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development, increased financial strength, or a broader base of customers, creating even more powerful or aggressive competitors. We may
also see rationalization among equipment/component suppliers. The business failures of operators, competitors or suppliers may cause
uncertainty among investors and in the industry generally and harm our business.
Changes in regulation of the Internet and/or other aspects of the industry may affect the manner in which we conduct our business and
may materially and adversely affect our business, results of operations and financial condition.
Investment decisions of our customers could be affected by regulation of the Internet or other aspects of the industry in any country where we
operate. We could also be materially and adversely affected by an increase in competition among equipment suppliers or by reduced capital
spending by our customers, as a result of a change in the regulation of the industry. If a jurisdiction in which we operate adopts measures which
affect the regulation of the Internet and/or other aspects of the industry, we could experience both decreased demand for our products and
increased costs of selling such products. Changes in laws or regulations governing the Internet, Internet commerce and/or other aspects of the
industry could have a material adverse effect on our business, results of operations and financial condition.
In the U.S., on February 20, 2003, the FCC announced a decision in its triennial review proceeding of the agency’s rules regarding UNEs. The
text of the FCC’s order and reasons for the decision were released on August 21, 2003. The uncertainty surrounding the impact of the FCC
decision and subsequent adoption on December 15, 2004 of new unbundling rules in response to the remand by the U.S. Court of Appeals for
the D.C. Circuit is affecting, and may continue to affect, the decisions of certain of our U.S.-based service provider customers regarding
investment in their telecommunications infrastructure. These UNE rules and/or material changes in other country-specific telecommunications
or other regulations may affect capital spending by certain of our service provider customers, which could have a material adverse effect on our
business, results of operations and financial condition.
In Europe, we expect to become subject to new product content laws and product takeback and recycling requirements that will require full
compliance by 2006. We expect that these laws will require us to incur additional compliance costs. Although compliance costs relating to
environmental matters have not resulted in a material adverse effect on our business, results of operations and financial condition in the past,
they may result in a material adverse effect in the future.
Our stock price has historically been volatile and further declines in the market price of our publicly traded securities may negatively
impact our ability to make future acquisitions, raise capital, issue debt and retain employees.
Our publicly traded securities have experienced, and may continue to experience, substantial price volatility, including considerable decreases,
particularly as a result of variations between our actual or anticipated financial results and the published expectations of analysts and as a result
of announcements by our competitors and us, including our announcements related to the Independent Review, our management changes, the
First Restatement and the Second Restatement, the regulatory and criminal investigations, the class action litigations and other civil
proceedings and related matters. Our credit quality, any equity or equity related offerings, operating results and prospects, restatements of
previously issued financial statements, including any exclusion of our publicly traded securities from any widely followed stock market
indices, among other factors, will also affect the market price of our publicly traded securities.
The stock markets have experienced extreme price fluctuations that have affected the market price and trading volumes of many technology
and telecommunications companies in particular, with potential consequential negative effects on the trading of securities of those companies.
A major decline in the capital markets generally, or an adjustment in the market price or trading volumes of our publicly traded securities, may
negatively impact our ability to raise capital, issue debt, secure customer business, retain employees or make future acquisitions. These factors,
as well as general economic and geopolitical conditions, and continued negative events within the technology sector, may in turn have a
material adverse effect on the market price of our publicly traded securities.
Early settlement of our purchase contracts is currently not available to holders of purchase contracts. Acceleration of the settlement
date on early settlement of our purchase contracts could contribute to volatility in the market price of our common shares.
Owing to matters described above in “Developments in 2003 and 2004 — Nortel Networks Audit Committee Independent Review;
restatements; related matters” with respect to the delayed filing of the Reports, we are currently unable to permit holders of our prepaid forward
purchase contracts to exercise certain “early settlement” rights and receive Nortel Networks Corporation common shares in advance of the
otherwise applicable August 15, 2005 settlement date. These rights again will become exercisable upon the effectiveness of a registration
statement (or a post-effective amendment to the shelf registration
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