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Nortel files Chapter 11 of the U.S. Bankruptcy Code

Nortel Networks Corporation (TSX:NT)(NYSE:NT) and Nortel Networks Limited ("NNL") and certain of its other Canadian subsidiaries will seek creditor protection under the Companies’ Creditors Arrangement Act ("CCAA") in Canada. As well, certain of the Company’s U.S. subsidiaries, including Nortel Networks Inc. and Nortel Networks Capital Corporation, have filed voluntary petitions in the United States under Chapter 11 of the U.S. Bankruptcy Code, and certain of the Company’s EMEA subsidiaries are expected to make consequential filings in Europe.

The Company’s normal day-to-day operations are expected to continue without interruption. Nortel remains 100% focused on serving customers worldwide through continued R&D investments and support of its product portfolio to fulfill customer needs.

Nortel made this decision with the unanimous authorization of its Board of Directors after thorough consultation with its advisors and extensive consideration of all other alternatives. This process will allow Nortel to deal decisively with its cost and debt burden, to effectively restructure its operations and to narrow its strategic focus in an effective and timely manner.

The Company commenced a process to turn around and transform Nortel in late 2005, and the Company made important progress on a number of fronts. However, the global financial crisis and recession have compounded Nortel’s financial challenges and directly impacted its ability to complete this transformation. Nortel is taking this action now, with a $2.4 billion cash position, to preserve its liquidity and fund operations during the restructuring process.

"Nortel must be put on a sound financial footing once and for all," said Nortel President and CEO Mike Zafirovski. "These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry that its people, technology and customer relationships show it ought to be. I am confident that the actions we’re announcing today will be the fastest, most effective means to translate our improved operational efficiency, double-digit productivity, focused R&D and technology leadership into long-term success. I want to reaffirm Nortel’s dedication to delivering world-class solutions and services to customers."

The application under the CCAA will be heard later today by the Ontario Superior Court of Justice. The voluntary petitions under Chapter 11 were filed with the United States Bankruptcy Court for the District of Delaware. Nortel expects to be in a position shortly to provide an update regarding the consequential filings by certain of its EMEA subsidiaries.

The Company’s affiliates in Asia, including LG Nortel and in the Caribbean and Latin America, as well as the Nortel Government Solutions business, are not included in these proceedings and are expected to continue to operate in the ordinary course.

In addition, the Company will request the courts to impose certain restrictions on trading in the Company’s common shares and Nortel Networks Limited’s preferred shares in order to preserve valuable tax assets in the United States. Trading restrictions, if imposed, would apply immediately to investors beneficially owning at least 4.75% of the outstanding common shares of Nortel Networks Corporation or any series of preferred shares of Nortel Networks Limited. For these purposes, beneficial ownership of stock will be measured in accordance with special U.S. tax rules that, among other things, apply constructive ownership concepts and take into account indirect holdings. There will be no immediate trading restrictions imposed on debt securities of the Company or its affiliates, but the Company by this press release is advising debtholders that the courts may, at the Company’s request, impose certain trading restrictions at a later date.

EDC Support Facility

NNL has entered into an agreement with Export Development Canada ("EDC") to permit continued access by NNL to its EDC performance-related support facility ("EDC Support Facility") for an interim period of 30 days for up to a maximum of US$30 million of support based on Nortel’s currently estimated requirements over the period. The agreement is conditioned upon receipt of certain court approvals in the CCAA proceeding granting security to EDC over the assets of the Canadian filing entities. Over the next 30 days, EDC and Nortel will continue to work together to see if a longer term arrangement, acceptable to both parties, can be reached.

Flextronics

The Company also announced that NNL has entered into an amendment to arrangements with its key supplier, Flextronics. These amendments give NNL confidence that Flextronics will continue to maintain the supply chain following commencement of the proceedings noted above. Under the terms of the amendment, NNL has agreed to purchase US$120 million of existing inventory by July 1, 2009 and to make quarterly purchases of other inventory and to terms relating to payment and pricing. The amendment is subject to Canadian court approval in connection with the CCAA proceedings noted above. Certain arrangements with Flextronics will terminate in July of 2009 as a result of the exercise by Flextronics of its termination rights under such agreement, while the other arrangements between the parties will continue in accordance with their terms, as amended.

 [January 14, 2009]


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