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F-69
Options granted under the 2000 Plan and 1986 Plan may be granted with or without a SAR. A SAR entitles the holder to receive payment
of an amount equivalent to the excess of the market value of a common share at the time of exercise of the SAR over the subscription
price of the common share to which the option relates. Options with SARs may be granted on a cancellation basis, in which case the
exercise of one causes the cancellation of the other, or on a simultaneous basis, in which case the exercise of one causes the exercise of
the other.
As of December 31, 2003, the maximum number of common shares authorized by the shareholders and reserved for issuance by the
Board of Directors of Nortel Networks under the 1986 Plan and 2000 Plan is as follows:
(number of common shares in thousands) Maximum
1986 Plan
(a)
Issuable to employees
(b)
469,718
2000 Plan
(a)
Issuable to non-employee directors 500
Issuable to em
p
lo
y
ees 94,000
(a) In January 1995, a key contributor stock option program (the “Key Contributor Program”) was established. Under the terms of the Key Contributor Program,
participants are granted an equal number of initial options and replacement options. The initial options generally vest after five years and expire after ten years. The
replacement options are granted concurrently with the initial options and also expire after ten years. No Key Contributor Program options were granted for the years
ended December 31, 2003 and 2002, respectively, under both stock option plans.
(b) As of December 31, 2003, the maximum number of Nortel Networks Corporation common shares with respect to which options may be granted in any given year
under the 1986 Plan is three percent of Nortel Networks Corporation common shares issued and outstanding at the commencement of the year, subject to certain
adjustments.
During the year ended December 31, 2003, approximately 892,475 Nortel Networks Corporation common shares were issued pursuant to
the exercise of stock options granted under the 1986 Plan and 13,501 Nortel Networks Corporation common shares were issued pursuant
to the exercise of stock options granted under the 2000 Plan.
Nortel Networks assumed stock options plans in connection with the acquisition of various companies and granted options to purchase
Nortel Networks Corporation common shares. The vesting periods for these assumed plans may differ from the 2000 Plan and 1986 Plan,
but are not considered to be significant to Nortel Networks overall use of stock-based compensation.
On June 20, 2001, Nortel Networks commenced a voluntary stock option exchange program (the “Exchange Program”) for Nortel
Networks employees allowing employees to exchange certain outstanding stock options for new stock options, based on a prescribed
formula. The terms of the Exchange Program required that the new grants of options would be made at least six months and a day from
the cancellation date of the options tendered for exchange, which was July 27, 2001. Nortel Networks then Board of Directors and its
then board appointed officers were not eligible to participate in the Exchange Program.