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Upon completion of management’s assessment of our internal control over financial reporting as at December 31, 2004 pursuant to SOX 404,
we currently expect to conclude that the first five of these six material weaknesses continue to exist as at December 31, 2004, and we continue
to identify, develop and begin to implement remedial measures to address them. These material weaknesses, if not fully addressed, could result
in accounting errors such as those underlying the restatements of our consolidated financial statements more fully discussed in “Developments
in 2003 and 2004—Nortel Networks Audit Committee Independent Review; restatements; related matters” in the MD&A and “Controls and
Procedures” section of this report. While our Board of Directors has approved the adoption of all of the recommendations for remedial
measures contained in the “Summary of Findings and of Recommended Remedial Measures of the Independent Review” in the “Controls and
Procedures” section of this report, and our management has adopted a number of measures to strengthen our internal control over financial
reporting and address the material weaknesses identified above, we may be unable to address such material weaknesses in a timely manner,
which could adversely impact the accuracy and timeliness of future reports and filings we make with the SEC and OSC.
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• an inappropriate ‘tone at the top’, which contributed to the lack of a strong control environment; as reported in the Independent
Review Summary set forth in the “Controls and Procedures” section of this report, there was a “Management ‘tone at the top’ that
conveyed the strong leadership message that earnings targets could be met through application of accounting practices that finance
managers knew or ought to have known were not in compliance with U.S. GAAP and that questioning these practices was not
acceptable”.