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EXHIBIT 10.3




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, regular full-time and part-time3 Company employees who are in
professional/managerial job families4 are eligible to participate in the SUCCESS Plan
(“Eligible Employees”), subject to the following:




	 	(1)  	Employees who participate in other incentive plans for a full calendar month
are not eligible to participate in the SUCCESS Plan during that calendar month. For
purposes of this document, “other incentive plans” means sales











	 	 	 




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 one Plan
Period— from January 1 through December 31. The Plan Period(s) 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   For purposes of the SUCCESS Plan, regular
full-time and regular part-time Company employees are those employees who are
eligible for participation in the Company health benefit plans based on their
regularly scheduled hours.



4   This includes the Customer Service, Research,
Design and Development, Operations, Information Technology, Sales & Marketing,
Corporate Services, and Supply Management job families. Employees in
Administration, Technician, Installation Field Technician and System House
Operations job families (including jobs in JCI 5 and 6) and employees eligible
for legally required or contractual overtime premium payments agreed to by
individual or collective agreement are ineligible for the SUCCESS Plan.




 









 








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	 	   	incentive compensation or any other incentive/bonus arrangements which the Company
determines have been offered in lieu of the SUCCESS Plan;
	 
	 	(2)  	Employees who are covered under a collective bargaining agreement are not
eligible unless that collective bargaining agreement provides for their participation
in the SUCCESS Plan;
	 
	 	(3)  	Individuals determined by the Company to be students, co-op students,
interns, temporary, or non-payroll workers are ineligible 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 a
role that is eligible under the SUCCESS Plan or other incentive plan (“Incentive
Eligible Role”) for at least three full calendar months in that Plan Period
5and (b) the employee must have been an employee in an Incentive Eligible
Role on or before October 1 and on December 316. For purposes of this
document, an employee will be considered to be “actively employed” for any calendar
month in which the employee actually works for at least one day or as otherwise
required under applicable contract or law. Notwithstanding the foregoing and subject
to applicable law, employees whose employment terminates before December 31 are not
eligible to receive a SUCCESS Plan award.
	 
	 	(6)  	Pro-rated awards may be made to employees who transfer into or out of
positions covered by other incentive plans, move from or to a job that is ineligible
for the SUCCESS Plan or who are on a Company approved leave of absence or on “notice”
of termination of employment for part of the Plan Period, provided that the employee
meets the other SUCCESS Plan requirements set out above. However, subject to
applicable law, an employee is not eligible for a SUCCESS Plan payout for any calendar
month in which the employee is not actively employed in a position eligible under the
SUCCESS Plan. If an employee meets the above SUCCESS Plan requirements, but is
actively employed in a position that is eligible under the











	 	 	 




5   The required period of active employment may
be changed by the JLRC and Board of Directors at any time.



6   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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	 	   	SUCCESS Plan for less than the full Plan Period, the employee’s SUCCESS award will be
based on the number of months the employee is actively employed in a SUCCESS Plan
eligible position divided by the number of months in the Plan Period, with the
following exception. For purposes of determining the amount of a pro-rata SUCCESS
award, an employee will not be considered to be actively employed in SUCCESS Plan
eligible position in a calendar month in which (a) the employee participates in an
other incentive plan for that full calendar month or (b) the employee participates in
another incentive plan for the greater portion of the month.
	 
	 	(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 determined by the Company to be
related to inappropriate actions, misconduct, dismissal for cause (where applicable)
or unsatisfactory performance, will be eligible for an award for the applicable Plan
Period;
	 
	 	(8)  	An employee’s Management Team7 has the right, in consultation with
the relevant Human Resources Business prime, to make limited exceptions to the
‘actively employed’ requirements outlined above, where required by law or where the
Management Team determines that circumstances clearly warrant an exception.
Exceptional circumstances might include approved leaves where warranted by applicable
law (e.g. maternity, paternity, parental, military, family, or medical), disability,
outsourcing, divestiture, or death. In such situations, if the employee has, while
actively employed in a SUCCESS Plan eligible position, 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 the employee was actively employed in a SUCCESS Plan eligible
position, as described in Section 2(5) above, and will be commensurate with the
employee’s contribution and achievement. Notwithstanding anything to the contrary,
nothing in the SUCCESS Plan shall preclude the Company paying an employee an award
under the SUCCESS Plan for more than the number of months the employee was actively
employed in a SUCCESS Plan eligible position pursuant to that individual employee’s
employment 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.











	 	 	 




7   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.




 









 








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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:


100%8 of Annual Base Salary x (# Months actively employed in SUCCESS
eligible position/ # Months in Plan Period) [“Pro-Ration Factor”] 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 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 40% 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 based on the employee’s job scope, complexity and
responsibilities and the employees’ contributions and achievements during the Plan Period. An
Eligible Employee’s recommended Award % is subject to review, modification and approval by the
Senior Management Team as provided in Section 4.9



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.










	 	 	 




8   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.



9   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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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. The President and Chief Executive Officer may, in his sole
discretion, recommend to the JLRC and the Board of Directors that the Nortel Performance Factor be
adjusted with respect to certain business units, JCI levels or any other groups of employees and
the JLRC and the Board can approve such adjustment to the Nortel Performance Factor, in their sole
discretion, based on additional factors that the President/CEO and the JLRC and Board determine in
their sole discretion are relevant to the award including without limitation, collective relative
contribution to achievement of the key Company objectives during the Plan Period.




Section 4: SUCCESS Plan Awards



Awards for each Plan Period
are calculated based on
100%10 of an Eligible Employee’s
Annual Base Salary, the Pro-Ration Factor, 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). 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, modification and approval by the Senior
Management Team. Specifically, the Senior Management Team reserves the right, in its discretion,
to review and adjust Eligible Employees’ Award percentages, which are assigned to those Eligible
Employees by their Management Team to reflect its assessment of the employees’ contributions to the
business or the achievement of the Company’s key objectives, 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










	 	 	 




10   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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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. 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.



Discretionary Bonus Pool awards will be considered income and 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, Discretionary Bonus Pool 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. Where
appropriate, deductions may be made from the Discretionary




 









 








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Bonus Pool awards in accordance with the specific capital accumulation and retirement plan selected
by the employee.




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 also subject to interpretation
to comply with applicable 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 the 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, as amended on
January 23, 2003 with effect from January 1, 2003, as amended on July 28, 2003 with effect from
January 1, 2003, as amended on February 26, 2004 with effect from January 1, 2004.