Document:

exv10w6

Exhibit 10.6

NORTEL NETWORKS CORPORATION — STOCK OPTIONS

INSTRUMENT OF GRANT  — BELGIUM

«COUNTRY»

	 	 	 	 
	 	NAME OF OPTIONEE:

	 	«NAME» («GID»)
	 	 
	 	 
	 	EFFECTIVE DATE:

	 	«GRANT_DATE»
	 	 
	 	 
	 	NUMBER OF OPTIONS:

	 	«GRANTED»
	 	 
	 	 
	 	SUBSCRIPTION PRICE:

	 	«PRICE» (USD)
	 	 
	 	 
	 	EXPIRATION DATE:

	 	«EXPIRY_DATE»
	 	 
	 	 
	 	VESTING SCHEDULE:

	 	«VESTING» — «Vest_Desc»
	 	 
	 	 
	 	VESTING START DATE:
	 	 
	 	 
	 	 
	 	PLAN:

	 	Nortel «PLAN» Plan

This instrument (hereinafter the “Instrument of Grant”) evidences a Grant to you of the number
of Options indicated above, on the Effective Date indicated above, pursuant to the Nortel 2005
Stock Incentive Plan, As Amended and Restated and as may be further amended from time to time
(the “Plan”). Each Option covered by this Instrument of Grant generally entitles you to
purchase one common share (a “Share”) of Nortel Networks Corporation (the “Corporation”), at the
Subscription Price per Share indicated above, no later than the Expiration Date indicated above,
or such earlier date as may be applicable pursuant to the provisions of the Plan. Capitalized
terms not otherwise defined in this Instrument of Grant have the meanings set forth in the Plan.

1. All Options covered by this Instrument of Grant are subject to the terms and conditions
stated in the Plan, except as specifically or additionally provided in this Instrument of Grant
and/or in any rules, regulations, determinations or interpretations prescribed and/or made by
the Committee (or its delegates) under the power and authority granted under the Plan (the
“Rules and Regulations”), and all of the provisions of the Plan and the Rules and Regulations
are incorporated by reference as if expressly restated herein. Different Rules and Regulations
may apply to you and/or the Options covered by this Instrument of Grant depending on your
country work location, residency or payroll, whether on the Effective Date of the Grant of
Options, on the date of exercise of the Options, or otherwise. Accordingly, you should review
the Plan and the Rules and Regulations from time to time, which are available as indicated
below, in conjunction with this Instrument of Grant.

2. The Options covered by this Instrument of Grant are U.S. Options, so the Subscription Price
and all other amounts to be calculated in accordance with the provisions of the Plan for
purposes of this Grant of Options shall be calculated and stated in U.S. dollars. The Options
are Non-Qualified Stock Options for the purposes of the Plan. Such designation is only relevant
in determining the U.S. federal income tax consequences, if any, applicable to the Options, and
has no bearing on the tax treatment applicable to Options in countries outside of the United
States. Optionees are urged to seek their own tax advice to assess the tax status of such
Options.

3. You will have the right to exercise the Options after they have vested in such amounts
and on such dates in accordance with the vesting schedule, provided that you have been in the
continuous employment of the Corporation or any of its subsidiaries or affiliated entities from
the Effective Date. The exact amounts and dates for vesting are specified in your Grant
information available through the Nortel Intranet — WebStock site
(https://webstock.us.nortel.com:49701/webstock/docs/default.html), “Personal Summary of
Stock Options” web page, or such other web site or through such other means as may be specified
by the Corporation from time to time.

4. Options may be exercised: (i) by irrevocable notice of exercise in writing, executed and
delivered by the Optionee to the Nortel Global Equity Award Services Department (at 195 The West
Mall, Toronto, Ontario, Canada M9C 5K1, or such other address as may be in effect from time to
time); and/or (ii) through such Internet-based or on-line system or such telephonic or voice
recognition system (whether provided by the Corporation or any third party on behalf of the
Corporation); in each case, in such form or manner as may be specified from time to time by the
Corporation on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Stock Options/Exercise Process, or otherwise in accordance
with the Plan. The date of exercise of the Options shall be the date on which the notice of
exercise, accompanied by payment of the Subscription Price and any other required documentation
as provided in the Plan or the Rules and Regulations, is received by the Corporation, in such
form or manner as may be specified from time to time by the Corporation.

5. The terms and conditions in this paragraph apply to you only if one or both of the following
apply: (i) you are a “Reporting Insider” for the purpose of Corporate Procedure No. 320.28 — Use
of Undisclosed Material Information on the Effective Date indicated above; or (ii) the number

 

 

of Options evidenced by this Instrument of Grant is equal to or in excess of 1,500 Options. In
consideration of the Grant of Options, in the event that you exercise all or any part of the
Options at any time subsequent to the date which is twelve (12) months prior to the date of
termination of your employment (whether wrongful or for any other reason) (the “Applicable
Period”), and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
your employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with any Nortel Company;

	(ii)	 	you fail to comply with or otherwise breach the terms or conditions of any
confidentiality agreement or non-disclosure agreement with any Nortel Company;

	(iii)	 	while employed or during the period of twelve (12) months following termination of
your employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/or was
supplying services to any Nortel Company, to terminate their employment or contractual
arrangements with any Nortel Company; or

	(iv)	 	while employed or during the period of twelve (12) months following termination of your
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away the
business of any of the customers or accounts, or prospective customers or accounts, of any
Nortel Company or any of its distributors, representatives or vendors, which you have had
contact or communication with while employed at any Nortel Company;

you agree that you will, if required by the Corporation in its sole discretion, pay to the
Corporation within ten (10) days of written demand for payment from the Corporation an amount
equal to the amount of the excess of the Market Value, on the date of exercise of the Options,
of the Shares purchased as a result of the exercise of the Options over the Subscription Price
for the Shares covered by the Options (the “Applicable Amount”).

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the issuance of Shares upon the
exercise of options during the Applicable Period (and, where applicable, in respect of the Grant
of such Options).

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the issuance of Shares upon the exercise of options
during the Applicable Period (such difference between the Corresponding Tax Benefit and Tax, if
any, is referred to herein as the “Tax Benefit Deficiency”), the Applicable Amount shall be
reduced by an amount equal to the Tax Benefit Deficiency.

     For the purposes of this paragraph 5:

“Corresponding Tax Benefit” means the amount of any deduction from or reduction or credit
to the amount of Taxes paid or payable by you or on your behalf in accordance with the
laws of the tax jurisdiction applicable to you as a result of or in connection with the
payment to the Corporation of all or any portion of the Applicable Amount by the
Designated Employee;

“Nortel Company” means, collectively, Nortel Networks Corporation and its direct and
indirect Subsidiaries (as such term is defined by the Plan); and

“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time the
Shares are issued upon the exercise of Options (and, where applicable, at the time of the
Effective Date of the Grant of such Options).

6. The Corporation may require, as a condition of exercise of the Options, that you: (i) pay any
applicable taxes, charges, duties, contributions or otherwise (hereinafter “taxes”) which are
required to be paid by you to any federal, provincial, state, local, foreign or other taxation
authority; (ii) pay or reimburse any taxes which are required to be withheld and remitted by the
Corporation or any of its subsidiaries; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the Grant of the Options, the vesting of the Options, the exercise
of the Options, and/or the expiration of the Options, and as may be specified in the Rules and
Regulations or otherwise in accordance with the Plan. The Corporation may also require, as a
condition of exercise of the Options, that all or a portion of the Shares issued to you upon the
exercise of the Options: (i) be withheld, until such time as payment for any tax withholdings
made by the Corporation or any of its subsidiaries on account of applicable taxes (hereinafter
“tax withholdings”) has been received; and/or (ii) be sold by you or on your behalf to generate
proceeds sufficient to cover any tax withholdings and any other related broker or administrative
fees, in each case if you do not pay such tax withholdings within the designated time periods as
may be specified in the Rules and Regulations or otherwise in accordance with the Plan. You
further acknowledge and agree that conditions or restrictions on the transferability of the
Shares issued to you upon the exercise of the Options may be imposed on such Shares on account
of taxes or tax withholdings in connection with the Grant of the Options, the vesting of the
Options, the exercise of the Options, and/or the expiration of the Options, in each case as may
be specified in the Rules and Regulations or otherwise in accordance with the Plan.

7. If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that the Optionee has committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including stock options, the Optionee shall, in
accordance with the terms of the Recoupment Policy, automatically forfeit any grants of Options
received under this Instrument of Grant but not yet exercised, or if exercised, the Optionee
shall reimburse the
Company the amount of monetary compensation received by the Optionee as a result of such
exercise of Options, and/or the Company shall be entitled to issue proceedings to recover
damages against the Optionee in respect of any losses incurred.

 

 

8. The Options are not transferable or assignable and shall only be exercisable by you or your
legal guardian while you are alive. In the event of your death, the right to exercise shall be
governed by the terms of the Plan, subject to any applicable Rules and Regulations.

9. This Instrument of Grant: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Grant and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Grant of Options evidenced by this Instrument of Grant are specifically
recorded as a variation from the terms and conditions of the Plan or the Rules and Regulations,
as the case may be. In order to receive any benefits under this Instrument of Grant, it must be
accepted by you within ninety (90) days of the Effective Date. Any grants of Options for which
the Corporation has not received an accepted Instrument of Grant from you within the ninety (90)
day period shall be automatically cancelled for no consideration at the end of such ninety (90)
day period.

10. A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site

(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the Options. You should check the Services@Work site frequently since
it may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Grant.

11. You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Grant of Options does not create any right to receive
future Grants of Options, or benefits in lieu of Options and the terms and conditions of any
future Grants of Options, if any, will be communicated if and when new Grants of Options are to
be made; (iii) the value of the Options is outside the scope of your employment contract, if
any, and the Grant of Options is not for labour performed; (iv) participation in the Plan is
voluntary; (v) the future value of the Shares is unknown and cannot be predicted with certainty;
(vi) the Options are not part of remuneration for purposes of any compensation on termination of
employment, severance payments, indemnities or end of service payments or benefits of any
nature; (vii) the vesting of the Options ceases upon termination of employment, whether lawful
or otherwise, except as provided in the Plan, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the expiration of Options or the early
exercise thereof on any such termination of employment; and (viii) the Grant of the Option does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Grant or the Options, shall, to
the extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

12. The various provisions and sub-provisions of this Instrument of Grant are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Grant, the Plan, the Rules and
Regulations, or any documents related to the Plan.

13. Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the grant and/or exercise of Options, administering the Plan, and
to comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Grant or the Options, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

14. By accepting this Instrument of Grant or the Options, you expressly consent that the Plan,
the Rules and Regulations, the Prospectus for the Plan and any other document relating thereto,
including this Instrument of Grant and the information about the Grant available through the
Nortel Intranet — WebStock site, be drawn up and/or available in English only. Par votre
acceptation de la présente Entente ou des Options, vous consentez expressément à ce que le
Régime, les règlements et le prospectus relatifs au Régime et tout autre document connexe, y
compris la présente Entente et l’information concernant vos options disponible à la page «
WebStock » de l’intranet de Nortel soient rédigés et/ou disponibles en anglais seulement.

15. By accepting this Instrument of Grant or the Options, you (i) acknowledge and confirm that
you have read and understood the Plan, the Rules and Regulations, this Instrument of Grant and
all information about the Grant available on WebStock Option Summary, and that you have had an
opportunity to seek separate fiscal, legal and taxation advice in relation thereto; and (ii)
agree to be bound by the terms and conditions stated in this Instrument of Grant, including
without limitation the terms and conditions of the Plan and the Rules and Regulations
incorporated by reference herein.

16.
The timing of taxation on your stock options is dependent upon
when you accept this Instrument of Grant;

 

 

i) if this Instrument of Grant is accepted greater than 60 days after the date of
offer/Formal Grant Notification Date (as defined below), your stock options will be taxable
at the date of exercise

ii) if this Instrument of Grant is accepted within 60 days of the date of offer/Formal Grant
Notification Date (as defined below) by checking one of the boxes below, your stock
options will be taxable at time of grant:

	 	 	Any references in this Instrument of Grant to potential tax consequences are made solely for
general information purposes. Nortel is and shall not in any manner be responsible or in any
way liable for the accuracy of such information, or changes in Belgian tax law or
interpretations made by Belgian authorities which could potentially conflict with such
information.
	 
	o	 	I accept the terms and conditions of this Grant and commit not to exercise
the options prior to the end of the third calendar year after the year in which Moment of
Grant occurs (Moment of Grant is deemed to occur 60 days after the Formal Grant Notification
Date), which will result in a taxable fringe benefit equal to 10% of the value of the
underlying shares. I understand that if I exercise the options prior to this time I will be
deemed to have received an additional taxable fringe benefit equal to 10% of the value of the
underlying shares. Further, I acknowledge and agree that Nortel has not attested to or
otherwise certified or guaranteed the accuracy of information on potential tax consequences
and Nortel is and shall not in any manner be responsible or in any way liable for the
accuracy of such information, or changes in Belgian tax law or interpretations made by
Belgian authorities which could potentially conflict with such information.
	 
	o	 	I accept the terms and conditions of this Grant and do not commit not to
exercise the options prior to the end of the third calendar year after the year in which
Moment of Grant occurs (Moment of Grant is deemed to occur 60 days after the Formal Grant
Notification Date). I understand that because I have not committed to refrain from
exercising the options prior to this time I will be deemed to have received a taxable fringe
benefit equal to 20% of the value of the underlying shares. Further, I acknowledge and agree
that Nortel has not attested to or otherwise certified or guaranteed the accuracy of
information on potential tax consequences and Nortel is and shall not in any manner be
responsible or in any way liable for the accuracy of such information, or changes in Belgian
tax law or interpretations made by Belgian authorities which could potentially conflict with
such information.

If you accept this Grant and want to be taxed at grant please check the appropriate box above,
execute where indicated below and return within 60 days of the Formal Grant Notification
Date all pages of this Instrument of Grant to Global Equity Award Services, Nortel Networks
Corporation, Dept CO1G, MS-T0504001, 195 The West Mall, Toronto, Ontario, Canada, M9C 5K1. The
“Formal Grant Notification Date” of this Grant is the day on which Nortel Networks Corporation
sent you an e-mail notifying you of this Grant (regardless of when you read that e-mail).

If you accept this Grant and want to be taxed at exercise please execute where indicated below
and return after 60 days of the Formal Grant Notification Date all pages of this
Instrument of Grant to Global Equity Award Services, Nortel Networks Corporation, Dept CO1G,
MS-T0504001, 195 The West Mall, Toronto, Ontario, Canada, M9C 5K1. The “Formal Grant
Notification Date” of this Grant is the day on which Nortel Networks Corporation sent you an
e-mail notifying you of this Grant (regardless of when you read that e-mail).

By default, taxation of your stock options will occur on the day of exercise.

	 	 	 	 	 
	Signature of Optionee:

	 	 
 

	 	  

	 	 	 	 	 
	Date:
	 	 	 	 
	 

	 	 

	 	 

 

 

NORTEL NETWORKS CORPORATION — STOCK OPTIONS

INSTRUMENT OF GRANT

«COUNTRY»

	 	 	 	 
	 	NAME OF OPTIONEE:

	 	«NAME» («GID»)
	 	 
	 	 
	 	EFFECTIVE DATE:

	 	«GRANT_DATE»
	 	 
	 	 
	 	NUMBER OF OPTIONS:

	 	«GRANTED»
	 	 
	 	 
	 	SUBSCRIPTION PRICE:

	 	«PRICE» (USD)
	 	 
	 	 
	 	EXPIRATION DATE:

	 	«EXPIRY_DATE»
	 	 
	 	 
	 	VESTING SCHEDULE:

	 	«VESTING» — «Vest_Desc»
	 	 
	 	 
	 	VESTING START DATE:
	 	 
	 	 
	 	 
	 	PLAN:

	 	Nortel «PLAN» Plan

This instrument (hereinafter the “Instrument of Grant”) evidences a Grant to you of the number
of Options indicated above, on the Effective Date indicated above, pursuant to the Nortel 2005
Stock Incentive Plan, As Amended and Restated and as may be further amended from time to time
(the “Plan”). Each Option covered by this Instrument of Grant generally entitles you to
purchase one common share (a “Share”) of Nortel Networks Corporation (the “Corporation”), at the
Subscription Price per Share indicated above, no later than the Expiration Date indicated above,
or such earlier date as may be applicable pursuant to the provisions of the Plan. Capitalized
terms not otherwise defined in this Instrument of Grant have the meanings set forth in the Plan.

1. All Options covered by this Instrument of Grant are subject to the terms and conditions
stated in the Plan, except as specifically or additionally provided in this Instrument of Grant
and/or in any rules, regulations, determinations or interpretations prescribed and/or made by
the Committee (or its delegates) under the power and authority granted under the Plan (the
“Rules and Regulations”), and all of the provisions of the Plan and the Rules and Regulations
are incorporated by reference as if expressly restated herein. Different Rules and Regulations
may apply to you and/or the Options covered by this Instrument of Grant depending on your
country work location, residency or payroll, whether on the Effective Date of the Grant of
Options, on the date of exercise of the Options, or otherwise. Accordingly, you should review
the Plan and the Rules and Regulations from time to time, which are available as indicated
below, in conjunction with this Instrument of Grant.

2. The Options covered by this Instrument of Grant are U.S. Options, so the Subscription Price
and all other amounts to be calculated in accordance with the provisions of the Plan for
purposes of this Grant of Options shall be calculated and stated in U.S. dollars. The Options
are Non-Qualified Stock Options for the purposes of the Plan. Such designation is only relevant
in determining the U.S. federal income tax consequences, if any, applicable to the Options, and
has no bearing on the tax treatment applicable to Options in countries outside of the United
States. Optionees are urged to seek their own tax advice to assess the tax status of such
Options.

3. You will have the right to exercise the Options after they have vested in such amounts
and on such dates in accordance with the vesting schedule, provided that you have been in the
continuous employment of the Corporation or any of its subsidiaries or affiliated entities from
the Effective Date. The exact amounts and dates for vesting are specified in your Grant
information available through the Nortel Intranet — WebStock site
(https://webstock.us.nortel.com:49701/webstock/docs/default.html), “Personal Summary of
Stock Options” web page, or such other web site or through such other means as may be specified
by the Corporation from time to time.

4. Options may be exercised: (i) by irrevocable notice of exercise in writing, executed and
delivered by the Optionee to the Nortel Global Equity Award Services Department (at 195 The West
Mall, Toronto, Ontario, Canada M9C 5K1, or such other address as may be in effect from time to
time); and/or (ii) through such Internet-based or on-line system or such telephonic or voice
recognition system (whether provided by the Corporation or any third party on behalf of the
Corporation); in each case, in such form or manner as may be specified from time to time by the
Corporation on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Stock Options/Exercise Process, or otherwise in accordance
with the Plan. The date of exercise of the Options shall be the date on which the notice of
exercise, accompanied by payment of the Subscription Price and any other required documentation
as provided in the Plan or the Rules and Regulations, is received by the Corporation, in such
form or manner as may be specified from time to time by the Corporation.

5. The terms and conditions in this paragraph apply to you only if one or both of the following
apply: (i) you are a “Reporting Insider” for the purpose of Corporate Procedure No. 320.28 — Use
of Undisclosed Material Information on the Effective Date indicated above; or (ii) the number

 

 

of Options evidenced by this Instrument of Grant is equal to or in excess of 1,500 Options. In
consideration of the Grant of Options, in the
event that you exercise all or any part of the Options at any time subsequent to the date which
is twelve (12) months prior to the date of termination of your employment (whether wrongful or
for any other reason) (the “Applicable Period”), and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
your employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with any Nortel Company;

	(ii)	 	you fail to comply with or otherwise breach the terms or conditions of any
confidentiality agreement or non-disclosure agreement with any Nortel Company;

	(iii)	 	while employed or during the period of twelve (12) months following termination of
your employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/or was
supplying services to any Nortel Company, to terminate their employment or contractual
arrangements with any Nortel Company; or

	(iv)	 	while employed or during the period of twelve (12) months following termination of your
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away the
business of any of the customers or accounts, or prospective customers or accounts, of any
Nortel Company or any of its distributors, representatives or vendors, which you have had
contact or communication with while employed at any Nortel Company;

you agree that you will, if required by the Corporation in its sole discretion, pay to the
Corporation within ten (10) days of written demand for payment from the Corporation an amount
equal to the amount of the excess of the Market Value, on the date of exercise of the Options,
of the Shares purchased as a result of the exercise of the Options over the Subscription Price
for the Shares covered by the Options (the “Applicable Amount”).

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the issuance of Shares upon the
exercise of options during the Applicable Period (and, where applicable, in respect of the Grant
of such Options).

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the issuance of Shares upon the exercise of options
during the Applicable Period (such difference between the Corresponding Tax Benefit and Tax, if
any, is referred to herein as the “Tax Benefit Deficiency”), the Applicable Amount shall be
reduced by an amount equal to the Tax Benefit Deficiency.

     For the purposes of this paragraph 5:

“Corresponding Tax Benefit” means the amount of any deduction from or reduction or credit
to the amount of Taxes paid or payable by you or on your behalf in accordance with the
laws of the tax jurisdiction applicable to you as a result of or in connection with the
payment to the Corporation of all or any portion of the Applicable Amount by the
Designated Employee;

“Nortel Company” means, collectively, Nortel Networks Corporation and its direct and
indirect Subsidiaries (as such term is defined by the Plan); and

“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time the
Shares are issued upon the exercise of Options (and, where applicable, at the time of the
Effective Date of the Grant of such Options).

6. The Corporation may require, as a condition of exercise of the Options, that you: (i) pay any
applicable taxes, charges, duties, contributions or otherwise (hereinafter “taxes”) which are
required to be paid by you to any federal, provincial, state, local, foreign or other taxation
authority; (ii) pay or reimburse any taxes which are required to be withheld and remitted by the
Corporation or any of its subsidiaries; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the Grant of the Options, the vesting of the Options, the exercise
of the Options, and/or the expiration of the Options, and as may be specified in the Rules and
Regulations or otherwise in accordance with the Plan. The Corporation may also require, as a
condition of exercise of the Options, that all or a portion of the Shares issued to you upon the
exercise of the Options: (i) be withheld, until such time as payment for any tax withholdings
made by the Corporation or any of its subsidiaries on account of applicable taxes (hereinafter
“tax withholdings”) has been received; and/or (ii) be sold by you or on your behalf to generate
proceeds sufficient to cover any tax withholdings and any other related broker or administrative
fees, in each case if you do not pay such tax withholdings within the designated time periods as
may be specified in the Rules and Regulations or otherwise in accordance with the Plan. You
further acknowledge and agree that conditions or restrictions on the transferability of the
Shares issued to you upon the exercise of the Options may be imposed on such Shares on account
of taxes or tax withholdings in connection with the Grant of the Options, the vesting of the
Options, the exercise of the Options, and/or the expiration of the Options, in each case as may
be specified in the Rules and Regulations or otherwise in accordance with the Plan.

7. If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that the Optionee has committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including stock options, the Optionee shall, in
accordance with the terms of the Recoupment Policy, automatically forfeit any grants of Options
received under this Instrument of Grant but not yet exercised, or if exercised, the Optionee
shall reimburse the Company the amount of monetary compensation received by the Optionee as a
result of such exercise of Options, and/or the Company shall be entitled to issue proceedings to
recover damages against the Optionee in respect of any losses incurred.

 

 

8. The Options are not transferable or assignable and shall only be exercisable by you or your
legal guardian while you are alive. In the event of your death, the right to exercise shall be
governed by the terms of the Plan, subject to any applicable Rules and Regulations.

9. This Instrument of Grant: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Grant and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Grant of Options evidenced by this Instrument of Grant are specifically
recorded as a variation from the terms and conditions of the Plan or the Rules and Regulations,
as the case may be. In order to receive any benefits under this Instrument of Grant, it must be
accepted by you within ninety (90) days of the Effective Date. Any grants of Options for which
the Corporation has not received an accepted Instrument of Grant from you within the ninety (90)
day period shall be automatically cancelled for no consideration at the end of such ninety (90)
day period.

10. A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site

(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the Options. You should check the Services@Work site frequently since
it may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Grant.

11. You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Grant of Options does not create any right to receive
future Grants of Options, or benefits in lieu of Options and the terms and conditions of any
future Grants of Options, if any, will be communicated if and when new Grants of Options are to
be made; (iii) the value of the Options is outside the scope of your employment contract, if
any, and the Grant of Options is not for labour performed; (iv) participation in the Plan is
voluntary; (v) the future value of the Shares is unknown and cannot be predicted with certainty;
(vi) the Options are not part of remuneration for purposes of any compensation on termination of
employment, severance payments, indemnities or end of service payments or benefits of any
nature; (vii) the vesting of the Options ceases upon termination of employment, whether lawful
or otherwise, except as provided in the Plan, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the expiration of Options or the early
exercise thereof on any such termination of employment; and (viii) the Grant of the Option does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Grant or the Options, shall, to
the extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

12. The various provisions and sub-provisions of this Instrument of Grant are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Grant, the Plan, the Rules and
Regulations, or any documents related to the Plan.

13. Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the grant and/or exercise of Options, administering the Plan, and
to comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Grant or the Options, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

14. By accepting this Instrument of Grant or the Options, you expressly consent that the Plan,
the Rules and Regulations, the Prospectus for the Plan and any other document relating thereto,
including this Instrument of Grant and the information about the Grant available through the
Nortel Intranet — WebStock site, be drawn up and/or available in English only. Par votre
acceptation de la présente Entente ou des Options, vous consentez expressément à ce que le
Régime, les règlements et le prospectus relatifs au Régime et tout autre document connexe, y
compris la présente Entente et l’information concernant vos options disponible à la page «
WebStock » de l’intranet de Nortel soient rédigés et/ou disponibles en anglais seulement.

15. By accepting this Instrument of Grant or the Options, you (i) acknowledge and confirm that
you have read and understood the Plan, the Rules and Regulations, this Instrument of Grant and
all information about the Grant available on WebStock Option Summary, and that you have had an
opportunity to seek separate fiscal, legal and taxation advice in relation thereto; and (ii)
agree to be bound by the terms and conditions stated in this Instrument of Grant, including
without limitation the terms and conditions of the Plan and the Rules and Regulations
incorporated by reference herein.

 

 

     If you accept the terms and conditions of this Grant of Options as described in this
Instrument of Grant, please confirm your acceptance by signing where indicated below and
returning it to Nortel Global Equity Award Services at the address indicated below.

	 	 	 	 	 
	Signature of Optionee:
	 	 	 	 
	 

	 	 

	 	 

Global Equity Award Services

Nortel Networks Corporation

195 The West Mall

Dept. C01G, MS T0504001

Toronto, Ontario, Canada M9C 5K1

 

 

NORTEL NETWORKS CORPORATION — STOCK APPRECIATION RIGHTS

INSTRUMENT OF GRANT (CHINA)

This instrument (hereinafter the “Instrument of Grant”) evidences a grant to you of the number
of Stock Appreciation Rights (“SARs”) indicated above beside the heading Total SARs, on the
Issue Date indicated above, pursuant to the Nortel 2005 Stock Incentive Plan, As Amended and
Restated, and as may be further amended from time to time (the “Plan”). Each SAR covered by
this Instrument of Grant generally entitles you to receive a cash payment equal to the excess of
the Market Value of one common share (a “Share”) of Nortel Networks Corporation (the
“Corporation”) over the Grant Price per SAR indicated above, no later than the Expiry Date
indicated above, or such earlier date as may be applicable pursuant to the provisions of the
Plan. Capitalized terms not otherwise defined in this Instrument of Grant have the meanings set
forth in the Plan.

1. All SARs covered by this Instrument of Grant are subject to the terms and conditions stated
in the Plan, except as specifically or additionally provided in this Instrument of Grant and/or
in any rules, regulations, determinations or interpretations prescribed and/or made by the
Committee (or its delegates) under the power and authority granted under the Plan (the “Rules
and Regulations”), and all of the provisions of the Plan and the Rules and Regulations are
incorporated by reference as if expressly restated herein. Different Rules and Regulations may
apply to you and/or the SARs covered by this Instrument of Grant depending on your country work
location, residency or payroll, whether on the Issue Date of the grant of SARs, on the date of
exercise of the SARs, or otherwise. Accordingly, you should review the Plan and the Rules and
Regulations from time to time, which are available as indicated below, in conjunction with this
Instrument of Grant.

2. The SARs covered by this Instrument of Grant are a U.S. Award. The SARs are Stand-Alone SARs
for the purposes of the Plan.

3. Subject to the terms of the Plan and this Instrument of Grant, you will have the right to
exercise the SARs after they have vested in such amounts and on such dates in accordance with
the Vest Schedule indicated above, provided that you have been in the continuous employment of
the Corporation or any of its subsidiaries or affiliated entities from the Issue Date.

4. SARs may be exercised: (i) by irrevocable notice of exercise in writing, executed and
delivered by the recipient to the Nortel Global Equity Award Services Department (at 195 The
West Mall, Toronto, Ontario, Canada M9C 5K1, or such other address as may be in effect from time
to time); and/or (ii) through such Internet-based or on-line system or such telephonic or voice
recognition system (whether provided by the Corporation or any third party on behalf of the
Corporation); in each case, in such form or manner as may be specified from time to time by the
Corporation on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Stock Appreciation Rights/Exercise Process, or otherwise in
accordance with the Plan. The date of exercise of the SARs shall be the date on which the
notice of exercise, accompanied by any other required documentation as provided in the Plan or
the Rules and Regulations, is received by the Corporation, in such form or manner as may be
specified from time to time by the Corporation.

5. The terms and conditions in this paragraph apply to you only if one or both of the following
apply: (i) you are a “Reporting Insider” for the purpose of Corporate Procedure No. 320.28 — Use
of Undisclosed Material Information on the Issue Date indicated above; or (ii) the number of
SARs evidenced by this Instrument of Grant is equal to or in excess of 1,500 SARs. In
consideration of the grant of SARs, in the event that you exercise all or any part of the SARs
at any time subsequent to the date which is twelve (12) months prior to the date of termination
of your employment (whether wrongful or for any other reason) (the “Applicable Period”), and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
your employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with any Nortel Company;

	(ii)	 	you fail to comply with or otherwise breach the terms or conditions of any
confidentiality agreement or non-disclosure agreement with any Nortel Company;

	(iii)	 	while employed or during the period of twelve (12) months following termination of
your employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/or was
supplying services to any Nortel Company, to terminate their employment or contractual
arrangements with any Nortel Company; or

	(iv)	 	while employed or during the period of twelve (12) months following termination of your
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away the
business of any of the customers or accounts, or prospective customers or accounts, of any
Nortel Company or any of its distributors, representatives or vendors, which you have had
contact or communication with while employed at any Nortel Company;

you agree that you will, if required by the Corporation in its sole discretion, pay to the
Corporation within ten (10) days of written demand for payment from the Corporation an amount
equal to the amount of the excess of the Market Value of a Share, on the date of exercise of the
SARs, over the Grant Price multiplied by the number of SARs exercised (the “Applicable Amount”).

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the settlement in cash of SARs upon
the exercise of SARs during the Applicable Period (and, where applicable, in respect of the
grant of such SARs).

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) upon the exercise of SARs during the Applicable Period (such
difference between the Corresponding Tax Benefit and Tax, if any, is referred to herein as
the “Tax Benefit Deficiency”), the Applicable Amount shall be reduced by an amount equal to the
Tax Benefit Deficiency.

 

 

     For the purposes of this paragraph 5:

“Corresponding Tax Benefit” means the amount of any deduction from or reduction or credit
to the amount of Taxes paid or payable by you or on your behalf in accordance with the
laws of the tax jurisdiction applicable to you as a result of or in connection with the
payment to the Corporation of all or any portion of the Applicable Amount by the
Designated Employee;

“Nortel Company” means, collectively, Nortel Networks Corporation and its direct and
indirect Subsidiaries (as such term is defined by the Plan); and

“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time the
SARs are exercised (and, where applicable, at the time of the Issue Date of the grant of
such SARs).

6. The Corporation may require, as a condition of exercise of the SARs, that you: (i) pay any
applicable taxes, charges, duties, contributions or otherwise (hereinafter “taxes”) which are
required to be paid by you to any federal, provincial, state, local, foreign or other taxation
authority; (ii) pay or reimburse any taxes which are required to be withheld and remitted by the
Corporation or any of its subsidiaries; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the grant of the SARs, the vesting of the SARs, the exercise of the
SARs, and/or the expiration of the SARs, and as may be specified in the Rules and Regulations or
otherwise in accordance with the Plan. Recipients should seek their own tax advice to assess
the tax status of their SARs.

7. If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that you have committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including stock appreciation rights, the recipient
shall, in accordance with the terms of the Recoupment Policy, automatically forfeit any grants
of SARs received under this Instrument of Grant but not yet exercised, or if exercised, the
recipient shall reimburse the Company the amount of monetary compensation received by the
recipient as a result of such exercise of SARs, and/or the Company shall be entitled to issue
proceedings to recover damages against the recipient in respect of any losses incurred.

8. The SARs are not transferable or assignable and shall only be exercisable by you or your
legal guardian while you are alive. In the event of your death, the right to exercise shall be
governed by the terms of the Plan, subject to any applicable Rules and Regulations.

9. This Instrument of Grant: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Grant and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the grant of SARs evidenced by this Instrument of Grant are specifically recorded
as a variation from the terms and conditions of the Plan or the Rules and Regulations, as the
case may be. In order to receive any benefits under this Instrument of Grant, it must be
accepted by you within ninety (90) days of the Issue Date. Any grants of SARs for which the
Corporation has not received an accepted Instrument of Grant from you within the ninety (90) day
period shall be automatically cancelled for no consideration at the end of such ninety (90) day
period.

10. A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site

(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the SARs. You should check the Services@Work site frequently since it
may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Grant.

11. You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the grant of SARs does not create any right to receive future
grants of SARs, or benefits in lieu of SARs and the terms and conditions of any future grants of
SARs, if any, will be communicated if and when new grants of SARs are to be made; (iii) the
value of the SARs is outside the scope of your employment contract, if any, and the grant of
SARs is not for labour performed; (iv) participation in the Plan is voluntary; (v) the future
value of the SARs is unknown and cannot be predicted with certainty; (vi) the SARs are not part
of remuneration for purposes of any compensation on termination of employment, severance
payments, indemnities or end of service payments or benefits of any nature; (vii) the vesting of
the SARs ceases upon termination of employment, whether lawful or otherwise, except as provided
in the Plan, and neither the Corporation nor any of its subsidiaries is required to compensate
you for any financial loss (including taxes, social security premiums and lost capital gain) as
a result of the expiration of SARs or the early exercise thereof on any such termination of
employment; and (viii) the grant of the SARs does not give rise to additional obligations for
any subsidiary which employs you. If, notwithstanding the foregoing, any contractual or
statutory (employment or otherwise) claim is found to have arisen, then you, by accepting this
Instrument of Grant or the SARs, shall, to the extent permitted by applicable law, be deemed
irrevocably to have waived your entitlement to pursue such claim.

2

 

12. The various provisions and sub-provisions of this Instrument of Grant are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Grant, the Plan, the Rules and
Regulations, or any documents related to the Plan.

13. Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the grant and/or exercise of SARs, administering the Plan, and to
comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Grant or the SARs, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

14. By accepting this Instrument of Grant or the SARs, you expressly consent that the Plan, the
Rules and Regulations, the Prospectus for the Plan and any other document relating thereto,
including this Instrument of Grant and the information about the grant available through the
Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents, be drawn up and/or available in English only.

15. By accepting this Instrument of Grant or the SARs, you (i) acknowledge and confirm that
you have read and understood the Plan, the Rules and Regulations, this Instrument of Grant
and all information about the grant available on Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents, and that you have had an opportunity to
seek separate fiscal, legal and taxation advice in relation thereto; (ii) agree to be bound
by the terms and conditions stated in this Instrument of Grant, including without
limitation the terms and conditions of the Plan and the Rules and Regulations incorporated
by reference herein and (iii) appoint the Company and any third party service providers of
the Company to act on your behalf in connection with this Instrument of Grant and the SARs.

If you accept the terms and conditions of this grant of SARs as described in this Instrument of
Grant, please confirm your acceptance by signing where indicated below and returning it to
Nortel Global Equity Award Services at the address indicated below.

	 	 	 	 	 
	Signature of Recipient:

	 	 

	 	 

Global Equity Award Services

Nortel Networks Corporation

195 The West Mall

Dept. C01G, MS T0504001

Toronto, Ontario, Canada M9C 5K1

3

 

NORTEL NETWORKS CORPORATION – RESTRICTED STOCK UNITS

INSTRUMENT OF AWARD

«COUNTRY»

	 	 	 	 
		NAME:

	 	«NAME» («GID»)
		 
	 	 
		EFFECTIVE DATE:

	 	«AWARD_DATE»
		 
	 	 
		NUMBER OF RSUs:

	 	«AWARDED»
		 
	 	 
		VESTING
SCHEDULE:

	 	<VEST DESC>
		 
	 	 
		PLAN:

	 	NORTEL <PLAN> PLAN

This instrument (hereinafter the “Instrument of Award”) evidences an Award to you of the number
of Restricted Stock Units (“RSUs”) indicated above, on the Effective Date indicated above,
pursuant to the Nortel 2005 Stock Incentive Plan, As Amended and Restated, and as may be further
amended from time to time (the “Plan”). Each RSU covered by this Instrument of Award generally
entitles you to receive one common share (a “Share”) of Nortel Networks Corporation (the
“Corporation”) on each applicable scheduled Vesting date in accordance with the Vesting Schedule
indicated above and the provisions set forth below. Capitalized terms not otherwise defined in
this Instrument of Award have the meanings set forth in the Plan.

1. All RSUs covered by this Instrument of Award are subject to the terms and conditions stated
in the Plan, except as specifically or additionally provided in this Instrument of Award and/or
in any rules, regulations, determinations or interpretations prescribed and/or made by the
Committee (or its delegates) under the power and authority granted under the Plan (the “Rules
and Regulations”), and all of the provisions of the Plan and the Rules and Regulations are
incorporated by reference as if expressly restated herein. Different Rules and Regulations may
apply to you and/or the RSUs covered by this Instrument of Award depending on your country of
work location, residency or payroll, whether on the Effective Date of the Award, on the date of
settlement of the RSUs, or otherwise. Accordingly, you should review the Plan and the Rules and
Regulations from time to time, which are available as indicated below, in conjunction with this
Instrument of Award.

2. If you have been in the continuous employment of the Company from the Effective Date to the
applicable Vesting date set forth in the Vesting Schedule above, RSUs scheduled to Vest on such
Vesting date will Vest and will be settled by transfer of Shares to you on such Vesting date.
For purposes of this section 2, transfer of Shares within 75 days following the Vesting date
shall be deemed to constitute transfer on such Vesting date.

3. The obligation of the Company to transfer Shares to you in settlement of Vested RSUs pursuant
to section 2 or section 7 hereof is conditioned upon your execution and delivery of any required
documentation as provided in the Plan, this Instrument of Award or the Rules and Regulations, in
such form or manner as may be specified from time to time by the Corporation; provided that if
you have not executed and delivered such required documentation within 75 days following the
applicable Vesting date, the RSUs shall immediately be forfeited and cancelled for no
consideration on such 75th day. You will remain responsible for any local legal
compliance requirements resulting from your receipt of RSUs, the subsequent ownership and
possible sale of Shares acquired upon settlement of RSUs, and the opening and maintaining of a
foreign brokerage account, if applicable.

4. The terms and conditions in this paragraph apply to you only if one or both of the following
apply: (i) you are a “Reporting Insider” for the purpose of Corporate Procedure No. 320.28 — Use
of Undisclosed Material Information on the Effective Date indicated above; or (ii) the number of
RSUs evidenced by this Instrument of Award is equal to or in excess of 1,000 RSUs. In
consideration of the Award of RSUs, in the event that all or any part of the RSUs become Vested
at any time subsequent to the date which is twelve (12) months prior to the date of termination
of your employment (whether wrongful or for any other reason) (the “Applicable Period”), and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
your employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with the Company;

	(ii)	 	you fail to comply with or otherwise breach the terms or conditions of any
confidentiality agreement or non-disclosure agreement with the Company;

	(iii)	 	while employed or during the period of twelve (12) months following termination of
your employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/or was
supplying services to the Company, to terminate their employment or contractual
arrangements with the Company; or

1

 

	(iv)	 	while employed or during the period of twelve (12) months following termination of your
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away the
business of any of the customers or accounts, or prospective customers or accounts, of the
Company or any of its distributors, representatives or vendors, which you have had contact
or communication with while employed at the Company;

you agree that you will, if required by the Company in its sole discretion, pay to the Company
within ten (10) days of written demand for payment from the Company an amount in cash equal to
the number of RSUs that Vested during the Applicable Period multiplied by the Market Value on
the applicable Vesting date (the “Applicable Amount”).

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the Vesting of the RSUs or your
receipt of Shares upon the settlement of Vested RSUs during the Applicable Period (and, where
applicable, in respect of the Award of such RSUs).

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the Vesting of the RSUs or your receipt of Shares upon
the settlement of Vested RSUs during the Applicable Period (such difference between the
Corresponding Tax Benefit and Tax, if any, is referred to herein as the “Tax Benefit
Deficiency”), the Applicable Amount shall be reduced by an amount equal to the Tax Benefit
Deficiency.

     For the purposes of this paragraph 4:

“Corresponding Tax Benefit” means the amount of any deduction from or reduction or credit
to the amount of Taxes paid or payable by you or on your behalf in accordance with the
laws of the tax jurisdiction applicable to you as a result of or in connection with the
payment to the Company of all or any portion of the Applicable Amount by you; and

“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time of
Vesting of the RSUs or at the time you receive the Shares in settlement of the RSUs,
whichever is applicable (and, where applicable, at the time of the Effective Date of the
Award of such RSUs).

5. The Company requires, as a condition on settlement of Vested RSUs, that you: (i) pay any
federal, provincial, state or local withholding taxes (collectively referred to herein as
“taxes”) which are required to be paid by you; (ii) pay or reimburse any taxes which are
required to be withheld and remitted by the Company; (iii) complete any forms or provide any
additional documents in connection with taxes; and (iv) otherwise comply with all applicable tax
laws; in each case in connection with the Award of the RSUs, the Vesting of the RSUs, the
settlement of the RSUs, and/or the forfeiture of the RSUs, and as may be specified in this
Instrument of Award, the Rules and Regulations or otherwise in accordance with the Plan. The
Company may require, as a condition of the settlement of Vested RSUs, that a portion of the
related Shares be sold by you or on your behalf (i) to generate proceeds sufficient to cover any
tax withholdings required to be withheld and remitted by the Company or its designee on account
of applicable taxes (hereinafter, “tax withholdings”) and any other related broker or
administrative fees, or (ii) to generate proceeds sufficient to cover any tax withholdings and
any other related broker or administrative fees if you do not pay such tax withholdings within
the designated time periods as may be specified in accordance with applicable requirements.

6. If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that you have committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including RSUs, you shall, in accordance with the
terms of the Recoupment Policy, automatically forfeit any awards of RSUs received under this
Instrument of Award but not yet Vested, or if Vested, you shall reimburse the Company the amount
of monetary compensation received by you as a result of such Vesting of RSUs, and/or the Company
shall be entitled to issue proceedings to recover damages against you in respect of any losses
incurred.

7. In the event of your Termination prior to the date that any portion of the RSUs awarded to
you pursuant to this Instrument of Award were scheduled to Vest, (i) if such Termination is a
Qualifying Termination Without Cause, all then outstanding unvested RSUs awarded to you pursuant
to this Instrument of Award shall remain outstanding, shall continue to Vest in accordance with
the Vesting Schedule indicated above during the Extension Period and the remaining portion of
such RSU shall be forfeited and cancelled for no consideration; (ii) if such Termination is due
to your Retirement or death, a “pro rata portion” of the then outstanding unvested RSUs awarded
to you shall become immediately Vested and the remaining portion of such RSUs shall be forfeited
and cancelled for no consideration as of the Date of Termination; (iii) if such Termination is a
Qualifying Termination Without Cause and, immediately following the end of the Extension Period,
you commence or are eligible and remain eligible to commence Retirement, a “pro rata portion” of
the unvested RSUs awarded to you that are outstanding as of the end of the Extension Period
shall become immediately Vested and the remaining portion of any RSUs then outstanding shall be
forfeited and cancelled for no consideration as of the date you commence or are eligible and
remain eligible to commence Retirement and (iv) if such Termination is for any other reason
(including by your employer for Cause or by reason of your resignation for any reason), all then
outstanding unvested RSUs awarded to you pursuant to this Instrument of Award shall immediately
be forfeited and cancelled for no consideration on such Date of Termination. With respect to
any RSUs that Vest as a result of a Termination due to death, such RSUs shall be settled as soon
as practical following the date of death and, in any event, before 90 days after the date of
death. With respect to any RSUs that Vest on or following a Termination (other than due to
death), such RSUs shall be settled on the Vesting date on which such RSUs were

2

 

 originally scheduled to Vest in accordance with the Vesting Schedule above. Notwithstanding the
foregoing, any Vesting and/or settlement, as applicable, pursuant to this paragraph shall be
delayed until six months after your Retirement or other type of Termination to the extent
necessary to avoid adverse tax treatment under Section 409A of the U.S. Internal Revenue Code.

     For purposes of this section 7, transfer of Shares within 75 days following the applicable
settlement date shall be deemed to constitute transfer on such Vesting date.

     For purposes of this section 7, “pro rata portion” shall mean the product of one-third of
the RSUs awarded to you pursuant to the Plan and this Instrument of Award multiplied by a
fraction, the numerator of which equals the number of days which have elapsed at the relevant
date since the later of (i) the date 33 percent of the RSUs became Vested; and (ii) the date 66
percent of the RSUs became Vested; and the denominator of which is 365; provided, however, that
no portion of a RSU shall become vested earlier than the first anniversary of the Effective Date
of the Award.

     For the purposes of this section 7, the following shall be excluded from the definition of
“Extension Period” in the Plan: “the earlier of (x) the twenty-four month anniversary of the
Participant’s Date of Termination and (y)”.

8. In the event you are a Specified Executive (as defined under the Nortel Networks Corporation
Change in Control Plan (“CIC Plan”)) and are subject to a Termination Due to Change in Control
(as defined in the CIC Plan), the RSUs awarded to you in accordance with this Instrument of
Award shall be included as Awards (as defined under the CIC Plan) and receive all of the
benefits provided to Awards under the CIC Plan in the event of a Termination Due to Change in
Control, provided, however, that no portion of a RSU shall be included, for the purposes of any
payments under the CIC Plan, earlier than the first anniversary of the Effective Date of an
Award.

9. This Instrument of Award: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Award and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Award of RSUs evidenced by this Instrument of Award are specifically recorded
as a variation from the terms and conditions of the Plan or the Rules and Regulations, as the
case may be. In order to receive any benefits under this Instrument of Award, it must be
accepted by you within ninety (90) days of the Effective Date. Any awards of RSUs for which the
Corporation has not received an accepted Instrument of Award from you within the ninety (90) day
period shall be automatically cancelled for no consideration at the end of such ninety (90) day
period.

     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site

(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the RSUs. You should check the Services@Work site frequently since it
may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Award.

10. You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Award of RSUs does not create any right to receive future
Awards of RSUs, or benefits in lieu of RSUs, and the terms and conditions of any future Awards
of RSUs, if any, will be communicated if and when new Awards of RSUs are to be made; (iii) the
value of the RSUs is outside the scope of your employment contract and severance payments, if
any, and the Award of RSUs is not for labour performed nor does it guarantee future employment;
(iv) participation in the Plan is voluntary; (v) the Corporation is not responsible for foreign
exchange fluctuations between your local currency and the US dollar, if applicable, and the
future value of the Shares is unknown and cannot be predicted with certainty; (vi) the RSUs are
not part of remuneration for purposes of any compensation on termination of employment,
severance payments, indemnities or end of service payments or benefits of any nature; (vii) the
Vesting of the RSUs ceases upon termination of employment, whether lawful or otherwise, except
as provided in the Plan and this Instrument of Award, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the forfeiture of RSUs or the early
settlement thereof on any such termination of employment; and (viii) the Award of the RSUs does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Award or the RSUs, shall, to the
extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

11. The various provisions and sub-provisions of this Instrument of Award are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Award, the Plan, the Rules and
Regulations, or any documents related to the Plan.

12. Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the Award and/or settlement of RSUs, administering the Plan, and to
comply with tax, reporting and disclosure obligations under applicable laws and regulations. 
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without

3

 

 constraint at reasonable intervals and without excessive delay or expense to examine and correct
such information. By accepting the Instrument of Award or the RSUs, you are affirming your
consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

13. By accepting this Instrument of Award or the RSUs, you expressly consent that the Plan, the
Rules and Regulations and any other document relating thereto, including this Instrument of
Award, be drawn up and/or available in English only. Par votre acceptation de la présente
Entente ou des RSUs, vous consentez expressément à ce que le Régime, les Règlements et tout
autre document connexe, y compris la présente Entente soient rédigés et/ou disponibles en
anglais seulement.

14. By accepting this Instrument of Award or the RSUs, you (i) acknowledge and confirm that you
have read and understood the Plan, the Rules and Regulations and this Instrument of Award, and
that you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; and (ii) agree to be bound by the terms and conditions stated in this Instrument of
Award, including without limitation the terms and conditions of the Plan and the Rules and
Regulations incorporated by reference herein.

     Note: You should be aware that your acceptance of this Award of RSUs may have tax and
legal consequences for you. You are responsible for any and all compliance requirements under
local and national law related to these consequences and accordingly you are strongly
recommended to seek expert advice from a local duly qualified professional advisor.

     If you accept the terms and conditions of this Award of RSUs as described in this
Instrument of Award, please confirm your acceptance by signing where indicated below and
returning it to Nortel Global Equity Award Services at the address indicated below.

	 	 	 	 	 
	Signature of Employee:
	 	 	 	 
	 

	 	 

	 	 

Global Equity Award Services

Nortel Networks Corporation

195 The West Mall

Dept. C01G, MS T0504001

Toronto, Ontario, Canada M9C 5K1

4

 

NORTEL NETWORKS CORPORATION — CASH SETTLED RESTRICTED STOCK UNITS

INSTRUMENT OF AWARD

This instrument (hereinafter the “Instrument of Award”) evidences an Award to you of the number
of Restricted Stock Units (“RSUs”) indicated above beside the heading Total Restricted Share
Units, on the Issue Date indicated above, pursuant to the Nortel 2005 Stock Incentive Plan, As
Amended and Restated, and as may be further amended from time to time (the “Plan”). Each RSU
covered by this Instrument of Award generally entitles you to receive a cash amount (the “RSU
Cash Settlement Amount”) equal to the product of (i) the Market Value of one common share (a
“Share”) of Nortel Networks Corporation (the “Corporation”) on the applicable settlement date
specified by the Committee, multiplied by (ii) the number of RSUs then being settled in
accordance with the Vest Schedule indicated above and the provisions set forth below.
Capitalized terms not otherwise defined in this Instrument of Award have the meanings set forth
in the Plan.

1. All RSUs covered by this Instrument of Award are subject to the terms and conditions stated
in the Plan, except as specifically or additionally provided in this Instrument of Award and/or
in any rules, regulations, determinations or interpretations prescribed and/or made by the
Committee (or its delegates) under the power and authority granted under the Plan (the “Rules
and Regulations”), and all of the provisions of the Plan and the Rules and Regulations are
incorporated by reference as if expressly restated herein. Different Rules and Regulations may
apply to you and/or the RSUs covered by this Instrument of Award depending on your country of
work location, residency or payroll, whether on the Issue Date of the Award, on the date of
settlement of the RSUs, or otherwise. Accordingly, you should review the Plan and the Rules and
Regulations from time to time, which are available as indicated below, in conjunction with this
Instrument of Award.

2. If you have been in the continuous employment of the Company from the Issue Date to the
applicable Vest Date set forth in the Vest Schedule above, RSUs scheduled to Vest on such Vest
Date will Vest and will be settled by payment to you of the RSU Cash Settlement Amount on such
Vest Date. For purposes of this section 2, payment of such RSU Cash Settlement Amount within 75
days following the Vest Date shall be deemed to constitute payment on such Vest Date..

3. The obligations of the Company to pay to you the RSU Cash Settlement Amount in settlement of
Vested RSUs pursuant to section 2 or section 7 hereof is conditioned upon your execution and
delivery of any required documentation as provided in the Plan, this Instrument of Award and/or
the Rules and Regulations, in such form or manner as may be specified from time to time by the
Corporation; provided that if you have not executed and delivered such required documentation
within 75 days following the applicable Vest Date, the RSUs shall immediately be forfeited and
cancelled for no consideration on such 75th day. You will remain responsible for any local
legal compliance requirements resulting from your receipt of RSUs and the opening and
maintaining of a foreign brokerage account, if applicable.

4. The terms and conditions in this paragraph apply to you only if one or both of the following
apply: (i) you are a “Reporting Insider” for the purpose of Corporate Procedure No. 320.28 — Use
of Undisclosed Material Information on the Issue Date indicated above; or (ii) the number of
RSUs evidenced by this Instrument of Award is equal to or in excess of 1,000 RSUs. In
consideration of the Award of RSUs, in the event that all or any part of the RSUs become Vested
at any time subsequent to the date which is twelve (12) months prior to the date of termination
of your employment (whether wrongful or for any other reason) (the “Applicable Period”), and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
your employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with the Company;

	(ii)	 	you fail to comply with or otherwise breach the terms or conditions of any
confidentiality agreement or non-disclosure agreement with the Company;

	(iii)	 	while employed or during the period of twelve (12) months following termination
of your employment (whether wrongful or for any other reason), you, on your own behalf
or on any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt
to recruit, induce or solicit, any current employee or other individual who is/or was
supplying services to the Company, to terminate their employment or contractual
arrangements with the Company; or

	(iv)	 	while employed or during the period of twelve (12) months following termination
of your employment (whether wrongful or for any other reason), you, on your own behalf
or on any other’s behalf, solicit, divert or take away, or attempt to divert or take
away the business of any of the customers or accounts, or prospective customers or
accounts, of the Company or any of its distributors, representatives or vendors, which
you have had contact or communication with while employed at the Company;

you agree that you will, if required by the Company in its sole discretion, pay to the Company
within ten (10) days of written demand for payment from the Company an amount in cash equal to
the RSU Cash Settlement Amount paid to you during the Applicable Period (the “Applicable
Amount”).

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the Vesting of the RSUs or the payment
to you of the RSU Cash Settlement Amount upon the settlement of Vested RSUs during the
Applicable Period (and, where applicable, in respect of the Award of such RSUs).

1

 

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the Vesting of the RSUs or the payment to you of the
RSU Cash Settlement Amount upon the settlement of Vested RSUs during the Applicable Period
(such difference between the Corresponding Tax Benefit and Tax, if any, is referred to herein as
the “Tax Benefit Deficiency”), the Applicable Amount shall be reduced by an amount equal to the
Tax Benefit Deficiency.

     For the purposes of this paragraph 4:

“Corresponding Tax Benefit” means the amount of any deduction from or reduction or credit
to the amount of Taxes paid or payable by you or on your behalf in accordance with the
laws of the tax jurisdiction applicable to you as a result of or in connection with the
payment to the Company of all or any portion of the Applicable Amount by you; and

“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time of
Vesting of the RSUs or at the time you receive the RSU Cash Settlement Amount in
settlement of the RSUs, whichever is applicable (and, where applicable, at the time of
the Issue Date of the Award of such RSUs).

5. The Company requires, as a condition on settlement of Vested RSUs, that you: (i) pay any
federal, provincial, state or local withholding taxes (collectively referred to herein as
“taxes”) which are required to be paid by you; (ii) pay or reimburse any taxes which are
required to be withheld and remitted by the Company; (iii) complete any forms or provide any
additional documents in connection with taxes; and (iv) otherwise comply with all applicable tax
laws; in each case in connection with the Award of the RSUs, the Vesting of the RSUs, the
settlement of the RSUs, and/or the forfeiture of the RSUs, and as may be specified in this
Instrument of Award, the Rules and Regulations or otherwise in accordance with the Plan.

6. If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that you have committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including RSUs, you shall, in accordance with the
terms of the Recoupment Policy, automatically forfeit any awards of RSUs received under this
Instrument of Award but not yet Vested, or if Vested, you shall reimburse the Company the amount
of RSU Cash Settlement Amount received by you as a result of such Vesting of RSUs, and/or the
Company shall be entitled to issue proceedings to recover damages against you in respect of any
losses incurred.

7. In the event of your Termination prior to the date that any portion of the RSUs awarded to
you pursuant to this Instrument of Award were scheduled to Vest, (i) if such Termination is a
Qualifying Termination Without Cause, all then outstanding unvested RSUs awarded to you pursuant
to this Instrument of Award shall remain outstanding, shall continue to Vest in accordance with
the Vest Schedule indicated above during the Extension Period and the remaining portion of such
RSU shall be forfeited and cancelled for no consideration; (ii) if such Termination is due to
your Retirement or death, a “pro rata portion” of the then outstanding unvested RSUs awarded to
you shall become immediately Vested and the remaining portion of such RSUs shall be forfeited
and cancelled for no consideration as of the Date of Termination; (iii) if such Termination is a
Qualifying Termination Without Cause and, immediately following the end of the Extension Period,
you commence or are eligible and remain eligible to commence Retirement, a “pro rata portion” of
the unvested RSUs awarded to you that are outstanding as of the end of the Extension Period
shall become immediately Vested and the remaining portion of any RSUs then outstanding shall be
forfeited and cancelled for no consideration as of the date you commence or are eligible and
remain eligible to commence Retirement and (iv) if such Termination is for any other reason
(including by your employer for Cause or by reason of your resignation for any reason), all then
outstanding unvested RSUs awarded to you pursuant to this Instrument of Award shall immediately
be forfeited and cancelled for no consideration on such Date of Termination. With respect to
any RSUs that Vest as a result of a Termination due to death, such RSUs shall be settled as soon
as practical following the date of death and, in any event, before 90 days after the date of
death. With respect to any RSUs that Vest on or following a Termination (other than due to
death), such RSUs shall be settled on the Vest Date on which such RSUs were originally scheduled
to Vest in accordance with the Vest Schedule above. Notwithstanding the foregoing, any Vesting
and/or settlement, as applicable, pursuant to this paragraph shall be delayed until six months
after your Retirement or other type of Termination to the extent necessary to avoid adverse tax
treatment under Section 409A of the U.S. Internal Revenue Code.

     For purposes of this section 7, “pro rata portion” shall mean the product of one-third of
the RSUs awarded to you pursuant to the Plan and this Instrument of Award multiplied by a
fraction, the numerator of which equals the number of days which have elapsed at the relevant
date since the later of (i) the date 33 percent of the RSUs became Vested; and (ii) the date 66
percent of the RSUs became Vested; and the denominator of which is 365; provided, however, that
no portion of a RSU shall become vested earlier than the first anniversary of the Issue Date of
the Award.

     For the purposes of this section 7, the following shall be excluded from the definition of
“Extension Period” in the Plan: “the earlier of (x) the twenty-four month anniversary of the
Participant’s Date of Termination and (y)”.

8. In the event you are a Specified Executive (as defined under the Nortel Networks Corporation
Change in Control Plan (the “CIC Plan”)) and are subject to a Termination Due to Change in
Control (as defined in the CIC Plan), the RSUs awarded to you in accordance with this Instrument
of Award shall be included as Awards (as defined under the CIC Plan) and receive all of the
benefits provided to Awards (as defined under the CIC Plan) under the CIC Plan in the event of
a Termination Due to Change in Control, provided, however, that no portion of a RSU shall be
included, for the purposes of any payments under the CIC Plan, earlier than the first
anniversary of the Issue Date of an Award.

2

 

9. This Instrument of Award: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Award and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Award of RSUs evidenced by this Instrument of Award are specifically recorded
as a variation from the terms and conditions of the Plan or the Rules and Regulations, as the
case may be.

A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site

(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the RSUs. You should check the Services@Work site frequently since it
may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Award.

10. You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Award of RSUs does not create any right to receive future
Awards of RSUs, or benefits in lieu of RSUs, and the terms and conditions of any future Awards
of RSUs, if any, will be communicated if and when new Awards of RSUs are to be made; (iii) the
value of the RSUs is outside the scope of your employment contract and severance payments, if
any, and the Award of RSUs is not for labour performed nor does it guarantee future employment;
(iv) participation in the Plan is voluntary; (v) the Corporation is not responsible for foreign
exchange fluctuations between your local currency and the US dollar, if applicable, and the
future value of the Shares is unknown and cannot be predicted with certainty; (vi) the RSUs are
not part of remuneration for purposes of any compensation on termination of employment,
severance payments, indemnities or end of service payments or benefits of any nature; (vii) the
Vesting of the RSUs ceases upon termination of employment, whether lawful or otherwise, except
as provided in the Plan and this Instrument of Award, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the forfeiture of RSUs or the early
settlement thereof on any such termination of employment; and (viii) the Award of the RSUs does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Award or the RSUs, shall, to the
extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

11. The various provisions and sub-provisions of this Instrument of Award are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Award, the Plan, the Rules and
Regulations, or any documents related to the Plan.

12. Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the Award and/or settlement of RSUs, administering the Plan, and to
comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Award or the RSUs, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

13. By accepting this Instrument of Award or the RSUs, you expressly consent that the Plan, the
Rules and Regulations and any other document relating thereto, including this Instrument of
Award, be drawn up and/or available in English only. Par votre acceptation de la présente
Entente ou des RSUs, vous consentez expressément à ce que le Régime, les Règlements et tout
autre document connexe, y compris la présente Entente soient rédigés et/ou disponibles en
anglais seulement.

14. By accepting this Instrument of Award or the RSUs, you (i) acknowledge and confirm that you
have read and understood the Plan, the Rules and Regulations and this Instrument of Award, and
that you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; (ii) agree to be bound by the terms and conditions stated in this Instrument of Award,
including without limitation the terms and conditions of the Plan and the Rules and Regulations
incorporated by reference herein and (iii) appoint the Company and any third party service
providers of the Company to act on your behalf in connection with this Instrument of Award and
the PSUs.

3

 

     Note: You should be aware that your acceptance of this Award of RSUs may have tax and
legal consequences for you. You are responsible for any and all compliance requirements under
local and national law related to these consequences and accordingly you are strongly
recommended to seek expert advice from a local duly qualified professional advisor.

     If you accept the terms and conditions of this Award of RSUs as described in this
Instrument of Award, you are required to confirm your acceptance by signing where indicated
below and returning it to Nortel Global Equity Award Services at the address indicated below.

	 	 	 	 	 
	 	Signature of Employee:

	 	 

	 

Global Equity Award Services

Nortel Networks Corporation

195 The West Mall

Dept. C01G, MS T0504001

Toronto, Ontario, Canada M9C 5K1

4

 

NORTEL NETWORKS CORPORATION — PERFORMANCE STOCK UNITS (OPERATING MARGIN)

INSTRUMENT OF AWARD

«COUNTRY»

	 	 	 	 
		NAME:

	 	«NAME» («GID»)
		 
	 	 
		EFFECTIVE DATE:

	 	«AWARD_DATE»
		 
	 	 
		NUMBER OF PSUs:

	 	«AWARDED»
		 
	 	 
		PERFORMANCE PERIODS:

	 	«PERIODS»
		 
	 	 
		PLAN:

	 	NORTEL 2005 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED

This instrument (hereinafter the “Instrument of Award”) evidences an Award to you of the number
of Performance Stock Units (“PSUs”) indicated above, on the Effective Date indicated above,
pursuant to the Nortel 2005 Stock Incentive Plan, As Amended and Restated and as may be further
amended from time to time (the “Plan”). Subject to and unless otherwise specified by the
Committee at the time it established the applicable Performance Criteria, each PSU covered by
this Instrument of Award generally entitles you to receive one common share (a “Share”) of
Nortel Networks Corporation (the “Corporation”) on each applicable Vesting date in accordance
with the Vesting Schedule indicated above and the provisions set forth below. Capitalized terms
not otherwise defined in this Instrument of Award have the meanings set forth in the Plan.

1. All PSUs covered by this Instrument of Award are subject to the terms and conditions stated
in the Plan, except as specifically or additionally provided in this Instrument of Award and/or
in any rules, regulations, determinations or interpretations prescribed and/or made by the
Committee (or its delegates) under the power and authority granted under the Plan (the “Rules
and Regulations”), and all of the provisions of the Plan and the Rules and Regulations are
incorporated by reference as if expressly restated herein. Different Rules and Regulations may
apply to you and/or the PSUs covered by this Instrument of Award depending on your country of
work location, residency or payroll, whether on the Effective Date of the Award, on the date of
settlement of the PSUs, or otherwise. Accordingly, you should review the Plan and the Rules and
Regulations from time to time, which are available as indicated below, in conjunction with this
Instrument of Award.

2. If you have been in the continuous employment of the Company from the Effective Date to the
end of the applicable Performance Period, PSUs scheduled to Vest on the Vesting Date set forth
in the Vesting Schedule above, will Vest on such Vesting Date and be settled by transfer of
Shares to you on such Vesting Date, subject to the attainment of the Performance Criteria as
determined by the Committee (which may be graduated such that different percentages, which may
be greater than or less than 100%, of the PSUs will become vested depending on the extent of
satisfaction of the Performance Criteria and the satisfaction of any other terms and conditions
of the Award. The Performance Criteria and the terms and conditions related to the potential
settlement of PSUs are those Performance Criteria and terms and conditions determined by the
Committee or its designee, from time to time. For the purposes of this section 2, transfer of
Shares within 75 days following the Vesting Date shall be deemed to constitute transfer on such
Vesting Date.

3. The obligation of the Company to transfer Shares to you in settlement of Vested PSUs pursuant
to section 2 or section 7 hereof is conditioned upon your execution and delivery of any required
documentation as provided in the Plan, this Instrument of Award or the Rules and Regulations, in
such form or manner as may be specified from time to time by the Corporation; provided that if
you have not executed and delivered such required documentation within 75 days following the
applicable settlement date, the PSUs shall immediately be forfeited and cancelled for no
consideration on such 75th date. You will remain responsible for any local legal
compliance requirements resulting from your receipt of PSUs, the subsequent ownership and
possible sale of Shares acquired on settlement of PSUs, and the opening and maintaining of a
foreign brokerage account, if applicable.

4. In consideration of the Award of PSUs, in the event that all or any part of the PSUs become
Vested, at any time subsequent to the date which is twelve (12) months prior to the date of
termination of your employment (whether wrongful or for any other reason) (the “Applicable
Period”) and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with the Company,
	 
	(ii)	 	you fail to comply with or otherwise breach the terms and conditions of any
confidentiality agreement or non-disclosure agreement with the Company,

1

 

	(iii)	 	while employed or during the period of twelve (12) months following the termination
of employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/was supplying
services to the Company, to terminate their employment or contractual arrangements with
the Company, or

	(iv)	 	while employed or during the period of twelve (12) months following the termination of
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away, the
business of any of the customers or accounts, or prospective customers or accounts, of the
Company or any of its distributors, representatives or vendors which you had contact or
communication with while employed at the Company;

you agree that you will, if required by the Company in its sole discretion, pay to the Company
within ten (10) days of written demand for payment from the Company an amount in cash equal to
the number of Shares delivered to you upon the Committee’s determination of payout based on the
level of achievement of the Performance Criteria multiplied by the Market Value of a Share on
the applicable settlement date (the “Applicable Amount”);

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the issuance of Shares upon settlement
of the PSUs during the Applicable Period (and, where applicable, in respect of the Award of such
PSUs);

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the Vesting of the PSUs or your receipt of Shares upon
the settlement of Vested PSUs during the Applicable Period (such difference between the
Corresponding Tax Benefit and Tax, if any, is referred to herein as the “Tax Benefit
Deficiency”), the Applicable Amount shall be reduced by an amount equal to the Tax Benefit
Deficiency;

     For the purposes of this provision:

“Corresponding Tax Benefit” means the amount of any deduction from or reduction or
credit to the amount of Taxes paid or payable by you or on your behalf in accordance
with the laws of the tax jurisdiction applicable to you as a result of or in
connection with the payment to the Company of all or any portion of the Applicable
Amount by you; and

“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time of
Vesting of the PSUs or at the time you receive Shares in settlement of the PSUs,
whichever is applicable (and, where applicable, at the time of the Effective Date of
the Award of such PSUs).

5. The Company requires, as a condition on settlement of PSUs, that you: (i) pay any federal,
provincial, state or local withholding taxes (collectively referred to herein as “taxes”) which
are required to be paid by you; (ii) pay or reimburse any taxes which are required to be
withheld and remitted by the Company; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the Award of the PSUs, the Vesting of the PSUs, the settlement of
the PSUs, and/or the forfeiture of the PSUs, and as may be specified in this Instrument of
Award, the Rules and Regulations or otherwise in accordance with the Plan. The Company may
require, as a condition of the settlement of PSUs, that a portion of the related Shares be sold
by you or on your behalf (i) to generate proceeds sufficient to cover any tax withholdings
required to be withheld and remitted by the Company or its designee on account of applicable
taxes (hereinafter, “tax withholdings”) and any other related broker fees or any other
administrative fees, or (ii) to generate proceeds sufficient to cover any tax withholdings and
any other related broker or administrative fees if you do not pay such tax withholdings within
the designated time periods as may be specified in accordance with applicable requirements. By
accepting this Instrument of Award or the PSUs, you hereby authorize the Company, and any third
party service providers operating on behalf of the Company, to arrange for the sale of your
Shares as contemplated above.

6. If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that you have committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including PSUs, you shall, in accordance with the
terms of the Recoupment Policy, automatically forfeit any awards of PSUs received under this
Instrument of Award but not yet Vested, or if Vested, you shall reimburse the Company the amount
of monetary compensation received by you as a result of such Vesting of PSUs, and/or the Company
shall be entitled to issue proceedings to recover damages against you in respect of any losses
incurred.

7. In the event that you become subject to long-term disability benefits, a “pro rata portion”
of the PSUs to be settled shall become Vested based on the level of achievement of the
Performance Criteria, as determined by the Committee in its sole discretion, and provided you
have been a regular full-time employee of the Company for at least twelve (12) months since the
Effective
Date of the Award, and the remaining portion of such PSUs shall be forfeited and
cancelled for no consideration. In the event of your Termination prior to the date that all of
the PSUs awarded to you pursuant to this Instrument of Award have become Vested, (i) such
Termination is due to your Retirement, a “pro rata portion” of the PSUs to be settled shall
become Vested based on the level of achievement of the Performance Criteria, as determined by
the Committee in its sole discretion, and provided you have been a regular full-time employee of
the Company for at least twelve (12) months since the Effective Date of the Award, and the
remaining portion of such PSUs shall be forfeited and cancelled for no consideration; (ii) if
such Termination is due to death and you have been a regular full-time employee of the Company
for at least twelve (12) months since the Effective

2

 

Date of the Award, a “pro rata portion” of
the outstanding unvested PSUs awarded to you shall become immediately Vested and settled based
on the target amount and (iii) if such Termination is for any other reason (including by your
employer for Cause, by reason of a Qualifying Termination Without Cause or by reason of your
resignation for any reason), all then outstanding unvested PSUs awarded to you pursuant to this
Instrument of Award shall immediately be forfeited and cancelled for no consideration 45 days
after such Date of Termination; provided that no PSUs shall Vest during such 45 day period other
than pursuant to the Nortel Networks Corporation Change in Control Plan (the “CIC Plan”). With
respect to any PSUs that Vest as a result of a Termination due to death, such PSUs shall be
settled as soon as practical following the date of death and, in any event, before 90 days after
the date of death. With respect to any PSUs that Vest on or following a Termination (other than
due to death), such PSUs shall be settled on the Vesting Date on which such PSUs were originally
scheduled to Vest in accordance with the Vesting Schedule above. Notwithstanding the foregoing,
any Vesting and/or settlement, as applicable, pursuant to this paragraph shall be delayed until
six months after your Retirement or other type of Termination to the extent necessary to avoid
adverse tax treatment under Section 409A of the U.S. Internal Revenue Code.

     For purposes of this section 7, transfer of Shares within 75 days following the applicable
settlement date shall be deemed to constitute transfer on such Vesting date.

     For purposes of this section 7, “pro rata portion” shall mean the full amount of the PSUs
awarded to you pursuant to the Plan and this Instrument of Award or the amount of PSUs to be
settled, as applicable, multiplied by a fraction, the numerator of which equals the number of
full months of continuous service provided since the commencement of the applicable Performance
Period and the denominator of which is 36; provided, however, that no portion of a PSU shall
become vested earlier than the first anniversary of the Effective Date of the Award.

8. In the event you are a Specified Executive (as defined under the Nortel Networks Corporation
Change in Control Plan (the “CIC Plan”)) and are subject to a Termination Due to Change in
Control (as defined in the CIC Plan), the PSUs awarded to you in accordance with this Instrument
of Award shall receive the same treatment as Awards (as defined under the CIC Plan) and shall
receive the same benefits as provided to Awards under the CIC Plan in the event of a Termination
Due to Change in Control, provided, however, that no portion of a PSU shall be included, for the
purposes of any payments under the CIC Plan, earlier than the first anniversary of the Effective
Date of an Award.

9. This Instrument of Award: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Award and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Award of PSUs evidenced by this Instrument of Award are specifically recorded
as a variation from the terms and conditions of the Plan or the Rules and Regulations, as the
case may be. In order to receive any benefits under this Instrument of Award, it must be
accepted by you within ninety (90) days of the Effective Date. Any awards of PSUs for which the
Corporation has not received an accepted Instrument of Award from you within the ninety (90) day
period shall be automatically cancelled for no consideration at the end of such ninety (90) day
period.

     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site

(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the PSUs. You should check the Services@Work site frequently since it
may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Award.

10. You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Award of PSUs does not create any right to receive future
Awards of PSUs, or benefits in lieu of PSUs, and the terms and conditions of any future Awards
of PSUs, if any, will be communicated if and when new Awards of PSUs are to be made; (iii) the
value of the PSUs is outside the scope of your employment contract and severance payments, if
any, and the Award of PSUs is not for labour performed nor does it guarantee future employment;
(iv) participation in the Plan is voluntary; (v) the Corporation is not responsible for foreign
exchange fluctuations between your local currency and the US dollar, if applicable, and the
future value of the Shares is unknown and cannot be predicted with certainty; (vi) the PSUs are
not part of remuneration for purposes of any compensation on termination of employment,
severance payments, indemnities or end of service payments or benefits of any nature; (vii) the
Vesting of the PSUs ceases upon termination of employment, whether lawful or otherwise, except
as provided in the Plan and this Instrument of Award, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the forfeiture of PSUs or the early
settlement thereof on any such termination of employment; and (viii) the Award of the PSUs does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Award or the PSUs, shall, to the
extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

11. The various provisions and sub-provisions of this Instrument of Award are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Award, the Plan, the Rules and
Regulations, or any documents related to the Plan.

3

 

12. Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the Award and/or settlement of PSUs, administering the Plan, and to
comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Award or the PSUs, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

13. By accepting this Instrument of Award or the PSUs, you expressly consent that the Plan, the
Rules and Regulations and any other document relating thereto, including this Instrument of
Award, be drawn up and/or available in English only. Par votre acceptation de la présente
Entente ou des PSUs, vous consentez expressément à ce que le Régime, les Règlements et tout
autre document connexe, y compris la présente Entente soient rédigés et/ou disponibles en
anglais seulement.

14. By accepting this Instrument of Award or the PSUs, you (i) acknowledge and confirm that you
have read and understood the Plan, the Rules and Regulations and this Instrument of Award, and
that you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; (ii) agree to be bound by the terms and conditions stated in this Instrument of Award,
including without limitation the terms and conditions of the Plan and the Rules and Regulations
incorporated by reference herein and (iii) appoint the Company and any third party service
providers of the Company to act on your behalf in connection with this Instrument of Award, the
PSUs and any Shares received by you from this Award of PSUs.

     Note: You should be aware that your acceptance of this Award of PSUs may have tax and legal
consequences for you. You are responsible for any and all compliance requirements under local
and national law related to these consequences and accordingly you are strongly recommended to
seek expert advice from a local duly qualified professional advisor.

     If you accept the terms and conditions of this Award of PSUs as described in this
Instrument of Award, please confirm your acceptance by signing where indicated below and
returning it to Nortel Global Equity Award Services at the address indicated below.

	 	 	 	 	 
	Signature of Employee:

	 	 

	 	 

Nortel Global Equity Award Services

Nortel Networks Corporation

195 The West Mall

Dept. C01G, MS T0504001

Toronto, Ontario, Canada M9C 5K1

4

 

NORTEL NETWORKS CORPORATION — PERFORMANCE STOCK UNITS (rTSR)

INSTRUMENT OF AWARD

«COUNTRY»

	 	 	 
	NAME:

	 	«NAME» («GID»)
	 
	 	 
	EFFECTIVE DATE:

	 	«AWARD_DATE»
	 
	 	 
	NUMBER OF PSUs:

	 	«AWARDED»
	 
	 	 
	PERFORMANCE PERIODS:

	 	«PERIODS»
	 
	 	 
	PLAN:

	 	NORTEL 2005 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED

This instrument (hereinafter the “Instrument of Award”) evidences an Award to you of the number
of Performance Stock Units (“PSUs”) indicated above, on the Effective Date indicated above,
pursuant to the Nortel 2005 Stock Incentive Plan, As Amended and Restated and as may be further
amended from time to time (the “Plan”). Subject to and unless otherwise specified by the
Committee at the time it established the applicable Performance Criteria, each PSU covered by
this Instrument of Award generally entitles you to receive one common share (a “Share”) of
Nortel Networks Corporation (the “Corporation”) on each applicable Vesting date in accordance
with the Vesting Schedule indicated above and the provisions set forth below. Capitalized terms
not otherwise defined in this Instrument of Award have the meanings set forth in the Plan.

1. All PSUs covered by this Instrument of Award are subject to the terms and conditions stated
in the Plan, except as specifically or additionally provided in this Instrument of Award and/or
in any rules, regulations, determinations or interpretations prescribed and/or made by the
Committee (or its delegates) under the power and authority granted under the Plan (the “Rules
and Regulations”), and all of the provisions of the Plan and the Rules and Regulations are
incorporated by reference as if expressly restated herein. Different Rules and Regulations may
apply to you and/or the PSUs covered by this Instrument of Award depending on your country of
work location, residency or payroll, whether on the Effective Date of the Award, on the date of
settlement of the PSUs, or otherwise. Accordingly, you should review the Plan and the Rules and
Regulations from time to time, which are available as indicated below, in conjunction with this
Instrument of Award.

2. If you have been in the continuous employment of the Company from the Effective Date to the
end of the applicable Performance Period, PSUs scheduled to Vest on the Vesting Date set forth
in the Vesting Schedule above, will Vest on such Vesting Date and be settled by transfer of
Shares to you on such Vesting Date, subject to the attainment of the Performance Criteria as
determined by the Committee (which may be graduated such that different percentages, which may
be greater than or less than 100%, of the PSUs will become vested depending on the extent of
satisfaction of the Performance Criteria and the satisfaction of any other terms and conditions
of the Award. The Performance Criteria and the terms and conditions related to the potential
settlement of PSUs are those Performance Criteria and terms and conditions determined by the
Committee or its designee, from time to time. For the purposes of this section 2, transfer of
Shares within 75 days following the Vesting Date shall be deemed to constitute transfer on such
Vesting Date.

3. The obligation of the Company to transfer Shares to you in settlement of Vested PSUs pursuant
to section 2 or section 7 hereof is conditioned upon your execution and delivery of any required
documentation as provided in the Plan, this Instrument of Award or the Rules and Regulations, in
such form or manner as may be specified from time to time by the Corporation; provided that if
you have not executed and delivered such required documentation within 75 days following the
applicable settlement date, the PSUs shall immediately be forfeited and cancelled for no
consideration on such 75th date. You will remain responsible for any local legal
compliance requirements resulting from your receipt of PSUs, the subsequent ownership and
possible sale of Shares acquired on settlement of PSUs, and the opening and maintaining of a
foreign brokerage account, if applicable.

4. In consideration of the Award of PSUs, in the event that all or any part of the PSUs become
Vested, at any time subsequent to the date which is twelve (12) months prior to the date of
termination of your employment (whether wrongful or for any other reason) (the “Applicable
Period”) and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with the Company,

	(ii)	 	you fail to comply with or otherwise breach the terms and conditions of any
confidentiality agreement or non-disclosure agreement with the Company,

1

 

	(iii)	 	while employed or during the period of twelve (12) months following the termination
of employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/was supplying
services to the Company, to terminate their employment or contractual arrangements with
the Company, or

	(iv)	 	while employed or during the period of twelve (12) months following the termination of
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away, the
business of any of the customers or accounts, or prospective customers or accounts, of the
Company or any of its distributors, representatives or vendors which you had contact or
communication with while employed at the Company;

you agree that you will, if required by the Company in its sole discretion, pay to the Company
within ten (10) days of written demand for payment from the Company an amount in cash equal to
the number of Shares delivered to you upon the Committee’s determination of payout based on the
level of achievement of the Performance Criteria multiplied by the Market Value of a Share on
the applicable settlement date (the “Applicable Amount”);

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the issuance of Shares upon settlement
of the PSUs during the Applicable Period (and, where applicable, in respect of the Award of such
PSUs);

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the Vesting of the PSUs or your receipt of Shares upon
the settlement of Vested PSUs during the Applicable Period (such difference between the
Corresponding Tax Benefit and Tax, if any, is referred to herein as the “Tax Benefit
Deficiency”), the Applicable Amount shall be reduced by an amount equal to the Tax Benefit
Deficiency;

     For the purposes of this provision:

“Corresponding Tax Benefit” means the amount of any deduction from or reduction or
credit to the amount of Taxes paid or payable by you or on your behalf in accordance
with the laws of the tax jurisdiction applicable to you as a result of or in
connection with the payment to the Company of all or any portion of the Applicable
Amount by you; and

“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time of
Vesting of the PSUs or at the time you receive Shares in settlement of the PSUs,
whichever is applicable (and, where applicable, at the time of the Effective Date of
the Award of such PSUs).

5. The Company requires, as a condition on settlement of PSUs, that you: (i) pay any federal,
provincial, state or local withholding taxes (collectively referred to herein as “taxes”) which
are required to be paid by you; (ii) pay or reimburse any taxes which are required to be
withheld and remitted by the Company; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the Award of the PSUs, the Vesting of the PSUs, the settlement of
the PSUs, and/or the forfeiture of the PSUs, and as may be specified in this Instrument of
Award, the Rules and Regulations or otherwise in accordance with the Plan. The Company may
require, as a condition of the settlement of PSUs, that a portion of the related Shares be sold
by you or on your behalf (i) to generate proceeds sufficient to cover any tax withholdings
required to be withheld and remitted by the Company or its designee on account of applicable
taxes (hereinafter, “tax withholdings”) and any other related broker fees or any other
administrative fees, or (ii) to generate proceeds sufficient to cover any tax withholdings and
any other related broker or administrative fees if you do not pay such tax withholdings within
the designated time periods as may be specified in accordance with applicable requirements. By
accepting this Instrument of Award or the PSUs, you hereby authorize the Company, and any third
party service providers operating on behalf of the Company, to arrange for the sale of your
Shares as contemplated above.

6. If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that you have committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including PSUs, you shall, in accordance with the
terms of the Recoupment Policy, automatically forfeit any awards of PSUs received under this
Instrument of Award but not yet Vested, or if Vested, you shall reimburse the Company the amount
of monetary compensation received by you as a result of such Vesting of PSUs, and/or the Company
shall be entitled to issue proceedings to recover damages against you in respect of any losses
incurred.

7. In the event that you become subject to long-term disability benefits, a “pro rata portion”
of the PSUs to be settled shall become Vested based on the level of achievement of the
Performance Criteria, as determined by the Committee in its sole discretion, and provided you
have been a regular full-time employee of the Company for at least twelve (12) months since the
Effective Date of the Award, and the remaining portion of such PSUs shall be forfeited and
cancelled for no consideration. In the event of your Termination prior to the date that all of
the PSUs awarded to you pursuant to this Instrument of Award have become Vested, (i) such
Termination is due to your Retirement, a “pro rata portion” of the PSUs to be settled shall
become Vested based on the level of achievement of the Performance Criteria, as determined by
the Committee in its sole discretion, and provided you have been a regular full-time employee of
the Company for at least twelve (12) months since the Effective Date of the Award, and the
remaining portion of such PSUs shall be forfeited and cancelled for no consideration; (ii) if
such Termination is due to death and you have been a regular full-time employee of the Company
for at least twelve (12) months since the Effective

2

 

Date of the Award, a “pro rata portion” of the outstanding unvested PSUs awarded to you shall
become immediately Vested and settled based on the target amount and (iii) if such Termination
is for any other reason (including by your employer for Cause, by reason of a Qualifying
Termination Without Cause or by reason of your resignation for any reason), all then outstanding
unvested PSUs awarded to you pursuant to this Instrument of Award shall immediately be
forfeited and cancelled for no consideration 45 days after such Date of Termination; provided
that no PSUs shall Vest during such 45 day period other than pursuant to the Nortel Networks
Corporation Change in Control Plan (the “CIC Plan”). With respect to any PSUs that Vest as a
result of a Termination due to death, such PSUs shall be settled as soon as practical following
the date of death and, in any event, before 90 days after the date of death. With respect to any
PSUs that Vest on or following a Termination (other than due to death), such PSUs shall be
settled on the Vesting Date on which such PSUs were originally scheduled to Vest in accordance
with the Vesting Schedule above. Notwithstanding the foregoing, any Vesting and/or settlement,
as applicable, pursuant to this paragraph shall be delayed until six months after your
Retirement or other type of Termination to the extent necessary to avoid adverse tax treatment
under Section 409A of the U.S. Internal Revenue Code.

     For purposes of this section 7, transfer of Shares within 75 days following the applicable
settlement date shall be deemed to constitute transfer on such Vesting date.

     For purposes of this section 7, “pro rata portion” shall mean the full amount of the PSUs
awarded to you pursuant to the Plan and this Instrument of Award or the amount of PSUs to be
settled, as applicable, multiplied by a fraction, the numerator of which equals the number of
full months of continuous service provided since the commencement of the applicable Performance
Period and the denominator of which is 36; provided, however, that no portion of a PSU shall
become vested earlier than the first anniversary of the Effective Date of the Award.

8. In the event you are a Specified Executive (as defined under the Nortel Networks Corporation
Change in Control Plan (the “CIC Plan”)) and are subject to a Termination Due to Change in
Control (as defined in the CIC Plan), the PSUs awarded to you in accordance with this Instrument
of Award shall receive the same treatment as Awards (as defined under the CIC Plan) and shall
receive the same benefits as provided to Awards under the CIC Plan in the event of a Termination
Due to Change in Control, provided, however, that no portion of a PSU shall be included, for the
purposes of any payments under the CIC Plan, earlier than the first anniversary of the Effective
Date of an Award.

9. This Instrument of Award: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Award and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Award of PSUs evidenced by this Instrument of Award are specifically recorded
as a variation from the terms and conditions of the Plan or the Rules and Regulations, as the
case may be. In order to receive any benefits under this Instrument of Award, it must be
accepted by you within ninety (90) days of the Effective Date. Any awards of PSUs for which the
Corporation has not received an accepted Instrument of Award from you within the ninety (90) day
period shall be automatically cancelled for no consideration at the end of such ninety (90) day
period.

     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site
(http://services-canada.ca.nortel.com/livelinksupport/saw), under
People/Compensation/Equity Awards/Plan Documents. The Services@Work site also contains other
general information about the PSUs. You should check the Services@Work site frequently since it
may be updated from time to time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Award.

10. You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Award of PSUs does not create any right to receive future
Awards of PSUs, or benefits in lieu of PSUs, and the terms and conditions of any future Awards
of PSUs, if any, will be communicated if and when new Awards of PSUs are to be made; (iii) the
value of the PSUs is outside the scope of your employment contract and severance payments, if
any, and the Award of PSUs is not for labour performed nor does it guarantee future employment;
(iv) participation in the Plan is voluntary; (v) the Corporation is not responsible for foreign
exchange fluctuations between your local currency and the US dollar, if applicable, and the
future value of the Shares is unknown and cannot be predicted with certainty; (vi) the PSUs are
not part of remuneration for purposes of any compensation on termination of employment,
severance payments, indemnities or end of service payments or benefits of any nature; (vii) the
Vesting of the PSUs ceases upon termination of employment, whether lawful or otherwise, except
as provided in the Plan and this Instrument of Award, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the forfeiture of PSUs or the early
settlement thereof on any such termination of employment; and (viii) the Award of the PSUs does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Award or the PSUs, shall, to the
extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

11. The various provisions and sub-provisions of this Instrument of Award are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Award, the Plan, the Rules and
Regulations, or any documents related to the Plan.

3

 

12. Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the Award and/or settlement of PSUs, administering the Plan, and to
comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Award or the PSUs, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

13. By accepting this Instrument of Award or the PSUs, you expressly consent that the Plan, the
Rules and Regulations and any other document relating thereto, including this Instrument of
Award, be drawn up and/or available in English only. Par votre acceptation de la présente
Entente ou des PSUs, vous consentez expressément à ce que le Régime, les Règlements et tout
autre document connexe, y compris la présente Entente soient rédigés et/ou disponibles en
anglais seulement.

14. By accepting this Instrument of Award or the PSUs, you (i) acknowledge and confirm that you
have read and understood the Plan, the Rules and Regulations and this Instrument of Award, and
that you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; (ii) agree to be bound by the terms and conditions stated in this Instrument of Award,
including without limitation the terms and conditions of the Plan and the Rules and Regulations
incorporated by reference herein and (iii) appoint the Company and any third party service
providers of the Company to act on your behalf in connection with this Instrument of Award, the
PSUs and any Shares received by you from this Award of PSUs.

     Note: You should be aware that your acceptance of this Award of PSUs may have tax and legal
consequences for you. You are responsible for any and all compliance requirements under local
and national law related to these consequences and accordingly you are strongly recommended to
seek expert advice from a local duly qualified professional advisor.

     If you accept the terms and conditions of this Award of PSUs as described in this
Instrument of Award, please confirm your acceptance by signing where indicated below and
returning it to Nortel Global Equity Award Services at the address indicated below.

	 	 	 	 	 
	Signature of Employee:

	 	 

	 	 

Nortel Global Equity Award Services

Nortel Networks Corporation

195 The West Mall

Dept. C01G, MS T0504001

Toronto, Ontario, Canada M9C 5K1

4

 

NORTEL NETWORKS CORPORATION — CASH SETTLED PERFORMANCE STOCK UNITS (OPERATING MARGIN)

INSTRUMENT OF AWARD

This instrument (hereinafter the “Instrument of Award”) evidences an Award to you of the number
of Performance Stock Units (“PSUs”) indicated above beside the heading Total Performance Share
Units, on the Issue Date indicated above, pursuant to the Nortel 2005 Stock Incentive Plan, As
Amended and Restated and as may be further amended from time to time (the “Plan”). Subject to
and unless otherwise specified by the Committee at the time it established the applicable
Performance Criteria, each PSU covered by this Instrument of Award generally entitles you to
receive a cash amount (the “PSU Cash Settlement Amount”) equal to the product of (i) the Market
Value of one common share (a “Share”) of Nortel Networks Corporation (the “Corporation”) on the
applicable settlement date specified by the Committee, multiplied by (ii) the number of PSUs
then being settled, on the applicable Vest Date in accordance with the Vest Schedule indicated
above and the provisions set forth below. Capitalized terms not otherwise defined in this
Instrument of Award have the meanings set forth in the Plan.

1. All PSUs covered by this Instrument of Award are subject to the terms and conditions stated
in the Plan, except as specifically or additionally provided in this Instrument of Award and/or
in any rules, regulations, determinations or interpretations prescribed and/or made by
the Committee (or its delegates) under the power and authority granted under the Plan (the
“Rules and Regulations”), and all of the provisions of the Plan and the Rules and Regulations
are incorporated by reference as if expressly restated herein. Different Rules and Regulations
may apply to you and/or the PSUs covered by this Instrument of Award depending on your country
of work location, residency or payroll, whether on the Issue Date of the Award, on the date of
settlement of the PSUs, or otherwise. Accordingly, you should review the Plan and the Rules and
Regulations from time to time, which are available as indicated below, in conjunction with this
Instrument of Award.

2. If you have been in the continuous employment of the Company from the Issue Date to the
settlement date, PSUs scheduled to Vest on the Vest Date set forth in the Vest Schedule above,
will Vest on such Vest Date and be settled by payment of the PSU Cash Settlement Amount to you
on such Vest Date, subject to the attainment of the Performance Criteria as determined by the
Committee (which may be graduated such that different percentages, which may be greater than or
less than 100%, of the PSUs will become vested depending on the extent of satisfaction of the
Performance Criteria) and the satisfaction of any other terms and conditions of the Award. The
Performance Criteria and the terms and conditions related to the potential settlement of PSUs
are those Performance Criteria and terms and conditions determined by the Committee or its
designee, from time to time. For the purposes of this section 2, payment of the PSU Cash
Settlement Amount within 75 days following the Vest Date shall be deemed to constitute transfer
on such Vest Date.

3. The obligation of the Company to pay the PSU Cash Settlement Amount to you in settlement of
Vested PSUs pursuant to section 2 or section 7 hereof is conditioned upon your execution and
delivery of any required documentation as provided in the Plan, this Instrument of Award or the
Rules and Regulations, in such form or manner as may be specified from time to time by the
Corporation; provided that if you have not executed and delivered such required documentation
within 75 days following the applicable settlement date, the PSUs shall immediately be forfeited
and cancelled for no consideration on such 75th date. You will remain responsible
for any local legal compliance requirements resulting from your receipt of PSUs, and the opening
and maintaining of a foreign brokerage account, if applicable.

4. In consideration of the Award of PSUs, in the event that all or any part of the PSUs become
Vested, at any time subsequent to the date which is twelve (12) months prior to the date of
termination of your employment (whether wrongful or for any other reason) (the “Applicable
Period”) and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with the Company,

	(ii)	 	you fail to comply with or otherwise breach the terms and conditions of any
confidentiality agreement or non-disclosure agreement with the Company,

	(iii)	 	while employed or during the period of twelve (12) months following the termination
of employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/was supplying
services to the Company, to terminate their employment or contractual arrangements with
the Company, or

	(iv)	 	while employed or during the period of twelve (12) months following the termination of
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away, the
business of any of the customers or accounts, or prospective customers or accounts, of the
Company or any of its distributors, representatives or vendors which you had contact or
communication with while employed at the Company;

you agree that you will, if required by the Company in its sole discretion, pay to the Company
within ten (10) days of written demand for payment from the Company an amount in cash equal to
the PSU Cash Settlement Amount delivered to you upon the Committee’s determination of payout
based on the level of achievement of the Performance Criteria (the “Applicable Amount”);

1

 

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the payment of the PSU Cash Settlement
Amount upon settlement of the PSUs during the Applicable Period (and, where applicable, in
respect of the Award of such PSUs);

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the Vesting of the PSUs or your receipt of the PSU Cash
Settlement Amount upon the settlement of Vested PSUs during the Applicable Period (such
difference between the Corresponding Tax Benefit and Tax, if any, is referred to herein as the
“Tax Benefit Deficiency”), the Applicable Amount shall be reduced by an amount equal to the Tax
Benefit Deficiency;

     For the purposes of this provision:

“Corresponding Tax Benefit” means the amount of any deduction from or reduction or
credit to the amount of Taxes paid or payable by you or on your behalf in accordance
with the laws of the tax jurisdiction applicable to you as a result of or in
connection with the payment to the Company of all or any portion of the Applicable
Amount by you; and

“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time of
Vesting of the
PSUs or at the time you receive payment of the PSU Cash Settlement Amount in
settlement of the PSUs, whichever is applicable (and, where applicable, at the time
of the Issue Date of the Award of such PSUs).

5. The Company requires, as a condition on settlement of PSUs, that you: (i) pay any federal,
provincial, state or local withholding taxes (collectively referred to herein as “taxes”) which
are required to be paid by you; (ii) pay or reimburse any taxes which are required to be
withheld and remitted by the Company; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the Award of the PSUs, the Vesting of the PSUs, the settlement of
the PSUs, and/or the forfeiture of the PSUs, and as may be specified in this Instrument of
Award, the Rules and Regulations or otherwise in accordance with the Plan.

6. If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that you have committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including PSUs, you shall, in accordance with the
terms of the Recoupment Policy, automatically forfeit any awards of PSUs received under this
Instrument of Award but not yet Vested, or if Vested, you shall reimburse the Company the PSU
Cash Settlement Amount received by you as a result of such Vesting of PSUs, and/or the Company
shall be entitled to issue proceedings to recover damages against you in respect of any losses
incurred.

7. In the event that you become subject to long-term disability benefits, a “pro rata portion”
of the PSUs to be settled shall become Vested based on the level of achievement of the
Performance Criteria, as determined by the Committee in its sole discretion, and provided you
have been a regular full-time employee of the Company for at least twelve (12) months since the
Issue Date of the Award, and the remaining portion of such PSUs shall be forfeited and cancelled
for no consideration. In the event of your Termination prior to the date that all of the PSUs
awarded to you pursuant to this Instrument of Award have become Vested, (i) such Termination is
due to your Retirement, a “pro rata portion” of the PSUs to be settled shall become Vested,
based on the level of achievement of the Performance Criteria, as determined by the Committee in
its sole discretion, and provided you have been a regular full-time employee of the Company for
at least twelve (12) months since the Issue Date of the Award, and the remaining portion of such
PSUs shall be forfeited and cancelled for no consideration; (ii) if such Termination is due to
death and you have been a regular full-time employee of the Company for at least twelve (12)
months since the Issue Date of the Award, a “pro rata portion” of the outstanding unvested PSUs
awarded to you shall become immediately Vested and settled based on the target amount and (iii)
if such Termination is for any other reason (including by your employer for Cause, by reason of
a Qualifying Termination Without Cause or by reason of your resignation for any reason), all
then outstanding unvested PSUs awarded to you pursuant to this Instrument of Award shall
immediately be forfeited and cancelled for no consideration 45 days after such Date of
Termination; provided that no PSUs shall Vest during such 45 day period other than pursuant to
the Nortel Networks Corporation Change in Control Plan (the “CIC Plan”). With respect to any
PSUs that Vest as a result of a Termination due to death, such PSUs shall be settled as soon as
practical following the date of death and, in any event, before 90 days after the date of death.
With respect to any PSUs that Vest on or following a Termination (other than due to death), such
PSUs shall be settled on the Vest Date on which such PSUs were originally scheduled to Vest in
accordance with the Vest Schedule above. Notwithstanding the foregoing, any Vesting and/or
settlement, as applicable, pursuant to this paragraph shall be delayed until six months after
your Retirement or other type of Termination to the extent necessary to avoid adverse tax
treatment under Section 409A of the U.S. Internal Revenue Code.

     For purposes of this section 7, transfer of Shares within 75 days following the applicable
settlement date shall be deemed to constitute transfer on such Vest Date.

     For purposes of this section 7, “pro rata portion” shall mean the full amount of the PSUs
awarded to you pursuant to the Plan and this Instrument of Award or the amount of PSUs to be
settled, as applicable, multiplied by a fraction, the numerator of which equals the number of
full months of continuous service provided since the commencement of the applicable Performance
Period and the denominator of which is 36; provided, however, that no portion of a PSU shall
become vested earlier than the first anniversary of the Issue Date of the Award.

2

 

8. In the event you are a Specified Executive (as defined under the Nortel Networks Corporation
Change in Control Plan (the “CIC Plan”)) and are subject to a Termination Due to Change in
Control (as defined in the CIC Plan), the PSUs awarded to you in accordance with this Instrument
of Award shall receive the same treatment as Awards (as defined under the CIC Plan) and shall
receive the same benefits as provided to Awards under the CIC Plan in the event of a Termination
Due to Change in Control, provided, however, that no portion of a PSU shall be included, for the
purposes of any payments under the CIC Plan, earlier than the first anniversary of the Issue
Date of an Award.

9. This Instrument of Award: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Award and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Award of PSUs evidenced by this Instrument of Award are specifically recorded
as a variation from the terms and conditions of the Plan or the Rules and Regulations, as the
case may be. In order to receive any benefits under this Instrument of Award, it must be
accepted by you within ninety (90) days of the Issue Date. Any awards of PSUs for which the
Corporation has not received an accepted Instrument of Award from you within the ninety (90) day
period shall be automatically cancelled for no consideration at the end of such ninety (90) day
period.

     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site 

(http://services- canada.ca.nortel.com/livelinksupport/saw), under People/Compensation/Equity
Awards/Plan Documents. The Services@Work site also contains other general information about the
PSUs. You should check the Services@Work site frequently since it may be updated from time to
time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Award.

10. You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Award of PSUs does not create any right to receive future
Awards of PSUs, or benefits in lieu of PSUs, and the terms and conditions of any future Awards
of PSUs, if any, will be communicated if and when new Awards of PSUs are to be made; (iii) the
value of the PSUs is outside the scope of your employment contract and severance payments, if
any, and the Award of PSUs is not for labour performed nor does it guarantee future employment;
(iv) participation in the Plan is voluntary; (v) the Corporation is not responsible for foreign
exchange fluctuations between your local currency and the US dollar, if applicable, and the
future value of the Shares is unknown and cannot be predicted with certainty; (vi) the PSUs are
not part of remuneration for purposes of any compensation on termination of employment,
severance payments, indemnities or end of service payments or benefits of any nature; (vii) the
Vesting of the PSUs ceases upon termination of employment, whether lawful or otherwise, except
as provided in the Plan and this Instrument of Award, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the forfeiture of PSUs or the early
settlement thereof on any such termination of employment; and (viii) the Award of the PSUs does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Award or the PSUs, shall, to the
extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

11. The various provisions and sub-provisions of this Instrument of Award are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Award, the Plan, the Rules and
Regulations, or any documents related to the Plan.

12. Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the Award and/or settlement of PSUs, administering the Plan, and to
comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Award or the PSUs, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

13. By accepting this Instrument of Award or the PSUs, you expressly consent that the Plan, the
Rules and Regulations and any other document relating thereto, including this Instrument of
Award, be drawn up and/or available in English only. Par votre acceptation de la présente
Entente ou des PSUs, vous consentez expressément à ce que le Régime, les Règlements et tout
autre document connexe, y compris la présente Entente soient rédigés et/ou disponibles en
anglais seulement.

14. By accepting this Instrument of Award or the PSUs, you (i) acknowledge and confirm that you
have read and understood the Plan, the Rules and Regulations and this Instrument of Award, and
that you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; (ii) agree to be bound by the terms and conditions stated in this Instrument of Award,
including without limitation the terms and conditions of the Plan and the Rules and Regulations
incorporated by reference herein and (iii) appoint the Company and any third party

3

 

service
providers of the Company to act on your behalf in connection with this Instrument of Award, the
PSUs and any PSU Cash Settlement Amount received by you from this Award of PSUs.

     Note: You should be aware that your acceptance of this Award of PSUs may have tax and legal
consequences for you. You are responsible for any and all compliance requirements under local
and national law related to these consequences and accordingly you are strongly recommended to
seek expert advice from a local duly qualified professional advisor.

     If you accept the terms and conditions of this Award of PSUs as described in this
Instrument of Award, please confirm your acceptance by signing where indicated below and
returning it to Nortel Global Equity Award Services at the address indicated below.

	 	 	 	 	 
	Signature of Employee:

	 	 

	 	 

Nortel Global Equity Award Services

Nortel Networks Corporation

195 The West Mall

Dept. C01G, MS T0504001

Toronto, Ontario, Canada M9C 5K1

4

 

NORTEL NETWORKS CORPORATION — CASH SETTLED PERFORMANCE STOCK UNITS (rTSR)

INSTRUMENT OF AWARD

This instrument (hereinafter the “Instrument of Award”) evidences an Award to you of the number
of Performance Stock Units (“PSUs”) indicated above beside the heading Total Performance Share
Units, on the Issue Date indicated above, pursuant to the Nortel 2005 Stock Incentive Plan, As
Amended and Restated and as may be further amended from time to time (the “Plan”). Subject to
and unless otherwise specified by the Committee at the time it established the applicable
Performance Criteria, each PSU covered by this Instrument of Award generally entitles you to
receive a cash amount (the “PSU Cash Settlement Amount”) equal to the product of (i) the Market
Value of one common share (a “Share”) of Nortel Networks Corporation (the “Corporation”) on the
applicable settlement date specified by the Committee, multiplied by (ii) the number of PSUs
then being settled, on the applicable Vest Date in accordance with the Vest Schedule indicated
above and the provisions set forth below. Capitalized terms not otherwise defined in this
Instrument of Award have the meanings set forth in the Plan.

1. All PSUs covered by this Instrument of Award are subject to the terms and conditions stated
in the Plan, except as specifically or additionally provided in this Instrument of Award and/or
in any rules, regulations, determinations or interpretations prescribed and/or made by
the Committee (or its delegates) under the power and authority granted under the Plan (the
“Rules and Regulations”), and all of the provisions of the Plan and the Rules and Regulations
are incorporated by reference as if expressly restated herein. Different Rules and Regulations
may apply to you and/or the PSUs covered by this Instrument of Award depending on your country
of work location, residency or payroll, whether on the Issue Date of the Award, on the date of
settlement of the PSUs, or otherwise. Accordingly, you should review the Plan and the Rules and
Regulations from time to time, which are available as indicated below, in conjunction with this
Instrument of Award.

2. If you have been in the continuous employment of the Company from the Issue Date to the
settlement date, PSUs scheduled to Vest on the Vest Date set forth in the Vest Schedule above,
will Vest on such Vest Date and be settled by payment of the PSU Cash Settlement Amount to you
on such Vest Date, subject to the attainment of the Performance Criteria as determined by the
Committee (which may be graduated such that different percentages, which may be greater than or
less than 100%, of the PSUs will become vested depending on the extent of satisfaction of the
Performance Criteria) and the satisfaction of any other terms and conditions of the Award. The
Performance Criteria and the terms and conditions related to the potential settlement of PSUs
are those Performance Criteria and terms and conditions determined by the Committee or its
designee, from time to time. For the purposes of this section 2, payment of the PSU Cash
Settlement Amount within 75 days following the Vest Date shall be deemed to constitute transfer
on such Vest Date.

3. The obligation of the Company to pay the PSU Cash Settlement Amount to you in settlement of
Vested PSUs pursuant to section 2 or section 7 hereof is conditioned upon your execution and
delivery of any required documentation as provided in the Plan, this Instrument of Award or the
Rules and Regulations, in such form or manner as may be specified from time to time by the
Corporation; provided that if you have not executed and delivered such required documentation
within 75 days following the applicable settlement date, the PSUs shall immediately be forfeited
and cancelled for no consideration on such 75th date. You will remain responsible
for any local legal compliance requirements resulting from your receipt of PSUs, and the opening
and maintaining of a foreign brokerage account, if applicable.

4. In consideration of the Award of PSUs, in the event that all or any part of the PSUs become
Vested, at any time subsequent to the date which is twelve (12) months prior to the date of
termination of your employment (whether wrongful or for any other reason) (the “Applicable
Period”) and:

	(i)	 	while employed or during the period of twelve (12) months following the termination of
employment (whether wrongful or for any other reason), you accept employment with an
employer, or accept an engagement to supply services, directly or indirectly, to a third
party, that is in competition with the Company,

	(ii)	 	you fail to comply with or otherwise breach the terms and conditions of any
confidentiality agreement or non-disclosure agreement with the Company,

	(iii)	 	while employed or during the period of twelve (12) months following the termination
of employment (whether wrongful or for any other reason), you, on your own behalf or on
any other’s behalf, directly or indirectly recruit, induce or solicit, or attempt to
recruit, induce or solicit, any current employee or other individual who is/was supplying
services to the Company, to terminate their employment or contractual arrangements with
the Company, or

	(iv)	 	while employed or during the period of twelve (12) months following the termination of
employment (whether wrongful or for any other reason), you, on your own behalf or on any
other’s behalf, solicit, divert or take away, or attempt to divert or take away, the
business of any of the customers or accounts, or prospective customers or accounts, of the
Company or any of its distributors, representatives or vendors which you had contact or
communication with while employed at the Company;

you agree that you will, if required by the Company in its sole discretion, pay to the Company
within ten (10) days of written demand for payment from the Company an amount in cash equal to
the PSU Cash Settlement Amount delivered to you upon the Committee’s determination of payout
based on the level of achievement of the Performance Criteria (the “Applicable Amount”);

1

 

     Provided you are not entitled to any Corresponding Tax Benefit, the Applicable Amount shall
be reduced by the amount of Tax paid by you or on your behalf (or required to be paid by you or
on your behalf as of a future Tax due date) in respect of the payment of the PSU Cash Settlement
Amount upon settlement of the PSUs during the Applicable Period (and, where applicable, in
respect of the Award of such PSUs);

     If you are entitled to a Corresponding Tax Benefit which is equal to or less than the
amount of Tax paid by you or on your behalf (or required to be paid by you or on your behalf as
of a future Tax due date) in respect of the Vesting of the PSUs or your receipt of the PSU Cash
Settlement Amount upon the settlement of Vested PSUs during the Applicable Period (such
difference between the Corresponding Tax Benefit and Tax, if any, is referred to herein as the
“Tax Benefit Deficiency”), the Applicable Amount shall be reduced by an amount equal to the Tax
Benefit Deficiency;

     For the purposes of this provision:

“Corresponding Tax Benefit” means the amount of any deduction from or reduction or
credit to the amount of Taxes paid or payable by you or on your behalf in accordance
with the laws of the tax jurisdiction applicable to you as a result of or in
connection with the payment to the Company of all or any portion of the Applicable
Amount by you; and

“Tax” means any income tax, capital gains tax, statutory pension plan contributions
and/or other social security tax or applicable social security charge levied in
accordance with the laws of the jurisdiction to which you are subject at the time of
Vesting of the
PSUs or at the time you receive payment of the PSU Cash Settlement Amount in
settlement of the PSUs, whichever is applicable (and, where applicable, at the time
of the Issue Date of the Award of such PSUs).

5. The Company requires, as a condition on settlement of PSUs, that you: (i) pay any federal,
provincial, state or local withholding taxes (collectively referred to herein as “taxes”) which
are required to be paid by you; (ii) pay or reimburse any taxes which are required to be
withheld and remitted by the Company; (iii) complete any forms or provide any additional
documents in connection with taxes; and (iv) otherwise comply with all applicable tax laws; in
each case in connection with the Award of the PSUs, the Vesting of the PSUs, the settlement of
the PSUs, and/or the forfeiture of the PSUs, and as may be specified in this Instrument of
Award, the Rules and Regulations or otherwise in accordance with the Plan.

6. If the Compensation and Human Resources Committee, in its reasonable discretion, upon
consideration of relevant facts and circumstances, concludes that you have committed an
intentional misconduct as defined by the Compensation and Human Resources Committee Policy
Regarding Recoupment of Incentive Compensation (the “Recoupment Policy”) relating to forfeiture
and/or recoupment of incentive compensation, including PSUs, you shall, in accordance with the
terms of the Recoupment Policy, automatically forfeit any awards of PSUs received under this
Instrument of Award but not yet Vested, or if Vested, you shall reimburse the Company the PSU
Cash Settlement Amount received by you as a result of such Vesting of PSUs, and/or the Company
shall be entitled to issue proceedings to recover damages against you in respect of any losses
incurred.

7. In the event that you become subject to long-term disability benefits, a “pro rata portion”
of the PSUs to be settled shall become Vested based on the level of achievement of the
Performance Criteria, as determined by the Committee in its sole discretion, and provided you
have been a regular full-time employee of the Company for at least twelve (12) months since the
Issue Date of the Award, and the remaining portion of such PSUs shall be forfeited and cancelled
for no consideration. In the event of your Termination prior to the date that all of the PSUs
awarded to you pursuant to this Instrument of Award have become Vested, (i) such Termination is
due to your Retirement, a “pro rata portion” of the PSUs to be settled shall become Vested,
based on the level of achievement of the Performance Criteria, as determined by the Committee in
its sole discretion, and provided you have been a regular full-time employee of the Company for
at least twelve (12) months since the Issue Date of the Award, and the remaining portion of such
PSUs shall be forfeited and cancelled for no consideration; (ii) if such Termination is due to
death and you have been a regular full-time employee of the Company for at least twelve (12)
months since the Issue Date of the Award, a “pro rata portion” of the outstanding unvested PSUs
awarded to you shall become immediately Vested and settled based on the target amount and (iii)
if such Termination is for any other reason (including by your employer for Cause, by reason of
a Qualifying Termination Without Cause or by reason of your resignation for any reason), all
then outstanding unvested PSUs awarded to you pursuant to this Instrument of Award shall
immediately be forfeited and cancelled for no consideration 45 days after such Date of
Termination; provided that no PSUs shall Vest during such 45 day period other than pursuant to
the Nortel Networks Corporation Change in Control Plan (the “CIC Plan”). With respect to any
PSUs that Vest as a result of a Termination due to death, such PSUs shall be settled as soon as
practical following the date of death and, in any event, before 90 days after the date of death.
With respect to any PSUs that Vest on or following a Termination (other than due to death), such
PSUs shall be settled on the Vest Date on which such PSUs were originally scheduled to Vest in
accordance with the Vest Schedule above. Notwithstanding the foregoing, any Vesting and/or
settlement, as applicable, pursuant to this paragraph shall be delayed until six months after
your Retirement or other type of Termination to the extent necessary to avoid adverse tax
treatment under Section 409A of the U.S. Internal Revenue Code.

     For purposes of this section 7, transfer of Shares within 75 days following the applicable
settlement date shall be deemed to constitute transfer on such Vest Date.

     For purposes of this section 7, “pro rata portion” shall mean the full amount of the PSUs
awarded to you pursuant to the Plan and this Instrument of Award or the amount of PSUs to be
settled, as applicable, multiplied by a fraction, the numerator of which equals the number of
full months of continuous service provided since the commencement of the applicable Performance
Period and the denominator of which is 36; provided, however, that no portion of a PSU shall
become vested earlier than the first anniversary of the Issue Date of the Award.

2

 

8. In the event you are a Specified Executive (as defined under the Nortel Networks Corporation
Change in Control Plan (the “CIC Plan”)) and are subject to a Termination Due to Change in
Control (as defined in the CIC Plan), the PSUs awarded to you in accordance with this Instrument
of Award shall receive the same treatment as Awards (as defined under the CIC Plan) and shall
receive the same benefits as provided to Awards under the CIC Plan in the event of a Termination
Due to Change in Control, provided, however, that no portion of a PSU shall be included, for the
purposes of any payments under the CIC Plan, earlier than the first anniversary of the Issue
Date of an Award.

9. This Instrument of Award: (i) shall be binding upon and inure to the benefit of any successor
of the Corporation; (ii) shall be governed by the laws of the Province of Ontario, and any
applicable laws of Canada; and (iii) may not be amended except in writing or as otherwise
provided in the Plan. In the event of a conflict between the provisions of this Instrument of
Award and those of the Plan or the Rules and Regulations, the provisions of the Plan or the
Rules and Regulations, as the case may be, shall govern, except to the extent that the terms and
conditions of the Award of PSUs evidenced by this Instrument of Award are specifically recorded
as a variation from the terms and conditions of the Plan or the Rules and Regulations, as the
case may be. In order to receive any benefits under this Instrument of Award, it must be
accepted by you within ninety (90) days of the Issue Date. Any awards of PSUs for which the
Corporation has not received an accepted Instrument of Award from you within the ninety (90) day
period shall be automatically cancelled for no consideration at the end of such ninety (90) day
period.

     A copy of the Plan, the Prospectus for the Plan pursuant to Section 10(a) of the U.S.
Securities Act of 1933, any amendments to such Prospectus, and the Rules and Regulations can be
found on the Nortel Intranet — Services@Work site 

(http://services- canada.ca.nortel.com/livelinksupport/saw), under People/Compensation/Equity
Awards/Plan Documents. The Services@Work site also contains other general information about the
PSUs. You should check the Services@Work site frequently since it may be updated from time to
time.

     You acknowledge that a copy of the Plan and the Rules and Regulations, if any, have been
delivered to you with this Instrument of Award.

10. You acknowledge that: (i) the Plan is discretionary and may be suspended or terminated by
the Corporation at any time; (ii) the Award of PSUs does not create any right to receive future
Awards of PSUs, or benefits in lieu of PSUs, and the terms and conditions of any future Awards
of PSUs, if any, will be communicated if and when new Awards of PSUs are to be made; (iii) the
value of the PSUs is outside the scope of your employment contract and severance payments, if
any, and the Award of PSUs is not for labour performed nor does it guarantee future employment;
(iv) participation in the Plan is voluntary; (v) the Corporation is not responsible for foreign
exchange fluctuations between your local currency and the US dollar, if applicable, and the
future value of the Shares is unknown and cannot be predicted with certainty; (vi) the PSUs are
not part of remuneration for purposes of any compensation on termination of employment,
severance payments, indemnities or end of service payments or benefits of any nature; (vii) the
Vesting of the PSUs ceases upon termination of employment, whether lawful or otherwise, except
as provided in the Plan and this Instrument of Award, and neither the Corporation nor any of its
subsidiaries is required to compensate you for any financial loss (including taxes, social
security premiums and lost capital gain) as a result of the forfeiture of PSUs or the early
settlement thereof on any such termination of employment; and (viii) the Award of the PSUs does
not give rise to additional obligations for any subsidiary which employs you. If,
notwithstanding the foregoing, any contractual or statutory (employment or otherwise) claim is
found to have arisen, then you, by accepting this Instrument of Award or the PSUs, shall, to the
extent permitted by applicable law, be deemed irrevocably to have waived your entitlement to
pursue such claim.

11. The various provisions and sub-provisions of this Instrument of Award are severable and if
any provision or identifiable part thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the enforceability of the remaining
provisions or identifiable parts thereof in this Instrument of Award, the Plan, the Rules and
Regulations, or any documents related to the Plan.

12. Nortel and its third party service providers may need to collect and use information about
employees for the purpose of the Award and/or settlement of PSUs, administering the Plan, and to
comply with tax, reporting and disclosure obligations under applicable laws and regulations.
Such information may be communicated to any person deemed necessary for the administration of
the Plan, even if it requires such information to be transferred or communicated to persons
based outside your country of employment. Such information is from time to time transferred
between companies within the group and to such third party service providers, to achieve these
objectives. Nortel and its third party service providers will hold your “Plan participation
file” at any location deemed necessary, on the understanding that you will be given access
without constraint at reasonable intervals and without excessive delay or expense to examine and
correct such information. By accepting the Instrument of Award or the PSUs, you are affirming
your consent to the collection, processing, storage, disclosure and transfer of your personal
information for these purposes.

13. By accepting this Instrument of Award or the PSUs, you expressly consent that the Plan, the
Rules and Regulations and any other document relating thereto, including this Instrument of
Award, be drawn up and/or available in English only. Par votre acceptation de la présente
Entente ou des PSUs, vous consentez expressément à ce que le Régime, les Règlements et tout
autre document connexe, y compris la présente Entente soient rédigés et/ou disponibles en
anglais seulement.

14. By accepting this Instrument of Award or the PSUs, you (i) acknowledge and confirm that you
have read and understood the Plan, the Rules and Regulations and this Instrument of Award, and
that you have had an opportunity to seek separate fiscal, legal and taxation advice in relation
thereto; (ii) agree to be bound by the terms and conditions stated in this Instrument of Award,
including without limitation the terms and conditions of the Plan and the Rules and Regulations
incorporated by reference herein and (iii) appoint the Company and any third party

3

 

service
providers of the Company to act on your behalf in connection with this Instrument of Award, the
PSUs and any PSU Cash Settlement Amount received by you from this Award of PSUs.

     Note: You should be aware that your acceptance of this Award of PSUs may have tax and legal
consequences for you. You are responsible for any and all compliance requirements under local
and national law related to these consequences and accordingly you are strongly recommended to
seek expert advice from a local duly qualified professional advisor.

     If you accept the terms and conditions of this Award of PSUs as described in this
Instrument of Award, please confirm your acceptance by signing where indicated below and
returning it to Nortel Global Equity Award Services at the address indicated below.

	 	 	 	 	 
	Signature of Employee:

	 	 
	 	 

Nortel Global Equity Award Services

Nortel Networks Corporation

195 The West Mall

Dept. C01G, MS T0504001

Toronto, Ontario, Canada M9C 5K1

4exv10w3

Exhibit 10.3

			
	CONFIDENTIAL-SPECIAL HANDLING 

June 12, 2008
	 	
	 	 	 
	Dennis Carey 

1179 Rosewood Dr. 

Atlanta, Georgia 30306-3554	 	 

Dear Dennis:

I am writing to confirm our discussion concerning the location of your primary business office at a
Nortel facility within the U.S. This letter updates and replaces the terms and conditions of your
offer letter dated January 26, 2006. You will continue in your current position as Executive Vice
President, Corporate Operations of Nortel Networks Corporation (“NNC”) and Nortel Networks Limited
(“NNL”), reporting directly to me. After considering both the needs of Nortel and your personal
situation, it was determined that this position will be located at our facility in Alpharetta,
Georgia effective June 23, 2008. You will be employed by Nortel Networks Inc. (“NNI”). NNC and/or
NNL and/or, where applicable, any subsidiary thereof, including NNI, are collectively referred to
herein as Nortel.

Further, as a senior executive of Nortel you will be expected to continue to demonstrate, perform
and represent Nortel at exemplary levels utilizing the highest of standards. You will see examples
of these expectations below. As noted below, while specific components of your Nortel benefits
will be altered as a result of this office location, many will not be impacted.

All dollar amounts contained herein are expressed in U.S. dollars.

Base Salary

Your base salary will remain unchanged at $550,000 calculated on a per annum basis and will be paid
to you bi-weekly.

Incentive Award

You will continue to be eligible to participate in the Nortel Networks Limited Annual Incentive
Plan pursuant to its terms and conditions, with a target cash award of 100% of your base salary.

Long Term Incentives

You will continue to be eligible to receive long term incentives in Nortel’s sole discretion.

Mike Zafirovski

President and Chief Executive Officer

Nortel

195 The West Mall, Toronto, ON M9C 5K1 T 905-863-1101 mikez@nortel.com

 

 

Recoupment of Incentive Based Compensation

It is not anticipated in the normal course of events that you will have to repay Nortel for any
incentive based compensation payments received during your employment tenure with Nortel. However,
if the Compensation and Human Resources Committee of the Boards of Directors of NNC and NNL
determines that you have committed intentional misconduct which contributes, directly or
indirectly, to an error in financial information that materially affects the value of any incentive
compensation realized by you, Nortel is entitled to issue proceedings to recover damages against
you in respect of any losses incurred or as a result of or in connection with that intentional
misconduct. Nortel may recoup any incentive compensation payments as an advance against such
damages, whether or not proceedings are issued by Nortel. Incentive compensation payments that
Nortel may recoup include all sales and incentive compensation, equity-based compensation, bonus
payments and any matching pension plan payments made by Nortel. For further information please
refer to the Compensation and Human Resources Committee Policy Regarding Recoupment of Incentive
Compensation.

Benefits

As an employee of NNI based in Alpharetta, Georgia, you will be eligible to participate in employee
benefit plans in accordance with the terms of those plans. You will continue to be entitled to
five weeks of vacation per annum. Vacation is accrued monthly at the rate of 2.08 days per month
of employment.

We periodically review benefit plans, as well as compensation programs, and make modifications,
including enhancements and reductions as we deem appropriate.

Change in Control

You will continue to be eligible to participate in the Nortel Networks Corporation Change in
Control Plan (“CIC”) as a Tier 1 Executive. The provision of payments and benefits to you under
the CIC will make you ineligible to receive payments and benefits described under the Involuntary
Separation heading.

Involuntary Separation

You will continue to be eligible for the following involuntary separation benefits: notwithstanding
the employment relationship described in the paragraph of this letter entitled Employment
Relationship, in the event (i) Nortel initiates your separation of employment or (ii) you initiate
your separation of employment because your responsibilities or authority are involuntarily changed
and are not substantially equivalent to your current role, you will be provided in lieu of any
other payment or benefit with the

Mike Zafirovski

President and Chief Executive Officer

Nortel

195 The West Mall, Toronto, ON M9C 5K1 T 905-863-1101 mikez@nortel.com

 

 

following: the equivalent of twenty-four months base salary paid bi-weekly, the opportunity to
continue health, life insurance and AD&D benefits coverage in which you are then enrolled for
twenty-four months following your employment termination (“Severance Period”) at active employee
rates and executive outplacement services for a period of twelve months. However, the foregoing
payments and benefits will not be provided to you if your separation of employment arises out of
conduct and/or inaction by you that are not in the best interests of Nortel (i.e., termination for
cause as defined in the CIC Plan). Additionally, the provision of any such payments and benefits
will be conditioned upon your execution of a separation agreement, which will be prepared by Nortel
and will contain, among other things, a full and final release of claims and a covenant not to
compete against Nortel or solicit its employees during the Severance Period.

Tax Conflict Review for Board Appointed Officers

As a Board appointed officer, you will continue to participate in Nortel’s Executive Tax Conflict
Review Program. Under the terms of this program, your personal income tax return will be prepared
and/or reviewed by our designated tax provider.

Executive Travel Services

You will continue to be eligible for executive travel reservation services while in the position of
Executive Vice-President, Corporate Operations. This service is accessible by a dedicated travel
telephone #ESN 830-4698, externally (613) 274-4698.

Senior Executive Duties

As stated earlier in this letter, as a senior executive of Nortel you are expected to continue to
perform your responsibilities at an exemplar level while displaying the highest standards. As a
result, you are expected by way of example to:

	 	(a)	 	faithfully and diligently perform such duties and exercise such powers consistent
with your position as may from time to time be assigned to or vested in you by Nortel or
the Boards of Directors of NNC and NNL (“Nortel Boards”);
	 
	 	(b)	 	comply with all reasonable and lawful requests made by Nortel or the Nortel Boards;
	 
	 	(c)	 	use your best endeavours to promote and protect and extend the business, reputation,
welfare and the interests of Nortel;
	 
	 	(d)	 	be familiar with and comply with Nortel’s Code of Business Conduct
	 
	 	(e)	 	be familiar with and comply with Nortel’s policies and procedures relevant to your
role or your actions as an employee; and
	 
	 	(f)	 	report to the Nortel Boards any matters of concern that come to your attention, it
being your duty to report any acts of misconduct, dishonesty, breach of

Mike Zafirovski

President and Chief Executive Officer

Nortel

195 The West Mall, Toronto, ON M9C 5K1 T 905-863-1101 mikez@nortel.com

 

 

	 	 	 	company rules or breach of any of the rules of any relevant regulatory bodies
committed, contemplated or discussed by any Nortel employee or third party. Nortel
will keep confidential whatever is reported save as required by law or a court or
authority of competent jurisdiction or on a strict “need to know basis”.

Code of Business Conduct

Nortel’s Code of Business Conduct is extremely important. As an industry leader and innovator, we
have always strived to take a lead in setting out ethical guidelines for our employees, which we
consider essential to the long-term success of Nortel. These guidelines are contained within the
Code of Business Conduct. By signing this letter, you will continue to be required to comply with
the Code of Business Conduct and Nortel’s policies and procedures.

Reporting Insider

You will continue to be designated a Reporting Insider under applicable Canadian securities
legislation and a Section 16 Officer under applicable United States securities legislation with
respect to trades of securities of NNC.

Share Ownership Guidelines

As a senior executive you will continue to be expected under the Share Ownership Guidelines to own
common shares of NNC equivalent to 300% of your base salary within the time frames earlier provided
to you.

You will also continue to be required to hold 50% of all settled vested equity awards (including
stock options, restricted stock units and performance stock units) remaining after the payment of
taxes and administrative fees associated with the award and the vesting thereof towards the
maintenance and achievement of the aforementioned Share Ownership Guidelines.

Commencement of Primary Business Office in Alpharetta, Georgia

Since your primary business office location can be in any major Nortel facility within the U.S.,
and as indicated in this letter your primary business location will be at the Nortel’s Alpharetta,
GA facility effective June 23, 2008, any benefits for which you were eligible as a result of your
business office being in Toronto, Ontario, Canada, including tax equalization, will cease upon the
commencement of your primary business office in Alpharetta, Georgia on June 23, 2008. In
addition, you may be eligible for certain benefits under the Nortel Frequent Traveler Program.
Also, Nortel shall move those household good items that you currently have in storage in
Massachusetts to your residence in Atlanta, Georgia in accordance with Nortel policies and
procedures.

Mike Zafirovski

President and Chief Executive Officer

Nortel

195 The West Mall, Toronto, ON M9C 5K1 T 905-863-1101 mikez@nortel.com

 

 

You will continue to be personally responsible for all costs associated with personal travel
to/from your home in Portland, Maine, including the cost of air and ground transportation and
taxes.

Section 409A of the U.S. Internal Revenue Code

The parties hereto intend that all benefits and payments to be made to you will be provided or paid
to you in compliance with all applicable provisions of section 409A of the U.S. Internal Revenue
Code of 1986 as amended, and the regulations issued thereunder, and the rulings, notices and other
guidance issued by the U.S. Internal Revenue Service.

Employment Relationship

Your employment relationship with Nortel shall continue as that of employment at will and therefore
such relationship is terminable at the will of either party and there is no employment agreement
for a year or any other specified term.

If you are in accord and in agreement with the terms of this letter, please indicate your
acceptance by signing and returning one copy of this letter to Leila Wong, Director, Executive,
Equity and Incentive Compensation, via fax to 905-863-2316 or ESN 333-2316, and retain the other
for your files.

Sincerely,

/s/ Mike Zafirovski

 

Mike Zafirovski

President and Chief Executive Officer

Accepted and confirmed this 18     day of June         , 2008 that my primary business
office will be at Nortel’s Alpharetta, Georgia facility commencing no later than June 23            .

	 	 	 	 	 
	Signature:

	 	/s/ Dennis Carey	 	 
	 

	 	 

	 	 

Mike Zafirovski

President and Chief Executive Officer

Nortel

195 The West Mall, Toronto, ON M9C 5K1 T 905-863-1101 mikez@nortel.com

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