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The nature of the intellectual property indemnification obligations generally prevents Nortel Networks from making a reasonable
estimate of the maximum potential amount it could be required to pay to its customers and suppliers. Historically, Nortel Networks
has not made any significant indemnification payments under such agreements. A liability of $6 has been accrued in the
consolidated financial statements with respect to the obligations associated with these guarantees as of December 31, 2003.
(c) Lease a
g
reements
Nortel Networks has entered into agreements with its lessors that guarantee the lease payments of certain assignees of its facilities
to lessors. Generally, these lease agreements relate to facilities Nortel Networks vacated prior to the end of the term of its lease.
These lease agreements require Nortel Networks to make lease payments throughout the lease term if the assignee fails to make
scheduled payments. Most of these lease agreements also require Nortel Networks to pay for facility restoration costs at the end of
the lease term if the assignee fails to do so. These lease agreements have expiration dates through June 2015. The maximum amount
that Nortel Networks may be required to pay under these types of agreements is $57 as of December 31, 2003. Nortel Networks
generally has the ability to attempt to recover such lease payments from the defaulting party through rights of subrogation.
Historically, Nortel Networks has not made any significant payments under these types of guarantees and no significant liability has
been accrued in the consolidated financial statements with respect to the obligations associated with these guarantees.
(d) Third
p
art
y
debt a
g
reements
Nortel Networks has guaranteed the debt of certain customers. These third party debt agreements require Nortel Networks to make
debt payments throughout the term of the related debt instrument if the customer fails to make scheduled debt payments. These
third party debt agreements have expiration dates extending to May 2012. The maximum amount that Nortel Networks may be
required to pay under these types of debt agreements is $8 as of December 31, 2003. Under most such arrangements, the Nortel
Networks guarantee is secured, usually by the assets being purchased or financed. A liability of $7 has been accrued in the
consolidated financial statements with respect to the obligations associated with these financial guarantees as of December 31,
2003.
(e) Indemnification of banks and agents under credit facilities, EDC Support Facility and security
a
g
reements
As of December 31, 2003, Nortel Networks had agreed to indemnify the banks and agents under its credit facilities against costs or
losses resulting from changes in laws and regulations which would increase the banks’ costs or reduce their return and from any
legal action brought against the banks or agents related to the use of loan proceeds. Nortel Networks has also agreed to indemnify
EDC under the EDC Support Facility against any legal action brought against EDC that relates to the provision of support under the
EDC Support Facility. Nortel Networks has also agreed to indemnify the collateral agent under the security agreements against any
legal action brought against the collateral agent in connection with the collateral pledged under the security agreements. These
indemnifications generally apply to issues that arise during the term of the credit and support facilities, or for as long as the security
agreements remain in effect (see notes 11, 23 and 24).
Nortel Networks is unable to estimate the maximum potential liability for these types of indemnification guarantees as the
agreements typically do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent
events, the nature and likelihood of which cannot be determined at this time.
Historically, Nortel Networks has not made any significant indemnification payments under such agreements and no significant
liability has been accrued in the consolidated financial statements with respect to the obligations associated with these
indemnification guarantees.