Nortel Networks (NT)

Current Environment; November 10, 2008 Announcements

On September 17, 2008, we announced that with the sustained and expanding economic downturn we were experiencing significant pressure as CN customers cut back their capital expenditures further than previously expected and certain ES and MEN customers were deferring new IT and optical investments. As well, since reporting second quarter results, we were seeing additional pressure on revenue due to foreign exchange impact and certain product delivery delays from the third quarter into the fourth quarter. In response to the business environment, we also announced that a comprehensive review of our business was taking place, including planning for further restructuring and other cost reduction initiatives. Further, we announced our intention to explore a divestiture of our MEN business.

In the weeks since our September 17, 2008 announcement, we have seen worsening economic conditions, together with extreme volatility in the financial, foreign exchange and credit markets globally, further impacting the industry, us and our customers and resulting in an environment of decreased visibility and customer spending levels. On November 10, 2008, we announced an update to our business review including a new operating model,

57

Table of Contents

planned restructuring of our workforce and other cost reduction actions, and a focus on cash preservation including the suspension of the declaration of Nortel Networks Limited (NNL) preferred share dividends.

Effective January 1, 2009, our new operating model involves the decentralization of several of our corporate functions and a transition to vertically integrated business units to give greater financial and operational control to the business units, and to reduce duplication inherent in a matrix organization:

These changes allowed for executive and management consolidation across the organization, including the departure of the following executives effective January 1, 2009: Chief Marketing Officer Lauren Flaherty, Chief Technology Officer John Roese, GS President Dietmar Wendt and Executive Vice President Global Sales Bill Nelson.

We also announced effective January 1, 2009, that Gordon Davies is named Chief Legal Officer in addition to his current responsibilities as Corporate Secretary. David Drinkwater, current Chief Legal Officer, will assume the role of Senior Advisor at that time until his retirement from Nortel on February 28, 2009. Also effective January 1, 2009, Lisa Gressel, currently Vice President, Ethics and Compliance is appointed Chief Compliance Officer, reporting to Mr. Davies, with a continuing direct reporting relationship to the Chairman of the Audit Committee of the Nortel Board of Directors. Current Chief Compliance Officer Robert Bartzokas will retire from Nortel at the end of this year. The Internal Audit function, currently reporting into the Chief Compliance Officer, will report to Executive Vice President and Chief Financial Officer Pavi Binning, with a continuing direct reporting relationship to the Chairman of the Audit Committee of the Nortel Board of Directors commencing as of January 1, 2009.

The actions discussed above provided us with the opportunity to take additional actions to reduce our cost base and focus on cash management. We plan to implement a further net reduction in our global workforce of approximately 1,300 positions (2009 Restructuring Plan). We expect that approximately 25% of these reductions will take place in 2008 and the remainder to occur in 2009. As part of this plan we will also shift approximately 200 positions from higher-cost to lower-cost locations. The 2009 Restructuring Plan is expected to result in annual gross savings of approximately $190. We expect total charges to earnings and cash outlays related to workforce reductions to be approximately $130, with approximately 35% of the charges to be incurred in 2008 and the remainder in 2009 and cash outlays to be incurred approximately 15% in 2008 and the remainder in 2009.

Additional measures to reduce costs across the organization and to significantly lower spending levels include:

58

Table of Contents

Certain of these and other actions, combined with the 2009 Restructuring Plan and previously announced restructuring plans, are expected to result in annual gross savings of approximately $400 million in 2009.

The Board of Directors of NNL, our principal operating subsidiary, has decided to suspend the declaration of further dividends on NNL’s Series 5 and Series 7 Preferred Shares following payment of the previously announced monthly dividend payable on such shares on November 12, 2008. While NNL is in a position to pay such dividends, its Board of Directors has determined that in this uncertain economic environment it would be prudent to maintain liquidity and preserve cash.

Dividends on the Series 5 Preferred Shares are cumulative and holders of Series 5 Preferred Shares will be entitled to receive unpaid dividends, when declared by the Board of Directors, at such time as NNL resumes payment of dividends on such shares. Dividends on the Series 7 Preferred Shares are non-cumulative and the entitlement of holders of Series 7 Preferred Shares to receive any dividend that has not been declared on such shares within 30 days after NNL’s fiscal year end (i.e., by January 30) will be extinguished. NNL does not expect that its Board of Directors will declare the December dividend on the Series 7 Preferred Shares by January 30, 2009 and, accordingly, it is expected that the entitlement to this dividend will be extinguished as of that date. The share provisions provide that if the right to any dividend on the Series 7 Preferred Shares becomes extinguished, the holders of such shares will be entitled to receive notice of, and attend, all meetings of NNL’s shareholders at which directors are to be elected and will be entitled to one vote per share in respect of the election of directors. These voting rights will cease upon payment of the whole amount of the first dividend declared on the Series 7 Preferred Shares after the time the voting rights first arose.

There is no update at this time on our review of the potential divestiture of the MEN business. We continue to make the appropriate R&D investments and will meet all customer commitments throughout this process.