Plan Loan Program Procedure
	 	 	51	 

-iv-

 

ARTICLE 1

PURPOSE AND DEFINITIONS

1.1.   Purpose

The primary purpose of the Plan is to provide encouragement to employees to
accumulate personal savings so that they may enjoy a higher standard of living
at retirement. This accumulation is to be facilitated through convenient,
systematic payroll deductions, the addition of defined company contributions,
and through diversified investment vehicles. The secondary purpose of the Plan
is to provide the capability to accept Rollover Contributions.

The Plan was established on July 1, 1979 and has been subsequently amended and
restated on various dates. The Plan as amended is subject to change to meet
applicable rules and regulations of the Internal Revenue Service and the U.S.
Department of Labor or such other reasons as Nortel Networks Inc. may
determine.

1.2.    Definitions

Where the following capitalized words and phrases appear in this Plan, they
shall have the respective meanings set forth below, unless the context clearly
indicates to the contrary.

a.     “Active Participant” means a Participant who is an Employee and is
making Employee Elected Company Contributions to the Plan in accordance with
the provisions of the Plan.

b.     “Affiliated Company” means any corporation that is a member of a
controlled group of corporations (as defined in Code Section 414(b)) that
includes a Company or any trade or business (whether or not incorporated) that
is under common control (as defined in Code Section 414(c)) with a Company.

c.     “Alternate Payee” means a spouse, former spouse, child or other
dependent of a Participant to whom all or a portion of such Participant’s
Vested Total Account Value has been assigned by a Qualified Domestic Relations
Order.

d.     “Beneficiary” means, if so required by Section 9.1.a., the Spouse of a
Participant, or, if not so required, either (1) that person or persons named by
a Participant to receive the Participant’s Total Account Value in the event of
the Participant’s death, or (2) if the Participant has made no such nomination,
the Participant’s estate.

e.     “Board” means the Board of Directors of Nortel Networks Inc.

f.     “Code” means the Internal Revenue Code of 1986, as amended or replaced
from time to time.

g.     “Committee” means the Employee Benefits Committee established by the
Board with the powers, duties and responsibilities that are defined under
Article 11.

1.

 

h.     “Common Shares” means shares of common stock issued by Nortel Networks
Corporation.

i.     “Company” means Nortel Networks Inc. or any present or future
subsidiary or other Affiliated Company which adopts the Plan by action of its
board of directors and which is permitted to participate in the Plan by action
of the Board. A company designated to participate in the Plan may revoke its
acceptance of such designation at any time, subject to approval of the Board,
provided that until such acceptance or approval has been finally revoked as
provided above, all of the provisions of the Plan as amended shall apply to the
Employees of such company. In the event of such final revocation, the Plan
shall be deemed terminated only as to such company in accordance with Article
12.

j.     “Company Contribution” means the value contributed to a Participant’s
account by the Participant’s employer as a match of the Employee Elected
Company Contribution.

k.     “Company Contributions Account Value” means that portion of a
Participant’s Total Account Value that consists of amounts contributed by the
Company and Earnings thereon, less any distributions.

l.     “Distribution Date” means the date or dates on which distributions of
withdrawn or distributed amounts will be made as determined from time to time
by the Trustee.

m.     “Earnings” shall mean the net gain or loss from investments, as
reflected by interest payments, dividends, and realized and unrealized gains
and losses and transaction costs.

n.     “Effective Date” shall mean the date when the provisions of this
amendment and restatement of the Plan become effective. That date shall be
August 15, 2002, except as otherwise specified herein. The original effective
date of the Plan was July 1, 1979.

o.     “Eligible Compensation”:

(1)      means the total of all amounts paid by the Company to or for the benefit of
an Employee for services rendered or labor performed for the Company while an
Employee which are required to be reported on the Employee’s federal income tax
withholding statement or statements (Form W-2 or its subsequent equivalent)
subject to the following adjustments and limitations:

(i)     The
following shall be excluded:

(a)      supplemental pay, other than supplemental pay that is described in
subsection (ii) below;

(b)      reimbursements and other expense allowances;

(c)      cash and noncash fringe benefits;

2.

 

(d)      moving expenses;

(e)      Company contributions to or payments from this or any other deferred
compensation program, whether such program is qualified under Code Section
401(a) or nonqualified;

(f)      welfare benefits except for benefits from the Company’s short term
disability plan and vacation pay as described in subsection (ii) (e) below;

(g)      amounts realized from the receipt or exercise of a stock option that
is not an incentive stock option within the meaning of Code Section 422;

(h)      amounts realized at the time property described in Code Section 83 is
freely transferable or no longer subject to a substantial risk of forfeiture;

(i)      amounts realized as a result of an election described in Code Section
83(b);

(j)      any amounts realized as a result of a disqualifying disposition within
the meaning of Code Section 421(a); and

(k)      any other amounts that receive special tax benefits under the Code but
are not hereinafter included, including, but not limited to elective reductions
for qualified transportation fringe benefits under Code Section 132(f)(4).

(ii)     
the following shall be included:

(a)      elective contributions made on a Participant’s behalf by the Company
that are not includable in income under Code Section 125, Section 402(e)(3),
Section 402(h), or Section 403(b);

(b)      compensation deferred under an eligible deferred compensation plan
within the meaning of Code Section 457; and

(c)      employee contributions described in Code Section 414(h) that are
picked up by the employing unit and are treated as employer contributions.

(d)      overtime pay; bonuses paid pursuant to the Nortel Networks Inc.
Success Plan and the Executive Management Incentive Program (“EMIP”); the
Business Performance Incentive (“BPI”) paid in 1999 to the Employees of the
Public Data Networks line of business of the Company who received BPI in lieu
of Senior Management Incentive Award Program bonus payments in that year;
bonuses paid on or after January 1, 1999 pursuant to the Nortel Networks Inc.
Strategic Project Success Incentive Plan and the Strategic Business Incentive
Plan; the incentive paid to Participants in lieu of the Success Plan bonus in
2001 for work completed on Project Neptune in 2000; bonuses paid to Employees
during the periods described below pursuant to the following programs: ARRIS
Short Term Incentive Plan

3.

 

bonuses paid during the 1999 and 2000 Plan Year and
EpiCon Bonus Plan bonuses paid during
the third quarter of the 2000 Plan Year; sales incentive earnings, “merit
cash,” and “skill block awards” or comparable forms of sales commissions
otherwise designated; and second shift differential pay, third shift
differential pay, weekend differential pay, and lead pay.

(e)      with respect to Plan Years beginning on or after January 1, 1999,
vacation pay that is paid during active employment and accrued vacation pay
that is paid either before or after the Employee’s employment ends.

(2)      of any Participant taken into account for purposes of the Plan on or after
January 1, 2002, shall not exceed two hundred thousand dollars ($200,000), as
adjusted for cost-of-living increases in accordance with Code Section
401(a)(17)(B), with such limitation to be:

(i)      adjusted automatically to reflect any cost-of-living increases
authorized by Code Section 401(a)(17);

(ii)      prorated to the extent required by applicable law; and

(iii)      with respect only to Plan Years commencing before January 1, 1997,
in the case of a Participant who is either a five percent (5%) owner of a
Company (within the meaning of Code Section 416(i)(1)(A)(iii)) or is one of the
ten (10) Highly Compensated Employees of a Company paid the greatest
compensation during the applicable year and who has a spouse and/or lineal
descendants who are under the age of nineteen (19) as of the end of an
applicable year who receive Eligible Compensation during such applicable year,
prorated and allocated among such Participant, his spouse, and/or lineal
descendants under the age of nineteen (19) based on the Eligible Compensation
of such applicable year of each such individual.

p.     “Eligible Compensation Deferred Amount” means the amount equal to up to
fifteen percent (15%) of Eligible Compensation that may be deferred by an
Employee who elects to participate in the Plan.

q.     “Employee” means any individual who is considered an employee of the
Company for purposes of the taxes imposed under the Federal Insurance
Contributions Act and the Federal Unemployment Tax Act. “Employee” excludes
any individual:

(1)      who is receiving Severance;

(2)      whose terms and conditions of employment are governed by a collective
bargaining agreement that does not provide for participation in the Plan;

(3)      who is otherwise an Employee of the Company but who is participating in any
other defined contribution plan to which the Company is contributing as of the
date in question;

(4)      who is a non-resident alien and receives no earned income (within the
meaning of Code Section 911(d)(2)) from the Company which constitutes income
from the sources within the United States (within the meaning of Code Section
861(a)(3)); and/or

4.

 

(5)      who is a Leased Employee.

r.     “Employee Contributions” means the amount of Eligible Compensation
contributed by a Participant to the Plan prior to January 1, 1983.

s.     “Employee Elected Company Contribution” means the amount contributed to
the Fund out of the Eligible Compensation Deferred Amount as selected by Active
Participants under Sections 4.1.a. and 4.1.b.

t.     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended or replaced from time to time.

u.     “Fiscal Month” means each or any period of four or more consecutive
weeks, as the case may be, designated as a “fiscal month” for purposes of the
financial reporting and administration of Nortel Networks Inc.

v.     “Fiscal Quarter” means each or any of the three-month periods of
January through March, April through June, July through September, and October
through December, as those Fiscal Months are defined for purposes of the
financial reporting and administration of Nortel Networks Inc.

w.     “Fund” means the trust fund established under the Plan.

x.     “Highly Compensated” shall have the meaning assigned to such term in
Code Section 414(q) and the regulations promulgated thereunder, as amended
effective January 1, 1997, and as further amended from time to time.

y.     “Hour of Service” shall mean:

(1)      Each hour for which an employee is directly or indirectly paid, or entitled
to payment by a Company for the performance of duties during the Plan Year; and

(2)      Each hour for which an employee is paid, or entitled to payment by a
Company for a period of time during which no duties were performed (regardless
of whether or not the employment relationship with the Company has terminated)
due to vacation, holiday, illness, incapacity (including disability), layoff,
jury duty, military duty, or leave of absence. However, no more than 501 Hours
of Service will be credited to an employee under this paragraph (2) for any
single continuous period during which the employee does not perform any duties
(whether or not such period occurs during a single computation period);

(3)      Each hour for which back pay (irrespective of mitigation of damages) has
been either awarded or agreed to by a Company, and shall be credited for the
Plan Year to which the agreement or award pertains; and

5.

 

(4)      Each hour for which the Company is required under applicable law to provide
the employee with an Hour of Service, including, but not limited to, a period
of military
leave during which the employee’s reemployment rights are protected under
federal law; provided, however, that with respect to such military leave the
employee returns to employment with the Company within the longer of the (90)
day period after his honorable discharge or release or the period prescribed by
applicable law.

Notwithstanding any provisions contained herein, no employee shall be
credited with an Hour of Service under more than one of Sections 1.2.y.(1),
1.2.y.(2), 1.2.y.(3) or 1.2.y.(4). No Hours of Service shall be credited
pursuant to Sections 1.2.y.(1) or 1.2 y.(2) if payment to the employee is made
or due under a plan maintained solely for the purpose of complying with
applicable workers’ compensation, unemployment compensation or disability
insurance laws. One Hundred Ninety (190) Hours of Service shall be credited
for, and in respect of, each calendar month in which an employee is directly or
indirectly paid by a Company or entitled to payment for one (1) or more Hours
of Service. For the purpose of this subsection, the term “Company” shall
include, in addition to those entities described in Section 1.2.i., any
Affiliated Company. The Department of Labor Regulations, Sections
2530.200b-2(b) and 2530.200b-2(c) are incorporated by reference into this
Section 1.2.y.

z.     “Investment Option(s)” shall have the meaning specified in Section
4.1.a.(2).

aa.     “Leased Employee” means any person who pursuant to an agreement
between a Company and any other person (“Leasing Organization”) performs
services for the Company (or for the Company and “related persons” determined
in accordance with Code Section 414(n)(6)) on a substantially full-time basis
for a period of at least one (1) year and such services are performed under
primary direction or control by the recipient; provided,
however, that such
person shall cease to be treated as a Leased Employee if he has failed to
perform such services on a substantially full-time basis for a period of at
least one (1) year following his initial designation as a Leased Employee.

bb.     “Non-Highly Compensated” shall mean those Employees or Participants,
as applicable, who are not Highly Compensated.

cc.     “Normal Retirement” means retirement directly from employment with the
Company, or immediately following Severance, effective the first of the month
following or coincident with Participant’s attainment of age sixty-five (65)
(“Normal Retirement Age”) or later.

dd.     “One (1) Year Break in Service” means a Plan Year during which the
Participant has less than five hundred one (501) Hours of Service. In
determining whether a One Year Break In Service has occurred, an Employee shall
be deemed to have earned up to five hundred one (501) Hours of Service for a
leave of absence from work which is due to pregnancy, or with respect to either
a male or female Employee, birth of a child, placement of a child in connection
with the child’s adoption by the Employee or postnatal care of a child,
calculated in accordance with Code Section 411(a)(6)(E). Effective December
12, 1994, a Participant who returns to employment in accordance with the
requirements of Code Section 414(u) following “qualified

6.

 

military service” (as
defined in the Section) will not have a One Year Break In Service for the
period of such “qualified military service”.

ee.     “Participant” means an individual who, while an Employee, satisfied
the requirements of Sections 2.1. and 2.2., and refers to both an “Active
Participant” and a “Suspended Participant.”

ff.     “Participant Account Value” means that portion of a Participant’s
Total Account Value that consists of a Participant’s Employee Contributions,
Employee Elected Company Contributions, and Rollover Contributions and Earnings
thereon, less any distributions.

gg.     “Plan” means this Nortel Networks Long-Term Investment Plan.

hh.     “Plan Administrator” means Nortel Networks Inc.

ii.     “Plan Year” means each twelve (12) month period that begins on January
1 of each calendar year.

jj.     “Qualified Domestic Relations Order” means a judgment, decree or order
made pursuant to state domestic relations law which assigns all or part of the
Participant’s Vested Total Account Value to such Participant’s Alternate Payee
and meets the requirements of Code Section 414(p) and ERISA Section 206(d)(3).

kk.     “Rollover Contribution” means the value of a contribution made
pursuant to Section 4.1.c. hereof.

ll.     “Severance” means the period for which severance allowance or income
continuation payments are paid pursuant to the Company’s severance plan or a
separation agreement with the Company, respectively.

mm.     “Special IRA” means a separate Individual Retirement Account, as
defined in Code Section 408, which had been created by a Participant to receive
an amount paid or distributed from the employees’ trust fund of a qualified
plan and which contains no other funds except such payment or distribution and
any accumulated earnings thereon.

nn.     “Spouse” means the spouse of a Participant whose marriage continues to
be recognized under the laws of the state in which the marriage was contracted
as of the date in question.

oo.      “Suspended Participant” means a Participant who is no longer making
current Employee Elected Company Contributions to the Plan because of the
occurrence of one of the events set forth in Section 2.3.a.

pp.     “Total Account Value” consists of the Participant’s Account Value and
the Company Contributions Account Value.

7.

 

qq.     “Total and Permanent Disability” means the physical or mental
condition of a Participant resulting from bodily injury, disease or mental
disorder which renders him incapable
of continuing his usual and customary employment with the Company as determined
in the sole discretion of the Plan Administrator. However, with respect to the
Company Contribution to be made under Section 4.2.a. hereof to a Participant
who has a Total and Permanent Disability, “Total and Permanent Disability”
means the physical or mental condition of a Participant that entitles the
Participant to a Disability Insurance Benefit pursuant to the federal Social
Security law.

rr.     “Trust Agreement” means the agreement by which Plan funds are held by
the Trustee and which covers the rights and duties of the Trustee with respect
to such funds.

ss.     “Trustee” means the trustee appointed by the Board to oversee the
management and investment of the Fund, maintenance of accounts, and payment of
benefits under the Plan.

tt.     “Unit” means, with respect to each Investment Option in which a
Participant invests, the measure, either in a whole or fractional part, of such
Participant’s investment in the total assets held in that particular Investment
Option. A total of all Participants’ Units in a particular Investment option
will equal the total number of Units that the Investment Option holds.

        “Unit Value” means, with respect to each Investment Option in which a
Participant invests, the monetary worth of each Unit and is that price paid to
purchase additional Units in such Investment Option for Participants who make
investments in that Investment Option and is used to determine the value of a
Participant’s investment in such Investment Option.

        The Trustee shall establish Units and Unit Value through a method of
accounting consistently followed and uniformly applied. Such accounting
methodology shall be within the sole discretion of the Trustee.

uu.     “Valuation Date” means the date or dates determined by the Trustee in
any given calendar month as of which Participants’ accounts are valued.

vv.     “Vested” means having a nonforfeitable right to all or part of the
Total Account Value, even though the right to receive distribution of such
Total Account Value may be deferred until some time in the future under the
terms and conditions of the Plan.

ww.     “Year of Service” means, with respect to an Employee, a Plan Year in
which that Employee has at least one thousand (1,000) Hours of Service. The
Years of Service of any Participant who does not complete an Hour of Service
after the Effective Date shall not include Years of Service that were
disregarded pursuant to the Plan’s break-in-service provisions that were in
effect at any time prior to the Effective Date.

8.

 

1.3.    Use of Pronouns and Numbers

The masculine pronoun whenever used in this Plan shall include the feminine
gender, and the singular pronoun whenever used herein shall include the plural
unless the context clearly indicates a different meaning.

9.

 

ARTICLE 2

PARTICIPATION

2.1.    Eligibility for Plan Participation

a.     Each person who was a Participant in the Plan on the day prior to the
Effective Date shall remain a Participant in the Plan as of the Effective Date.

b.     An Employee is eligible for Plan participation upon the Employee’s
employment commencement date.

c.     Notwithstanding any provision in the Plan to the contrary, no
individual who is designated, compensated or otherwise treated as an
independent contractor by the Company shall be eligible to become a Participant
in the Plan.

2.2.    Active Participation in the Plan

a.     An Employee may become an Active Participant in the Plan as soon as
administratively practicable after the date the Employee completes and submits
the necessary enrollment documentation and the enrollment is registered
administratively with all affected processes, including payroll withholding and
recordkeeping by the Plan Administrator and its contractors and delegates. The
enrollment documentation shall be in such form as the Company designates that,
among other things, authorize the Company to make the proper Employee Elected
Company Contribution to the Plan.

b.     Any forms relating to the Plan and the administration thereof shall be
designed and provided by the Plan Administrator or by the Trustee and may be
modified from time to time.

c.     Prior to the later of May 1, 2000 and thirty-one (31) days after the
commencement of an Employee’s employment, an Employee shall make an election
under the Nortel Networks Retirement Income Plan (the “Retirement Plan”)
between three (3) benefit options of the Capital Accumulation and Retirement
Program: Traditional; Balanced; and Investor. Such election shall be made
pursuant to the provisions of the Retirement Plan, the relevant provisions of
which are incorporated into and made a part of this Plan as if fully set out
herein. Such election shall determine the rate of Company Contributions that
may be contributed with respect to such an Employee under this Plan, if the
Employee elects to participate in this Plan pursuant to Section 2.2.d. hereof.

d.     The election to participate in this Plan shall be a separate and
additional election from the election described in Section 2.2.c. With respect
to Active Participants on April 30, 2000, no additional election to participate
shall be required to continue participation on and after May 1, 2000. However,
the election under Section 2.2.c. will affect the Participant’s entitlement to
Company Contributions pursuant to Section 4.2. hereof on and after May 1, 2000.
An election under this Section 2.2.d. shall not be effective unless an
election has previously been made as described under Section 2.2.c.

10.

 

2.3.    Termination of Active Participation in the Plan

a.     An Active Participant shall become a Suspended Participant on the date
on which any of the following occur:

(1)      Termination of employment with the Company for any reason;

(2)      Approved leave-of-absence during which the Participant receives no Eligible
Compensation;

(3)      Death;

(4)      Retirement, i.e. termination of employment, directly from employment with
the Company after the Participant attains Normal Retirement Age;

(5)      Termination of active participation (i) at the option of the Participant by
virtue of suspending all Employee Elected Company Contributions or (ii) by
virtue of a Company- arranged transfer to an Affiliated Company that is not a
Company or (iii) transfer to a position within a Company in which the
Participant is no longer an Employee;

(6)      Attainment of an applicable contribution limitation specified in Article
13.

b.     Unless a Suspended Participant again becomes an Active Participant,
distribution of his Total Account Value shall be made (subject to Articles 6
and 8) by the Trustee as follows:

(1)      In the event of termination of employment per Section 2.3.a.(1),
distribution shall be made as soon as administratively practicable after the
Participant has requested such distribution in accordance with the
administrative procedures established by the Plan Administrator or its
designee. Prior to January 1, 2002, no such distribution shall be made as a
result of a termination of employment of a Participant other than by reason of
death or disability unless such termination of employment constitutes a
separation from service for purposes of Code Section 401(k)(2)(B)(i)(I).

Effective January 1, 2002, a Suspended Participant’s Total Account Value may be
distributed on account of the Suspended Participant’s termination of
employment, without regard to whether a “separation from service” has occurred.
Such a distribution shall be subject to the other provisions of the Plan
regarding distributions, other than provisions that require a separation from
service before such amounts may be distributed. This provision shall apply to
distributions requested after December 31, 2001, regardless of when the
termination of employment occurred.

(2)      In the event of Total and Permanent Disability, distribution shall be made
as soon as administratively practicable after the Participant has requested
such distribution in accordance with the administrative procedures established
by the Plan Administrator.

(3)      In the event of death per Section 2.3.a.(3), distribution shall be made
pursuant to Article 9.

11.

 

(4)      In the event of retirement per Section 2.3.a.(4), including, for these
purposes, such a retirement immediately following Severance, distribution shall
be made pursuant to Section 8.1.b.

(5)      In the event an Active Participant becomes a Suspended Participant through
the operation of Sections 2.3.a.(2) or 2.3.a.(5), such Participant shall remain
in suspense until one of the events described in Subsection 2.3.a.(1), (3) or
(4) or Total and Permanent Disability occurs, at which time the applicable
provision of this Section 2.3.b. shall govern.

12.

 

ARTICLE 3

THE FUND

3.1.     Plan Fund

The accumulation of money in the Plan and the payment of benefits therefrom
shall be provided for through the medium of a Fund held by a Trustee under the
provisions of a Trust Agreement, pursuant to and in accordance with the
provisions of this document.

3.2.    Constituency of the Fund

The contributions of the Company and the Participants to the Fund, including
Rollover Contributions, together with any Earnings and distributions, shall
constitute the entire Fund.

13.

 

ARTICLE 4

CONTRIBUTIONS

4.1.      Participant Contributions

a.     An Active Participant may elect to have an Employee Elected Company
Contribution contributed to the Fund in accordance with the following
provisions:

(1)      An Active Participant may elect to have any whole percentage from one
percent (1%) to fifteen percent (15%), inclusive, of the Active Participant’s
Eligible Compensation contributed as his Employee Elected Company Contribution,
subject to the total dollar limitations on Employee Elected Company
Contributions specified in Article 13 and subject to any limitations determined
in the sole discretion of the Plan Administrator to be necessary to ensure that
the Participant’s Eligible Compensation, less statutory and other deductions,
is equal to or exceeds any periodic loan repayment due pursuant to the loan
program specified in Section 7.6.

The portion of an Active Participant’s Eligible Compensation Deferred
Amount that such Active Participant does not elect to have contributed to the
Fund as an Employee Elected Company Contribution shall be paid in cash as part
of the Active Participant’s base pay.

(2)      An Active Participant may elect to have a portion of his Employee Elected
Company Contribution invested in one or more of the Investment Options listed
in Appendix B of this Plan in minimum percentage increments as determined from
time to time by the Plan Administrator or its designee. Appendix B is
incorporated into and made a part of this Plan and may be amended from time to
time in the manner described in Article 12 hereof.

The total of the percentages of an Active Participant’s Employee Elected
Company Contribution elected to be invested in one or more of the above stated
Investment Options shall equal one hundred percent (100%) of such Active
Participant’s Employee Elected Company Contribution.

Anything in this Section 4.1.a.(2) to the contrary notwithstanding,
investments may be made in a particular Investment Option only when such
Investment Option has been made available to Participants as determined in the
sole discretion of the Plan Administrator.

(3)      An Active Participant’s election pursuant to Sections 4.1.a.(1) or
4.1.a.(2) shall be effective as soon as practicable after such election is made
as determined from time to time by the Plan Administrator or its designee in a
consistent and non-discriminatory manner provided that proper notice, as
determined by the Trustee, is given by the Active Participant. In the case of
an Employee who was not previously a Participant, or who is a Suspended
Participant, the election shall be effective on the date participation in the
Plan begins or resumes.

 (4)      An Active Participant who fails to notify the Trustee of his election
pursuant to Section 4.1.a.(2) shall be presumed to have elected to have his
entire Employee

14.

 

Elected Company Contribution deposited in the Investment Option
which is designated at any applicable time in Appendix B hereof as the “Default
Investment Option.”

(5)      An Active Participant may elect to change his previous election under
Sections 4.1.a.(1) or 4.1.a.(2) by giving proper notice, as determined by the
Trustee, and such changes shall be effective as soon as practicable upon
receipt of such notice as determined by the Plan Administrator or its designee
in a consistent and non-discriminatory manner.

 (6)      An Active Participant’s election or change of election under Sections
4.1.a.(1), 4.1.a.(2), or 4.1.a.(5) shall apply to future contributions only,
effective as provided herein, and shall not operate to alter the balances in
the Investment Options which are attributable to previously made Employee
Elected Company Contributions.

b.     When an Active Participant’s Employee Elected Company Contributions
made in a Plan Year reach the limitation specified in Article 13, no further
Employee Elected Company Contributions shall be made on behalf of such
Participant during the balance of such Plan Year and that Participant shall
become a Suspended Participant in accordance with Section 2.3.a.(6). As of the
first day of the immediately following Plan Year, such Suspended Participant
shall automatically become an Active Participant and his Employee Elected
Contributions shall automatically resume unless the Participant elects
otherwise pursuant to Sections 2.3.a.(5)(i) or 4.1.a.(5).

c.     The Plan shall accept eligible Rollover Contributions from any Employee
eligible to be a Participant or from any former Employee who is a Suspended
Participant in accordance with administrative procedures established by the
Trustee. Rollover Contributions shall be deposited in the “Default Investment
Option” (as described in Section 4.1.a.(4) hereof) unless such Employee elects
to deposit such Rollover Contribution into another Investment Option.

d.     A Participant may elect to transfer part or all of his Participant
Account Value invested in a particular Investment Option to another Investment
Option in accordance with the provisions of Section 4.5.

4.2.     Company
Contributions

a.      Subject to the rights of the Company per Article 12 and Section 4.2.d.
hereof, the Company shall contribute on behalf of each Active Participant as a
Company Contribution a matching amount which is determined by the prior
election of the Participant between the Traditional, Balanced and Investor
options described in Section 2.2.c. hereof. Such Company Contributions shall
be made as soon as practicable after the payroll period with respect to which
the related Employee Elected Company Contribution is made. One of the
following contribution rates shall apply, as determined by the election of the
Participant: (1) with respect to a Participant who has elected the Traditional
option: sixty percent (60%) of such Active Participant’s Employee Elected
Company Contribution; (2) with respect to a Participant who has elected the
Balanced option: fifty percent (50%) of such Active Participant’s Employee
Elected
Company Contribution; and (3) with respect to a Participant who has elected the
Investor option; one hundred percent (100%) of such Active Participant’s
Employee Elected Company Contribution.

15.

 

However, the Company Contribution shall
be based only on Employee Elected Company Contributions that do not exceed six
percent (6%) of an Active Participant’s Eligible Compensation.

With respect to Plan Years beginning on or after January 1, 1998, in
addition to the Company Contributions made pursuant to the preceding sentence,
the Company shall contribute to the Plan on behalf of each Participant as of
the end of each Plan Year as make-up Company Contributions an amount that
equals the difference between (1) the contribution rate that applies to the
Participant as described in the preceding paragraph (sixty percent (60%), fifty
percent (50%), or one hundred percent (100%) depending upon whether the
Traditional, the Balanced or the Investor option applies) of the Employee
Elected Company Contributions made pursuant to Section 4.1 by such Participant
for such Plan Year which were not in excess of 6% of such Participant’s
Eligible Compensation for such Plan Year and (2) the total monthly Company
Contributions made to the Plan on behalf of such Participant during such Plan
Year.

A Participant who has a Total and Permanent Disability and who has elected
the Investor option, may, upon the later of the occurrence of the Total and
Permanent Disability and the effective date of such election of the Investor
option, apply for the continuation of a Company Contribution during the period
of the Total and Permanent Disability until the commencement of benefit
payments under Section 8.3. hereof. The amount of such Company Contribution
shall be four percent (4%) of the Participant’s base pay for the Plan Year
immediately preceding the occurrence of the Total and Permanent Disability.
Such contribution shall be made monthly and shall be the only contribution made
on behalf of such a Participant during the continuation of the Total and
Permanent Disability.

An Active Participant may elect to have his Company Contribution
contributed to the Fund in accordance with the following provisions:

(1)      An Active Participant may elect to have a portion of his Company
Contributions invested in one or more of the Investment Options in minimum
percentage increments as determined from time to time by the Plan Administrator
or its designee.

The total of the percentages of an Active Participant’s Company
Contributions elected to be invested in one or more of the Investment Options
shall equal one hundred percent (100%) of such Active Participant’s Company
Contributions. An Active Participant who fails to notify the Plan
Administrator of his election hereunder shall be presumed to have elected to
have one hundred percent (100%) of his Company Contribution deposited in the
Investment Option described in Section 4.1.a.(4) hereof.

Anything in this Section 4.2.a.(1) to the contrary notwithstanding,
investments may be made in a particular Investment Option only when such
Investment Option has been made available to Participants as determined in the
sole discretion of the Plan Administrator.

(2)      An Active Participant’s election pursuant to Section 4.2.a.(1) shall be
effective as soon as practicable after such elections are made as determined
from time to time by
the Plan Administrator or its designee in a consistent and non-discriminatory
manner, provided that proper notice of the election, as determined by the
Trustee, is given by the Active

16.

 

Participant. In the case of an Employee who
was not previously an Active Participant or who is a Suspended Participant,
such election shall be effective on the date participation in the Plan begins
or resumes, subject to the foregoing notice requirements.

(3)  An Active Participant may elect to change his previous election pursuant to
Section 4.2.a.(1) by giving proper notice, as determined by the Trustee, and
such changes shall be effective as soon as practicable upon receipt of such
notice as determined by the Plan Administrator or its designee in a consistent
and non-discriminatory manner.

b.     An Active Participant’s election or change of election pursuant to
Section 4.2.a.(1) or (3) shall apply to future contributions only, effective as
provided herein, and shall not operate to alter the balances in the Investment
Options which are attributable to previously made Company Contributions.

c.     A Participant may elect to transfer part or all of his Company
Contributions Account Value from one Investment Option to another in accordance
with the provisions of Section 4.4.

d.     All Company Contributions are made subject to deductibility and
continued qualification of the Plan for federal income tax purposes.

4.3.     Reemployed Veterans

Effective December 12, 1994, with respect to any Participant who returns to
employment from “qualified military service” (as defined in Code Section 414(u)
on or after such date, such a Participant shall be entitled to make certain
“makeup” Employee Elected Company Contributions and certain matching Company
Contributions shall be made with respect thereof to the extent required by
Section 414(u) of the Code.

4.4.     Amounts Contributed in Error By the Company

a.     Company Contributions made due to a mistake of fact shall, upon written
demand of the Company, be returned to the Company by the Trustee within one (1)
year of the date such Company Contributions were made, reduced by any net
losses of the Fund attributable thereto, but not increased by any net earnings
of the Fund attributable thereto.

b.     If the Internal Revenue Service rescinds the status of the Plan as
“Qualified”, amounts of Company Contributions made prior to the date the
unfavorable ruling is made by the Internal Revenue Service and during the
period in which the Plan has been determined to not be “Qualified” shall be
returned to the Company within one (1) year of the date such unfavorable ruling
is made.

c.     If the Internal Revenue Service disallows deductibility of any amount
of any Company Contributions, such disallowed amount shall be returned to the
Company within one (1) year of the date of disallowance.

d.     If, for any reason or mistake, aggregate Company Contributions for any
fiscal year (as such “fiscal year” may be defined for purposes of the financial
reporting and

17.

 

administration of Nortel Networks Inc.) exceed the amount of
Company Contributions properly payable under the terms and conditions of this
Plan or the rules and regulations of the Internal Revenue Service, and such
excess is not returned to the Company per Section 4.4., it shall be allocated
to Participants in accordance with their respective, aggregate Company
Contributions for the applicable period.

4.5.     Account Transfers

Provided proper and timely notice, as determined by the Trustee, is given by a
Participant, a Participant may elect to transfer a portion or all of his Total
Account Value invested at the time of election in a particular Investment
Option to any other Investment Option in minimum percentage increments of such
transferred amount as determined from time to time by the Plan Administrator or
its designee. The number of such transfers permitted in any calendar month
shall be determined in the sole discretion of the Plan Administrator. Any such
transfer shall be executed as of the Valuation Date next following the date on
which the election is made; provided, however, that such transfer shall be
executed sooner if permitted by current administrative practices applied on a
consistent and non-discriminatory manner as determined in the sole discretion
of the Trustee.

4.6.     Valuation of Investments

Investments in Investment Options shall be valued in Units and Unit Values as
of the relevant Valuation Date.

4.7.     Short Term Investment

The Participant Account Value and/or Company Contributions Account Value may be
invested from time to time by the Trustee in such short term investments as the
Trustee may determine in its discretion, pending investment in designated
Investment Options or pending distribution to a Participant, as applicable.

18.

 

ARTICLE 5

ALLOCATION OF CONTRIBUTIONS AND EARNINGS

5.1.     Deposit of Contributions in the Fund

All contributions shall be deposited in the Fund. The Trustee shall invest the
contributions on behalf of Participants in accordance with the terms of the
Plan and the Trust Agreement.

5.2.     Separate Participant Accounts

An account shall be maintained on behalf of each Participant. A reporting of a
Participant’s account and the activity thereunder shall be made to each
Participant not less often than annually.

5.3.     Report to Participants

Upon request, a Participant shall be provided with such information concerning
the Participant’s account as is required to be disclosed pursuant to ERISA.

5.4.     Allocation of Earnings

The Earnings of the Fund shall be allocated to the Participant Account Value
and the Company Contributions Account Value of all Active Participants and
Suspended Participants, in proportion to the balance of such accounts, and in
proportion to the balance of each element constituting such accounts, as of the
last day of each calendar month, or more frequently as determined by the Plan
Administrator or its designee.

19.

 

ARTICLE 6

VESTING

6.1.     Vesting of Participant Account Value

A Participant is always Vested in one hundred percent (100%) of his Participant
Account Value.

6.2.     Vesting of Company Contributions Account Value

On and after January 1, 2000, a Participant who has at least one (1) Hour of
Service on or after January 1, 2000 shall be immediately Vested in one hundred
percent (100%) of his Company Contributions Account Value.

6.3.     Distribution of Vested Amounts; Forfeitures

In the event of termination of employment, the Company Contributions Account
Value in which a Participant is Vested pursuant to Section 6.2. shall be
distributed in accordance with Section 2.3.b.

a.     The non-Vested portion of a Participant’s Company Contributions Account
Value was forfeited upon separation from employment, if such separation
occurred before January 1, 2000.

b.     A Participant may reverse the forfeiture described in Section 6.3.a. if
such Participant repays to the Fund the full amount of the distribution
received from the Participant’s account pursuant to Section 2.3.b. before the
earlier of:

(1)      five (5) years after the first day the employee is subsequently employed by
(i)  a Company or (ii) an Affiliated Company or

(2)      five (5) consecutive One (1) Year Breaks In Service commencing after the
distribution.

c.     On and after January 1,1995, a Participant who otherwise meets the
requirements set forth in Section 6.3.b. may reverse the forfeiture described
in Section 6.3.a. by repaying to the fund the amount provided in Section 6.3.b.
or the full amount of the distributed Employee Elected Company Contributions on
which the forfeited Company Contributions were based and the Earnings on those
Employee Elected Contributions as of the date of their distribution.

6.4.     Disposition of Forfeitures

All forfeitures shall remain in the Fund and in a forfeiture account that shall
reduce future Company Contributions by the amount of such forfeitures.

20.

 

ARTICLE 7

WITHDRAWAL OF ACCOUNT VALUES WHILE AN EMPLOYEE

7.1.    In-Service Withdrawals

Upon proper notification to the Trustee, an Employee who is a Participant may
withdraw any part or all of the following funds from the Plan:

	 	a.	 	Employee Contributions and Earnings thereon not previously
withdrawn, but not less than One Hundred Dollars ($100);
	 
	 	b.	 	Company Contributions Account Value in which he is Vested to
the extent that such Company Contributions Account Value represents
Company Contributions made to this Plan before January 1, 1983, and
Earnings thereon; and
	 
	 	c.	 	Subsequent Vested Company Contributions which were
contributed to this Plan prior to May 1, 2000, and were contributed
in calendar years which ended at least two (2) full calendar years
prior to such Participant’s election to withdraw, and Earnings
thereon; and
	 
	 	d.	 	Rollover Contributions and Earnings thereon that were
deposited into the Plan prior to May 1, 2000, provided that no more
than one (1) such withdrawal may be requested by a Participant
during the entire period of his participation in the Plan.

If Common Shares are included in the withdrawal and are less than fifty (50)
Common Shares, the distribution of such Common Shares shall be made in cash.
If fifty (50) Common Shares or more are included in the withdrawal, a
Participant may elect to receive the distribution of Common Shares in shares,
provided at least fifty (50) Common Shares are so distributed.

7.2.    Withdrawal for Reasons of Financial Hardship

a.     An Employee who is a Participant may request a distribution for reason
of financial hardship. Such request shall be deemed to be “for reason of
financial hardship” if the distribution is both made on account of an immediate
and heavy financial need of the Participant and is necessary to satisfy such
financial need and provided that distributions may only be made in accordance
with the Code and regulations promulgated thereunder. A Participant desiring
such distribution shall present to the Trustee sufficient facts that shall
permit the Trustee to determine, in a uniform and non-discriminatory manner,
the existence of a financial hardship, the amount that is necessary to meet the
hardship, and the fact that funds are not reasonably available from other
resources of the Participant. Such a withdrawal shall be made from the
Investment Options in which the Participant has elected to invest contributions
in the order of priority as determined from time to time by the Plan
Administrator or its designee and applied in a consistent and
non-discriminatory manner. Amounts which may be withdrawn for reason of
financial hardship are limited to the amount of Employee Elected Company
Contributions, Earnings accrued on such Employee Elected Contributions on or
before December 31, 1988, plus

21.

 

the amount of Vested Company Contributions and Earnings thereon in a
Participant’s account which are not available for withdrawal pursuant to
Section 7.1.b.

b.     All distributions made for reason of financial hardship shall be made
in cash.

7.3.    Effect of Hardship Withdrawals

The election of the option described in Section 7.2 shall not affect a
Participant’s status as an Active Participant.

7.4.    Company Contributions Not Withdrawn

The Company Contributions Account Value in which a Participant becomes Vested
and which is not withdrawn by a Participant in accordance with this Article 7
shall remain in the Participant’s account in the Fund and shall be distributed
to the Participant in accordance with the provisions of Article 8.

7.5.    Effective Date of Withdrawal

The effective date of a withdrawal made in accordance with the provisions of
this Article 7 shall be the first Valuation Date after the withdrawal has been
approved by the Plan Administrator or its designee.

7.6.    Loans

a.     Upon application by any Participant who is an Employee or a former
Employee, Beneficiary or Alternate Payee, and who is a party-in-interest, as
that term is defined in ERISA Section 3(14), as to the Plan (referred to as
“Eligible Participant” for purposes of Section 7.6), the Trustee shall in its
sole discretion make a loan to such Eligible Participant, not to exceed fifty
percent (50%) of the value of the Vested portion of the Eligible Participant’s
Total Account Value as of the most recently available Valuation Date at the
time the loan is processed by the Trustee. Such loans shall be made pursuant
to the provisions of the written plan loan program procedure, which procedure
is hereby incorporated by reference as part of the Plan, and the requirements
of Code Section 72(p)(2) and ERISA Section 408(b)(1). Furthermore, such plan
loan program procedure may be modified or amended in writing by the Plan
Administrator from time to time without the necessity of amending this Section
7.6.

b.     Section 7.6.a. above to the contrary notwithstanding, the amount of a
loan made to an Eligible Participant shall not be less than One Thousand
Dollars ($1,000) and shall not exceed an amount equal to:

 (1)      the lesser of: (i) Fifty Thousand Dollars ($50,000) (reduced by the
Eligible Participant’s highest outstanding loan balance from the Plan during
the twelve (12) month period ending on the day before the date on which the
loan is made) or (ii) one-half of the Vested portion of the Eligible
Participant’s Total Account Value as of the most recently available Valuation
Date at the time the loan is processed by the Trustee; minus

22.

 

(2)      the total outstanding loan balance of the Eligible Participant under all
other loans from all qualified plans of the Company or an Affiliated Company,
or affiliated service group as defined in Code Section 414(m).

c.     The loan shall include, but not be limited to, the following terms: (1)
level amortization with payments not less frequently than quarterly; (2)
repayment in five (5) years or less, except with respect to a “mortgage loan”
(which must be repaid within fifteen (15) years; and (3) a reasonable rate of
interest as required by Code Section 4975(d)(1). A “mortgage loan” is a loan
that will be used for the initial purchase or construction of the applicant’s
primary residence, including the down payment and closing costs.

7.7.    Other Eligible Participants

The provisions of Article 7 shall apply to a Suspended Participant who is not
an Employee if:

a.     Such Suspended Participant’s employment with the Company was terminated
solely as a result of a business transaction such as, but not limited to, an
asset sale, between the Company and another company, pursuant to which the
Company terminates the employment of such Suspended Participant and:

 (1)      Such other company hires the Suspended Participant;

 (2)      Such transaction between Company and the other company does not constitute
the sale of a trade or business under Code Section 401(k)(2)(B)(i)(II) which
would permit a distribution under Section 2.3.b.(1);

 (3)      Such Suspended Participant’s Total Account Value has not been transferred
in a trust to trust transfer between the Plan and a qualified plan sponsored by
such other company; and

 (4)     
Such Suspended Participant has not terminated employment with such other
company on the date in question or

b.     The employee is a Suspended Participant solely by virtue of a Company
arranged transfer to an Affiliated Company or a company described in Section
14.5.b. which is not a Company.

7.8.     Age
59 1⁄2 Withdrawals

Upon proper notification to the Trustee, an Employee who is a Participant and
who has attained the age of fifty nine and one-half (59 1⁄2) may withdraw any
part or all of the Participant’s Company Contributions Account Value and
Participant Account Value. A Participant may request such a withdrawal only
one time in any Plan Year.

23.

 

ARTICLE 8

PAYMENT OF BENEFITS

8.1.     Form of Payments

a.     A Suspended Participant who is eligible for a distribution of his
Vested Total Account Value in accordance with Section 2.3.b.(1) or (2) shall
automatically be entitled to receive a lump sum distribution of such Total
Account Value upon request to the Trustee. Effective April 1, 1997, if such
Suspended Participant is at least fifty nine and one-half (59-1/2) years of
age, the Suspended Participant may request that the Trustee utilize all or a
portion of his Vested Total Account Value to pay him installment payments, as
described in Section 8.1.b.(2) below.

b.     A Suspended Participant who retires from the Company and is eligible
for a distribution of his Vested Total Account Value in accordance with Section
2.3.b.(4) shall receive a lump sum distribution of such Total Account Value
upon request to the Trustee. However, such Suspended Participant may request
that the Trustee utilize all or a portion of his Vested Total Account Value to
pay him installment payments which shall be an income payable in substantially
equal monthly payments or income payable in varying monthly amounts. Such
installments shall be of such amount and on such a schedule that they comply
with any minimum distribution rules required by applicable law. The Trustee
shall adjust payments to the Participant pursuant to this Section 8.1.b. to
reflect the Earnings allocated to the Participant’s Account subsequent to the
commencement of payments, as determined by the Trustee. A Participant who
elects installments may suspend such installment payments and subsequently
elect again to commence installment payments at the same or a different level
or form upon proper and timely notice to the Trustee.

8.2      Facility of Payment

a.     If the Plan Administrator finds that any person to whom a benefit is
payable from the Fund is unable to care for his affairs because of mental
incapacity, illness, disability or accident, any payment due may be paid only
to a duly appointed guardian, committee, conservator, or other legal
representative of such person. Any such payments shall be a complete discharge
of any liability of the Fund under the Plan therefore.

b.     If the Vested Total Account Value of any Participant eligible for a
lump sum distribution pursuant to Sections 8.1.a. or 8.1.b. is equivalent to
five thousand dollars ($5,000) or less on the Valuation Date immediately
following his initial eligibility for a lump sum distribution, the Trustee
shall distribute such Vested Total Account Value in a lump sum to such
Participant without the consent of the Participant in lieu of and in complete
discharge of its obligation to furnish such benefit.

8.3.    Time of Payment

a.     Subject to the provisions of the remaining sub-sections of Section
8.3., the distribution of a Participant’s Vested Total Account Value shall be
commenced as soon as

24.

 

administratively feasible after the date the Participant becomes entitled to
such distribution pursuant to Section 2.3.b.

b.     The distribution of a Participant’s Vested Total Account Value shall be
deferred until the earlier of the date the Participant elects for commencement
of the distribution (except as otherwise required under Section 8.3.c. hereof),
or the Participant’s date of death. Specifically, a Participant must consent
to the Distribution Date pursuant to Section 8.3.a. The Trustee shall furnish
information to a Participant regarding such consent no less than thirty (30)
days and no more than ninety (90) days before such distribution. However, a
Participant may elect (with any applicable spousal consent) to waive the
requirement that the written explanation be provided at least thirty (30) days
before the benefit starting date if the distribution commences more than seven
(7) days after such explanation is provided. The information furnished shall
inform the Participant of his right to defer the distribution of his Plan
benefit and of his Direct Rollover right pursuant to Article 10.

c.     Notwithstanding any provision in the Plan to the contrary, the
distribution of the Vested Total Account Value of a Participant shall commence
no later than April 1 of the calendar year immediately following the calendar
year in which the later of the following dates occurs: (i) the date such
Participant attains age seventy and one-half (70-1/2) or the date such
Participant retires. The distribution under this Section 8.3.c. shall be in
such amounts and on such a schedule that they comply with any minimum
distribution rules required by applicable law.

d.     Except as provided in Section 8.3.c., the distribution of the Plan
benefit of a Participant pursuant to Article 8 shall not occur while the
Participant is employed by the Company or an Affiliated Company.

e.     A Participant may not elect to defer distribution of his Vested Total
Account Value or a portion thereof to the extent that such deferral creates a
death benefit which is more than incidental within the meaning of Code Section
401(a)(9)(G).

f.     The distribution of a Participant’s Plan benefit shall be in compliance
with Code Section 401(a)(9). With respect to distributions under the Plan made
for calendar years beginning on or after January 1, 2001, the Plan will apply
the minimum distribution requirements of Section 401(a)(9) of the Code in
accordance with the regulations under Section 401(a)(9) that were proposed on
January 17, 2001, notwithstanding any provision of the Plan to the contrary.
This amendment shall continue in effect until the end of the last calendar year
beginning before the effective date of the final regulations under Section
401(a)(9) or such other date as may be specified in guidance published by the
Internal Revenue Service.

8.4.    Effective Date of Distribution

Except as otherwise provided, the effective date of a distribution made in
accordance with the provisions of this Article 8 shall be the first
Distribution Date after the distribution has been approved by the Trustee. Any
necessary valuations shall be made on such Distribution Date.

25.

 

ARTICLE 9

BENEFICIARIES AND ALTERNATE PAYEES

9.1.    Beneficiaries

a.     In the event of the Participant’s death, the Participant’s Spouse shall
be deemed to be such Participant’s Beneficiary unless the Participant had
previously filed with the Trustee either a waiver of the Spouse’s right to a
death benefit that is consented to by the Participant’s Spouse or an affidavit
that the Spouse cannot be located. Such consent is irrevocable, must be
witnessed by a Plan representative or acknowledged by a notary public, and must
indicate the effect of the Participant’s election. In the case of a benefit
payable after death, the consent may be made after the Participant’s death.
Such waiver or affidavit shall be in a manner acceptable to the Trustee and/or
in compliance with any federal laws, rules or regulations which provide rights
to the Spouse and/or protect any such rights which may exist.

        Notwithstanding the foregoing, if a Participant who elected prior to
August 15, 2002, to receive his Plan benefit in the form of a nontransferable
annuity contract pursuant to Section 8.1.(b)(1) as constituted prior to August
15, 2002, dies prior to his annuity starting date (as such term is defined in
Code Section 417(f)(2)) and leaves a Spouse, such Participant’s Beneficiary
shall be such Spouse as to 50% of his Total Account Value and any designation
of any other person or entity by such Participant as his Beneficiary with
respect to such amounts shall be null and void.

b.     The Participant’s Beneficiary may elect:

(1)      To receive his allocated portion of the Participant’s Total Account Value
in a lump sum which will be distributed as soon as administratively
practicable, but in no event later than the end of the Fiscal Quarter following
the Fiscal Quarter in which the Trustee received notice of the Participant’s
death; or

(2)      To participate in the Plan in accordance with Section 9.3. with respect to
the portion of the Participant’s Total Account Value allocated to him.
However, a Beneficiary who is not the Participant’s Spouse may participate in
the Plan no more than three (3) months after the date the Trustee receives
notice of the Participant’s death. A non-Spouse Beneficiary whose account
under the Plan was established prior to May 15, 2002 may participate in the
Plan no more than five (5) years.

c.     Whenever benefits become payable to a Participant’s estate, the Fund
shall make a single-sum cash distribution to the estate.

9.2.     Alternate Payees

All rights and benefits, including elections, provided to a Participant under
this Plan shall be subject to the rights afforded any Alternate Payee under a
Qualified Domestic Relations Order. In the event the Trustee receives a
Qualified Domestic Relations Order which assigns all or a portion of a
Participant’s Vested Total Account Value to an Alternate Payee for immediate
distribution to such Alternate Payee, the Trustee shall distribute the entire
interest of the

26.

 

Alternate Payee in such Vested Total Account Value as soon as
administratively practicable in a
lump sum even if the affected Participant has not reached the “earliest
retirement age” as defined in Code Section 414p(4)(b). If the Qualified
Domestic Relations Order does not provide for such an immediate distribution to
the Alternate Payee, such Alternate Payee shall continue to participate in the
Plan with respect to the benefits allocated to him to the extent provided in
Section 9.3.

9.3.     Plan Participation by Beneficiaries and Alternate Payees

The funds allocated to a Beneficiary or Alternate Payee who does not receive a
lump sum distribution as provided in 9.1.b.(1) or 9.2, as applicable, shall be
placed in an account in the name of such Beneficiary or Alternate Payee.
Earnings of the Fund shall be allocated to such account as provided in Section
5.4. and reports shall be provided in accordance with Section 5.3. Such
Beneficiary or Alternate Payee shall only be eligible to exercise the following
elections with respect to funds which have been allocated to that account:

(a)      Elect account transfers in accordance with Section 4.5. and

(b)      Elect to receive a lump sum distribution of the funds in the account.

9.4.    Facility of Payment

a.     If the Plan Administrator finds that any person to whom a benefit is
payable from the Fund is unable to care for his affairs because of mental
incapacity, illness, disability or accident, any payment due may be paid only
to a duly appointed guardian, committee, conservator, or other legal
representative. Any such payments shall be a complete discharge of any
liability of the Fund under the Plan therefore.

b.     Notwithstanding any provision in the Plan to the contrary, if the value
of the benefit allocated to the Beneficiary or Alternate Payee in accordance
with Section 9.1. or 9.2. respectively is Five Thousand Dollars ($5,000) or
less as of the Valuation Date immediately following his initial eligibility for
such benefit, the Plan Administrator shall distribute the lump sum value of
such benefit to such Beneficiary or Alternate Payee without his consent in lieu
of and in complete discharge of its obligation to furnish such benefit.

c.     If any distribution pursuant to Article 9 includes less than fifty (50)
Common Shares, the distribution of such Common Shares shall be made in cash.
If fifty (50) Common Shares or more are included in the distribution, the
Beneficiary or Alternate Payee may elect to receive the distribution in shares,
provided that at least fifty (50) Common Shares are so distributed.

9 5.    Death of Beneficiary or Alternate Payee

In the event of the death of a Beneficiary or Alternate Payee subsequent to the
establishment of his entitlement to Plan funds as provided in Section 9.1.a. or
9.2. respectively, but prior to the distribution of such funds to him, such
funds shall be distributed in cash in a lump sum to his beneficiary as
designated on a form approved by and filed with the Trustee or, in the absence
of such designation, to the estate of such Beneficiary or Alternate Payee.

27.

 

ARTICLE 10

ELIGIBLE ROLLOVER DISTRIBUTIONS

10.1.      Effective Date

This Article 10 applies to distributions made on or after January 1, 2002.

10.2.     Definitions

For purposes of this Article 10, the following terms shall have the following
meanings:

(a)     
Direct Rollover: A payment by the Plan to an Eligible Retirement Plan
designated by a Distributee.

(b)     
Distributee: Each (i) Participant entitled to an Eligible Rollover
Distribution, (ii) Participant’s surviving Spouse with respect to the interest
of such surviving Spouse in an Eligible Rollover Distribution, and (iii) former
Spouse of a Participant who is an Alternate Payee under a Qualified Domestic
Relations Order, with regard to the interest of such former Spouse in an
Eligible Rollover Distribution.

(c)     
Eligible Retirement Plan: (i) With respect to a Distributee other
than a surviving Spouse, an individual retirement account described in Code
Section 408(a), an individual retirement annuity described in Code Section
408(b), an annuity plan described in Code Section 403(a), or a qualified plan
described in Code Section 401(a), which under its provisions accepts such
Distributee’s Eligible Rollover Distribution and (ii) with respect to a
Distributee who is a surviving Spouse, an individual retirement account
described in Code Section 408(b). Effective January 1, 2002, an Eligible
Retirement Plan shall also mean an annuity contract described in Section 403(b)
of the Code and an eligible plan under Section 457(b) of the Code which is
maintained by a state, political subdivision of a state, or any agency or
instrumentality of a state or political subdivision of a state and which agrees
to separately account for amounts transferred into such plan from this Plan.
The definition of Eligible Retirement Plan shall also apply in the case of a
distribution to a surviving spouse, or to a spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Section 404(p) of the Code.

(d)     
Eligible Rollover Distribution: Any distribution of all or any
portion of the Plan benefit of a Distributee other than (i) a distribution that
is one of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life expectancies) of the Distributee
and the Distributee’s designated beneficiary or for a specified period of ten
years or more, (ii) a distribution to the extent such distribution is required
under Code Section 401(a)(9), (iii) the portion of a distribution that is not
includable in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities), except that
effective January 1, 2002, a portion of a distribution shall not fail to be an
eligible rollover distribution merely because the portion consists of after-tax
employee contributions which are not includible in gross income. (However, such
portion may be transferred only to an individual retirement account or annuity
described in Section 408(a) or (b) of the Code, or to a qualified defined
contribution plan described in Section 401(a) or 403(a) of the Code that agrees
to separately account for amounts

28.

 

so transferred, including separately
accounting for the portion of such distribution which is includible in gross
income and the portion of such distribution which is not so includible.), (iv)
a loan treated as a distribution under Code Section 72(p) and not excepted by
Code Section 72(p)(2); (v) a loan in default that is a deemed distribution; (vi) corrective
contributions pursuant to Code Sections 401(k)(8) and 402(g)(2); (vii)
effective January 1, 1999, any part of a distribution that constitutes a
hardship distribution under Code Section 401(k)(2)(B)(i)(IV); (viii) effective
January 1, 2002, any amount that is distributed on account of hardship; and
(ix) any other distribution so designated by the Internal Revenue Service in
revenue rulings, notices, and other guidance of general applicability.

10.3.      Eligibility

Notwithstanding any provision of the Plan to the contrary that would otherwise
limit a Distributee’s election under Article 10, a Distributee may elect, at
the time and in the manner prescribed by the Trustee, to have all or any
portion of an Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan specified by the Distributee in a Direct Rollover. The
preceding sentence notwithstanding, a Distributee may elect a Direct Rollover
pursuant to Article 10 only if such Distributee’s Eligible Rollover
Distributions during the Plan Year are reasonably expected to total Two Hundred
Dollars ($200) or more. Furthermore, if less than one hundred percent (100%)
of the Participant’s Eligible Rollover Distribution is to be a Direct Rollover,
the amount of the Direct Rollover must be Five Hundred Dollars ($500) or more.
Prior to any Direct Rollover pursuant to Article 10, the Distributee shall
furnish the Trustee with a : statement from the plan, account, or annuity to
which the benefit is to be transferred verifying that such plan, account, or
annuity is, or is intended to be, an Eligible Retirement Plan.

10.4.     Direct Rollover Election

No less than thirty (30) days and no more than ninety (90) days before an
Eligible Rollover Distribution, the Trustee shall inform the Distributee of his
Direct Rollover rights pursuant to Article 10. A distribution or Direct
Rollover of the Distributee’s benefit may commence less than thirty (30) days
after such notice is given, provided that (a) the Distributee is eligible for a
distribution (i) other than in accordance with Section 2.3.b.4., or (ii) if in
accordance with Section 2.3.b.4., in a lump sum cashout payment pursuant to
Section 8.2.b.; (b) the Trustee clearly informs the Distributee that the
Distributee has a right to a period of at least thirty (30) days after
receiving the notice to consider the decision of whether or not to elect a
Direct Rollover and (c) the Distributee, after receiving the notice,
affirmatively elects either a distribution or a Direct Rollover or a
combination thereof.

29.

 

ARTICLE 11

ADMINISTRATION

11.1.      Form of Trust

The Board and Trustee shall determine the form and terms of the Trust Agreement
and shall modify the Trust Agreement from time to time to accomplish the
purposes of this Plan. The Trust Agreement shall provide that the Board may
remove any Trustee and appoint any successor.

11.2.      Named Fiduciaries

The Plan Administrator, the Committee and the Trustee shall each be named
fiduciaries for the Plan with respect to their duties as set forth in the Plan
or the Trust Agreement.

11.3.      Plan Administrator

11.3.1.      The Plan Administrator shall have the following powers, duties and
responsibilities which it may retain, delegate or redelegate at any time, in
writing, among the below-mentioned bodies, which it may remove or replace at
any time:

a.     Subject to the powers, duties, and responsibilities conferred on the
Committee pursuant to Section 11.4. below, the powers, duties and
responsibilities of administration which are delegable to another administrator
and

b.     Powers, duties and responsibilities of custody, investment and
disbursement which are delegable to the Trustee, an administrator, investment
advisor and/or an insurance company.

11.3.2.      In its relationship with the Trustee, any insurance company,
administrator and/or any investment advisor pertaining to any matter or thing
included in this Plan, any officer of Nortel Networks Inc. may sign or execute
any document or instrument.

11.4.      Employee Benefits Committee

     (a)  The Committee shall be structured as follows:

(1)      The Committee shall be appointed by the Board and shall consist of one (1)
or more persons. Any individual, whether or not an Employee, is eligible to
become a member of the Committee.

(2)      Each member of the Committee shall serve until he resigns, dies, or is
removed by the Board. At any time during his term of office, a member of the
Committee may resign by giving written notice to the Board and the Committee,
such resignation to become effective upon the appointment of a substitute
member or, if earlier, the lapse of thirty (30) days after such notice is given
as herein provided. At any time during his term of office, and for any reason,
a member of the Committee may be removed by the Board with or without cause,
and the

30.

 

Board may in its discretion fill any vacancy that may result therefrom. Any
member of the Committee who is an Employee or employee of an Affiliated Company
shall automatically cease to be a member of the Committee as of the date he
ceases to be employed by the Company or an Affiliated Company.

(3)     The Committee may select officers and shall appoint a Secretary and such
other agents and representatives as it may deem advisable (who may, but need
not be, members of the Committee) to assist it in doing any act or thing to be
done or performed by the Committee. The Committee shall keep appropriate
records of its proceedings and shall make available for examination during
business hours to any Participant, Beneficiary or Alternate Payee, such records
as pertain to that individual’s interest in the Plan. The Committee shall
designate the person or persons who shall be authorized to sign for the
Committee and, upon such designation, the signature of such person or persons
shall bind the Committee.

(4)     The Committee shall hold meetings at such time and place as it may from
time to time determine. A majority of the members of the Committee duly
appointed shall constitute a quorum for the transaction of business. All
resolutions or other actions taken by the Committee at any meeting where a
quorum is present shall be by a vote of a majority of those present at such
meeting and entitled to vote. Resolutions may be adopted or other action taken
without a meeting upon written consent signed by all of the members of the
Committee.

(5)     No member of the Committee shall have any right to vote or decide upon any
matter relating solely to himself under the Plan or to vote in any case in
which his individual right to claim any benefit under the Plan is particularly
involved. In any case in which a Committee member is so disqualified to act,
and the remaining members cannot agree, the Board shall appoint a temporary
substitute member to exercise all the powers of the disqualified member
concerning the matter in which he is disqualified.

(6)     The members of the Committee shall not receive compensation with respect to
their services for the Committee, but all expenses of the Committee shall be
paid by the Company. To the extent required by the Act or other applicable
law, or required by the Company, members of the Committee shall furnish bond or
security for the performance of their duties hereunder.

b.     The Committee shall supervise the administration and enforcement of the
Plan to the extent set forth below according to the terms and provisions of the
Plan and shall have all powers necessary to accomplish these purposes,
including, but not by way of limitation, the right, power, authority, and duty:

(1)     In its sole discretion, to construe all terms, provisions, conditions, and
limitations of the Plan. In all cases, the construction necessary for the Plan
to qualify under the applicable provisions of the Code shall control;

(2)     In its sole discretion, to correct any defect or to supply any omission or
to reconcile any inconsistency that may appear in the Plan, in such manner and
to such extent as it shall deem in its discretion expedient to effectuate the
purposes of the Plan;

(3)     In its sole discretion, to determine all questions relating to eligibility;

31.

 

(4)     In its sole discretion, to make a determination as to the right of any
person to a benefit under the Plan; and

(5)     In its sole discretion, to review and make determinations on appeals
pursuant to Section 11.6.

c.     Nortel Networks Inc. shall provide appropriate insurance coverage to
cover financial liability for the members of the Committee and may provide such
coverage for other fiduciaries of the Plan who are otherwise not appropriately
insured.

11.5.      Trustee

a.     The Trustee shall have the powers, duties and responsibilities of
custody, investment and disbursement of the Fund in accordance with the Plan
and the Trust Agreement.

b.     The Trustee shall, in the course of its management of the Fund,
purchase or sell Common Shares as necessary to implement the provisions of the
Plan. It is understood that neither the Board, nor the Plan Administrator, nor
the Committee, Participant, nor any other party shall have any authority or
power to direct either (i) the price at which any such Common Shares may be
purchased, or (ii) the time or times when any such Common Shares may be
purchased, or (iii) the quantity of any such Common Shares that may be
purchased, or (iv) the selection of any brokers or dealers to be utilized in
any such purchase of Common Shares, or (v) the sources from which any such
Common Shares may be purchased, or (vi) any other aspect of the manner in which
any such Common Shares may be purchased.

11.6.     Appeals Procedure

All claims for benefits under the Plan shall be directed in writing to the
attention of the Plan Administrator. If the Plan Administrator in its sole
discretion determines that any individual who has claimed a right to receive
benefits under the Plan is not entitled to receive all or any part of the
benefits claimed, it shall inform the claimant by certified mail or by
electronic notification of its determination and the reasons therefore in a
manner calculated to be understood by the claimant. Such notification shall be
given within a reasonable period of time, but not later than ninety (90) days
after receipt of the claim by the Plan Administrator, unless the Plan
Administrator determines that special circumstances require an extension of
time for processing the claim. If the Plan Administrator determines that an
extension of time for processing is required, written notice of the extension
shall be furnished to the claimant prior to the termination of the initial
ninety (90) day period. In no event shall such extension exceed a period of
ninety (90) days from the end of such initial period. The extension notice
shall indicate the special circumstances requiring an extension of time and the
date by which the Plan expects to render the benefit determination. Such
notification shall set forth, in a manner calculated to be understood by the
claimant: (i) the specific reason or reasons for the adverse determination;
(ii) reference to the specific plan provisions on which the determination is
based; (iii) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such material
or information is necessary; (iv) a description of the Plan’s review procedures
and the time limits applicable to such procedures, including a

32.

 

statement of the claimant’s right
to bring a civil action under section 502(a) of ERISA following an adverse benefit determination on review.

Following an initial adverse decision by the Plan Administrator concerning a
claim for benefits, a claimant may appeal such determination within sixty (60)
days of receipt of the notification of the adverse benefit determination. A
claimant who appeals a denied claim may submit to the Committee written
comments, documents, records, and other information relating to the claim for
benefits. The claimant shall be provided, upon request and free of charge,
reasonable access to, and copies of, all documents, records, and other
information relevant to the claimant’s claim for benefits. A document, record,
or other information is “relevant” to a claim for benefits if it: (i)was relied
upon in making the benefit determination; (ii) was submitted, considered, or
generated in the course of making the benefit determination, without regard to
whether such document, record, or other information was relied upon in making
the benefit determination; or (iii) demonstrates compliance with the
administrative processes and safeguards required by ERISA and the applicable
regulations in making the benefit determination. The review of such an appeal
by the Committee shall take into account all comments, documents, records, and
other information submitted by the claimant relating to the claim, without
regard to whether such information was submitted or considered in the initial
benefit determination.

The Committee shall make a decision on the claimant’s appeal no later than the
date of the meeting of the Committee that immediately follows the Plan’s
receipt of a request for review, unless the request for review is filed within
thirty (30) days preceding the date of such meeting. In such case, a benefit
determination may be made by no later than the date of the second meeting
following the Plan’s receipt of the request for review. If special
circumstances require a further extension of time for processing, a benefit
determination shall be rendered not later than the third meeting of the
Committee following the Plan’s receipt of the request for review. If such an
extension of time for review is required because of special circumstances, the
Plan Administrator shall provide the claimant with written notice of the
extension, describing the special circumstances and the date as of which the
benefit determination will be made, prior to the commencement of the extension.
The Plan Administrator shall notify the claimant of the benefit determination
as soon as possible, but not later than five (5) days after the benefit
determination is made.

If the Committee in its sole discretion determines that any individual who has
filed an appeal of an initial adverse benefit determination is not entitled to
receive all or any part of the benefits claimed, it shall inform the claimant
by certified mail or by electronic notification of its determination and the
reasons therefore in a manner calculated to be understood by the claimant.
Such notification shall set forth, in a manner calculated to be understood by
the claimant: (i) the specific reason or reasons for the adverse
determination; (ii) reference to the specific plan provisions on which the
determination is based; (iii) a statement that the claimant is entitled to
receive, upon request and free of charge, reasonable access to, and copies of,
all documents, records, and other information relevant to the claimant’s claim
for benefits. A document, record, or other information is “relevant” to a
claim for benefits if it: (i)was relied upon in making the benefit
determination; (ii) was submitted, considered, or generated in the course of
making the benefit determination, without regard to whether such document,
record, or other information was relied upon in making the benefit
determination; or (iii) demonstrates compliance with the administrative
processes and safeguards required by ERISA and the applicable regulations in
making the benefit determination.

33.

 

11.7.     Company to Supply Information

The Company shall supply full and timely information to the Committee,
including, but not limited to, information relating to each Participant’s
compensation, age, Hours of Service, Years of Service, death, or other cause of
termination of employment, and such other pertinent facts as the Committee may
require. The Company shall advise the Trustee of such of the foregoing facts
as are deemed necessary for the Trustee to carry out the Trustee’s duties under
the Plan. When making a determination in connection with the Plan, the
Committee and the Trustee shall be entitled to rely upon the aforesaid
information furnished by the Company.

11.8.     Costs and Expenses

a.     Payment of all administrative expenses, including but not limited to
the administrative expenses and counsel fees, if any, of the Trustee, the
agreed-upon charges of any financial organization holding funds or managing any
Investment Option, brokerage fees, investment commissions, stock transfer
taxes, taxes on Fund assets for income attributable to such assets, and any
other charges and expenses directly incurred in connection with the acquisition
or disposition of property for or of the Fund or distribution from the Fund
shall be paid from the Fund to the extent that the payment of such expenses by
the Fund is permissible under applicable law; provided however, that the
Company may elect to pay any or all of such administrative expenses.

b.     Notwithstanding Section 11.8.a., transaction costs, such as brokerage
commissions, in connection with any of the Investment Options shall not be paid
by the Company but rather shall be borne by the Participant incurring such
transaction costs. Such transaction costs shall be deducted from Earnings on a
Participant’s applicable Investment Option prior to such Earnings being
credited to the Participant’s Investment Option account.

34.

 

ARTICLE 12

AMENDMENT, DURATION, TERMINATION AND MERGER

12.1.      Amendment and Duration of the Plan

The Company hopes and expects to continue the Plan, but necessarily reserves
the right to amend the Plan from time to time or terminate the Plan at any time
through appropriate actions of the Board. The Company’s power to amend the Plan
may be delegated to a duly authorized officer or other representative of the
Company in whole or in part. Any such delegation shall be effected by
appropriate actions of the Board and communicated to the authorized individual
in writing. Except as provided in Section 4.4., no such action shall operate
to recapture for the Company any part of the Fund previously contributed under
the Plan, nor, except to the extent necessary to meet the requirements of the
Internal Revenue Service or any other governmental authority, affect adversely
either the accounts of Participants or the Fund which secures such accounts.

12.2.      Termination of the Plan

If the Board terminates the Plan in accordance with Section 12.1., it shall
discontinue Company Contributions under Section 4.2. and Employee Elected
Company Contributions under Section 4.1. shall be discontinued. After the date
of termination, no Employees may become Participants. Payments to Participants
shall continue pursuant to the provisions of Article 8.

a.     Upon termination of the Plan, or upon the complete discontinuance of
Company contributions under the Plan, the Company Contributions Account Value
with respect to each Participant shall be immediately Vested.

b.     Upon partial termination of the Plan, the Company Contributions Account
Value with respect to each Participant whose participation ceases as a result
of the partial termination shall be immediately Vested.

12.3.      Merger of the Plan

If the Plan is merged into or consolidated with any other plan, or if the
Plan’s assets or liabilities are transferred to any other plan, each
Participant shall be entitled to receive a benefit immediately after the
merger, consolidation, or transfer (if the Plan was then terminated) equal to
or greater than the benefit he would have received had the Plan been terminated
immediately before the merger, consolidation or transfer.

35.

 

ARTICLE 13

LIMITATIONS ON BENEFITS AND CONTRIBUTIONS

13.1.      Maximum Annual Addition

a.     In any one Plan Year beginning on or after January 1, 2002, the sum of
Company Contributions allocated to a Participant’s account, plus the Employee
Elected Company Contributions, excluding Rollover Contributions, ( the “annual
additions”) cannot exceed the lesser of (i) one hundred percent (100%) of the
Participant’s total compensation within the meaning of Code Section 415(c)(3)
and applicable regulations or (ii) Forty Thousand Dollars, as adjusted for
increases in the cost-of-living under Code Section 415(d). The Code Section
415(e) combined plan limitation shall not apply to the Plan after December 31,
1999. In addition, in any one Plan Year the total Employee Elected Company
Contributions that may be made to the Fund by a Participant shall not exceed
the amount specified in Code Section 402(g). For purposes of applying the
limitations described in this Section 13.1. with respect to limitation years
commencing on or after January 1, 2001, compensation paid or made available
during such limitation years shall include elective amounts that are not
includible in the gross income of the Participant by reason of Section
132(f)(4) of the Code.

b.     If as a result of a reasonable error in estimating a Participant’s
compensation, a reasonable error in determining the amount of elective
deferrals (within the meaning of Code Section 402(g)(3)) that may be made with
respect to any individual under the limits of Code Section 415, or because of
other limited facts and circumstances, the “annual additions” (as defined in
Code Section 415) that would be credited to a Participant’s Accounts for a
limitation year would nonetheless exceed the maximum permitted “annual
additions” for such Participant for such year, the “excess annual additions”
which, but for this Section, would have been allocated to such Participant
shall be disposed of as follows:

(1)     First, any such “excess annual additions” in the form of Employee Elected
Company Contributions on behalf of such Participant that would not have been
considered in determining the amount of Company Contributions allocated to such
Participant shall be distributed to such Participant, adjusted for income or
loss allocated thereto;

(2)     Next, any such “excess annual additions” in the form of Employee Elected
Company Contributions on behalf of such Participant that would have been
considered in determining the amount of Company Contributions allocated to such
Participant shall be distributed to such Participant, adjusted for income or
loss allocated thereto, and the Company Contributions that would have been
allocated to such Participant based upon such distributed Employee Elected
Company Contributions shall, to the extent such amount would have otherwise
been allocated to such Participant, be allocated to a suspense account and
shall be held there until used to reduce future Company Contributions in the
same manner as a forfeiture; and

(3)     Finally, any such “excess annual additions” in the form of Company
Contributions shall, to the extent such amounts would otherwise have been
allocated to such Participant, be allocated to a suspense account and shall be
held therein until used to reduce future Company Contributions in the same
manner as a forfeiture.

36.

 

c.     If the distribution under Section 13.1.b. does not satisfy the
limitations described in Section 13.1.a., the Plan Administrator shall take
additional measures in conformity with Code Section 415 and the regulations
promulgated thereunder in order that the limitations set forth in Section
13.1.a. are satisfied.

13.2.      Limitation on Annual Deferrals and Nondiscrimination Requirements

a.     In restriction of the Participants’ Employee Elected Company
Contribution elections provided in Section 4.1., the Employee Elected Company
Contributions and the elective deferrals (within the meaning of section
402(g)(3) of the Code) under all other plans, contracts, and arrangements of
the Company and those of all employers which constitute a controlled group of
corporations, or a group of companies under common control (as described in
Sections 414 of the Code) of which the Company is a part on behalf of any
Participant shall be subject to a limitation set by Code Section 401(g). Such
limitation shall be: $11,000 for calendar year 2002; $12,000 for calendar year
2003; $13,000 for calendar year 2004; $14,000 for calendar year 2005; and
$15,000 for calendar years thereafter (with such amount to be adjusted
automatically to reflect any cost-of-living adjustments authorized by section
402(g)(5) of the Code).

b.     In further restriction of the Participants’ Employee Elected Company
Contribution elections provided in Section 4.1., it is specifically provided
that one of the “actual deferral percentage” tests set forth in section
401(k)(3) of the Code and the Treasury regulations thereunder must be met in
each Plan Year. The multiple use test described in Treasury Regulation
section 1.401(m)-2 shall not apply for Plan Years beginning after December 31,
2001. The “compensation” that shall be used in such tests shall be the “safe
harbor compensation” as defined in Treasury Regulation 1.414(s)-1(c)(4),
provided that elective reductions under Section 132(f)(4) of the Code shall be
excluded with respect to Plan Years commencing after December 31, 2000.

c.     In restriction of the Company Contributions hereunder, it is
specifically provided that one of the “actual contribution percentage” tests
set forth in section 401(m) of the Code and the Treasury regulations thereunder
must be met in each Plan year. The Plan Administrator may elect, in accordance
with applicable Treasury regulations, to treat Employee Elected Company
Contributions to the Plan as Company Contributions for purposes of meeting this
requirement.

d.     Anything to the contrary herein notwithstanding, any Employee elected
Company Contributions to the Plan for a calendar year on behalf of a
Participant in excess of the limitations set forth in Section 13.2.a. and any
“excess deferrals” from other plans allocated to the Plan by such Participant
no later than March 1 of the next following calendar year within the meaning
of, and pursuant to the provisions of, section 401(g)(2) of the Code, shall be
distributed to such participant not later than April 15 of the next following
calendar year.

e.     Anything to the contrary herein notwithstanding, if, for any Plan Year
beginning on or after January 1, 1997, the aggregate Employee Elected Company
Contributions made by the Company on behalf of Highly Compensated Employees
exceeds the maximum amount of Employee Elected Company Contributions permitted
on behalf of such Highly Compensated Employees pursuant to Section 13.2.b
(determined by reducing Employee Elected Company Contributions on behalf of
Highly Compensated Employees beginning with the Employee

37.

 

Elected Company Contribution made by the Participant who made the highest of
such contributions), such excess shall be distributed to the Highly Compensated
Employees on whose behalf such excess was contributed before the end of the
next following Plan Year.

f.     Anything to the contrary herein notwithstanding, if, for any Plan year,
the aggregate Company Contributions allocated to Highly Compensated Employees
exceeds the maximum amount of such Company Contributions permitted on behalf of
such Highly Compensated Employees pursuant to Section 13.2.c. (determined by
reducing Company Contributions made on behalf of Highly Compensated Employees
in order of the “contribution percentages” (as that term is defined in section
401(m)(3) of the Code and Treasury regulations thereunder) beginning with the
highest of such percentages), such excess shall be distributed to the Highly
Compensated Employees on whose behalf such excess contributions were made.

g.     In coordinating the disposition of excess deferrals and excess
contributions pursuant to this Section 13.2., such excess deferrals and excess
contributions shall be disposed of in the following order:

(1)     First, Employee Elected Company Contributions which constitute excess
deferrals described in Section 13.2.a. that are not considered in determining
the amount of Company Contributions pursuant to Section 4.2. shall be
distributed;

(2)     Next, excess Employee Elected Company Contributions which constitute excess
deferrals described in Section 13.2.a. that are considered in determining the
amount of Company Contributions pursuant to Section 4.2. shall be distributed,
and the Company Contributions with respect to such Employee Elected Company
Contributions shall be forfeited;

(3)     Next, excess Employee Elected Company Contributions described in Section
13.2.b. that are not considered in determining the amount of Company
Contributions pursuant to Section 4.2. shall be distributed;

(4)     Next, excess Employee Elected Company Contributions described in Section
13.2.b. that are considered in determining the amount of Company Contributions
pursuant to Section 4.2. shall be distributed, and the Company Contributions
with respect to such Employee Elected Company Contributions shall be forfeited;

(5)     Finally, excess Company Contributions described in Section 13.2.d. shall be
distributed.

h.     Any distribution or forfeiture of excess deferrals or excess
contributions pursuant to the provisions of this Section shall be adjusted for
income or loss allocated thereto in the manner determined by the Plan
Administrator in accordance with any method permissible under applicable
Treasury regulations. Any forfeiture pursuant to the provisions of this
Section shall be considered to have occurred on the date which is 2-1/2 months
after the end of the Plan Year.

38.

 

13.3.      Adjustments by Administrator

The Plan Administrator may, in its sole discretion, decrease the amount of the
Employee Elected Company Contributions to be made for the benefit of any Active
Participant, and pay the amount of the decrease to the Participant in cash, if
the Plan Administrator deems such a decrease to be necessary in order to
satisfy either the nondiscrimination requirement of Section 13.2. or the
limitations described in Section 13.1., or both. The Plan Administrator may
also, in its sole discretion, decrease the amount of the Employee Elected
Company Contributions to be made for the benefit of any Active Participant, if
such a decrease is necessary to ensure that the Participant’s Base Pay less
statutory and other deductions, is equal to or exceeds any periodic loan
repayment due pursuant to the loan program specified in Section 7.6. Any
decrease in the Employee Elected Company Contributions for a Participant will
also be effective for purposes of determining the amount of the Company
Contributions to be made for the Participant’s benefit under Section 4.2.

13.4.      Company Safe Harbor Contributions

a.     In addition to the Employee Elected Company Contributions made pursuant
to Section 4.1. for each Plan Year, the Company, in its discretion, may
contribute to the Fund as a “safe harbor contribution” for such Plan Year the
amounts necessary to cause the Plan to satisfy the restrictions set forth in
Section 13.2.b. Amounts contributed in order to satisfy the restrictions set
forth in Section 13.2.b. shall be considered “qualified matching contributions”
(within the meaning of Treasury regulation § 1.401(k)-1(g)(13)) for purposes of
such Section and shall be treated in the same manner as Employee Elected
Company Contributions for all purposes of the Plan. Any amounts contributed
pursuant to this Paragraph for a Plan Year shall be allocated as of the last
day of such Plan Year to Participants who (1) received an allocation of
Employee Elected Company Contributions for such Plan Year and (2) were not
Highly Compensated Employees for such Plan Year (each such Participant
individually referred to as an “Eligible Participant” for purposes of this
Paragraph). Such allocation shall be made, first, to the Eligible Participant
who received the least amount of pay for such Plan Year until the limitation
set forth in Section 13.1. has been reached as to such Eligible Participant,
then to the Eligible Participant who received the next smallest amount of
Compensation for such Plan Year until the limitation set forth in Section 13.1.
has been reached as to such Eligible Participant, and continuing in such manner
until the Employer Safe Harbor Contribution for such Plan Year has been
completely allocated or the limitation set forth in Section 13.1. has been
reached as to all Eligible Participants. Any remaining Employer Safe Harbor
Contribution for such Plan Year shall be allocated among the remaining
Participants who were Eligible Employees during such Plan Year, with the
allocation to each such Participant being the portion of such remaining
Employer Safe Harbor Contribution which is in the same proportion that such
Participant’s Compensation for such Plan Year bears to the total of all such
Participants’ Compensation for such Plan Year.

b.     In addition to the Company Contributions made pursuant to Section 4.2.
for each Plan Year, the Company, in its discretion, may contribute to the Trust
as a “safe harbor contribution” for such Plan Year the amounts necessary to
cause the Plan to satisfy the restrictions set forth in Section 13.2.c. with
respect to certain restrictions on Company Contributions. Amounts contributed
in order to satisfy the restrictions set forth in Section 13.2.c. shall be
considered Company Contributions for all purposes of the Plan. Any amounts

39.

 

contributed pursuant to this Paragraph for a Plan Year shall be allocated as of
the last day of such Plan Year to Participants who (1) received an allocation
of Company Contributions for such Plan Year and (2) were not Highly Compensated
Employees for such Plan Year (each such Participant individually referred to as
an “Eligible Participant” for purposes of this Paragraph). Such allocation
shall be made, first, to the Eligible Participant who received the least amount
of Compensation for such Plan Year until the limitation set forth in Section
13.1. has been reached as to such Eligible Participant, then to the Eligible
Participant who received the next smallest amount of Compensation for such Plan
Year until the limitation set forth in Section 13.1. has been reached as to
such Eligible Participant, and continuing in such manner until the Employer
Safe Harbor Contribution for such Plan Year has been completely allocated or
the limitation set forth in Section 13.1. has been reached as to all Eligible
Participants. Any remaining Employer Safe Harbor Contribution for such Plan
Year shall be allocated to the remaining Participants, with the allocation to
each such participant being the portion of such remaining Employer Safe Harbor
Contribution which is in the same proportion that such Participant’s
Compensation for such Plan Year bears to the total of all such Participants’
Compensation for such Plan Year.

13.5.      Aggregation of Defined Contribution Plans

For the purpose of this Article 13, all defined contribution programs qualified
under Code Section 401(a), of the Company and those of any Affiliated Company
shall be treated as one defined contribution plan, and all defined benefit
programs, qualified under Code Section 401(a), of the Company and those of any
Affiliated Company shall be treated as one defined benefit plan.

40.

 

ARTICLE 14

MISCELLANEOUS

14.1.     Inalienability of Benefits

No right or claim to benefit payments from the Fund or assets of the Fund shall
be assignable or alienable, nor shall such rights or claims be taken by
attachment, execution, levy, or other legal or equitable proceedings, except as
permitted under Code Section 401(a)(13) including (but not limited to) benefit
payments to an Alternate Payee pursuant to a Qualified Domestic Relations
Order. The Trustee shall make benefit payments only to Participants and
Beneficiaries entitled to benefits under the Plan, persons designated under
Section 8.2.a. or 9.4.a., and Alternate Payees designated by Qualified Domestic
Relations Orders.

14.2.     Rights of Participants

Nothing herein contained shall be deemed to give any Employee the right to be
retained in the service of the Company or to interfere with the right of the
Company to discharge such Employee at any time, nor shall it be deemed to give
the Company the right to require the Employee to remain in its service, nor
shall it interfere with the Employee’s right to terminate his service at any
time.

14.3.      Applicable Law

The provisions of this Plan shall be construed according to the law of the
State of Tennessee (without regard to its provisions with respect to conflict
of laws) to the extent that federal law does not govern in the interpretation
of the Plan or other matters.

14.4.      Voting of Common Shares

The Trustee shall furnish to each Participant, Beneficiary, and Alternate Payee
in the Plan who has Vested Units representing whole Common Shares in his
account notice of the date and purpose of each meeting of shareholders of
Nortel Networks Corporation at which Common Shares are entitled to be voted and
shall request from each such individual, instructions as to the voting at such
meeting of the number of such whole Vested Common Shares attributable to such
individual’s account on the record date of such meeting.

a.     If the Participant, Beneficiary or Alternate Payee furnishes such
instructions to the Trustee on a timely basis, the Trustee shall vote such
number of whole Common Shares in accordance with the instructions of such
individual.

b.     Each Participant (or, upon the death of a Participant, that
Participant’s Beneficiaries, acting collectively based on the vote of a
majority in interest) and Alternate Payee shall be the “named fiduciary” with
respect to the voting of the shares of Nortel Networks Corporation allocated to
his or her account. Any such person who fails to furnish timely instructions
to the Trustee concerning the voting of such shares shall be deemed to have
given a proxy with respect to the voting of such shares to the persons
designated by Nortel Networks

41.

 

Corporation in its notice of any annual or special meeting of shareholders at
which such vote is to be taken.

14.5.      Leased Employee Coverage

For purposes of the participation in the Plan of a Leased Employee, such Leased
Employee’s interest in the factors relevant to contributions under the Plan
(including both Company Contributions and Employee Elected Company
Contributions) that is attributable to services performed for the Company or
any Affiliated Company shall be treated as provided by the Company.

14.6.      Single Plan

For purposes of the Code and ERISA, the Plan as adopted by the Company and all
other entities which have Employees covered by it shall constitute a single
plan rather than a separate plan of each adopting entity. All assets in the
Trust Fund shall be available to pay benefits to all Participants and their
beneficiaries.

14.7.     Military Service

Effective as of December 12, 1994, notwithstanding any provision of this Plan
to the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414(u)
of the Code. Loan repayments, if any, will be suspended under this Plan as
permitted under Section 414(u)(4) of the Code.

42.

 

ARTICLE 15

TOP-HEAVY RESTRICTIONS

15.1.     Article Controls

Any Plan provisions to the contrary notwithstanding, the provisions of this
Article 15 shall control to the extent required to cause the Plan to comply
with the requirements imposed under Code Section 416.

15.2.     Definitions

For purposes of this Article 15, the following terms shall have the following
meanings unless the context indicates otherwise:

a.     Account Balance: As of any Valuation Date, the aggregate amount
credited to an individual’s account or accounts under a qualified defined
contribution plan maintained by the Company or an Affiliated Company (excluding
employee contributions that were deductible within the meaning of Code Section
219 and rollover or transfer contributions made after December 31, 1983, by or
on behalf of such individual to such plan from another qualified plan sponsored
by an entity other than the Company or an Affiliated Company), increased by (1)
the aggregate distributions made to such individual from such plan during a one
(1)-year period ending on the Determination Date and (2) the amount of any
contributions due as of the Determination Date immediately following such
Valuation Date. In the case of a distribution made for a reason other than
separation from service, death or disability, this provision shall be applied
by substituting “five (5)-year period” for “one (1)-year period in subsection
(1) above. The accrued benefits and accounts of an individual who has not
performed services for the Company during the one (1)-year period ending on the
determination date shall not be taken into account.

b.     Accrued Benefit: As of any Valuation Date, the present value (computed
on the basis of the Assumptions) of the cumulative accrued benefit (excluding
the portion thereof that is attributable to employee contributions which were
deductible pursuant to Code Section 219, to rollover or transfer contributions
made after December 31, 1983, by or on behalf of such individual to such plan
from another qualified plan sponsored by an entity other than the Company or an
Affiliated Company, to proportional subsidies or to ancillary benefits) of an
individual under a qualified defined benefit plan maintained by the Company or
an Affiliated Company increased by (1) the aggregate distributions made to such
individual from such plan during a one (1)-year period ending on the
Determination Date and (2) the estimated benefit accrued by such individual
between such Valuation Date and the Determination Date immediately following
such Valuation Date. Solely for the purpose of determining top-heavy status,
the Accrued Benefit of an individual shall be determined under (1) the method,
if any, that uniformly applies for accrual purposes under all qualified defined
benefit plans maintained by the Company and the Affiliated Companies or (2) if
there is no such method, as if such benefit accrued not more rapidly than under
the slowest accrual rate permitted under Code Section 411(b)(1)(C). In the
case of a distribution made for a reason other than separation from service,
death or disability, this provision shall be applied by substituting “five
(5)-year period” for “one (1)-year period in subsection (1) above. The accrued
benefits and accounts of an

43.

 

individual who has not performed services for the Company during the one
(1)-year period ending on the determination date shall not be taken into
account.

c.     Aggregation-Group-of-Plans: For any calendar year, each plan qualified
under Code Section 401(a) of the Company or an Affiliated Company if, on the
Determination Date for such plan which occurs in the preceding calendar year
(or, in the case of a plan whose first plan year ends in such calendar year, on
the Determination Date which occurs in such calendar year),

(1)     One or more Key Employees is a participant in such plan year in which such
Determination Date occurs or was a participant in such plan at any time during
the four plan years preceding such plan year, or

(2)     Such plan enables any plan described in subparagraph (a) to meet the
requirements of Code Sections 401(a)(4) or 410, or

(3)     The Company elects to include such plan in the Aggregation Group of Plans
(but only if the Aggregation Group of Plans including such plan, treated as a
single plan, would meet the requirements of Code Sections 401(a)(4) and 410).
For purposes of this definition, any simplified employee pension (as defined as
Code Section 408(k)) of the Company or an Affiliated Company shall be treated
as a plan of the Company or an Affiliated Company qualified under Code Section
401(a).

d.     Annual Adjustment Factor: A factor reflecting changes in the Consumer
Price Index, as determined from time to time by the Secretary of the Treasury
pursuant to Code Section 415(d)(1)(B).

e.     Assumptions: The interest rate and mortality assumptions specified for
top-heavy status determination purposes in any defined benefit plan included in
the Aggregation-Group-of-Plans which includes the Plan.

f.     Determination Date: The last day of any Plan Year.

g.     Plan Year: With respect to any plan, the annual accounting period used
by such plan for annual reporting purposes.

h.     Remuneration: Compensation within the meaning of Code Section
415(c)(3) as described in Section 13.1.a. hereof, as limited by Code Section
401(a (17).

i.     Key Employee: For any Plan Year, a person who is a “key employee” of
the Company or an Affiliated Company within the meaning of Code Section
416(i)(1).

j.     Top Heavy Vesting Percentage: The percentage determined under Section
15.4.

k.     Valuation Date: With respect to any Plan Year of any defined
contribution plan, the most recent date within the twelve-month period ending
on a Determination Date as of which the trust fund established under such plan
was valued and the net income (or loss) thereof allocated to participants’
accounts. With respect to any Plan Year of any defined benefit plan,

44.

 

the most recent date within a twelve-month period ending on a Determination
Date as of which the plan assets were valued for purposes of computing plan
costs for purposes of the requirements imposed under Code Section 412.

15.3.     Top-Heavy Status

a.     The Plan shall be deemed to be top-heavy for a Plan Year if, as of the
Determination Date for such Plan Year, (1) the sum of Account Balances of
Participants who are Key Employees exceeds sixty percent (60%) of the sum of
Account Balances of all Participants unless an Aggregation-Group-of-Plans
including the Plan is not top-heavy or (2) an Aggregation-Group-of-Plans
including the Plan is top-heavy. An Aggregation-Group-of-Plans shall be deemed
to be top-heavy as of a Determination Date if the sum (computed in accordance
with Code Section 416(g)(2)(B) and the Treasury regulations promulgated
thereunder) of (1) the Account Balances of Key Employees under all defined
contribution plans included in the Aggregation-Group-of-Plans and (2) the
Accrued Benefits of Key Employees under all defined benefit plans included in
the Aggregation-Group-of-Plans exceeds sixty percent (60%) of the sum of the
Account Balances and the Accrued Benefits of all individuals under such plans.
Notwithstanding the foregoing, the Account Balances and Accrued Benefits of
individuals who are not Key Employees in any Plan Year but who were Key
Employees in any prior Plan Year shall not be considered in determining the
top-heavy status of the Plan for such Plan Year. Further, notwithstanding the
foregoing, the Account Balances and Accrued Benefits of individuals who have
not performed services for the Company or any Affiliated Company at any time
during the one (1)-year period ending on the applicable Determination Date
shall not be considered.

b.     If the Plan is determined to be top-heavy for a Plan Year, the Company
shall contribute to the Plan for such Plan Year on behalf of each Participant
who is not a Key Employee and who has not terminated his employment as of the
last day of such Plan Year an amount equal to the lesser of (A) three percent
(3%) of such Participant’s Remuneration for such Plan Year or (B) a percent of
such Participant’s Remuneration for such Plan Year equal to the greatest
percent determined by dividing for each Key Employee the amounts allocated to
such Key Employee’s Total Account Value for such Plan Year by such Key
Employee’s Remuneration.

The minimum contribution required to be made for a Plan year pursuant to this
Paragraph for a Participant employed on the last day of such Plan Year shall be
made regardless of whether such Participant is otherwise ineligible to receive
an allocation of the Company’s contributions for such Plan Year.
Notwithstanding the foregoing, if the Plan is deemed to be top-heavy for a Plan
Year, the Company’s contribution for such Plan Year pursuant to this Paragraph
shall be increased by substituting “4%” in lieu of “3%” in Clause (1) hereof to
the extent that the Board determines to so increase such contribution to comply
with the provisions of Code Section 416(h)(2). Notwithstanding the foregoing,
no contribution shall be made pursuant to this Paragraph for a Plan Year with
respect to a Participant who is a participant in another defined contribution
plan sponsored by the Company or an Affiliated Company if such Participant
receives under such other defined contribution plan (for the plan year of such
plan ending with or within the Plan Year of the Plan) a contribution which is
equal to or greater than the minimum contribution required by Code Section
416(c)(2). Notwithstanding the foregoing, no contribution shall be made
pursuant to this Paragraph for a Plan Year with respect to a

45.

 

Participant who is a participant in a defined benefit plan sponsored by the
Company or an Affiliated Company if such Participant accrues under such defined
benefit plan (for the plan year of such plan ending with or within the Plan
Year of this Plan) a benefit that is at least equal to the benefit described in
Code Section 416(c)(1). If the preceding sentence is not applicable, the
requirements of this Paragraph shall be met by providing a minimum benefit
under such defined benefit plan which, when considered with the benefit
provided under the Plan as an offset, is at least equal to the benefit
described in Code Section 416(c)(1).

15.4.     Vesting

Notwithstanding Article 6, a Participant’s Top Heavy Vesting Percentage shall
be the greater of

a.     His vesting percentage determined under Article 6, and

b.     His vesting percentage determined under the following table (but
disregarding any Years of Service completed by such Participant after the end
of the last Plan Year in which he completed an Hour of Service):

	 	 	 	 	 
	Years of Service	 	Vesting Percentage
	
	 	

	Less than 3
	 	 	0	 
	3 or more
	 	 	100	 

Notwithstanding Article 6 and notwithstanding the preceding sentence, the
vesting percentage of a Participant who has completed five Years of Service as
of the end of any Plan Year in which he completed an Hour of Service shall,
upon the completion of his third Year of Service, be 100%.

15.5.     Termination of Top-Heavy Status

If the Plan has been deemed to be top-heavy for one or more Plan Years and
thereafter ceases to be top-heavy, the provisions of this Article 15 shall
cease to apply to the Plan effective as of the Determination Date on which it
is determined no longer to be top-heavy. Notwithstanding the foregoing, the
Vested interest of each Participant as of such Determination Date shall not be
reduced and, with respect to each participant who has five or more Years of
Service on such Determination Date (three or more Years of Service for
Determination Dates occurring in Plan Years beginning after December 31, 1988),
the Vested interest of each such Participant shall continue to be determined in
accordance with the schedule set forth in Section 15.4.

15.6.      Effect of Article

Notwithstanding anything contained herein to the contrary, the provisions of
this Article 15 shall automatically become inoperative and of no effect to the
extent not required by the Code or ERISA.

46.

 

APPENDIX A

TRANSFERRED ACCOUNTS

This Appendix A, forming a part of the Plan, provides for certain rights of
distributions, withdrawals and vesting with respect to accounts (“Transferred
Accounts”) transferred to the Plan from other qualified plans incident to
corporate transactions or plan mergers, as follows:

Transferred Accounts from the

Bell Atlantic Savings Plan for Salaried Employees

	 	•	 	Participants have 100% vested and nonforfeitable interests in their
Transferred Accounts.
	 
	 	•	 	A Participant who has attained the age of 59-1/2 may withdraw at any
time all or any portion of his Transferred Account which is
attributable to contributions made pursuant to the transferring plan’s
qualified cash or deferred arrangement.
	 
	 	•	 	A Participant who terminates employment by reason of total and
permanent disability shall be entitled to receive distribution of his
Transferred Account pursuant to the provisions of Section 8.1(b) of
the Plan.

Transferred Accounts from the

Motorola Nortel Communications Co. Long-Term Investment Plan

	 	•	 	Participants have 100% vested and nonforfeitable interests in their
Transferred Accounts.
	 
	 	•	 	Participants eligible for a distribution of their Transferred Accounts
pursuant to Section 2.3.b of the Plan shall be entitled to receive
such distributions pursuant to the provisions of Section 8.1(b) of the
Plan.

Transferred Accounts from the

Digital Equipment Corporation Restated Savings and Investment Plan

	 	•	 	Participants have 100% vested and nonforfeitable interests in their
Transferred Accounts.
	 
	 	•	 	A Participant who has attained the age 59-1/2 may withdraw at any time
any or all of his Transferred Account; provided, however, that the
minimum of such withdrawal shall be the lesser of $1,000 or the total
balance of his Transferred Account and no more than two such
withdrawals may be made during any twelve-month period

47.

 

APPENDIX A

TRANSFERRED ACCOUNTS (con’t.)

Transferred Accounts from the

PacTel Corporation Retirement Plan

	 	•	 	Participants have 100% vested and nonforfeitable interests in their
Transferred Accounts.
	 
	 	•	 	A Participant who has attained the age of 59-1/2 may withdraw at any
time any or all of the portion of his Transferred Account which is
attributable to contributions made pursuant to the transferring plan’s
qualified cash or deferred arrangement; provided, however, that the
minimum of any such withdrawal shall be the lesser of $250 or the
balance of the withdrawable portion of such Transferred Account.

Transferred Accounts from the

Computer Consoles. Inc. Employees’ Profit Sharing Plan

	 	•	 	Regardless of the nature of a Participant’s termination of employment, he
may elect to have his Transferred Account distributed in accordance with
Section 8.1(b) of the Plan.

Except as set forth above, Participants’ Transferred Accounts shall be subject
to all terms and provisions of the Plan.

Transferred Accounts from the

BNI 401(k) Plan

	 	•	 	A Participant who has attained the age of 59-1/2 may withdraw at any
time any or all of the portion of his Transferred Account which is
attributable to contributions made pursuant to the transferring plan’s
qualified cash or deferred arrangement.

Transferred Accounts from the

Promatory 401(k) Plan

	 	 	 	A Participant who had a loan under the Clarify 401(k) Plan on a 30-year
term as a mortgage loan shall be permitted to continue that loan under
this Plan, but shall be subject to the terms of this Plan regarding loans
with respect to all future loans.

Transferred Accounts from the

Periphonics 401(k) Plan

	 	 	 	A Participant who was a participant in the Periphonics 401(k) Plan shall
be entitled to elect from such additional forms of benefit payments that
were provided under the

48.

 

	 	 	 	Periphonics 401(k) Plan as required under the provisions of Code section
411(d)(6) regarding “protected benefits” as well as the forms described
in Section 8.1. hereof. A Participant who had two (2) loans under the
Periphonics 401(k) Plan shall be entitled to continue those loans until
their repayment, but shall be subject to the limitations of this Plan
regarding future loans.

49.

 

APPENDIX B

INVESTMENT OPTIONS

	 	 	 	The following Investment Options are available under the Plan as of June
5, 2002:
	 
	 	 	 	Deutsche Bank Fixed Income Investment Fund (“Fixed Income Fund”)
	 
	 	 	 	Pacific Investment Management Company Total Return A Fund (Bond Fund)
(“PIMCO Total Return Fund”)
	 
	 	 	 	Deutsche Asset Management — Premier Class (“Deutsche Asset Management
Fund “)
	 
	 	 	 	Barclays Global Investors MasterWorks LifePath Income Fund
(“MasterWorks LifePath Income Fund”)
	 
	 	 	 	Barclays Global Investors MasterWorks LifePath 2010
(“MasterWorks LifePath 2010”)
	 
	 	 	 	Barclays Global Investors MasterWorks LifePath 2020
(“MasterWorks LifePath 2020”)
	 
	 	 	 	Barclays Global Investors MasterWorks LifePath 2030
(“MasterWorks LifePath 2030”)
	 
	 	 	 	Barclays Global Investors MasterWorks LifePath 2040
(“MasterWorks LifePath 2040”)
	 
	 	 	 	State Street Global Advisors Russell 1000 Value Index Fund
(“SSgA Russell 1000 Value Index Fund”)
	 
	 	 	 	State Street Global Advisors S&P 500 Flagship Fund
(“SSgA S&P 500 Index Fund”)
	 
	 	 	 	Dresdner RCM Large Growth Fund
	 
	 	 	 	Deutsche Mid-Cap Fund
	 
	 	 	 	Templeton Foreign Fund
	 
	 	 	 	Fidelity Low Priced Stock Fund
	 
	 	 	 	Nortel Networks Stock Fund- a fund
that invests primarily in Common Shares

The “Default Investment Option” is the Fixed Income Fund.

50.

 

NORTEL NETWORKS LONG-TERM INVESTMENT PLAN

PLAN LOAN PROGRAM PROCEDURE

The Nortel Networks Long-Term Investment Plan (hereinafter the “Plan”)
authorizes the Plan Administrator to direct the Trustee to make loans available
to Participants who are Employees or a former Employee, and who is a
party-in-interest, as that term is defined in ERISA Section 3(14) (hereinafter
“Eligible Participants”).* However, before any loan is made, the Plan requires
that a written plan loan program procedure be established which sets forth the
rules and guidelines for making such loans. This document shall serve as the
required written loan program procedure. In addition, the Plan Administrator
may use this document to serve as, or supplement, any required notice of the
loan program to Participants and Beneficiaries.

	1.	 	The Plan Administrator has established a Plan Loan Program effective
February 1, 1994, and has directed the Trustee to administer the Plan Loan
Program. All applications for loans shall be made by an Eligible
Participant to the Trustee on forms and/or by such method which the
Trustee will make available for such purpose. All loan applications shall
be considered by the Trustee within a reasonable time after the Eligible
Participant makes application to the Trustee.
	 
	2.	 	The Trustee shall determine whether an Eligible Participant qualifies for
a loan, applying criteria such as, but not limited to, whether adequate
security has been provided for the loan; whether the Eligible Participant
agrees, as a condition for receiving the loan, to make repayments through
direct, after-tax payroll deduction by the Company or, where applicable,
through Automated Clearing House processing or coupons; whether the
Eligible Participant has an outstanding Plan loan; and whether the
Eligible Participant is in default on a Plan loan.
	 
	3.	 	Adequate security must be provided by the Eligible Participant before a
loan is granted. For this purpose, the Plan shall consider an Eligible
Participant’s interest in the Plan to be adequate security. However, in
no event shall the loan be more than fifty percent (50%) of the Vested
portion of the Eligible Participant’s Total Account Value as of the most
recently available Valuation Date at the time the loan is processed by the
Trustee.
	 
	4.	 	No more than one (1) Plan loan shall be outstanding to an Eligible
Participant at a time. (For this purpose only, an outstanding loan from
the Computer Consoles, Inc. Employees’ Profit Sharing Plan which
transferred to the Plan as a result of the merger of those plans shall not
be counted as a Plan loan.) No loan shall be issued to an Eligible
Participant who is in default on a Plan loan

	*	 	Effective January 1, 1995, those Suspended Participants described in
Section 7.7 of the Plan shall also be deemed to be “Eligible
Participants.”

51.

 

	5.	 	A Plan loan shall not be available to an Eligible Participant for a
reason of financial hardship as defined in Section 7.2.(a) of the Plan.
	 
	6.	 	The amount of a loan made to an Eligible Participant shall not be less
than $1,000 and shall not exceed an amount equal to

	 	(a)	 	the lesser of: (i) Fifty Thousand Dollars ($50,000) (reduced
by the Eligible Participant’s highest outstanding loan balance from
the Plan during the twelve (12) month period ending on the day
before the date on which the loan is made) or (ii) one-half (1/2) of
the Vested portion of the Eligible Participant’s Total Account Value
as of the most recently available Valuation Date at the time the
loan is processed by the Trustee; minus
	 
	 	(b)	 	the total outstanding loan balance of the Eligible
Participant under all other loans from all qualified plans of the
Company or an Affiliated Company.

	7.	 	If an Eligible Participant requests a loan hereunder, and such loan is
approved by the Trustee, the loan amount provided to the Eligible
Participant (hereafter the “Loan Recipient”) shall be funded by a
liquidation of Vested portion of the Loan Recipient’s Total Account Value.
A loan processing fee of seventy-five dollars ($75.00) (or such other
amount as the Plan Administrator shall determine) shall be deducted from
the loan amount. Funds shall be liquidated on a prorata basis from the
Investment Options according to the following hierarchy (from first to be
liquidated to last): matched Employee Elected Company Contributions;
unmatched Employee Elected Company Contributions; Rollover Contributions;
Vested Company Contributions; and Employee Contributions. Loan
repayments, including interest, shall be reinvested in the Loan
Recipient’s account in Investment Options according to the Loan
Recipient’s latest investment election and in the reverse hierarchical
order of the liquidation set forth in this Section 7.
	 
	8.	 	Any loan granted under this program shall bear a fixed rate of interest
over the term of the loan. The interest rate for the Plan Loan Program
shall be established quarterly and shall be Bankers Trust Prime Rate plus
1% or such other rate established by a methodology to be determined solely
by the Plan Administrator in accordance with requirements of Code Section
4975(d)(1).
	 
	9.	 	The terms of the loan shall (a) require level payments using the economic
accrual method of amortization with payments by payroll deduction or, when
the Loan Recipient is no longer on the payroll, by the Automated Clearing
House process or coupon, to occur not less frequently than quarterly, (b)
require that the loan be repaid in five (5) years or less, except with
respect to a “mortgage loan” (as defined in Section 7.6.c. of the Plan)
which must be repaid in fifteen (15) years or less, with the loan due date
established only in one (1) year increments; (c) allow prepayment of the
full, or, on or after April 1, 1997, any portion of the loan balance at
any time after six (6) months without penalty; and, (d) require that the
loan, including principal and accrued interest, become due and payable in
full (to the extent not otherwise due and payable) on the date the Loan
Recipient or Beneficiary, as applicable, is first eligible to request a
distribution of the Total Account Value under Section 2.3(b) of the Plan
because of the occurrence of the following:

52.

 

	 	 	(i) termination of employment as set forth in Section 2.3(a)(1) if such
termination was initiated by the Loan Recipient or based on the Loan
Recipient’s acts or conduct determined in the sole discretion of the Plan
Administrator not to be in the best interests of the Company; (ii)
termination of employment with the Company as set forth in Section
2.3(a)(3) of the Plan; or (iii) termination of employment for any reason,
including retirement pursuant to Section 2.3.a.(4) or Total and Permanent
Disability pursuant to Section 2.3.b.( 2) when such Loan Recipient shall
receive a distribution pursuant to Section 8.2.b. If the Loan Recipient
elects not to repay the loan in full on the date set forth in this
Section 9(d), the loan balance, including principal and accrued interest,
may either be offset against the Vested portion of the Loan Recipient’s
Total Account Value or may be paid through payments paid through
Automated Clearing House processing or coupons, at the election of the
Loan Recipient (subject to the provisions of item # 10 below.
	 
	10.	 	If while a loan is outstanding a Loan Recipient becomes eligible for and
requests a distribution of his or her Total Account Value pursuant to
Section 2.3(b) of the Plan, except as set forth in Section 9(d) above, the
loan, including principal and accrued interest, shall become due and
payable in full (to the extent not otherwise due and payable) immediately.
If the Loan Recipient elects not to repay the loan in full prior to the
request for distribution, the loan balance, including principal and
accrued interest, shall be offset against the distribution of the Loan
Recipient’s Total Account Value.
	 
	11.	 	If a scheduled loan payment is not made in full by the date when such
payment is due, the unpaid amount must be paid by the end of the calendar
quarter following the quarter in which the payment(s) was missed.
Payments during any quarter will first be applied to missed payments. If
the missed payment(s) is not paid by the end of the calendar quarter
following the calendar quarter in which it was originally due, the loan
will be defaulted. Interest on the outstanding balance of the loan will
continue to accrue in the event of a default. The Plan Administrator may
exercise any appropriate remedies in the event of a default. The default
will be deemed a distribution, a taxable event under the Code, and
appropriate documents reporting such distribution will be issued. The
defaulted loan balance shall be offset against the Vested portion of the
Loan Recipient’s Total Account Value at such time as the Loan Recipient is
first eligible for a distribution of his or her Total Account Value in
accordance with Section 2.3(b) of the Plan, unless such Loan Recipient
repays the loan in full: (a) while still an Employee and (b) prior to
eligibility for such a distribution.
	 
	12.	 	If while a loan is outstanding, a termination of employment occurs as a
result of a corporate divestiture or other transaction which is
accompanied by a fund-to-fund transfer of the Vested portion of the Loan
Recipient’s Total Account Value from the Fund to the trust fund of the
qualified plan of the Loan Recipient’s new employer, the loan may be
transferred as a part of such fund-to-fund transfer. However, if that
does not occur for any reason, including the election of the Loan
Recipient or the new employer, the loan shall become immediately due and
payable as described in item #9(d) above.
	 
	13.	 	All terms used in this document with initial capitalization shall have
the meanings assigned to them under the provisions of the Plan or as
defined in this document.

53.

 

IN WITNESS WHEREOF, the authorized designee of the Company has executed this
Plan on the 10th day of May, 2002, to be effective as of August 15 , 2002
(except as otherwise indicated herein).

	 	 	 
	 	 	
NORTEL NETWORKS INC.
	 	 	 
	 	 	
By:/s/ Paula Holden              
                 
     
	 	 	
                 
Paula Holden

Title: Director, Global Benefits

54.

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