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certain of its quarterly reports for 2003, and to restate its previously filed financial results for one or more earlier periods, Nortel
Networks and certain of its then current and former officers and directors were named as defendants in 27 purported class action lawsuits.
These lawsuits in the U.S. District Court for the Southern District of New York on behalf of shareholders who acquired Nortel Networks
Corporation securities as early as February 16, 2001 and as late as May 15, 2004, allege, among other things, violations of U.S. federal
securities laws. These matters are also the subject of investigations by Canadian and U.S. securities regulatory and criminal investigative
authorities (see note 23). On June 30, 2004, the Court signed Orders consolidating the 27 class actions and appointing lead plaintiffs and
lead counsel. The plaintiffs filed a consolidated class action complaint on September 10, 2004, alleging a class period of April 24, 2003
through and including April 27, 2004. On November 5, 2004, Nortel Networks Corporation and the Audit Committee Defendants filed a
motion to dismiss the consolidated class action complaint.
On May 18, 2004, a purported class action lawsuit was filed in the U.S. District Court for the Middle District of Tennessee on behalf of
participants and beneficiaries of the Plan at any time during the period of December 23, 2003 through the filing date and who made or
maintained Plan investments in Nortel Networks Corporation common shares, under the ERISA for Plan-wide relief and alleging, among
other things, breaches of fiduciary duty. On September 3, 2004, the Court signed a stipulated order consolidating this action with the
Consolidated ERISA Action described above. On June 16, 2004, a second purported class action lawsuit, on behalf of the Plan and Plan
participants for whose individual accounts the Plan purchased Nortel Networks Corporation common shares during the period from
October 24, 2000 to June 16, 2004, and making similar allegations, was filed in the U.S. District Court for the Southern District of New
York. On August 6, 2004, the Judicial Panel on Multidistrict Litigation issued a conditional transfer order to transfer this action to the
U.S. District Court for the Middle District of Tennessee for coordinated or consolidated proceedings pursuant to 28 U.S.C. section 1407
with the Consolidated ERISA Action described above. On August 20, 2004, plaintiffs filed a notice of opposition to the conditional
transfer order with the Judicial Panel. On December 6, 2004, the Judicial Panel denied the opposition and ordered the action transferred
to the U.S. District Court for the Middle District of Tennessee for coordinated or consolidated proceedings with the Consolidated ERISA
Action described above.
On July 28, 2004, Nortel Networks and NNL, and certain directors and officers, and certain former directors and officers, of Nortel
Networks and NNL, were named as defendants in a purported class proceeding in the Ontario Superior Court of Justice on behalf of
shareholders who acquired Nortel Networks Corporation securities as early as November 12, 2002 and as late as July 28, 2004. This
lawsuit alleges, among other things, breaches of trust and fiduciary duty, oppressive conduct and misappropriation of corporate assets and
trust property in respect of the payment of cash bonuses to executives, officers and employees in 2003 and 2004 under the Nortel
Networks Return to Profitability bonus program and seeks damages of Canadian $250 and an order under the Canada Business
Corporations Act directing that an investigation be made respecting these bonus payments.
On July 30, 2004, a shareholders’ derivative complaint was filed in the U.S. District Court for the Southern District of New York against
certain directors and officers, and certain former directors and officers, of Nortel Networks alleging, among other things, breach of
fiduciary duties owed to Nortel Networks during the period from 2000 to 2003 including by causing Nortel Networks to engage in
unlawful conduct or failing to prevent such conduct; causing Nortel Networks to issue false statements; and violating the law.
Except as otherwise described herein, in each of the matters described above, the plaintiffs are seeking an unspecified amount of
monetary damages.
Nortel Networks is also a defendant in various other suits, claims, proceedings and investigations which arise in the normal course of
business.
Nortel Networks is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact to Nortel Networks of the
above matters which, unless otherwise specified, seek damages from the defendants of material or indeterminate amounts or could result
in fines and penalties. Nortel Networks cannot determine whether these actions, suits, claims and proceedings will, individually or
collectively, have a material adverse effect on the business, results of operations, financial condition and liquidity of Nortel Networks.
Nortel Networks and any named directors and officers of Nortel Networks intend to vigorously defend these actions, suits, claims and
proceedings.
Environmental matters
Nortel Networks operations are subject to a wide range of environmental laws in various jurisdictions around the world. Nortel Networks
seeks to operate its business in compliance with such laws. In 2004, Nortel Networks expects to become subject to new European product
content laws and product takeback and recycling requirements that will require