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Annual cash incentive awards
Annual cash bonus awards under the SUCCESS Plan are based on achieving corporate and individual performance objectives for a calendar
year. The joint leadership resources committee retains full discretion in determining whether, and the extent to which, corporate performance
objectives have been met and whether, and to what extent, an annual award under the SUCCESS Plan will be made. An annual award is
determined as a percentage of annual base salary by reference to individual job scope, complexity and responsibilities, and by individual
performance and contribution, as well as corporate performance.
The joint leadership resources committee recommended the corporate performance objectives for 2004, which were approved by the boards
of directors of the Company and Nortel Networks Limited in January 2004. The corporate performance objectives for 2004 were revenue,
earnings, cash flow and leadership (which included customer engagement, technology leadership and market perception). The joint leadership
resources committee also have discretion to consider other business factors in making a final determination of corporate performance for 2004.
In June 2004, management recommended, and the joint leadership resources committee and the boards of directors of the Company and Nortel
Networks Limited subsequently approved, that financial accountability be included as a key quantitative factor in the individual leadership
performance objectives for determination of incentive cash awards under the SUCCESS Plan. The financial accountability objective includes,
among other things: (i) compliance with financial reporting obligations under United States and Canadian securities laws and the requirements
of the Sarbanes-Oxley Act of 2002; (ii) an assessment of training with respect to financial reporting responsibilities and understanding of
general accepted accounting principles across Nortel Networks; and (iii) progress on the implementation of process and system improvements
related to accounting and management information systems across Nortel Networks. As of the date of this report, no annual cash bonus awards
have been made with respect to the fiscal year ended December 31, 2004.
Voluntary undertaking: Return to Profitability bonus program and 2003 restricted stock
unit program
In a letter, dated January 10, 2005 to Mr. Lynton (Red) Wilson, the Chairman of the board of directors of the Company, the members of the
core executive leadership team of Nortel Networks (each, a “Member”) affirmed their voluntary, unilateral and unconditional undertaking to (i)
pay to the Company over a three year period an amount equal to the entire Return to Profitability (“RTP”) bonus paid to each such Member in
2003 (net of any taxes deducted at the source) regardless of whether the profitability metrics associated with the RTP were met on a restated
basis and (ii) not accept, and accordingly disclaim, any potential award of either the third of fourth tranches of 2003 restricted stock units
(regardless whether applicable financial targets for these bonuses were achieved). The Members indicated in their letter that, while they did not
engage in the improper accounting activities identified by the Independent Review, they share the board of directors’ deep disappointment in
these actions and events and are determined to make clear to Nortel Networks employees, investors and others that such activities are
unacceptable to them.
The following table sets forth the amount of the RTP bonus (the “RTP Amount”) to be paid by each Member:
Option grants in 2004 and 2003
No options were granted to any of the named executive officers for 2004 during the fiscal year ended December 31, 2004 and no options
were granted to any of the named executive officers for 2003 during the fiscal year ended December 31, 2003.
(13) Represents contributions under the Nortel Networks Long-Term Investment Plan or Nortel Networks (UK) Pension Plan, as applicable ($7,200 in 2003, $8,467 in 2002
and $6,068 in 2001), and expatriate, permanent transfer and other similar expenses related to Mr. Debon’s global responsibilities as President, Wireless Networks ($85,146
in 2003, $117,408 in 2002 and $325,952 in 2001).
(14) Mr. Debon, Mr. Bolouri, Ms. Spradley and Mr. DeRoma have voluntarily undertaken to pay to the Company over a three year period an amount equal to their Return to
Profitability program bonus awarded in 2003 (net of any taxes deducted at the source). The following additional current members of senior management have similarly
voluntarily agreed to pay their respective Return to Profitability program bonus awards: Messrs. Collins, Donovan, Giamatteo, Joannou, Mao, McFadden, Mumford and
Pusey. See “Voluntary undertaking: Return to Profitability bonus program and 2003 restricted stock unit program”.
(15) Certain payments paid in United Kingdom pounds have been converted and included in this amount. Payments have been converted using the average of the exchange
rates in effect durin
g
each
y
ear e
q
ual to US$1.00 = UK
£
0.6661 for 2002 and US$1.00 = UK
£
0.6909 for 2001.
(16) Mr. Debon’s responsibilities during 2001 as President, Wireless Networks were global in nature and his offices and personal residences spanned several geographies. As a
result, transportation services and benefits (automobile benefits, commercial air travel, train and car services) for Mr. Debon totaled $48,010 in 2001.
(17) Represents contributions under the Nortel Networks Long-Term Investment Plan.
(18) In June 2001, the Company commenced a voluntary stock option exchange program whereby eligible employees could exchange certain then outstanding stock options for
new options based on a prescribed formula. In January 2002, new stock options were granted to eligible employees who participated in the stock option exchange
program, with exercise prices at the fair market value of the Company’s common shares on the date of grant. Prior to Ms. Spradley’s appointment as an officer of the
Company, she was an employee eligible to participate in the voluntary stock option exchange program. As a result, 41,999 of the stock options granted toMs.Spradleyin
2002 were
g
ranted
p
ursuant to the voluntar
y
stock o
p
tion exchan
g
e
p
ro
g
ram.
(19) All of Ms. Spradley’s options that were granted in 2001 were cancelled in connection with her participation in the voluntary stock option exchange program. See footnote
(18) above.
(20) Amounts paid to reimburse Mr. DeRoma for income taxes payable by him in accordance with his employment agreement. Mr. DeRoma’s employment agreement is
described below under “Certain employment arrangements”.
Member RTP Amount (Net)
Chahram Bolouri Cdn. $891,697
Malcolm Kevin Collins GBP
£
395,409
Pascal Debon U.S. $1,078,963
Nicholas John DeRom
a
Cdn. $953,747
William John Donovan U.S. $640,271
John Joseph Giamatteo U.S. $259,875
Dion Constandino Joannou U.S. $328,412
Robert Yu Lang Mao U.S. $627,500
Brian William McFadden Cdn. $899,630
Donald Gregory Mumford Cdn. $921,500
Stephen Charles Pusey GBP
£
473,173
Susan Louise Spradley U.S. $967,694