Nortel to settle lawsuits for nearly $2.5 billion

Nortel Networks Corp., announced Wednesday, that it has reached a tentative agreement to pay $2.47 billion in cash and stock to settle two class-action lawsuits. The agreement reportedly marks the fifth-largest class-action settlement.

Brampton, Ont.-based Nortel – one of the world’s largest telecom equipment suppliers – was hit with the lawsuits following revised financial guidance in 2001, and its restatement of 2003 financial results to correct bookkeeping errors.

Nortel improperly boosted sales by accelerating the booking of fiber-optic equipment contracts. The company also miscalculated reserves, or provisions for expected expenses. The funds can be reversed when the costs don’t materialize, increasing income.

Nortel, which became the focus of regulatory and criminal investigations over this scandal, said it wanted to settle the lawsuits.

The proposed deal will see Nortel fork out $575 million cash and issue 628.7 million of its common shares, or 14.5% of its current equity. It will also contribute one-half of any recovery in its litigation to recover bonuses from senior executives who were dismissed in relation to the accounting scandal.

The deal is expected to pave the way for current Nortel CEO Mike Zafirovski, 52, to focus on reviving sales and winning back customers. Zafirovski is seeking to restore confidence in Nortel, and carry on the process started by former CEO Bill Owens, who spent 18 months fixing the accounting misstatements.

Early last year – as part of its damage control efforts and to demonstrate things were different at Nortel – the company appointed Susan Shepard to fill a newly created position of chief ethics and compliance officer.

A former federal proscecutor, Shepard had been a commissioner for the New York State Ethics Commission since May 2003.

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