Nortel Amends Security Agreements and Enters Support Facility

On December 12, 2002, Nortel Networks Limited amended certain security agreements entered into during the first quarter of 2002 by Nortel and certain of its subsidiaries in connection with certain of its syndicated credit facilities. Pursuant to the agreements, security was granted over assets of Nortel and certain of its subsidiaries and held in escrow by JPMorgan Chase Bank, as collateral agent, only to be released from escrow in the event that Nortel’s U.S. senior unsecured debt rating fell below the investment grade level. The security became effective on April 4, 2003, and is currently held by JPMorgan Chase Bank, as collateral agent, for the equal and ratable benefit of certain banks that are party to Nortel’s syndicated credit facilities, holders of Nortel’s public debt securities and other secured parties. The amendments to the security agreements completed in December 2002 permit Nortel and certain of its subsidiaries, among other things, to designate certain additional indemnity, guarantee and reimbursement obligations relating to letters of credit, letter of guarantee, indemnity arrangements, performance bonds, receivables purchases and similar instruments and arrangements as secured obligations or guaranteed and secured obligations under the security agreements. As a result of such designations, the holders of any additional obligations so designated become “secured parties” with respect to such secured obligations or guaranteed and secured obligations, as applicable, for all purposes under the agreements.

As part of the amendments to the security agreements, Nortel agreed to terminate its US$1.175 billion undrawn credit facilities that would otherwise have expired in April 2003. Nortel’s US$1.5 billion undrawn credit facilities expired on December 13, 2002, and its US$750 million credit facilities remain undrawn and available.

On February 14, 2003, Nortel entered into a master facility agreement and a master indemnity agreement (collectively, the EDC agreements) with Export Development Canada (EDC) pursuant to which EDC provides performance-related support, on a secured basis, in respect of certain obligations of Nortel or its subsidiaries arising out of business activities including letters of credit, letter of guarantee, indemnity arrangements, performance bonds, receivables purchases and similar instruments issued or entered into for the benefit of Nortel. The EDC facility provides for up to US$750 million in performance-related support and is comprised of: (i) up to US$300 million of committed support for performance bonds or similar instruments (within certain parameters); (ii) up to US$150 million of uncommitted support for receivables sales/securitizations; and (iii) up to US$300 million of additional uncommitted support for performance bonds and receivables sales/securitizations. In connection with the completion of the EDC agreements and in accordance with the security agreements, Nortel designated certain obligations owing to EDC under the EDC agreements as secured obligations or guaranteed and secured obligations under the security agreements. As a result of such designations, EDC became a “secured party” with respect to such secured obligations or guaranteed and secured obligations, as applicable (to the extent such obligations are held by EDC), for all purposes under the security agreements.

Nortel was represented by in-house counsel Nicholas DeRoma, Michael Neylan, Tracy Connelly, Lynn Egan and Blair Morrison. In Canada, Nortel was represented by Ogilvy Renault with a team that included James Riley, Nicole Sigouin and Laverne Garcia (corporate finance) and Michael Lang (corporate securities) in Toronto, John Naccarato (real estate) in Ottawa and Martin Thériault (corporate finance) in Montreal; and in the U.S., by Cleary, Gottlieb, Steen & Hamilton with a team that included Wanda Olson, Craig Brod, Penelope Christophorou and Jonathan Wiener (corporate) and Donald Stern (real estate).

JPMorgan Chase Bank and the syndicate of lenders were represented in Canada, by McMillan Binch LLP with a team that included Tim Baron and David Taylor (corporate finance) and Andrea Onn (real estate); and in the U.S., by Davis Polk & Wardwell with a team that included Peter Levin, Tiziana Tabucchi, Jason Kyrwood and Elizabeth Pinho (credit transactions) and Susan Kennedy and Matthew Weidner (real estate).

EDC was represented by in-house counsel Joan Monahan, Joanne Paquette and Jean Fournier. In Canada, EDC was represented by Fasken Martineau DuMoulin LLP with a team that included Roxanne McCormick and Janice Javier (corporate finance); and in the U.S., by James Patti, assisted by Shoufen Hu, and Frank Arado (real estate), all of Mayer, Brown, Rowe & Maw.

Lawyer(s)

Craig B. Brod Michael J. Lang Peter S.W. Levin James P. Patti Penelope L. Christophorou Martin Thériault François Caron Roxanne E. McCormick Shoufen Hu Donald A. Stern David Taylor C. Nicole Sigouin Jonathan B. Wiener Laverne Garcia Jason Kyrwood D. John Naccarato A. Timothy Baron Janice J. Javier James A. Riley Susan D. Kennedy Frank E. Arado Andrea L. Onn