NORTEL NETWORKS CORP
NNC 1986 STOCK OPTION PLAN AS AMENDED AND RESTATED
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>t07056ex10-1.txt
<DESCRIPTION>NNC 1986 STOCK OPTION PLAN AS AMENDED AND RESTATED
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.1


                                 [NORTEL LOGO]


                           NORTEL NETWORKS CORPORATION

                                      1986

                               STOCK OPTION PLAN,

                             AS AMENDED AND RESTATED











<PAGE>



                                                                   [NORTEL LOGO]

                           NORTEL NETWORKS CORPORATION

                                      1986

                               STOCK OPTION PLAN,

                             AS AMENDED AND RESTATED

1.   BACKGROUND; PURPOSE OF THE PLAN

The purpose of the Plan is to promote the long term  success of Nortel  Networks
by providing  financial  incentives  to Key  Employees.  The Plan is designed to
encourage Key Employees to acquire a proprietary interest in the Corporation, to
provide them with additional  incentive to further the growth and development of
Nortel  Networks,  to  encourage  them to  remain  in the  employment  of Nortel
Networks and to assist Nortel Networks in attracting individuals with experience
and ability.

The Plan has been amended and restated to reflect the transactions  contemplated
by the plan of arrangement (the "Plan of Arrangement")  described in the Amended
and Restated Arrangement Agreement,  made as of January 26, 2000, as amended and
restated March 13, 2000, among BCE Inc., Nortel Networks Corporation, New Nortel
Inc. and the other parties thereto.  In connection with the Plan of Arrangement,
New Nortel Inc.  acquired  from the holders of the common shares (other than BCE
Inc.  and its  affiliates)  of Nortel  Networks  Corporation  all of the  Nortel
Networks  Corporation  common shares then held by such  shareholders in exchange
for an equal number of common shares of New Nortel Inc. and each  shareholder of
BCE Inc. received  approximately  0.78 common shares of New Nortel Inc. for each
common share of BCE Inc.  then held by such BCE  shareholder.  On the  effective
date of the Plan of  Arrangement,  the  common  shares of New Nortel  Inc.  were
listed  on the New  York  Stock  Exchange  and The  Toronto  Stock  Exchange  in
substitution  for the common shares of Nortel Networks  Corporation.  As part of
the Plan of Arrangement,  Nortel Networks Corporation changed its name to Nortel
Networks  Limited  ("Nortel  Limited")  and New Nortel Inc.  changed its name to
Nortel Networks Corporation ("Nortel Networks" or the "Corporation").

In connection  with the Plan of Arrangement and effective as of May 1, 2000, the
effective date of the Plan of Arrangement (the  "Restatement  Effective  Date"),
(i) Nortel Networks assumed and adopted the Plan and all then outstanding awards
granted under the Plan and the Board of Directors of Nortel  Networks  succeeded
to all of the powers and  responsibilities  of the Board of  Directors of Nortel
Limited  under the Plan and (ii) awards  granted or to be granted under the Plan
and the shares subject to the Plan were adjusted and relate to the common shares
of Nortel Networks.

2.   DEFINITIONS

For purposes of the Plan,  the terms  contained  in this Section  shall have the
following meanings.

"affiliated  companies"  shall have the meaning ascribed to the term "affiliated
bodies corporate" in Section 2(2) of the CBCA.

"affiliated  entities" shall mean (a) "affiliated  companies" and (b) such other
companies, partnerships, or other legal entities in which the Corporation has an
investment  or  participates  as the Committee may determine for the purposes of
any of the provisions of the Plan.

"Board of Directors" shall mean the Board of Directors of the Corporation.
<PAGE>

"Canadian Option" shall mean an Option for which the Subscription Price shall be
stated and payable in Canadian dollars.

"CBCA"  shall mean the Canada Business Corporations Act, R.S.C. 1985, c.C-44, as
amended.

"Code" shall mean the United States Internal Revenue Code of 1986, as amended.

"Committee"  shall mean the  management  resources  and  compensation  committee
constituted  by the Board of Directors and described in Section 3 hereof or such
other committee as may be designated by the Board of Directors from time to time
to administer the Plan.

"Corporation" shall mean Nortel Networks Corporation (known prior to the Plan of
Arrangement as New Nortel Inc.) or its successors.

"Effective  Date"  shall  mean the date on which a Grant of  Options  shall take
effect  and the  date on  which  any  determination  made  by the  Committee  in
connection  with any such Grant in  accordance  with Section 5 hereof shall take
effect,  provided that the Effective  Date shall not be a date prior to the date
the Committee  determines a Grant of Options shall be made and, unless otherwise
determined, the Effective Date will be the date the Committee determines a Grant
of Options shall be made.

"Election  Period"  shall mean the period  beginning  on the third  business day
following  the  date on which  the  Corporation  releases  for  publication  its
quarterly or annual  summary  statements of sales and earnings and ending on the
thirtieth calendar day following such date.

"Grant" shall mean the number of Options and Stock  Appreciation  Rights granted
to a Key Employee at any time in accordance with Section 5 hereof.

"Incentive  Stock  Option"  shall  mean a U.S.  Option  which  qualifies  and is
designated by the  Committee as an Incentive  Stock Option within the meaning of
Section 422 of the Code (or any successor provision).

"Key Employee"  shall mean any key employee of the  Corporation or of any of its
affiliated  entities,  but shall not include a member of the Board of  Directors
who is not also such a key employee.

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

"Non-Qualified  Stock Option" shall mean a U.S. Option which does not qualify or
which is not designated by the Committee as an Incentive Stock Option within the
meaning of Section 422 of the Code (or any successor provision).

"Nortel Networks" shall mean the Corporation and its affiliated entities.

                                       2

<PAGE>

"Option" shall mean an option, granted pursuant to Section 5 hereof, to purchase
a Share and shall include a Canadian Option and a U.S. Option.

"Optionee"  shall  mean  an  individual  to whom a Grant  has  been  made by the
Committee pursuant to section 5 hereof.

"Option  Period" shall mean the period  commencing  on the  Effective  Date of a
Grant and ending no later than on the day prior to the tenth anniversary of such
Effective Date.

"Parent  Corporation"  shall have the meaning ascribed thereto in Section 424(e)
of the Code (or any successor provision).

"Plan" shall mean the Nortel  Networks  Corporation  1986 Stock Option Plan,  As
Amended and  Restated  (as further  amended and  restated as of the  Restatement
Effective Date) as set forth herein, and as the same may be further amended from
time to time.

"Plan of Arrangement"  shall have the meaning assigned to such term in Section 1
hereof.

"Restatement  Effective  Date" shall have the  meaning  assigned to such term in
Section 1 hereof.

"Retirement"  shall mean  retirement  in accordance  with the  provisions of any
pension or retirement plan of the  Corporation or of any of its  subsidiaries or
affiliated  entities  covering the  Optionee,  retirement  pursuant to a special
pension  arrangement  entered into by the Corporation or any of its subsidiaries
or affiliated entities and an Optionee and applicable in lieu of, or in addition
to,  any  pension  or  retirement  plan  of  the  Corporation  or of  any of its
subsidiaries or affiliated entities or, if the Optionee is not covered by such a
plan and/or special pension arrangement, as determined by the Committee.

"Securities Act" shall mean the United States  Securities  Exchange Act of 1934,
as amended.

"Shares" shall mean the common shares of the  Corporation and "Share" shall mean
a common share of the Corporation.

"Stock  Appreciation  Right" shall mean a right,  granted  pursuant to Section 5
hereof,  to receive  payment of the amount  calculated  in  accordance  with the
provisions of Section 7(b) hereof.

"Stock Split" shall mean the  subdivision  on a two-for-one  basis of the Shares
that became  effective at the close of business on the fourth trading day on The
Toronto Stock Exchange following the effective date of the Plan of Arrangement.

"Subscription  Price" of a Share shall mean the price  payable by an Optionee to
purchase  one Share on the  exercise of an Option,  which shall not be less than
100 percent of the Market Value of a Share on the Effective Date of the Grant of
the Option covering such Share,

"subsidiary"  shall  have the  meaning  ascribed  to the term  "subsidiary  body
corporate" in Section 2(5) of the CBCA.

"Subsidiary  Corporation"  shall have the  meaning  ascribed  thereto in Section
424(f) of the Code (or any successor provision).

"U.S. Option"  shall  mean  an Option for  which the Subscription Price shall be
stated and payable in United States dollars.


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<PAGE>

3.   ADMINISTRATION

The  Committee  shall  administer  the Plan in  accordance  with its terms.  The
Committee  shall consist of three or more persons,  all of whom shall be members
of the Board of  Directors.  In  addition  to the other  powers  granted  to the
Committee  under the Plan and  subject to the terms of the Plan,  the  Committee
shall have full and complete  authority to interpret the Plan, to prescribe such
rules and regulations and make all determinations necessary or desirable for the
administration  of the Plan. Any such  interpretation,  rule,  determination  or
other act of the Committee shall be conclusively binding upon all persons.

Members of the  Committee  shall be appointed  by, and serve at the pleasure of,
the Board of Directors.  Vacancies  occurring in the membership of the Committee
shall be filled by  appointment by the Board of Directors.  The Committee  shall
keep  minutes of its  meetings.  Acts  approved in writing by all members of the
Committee shall be valid acts of the Committee.

No member of the  Committee  or the Board of  Directors  shall be liable for any
action or  determination  made in good faith  pursuant to the Plan.  To the full
extent permitted by law, the Corporation  shall indemnify and save harmless each
person made,  or  threatened  to be made, a party to any action or proceeding by
reason of the fact that such person is or was a member of the Committee or is or
was a member of the Board of Directors  and, as such, is or was required to take
action pursuant to the terms of the Plan.

The Committee may, in its  discretion,  delegate such of its powers,  rights and
duties under the Plan, in whole or in part, to such committee, person or persons
as it may  determine,  from  time to time,  on terms  and  conditions  as it may
determine.

4.   SHARES SUBJECT TO THE PLAN

The maximum  aggregate number of Shares with respect to which Grants may be made
under the Plan,  as  adjusted  to  reflect  the Stock  Split,  shall not  exceed
432,000,000  Shares,  subject to adjustment as provided for in Section 8 hereof.
The  37,718,040  (as adjusted to reflect the Stock Split) issued on the exercise
of Options prior to April 27, 1995 shall not be included in the  calculation  of
the aggregate number of Shares with respect to which Grants may be made. Subject
to the foregoing and also subject to any  adjustments  provided for in Section 8
hereof,  the maximum  number of Shares with  respect to which Grants may be made
under the Plan in any  calendar  year shall be equal to (a) (i) for 1986 through
1991,  0.5 percent,  (ii) for 1992,  0.7 percent,  (iii) for 1993 and 1994,  1.5
percent,  (iv) for 1995 through 1998, 2.0 percent, and (v) for 1999 and any year
thereafter,  3.0 percent of the issued and outstanding Shares of the Corporation
as of  January  1 in such  year  plus  (b)  such  cumulative  number  of  Shares
calculated in accordance  with (a) above,  for each prior year or years in which
the Plan was in effect,  which are not  covered by Grants made under the Plan in
such year or years and such  cumulative  number of Shares which were  previously
covered by Grants made under the Plan which have been  cancelled or forfeited in
accordance with the Plan, including,  for greater certainty,  options which have
expired  (except where an option covered by a grant has expired by reason of the
exercise of a related Stock Appreciation Right).

The aggregate  number of Shares reserved for issuance  pursuant to stock options
granted by the Corporation to an Optionee, whether under the Plan or pursuant to
any other stock option plan or other arrangement, shall not exceed the lesser of
(i)  100,000,000  Shares (as  adjusted to reflect the Stock  Split) or (ii) five
percent of the number of Shares issued and outstanding at any time. In addition,
at no time  shall the number of Shares  reserved  for  issuance  under the Plan,
together with the number of Shares  reserved for issuance  under any other Share
Compensation Arrangement, result in:

(a)  the  number of Shares  reserved  for  issuance  pursuant  to stock  options
     granted by the Corporation to Insiders  exceeding ten percent of the issued
     and outstanding Shares;

(b)  the issuance to Insiders,  within a one-year period,  of a number of Shares
     exceeding ten percent of the Outstanding Issue; or


                                       4
<PAGE>

(c)  the  issuance to any one Insider and such  Insider's  Associates,  within a
     one-year  period,  of a number  of Shares  exceeding  five  percent  of the
     Outstanding Issue.

For this purpose only, the terms "Associate",  "Insider" and "Share Compensation
Arrangement" and the term "Outstanding Issue" shall have the meaning ascribed to
such terms in Section 627 and Section 629 of The Toronto Stock Exchange  Company
Manual,  as amended.  The number of Shares reserved for issuance or issued to an
Insider  prior to the date on which the  individual  became an Insider  shall be
excluded for purposes of determining  the number of Shares reserved for issuance
or issued to an Insider.

The Grant of an Option with a related Stock  Appreciation Right where the Option
was granted on a cancellation  basis, as provided in Section 6(c) hereof,  shall
be considered to have been made with respect to one Share, unless and until such
Option and its related Stock Appreciation Right both expire or terminate for any
reason,  without  being  exercised,  in which case such Share shall again become
available for Grants under the Plan.

The Grant of an Option with a related Stock  Appreciation Right where the Option
was granted on a simultaneous  basis, as provided in Section 6(e) hereof,  shall
be  considered  to have been made with  respect to two Shares,  unless and until
such Option and its related  Stock  Appreciation  Right both expire or terminate
for any reason,  without being exercised,  in which case such Shares shall again
become available for Grants under the Plan.

The Board of  Directors  shall  authorize  from time to time the  issue,  or the
purchase on the open market or in private transactions, of such number of Shares
of the  Corporation  as may be necessary to permit the  Corporation  to meet its
obligations under the Plan.

In the event  that  during  the  Option  Period of an  Option,  but prior to the
exercise of the Option,  the Optionee is employed by the Corporation  and/or one
or more of its subsidiaries or affiliated entities,  the Corporation may request
reimbursement  from each such subsidiary or affiliated entity of an amount equal
to that portion of the deemed employment income received by such Optionee in the
exercise of such Option which may reasonably be attributed to the portion of the
Optionee's  employment with any such subsidiary or affiliated entity during such
period.

5.   GRANTS

Subject to the provisions of the Plan, the Committee  shall,  from time to time,
determine  the Key  Employees to whom Grants be made based on their  current and
potential  contribution  to the success of Nortel  Networks.  At such time,  the
Committee shall also:

(a)  determine,  in connection with each Grant, to grant Options with or without
     Stock Appreciation Rights;

(b)  determine,  in connection  with each Grant,  the Effective Date thereof and
     the number of Options and Stock Appreciation Rights to be granted, provided
     that in no case  shall the number of Stock  Appreciation  Rights in a Grant
     exceed the number of Options in such Grant;

(c)  determine, in connection with each Grant, that the Options granted shall be
     either  Canadian  Options or U.S.  Options  and,  if U.S.  Options,  either
     Incentive  Stock  Options or  Non-Qualified  Stock Options or a combination
     thereof  (provided  that no U.S.  Option  shall be treated as an  Incentive
     Stock  Option  unless  the  Committee  so  determines  and  the  instrument
     evidencing the Grant so provides);

(d)  determine, in connection with each Grant, the Subscription Price applicable
     to the Share covered by each Option included in such Grant;

(e)  determine,  in connection  with each Grant,  the Option  Period  applicable
     thereto;

(f)  determine,  in  connection  with each Grant,  whether  the  exercise of any
     Option shall  automatically  entitle the Optionee to be granted  additional
     Options  and the terms and  conditions  applicable  to any such  additional
     Options, provided that the Subscription Price of a Share to be purchased on
     the exercise of such additional


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<PAGE>

     Options  shall not be less than 100 percent of the Market  Value of a Share
     on the Effective Date of the Grant of such additional Options; and

(g)  determine the other terms and  conditions  (which need not be identical and
     which, without limitation,  may include non-competition  provisions) of all
     Options and Stock Appreciation Rights covered by any Grant.

6.   TERMS AND CONDITIONS OF OPTIONS

The Options covered by a Grant shall be evidenced by an instrument, in such form
as the Committee  shall from time to time approve,  which shall comply with, and
be subject to, the terms and  conditions  set out in this  Section and which may
contain  such  other  terms,  not  inconsistent  with the terms  and  conditions
contained in this Section, as the Committee may determine.

(a)  NUMBER OF SHARES

     Each Grant shall state the number of Options covered thereby and state that
     each such Option shall give the right to purchase one Share.

(b)  SUBSCRIPTION PRICE

     The  Subscription  Price of the Share  covered  by an  Option  shall be 100
     percent of the Market Value of a Share on the  Effective  Date of the Grant
     of the Option stated and payable in Canadian dollars, if a Canadian Option,
     and in United States dollars, if a U.S. Option,  unless the Committee makes
     a  determination  that the  Subscription  Price  shall be higher  than such
     Market Value.

(c)  PAYMENT

     The Subscription Price shall be payable on exercise of the Option:

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

     (ii)   by the surrender of Shares then owned by the Optionee; or

     (iii)  partially in accordance  with clause (i) and partially in accordance
            with clause (ii) of this paragraph.

     Shares  surrendered  in  accordance  with  clause  (ii)  or  (iii)  of this
     paragraph  shall be valued  at the  Market  Value  thereof,  determined  in
     Canadian  dollars if used to purchase a Share covered by a Canadian  Option
     or in United  States  dollars if used to purchase a Share covered by a U.S.
     Option,  on the date of exercise.  The Committee  may impose,  at any time,
     such  limitations  and  prohibitions on the use of Shares in payment of the
     Subscription  Price as it deems  appropriate,  and shall,  if  appropriate,
     determine  acceptable  methods  of  surrendering  Shares as  payment of the
     Subscription  Price.  No Share  certificate  shall be issued to an Optionee
     unless  the  Subscription  Price for the  Shares in  respect  of which such
     certificate is being issued has been paid in full.

(d)  OPTION PERIOD

     Unless the  Committee  provides for a shorter  Option  Period at the time a
     Grant is made,  all or any part of the Options  covered by a Grant shall be
     exercisable,  from  time to  time,  within  the  period  commencing  on the
     Effective  Date of such  Grant  and  ending  on the day  prior to the tenth
     anniversary  of the  Effective  Date of such  Grant,  except as provided in
     paragraphs (f), (g), (h) and (i) of this Section.

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<PAGE>


(e)  BASIS ON WHICH OPTIONS MAY BE EXERCISED

     The Committee shall, in its discretion,  determine,  at the time a Grant is
     made,  that each Option  granted with a Stock  Appreciation  Right shall be
     exercisable either:

     (i)    on a cancellation basis, in which case the exercise of the Option so
            exercisable  shall  cause  the  cancellation  of its  related  Stock
            Appreciation Right and vice versa; or

     (ii)   on a simultaneous basis, in which case the exercise of the Option so
            exercisable  shall  automatically  cause the exercise of its related
            Stock Appreciation Right and vice versa.

(f)  RIGHT TO EXERCISE

     Unless the  Committee  provides for another  period or other periods at the
     time a  Grant  is  made,  and  subject  to  the  fulfillment  of any  other
     conditions for exercise  determined by the Committee at the time a Grant is
     made,  an  Optionee  shall  have the right to  exercise  50  percent of the
     Options  covered by a Grant and 100 percent of such Options  after a period
     of 24 and 36  months,  respectively,  of  continuous  employment  with  the
     Corporation or any of its  subsidiaries  or affiliated  entities,  from the
     Effective Date of such Grant.  The Committee may accelerate the right of an
     Optionee to exercise all or any part of the Options  covered by a Grant not
     then exercisable.

     No  Option  shall be  exercisable  within a period  of 12  months  from the
     Effective  Date  of  the  Grant  of  such  Option,  except  pursuant  to an
     acceleration  by the  Committee  of the right to exercise  any Option or as
     approved by the Board of Directors.

(g)  RIGHT TO EXERCISE IN THE EVENT OF DEATH

     In the event of death of an Optionee, either while in the employment of the
     Corporation  or any of its  subsidiaries  or  affiliated  entities or after
     Retirement,  the Optionee's  estate may exercise the Options covered by any
     Grant to the Optionee to the extent such Options  were  exercisable  on the
     day of the Optionee's death or to the extent the Committee  accelerates the
     right of the  deceased  Optionee to exercise all or any part of the Options
     covered  by such  Grant,  within 24 months  from the day of the  Optionee's
     death,  or such shorter  period as may be determined by the Committee at or
     after the time of Grant (but not after the  expiration of the Option Period
     first  established  by the  Committee in connection  with such Grant).  The
     Optionee's  estate shall  include only the executors or  administrators  of
     such estate or any person or persons who shall have  acquired  the right to
     exercise such Options directly from the Optionee by bequest or inheritance.

(h)  RIGHT TO EXERCISE IN THE EVENT OF RETIREMENT

     In the event of  Retirement  of an Optionee,  the Optionee may exercise the
     Options covered by any Grant to the extent such Options were exercisable on
     the  Optionee's   date  of  Retirement  or  to  the  extent  the  Committee
     accelerates the right to exercise all or any part of the Options covered by
     such  Grant,  within 36  months  from the date of such  Retirement  or such
     lesser period as the Committee may fix (but not after the expiration of the
     Option Period first  established  by the Committee in connection  with such
     Grant).

(i)  RIGHT TO EXERCISE IN THE EVENT OF TERMINATION OF EMPLOYMENT

     In the event an Optionee's  employment  with the  Corporation or any of its
     subsidiaries  or affiliated  entities  terminates  for any reason  (whether
     wrongful or  otherwise)  other than death or  Retirement,  the Optionee may
     exercise  the Options  covered by any Grant to the extent such Options were
     exercisable on the  Optionee's  last day of employment or to the extent the
     Committee  accelerates the right to exercise all or any part of the Options
     covered  by such  Grant,  no later  than  the  last  day of the  Optionee's
     employment  with the  Corporation or any of its  subsidiaries or affiliated
     entities or, except for Incentive  Stock Options,



                                       7
<PAGE>


     no later  than such other day as the  Committee  may fix (but not after the
     expiration  of the Option  Period  first  established  by the  Committee in
     connection with such Options).

(j)  NON-TRANSFERABILITY

     An Option shall be exercisable  during the Optionee's  lifetime only by the
     Optionee or the  Optionee's  legal  guardian and shall not be assignable or
     transferable,  otherwise  than by will or the laws governing the devolution
     of property in the event of death.

(k)  INCENTIVE STOCK OPTIONS

     Notwithstanding anything herein to the contrary (including the right of the
     Committee  to  accelerate  the right of an Optionee to exercise  all or any
     part of the Options covered by a Grant),  the following special  provisions
     shall apply to Incentive Stock Options:

     (i)    there shall be an obligation on any Optionee who disposes of a Share
            acquired on the  exercise of an  Incentive  Stock  Option by sale or
            exchange either (A) within two years after the Effective Date of the
            Grant in respect of the Incentive Stock Option under which the Share
            was acquired,  or (B) within one year after the  acquisition of such
            Share,  to notify the  Corporation  of such  disposition  and of the
            amount realized upon such disposition; and

     (ii)   the instrument  evidencing the Incentive  Stock Options covered by a
            Grant shall contain such limitations and restrictions upon the grant
            or exercise of  Incentive  Stock  Options as shall be  necessary  in
            order that such Incentive  Stock Options be Incentive  Stock Options
            under  Section 422 of the Code and may contain  such other terms not
            inconsistent  with  the  terms  and  conditions  contained  in  this
            paragraph or with the  provisions of Section 422 of the Code, as the
            Committee may determine.

7.  STOCK APPRECIATION RIGHTS

Each Stock Appreciation Right granted in accordance with Section 5 hereof, shall
be subject to the same  terms and  conditions  as the Option to which it relates
subject in any event, however, to the following additional terms and conditions.

(a)  RIGHT TO EXERCISE

     Unless the  Committee  otherwise  determines at the time a Grant is made, a
     Stock  Appreciation  Right  relating to an Option shall only be exercisable
     if, at any time during the Option Period:

     (i)    the Optionee was an insider required to file reports pursuant to the
            provisions  of Section  16 of the  Securities  Act or any  successor
            provision thereof; or

     (ii)   the  Optionee  was in a  position  which  was rated at a Band 12, or
            equivalent, or above.

     In either  case,  the Stock  Appreciation  Right shall only be  exercisable
     during an Election Period, unless the Committee otherwise determines at the
     time a Grant is made. In addition,  a Stock  Appreciation Right relating to
     an Option shall only be exercisable if the Subscription  Price of the Share
     covered by the related  Option is less than the Market  Value of a Share on
     the  date  of  such  exercise  determined  in the  same  currency  as  such
     Subscription Price.

(b)  EFFECT OF EXERCISE

     On exercise of a Stock  Appreciation  Right which was granted in connection
     with an Option  exercisable  on a  cancellation  basis,  the related Option
     shall be cancelled and the Optionee  shall be entitled to receive an amount
     calculated as provided  below.  On exercise of a Stock  Appreciation  Right
     which  was  granted  in


                                       8
<PAGE>


     connection with an Option exercisable on a simultaneous  basis, the related
     Option shall  automatically be exercised and the Optionee shall be entitled
     to receive an amount calculated as provided below.

     In either  case,  the amount  payable on exercise  of a Stock  Appreciation
     Right shall be equal to the difference  between the Market Value of a Share
     on the date of exercise of the Stock Appreciation Right,  determined in the
     currency of the  Subscription  Price of the Share  covered by the Option to
     which the Stock Appreciation  Right relates,  and the Subscription Price of
     the Share  covered by such Option.  Such amount shall be  multiplied by the
     number  of Stock  Appreciation  Rights  exercised  to  obtain  the cash sum
     payable on exercise of several Stock Appreciation Rights.

(c)  SETTLEMENT

     The  Committee  shall have sole  discretion  to determine the form in which
     payment in  settlement  of a Stock  Appreciation  Right will be made (e.g.,
     cash,  cheque,  Shares or any combination of forms of payment) except that,
     the  Committee  shall  not have the  discretion  to  determine  that a cash
     payment  will  be  made  in a  currency  other  than  the  currency  of the
     Subscription  Price of the  Option to which the  Stock  Appreciation  Right
     relates.

     If settlement is to be made in the form of Shares,  the number of Shares to
     be  distributed  shall be the largest  whole  number of Shares  obtained by
     dividing the cash sum otherwise  payable as a result of the exercise of the
     Stock  Appreciation  Rights for which settlement is to be made in Shares by
     the  Market  Value  of a Share  on the  date  of  exercise  of  such  Stock
     Appreciation  Rights  determined  in the  same  currency  as the  cash  sum
     otherwise  payable.  No fractional Share shall be issued in full or partial
     settlement,  in the  form  of  Shares,  of all or  any  part  of the  Stock
     Appreciation Rights covered by a Grant.

     The  Committee  may,  in its  discretion,  provide  rules  and  regulations
     pursuant to which the  Optionee  may elect to defer the cash sum  otherwise
     payable in settlement of Stock Appreciation Rights.

(d)  GENERAL

     In the event that  during  the Option  Period of an Option to which a Stock
     Appreciation Right is related, but prior to the exercise of the Option, the
     Optionee is employed by the Corporation and one or more of its subsidiaries
     or  affiliated  entities  or by  one or  more  subsidiaries  or  affiliated
     entities of the Corporation, the Corporation may request reimbursement from
     each such  subsidiary  or  affiliated  entity  of an  amount  equal to that
     portion of the Stock  Appreciation  Right  ultimately  paid to the Optionee
     which  may  reasonably  be  attributed  to the  portion  of the  Optionee's
     employment  with any such  subsidiary  or  affiliated  entity  during  such
     period.

8.   EFFECTS OF ALTERATION OF SHARE CAPITAL

In the event that, following the Stock Split:

(a)  a  dividend  shall be  declared  upon the  Shares  payable in Shares of the
     Corporation;

(b)  the  outstanding  Shares shall be changed into or exchanged for a different
     number or kind of  shares  or other  securities  of the  Corporation  or of
     another corporation, whether through an 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,  in the number or kind of outstanding Shares or of any
     shares or other  securities  into which such Shares shall have been chanced
     or for which they shall have been exchanged; or

(d)  there shall be a distribution  of assets or shares to  shareholders  of the
     Corporation out of the ordinary course of business,


                                       9
<PAGE>


then, if the Board of Directors shall in its sole discretion determine that such
change  equitably  requires  an  adjustment  in the  number  or kind  of  Shares
theretofore  authorized for issuance pursuant to the Plan but not yet covered by
Options,  of the  Shares  then  subject  to  Options,  of the  Shares  generally
available for Grants under the Plan and of the Shares  available for Grant under
the Plan in any calendar  year,  such  adjustment  shall be made by the Board of
Directors and shall be effective and binding for all purposes.

In the  case  of any  such  adjustment  as  provided  for in this  Section,  the
Subscription  Price shall be adjusted  appropriately to reflect such adjustment.
No  adjustment  provided for in this Section shall  require the  Corporation  to
issue a fractional  Share and the total  adjustment  with respect to each Option
shall be limited accordingly.

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

9.   AMENDMENT AND TERMINATION

From time to time the Board of  Directors,  may in addition to its powers  under
the  Plan,  add to or amend  any of the  provisions  of the Plan or  suspend  or
terminate  the Plan or amend  the  terms of any  Option,  or Stock  Appreciation
Right, under the Plan; provided,  however, that (i) any approvals required under
any  applicable  law or stock  exchange  rules  are  obtained,  and (ii) no such
amendment,  suspension  or  termination  shall be made at any time which has the
effect of adversely  affecting the existing rights of an Optionee under the Plan
without his or her consent in writing.

10.  REGULATORY APPROVAL

Notwithstanding  anything herein to the contrary,  the Corporation  shall not be
obligated to cause to be issued and delivered any certificates evidencing Shares
to be  delivered  pursuant  to the Plan,  unless  and until the  Corporation  is
advised by its legal counsel that the issuance and delivery of such certificates
is in  compliance  with all  applicable  laws,  regulations,  rules,  orders  of
governmental or regulatory  authorities in Canada,  the United States of America
and any other applicable jurisdiction, and the requirements of any exchange upon
which Shares of the Corporation are listed. The Corporation shall in no event be
obligated to take any action in order to cause the issuance and delivery of such
certificates  to  comply  with any such  laws,  regulations,  rules,  orders  or
requirements.  The  Committee  may  require,  as a condition of the issuance and
delivery of such  certificates and in order to ensure compliance with such laws,
regulations,  rules,  orders and  requirements,  that the Optionee or, after his
death,  the Optionee's  estate,  as described in Section 6(g) hereof,  make such
covenants,  agreements and  representations  as the Committee deems necessary or
desirable.

11.  MISCELLANEOUS PROVISIONS

No  employee  shall  have any  claim or right to be  granted  Options  and Stock
Appreciation  Rights  under  the  Plan,  and the  Grant  of  Options  and  Stock
Appreciation  Rights under the Plan shall not be construed as giving an Optionee
any right to continue in the  employment of the  Corporation  or any  affiliated
entity  or affect  the  right of the  Corporation  or any  affiliated  entity to
terminate the employment of any Optionee.

An Optionee entitled to Shares as a result of the exercise of an Option or Stock
Appreciation Right shall not be deemed for any purpose to be, or have rights as,
a  shareholder  of the  Corporation  by virtue of such  exercise,  except to the
extent a Share  certificate is issued  therefor and then only from the date such
certificate  is  issued.   No  adjustments   shall  be  made  for  dividends  or
distributions  or other  rights for which the  record  date is prior to the date
such share certificate is issued.

The Corporation may require an Optionee, as a condition of exercise of an Option
or Stock Appreciation Right, to pay or reimburse any taxes which are required to
be withheld in connection with the exercise of such Option or Stock Appreciation
Right.

                                       10
<PAGE>



12.  EFFECTIVE DATE AND TERM OF THE PLAN

The Plan originally became effective upon its adoption by the Board of Directors
and approval by the  shareholders of the Nortel  Limited.  Any amendments to the
Plan,  shall become  effective  upon their  adoption by the Board of  Directors,
subject,  where appropriate,  to approval by the shareholders of the Corporation
at the next  meeting  of  shareholders  of the  Corporation  or any  adjournment
thereof,  if required.  If the shareholders do not approve any amendments to the
Plan,  the  Plan or such  amendments  shall  not be  effective,  and any and all
actions taken prior thereto,  including the making of any Grants subject to such
approval  being  obtained,  shall be null and void or shall,  if  necessary,  be
deemed  to have been  fully  rescinded.  The Plan  shall  terminate  on the date
determined by the Board of Directors  pursuant to Section 9 hereof and no Grants
may  become  effective  under the Plan after the date of  termination,  but such
termination  shall not affect any Grants which became effective  pursuant to the
Plan prior to such termination.

The Plan was originally  adopted effective January 23, 1986 and was subsequently
amended  on April  30,  1992  with  immediate  effect,  on April  27,  1995 with
immediate  effect,  on December 28, 1995 with immediate effect, on April 8, 1998
with immediate  effect, on February 25, 1999 with immediate effect, on April 29,
1999 with immediate effect,  on August 19, 1999 effective  September 1, 1999, on
April 27, 2000, effective on the Restatement  Effective Date, and on January 24,
2002, effective on January 31, 2002.



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</TEXT>
</DOCUMENT>
