Document:

exv10w3

 

Exhibit 10.3

NORTEL NETWORKS CORPORATION

CHANGE IN CONTROL PLAN

January 18, 2008

 

 

NORTEL NETWORKS CORPORATION

CHANGE IN CONTROL PLAN

     1. PURPOSE OF THE PLAN

     1.1 The Corporation relies upon the experience and expertise of the Specified Executives to
manage the business of Nortel objectively and for the benefit of the Corporation and its
shareholders.

     1.2 The Corporation recognizes that, in view of the existing market conditions for the shares
of publicly-traded companies involved in the telecommunications business as well as the existing
distribution and ownership of the outstanding shares of the Corporation, there is a possibility of
a Change in Control.

     1.3 To reinforce and encourage the continued attention and commitment of the Specified
Executives to their duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a Change in Control, the Corporation has established
this Plan to provide certain arrangements for Specified Executives whose employment with Nortel is
terminated as a result of a Change in Control.

     2. DEFINITIONS

     For the purpose of the Plan, the terms below shall have the following meanings:

“affiliated companies” shall have the meaning ascribed to the term “affiliated bodies corporate” in
subsection 2(2) of the Canada Business Corporations Act.

“affiliated entities” means (a) affiliated companies of the Corporation and (b) such other
companies, partnerships or other legal entities as the Nortel Board may determine for the purposes
of any of the provisions of the Plan.

“Awards” means restricted stock units, performance stock units or other stock based incentive
awards, other than Options, granted pursuant to a Stock Incentive Plan.

“Annual Salary” means, with respect to a Specified Executive, the greater of (A) the annual base
salary rate paid to the Specified Executive by or on behalf of Nortel immediately prior to the CIC
Date and (B) the annual base salary rate paid to the Specified Executive immediately prior to his
or her Termination Date; provided, however, if the Specified Executive incurs a Termination Due to
Change in Control as a result of his or her resignation for Good Reason due to a reduction in such
Specified Executive’s annual salary rate, the applicable annual base salary rate of such Specified
Executive for purposes of this Paragraph (B) shall be the annual base salary rate in effect
immediately prior to any such reduction.

 

-2-

“Auditor” means the independent auditor of the Corporation as appointed by the Corporation’s
shareholders or by the Nortel Board in relation to this Plan from time to time.

“Canadian Executive” means a Specified Executive who is a resident of Canada for the purposes of
the Income Tax Act (Canada), as amended from time to time.

“Canadian Trust” means the trust established pursuant to the Canadian Trust Agreement.

“Canadian Trust Agreement” has the meaning given to that term in Section 3.1.

“Canadian Trustee” means the trustee under the Canadian Trust Agreement.

“Cause” means, for the purposes of this Plan only, a Specified Executive’s:

	 	(i)	 	conviction (including any pleas of guilty or nolo contendere) of a criminal
offence or felony that involves fraud in connection with the performance by the
Specified Executive of the duties of the Specified Executive’s employment with Nortel
or moral turpitude;
	 
	 	(ii)	 	the willful and continual failure of the Specified Executive substantially to
perform the duties of the Specified Executive’s employment with Nortel (other than any
such failure due to the Specified Executive’s physical or mental illness), after a
written demand for substantial performance has been delivered to the Specified
Executive by the Nortel Board, and a reasonable opportunity to cure has been given to
the Specified Executive by the Nortel Board;
	 
	 	(iii)	 	material violation of any written agreement between the Specified Executive
and Nortel not to disclose any confidential or proprietary information of Nortel or
confidential or proprietary information of a third person in respect of which Nortel is
under a written confidentiality obligation to such third party of which the Specified
Executive has received prior written notice;
	 
	 	(iv)	 	fraud or willful and serious misconduct in connection with the performance of
the Specified Executive’s duties for Nortel, which, in the case of any such misconduct,
has caused direct material injury to Nortel; or
	 
	 	(v)	 	dismissal for just cause (including but not limited to a dismissal for
performance related reasons or for misconduct) in accordance with applicable law.

“CEO” means the individual serving as chief executive officer of the Corporation at any time during
the period which is thirty (30) days prior to the CIC Date.

“Change in Control” or “CIC” means the occurrence of any of the events described in Schedule “A”
hereto.

“CIC Date” means the date on which the Change in Control occurs.

 

-3-

“Code” means the United States Internal Revenue Code of 1986, as amended, the regulations
thereunder and any interpretive guidance as may be issued from time to time.

“Committee” means the compensation and human resources committee of the Nortel Board and the board
of directors of NNL or such other committee of the Nortel Board as the Nortel Board may designate
from time to time as the “Committee” for the purposes of this Plan; provided, however, that the
Committee may, in its discretion, delegate in writing such of its powers, rights and duties under
the Plan, in whole or in part, to such committee, person or persons as it may determine, from time
to time, on written terms and conditions as it may determine.

“Corporation” means Nortel Networks Corporation and any successor thereto, including, without
limitation, any successor to Nortel Networks Corporation following a Change in Control.

“Designated Beneficiary” of any Specified Executive means, with respect to any Entitlement
available to such Specified Executive, the person designated by the Specified Executive as his or
her beneficiary for the purposes of any plan or arrangement governing such Entitlement or, if the
Specified Executive has not made such designation with respect to such Entitlement (or no plan or
arrangement governs such Entitlement), then the “Designated Beneficiary” of such Specified
Executive means the estate of the Specified Executive for the purpose of such Entitlement. For the
purposes of this Plan, “estate” shall include only the executors or administrators of such estate
or any person or persons who shall have acquired the right to the applicable Entitlement directly
from the Specified Executive by bequest or inheritance.

“Entitlements” means the payments, benefits, rights and other entitlements to be paid or provided
to a Specified Executive pursuant to Article 4 of this Plan.

“Excluded Replacement Options” means the replacement options covered by a grant to a Specified
Executive under the key contributor program of the applicable Stock Incentive Plan if, on the
Termination Date: (i) all of the original options granted to such Specified Executive in connection
with the grant of such replacement options have not been exercised; or (ii) such original options
have been exercised but the replacement options could never become exercisable due to such
Specified Executive’s failure to continue to own beneficially the required number of common shares
that were acquired on the exercise of the original options, determined in accordance with the terms
of the grant of the replacement options.

“EVP Corporate Operations” means the individual holding the most senior position responsible for
corporate operations at the Corporation at the applicable time.

“Good Reason” means the occurrence of any of the following condition(s) without the prior written
consent of the Specified Executive which condition(s) remain in effect more than thirty (30) days
after written notification by the Specified Executive to the EVP Corporate Operations (such
notification to be made within a period not to exceed ninety (90) days from the initial existence
of the Good Reason condition):

 

-4-

	 	(i)	 	the requirement that the Specified Executive relocate his or her office or home
base to a location that is outside a 100 kilometre radius of his or her office or home
base immediately prior to the CIC Date; or
	 
	 	(ii)	 	the assignment to the Specified Executive of a set of responsibilities and/or
the employment or continued employment of the Specified Executive on terms and
conditions that are not the Substantial Equivalent of such Specified Executive’s set of
responsibilities and/or the terms and conditions of employment in effect immediately
prior to the CIC Date;

provided, however that a “Good Reason” shall not be deemed to have occurred until the end of such
thirty (30) day period.

“International Executives” means Specified Executives other than Canadian Executives.

“Key Employee” means such term as defined by section 416(i) of the Code.

“NNL” means Nortel Networks Limited and its successors.

“Nortel Board” means the board of directors of the Corporation.

“Nortel” means the Corporation and the affiliated entities.

“Option” means a stock option and related stock appreciation right, if any, and any stand-alone
stock appreciation rights granted pursuant to a Stock Incentive Plan, but does not include Excluded
Replacement Options.

“Payment Date” means, with respect to a Specified Executive, the later of (i) his or her
Termination Date and (ii) the CIC Date.

“Person” includes any individual, legal or personal representative, corporation, company,
partnership, syndicate, unincorporated association, trust, trustee, government body, regulatory
authority or other entity, howsoever designated or constituted.

“Plan” means the Nortel Networks Corporation Change in Control Plan as set forth herein and as may
be amended from time to time and “hereto”,
“herein”, “hereof”, “herewith” and similar terms refer
to this Plan in its entirety, unless a particular provision is specified.

“Pro Rata Basis” means, (i) for any performance stock units or other similar performance-based
awards, 100% of the unvested target amount of the award awarded, 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 until the Termination Date and the denominator of
which is 36 and (ii) for any restricted stock units or other time-based awards excluding Options,
the product of one-third of the award awarded multiplied by a fraction, the numerator of which
equals the number of days which have elapsed at the Termination Date since the later of (a) the
date 33 percent of the

 

-5-

awards became vested; and (b) the date 66 percent of the awards became
vested, and the denominator of which is 365; provided, however, that no portion of an award shall
become vested earlier than the first anniversary of the date the award was granted.

“Separation From Service” means separation from service as defined by section 409A of the Code and
refers to a separation from service from the affiliated group as determined using a 50% common
ownership test with reference to section 414(b) and (c) of the Code.

“Specified Executive” means each of (i) the CEO, (ii) each Tier I Executive (iii) each Tier II
Executive and (iv) any other individual whose employment with Nortel is terminated more than thirty
(30) days prior to the CIC Date at the direction of any Person who acquires control of the
Corporation, within the meaning of Paragraph (i) of the definition of the term “Termination Due to
Change in Control,” if, immediately prior to such termination of such individual’s employment, such
individual is identified in the records of the Plan maintained by the Corporation as a Tier I
Executive or a Tier II Executive or is serving in the position of CEO.

“Stock Incentive Plan” means each of the Nortel Networks Corporation 1986 Stock Option Plan, As
Amended And Restated, the Nortel Networks Corporation 2000 Stock Option Plan and the Nortel 2005
Stock Incentive Plan, As Amended and Restated and as each may be further amended from time to time
prior to the CIC Date, or any other similar plan adopted or assumed by the Corporation or NNL for
the benefit of employees of Nortel, and included any grant or award agreement (and any amendments
to such agreements made prior to the CIC Date) relating to an Award under such plans.

“Substantial Equivalent” means, with respect to a Specified Executive:

	 	(i)	 	a set of responsibilities that are (x) commensurate with such Specified
Executive’s professional training and experience and (y) in all material respects,
equivalent to or better than the set of responsibilities of such Specified Executive
immediately prior to the CIC Date; and
	 
	 	(ii)	 	terms and conditions of employment that (x) include an annual base salary rate
and annual cash incentive compensation opportunity that are each equal to or greater
than such Specified Executive’s annual base salary rate and annual cash incentive
compensation opportunity in effect immediately prior to the CIC Date, (y) include
overall additional compensation and benefits that are substantially equivalent to or
better than the additional compensation and benefits of the Specified Executive
immediately prior to the CIC Date, and (z) are otherwise substantially equivalent to or
better than the terms and conditions of such Specified Executive in effect immediately
prior to the CIC Date.

“Supplementary Executive Retirement Plan” means the Nortel Networks Limited Supplementary Executive
Retirement Plan, as amended from time to time prior to the CIC Date.

“Termination Date” means: (i) the actual date of a Specified Executive’s termination of employment
with Nortel, or (ii) if required to comply with section 409A of the Code, the actual date of a
Specified Executive’s Separation From Service with Nortel.

 

-6-

“Termination Due to Change in Control” means:

	 	(i)	 	any termination of the employment of the Specified Executive by Nortel during
the period commencing thirty (30) days prior to the CIC Date and ending on the date
which is twenty-four (24) months after the CIC Date, provided however that a
termination of the employment of a Specified Executive by Nortel prior to such 30 day
period at the direction of the Person who acquires control of the Corporation in the
Change in Control, shall be deemed to be a Termination Due to Change in Control; or
	 
	 	(ii)	 	any resignation for Good Reason within twenty-four (24) months after the CIC
Date by a Specified Executive provided that such Specified Executive resigns no later
than thirty (30) days after a Good Reason has occurred with respect to such Specified
Executive.

Notwithstanding the foregoing, “Termination Due to Change in Control” shall not include any
termination of the employment of the Specified Executive: (1) by Nortel for Cause; or (2)
pursuant to an agreement to resign or retire entered into by Nortel and the Specified
Executive prior to the CIC Date.

“Tier I Executives” means the executives determined by the Committee from time to time prior to the
CIC Date to be Tier I Executives and identified as such in the records of the Plan maintained by
the Corporation at any time during the period which is thirty (30) days prior to the CIC Date.

“Tier II Executives” means the executives determined by the Committee from time to time prior to
the CIC Date to be Tier II Executives and identified as such in the records of the Plan maintained
by the Corporation at any time during the period which is thirty (30) days prior to the CIC Date.

“U.S. Trust” has the meaning given to that term in Section 3.2.

“U.S. Trust Agreement” has the meaning given to that term in Section 3.2.

“U.S. Trustee” means the trustee under the U.S. Trust Agreement.

“Voting Shares” has the meaning given to that term in Schedule A.

     3. ESTABLISHMENT OF TRUST

     3.1 Source of Payments to Canadian Executives — At least 30 days prior to any CIC
Date, or if the Corporation is not aware in advance that a CIC Date will occur, immediately
following the Corporation becoming aware of the occurrence of a CIC Date, the Corporation shall, or
shall cause one or more of its affiliated entities to, enter into an agreement or agreements
(collectively, the “Canadian Trust Agreement”) pursuant to which the Canadian Trustee will have available to it,
for the benefit of the Canadian Executives, the funds necessary to fund the Entitlements available
to the Canadian Executives, unless there has been a recent down turn in the financial health of
Nortel. Under the terms of the Canadian Trust Agreement, the Corporation shall be required,
immediately prior to the CIC Date or, if it is not known in advance that the CIC Date will occur,
immediately

 

-7-

following the Corporation’s becoming aware of the occurrence of a CIC Date, to
contribute, or to cause one or more of its affiliated entities to contribute, to the trust or
trusts an amount equal to 200% of the fee payable to acquire a letter of credit for an amount equal
to the estimated maximum liability of Nortel for any and all Entitlements that would arise if all
Canadian Executives experienced a Termination Due to Change in Control on the earlier of the
Specified Executive’s Termination Date or the CIC Date, as calculated by the Auditor. If neither
the Corporation nor any of its affiliated entities satisfies the obligations of the Corporation
hereunder to pay or provide the Entitlements to a Canadian Executive within the time set out
herein, such Canadian Executive shall be entitled to deliver a notice to the Canadian Trustee
stating that such obligation or obligations have not been satisfied and the Canadian Trustee shall
thereupon satisfy such obligation or obligations to such Canadian Executive from the assets of the
Canadian Trust, subject to and in accordance with the Canadian Trust Agreement, unless the Canadian
Trustee shall be directed by an arbitrator duly appointed pursuant to Article 6 hereof or a court
of competent jurisdiction not to satisfy such obligation or obligations.

     3.2 Source of Payments to International Executives — The Corporation shall, or shall
cause one or more of its affiliated entities to, pay the Entitlements to which International
Executives are entitled under the terms of this Plan to the International Executives out of the
general corporate assets of the Corporation and/or the applicable affiliated entities of the
Corporation, and no assets of the Corporation or any such affiliated entities shall be designated
to fund such Entitlements provided herein or deemed to be assets to be used for that purpose, it
being understood that this Plan is an unfunded plan with respect to the International Executives.
This Plan does not confer on any International Executive or his or her Designated Beneficiary a
beneficial interest in any asset of Nortel. Notwithstanding the foregoing, at least 30 days prior
to any CIC Date, or if the Corporation is not aware in advance that a CIC Date will occur,
immediately following the Corporation becoming aware of the occurrence of a CIC Date, the
Corporation shall, or shall cause one or more of its affiliated entities to, establish a trust or
trusts (collectively, the “U.S. Trust”) pursuant to a trust agreement or agreements (collectively,
the “U.S. Trust Agreement”) and the Corporation shall make contributions thereto or cause
contributions to be made thereto for the purpose of providing for the Entitlements to International
Executives hereunder, unless there has been a recent down turn in the financial health of Nortel.
Immediately prior to the CIC Date or, if it is not known in advance that the CIC Date will occur,
immediately following the Corporation’s becoming aware of the occurrence of a CIC Date, the
Corporation shall, or shall cause one or more of its affiliated entities to, contribute to the U.S.
Trust an amount in cash equal to the excess of (i) the estimated maximum liability of Nortel for
any and all Entitlements that would arise if all International Executives experienced a Termination
Due to Change in Control on the earlier of the Specified Executive’s Termination Date or the CIC
Date, as calculated by the Auditor, over (ii) the aggregate amount then held in the U.S. Trust.
The U.S. Trust Agreement shall contain procedures to the following effect:

(a) In the event of the insolvency of the Corporation or other affiliated entity of
the Corporation that has established the applicable U.S. Trust Agreement (the party
that has established such U.S. Trust Agreement, the “Grantor”), the trust fund will
be available to pay the claims of any creditor of the Grantor to which a
distribution may be made in accordance with the bankruptcy laws of the jurisdiction to which the
Grantor is subject. The Grantor shall be deemed to be “insolvent” if the Grantor is
subject to a pending proceeding as a debtor under the bankruptcy laws of such
applicable jurisdiction. In the event the Grantor becomes insolvent, the Nortel
Board

 

-8-

shall notify the U.S. Trustee of the event as soon as practicable. Upon
receipt of such notice, or if the U.S. Trustee receives other written allegations of
the Grantor’s insolvency, the U.S. Trustee shall cease making payments to
International Executives from the trust fund, shall hold the trust fund for the
benefit of the Grantor’s creditors, and shall take such steps that are necessary to
determine within thirty (30) days whether the Grantor is insolvent. In the case of
the U.S. Trustee’s actual knowledge of or other determination of the Grantor’s
insolvency, the U.S. Trustee will deliver assets of the trust fund to satisfy claims
of the Grantor’s creditors as directed by a court of competent jurisdiction; and

(b) The U.S. Trustee shall resume payments to the International Executive or in the
event of the death of the International Executive, his or her Designated
Beneficiary, as applicable, under the U.S. Trust Agreement only after the U.S.
Trustee has determined that the Grantor is not insolvent (or is no longer insolvent,
if the U.S. Trustee had previously determined the Grantor to be insolvent) or upon
receipt of an order of a court of competent jurisdiction requiring such payment.
If the U.S. Trustee discontinues payment pursuant to Subsection 3.2(a) and
subsequently resumes such payment, the first payment to be made to each
International Executive or in the event of the death of the International Executive,
his or her Designated Beneficiary, as applicable, following such discontinuance
shall include an aggregate amount equal to the excess of (i) the payments which
would have been made to such International Executive or Designated Beneficiary
during any such period of discontinuance, plus interest on such amount at a rate
equivalent to the net rate of return earned by the trust during the period of such
discontinuance, over (ii) the sum of all payments actually made to such
International Executive or Designated Beneficiary during such period of
discontinuance plus interest on such payments at a rate equivalent to the net rate
of return earned by the trust during the period of discontinuance.

          Upon the Termination Due to Change in Control of any International Executive, the Corporation
shall and such International Executive shall be entitled to deliver a notice to the U.S. Trustee
stating that such Termination Due to Change in Control has occurred. Upon receipt of any such
notice from the Corporation and/or an International Executive, the U.S. Trustee shall commence
paying the Entitlements due to such International Executive in accordance with Section 4.1, 4.2 and
4.3 hereof, subject to and in accordance with the U.S. Trust Agreement, unless the U.S. Trustee
shall be directed by an arbitrator duly appointed pursuant to Article 6 hereof or a court of
competent jurisdiction not to make such payments.

     3.3 Alternative Source of Payments. Notwithstanding Sections 3.1 and 3.2 hereof,
effective no later than 30 days prior to the CIC Date or, if the Corporation is not aware in
advance that a CIC Date will occur, immediately following the Corporation becoming aware of the
occurrence of a CIC Date, and to maximize the tax benefits available to Nortel in the various
jurisdictions in which Specified Executives reside or are employed, the Corporation may provide for
alternative arrangements pursuant to which the Entitlements hereunder shall be paid to Specified
Executives, provided that any such alternative arrangements must protect the rights of the affected
Specified Executives at least to the same extent such rights would have been protected had the
Entitlements been paid in accordance with Section 3.1 or 3.2, whichever is applicable.

 

-9-

     4. OBLIGATIONS OF THE CORPORATION TO SPECIFIED EXECUTIVES

     4.1 Entitlements — In the event of a Specified Executive’s Termination Due to Change
in Control, the Specified Executive shall be entitled to the following:

(a) within thirty (30) days after the Payment Date, payment to or to the order of
the Specified Executive in cash, certified cheque or wire transfer of a lump sum
amount equal to the Specified Executive’s accrued but unpaid salary for the period
to and including the Termination Date, together with an amount equal to the cash
value of any accrued but unused vacation entitlement to the Termination Date;

(b) within thirty (30) days of submission by the Specified Executive of proper
expense reports, reimbursement in cash, certified cheque or wire transfer to the
Specified Executive in accordance with Nortel’s expense reimbursement policy for all
expenses incurred by the Specified Executive in connection with the business of
Nortel prior to the Termination Date;

(c) within one hundred and twenty (120) days after the Payment Date, payment to or
to the order of the Specified Executive in cash, certified cheque or wire transfer
of a lump sum equal to the sum of the following amounts:

(i) an amount equal to three times the CEO’s Annual Salary in the case of
the CEO, two times the Specified Executive’s Annual Salary in the case of a
Tier I Executive and 1.5 times the Specified Executive’s Annual Salary in
the case of a Tier II Executive; and

(ii) an amount equal to 300% in the case of the CEO, 200% in the case of a
Tier I Executive, and 100% in the case of a Tier II Executive, of the annual
bonus that the Specified Executive would have been entitled to receive
pursuant to the applicable Nortel executive management incentive award
plan(s) for the fiscal year of the Corporation or the affiliated entity, as
the case may be, which includes the Specified Executive’s Termination Date
had the Specified Executive remained in the continuous employment of Nortel
until at least the last day of such fiscal year and as if the Corporation,
any applicable affiliated entity, any applicable business unit and the
Specified Executive had each achieved 100% of their respective performance
objectives, if any, established by Nortel for such fiscal year, otherwise
fulfilled all other relevant eligibility criteria and with any other
applicable factor set at mid-range, after deduction for any mid-year
payments in respect of such plan(s) for such fiscal year paid by Nortel to
the Specified Executive prior to the Termination Date;

(d) continuation of any loans from Nortel to the Specified Executive, without
modification or amendment;

 

-10-

(e) out placement counseling services of a firm chosen from time to time by the
Specified Executive, for a period not to exceed 18 months after the Payment Date;

(f) maintenance of coverage for the maximum extended reporting period available
under any directors’ and officers’ liability insurance that is in place on the
Termination Date in the event that such policy is cancelled or not renewed;

(g) during the period ending on the three-year anniversary of the Specified
Executive’s Termination Date in the case of the CEO, the two-year anniversary of the
Specified Executive’s Termination Date in the case of a Tier I Executive and the
eighteen-month anniversary of the Specified Executive’s Termination Date in the case
of a Tier II Executive (such applicable period, the “Continuation Period”),
provision of continued coverage under each of Nortel’s life insurance, medical,
dental, health and disability plans or arrangements in which the Specified Executive
was entitled to participate immediately prior to the earlier of the Termination Date
or the CIC Date at a cost to the Specified Executive no greater than the actual
amount that the Specified Executive paid or would have paid for such coverage
immediately prior to the earlier of the Termination Date or the CIC Date and
otherwise in accordance with the terms of such plans and arrangements as in effect
immediately prior to the earlier of the Termination Date or the CIC Date; provided
however that:

(i) if the continued coverage of a Specified Executive under any such plan
or arrangement is not permitted under the terms thereof or under applicable
law, the Corporation shall arrange to provide the Specified Executive with
benefits that are substantially equivalent to those which the Specified
Executive was entitled to receive under such plan or arrangement immediately
prior to the earlier of the Termination Date or the CIC Date or pay an
amount to the Specified Executive in cash or by certified cheque sufficient
to enable the Specified Executive to purchase substantially equivalent
coverage for the applicable period on an individual basis, in either case at
a cost to the Specified Executive no greater than the Specified Executive
paid or would have paid for such coverage immediately prior to the earlier
of the Termination Date or the CIC Date, determined on an after-tax basis to
the Specified Executive;

(ii) in the event that a Specified Executive obtains alternative employment
during the applicable Continuation Period and, in connection therewith, the
Specified Executive receives substantially equivalent coverage under the
plans of his or her new employer, the obligation of the Corporation to
provide such Specified Executive with continued coverage under the
corresponding plan or arrangement of Nortel (and the obligation to provide
benefits and payments pursuant to Paragraph 4.1(g)(i)) shall terminate as of
the effective date of such substantially equivalent coverage; and

(iii) in the case of a Specified Executive whose Termination Date occurs
prior to the CIC Date, if the coverage of such Specified Executive and,
where applicable, his or her eligible dependants, under any such plan or
arrangement terminates prior to the expiration of the Continuation Period

 

-11-

applicable to such Specified Executive, (A) the Corporation shall reimburse
the Specified Executive or cause the Specified Executive to be reimbursed
for the actual costs incurred by such Specified Executive for alternative
and substantially equivalent life insurance, medical, dental, health and
disability coverage obtained by him or her (other than alternative coverage
described in the preceding Paragraph (ii)) for the portion of the applicable
Continuation Period following the termination of the Specified Executive’s
coverage under the corresponding plan or arrangement of Nortel (such
portion, the “Stub Period”) or (B) (x) in the case of medical, dental and/or
other health coverage, if no such alternative coverage has been obtained,
the Corporation shall reimburse the Specified Executive for the medical,
dental and/or other health expenses, as applicable, actually paid by the
Specified Executive for medical, dental and/or other health services
provided to the Specified Executive and, where applicable, his or her
eligible dependants or beneficiaries during the Stub Period to the extent
such expenses would have been reimbursed under the corresponding plan or
arrangement of Nortel had the Specified Executive’s coverage thereunder
continued for the duration of the Continuation Period or any earlier date
determined under the preceding Paragraph (ii) (the amount of such
reimbursement to be determined after reduction for the costs the Specified
Executive would have been required to pay under the applicable plan or
arrangement of Nortel had his or her coverage thereunder continued) and (y)
in the case of life insurance or disability coverage, if no such alternative
coverage has been obtained and, during the Stub Period, the Specified
Executive or, where applicable, any of his or her eligible dependants dies
or becomes disabled (within the meaning of the applicable disability plan of
Nortel), the Corporation shall pay to the Specified Executive (or in the
event of the Specified Executive’s death, the Specified Executive’s
Designated Beneficiary) an amount equal to the death or disability benefits,
as applicable, that would have been payable had the Specified Executive’s
coverage under the life insurance and/or disability plan of Nortel continued
for the Continuation Period (such amount to be determined after reduction
for the costs the Specified Executive would have been required to pay under
such plan of Nortel had the Specified Executive’s coverage thereunder
continued for the Continuation Period or Stub Period, as the case may be);

(h) if the Specified Executive is 50 years of age or older on the Termination Date,
then:

	 	(i)	 	if the Specified Executive is eligible to
participate in the Supplementary Executive Retirement Plan (the “SERP”)
prior to the Termination Date, then the Specified Executive will be
eligible for SERP , in accordance with the terms of the SERP, and

	 
	 	(ii)	 	commencing on the latest of (x) such time as
the health, medical and dental benefits available to a Specified
Executive pursuant to Subsection 4.1(g) hereof expire, (y) the
beginning of the calendar year during which the Specified Executive
will attain age 55 and (z)

 

-12-

	 	 	 	the expiration of any coverage of the
Specified Executive by such Specified Executive’s new employer as
contemplated by Paragraph 4.1(g)(ii) hereof, the Specified Executive
shall be eligible for coverage under the health, dental and medical
benefits available to retired executives of Nortel immediately prior to
the earlier of the Termination Date or the CIC Date; provided, however,
if the continued coverage of a Specified Executive under any such plan
or arrangement is not permitted under the terms thereof or under
applicable law, but the Specific Executive was a member of the
Traditional option under the Capital Accumulation and Retirement
Program and reached age 50 and completed 5 years of service before July
1, 2006, the Corporation shall arrange to provide the Specified
Executive benefits that are substantially equivalent to those which
retired executives of Nortel were entitled to receive under such plan
or arrangement immediately prior to the earlier of the Termination Date
or the CIC Date or pay an amount to the Specified Executive in cash or
by certified cheque sufficient to enable the Specified Executive to
purchase substantially equivalent coverage for the applicable period on
an individual basis in any event at a cost no greater than the
Specified Executive paid or would have paid for such coverage
immediately prior to the earlier of the Termination Date or the CIC
Date, determined on an after-tax basis to the Specified Executive; and

(i) (i) for Specified Executives subject to taxation under the Code, payment to or
to the order of the Specified Executive in settlement pursuant to section 4.2 of
this Plan of Awards allocated to the Specified Executive under a Stock Incentive
Plan in cash, shares or a combination thereof in accordance with the applicable
settlement provisions of this Plan, the applicable Stock Incentive Plan and/or the
instrument of award for the particular Award will be made on the later of (x) the
next following anniversary of the grant date and (y) 45 days after the “separation
from service” (as defined in Section 409A of the Code); and

     (ii) for Specified Executives not subject to taxation under the Code, subject
to any provisions of any Stock Incentive Plan that are contrary to this provision
and which cannot be waived or amended by the Corporation, within thirty (30) days
after the Payment Date, payment to or to the order of the Specified Executive in
settlement pursuant to section 4.2 of this Plan of Awards allocated to the Specified
Executive under a Stock Incentive Plan in cash, shares or a combination thereof in
accordance with the applicable settlement provisions of this Plan, the applicable
Stock Incentive Plan and/or the instrument of award for the particular Award.

     4.2 Stock Incentive Plan Awards

(a) Acceleration of Options — In the event of a Specified Executive’s
Termination Due to Change in Control, subject to any provisions of any Stock
Incentive Plan that

 

-13-

are contrary to this provision and which cannot be waived or
amended by the Corporation, the Corporation shall cause all unvested outstanding
Options held by the Specified Executive immediately prior to his or her Termination
Date to become fully exercisable as of such Termination Date and which Options will
thereafter be exercisable by the Specified Executive (or, in the event of his or her
death or incapacity, by his or her Designated Beneficiary) in accordance with the
applicable Stock Incentive Plan and this Plan.

(b) Acceleration of Awards. In the event of a Specified Executive’s
Termination Due to Change in Control, subject to any provision of any Stock
Inventive Plan that are contrary to this provision and which cannot be waived or
amended by the Corporation, (i) unvested Awards granted on or after June 1, 2007
that are subject to performance or time-based vesting criteria outstanding
immediately prior to the Specified Executive’s Termination Date will be deemed to
have vested on a Pro Rata Basis as of the Termination Date, and (ii) unvested Awards
that are granted prior to June 1, 2007 that are subject to performance or time-based
vesting criteria outstanding immediately prior to the Specified Executive’s
Termination Date will be deemed to have fully vested as of the Termination Date in
accordance with the applicable vesting conditions of the applicable Stock Incentive
Plan and will be settled in accordance with the terms of the applicable Stock
Incentive Plan at 100% of the unvested target amount or on the basis of the
Specified Executive having satisfied the time-based criteria, as applicable.

(c) Waiver of Certain Provisions — None of the Options or Awards held by a
Specified Executive as of his or her Termination Date shall be subject to the right
of Nortel to require, in certain circumstances, repayment of the proceeds of an
Option exercise or an Award vest and the related sale of any underlying common
 shares; provided, however, that this provision shall not apply to any forfeiture or
recoupment of incentive compensation made by Nortel pursuant to the Compensation and
Human Resources Committee Policy Regarding Recoupment of Incentive Compensation.

(d) Period for Exercise — In the event of a Specified Executive’s
Termination Due to Change in Control, the Specified Executive will be deemed to
continue to be actively employed by Nortel under any Stock Incentive Plan (i) with
respect of the exercise of outstanding vested Options on the Termination Date,
except with respect to future grants of stock options, for the applicable
Continuation Period and (ii) with respect to the settlement of outstanding Awards on
the Termination Date, until such time as is required in connection with the
settlement of Awards in order to comply with the provisions of section 4.1(i) and
section 4.2 of this Plan.

     4.3 Other Deferred Compensation and Pension Arrangements — If a Specified Executive
participates in any deferred compensation, pension or supplementary retirement plans offered by
Nortel, then upon such Specified Executive’s Termination Due to Change in Control, and except as
otherwise specifically provided in this Plan, such Specified Executive shall be entitled to
payments under such plans in accordance with the terms of each such plan. The full unfunded
amount payable under any deferred compensation, pension or supplementary retirement plans shall be

 

-14-

funded in accordance with Article 3.

     4.4 Mechanism for Providing Entitlements to a Specified Executive -

(a) Obligation of the Corporation — The Corporation shall provide or cause
to be provided all Entitlements available to a Specified Executive pursuant to the
Plan, including this Article 4 (or, in the event of his or her death, to the
Specified Executive’s Designated Beneficiary); it being understood that to the
extent any amount is paid to the Specified Executive (or, if applicable, his or her
Designated Beneficiary) under Article 3, such payment shall be deemed made on behalf
of the Corporation and the applicable affiliated entity, if any, in satisfaction of
the Corporation’s and such affiliated entity’s obligations therefor. All
Entitlements shall be paid or provided at the applicable time set forth in the Plan.
In the event that the Corporation makes contributions hereunder on behalf of an
affiliated entity, such contributions shall be charged by the Corporation to such
affiliated entity.

(b) Where No Time Specified — If no time is set out in Section 4.1 hereof
with respect to any Entitlement, the Corporation shall be deemed to be required to
provide such Entitlement as of or on the Payment Date.

     4.5 Reasonable Efforts — Subject to the provisions hereof, the Corporation shall use
commercially reasonable efforts to take or cause to be taken all actions and to do or cause to be
done all things reasonably necessary in accordance with applicable law to implement and make
effective the Plan, including the Entitlements available to Specified Executives pursuant to the
Plan.

     4.6 No Mitigation Required — A Specified Executive shall not be required to mitigate
the amount of any Entitlement provided for in this Plan either by seeking other employment or
otherwise. The amount of any Entitlement provided for herein shall not be reduced by any
remuneration that the Specified Executive may earn from employment with another employer or
otherwise following his or her Termination Date except as specified in Subsection 4.1(g) hereof.

     4.7 Tax Withholding — The Corporation shall withhold or shall cause to be withheld
from amounts payable hereunder any applicable employment or other withholding taxes required to be
withheld under applicable law.

     4.8 Requirements for U.S. Citizens and all other employees not exempt from Section 409A
of the Code —  Notwithstanding the timing of any distribution described herein to the contrary,
all distributions made to U.S. Citizens and all other employees not exempt from Section 409A of
the Code pursuant to Subsection 4.1(a), 4.1(b), and 4.1(c) by reason of a Termination Due to Change
in Control will be distributed on the date of the Specified Executive’s Separation from Service;
provided, however, that this date includes the extension provided by section 409A of the Code of
the later of (x) two and one half months after the date of the Specified Executive’s Separation
from Service or (y) the end of the calendar year in which the Specified Executive’s Separation from
Service occurs. Any Entitlements that are “deferred compensation” (as that term is defined in
section 409A of the Code) payable to Key Employees on the determination date (as provided by section 409A of
the Code, as may be modified from time to time) (“Deferred Compensation Payments”) shall not be
distributed earlier than six months following a Separation from Service. Such Deferred

 

-15-

Compensation Payments shall exclude any payments that qualify as “separation pay” (as that term is
defined in section 409A of the Code) and any other payments excluded from the definition of
“deferred compensation” under section 409A of the Code, including without limitation payments that
qualify as “short-term deferrals” (as that term is defined in section 409A of the Code).

     This Plan is intended to comply and shall be interpreted to comply with Section 409A of the
Code.

     4.9 Modified Cap — Any Entitlements to a Specified Executive under this section 4
shall be reduced to the extent necessary so that no excise tax would be imposed pursuant to section
4999 of the Code if doing so would result in the Specified Executive retaining a larger after-tax
amount, taking into account the income, excise and employment taxes imposed on the Entitlements;
provided, however, that any such reduction will be effected first through adjustments to or
reductions of Entitlements not subject to Section 409A and, second, to the extent further reduction
is required, a reduction of the amount paid under Section 4.1(c) hereof..

     5. OBLIGATIONS OF SPECIFIED EXECUTIVE

     5.1 Exclusive Remedy — The Entitlements shall constitute each Specified Executive’s
sole and exclusive remedy for any claim arising out of such Specified Executive’s Termination Due
to Change in Control.

     5.2 Release — It shall be a condition precedent to the delivery to the Specified
Executive of any Entitlement that the Specified Executive execute, and deliver to Nortel within 30
days of the later of (x) the Termination Date and (y) the CIC Date, a full and final release in the
form which the EVP Corporate Operations has designated as being acceptable prior to the Change in
Control. If such release is not executed and delivered within the specified period, the Specified
Executive will receive only the Entitlements paid under Section 4.1(a) and 4.1(b) hereof.

     5.3 Non-Solicitation — If the Specified Executive accepts the Entitlements pursuant to
Article 4 hereof, then for a period of one year after the Payment Date, the Specified Executive
will not, directly or indirectly, solicit the services of or in any other manner persuade any
employee of Nortel to discontinue his or her employment with Nortel or to materially alter that
relationship in a manner which is adverse to Nortel.

     5.4 Options — If the Specified Executive accepts the Entitlements pursuant to Article
4 hereof, then the Specified Executive acknowledges and agrees he or she will not exercise and
waives any entitlement to exercise any Options which become fully exercisable as of the Termination
Date until after the later to occur of the CIC Date or the Termination Date.

     6. ARBITRATION PROVISION

     6.1 Arbitration Requirement — Any disputes arising hereunder between a Specified
Executive and the Corporation, including the interpretation, validity, enforceability or
applicability

 

-16-

of the Plan, shall be subject to binding arbitration under the Arbitration Act
(Ontario) or the International Commercial Arbitration Act (Ontario) depending upon the Specified
Executive’s office or home base.

     6.2 Qualification of Arbitrator — Any arbitrator appointed pursuant hereto shall be a
disinterested Person or alternative dispute resolution service of recognized competence.

     6.3 Appointment of Arbitrator — Each of the Corporation and the Specified Executive
involved in the dispute shall act reasonably to come to agreement as to the identity of an
appropriate arbitrator with respect to the particular dispute hereunder. If the Corporation and
the Specified Executive cannot agree on the identity of the arbitrator, each of them shall submit
to binding arbitration before a single arbitrator selected from the roster of available arbitrators
kept by CPR Institute for Dispute Resolution, JAMs/Indispute or the Canadian Foundation for Dispute
Resolution (CFDR) depending upon the site for such arbitration. Arbitrations hereunder shall be
governed by the laws of Ontario. The arbitrator shall not have the right to confer any rights with
respect to the trade secrets, confidential and proprietary information or other intellectual
property rights of Nortel upon the Specified Executive or any third party and this arbitration
provision shall not preclude Nortel from seeking legal and equitable relief from any court having
jurisdiction with respect to disputes or claims relating to or arising out of the misuse or
misappropriation of Nortel’s intellectual property.

     6.4 Determination of Arbitrator — The determination of any arbitrator appointed in
accordance with this Article 6 shall be final and binding on the Specified Executive and the
Corporation.

     6.5 Site of Arbitration — Any arbitration proceedings required to be conducted
pursuant to this Plan shall be conducted in the location agreed to by the parties, but if the
parties cannot agree, in the City of Toronto.

     6.6 Costs and Expenses — Each party shall bear its own costs and expenses for
arbitration or litigation arising out of this Plan, except that the Corporation will pay or cause
to be paid all of the fees and expenses of the arbitrator. The Specified Executive who institutes
the arbitral proceedings provided hereunder may apply at the conclusion of such proceedings to the
arbitrator for the reimbursement for the legal fees and expenses expended in connection with the
arbitral proceedings and the arbitrator shall have jurisdiction to determine whether payment of the
Specified Executive’s legal fees and expenses are reasonable in the circumstances and the amounts
to be reimbursed by or on behalf of the Corporation.

     7. GENERAL

     7.1 No Obligation to Employ — This Plan does not obligate Nortel to continue to employ
a Specified Executive for any specific period of time, or in any specific role or geographic
location. Subject to the terms of any applicable written employment agreement between Nortel and a
Specified Executive and applicable law, Nortel may assign that Specified Executive to other duties,
and either Nortel or the Specified Executive may terminate the Specified Executive’s employment at any
time for any reason.

 

-17-

     7.2 Governing Law — This Plan shall be governed by and construed in accordance with
the laws of Ontario and the laws of Canada applicable therein and shall be treated in all respects
as an Ontario contract.

     7.3 Severability — If any provision of this Plan is determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, such determination shall not
impair or affect the validity, legality or enforceability of the remaining provisions hereof, and
each provision is hereby declared to be separate, severable and distinct.

     7.4 Enurement -

(a) This Plan shall enure to the benefit of and be binding upon the Specified
Executives and their respective heirs, executors, administrators and other legal
personal representatives and upon the Corporation and its successors and assigns.

(b) This Plan shall enure to the benefit of and shall be binding upon and
enforceable against the Corporation and any successor thereto, including, without
limitation, any corporation or corporations acquiring directly or indirectly all or
substantially all of the business or assets of the Corporation, whether by merger,
consolidation, sale or otherwise, but shall not otherwise be assignable by the
Corporation.

(c) Without limitation of Subsection 7.4(b) hereof, the Corporation shall require
any successor (whether direct or indirect, by merger, consolidation, sale or
otherwise) to all or substantially all of the business or assets of the Corporation,
by a written agreement expressly, absolutely and unconditionally to assume and agree
to perform the covenants and obligations of the Corporation pursuant to the terms of
this Plan in the same manner and to the same extent as the Corporation would have
been required to perform if no such succession had taken place, provided however,
that such agreement shall not be required if the successor assumes the obligations
of the Corporation hereunder by operation of law. Failure of the Corporation to
obtain the written agreement of a successor required by this Subsection 7.4 (c)
shall be deemed to be a circumstance permitting a Specified Executive to terminate
his or her employment for Good Reason and, accordingly, to be entitled to the
Entitlements.

     7.5 Notice — Notices and other communications given or made under the Plan
shall be delivered as follows:

(a) if to the Corporation, at its principal executive offices, to the attention of
the EVP Corporate Operations;

(b) if to a Specified Executive, to the most recent residential address shown for
such Specified Executive in the records of Nortel;

(c) if to the Canadian Trustee, at the address provided to the Corporation from time
to time; and

 

-18-

(d) if to the U.S. Trustee, at the address provided to the Corporation from time to
time.

	 	8.	 	AMENDMENT AND TERMINATION

(a) Amendment Prior to Any Proposed CIC — Except as provided in Subsection
8(b) hereof, the Corporation may amend this Plan at any time, in whole or in part.

(b) Amendment Prior to Proposed CIC — No amendment of any provision of this
Plan, the Canadian Trust Agreement, the U.S. Trust Agreement and any other trust
agreement established in accordance with Article 3 hereof made after thirty (30)
days prior to the earliest of: (1) the date that the Corporation first publicly
announces it is conducting negotiations leading to a transaction that results in a
Change in Control; or (2) the date that the Corporation enters into a definitive
agreement documenting a Change in Control (even though still subject to approval by
the Corporation’s shareholders and other conditions and contingencies); or (3) the
date of the first public announcement of a transaction that results in a Change in
Control which does not fall within the events described in the preceding (1) or (2);
(4) the date that the Corporation first enters into negotiations leading to a
transaction that results in a Change in Control; or (5) the CIC Date; shall be
effective unless consented to in writing by the Corporation and by any Specified
Executive affected by such amendment.

(c) Termination — The Nortel Board may from time to time suspend or
terminate the Plan in whole or in part. Notwithstanding the foregoing, the Plan
shall not be suspended or terminated at any time after thirty (30) days prior to the
earliest of: (1) the date that the Corporation first publicly announces it is
conducting negotiations leading to a transaction that results in a Change in
Control; or (2) the date that the Corporation enters into a definitive agreement
documenting a Change in Control (even though still subject to approval by the
Corporation’s shareholders and other conditions and contingencies); or (3) the date
of the first public announcement of a transaction that results in a Change in
Control which does not fall within the events described in the preceding (1) or (2);
(4) the date that the Corporation first enters into negotiations leading to a
transaction that results in a Change in Control; or (5) the CIC Date, unless such
suspension or termination is consented to in writing by the Corporation and by any
Specified Executive affected by such suspension or termination.

	 	9.	 	EFFECTIVE DATE AND TERM OF THE PLAN

The Plan was adopted by resolution of the board of directors of Nortel Networks Limited on August
19, 1999 with effect from September 1, 1999. The Plan was assumed by the Corporation effective May
1, 2000 and amended and restated by the Nortel Board with effect from July 26, 2001. The Plan was
amended and restated by the Nortel Board with effect from June 26, 2002. The Plan was further
amended and restated by the Nortel Board with effect from June 1, 2007. The Plan was further
amended and restated by the Nortel Board with effect from January 18, 2008. Any amendments to the
Plan shall become effective as specified by the Nortel Board, and consented to by

 

-19-

the Corporation
and the Specified Executives required hereby. Any termination or suspension of the Plan shall
become effective as specified by the Nortel Board, and consented to by the Corporation and the
Specified Executives as required hereby.

 

SCHEDULE “A”

CHANGE IN CONTROL

     1. Events Constituting Change in Control — For the purposes of this Plan, the term
“Change in Control” means the occurrence of any of the following:

	 	(a)	 	any Person or group acquires beneficial ownership of securities
of the Corporation representing more than 20% of the outstanding securities
entitled to vote in the election of directors of the Corporation (collectively,
the “Voting Shares”) other than in connection with a Permitted Business
Combination;
	 
	 	(b)	 	the consummation of a merger, amalgamation, business
combination, reorganization or consolidation or sale or other disposition of
all or substantially all of the assets of the Corporation or any liquidation or
dissolution of the Corporation, including by way of plan of arrangement (a
“Business Combination”) unless, in any such case:

	 	(i)	 	such Business Combination involves solely the Corporation, and one and
more affiliated entities; or
	 
	 	(ii)	 	following completion of all steps involved in the transaction or
transactions pursuant to which the Business Combination is effected:

(A) Persons who were the beneficial owners, respectively, of the
outstanding common shares of the Corporation immediately prior to
such Business Combination beneficially own, directly or indirectly,
by reason of such prior ownership of common shares, more than 50% of
the then-outstanding voting shares of (x) the entity resulting from
such Business Combination (the “Resulting Entity”) or (y) the Person
that ultimately controls the Resulting Entity, whether directly or
indirectly (the “Ultimate Parent”); and

(B) at least a majority of the members of the board of directors of
the Resulting Entity (or the Ultimate Parent) were members of the
Nortel Board at the earlier of the time of the execution of the
initial agreement providing for, or the action of the Nortel Board
approving, such Business Combination;

	 	(c)	 	the persons who were directors of the Corporation on the date
hereof (the “Incumbent Directors”) cease (for any reason other than death or
disability) to constitute at least a majority of the Nortel Board; provided,
that, any person who was not a director on the date hereof shall be deemed to
be an Incumbent Director if such person was elected or appointed to the Nortel
Board by, or on the recommendation of or with the approval of, at least
two-

 

-2-

	 	 	 	thirds of the
directors who then qualify as Incumbent Directors either actually or by
operation of this proviso, unless such election, appointment, recommendation
or approval was the result of any actual or publicly threatened proxy
contest for the election of directors; or

	 	(d)	 	any other event which the Nortel Board determines in good faith
could reasonably be expected to give rise to a Change in Control resulting from
situations such as:

	 	(i)	 	any Person acquiring a significant interest in the Corporation; or
	 
	 	(ii)	 	the election of any Person to the Nortel Board
in circumstances in which management has not solicited proxies in
respect of such election.

     2. Definitions — In addition to the definitions set out in Article 2 of the Plan, for
the purposes of this Schedule A:

          (a) “beneficial ownership” means ownership at law or in equity and, for the purposes of this
Plan, includes “beneficial ownership” as interpreted in accordance with Subsections 1(5) and (6)
and Section 90 of the Securities Act (Ontario) as in force as of June 1, 2007 (the “OSA”);

          (b) “control” or “controls” means, with respect to any Person, the direct or indirect
ownership of voting securities of such Person that carry with them in the aggregate more than 50%
of the votes for the election of directors of such Person;

          (c) “group” means a Person and one or more other Persons who are acting jointly or in concert
with such Person and, for the purposes of this Plan, “acting jointly or in concert” shall be
interpreted in accordance with Subsection 91(1) of the OSA; and

          (d) “Permitted Business Combination” means a Business Combination described in Paragraph
1(b)(i) or 1(b)(ii) above.exv10w4

 

Exhibit 10.4

NORTEL U.S. STOCK PURCHASE PLAN, AS AMENDED AND RESTATED

As of February 22, 2008

1

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	 	 	Page
	 
	 	 	 	 
	SECTION 1 DEFINITIONS	 	-1-
	 
	 	 	 	 
	SECTION 2 ESTABLISHMENT OF THE PLAN	 	-4-
	2.1
	 	Purpose	 	-4-
	 
	 	 	 	 
	SECTION 3 PARTICIPATION AND ENROLLMENT	 	-4-
	3.1
	 	Participation in the Plan	 	-4-
	3.2
	 	Entry Date	 	-4-
	 
	 	 	 	 
	SECTION 4 CONTRIBUTIONS TO THE PLAN	 	-4-
	4.1
	 	Employee Contributions	 	-4-
	4.2
	 	Variation of Contribution Levels	 	-5-
	4.3
	 	Cessation of Contributions	 	-5-
	4.4
	 	Leaves of Absence	 	-5-
	4.5
	 	Remittance of Employee Contributions and Employer Payments	 	-5-
	 
	 	 	 	 
	SECTION 5 SHARE PURCHASE	 	-6-
	5.1
	 	Purchase of Plan Shares	 	-6-
	5.2
	 	Interest Income	 	-6-
	5.3
	 	US$25,000 Limit	 	-6-
	 
	 	 	 	 
	SECTION 6 DIVIDENDS	 	-6-
	6.1
	 	Application of Dividends	 	-6-
	 
	 	 	 	 
	SECTION 7 SHARE ALLOCATION	 	-7-
	7.1
	 	Allocation of Plan Shares	 	-7-
	7.2
	 	Dividends	 	-7-
	7.3
	 	Maintenance of Records	 	-7-
	 
	 	 	 	 
	SECTION 8 VESTING OF PLAN SHARES	 	-7-
	8.1
	 	Employee Contributions and Employer Payments	 	-7-
	 
	 	 	 	 
	SECTION 9 WITHDRAWAL OF PLAN SHARES	 	-7-
	9.1
	 	Voluntary Withdrawals	 	-7-
	9.2
	 	Change in Member Status	 	-8-
	9.3
	 	Payment Options	 	-8-
	9.4
	 	Sale of Plan Shares	 	-9-
	9.5
	 	Cash Payments	 	-9-
	9.6
	 	Compliance With Applicable Laws and Company Policy	 	-9-
	9.7
	 	Rights As A Shareholder and Employee	 	-10-
	9.8
	 	Legends	 	-10-

 

	 	 	 	 	 
	 	 	 	 	Page
	 
	 	 	 	 
	9.9
	 	Holding Periods	 	-10-
	 
	 	 	 	 
	SECTION 10 ADMINISTRATION	 	-11-
	10.1
	 	Administration and Delegation	 	-11-
	10.2
	 	Appointment of Plan Custodian	 	-11-
	10.3
	 	Rules and Procedures	 	-11-
	10.4
	 	Limitation of Liability	 	-11-
	10.5
	 	Expenses	 	-12-
	10.6
	 	Member Statements	 	-12-
	10.7
	 	Shareholder Communications and Notices	 	-12-
	10.8
	 	Voting Rights	 	-12-
	10.9
	 	Withholdings	 	-13-
	10.10
	 	Transferability	 	-13-
	10.11
	 	Alteration or Substitution of Plan Shares	 	-13-
	10.12
	 	Effect Of Change In Control or Alteration or	 	 
	 
	 	Substitution of Shares On Purchase Rights	 	-14-
	 
	 	 	 	 
	SECTION 11 AMENDMENT AND TERMINATION OF THE PLAN	 	-14-
	11.1
	 	Amendment	 	-14-
	11.2
	 	Termination	 	-14-
	11.3
	 	Withdrawal of Employer	 	-14-
	 
	 	 	 	 
	SECTION 12 GENERAL PROVISIONS	 	-15-
	12.1
	 	No Additional Rights to Employment	 	-15-
	12.2
	 	Liability	 	-15-
	12.3
	 	Member's Agreement to be Bound by Plan Terms	 	-16-
	12.4
	 	Effect of Mistake	 	-16-
	12.5
	 	Indemnification	 	-16-
	12.6
	 	Assignment, Exemption from Seizure and Bankruptcy	 	-16-
	12.7
	 	Physical, Mental or Legal Incapacity of the Member	 	-17-
	12.8
	 	Stock Exchange Rules	 	-17-
	 
	 	 	 	 
	SECTION 13 EFFECTIVE DATE AND TERM	 	-17-
	13.1
	 	Effective Date	 	-17-
	13.2
	 	Term	 	-18-

	 	 	 
	SCHEDULE A CHANGE IN CONTROL

 

SECTION 1

DEFINITIONS

In this Plan, the following words and expressions shall have the meanings set out below:

     “Average Sale Price” means the volume-weighted average of the actual prices at which Plan
Shares are sold under the Plan on the relevant trading day calculated in accordance with Section
9.4.

     “Change in Control” shall have the meaning ascribed to such term in Schedule A hereto or as
Nortel may otherwise determine.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Committee” means the joint leadership committee of Nortel and Nortel Networks Limited, or
such other committee or joint committee as may be designated by the board of directors of Nortel
or, if applicable, Nortel Networks Limited, from time to time.

     “Company” means Nortel Networks Inc., a Delaware corporation, and its successors and assigns.

     “Custodian Agreement” means any agreement or agreements executed by the Company and any Plan
Custodian, as in effect from time to time.

     “Effective Date” with respect to an Eligible Employee means the date the Plan is implemented
by the Employer of such Eligible Employee, subject to the satisfaction of all securities,
regulatory or other relevant legal requirements in any jurisdiction in which the Plan is to be
effective.

     “Eligible Earnings” of a Member means the Member’s base salary as determined by the Member’s
Employer in accordance with its regular practices in effect from time to time, including
compensation received by the Member during any periods of short-term disability or other paid
leaves of absence granted under a program sponsored by an Employer (but excluding long-term
disability benefit payments), bonuses paid under the Nortel Networks Limited SUCCESS Incentive
Plan, actual sales compensation awarded, overtime, and off-shift differential payments, and other
compensation as may be designated by the Company from time to time.

     “Eligible Employee” means an employee who, on or after the Effective Date, is not an
“Ineligible Individual”. Notwithstanding any other provision of the Plan, an individual who would
otherwise be an Eligible Employee shall not be permitted to acquire any Plan shares where that
individual’s holdings of Shares represents, or, upon the purchase of Plan Shares, would represent
five (5%) percent or more of the total combined voting power or value of all classes of stock of
the Employer, its parent corporation or any subsidiary corporation of the Employer or Nortel.

     “Employee Contributions” means amounts contributed by a Member in accordance with Section 4.1
for the purchase of Plan Shares under the Plan.

-1-

 

     “Employer” means the Company or any direct or indirect subsidiary of Nortel or the Company
that is incorporated and/or headquartered in the United States or otherwise employs employees
performing services in the United States.

     “Employer Payments” means, in respect of an Offering Period, the amount calculated by
multiplying the Purchase Amount by 0.15.

     “Entry Date” means the first day of each Offering Period.

     “Fair Market Value” means the purchase price of the Plan Shares on the Stock Exchange on the
date same are purchased.

     “Ineligible Individual” means an independent contractor or any employee of an Employer who is:
(i) an employee whose customary employment is twenty (20) hours or less per week of work for an
Employer, or (ii) an employee whose customary employment is for not more than five (5) months of
work for an Employer in any calendar year unless otherwise required under applicable law.

     “Member” means a person who is or was an Eligible Employee, who has elected to participate in
the Plan and who makes contributions to the Plan pursuant to Section 4.1 or for whom the Plan
Custodian maintains a Member’s Account.

     “Member’s Account” means the account held in the name of each Member by the Plan Custodian
recording Plan Shares purchased on behalf of such Member under the Plan and shares purchased on
behalf of such Member under another stock purchase plan maintained by an Employer that are
transferred to this Plan.

     “Nortel” means Nortel Networks Corporation, a Canadian corporation, and its successors and
assigns.

     “Offering Period” means the period beginning on the first day of each calendar quarter and
ending on the last day of each calendar quarter.

     “Plan” means the Nortel U.S. Stock Purchase Plan as set forth herein and as it may be amended
and in effect from time to time.

     “Plan Custodian” means such trust company or companies and/or other corporations as the
Company may from time to time appoint to act as custodian or trustee for purposes of the Plan.

     “Plan Shares” means the 10,000,000 Shares available for purchase under the Plan less the
aggregate number of Shares purchased during the term of the Plan under the Nortel Global Stock
Purchase Plan, As Amended and Restated and under the Nortel Stock Purchase Plan for Members of the
Savings and Retirement Program, As Amended which Shares shall have the same rights and privileges.

     “Purchase Amount” means, in respect of an Offering Period, the amount calculated by dividing
the Employee Contributions by 0.85.

-2-

 

     “Ruling” means a private letter ruling from the Internal Revenue Service that the Plan
qualifies as an employee stock purchase plan as defined in Section 423(b) of the Code.

     “Shares” means the common shares of Nortel.

     “Stock Exchange” means the New York Stock Exchange or, if at the relevant time the Shares are
not then actively traded on the New York Stock Exchange, such other stock exchange or
over-the-counter trading market in the United States on which the Shares are actively traded.

-3-

 

SECTION 2 

ESTABLISHMENT OF THE PLAN 

	2.1	 	Purpose 
	 
	 	 	The Plan has been adopted to facilitate the acquisition and retention of Plan Shares by
Eligible Employees of the Company and other Employers.

SECTION 3

PARTICIPATION AND ENROLLMENT 

	3.1	 	Participation in the Plan 
	 
	 	 	An Eligible Employee may elect to participate in the Plan by properly completing and filing
an enrollment form and such other forms of authorization and designation as may be
specified by the Company from time to time. Subject to Section 9.2, in respect of a given
Offering Period, the Employee Contributions of an Eligible Employee for such period shall
be used for the purchase of Plan Shares only if the Eligible Employee continues his or her
employment with an Employer during the three-month period preceding the date on which the
Plan Shares are purchased.
	 
	3.2	 	Entry Date 
	 
	 	 	Each Employer shall permit its Eligible Employees to participate in the Plan as of the
Entry Date next following the date on which an Eligible Employee timely completes and files
their enrollment form as specified in Section 3.1 (which shall be no later than ten
calendar days before the applicable Entry Date). An Eligible Employee’s election to
participate in the Plan shall remain effective with respect to subsequent Offering Periods
unless otherwise modified or revoked in accordance with Sections 4.2 or 4.3.

SECTION 4 

CONTRIBUTIONS TO THE PLAN 

	4.1	 	Employee Contributions 
	 
	 	 	Subject to Section 5.3, a Member may make Employee Contributions to the Plan through
payroll deduction (for each pay period) (or in such other manner as may be specified by the
Company) in amounts equal to any whole percentage of Eligible Earnings, subject to a
minimum of one percent (1%) and a maximum of ten percent (10%) of Eligible Earnings.
Members shall not be permitted to make contributions to the Plan otherwise than as set
forth above, except as determined by the Company in its sole discretion.

-4-

 

	4.2	 	Variation of Contribution Levels 
	 
	 	 	Employee Contributions may be varied by a Member as of the beginning of any Offering Period
(or such other times as may be specified by the Company), provided the Member notifies the
Member’s Employer and/or the Plan Custodian (as may be determined and required by the
Employer) in such form and with such advance notice as may be specified by the Company
(which shall not be later than ten calendar days before the beginning of such Offering
Period).
	 
	4.3	 	Cessation of Contributions 
	 
	 	 	A Member may cease to make Employee Contributions at any time during an Offering Period,
provided the Member notifies the Member’s Employer and/or the Plan Custodian (as may be
determined and required by the Employer) in such form and with such advance notice as may
be specified by the Employer. In such event, payroll deductions will cease as soon as
administratively practicable. Such Member may elect to resume contributions to the Plan at
the beginning of any subsequent Offering Period, provided the Member provides proper
notification in such form and with such advance notice as may be specified by the Company
(which shall not be later than ten calendar days before the beginning of such Offering
Period). Except in the event that contributions cease due to circumstances set forth in
Section 9.2, any Employee Contributions made by such Member prior to the cessation of
contributions shall not be returned to the Member, but shall be used to purchase Shares at
the end of the Offering Period in accordance with the terms of the Plan.
	 
	4.4	 	Leaves of Absence 
	 
	 	 	Subject to Sections 4.2 and 4.3, a Member shall continue to make Employee Contributions
during any leave of absence for which the Member receives Eligible Earnings (including,
without limitation, a short-term disability leave). Any Member on a leave of absence who
is not receiving Eligible Earnings may not continue participation in the Plan. Any such
Member shall not be eligible to resume participation in the Plan until the Offering Period
next following such Member’s return from leave of absence. Any Employee Contributions made
prior to the date such Member’s participation ceases shall not be returned to the Member,
but shall be used to purchase Plan Shares at the end of the Offering Period in accordance
with the terms of the Plan.
	 
	4.5	 	Remittance of Employee Contributions and Employer Payments 
	 
	 	 	Each Employer shall arrange for the remittance of all Employee Contributions of Eligible
Employees of such Employer and related Employer Payments for an Offering Period to the Plan
Custodian at the end of such Offering Period and otherwise within the time specified by the
Plan Custodian. Employee Contributions and Employer Payments shall be remitted in such mode
as is determined by the Company and the Plan Custodian.

-5-

 

SECTION 5 

SHARE PURCHASE 

	5.1	 	Purchase of Plan Shares 
	 
	 	 	Purchases of Plan Shares shall be made at Fair Market Value on the last trading day on the
Stock Exchange of each Offering Period, or as soon thereafter as administratively
practicable. The Plan Share purchases shall be made by the Plan Custodian. The Plan Shares
shall be purchased by the Plan Custodian on the Stock Exchange in whole Shares. The
purchase of the Plan Shares may be subject to price and delivery terms to which the Plan
Custodian agrees, and neither the Company nor the Committee have the authority or power to
direct the Plan Custodian with respect to the price or delivery terms upon which Plan
Shares are purchased. The purchased Plan Shares will be held in the name of the Plan
Custodian. All Plan Shares purchased or received by the Plan Custodian and any fractional
amounts shall be allocated to Members’ Accounts in accordance with Section 7.
	 
	5.2	 	Interest Income 
	 
	 	 	Any interest or other income earned on Employee Contributions or Employer Payments prior to
the payment for Plan Shares purchased in accordance with this Section 5 shall be applied to
meet Plan expenses in accordance with Section 10.5 and shall not be allocated or otherwise
payable to any Member’s Account or Member.
	 
	5.3	 	US$25,000 Limit 
	 
	 	 	The maximum number of Plan Shares a Member may purchase for each calendar year shall be
such number of Plan Shares as has a Fair Market Value (determined at the time of purchase)
equal to US$25,000.

SECTION 6 

DIVIDENDS 

	6.1	 	Application of Dividends 
	 
	 	 	In the event Nortel pays a dividend to holders of Shares, the net amount of such dividend
attributable to Plan Shares allocated to Members’ Accounts shall be applied to purchase
additional Plan Shares on the Stock Exchange as soon as practicable after the receipt of
such dividend by the Plan Custodian. The net amount of the dividend that is available for
the purchase of Plan Shares shall be determined after deducting from the gross amount of
the dividend such amount of applicable taxes as are required to be withheld in accordance
with applicable laws.

-6-

 

SECTION 7 

SHARE ALLOCATION 

	7.1	 	Allocation of Plan Shares 
	 
	 	 	Plan Shares acquired with Employee Contributions and Employer Payments made during the
Offering Period will be allocated to and held for the benefit of Members in their
respective Members’ Accounts. The number of whole and fractional Plan Shares allocated to
a Member’s Account for an Offering Period shall equal in respect of each purchase (as
necessary) the Purchase Amount divided by the Fair Market Value. Notwithstanding that a
record shall be kept of fractional Plan Shares, no fractional Plan Shares shall be
purchased or held by the Custodian or otherwise transferred, disposed of or dealt with
other than for such record keeping purposes.
	 
	7.2	 	Dividends 
	 
	 	 	All Plan Shares acquired with the net amount of any cash dividends shall be allocated to
each Member’s Account pro rata, based upon the ratio (as of the record date for the
applicable dividend) of the number of Plan Shares allocated to each such Member’s Account
to the total number of Plan Shares allocated to all Members’ Accounts. Share dividends
shall be allocated in the same manner based upon the Plan Shares allocated to a Member’s
Account as of the record date of such dividend.
	 
	7.3	 	Maintenance of Records 
	 
	 	 	The Plan Custodian will maintain records of the Members’ Accounts held in the name of each
Member and all transactions with respect to such Members’ Accounts.

SECTION 8 

VESTING OF PLAN SHARES 

	8.1	 	Employee Contributions and Employer Payments 
	 
	 	 	Plan Shares purchased under the Plan shall vest in the Member immediately upon the
allocation of such Plan Shares by the Plan Custodian to such Member’s Account.

SECTION 9 

WITHDRAWAL OF PLAN SHARES 

	9.1	 	Voluntary Withdrawals 
	 
	 	 	Subject to the requirements of Sections 9.6 and 9.9, a Member may, on giving notice and
instructions to the Plan Custodian in accordance with applicable Plan rules, withdraw all
or a portion of the Plan Shares held in the Member’s Account at any time. The Plan
Custodian shall complete the withdrawal as soon as is practicable following receipt of such

-7-

 

	 	 	notice and instructions by the Plan Custodian from a Member (or the beneficiary or legal
representative of a deceased Member).
	 
	9.2	 	Change in Member Status 
	 
	 	 	A Member’s Plan Shares recorded in the Member’s Account shall be distributed to the Member
(or, in the case of the death of the Member, to the beneficiary of the deceased Member
designated in the manner specified by the Company or, in the absence of such designation,
to such Member’s legal representative), in accordance with the provisions of Section 9.3,
following the occurrence of any of the following:

	 	(a)	 	the retirement or death of the Member; or
	 
	 	(b)	 	the cessation of active employment of the Member with an Employer in
circumstances where the Member is not immediately re-employed by the Employer or
another Employer;

	 	 	and each Member’s active participation in the Plan shall terminate immediately following
such occurrence.
	 
	 	 	Notice of the retirement, death or cessation of active employment of any Member shall be
provided to the Plan Custodian by the Employer as soon as practicable following the event.
Upon receiving such notice, all Employee Contributions which have not been used to purchase
Plan Shares shall be returned to the Member or paid to the Member’s designated beneficiary,
without interest; provided, however, that the Plan Custodian may purchase Plan Shares for
such Member’s benefit to the extent the return of Employee Contributions is determined by
the Company, in its sole discretion, to be administratively impractical. A Member whose
participation in the Plan has terminated in accordance with this Section 9.2 may again
become eligible to participate in the Plan if, at the time, such Member requalifies as an
Eligible Employee and re-enrolls in the Plan and otherwise complies with the provisions of
this Plan.
	 
	 	 	In the event a Member dies having designated no beneficiary, distributions hereunder shall
be made to such Member’s legal representative, and any such payment shall serve to relieve
the Company, Employer, Plan and Committee from any further liability hereunder.
	 
	9.3	 	Payment Options 
	 
	 	 	If a Member elects or is required to make a withdrawal from the Member’s Account(s) under
Section 9.1 or Section 9.2, respectively, the Member (or such Member’s beneficiary or legal
representative) shall elect:

	 	(a)	 	to receive a number of whole Plan Shares represented by share certificates
(up to the maximum whole number of Plan Shares recorded in such Member’s Account)
plus, if the Member elects or is required to withdraw all of the Plan Shares in such
Member’s Account, a cash payment equal to the value of any fraction of a Plan Share,
if any, recorded in such Member’s Account, after deduction of selling costs; or

-8-

 

	 	(b)	 	to transfer record ownership of all whole Plan Shares recorded in such Member’s Account to a
broker of the Member’s choice plus, if the Member elects or is required to withdraw all of the
Plan Shares in such Member’s Account, a cash payment equal to the value of any fraction of a
Plan Share, if any, recorded in such Member’s Account, after deduction of selling costs; or
	 
	 	(c)	 	to have a number of whole Plan Shares (up to the maximum whole number of Plan
Shares recorded in such Member’s Account) sold by the Plan Custodian and to receive
the net proceeds thereof, together with, if all Plan Shares in such Member’s
Account are being withdrawn, a cash payment equal to the value of any fraction of a
Plan Share, if any, in such Member’s Account after deduction for selling costs and
such amount of applicable taxes as are required to be withheld.

	 	 	If the Member (or the beneficiary or legal representative of the Member) fails to instruct
the Plan Custodian as to the desired method of payment within ninety (90) days following
any of the events described in Section 9.2, the Plan Custodian shall, in its sole
discretion, as soon as possible after such ninety (90) day period, effect such withdrawal
by causing the relevant Plan Shares to be sold and remitting the net proceeds to the Member
or the beneficiary or legal representative of the Member, as the case may be, to the last
known address as shown on the records of the Employer. Provided, further, that following
the occurrence of any of the events described in Section 9.2 with respect to a Member in a
calendar year, the Plan Custodian shall effect the transfer to the Member of whole Plan
Shares and/or payment to the Member of cash (as applicable) no later than March 15 of the
following calendar year.
	 
	9.4	 	Sale of Plan Shares 
	 
	 	 	The Plan Custodian shall sell that number of whole Plan Shares on the Stock Exchange as
soon as is practicable following receipt of instructions by the Plan Custodian from a
Member (or the beneficiary or legal representative of a deceased Member). The amount
payable to a Member for such sales shall equal the Average Sale Price for the Plan Shares
sold on such Member’s behalf, calculated based upon the total Plan Shares sold on the Stock
Exchange on behalf of all Plan Members on the relevant trading day. All costs of any sale
or transfer of Plan Shares shall be borne by the Member, by either withholding a number of
Plan Shares sufficient to cover such costs and expenses, or by deducting such amounts from
the proceeds of a sale of Plan Shares under the Plan.
	 
	9.5	 	Cash Payments 
	 
	 	 	To the extent permitted under the applicable law, all cash payments will be made by check
or wire transfer (at the Eligible Employee’s election) in U.S. Dollars and shall be mailed
directly to the Member or such Member’s beneficiary or legal representative at their last
known address or sent by wire transfer to a financial institution designated by such
Member or such Member’s beneficiary or legal representative.
	 
	9.6	 	Compliance With Applicable Laws and Company Policy 
	 
	 	 	All aspects of the Plan shall be managed in accordance with, and be subject to compliance
with and determinations made under, all applicable federal, state, provincial and local law
and corporate policy (to the extent not inconsistent with applicable laws), including
without limitation any applicable securities laws that require shareholder approval

-9-

 

	 	 	regarding the operation or amendment of the Plan subsequent to the Effective Date. Plan
Shares shall not be offered, purchased, allocated, transferred, delivered or sold under the
Plan to the extent such action would constitute a violation of any applicable federal,
state, provincial or local securities laws or other law or regulations. Plan Shares may
not be offered or sold under the Plan or transferred by any Member unless (i) a
registration statement under the Securities Act of 1933, as amended, with respect to the
Plan Shares is in effect at the relevant time or, in the opinion of legal counsel to the
Company, an exemption from the registration requirements of said Act is available with
respect to such offer, sale or transfer of Plan Shares and (ii) such offer, sale or
transfer of Plan Shares complies with all applicable state securities laws. The inability
of Nortel or the Company to obtain any approval, exemption or other clearance from any
regulatory body having the jurisdiction or the authority, if any, deemed by Nortel or the
Company to be necessary to the lawful offer, purchase, allocation, transfer, delivery or
sale of any Plan Shares under the Plan shall relieve Nortel and the Company of any
liability in respect of the failure to offer, purchase, allocate, transfer, deliver or sell
Plan Shares under the Plan and neither Nortel nor the Company shall be obligated to seek
any such approval, exemption or other clearance. As a condition to a Member’s participation
in the Plan or of allocation of Plan Shares to a Member’s Account, the Company may require
the Member to provide such documentation or other evidence and to make such
representations or warranties as it may deem necessary or appropriate to satisfy any
qualifications that may be necessary or appropriate, or to comply with, any applicable law
or regulation.
	 
	9.7	 	Rights As A Shareholder and Employee 
	 
	 	 	A Member shall have no rights as a shareholder by virtue of the Member’s participation in
the Plan until the date of the allocation of Plan Shares to such Member’s Account. No
adjustment shall be made for dividends, distributions or other rights for which the record
date is prior to the date of such allocation.
	 
	9.8	 	Legends 
	 
	 	 	Nortel may at any time place legends or other identifying symbols referencing any
applicable federal, state, provincial or foreign securities law restrictions or any
provision convenient in the administration of the Plan on some or all of the certificates
representing Plan Shares allocated under the Plan. The Member shall, at the request of the
Company, promptly present to the Company any and all Share certificates representing Plan
Shares acquired pursuant to the Plan in the possession of the Member in order to carry out
the provisions of this Section 9.8.
	 
	9.9	 	Holding Periods 
	 
	 	 	The Committee shall have the sole and absolute discretion to impose hold period(s) on Plan
Shares restricting, for a specified period of time, a Member’s right to transfer or
otherwise dispose of Plan Shares. Any such hold period on Plan Shares may only be imposed
by the Company if Eligible Employees have been given notice of the hold period prior to the
commencement of the Offering Period for the Plan Shares that will be subject to such hold
period.

-10-

 

SECTION 10 

ADMINISTRATION 

	10.1	 	Administration and Delegation 
	 
	 	 	The Plan shall be administered by the Committee on behalf of the Company, with all
references to any Company actions or authority of any kind being effected and administered
on the Company’s behalf by the Committee. The Committee may, in its discretion, delegate
such of its powers, rights and duties under the Plan, in whole or in part, to such
committee, person or persons as it may determine.
	 
	 	 	The Committee shall have full and complete authority to interpret the Plan, to prescribe
such rules and regulations and to make such other determinations as it deems necessary or
desirable for the administration for the Plan. The Committee may from time to time,
subject to the terms of the Plan, delegate to officers or employees of the Company or to
third parties, the whole or any part of the administration of the Plan and shall determine
the scope and terms and conditions of such delegation, including the authority to prescribe
rules and regulations. Any interpretation, rule, regulation or determination made or other
act of the Committee shall be final and binding on the Members and their beneficiaries and
legal representatives, the Company and its shareholders.
	 
	10.2	 	Appointment of Plan Custodian 
	 
	 	 	The Company shall appoint (and by their participation in the Plan, Members authorize the
Company to appoint) one or more Plan Custodians to perform such functions as may be
specified in the Custodian Agreement(s). Any reference in the Plan to the purchase or sale
of Plan Shares by the Plan Custodian shall be read to include the purchase or sale of Plan
Shares effected through such broker(s) or agent(s) as may be appointed by the Plan
Custodian.
	 
	10.3	 	Rules and Procedures 
	 
	 	 	The Company, and any Employer with the consent of the Company, may from time to time adopt
rules and procedures in respect of the administration of the Plan, provided that all such
rules and procedures shall be consistent with the provisions of the Plan. Such rules and
procedures may vary for different Eligible Employees and Members. The rules and procedures
shall be binding on all Eligible Employees and Members in respect of whom such rules and
procedures are applicable. Any such rules and procedures shall be promulgated and
administered consistent with the applicable rules and other requirements of the Stock
Exchange on which the Plan Shares are purchased pursuant to the Plan.
	 
	10.4	 	Limitation of Liability 
	 
	 	 	No member of the board of directors of Nortel or the Company or the Committee shall be
liable for any action (or failure to act) or determination done (or not done) made in good
faith in respect of or pursuant to the Plan. To the full extent permitted by law, the
Company shall indemnify and save harmless each member of the board of directors of Nortel
or the

-11-

 

	 	 	Company or the Committee (acting in that capacity) with respect to any actual or threatened
action or proceeding arising with respect to the adoption or operation of the Plan.
	 
	10.5	 	Expenses 
	 
	 	 	All costs directly related to the sale, transfer or delivery of Plan Shares shall be borne
by the Members. All other administration costs related to the Plan, including the cost of
acquiring Plan Shares under the Plan, compensation or fees of the Plan Custodian,
consultants, actuaries, accountants, local counsel, and other service providers will be
paid by the Employers, save to the extent such costs are met out of any interest income
earned by the Plan as contemplated in Section 5.2.
	 
	10.6	 	Member Statements 
	 
	 	 	Each Member will receive a statement (electronically or by mail as determined by the
Company) as of the end of each calendar quarter (or such other times as may be determined
by the Company), which statement shall contain such information in respect of Member’s
Account as the Company may determine from time to time.
	 
	10.7	 	Shareholder Communications and Notices 
	 
	 	 	The Plan Custodian shall furnish or cause to be furnished such information to each Member
as may be directed by the Company for the purpose of providing reports and other documents
to be sent by Nortel to shareholders.
	 
	 	 	Where a notice is to be given by the Company, Nortel or the Plan Custodian to Members or
Eligible Employees, it shall be given in writing and delivered personally, electronically
or by mail.
	 
	 	 	Notices or other instructions given by an Eligible Employee or a Member to an Employer or
the Plan Custodian shall be in such form as is prescribed by the Company and the Plan
Custodian from time to time.
	 
	10.8	 	Voting Rights 
	 
	 	 	The Plan Custodian shall furnish or cause to be furnished to each Member who has Plan
Shares allocated to such Member’s Account a copy of all notices sent to shareholders in
respect of shareholder meetings at which the Plan Shares are entitled to be voted and shall
request from each such Member instructions as to the voting at such meeting of the
aggregate number of the Member’s whole Plan Shares on the record date of such meeting. If
the Member furnishes such instructions to the Plan Custodian on a timely basis, the Plan
Custodian shall vote such number of whole Plan Shares in accordance with the instructions
of the Member. If the Member fails to furnish timely instructions to the Plan Custodian,
the Plan Custodian shall not vote the Member’s Plan Shares. The Plan Custodian shall not
vote any fractional Plan Shares allocated to Members’ Accounts.

-12-

 

	10.9	 	Withholdings 
	 
	 	 	The Company or a relevant Employer shall be permitted to withhold from any payment to or
for the benefit of a Member, including withholding against the amount, if any, included in
income of a Member, all amounts required to be withheld under applicable provisions of any
federal, provincial, state or local law relating to the withholding of tax or any other
source deductions.
	 
	10.10	 	Transferability 
	 
	 	 	Except as otherwise indicated herein, and except with respect to Plan Shares previously
allocated to such Member’s Account, the rights or interests of a Member under the Plan
shall not be assignable or transferable. Plan Shares may be purchased only on behalf of a
Member and only during the Member’s lifetime.
	 
	10.11	 	Alteration or Substitution of Plan Shares 
	 
	 	 	In the event that:

	 	(a)	 	a dividend shall be declared upon the Plan Shares payable in Shares (other than
a dividend that may be paid in cash or in Shares at the option of the shareholder);
	 
	 	(b)	 	the outstanding Plan Shares shall be changed into or exchanged for a different
number or kind of shares or other securities of Nortel or of another corporation,
whether through an arrangement, plan of arrangement, amalgamation or other similar
statutory procedure, or a share recapitalization, subdivision or consolidation;
	 
	 	(c)	 	there shall be any change, other than those specified in paragraphs (a) and (b)
of this Section 10.11, in the number or kind of outstanding Shares or of any Shares
or other securities into which such Shares shall have been changed or for which
they shall have been exchanged; or
	 
	 	(d)	 	there shall be a distribution of assets or shares to shareholders of Nortel out
of the ordinary course of business;

	 	 	then adjustments shall be made with respect to the Plan Shares credited to Members’
Accounts pursuant to the Plan to the extent of any adjustment that is otherwise applicable
to shareholders of Nortel generally. If any event described under subsection (b) or (c)
above occurs, the board of directors of the Company may substitute for each Plan Share
credited to a Member’s Account pursuant to the Plan the number and kind of shares or other
securities into which outstanding Plan Shares are so changed or for which outstanding Plan
Shares are so exchanged. Any such adjustment shall be made in accordance with Section
424(a) of the Code if the Ruling is granted. Following any adjustment under this Section
10.11, all references to “Shares” under the Plan will be deemed to refer to the Shares as
so adjusted or such other securities into which the Shares have been changed or for which
the Shares have been exchanged, as applicable.

-13-

 

	10.12	 	Effect Of Change In Control or Alteration or Substitution of Shares On Purchase
Rights 
	 
	 	 	In the event of a Change in Control, the surviving continuing successor, purchasing
corporation, or parent corporation thereof, as the case may be (the “Acquiring
Corporation”), may assume the Company’s rights and obligations under the Plan. If the
Acquiring Corporation elects not to assume the Company’s rights and obligations under the
Plan, then the board of directors of the Company may (i) accelerate the end of the
then-current Offering Period to a date before the date of the Change in Control specified
by the board of directors of the Company, or (ii) return all previously deducted Employee
Contributions that have not been applied to the purchase of Shares, without interest.

SECTION 11 

AMENDMENT AND TERMINATION OF THE PLAN 

	11.1	 	Amendment
	 
	 	 	The board of directors of the Company may, in its absolute discretion, at any time and from
time to time, amend the Plan or any provision thereof without prior notice to or consent of
Members or any other person. The Committee may also amend the Plan at any time or from
time to time, provided that any such amendment will not materially increase the liability
of the Company or any Employer under the Plan. Any amendment of the Plan made pursuant to
this Section may be made for such reasons as the board of directors of the Company, or the
Committee, deems appropriate, including, without limitation, for the purpose of obtaining
the Ruling.
	 
	11.2	 	Termination 
	 
	 	 	The board of directors of the Company may, in its absolute discretion, terminate the Plan
at any time. Upon termination of the Plan, all Plan Shares held by the Plan Custodian and
any cash balances remaining in Members’ Accounts shall be distributed to the relevant
Members. No further Employee Contributions or Employer Payments to the Plan shall
thereafter be made.
	 
	11.3	 	Withdrawal of Employer 
	 
	 	 	Any Employer may withdraw from the Plan at any time upon written notice to the Company. If
an Employer withdraws from the Plan, all Plan Shares held by the Plan Custodian and any
cash balances remaining in the Members’ Accounts held for the benefit of Members who are
employees of the Employer shall be distributed in accordance with the terms of Section 9.
Any Employee Contributions not yet used to purchase shares under the Plan shall be
returned to such Employees, without interest.

-14-

 

SECTION 12 

GENERAL PROVISIONS 

	12.1	 	No Additional Rights to Employment 

	 	(a)	 	The opportunity to participate in this Plan at any time does not form a part of
any person’s contract of employment, nor does the existence of a contract of
employment between any person and any Employer give such person any right or
entitlement to participate in the Plan or any expectation that an opportunity to
participate in the Plan will be offered to the Member subject to any conditions or
at all.
	 
	 	(b)	 	The rights and obligations of a Member under the terms of his or her contract
of employment with any Employer shall not be affected by participation in the Plan.
	 
	 	(c)	 	The opportunity to acquire Plan Shares pursuant to the Plan shall not afford a
Member or any Eligible Employee any rights or additional rights to compensation or
damages in consequence of the loss or termination of the Member’s office or
employment with any Employer for any reason whatsoever.
	 
	 	(d)	 	A Member shall not be entitled to any compensation for damages for any loss
or potential loss that he or she may suffer by reason of being or becoming unable to
acquire Plan Shares under the Plan as a consequence of the loss or termination of his
or her employment with any Employer for any reason (including, without limitation, any
breach of contract by the Member’s Employer) or in any other circumstances whatsoever.

	12.2	 	Liability 
	 
	 	 	Neither Nortel nor any Employer shall be liable for:

	 	(a)	 	the performance of Shares on the Stock Exchange at or during any period of time;
	 
	 	(b)	 	income taxes or social security contributions payable in respect of Employer
Payments or Employee Contributions, except in the case of an Employer to the extent
that (i) the Employer is required by law to withhold any such amounts either from a
Member’s Eligible Earnings or from payments under the Plan, or (ii) the Employer
(but not the Employee) is liable for such payment under applicable law;
	 
	 	(c)	 	the release of any information regarding any Member by Nortel, the Company, any
other direct or indirect subsidiary or affiliate of Nortel, or the Plan Custodian,
in the course of administering the Plan; or
	 
	 	(d)	 	any consequential or other similar damages arising out of or related to a
purchase of Plan Shares under the terms of the Plan.

-15-

 

	12.3	 	Member’s Agreement to be Bound by Plan Terms 
	 
	 	 	Participation in the Plan by any Member shall be construed as acceptance by the Member of
the terms and conditions of the Plan and all rules and procedures adopted hereunder, and as
the Member’s agreement to be bound thereby.
	 
	12.4	 	Effect of Mistake 
	 
	 	 	In the event of a mistake regarding eligibility or participation of an employee of any
Employer in the Plan, errors in payroll deductions, or the amount of Plan Shares allocated
to a Member, to the extent possible, an appropriate adjustment shall be made to rectify the
mistake.
	 
	12.5	 	Indemnification 
	 
	 	 	By electing to participate in the Plan, a Member agrees to indemnify:

	 	(a)	 	the Member’s Employer; and
	 
	 	(b)	 	the Plan Custodian and any other person who is or becomes liable to account for
tax, social security contributions or any other regulatory or statutory
contributions on behalf of that Member;

	 	 	against any amount, of or representing, tax, social security contributions or any other
regulatory or statutory contributions for which the Employer (or such other person) is
liable to account in respect or in consequence of the payment of Employer Payments, or the
purchase or sale of any Plan Shares, for the benefit of such Member and which (as between
the Member and the Employer or such other person) is the liability of the Member but which
the Employer or such other person cannot otherwise lawfully recover from the Member
(whether by way of deduction from payroll or otherwise).
	 
	 	 	The Plan Custodian shall have the right to withhold Plan Shares held in a Member’s Account
until the Member has agreed to such arrangements for giving effect to such indemnity
(which, if appropriate may include an authority by the Member to his or her Employer to
deduct and withhold such amount from any future wages, salary or other payment to the
Member).
	 
	12.6	 	Assignment, Exemption from Seizure and Bankruptcy 
	 
	 	 	Except as may otherwise be specifically provided by any applicable law, no right of a
Member under the Plan shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge and any attempt by anyone to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void, and any Plan Shares or money to which any person is entitled under the Plan are
exempt from execution, seizure and attachment.
	 
	 	 	If, notwithstanding the foregoing, a Member is deprived by applicable law of interests in
Plan Shares or ceases to retain beneficial interest in the Plan Shares, then all rights
under

-16-

 

	 	 	the Plan will cease forthwith, no further Plan Shares will be allocated under the Plan to
that Member, and any Employee Contributions which have not been used to purchase Plan
Shares under the Plan shall be returned to such Member, without interest.
	 
	12.7	 	Physical, Mental or Legal Incapacity of the Member 
	 
	 	 	If any payment is to be made under the Plan to a minor or other person who is physically,
mentally or legally incompetent, the Plan Custodian shall pay the same to the parent or
guardian or such other person having legal custody of, or being the legally appointed
representative of, such person, to be applied by such parent, guardian, person having legal
custody or legally appointed representative for the benefit of such person, without the
Plan Custodian being further liable to see to the application thereof and so that any such
payment shall be a complete discharge of any liability under the Plan and of any Employer
therefor.
	 
	12.8	 	Stock Exchange Rules 
	 
	 	 	Notwithstanding any terms of the Plan to the contrary, the Plan shall be subject to and
limited by the rules, policies and other requirements of the Stock Exchange, in addition to
the limitations referenced in Section 9.6 hereof.

SECTION 13 

EFFECTIVE DATE AND TERM 

	13.1	 	Effective Date 
	 
	 	 	The Plan shall become effective on the first day of the next calendar quarter following
both
(i) approval by the shareholders of Nortel at a meeting of shareholders of Nortel or any
adjournment thereof, which meeting or any adjournment thereof shall occur within 12 months
before or after the date the Plan is adopted by the board of directors of the Company; and
(ii) approval by the board of directors of the Company at board meetings or by written
consents (in accordance with applicable provisions of the corporate articles, by-laws,
and applicable laws prescribing the method and degree of director approval). Any
amendments to the Plan shall become effective upon their adoption by the board of directors
of the Company, subject to approval by the shareholders of Nortel at the next meeting of
shareholders of Nortel or any adjournment thereof, if required, in accordance with
applicable provisions of the corporate articles, bylaws, applicable laws or the rules of
the Stock Exchange and otherwise. If the shareholders of Nortel do not approve the Plan,
or any amendments to the Plan requiring shareholder approval, the Plan or such amendments,
as the case may be, shall not be effective.
	 
	 	 	The Plan was originally adopted by the board of directors of Nortel on April 27, 2005 and
approved by the shareholders of Nortel on June 25 2005. The Plan was amended by the board
of directors of Nortel on January 18, 2008. The Plan was amended and restated by the
independent members of the board of directors of Nortel on February 22, 2008, subject to
shareholder approval.

-17-

 

	13.2	 	Term 
	 
	 	 	The Plan shall terminate on the date determined by the board of directors of the Company
pursuant to Section 11.2 hereof and no purchase of Plan Shares pursuant to Section 5 hereof
may be made under the Plan after the date of termination, but such termination shall not
affect any purchases pursuant to the Plan prior to such termination. In no event may Plan
Shares be purchased under the Plan after September 30, 2015.

-18-

 

SCHEDULE A

CHANGE IN CONTROL

1. Events Constituting Change in Control — For the purposes of this Plan, the term
“Change in Control” means the occurrence of any of the following:

	 	(a)	 	any Person or group acquires beneficial ownership of securities of
Nortel representing more than 20% of the outstanding securities entitled to vote
in the election of directors of Nortel (collectively, the “Voting Shares”) other
than in connection with a Permitted Business Combination;
	 
	 	(b)	 	the consummation of a merger, amalgamation, business combination,
reorganization or consolidation or sale or other disposition of all or
substantially all of the assets of Nortel or any liquidation or dissolution of
Nortel, including by way of plan of arrangement (a “Business Combination”) unless,
in any such case:

	 	(i)	 	such Business Combination involves solely Nortel, and
one and more affiliated entities; or
	 
	 	(ii)	 	following completion of all steps involved in the
transaction or transactions pursuant to which the Business Combination is
effected:

	 	(A)	 	Persons who were the beneficial owners,
respectively, of the outstanding common shares of Nortel immediately
prior to such Business Combination beneficially own, directly or
indirectly, by reason of such prior ownership of common shares, more
than 50% of the then-outstanding voting shares of (x) the entity
resulting from such Business Combination (the “Resulting Entity”) or
(y) the Person that ultimately controls the Resulting Entity,
whether directly or indirectly (the “Ultimate Parent”); and
	 
	 	(B)	 	at least a majority of the members of the
board of directors of the Person resulting from such Business
Combination (or the Ultimate Parent) were members of the board of
directors of Nortel (the “Nortel Board”) at the earlier of the time
of the execution of the initial agreement providing for, or the
action of the Nortel Board approving, such Business Combination;

	 	(c)	 	the persons who were directors of Nortel on the date hereof (the
“Incumbent Directors”) cease (for any reason other than death or disability) to
constitute at least a majority of the Nortel Board; provided, that, any person who
was not a director on the date hereof shall be deemed to be an Incumbent Director
if such

-1-

 

	 	 	 	person was elected or appointed to the Nortel Board by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then qualify as Incumbent Directors
either actually or by operation of this proviso, unless such election, appointment,
recommendation or approval was the result of any actual or publicly threatened proxy contest
for the election of directors; or
	 
	 	(d)	 	any other event which the Nortel Board determines in good faith
could reasonably be expected to give rise to a Change in Control resulting from
situations such as:

	 	(i)	 	any Person acquiring a significant interest in
Nortel; or
	 
	 	(ii)	 	the election of any Person to the Nortel Board in
circumstances in which management has not solicited proxies in respect of
such election.

2. Definitions  —  In addition to the definitions set out in Section 1 of the Plan, for
the purposes of this Schedule A:

	 	(a)	 	“beneficial ownership” means ownership at law or in equity and, for the
purposes of this Plan, includes “beneficial ownership” as interpreted in accordance
with Subsections 1(5) and (6) and Section 90 of the Securities Act (Ontario) as in
force as of July 26, 2001 (the “OSA”);
	 
	 	(b)	 	“control” or “controls” means, with respect to any Person, the direct or
indirect ownership of voting securities of such Person that carry with them in the
aggregate more than 50% of the votes for the election of directors of such Person;
	 
	 	(c)	 	“group” means a Person and one or more other Persons who are acting jointly or
in concert with such Person and, for the purposes of this Plan, “acting jointly or
in concert” shall be interpreted in accordance with Subsection 91(1) of the OSA;
	 
	 	(d)	 	“Permitted Business Combination” means a Business Combination described in
Paragraph 1(b)(i) or 1(b)(ii) above; and
	 
	 	(e)	 	“Person” includes any individual, legal or personal representative,
corporation, company, partnership, syndicate, unincorporated association, trust,
trustee, government body, regulatory authority or other entity, howsoever
designated or constituted.

-2-

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