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result in a holder or a group of related holders holding 25% or more of the outstanding principal amount of these notes. See “Liquidity and
capital resources” and “Risk factors/forward looking statements”.
Owing to the delayed filing of the Reports, we are currently unable to use, in its current form, the remaining approximately $800 of capacity
under our shelf registration statement filed with the SEC for various types of securities. See “Liquidity and capital resources” and “Risk
factors/forward looking statements”.
On April 28, 2004, Standard and Poor’s, or S&P, downgraded its ratings on NNL, including its long-term corporate credit ratings from “B” to
“B-” and its preferred shares rating from “CCC” to “CCC-”. At the same time, it revised its outlook to developing from negative. On April 28,
2004, Moody’s Investors Service, Inc., or Moody’s, changed its outlook to potential downgrade from uncertain. See “Credit ratings” and “Risk
factors/forward looking statements”.
We are under investigation by the SEC and the Ontario Securities Commission, or OSC, Enforcement Staff. In addition, Nortel Networks has
received a U.S. federal grand jury subpoena for the production of certain documents sought in connection with an ongoing criminal
investigation being conducted by the U.S. Attorney’s Office for the Northern District of Texas, Dallas Division. Further, the Integrated Market
Enforcement Team of the Royal Canadian Mounted Police, or RCMP, has advised us that it would be commencing a criminal investigation
into our financial accounting situation. We will continue to cooperate fully with all authorities in connection with these investigations and
reviews. See “Legal proceedings” and “Risk factors/forward looking statements”.
In addition, numerous class action complaints have been filed against Nortel Networks, including class action complaints under the Employee
Retirement Income Security Act, or ERISA. In addition, a derivative action complaint has been filed against Nortel Networks. These pending
civil litigation actions and regulatory and criminal investigations are significant and if decided against us, could materially adversely affect our
financial condition and liquidity by requiring us to pay substantial judgments, settlements, fines or other penalties. See “Liquidity and capital
resources”, “Legal proceedings” and “Risk factors/forward looking statements”.
On May 31, 2004, the OSC issued a final order prohibiting all trading by our directors, officers and certain current and former employees in the
securities of Nortel Networks Corporation and NNL. This order will remain in effect until two full business days following the receipt by the
OSC of all filings required to be made by us and NNL pursuant to Ontario securities laws.
We and NNL continue to provide periodic updates to the NYSE and the TSX concerning our and NNL’s delay in filing certain of the Reports.
The NYSE granted us and NNL an extension of up to March 31, 2005 to file our 2003 Annual Reports, during which the Nortel Networks
Corporation common shares and our and NNL’s other securities remain listed on the NYSE. To the date of this report, neither the NYSE nor
the TSX has commenced any suspension or delisting procedures in respect of Nortel Networks Corporation common shares or other of our or
NNL’s listed securities. The commencement of any suspension or delisting procedure by either exchange remains, at all times, at the discretion
of such exchange, and would be publicly announced by the exchange. See “Risk factors/forward looking statements”.
As a result of our March 10, 2004 announcement that we and NNL would need to delay the filing of our 2003 Annual Reports, we suspended
as of March 10, 2004: the purchase of Nortel Networks Corporation common shares under the stock purchase plans for eligible employees in
eligible countries that facilitate the acquisition of Nortel Networks Corporation common shares; the exercise of outstanding options granted
under the Nortel Networks Corporation 2000 Stock Option Plan, or the 2000 Plan, or Nortel Networks Corporation 1986 Stock Option Plan as
amended and restated, or the 1986 Plan, or the grant of any additional options under those plans, or the exercise of outstanding options granted
under employee stock option plans previously assumed by us in connection with mergers and acquisitions; and the purchase of units in a Nortel
Networks stock fund or purchase of Nortel Networks Corporation common shares under our defined contribution and investments plans, until
such time as, at the earliest, that we are in compliance with U.S. and Canadian regulatory securities filing requirements.
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