11. Financial instruments
Share pledge
The security agreements that were entered into in connection with the December 2001
The security became effective in the second quarter of 2002, following the downgrade by Moody’s Investors Services, Inc. (“Moody’s”) of Nortel Networks senior
On February 14, 2003, Nortel Networks entered into an agreement with Export Development Canada (“EDC”) regarding arrangements to provide for support, on a secured basis, of certain performance related obligations arising out of normal course business activities for the benefit of Nortel Networks (the “EDC Support Facility”). On February 14, 2003, Nortel Networks obligations under the EDC Support Facility became secured on an equal and ratable basis under the security agreements with the banks under the Five Year Facilities and the public debt holders.
If Nortel Networks senior
Receivables sales
In 2002 and 2001, Nortel Networks S.A. entered into various agreements to sell certain of its receivables. These receivables were sold at a discount of 463 and 2,884 from book value for the years ended December 31, 2002 and 2001, respectively, at annualized discount rates of approximately 3 percent to 4.5 percent and 5 percent to 6 percent for the years ended December 31, 2002 and 2001, respectively. These programs were discontinued in 2002.
12. Guarantees
Nortel Networks S.A. has entered into agreements that contain features which meet the definition of a guarantee under FIN 45. FIN 45 defines a guarantee as a contract that contingently requires Nortel Networks S.A. to make payments (either in cash, financial instruments, other assets, or through the provision of services) to a third party based on changes in an underlying economic characteristic (such as interest rates or market value) that is related to an asset, a liability or an equity security of the guaranteed party or a third party’s failure to perform under a specified agreement. A description of the major types of Nortel Networks S.A. outstanding guarantees as of December 31, 2003 is provided below.
Nortel Networks S.A. has entered into an agreement to indemnify a certain lessor, through the term of the lease, which expires in
May 2013, against costs incurred as a result of changes in laws and regulations (including tax legislation) or in the interpretations of such laws and regulations and/or as a result of losses from litigation that may be suffered by them or if the transaction becomes invalid. The
maximum amount that Nortel Networks may be required to pay if the transaction becomes invalid is approximately | 76,457. The lease | ||
€ | € | 215 | € |
pursuant to which the guarantee was provided is a capital lease and this liability is, therefore, part of the debt of Nortel Networks S.A.
The maximum potential losses resulting from the other types of lease guarantees cannot be reasonably estimated. The difficulties in assessing the amount of liability result primarily from the unpredictability of the triggering events of the