Exhibit 10.4

Nortel Networks Limited SUCCESS Incentive Plan

Section 1: Introduction

     The Nortel Networks Limited SUCCESS Incentive Plan (the “SUCCESS Plan”) is
a short-term, incentive bonus plan that provides the potential for “Eligible
Employees” (as defined below) to receive cash awards based on their
contributions to the success of the “Company"1, conditioned on the Company
meeting its objectives.

     The SUCCESS Plan is intended to drive business performance and customer and
shareholder value by rewarding Eligible Employees for their contributions to the
Company’s overall success. An Eligible Employee’s contribution is determined by
two factors: (1) the impact of that employee’s role on business results and
(2) that employee’s achievement of individual performance objectives during the
employee’s active service with the Company. The actual award received by an
Eligible Employee will reflect (1) an employee’s job scope, complexity, and
responsibilities, and that employee’s contribution and achievement, during the
Plan Period2 and (2) the Company’s performance as indicated by the Nortel
Networks Performance Factor (the “Nortel Networks Performance Factor”).

Section 2: SUCCESS Plan Eligibility

     Generally, Company employees who are in professional/managerial job
families3 are eligible to participate in the SUCCESS Plan (“Eligible
Employees”), subject to the following:

  (1)   Employees who participate in other incentive plans are ineligible for
the SUCCESS Plan during the full calendar month(s) when they participate in the
other incentive plan(s). “Other incentive plans” include sales incentive
compensation or any other incentive/bonus arrangements being offered in lieu

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1 For purposes of the SUCCESS Plan, the “Company” is defined as Nortel Networks
Limited and its subsidiaries and affiliates and other entities, which it
controls directly or indirectly and which have been approved for participation
in the SUCCESS Plan by the person holding the position of senior vice president
responsible for human resources or the equivalent at the Company (the “Senior
Vice-President, HR”).   2 Each calendar year consists of two Plan Periods—the
first, from January 1 through June 30 and the second, from July 1 through
December 31. The Plan Periods for each calendar year may be changed by the JLRC
(as defined in Section 2) and Board of Directors (as defined in Section 2) at
any time.   3 This includes the Customer Service, Research, Design and
Development, Operations, Information Technology, Sales & Marketing, Corporate
Services, and Supply Management job families. It also includes all
managerial/professional/specialist job families in jobs at Job Complexity
Indicator (“JCI”) 1, 2, and 3 in the United Kingdom, Ireland, Netherlands,
Germany, Austria, and Spain who were previously eligible for non-legislated or
contractual overtime. Employees in Administration, Technician, Installation
Field Technician and System House Operations job families (including jobs in JCI
5 and 6) are ineligible for the SUCCESS Plan.

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      of the SUCCESS Plan. As set out below, employees who participate in other
incentive plans for a portion of the month and the SUCCESS Plan for a portion of
the month are eligible for the SUCCESS Plan for that month;     (2)   Students,
co-op students, interns, and non-payroll workers are ineligible for the SUCCESS
Plan;     (3)   Regular part-time employees who are eligible for participation
in Company health benefit plans based on their regularly scheduled hours will be
eligible for the SUCCESS Plan;     (4)   The Joint Leadership Resources
Committee of the Boards of Directors of Nortel Networks Corporation and Nortel
Networks Limited (“JLRC”) and the Board of Directors of Nortel Networks Limited
(the “Board of Directors”) may determine that certain Company employees
(including employees who are not eligible for the SUCCESS Plan) may be eligible
to receive an award from a Discretionary Bonus Pool created pursuant to
Section 5 hereof;     (5)   Subject to applicable law, to be eligible for either
a full or pro-rated award for any given Plan Period: (a) an employee must have
been actively employed in an eligible role under the SUCCESS Plan for at least
three full calendar months in that Plan Period4 (an employee is not eligible for
a payout for any period(s) of inactive service in a Plan Period) and (b) the
employee must have been an active employee in an eligible role or in a role that
is eligible for another incentive award, such as sales incentive compensation,
on or before April 1 and on June 30 (for the first Plan Period of the year) and
on or before October 1 and on December 31 (for the second Plan Period of the
year5). Where an employee is on “notice” of the termination of his/her
employment, that employee will be considered on inactive service for the
purposes of the SUCCESS Plan, unless that employee is continuing to perform work
for the Company throughout the notice period;     (6)   Pro-rated awards, based
on the number of months that an employee is in a position that is eligible under
the SUCCESS Plan, shall also be made to employees who transfer into or out of
positions covered by other incentive programs (for example, sales incentive
compensation), or who are moved to a job that is ineligible for the SUCCESS
Plan. For any Plan Period when the employee is partially eligible for the
SUCCESS Plan, the employee’s award will be based on the number of months the
employee was eligible for the SUCCESS Plan divided by the Plan Period. For the
purposes of determining pro-rata awards, an employee’s participation in the
SUCCESS Plan for part of a month will be deemed to be the same as participation
for a full month. The calculation will be based on the incentive plan in which
the employee

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4 The required period of active employment may be changed by the JLRC and Board
of Directors at any time.   5 The dates on which an employee must be actively
employed may be changed by the JLRC and Board of Directors at any time.

 

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      participates as of the end of the month. The total number of months of
combined participation in all plans during any Plan Period cannot exceed the
term of the Plan Period and the total number of months of combined participation
in a calendar year cannot exceed twelve months;     (7)   Employees who meet all
of the SUCCESS Plan eligibility requirements, but who leave employment with the
Company between the end of the Plan Period and the related payment date for the
award, other than for reasons related to inappropriate actions, dismissal for
cause or unsatisfactory performance, will be eligible for an award for the
applicable Plan Period;     (8)   An employee’s Management Team6 has the right
to make exceptions to the ‘active employee’ service requirements outlined above,
where required by law or where circumstances warrant an exception. Exceptional
circumstances might include approved leaves (military, family or medical),
disability, outsourcing, divestiture, or death. In such situations, if the
employee has during his or her active service substantially achieved his/her
individual objectives, the employee’s Management Team may grant partial awards.
If awards are paid in these circumstances, the awards will be pro-rated to
reflect the number of months of active employment in an eligible position, and
will be commensurate with the employee’s contribution and achievement. As
required by local/in-country law, eligible maternity and/or parental leave shall
be deemed to be active service for the purposes of the SUCCESS Plan.
Notwithstanding anything to the contrary, nothing in the SUCCESS Plan shall
preclude paying an employee an award under the SUCCESS Plan for more than the
number of months of active employment pursuant to that individual employee’s
termination agreement, which the Senior Vice-President, HR has approved; and    
(9)   Company affiliates and joint ventures may choose to offer the SUCCESS Plan
or a similar plan subject to the approval of the Senior Vice-President, HR.

Section 3: Award Elements

     An Eligible Employee’s cash award for a Plan Period under the SUCCESS Plan
will be based on the following formula:

50%7 of Annual Base Salary x Award % x Nortel Networks Performance Factor

Annual Base Salary means the yearly regular compensation paid to an Eligible
Employee, excluding any other compensation, such as, but not limited to,
bonuses, commissions, overtime, and relocation benefits. Regardless of any
raises or decreases an

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6 The “Management Team” consists of the managers with whom the employee has a
direct or indirect reporting relationship as set out in the Organization
Structure Manager (“OSM”) or its equivalent as maintained by the Company from
time to time.   7 The percentage of Annual Base Salary that is applied to the
formula may be changed by the JLRC and Board of Directors at any time.

 

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Eligible Employee may receive during the Plan Period, the Annual Base Salary
will be measured at a uniform time for all Eligible Employees for the SUCCESS
Plan on or about six weeks prior to the end of the Plan Period.

Award % is the percentage of Annual Base Salary that is used to compute the
SUCCESS Plan award for each Eligible Employee. For JCI 1-6, the Award % ranges
from 0% to 35% of Annual Base Salary. For JCI 55, the Award % ranges from 0% to
400% of Annual Base Salary. For each JCI, the Senior Vice-President, HR may set
a suggested narrower award range, intended to reflect a market trend to give
certain Eligible Employees with higher levels of responsibility a higher
incentive potential as a percentage of Annual Base Salary. Within the ranges
approved by the JLRC and the Board of Directors, an Eligible Employee’s
Management Team will determine the recommended Award % for that employee for
each Plan Period. An Eligible Employee’s recommended Award % is subject to
review and approval by the Senior Management Team.8

The total SUCCESS Plan award for all Eligible Employees for a Plan Period
(reflecting the Nortel Networks Performance Factor) is recommended by the Senior
Management Team for approval by the JLRC and the Board of Directors after the
end of the Plan Period.

Nortel Networks Performance Factor is calculated based on the achievement by the
Company of key corporate objectives for the Plan Period. The objectives are
approved by the JLRC and the Board of Directors near the start of each Plan
Period. The Nortel Networks Performance Factor may be based on one or more
performance metrics, each with specific targets. The performance metrics may
have equal or different weightings. Performance metrics are the general
corporate goals for the Plan Period, such as profitability, market momentum, or
customer loyalty. Targets shall be based on objective and/or subjective criteria
established to measure, directly or indirectly, the performance metrics.
Weightings shall be the relative weight or percentage accorded in the Nortel
Networks Performance Factor for achieving each specific target. After approval
by the JLRC and the Board of Directors, the Company’s objectives for the Plan
Period will be communicated to Eligible Employees early in each Plan Period. The
Nortel Networks Performance Factor is deemed to be 1.0 (achievement) throughout
the Plan Period and is then adjusted by the JLRC and the Board of Directors
based on their determination of corporate performance.

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8 For purposes of the SUCCESS Plan only, the “Senior Management Team” shall
consist of the President and Chief Executive Officer, the Chief Financial
Officer and the Senior Vice-President, HR of Nortel Networks Limited.

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Section 4: SUCCESS Plan Awards

Awards for each Plan Period are calculated based on 50%9 of an Eligible
Employee’s Annual Base Salary, the Eligible Employee’s Award % (which reflects
the employee’s job scope, complexity and responsibilities, and that employee’s
contribution and achievement, during the Plan Period), and the Nortel Networks
Performance Factor (that is, the Company’s business performance for the Plan
Period as determined by the JLRC and the Board of Directors). An Eligible
Employee’s Award % for a Plan Period is typically assessed in the last two
months of the Plan Period. When warranted, cash awards will be made in the first
quarter following the close of the applicable Plan Period.

Any award under the SUCCESS Plan to an Eligible Employee is subject to the
discretion of the Eligible Employee’s Management Team and Senior Management Team
and the JLRC and the Board of Directors. That is, an Eligible Employee’s
Management Team determines, in its discretion, the Award % for an Eligible
Employee subject to review and confirmation by the Senior Management Team.
Specifically, the Senior Management Team reserves the right, in its discretion,
to review and adjust an Award % assigned to an Eligible Employee by that
employee’s Management Team to reflect its assessment of the employee’s
contributions to the business, as well as to ensure that the final payouts, if
any, are within appropriate budgetary guidelines. The JLRC and the Board of
Directors determine, in their discretion, the achievement of the targets for the
performance metrics and the final calculation of the Nortel Networks Performance
Factor (which may include a determination of a Nortel Networks Performance
Factor of zero, even if certain of the performance metrics targets are achieved,
and/or an adjustment to the relative weighting of the performance metrics.)
During the Plan Period, the JLRC and the Board of Directors can review
performance measures, weightings, and targets to determine whether they remain
appropriate. The JLRC and the Board of Directors may, at their sole discretion,
adjust the business priorities, plan performance measures, weightings, targets,
and/or plan payouts, as they deem necessary during the year, to reflect changes
in business conditions or other circumstances.

Any SUCCESS Plan award will be made by an Eligible Employee’s statutory employer
and will be paid in the same currency as the Eligible Employee’s regular pay at
the end of the Plan Period. Eligible Employees who transfer to another country
during the Plan Period or between the end of the Plan Period and the payment
date for the award will be paid in the currency in which they receive their pay
at the end of the Plan Period.

SUCCESS Plan awards are considered income and are therefore subject to national,
state/provincial, and/or local taxes. All appropriate taxes and other
withholdings will be deducted from the award as required by applicable law.

Depending on local laws and policies, SUCCESS Plan awards may have an impact on
some benefits and may or may not be included in the “eligible earnings” for
purposes of capital accumulation and retirement plans offered in the various
regions by the Company.

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9 The percentage of Annual Base Salary that is applied to the formula may be
changed by the JLRC and Board of Directors at any time.

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Where appropriate, deductions may be made from SUCCESS Plan awards in accordance
with the specific capital accumulation and retirement plan selected by the
employee.

Section 5: Discretionary Bonus Pool

During a Plan Period, the JLRC and the Board of Directors may consider the
creation of a separate Discretionary Bonus Pool under the SUCCESS Plan to
provide discretionary, incremental bonus awards. These awards may be made to all
employees of the Company or employees of the Company who individually or in
groups made a relative contribution that significantly added to the overall
success of the Company, whether or not the employees are entitled to participate
in the SUCCESS Plan. The determination that a Company employee is eligible for a
Discretionary Bonus Pool award does not otherwise entitle that employee to
generally participate in the SUCCESS Plan. The JLRC and the Board of Directors
have complete discretion to determine: the establishment of the Discretionary
Bonus Pool; the eligibility for participation; any performance metrics,
weightings and targets; the achievement, if any, of the targets for the
performance metrics; and the amount of the awards, if any, paid from the
Discretionary Bonus Pool. Whether or not an Eligible Employee receives a SUCCESS
Plan award shall have no effect on that employee’s eligibility to receive a
Discretionary Bonus Pool award.

Section 6: Interpretations and Amendments

This document, as amended from time to time, constitutes the “Nortel Networks
Limited SUCCESS Incentive Plan”. In the event of any conflicts or
inconsistencies between the provisions of the SUCCESS Plan and any other
document or communication, written or oral, concerning the SUCCESS Plan, the
provisions of this document, as amended from time to time, shall govern.

The Senior Vice-President, HR, subject to approval of the JLRC and the Board of
Directors in certain cases, shall interpret the provisions of the SUCCESS Plan,
which shall be final and binding on the Company and all SUCCESS Plan
participants. This document is subject to interpretation to comply with
applicable domestic laws. It is not and shall not be construed as either an
employment contract or as a contract concerning the subject matter contained
herein. There is no guarantee that any award under the SUCCESS Plan will
actually be paid. Any award to an “Eligible Employee”, based on individual
contribution and measures of corporate performance, is determined at the
discretion of an Eligible Employee’s Management Team, the Senior Management Team
and the JLRC and the Board of Directors as the case may be. If such awards,
however, are made, they shall be made in accordance with the provisions herein.

The SUCCESS Plan can only be terminated or amended by Board of Directors, which
shall have the full authority, at any time, to terminate the SUCCESS Plan or to
delete, modify and/or add to any and all terms, conditions, and provisions of
the SUCCESS Plan.

     As adopted by the Board of Directors of Nortel Networks Limited on July 25,
2002