Document:

exv10w1

 

Exhibit 10.1

February 22, 2008

Nortel 2005 Stock Incentive Plan,

As Amended and Restated

     Section 1. Purpose of the Plan. The purpose of the Plan is to promote the long-term
success of the Company by providing equity-based incentive awards to eligible employees. The Plan
is designed to provide eligible employees a proprietary interest in Nortel and thereby encourage
such employees to perform the duties of their employment to the best of their abilities and to
devote their business time and efforts to further the growth and development of the Company. The
Plan is also intended to assist the Company in attracting and retaining individuals with superior
experience and ability.

     Section 2. Definitions. For purposes of the Plan, the following terms shall have the
meaning set forth below:

          (a) “Award” shall mean an award of Options, Stock Appreciation Rights, Restricted Stock
Units or Performance Stock Units granted to a Participant under the Plan.

          (b) “Base Price” shall mean the base dollar amount used to calculate the amount, if any,
payable to a Participant with respect to a Share subject to a Stand-Alone SAR upon exercise
thereof, which base dollar amount shall not be less than 100 percent of the Market Value of a
Share on the Effective Date of the grant of the Stand-Alone SAR, subject to adjustment pursuant
to Section 11.

          (c) “Blackout Period” means a period of time during which the relevant Participant cannot
exercise an Option, or sell Shares, due to applicable law or policies of the Company in respect
of insider trading, other than under a cease trade order issued by a securities regulatory
authority.

          (d) “Board of Directors” shall mean the Board of Directors of Nortel.

          (e) “Canadian Award” shall mean an Award pursuant to which, as applicable, (i) in the case
of Options (including any Tandem SARs), the Subscription Price is stated and payable in Canadian
dollars (and, in the case of any Tandem SARs, any cash amount payable in settlement thereof shall
be paid in Canadian dollars), (ii) in the case of Stand-Alone SARs, the Base Price is stated in
Canadian dollars and any cash amount payable in settlement thereof shall be paid in Canadian
dollars or (iii) in the case of Restricted Stock Units or Performance Stock Units, any cash
amount payable in settlement thereof shall be paid in Canadian dollars.

          (f) “Cause” shall mean a Participant’s Termination, (i) for just cause or cause under
applicable law or (ii) following his or her (A) willful breach or neglect of the duties of his or
her employment; (B) failure or refusal to perform such duties after demand for performance or to
comply with the Company’s rules, policies and practices, (C) dishonesty, (D) insubordination, (E)
gross, serious or repeated misconduct, (F) conduct endangering, or likely to endanger, the health
or safety of another employee, (G) conviction of a crime constituting a felony or other
indictable offense, (H) serious breach of his or her contract of

 

 

employment, where applicable, (I) gross incompetence, or (J) bringing the Company into
disrepute; except that if, at the time of such Termination, (1) the Participant is covered by any
severance, termination or similar plan or policy maintained by the Company that employs the
Participant, the term “cause” shall have the meaning, if any, assigned thereto under such plan or
policy or if there is no such definition of cause, the term “cause” shall mean the Participant’s
Termination under circumstances in which the Participant is not entitled to receive notice of
termination or compensation in lieu of notice under such plan or policy or (2) the Participant is
party to an employment, severance, retention, or similar contract or agreement with the Company
that employs the Participant and that contains a definition of the term “cause” or a similar
term, the term “cause” shall have the meaning, if any, assigned thereto (or to such similar term)
in such contract or agreement.

          (g) “CBCA” shall mean the Canada Business Corporations Act, R.S.C. 1985, c-C-44, as amended.

          (h) “Code” shall mean the United States Internal Revenue Code of 1986, as amended.

          (i) “Committee” shall mean the Joint Leadership Resources Committee of the Board of
Directors and the Board of Directors of Nortel Networks Limited, described in Section 3 hereof,
or such other committee or joint committee as may be designated by the Board of Directors and, if
applicable, the Board of Directors of Nortel Networks Limited from time to time to administer the
Plan that meets the requirements of Section 3 hereof.

          (j) “Company” shall mean, collectively, Nortel and its direct and indirect Subsidiaries, or
Nortel, or any such Subsidiary individually, as the context requires.

          (k) “Control” shall mean, with respect to any Person, the possession, directly or
indirectly, severally or jointly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities, by contract or
credit arrangement, as trustee or executor, or otherwise.

          (l) “Effective Date” shall mean the date as of which an Award shall take effect, provided
that the Effective Date shall not be a date prior to the date the Committee determines an Award
shall be made and, unless otherwise specified by the Committee, the Effective Date will be the
date the Committee determines an Award shall be made.

          (m) “Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended.

          (n) “Extension Period” shall mean, with respect to a Participant whose employment Terminates
due to a Qualifying Termination Without Cause, the period beginning on such Participant’s Date of
Termination and, unless determined otherwise by the Committee, ending on the earlier of (x) the
twenty-four month anniversary of the Participant’s Date of Termination and (y) the date
determined in accordance with the following:

	 	(i)	 	in the case of a Participant who receives severance or other termination
compensation pursuant to the terms of an individual agreement entered into by

2

 

	 	 	 	such Participant and the Company that employs the Participant or pursuant to the
terms of any plan, policy or practice of such Company, the last day of the period
under (x) or (y), as determined by the Committee: (x) the period used to calculate
the portion of the severance or other termination amount payable to the Participant
under such agreement, plan, policy or practice on the basis of his or her base
salary rate or (y) a period of calendar weeks equal to (A) the severance or other
termination amount payable to the Participant under such agreement, plan, policy or
practice, divided by (B) the Participant’s weekly base salary rate; and

	 	(ii)	 	in the case of a Participant who is party to a written contract of employment
with the Company that employs the Participant that requires the Company to provide the
Participant prior notice of such Qualifying Termination Without Cause or pay in lieu
thereof (including payment of continued compensation during any period of “garden
leave”), other than an individual agreement described in clause (i) above, the last day
of any such notice period, in the case of a notice period that ends after the
Participant’s Date of Termination, or the last day of the period for which the
Participant receives pay in lieu of notice.

          (o) “Incentive Stock Option” shall mean an Option that, on the Effective Date, is intended
to qualify and is designated by the Committee in the applicable instrument of grant as an
Incentive Stock Option within the meaning of Section 422 of the Code (or any successor
provision).

          (p) “Market Value” of a Share shall mean the average of the high and low prices for a board
lot of Shares traded in Canadian dollars on the TSX during the relevant day or, if the volume of
Shares traded on the NYSE during the relevant day in the United States exceeds the volume of
Shares traded on the TSX on such relevant day, the average of the high and low prices for a board
lot of Shares traded in U.S. dollars on the NYSE during the relevant day. The Market Value so
determined may be in Canadian dollars or in U.S. dollars. As a result, the Market Value of a
Share covered by a Canadian Award shall be either (a) such Market Value as determined above, if
in Canadian dollars, or (b) such Market Value as determined above converted into Canadian dollars
at the noon rate of exchange of the Bank of Canada on the relevant day, if in U.S. dollars.
Similarly, the Market Value of a Share covered by a U.S. Award shall be either (a) such Market
Value as determined above, if in U.S. dollars, or (b) such Market Value as determined above
converted into U.S. dollars at the noon rate of exchange of the Bank of Canada on the relevant
day, if in Canadian dollars. If on the relevant day there is not a board lot trade in the Shares
on each of the TSX and NYSE or there is not a noon rate of exchange of the Bank of Canada, then
the Market Value of a Share covered by a Canadian Award and the Market Value of a Share covered
by a U.S. Award shall be determined as provided above on the first day immediately preceding the
relevant day for which there were such board lot trades in the Shares and a noon rate of
exchange. The Market Value of a Share shall be rounded up to the nearest whole cent.

          (q) “Nortel” shall mean Nortel Networks Corporation, a Canadian corporation, or any
Successor thereto.

          (r) “NYSE” shall mean the New York Stock Exchange.

3

 

          (s) “Option” shall mean an option, granted in accordance with Section 6 hereof, to purchase
a Share.

          (t) “Participants” shall mean those individuals to whom Awards have been granted from time
to time under the Plan.

          (u) “Performance Criteria” shall mean such financial and/or personal performance criteria as
may be determined by the Committee, including any Qualifying Performance Criteria. Performance
Criteria may be applied to either the Company as a whole or to a business unit or single or group
of Companies, either individually, alternatively or in any combination, and measured either in
total, incrementally or cumulatively over a specified performance period, on an absolute basis or
relative to a pre-established target, to previous years’ results or to a designated comparison
group, provided that the performance period for measurement or achievement of any such
Performance Criteria (or incremental element thereof) shall in all events be equal to or exceed
one year.

          (v) “Performance Stock Unit” shall mean a right, granted in accordance with Section 8
hereof, to receive one Share or a cash payment of the Market Value of a Share, as determined by
the Committee, that generally becomes Vested, if at all, subject to the attainment of Performance
Criteria determined by the Committee (which may be graduated such that different percentages,
which may be greater or lesser than 100%, of the Performance Stock Units will become Vested
depending on the extent of satisfaction of the Performance Criteria) and satisfaction of such
other conditions to Vesting, if any, as may be determined by the Committee.

          (w) “Person” shall mean any natural person, firm, partnership, limited liability company,
association, corporation, company, trust, business trust, governmental authority or other entity.

          (x) “Plan” shall mean this Nortel 2005 Stock Incentive Plan, as set forth herein and as the
same may be amended and in effect from time to time.

          (y) “Prior Plan” shall mean the Nortel Networks Corporation 1986 Stock Option Plan As
Amended and Restated and/or the Nortel Networks Corporation 2000 Stock Option Plan, individually
or collectively, as the context requires.

          (z) “Prior Plan Available Shares” shall mean those Shares that, on January 1, 2006, were
authorized for issuance and available for grant of new awards under a Prior Plan (for greater
certainty, excluding Unissued Prior Plan Option Shares), subject to adjustment in order to
reflect the consolidation of all of the issued and outstanding Shares, effective December 1,
2006, based on the consolidation ratio of 1 post-consolidation Share for every 10
pre-consolidation Shares

          (aa) “Prior Plan Option” shall mean an option to purchase Shares granted to a participant
under a Prior Plan that is outstanding, in whole or part, on January 1, 2006.

          (bb) “Qualifying Performance Criteria” shall mean any one or more of the following
performance criteria, either individually, alternatively or in any combination,

4

 

applied to either the Company as a whole or to a business unit or single or group of
Companies, either individually, alternatively or in any combination, and measured either in
total, incrementally or cumulatively over a period of more than one year, on an absolute basis or
relative to a pre-established target, to previous years’ results or to a designated comparison
group, in each case as determined by the Committee: (i) cash flow, (ii) earnings per share, (iii)
earnings before interest, taxes and/or amortization, (iv) return on sales, (v) total shareholder
return, (vi) share price performance, (vii) return on capital, (viii) return on assets or net
assets, (ix) revenue, (x) income or net income, (xi) operating income or net operating income,
(xii) operating profit or net operating profit, (xiii) operating margin or profit margin, (xiv)
return on operating revenue, (xv) return on invested capital, (xvi) market segment share, (xvii)
product release schedules, (xviii) new product innovation, (xix) product cost reduction, (xx)
brand recognition/acceptance, (xxi) product ship targets, or (xxii) customer satisfaction, in any
such case, before or after interest and/or taxes. The Committee may appropriately adjust any
evaluation of performance under a Qualifying Performance Criteria to exclude any of the following
events that occurs during a performance period: (I) asset write-downs, (II) litigation or claim
judgments or settlements, (III) the effect of changes in tax law, accounting principles or other
such laws or provisions affecting reported results, (IV) accruals for reorganization and
restructuring programs and (V) any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial
condition and results of operations appearing in the annual report of Nortel to shareholders for
the applicable year.

          (cc) “Qualifying Termination Without Cause” shall mean a Participant’s Termination Without
Cause if, as a result thereof, the Participant receives severance or other termination
compensation, including pay in lieu of notice, from the Company that employs the Participant
pursuant to the terms of any individual, written employment, severance or similar agreement
entered into by and between the Participant and such Company or any severance or termination
plan, policy or practice established and maintained by such Company.

          (dd) “Restricted Stock Unit” shall mean a right, granted in accordance with Section 8
hereof, to receive a Share or a cash payment of the Market Value of a Share, as determined by the
Committee, that generally becomes Vested, if at all, based on the Participant’s period of
employment with the Company.

          (ee) “Retirement” shall mean a Participant’s Termination (including at the end of a period
of long-term disability, if applicable) in accordance with whichever of the following clauses is
applicable: (i) a Participant’s Termination after completing a number of full years of service
with the Company that, when added to the Participant’s age at his or her Date of Termination,
equals 65 or more; provided that the Participant has attained at least age 55 as of his or her
Date of Termination, unless determination of the Participant’s eligibility for enhanced rights in
respect of an Award on the basis of age (in whole or in part) is not permitted under the laws of
any jurisdiction that apply to the Participant, and (ii) in the case of a Participant described
in the exception under the foregoing clause (i), the Participant’s Termination (w) after having
satisfied all eligibility and other requirements under any special pension arrangement applicable
to the Participant to qualify for immediate commencement of retirement benefits in accordance
with the provisions of such special pension arrangement, in the case of a Participant who is
party to a special pension arrangement with the Company that

5

 

employs the Participant, (x) after having completed at least ten full years of service with
the Company and, in addition, having satisfied all eligibility and other requirements under the
pension or retirement plan of the Company that employs the Participant to qualify for immediate
commencement of early or normal retirement benefits in accordance with the provisions of such
pension or retirement plan, in the case of a Participant employed by a Company that maintains a
pension or retirement plan, other than a Participant party to a special pension arrangement
subject to clause (w), (y) after having satisfied all eligibility and other requirements under a
national or other government sponsored public social security system covering such Participant to
qualify for immediate commencement of retirement income payments under such national or other
government sponsored system, in the case of a Participant who does not participate in any pension
or retirement plan and is not party to any special pension arrangement, as contemplated under the
immediately preceding clause (ii)(w) or (ii)(x), or (z) in the case of any other Participant, as
determined by the Committee.

          (ff) “Shares” shall mean the common shares without nominal or par value of Nortel and
“Share” shall mean one common share without nominal or par value of Nortel, in each such case,
subject to adjustment pursuant to Section 11.

          (gg) “Stand-Alone SAR” shall mean a Stock Appreciation Right that is granted on a
stand-alone basis.

          (hh) “Stock Appreciation Right” or “SAR” shall mean a right, granted pursuant to Section 7
hereof, representing the right to receive upon the exercise thereof payment, in cash, Shares or
any combination thereof, as determined by the Committee, equal to the excess of the Market Value
of one Share over the Base Price or Subscription Price, whichever is applicable, on the terms and
conditions and calculated in accordance with the provision of Section 7 hereof.

          (ii) “Stock Exchanges” shall mean the NYSE and the TSX.

          (jj) “Subsidiary” shall mean, with respect to any Person, each corporation or other Person
in which the first Person owns or Controls, directly or indirectly, capital stock or other
ownership interests representing 50% or more of the combined voting power of the outstanding
voting stock or other ownership interests of such corporation or other Person and each
“affiliated body corporate,” within the meaning of Subsection 2(2) of the CBCA, with respect to
such first Person.

          (kk) “Subscription Price” shall mean, (i) with respect to an Option, the price payable by a
Participant to purchase one Share on exercise of such Option, which shall not be less than 100
percent of the Market Value of a Share on the Effective Date of the grant of the Option covering
such Share and (ii) with respect to a Tandem SAR, the Subscription Price applicable to the Option
to which the Tandem SAR relates, in each such case, subject to adjustment pursuant to Section 11.

          (ll) “Successor” shall mean, with respect to any Person, a Person that succeeds to the first
Person’s assets and liabilities by amalgamation, merger, liquidation, dissolution or

6

 

otherwise by operation of law, or a Person to which all or substantially all the assets
and/or business of the first Person are transferred.

          (mm) “Tandem SAR” shall mean a Stock Appreciation Right granted in tandem with an Option.

          (nn) “Termination” or “Date of Termination” (or any derivative thereof) shall mean (i) the
date of termination of a Participant’s active employment with the Company that employs the
Participant (other than in connection with the Participant’s transfer to employment with any
other Company), whether such termination is lawful or otherwise, but not including a
Participant’s absence from active employment during a period of vacation, temporary illness,
authorized leave of absence or short or long-term disability, and (ii) in the case of a
Participant who does not return to active employment with the Company immediately following a
period of absence due to vacation, temporary illness, authorized leave of absence or short or
long-term disability, the last day of such period of absence.

          (oo) “Termination Without Cause” shall mean a Participant’s Termination by the Company that
employs the Participant for any reason other than Cause or due to the Participant’s Retirement,
other than any such Qualifying Termination Without Cause.

          (pp) “Third Party Trust” shall mean a trust established pursuant to Section 3(c) with an
independent, unaffiliated bank or other trust company, as trustee, to hold Shares for delivery
from time to time to Participants upon exercise or settlement of Awards, that is established and
maintained in accordance with the applicable banking and trust laws of the relevant jurisdiction
and the requirements of Stock Exchanges.

          (qq) “TSX” shall mean The Toronto Stock Exchange.

          (rr) “Unissued Prior Plan Option Shares” shall mean those Shares that were subject to the
unexercised portion of a Prior Plan Option on January 1, 2006, to the extent such portion of the
Prior Plan Option thereafter expires or is forfeited, surrendered, cancelled or otherwise
terminated without the issuance or delivery of such Shares, but not including any Shares subject
to a Prior Plan Option that are withheld or otherwise not issued or delivered upon exercise of
such Prior Plan Option in order to satisfy all or any portion of the holder’s obligation to pay
the subscription price and/or withholding amounts related to the exercise of such Prior Plan
Option, subject to adjustment in order to reflect the consolidation of all of the issued and
outstanding Shares, effective December 1, 2006, based on the consolidation ratio of 1
post-consolidation Share for every 10 pre-consolidation Shares.

          (ss) “Vested” (or any applicable derivative term) shall mean, with respect to an Award, that
the applicable conditions with respect to continued employment, passage of time, achievement of
Performance Criteria and/or any other conditions established by the Committee have been satisfied
or, to the extent permitted under the Plan, waived, whether or not the Participant’s rights with
respect to such Award may be conditioned upon prior or subsequent compliance with any
confidentiality, non-competition or non-solicitation obligations.

7

 

          (tt) “U.S. Award” shall mean an Award pursuant to which, as applicable, (i) in the case of
Options (including any Tandem SARs), the Subscription Price is stated and payable in United
States dollars (and, in the case of any Tandem SARs, any cash amount payable in settlement
thereof shall be paid in United States dollars), (ii) in the case of Stand-Alone SARs, the Base
Price is stated in United States dollars and any cash amount payable in settlement thereof shall
be paid in United States dollars or (iii) in the case of Restricted Stock Units or Performance
Stock Units, any cash amount payable in settlement thereof shall be paid in United States
dollars.

     Section 3. Administration

          (a) Composition of Committee. The Committee shall consist of two or more
individuals, each of whom qualifies as an independent director, within the meaning of the rules
of the Stock Exchanges and other applicable securities legislative and regulatory requirements,
and at least two of whom qualify as (i) a “non-employee director” within the meaning of Rule
16b-3 under the Exchange Act, and (ii) an “outside director” within the meaning of United States
Treasury Regulation Section 1.162-27(e)(3)) under the Code. In addition, the composition of the
Committee shall comply with all other applicable securities legislation and rules of the Stock
Exchanges and regulatory authorities.

          (b) Powers of the Committee. The Committee shall administer the Plan in accordance
with its terms. Subject to and consistent with the terms of the Plan and subject to the
limitations of Section 409A of the Code with respect to Awards granted to or held by Participants
subject to taxation under the Code, in addition to any authority of the Committee specified under
any other terms of the Plan, the Committee shall have full and complete discretionary authority
to:

          (i) interpret the Plan and instruments of grant evidencing Awards;

          (ii) prescribe, amend and rescind such rules and regulations and make all
determinations necessary or desirable for the administration and interpretation of the Plan
and instruments of grant evidencing Awards;

          (iii) determine those key employees of the Company who may be granted Awards, grant one
or more Awards to such employees and approve or authorize the applicable form and terms of
the related instrument of grant;

          (iv) determine the terms and conditions of Awards granted to any Participant,
including, without limitation, (A) the type, and number of Shares subject to, an Award,
including whether the Award shall be a Canadian Award or a U.S. Award, (B) the Subscription
Price or Base Price for Shares subject to an Award, if applicable, (C) the conditions to the
Vesting of an Award or any portion thereof, including terms relating to lump sum or
installment Vesting, the period for achievement of any applicable Performance Criteria as a
condition to Vesting and the conditions, if any, upon which Vesting of any Award or portion
thereof will be waived or accelerated without any further action by the Committee, (D) the
circumstances upon which an Award or any portion thereof shall be forfeited, cancelled or
expire, (E) the consequences of a

8

 

Termination with respect to an Award, (F) the manner of exercise or settlement of the
Vested portion of an Award, including whether an Award shall be settled on a current or
deferred basis, (G) whether and the terms upon which an Award shall be settled in cash,
Shares or a combination thereof and (H) whether and the terms upon which any Shares
delivered upon exercise or settlement of an Award must continue to be held by a Participant
for any specified period;

          (v) determine whether and the extent to which any Performance Criteria or other
conditions applicable to the Vesting of an Award have been satisfied or shall be waived or
modified;

          (vi) amend the terms of any instrument of grant or other documents evidencing Awards;
and

          (vii) determine whether, and the extent to which, adjustments shall be made pursuant to
Section 11 and the terms of any such adjustments.

          (c) Establishment of Third Party Trusts. From time to time, the Committee may
direct one or more of the Companies to establish and maintain one or more Third Party Trusts, on
such terms and conditions as the Committee shall determine, and to contribute Shares and/or cash
for the purchase of Shares thereto, in such amounts as the Committee shall determine; provided
that no Third Party Trust shall be established or maintained with respect to a Participant if the
Committee reasonably determines that, as a result thereof, such Participant will be subject to
early taxation or any increased amount of tax with respect to his or her Award(s).

          (d) Effects of Committee’s Decision. Any such interpretation, rule, regulation,
determination or other act of the Committee shall be made in its sole discretion and shall be
conclusively binding upon all Persons.

          (e) Liability Limitation. No member of the Committee or the Board of Directors
shall be liable for any action or determination made in good faith pursuant to the Plan or any
instrument of grant evidencing any Award granted under the Plan. To the fullest extent permitted
by law, the Company shall indemnify and save harmless each person made, or threatened to be made,
a party to any action or proceeding in respect of the Plan by reason of the fact that such person
is or was a member of the Committee or is or was a member of the Board of Directors.

          (f) Delegation and Administration. The Committee may, in its discretion, delegate
such of its powers, rights and duties under the Plan, in whole or in part, to such committee,
Person or Persons as it may determine, from time to time, on terms and conditions as it may
determine, except the Committee shall not, and shall not be permitted to, delegate any such
powers, rights or duties (i) with respect to the grant, amendment, administration or settlement
of any Award of a Participant subject to Section 16 of the Exchange Act or otherwise to the
extent delegation is not consistent with the CBCA or the rules of any Stock Exchange or (ii) with
respect to the establishment or determination of the achievement of Qualifying Performance
Criteria and any such purported delegation or action shall not be

9

 

given effect. The Committee may also appoint or engage a trustee, custodian or
administrator to administer or implement the Plan or any aspect of it, subject to the exception
of the immediately preceding sentence hereof.

     Section 4. Shares Subject to the Plan.

          (a) Aggregate Plan Limits. Subject to adjustment pursuant to Section 11, the
maximum aggregate number of Shares that may be delivered in connection with Awards granted under
the Plan shall not exceed the sum of (i) 26,200,000 Shares, (ii) the number of Prior Plan Available
Shares and (iii) the number of Unissued Prior Plan Option Shares. Subject to adjustment pursuant
to Section 11, of such aggregate maximum number of Shares, (i) no more than an aggregate of
23,500,000 Shares may be delivered in connection with Awards of Restricted Stock Units and/or
Performance Stock Units and (ii) no more than an aggregate of 26,200,000 Shares may be delivered in
connection with Awards of Incentive Stock Options. Any adjustment pursuant to Section 11 to the
limitation on the number of Shares available for Awards of Incentive Stock Option shall be
consistent with the requirements of Section 424 of the Code.

          (b) Tax Code Limits. During any five year period, a Participant may not be granted
Awards under the Plan of (i) Options and/or Stock Appreciation Rights covering more than an
aggregate of 2,500,000 Shares or (ii) Restricted Stock Units and/or Performance Stock Units with
respect to more than an aggregate of 1,500,000 Shares, in each such case, subject to adjustment
pursuant to Section 11.

          (c) Certain Additional Limits. The number of Shares issuable to insiders of the
Company (as defined in the rules of the TSX for this purpose) under this Plan and all other
Company security-based compensation arrangements (also as defined in the rules of the TSX) shall
not exceed 10% of the issued and outstanding Shares and the number of Shares issued to insiders
within any one year under all Company security-based compensation arrangements shall not exceed
10% of the issued and outstanding Shares.

          (d) Computation of Available Shares. For purposes of computing the total number of
Shares available for grant under the Plan, Shares subject to any Award (or any portion thereof)
that has expired or is forfeited, surrendered, cancelled or otherwise terminated prior to the
issuance or transfer of such Shares and Shares subject to an Award (or any portion thereof) that
is settled in cash in lieu of settlement in Shares shall again be available for grant under the
Plan. Notwithstanding the foregoing, any Shares subject to an Award that are withheld or
otherwise not issued upon exercise of any Option or Stock Appreciation Right or settlement of any
Award to satisfy the Participant’s withholding obligations or in payment of any Subscription
Price shall reduce the number of Shares available for grant under the limitations set forth in
this Section 4.

          (e) Source of Shares. Shares delivered to Participants in connection with the
exercise or settlement of Awards may be authorized but unissued Shares, Shares purchased in the
open-market or in private transactions or Shares held in one or more Third Party Trusts. From
time to time, the Board of Directors shall authorize the issuance, or the purchase of shares on
the open market or in private transactions, of such number of Shares as may be necessary to
permit Nortel to meet its obligations under the Plan.

10

 

     Section 5. Terms of Awards In General

          (a) Instrument of Grant. Each Award granted under the Plan shall be evidenced by an
instrument of grant, in such form or forms as the Committee shall approve from time to time, which
shall set forth such terms and conditions consistent with the terms of the Plan as the Committee
may determine. Each instrument of grant shall set forth, at a minimum, the type and Effective Date
of the Award evidenced thereby, the number of Shares subject to such Award, whether the Award is a
Canadian Award or a U.S. Award and the applicable Vesting conditions and may specify such other
terms and conditions consistent with the terms of the Plan as the Committee shall determine or as
shall be required under any other provision of the Plan. References in the Plan to an instrument
of grant shall include any supplements or amendments thereto.

          (b) Vesting Conditions. Subject to the terms of the Plan, the Committee shall
determine any and all conditions to the Vesting of all and/or any portion of Awards and shall
specify the material terms thereof in the applicable instrument of grant on, or as soon as
reasonably practicable following, the Effective Date of the Award. Vesting of an Award, or
portion thereof, may be conditioned upon passage of time, continued employment, satisfaction of
Performance Criteria, or any combination of the foregoing, as determined by the Committee,
provided that (i) except in connection with the death of a Participant, such conditions permit
all or any portion of any Award to become Vested no earlier than the first anniversary of the
Effective Date of the Award, (ii) performance conditions to Vesting of any portion of an Award
will be measured over a period equal to or greater than one year, (iii) except in connection with
the death or Retirement of a Participant, Awards of Restricted Stock Units will not become Vested
more rapidly than ratably over the three (3) year period following the Effective Date thereof and
(iv) with respect to any Award that is intended to satisfy the requirements for
“performance-based compensation” under Section 162(m) of the Code, the applicable Performance
Criteria shall be a measure based on one or more Qualifying Performance Criteria determined by
the Committee on or prior to the Effective Date of such Award or as of any later time permitted
under the applicable provisions of Section 162(m) of the Code. Subject to compliance with
Section 162(m) of the Code, if applicable, the Committee may modify or supplement any Performance
Criteria applicable to the Vesting of an outstanding Award to the extent the Committee deems
appropriate to reflect any material change after the Effective Date of the Award in the relevant
business operations of the Company or applicable business unit or individual or group of
Companies.

          (c) Discretion of the Committee. Notwithstanding any other provision hereof or of
any applicable instrument of grant, the Committee may (i) accelerate or waive any condition to
the Vesting of any Award, all Awards, any class of Awards or Awards held by any group of
Participants or (ii) if the Committee has reason to believe that grounds exist to terminate a
Participant’s employment for Cause, suspend the right of a Participant to exercise any Vested
Award or receive payment in settlement of any Vested Award pending resolution of such matter by
the Company, provided, however, that the Committee shall not have or exercise any discretion
under this Section 5(c) or any other provision of the Plan (x) that would permit or result in
Vesting of an Award (or portion thereof) prior to the first anniversary of the Effective Date of
such Award (except in the event of a Participant’s death), (y) to modify the terms or conditions
of any Performance Criteria or waive the satisfaction

11

 

thereof with respect to any Award that is intended to satisfy the requirements for
“performance-based compensation” under Section 162(m) of the Code or (z) that would result in a
violation of Section 409A of the Code.

          (d) No Repricing. The Subscription Price for Shares subject to any Award of Options
and any related Tandem SARs and the Base Price for Shares subject to any Award of Stand-Alone
SARs may not be reduced after the Effective Date of the Award thereof, either directly or
indirectly, without prior shareholder approval, except for adjustments pursuant to Section 11 of
the Plan.

          (e) Deferral of Payment or Other Settlement of Vested Awards. The terms and
conditions applicable to any Award (or portion thereof) granted to a Participant who is subject
to taxation under the Code and that constitutes “deferred compensation” subject to Section 409A
of the Code are intended to comply with Section 409A of the Code. The terms of any such Award
(or portion thereof) permitting the deferral of payment or other settlement thereof or providing
for settlement in cash in lieu of Shares shall be subject to such requirements and shall be
administered in such manner as the Committee may determine to be necessary or appropriate to
comply with the applicable provisions of Section 409A of the Code as in effect from time to time.

     Section 6. Stock Options

          (a) General. The Committee may from time to time grant one or more Awards of Options
to key employees of the Company on such terms and conditions, consistent with the Plan, as the
Committee shall determine. The instrument of grant evidencing an Award of Options shall specify
the Subscription Price for each Share subject to such Option, the maximum term of such Option,
whether Tandem SARs are granted with respect to all or any such Options and whether such Options
(or any portion thereof) are intended to qualify as Incentive Stock Options.

          (b) Vesting Terms. Options granted under the Plan shall become Vested at such
times, in such installments and subject to such terms and conditions consistent with Section 5(b)
hereof (including satisfaction of Performance Criteria and/or continued employment) as may be
determined by the Committee and set forth in the applicable instrument of grant.

          (c) Subscription Price. The Subscription Price for each Share subject to an Option
shall not be less than 100% of the Market Value of a Share on the Effective Date of the Award of
such Option. The Subscription Price shall be stated and payable in Canadian dollars, if a
Canadian Award, and in United States dollars, if a U.S. Award.

          (d) Exercise of Vested Options. Vested Options may be exercised in accordance with
such procedures as may be established by the Committee, including procedures permitting the
exercise of Options through a broker-assisted sale and remittance program authorized by the
Committee. The Participant must pay or satisfy, in accordance with the terms of this Subsection
(d) and Section 15(b), the full amount of the Subscription Price and withholding amounts with
respect to such exercise and the Company may require as

12

 

a condition to such exercise and/or the issuance or delivery of Shares to a Participant upon
the Participant’s payment or satisfaction of such amounts in full in accordance with this Section
6(d) and Section 15(b) hereof. The Subscription Price shall be payable on exercise of a Vested
Option:

          (i) in Canadian dollars, if a Canadian Award, or in United States dollars, if a U.S.
Award, unless the Committee determines otherwise, and may be paid in cash, or by wire
transfer, certified cheque, banker’s cheque or bank draft or other similar methods of cash
equivalent payment acceptable to the Committee or any combination thereof;

          (ii) by the surrender and transfer of Shares then owned by the Participant to such
Person as the Committee may direct;

          (iii) by the withholding of Shares otherwise issuable upon exercise of such Vested
Option or by payment pursuant to a broker-assisted sale and remittance program authorized by
the Committee; or

          (iv) in any combination of the foregoing.

     Shares surrendered or withheld in accordance with clause (ii) or (iii) of this Subsection (d)
shall be valued at the Market Value thereof on the date of exercise, determined in Canadian dollars
if used to purchase a Share subject to a Vested Canadian Award or in United States dollars if used
to purchase a Share subject to a Vested U.S. Award. The Committee may impose, at any time, such
limitations and prohibitions on the use of Shares in payment of the Subscription Price as it deems
appropriate and shall determine acceptable methods of surrendering or withholding Shares as payment
of the Subscription Price.

          (e) Option Period. Unless the Committee provides for a shorter option period at or
after the Effective Date of an Award of Options and subject to Section 9 hereof, all or any part
of the Options covered by an Award shall, to the extent Vested, be exercisable, from time to
time, within the period commencing on the date such Option or part thereof becomes Vested and
ending on the day prior to the tenth anniversary of the Effective Date of such Award, provided
that in the event the option period ends during a Blackout Period or within 10 days subsequent to
a Blackout Period, the Options covered by an Award may be exercised by the Participant (other
than Participants subject to Section 409A of the Code) during the period ending ten days
subsequent to the Blackout Period. Subject to the foregoing, Options may not have an option
period which ends subsequent to the tenth anniversary of the Effective Date of such Award.

          (f) Incentive Stock Options. Options intended to qualify as Incentive Stock Options
may only be granted to employees of the Company within the meaning of the Code, as determined by
the Committee. No Incentive Stock Option shall be granted to any Participant if immediately
after the grant of such Award, such Participant would own stock, including stock subject to
outstanding Awards held by such Participant under the Plan or any other plan established by the
Company, amounting to more than ten percent (10%) of the total combined voting power or value of
all classes of stock of the Company. To the extent that the instrument of grant evidencing the
Award of an Option specifies that an Option is intended to

13

 

be treated as an Incentive Stock Option, the Option is intended to qualify to the greatest
extent possible as an “incentive stock option” within the meaning of Section 422 of the Code, and
shall be so construed; provided, however, that any such designation shall not be interpreted as a
representation, guarantee or other undertaking on the part of the Company that the Option is or
will be determined to qualify as an Incentive Stock Option. If and to the extent that the
aggregate Subscription Price of Options subject to any portion of any Award of Incentive Stock
Options that become Vested in any calendar year exceeds the $100,000 limitation of Section 422 of
the Code, such Options shall not be treated as Incentive Stock Options notwithstanding any
designation otherwise. Certain decisions, amendments, interpretations or other actions by the
Committee and certain actions by a Participant may cause an Option to cease to qualify as an
Incentive Stock Option pursuant to the Code and, by accepting an Award of Options hereunder, the
Participant thereby consents and agrees in advance to any such disqualifying action.

     Section 7. Stock Appreciation Rights

          (a) General. The Committee may from time to time grant one or more Awards of Stock
Appreciation Rights to key employees of the Company on such terms and conditions, consistent with
the Plan, as the Committee shall determine.

          (b) Tandem SARs. (i) Tandem SARs may be granted at or after the Effective Date of
the related Award of Options, and each Tandem SAR shall be subject to the same terms and
conditions and denominated in the same currency as the Option to which it relates and the
additional terms and conditions set forth in this Section 7.

          (ii) On exercise of a Tandem SAR, the related Option shall be cancelled and the
Participant shall be entitled to an amount in settlement of such Tandem SAR calculated and
in such form as provided in Subsection (d) below.

          (iii) Tandem SARs may be exercised only if and to the extent the Options related thereto
are then Vested and exercisable and shall be exercised in accordance with such procedures as
may be established by the Committee.

          (c) Stand-Alone SARs. (i) Stand-Alone SARs granted under the Plan shall become
Vested at such times, in such installments and subject to such terms and conditions consistent
with Section 5(b) hereof (including satisfaction of Performance Criteria and/or continued
employment) as may be determined by the Committee and set forth in the applicable instrument of
grant.

          (ii) The Base Price for each Share subject to a Stand-Alone SAR shall not be less than
100% of the Market Value of a Share on the Effective Date of the Award of such Stand-Alone
SAR.

          (iii) Unless the Committee provides for a shorter period at or after the Effective Date
of an Award of Stand-Alone SARs and subject to Section 9 hereof, all or any part of the
Stand-Alone SARs covered by an Award shall, to the extent Vested, be exercisable, from time
to time, within the period commencing on the date such Stand-Alone SARs or part thereof
becomes Vested and ending on the day prior to the tenth

14

 

anniversary of the Effective Date of such Award, provided that in the event the period
ends during a Blackout Period or within ten days subsequent to a Blackout Period, the
Stand-Alone SARs covered by an Award may be exercised by the Participant (other than
Participants subject to Section 409A of the Code) during the period ending ten days
subsequent to the Blackout Period. Subject to the foregoing, Stand-Alone SARs may not be
exercised after the period ending subsequent to the tenth anniversary of the Effective Date
of such Award.

          (iv) The Committee may determine, at the time of granting the Award of a Stock
Appreciation Right, that as a term thereof, in the event that all or any part of the
Stand-Alone SARs covered by the Award become Vested and exercisable, and the Participant
does not exercise such Stand-Alone Stock Appreciation Right during the thirty-day period
following the date on which such part of the Stand-Alone SARs become Vested, such part of
the Stand-Alone SARs shall nonetheless be settled, in accordance with (d), on the thirtieth
day following such part becoming Vested.

          (d) Exercise and Settlement. Upon exercise thereof and subject to payment or other
satisfaction of all related withholding obligations in accordance with Section 15(b) hereof,
Stock Appreciation Rights (and, in the case of Tandem SARs, the related Options) shall be settled
by payment or delivery, in cash, Shares or any combination thereof, as determined by the
Committee, of an aggregate amount equal to:

          the product of

	 	(A)	 	the excess of the Market Value of a Share on
the date of exercise over the Subscription Price or Base Price for a
Share under the applicable Stock Appreciation Right,

          multiplied by

	 	(B)	 	the number of Stock Appreciation Rights
exercised.

     Any cash payment in settlement of a Stock Appreciation Right shall be payable in Canadian
dollars, if made with respect to a Canadian Award, and in United States dollars, if made with
respect to a U.S. Award. To the extent any portion of Stock Appreciation Rights are settled in
Shares, such settlement shall be made by delivery of the greatest number of Shares having a Market
Value on the date of exercise equal to the amount so settled.

     Section 8. Restricted Stock Units and Performance Stock Units 

          (a) General. The Committee may from time to time grant one or more Awards of
Restricted Stock Units and/or Performance Stock Units to key employees of the Company on such terms
and conditions, consistent with the Plan, as the Committee shall determine.

          (b) Vesting Terms. Restricted Stock Units and/or Performance Stock Units shall
become Vested at such times, in such installments and subject to such terms and conditions
consistent with Section 5(b) hereof as may be determined by the Committee and

15

 

set forth in the applicable instrument of grant, provided that the conditions to Vesting of
Restricted Stock Units shall be based on the Participant’s continued employment, without regard
to the satisfaction of any Performance Criteria, and the conditions to Vesting of Performance
Stock Units shall be based on the satisfaction of Performance Criteria either alone or in
addition to any other Vesting conditions as may be determined by the Committee consistent with
Section 5(b) hereof.

          (c) Settlement. Unless deferral of payment in settlement of Restricted Stock Units
and/or Performance Stock Units is permitted or required under the terms of the Award thereof,
Restricted Stock Units and Performance Stock Units shall be settled upon or as soon as reasonably
practicable following the Vesting thereof, subject to payment or other satisfaction of all
related withholding obligations in accordance with Section 15(b) hereof. Settlement shall be
made in cash, Shares or any combination thereof, as determined by the Committee. Settlement of
Restricted Stock Units and/or Performance Stock Units in Shares shall be made by delivery of one
Share for each such Restricted Stock Unit or Performance Stock Unit then being settled.
Settlement of Restricted Stock Units or Performance Stock Units in cash shall be made by payment
of an aggregate amount equal to:

          the product of

	 	(A)	 	the Market Value of a Share on the applicable
settlement date specified by the Committee,

          multiplied by

	 	(B)	 	the number of Restricted Stock Units or
Performance Stock Units then being settled.

     Any cash payment in settlement of Restricted Stock Units or Performance Stock Units shall be
payable in Canadian dollars, if made with respect to a Canadian Award, and in United States
dollars, if made with respect to a U.S. Award.

     Notwithstanding any of the foregoing, any payments made as a result of a separation from
service (as defined in Section 409A of the Code) to an individual who qualifies as a “specified
employee” as defined under Section 409A of the Code in the settlement of Restricted Stock Units or
Performance Stock Units that are subject to Section 409A of the Code will not be made before the
date that is six months after the date of separation from service or, if earlier, the date of the
individual’s death.

          (d) Dividend Equivalents. The terms of an Award of Restricted Stock Units or
Performance Stock Units may include provision for the accrual of dividend equivalent amounts with
respect to cash dividends paid in the ordinary course to shareholders in respect of outstanding
Shares. If the Committee determines that dividend equivalent amounts will be accrued in respect
of Restricted Stock Units or Performance Stock Units subject to an Award, if and when cash
dividends are paid with respect to Shares (other than any extraordinary dividend) to shareholders
of record as of a record date occurring during the period from the Effective Date of the
applicable Award to the date of settlement thereof, a number of

16

 

additional Restricted Stock Units or Performance Stock Units, as the case may be, shall be
granted to the holder of such Award equal to the greatest number of whole Shares having a Market
Value, as of the payment date for such dividend, equal to the product of (i) the cash dividend
paid with respect to a Share multiplied by (ii) the number of Restricted Stock Units or
Performance Stock Units subject to such Award as of the record date for the dividend. The
additional Restricted Stock Units or Performance Stock Units granted to a Participant shall be
subject to the same terms and conditions, including Vesting and settlement terms, as the
corresponding Restricted Stock Units or Performance Stock Units, as the case may be. The
Committee may provide that, in lieu of the grant of additional Restricted Stock Units or
Performance Stock Units, dividend equivalent amounts may be accrued and paid in cash, at the time
and on the same terms and conditions, of settlement of the corresponding Restricted Stock Units
or Performance Stock Units, as the case may be.

     Section 9. Consequences of Termination.

          (a) Options/Stock Appreciation Rights. Unless otherwise determined by the Committee,
outstanding Options and/or Stock Appreciation Rights held by a Participant (or the executors or
administrators of such Participant’s estate, any person or persons who acquire the right to
exercise Options and/or Stock Appreciation Rights directly from the Participant by bequest or
inheritance or any other permitted transferee of the Participant under Section 10 hereof) as of the
Participant’s Date of Termination shall be subject to the following clauses (i) though (iv), as
applicable; except that, (x) in all events, the period for exercise of Options and/or Stock
Appreciation Rights shall end no later than the last day of the maximum term thereof established
under Section 6(e) or 7(c)(iii), as applicable, and (y) unless otherwise determined by the
Committee, any outstanding Options and/or Stock Appreciation Rights that are subject to Vesting
conditions based in whole or part upon the satisfaction of Performance Criteria and that have not
become Vested prior to the Participant’s Date of Termination shall immediately be cancelled and
forfeited and all rights and interests of the holder or beneficiary thereof shall thereupon
terminate, in all cases, for no consideration.

          (i) In the case of a Participant’s Termination due to Retirement, (x) those of the
Participant’s outstanding Options and/or Stock Appreciation Rights that have become Vested
prior to the Participant’s Date of Termination shall continue to be exercisable during the
period ending on the three (3) year anniversary of the Date of Termination and (y) those of
the Participant’s outstanding Options and/or Stock Appreciation Rights that have not become
Vested prior to the Participant’s Date of Termination shall become Vested and exercisable as
of the later of the Date of Termination and the one year anniversary of the Effective Date
of the Award thereof and thereafter shall continue to be exercisable for the remaining
portion of the period ending on the three (3) year anniversary of the Date of Termination.

          (ii) In the case of a Participant’s Termination due to death, (x) those of the
Participant’s outstanding Options and/or Stock Appreciation Rights that have not become
Vested prior to the Participant’s Date of Termination shall become Vested and exercisable as
of the Date of Termination and (y) all of the Participant’s outstanding Options and/or Stock
Appreciation Rights shall continue to be exercisable during the period ending on the two (2)
year anniversary of the Date of Termination.

17

 

          (iii) In the case of a Participant’s Termination due to the Participant’s resignation
or the Participant’s Termination Without Cause, (x) those of the Participant’s outstanding
Options and/or Stock Appreciation Rights that have not become Vested prior to the Date of
Termination shall be forfeited and cancelled as of such Date of Termination and (y) those of
the Participant’s outstanding Options and/or Stock Appreciation Rights that have become
Vested prior to the Participant’s Date of Termination shall continue to be exercisable
during the ninety (90) day period following such Date of Termination.

          (iv) In the case of a Participant’s Termination due to a Qualifying Termination Without
Cause, (x) those of the Participant’s outstanding Options and/or Stock Appreciation Rights
that have become Vested prior to the Participant’s Date of Termination shall continue to be
exercisable during the Participant’s Extension Period and during the period ending ninety
(90) days immediately following the last day of such Extension Period, (y) those of the
Participant’s outstanding Options and/or Stock Appreciation Rights that have not become
Vested prior to the Participant’s Date of Termination but would have become Vested during
the Participant’s Extension Period subject only to the Participant’s continued employment
with the Company for all or a portion of the Extension Period shall remain outstanding and
shall become Vested and exercisable as of the scheduled date for Vesting as if the
Participant’s employment had continued during the Extension Period, and thereafter shall
continue to be exercisable during the remaining portion of the Extension Period and the
ninety (90) day period immediately following the last day of the Extension Period and (z)
subject to the proviso below, all other outstanding Options and/or Stock Appreciation Rights
shall be forfeited and cancelled as of the Participant’s Date of Termination; provided
however that if a Participant subject to this clause (iv) would have qualified for
Retirement had his or her employment with the Company continued for all or a portion of the
Participant’s Extension Period, the rights of such Participant (or any permitted transferee
thereof) with respect to his or her outstanding Options and/or Stock Appreciation Rights
shall be governed by clause (i) of this Section 9 effective as of the date the Participant
would have first qualified for Retirement.

Options and/or Stock Appreciation Rights that are not exercised prior to the expiration of the
exercise period following a Participant’s Date of Termination permitted under this Section 9(a)
shall automatically expire on the last day of such period.

          (b) Restricted Stock Units and Performance Stock Units. Unless otherwise determined
by the Committee, upon a Participant’s Termination for any reason, any then outstanding
Restricted Stock Units and Performance Stock Units that have not become Vested prior to the
Participant’s Date of Termination shall immediately be cancelled and forfeited and all rights and
interests in respect of such Restricted Stock Units and Performance Stock Units of the
Participant (and the executors and administrators of such Participant’s estate, any person or
persons acquiring any interest directly from the Participant by bequest or inheritance and any
other permitted transferee of the Participant under Section 10 hereof)) shall thereupon
terminate, in all cases, for no consideration.

18

 

          (c) Termination for Cause. Notwithstanding any other provision hereof or in any
instrument of grant, in the case of a Participant’s Termination for Cause, any and all then
outstanding Awards granted to the Participant, whether or not Vested, shall be immediately
forfeited and cancelled, without any consideration therefore, as of the commencement of the day
that notice of such termination is given.

     Section 10. Transferability.

          (a) Transfer Restrictions. No Award, and no rights or interests therein, shall or may
be assigned, transferred, sold, exchanged, encumbered, pledged or otherwise hypothecated or
disposed of by a Participant other than by testamentary disposition by the Participant or the laws
of intestate succession. No such interest shall be subject to execution, attachment or similar
legal process including without limitation seizure for the payment of the Participant’s debts,
judgments, alimony or separate maintenance.

          (a) Permitted Transfers. Notwithstanding the foregoing, the Committee may provide
in the applicable instrument of grant that an Award is transferable or assignable (a) in the case
of a transfer without the payment of any consideration, to the Participant’s spouse, former
spouse, children, stepchildren, grandchildren, parent, stepparent, grandparent, sibling, persons
having one of the foregoing types of relationship with a Participant due to adoption and any
entity in which these persons (or the Participant) own more than fifty percent of the voting
interests and (b) to an entity in which more than fifty percent of the voting interests are owned
by these persons (or the Participant) in exchange for an interest in that entity. Following any
such transfer or assignment, the Award shall remain subject to substantially the same terms
applicable to the Award while held by the Participant to whom it was granted, as modified as the
Committee shall determine appropriate, and, as a condition to such transfer, the transferee shall
execute an agreement agreeing to be bound by such terms. An Incentive Stock Option may be
transferred or assigned only to the extent consistent with Section 422 of the Code. Any
purported assignment or transfer that does not qualify under this Section 10 shall be void and
unenforceable against the Company.

     Section 11. Alteration of Share Capital.

          (a) No Corporate Action Restriction. The existence of the Plan and/or the Awards
granted hereunder shall not limit, affect or restrict in any way the right or power of the Board of
Directors or the shareholders of Nortel to make or authorize (i) any adjustment, recapitalization,
reorganization or other change in the capital structure or business of any Company, (ii) any
merger, consolidation, amalgamation or change in ownership of any Company, (iii) any issue of
bonds, debentures, capital, preferred or prior preference stocks ahead of or affecting the capital
stock of any Company or the rights thereof, (iv) any dissolution or liquidation of any Company, (v)
any sale or transfer of all or any part of the assets or business of any Company or (vi) any other
corporate act or proceeding with respect to any Company. No Participant or any other Person shall
have any claim against any member of the Board of Directors or the Committee, or any Company or any
employees, officers or agents of any Company as a result of any such action.

19

 

          (b) Recapitalization Adjustment.

          (i) In the event that (A) a dividend shall be declared upon the Shares or other
securities of Nortel payable in Shares or other securities of Nortel, (B) the outstanding
Shares shall be changed into or exchanged for a different number or kind of shares or other
securities of Nortel or of another corporation or entity, whether through an arrangement,
plan of arrangement, amalgamation or other similar statutory procedure or a share
recapitalization, subdivision, consolidation or otherwise, (C) there shall be any change,
other than those specified in (A) or (B) above, in the number or kind of outstanding Shares
or of any shares or other securities into which such Shares shall have been changed or for
which they shall have been exchanged, or (D) there shall be a distribution of assets or
            shares to shareholders of Nortel out of the ordinary course of business, then, if the Board
of Directors shall determine that an adjustment in the number or kind of Shares theretofore
authorized but not yet covered by Awards, in the number or kind of Shares theretofore
subject to outstanding Awards, in the Subscription Price or Base Price applicable under any
outstanding Awards, in the number or kind of Shares generally available for Awards or
available in any calendar year under the Plan and/or such other adjustment as may be
appropriate should be made, such adjustment shall be made by the Board of Directors and
shall be effective and binding for all purposes.

          (ii) In the case of any such adjustment as provided for in this Section, the
Subscription Price or Base Price shall be adjusted appropriately to reflect such adjustment.
No adjustment provided for in this Section shall require Nortel to issue a fractional Share
and the total adjustment with respect to each outstanding Award shall be limited
accordingly.

          (iii) Any adjustment made pursuant to this Section with respect to the terms of an
Option shall require a similar modification with respect to the terms of the Stock
Appreciation Right to which such Option relates.

          (iv) With respect to Awards subject to Section 409A of the Code, any adjustments
under this Section 11(b) shall conform to the requirements of Section 409A of the Code.

     Section 12. Amendment and Termination From time to time the Board of Directors may,
in addition to its powers under the Plan, add to or amend any of the provisions of the Plan or
suspend or terminate the Plan or amend the terms of any then outstanding Award granted under the
Plan or its related instrument of grant; provided, however, that (a) no such amendment, suspension
or termination shall be made at any time to the extent such action would materially adversely
affect the existing rights of a Participant with respect to any then outstanding Award without his
or her consent in writing, provided that the Committee may amend the terms of, or suspend or
terminate, an Award of Incentive Stock Options at any time after the Effective Date of such Award
in a manner that results or could result in the failure of such Options to qualify or continue to
qualify as “incentive stock options” within the meaning of Section 422 of the Code without the
consent of the Participant, and (b) Nortel shall obtain shareholder approval of any amendment that
the Company determines constitutes a material amendment within the meaning of the applicable rules
of the NYSE (other than an amendment pursuant to the adjustment

20

 

provisions of Section 11), and such amendment shall become effective only upon shareholder
approval thereof, including, without limitation, any such amendment that would:

          (i) increase the maximum number of Shares for which Awards may be granted under the
Plan;

          (ii) reduce the Subscription Price or Base Price at which Options or Stock Appreciation
Rights may be granted below the price provided for in Sections 6(c) and 7(c);

          (iii) reduce the Subscription Price or Base Price of outstanding Options or Stock
Appreciation Rights;

          (iv) extend the term of the Plan, the maximum term for Options under the Plan set forth
in Section 6 or the maximum term of any Options granted under the Plan;

          (v) change the class of persons eligible for grants of Awards under the Plan;

          (vi) increase the limits in Section 4;

          (vii) a change which would permit all or any portion of an Award to become Vested prior
to the first anniversary of the Effective Date of such Award, other than in the event of the
death of a Participant;

          (viii) amend section 10 to provide additional rights to a Participant to transfer or
assign an Award; or

          (ix) amend this section 12 to delete any of the foregoing (i) to (viii).

     Section 13. Regulatory Approval. Notwithstanding anything herein to the contrary,
Nortel shall not be obligated to cause to be issued any Shares or cause to be issued and delivered
any certificates evidencing Shares pursuant to the Plan, unless and until Nortel is advised by its
legal counsel that the issuance and delivery of the Shares and such Share certificates is in
compliance with all applicable laws, regulations, rules, orders of governmental or regulatory
authorities in Canada, the United States and any other applicable jurisdiction, and the
requirements of the Stock Exchanges. Nortel shall in no event be obligated to take any action in
order to cause the issuance or delivery of Shares or such certificates to comply with any such
laws, regulations, rules, orders or requirements. The Committee may require, as a condition of the
issuance and delivery of such Shares or certificates and in order to ensure compliance with such
laws, regulations, rules, orders and requirements, that the Participant, or any permitted
transferee of the Participant under Section 9 hereof or, after his or her death, the Participant’s
estate, as described in Section 9 hereof, make such covenants, agreements and representations as
the Committee deems necessary or desirable.

     Section 14. No Additional Rights. No Person shall have any claim or right to be
granted Awards under the Plan, and the grant of any Awards under the Plan shall not be construed as
giving a Participant any right to continue in the employment of the Company or affect the right of
the Company to terminate the employment of a Participant. Unless otherwise

21

 

determined by the Committee, neither any period of notice, if any, nor any payment in lieu
thereof, upon Termination shall be considered as extending the period of employment for the
purposes of the Plan.

     Section 15. Miscellaneous Provisions.

          (a) Shareholder Rights. A Participant shall not have the right or be entitled to
exercise any voting rights, receive any dividends or have or be entitled to any other rights as a
shareholder in respect of Shares subject to an Award unless and until such Shares have been paid
for in full and issued and certificates therefor have been issued to the Participant. A
Participant entitled to Shares as a result of the exercise of an Option or Stock Appreciation Right
or the settlement of a Restricted Stock Unit or a Performance Stock Unit shall not be deemed for
any purpose to be, or have any such rights as a shareholder of Nortel by virtue of such exercise or
settlement, except to the extent a Share certificate is issued therefor and then only from the date
such certificate is issued. No adjustment shall be made for dividends or distributions or other
rights for which the record date is prior to the date such share certificate is issued, other than
adjustments for dividend equivalent amounts to the extent provided under Section 8(d) hereof.

          (b) Withholding. The Company may withhold from any amount payable to a Participant,
either under this Plan or otherwise, such amount as may be necessary so as to ensure that the
Company will be able to comply with the applicable provisions of any federal, provincial, state
or local law relating to the withholding of tax or that any other required deductions are paid or
otherwise satisfied, including withholding of the amount, if any, includable in the income of a
Participant. The Company shall also have the right in its discretion to satisfy any such
liability for withholding or other required deduction amounts by retaining or acquiring any
Shares, selling on behalf of any Participant any Shares the Participant is entitled to hereunder,
or retaining any amount payable, which would otherwise be issued or delivered, provided or paid
to a Participant hereunder. The Company may require a Participant, as a condition to exercise of
an Option or Stock Appreciation Right or the settlement of a Restricted Stock Unit or a
Performance Stock Unit, to pay or reimburse the Company for any such withholding or other
required deduction amounts related to the exercise of Options or Stock Appreciation Rights or
settlement of Restricted Stock Units or Performance Stock Units.

          (c)  Funding. With respect to any Awards subject to the provisions of Section 409A
of the Code, such Awards shall not be funded by setting aside (directly or indirectly) assets in
a trust or other arrangement located outside the United States or through a means that would
result in a violation of Section 409A of the Code.

          (d)  Governing Law. The Plan, all instruments of grant evidencing Awards granted
hereunder and any other agreements or other documents relating to the Plan shall be interpreted
and construed in accordance with the laws of the Province of Ontario, except to the extent the
terms of the Plan or of any supplement or appendix to the Plan expressly provides for application
of the laws of another jurisdiction. The Committee may provide that any dispute as to any Award
shall be presented and determined in such forum as the Committee may specify, including through
binding arbitration. Any reference in the Plan, in any instrument of grant evidencing Awards
granted hereunder or in any other agreement or

22

 

document relating to the Plan to a provision of law or to a rule or regulation shall be
deemed to include any successor law, rule or regulation of similar effect or applicability.

          (e) Compliance with Laws of Other Jurisdictions. Awards may be granted to
Participants who are citizens or residents of a jurisdiction other than Canada or the United
States on such terms and conditions different from those under the Plan as may be determined by
the Committee to be necessary or advisable to achieve the purposes of the Plan while also
complying with applicable local laws, customs and tax practices, including any such terms and
conditions as may be set forth in any supplement or appendix to the Plan intended to govern the
terms of any such Award. In no event shall the eligibility, grant, exercise or settlement of an
Award constitute a term of employment, or entitlement with respect to employment, of any
employee.

     Section 16. Effective Date and Term of Plan.

          (a) Effective Date. The Plan, and any amendments to the Plan, shall become effective
upon its or their adoption by the Board of Directors, subject to approval by the shareholders of
Nortel at the next annual meeting of shareholders of Nortel or any adjournment thereof, if
required. If the shareholders do not approve the Plan, or any amendments to the Plan requiring
shareholder approval, the Plan or such amendments shall not be effective, and any and all actions
taken prior thereto, including the making of any Awards subject to such approval being obtained,
shall be null and void or shall, if necessary, be deemed to have been fully rescinded.

          (b) Termination. The Plan shall terminate on the date determined by the Board of
Directors pursuant to Section 12 hereof and no Awards may become effective under the Plan after
the date of termination, but such termination shall not affect any Awards that became effective
pursuant to the Plan prior to such termination. No Awards may be made after the tenth
anniversary of the effective date of the Plan.

 

			
	**	 	The Plan was originally adopted effective April 27, 2005 and was subsequently amended on (i)
November 6, 2006, effective on December 1, 2006 being the effective date of the consolidation of
all of the issued and outstanding common shares of Nortel based on the consolidation ratio of 1
post-consolidation share for every 10 pre-consolidation shares, (ii) on January 18, 2008 to
reflect amendments necessary to comply with Section 409A of the Code and certain other
miscellaneous amendments and (iii) on February 22, 2008 to increase the number of Shares available
for issuance under the Plan, to provide for an extension of Options and SARs for Participants not
subject to Section 409A of the Code in the event they terminate during a Blackout Period and other
amendments desirable to reflect current market practices and clarify or correct certain provisions,
effective immediately, other than those amendments which are subject to shareholder approval.

23exv10w2

 

Exhibit 10.2

Nortel Networks Limited Annual Incentive Plan (AIP)

Section 1: Introduction

     The Nortel Networks Limited Annual Incentive Plan (the “Plan” or “AIP”) is a short-term,
incentive bonus plan that provides the potential for “Eligible Employees” (as defined below) to
receive cash awards based on their contributions to the success of the “Company"1,
conditioned on the Company meeting its objectives.

     The Plan is intended to drive business performance and customer and shareholder value by
rewarding Eligible Employees for their contributions to the Company’s overall success. An Eligible
Employee’s contribution is determined by two factors: (1) the impact of that employee’s role on
business results and (2) that employee’s achievement of individual performance objectives during
the employee’s active service with the Company. The actual award received by an Eligible Employee
will reflect (1) an employee’s job scope, complexity, and responsibilities, and that employee’s
contribution and achievement, during the Plan Period2 and (2) the Company’s performance
as indicated by the Nortel Performance Factor (the “Nortel Performance Factor”).

Section 2: Annual Incentive Plan Eligibility

     Generally, regular full-time and regular part-time3 Company employees are eligible
to participate in the Plan (“Eligible Employees”), subject to the following:

	 	(1)	 	Eligible employees who participate in other incentive plans for a full
calendar month or the greater portion of a month, as determined by the Company, are
not eligible to participate in the Plan during that calendar month. For purposes of
this document, “other incentive plans” mean sales incentive compensation or any other
incentive/bonus arrangements which the Company determines have been offered in lieu of
the Plan;
	 
	 	(2)	 	Subject to applicable law, employees who are covered under a collective labor
agreement are not eligible unless that collective labor agreement provides for their
participation in the Plan;

 

			
	1	 	For purposes of the Plan, the “Company” is defined as
Nortel Networks Limited and its subsidiaries and affiliates and other entities,
which it controls directly or indirectly and which have been approved for
participation in the Plan by the person holding the most senior position
responsible for human resources or the equivalent at the Company as identified
by the CHRC (the “Senior Vice-President, HR”).
	 
	2	 	Each calendar year consists of one Plan Period — from
January 1 through December 31. The Plan Period(s) for each calendar year may
be changed by the CHRC (as defined in Section 2) and Board of Directors (as
defined in Section 2) at any time.
	 
	3	 	For purposes of the Plan, regular full-time and regular
part-time Company employees are those employees who are eligible for
participation in the Company health benefit plans based on their regularly
scheduled hours.

 

-2-

	 	(3)	 	Individuals determined by the Company to be students, co-op students,
interns, temporary4, or non-payroll workers are ineligible for the Plan;
	 
	 	(4)	 	The Compensation and Human Resources Committee of the Boards of Directors of
Nortel Networks Corporation and Nortel Networks Limited (“CHRC”) and the Board of
Directors of Nortel Networks Limited (the “Board of Directors”) may determine that
certain Company employees (including employees who are not otherwise eligible for the
Plan) may be eligible to receive an award from a Discretionary Bonus Pool created
pursuant to Section 5 hereof;
	 
	 	(5)	 	Subject to applicable law, to be eligible for either a full or pro-rated
award for any given Plan Period: (a) an employee must have been actively employed in a
role that is eligible under the Plan or other incentive plan (“Incentive Eligible
Role”) for at least three full calendar months in that Plan Period 5and (b)
the employee must have been an employee in an Incentive Eligible Role on or before
October 1 of that Plan Period6. For purposes of this document, an
employee will be considered to be “actively employed” for any calendar month in which
the employee actually works for at least one day or as otherwise required under
applicable contract or law. Notwithstanding the foregoing and subject to applicable
law, employees whose employment terminates before December 31 of a Plan Period are not
eligible to receive a Plan award for that Plan Period.
	 
	 	(6)	 	Pro-rated awards may be made to employees who transfer into or out of
positions covered by other incentive plans, move from or to a job that is ineligible
for the Plan or who are on a Company approved leave of absence or on “notice” of
termination of employment for part of the Plan Period, provided that the employee
meets the other Plan requirements set out above. However, subject to applicable law,
an employee is not eligible for a Plan payout for any calendar month in which the
employee is not actively employed in a position eligible under the Plan. If an
employee meets the above Plan requirements, but is actively employed in a position
that is eligible under the Plan for less than the full Plan Period, the employee’s
Annual Incentive Plan award will be based on the number of months the
employee is actively employed in a Plan eligible position divided by the number of months in the
Plan Period, with the following exception. For purposes of determining the amount of a
pro-rata Annual Incentive Plan award, an 

 

			
	4	 	Where legally required, temporary full time employees
on fixed term contracts with the Company may be included as Eligible Employees
subject to the other conditions in Section 2 of the Plan.
	 
	5	 	The required period of active employment may be
changed by the CHRC and Board of Directors at any time.
	 
	6	 	The dates on which an employee must be employed in an
Incentive Eligible Role may be changed by the CHRC and Board of Directors at
any time.

 

-3-

	 	 	 	employee will not be considered to be actively
employed in a Plan eligible position in a calendar month in which (a) the employee
participates in another incentive plan for that full calendar month or (b) the employee
participates in another incentive plan for the greater portion of the month, each as
determined by the Company.
	 
	 	(7)	 	Employees who meet all of the Plan eligibility requirements, but whose
employment with the Company terminates between the end of the Plan Period and the
related payment date for the award, other than for reasons determined by the Company
to be related to inappropriate actions, misconduct, dismissal for cause (where
applicable) or unsatisfactory performance, will be eligible for an award for the
applicable Plan Period.
	 
	 	 	 	Notwithstanding the foregoing, any payments made after termination of employment to a
“specified employee” shall be paid on the later of the date which is six months and one
day after the termination date and the date on which the award is otherwise payable
under Section 4 of the Plan. A “specified employee” means any U.S. citizen or resident
who is a key employee (as defined in Section 416(i) of the U.S. Internal Revenue Code
without regard to paragraph 5 thereof) of the Company. (This is generally limited to
employees who are (i) in the top 50 officers having an annual compensation greater than
US$145,000, (ii) a 5-percent owner, or (iii) a 1-percent owner having an annual
compensation of more than US$150,000.).
	 
	 	(8)	 	An employee’s Management Team7 has the right, in consultation with
the relevant Human Resources Business prime, to make limited exceptions to the
‘actively employed’ requirements set out in Section 2(5) and (6) above where required
by law or where the Management Team determines that circumstances clearly warrant an
exception. Exceptional circumstances might include approved leaves where warranted by
applicable law (e.g. maternity, paternity, parental, military, family, or medical),
disability, outsourcing, divestiture, or death. In such situations, if the employee
has, while actively employed in a Plan eligible position, substantially achieved
his/her individual objectives, the employee’s Management Team may grant partial
awards. If awards are paid in these circumstances, the awards will be pro-rated to
reflect the number of months the employee was actively employed in a Plan eligible
position, as defined in Section 2(5) above, and will be commensurate with the
employee’s contribution and achievement. Notwithstanding anything in the foregoing
to the contrary, nothing in the Plan shall preclude the Company

 

			
	7	 	The “Management Team” consists of the managers with
whom the employee has a direct or indirect reporting relationship as set out in
the Organization Structure Manager (“OSM”) or its equivalent as maintained by
the Company from time to time.

 

-4-

	 	 	 	paying an employee an award under the Plan for more than the number of months the
employee was actively employed in a Plan eligible position pursuant to that individual
employee’s employment termination agreement, which the Senior Vice-President, HR has
approved; and
	 
	 	(9)	 	Company affiliates and joint ventures may choose to offer the Plan or a
similar plan subject to the approval of the Senior Vice-President, HR.

Section 3: Award Elements

     An Eligible Employee’s cash award for a Plan Period under the Plan will be based on the
following formula:

100%8 of Annual Base Salary x (# Months actively employed in a Plan eligible
position / # Months in Plan Period) [“Pro-Ration Factor"] x Award % x Nortel
Performance Factor. 

Annual Base Salary means the annualized regular compensation paid to an Eligible Employee,
excluding any other compensation, such as, but not limited to, bonuses, commissions, overtime, and
relocation benefits. The Annual Base Salary for these purposes will be measured for all Eligible
Employees at a uniform time on or after October 1st of the applicable Plan Period to be
determined in the sole discretion of the Senior Vice-President, HR.

Award % is the percentage of Annual Base Salary that is used to compute the Plan award for
each Eligible Employee. For Job Complexity Indicator (“JCI”) 1-6, the Award % ranges from 0% to
40% of Annual Base Salary. For JCI 55, the Award % ranges from 0% to 400% of Annual Base Salary.
The JCI level for these purposes will be measured concurrently with Annual Base Salary as described
above. For each JCI, the Senior Vice-President, HR may set a suggested narrower award range,
intended to reflect a market trend to give certain Eligible Employees with higher levels of
responsibility a higher incentive potential as a percentage of Annual Base Salary. Within the
ranges approved by the CHRC and the Board of Directors, an Eligible Employee’s Management Team will
determine the recommended Award % for that employee for each Plan Period based on the employee’s
job scope, complexity and responsibilities and the employees’ contributions and achievements during
the Plan Period. Without limiting the generality of the foregoing, the Award % for a JCI 55
Eligible Employee is determined by multiplying the individual performance factor finally approved
for such Eligible Employee for the Plan Year under the Company’s annual performance appraisal
process (“Individual Performance Factor”) by the target percentage established under the Plan for
such Eligible Employee and in effect as of December 31 of the Plan Year, unless modified by the
CHRC and Board of Directors in their sole discretion (“AIP Target Percentage”). An Eligible
Employee’s recommended Award % is subject to review,

 

			
	8	 	The percentage of Annual Base Salary that is applied to
the formula may be changed by the CHRC and Board of Directors at any time.

 

-5-

modification and approval by the Senior Management Team, the CHRC and the Board of Directors as
provided in Section 4.9

The total Plan award for all Eligible Employees for a Plan Period (reflecting the Nortel
Performance Factor) is recommended by the Senior Management Team for approval by the CHRC and the
Board of Directors after the end of the Plan Period. The CHRC and Board of Directors will
determine, in their sole discretion, whether all or any part of such recommended total Plan award
will be paid and the amount of any total Plan award in respect of such Plan Period.

Nortel Performance Factor is calculated based on the achievement by the Company of key
corporate objectives for the Plan Period. The objectives are approved by the CHRC and the Board of
Directors for each Plan Period. The Nortel Performance Factor may be based on one or more
performance metrics, each with specific targets. The performance metrics may have equal or
different weightings. Performance metrics are the general corporate goals for the Plan Period, such
as profitability, market momentum, or customer loyalty. Targets shall be based on objective and/or
subjective criteria established to measure, directly or indirectly, the performance metrics.
Weightings shall be the relative weight or percentage accorded in the Nortel Performance Factor for
achieving each specific target. After approval by the CHRC and the Board of Directors, the
Company’s objectives for the Plan Period will be communicated to Eligible Employees. The Nortel
Performance Factor is deemed to be 1.0 (achievement) throughout the Plan Period and is then
adjusted by the CHRC and the Board of Directors based on their determination of corporate
performance. The President and Chief Executive Officer may, in his sole discretion, recommend to
the CHRC and the Board of Directors that the Nortel Performance Factor be adjusted with respect to
certain business units, JCI levels or any other groups of employees and the CHRC and the Board can
approve such adjustment to the Nortel Performance Factor, in their sole discretion, based on
additional factors that the President/CEO and the CHRC and Board determine in their sole discretion
are relevant to the award including without limitation, collective relative contribution to
achievement of the key Company objectives during the Plan Period.

Section 4: Annual Incentive Plan Awards

Awards for each Plan Period are calculated based on 100%10 of an Eligible Employee’s
Annual Base Salary, the Pro-Ration Factor, the Eligible Employee’s Award % (which reflects the
employee’s job scope, complexity and responsibilities, and that employee’s contribution and
achievement, during the Plan Period), and the Nortel Performance Factor (that is, the Company’s
business performance for the Plan Period as determined by the CHRC and the Board of Directors).
Notwithstanding any provision in the Plan to the

 

			
	9	 	For purposes of the Plan only, the “Senior Management
Team” shall consist of the President and Chief Executive Officer, the Executive
Vice-President and Chief Financial Officer and the Senior Vice-President, HR of
Nortel Networks Limited.
	 
	10	 	The percentage of Annual Base Salary that is applied
to the formula may be changed by the CHRC and Board of Directors at any time.

 

-6-

contrary, the maximum Plan award payable to a JCI 55 Eligible Employee is a cash amount equal to
such Eligible Employee’s Annual Base Salary multiplied by a percentage equal to two (2) times the
Eligible Employee’s AIP Target Percentage.

Any award under the Plan to an Eligible Employee is subject to the discretion of the Eligible
Employee’s Management Team and Senior Management Team and the CHRC and the Board of Directors.
That is, an Eligible Employee’s Management Team determines, in its discretion, the Award % for an
Eligible Employee subject to review, modification and approval by the Senior Management Team.
Specifically, the Senior Management Team reserves the right, in its discretion, to review and
adjust Eligible Employees’ Award percentages, which are assigned to those Eligible Employees by
their Management Team, to reflect its assessment of the employees’ contributions to the business or
the achievement of the Company’s key objectives, as well as to ensure that the final payouts, if
any, are within appropriate budgetary guidelines. Finally, the CHRC and the Board of Directors
reserve the right, in their discretion, to make a final determination of the Award % of any
Eligible Employee. The CHRC and the Board of Directors determine, in their sole discretion, the
achievement of the targets for the performance metrics, the final calculation of the Nortel
Performance Factor (which may include a determination of a Nortel Performance Factor of zero, even
if certain of the performance metrics targets are achieved, and/or an adjustment to the relative
weighting of the performance metrics) and whether Plan awards will be paid in respect of a Plan
Period. During the Plan Period, the CHRC and the Board of Directors can review Company objectives,
performance measures, weightings, and targets to determine whether they remain appropriate. The
CHRC and the Board of Directors may, at their sole discretion, adjust the Company objectives,
performance measures, weightings, targets, and/or plan payouts for the Plan Period, as they deem
necessary, to reflect changes in business conditions or other circumstances.

Subject to applicable law, the Senior Vice-President, HR, may approve the reduction of Plan awards
payable to Eligible Employees for a Plan Period by the full or partial amount of other bonuses or
similar payments, including, without limitation, Company performance related payments required by
applicable law, that are payable to such employees in respect of any part of such Plan Period.
The Senior Vice-President, HR, will have sole discretion to determine those bonuses or payments
that are subject to the preceding sentence and the amount of any such reduction to the Plan award.

If the CHRC and Board of Directors approve the payment of a total Plan award for a Plan Period in
accordance with the provisions of the Plan, the payment of any Plan award approved for an Eligible
Employee under the Plan in respect of such Plan Period will occur on the first pay date applicable
to such Eligible Employee immediately following the 30th calendar day after the filing of Nortel
Networks Corporation’s annual report on Form 10-K with the United States Securities and Exchange
Commission. Plan awards are considered income and are therefore subject to national,
state/provincial, and/or local taxes. All appropriate taxes and other withholdings will be
deducted from any such awards and payments as required by applicable law.

 

-7-

Depending on local laws and policies, Plan awards may have an impact on some benefits and may or
may not be included in the “eligible earnings” for purposes of capital accumulation and retirement
plans offered in the various regions by the Company. Where appropriate, deductions may be made
from Plan awards in accordance with the specific capital accumulation and retirement plan in which
the Eligible Employee participates.

If the CHRC, in its sole discretion, upon consideration of facts and circumstances determined by
the CHRC to be relevant, concludes that an Eligible Employee has committed an intentional
misconduct, as defined in the CHRC Policy Regarding Recoupment of Incentive Compensation (the
“Recoupment Policy”) relating to the forfeiture and/or recoupment of incentive compensation,
including Annual Incentive Plan award payments, the Eligible Employee shall forfeit any planned but
unpaid Plan award and/or reimburse the Company the amount of the Plan award received, as determined
by the CHRC.

Section 5: Discretionary Bonus Pool

During a Plan Period, the CHRC and the Board of Directors may consider the creation of a separate
Discretionary Bonus Pool under the Plan to provide discretionary, incremental bonus awards. These
awards may be made to all employees of the Company or employees of the Company who individually or
in groups made a relative contribution that significantly added to the overall success of the
Company, whether or not the employees are eligible to participate in the Plan under the criteria
set out in Section 2 of this document. The determination that a Company employee is eligible for a
Discretionary Bonus Pool award does not otherwise entitle that employee to generally participate in
the Plan. The CHRC and the Board of Directors have complete discretion to determine: the
establishment of the Discretionary Bonus Pool; the eligibility criteria for participation; any
performance metrics, weightings and targets; the achievement, if any, of the targets for the
performance metrics; and the amount of the awards, if any, paid from the Discretionary Bonus Pool.
Whether or not an Eligible Employee receives a Plan award shall have no effect on that employee’s
eligibility to receive a Discretionary Bonus Pool award.

Discretionary Bonus Pool awards will be considered income and therefore subject to national,
state/provincial, and/or local taxes. All appropriate taxes and other withholdings will be
deducted from the award as required by applicable law.

Depending on local laws and policies, Discretionary Bonus Pool awards may have an impact on some
benefits and may or may not be included in the “eligible earnings” for purposes of capital
accumulation and retirement plans offered in the various regions by the Company. Where
appropriate, deductions may be made from the Discretionary Bonus Pool awards in accordance with the
specific capital accumulation and retirement plan in which the employee participates.

 

-8-

Section 6: Interpretations and Amendments

This document, as amended from time to time, constitutes the “Nortel Networks Limited Annual
Incentive Plan”. In the event of any conflicts or inconsistencies between the provisions of the
Plan and any other document or communication, written or oral, concerning the Plan, the provisions
of this document, as amended from time to time, shall govern.

The Senior Vice-President, HR, subject to approval of the CHRC and the Board of Directors in
certain cases shall interpret the provisions of the Plan, which shall be final and binding on the
Company and all Plan participants. This document is also subject to interpretation to comply with
applicable laws. It is not and shall not be construed as either an employment contract or as a
contract concerning the subject matter contained herein. There is no guarantee that any award
under the Plan will actually be paid. Any award is determined at the discretion of an Eligible
Employee’s Management Team, the Senior Management Team and the CHRC and the Board of Directors, as
the case may be. If such awards, however, are paid, they shall be determined and paid in
accordance with the provisions herein.

The Plan can only be terminated or amended by the Board of Directors, which shall have the full
authority, at any time, to terminate the Plan or to delete, modify and/or add to any and all terms,
conditions, and provisions of the Plan.

As adopted by the Board of Directors of Nortel Networks Limited on July 25, 2002, as amended on
January 23, 2003 with effect from January 1, 2003, as amended on July 28, 2003 with effect from
January 1, 2003, as amended on February 26, 2004 with effect from January 1, 2004, as amended on
March 9, 2006 with effect from January 1, 2006, as amended on March 15, 2007 with effect from
January 1, 2007 and as amended on February 22, 2008 with effect from January 1, 2008

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00141-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00141-of-00352.parquet"}]]