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F-66
greater of Canadian $2.50 per common share and 95 percent of the weighted-average trading price per common share of Nortel Networks
Corporation on the TSX for the 10 trading days immediately preceding the date on which such common shares were issued in the
exchange.
Pre
p
aid forward
p
urchase contracts
On June 12, 2002, concurrent with Nortel Networks Corporation common share offering, 28,750 equity units were offered, each initially
evidencing its holder’s ownership of a prepaid forward purchase contract (“purchase contract”), entitling the holder to receive Nortel
Networks Corporation common shares and specified zero-coupon U.S. treasury strips (“U.S. treasury strips”). Net proceeds to Nortel
Networks from the purchase contracts were $623. During the year ended December 31, 2003, 19,029 purchase contracts were settled
early, resulting in 321,322,349 Nortel Networks Corporation common shares being issued for net proceeds of $413. During the year
ended December 31, 2002, 28 purchase contracts were settled early, resulting in 448,309 common shares being issued for net proceeds of
$1. As of December 31, 2003 and 2002, 9,693 and 28,722 purchase contracts, respectively, were outstanding. The purchase contracts are
classified in shareholders’ equity as part of additional paid-in capital.
The settlement date for each remaining purchase contract is August 15, 2005, subject to acceleration or early settlement in certain cases.
As of December 31, 2003, the aggregate number of Nortel Networks Corporation common shares issuable on the settlement date will be
between approximately 164 million and 196 million shares, subject to certain anti-dilution adjustments (which included adjustments for
the proposed consolidation of Nortel Networks Corporation common shares). On the settlement date (or earlier if an acceleration event
occurs prior to the settlement date or if the holder has elected an early settlement option), Nortel Networks Corporation will issue and
deliver to the holder of each purchase contract after February 15, 2003 between 16,885.93 and 20,263.12 of its common shares
(depending on the applicable market value), subject to certain anti-dilution adjustments. The applicable market value will be the average
of the closing prices of Nortel Networks Corporation common shares on the NYSE during a period shortly before the settlement date. If
the applicable market value of Nortel Networks Corporation common shares is:
• greater than $1.692 per share, 16,885.93 common shares will be issued and delivered for each purchase contract;
• less than or equal to $1.692 per share but greater than $1.410 per share, the number of common shares to be issued and
delivered for each purchase contract will be equal to $28,571.00 divided by the applicable market value; and
• less than or equal to $1.410 per share, 20,263.12 common shares will be issued and delivered for each purchase contract.
A holder of purchase contracts may elect to accelerate the settlement date in respect of some or all of its purchase contracts. Upon an
early settlement on or after August 15, 2002 and prior to February 15, 2003, the holder was entitled to receive 16,011.04 Nortel Networks
Corporation common shares per purchase contract (regardless of the market price of Nortel Networks Corporation common shares at that
time), subject to certain anti-dilution adjustments. Upon an early settlement on or after February 15, 2003, the holder will receive
16,885.93 Nortel Networks Corporation common shares per purchase contract (regardless of the market price of Nortel Networks
Corporation common shares at that time), subject to certain anti-dilution adjustments. Owing to the matters described in note 3 with
respect to the delayed filings of the Reports, Nortel Networks is currently unable to permit holders of purchase contracts to exercise their
early settlement rights. These rights will again become exercisable upon the effectiveness of a registration statement (or post-effective
amendment to the shelf registration statement) filed with the SEC (with respect to the common shares to be delivered) that contains a
related current prospectus.
If Nortel Networks is 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 its common shares are exchanged for consideration of at least 30 percent 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 Nortel Networks Corporation common shares.
The settlement date under each purchase contract will automatically accelerate upon occurrence of specified events of bankruptcy,
insolvency or reorganization with respect to Nortel Networks. Upon acceleration of the settlement date, holders will be entitled to receive
20,263.12 Nortel Networks Corporation common shares per purchase contract (regardless of the market price of Nortel Networks
Corporation common shares at that time), subject to certain anti-dilution adjustments.