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As we and NNL will not have filed all of the Reports by January 15, 2005, EDC will have the right, on such date, (absent a further waiver in
relation to the delayed filings and the Related Breaches), to (i) terminate the EDC Support Facility (ii) exercise certain rights against collateral
or require NNL to cash collaterize all existing support, or (iii) require NNL to cash collaterize all existing support.
In addition, the Related Breaches will continue beyond the filing of the Reports. Accordingly, EDC will have the right (absent a further waiver
of the Related Breaches) beginning on January 15, 2005 to terminate or suspend the EDC Support Facility or exercise certain rights against
collateral notwithstanding the filing of the Reports. While NNL is seeking a permanent waiver from EDC in connection with the Related
Breaches, there can be no assurance that NNL will receive any waiver or as to the terms of any such waiver.
As of December 31, 2004, approximately $296 of outstanding support under the EDC Support Facility was outstanding, $212 of which was
outstanding under the revolving small bond sub-facility. See “Available support facility” and “Risk factors/forward looking statements”.
On April 28, 2004, NNL terminated the NNL and Nortel Networks Inc., or NNI, $750 April 2000 five year credit facilities, or the Five Year
Facilities. Absent such termination, the banks would have been permitted, upon 30 days’ notice, to terminate their commitments under the Five
Year Facilities as a result of NNL’s failure to file the NNL 2003 Annual Report on Form 10-K by April 29, 2004. Upon termination, the Five
Year Facilities were undrawn.
As a result of the termination of the Five Year Facilities, certain foreign security agreements entered into by NNL and various of its
subsidiaries, under which shares of certain subsidiaries of NNL incorporated outside of the U.S. and Canada were pledged in favor of the banks
under the Five Year Facilities, EDC and the holders of our and NNL’s outstanding public debt securities, also terminated in accordance with
their terms (see note 23 of the accompanying consolidated financial statements). In addition, the guarantees by certain subsidiaries of NNL
incorporated outside of the U.S. and Canada terminated in accordance with their terms. Because certain of the foreign security agreements,
including those relating to Nortel Networks S.A., were in place as of December 31, 2003, we have included Nortel Networks S.A. financial
statements in this report notwithstanding the subsequent termination of these agreements. Security agreements remain in place under which
substantially all of the assets of NNL located in the U.S. and Canada and those of most of its U.S. and Canadian subsidiaries, including the
shares of certain of NNL’s U.S. and Canadian subsidiaries, are pledged in favor of EDC and the holders of our and NNL’s outstanding public
debt securities. In addition, the guarantees by certain of NNL’s wholly owned subsidiaries, including NNI, most of NNL’s Canadian
subsidiaries, Nortel Networks (Asia) Limited, Nortel Networks (Ireland) Limited and Nortel Networks U.K. Limited, of NNL’s obligations
under the EDC Support Facility and our and NNL’s outstanding public debt securities, remain in place. See “Liquidity and capital resources”.
As a result of the delay in filing the Reports, we and NNL have not been in compliance with our obligations to deliver the Reports to the
trustees under our and NNL’s public debt indentures. As of December 31, 2004, approximately $1,800 of notes of NNL (or its subsidiaries)
and $1,800 of our convertible debt securities were outstanding.
These delays have not resulted in an automatic event of default and acceleration of the outstanding long-term debt and such default and
acceleration cannot occur unless notice by holders of at least 25% of the outstanding principal amount of any relevant series of debt securities
of such non-compliance is provided to us or NNL, as applicable, and we or NNL, as applicable, fail to file and deliver the relevant Report
within 90 days after such notice is provided, all in accordance with the terms of the indentures. While such notice could have been given at any
time after March 30, 2004, neither we nor NNL has received a notice to the date of this report. As a result of the continuing delay in filing
certain of our Reports, we and NNL continue to be in breach of our obligations under our and NNL’s public debt indentures, as described
above. If notice were given and acceleration of our debt securities were to occur, we may be unable to meet our payment obligations.
Based on publicly available information, we have reason to believe that more than 25% of the outstanding principal amount of the $150 of
7.875% notes due June 2026 issued by a subsidiary of NNL and guaranteed by us are held by one holder, or a group of related holders. Other
than with respect to that series of debt securities, based on such publicly available information, neither we nor NNL are aware of any holder, or
group of related holders, that holds at least 25% of the outstanding principal amount of any relevant series of debt securities. However, based
on such publicly available information, we have reason to believe that there is sufficient concentration among holders of the $150 of 7.40%
notes due June 2006 issued by NNL that the acquisition of a relatively small additional amount of these notes by certain holders could
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Credit facilities and securit
y
a
g
reements
Debt securities