Filter
Top Products
statement) filed with the SEC (with respect to the common shares to be delivered) that contains a related current prospectus. Under the terms of
the Purchase Contract and Unit Agreement, which governs the purchase contracts, we have agreed to use commercially reasonable efforts to
have in effect a registration statement covering the common shares to be delivered and to provide a prospectus in connection therewith.
On June 12, 2002, concurrent with the offering of our common shares, 28,750 equity units were offered, each initially evidencing ownership of
a prepaid forward purchase contract, or purchase contract, entitling the holder to receive our common shares, and specified zero-coupon U.S.
treasury strips. As of December 31, 2004, 3,840 purchase contracts were outstanding. The aggregate number of our common shares issuable on
the settlement date of the remaining purchase contracts will be between approximately 65 million and 78 million shares, subject to some anti-
dilution adjustments (which include adjustments for a possible consolidation of our common shares), depending on the applicable market value
of Nortel Networks common shares. The settlement date for each purchase contract is August 15, 2005, subject to acceleration or early
settlement in certain cases.
If we are involved in a merger, amalgamation, arrangement, consolidation or other reorganization event (other than with or into NNL or certain
other subsidiaries) in which all of our common shares are exchanged for consideration of at least 30% of the value of which consists of cash or
cash equivalents, then a holder of purchase contracts may elect to accelerate and settle some or all of its purchase contracts, for our common
shares. The settlement date under each purchase contract will automatically accelerate upon the occurrence of specified events of bankruptcy,
insolvency or reorganization with respect to us. Upon acceleration of the settlement date, holders will be entitled to receive 20,263.12 common
shares per purchase contract (regardless of the market price of our common shares at that time), subject to some anti-dilution adjustments. A
holder of purchase contracts may also elect to accelerate the settlement date of some or all of its purchase contracts. Upon an early settlement,
the holder will receive 16,885.93 common shares per purchase contract (regardless of the market price of Nortel Networks common shares at
that time), subject to some anti-dilution adjustments. For more information on early settlement of our purchase contracts, see “Capital stock —
Prepaid forward purchase contracts” in note 16 of the accompanying consolidated financial statements. An acceleration of the settlement date
or early settlement of our purchase contracts could contribute to volatility in the market price of our common shares.
Industry concerns could continue and increase our exposure to our customers’ credit risk and the risk that our customers will not be
able to fulfill their payment obligations to us under customer financing arrangements.
The competitive environment in which we operate has required us in the past to provide significant amounts of medium-term and long-term
customer financing. Customer financing arrangements may include financing in connection with the sale of our products and services, funding
for certain non-product and service costs associated with network installation and integration of our products and services, financing for
working capital and equity financing. While we have significantly reduced our customer financing exposure, we expect we may continue in the
future to provide customer financing to customers in areas that are strategic to our core business activity.
We expect to continue to hold most current and future customer financing obligations for longer periods prior to any possible placement with
third-party lenders, due to, among other factors, recent economic uncertainty in various countries, adverse capital market conditions, our
current credit condition, adverse changes in the credit quality of our customers and reduced demand for telecommunications financing in
capital and bank markets. In addition, risks generally associated with customer financing, including the risks associated with new technologies,
new network construction, market demand and competition, customer business plan viability and funding risks, may require us to hold certain
customer financing obligations over a longer term. We may not be able to place any of our current or future customer financing obligations
with third-party lenders on acceptable terms.
Certain customers have been experiencing financial difficulties and have failed to meet their financial obligations. As a result, we have
incurred charges for increased provisions related to certain trade and customer financing receivables. If there are further increases in the failure
of our customers to meet their customer financing and receivables obligations to us or if the assumptions underlying the amount of provisions
we have taken with respect to customer financing and receivables obligations do not reflect actual future financial conditions and customer
payment levels, we could incur losses in excess of our provisions, which could have a material adverse effect on our cash flow and operating
results.
Negative developments associated with our supply contracts and contract manufacturing agreements may materially and adversely
affect our business, results of operations, financial condition and supply relationships.
We have entered into supply contracts with customers to provide products and services, which in some cases involve new
109