Document:

Exhibit 10.4

          LEASE AGREEMENT BETWEEN BANK OF CLARKE COUNTY AND MBC, L.C.
                             DATED OCTOBER 25, 2002

THIS LEASE made this 25th day of October, 2002, by and between MBC, L.C. a
Virginia limited liability company, of the one part, hereinafter called the
Lessor, and the BANK OF CLARKE COUNTY, a Virginia corporation, of the other
part, hereinafter called Lessee.

WHEREAS, Lessor is the owner of a certain parcel of land fronting along the
northern side of State Route 7 in Stonewall Magisterial District, Frederick
County, Virginia, containing 1.1242 acres, and being more particularly described
as Lot #1 on the PLAT SHOWING BOUNDARY AND TOPOGRAPHY OF THE LANDS OF MBC, L.C.
prepared by Marsh & Legge Land Surveyors, P.L.C., dated September 27, 2002; and

WHEREAS, Lessee has agreed to rent from Lessor, and Lessor has agreed to lease
to Lessee, such parcel of land (hereinafter referred to as the "Leased
Premises") on the terms and conditions as set forth herein.

NOW, THEREFORE, WITNESSETH: That for and in consideration of the rents
hereinafter stated and the agreements hereinafter made, Lessor hereby leases to
Lessee and Lessee agrees to lease from Lessor the aforesaid Leased Premises on
the following terms and conditions:

1. ORIGINAL TERM: This Lease shall commence January 1, 2003 and shall continue
to midnight, December 31, 2032.

2. RIGHT OF RENEWAL: Lessee, at its option, may extend and renew the term of
this Lease for up to two (2) additional (but consecutive) five (5)- year terms
(First term: January 1, 2033 through December 31, 2037); Second term: January 1,
2038 through December 31, 2042) commencing, if at all, at the expiration of the
term immediately preceding such option term, upon all the same terms and
conditions as set forth herein (excluding any right of renewal other than such
two (2) additional five (5)-year terms) and with the rental increases as
hereinafter provided. Such option(s) shall be exercised (if at all) by Lessee
delivering written notice of such exercise to Lessor at least six (6) months
before the expiration of the term which would immediately precede such option
five (5)-year term, as set forth herein, at the address designated below. Upon
the delivery of such notice to Lessor at the address below, at least six (6)
months before the expiration of the term which immediately precedes such
five-year option term, this Lease shall be extended for such additional five
(5)-year option term upon all the terms and conditions (excluding any right of
further renewals other than as expressly set forth herein) and with the rental
increases set forth herein without the necessity of execution of any further
instrument or document; provided, further (and separate and apart from Lessor's
right to otherwise terminate this Lease as provided herein), that if at either
the date of expiration of the term immediately preceding such potential option
term, or the date upon which Lessee exercises such option to extend, Lessee is
in default in the performance of any of the terms and conditions of this Lease,
the extension of the term shall, at Lessor's sole option, be voidable by Lessor.
Failure of Lessee to give written notice to Lessor, at least six months before
the expiration of the then-existing term, shall result in the loss by Lessee of
all rights of renewal as set forth herein and shall therefore result in the
termination of this Lease at the end of its original term or if such renewal
right was timely exercised by Lessee, as set forth herein, this Lease shall then
terminate at the end of the five-year term for which such timely renewal notice
was given (unless, however, this Lease was otherwise terminated by Lessee as
provided hereunder).

The following hypothetical example is hereby given:

EXAMPLE: If Lessee delivers to Lessor at least six (6) months before December
31, 2032, as provided hereunder, written notice to exercise its option to extend
such Lease for such additional five (5)-year term commencing January 1, 2033,
this Lease shall then be extended for such five (5)-year period ending midnight,
December 31, 2037. On the other hand, if Lessee fails to deliver such written
notice to Lessor at least six (6) months before December 31, 2032 to exercise
its option to extend the Lease from January 1, 2033 through January 1, 2037,
this Lease shall then terminate as of midnight, December 31, 2032 and Lessee
shall have no further rights hereunder, including, without limitation, no right
to renew this Lease.

3. USE OF PREMISES: Lessee shall have the right to use such premises for all
uses allowed by law. Lessee shall not use such premises, however, for any
purpose in violation of any federal, state or municipal statute or ordinance.
Lessor makes no covenant or representation in connection with whether or not the
premises may be used for any particular purpose or purposes.

4. RENT: Lessee shall pay rent, as set forth herein, on a monthly basis, in
advance, starting January 1, 2003 and continuing on the first day of each month
thereafter during the term of this Lease (including any renewal period[s]). The
monthly rent for the period January 1, 2003 through December 31, 2003 shall be
$3,333.33 per month. Effective January 1, 2004, and every January 1 thereafter
during this Lease (including any renewal[s]), the monthly rental to be paid
during each such ensuing one-year period shall be the Base Rent ($3,333.33 per
month) plus an additional sum to be determined by multiplying such monthly Base
Rent ($3,333.33) times the percent change in the "Index" from December 2002 to
the month immediately preceding the start of each such one-year "ensuing
period".

As used herein, the term "Index" shall mean the United States Department of
Labor's Bureau of Labor Statistics (the "Bureau") Revised Consumer Price Index
for Urban Wage Earners and Clerical Workers, U.S. City Average, all items (1967
equals 100) or the successor of that Index. If the Index ceases to use the 1967
average equalling 100 as the basis of calculation or if the Bureau changes the
form or basis for calculating the Index or ceases the computation or publication
of the Index, the parties agree to use whatever successor index is available
and, if none, the most nearly comparable available index, in either case
adjusted to the 1967 base. If the parties cannot agree upon the successor index
or the most nearly comparable available index, then the matter shall be
determined by arbitration in accordance with the rules of the American
Arbitration Association.

In the event the Index is not published in sufficient time for computation of
the rental then currently due, the Lessee shall pay the amount of the rental
paid in the last preceding month, and the difference will be paid, or deducted
from (as the case may be), with the next monthly rental payment.

Lessee shall pay a late charge (each and every time it may occur) to Lessor in
the amount of five percent (5%) of any payment (of rent or any other payments or
obligations arising hereunder) due pursuant to the terms of this Lease agreement
which is not actually paid within five (5) days of its original due date
(without regard to any "cure" or other default dates set forth in Paragraph 23
hereinafter).

HYPOTHETICAL EXAMPLE: Calculation of monthly rent for the one-year period
January 1, 2006 through December 31, 2006: If you assume (hypothetically) for
the purpose of this example that the Index for December 2002 would be 150 (and,
of course, in the actual calculations hereof, the actual Index shall be used)
and if you further assume the Index for December 2005 would be 160, the monthly
rent for the applicable period (January 1, 2006 through December 31, 2006) would
be as follows:

INDEX POINT CHANGE
Index (December 2005) 160
Index (December 2002) 150
Equals Index Point Change - 10
Percent Change:  10 (Index Point Difference)  =  .066
   150 (Index [December 2002])
$3,333.33 plus .066 x $3,333.33 = $3,553.33
Monthly rent for the period January 1, 2006 through December 31, 2006 would then
be, under this hypothetical example, $3,553.33

5. TAXES: Lessee shall pay, when due, all real estate taxes and assessments of
every kind and nature which have been or which shall, during the term, be levied
against or otherwise imposed upon the Leased Premises including all improvements
now or hereafter situate thereon. Lessee agrees to pay all property taxes, if
any, on its personal property located in, or on, the Leased Premises.

6. DEPOSIT: Lessee, at the time of the signing of this Agreement, shall give
Lessor a security deposit in the amount of $3,333.33.

7. MAINTENANCE AND REPAIR: Lessor shall have no obligation of any kind regarding
the maintenance of the Leased Premises, including any improvements now or
hereinafter situate thereon, nor shall Lessor be required to make any
improvements, repairs, rebuilding or replacements to such premises, or off of
such premises including, and only for purposes of illustration and not by way of
limitation, Lessor shall not be required to make any improvements, repairs,
reconstructions or replacements because of any fire or other casualty at the
premises, or because of any requirements of any governmental agency (including
the County of Frederick or the Virginia Department of Transportation). Lessor
shall not be required to keep any portion of the subject premises clean or free
from obstructions. All repairs, reconstructions, replacements and/or
improvements of every kind and description made to or for the benefit of the
premises by Lessee shall become, upon being permanently affixed to the Leased
Premises, or to any other property of the Lessor, the sole and exclusive
property of Lessor. Lessee shall, at his own cost and expense, take good care of
the Leased Premises, including all buildings and other improvements thereon,
preserve them in good working order, condition and state of repair, and shall,
at his own expense, make all necessary repairs, reconstructions and replacements
to, or for the benefit of, said premises.

8. CONDEMNATION OF LEASED PREMISES: If the federal or any state government or
agency or instrumentality of any of them takes the whole of the Leased Premises
for any public or quasi-public use under any statute or regulation relating to
eminent domain, condemnation or by purchase in lieu thereof, or if some part of
the Leased Premises is so taken and the part not taken does not suffice for
Lessee to reasonably operate the business for which the premises have been
leased, then this Lease shall come to an end as to the Leased Premises when
Lessee loses possession of all or of such part of the Leased Premises. If such
Lease is so terminated, Lessee shall have no claim against Lessor for any loss
or damage and in particular, without limitation, no claim for the value of any
unexpired term of the Leased Premises. Lessee shall make all payments and
reimbursements to Lessor to the period ending with the date on which Lessee so
loses possession of the Leased Premises, or of such part of them.

If the taking referred to above affects only such a part of the Leased Premises
so that Lessee reasonably can continue to operate the business within the scope
of this Lease, such taking shall not affect this Lease. If this Lease so
survives any such taking, Lessee shall repair, replace or restore such part of
the Leased Premises not taken to as nearly its condition and/or business purpose
before the taking as the circumstances reasonably permit.

9. INSURANCE: Lessee shall carry standard fire and extended coverage insurance
on the improvements on the premises in the amount of the highest insurable
value. If, in the opinion of Lessee, the Leased Premises are rendered
substantially unfit for the occupancy or use herein contemplated by any casualty
or peril insured against in such insurance policy, Lessee, at its option, may
promptly and diligently restore the Leased Premises to the condition existing
prior to the occurrence of the insured casualty or peril or may release and turn
over to Lessor all of the insurance proceeds as a result thereof and then
terminate this Lease as of the date of the delivery of such written notice to
Lessor. Lessee shall also maintain general liability insurance to protect it and
Lessor against any claims for damages, personal injury and property damage. Such
liability insurance shall be in the amount of One Million Dollars or more.
Lessor shall be listed as an additional insured in each and every such general
liability policy. Lessee shall furnish Lessor satisfactory evidence of all such
policies and endorsements thereof.

10. SUBLET: Lessee may sublet all or any part of the Leased Premises and may
assign this Lease with Lessor's consent, which will not be unreasonably withheld
provided, however, that the Lessee shall not be relieved from its obligations
under this Lease by such subletting or assignment.

11. NON-COMPETE: Lessor agrees, as to Lots 2, 3, 4 and 5, as shown on the
aforesaid plat of Marsh & Legge Land Surveyors, P.L.C. dated September 27, 2002,
that it shall add a provision in any lease regarding any such lot, as well as in
any deed of conveyance regarding any of those lots, that "so long as the Bank of
Clarke County (including its successors or assigns [whether by merger or
otherwise]) leases such Lot #1 that no other banking building, facility or use
will take place on such lot by any other banking or financial institution except
for the use by any such other banking or financial institution of an ATM (or
equivalent) machine or facility". In connection with Lot #6, as shown on such
plat dated September 27, 2002, Lessor agrees to place the same restriction in
any lease of such property to someone other than Kamran Heydari or in any other
deed of conveyance if the property is sold to anyone else other than such Kamran
Heydari.

12. APPROVAL FOR RIGHT-IN/RIGHT-OUT ENTRANCE/EXIT ALONG ROUTE 7: Notwithstanding
anything to the contrary set forth herein, Lessee, within six (6) months of
January 1, 2003, shall have the right, in its discretion, to then terminate this
Lease if it does not receive the approval from all appropriate authorities,
including VDOT and the Frederick County Planning Commission, to have a
right-in/right-out entrance/exit directly from State Route 7. Lessee shall use
its best efforts to secure such approval from all such appropriate authorities.
If Lessee exercises such right to terminate this Lease, as conditioned
hereunder, all rent due hereunder up until the date of termination shall still
be due and payable to Lessor. Lessee, if it is to exercise its right to
terminate this Lease as provided herein, shall deliver written notice of such
termination to Lessor at 333 Wood Avenue, Winchester, Virginia. The rent
otherwise due hereunder shall terminate effective as of the time of delivery of
such written notice, provided it meets the terms and provisions hereof, and the
rent due Lessor for the month in which such notice of cancellation is so
delivered shall be prorated as of such date of delivery of such notice of
cancellation.

13. UTILITIES: Lessor shall have no obligation to bring any utilities to the
Leased Premises except that Lessor shall be obligated to bring a water line
within the southwest corner of such Lot #1 and a sewer line a short distance
within the western boundary line of such Lot #1, all as more particularly
described as the Phase 1 construction as set forth on the plans prepared by
Gilbert W. Clifford & Associates, Inc. dated August 8, 2002 titled "Millbrook
High School Alternate Entrance - Phase 1 Water and Force Mains - Plan and
Profile". The bringing of all other utilities of every kind and description
including electric, cable, telephone, gas, TV or whatever to within such Lot #1
shall be the sole and exclusive responsibility of Lessee. All such utilities
either brought to, or constructed within such premises, shall be placed
underground and each such utility, whether brought to or constructed within such
Lot #1, shall then also be extended, at the cost and expense of Lessee, to a
point within Lot #2 as designed and designated by Landlord's engineer. At the
present time, such engineer is Charles E. Maddox, Jr. of Gilbert W. Clifford &
Associates, Inc. Without limiting the foregoing, Tenant shall be specifically
responsible for extending the water and sewer line into Lot #2 forty feet (40')
north of the northern boundary line of such Lot #1. All such utility facilities,
including water and sewer, to be constructed on and within such Lot #1 by
Tenant, and the extension thereof into Lot #2 as set forth herein, shall be so
constructed in accordance with all government regulations (including the
Frederick County Sanitation Authority) and shall also meet all design and other
requirements of Lessor?s engineer. Tenant also agrees that it would not allow
anyone, including any landowner, without Lessor?s express written consent, to
connect to any water and sewer line within such Lot #1 including, without
limitation, Tenant shall not allow anyone, for the benefit of all or any part of
the land designated on the plat dated September 27, 2002 as "Mo Yam Chan & Li
Wah Chan" (hereinafter "Chan"), to connect to any water or sewer line within Lot
#1.

14. INGRESS/EGRESS ALONG NORTHERN PROPERTY LINE OF LOT #1: There shall be a
right of ingress and egress, off of Millbrook Road, for the benefit of Lot #1
and Lot #2 and any other property designated by Lessor. The total width of such
right of ingress and egress shall be sixty feet (60') and shall extend to the
western property line of such Lots #1 and #2. The middle of such sixty-foot
(60') right of ingress/egress shall be the common boundary line between such
Lots #1 and #2 (which is the northern boundary line of Lot #1/ southern boundary
line of Lot #2). Lessee shall not provide any entrance/exit between such Lot #1
and the Chan property unless Lessor consents to same in writing. The design of
such portion of such sixty-foot (60') wide access area to be built by Lessee
within such Lot #1 shall meet the specifications of Lessor's engineer.

Lessee shall construct a curb or other continuous barrier along its entire
eastern boundary line to keep any vehicles from being able to pass between such
Lot #1 and the Chan property. Lessor, however, in its sole and absolute
discretion, shall have the exclusive right to allow anyone, including vehicular
traffic, ingress and egress within such sixty-foot (60') wide access strip
between Millbrook Road and such Chan property. Unless Lessor has given written
permission for travel between such Millbrook Road and such Chan property (or any
part thereof), within such sixty-foot (60') wide access strip, a barrier,
meeting the design specifications of Lessor's engineer, Charles E. Maddox, Jr.,
shall be erected, by Lessee, at the western end of such sixty-foot (60') strip
for the purpose of preventing access to the Chan property. If Lessor so decides
to give permission to anyone it so designates to travel between Millbrook Road
and the Chan property within such sixty-foot (60') strip, Lessor shall have the
responsibility of making such changes within such sixty-foot (60') passageway to
accommodate such access, including the removal of any curb or other barriers at
the western end of such sixty-foot (60') strip.

15. REMOVAL OF DWELLING ON LOT #1: Lessee shall have the right, once its option
to terminate this Lease, as provided in Paragraph12 above is no longer
effective, to tear down and dispose of the house situate within such Lot #1.
Lessee, at its expense, shall have the sole and exclusive responsibility to tear
down and then dispose of all of such debris and materials resulting from such
house being torn down except that Lessor shall have the right to take such
materials from such house as it, in its sole discretion, shall so decide.

16. REMOVAL OF IMPROVEMENTS AT END OF LEASE: Lessee, at Lessor's option, shall
have the obligation to remove any and all improvements made by it to Lot #1,
including any building, asphalt or whatever, as Lessor, in its sole discretion,
shall so decide. Lessor shall have ninety (90) days after the end of this Lease
to give Lessee written notice of whatever improvements Lessee shall be required
to so remove from such premises. Whatever improvements Lessee is so required to
remove from such premises shall be done in as expeditious a manner as is
reasonably possible and in no event later than six (6) months after Lessor gives
such written notice to Lessee.

17. USE OF LEASED PREMISES BEFORE JANUARY 1, 2003: Lessee shall have the
non-exclusive right to go upon Lot #1 before the start of this Lease, for the
purpose of any testing, planning or other preliminary work in anticipation of
leasing the property effective January 1, 2003.

18. IMPROVEMENTS: Lessee may, at its own expense, make any alterations or
improvements to the Leased Premises that it may deem desirable for his business
purposes, and that do not adversely affect the value of the premises or the
structural integrity of any building or other structures hereinafter erected on
such premises. It is specifically recited, without in any limiting the
foregoing, that Lessee shall have the full and complete responsibility in
connection with any such alterations or improvements made to the Leased Premises
to satisfy any requirements proposed by any governmental entities (including any
off-premises requirements) in connection with any such alterations or
improvements.

19. MECHANIC LIENS: Lessee shall not permit any mechanics or other liens to be
established or remain against the premises for labor or materials furnished to
or for tenant.

20. NOTICES: Notices and demands shall be in writing and shall be deemed to be
given, unless otherwise specifically provided herein, when deposited in a United
States Post Office marked registered or certified mail. Notices to the Lessor
may be addressed to the Lessor at: 333 Wood Avenue, Winchester, Virginia 22601.
Notices to Lessee shall be addressed to: President and CEO, Bank of Clarke
County, P.O. Box 391, Berryville, Virginia 22611.

21. BUSINESS QUALIFICATIONS: Lessee warrants that upon occupation of the leased
premises Lessee shall be duly qualified to do and transact business in the State
of Virginia and that during the period of occupancy described herein Lessee
shall continue to remain so qualified.

22. UTILITIES: Lessee, during the term of this Lease, will pay the monthly or
other charges for all utilities in connection with the use of the premises,
whether now or hereafter existing, including electricity, oil, water and sewer
charges.

23. DEFAULT: If Lessee fails to pay any rental or other payment due hereunder or
due pursuant to the Lease documents, or if Lessee shall become bankrupt or
insolvent, or shall file any debtor proceeding, or takes, or has taken against
it, any Petition in Bankruptcy, or files a petition for appointment of receiver
or for a reorganization, or if Lessee fails to perform any terms hereof, and if
the same shall not have been cured within ten (10) days following written notice
from the Lessor to the Lessee stating the nature of the default, then Lessee
shall be in default and Lessor may, at her option and without further notice to
Lessee, terminate Lessee's right to possess the premises and, without
terminating this Lease, Lessor may reenter and resume possession of the premises
and/or declare the Lease terminated, and may thereupon, in either event, remove
all persons and property from the premises, with or without resort to process of
any court. In no event shall Lessor's termination of the Lease and/or
termination of Lessee's right to possession of the premises abrogate Lessee's
agreement to pay rent and any other charges due hereunder. Following reentry of
the premises by Lessor, Lessee shall continue to pay all such rent and any other
charges as same become due under the terms hereof, together with all reasonable
expenses (including attorney fees) incurred by Lessor in regaining possession,
until such time, if any, as Lessor relets same and the premises are occupied by
a successor.

If Lessor shall not be permitted to terminate this Lease as hereinabove provided
because of the provisions of the United States Code relating to Bankruptcy, as
amended ("The Bankruptcy Code"), then Lessee, as a debtor in possession, or any
trustee for Lessee, agrees promptly, within no more than sixty (30) days
following request by Lessor to the Bankruptcy Court, to assume or reject this
Lease, and Lessee, on behalf of itself and any trustee, agrees not to seek or
request any extension or adjournment of any application to assume or reject this
Lease by Lessor with such Court. In such event, Lessee, or any trustee for
Lessee, may only assume this Lease if (a) it cures or provides adequate
assurance that the trustees will promptly cure any default hereunder, (b)
compensates, or provides adequate assurance that the trustees will promptly
compensate, Lessee for any actual pecuniary loss to Lessor resulting from
Lessee's defaults, and (c) provides adequate assurance of performance during the
fully stated term hereof of all of the terms, covenants, and provision of this
Lease to be performed by Lessee. In no event after the assumption of this Lease
shall any then-existing default remain uncured for a period in excess of fifteen
(15) days. Adequate assurance of performance of this Lease as set forth
hereinabove shall include, without limitation, adequate assurance (1) of the
source of rent reserved hereunder and (2) that the assumption of this Lease will
not breach any provision of this Lease.

24. FIRST RIGHT OF REFUSAL: If, at any time during the term of this Lease,
Lessor receives from a ready, willing and able purchaser an acceptable (to
Lessor) bona fide offer to purchase such parcel containing 1.1242 acres, Lessor
shall give Lessee written notice of the terms and conditions of the offer,
enclosing a copy of the offer. Lessee may exercise the option to purchase, on
the same terms and conditions provided in such offer received by Lessor, within
sixty (30) days after receipt of such notice from Lessor. If Lessee is going to
exercise such right, it must, within sixty (30) days of receipt of such notice
of such offer from Lessor, deliver to Lessor written notice of its exercise of
such right to purchase. If Lessee so exercises its right of first refusal,
closing shall be on the same terms and conditions as set forth in the offer
received by Lessor. The failure of Lessee to exercise its option to purchase,
once received from Lessor, on the terms and conditions set forth herein, shall
forever terminate, and make null and void, Lessee's right of first refusal as
set forth herein.

25. SEVERABILITY: If any part of this Agreement shall be adjudged invalid, it
shall be considered to be severable and the remainder of the Agreement shall
continue in full force and effect to the extent practicable.

26. APPLICABLE LAW: This Agreement shall be construed and interpreted according
to the laws of the State of Virginia.

27. The conditions and agreements contained in this Lease shall be binding upon
and shall inure to the benefit of Lessor and Lessee and their respective heirs,
legal representatives, successors and assigns.

28. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement between
the parties and may be modified only by a writing signed by both parties.

WITNESS the following signatures and seals:

MBC, L.C.

By:  /s/ Mildred Cole, Manager
     ---------------------------------------  (SEAL)
     Mildred Cole, Manager

BANK OF CLARKE COUNTY

By:  /s/ John R. Milleson, President and CEO  (SEAL)
     ---------------------------------------

STATE OF VIRGINIA, At Large, County OF Frederick, To-wit:

The foregoing instrument was acknowledged before me this 25th day of October,
2002, by Mildred Cole, Manager, MBC, L.C.

My commission expires April 30, 2005.

/s/ Catherine G. Schultz
------------------------
Notary Public

STATE OF VIRGINIA, At Large, City OF Winchester, To-wit:

The foregoing instrument was acknowledged before me this 29th day of October,
2002, by John R. Milleson, President and CEO, Bank of Clarke County.

My commission expires February 28, 2006.

/s/ Frances A. Rush
------------------------
Notary Public

                                         16<PAGE>

                                                                   EXHIBIT 10.1

                           NORTEL NETWORKS CORPORATION
                               EXECUTIVE RETENTION
                              AND TERMINATION PLAN

                                                                 JUNE 26, 2002

<PAGE>

                           NORTEL NETWORKS CORPORATION

                    EXECUTIVE RETENTION AND TERMINATION 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 Networks 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, this Plan has been established to provide certain arrangements for
Specified Executives whose employment with Nortel Networks is terminated as a
result of a Change in Control.

     2.   DEFINITIONS

For the purpose of the Plan, the terms contained in this Article 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
Networks Board may determine for the purposes of any of the provisions of the
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 Networks 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.

"AUDITOR" means the independent auditor of the Corporation as appointed by the
Corporation's shareholders or by the Nortel Networks Board from time to time.

<PAGE>
                                     - 2 -

"BAY NETWORKS STOCK OPTION PLAN" means the Bay Networks, Inc. 1994 Stock Option
Plan, as amended from time to time prior to the CIC Date.

"CANADIAN EXECUTIVE" means a Specified Executive who is a resident of Canada for
the purposes of the Income Tax Act (Canada), as amended.

"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 Networks 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 Networks (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 Networks Board, and a reasonable
            opportunity to cure has been given to the Specified Executive by the
            Nortel Networks Board;

     (iii)  material violation of any written agreement between the Specified
            Executive and Nortel Networks not to disclose any confidential or
            proprietary information of Nortel Networks or confidential or
            proprietary information of a third person in respect of which Nortel
            Networks is under a written confidentiality obligation to such third
            party of which the Specified Executive has received prior written
            notice; or

     (iv)   fraud or willful and serious misconduct in connection with the
            performance of the Specified Executive's duties for Nortel Networks,
            which, in the case of any such misconduct, has caused direct
            material injury to Nortel Networks.

"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.

"COMMITTEE" means the joint leadership resources committee of the Nortel
Networks Board and the board of directors of NNL or such other committee of the
Nortel Networks Board as the Nortel Networks Board may designate from time to
time as the "Committee" for the purposes of this Plan,

<PAGE>
                                     - 3 -

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 Option 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.

"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 ten (10) days after written notification by the Specified Executive to
the SVP Human Resources:

     (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 that a "Good Reason" shall not be deemed to have occurred until the end
of such ten (10) day period.

"INTERNATIONAL EXECUTIVES" means Specified Executives other than Canadian
Executives.

<PAGE>
                                     - 4 -

"NNL" means Nortel Networks Limited.

"NORTEL NETWORKS BOARD" means the board of directors of the Corporation.

"NORTEL NETWORKS" means the Corporation and the affiliated entities.

"OPTION" means an option and related stock appreciation right, if any, granted
pursuant to any stock option plan maintained or assumed by NNL or the
Corporation for the benefit of the employees of Nortel Networks 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 Executive Retention and Termination Plan of Nortel Networks
Corporation 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 specific provision is specified.

"RSU" means a restricted stock unit granted pursuant to the RSU Plan.

"RSU PLAN" means the Nortel Networks Limited Restricted Stock Unit Plan, as
amended from time to time prior to the CIC Date.

"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 Networks 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 OPTION PLAN" means each of the Nortel Networks Corporation 1986 Stock
Option Plan As Amended And Restated, as the same may be further amended from
time to time prior to the CIC Date and the Nortel Networks Corporation 2000
Stock Option Plan, as the same may be amended from time to time prior to the CIC
Date.

"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

<PAGE>
                                     - 5 -

     (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.

"SVP HUMAN RESOURCES" means the individual holding the most senior position
responsible for human resources at the Corporation at the applicable time.

"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 the actual date of a Specified Executive's termination
of employment with Nortel Networks.

"TERMINATION DUE TO CHANGE IN CONTROL" means:

     (i)  any termination of the employment of the Specified Executive by Nortel
          Networks 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 Networks 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 Networks for Cause; or (2) pursuant to an agreement to resign
     or retire entered into by Nortel Networks 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.

<PAGE>
                                     - 6 -

"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 - 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. 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 Change in Control will occur, immediately
               following the Corporation's becoming aware of the occurrence of a
               Change in Control, 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 Networks 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 Networks. Notwithstanding the foregoing, 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

<PAGE>
                                     - 7 -

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. Immediately prior to the CIC Date or, if it is not known
in advance that the Change in Control will occur, immediately following the
Corporation's becoming aware of the occurrence of a Change in Control, 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 Networks 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 Networks Board 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

<PAGE>
                                     - 8 -

          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 and to
maximize the tax benefits available to Nortel Networks 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.

     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 or by certified cheque 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 or by certified
          cheque of the Specified Executive in accordance with Nortel Networks'
          expense reimbursement policy for all expenses incurred by the
          Specified Executive in connection with the business of Nortel Networks
          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 or by
          certified cheque of a lump sum equal to the sum of the following
          amounts:

<PAGE>
                                     - 9 -

               (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
               Networks' 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 Networks 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 Networks 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 Networks to the
               Specified Executive prior to the Termination Date;

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

          (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 in the case
          of the CEO, the two-year anniversary in the case of a Tier I Executive
          and the eighteen-month anniversary in the case of a Tier II Executive
          of the Specified Executive's Termination Date (such applicable period,
          the "Continuation Period"), provision of continued coverage under each
          of the Nortel Network'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

<PAGE>
                                     - 10 -

               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 Networks (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 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 Networks (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 Networks 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

<PAGE>
                                     - 11 -

               Networks 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 Networks),
               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 Networks 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 Networks 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 prior to the Termination
               Date, the Specified Executive shall receive credit for an
               additional number of years of service for all purposes under the
               Supplementary Executive Retirement Plan equal to the lesser of:
               (i) the excess of (A) 60 over (B) the Specified Executive's age
               as of his or her Termination Date; and (ii) five years, 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) 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
               Networks 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, the
               Corporation shall arrange to provide the Specified Executive
               benefits that are substantially equivalent to those which retired
               executives of Nortel Networks 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

<PAGE>
                                     - 12 -

               the CIC Date, determined on an after-tax basis to the Specified
               Executive; and

          (i) within thirty (30) days after the Payment Date, payment to or to
          the order of the Specified Executive in full settlement of any RSUs
          (as defined in the RSU Plan) allocated to the Specified Executive
          under the RSU Plan of an amount in cash equal to the excess of (i) the
          product of (x) the number of Covered RSUs (as defined in the RSU Plan)
          in respect of all Grants (as defined in the RSU Plan) made to the
          Specified Executive under the RSU Plan prior to the CIC Date
          multiplied by (y) the Special Value (as defined in the RSU Plan) over
          (ii) the aggregate cash payments made to the Specified Executive prior
          to the Termination Date in accordance with the RSU Plan in respect of
          the Grants.

     4.2  Stock Options/Restricted Stock Units

          (a) Acceleration - In the event of a Specified Executive's Termination
          Due to Change in Control, the Corporation shall cause all Options held
          by the Specified Executive as of 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 option plan.

          (b) Waiver of Certain Provisions - None of the Options held by a
          Specified Executive as of his or her Termination Date shall be subject
          to the right of Nortel Networks to require, in certain circumstances,
          repayment of the proceeds of an Option exercise and related sale of
          the underlying common shares. In addition, for greater certainty,
          Nortel Networks shall not exercise its right to require, in certain
          circumstances, the repayment of the Market Value (as defined in the
          RSU Grants made to Specified Executives) of the allocated RSUs settled
          in accordance with Subsection 4.1(i) hereof.

          (c) Period for Exercise - In the event of a Specified Executive's
          Termination Due to Change in Control,

               (i) the Specified Executive will be deemed to continue to be
               employed by Nortel Networks for all purposes under the Stock
               Option Plan, the Bay Networks Stock Option Plan and any other
               applicable stock option plan, except with respect to future
               grants of stock options, for the applicable Continuation Period;
               and

               (ii) the Specified Executive will be deemed to continue to be
               employed by Nortel Networks for all purposes under the RSU Plan,
               except with respect to future grants of RSUs, until such time as
               the RSUs allocated to such Specified Executive are settled in
               accordance with the provisions hereof and the RSU Plan.

<PAGE>
                                     - 13 -

     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 Networks, 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 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.

     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.

<PAGE>
                                     - 14 -

     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 Networks, a full and final release in the form which the SVP
Human Resources has designated as being acceptable prior to the Change in
Control.

     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 Networks to
discontinue his or her employment with Nortel Networks or to materially alter
that relationship in a manner which is adverse to Nortel Networks.

     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 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 selected 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 Networks upon the Specified Executive or
any third party and this arbitration provision shall not preclude Nortel
Networks 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 Networks' 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.

<PAGE>
                                     - 15 -

     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 Networks
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 Networks and a Specified
Executive and applicable law, Nortel Networks may assign that Specified
Executive to other duties, and either Nortel Networks or the Specified Executive
may terminate the Specified Executive's employment at any time for any reason.

     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

<PAGE>
                                     - 16 -

          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 SVP Human Resources;

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

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

          (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 Networks Board may from time to time
          suspend or terminate the Plan in whole or in part. Notwithstanding the
          foregoing, the Plan shall

<PAGE>
                                     - 17 -

          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 Networks Board with effect from July 26, 2001. The Plan was amended and
restated by the Nortel Networks Board with effect from June 26, 2002. Any
amendments to the Plan shall become effective as specified by the Nortel
Networks Board, and consented to by the Corporation and the Specified Executives
required hereby. Any termination or suspension of the Plan shall become
effective as specified by the Nortel Networks Board, and consented to by the
Corporation and the Specified Executives as required hereby.

<PAGE>

                                   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 Person resulting from such Business
                    Combination (or the Ultimate Parent) were members of the
                    Nortel Networks Board at the earlier of the time of the
                    execution of the initial agreement providing for, or the
                    action of the Nortel Networks 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 Networks 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

<PAGE>
                                      - 2 -

               Networks 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 Networks 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 Networks 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 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; and

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

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