Document:

exv10w4

 

Exhibit 10.4

CONFIDENTIAL-SPECIAL HANDLING

February 5, 2007

Peter William Currie

96 Kennedy St. W

Aurora Ontario

L4G 2L7

Dear Peter:

This letter (“Agreement”) records the arrangements between you and Nortel Networks Limited
concerning the cessation of your employment. The Agreement shall bind and inure to the benefit of
each party and their respective heirs, successors and assigns.

	1.	 	As used in this Agreement, the term “Corporation” shall mean Nortel Networks Corporation, its
subsidiaries and affiliates, their successors and assigns, and all of their past and present
officers, directors, employees and agents (in their individual and representative capacities),
in every case, individually and collectively.
	 
	2.	 	Effective as of the close of business on April 30, 2007, your active employment relationship
with the Corporation will cease (the “Employment Termination Date”). However, it is agreed
and understood that as of the close of business on March 31, 2007, you will no longer be
expected to perform your current duties or responsibilities on behalf of the Corporation (and
you shall not be held responsible for the performance of such duties and responsibilities) and
you are not required to come into the office after such date. All previous external
responsibilities which you had will be assumed by a person designated by the Corporation,
including any participation in industry or other associations representing the Corporation.
You cease to act as an officer and/or director of the Corporation and any of the Corporation’s
subsidiaries and affiliates on April 30, 2007, and the Corporation will take all necessary
steps to remove you from all such positions.

 

 

	 	 	 
	Peter W. Currie

February 5, 2007

Page 2

	 	

	3.	 	You understand and agree that your designation of Reporting Insider pursuant to Corporate
Policy 320.28 of the Corporation (and under applicable Canadian/U.S. securities legislation
for Reporting Insiders), shall cease effective 12:01 a.m. on May 1, 2007. Notwithstanding the
fact that you no longer have this designation, if you are in possession of material non-public
information relating to the Corporation, you are prohibited from trading in securities of the
Corporation (or informing another person of the material non-public information) in accordance
with applicable laws. You further understand that you are required to amend your insider
profile within 10 days of April 30, 2007 on the Canadian System for Electronic Disclosure by
Insiders (SEDI) to indicate that you are no longer a Reporting Insider of the Corporation.
You should contact the Insider Reporting Department at (905) 863-1220 and fax (905) 863-8524
for assistance in amending the SEDI profile.
	 
	4.	 	Conditional upon your compliance with all terms and conditions of this Agreement, the
Corporation shall:

	 	(a)	 	pay you the sum of US$ 24,038.46 bi-weekly, converted to Canadian
currency in the same manner as you were paid immediately prior to the termination of
your active employment, less applicable deductions, commencing on May 1, 2007 and
terminating April 30, 2009 (“Salary Continuation Period”). The first such payment
shall be made on the Corporation’s next regular payroll date following the Employment
Termination Date and shall include all bi-weekly payments accrued to that date;
	 
	 	(b)	 	pay you, on or before the next regular payroll date following the Employment
Termination Date, a lump sum amount equivalent to three (3) weeks of base salary
representing all of your current accrued but unused vacation benefit, with no further
vacation accrual subsequent to April 30, 2007;
	 
	 	(c)	 	consider you eligible to receive an incentive award payment under the 2006
SUCCESS Incentive Plan (the “Plan”) as contemplated by the Plan. Any payment under
the Plan will be determined by the Corporation based on the terms and conditions of
the Plan applicable to you as of the date hereof, and will be made using an Individual
Performance Factor of 1.0. Eligibility shall not be construed as a right to such
payment, and any such payment will be made to you in a lump sum on the date that any
incentive award payment is made by the Corporation to employees generally under the
terms of the Plan;
	 
	 	(d)	 	continue your participation during the Salary Continuation Period, subject to
the provisions of the applicable plans, in group medical, life insurance and

 

 

	 	 	 
	Peter W. Currie

February 5, 2007

Page 3

	 	

	 	 	 	dental insurance, for you and any of the dependents currently covered; you shall
continue to make any required contributions for such benefits at the rates
applicable for senior executive employees occupying positions similar to that you
occupied with the Corporation through the deductions authorized in paragraph 4(a);
	 
	 	(e)	 	consider you ineligible for consideration for any future grant(s) of stock
options, Restricted Stock Units (RSUs) or Performance Stock Units (PSUs). Stock
options and RSUs previously granted to you will continue to vest during the Salary
Continuation Period in accordance with the provisions of the plan under which the
stock options or RSUs were granted and the instrument of grant evidencing the grant.
Your right, if any, to exercise any vested stock options or to receive common shares
of the Corporation in settlement of any vested RSUs after your active employment
relationship with the Corporation ceases (including during the Salary Continuation
Period) will be determined in accordance with the provisions of the stock option or
RSU plan under which the stock options or RSUs were granted and the instrument
evidencing the options or RSUs. Your right to receive common shares of the
Corporation in settlement of PSUs previously granted to you shall be determined in
accordance with the provisions of the PSU plan under which PSUs were awarded and the
instrument evidencing the award. To the extent applicable, it is confirmed that you
meet the definition of retirement under the Nortel Networks Corporation 2005 Stock
Incentive Plan;
	 
	 	(f)	 	following your completion of the necessary documentation, distribute your
account balance in accordance with the provisions of the Nortel Networks Investment
Plan. Your right to contribute to and participate in the Investment Plan will cease
at the end of the Salary Continuation Period;
	 
	 	(g)	 	make available to you, should you elect, executive outplacement services to
assist you in securing new employment and pay the professional fees for such services
as are reasonably incurred;
	 
	 	(h)	 	with respect to any monies or monetary equivalents to be paid hereunder, in
its reasonable discretion withhold appropriate amounts concerning any and all
applicable federal and provincial taxes; and
	 
	 	(i)	 	pay the cost of personal income tax preparation by a service provider
selected by you for the tax year 2006 and 2007.

 

 

	 	 	 
	Peter W. Currie

February 5, 2007

Page 4

	 	

	5.	 	All Corporation compensation, benefits and perquisites not expressly extended to or preserved
for you pursuant to this Agreement shall be terminated effective 12:01 a.m., May 1, 2007.
	 
	6.	 	Regardless of whether you comply with this Agreement, the Corporation shall indemnify you,
and advance any reasonable legal fees and expenses, to the extent permitted by, and in
accordance with, section 124 of the Canada Business Corporations Act (the “CBCA”) and the
Corporation’s By-Laws (the “By-Laws”). You shall repay such fees and expenses if and to the
extent it is determined that you do not fulfill the conditions set forth in subsection 124(3)
of the CBCA or the By-Laws. Subject to and without limiting the foregoing, the Corporation’s
legal counsel will represent you in respect of any civil, criminal, administrative,
investigative (including any internal investigation or independent review being conducted by
the Corporation’s Board of Directors or a Committee thereof) or other proceeding in Canada,
the United States or other applicable jurisdiction in which you are involved (including as a
witness) because of your association with the Corporation (hereinafter, the “Matter”).
However, in the event that the Corporation’s counsel cannot represent you in the Matter
because of a conflict, the Corporation agrees to advance monies to pay your reasonable and
actual legal expenses in the Matter provided that you will not settle the Matter, retain
defense counsel or expert witnesses or consultants, or incur any defense costs without
obtaining the prior written consent of the Chief Legal Officer, which consent will not be
unreasonably withheld.
	 
	7.	 	You shall reconcile and settle your employee expense account, and any advances made to you by
the Corporation, as soon as possible, but not later than the Employment Termination Date, and
the Corporation shall in the normal course reimburse you for any business expenses incurred by
you through the Employment Termination Date.
	 
	8.	 	You shall continue to maintain the confidentiality of all of the Corporation’s trade secrets
and confidential or proprietary commercial, technical or other information; and specifically
you agree that you shall not at any time during or following your employment with the
Corporation, disclose, other than to the Corporation’s authorized personnel, or otherwise use
for non-Corporation purposes, any confidential or proprietary information (whether or not a
trade secret) relating to an activity of the Corporation. You shall also continue to maintain
the confidentiality of

 

 

	 	 	 
	Peter W. Currie

February 5, 2007

Page 5

	 	

	 	 	any dealings, transactions or affairs of the Corporation which may have come to your
knowledge in any manner during your employment.
	 
	 	 	Further, you agree not to reveal, disclose, or cause to be revealed or disclosed, anything
with respect to the Corporation that is injurious or harmful of any of its interests, or
the interests of its employees, officers or directors. In addition, during the period May
1, 2007 to April 30, 2009, you:

	 	(i)	 	shall issue no public statement on the business affairs, policies or the like
of the Corporation without the prior written consent of the Chief Legal Officer and,
without limiting the foregoing, you shall not in any way disparage the Corporation;
and
	 
	 	(ii)	 	shall not, on behalf of yourself or others, directly or indirectly, recruit,
induce or solicit or attempt to recruit, induce or solicit any individual who is
supplying services to the Corporation, whether as an employee, contractor, consultant
or otherwise, to terminate their employment or contractual arrangements with the
Corporation; and
	 
	 	(iii)	 	shall not become and employee, contractor, consultant, representative or in
any manner or capacity accept any assignment, project or work for a direct competitor
of the Corporation, without the prior written approval of the Chief Legal Officer,
provided that such approval shall not be unreasonably withheld.

	 	 	The Corporation, on its own behalf and on behalf of its employees, officers and directors
agrees not to reveal, disclose or cause to be revealed or disclosed, anything with respect
to you that is injurious or harmful to any of your interests and, without limiting the
foregoing, shall not in any way disparage you.
	 
	 	 	Nothing in this Agreement or otherwise shall prevent you or the Corporation from (x)
responding to incorrect, disparaging or derogatory statements to the extent reasonably
necessary to correct or refute such statement or (y) making any truthful statement to the
extent necessary in connection with the circumstances covered by clauses (i), (ii) and
(iii) of the next paragraph.
	 
	 	 	Notwithstanding any of the foregoing, the provisions of this section 8 shall not apply (i)
when disclosure is required by law or by any court, or administrative or legislative body
(including any committee thereof) with actual or apparent jurisdiction to order you or the
Corporation to disclose or make accessible any such information, (ii) with respect to any
litigation involving this Agreement or any other agreement between

 

 

	 	 	 
	Peter W. Currie

February 5, 2007

Page 6

	 	

	 	 	you and the Corporation, (iii) in connection with any assistance provided by you pursuant
to section 11 hereof or (iv) as to information that becomes generally known to the public
or within the relevant trade or industry other than due to a violation of this section 8.
	 
	9.	 	Absent prior written approval by the Chief Legal Officer, following your notification to the
Corporation pursuant to section 10, not to be unreasonably withheld, the Corporation’s
obligations under paragraphs 4(a), (c), (d), (f), (g) and (i)] will terminate forthwith if you
become an employee, consultant, contractor or representative or any direct competitor of the
Corporation.
	 
	10.	 	Upon the occurrence of any contingency which may affect your rights in or to any subsequent
payment or benefit, or affects the Corporation’s rights under this Agreement, including
without limitation, your obtaining new employment, you shall, within ten (10) days of such
occurrence, provide written notice to the Corporation of that event. Such notice shall be
sent in writing to the Chief Legal Officer.
	 
	11.	 	You shall make available to the Corporation, upon reasonable notice and at a time convenient
to you, advice, assistance and information. In addition, you shall assist the Corporation by
offering and explaining evidence, providing sworn statements, participation in discovery, and
trial preparation testimony as may be deemed necessary by the Corporation concerning the
Corporation’s position in any legal or regulatory proceedings involving issues brought against
or initiated by the Corporation of which you have knowledge. In the event it is necessary for
you to provide the aforementioned services, then the Corporation shall reimburse you for
authorized, reasonable and documented travel expenses, including, but not limited to,
transportation, lodging and meals. The Corporation acknowledges that attorneys’ fees and
associated expenses are reimbursable if the assistance you provide is related to any Matter,
as set forth in section 6 hereof.
	 
	12.	 	You have returned to Nortel Networks any and all property of Nortel Networks that was in your
possession and/or subject to your control, whether such material shall be written instruments
or tapes in electronic and/or recorded format.
	 
	 	 	Nortel Networks Corporate Procedure 206.01 states that “all documents, messages or data
composed, sent, or received through the network of Nortel Networks in any form are and
remain at all times the property of Nortel Networks”. In addition, all work product that
you have produced during your employment with the Corporation is the property of the
Corporation. Therefore, all information, (however recorded or stored) (“Information”) in
your possession and/or that you have created in the course of your

 

 

	 	 	 
	Peter W. Currie

February 5, 2007

Page 7

	 	

	 	 	employment with the Corporation (whether or not currently in your possession or control) is
the property of the Corporation. Information does not include copies in your possession of
your records of employment and/or financial dealings between you and the Corporation.
	 
	 	 	You are aware that the Corporation has received a formal order of investigation from the
United States Securities and Exchange Commission (“SEC”) that requires the preservation and
collection and disclosure of certain Information to the SEC. The Corporation is also a
party to certain civil lawsuits and other investigations and may need access to certain
Information for those matters as well. Therefore, you took affirmative steps to preserve
all applicable information in your possession, custody and control (including information
controlled by your assistant, if any), have left all such information in the possession and
custody of the Corporation, and do not have any Information in your possession or custody.
	 
	 	 	The Information will be used by the Corporation for general business purposes and may also
be provided to regulatory authorities in response to their requests or disclosed in any
relevant private litigation to which the Corporation is a party. Also, the Information may
be used by and provided to entities within the Corporation’s group of companies and/or the
Corporation’s external advisors. In some instances, the recipients of this Information
will be located outside your geographic area. To the extent that the information contains
any personal information, you consent to the collection, transfer and disclosure of that
information by the Corporation to subsidiaries and affiliates of the Corporation, third
parties and regulatory authorities within and outside of your geographic area for the
purposes set out above, and the Corporation shall advise you of any such transmittal.
	 
	13.	 	In consideration of the monies and other benefits to be provided to you as set forth herein,
you hereby fully and completely release the Corporation, its subsidiaries and affiliates, and
their respective directors, officers and employees, to the extent permitted by law, from any
and all real or pretended claims, causes of actions, rights, damages or injuries of any nature
whatsoever you may have had or now have, whether known or unknown, (except for promises and
commitments contained or preserved herein), arising from or connected with your employment
with the Corporation or the termination thereof, including any and all such claims, causes of
action, rights, damages or injuries arising under any statute, including, without limitation,
the applicable labour legislation in Ontario or at common law. Furthermore, you understand
that this release shall be binding upon you and your heirs, administrators, representatives,
executors, successors, and assigns and its enforceability shall not be challenged.

 

 

	 	 	 
	Peter W. Currie

February 5, 2007

Page 8

	 	

	 	 	You acknowledge that you have read this letter and that you understand all of its terms and
have executed it voluntarily with full knowledge of its significance. Further, you
acknowledge that you have had an adequate opportunity to review and consider the
arrangements, including at your discretion, the right to discuss this Agreement with legal
counsel of your choice. Finally, you acknowledge that you understand you are hereby
granting to the Corporation a full and final release as set forth above.
	 
	14.	 	This Agreement constitutes the entire understanding of the parties with respect to your
employment, including the cessation of your employment, and there are no promises,
understandings or representations other than those expressly set forth or preserved herein.
This Agreement may be modified only with a written instrument duly executed by you and the
Corporation.
	 
	15.	 	This Agreement shall be governed by the laws of Ontario, Canada without regard to any
provisions concerning conflict of laws. This Agreement may be delivered by facsimile and
executed in counterparts, all of which, taken together, shall constitute one and the same
original instrument.
	 
	16.	 	The parties agree that should any provision of this Agreement be declared or be determined by
any court to be illegal or invalid, the validity of the remaining parts, terms or provisions
shall not be affected thereby and said illegal or invalid part, term, or provision shall be
deemed not to be a part of this Agreement.
	 
	17.	 	Nothing in this Agreement shall be construed to prevent the Corporation, its Chief Executive
Officer, the Chairman of the Board of Directors or any individual directors from providing you
or your prospective employer, as applicable, with an appropriate positive and unconditional
reference or letter of recommendation relating to your employment with the Corporation. It is
agreed and understood that such letter of recommendation shall be provided upon request.

 

 

	 	 	 
	Peter W. Currie

February 5, 2007

Page 9

	 	

Please acknowledge that the foregoing correctly and completely sets forth your understanding of the
arrangements, and your acceptance hereof, by signing, dating and returning to me, the attached
second copy of this Agreement.

Yours truly,

	 	 	 	 	 
	 	 	 
	/s/ Mike S. Zafirovski
 	 
	Mike S. Zafirovski 	 
	 	 
	 

For and on behalf of Nortel Networks Corporation

	 	 	 	 	 
	 	 	 
	/s/ Gordon A. Davies
 	 
	Gordon A. Davies 	 
	General Counsel – Corporate

and Corporate Secretary 	 
	 

	 	 	 	 	 
	 	 	 
	/s/ Peter W. Currie
 	 
	Peter W. Currie 	 
	 	 
	 

Date: February 5, 2007

Attach. Second copy of this Agreementexv10w5

 

Exhibit 10.5

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;

 

			
	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 -

	 	(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;
	 
	 	(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

 

			
	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 -

	 	 	 	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 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 who leave
employment with the Company 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;
	 
	 	(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 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

 

			
	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 -

     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. An Eligible Employee’s recommended Award % is subject to review, modification and
approval by the Senior Management Team 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.

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

 

			
	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.
	 
	9	 	For purposes of the Plan only, the “Senior
Management Team” shall consist of the President and Chief Executive Officer,
the Chief Financial Officer and the Senior Vice-President, HR of Nortel
Networks Limited.

 

- 5 -

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).
When warranted, cash awards will be made as soon as practicable following the close of the
applicable Plan Period and the calculation of any award.

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. The CHRC and the Board of Directors determine,
in their discretion, the achievement of the targets for the performance metrics and 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.) 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

 

			
	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 -

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.

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.

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

 

- 7 -

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.

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, and as amended on March 15, 2007 with effect from
January 1, 2007

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00122-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00122-of-00352.parquet"}]]