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We are subject to ongoing regulatory and criminal investigations in the U.S. and Canada, which could require us to pay substantial
fines or other penalties.
We are under investigation by the SEC and the OSC. On April 5, 2004, we announced that the SEC had issued a formal order of investigation
in connection with our previous restatement of financial results for certain periods and our announcements in March 2004 regarding the likely
need to revise certain previously announced results and restate previously filed financial results for one or more earlier periods.
On April 13, 2004, we announced that we had received a letter from the staff of the OSC advising us of an OSC Enforcement Staff
investigation into the same matters that are the subject of the SEC investigation.
We have also 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 RCMP has advised us that it would be commencing a criminal investigation into our financial
accounting situation.
Our senior management and Board of Directors have been required to devote significant time to these investigations and related matters. We
cannot predict when these investigations will be completed, nor can we predict what the results of these investigations may be. Expenses
incurred in connection with these investigations (which include substantial fees of lawyers and other professional advisors and potential
obligations to indemnify officers and directors who may be parties to such actions) could adversely affect our cash position. We may be
required to pay material fines, consent to injunctions on future conduct or suffer other penalties, each of which could have a material adverse
effect on our business, results of operations, financial condition and liquidity. The investigations may adversely affect our ability to obtain,
and/or increase the cost of obtaining, directors’ and officers’ liability insurance and/or other types of insurance, which could have a material
adverse affect on our business, results of operations and financial condition. In addition, the findings and outcomes of the Independent Review
and the regulatory and criminal investigations may affect the course of the civil litigation pending against us, which are more fully described
below.
The effects and results of these or other investigations may have a material adverse effect on our business, results of
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substantial judgments, settlements or other penalties.
• Material adverse legal judgments, fines, penalties or settlements could have a material adverse effect on our business, results of
operations, financial condition and liquidity, which could be very significant.
• We cannot predict the outcome of the Revenue Independent Review being undertaken by our Audit Committee.
• We and our independent auditors have identified a number of material weaknesses related to our internal control over financial
reporting, which could continue to impact our ability to report our results of operations and financial condition accurately and in a
timely manner.
• The governing principles of the Independent Review particularly as they relate to remedial measures may take time to implement.
• The delayed filing of our Reports and related matters caused us to breach our public debt indentures and seek waivers from EDC
under the EDC Support Facility, which may affect our liquidity. The continuing delays in filing certain of our Reports and related
matters has resulted in a continuing breach of our public debt indentures and our obligations under the EDC Support Facility. It is
possible that the holders of our public debt will seek to accelerate the maturity of that debt and EDC will not grant us additional
waivers.
• Our credit ratings have been downgraded, we are currently unable to access our shelf registration statement filed with the SEC and
we terminated the Five Year Facilities, each of which may affect our liquidity.
• The delay in filing certain of our Reports could cause the TSX and/or the NYSE to commence suspension or delisting procedures in
respect of Nortel Networks Corporation’s common shares or other of our or NNL’s listed securities.
• Continuing negative publicity may adversely affect our business and the market price of our publicly traded securities.
• We may not be able to attract or retain the personnel necessary to achieve our business objectives.
• Ongoing SEC review may require us to amend our public disclosures further.