**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) toreceive 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 valueby rewarding Eligible Employees for their contributions to the Company’s overall success. AnEligible Employee’s contribution is determined by two factors: (1) the impact of that employee’srole on business results and (2) that employee’s achievement of individual performance objectivesduring the employee’s active service with the Company. The actual award received by an EligibleEmployee will reflect (1) an employee’s job scope, complexity, and responsibilities, and thatemployee’s contribution and achievement, during the Plan Period2 and (2) the Company’sperformance as indicated by the Nortel Networks Performance Factor (the “Nortel NetworksPerformance Factor”).
**Section 2: SUCCESS Plan Eligibility**
     Generally, regular full-time and part-time3 Company employees who are inprofessional/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 monthare not eligible to participate in the SUCCESS Plan during that calendar month. Forpurposes of this document, “other incentive plans” means sales
   1   For purposes of the SUCCESS Plan, the“Company” is defined as Nortel Networks Limited and itssubsidiaries and affiliates and other entities, which it controls directly orindirectly and which have been approved for participation in the SUCCESS Planby the person holding the position of senior vice president responsible forhuman resources or the equivalent at the Company (the “SeniorVice-President, HR”).
2   Each calendar year consists of one PlanPeriod— from January 1 through December 31. The Plan Period(s) for eachcalendar year may be changed by the JLRC (as defined in Section 2) and Board ofDirectors (as defined in Section 2) at any time.
3   For purposes of the SUCCESS Plan, regularfull-time and regular part-time Company employees are those employees who areeligible for participation in the Company health benefit plans based on theirregularly 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 inAdministration, Technician, Installation Field Technician and System HouseOperations job families (including jobs in JCI 5 and 6) and employees eligiblefor legally required or contractual overtime premium payments agreed to byindividual or collective agreement are ineligible for the SUCCESS Plan.
 

 

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    incentive compensation or any other incentive/bonus arrangements which the Companydetermines have been offered in lieu of the SUCCESS Plan;  (2)  Employees who are covered under a collective bargaining agreement are noteligible unless that collective bargaining agreement provides for their participationin 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 NortelNetworks Corporation and Nortel Networks Limited (“JLRC”) and the Board of Directorsof Nortel Networks Limited (the “Board of Directors”) may determine that certainCompany employees (including employees who are not eligible for the SUCCESS Plan) maybe eligible to receive an award from a Discretionary Bonus Pool created pursuant toSection 5 hereof;  (5)  Subject to applicable law, to be eligible for either a full or pro-ratedaward for any given Plan Period: (a) an employee must have been actively employed in arole that is eligible under the SUCCESS Plan or other incentive plan (“IncentiveEligible Role”) for at least three full calendar months in that Plan Period5and (b) the employee must have been an employee in an Incentive EligibleRole on or before October 1 and on December 316. For purposes of thisdocument, an employee will be considered to be “actively employed” for any calendarmonth in which the employee actually works for at least one day or as otherwiserequired under applicable contract or law. Notwithstanding the foregoing and subjectto applicable law, employees whose employment terminates before December 31 are noteligible to receive a SUCCESS Plan award.  (6)  Pro-rated awards may be made to employees who transfer into or out ofpositions covered by other incentive plans, move from or to a job that is ineligiblefor 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 employeemeets the other SUCCESS Plan requirements set out above. However, subject toapplicable law, an employee is not eligible for a SUCCESS Plan payout for any calendarmonth in which the employee is not actively employed in a position eligible under theSUCCESS Plan. If an employee meets the above SUCCESS Plan requirements, but isactively employed in a position that is eligible under the
   5   The required period of active employment maybe changed by the JLRC and Board of Directors at any time.
6   The dates on which an employee must beactively employed may be changed by the JLRC and Board of Directors at anytime.
 

 

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    SUCCESS Plan for less than the full Plan Period, the employee’s SUCCESS award will bebased on the number of months the employee is actively employed in a SUCCESS Planeligible position divided by the number of months in the Plan Period, with thefollowing exception. For purposes of determining the amount of a pro-rata SUCCESSaward, an employee will not be considered to be actively employed in SUCCESS Planeligible position in a calendar month in which (a) the employee participates in another incentive plan for that full calendar month or (b) the employee participates inanother incentive plan for the greater portion of the month.  (7)  Employees who meet all of the SUCCESS Plan eligibility requirements, but wholeave employment with the Company between the end of the Plan Period and the relatedpayment date for the award, other than for reasons determined by the Company to berelated to inappropriate actions, misconduct, dismissal for cause (where applicable)or unsatisfactory performance, will be eligible for an award for the applicable PlanPeriod;  (8)  An employee’s Management Team7 has the right, in consultation withthe relevant Human Resources Business prime, to make limited exceptions to the‘actively employed’ requirements outlined above, where required by law or where theManagement Team determines that circumstances clearly warrant an exception.Exceptional circumstances might include approved leaves where warranted by applicablelaw (e.g. maternity, paternity, parental, military, family, or medical), disability,outsourcing, divestiture, or death. In such situations, if the employee has, whileactively employed in a SUCCESS Plan eligible position, substantially achieved his/herindividual objectives, the employee’s Management Team may grant partial awards. Ifawards are paid in these circumstances, the awards will be pro-rated to reflect thenumber of months the employee was actively employed in a SUCCESS Plan eligibleposition, as described in Section 2(5) above, and will be commensurate with theemployee’s contribution and achievement. Notwithstanding anything to the contrary,nothing in the SUCCESS Plan shall preclude the Company paying an employee an awardunder the SUCCESS Plan for more than the number of months the employee was activelyemployed in a SUCCESS Plan eligible position pursuant to that individual employee’semployment termination agreement, which the Senior Vice-President, HR has approved;and  (9)  Company affiliates and joint ventures may choose to offer the SUCCESS Plan ora similar plan subject to the approval of the Senior Vice-President, HR.
   7   The “Management Team” consists of themanagers with whom the employee has a direct or indirect reporting relationshipas set out in the Organization Structure Manager (“OSM”) or its equivalent asmaintained 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 onthe following formula:
100%8 of Annual Base Salary x (# Months actively employed in SUCCESSeligible position/ # Months in Plan Period) [“Pro-Ration Factor”] x Award % xNortel 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, andrelocation benefits. Regardless of any raises or decreases an Eligible Employee may receive duringthe Plan Period, the Annual Base Salary will be measured at a uniform time for all EligibleEmployees 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 Planaward for each Eligible Employee. For JCI 1-6, the Award % ranges from 0% to 40% of Annual BaseSalary. For JCI 55, the Award % ranges from 0% to 400% of Annual Base Salary. For each JCI, theSenior Vice-President, HR may set a suggested narrower award range, intended to reflect a markettrend to give certain Eligible Employees with higher levels of responsibility a higher incentivepotential as a percentage of Annual Base Salary. Within the ranges approved by the JLRC and theBoard 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 andresponsibilities and the employees’ contributions and achievements during the Plan Period. AnEligible Employee’s recommended Award % is subject to review, modification and approval by theSenior Management Team as provided in Section 4.9
The total SUCCESS Plan award for all Eligible Employees for a Plan Period (reflecting the NortelNetworks Performance Factor) is recommended by the Senior Management Team for approval by the JLRCand the Board of Directors after the end of the Plan Period.
Nortel Networks Performance Factor is calculated based on the achievement by the Company ofkey corporate objectives for the Plan Period. The objectives are approved by the JLRC and theBoard of Directors near the start of each Plan Period. The Nortel Networks Performance Factor maybe based on one or more performance metrics, each with specific targets. The performance metricsmay have equal or different weightings.
   8   The percentage of Annual Base Salary that isapplied to the formula may be changed by the JLRC and Board of Directors at anytime.
9   For purposes of the SUCCESS Plan only, the“Senior Management Team” shall consist of the President and Chief ExecutiveOfficer, the Chief Financial Officer and the Senior Vice-President, HR ofNortel 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 subjectivecriteria established to measure, directly or indirectly, the performance metrics. Weightings shallbe the relative weight or percentage accorded in the Nortel Networks Performance Factor forachieving each specific target. After approval by the JLRC and the Board of Directors, theCompany’s objectives for the Plan Period will be communicated to Eligible Employees early in eachPlan Period. The Nortel Networks Performance Factor is deemed to be 1.0 (achievement) throughoutthe Plan Period and is then adjusted by the JLRC and the Board of Directors based on theirdetermination of corporate performance. The President and Chief Executive Officer may, in his solediscretion, recommend to the JLRC and the Board of Directors that the Nortel Performance Factor beadjusted with respect to certain business units, JCI levels or any other groups of employees andthe JLRC and the Board can approve such adjustment to the Nortel Performance Factor, in their solediscretion, based on additional factors that the President/CEO and the JLRC and Board determine intheir sole discretion are relevant to the award including without limitation, collective relativecontribution to achievement of the key Company objectives during the Plan Period.
**Section 4: SUCCESS Plan Awards**
Awards for each Plan Periodare calculated based on100%10 of an Eligible Employee’sAnnual Base Salary, the Pro-Ration Factor, the Eligible Employee’s Award % (which reflects theemployee’s job scope, complexity and responsibilities, and that employee’s contribution andachievement, during the Plan Period), and the Nortel Networks Performance Factor (that is, theCompany’s business performance for the Plan Period as determined by the JLRC and the Board ofDirectors). When warranted, cash awards will be made in the first quarter following the close ofthe applicable Plan Period.
Any award under the SUCCESS Plan to an Eligible Employee is subject to the discretion of theEligible Employee’s Management Team and Senior Management Team and the JLRC and the Board ofDirectors. That is, an Eligible Employee’s Management Team determines, in its discretion, theAward % for an Eligible Employee subject to review, modification and approval by the SeniorManagement 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 EligibleEmployees by their Management Team to reflect its assessment of the employees’ contributions to thebusiness or the achievement of the Company’s key objectives, as well as to ensure that the finalpayouts, if any, are within appropriate budgetary guidelines. The JLRC and the Board of Directorsdetermine, in their discretion, the achievement of the targets for the performance metrics and thefinal calculation of the Nortel Networks Performance Factor (which may include a determination of aNortel Networks Performance Factor of zero, even if certain of the performance metrics targets areachieved, and/or an adjustment to the relative weighting of the performance metrics.) During thePlan Period, the JLRC and the Board of Directors can review performance measures, weightings, andtargets to
   10   The percentage of Annual Base Salary that isapplied to the formula may be changed by the JLRC and Board of Directors at anytime.
 

 

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determine whether they remain appropriate. The JLRC and the Board of Directors may, at their solediscretion, adjust the business priorities, plan performance measures, weightings, targets, and/orplan payouts, as they deem necessary during the year, to reflect changes in business conditions orother circumstances.
Any SUCCESS Plan award will be made by an Eligible Employee’s statutory employer and will be paidin 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 thePlan Period and the payment date for the award will be paid in the currency in which they receivetheir 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 awardas required by applicable law.
Depending on local laws and policies, SUCCESS Plan awards may have an impact on some benefits andmay or may not be included in the “eligible earnings” for purposes of capital accumulation andretirement plans offered in the various regions by the Company. Where appropriate, deductions maybe made from SUCCESS Plan awards in accordance with the specific capital accumulation andretirement 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 separateDiscretionary 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 whoindividually or in groups made a relative contribution that significantly added to the overallsuccess of the Company, whether or not the employees are entitled to participate in the SUCCESSPlan. The determination that a Company employee is eligible for a Discretionary Bonus Pool awarddoes not otherwise entitle that employee to generally participate in the SUCCESS Plan. The JLRCand the Board of Directors have complete discretion to determine: the establishment of theDiscretionary Bonus Pool; the eligibility for participation; any performance metrics, weightingsand targets; the achievement, if any, of the targets for the performance metrics; and the amount ofthe awards, if any, paid from the Discretionary Bonus Pool. Whether or not an Eligible Employeereceives a SUCCESS Plan award shall have no effect on that employee’s eligibility to receive aDiscretionary 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 bededucted from the award as required by applicable law.
Depending on local laws and policies, Discretionary Bonus Pool awards may have an impact on somebenefits and may or may not be included in the “eligible earnings” for purposes of capitalaccumulation and retirement plans offered in the various regions by the Company. Whereappropriate, deductions may be made from the Discretionary
 

 

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Bonus Pool awards in accordance with the specific capital accumulation and retirement plan selectedby the employee.
**Section 6: Interpretations and Amendments**
This document, as amended from time to time, constitutes the “Nortel Networks Limited SUCCESSIncentive Plan”. In the event of any conflicts or inconsistencies between the provisions of theSUCCESS 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 incertain cases, shall interpret the provisions of the SUCCESS Plan, which shall be final and bindingon the Company and all SUCCESS Plan participants. This document is also subject to interpretationto comply with applicable laws. It is not and shall not be construed as either an employmentcontract or as a contract concerning the subject matter contained herein. There is no guaranteethat 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 thediscretion of an Eligible Employee’s Management Team, the Senior Management Team and the JLRC andthe Board of Directors as the case may be. If such awards, however, are made, they shall be madein accordance with the provisions herein.
The SUCCESS Plan can only be terminated or amended by the Board of Directors, which shall have thefull authority, at any time, to terminate the SUCCESS Plan or to delete, modify and/or add to anyand 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 onJanuary 23, 2003 with effect from January 1, 2003, as amended on July 28, 2003 with effect fromJanuary 1, 2003, as amended on February 26, 2004 with effect from January 1, 2004.