Nortel Announces Workforce Reductions

February 25, 2009

TORONTO - Nortel* [TSX: NT, OTC: NRTLQ], today announced it intends to reduce its workforce by an additional net 3,200 positions worldwide. The company expects to carry out these reductions over the next several months, in accordance with local country legal requirements.  These new reductions are incremental to the 1,800 remaining reductions from previously announced plans that require completion.

"There is nothing more difficult than notifying employees, and Nortel is extremely conscious of the personal financial burden this will cause affected employees and their families," said Mike Zafirovski, Nortel president and chief executive officer. "Nortel is a company driven by people and innovation.  But with the unprecedented economic environment and resultant impacts on revenues, significant changes are required to regain our financial footing.  Tough decisions are being made to restructure the company and work towards a successful emergence from creditor protection."

As previously announced, Nortel is in the process of preparing a comprehensive business and financial restructuring plan with the goal of emerging from the creditor protection process as a more focused and competitive company.  The Company is working with several parties, including its creditors, to define the best plan forward to present to the courts.  Nortel is taking the initial steps announced today in a disciplined fashion to ensure it has appropriate resources to fully serve its customers with leading solutions and innovations. 

"We remain deeply committed to our customers and are staffed to meet their needs as we take the necessary actions to strengthen the Company," said Zafirovski.  "Throughout the process, we are committed to maintaining current high service levels and appropriate innovation investment levels to ensure best in class technology continues to be available to Nortel's global customer base."

Employee Compensation Program Changes

The Board of Directors has approved changes to Nortel compensation programs consistent with best practices for companies working through restructuring in order to maximize stakeholder value and emerge as a more focused and competitive company. 

The Board has approved management's recommendation to not pay any bonuses under the Nortel Annual Incentive Plan (AIP) for 2008.  In addition, Nortel is seeking Canadian court approval to terminate its equity based compensation plans, including all outstanding equity under the plans (including stock options, restricted stock units and performance stock units), whether vested or unvested, and no further equity will be awarded in 2009. 

Nortel will continue its AIP in 2009 for all eligible full and part-time employees.  The plan is being modified to permit quarterly rather than annual award determinations and payouts.  This will provide a more immediate incentive for employees upon the achievement of critical shorter-term corporate performance objectives, including specific operational metrics in support of customer service levels as the Company works through its business and financial restructuring. The Company will seek to implement, and request court approval where required, retention and incentive compensation for certain key eligible employees deemed essential to the business while under court protection.

More information about Nortel's restructuring process can be found at http://www.nortel.com/restructuring [1]

About Nortel

Nortel is a recognized leader in delivering communications capabilities that make the promise of Business Made Simple a reality for our customers. Our next generation technologies, for both service provider and enterprise networks, support multimedia and business critical applications. Nortel's technologies are designed to help eliminate today's barriers to efficiency, speed and performance by simplifying networks and connecting people to the information they need, when they need it. Nortel does business in more than 150 countries around the world. For more information, visit Nortel on the Web at www.nortel.com [2]. For the latest Nortel news, visit www.nortel.com/news [3].

Certain statements in this press release may contain words such as "could", "expects", "may", "anticipates", "believes", "intends", "estimates", "targets", "envisions", "seeks" and other similar language and are considered forward-looking statements or information under applicable securities laws. These statements are based on Nortel's current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which Nortel operates. These statements are subject to important assumptions, risks and uncertainties that are difficult to predict, and the actual outcome may be materially different. Further, actual results or events could differ materially from those contemplated in forward-looking statements as a result of the following (i) risks and uncertainties relating to Nortel's business including: the sustained and expanding economic downturn and deteriorating market conditions and resulting negative impact on Nortel's business, results of operations and financial position and its ability to accurately forecast its results and cash position; the implementation and success of Nortel's revised operating model and continuing comprehensive review of its business; significant competition, competitive pricing practices, cautious capital spending by customers as a result of factors including current economic uncertainties, industry consolidation, rapidly changing technologies, evolving industry standards, frequent new product introductions and short product life cycles, and other trends and industry characteristics affecting the telecommunications industry; any material, adverse affects on Nortel's performance if its expectations regarding market demand for particular products prove to be wrong; the sufficiency of restructuring and cost reduction initiatives; any negative developments associated with Nortel's suppliers and contract manufacturers including our reliance on certain suppliers for key optical networking solutions components and on one supplier for most of its manufacturing and design functions; potential penalties, damages or cancelled customer contracts from failure to meet contractual obligations including delivery and installation deadlines and any defects or errors in Nortel's current or planned products; fluctuations in foreign currency exchange rates; potential higher operational and financial risks associated with Nortel's efforts to expand internationally; potential additional valuation allowances for all or a portion of Nortel's deferred tax assets if market conditions continue to deteriorate or future results of operations are less than expected; a failure to protect Nortel's intellectual property rights, or any adverse judgments or settlements arising out of disputes regarding intellectual property; failure to maintain integrity of Nortel's information systems; changes in regulation of the Internet or other regulatory changes; any failure to successfully operate or integrate strategic acquisitions, or failure to consummate or succeed with strategic alliances; Nortel's potential inability to attract or retain the personnel necessary to achieve its business objectives or to maintain an effective risk management strategy; (ii) risks and uncertainties relating to Nortel's prior restatements and related matters including: potential legal judgments, fines, penalties or settlements related to the ongoing criminal investigation of Nortel in the U.S.; or any significant pending or future civil litigation actions not encompassed by Nortel's class action settlement; and (iii) risks and uncertainties relating to the CCAA, Chapter 11 and European proceedings (collectively, the "Insolvency Proceedings") including: any negative impacts on Nortel's business, results of operations, financial position, cash management arrangements, inability of Nortel's subsidiaries to provide it with sufficient funding and limitations on Nortel's ability to freely deploy its cash resources throughout the company; ability to divest non-core assets and relationships with employees, customers, suppliers and contract manufacturers and other stakeholders resulting from the Insolvency Proceedings; the failure of Nortel or its filing subsidiaries (collectively, the "Applicants") to obtain initial court orders substantially on the terms applied for or, in the case of the CCAA proceedings, to obtain subsequent court orders extending the applicable stays of actions and proceedings against the Applicants to permit them to propose a restructuring plan to affected creditors; the adequacy of Nortel's available cash on hand to fund its ongoing operations or ability to arrange for sufficient alternative debtor-in-possession financing during the Insolvency Proceedings; the failure to put in place a longer term solution with respect to Nortel's limited access to the EDC Support Facility during the period up to May 1, 2009 and EDC's right to suspend or terminate the EDC Support Facility; any increase of restricted cash requirements for Nortel if it is unable to secure alternative support for obligations arising from certain normal course business activities; the failure of Nortel to obtain the requisite approvals of affected creditors or the courts for any restructuring plan, or to successfully implement such a plan or obtain sufficient exit financing, if required, within the time granted by any court, which could result in substantially all of its debt obligations becoming immediately due and payable or subject to immediate acceleration, leading to the likely liquidation of the Applicants' assets; that Nortel's existing common shares and Nortel Networks Limited's existing preferred shares could have no material value in, and following the approval of, a restructuring plan and could be cancelled; and the potential that the TSX may suspend trading or delist any of Nortel's securities on or from such stock exchange as a result of  the Insolvency Proceedings.

For additional information with respect to certain of these and other factors, see Nortel's Annual Report on Form 10-K and other securities filings with the United States Securities and Exchange Commission. 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.

*Nortel, the Nortel logo and the Globemark are trademarks of Nortel Networks.

Contacts for Press and Analysts:

Media
Jay Barta
(972) 685-2381
jbarta@nortel.com [4]

Mohammed Nakhooda
(905) 863-7407
mohammna@nortel.com [5]         

Investors
(888) 901-7286
(905) 863-6049
investor@nortel.com [6]

Additional Media & Analyst Contacts [7]