Local News

Nortel Reaches Proposed $2.5 Billion Settlement in Class-Action Lawsuits

Posted February 8, 2006

— Nortel has reached a tentative settlement in two class-action lawsuits that were filed against the telecom gear manufacturer following a financial scandal.

The proposed deal includes a cash payment of $575 million as well as the issuance of stock worth some $1.9 billion.

In a statement released early Wednesday morning from its headquarters in Toronto, Nortel said it agreed to the settlement so its new management team could focus on building the company.

The settlement is being mediated by a federal judge in New York.

"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 Nortel's board of directors, in a statement. "A final settlement would remove a significant impediment to Nortel's future success and allow (Chief Executive Officer) Mike Zafirovski and the Nortel team to move forward."

The settlement agreement in principle includes:

1. A cash payment of $575 million by Nortel

2. The issuance of 628,667,750 common shares, which represent 14.5 percent of the company's current equity. Based on Tuesday's closing price of $3.02 a share, the value of the stock is $1.898 billion, Nortel said.

3. One half of any "recovery" Nortel might make in its own litigation against former Nortel CEO Frank Dunn and other former Nortel executives Douglas Beatty and Michael Gollogly, who were terminated "with cause" in April of 2004 as the accounting scandal unfolded

The proposed settlement does not address ongoing legal investigations by various government agencies, Nortel said. Various issues also remain unresolved, such as insurance and corporate governance.

The company also said the settlement would acknowledge no wrongdoing by Nortel or any other defendants

"Resolving these important issues will enhance the Company's ability to focus on our transformation and renewal priorities and our customers," Zafirovski said in a statement. "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."

Nortel

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