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Nortel Close to $2.5 Billion Settlement

Nortel has announced that it is close to reaching a settlement with multiple shareholders for allegedly violating U.S. and Canadian securities laws after it issued revised financial expectations for the 2001 fiscal year. Numerous senior-level executives were terminated as a direct result of the financial scandal.

Nortel has announced that it is close to reaching a settlement with multiple shareholders for allegedly violating U.S. and Canadian securities laws after it issued revised financial expectations for the 2001 fiscal year. Numerous senior-level executives were terminated as a direct result of the financial scandal.

Under the proposed settlement, Nortel would pay $575 million in cash and issue 628.7 million shares, or 14.5 percent of its current equity. It would also contribute half of any funds it recovers from suits against former senior officers who were terminated in April of 2004.

The stock portion of the settlement would result in a $1.9 billion charge, based on Nortel's stock price  of $3.02 per share at the closing bell on Wednesday, February 8, 2006. On an after-tax basis, Nortel expects the total charge to be approximately $2.47 billion.

Nortel Chairman Harry Pearce said in a statement, "our intent is to achieve a fair resolution of these lawsuits and avoid a prolonged, uncertain and costly litigation process."

The proposed settle hinges on several other items, including that Nortel resolve other shareholder litigation involving its past financial guidance and restatement in 2003. The parties also need to be in agreement over corporate governance and insurance-related issues. The settlement must also be approved by the court, regulatory and the stock exchange.

Nortel is working toward a definitive settlement, but will not guarantee that one will be reached.

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