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Subsequent to the February 15, 2001 announcement in which Nortel Networks provided revised guidance for financial performance for the
2001 fiscal year and the first quarter of 2001, Nortel Networks and certain of its then current officers and directors were named as defendants
in more than twenty-five purported class action lawsuits. These lawsuits in the U.S. District Courts for the Eastern District of New York, for
the Southern District of New York and for the District of New Jersey and the provinces of Ontario, Quebec and British Columbia in Canada,
on behalf of shareholders who acquired Nortel Networks Corporation securities as early as October 24, 2000 and as late as February 15, 2001,
allege, among other things, violations of U.S. federal and Canadian provincial securities laws. These matters also have been the subject of
review by Canadian and U.S. securities regulatory authorities. On May 11, 2001, the defendants filed motions to dismiss and/or stay in
connection with the three proceedings in Quebec primarily based on the factual allegations lacking substantial connection to Quebec and the
inclusion of shareholders resident in Quebec in the class claimed in the Ontario lawsuit. The plaintiffs in two of these proceedings in Quebec
obtained court approval for discontinuances of their proceedings on January 17, 2002. The motion to dismiss and/or stay the third proceeding
was heard on November 6, 2001 and the court deferred any determination on the motion to the judge who will hear the application for
authorization to commence a class proceeding. On December 6, 2001, the defendants filed a motion seeking leave to appeal that decision. The
motion for leave to appeal was dismissed on March 11, 2002. On October 16, 2001, an order in the Southern District of New York was filed
consolidating twenty-five of the related U.S. class action lawsuits into a single case, appointing class plaintiffs and counsel for such plaintiffs.
The plaintiffs served a consolidated amended complaint on January 18, 2002. On December 17, 2001, the defendants in the British Columbia
action served notice of a motion requesting the court to decline jurisdiction and to stay all proceedings on the grounds that British Columbia is
an inappropriate forum. The motion has been adjourned at the plaintiffs’ request to a future date to be set by the parties.
A class action lawsuit against Nortel Networks was also filed in the U.S. District Court for the Southern District of New York on behalf of
shareholders who acquired the securities of JDS between January 18, 2001 and February 15, 2001, alleging violations of the same U.S. federal
securities laws as the above-noted lawsuits.
On April 1, 2002, Nortel Networks filed a motion to dismiss both the above consolidated U.S. shareholder class action and the above JDS
shareholder class action complaints on the grounds that they failed to state a cause of action under U.S. federal securities laws. With respect to
the JDS shareholder class action complaint, Nortel Networks also moved to dismiss on the separate basis that JDS shareholders lacked standing
to sue Nortel Networks. On January 3, 2003, the District Court granted the motion to dismiss the JDS shareholder class action complaint and
denied the motion to dismiss the consolidated U.S. class action complaint. Plaintiffs appealed the dismissal of the JDS shareholder class action
complaint. On November 19, 2003, oral argument was held before the Second Circuit on the JDS shareholders’ appeal of the dismissal of their
complaint. On May 19, 2004, the Second Circuit issued an opinion affirming the dismissal of the JDS shareholder class action complaint and
on July 14, 2004 the Second Circuit denied plaintiffs’ motion for rehearing. On October 12, 2004, the plaintiffs filed a petition for writ of
certiorari in the U.S. Supreme Court. On November 12, 2004, the defendants filed Brief for the Respondents in Opposition, and on
November 22, 2004, the plaintiffs filed Reply to Brief in Opposition. With respect to the consolidated U.S. shareholder class action, the
plaintiffs served a motion for class certification on March 21, 2003. On May 30, 2003, the defendants served an opposition to the motion for
class certification. Plaintiffs’ reply was served on August 1, 2003. The District Court held oral arguments on September 3, 2003 and issued an
order granting class certification on September 5, 2003. On September 23, 2003, the defendants filed a motion in the Second Circuit for
permission to appeal the class certification decision. The plaintiffs’ opposition to the motion was filed on October 2, 2003. On November 24,
2003, the Second Circuit denied the motion. On March 10, 2004, the District Court approved the form of notice to the class which was
published and mailed.
On July 17, 2002, a new purported class action lawsuit (the “Ontario Claim”) was filed in the Ontario Superior Court of Justice, Commercial
List, naming Nortel Networks, certain of its current and former officers and directors and its auditors as defendants. The factual allegations in
the Ontario Claim are substantially similar to the allegations in the consolidated amended complaint filed in the U.S. District Court described
above. The Ontario Claim is on behalf of all Canadian residents who purchased Nortel Networks Corporation securities (including options on
Nortel Networks Corporation securities) between October 24, 2000 and February 15, 2001. The plaintiffs claim damages of Canadian $5,000,
plus punitive damages in the amount of Canadian $1,000, prejudgment and postjudgment interest and costs of the action. On September 23,
2003, the Court issued an order allowing the plaintiffs to proceed to amend the Ontario Claim and requiring that the plaintiffs serve class
certification materials by December 15, 2003. On September 24, 2003, the plaintiffs filed a notice of discontinuance of the original action filed
in Ontario. On December 12, 2003, plaintiffs’ counsel requested an extension of time to January 21, 2004 to deliver class certification
materials. On January 21, 2004, plaintiffs’ counsel advised the Court that the two representative plaintiffs in the action no longer wished to
proceed, but counsel was prepared to deliver draft certification
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