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Nortel Reaches Agreement in Principle for Proposed Global Settlement of Shareholder Class Action Litigation

Toronto (ots/PRNewswire)

- Proposed Settlement to Include US$575 Million Cash Payment and
Issuance of Common Shares Representing 14.5% of Current Equity
Nortel(x) (NYSE: NT; TSX: NT) today announced that, as a result of
the previously announced mediation process entered into by the
Company with the lead plaintiffs in two significant class action
lawsuits pending in the Southern District of New York and based on
the recommendation of a senior Federal Judge, the Company and the
lead plaintiffs have reached an agreement in principle to settle
these lawsuits.
"Our intent is to achieve a fair resolution of these lawsuits and
avoid a prolonged, uncertain and costly litigation process," said
Harry Pearce, chairman of the Board of Directors, Nortel. "A final
settlement would remove a significant impediment to Nortel's future
success and allow Mike Zafirovski and the Nortel team to move
forward."
Dealing with the outstanding litigation and regulatory issues
facing the Company and effective corporate governance has been and
continues to be a key priority of Nortel. "Resolving these important
issues will enhance the Company's ability to focus on our
transformation and renewal priorities and our customers," said Mike
Zafirovski, president and CEO, Nortel. The proposed settlement would
be part of, and is conditioned on, the Company reaching a global
settlement encompassing all pending shareholder class actions and
proposed shareholder class actions commenced against the Company and
certain other defendants following the Company's announcement of
revised financial guidance during 2001, and the Company's revision of
its 2003 financial results and restatement of other prior periods.
The proposed settlement is also conditioned on Nortel and the lead
plaintiffs reaching agreement on corporate governance related matters
and the resolution of insurance related issues.
Nortel is committed to benchmarking its corporate governance
practices to those of companies ranked in the top quartile by
Institutional Shareholder Services. "The Board of Directors strongly
believes that sound and responsible corporate governance is integral
to Nortel's future," said Harry Pearce.
Under the terms of the proposed global settlement contemplated by
the agreement in principle, the Company would make a payment of
US$575 million in cash, issue 628,667,750 of its common shares
(representing 14.5% of its current equity), and contribute one-half
of any recovery in the existing litigation by Nortel against Messrs.
Frank Dunn, Douglas Beatty and Michael Gollogly, the Company's former
senior officers who were terminated for cause in April 2004. The
agreement in principle is also conditioned on the contribution of
available insurance, which has yet to be resolved. The total
settlement amount will include all plaintiffs' court-approved
attorneys' fees. Nortel has agreed to respond to the corporate
governance proposals of the lead plaintiffs and enter into a dialogue
to review the Company's corporate governance.
The proposed global settlement would also be conditioned on the
receipt of all required court, securities regulatory and stock
exchange approvals. The Company and the lead plaintiffs are
continuing discussions towards a definitive settlement agreement. At
this time, there can be no assurance that such an agreement can be
reached, that each of the actions noted above can be brought into, or
otherwise bound by, the proposed settlement, if finalized, or that
the proposed settlement would receive the required court and other
approvals in all applicable jurisdictions. These settlement
discussions are being mediated by United States District Court Judge,
the Honourable Robert W. Sweet, who is not presiding over any of the
actions that are the subject of the proposed settlement.
The proposed settlement would contain no admission of wrongdoing
by the Company or any of the other defendants.
"Today's agreement in principle is an important milestone for
Nortel," said Mike Zafirovski. "We continue to work vigorously on the
implementation of our remediation plan and addressing our outstanding
regulatory matters. In addition, we continue to improve our
governance provisions and financials systems and controls. These are
critically important for the Company. We remain fully committed to
rebuilding value for the benefit of all stakeholders."
As a result of the agreement in principle, the Company expects to
establish a litigation reserve and record a charge to its full-year
2005 financial results, applicable to the fourth quarter of 2005. The
cash portion of the settlement is expected to result in a pre-tax
charge of US$575 million, while the equity component of the
settlement will result in a non-cash charge based on the fair value
of the common shares issuable. Based on a closing price of US$3.02 as
of February 7, 2006, this charge would be approximately US$1.898
billion. This charge would be adjusted in connection with the
issuance of Nortel's 2005 year-end financial statements and in future
quarters until the finalization of the settlement. On an after-tax
basis, and based on the February 7, 2006 share valuation, the Company
expects to record a total charge of US$2.473 billion, or US$.57 per
share. The Company expects it would fund its cash contribution to the
settlement fund out of its then available cash balances.
The Company will continue to cooperate fully with the U.S. and
Canadian securities regulators and law enforcement authorities in
their ongoing investigations relating to the Company's accounting
restatements, and the proposed settlement does not relate to these
ongoing investigations. The proposed settlement also does not
encompass a related ERISA action and the pending application in
Canada for leave to commence a derivative action against certain
current and former officers and directors of Nortel. No additional
reserves have been taken by the Company at this time for any
potential judgments, fines, penalties or settlements that may arise
from these pending investigations or actions.
About Nortel
Nortel is a recognized leader in delivering communications
capabilities that enhance the human experience, ignite and power
global commerce, and secure and protect the world's most critical
information. Our next-generation technologies, for both service
providers and enterprises, span access and core networks, support
multimedia and business-critical applications, and help eliminate
today's barriers to efficiency, speed and performance by simplifying
networks and connecting people with information. Nortel does business
in more than 150 countries. For more information, visit Nortel on the
Web at www.nortel.com. For the latest Nortel news, visit
www.nortel.com/news.
Certain information included in this press release is
forward-looking and is subject to important risks and uncertainties.
The results or events predicted in these statements may differ
materially from actual results or events. Factors which could cause
results or events to differ from current expectations include, among
other things: the outcome of regulatory and criminal investigations
and civil litigation actions related to Nortel's restatements and the
impact any resulting legal judgments, settlements, penalties and
expenses could have on Nortel's results of operations, financial
condition and liquidity, and any related potential dilution of
Nortel's common shares; the findings of Nortel's independent review
and implementation of recommended remedial measures; the outcome of
the ongoing independent review with respect to revenues for specific
identified transactions, which review will have a particular emphasis
on the underlying conduct that led to the initial recognition of
these revenues; the restatement or revisions of Nortel's previously
announced or filed financial results and resulting negative
publicity; the existence of material weaknesses in Nortel's internal
control over financial reporting and the conclusion of Nortel's
management and independent auditor that Nortel's internal control
over financial reporting is ineffective, which could continue to
impact Nortel's ability to report its results of operations and
financial condition accurately and in a timely manner; the impact of
Nortel's and NNL's failure to timely file their financial statements
and related periodic reports, including Nortel's inability to access
its shelf registration statement filed with the United States
Securities and Exchange Commission (SEC); the impact of management
changes, including the termination for cause of Nortel's former CEO,
CFO and Controller in April 2004; the sufficiency of Nortel's
restructuring activities, including the work plan announced on August
19, 2004 as updated on September 30, 2004 and December 14, 2004,
including the potential for higher actual costs to be incurred in
connection with restructuring actions compared to the estimated costs
of such actions; cautious or reduced spending by Nortel's customers;
increased consolidation among Nortel's customers and the loss of
customers in certain markets; fluctuations in Nortel's operating
results and general industry, economic and market conditions and
growth rates; fluctuations in Nortel's cash flow, level of
outstanding debt and current debt ratings; Nortel's monitoring of the
capital markets for opportunities to improve its capital structure
and financial flexibility; Nortel's ability to recruit and retain
qualified employees; the use of cash collateral to support Nortel's
normal course business activities; the dependence on Nortel's
subsidiaries for funding; the impact of Nortel's defined benefit
plans and deferred tax assets on results of operations and Nortel's
cash flow; the adverse resolution of class actions, litigation in the
ordinary course of business, intellectual property disputes and
similar matters; Nortel's dependence on new product development and
its ability to predict market demand for particular products;
Nortel's ability to integrate the operations and technologies of
acquired businesses in an effective manner; the impact of rapid
technological and market change; the impact of price and product
competition; barriers to international growth and global economic
conditions, particularly in emerging markets and including interest
rate and currency exchange rate fluctuations; the impact of
rationalization and consolidation in the telecommunications industry;
changes in regulation of the Internet; the impact of the credit risks
of Nortel's customers and the impact of customer financing and
commitments; general stock market volatility; negative developments
associated with Nortel's supply contracts and contract manufacturing
agreements, including as a result of using a sole supplier for a key
component of certain optical networks solutions; the impact of
Nortel's supply and outsourcing contracts that contain delivery and
installation provisions, which, if not met, could result in the
payment of substantial penalties or liquidated damages; any
undetected product defects, errors or failures; the future success of
Nortel's strategic alliances; and certain restrictions on how Nortel
and its president and chief executive officer conduct business. For
additional information with respect to certain of these and other
factors, see the most recent Annual Report on Form 10-K and Quarterly
Report on Form 10-Q filed by Nortel with the SEC. Unless otherwise
required by applicable securities laws, Nortel disclaims any
intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
(x)Nortel, the Nortel logo and the Globemark are trademarks of
Nortel.

Contact:

For further information: Patti Vernon, +1-(905)-863-1035,
patricve@nortel.com; Investors, +1-(888)-901-7286, +1-(905)-863-6049,
investor@nortel.com

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