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California Supreme Court seeking permission to appeal the Court of Appeal decision. On October 22, 2003, the California Supreme Court
denied, without opinion, the defendants’ petition for review. On December 22, 2003, the plaintiffs served their motion for certification of a
class of purchasers of Bay Networks’ common shares from July 25, 1995 through to October 14, 1996. Hearing of the plaintiffs’ motion for
class certification was held on May 4, 2004. On July 27, 2004, the Court entered an Amended Order Denying Motion of Intervenor Plaintiffs
for Class Certification and Setting Further Hearing. On August 9, 2004, the intervenor-plaintiffs obtained Court approval to dismiss their
claims and this action and, on September 30, 2004, the Court entered dismissal with prejudice of the entire action of all parties and all causes of
action.
Subsequent to the March 10, 2004 announcement in which Nortel Networks indicated it was likely that it would need to revise its previously
announced unaudited results for the year ended December 31, 2003, and the results reported in 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
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