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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  FORM 10-K
  þ     ANNUAL
    REPORT PURSUANT TO SECTION 13 OR
    15(d)      
           OF THE SECURITIES
    EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007o     TRANSITION
    REPORT PURSUANT TO SECTION 13 OR 15(d)
           OF THE SECURITIES
    EXCHANGE ACT OF 1934   For
    the transition period from
    
    to
  Commission file number
    000-30758
  Nortel Networks
    Limited
 (Exact name of registrant as
    specified in its charter)
  Canada

62-12-62580(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)     195 The West Mall,

M9C 5K1Toronto, Ontario, Canada(Address of principal
    executive offices)

(Zip Code)   Registrants telephone number including area code:
    (905) 863-7000
  Securities registered pursuant to Section 12(b) of the
    Act:
   Title of Each
    Class

Name of Each Exchange on
    Which RegisteredGuarantees of Nortel Networks Corporations
    4.25% Convertible Senior Notes Due 2008

New York Stock Exchange    Securities registered pursuant to Section 12(g) of the
    Act:
    o þ
     o þ
     þ o
   Regulation S-K Form 10-K Form 10-K. o
   Rule 12b-2
  Large
    accelerated filer
    o
    Accelerated
    filer
    o
    Non-Accelerated filer
    þ
    Smaller
    reporting company
    o    Rule 12b-2
  o þ
   On February 19, 2008, 1,460,978,638 common shares of
    Nortel Networks Limited were issued and outstanding, all of
    which are held by Nortel Networks Corporation. The common shares
    of the registrant are not traded on any stock exchange.




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TABLE OF
    CONTENTS
  PART IITEM 1.

Business


1Overview


1Developments in 2007 and 2008


2Business Segments


5Sales and Distribution


11Backlog


12Product Standards, Certifications and
    Regulations


12Sources and Availability of Materials


12Seasonality


13Acquisitions and Divestitures, Alliances and
    Minority Investments


13Research and Development


13Intellectual Property


14Employee Relations


14Environmental Matters


15Financial Information about Segments and Product
    Categories


15Financial Information by Geographic Area


15Working Capital


15ITEM 1A.

Risk Factors


18ITEM 1B.

Unresolved Staff Comments


28ITEM 2.

Properties


29ITEM 3.

Legal Proceedings


29ITEM 4.

Submission of Matters to a Vote of Security Holders


33PART IIITEM 5.

Market for Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities


33DividendsSecurities Authorized for Issuance Under Equity
    Compensation PlansShareholder Return Performance GraphCanadian Tax MattersSales or Other Dispositions of SharesSales of Unregistered SecuritiesITEM 6.

Selected Financial Data


34ITEM 7.

Managements Discussion and Analysis of Financial Condition
    and Results of Operations


35Executive Overview


35Results of Operations


41Segment Information


47Liquidity and Capital Resources


53Off-Balance Sheet Arrangements


59Application of Critical Accounting Policies and
    Estimates


60Accounting Changes and Recent Accounting
    Pronouncements


74Outstanding Share Data


77Market Risk


77Environmental Matters


77Legal Proceedings


78Cautionary Notice Regarding Forward-Looking
    Information


78ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk


78Equity Price Risk


80ITEM 8.

Financial Statements and Supplementary Data


81ITEM 9.

Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure


163ITEM 9A.

Controls and Procedures


163ITEM 9B.

Other Information


168 i




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PART IIIITEM 10.

Directors, Executive Officers and Corporate Governance


169ITEM 11.

Executive Compensation


182ITEM 12.

Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters


218ITEM 13.

Certain Relationships and Related Transactions, and Director
    Independence


228ITEM 14.

Principal Accountant Fees and Services


229PART IVITEM 15.

Exhibits and Financial Statement Schedules


232SIGNATURES


239EX-10.68EX-10.69EX-10.70EX-10.71EX-10.72EX-10.73EX-10.74EX-10.75EX-10.76EX-12EX-14EX-21EX-23.1EX-23.2EX-24EX-31.1EX-31.2EX-32                  ii




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PART I  ITEM 1.
    Business Overview  end-to-end
      (905) 863-7000. Form 10-K, Form 10-Q, Form 8-K, (1-800-SEC-0330). Rule 3b-4
     1




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Developments
    in 2007 and 2008  Business
    Environment
                 2




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Strategy
        1.
    Building a world-class management team, culture and processes,2.
    Focusing aggressively on our balance sheet, corporate
    governance, and business and financial controls,3.
    Driving to world-class cost structures and quality levels,4.
    Targeting market share,5.
    Investing for profitable growth, and6.
    Increasing our emphasis on service and software solutions.       3




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end-to-end
    Significant
    Developments
  Executive
    Appointments
  
    Enhanced the senior executive leadership team under Chief
    Executive Officer, or CEO, Mike Zafirovski with the appointments
    of Paviter Binning as Executive Vice-President and Chief
    Financial Officer, William Nelson as Executive Vice President,
    Global Sales, Steven J. Bandrowczak as Chief Information
    Officer, Alvio Barrios as President, Caribbean and Latin America
    Region, or CALA, Joel Hackney as President, Enterprise Solutions
    and Joseph Flanagan as Senior Vice President, Global Operations.  Strategic
    Alliances
  
    Enhanced our Innovative Communications Alliance, or ICA, with
    the announcement of Microsofts Office Communications
    Server, combining our communications technology and services
    expertise with Microsofts desktop leadership to deliver a
    shared vision for unified communications. Our ICA with Microsoft
    has delivered more than 300 joint wins.
    Improved our
    go-to-market
    strategy through an alliance with Dell, making Dell a key sales
    channel for us in the U.S.
    Expanded our alliance with IBM in working to provide simple,
    rapid and efficient delivery of communications-enabled
    applications and business processes through the use of SOA.  Operations
  
    Undertook over 250 Lean Six Sigma projects focused on driving
    growth, efficiency and customer satisfaction.
    Opened our Center of Excellence in Istanbul, Turkey, providing
    technical and operational support to our customers deploying
    next-generation mobile, converged, metro Ethernet and optical
    networks. Similar to our Center of Excellence in Mexico, this
    Center of Excellence is an essential part of our business
    transformation, supporting increased customer focus and growth
    initiatives aimed at improving our global competitiveness.
    Successfully deployed SAP (a software package for integrating
    finance systems) system functionality for the general ledger,
    inter-company accounts, financial consolidation, accounts
    payable, accounts receivable, direct and indirect tax, fixed
    assets and treasury activities as part of the continued
    transformation of the finance organization.
    Continued aligning our business processes toward a common
    corporate platform through a multi-year reduction of our current
    base of more than 600 IT applications.  Channels
    to Market
  
    Enhanced our channels to market through alliances with
    Microsoft, IBM and Dell for enterprise and carrier solutions.
    Expanded our North American distribution network by signing up
    over 400 new channel partners in 2007, an increase of
    approximately 70%. 4




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
    Launched a two-year transition of our Partner Advantage Program
    from a volume-centric model to a value-based model, to align
    with an industry shift.
    Announced specializations as a new requirement for our Partner
    Advantage designation status. Specializations available to date
    include unified communications, small- to medium-sized
    businesses, or SMBs, and advanced services.  Finance
  
    Guaranteed the offering by Nortel Networks Corporation of $1,150
    of convertible senior notes, or the Convertible Notes, in March
    2007. NNC used the net proceeds to redeem at par $1,125
    principal amount of the 4.25% Notes due 2008, plus accrued
    and unpaid interest.
    Appointment of KPMG LLP as our principal independent public
    accountants was approved by shareholders at NNCs Annual
    and Special Meeting of Shareholders on May 2, 2007.
    Elimination, as of December 31, 2007, of our previously
    reported revenue related material weakness in internal control
    over financial reporting. See the Controls and
    Procedures section of this report.  Other
  
    Announced an agreement to settle two significant class action
    lawsuits pending in the U.S. District Court for the
    Southern District of New York, or the Global Class Action
    Settlement, in February 2006. Subsequently, we entered into
    agreements to settle all related Canadian actions. In December
    of 2006 and January of 2007, the Global Class Action
    Settlement was approved by the courts in New York, Ontario,
    Quebec and British Columbia. The Global Class Action
    Settlement became effective on March 20, 2007.
    The Ontario Securities Commission, or OSC, approved a settlement
    agreement on May 22, 2007, which fully resolved all issues
    between us, NNC and the OSC. The decision recognized the
    extensive efforts made by our senior management and Board of
    Directors to be forthcoming and transparent in reporting
    significant accounting and internal control issues, and then
    solving them. The OSC order did not impose any administrative
    penalty or fine. However, NNC made a payment to the OSC in the
    amount of $1 million Canadian Dollars as a contribution
    towards the costs of its investigation.
    We and NNC reached a settlement on all issues with the SEC on
    October 15, 2007 in connection with its investigation of
    our previous restatements of our financial results. The SEC
    recognized our full cooperation in the investigation as well as
    the proactive measures we took to address the issues that were
    investigated. As part of the settlement, we agreed to pay a
    civil penalty of $35 and a disgorgement in the amount of one
    U.S. Dollar, and we and NNC consented to be restrained and
    enjoined from future violations of certain provisions of
    U.S. federal securities laws. Business
    Segments      Carrier
    Networks
     5




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IP-based
  best-in-class
      Significant
    Carrier Networks Developments
  
    Selected by Verizon Wireless as an early LTE trial partner to
    support the next-generation evolution path chosen by Verizon and
    Vodafone.
    Conducted industry-first live
    over-the-air
    demonstrations of next-generation wireless technologies LTE and
    WiMAX, featuring unified communications over WiMAX and real time
    applications leveraging our collaborative MIMO solution. 6




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
    Selected by Videotron, a Quebec communications services
    operator, to provide new videocalling service, the ability for
    their customers to communicate anywhere, over any device, with
    one of the first deployments of a new service that provides
    videocalling and customizable VoIP call routing functions with a
    new cable solution.
    Partnered with Microsoft to offer hosted solutions that will
    enable service providers to deliver comprehensive unified
    communications services to SMBs, as well as enterprises. The
    alliance will allow carriers to host unified business
    communication and collaboration services for their customers.
    Introduced Communication Server 1500, enabling regional service
    providers in North America to simplify the transition from
    traditional voice technology to VoIP.
    Provided AT&T with key elements of a recently announced
    all-IP product line for GSM and UMTS wireless core networks
    designed to help service providers easily evolve to an all-IP
    network, helping to streamline business operations and decrease
    operating costs.
    Selected by PEOPLEnet, Ukraines first nationwide 3G mobile
    operator, to expand its network to meet widespread demand for
    high-bandwidth, real-time wireless services with Nortel CDMA2000
    1x and EV-DO Rev A technology.
    Chosen by Far Eastone, one of Taiwans largest
    telecommunications operators, to launch WiMAX-based mobile
    broadband services such as streaming video, music, IPTV, VoIP,
    videoconferencing and corporate applications across Taipei
    county.
    Completed testing with Qualcomm of our IMS-based Voice Call
    Continuity, or VCC, network solution and Qualcomms
    chipset. This is a major step towards the availability of
    out-of-the
    box VCC-enabled mobile phones.  Enterprise
    Solutions
        go-to-market
    best-in-class end-to-end
   7




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Significant
    Enterprise Solutions Developments
  
    Selected by the Vancouver Organizing Committee as the Official
    Converged Network Equipment Suppler for the 2010 Olympic and
    Paralympic Winter Games providing the LAN.
    Chosen by Bell Canada to supply the WAN equipment to enable
    secure and reliable communications to all 2010 Olympic and
    Paralympic Winter Games event venues, the first all-IP converged
    Olympic Games network.
    Expanded our relationship with IBM into unified communications
    and SOA with our joint announcement around
    communications-enabled applications that allow enterprises to
    leverage SOA frameworks to integrate communications into their
    business processes.
    Enhanced our
    go-to-market
    strategy through a partnership with Dell. Due to Dells
    significant relationship with Microsoft, this becomes a key
    unified communications sales channel for us in the U.S.
    Selected to provide a state of the art unified communications
    and data communication network in support of both Mumbai
    International Airport Private Limited and Bangalore
    International Airport Limited.
    Provided, with Microsoft, a converged unified communications and
    data network to Indiana University, one of the largest
    universities in the U.S. with approximately 110,000
    students and 18,000 employees.
    Teamed with Northwestern University to demonstrate an
    international network based on next-generation optical network
    technology, which is designed and optimized to deliver digital
    media and video in real time.
    Selected by Baylor University Medical Center in Dallas, ranked
    among the top 50 U.S. hospitals, to implement a unique
    integrated communication system. The system is believed to be
    the first to use IM and presence awareness on mobile devices to
    improve efficiency and productivity in a healthcare environment.
    Implemented a network business solution for Jobing.com Arena,
    home of the National Hockey Leagues Phoenix Coyotes, which
    provides unified communications, data, wireless and multimedia
    communications infrastructure and services to help transform the
    venue into a cutting-edge entertainment facility.
    Provided VoIP networks for a number of enterprises around the
    world including Jyske Bank of Denmark, Childrens
    Medical Center in Dallas, Purdue University, Kerzner
    International Limiteds The Cove Atlantis in the Bahamas,
    Canadian Specialist hospital in Dubai, Bank of Bern, and the
    Australia Taxation Office.  Global
    Services
        
    Network implementation services including network planning,
    installation, integration, optimization and security services
    that help ensure our solutions, including multi-vendor products
    and services, are engineered and deployed to high industry
    standards and meet the specific requirements of our customers.
    Network support services including technical support, hardware
    maintenance, equipment spares logistics, and
    on-site
    engineers that help deliver higher network performance and
    reduced total cost of ownership.
    Network managed services, ranging from support of individual
    solutions to entire networks that provide access to advanced
    network capabilities while reducing customer investment in
    assets and operational management. We monitor and manage
    customer networks from network management centers in Europe,
    Asia and North America. 8




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
    Network application services including application development,
    integration and communications-enabled application solutions, as
    well as hosted multimedia services. These services are employed
    by our customers to enhance business processes, maximize new
    revenue opportunities and reduce costs. High-definition
    telepresence, desktop video conferencing, and applications
    performance engineering are examples of the services offered.              Significant
    Global Services Developments
  
    Partnered with market leaders to create a global ecosystem for
    delivering and managing unified communications solutions: 
    Named as a Microsoft Preferred Partner for
    integrating unified communications solutions and achieved
    Microsofts elite Gold Certified Partner status.
    Established Microsoft / Nortel collaboration centers
    in EMEA and North America. 
    Unveiled a comprehensive communications enablement strategy that
    leverages SOA and Web services for the simple, rapid and
    efficient delivery of communications-enabled applications and
    business processes.
    Continued momentum in managed and hosted services; for example,
    we: 
    Launched a hosted solutions portfolio for enterprises and
    carriers.
    Selected by TELMEX, the leading telecommunications company in
    Mexico, to provide hosted IP telephony and multimedia services
    for delivery to enterprises.
    Selected by THUS to improve the U.K. network operators
    service quality with our managed services. 
    Announced new applications and multimedia services portfolio;
    for example, we: 
    Launched a complete applications services portfolio including
    audio conferencing services, video conferencing services,
    Webcasting services and Web collaboration.
    Announced an agreement with Polycom to jointly deliver immersive
    telepresence and high definition, or HD, video conferencing
    solutions to enterprises worldwide.
    Named by the State of Georgia as systems integrator for a
    complete customer service solution including a hosted
    IP-based
    multimedia contact center.
    Implemented network business solutions with innovative,
    media-rich applications and services for some of North
    Americas best known sports facilities, including arenas in
    New Orleans, Montreal, Ottawa, Denver and San Francisco.
    Jobing.com Arena, home of the National Hockey Leagues
    Phoenix Coyotes, was transformed into a cutting-edge
    entertainment facility with unified communications, data,
    wireless and multimedia solutions. 9




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
    Increased momentum in vertical market solutions including: 
    Healthcare: delivered an integrated communication solution for
    Baylor University Medical, focused on improving business
    processes and efficiency in patient care.
    Government: deployed a municipal wireless network in Greenville,
    N.C. with WindChannel Communications, a leading provider of
    wireless solutions for government and private enterprise.
    Hospitality: delivered an advanced hospitality communications
    solution to MotorCityCasino Hotel, providing unified
    communications throughout its facilities.  Metro
    Ethernet Networks
  business-to-business IP-based IP-based
      ease-of-use
        IP-based
     10




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quarter-by-quarter
  turn-up.
    Significant
    MEN Developments
  
    Selected by BT to supply carrier-grade Ethernet solutions, based
    on PBT technology pioneered by us, for high-bandwidth services
    transport over BTs 21st Century Network.
    Verizon Business selected our adaptive all optical intelligent
    equipment for its pan-European long haul network, and our OME
    6500 to deliver converged optical transport across 17 European
    countries and 13 countries in Asia.
    Provided an optical wireless backhaul infrastructure to SK
    Telecom, Koreas largest wireless communications operator,
    for delivering new wireless services such as wireless Internet,
    3D gaming, digital home services and telematics.
    Chosen by Cyberindo Aditama, Indonesias largest Internet
    service provider, to deliver high-bandwidth services using a
    Carrier Ethernet solution with PBB technology.
    Selected by TDC, Denmarks leading provider of
    communications solutions, to provide an adaptive all optical
    intelligent solution to help meet the growing demand in Denmark
    and the Nordic region for high bandwidth multimedia services
    such as IPTV, VoIP and enterprise Virtual Private Networks.
    Selected by service providers groupe-e in Switzerland, Promigas
    Telecomunicaciones in Colombia, and Highland Telecom and
    Southern Light in the US, to deliver high bandwidth services
    using Carrier Ethernet equipment with PBT.
    Upgraded the backbone network infrastructure of Hong Kong
    Exchanges and Clearing Ltd, one of Asias largest
    international stock exchanges, with high-bandwidth metro WDM
    equipment.
    Selected by Mumbai International Airport Private Limited to
    provide optical and Carrier Ethernet equipment with PBB and PBT
    for a new communications infrastructure.
    Chosen by Taiwan Post, the largest postal, banking and insurance
    services provider in Taiwan, to deliver a single converged metro
    WDM infrastructure.
    Enabled collaborative research globally by supplying optical
    networks to research and educational institutions such as the
    Massachusetts Institute of Technology, Internet2, and
    Northwestern University in the United States, SurfNet in the
    Netherlands, and VERNet in Australia. Sales and
    Distribution     11




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Backlog   Product
    Standards, Certifications and Regulations   Sources
    and Availability of Materials      
    Make significant purchases, directly or indirectly through our
    EMS suppliers, of electronic components and assemblies, optical
    components, original equipment manufacturer products, software
    products, outsourced assemblies, outsourced products and other
    materials and components from many domestic and foreign sources.
    Maintain alternative sources for certain essential materials and
    components.
    Occasionally maintain or request our suppliers to maintain
    inventories of components or assemblies to satisfy customer
    demand or minimize effects of possible market shortages.   12




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Seasonality   Acquisitions
    and Divestitures, Alliances and Minority Investments   Research
    and Development          best-in-class
      year-over-year
  
    Accelerated the shift of our R&D dollars towards new and
    emerging markets and technologies,
    Established a common engineering function to centralize those
    key engineering functions, technologies, and platforms that have
    the greatest potential to be leveraged across the entire company,
    Increased our focus on hiring new R&D graduates, 13




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
    Created an R&D site governance council to help ensure that
    we always have the right skills for the future, in the right
    jobs and the right locations,
    Made the decision to pursue the Capability Maturity Model
    Integration, or CMMI, framework, an industry-recognized set of
    best practices, as a way to develop, refine and benchmark our
    R&D processes at the product, business and site
    levels, and
    Executed on our strategy to more effectively recognize the
    significance of the contributions of our R&D community,
    through such new programs as the Technical Fellowship of Nortel
    Program and the Distinguished Member of Technical Staff Program.
    We also held the first Nortel Technical Conference, which will
    annually bring together several hundred of our leading engineers
    to network, share their key innovations and help solve some of
    the biggest challenges facing the industry today.      2007


2006


2005R&D expense

$
1,723


$
1,940


$
1,874R&D costs incurred on behalf of others*


7



16



28Total

$
1,730


$
1,956


$
1,902     *
    These costs include research and
    development charged to customers pursuant to contracts that
    provided for full recovery of the estimated cost of development,
    material, engineering, installation and other applicable costs,
    which were accounted for as contract costs. Intellectual
    Property  and/or
   Employee
    Relations    
    11,975 regular full-time employees in the U.S.;
    6,800 regular full-time employees in Canada;
    5,625 regular full-time employees in EMEA; and
    8,150 regular full-time employees in other countries.     14




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Environmental
    Matters   Financial
    Information about Segments and Product Categories   Financial
    Information by Geographic Area   Working
    Capital   15




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GLOSSARY
    OF CERTAIN TECHNICAL TERMS
  3GPP rd
  40Gig Dual Polarization QPSK
  ATM
  CDMA2000 1x
  CDMA2000 EV-DO
  CMMI
  DOC
  eDCO
  EDGE
  eROADM
  Ethernet
  Failover
  GPRS
  GSM
  GSM-R
  IEEE
  IMS
  IP
  IT
  LAN
  LTE
  Mesh
  MIMO
 16




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MPLS
  MVNO
  OFDM
  PBB ease-of-use,
  PBB-TE
  PBT
  QoS
  SIP
  Six Sigma
  SOA
  SONET/SDH
  UMTS
  VCC
  VoIP IP-based
  WAN
  WDM
  WiMAX
 17




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ITEM 1A.
    Risk
    Factors  Certain statements in this Annual Report on
    Form 10-K
    contain words such as could, expects,
    may, anticipates, believes,
    intends, estimates, plans,
    envisions, seeks and other similar
    language and are considered forward-looking statements. These
    statements are based on our current expectations, estimates,
    forecasts and projections about the operating environment,
    economies and markets in which we operate. In addition, other
    written or oral statements which are considered forward-looking
    may be made by us or others on our behalf. These statements are
    subject to important risks, uncertainties and assumptions, which
    are difficult to predict and actual outcomes may be materially
    different. In particular, the risks described below could cause
    actual events to differ materially from those contemplated in
    forward-looking statements. Unless required by applicable
    securities laws, we do not have any intention or obligation to
    publicly update or revise any forward-looking statements,
    whether as a result of new information, future events or
    otherwise.
  You should carefully consider the risks described below
    before investing in our securities. The risks described below
    are not the only ones facing us. Additional risks not currently
    known to us or that we currently believe are immaterial may also
    impair our business, results of operations, financial condition
    and liquidity.
  We have organized our risks into the following categories:
  
    Risks Relating to Our Business;
    Risks Relating to Our Liquidity, Financing Arrangements and
    Capital; and
    Risks Relating to Our Prior Restatements and Related
    Matters.  Risks
    Relating to Our Business
  We
    face significant emerging and existing competition, may not be
    able to maintain our market share and may suffer from
    competitive pricing practices.
      start-up
     18




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We may
    be materially and adversely affected by cautious capital
    spending, including as a result of current economic
    uncertainties, or a change in technology focus by our customers,
    particularly certain key customers.
    Rationalization
    and consolidation among our customers may lead to increased
    competition and harm our business.
    We
    operate in highly dynamic and volatile industries. If we are
    unable to develop new products rapidly and accurately predict,
    or effectively react to, market opportunities, our ability to
    compete effectively in our industry, and our sales, market share
    and customer relationships, could be materially and adversely
    affected.
    IP-optimized
   19




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Our
    performance may be materially and adversely affected if our
    expectations regarding market demand for particular products
    prove to be wrong.
  IP-optimized
  IP-optimized
  IP-optimized
      We
    continue to restructure and transform our business. The
    assumptions underlying these efforts may prove to be inaccurate,
    or we may fail to achieve the expected benefits from these
    efforts, we may not successfully manage our costs and we may
    have to restructure or transform our business again in the
    future.
       20




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Negative
    developments associated with our suppliers and contract
    manufacturers, including our reliance on certain suppliers for
    key optical networking solutions components, and on a sole
    supplier for the majority of our manufacturing and design
    functions and consolidation in the industries in which our
    suppliers operate may materially and adversely affect our
    business, results of operations, financial condition and
    customer relationships.
      and/or
    We may
    be required to pay significant penalties or liquidated damages,
    or our customers may be able to cancel contracts, in the event
    that we fail to meet contractual obligations including delivery
    and installation deadlines, which could have a material adverse
    effect on our revenues, operating results, cash flows and
    relationships with our customers.
   21




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Defects,
    errors or failures in our products could result in higher costs
    than we expect and could harm our reputation and adversely
    affect our business, results of operations and financial
    condition.
      Fluctuations
    in foreign currency exchange rates could negatively impact our
    business, results of operations and financial
    condition.
      If we
    fail to manage the higher operational and financial risks
    associated with our international expansion efforts, it could
    have a material adverse effect on our business, results of
    operations and financial condition.
      If
    market conditions deteriorate or future results of operations
    are less than expected, an additional valuation allowance may be
    required for all or a portion of our deferred tax
    assets.
   22




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If we
    fail to protect our intellectual property rights, or if we are
    subject to adverse judgments or settlements arising out of
    disputes regarding intellectual property rights, our business,
    results of operations and financial condition could be
    materially and adversely affected.
            If we
    are unable to maintain the integrity of our information systems,
    our business and future prospects may be harmed.
    Changes
    in regulation of the Internet or other regulatory changes may
    affect the manner in which we conduct our business and may
    materially and adversely affect our business, operating results
    and financial condition.
   23




---



##### Table of Contents



We may
    make strategic acquisitions. If we are not successful in
    operating or integrating these acquisitions, our business,
    results of operations and financial condition may be materially
    and adversely affected.
    
    the industry may develop in a different direction than
    anticipated and the technologies we acquire may not prove to be
    those we need or the business model of acquired companies may
    become obsolete;
    the future valuations of acquired businesses may decrease from
    the market price we paid for these acquisitions;
    the revenues of acquired businesses may not offset increased
    operating expenses associated with these acquisitions;
    potential difficulties in completing in-process research and
    development projects and delivering high quality products to our
    customers;
    potential difficulties in integrating new products, software,
    internal controls, businesses and operations in an effective and
    timely manner or at all;
    our customers or customers of the acquired businesses may defer
    purchase decisions as they evaluate the impact of the
    acquisitions on our future product strategy;
    potential loss of key employees of the acquired businesses;
    diversion of the attention of our senior management from the
    operation of our daily business;
    entering new markets in which we have limited experience and
    where competitors may have a stronger market presence;
    the potential adverse effect on our cash position as a result of
    all or a portion of an acquisition purchase price being paid in
    cash;
    potential issuance of equity or equity related securities as a
    result of all or a portion of an acquisition purchase price
    being paid with such equity or equity related securities, which
    could result in the significant dilution of existing equity
    positions; and
    potential assumption of liabilities.  IP-optimized
  Our
    business may suffer if our strategic alliances are not
    consummated or are not successful.
   24




---



##### Table of Contents



We may
    not be able to attract or retain the personnel necessary to
    achieve our business objectives.
    Our
    risk management strategy may not be effective or commensurate to
    the risks we are facing.
    Risks
    Relating to Our Liquidity, Financing Arrangements and
    Capital
  Cash
    flow fluctuations may affect our ability to fund our working
    capital requirements and achieve our business objectives in a
    timely manner. Additional sources of funds may not be available
    on acceptable terms or at all.
    and/or
    Our
    high level of debt could materially and adversely affect our
    business, results of operations, financial condition and
    liquidity.
   25




---



##### Table of Contents



Covenants
    in the indentures governing certain of our senior notes impose
    operating and financial restrictions on us, which may prevent us
    from issuing new debt and from capitalizing on business
    opportunities.
      Our
    credit ratings are below investment grade, which may adversely
    affect our liquidity.
  and/or
  An
    increased portion of our cash and cash equivalents may be
    restricted as cash collateral if we are unable to secure
    alternative support for certain obligations arising out of our
    normal course business activities.
  sub-facility.
  An
    inability of our subsidiaries to provide us with funding in
    sufficient amounts could adversely affect our ability to meet
    our obligations.
    We may
    need to make larger contributions to our defined benefit plans
    in the future, which could have a material adverse impact on our
    liquidity and our ability to meet our other
    obligations.
   26




---



##### Table of Contents



Our
    exposure to our customers credit risk under customer
    financing arrangements could increase.
      Risks
    Relating to Our Prior Restatements and Related Matters
  We are
    subject to ongoing criminal investigations in the U.S. and
    Canada, which could require us to pay substantial fines or other
    penalties or subject us to sanctions that may have material
    adverse effects on us.
  Form 10-K
      The
    Global Class Action Settlement requires NNC to pay a
    substantial cash amount and will result in a significant
    dilution of existing equity positions.
     27




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##### Table of Contents



We are
    subject to additional pending civil litigation actions, which
    are not encompassed by the Global Class Action Settlement
    and which, if decided against us or as a result of settlement,
    could require us to pay significant judgments or settlements and
    could result in the dilution of existing equity positions, and
    we cannot predict the timing of developments in these
    matters.
    ITEM 1B.
    Unresolved
    Staff Comments   28




---



##### Table of Contents



ITEM 2.
    Properties    and/or
  Number


NumberType of Site*

Owned


Leased


Geographic LocationsManufacturing and repair**


5






EMEA, CALA and the Asia regionDistribution centers






7


U.S., EMEA, CALA and the Asia regionOffices (administration, sales and field service)


2



183


All geographic regionsResearch and development


3



8


U.S., Canada, EMEA and the Asia regionTOTAL***


10



198     *
    
    Indicates primary use. A number of sites are mixed-use
    facilities.**
    
    Manufacturing sites in China and Thailand are operated by Nortel
    joint ventures. The site in China is owned pursuant to land use
    rights granted by Chinese authorities. Small amounts of
    integration and test activity are conducted by Nortel in
    Northern Ireland, Brazil and Turkey.***
    
    Excludes approximately 4.1 million square feet, designated
    as part of planned square footage reduction plans, of which
    approximately 3.1 million square feet was
    sub-leased.  ITEM 3.
    Legal
    Proceedings  Nortel I Class Actions
  Nortel II Class Actions
  Global Class Action Settlement
 29




---



##### Table of Contents



one-half
          Ontario Settlement
  SEC Settlement Form 10-Q
 30




---



##### Table of Contents



OSC Settlement Form 10-Q
  SEC complaint against former Nortel officers: Section 13a-14
  OSC complaint against former Nortel officers and/or and/or
  U.S. federal grand jury subpoenas and RCMP
    investigation
  ERISA lawsuit
  Ontario proposed derivative action
 31




---



##### Table of Contents



Shareholder statement of claim against Deloitte: Canada Business Corporations Act,
  Nortel statement of claim against its former officers
  Former officers statements of claims against
    Nortel out-of-pocket
    Ipernica
     32




---



##### Table of Contents



Environmental
    Matters
      de minimis de minimis de minimis
    ITEM 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  ITEM 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities   33




---



##### Table of Contents



ITEM 6.
    Selected
    Financial Data (Unaudited)  Form 10-K
  2007


2006


2005


2004


2003(Millions of U.S. Dollars, except per share amounts)Results of OperationsTotal Revenues

$
10,948


$
11,418


$
10,509


$
9,478


$
9,907Research and development expense


1,723



1,940



1,874



1,975



1,977Special charges


210



105



169



181



291Operating earnings (loss)


224



65



(262
)


(269
)


(55
)Other income  net


444



186



272



222



477Income tax benefit (expense)


(1,114
)


(60
)


81



20



26Net earnings (loss) from continuing operations


(798
)


(41
)


(48
)


(154
)


267Net earnings (loss) from discontinued operations  net
    of tax










1



49



183Cumulative effect of accounting changes  net of tax






9











(12
)Dividends on preferred shares


42



38



26



22



24Net earnings (loss) applicable to common shares


(840
)


(70
)


(73
)


(127
)


414Financial Position as of December 31Total assets

$
17,973


$
18,882


$
17,932


$
17,676


$
17,060Total
    debt(a)


2,720



2,700



2,096



2,091



2,217Minority interests in subsidiary companies


294



243



247



88



77Preferred shares


536



536



536



536



536      (a)
    Total debt includes long-term debt,
    long-term debt due within one year and notes payable.   34




---



##### Table of Contents



ITEM 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  TABLE OF
    CONTENTS
  Executive Overview


35Results of Operations


41Segment Information


47Liquidity and Capital Resources


53Off-Balance Sheet Arrangements


59Application of Critical Accounting Policies and
    Estimates


60Accounting Changes and Recent Accounting
    Pronouncements


74Outstanding Share Data


77Market Risk


77Environmental Matters


77Legal Proceedings


78Cautionary Notice Regarding Forward-Looking
    Information


78   The following Managements Discussion and Analysis, or
    MD&A, is intended to help the reader understand the results
    of operations and financial condition of Nortel Networks
    Limited. The MD&A should be read in combination with our
    audited consolidated financial statements and the accompanying
    notes. All Dollar amounts in this MD&A are in millions of
    United States, or U.S., Dollars except per share amounts or
    unless otherwise stated.
  Certain statements in this MD&A contain words such as
    could, expects, may,
    anticipates, believes,
    intends, estimates, plans,
    envisions, seeks and other similar
    language and are considered forward-looking statements or
    information under applicable securities laws. These statements
    are based on our current expectations, estimates, forecasts and
    projections about the operating environment, economies and
    markets in which we operate which we believe are reasonable but
    which are subject to important assumptions, risks and
    uncertainties and may prove to be inaccurate. Consequently, our
    actual results could differ materially from our expectations set
    out in this MD&A. In particular, see the Risk Factors
    section of this report, for factors that could cause actual
    results or events to differ materially from those contemplated
    in forward-looking statements. Unless required by applicable
    securities laws, we disclaim any intention or obligation to
    publicly update or revise any forward-looking statements,
    whether as a result of new information, future events or
    otherwise. We are the principal direct operating subsidiary of
    Nortel Networks Corporation, or NNC. NNC holds all of our
    outstanding common shares but none of our outstanding preferred
    shares.
 Executive
    Overview  Our
    Business and Strategy
       35




---



##### Table of Contents



36




---



##### Table of Contents



end-to-end
      How We
    Measure Business Performance
       37




---



##### Table of Contents



Financial
    Highlights
    For the Years Ended December 31,2007


2006


$ Change


% ChangeRevenues

$
10,948


$
11,418


$
(470
)


(4
)Gross profit


4,627



4,430



197



4Gross margin %


42.3
%


38.8
%






3.5 pointsSelling, general and administrative expense


2,486



2,491



(5
)


(0
)Research and development expense


1,723



1,940



(217
)


(11
)Operating margin


418



(1
)


419Operating margin %


3.8
%


0.0
%






3.8 pointsOther operating income  net


(35
)


(13
)


(22
)Interest expense


281



209



72



34Other income  net


(444
)


(186
)


(258
)Minority interest  net of tax


73



21



52



248Equity in net (earnings) loss of associated
    companies  net of tax


(2
)


2



(4
)Management EBT


545



(34
)


579Amortization of intangible assets


50



26



24



92In-process research and development expense






22



(22
)


(100
)Special charges


210



105



105



100Gain on sales of businesses and assets


(31
)


(206
)


175Income tax expense


1,114



60



1,054



1,757Net earnings (loss) before cumulative effect of accounting
    change

$
(798
)

$
(41
)

$
(757
)   
    Revenues decreased 4% to $10,948:  Revenues
    decreased in 2007 compared to 2006 in the CN, MEN, GS and Other
    segments, partially offset by an increase in the ES segment.
    From a geographic perspective, the decrease was driven by the
    Europe, Middle East, and Africa, or EMEA, and U.S. regions,
    partially offset by increases in the Canada, Asia and Caribbean
    and Latin America, or CALA, regions. The revenue decline was
    primarily attributable to declines in CN and GS of $660 related
    to the divestiture of our Universal Mobile Telecommunications
    System, or UMTS, Access business in the fourth quarter of 2006.
    The revenue decline in MEN was primarily driven by the
    recognition of less deferred revenues in 2007 compared to 2006,
    partially offset by an increase in optical revenues. These
    decreases were partially offset by an increase in ES due to the
    recognition of previously deferred revenues as a result of the
    completion or elimination of customer deliverable obligations
    for certain products in 2007. The net recognition of deferred
    revenue contributed approximately $367 to our consolidated 2007
    revenues.
    Gross margin increased 3.5 percentage points to
    42.3%:  The increase was primarily due to
    improvements in our cost structure within the CN, GS and ES
    segments, partially offset by decreases in the MEN and Other
    segments. The main increase was in the CN segment, due to
    divestiture of the UMTS Access business in the fourth quarter of
    2006. Further, the net increase was also due to the favorable
    impact of product and customer mix offset by volume and price
    erosion.
    Operating margin increased by $419 to earnings of
    $418:  The increase in operating margin was
    primarily due to increased gross profit as result of increased
    gross margin. The operating margin was impacted favorably by a
    decrease in R&D expense as a result of the continued
    momentum of our business transformation cost reduction
    initiatives and headcount reductions as a result of the UMTS
    Access divestiture. These cost savings were partially offset by
    an increase in charges incurred in relation to our employee
    compensation plans. The impact of foreign exchange on operating
    margin was minimal as the favorable impact on revenues was
    largely offset by the unfavorable impact on cost of revenues,
    SG&A and R&D.
    Management EBT increased by $579 to earnings of
    $545:  The increase was due to the increase in
    gross profit and decreases in SG&A and R&D expense.
    The increase in Management EBT was driven primarily by increases
    in the CN, ES, GS and Other segments, partially offset by
    decreases in the MEN segment. Management EBT increased by $328
    in CN due to decreases in SG&A and R&D expense,
    partially offset by an increase in minority interest expense and
    a decrease in gross profit. Management EBT for ES increased by
    $41 and for GS by $39 primarily due to an increase in gross
    profit, partially offset by increases in SG&A and R&D
    expense. Management EBT for Other increased by $254 primarily
    due to foreign exchange gains, increase in other income and
    reductions in SG&A. The decrease in MEN Management EBT of
    $83 was primarily due to a decrease in gross profit and an 38




---



##### Table of Contents




    Net loss before cumulative effect of accounting change
    increased from a net loss of $41 to loss of $798:The
    increase was primarily due to an increase in the valuation
    allowance related to Canadian deferred tax assets in the fourth
    quarter of 2007 due to changes in our Canadian tax profile,
    which include the sustained strength of the Canadian Dollar
    relative to the U.S. Dollar, and the recent reduction of the
    Canadian federal tax rate and other expectations related to the
    timing of Canadian taxable income. Further, the loss was also
    impacted by higher special charges, as well as lower gain on
    sale of business compared to 2006, primarily from gain on sale
    of UMTS Access business. These declines were partially offset by
    an increase in operating margin in 2007 and higher Other Income-
    net, mainly due to a net favorable impact of the strengthening
    Canadian Dollar against the U.S. Dollar.
    Cash and cash equivalents increased from $3,487 at
    December 31, 2006 to $3,526 at December 31, 2007:
    The increase in cash was driven by cash from operating
    activities of $193 and net positive impact from foreign exchange
    of $104, partially offset by cash used in investing activities
    of $177 and cash used in financing activities of $81.  Significant
    Business Developments
  Business
    Transformation Initiatives
      Global
    Class Action Settlement
    Convertible
    Notes Offering
   39




---



##### Table of Contents



Appointment
    of KPMG LLP
    Appointment
    of Paviter Binning as Executive Vice-President and Chief
    Financial Officer
    Regulatory
    Actions
  Form 10-Q
  Form 10-Q
    Elimination
    of Revenue Related Material Weakness
   40




---



##### Table of Contents



Results
    of Operations  Revenues
    For the Years EndedDecember 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$ Change


% Change


$ Change


% ChangeUnited States

$
4,974


$
5,092


$
5,203


$
(118
)


(2
)

$
(111
)


(2
)EMEA


2,740



3,239



2,704



(499
)


(15
)


535



20Canada


822



720



571



102



14



149



26Asia


1,768



1,736



1,422



32



2



314



22CALA


644



631



609



13



2



22



4Consolidated

$
10,948


$
11,418


$
10,509


$
(470
)


(4
)

$
909



9   2007 vs.
    2006
       41




---



##### Table of Contents



2006 vs.
    2005
       42




---



##### Table of Contents



Gross
    Margin
  For the Years Ended December 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$ Change


% Change


$ Change


% ChangeGross profit

$
4,627


$
4,430


$
4,239


$
197



4.4
%

$
191



4.5
%Gross margin


42.3
%


38.8
%


40.3
%






3.5 points







(1.5 points
)   2007 vs.
    2006
    2006 vs.
    2005
    Operating
    Margin
  For the Years Ended December 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$ Change


% Change


$ Change


% ChangeOperating margin

$
418


$
(1
)

$
(52
)

$
419






$
51Operating margin as a percentage of revenue


3.8
%


0.0
%


(0.5
)%






3.8 points







0.5 points  43




---



##### Table of Contents



2007 vs.
    2006
    2006 vs.
    2005
    Special
    Charges
    For the Years Ended December 31,2007


2006


20052007 Restructuring Plan

$
171


$



$
2006 Restructuring Plan


17



68



2004 Restructuring Plan


9



20



1802001 Restructuring Plan


13



17



(11
)Total special charges

$
210


$
105


$
169   2007
    Restructuring Plan
   44




---



##### Table of Contents



2006
    Restructuring Plan
    2004 and
    2001 Restructuring Plans
      2007


2006Restructuring


Restructuring


2004


2001Plan


Plan


Restructuring Plan


Restructuring Plan


Total Special Charges2007


2007


2006


2007


2006


2005


2007


2006


2005


2007


2006


2005Special charges by segment:Carrier Networks

$
105


$
6



36


$
4


$
8


$
121


$
6


$
11


$
(1
)

$
121


$
55


$
120Enterprise Solutions


23



2



14



2



3



27



2



3



(2
)

$
29


$
20


$
25Global Services


27



7



5



2



1



9



3



1







39


$
7



9Metro Ethernet Networks


16



2



7



1



8



23



2



2



(8
)


21


$
17


$
15Other










6































6



Total special charges

$
171


$
17


$
68


$
9


$
20


$
180


$
13


$
17


$
(11
)

$
210


$
105


$
169   Loss
    (Gain) on Sales of Businesses and Assets
       45




---



##### Table of Contents



Other
    Operating Income  Net
    For the Years Ended December 31,2007


2006


2005Royalty license income  net

$
29


$
21


$
13Litigation recovery (charges)


2



(9
)


10Other  net


4



1



Other operating income 
    net(a)

$
35


$
13


$
23      (a)
    Includes items that were previously
    reported as non-operating and have been reclassified from
    Other income  net accordingly.    income-net
  income-net
  Other
    Income  Net
    For the Years Ended December 31,2007


2006


2005Interest and dividend income


228



122



112Gain (loss) on sales and write downs of investments


(5
)


(6
)


67Currency exchange gains (losses)  net


180



(18
)


63Other  net


41



88



30Other income  net

$
444


$
186


$
272   sub-lease
  sub-lease
    Interest
    Expense
   46




---



##### Table of Contents



Income
    Tax Expense
         Segment
    Information  Carrier
    Networks
    For the Years Ended December 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$ Change


% Change


$ Change


% ChangeRevenueCDMA solutions

$
2,425


$
2,311


$
1,972


$
114



5
%

$
339



17
%GSM and UMTS solutions


1,373



2,021



2,248



(648
)


(32
)%


(227
)


(10
)%Circuit and packet voice solutions


695



825



695



(130
)


(16
)%


130



19
%Total Revenue

$
4,493


$
5,157


$
4,915


$
(664
)


(13
)%

$
242



5
%Management EBT

$
783


$
455


$
343


$
328



72
%

$
112



33
%   2007 vs.
    2006
   47




---



##### Table of Contents



2006 vs.
    2005
       48




---



##### Table of Contents



Enterprise
    Solutions
    For the Years Ended December 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$ Change


% Change


$ Change


% ChangeRevenueCircuit and packet voice solutions

$
1,723


$
1,618


$
1,464


$
105



6
%

$
154



11
%Data networking and security solutions


897



674



597



223



33
%


77



13
%Total Revenue

$
2,620


$
2,292


$
2,061


$
328



14
%

$
231



11
%Management EBT

$
39


$
(2
)

$
141


$
41



(2,050
)%

$
(143
)


(102
)%   2007 vs.
    2006
             49




---



##### Table of Contents



2006 vs.
    2005
            Global
    Services
    For the Years EndedDecember 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$ Change


% Change


$ Change


% ChangeRevenue

$
2,087


$
2,132


$
2,040


$
(45
)


(2
)%

$
92



5
%Management EBT

$
381


$
342


$
474


$
39



11
%

$
(132
)


(28
)%   2007 vs.
    2006
         50




---



##### Table of Contents



2006 vs.
    2005
        Metro
    Ethernet Networks
    For the Years Ended December 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$ Change


% Change


$ Change


% ChangeRevenueOptical networking solutions

$
1,185


$
1,128


$
954


$
57



5
%

$
174



18
%Data networking and security solutions


340



463



393



(123
)


(27
)%


70



18
%Total Revenue

$
1,525


$
1,591


$
1,347


$
(66
)


(4
)%

$
244



18
%Management EBT

$
(14
)

$
69


$
(78
)

$
(83
)


(120
)%

$
147



188
%   2007 vs.
    2006
       51




---



##### Table of Contents



2006 vs.
    2005
        Other
    For the Years Ended December 31,


2007 vs. 2006


2006 vs. 20052007


2006


2005


$ Change


% Change


$ Change


% ChangeRevenue

$
223


$
246


$
146


$
(23
)


(9
)%

$
100



68
%Management EBT

$
(644
)

$
(898
)

$
(776
)

$
254



(28
)%

$
(122
)


(16
)%   2007 vs.
    2006
     52




---



##### Table of Contents



2006 vs.
    2005
     Liquidity
    and Capital Resources  Cash
    Flow
      For the Years Ended December 31,2007


2006


2005Net earnings (loss)

$
(798
)

$
(32
)

$
(47
)Non-cash items


1,576



744



717Changes in operating assets and liabilities:Accounts receivable  net


4



(496
)


(334
)Inventories  net


(66
)


(42
)


285Accounts payable


94



(80
)


18832



(618
)


139Deferred costs


223



97



(538
)Income taxes


18



(18
)


(57
)Payroll, accrued and contractual liabilities


(107
)


(252
)


(356
)Deferred revenue


(424
)


(229
)


161Advanced billings in excess of revenues recognized to date on
    contracts


149



120



102Restructuring liabilities


(7
)


(21
)


(149
)Other


(469
)


(74
)


(144
)Changes in other operating assets and liabilities


(617
)


(377
)


(981
)Net cash from (used in) operating activities


193



(283
)


(172
)Net cash from (used in) investing activities


(177
)


317



(424
)Net cash from (used in) financing activities


(81
)


483



(65
)Effect of foreign exchange rate changes on cash and cash
    equivalents


104



94



(102
)Net cash from (used in) operating activities of continuing
    operations


39



611



(763
)Net cash from (used in) operating activities of discontinued
    operations










33Net increase (decrease) in cash and cash equivalents


39



611



(730
)Cash and cash equivalents at beginning of year


3,487



2,876



3,606Cash and cash equivalents at end of year

$
3,526


$
3,487


$
2,876  53




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##### Table of Contents



Operating
    Activities
      Accounts
    Receivable
  December 31,


December 31,2007


2006


$ Change


% ChangeAccounts Receivable

$
2,578


$
2,785


$
(207
)


(7
)Days sales outstanding in accounts receivable
    (DSO)(a)


72



75      (a)
    DSO is the average number of days
    our receivables are outstanding based on a 90 day cycle.
    DSO is a metric that approximates the measure of the average
    number of days from when we recognize revenue until we collect
    cash from our customers. DSO for each quarter is calculated by
    dividing the quarter end accounts
    receivable-net
    balance by revenues for the quarter, in each case as determined
    in accordance with U.S. GAAP, and multiplying by
    90 days.    Inventory
  December 31,


December 31,2007


2006


$ Change


% ChangeInventory  net (excluding deferred costs)

$
513


$
456


$
57



13Net inventory days
    (NID)(a)


26



22      (a)
    NID is the average number of days
    from procurement to sale of our product based on a 90 day
    cycle. NID for each quarter is calculated by dividing the
    average of the current quarter and prior quarter
    inventories  net (excluding deferred costs) by the
    cost of revenues for the quarter and multiplying by 90 days.  build-up
  Accounts
    Payable
  December 31,


December 31,2007


2006


$ Change


% ChangeTrade accounts payable

$
1,145


$
1,085


$
60



6Days of purchasing outstanding in accounts payable
    (DPO)(a)


57



49      (a)
    DPO is the average number of days
    from when we receive purchased goods and services until we pay
    our suppliers based on a 90 day cycle. DPO for each quarter
    is calculated by dividing the quarter end accounts payable by
    the cost of revenues for the quarter, in each case as determined
    in accordance with U.S. GAAP, and multiplying by
    90 days. 54




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##### Table of Contents



Deferred
    Revenue
    Investing
    Activities
      Financing
    Activities
      Other
    Items
      Convertible
    Notes Offering
     55




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##### Table of Contents



Form S-3
  Future
    Uses and Sources of Liquidity
    
    We expect our ability to increase revenue and generate positive
    cash from operating activities to be a primary uncertainty
    regarding our liquidity. In prior years, our operating results
    have generally produced negative cash flow from operations due
    in large part to our inability to reduce operating expenses as a
    percentage of revenue and the continued negative impact on gross
    margin due to competitive pressures, product mix and other
    factors discussed in this report. If capital spending by our
    customers changes or pricing and margins change from what we
    currently expect, due to current economic uncertainties in North
    America or elsewhere raising concerns about decreases in
    projected spending rates by both carrier and enterprise
    customers, or for other reasons, our revenues and cash flows may
    be materially lower and we may be required to further reduce our
    investments or take other measures in order to meet our cash
    requirements;
    Our ability and willingness to access the capital markets is
    based on many factors including market conditions and our
    overall financial objectives. Currently, our ability is limited
    by the covenant restrictions in our indentures and by our and
    NNCs credit ratings both of which have, in part,
    contributed to our increased interest and borrowing costs. We
    cannot provide any assurance that our net cash requirements will
    be as we currently expect, that we will be able to refinance any
    maturing debt as it comes due or that financings will be
    available to us on acceptable terms, or at all; and
    We are subject to litigation proceedings and, as a result, any
    judgments or settlements in connection with our pending civil
    litigation not encompassed by the Global Class Action
    Settlement, or criminal investigations related to the
    restatements, could have a material adverse effect on our
    business, results of operations, financial condition and
    liquidity, other than anticipated professional fees.  Future
    Uses of Liquidity
    
    cash contributions for pension, post retirement and post
    employment funding of approximately $350;
    capital expenditures of approximately $200; 56




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##### Table of Contents




    costs related to workforce reductions and real estate actions in
    connection with the 2007 and prior restructuring plans of
    approximately $130
    costs related to workforce reductions and other restructuring
    activities for all 2008 restructuring plans of approximately
    $157;
    costs associated with ongoing contractual commitments related to
    the divestiture of our manufacturing operations to Flextronics
    of approximately $70;
    outstanding principal amount of 4.25% Notes due 2008 of up
    to $675, if not refinanced in whole or in part; and
    an earn-out payment to LGE, of approximately $51 based on the
    2007 performance of LG-Nortel.  and/or
  Contractual
    cash obligations
  Payments Due


TotalContractual Cash
    Obligations(a)

2008


2009


2010


2011


2012


Thereafter


ObligationsLong-term
    debt(b)

$
28


$
26


$
26


$
1,027


$
29


$
1,533


$
2,669Interest on Long-term
    debt(c)


219



219



219



176



124



497



1,454Operating
    leases(d)


105



93



83



70



59



276



686Purchase obligations


28



9



3















40Outsourcing contracts


11



10



















21Obligations under special charges


51



35



44



40



33



168



371Pensions, post-retirement benefits and post-employment


350























350obligations(e)Other long-term liabilities reflected on the balance
    sheet(f)


28



4



5



5



4



119



165Total contractual cash obligations

$
820


$
396


$
380


$
1,318


$
249


$
2,593


$
5,756     (a)
    Amounts represent our known,
    undiscounted, minimum contractual payment obligations under our
    long-term obligations and include amounts identified as
    contractual obligations in current liabilities of the
    accompanying audited consolidated financial statements as of
    December 31, 2007.(b)
    Includes principal payments due on
    long-term debt and $296 of capital lease obligations. For
    additional information, see note 10, Long-term
    debt, to the accompanying audited consolidated financial
    statements.(c)
    Amounts represent interest
    obligations on our long-term debt excluding capital leases as at
    December 31, 2007. As described in note 11,
    Financial instruments and hedging activities, to the
    accompanying audited consolidated financial statements, we have
    entered into certain interest rate swap contracts, which swap
    fixed rate payments for floating rate payments. For the purposes
    of estimating our future payment obligations with regards to
    floating rate payments, we have used the floating rate in effect
    as at December 31, 2007.(d)
    For additional information, see
    note 13, Commitments, to the accompanying
    audited consolidated financial statements.(e)
    Represents our estimate of our 2008
    pension, post-retirement and post-employment obligations only.
    We will continue to have funding obligations in each future
    period; however, we are not currently able to estimate those
    amounts. (f)
    Includes asset retirement
    obligations, deferred compensation and tax liabilities under
    FASB Interpretation No. 48, Accounting for Uncertainty in Income
    Taxes. $21 has been classified as current and therefore
    reflected in 2008 and $71 in thereafter as we are
    unable to reasonably project the ultimate amount or timing of
    settlement of our reserves for income taxes. See note 7, Income
    taxes, in the notes to consolidated financial statements for
    further discussion.  Purchase
    obligations
  and/or
  Outsourcing
    contracts
   57




---



##### Table of Contents



Obligations
    under special charges
    Pension
    and post-retirement obligations
    Other
    long-term liabilities reflected on the balance
    sheet
    Future
    Sources of Liquidity
      Available
    support facility
    
    $300 of committed revolving support for performance bonds or
    similar instruments with individual amounts of up to $25, of
    which $89 was outstanding; and
    $450 of uncommitted revolving support for performance bonds or
    similar instruments
    and/or
    receivables sales
    and/or
    securitizations, of which $57 was outstanding.    and/or
 58




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##### Table of Contents



Short-form
    registration of securities
    Credit
    Ratings
  Moodys

S&PNNLs Corporate Family Rating/Corporate Credit Rating


B3



B−NNLs $2.0B High-Yield Notes


B3



B−NNCs $1.8B Convertible Notes due 2008


B3



B−NNCs $1.15B Convertible Notes due 2012 and 2014


B3



B−NNLs $200 Notes due 2023


B3



CCCNortel Networks Capital Corporations $150 Notes due 2026


B3



CCCNNL Preferred Shares:Series 5


Caa3



CCC−Series 7


Caa3



CCC−   and/or
 Off-Balance
    Sheet Arrangements  Bid,
    Performance Related and Other Bonds
   59




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##### Table of Contents



For the Years Ended December 31,2007


2006Bid and performance related
    bonds(a)

$
155


$
231Other
    bonds(b)


54



30Total bid, performance related and other bonds

$
209


$
261      (a)
    Net of restricted cash and cash
    equivalents amounts of $5 and $7 as of December 31, 2007
    and December 31, 2006, respectively.(b)
    Net of restricted cash and cash
    equivalents amounts of $27 and $33 as of December 31, 2007
    and December 31, 2006, respectively.   Application
    of Critical Accounting Policies and Estimates        Revenue
    Recognition
     60




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##### Table of Contents




    whether the delivered item has value to the customer on a
    stand-alone basis;
    whether there is objective and reliable evidence of the fair
    value of the undelivered item(s); and
    if the contract includes a general right of return relative to
    the delivered item, delivery or performance of the undelivered
    item(s) is considered probable and is substantially in our
    control.          percentage-of-completion percentage-of-completion
 61




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##### Table of Contents



when-and-if
              
    Complex arrangements that involve multiple deliverables such as
    future software deliverables, and/or post contractual customer
    support which remain undelivered generally result in the
    deferral of revenue because, in most cases, we have not
    established fair value for the undelivered elements. We estimate
    that these arrangements account 62




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##### Table of Contents



for approximately 50% of our deferred revenue balance and will
    be recognized upon delivery of the final undelivered elements
    and over time. 
    In many instances our contractual billing arrangements do not
    match the timing of the recognition of revenue. Often this
    occurs in contracts accounted for under SOP 81-1 where we
    generally recognize the revenue based on a measure of the
    percentage of costs incurred to date relative to the estimated
    total expected contract costs. We estimate that approximately
    10% of our deferred revenue balance relates to contractual
    arrangements where billing milestones preceded revenue
    recognition.      As at December 31,2007


2006


$ Change


% ChangeDeferred revenue

$
1,619


$
2,046


$
(427
)


(21
)Advance billings


1,490



1,352



138



10Total deferred revenue

$
3,109


$
3,398


$
(289
)


(9
)     Provisions
    for Doubtful Accounts
    
    age of the receivables;
    customers ability to meet and sustain its financial
    commitments;
    customers current and projected financial condition;
    collection experience with the customer;
    historical bad debt experience with the customer;
    the positive or negative effects of the current and projected
    industry outlook; and
    the economy in general.        As at December 31,2007


2006Gross accounts receivable

$
3,767


$
3,797Provision for doubtful accounts


(62
)


(88
)Accounts receivable  net

$
3,705


$
3,709Accounts receivable provision as a percentage of gross accounts
    receivable


2
%


2
%Gross long-term receivables

$
44


$
39Provision for doubtful accounts


(35
)


(34
)Net long-term receivables

$
9


$
5Long-term receivables provision as a percentage of gross
    long-term receivables


80
%


87
%  63




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##### Table of Contents



Provisions
    for Inventories
          As at December 31,2007


2006Gross inventory

$
3,118


$
3,415Inventory provisions


(907
)


(1,007
)Inventories 
    net(a)

$
2,211


$
2,408Inventory provisions as a percentage of gross inventory


29
%


29
%Inventory provisions as a percentage of gross inventory
    excluding deferred
    costs(b)


64
%


69
%      (a)
    Includes the long-term portion of
    inventory related to deferred costs of $209 and $419 as of
    December 30, 2007 and December 31, 2006, respectively,
    which is included in other assets.(b)
    Calculated excluding deferred costs
    of $1,698 and $1,952 as of December 30, 2007 and
    December 31, 2006, respectively.  and/or
  Provisions
    for Product Warranties
     64




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##### Table of Contents



As at December 31,2007


2006Balance at the beginning of the year

$
214


$
204Payments


(181
)


(267
)Warranties issued


261



281Revisions


(88
)


(4
)Balance at the end of the year

$
206


$
214     Income
    Taxes
  Tax
    Asset Valuation
            
    the amount of, and trends related to, cumulative earnings or
    losses realized over the most recent 12 quarters;
    our current period net earnings (loss) and its impact on our
    strong history of earnings prior to 2001; 65




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##### Table of Contents




    future earnings projections as determined through the use of
    internal forecasts, including the impact of sales backlog and
    existing contracts;
    our ability to carry forward our tax losses and investment tax
    credits, including tax planning strategies to accelerate
    utilization of such assets;
    industry, business, or other circumstances that may adversely
    affect future operations, and the nature of the future income
    required to realize our deferred tax asset.                   66




---



##### Table of Contents



Future
    Projections of Profitability
                Net


Other


GrossTax Benefit


Investment


Temporary


Deferred


Valuation


Net Deferredof Losses


Tax Credits


Differences


Tax Asset


Allowance


Tax AssetCanada

$
913


$
1,038


$
513


$
2,464


$
(1,290
)

$
1,174United States


759



362



915



2,036



(474
)


1,562United Kingdom


449







214



663



(337
)


326France


437



42



122



601



(525
)


76Other


439







269



708



(523
)


185Total

$
2,997


$
1,442


$
2,033


$
6,472


$
(3,149
)

$
3,323    67




---



##### Table of Contents



Canada
             68




---



##### Table of Contents



U.S.
      U.K.
    France
    Transfer
    Pricing
        Valuation
    Allowance
   69




---



##### Table of Contents



Canada
      Tax
    Contingencies
           70




---



##### Table of Contents



Goodwill
    Valuation
    
    a significant adverse change in the business climate or legal
    factors;
    an adverse action or assessment by a regulator;
    unanticipated competition;
    loss of key personnel;
    the likelihood that a reporting unit or a significant portion of
    a reporting unit will be sold or disposed of;
    a change in reportable segments;
    results of testing for recoverability of a significant asset
    group within a reporting unit; and
    recognition of a goodwill impairment loss in the financial
    statements of a subsidiary that is a component of a reporting
    unit.        
    DCF model: assumptions regarding revenue growth rates, gross
    margin percentages, discount rates and terminal growth rates;
    Revenue Multiple model: estimates of 2007 revenue growth and the
    selection of comparable companies to determine an appropriate
    multiple; and
    EBITDA Multiple model: 2007 projected EBITDA and the selection
    of comparable companies to determine an appropriate multiple.     71




---



##### Table of Contents



Pension
    and Post-retirement Benefits
            Effect on 2007Effect on 2007


Pre-TaxPre-Tax


Post-RetirementChange in Assumption

Pension Expense


Benefit ExpenseIncrease/(decrease)


Increase/(decrease)1 percentage point increase in the expected return on assets

$
(71
)


N/A1 percentage point decrease in the expected return on assets


74



N/A1 percentage point increase in discount rate


(83
)


1 percentage point decrease in discount rate


94



1          72




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##### Table of Contents



not-for-profit
  As at December 31, 2006Before Application





After Applicationof SFAS 158


Adjustment


of SFAS 158Intangible assets  net

$
262


$
(21
)

$
241Other assets  long term


677



3



680Deferred tax asset  long term


3,803



60



3,863Payroll and benefit liabilities  current


(865
)


228



(637
)Other liabilities  long term


(3,716
)


(412
)


(4,128
)Accumulated other comprehensive loss


466



142



608   post-employment
  Special
    Charges
     73




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##### Table of Contents



Other
    Contingencies
     Accounting
    Changes and Recent Accounting Pronouncements  Accounting
    Changes
    
    Accounting for Certain Hybrid Financial Instruments In February 2006, the FASB issued
    SFAS No. 155, Accounting for Certain Hybrid Financial
    Instruments  an amendment to FASB Statements
    No. 133 and 140, or SFAS 155. SFAS 155 simplifies
    the accounting for certain hybrid financial instruments
    containing embedded derivatives. SFAS 155 allows fair value
    measurement, at the option of the entity, for any hybrid
    financial instrument that contains an embedded derivative that
    otherwise would require bifurcation under SFAS 133. In
    addition, it amends SFAS No. 140, Accounting for
    Transfers and Servicing of Financial Assets and Extinguishments
    of Liabilities, to eliminate certain restrictions on
    passive derivative financial instruments that a qualifying
    special-purpose entity can hold. SFAS 155 is effective for all
    financial instruments acquired, issued or subject to a
    re-measurement event occurring after the beginning of an
    entitys first fiscal year that begins after
    September 15, 2006. Pursuant to SFAS 155, we have not
    elected to measure our hybrid instruments at fair value.
    Accounting for Servicing of Financial AssetsIn March
    2006, the FASB issued SFAS No. 156, Accounting for
    Servicing of Financial Assets  an amendment of FASB
    Statement No. 140, or SFAS 156. SFAS 156 simplifies
    the accounting for assets and liabilities arising from loan
    servicing contracts. SFAS 156 requires that servicing
    rights be valued initially at fair value and subsequently either
    (i) accounted for at fair value or (ii) amortized over
    the period of estimated net servicing income (loss), with an
    assessment for impairment or increased obligation each reporting
    period. We adopted SFAS 156 on January 1, 2007. The
    adoption of SFAS 156 has not had a material impact on our
    results of operations and financial condition.
    Accounting for Uncertainty In Income Taxes In
    June 2006, the FASB issued FIN 48, clarifying the
    accounting for uncertainty in income taxes recognized in an
    entitys financial statements in accordance with
    SFAS No. 109, Accounting for Income Taxes, or SFAS
    109. The interpretation prescribes a recognition threshold and
    measurement attribute for the financial statement recognition
    and measurement of a tax position taken or expected to be taken
    in a tax return. FIN 48 also provides accounting guidance
    on de-recognition, classification, interest and penalties,
    accounting in interim periods, disclosure and transition. The
    evaluation of tax positions under FIN 48 is a two-step
    process, whereby (1) we determine whether it is more likely
    than not that the tax positions will be sustained based on the
    technical merits of each position and (2) for those tax
    positions that meet the more-likely-than-not recognition
    threshold, we would recognize the largest amount of tax benefit
    that has a greater than 50% likelihood of being realized upon
    ultimate settlement with the related tax authority. The adoption
    of FIN 48 resulted in an 74




---



##### Table of Contents



increase of $1 to opening accumulated deficit as at
    January 1, 2007. For additional information, see
    note 7 to the accompanying audited consolidated financial
    statements.  FIN 48-1, FIN 48-1. FIN 48-1 FIN 48-1 FIN 48-1
  
    Accounting for Sabbatical Leave and Other Similar Benefits In June 2006, the EITF reached a consensus on
    EITF Issue
    No. 06-2,
    Accounting for Sabbatical Leave and Other Similar Benefits
    Pursuant to FASB Statement No. 43, Accounting for
    Compensated Absences, or
    EITF 06-2.
    EITF 06-2
    provides clarification surrounding the accounting for benefits
    in the form of compensated absences, whereby an employee is
    entitled to paid time off after working for a specified period
    of time.
    EITF 06-2
    is effective for fiscal years beginning after December 15,
    2006. The adoption of
    EITF 06-2
    has not had a material impact on our results of operations and
    financial condition.
    How Taxes Collected from Customers and Remitted to
    Governmental Authorities Should Be Presented in the Income
    Statement In June 2006, the EITF reached a
    consensus on EITF Issue
    No. 06-3,
    How Taxes Collected from Customers and Remitted to Governmental
    Authorities Should Be Presented in the Income Statement (That
    Is, Gross Versus Net Presentation), or
    EITF 06-3.
    EITF 06-3
    provides guidance on how taxes directly imposed on
    revenue-producing transactions between a seller and customer
    that are remitted to governmental authorities should be
    presented in the income statement (i.e. gross versus net
    presentation). We elected to follow our existing policy of net
    presentation allowed by
    EITF 06-3
    and, therefore, its adoption of
    EITF 06-3
    has not had an impact on our results of operations and financial
    condition.
    Share-Based Payment On January 1, 2006,
    we adopted SFAS No. 123 (Revised 2004), Share-Based
    Payment, or SFAS 123R. We previously elected to account for
    employee share-based compensation using the fair value method
    prospectively for all awards granted or modified on or after
    January 1, 2003, in accordance with SFAS No. 148,
    Accounting for Share-based Compensation 
    Transition and Disclosure. SAB No. 107,
    Share-Based Payment (SAB 107), was
    issued by the SEC in March 2005 and provides supplemental
    SFAS 123R application guidance based on the views of the
    SEC. As a result of the adoption of SFAS 123R in the first
    quarter of 2006, we recorded a gain of $9 as a cumulative effect
    of an accounting change. There were no other material impacts on
    our results of operations and financial condition as a result of
    the adoption of SFAS 123R. For additional disclosure
    related to SFAS 123R, see note 18 to the accompanying
    audited consolidated financial statements.
    Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans  an Amendment of FASB
    Statements No. 87, 88, 106, and 132(R).In September
    2006, the FASB issued SFAS No. 158,
    Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans  an Amendment of FASB
    Statements No. 87, 88, 106, and 132(R) (SFAS
    158). Based on the funded status of our pension and
    post-retirement benefit plans as of the measurement date of
    September 30, the adoption of SFAS 158 has had the
    effect of increasing our net liabilities for pension and
    post-retirement benefits and decreasing shareholders
    equity by approximately $142, net of taxes, as of
    December 31, 2006.     75




---



##### Table of Contents



Recent
    Accounting Pronouncements
  instrument-by-instrument
  No. 06-11, EITF 06-11. EITF 06-11 EITF 06-11 EITF 06-11 EITF 06-11
  No. 07-3, EITF 07-3. EITF 07-3 EITF 07-3 EITF 07-3
  FIN 39-1, FIN 39-1. FIN 39-1 FIN 39-1 FIN 39-1 FIN 39-1
    No. 07-1 EITF 07-1. EITF 07-1 EITF 07-1 EITF 07-1
   76




---



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Outstanding
    Share Data   Market
    Risk   Environmental
    Matters      de minimis de minimis de minimis
     77




---



##### Table of Contents



Legal
    Proceedings   Cautionary
    Notice Regarding Forward-Looking Information    ITEM 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Market
    Risk
  value-at-risk
 78




---



##### Table of Contents



79




---



##### Table of Contents



Equity
    Price Risk     80




---



##### Table of Contents



ITEM 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of Independent Registered Public Accounting Firm


82Report of Independent Registered Chartered Accountants


83Consolidated Statements of Operations


84Consolidated Balance Sheets


85Consolidated Statements of Changes in Equity and Comprehensive
    Income (Loss)


86Consolidated Statements of Cash Flows


87Notes to Consolidated Financial Statements


88************Quarterly Financial Data (Unaudited)


160Report of Independent Registered Chartered Accountants


161Schedule II  Valuation and Qualifying Accounts
    and Reserves


162  81




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                     82




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
          Deloitte &
    Touche LLP
         COMMENTS BY
    INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS ON
    CANADA-UNITED
    STATES OF AMERICA REPORTING DIFFERENCE
    Deloitte &
    Touche LLP
       83




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Consolidated Statements of Operations for the years ended
    December 31
  2007


2006


2005(Millions of U.S. Dollars)Revenues:Products

$
9,654


$
10,158


$
9,338Services


1,294



1,260



1,171Total Revenues


10,948



11,418



10,509Cost of revenues:Products


5,637



6,276



5,629Services


684



712



641Total cost of revenues


6,321



6,988



6,270Gross profit


4,627



4,430



4,239Selling, general and administrative expense


2,486



2,491



2,417Research and development expense


1,723



1,940



1,874Amortization of intangible assets


50



26



17In-process research and development expense






22



Special charges


210



105



169Loss (gain) on sales of businesses and
    assets(a)


(31
)


(206
)


47Other operating income  net (note 4)


(35
)


(13
)


(23
)Operating earnings (loss)


224



65



(262
)Other income  net (note 4)


444



186



272Interest expenseLong-term debt


(257
)


(187
)


(124
)Other


(24
)


(22
)


(6
)Earnings (loss) from continuing operations before income taxes,
    minority interests and equity in net earnings (loss) of
    associated companies


387



42



(120
)Income tax (expense) benefit


(1,114
)


(60
)


81(727
)


(18
)


(39
)Minority interests  net of tax


(73
)


(21
)


(12
)Equity in net earnings (loss) of associated
    companies  net of tax


2



(2
)


3Net loss from continuing operations


(798
)


(41
)


(48
)Net earnings from discontinued operations  net of tax










1Net loss before cumulative effect of accounting change


(798
)


(41
)


(47
)Cumulative effect of accounting change  net of tax
    (note 3)






9



Net loss


(798
)


(32
)


(47
)Dividends on preferred shares


42



38



26Net loss applicable to common shares

$
(840
)

$
(70
)

$
(73
)     (a)
    
    Includes related costs.  The accompanying notes are an integral part of these
    consolidated financial statements
 84




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Consolidated
    Balance Sheets as of December 31
  2007


2006(Millions of U.S. Dollars)ASSETSCurrent assetsCash and cash equivalents

$
3,526


$
3,487Restricted cash and cash equivalents


66



44Accounts receivable  net


3,705



3,709Inventories  net


2,002



1,989Deferred income taxes  net


487



276Other current assets


467



512Total current assets


10,253



10,017Investments


194



204Plant and equipment  net


1,530



1,526Goodwill


2,381



2,351Intangible assets  net


213



241Deferred income taxes  net


2,868



3,863Other assets


534



680Total assets

$
17,973


$
18,882LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesTrade and other accounts payable

$
1,229


$
1,124Payroll and benefit-related liabilities


689



637Contractual liabilities


272



243Restructuring liabilities


100



97Other accrued liabilities (note 4)


3,799



3,756Long-term debt due within one year


23



18Total current liabilities


6,112



5,875Long-term debt


2,666



2,646Deferred income taxes  net


17



97Other liabilities (note 4)


2,874



4,128Total liabilities


11,669



12,746Minority interests in subsidiary companies


294



243Guarantees, commitments, contingencies and subsequent events
    (notes 12, 13, 19 and 20, respectively)SHAREHOLDERS EQUITYPreferred shares, without par value  Authorized
    shares: unlimited; Issued and outstanding shares: 30,000,000 and
    30,000,000 for 2007 and 2006, respectively


536



536Common shares, without par value  Authorized shares:
    unlimited; Issued and outstanding shares: 1,460,978,638 and
    1,460,978,638 for 2007 and 2006, respectively


1,211



1,211Additional paid-in capital


22,401



22,298Accumulated deficit


(18,385
)


(17,544
)Accumulated other comprehensive income (loss)


247



(608
)Total shareholders equity


6,010



5,893Total liabilities and shareholders equity

$
17,973


$
18,882   The accompanying notes are an integral part of these
    consolidated financial statements
 85




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Consolidated Statements of Changes in Equity and
    Comprehensive Income (Loss)
  2007


2006


2005(Millions of U.S. Dollars)Preferred sharesBalance at the beginning of the year

$
536


$
536


$
536Balance at the end of the year


536



536



536Common sharesBalance at the beginning of the year


1,211



1,211



1,211Balance at the end of the year


1,211



1,211



1,211Additional paid-in capitalBalance at the beginning of the year


22,298



22,193



22,107Stock option compensation


76



93



84Restricted stock units


23



8



1Performance stock units


6



2



Other


(2
)


2



1Balance at the end of the year


22,401



22,298



22,193Accumulated deficitBalance at the beginning of the year


(17,544
)


(17,474
)


(17,401
)Net loss


(798
)


(32
)


(47
)Dividends on preferred shares


(42
)


(38
)


(26
)Adoption of FIN 48  (note 3)


(1
)






Balance at the end of the year


(18,385
)


(17,544
)


(17,474
)Accumulated other comprehensive income (loss)Balance at the beginning of the year


(608
)


(833
)


(504
)Foreign currency translation adjustment


298



282



(147
)Unrealized gain (loss) on investments  net


(13
)


8



(2
)Unrealized derivative gain (loss) on cash flow
    hedges  net


10



(17
)


(11
)Minimum pension liability adjustment  net






94



(169
)Change in unamortized pension and post-retirement actuarial
    losses and prior service cost


560







Other comprehensive income (loss)


855



367



(329
)Adoption of FASB Statement No. 158  net (see
    note 8)






(142
)


Balance at the end of the year


247



(608
)


(833
)Total shareholders equity

$
6,010


$
5,893


$
5,633Total comprehensive income (loss) for the yearNet loss

$
(798
)

$
(32
)

$
(47
)Other comprehensive income (loss)


855



367



(329
)Total comprehensive income (loss) for the year

$
57


$
335


$
(376
)   The accompanying notes are an integral part of these
    consolidated financial statements
 86




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Consolidated
    Statements of Cash Flows for the years ended December
    31
  2007


2006


2005(Millions of U.S. Dollars)Cash flows from (used in) operating activitiesNet loss

$
(798
)

$
(32
)

$
(47
)Adjustments to reconcile net loss to net cash from (used in)
    operating activities of continuing operations:Amortization and depreciation


328



290



301Non-cash portion of special charges


13



3



38In-process research and development expense






22



Equity in net (earnings) loss of associated companies


(2
)


2



(3
)Share-based compensation expense


105



112



86Deferred income taxes


1,019



31



(114
)Net loss (earnings) from discontinued operations










(1
)Cumulative effect of accounting change






(9
)


Pension and other accruals


276



345



299Loss (gain) on sales and write downs of investments, businesses
    and assets  net


(26
)


(200
)


(20
)Minority interests


73



21



12Other  net


(210
)


127



119Change in operating assets and liabilities


(585
)


(995
)


(842
)Net cash from (used in) operating activities of continuing
    operations


193



(283
)


(172
)Cash flows from (used in) investing activitiesExpenditures for plant and equipment


(235
)


(316
)


(256
)Proceeds on disposals of plant and equipment


90



143



10Change in restricted cash and cash equivalents


(22
)


36



3Acquisitions of investments and businesses  net of
    cash acquired


(85
)


(146
)


(651
)Proceeds from the sales of investments and businesses and
    assets  net


75



600



470Net cash from (used in) investing activities of continuing
    operations


(177
)


317



(424
)Cash flows from (used in) financing activitiesDividends paid, including paid by subsidiaries to minority
    interests


(52
)


(60
)


(43
)Increase in notes payable


76



105



70Decrease in notes payable


(81
)


(79
)


(83
)Proceeds from issuance of long-term debt






3,300



Repayments of long-term debt






(2,725
)


Debt issuance costs






(42
)


Increase in capital leases payable






1



Repayments of capital leases payable


(24
)


(17
)


(9
)Net cash from (used in) financing activities of continuing
    operations


(81
)


483



(65
)Effect of foreign exchange rate changes on cash and cash
    equivalents


104



94



(102
)Net cash from (used in) continuing operations


39



611



(763
)Net cash from (used in) operating activities of discontinued
    operations










33Net increase (decrease) in cash and cash equivalents


39



611



(730
)Cash and cash equivalents at beginning of year


3,487



2,876



3,606Cash and cash equivalents at end of year

$
3,526


$
3,487


$
2,876   The accompanying notes are an integral part of these
    consolidated financial statements
 87




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial Statements
 (Millions of U.S. Dollars, except per share amounts, unless
    otherwise stated)
  1.
    Nortel
    Networks Limited  end-to-end
    2.
    Significant
    accounting policies  Basis
    of presentation
    (a)
    Principles
    of consolidation  and/or
  (b)
    Use of
    estimates   88




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
   (c)
    Translation
    of foreign currencies        (d)
    Revenue
    recognition    81-1, (SOP 81-1), SOP 97-2, (SOP 97-2), 01-09, (EITF 01-09).
    No. 00-21, (EITF 00-21), EITF 00-21,
 89




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
   SOP 97-2 SOP 81-1 SOP 97-2 off-the-shelf SOP 81-1
  SOP 81-1, percentage-of-completion percentage-of-completion SOP 81-1 SOP 81-1 EITF 00-21 SOP 81-1 SOP 81-1
          SOP 97-2. SOP 97-2
 90




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  when-and-if
  SOP 97-2,
    (e)
    Research
    and development    (f)
    Income
    taxes        (g)
    Cash
    and cash equivalents    (h)
    Restricted
    cash and cash equivalents    (i)
    Provision
    for doubtful accounts     91




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (j)
    Inventories  first-in,
    (k)
    Receivables
    sales    (l)
    Investments  other-than-temporary
  other-than-temporary.
  other-than-temporary
  (m)
    Plant
    and equipment   92




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
   (n)
    Software
    development and business re-engineering costs  Software
    development costs
  SOP No. 98-1, (SOP 98-1). SOP 98-1
  Business
    re-engineering costs
  re-engineering No. 97-13, (EITF 97-13). re-engineer SOP 98-1
  (o)
    Impairment
    or disposal of long-lived assets  Long-lived
    assets held and used
      Long-lived
    assets held for sale
      Long-lived
    assets to be disposed of other than by sale
     93




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
      (p)
    Goodwill        (q)
    Intangible
    assets    (r)
    Warranty
    costs    (s)
    Pension,
    post-retirement and post-employment benefits     94




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
      (t)
    Derivative
    financial instruments          (u)
    Share-based
    compensation     95




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
        Stock
    options
    RSUs
    PSUs
    Stock
    appreciation rights (SARs)
   96




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Employee
    stock purchase plans (ESPPs)
    Pro forma
    disclosure required due to a change in accounting
    policy
    2005Net loss  reported

$
(47
)Share-based compensation  reported


89Share-based compensation  pro
    forma(i)


(96
)Net loss  pro forma

$
(54
)     (i)
    Share-based
    compensation  pro forma expense for the year ended
    December 31, 2005 was net of tax of nil.  (v)
    Guarantees    (i)
    Nortel has a non-contingent and immediate obligation to stand
    ready to make payments if certain future triggering events
    occur. For certain guarantees, a liability must be recognized
    for the stand ready obligation at the inception of the
    guarantee; and(ii)
    Nortel has an obligation to make future payments if those
    certain future triggering events do occur. A liability must be
    recognized when it becomes probable that one or more future
    events will occur, triggering the requirement to make payments
    under the guarantee and when the payment can be reasonably
    estimated.    (w)
    Recent
    accounting pronouncements  (i)
    In February 2007, the FASB issued SFAS No. 159,
    The Fair Value Option for Financial Assets and Financial
    Liabilities  Including an amendment of FASB Statement
    No. 115 (SFAS 159). SFAS 159 allows
    the irrevocable election of fair value as the initial and
    subsequent measurement attribute for certain financial assets
    and liabilities and other items on an
    instrument-by-instrument
    basis. Changes in fair value would be reflected in earnings as
    they occur. The objective of SFAS 159 is to improve
    financial reporting by providing entities with the opportunity
    to mitigate volatility in reported earnings caused by measuring
    related assets and liabilities differently without having to
    apply complex hedge accounting provisions. For Nortel,
    SFAS 159 is effective as of January 1, 2008. Nortel
    has elected not to apply the fair value option for any of its
    eligible financial instruments and other items. 97




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
   (ii)
    In June 2007, the EITF reached a consensus on EITF Issue
    No. 06-11,
    Accounting for Income Tax Benefits on Dividends on
    Share-Based Payment Awards
    (EITF 06-11).
    EITF 06-11
    provides accounting guidance on how to recognize the realized
    tax benefits associated with the payment of dividends under a
    share-based payment arrangement.
    EITF 06-11
    requires that the realized tax benefits associated with
    dividends on unvested share-based payments be charged to equity
    as an increase in additional paid-in capital and included in the
    pool of excess tax benefits available to absorb potential future
    tax deficiencies on share-based payment awards. Nortel will
    adopt the provisions of
    EITF 06-11
    on January 1, 2008. The adoption of
    EITF 06-11
    is not expected to have a material impact on Nortels
    results of operations and financial condition.(iii)
    In June 2007, the EITF reached a consensus on EITF Issue
    No. 07-3,
    Accounting for Advance Payments for Goods or Services to
    be Received for Use in Future Research and Development
    Activities
    (EITF 07-3).
    EITF 07-3
    provides clarification surrounding the accounting for
    non-refundable research and development advance payments,
    whereby such payments should be recorded as an asset when the
    advance payment is made and recognized as an expense when the
    research and development activities are performed. Nortel will
    adopt the provisions of
    EITF 07-3
    on January 1, 2008. The implementation of
    EITF 07-3
    is not expected to have a material impact on Nortels
    results of operations and financial condition.(iv)
    In April 2007, the FASB issued FASB Staff Position
    (FSP),
    FIN 39-1,
    an amendment to paragraph 10 of FIN 39,
    Offsetting of Amounts Related to Certain Contracts
    (FSP FIN
    39-1).
    FSP
    FIN 39-1
    replaces the terms conditional contract and
    exchange contracts in FIN 39 with the term
    derivative instruments as defined in
    SFAS No. 133, Accounting for Derivatives
    Instruments and Hedging Activities
    (SFAS 133). FSP
    FIN 39-1
    also amends FIN 39 to allow for the offsetting of fair value
    amounts recognized for the right to reclaim cash collateral (a
    receivable), or the obligation to return cash collateral (a
    payable) against fair value amounts recognized for derivative
    instruments executed with the same counterparty under the same
    master netting arrangement. Nortel will adopt the provisions of
    FSP
    FIN 39-1
    on January 1, 2008. The implementation of FSP
    FIN 39-1
    is not expected to have a material impact on Nortels
    results of operations and financial condition.(v)
    In September 2006, the FASB issued SFAS No. 157,
    Fair Value Measurements (SFAS 157).
    SFAS 157 establishes a single definition of fair value and
    a framework for measuring fair value in U.S. GAAP and
    requires expanded disclosures about fair value measurements.
    SFAS 157 is effective for financial statements issued for fiscal
    years beginning after November 15, 2007. Nortel plans to
    partially adopt the provisions of SFAS 157 on
    January 1, 2008. The effective date for SFAS 157 as it
    relates to fair value measurements for
    non-financial
    assets and liabilities that are not measured at fair value on a
    recurring basis has been deferred to fiscal years beginning
    after December 15, 2008. Nortel plans to adopt the deferred
    portion of SFAS 157 on January 1, 2009. Nortel does
    not currently expect the adoption of SFAS 157 to have a
    material impact on its results of operations and financial
    conditions, but will continue to assess the evolving guidance.(vi)
    In September 2007, the EITF reached a consensus on EITF Issue
    No. 07-1,
    Collaborative Arrangements
    (EITF 07-1).
    EITF 07-1
    addresses the accounting for arrangements in which two companies
    work together to achieve a common commercial objective, without
    forming a separate legal entity. The nature and purpose of a
    companys collaborative arrangements are required to be
    disclosed, along with the accounting policies applied and the
    classification and amounts for significant financial activities
    related to the arrangements. Nortel will adopt the provisions of
    EITF 07-1
    on January 1, 2009. The adoption of
    EITF 07-1
    is not expected to have a material impact on Nortels
    results of operations and financial condition.(vii)
    In December 2007, the FASB issued SFAS 141R, Business
    Combinations (SFAS 141R), replacing
    SFAS 141, Business Combinations. SFAS 141R
    revises existing accounting guidance for how an acquirer
    recognizes and measures in its financial statements the
    identifiable assets, liabilities, any noncontrolling interests,
    and the goodwill acquired. SFAS 141R is effective for
    fiscal years beginning after December 15, 2008. Nortel
    plans to adopt the provisions of SFAS 141R on
    January 1, 2009. The adoption of SFAS 141R will impact
    the accounting for business combinations completed by Nortel on
    or after January 1, 2009.(viii)
    In December 2007, the FASB issued SFAS 160,
    Noncontrolling Interests in Consolidated Financial
    Statements  An Amendment of ARB 51
    (SFAS 160). SFAS 160 establishes
    accounting and reporting standards for the treatment of
    noncontrolling interests in a subsidiary. Noncontrolling
    interests in a subsidiary should be reported as a 98




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  component of equity in the consolidated financial statements and
    any retained noncontrolling equity investment upon
    deconsolidation of a subsidiary is initially measured at fair
    value. SFAS 160 is effective for fiscal years beginning after
    December 15, 2008. Nortel plans to adopt the provisions of
    SFAS 160 on January 1, 2009. The adoption of
    SFAS 160 will result in the reclassification of minority
    interests to shareholders equity. Nortel is currently
    assessing any further impacts on its results of operations and
    financial condition.  3.  Accounting
    changes
  (a)
    Accounting
    for Certain Hybrid Financial Instruments    (b)
    Accounting
    for Servicing of Financial Assets    (c)
    Accounting
    for Uncertainty in Income Taxes    FIN 48-1, FIN 48-1). FIN 48-1 FIN 48-1 FIN 48-1
  (d)
    Accounting
    for Sabbatical Leave and Other Similar Benefits  No. 06-2, (EITF 06-2). EITF 06-2 EITF 06-2
 99




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  EITF 06-2
  (e)
    How
    Taxes Collected from Customers and Remitted to Governmental
    Authorities Should Be Presented in the Income
    Statement  No. 06-3, (EITF 06-3). EITF 06-3 EITF 06-3 EITF 06-3
  (f)
    Share-Based
    Payment    (g)
    Employers
    Accounting for Defined Benefit Pension and Other Postretirement
    Plans  an Amendment of FASB Statements No. 87,
    88, 106, and 132(R)         100




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
   4.
    Consolidated
    financial statement details    Consolidated
    statements of operations
  Cost of
    revenues:
    Selling,
    general and administrative expense:
    Research
    and development expense:
  2007


2006


2005R&D expense

$
1,723


$
1,940


$
1,874R&D costs incurred on behalf of
    others(a)


7



16



28Total

$
1,730


$
1,956


$
1,902     (a)
    These costs included R&D costs
    charged to customers of Nortel pursuant to contracts that
    provided for full recovery of the estimated costs of
    development, material, engineering, installation and other
    applicable costs, which were accounted for as contract costs.  Other
    operating income  net:
  2007


2006


2005Royalty license income  net

$
(29
)

$
(21
)

$
(13
)Litigation charges (recovery)


(2
)


9



(10
)Other  net


(4
)


(1
)


Other operating income 
    net(a)

$
(35
)

$
(13
)

$
(23
)     (a)
    Includes items that were previously
    reported as non-operating and have been reclassified from
    Other income  net to conform to current
    presentation.  Other
    income  net:
  2007


2006


2005Interest and dividend income

$
228


$
122


$
112Gain (loss) on sales and write downs of investments


(5
)


(6
)


67Currency exchange gains (losses)  net


180



(18
)


63Other  net


41



88



30Other income  net

$
444


$
186


$
272    101




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Consolidated
    balance sheets
  Cash and
    cash equivalents:
  2007


2006


2005Cash on hand and balances with banks

$
811


$
747


$
761Short-term investments


2,715



2,740



2,115Cash and cash equivalents at end of year

$
3,526


$
3,487


$
2,876   Accounts
    receivable  net:
  2007


2006Trade receivables

$
2,271


$
2,464Notes receivable


12



7Notes receivable from NNC and its subsidiaries


1,127



924Contracts in process


357



4023,767



3,797Less: provisions for doubtful accounts


(62
)


(88
)Accounts receivable  net

$
3,705


$
3,709   Inventories 
    net:
  2007


2006Raw materials

$
610


$
725Work in process


10



11Finished goods


800



727Deferred costs


1,698



1,9523,118



3,415Less: provision for inventories


(907
)


(1,007
)Inventories  net


2,211



2,408Less: long-term deferred
    costs(a)


(209
)


(419
)Current inventories  net

$
2,002


$
1,989     (a)
    Long-term portion of deferred costs
    is included in other assets.  Other
    current assets:
  2007


2006Prepaid expenses

$
152


$
175Income taxes recoverable


77



63Current investments


15



51Other


223



223Other current assets

$
467


$
512   Investments:
   102




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Plant and
    equipment  net:
 2007


2006Cost:Land

$
38


$
35Buildings


1,137



1,185Machinery and equipment


2,167



2,038Assets under capital lease


215



215Sale lease-back assets


97



923,654



3,565Less accumulated depreciation:Buildings


(395
)


(444
)Machinery and equipment


(1,601
)


(1,482
)Assets under capital lease


(107
)


(96
)Sale lease-back assets


(21
)


(17
)(2,124
)


(2,039
)Plant and equipment 
    net(a)

$
1,530


$
1,526     (a)
    There are no material assets held
    for sale as of December 31, 2007. As of December 31,
    2006, assets were held for sale with a carrying value of $52,
    related to owned facilities that were being actively marketed
    for sale. These assets were written down in previous periods to
    their estimated fair values less estimated costs to sell. The
    write downs were included in special charges. Nortel disposed of
    all the assets held for sale in 2007, with such disposition
    having no material impact on net earnings (loss). The assets
    held for sale had gross and net book values of approximately
    $168 and $56, respectively, as of the date of their disposition.  Goodwill:
    MetroEnterprise


Carrier


Ethernet


GlobalSolutions


Networks


Networks


Services


Other


TotalBalance  as of December 31,
    2005(a)

$
449


$
165


$
606


$
1,015


$
171


$
2,406Change:Additions(b)


9







14



20







43Disposals(c)


(8
)


(10
)


(14
)


(22
)






(54
)Foreign exchange


3



4



3



5







15Other(d)


(6
)


(15
)


(11
)


(27
)






(59
)Balance  as of December 31, 2006

$
447


$
144


$
598


$
991


$
171


$
2,351Change:Additions(e)


2



5



3



8







18Disposals






















Foreign exchange


1



3



2



6







12Balance  as of December 31, 2007

$
450


$
152


$
603


$
1,005


$
171


$
2,381     (a)
    Opening balances for Enterprise
    Solutions, Carrier Networks and Metro Ethernet Networks have
    been decreased by $26, $25 and $104, respectively, and the
    opening balance for Global Services has been increased by $155,
    to reflect the reclassification of Nortels network
    implementation services to Global Services, as described in
    note 5.(b)
    The addition of $43 relates to the
    goodwill acquired as a result of the acquisition of Tasman
    Networks Inc. (Tasman Networks) in 2006. See
    note 9 for additional information.(c)
    Includes a disposal of $42 related
    to the transfer of Nortels Calgary manufacturing plant
    assets to Flextronics Telecom Systems Ltd.
    (Flextronics) in 2006. See note 9 for
    additional information.(d)
    Relates primarily to
    reclassifications in goodwill previously recorded as a result of
    the finalization of the purchase price allocation for Nortel
    Government Solutions Incorporated (NGS), and
    LG-Nortel (as defined in note 9). See note 9 for
    additional information.(e)
    The addition of $18 relates to the
    finalization of the purchase price adjustment with respect to
    the LG-Nortel (as defined in note 9) joint venture.
    See note 9 for additional information. 103




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Intangible
    assets  net:
  2007


2006Cost(a)

$
338


$
307Less accumulated amortization


(125
)


(66
)Intangible assets  net

$
213


$
241     (a)
    Intangible assets are being
    amortized over a weighted-average period of approximately
    six years ending in 2013. Amortization expense for each of
    the next five years commencing in 2008 is expected to be $58,
    $52, $37, $22 and $18, respectively. The majority of
    amortization expense is denominated in a foreign currency and
    may fluctuate due to changes in foreign exchange rates.  Other
    assets:
  2007


2006Long-term deferred costs

$
209


$
419Long-term inventories


27



Debt issuance costs


41



45Hedge assets


77



64Financial assets


62



60Other


118



92Other assets

$
534


$
680   Other
    accrued liabilities:
  2007


2006Outsourcing and selling, general and administrative related
    provisions

$
306


$
399Customer deposits


52



78Product related provisions


126



93Warranty provisions (note 12)


206



214Deferred revenue


1,219



1,127Miscellaneous taxes


30



73Income taxes payable


93



71Deferred income taxes


15



Tax uncertainties


21



Interest payable


77



87Advance billings in excess of revenues recognized to date on
    contracts(a)


1,490



1,352Other


164



262Other accrued liabilities

$
3,799


$
3,756     (a)
    Includes amounts which may be
    recognized beyond one year due to the duration of certain
    contracts.  Other
    liabilities:
  2007


2006Pension benefit liabilities

$
1,109


$
1,965Post-employment and post-retirement benefit liabilities


893



794Restructuring liabilities (note 6)


180



177Deferred revenue


400



919Tax uncertainties (note 7)


71



Other long-term provisions


221



273Other liabilities

$
2,874


$
4,128  104




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Consolidated
    statements of cash flows
  Change in
    operating assets and liabilities:
  2007


2006


2005Accounts receivable  net

$
4


$
(496
)

$
(334
)Inventories  net


(66
)


(42
)


285Deferred costs


223



97



(538
)Income taxes


18



(18
)


(57
)Accounts payable


94



(80
)


188Payroll, accrued and contractual liabilities


(107
)


(252
)


(356
)Deferred revenue


(424
)


(229
)


161Advance billings in excess of revenues recognized to date on
    contracts


149



120



102Restructuring liabilities


(7
)


(21
)


(149
)Other


(469
)


(74
)


(144
)Change in operating assets and liabilities

$
(585
)

$
(995
)

$
(842
)   Acquisitions
    of investments and businesses  net of cash
    acquired:
  2007


2006


2005Cash acquired

$



$
(1
)

$
(26
)Total net assets acquired other than cash


(85
)


(146
)


(651
)Total purchase price


(85
)


(147
)


(677
)Less:Cash acquired






1



26Acquisitions of investments and businesses  net of
    cash acquired

$
(85
)

$
(146
)

$
(651
)   Interest
    and taxes paid:
  2007


2006


2005Cash interest paid

$
288


$
167


$
122Cash taxes paid

$
91


$
39


$
48   5.
    Segment
    information  Segment
    descriptions
    
    CN provides mobility networking solutions using (i) Code
    Division Multiple Access (CDMA), Global System
    for Mobile Communication (GSM), and Universal Mobile
    Telecommunication System (UMTS) radio access
    technologies, and fixed and mobile networking solutions using
    Worldwide Interoperability for Microwave Access
    (WiMAX) radio access technology, and
    (ii) carrier circuit and packet voice solutions. Mobility
    networking refers to communications networks that enable end
    users to be mobile while they send and receive voice and data
    communications using wireless devices such as cellular
    telephones, personal digital assistants, laptops and other
    computing and communications devices. These networks use
    specialized network access equipment and specialized core
    networking equipment that enable an end user to be connected and
    identified when not in a fixed location and to roam globally. In
    addition, Nortels carrier circuit and packet voice
    solutions provide a broad range of voice 105




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  solutions to its service provider customers for business and
    residential subscribers, traditional, full featured voice
    services as well as internet-based voice and multimedia
    communications services using either circuit or packet-based
    switching technologies. These service provider customers include
    local and long distance telephone companies, wireless service
    providers, cable operators and other communication service
    providers. Increasingly, CN addresses customers who want to
    provide services across both wireless as well as wired devices.  
    ES provides Unified Communications (UC) solutions to
    enterprise customers using (i) Business Optimized
    Communications and (ii) Business Optimized Networking.
    Business Optimized Communications comprised of enterprise
    circuit and packet voice solutions, software solutions for
    multi-media messaging, conferencing and contact centers and
    Service Oriented Architecture based communications enabled
    applications. Business Optimized Networking solutions are
    inclusive of data networking, wireless LAN, datacenter, and
    security, Nortels UC solutions transform an
    enterprises existing communications to deliver a unified,
    real time, multi-media experience including voice, video, email
    and instant messaging. Nortels ES customers consist of a
    broad range of enterprises around the world, including large
    businesses at their headquarters, data centers, call centers and
    branch offices, small and medium-size businesses and home
    offices, as well as government agencies, educational and other
    institutions and utility organizations.
    GS provides a broad range of services to address the
    requirements of Nortels carrier and enterprise customers
    throughout the entire lifecycle of their networks. The GS
    portfolio is organized into four main service product groups:
    (i) network implementation services, including network
    integration, planning, installation, optimization and security
    services, (ii) network support services, including
    technical support, hardware maintenance, equipment spares
    logistics and
    on-site
    engineers, (iii) network managed services, including
    services related to the monitoring and management of customer
    networks and providing a range of network managed service
    options, and (iv) network application services, including
    applications development, integration and communications-enabled
    application solutions and hosted multimedia services.
    Nortels GS market mirrors that of its carrier and
    enterprise markets along with a broad range of customers in all
    geographic regions where Nortel conducts business, including
    wireline and wireless carriers, cable operators, small and
    medium-size businesses, large global enterprises and all levels
    of government.
    MEN combines Nortels optical networking solutions and the
    carrier portion of its data networking solutions to transform
    its carrier and large enterprise customers networks to be
    more scalable and reliable for the high speed delivery of
    diverse multi-media communications services. By combining
    Nortels optical expertise and data knowledge, Nortel
    creates carrier Ethernet solutions that help service providers
    and enterprises better manage increasing bandwidth demands.
    Nortel differentiates its MEN solutions by using technology
    innovation such as Provider Backbone Bridges, Provider Backbone
    Transport, and 40G Dual Polarization Quadrature Phase Shift
    Keying to deliver increased network capacity at lower cost per
    bit and with a simpler operations paradigm. Both metropolitan,
    or metro, and long haul networks are key focus areas as
    bandwidth demands are increasing as a result of the growth of
    network-based broadcast and on-demand video delivery, wireless
    backhaul for a variety of data services including
    video, as well as traditional business, internet, and private
    line and voice services.
    Other miscellaneous business activities and corporate functions,
    including the operating results of NGS, do not meet the
    quantitative criteria to be disclosed separately as reportable
    segments and have been reported in Other. Costs
    associated with shared services, such as general corporate
    functions, that are managed on a common basis are allocated to
    Nortels reportable segments based on usage determined
    generally by headcount. A portion of other general and
    miscellaneous corporate costs and expenses are allocated based
    on a fixed charge established annually. Costs not allocated to
    the reportable segments include employee share-based
    compensation, differences between actual and budgeted employee
    benefit costs, interest attributable to its long-term debt and
    other non-operational activities, and are included in
    Other.   106




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Segments
    2007


2006


2005RevenuesCarrier Networks

$
4,493


$
5,157


$
4,915Enterprise Solutions


2,620



2,292



2,061Global Services


2,087



2,132



2,040Metro Ethernet Networks


1,525



1,591



1,347Total reportable segments


10,725



11,172



10,363Other


223



246



146Total revenues

$
10,948


$
11,418


$
10,509Management EBTCarrier Networks

$
783


$
455


$
343Enterprise Solutions


39



(2
)


141Global Services


381



342



474Metro Ethernet Networks


(14
)


69



(78
)Total reportable segments


1,189



864



880Other


(644
)


(898
)


(776
)Total Management EBT


545



(34
)


104Amortization of intangible assets


(50
)


(26
)


(17
)In-process research and development expense






(22
)


Special charges


(210
)


(105
)


(169
)Gain (loss) on sales of businesses and assets


31



206



(47
)Income tax benefit (expense)


(1,114
)


(60
)


81Net loss from continuing operations before cumulative effect
    of accounting change

$
(798
)

$
(41
)

$
(48
)   Product
    and service revenues
    2007


2006


2005CDMA solutions

$
2,425


$
2,311


$
1,972GSM and UMTS solutions


1,373



2,021



2,248Circuit and packet voice solutions


2,418



2,443



2,159Optical networking solutions


1,185



1,128



954Data networking and security solutions


1,237



1,137



990Global services


2,087



2,132



2,040Other


223



246



146Total

$
10,948


$
11,418


$
10,509    107




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Geographic
    information:
    2007


2006


2005U.S.

$
4,974


$
5,092


$
5,203Europe, Middle East and Africa (EMEA)


2,740



3,239



2,704Canada


822



720



571Asia


1,768



1,736



1,422Caribbean and Latin America (CALA)


644



631



609Total

$
10,948


$
11,418


$
10,509   Long-lived
    assets:
    2007


2006U.S.

$
439


$
506EMEA


206



213Canada


690



627Other
    regions(a)


195



181Total

$
1,530


$
1,527     (a)
    The Asia and CALA regions.  6.
    Special
    charges   108




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
        ContractSettlement


Plant andWorkforce


and Lease


EquipmentReduction


Costs


Write Downs


Total2007 Restructuring Plan

$
43


$
25


$



$
682006 Restructuring Plan


8











82004 Restructuring Plan






51







512001 Restructuring Plan






153







153Provision balance as of December 31,
    2007(a)

$
51


$
229


$



$
280     (a)
    As of December 31, 2007 and
    2006, the short-term provision balances were $100 and $97,
    respectively, and the long-term provision balances were $180 and
    $177, respectively.    2007


2006


2005


TotalSpecial charges by Restructuring Plan:2007 Restructuring Plan

$
171


$



$



$
1712006 Restructuring Plan


17



68







852004 Restructuring Plan


9



20



180



2092001 Restructuring Plan


13



17



(11
)


19Total

$
210


$
105


$
169


$
484  109




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Employees (approximate)Direct(a)


Indirect(b)


TotalRFT employee notifications by period:During 2005


61



893



954During 2006


22



512



534During 2007


217



1,654



1,871RFT employee notifications for the three years ended
    December 31, 2007


300



3,059



3,359     (a)
    Direct employees includes employees
    performing manufacturing, assembly, test and inspection
    activities associated with the production of Nortels
    products.(b)
    Indirect employees includes
    employees performing management, sales, marketing, research and
    development and administrative activities.  2007
    Restructuring Plan
  Year
    ended December 31, 2007
    2007
    Restructuring Plan  detail:
    ContractSettlement


Plant andWorkforce


and Lease


EquipmentReduction


Costs


Write Downs


Total2007 Restructuring PlanCarrier Networks

$
80


$
20


$
5


$
105Enterprise Solutions


18



4



1



23Global Services


21



5



1



27Metro Ethernet Networks


12



3



1



16Total special charges for the year ended December 31, 2007

$
131


$
32


$
8


$
171  110




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    ContractSettlement


Plant andWorkforce


and Lease


EquipmentReduction


Costs


Write Downs


Total2007 Restructuring PlanProvision balance as of January 1, 2007

$



$



$



$
Other special charges


137



32



8



177Revisions to prior accruals


(6
)










(6
)Cash drawdowns


(90
)


(7
)






(97
)Non-cash drawdowns


(2
)






(8
)


(10
)Foreign exchange and other adjustments


4











4Provision balance as of December 31, 2007

$
43


$
25


$



$
68   2006
    Restructuring Plan
  Year
    ended December 31, 2007
    Year
    ended December 31, 2006
    2006
    Restructuring Plan  detail:
    Plant andWorkforce


EquipmentReduction


Write Downs


Total2006 Restructuring PlanCarrier Networks

$
35


$
1


$
36Enterprise Solutions


14







14Global Services


5







5Metro Ethernet Networks


7







7Other


6







6Total special charges for the year ended December 31, 2006

$
67


$
1


$
68Carrier Networks

$
6


$



$
6Enterprise Solutions


2







2Global Services


7







7Metro Ethernet Networks


2







2Other










Total special charges for the year ended December 31, 2007

$
17


$



$
17  111




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    ContractSettlement


Plant andWorkforce


and Lease


EquipmentReduction


Costs


Write Downs


Total2006 Restructuring PlanProvision balance as of January 1, 2006

$



$



$



$
Other special charges


68







1



69Revisions to prior accruals


(1
)










(1
)Cash drawdowns


(28
)










(28
)Non-cash drawdowns










(1
)


(1
)Foreign exchange and other adjustments


(1
)










(1
)Provision balance as of December 31, 2006

$
38


$



$



$
38Other special charges

$
25


$



$



$
25Revisions to prior accruals


(8
)










(8
)Cash drawdowns


(48
)










(48
)Non-cash drawdowns


(1
)










(1
)Foreign exchange and other adjustments


2











2Provision balance as of December 31, 2007

$
8


$



$



$
8   2004
    Restructuring Plan
  Year
    ended December 31, 2007
    Year
    ended December 31, 2006
      Year
    ended December 31, 2005
     112




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2004
    Restructuring Plan  detail:
    ContractSettlement


Plant andWorkforce


and Lease


EquipmentReduction


Costs


Write Downs


Total2004 Restructuring PlanCarrier Networks

$
47


$
53


$
21


$
121Enterprise Solutions


10



12



5



27Metro Ethernet Networks


9



10



4



23Global Services


4



4



1



9Other














Total special charges for the year ended December 31, 2005

$
70


$
79


$
31


$
180Carrier Networks

$
(1
)

$
4


$
5


$
8Enterprise Solutions






1



2



3Metro Ethernet Networks






3



5



8Global Services










1



1Other














Total special charges for the year ended December 31, 2006

$
(1
)

$
8


$
13


$
20Carrier Networks

$



$
3


$
1


$
4Enterprise Solutions






2







2Metro Ethernet Networks






1







1Global Services






2







2Other














Total special charges for the year ended December 31, 2007

$



$
8


$
1


$
9  113




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    ContractSettlement


Plant andWorkforce


and Lease


EquipmentReduction


Costs


Write Downs


Total2004 Restructuring PlanProvision balance as of January 1, 2005

$
124


$



$



$
124Other special charges


68



72



30



170Revisions to prior accruals


2



7



1



10Cash drawdowns


(167
)


(13
)






(180
)Non-cash drawdowns










(30
)


(30
)Foreign exchange and other adjustments


(4
)


(4
)


(1
)


(9
)Provision balance as of December 31, 2005

$
23


$
62


$



$
85Other special charges

$



$



$



$
Revisions to prior accruals


(1
)


8



13



20Cash drawdowns


(21
)


(21
)






(42
)Non-cash drawdowns










(13
)


(13
)Foreign exchange and other adjustments


2



4







6Provision balance as of December 31, 2006

$
3


$
53


$



$
56Other special charges

$



$



$



$
Revisions to prior accruals






8



1



9Cash drawdowns


(3
)


(11
)






(14
)Non-cash drawdowns










(1
)


(1
)Foreign exchange and other adjustments






1







1Provision balance as of December 31, 2007

$



$
51


$



$
51   2001
    Restructuring Plan
  Year
    ended December 31, 2007
    Year
    ended December 31, 2006
    Year
    ended December 31, 2005
     114




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  2001
    Restructuring Plan  detail:
    ContractSettlement


Plant andWorkforce


and Lease


EquipmentReduction


Costs


Write Downs


Total2001 Restructuring PlanCarrier Networks

$
(2
)

$
(1
)

$
2


$
(1
)Enterprise Solutions


(3
)


(2
)


3



(2
)Metro Ethernet Networks










(8
)


(8
)Global Services














Total special charges for the year ended December 31, 2005

$
(5
)

$
(3
)

$
(3
)

$
(11
)Carrier Networks

$
1


$
10


$



$
11Enterprise Solutions






3







3Metro Ethernet Networks






2







2Global Services






1







1Total special charges for the year ended December 31, 2006

$
1


$
16


$



$
17Carrier Networks

$
(1
)

$
6


$
1


$
6Enterprise Solutions


(1
)


3







2Metro Ethernet Networks






2







2Global Services






3







3Total special charges for the year ended December 31, 2007

$
(2
)

$
14


$
1


$
13     ContractSettlement


Plant andWorkforce


and Lease


EquipmentReductions


Costs


Write Downs


Total2001 Restructuring PlanProvision balance as of January 1, 2005

$
15


$
324


$



$
339Revisions to prior accruals


(5
)


(3
)


(3
)


(11
)Cash drawdowns


(6
)


(107
)






(113
)Non-cash drawdowns










3



3Foreign exchange and other adjustments


(1
)


(5
)






(6
)Provision balance as of December 31, 2005

$
3


$
209


$



$
212Revisions to prior accruals

$
1


$
16


$



$
17Cash drawdowns


(1
)


(53
)






(54
)Non-cash drawdowns














Foreign exchange and other adjustments


(1
)


6







5Provision balance as of December 31, 2006

$
2


$
178


$



$
180Revisions to prior accruals

$
(2
)

$
14


$
1


$
13Cash drawdowns






(41
)






(41
)Non-cash drawdowns










(1
)


(1
)Foreign exchange and other adjustments






2







2Provision balance as of December 31, 2007

$



$
153


$



$
153  115




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    7.
    Income
    taxes              Total GrossUnrecognizedTax BenefitsBalance as at January 1, 2007

$
992Increases related to current year tax positions


20Increases related to prior year tax positions


75Decreases related to prior year tax positions


(9
)Expiration of statute of limitations for assessment of taxes


(9
)Settlement of tax positions


(629
)Foreign exchange


65Other


61Balance as at December 31, 2007

$
566  116




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
                 117




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
      2007


2006


2005Income taxes at Canadian rates (2007  34.0%,
    2006  34.0%, 2005  34.5%)

$
(132
)

$
(14
)

$
41Difference between Canadian rates and rates applicable to
    subsidiaries in the U.S. and other jurisdictions


55



1



34Valuation allowances on tax benefits


(979
)


(109
)


(141
)Tax effect of tax rate changes


(29
)






Utilization of losses






36



16Tax benefit of investment tax credits, net of valuation allowance


29



47



39Adjustments to provisions and reserves


(10
)


(2
)


140Foreign withholding and other taxes


(23
)


(23
)


(23
)Corporate minimum taxes


(1
)


(2
)


(14
)Impact of non-taxable (non-deductible) items and other
    differences


(24
)


6



(11
)Income tax benefit (expense)

$
(1,114
)

$
(60
)

$
81Details of Nortels income (loss):Earnings (loss) from continuing operations before income taxes,
    minority interests and equity in net loss of associated
    companies:Canadian, excluding gain (loss) on sales of businesses and assets

$
(638
)

$
(514
)

$
(91
)U.S. and other, excluding gain (loss) on sale of businesses and
    assets


994



350



18Gain (loss) on sales of businesses and assets


31



206



(47
)$
387


$
42


$
(120
)Income tax benefit (expense):Canadian, excluding gain (loss) on sales of businesses and assets

$
(1,070
)

$
16


$
10U.S. and other, excluding gain (loss) on sales of businesses and
    assets


(44
)


(73
)


71Gain (loss) on sales of businesses and assets






(3
)


$
(1,114
)

$
(60
)

$
81Income tax benefit (expense):Current

$
(95
)

$
(29
)

$
(33
)Deferred


(1,019
)


(31
)


114Income tax benefit (expense)

$
(1,114
)

$
(60
)

$
81Details of movement in valuation allowanceOpening valuation allowance

$
(3,413
)

$
(3,184
)

$
(3,517
)Implementation of FIN 48, net of current period activity


913







Amounts charged to income tax benefit (expense)


(1,036
)


(73
)


(132
)Amounts charged to other comprehensive loss


103



66



(58
)U.K. capital loss settlement, net of FIN 48 implementation


555







Other (additions)
    deductions(a)


(271
)


(222
)


523Closing valuation allowance

$
(3,149
)

$
(3,413
)

$
(3,184
)     (a)
    The significant component of other
    (additions) deductions for 2007 includes an increase of ($213)
    related to certain operating losses in EMEA for prior years that
    were added to Nortels deferred tax asset, partially offset
    by the effects of enacted tax rate changes of $108 with the
    remainder relating to foreign exchange and reclassifications. 118




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
     2007


2006Assets:Tax benefit of loss carryforwards

$
3,042


$
4,264Investment tax credits, net of deferred tax liabilities


1,442



1,344Other tax credits


169



117Deferred revenue


347



269Provisions and reserves


299



180Post-retirement benefits other than pensions


279



288Plant and equipment


231



215Pension plan liabilities


309



622Deferred compensation


93



153Other


293



1656,504



7,617Valuation allowance


(3,149
)


(3,413
)3,355



4,204Liabilities:Provisions and reserves






104Plant and equipment






35Unrealized foreign exchange and other


32



2332



162Net deferred income tax assets

$
3,323


$
4,042         NetOperating


Capital


TaxLosses


Losses(a)


Credits(b)2008 - 2010

$
27


$
26


$
5332011 - 2013


53



10



3032014 - 2019


28



19



2342020 - 2027


1,907







353Indefinitely


6,373



1,169



19$
8,388


$
1,224


$
1,442    (a)
    The capital losses related
    primarily to the U.K. and may only be used to offset future
    capital gains. Nortel has recorded a full valuation allowance
    against this future tax benefit.(b)
    Global investment tax credits of
    $29, $47 and $39 have been applied against the income tax
    provision in 2007, 2006 and 2005, respectively. Unused tax
    credits can be utilized to offset deferred taxes payable
    primarily in Canada. 119




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
   8.
    Employee
    benefit plans    and/or
  and/or and/or
        not-for-profit
    Before





AfterApplication





Applicationof SFAS 158


Adjustment


of SFAS 158Intangible assets  net

$
262


$
(21
)

$
241Other assets  long term

$
677


$
3


$
680Deferred tax assets  long term

$
3,803


$
60


$
3,863Payroll and benefit related liabilities  current

$
(865
)

$
228


$
(637
)Other liabilities  long term

$
(3,716
)

$
(412
)

$
(4,128
)Accumulated other comprehensive loss

$
466


$
142


$
608  120




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Defined Benefit Plans


Post-Retirement Benefits2007


2006


2007


2006Change in benefit obligation:Benefit obligation  beginning

$
9,210


$
8,952


$
670


$
883Service cost


117



130



3



6Interest cost


479



462



37



42Plan participants contributions


7



6



10



10Plan amendments


1











(63
)Actuarial loss (gain)


(664
)


40



(7
)


(170
)Special and contractual termination
    benefits(a)


4



13







Curtailments(a)


(1
)


(337
)






Benefits paid


(594
)


(599
)


(46
)


(42
)Foreign exchange


706



543



78



4Benefit obligation  ending

$
9,265


$
9,210


$
745


$
670Change in plan assets:Fair value of plan assets  beginning

$
7,139


$
6,456


$



$
Actual return on plan assets


562



551







Employer contributions


353



323



37



32Plan participants contributions


7



6



10



10Benefits paid


(594
)


(599
)


(47
)


(42
)Foreign exchange


606



402







Fair value of plan assets  ending

$
8,073


$
7,139


$



$
Funded status of the plans

$
(1,192
)

$
(2,071
)

$
(745
)

$
(670
)Contributions after measurement date


56



71



11



9Net amount recognized

$
(1,136
)

$
(2,000
)

$
(734
)

$
(661
)Amounts recognized in the accompanyingconsolidated balance sheets consist of:Other liabilities  long-term

$
(1,109
)

$
(1,965
)

$
(692
)

$
(625
)Other liabilities  current


(49
)


(40
)


(42
)


(36
)Other assets


22



5







Net amount recognized

$
(1,136
)

$
(2,000
)

$
(734
)

$
(661
)Amounts recognized in accumulated other comprehensive income
    (loss)  before tax  consists of:Prior service cost (credit)

$
12


$
13


$
(80
)

$
(71
)Net actuarial loss (gain)


816



1,475



16



(2
)Net amount recognized

$
828


$
1,488


$
(64
)

$
(73
)     (a)
    Curtailments and special and
    contractual termination benefits resulted from the 2006 and 2007
    Restructuring Plan activity, as set out in note 6. 121




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
     2007


2006Projected benefit obligation

$
6,858


$
9,194Accumulated benefit obligation

$
6,656


$
8,914Fair value of plan assets

$
5,648


$
7,117     Defined Benefit Pension Plans


Post-Retirement Benefits2007


2006


2007


2006Prior service cost (credit)

$
1


$



$



$
Amortization of prior service credit (cost)


(4
)






14



Net actuarial loss (gain)


(750
)






(10
)


Amortization of net actuarial loss


(105
)










Increase (decrease) in minimum pension liability adjustment
    included in other comprehensive income (loss)






(130
)






Net recognized in other comprehensive income

$
(858
)

$
(130
)

$
4


$
     Defined Benefit


Post-RetirementPension Plan


Benefits


TotalPrior service cost (credit)

$
4


$
(10
)

$
(6
)Net actuarial loss (gain)

$
41


$



$
41     2007


2006


2005Pension expense:Service cost

$
117


$
130


$
123Interest cost


479



462



458Expected return on plan assets


(504
)


(457
)


(405
)Amortization of prior service cost


4



2



2Amortization of net losses


105



130



118Curtailment losses (gains)


(1
)


(6
)


12Special and contractual termination benefits


4



13



21Net pension expense

$
204


$
274


$
329Weighted-average assumptions used to determine benefit
    obligations as of December 31:Discount rate


5.8
%


5.1
%


5.1
%Rate of compensation increase


4.5
%


4.5
%


4.4
%Weighted-average assumptions used to determine net pension
    expense for years ended December 31:Discount rate


5.1
%


5.1
%


5.7
%Expected rate of return on plan assets


7.1
%


7.2
%


7.4
%Rate of compensation increase


4.5
%


4.4
%


4.5
%  122




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2007


2006


2005Post-retirement benefit cost:Service cost

$
3


$
6


$
8Interest cost


37



42



44Amortization of prior service cost


(14
)


(5
)


(4
)Amortization of net losses (gains)






1



3Curtailment losses (gains)






(29
)


Net post-retirement benefit cost

$
26


$
15


$
51Weighted-average assumptions used to determine benefit
    obligations as of December 31:Discount rate


5.8
%


5.4
%


5.4
%Weighted-average assumptions used to determine net
    post-retirement benefit cost for years ended
    December 31:Discount rate


5.4
%


5.4
%


5.9
%Weighted-average health care cost trend rate


6.6
%


8.0
%


7.8
%Weighted-average ultimate health care cost trend rate


4.7
%


4.8
%


4.8
%     2007


2006


2005Effect on aggregate of service and interest costs1% increase

$
3


$
4


$
51% decrease

$
(2
)

$
(3
)

$
(4
)Effect on accumulated post-retirement benefit obligations1% increase

$
43


$
43


$
861% decrease

$
(36
)

$
(36
)

$
(70
)     Defined Benefit


Post-Retirement


Expected MPDIM Act SubsidyPlans


Benefit Plans


(Post-Retirement Benefit Plans)2008

$
540


$
53


$
22009

$
543


$
53


$
22010

$
552


$
54


$
22011

$
564


$
55


$
32012

$
579


$
55


$
32013-2017

$
3,076


$
273


$
20     2007


2006Target


Actual


Target


ActualDebt instruments


46
%


44
%


43
%


43
%Equity securities


52
%


53
%


56
%


54
%Other


2
%


3
%


1
%


3
%    123




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
              9.
    Acquisitions,
    divestitures and closures  Acquisitions
  Tasman
    Networks Inc.
       124




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
        Purchase price

$
99Assets acquired:Other assets  net

$
6Intangible assets  net


58Goodwill


43107Less liabilities assumed:Trade and other accounts payable


3Other accrued liabilities


58Fair value of net assets acquired

$
99     AmortizationFair Value


Period (Years)Existing router technology

$
19



10Access router technology


16



7In-process research and development (IPR&D)


16
(a)


Non-contractual customer relationships


7



8Total intangible assets

$
58     (a)
    Nortel expensed $16 for in-process
    research and development in the second quarter of 2006.    LG-Nortel
    Co. Ltd. business venture
   125




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Purchase price

$
155Assets acquired:Accounts receivable  net

$
165Other current assets


26Investments


14Plant and equipment  net


17Intangible assets  net


126Deferred income taxes  net


2Other assets  net


24374Less liabilities assumed:Trade and other accounts payable


25Payroll and benefit-related liabilities


12Other accrued liabilities


11Deferred income taxes  net


10Other liabilities


61Minority interest


100219Fair value of net assets acquired

$
155     AmortizationFair Value


Period (Years)Customer relationships

$
56



5 to 9Patents


29



10Existing technologies


11



2 to 7Trademark licensing agreement


9



5Goodwill


8



IPR&D


5



1Other


8



5Total intangible assets

$
126      126




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Nortel
    Government Solutions Incorporated
      non-amortizable
   127




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Purchase price

$
449Assets acquired:Cash and cash equivalents

$
26Accounts receivable  net


65Other current assets


34Investments


8Plant and equipment  net


32Intangible assets  net


84Goodwill


278Other assets


5532Less liabilities assumed:Trade and other accounts payable


6Payroll and benefit-related liabilities


24Other accrued liabilities


17Long-term debt


33Other liabilities


383Fair value of net assets acquired

$
449       AmortizationFair Value


Period (Years)Trade name

$
3



1Software licenses


1



5Customer contracts and relationships


80



10Total other intangible assets

$
84     2005Revenues

$
10,618Net earnings (loss)

$
(56
)   Divestitures
  UMTS
    access business divestiture
   128




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
            Manufacturing
    operations
       129




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  10.
    Long-term
    debt  Long-term
    debt
    2007





2006LIBOR + 4.25% Floating Rate Notes due July 15, 2011

$
1,000






$
1,00010.125% Fixed Rate Notes due July 15, 2013


550







55010.75% Fixed Rate Notes due July 15, 2016


450







4506.875% Notes due September 1, 2023


200







2007.875% Notes due June 15,
    2026(a)


150







150Other long-term debt with various repayment terms and a
    weighted-average interest rate of 7.17% for 2007 and 4.77% for
    2006


4







5Fair value adjustment attributable to hedged debt obligations


20







(1
)Obligation associated with a consolidated VIE with interest rate
    of 4.60% for 2007 and 3.7% for 2006


92







87Obligations under capital leases and sale leasebacks with a
    weighted-average interest rate of 9.16% for 2007 and 8.48% for
    2006


223







2232,689







2,664Less: Long-term debt due within one year


23







18Long-term debt

$
2,666






$
2,646     (a)
    
    Notes were issued by Nortel
    Networks Capital Corporation, an indirect wholly owned finance
    subsidiary of NNL, and are fully and unconditionally guaranteed
    by NNL.    2008

$
232009


232010


242011


1,0242012


26Thereafter


1,569
(a)Total long-term debt payable

$
2,689     (a)
    
    Includes $70 of long-term debt
    related to sale lease-backs with continuing involvement. See
    note 13 for additional information.  Credit
    facility
    Senior
    notes offering
   130




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
        Form S-4
       131




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    11.
    Financial
    instruments and hedging activities  Risk
    management
    Foreign
    currency risk
        2007(a)


2006(b)Net








NetBuy


Sell


Buy / (Sell)


Buy


Sell


Buy / (Sell)Options(c):Canadian Dollar

$
27


$
27


$
0


$
0


$
0


$
0Forwards(c):Canadian Dollar

$
130


$
398


$
(268
)

$
395


$
427


$
(32
)British Pound


£745



£262



£483



£626



£24



£602Euro

22



5



17



22



44



(22

)Other (U.S. Dollar)

$
0


$
14


$
(14
)

$
0


$
33


$
(33
)     (a)
    
    All notional amounts of option and
    forward contracts will mature no later than the end of 2008.(b)
    
    All notional amounts of option and
    forward contracts matured no later than the end of 2007.(c)
    
    All amounts are stated in source
    currency.    Interest
    rate risk
     132




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
     2007


2006Interest rate swap contracts:Received-fixed swaps  notional amount

$
1,000


$
1,000Average fixed rate received


10.4
%


10.4
%Average floating rate paid


8.9
%


10.0
%   Equity
    price risk
    Fair
    value
      2007


2006Carrying


Fair


Carrying


FairAmount


Value


Amount


ValueFinancial liabilities:Long-term debt due within one year

$
23


$
23


$
18


$
17Long-term debt

$
2,666


$
2,603


$
2,646


$
2,745Derivative financial instruments net asset (liability)
    position:Interest rate swap
    contracts(a)

$
61


$
61


$
23


$
23Forward and option
    contracts(b)

$
(17
)

$
(17
)

$
26


$
26OtherWarrants

$
5


$
5


$
11


$
11     (a)
    
    Recorded in other assets.(b)
    
    Comprised of other assets of $14
    and other liabilities of $31 as of December 31, 2007, and
    other assets of $41 and other liabilities of $15 as of
    December 31, 2006. 133




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Concentrations
    of risk
        Transfers
    of receivables
    and/or
        2007


2006


2005Proceeds from new transfers of financial assets

$
43


$
202


$
298Proceeds from collections reinvested in revolving period
    transfers

$
12


$
189


$
260Repurchases of receivables

$
(39
)

$
(26
)

$
  134




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  12.
    Guarantees    (a)
    Business
    sale and business combination agreements  (i)
    In connection with agreements for the sale of portions of its
    business, including certain discontinued operations, Nortel has
    typically retained the liabilities that relate to business
    events occurring prior to the sale, such as tax, environmental,
    litigation and employment matters. Nortel generally indemnifies
    the purchaser of a Nortel business in the event that a third
    party asserts a claim against the purchaser that relates to a
    liability retained by Nortel. Some of these types of guarantees
    have indefinite terms while others have specific terms extending
    to January 2012.        (ii)
    In conjunction with the sale of a certain subsidiary to a third
    party, Nortel guaranteed to the purchaser that specified annual
    sales volume levels would be achieved by the business sold over
    a ten-year period ending December 31, 2007. The maximum
    amount that Nortel may be required to pay under the volume
    guarantee as of December 31, 2007 is $10. Nortels
    guarantee to the purchaser was governed by the laws of the
    purchasers jurisdiction. As such, the purchaser has the
    right to claim such payments under the volume guarantee, for a
    period of ten years, or until January 31, 2018, under the
    statute of limitations of such jurisdiction. A liability of $9
    has been accrued in the consolidated financial statements as of
    December 31, 2007 with respect to the contingent obligation
    associated with this guarantee.    (b)
    Intellectual
    property indemnification obligations       135




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  (c)
    Lease
    agreements      (d)
    Other
    indemnification agreements  (i)
    Nortel has agreed to indemnify the banks and their agents under
    its credit facilities against costs or losses resulting from
    changes in laws and regulations which would increase the
    banks costs or reduce their return and from any legal
    action brought against the banks or their agents related to the
    use of loan proceeds.  sub-facility, sub-facility.
      (ii)
    Nortel has agreed to indemnify certain of its counterparties in
    certain receivables securitization transactions. The
    indemnifications provided to counterparties in these types of
    transactions may require Nortel to compensate counterparties for
    costs incurred as a result of changes in laws and regulations
    (including tax legislation) or in the interpretations of such
    laws and regulations, or as a result of regulatory penalties
    that may be suffered by the counterparty as a consequence of the
    transaction. Certain receivables securitization transactions
    include indemnifications requiring the repurchase of the
    receivables, under certain conditions, if the receivable is not
    paid by the obligor. As of December 31, 2007, Nortel had
    approximately $45 of securitized receivables which were subject
    to repurchase, in which case Nortel would assume from the
    purchaser of the receivables all rights to collect such
    receivables. The indemnification provisions generally expire
    upon the earlier of either the expiration of the securitization
    agreements, which extend through 2008, or collection of the
    receivable amounts by the purchaser.     136




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
   (iii)
    Nortel has also entered into other agreements that provide
    indemnifications to counterparties in certain transactions
    including investment banking agreements, guarantees related to
    the administration of capital trust accounts, guarantees related
    to the administration of employee benefit plans, indentures for
    its outstanding public debt and asset sale agreements (in
    addition to the business sale agreements noted above). These
    indemnification agreements generally require Nortel to indemnify
    the counterparties for costs incurred as a result of changes in
    laws and regulations (including tax legislation) or in the
    interpretations of such laws and regulations
    and/or as a
    result of losses from litigation that may be suffered by the
    counterparties arising from the transactions. These types of
    indemnification agreements normally extend over an unspecified
    period of time from the date of the transaction and do not
    typically provide for any limit on the maximum potential payment
    amount. In addition, Nortel has entered into indemnification
    agreements with certain of its directors and officers for the
    costs reasonably incurred in any proceeding in which they become
    involved by reason of their position as directors or officers to
    the extent permitted under applicable law.      (iv)
    Nortel has identified specified price trade-in rights in certain
    customer arrangements that qualify as guarantees. These types of
    guarantees generally apply over a specified period of time and
    extend through to June 2010. Nortel is unable to estimate the
    maximum potential liability for these types of indemnification
    guarantees as the agreements typically do not specify a maximum
    amount and the amounts are dependent upon the outcome of future
    contingent events, the nature and likelihood of which cannot be
    determined at this time. As of December 31, 2007, no
    significant liability has been accrued in the consolidated
    financial statements with respect to these indemnification
    agreements.    (v)
    On March 17, 2006, in connection with the Global
    Class Action Settlement (as defined in note 19), NNC
    announced that it had reached an agreement with the lead
    plaintiffs on the related insurance and corporate governance
    matters, including NNCs insurers agreeing to pay $229 in
    cash towards the settlement and NNC agreeing with its insurers
    to certain indemnification obligations. NNC believes that these
    indemnification obligations would be unlikely to materially
    increase its total cash payment obligations under the Global
    Class Action Settlement. NNC is aware of three claims made
    to the insurers by former officers, but based on information
    available at this time NNC is unable to make a reasonable
    estimate of the amount for which NNC may be liable. As a result,
    NNC has not recorded a contingent liability as of
    December 31, 2007 with respect to its indemnification
    obligations. The insurers payments would not reduce the
    amounts payable by NNC for the Global Class Action
    Settlement, as disclosed in note 19.    Product
    warranties
    2007


2006Balance at the beginning of the year

$
214


$
204Payments


(181
)


(267
)Warranties issued


261



281Revisions


(88
)


(4
)Balance at the end of the year

$
206


$
214  137




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  13.
    Commitments  Bid,
    performance-related and other bonds
      2007


2006Bid and performance related
    bonds(a)

$
155


$
231Other
    bonds(b)


54



30Total bid, performance related and other bonds

$
209


$
261     (a)
    
    Net of restricted cash and cash
    equivalent amounts of $5 and $7 as of December 31, 2007 and
    2006, respectively.(b)
    
    Net of restricted cash and cash
    equivalent amounts of $27 and $33 as of December 31, 2007
    and 2006, respectively.  Venture
    capital financing
  start-up
  Purchase
    commitments
      Total2008


2009


2010


Thereafter


ObligationsPurchase commitments

$
28


$
9


$
3


$



$
40    138




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Operating
    leases and other commitments
    Operating


Sale


Outsourcing


Special


SubleaseLeases


Lease-Backs


Contracts


Charges


Income2008

$
105


$
8


$
11


$
51


$
(28
)2009


93



8



10



35



(28
)2010


83



8







44



(27
)2011


70



7







40



(20
)2012


59



8







33



(10
)Thereafter


276



31







168



(32
)Total future minimum payments

$
686


$
70


$
21


$
371


$
(145
)       Nortel
    and Microsoft Corporation Alliance
  go-to-market
    and/or
  14.
    Financing
    arrangements and variable interest entities  Customer
    financing
   139




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
      and/or and/or
  Consolidation
    of variable interest entities
          15.
    Capital
    stock  Preferred
    shares
   140




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Numberof shares(thousands)


$Series 5, issued November 26, 1996 for consideration
    of Canadian (C) $400


16,000


$
294Series 7, issued November 28, 1997 for consideration
    of C $350


14,000


$
242        141




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Common
    shares
    2007


2006Number





Numberof Shares


$


of Shares


$(number of shares in thousands)Balance at beginning of year


1,460,979


$
1,211



1,460,979


$
1,211Balance at end of year


1,460,979


$
1,211



1,460,979


$
1,211   16.
    Accumulated
    other comprehensive income (loss)    2007


2006


2005Accumulated foreign currency translation adjustmentBalance at the beginning of the year

$
495


$
213


$
360Change in foreign currency translation
    adjustment(a)


298



282



(147
)Balance at the end of the year


793



495



213Unrealized gain (loss) on investments  netBalance at the beginning of the year


39



31



33Change in unrealized gain (loss) on
    investments(b)


(13
)


8



(2
)Balance at the end of the year


26



39



31Unrealized derivative gain (loss) on cash flow
    hedges  netBalance at the beginning of the year


(10
)


7



18Change in unrealized derivative gain (loss) on cash flow
    hedges(c)


10



(17
)


(11
)Balance at the end of the year






(10
)


7Minimum pension liability  netBalance at the beginning of the year






(1,084
)


(915
)Change in minimum pension liability
    adjustment(d)






94



(169
)Adoption of FASB Statement No. 158 
    net(e)






990



Balance at the end of the year










(1,084
)Unamortized Pension and Post-Retirement Plan actuarial losses
    and prior service cost  netBalance at the beginning of the year


(1,132
)






Adoption of FASB Statement No. 158 
    net(e)






(1,132
)


Change in unamortized pension and post-retirement actuarial
    losses and prior service
    cost(f)


560







Balance at the end of the year


(572
)


(1,132
)


Accumulated other comprehensive income (loss)

$
247


$
(608
)

$
(833
)     (a)
    
    The change in the foreign currency
    translation adjustment was not adjusted for income taxes since
    it related to indefinite term investments in
    non-U.S.
    subsidiaries.(b)
    
    Certain securities deemed
    available-for-sale
    by Nortel were measured at fair value. Unrealized holding gains
    (losses) related to these securities were excluded from net
    earnings (loss) and were included in accumulated other
    comprehensive income (loss) until realized. Unrealized gain
    (loss) on investments was net of tax of nil for each of the
    years ended December 31, 2007, 2006 and 2005. During the
    years ended December 31, 2007, 2006 and 2005, realized
    (gains) losses on investments of nil, $5 and ($9), respectively,
    were reclassified to other income (expense)  net in
    the consolidated statements of operations.(c)
    
    During the years ended
    December 31, 2007, 2006 and 2005, net derivative gains of
    $10, $14 and $18 were reclassified to other income
    (expense)  net. Unrealized derivative gain (loss) on
    cash flow hedges is net of tax of nil, nil and nil for the years
    ended December 31, 2007, 2006 and 2005, respectively.(d)
    
    Represents non-cash charges to
    shareholders equity related to the increase in the minimum
    required recognizable liability associated with Nortels
    pension plans (see note 8). The change in minimum pension
    liability adjustment is presented net of tax of nil, $24 and $6
    for the years ended December 31, 2007, 2006 and 2005,
    respectively. 142




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  (e)
    
    Represents non-cash charges to
    shareholders equity related to the adoption of
    SFAS 158 (see note 8). The charge is presented net of
    tax of $60 for the year ended December 31, 2006.(f)
    
    Represents non-cash charges to
    shareholders equity related to the change in unamortized
    pension and post-retirement actuarial losses and prior service
    cost (see note 8). The charge is presented net of tax of
    $91 for the year ended December 31, 2007.  17.
    Share-based
    compensation plans  Stock
    options
  1 3
       143




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Deferred
    share units (DSUs)
    Limited
    share purchase plan (LSPP)
    Employee
    stock purchase plans
    and/or
      2007


2006(b)


2005(b)(Number of shares in thousands)Nortel Networks Corporation common shares
    purchased(a)


1,286



294



78Weighted-average price of shares purchased

$
20.26


$
25.43


$
30.68     (a)
    
    Compensation expense was recognized
    for NNCs portion of the contributions. NNC contributed an
    amount equal to the difference between the market price and the
    employee purchase price.(b)
    
    During the periods of
    March 10, 2004 to June 1, 2005, and March 10,
    2006 to June 6, 2006, purchases under the ESPPs were
    suspended due to NNC and NNL not being in compliance with
    certain reporting requirements of U.S. and Canadian securities
    regulators. 144




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Share-based
    compensation
        No. 123R-3, FAS 123R-3). FAS 123R-3.
    2007


2006


2005Share-based compensation:Stock option expense

$
76


$
93
(b)

$
87RSU
    expense(a)


23



8



1PSU expense


6



2



DSU
    expense(a)










1Total share-based compensation reported  net of tax

$
105


$
103


$
89     (a)
    Compensation related to employer
    portion of RSUs and DSUs was net of tax of nil in each period.(b)
    Includes a reduction of stock
    option expense of approximately $9, recognized during the first
    quarter of 2006, to align Nortels recognition of stock
    option forfeitures with the adoption of SFAS 123R.   145




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##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2007


2006


2005Black-Scholes Merton assumptionsExpected dividend yield


0.00
%


0.00%



0.00%Expected
    volatility(a)


41.39% - 53.56
%


60.08% - 73.66
%


85.35% - 87.01%Risk-free interest
    rate(b)


3.07% - 4.92
%


4.57% - 5.04
%


3.70% - 4.44%Expected option life in
    years(c)


3.39 - 4.00



4.00



4.00Range of fair value per unit granted


$2.41 - $11.86



$9.97 - $12.26



$17.87 - $21.22     (a)
    The expected volatility of
    NNCs stock is estimated using the daily historical stock
    prices over a period equal to the expected term.(b)
    NNC used the five-year U.S.
    government treasury bill rate to approximate the four-year risk
    free rate.(c)
    The expected term of the stock
    options is estimated based on historical grants with similar
    vesting periods.    2007


2006Monte Carlo assumptionsBeta (range)


1.20 - 1.88



2.0 - 2.1Risk-free interest rate
    (range)(a)


3.37% - 4.66
%


4.79% - 5.10
%Equity risk premium






5.00
%     (a)
    The risk-free interest rate used
    was the three-year U.S. government treasury bill rate.          18.
    Related
    party transactions   146




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2007


2006


2005Revenues:LGE(a)

$
22


$
27


$
Vertical Communications, Inc.
    (Vertical)(b)


14



22



2Other


11



5



3Total

$
47


$
54


$
5Purchases:LGE(a)

$
287


$
238


$
41Sasken Communications Technology Ltd.
    (Sasken)(c)


28



34



18GNTEL Co., Ltd
    (GNTEL)(d)


95



74



10Other


15



39



21Total

$
425


$
385


$
90     (a)
    LGE holds a minority interest in
    LG-Nortel. Nortels sales and purchases relate primarily to
    certain inventory-related items. As of December 31, 2007,
    accounts payable to LGE was net $31, compared to $76 as at
    December 31, 2006.(b)
    LG-Nortel currently owns a minority
    interest in Vertical. Vertical supports LG-Nortels efforts
    to distribute Nortels products to the North American
    market.(c)
    Nortel currently owns a minority
    interest in Sasken. Nortels purchases from Sasken relate
    primarily to software and other software development-related
    purchases. As of December 31, 2007, accounts payable to
    Sasken was $1, compared to $2 as at December 31, 2006.(d)
    Nortel holds a minority interest in
    GNTEL through its business venture LG-Nortel. Nortels
    purchases from GNTEL relate primarily to installation and
    warranty services. As of December 31, 2007, accounts
    payable to GNTEL was net $31, compared to net $17 as at
    December 31, 2006.    2007


2006Consolidated balance sheetsOwing from NNC

$
990


$
847Owing from NNC subsidiaries


90



77Other related parties


(61
)


(84
)Related party receivables

$
1,019


$
840   19.
    Contingencies     147




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
                   148




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Form 10-Q
  Form 10-Q
        out-of-pocket
   149




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
        Environmental
    matters
           150




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  de minimis de minimis de
    minimis
    20.
    Subsequent
    events  2008
    Restructuring Plan
    21.
    Supplemental
    condensed consolidating financial information        Rule 3-10 Regulation S-X Form 10-K
   151




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Non-Guarantor
    Nortel





Non-Networks


Guarantor


GuarantorLimited


Subsidiary


Subsidiaries


Eliminations


Total(Millions of U.S. Dollars)Revenues

$
3,124


$
5,020


$
5,221


$
(2,417
)

$
10,948Cost of revenues


1,908



3,236



3,594



(2,417
)


6,321Gross profit


1,216



1,784



1,627







4,627Selling, general and administrative expense


520



921



1,045







2,486Research and development expense


839



677



207







1,723Amortization of intangible assets






8



42







50Special charges


21



70



119







210Loss (gain) on sale of businesses and assets


(8
)


4



(27
)






(31
)Other operating expenses (income)  net


(19
)


(9
)


(7
)






(35
)Operating earnings (loss)


(137
)


113



248







224Other income (expense)  net


509



(97
)


282



(250
)


444Interest expense  netLong-term debt


(219
)


(10
)


(28
)






(257
)Other






(73
)


63



(14
)


(24
)Earnings (loss) from operations before income taxes, minority
    interests and equity in net earnings (loss) of associated
    companies


153



(67
)


565



(264
)


387Income tax benefit (expense)


(1,076
)


(2
)


(36
)






(1,114
)(923
)


(69
)


529



(264
)


(727
)Minority interests  net of tax










(73
)






(73
)Equity in net earnings (loss) of associated
    companies  net of tax


125



78



4



(205
)


2Net earnings (loss) before cumulative effect of accounting change


(798
)


9



460



(469
)


(798
)Cumulative effect of accounting change  net of tax


















Net earnings (loss)


(798
)


9



460



(469
)


(798
)Dividends on preferred shares


42















42Net earnings (loss) applicable to common shares

$
(840
)

$
9


$
460


$
(469
)

$
(840
)  152




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Nortel





Non-Networks


Guarantor


GuarantorLimited


Subsidiary


Subsidiaries


Eliminations


Total(Millions of U.S. Dollars)Revenues

$
3,067


$
5,137


$
5,959


$
(2,745
)

$
11,418Cost of revenues


2,006



3,564



4,163



(2,745
)


6,988Gross profit


1,061



1,573



1,796







4,430Selling, general and administrative expense


419



998



1,074







2,491Research and development expense


896



679



365







1,940Amortization of intangible assets






3



23







26In-process research and development expense






16



6







22Special charges


25



47



33







105Loss (gain) on sale of businesses and assets


(11
)


(81
)


(114
)






(206
)Other operating income  net


(9
)


(4
)










(13
)Operating earnings (loss)


(259
)


(85
)


409







65Other income (expense)  net


29



61



144



(48
)


186Interest expense  netLong-term debt


(126
)


(37
)


(24
)






(187
)Other


(22
)


(76
)


70



6



(22
)Earnings (loss) from operations before income taxes, minority
    interests and equity in net earnings (loss) of associated
    companies


(378
)


(137
)


599



(42
)


42Income tax benefit (expense)


(12
)


1



(49
)






(60
)(390
)


(136
)


550



(42
)


(18
)Minority interests  net of tax










(21
)






(21
)Equity in net earnings (loss) of associated
    companies  net of tax


357



80







(439
)


(2
)Net earnings (loss) before cumulative effect of accounting change


(33
)


(56
)


529



(481
)


(41
)Cumulative effect of accounting change  net of tax


1



5



3







9Net earnings (loss)


(32
)


(51
)


532



(481
)


(32
)Dividends on preferred shares


38















38Net earnings (loss) applicable to common shares

$
(70
)

$
(51
)

$
532


$
(481
)

$
(70
)  153




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Nortel





Non-Networks


Guarantor


GuarantorLimited


Subsidiary


Subsidiaries


Eliminations


Total(Millions of U.S. Dollars)Revenues

$
3,606


$
5,579


$
4,805


$
(3,481
)

$
10,509Cost of revenues


1,893



4,263



3,595



(3,481
)


6,270Gross profit


1,713



1,316



1,210







4,239Selling, general and administrative expense


655



898



864







2,417Research and development expense


808



717



349







1,874Amortization of intangible assets










17







17Special charges


28



54



87







169Loss (gain) on sale of businesses and assets


42



4



1







47Other operating expenses (income)  net


(8
)


(20
)


5







(23
)Operating earnings (loss)


188



(337
)


(113
)






(262
)Other income  net


152



67



45



8



272Interest expense  netLong-term debt


(84
)


(12
)


(28
)






(124
)Other


(8
)


(63
)


64



1



(6
)Earnings (loss) from operations before income taxes, minority
    interests and equity in net earnings (loss) of associated
    companies


248



(345
)


(32
)


9



(120
)Income tax benefit (expense)


(4
)


83



2







81244



(262
)


(30
)


9



(39
)Minority interests  net of tax










(12
)






(12
)Equity in net earnings (loss) of associated companies
      net of tax


(295
)


(86
)


(1
)


385



3Net earnings (loss) from continuing operations


(51
)


(348
)


(43
)


394



(48
)Net earnings (loss) from discontinued operations
      net of tax


4







(3
)






1Net earnings (loss) before cumulative effect of accounting change


(47
)


(348
)


(46
)


394



(47
)Cumulative effect of accounting change  net of tax


















Net earnings (loss)


(47
)


(348
)


(46
)


394



(47
)Dividends on preferred shares


26















26Net earnings (loss) applicable to common shares

$
(73
)

$
(348
)

$
(46
)

$
394


$
(73
)  154




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Nortel





Non-Networks


Guarantor


GuarantorLimited


Subsidiary


Subsidiaries


Eliminations


Total(Millions of U.S. Dollars)ASSETSCurrent assetsCash and cash equivalents

$
329


$
1,128


$
2,069


$



$
3,526Restricted cash and cash equivalents


34



8



24







66Accounts receivable  net


2,394



1,828



3,120



(3,637
)


3,705Inventories  net


100



505



1,397







2,002Deferred income taxes  net


32



318



137







487Other current assets


86



120



262



(1
)


467Total current assets


2,975



3,907



7,009



(3,638
)


10,253Investments


6,616



3,563



(88
)


(9,897
)


194Plant and equipment  net


528



406



596







1,530Goodwill






1,877



504







2,381Intangible assets  net


18



34



161







213Deferred income taxes  net


1,128



1,245



495







2,868Other assets


171



118



260



(15
)


534Total assets

$
11,436


$
11,150


$
8,937


$
(13,550
)

$
17,973LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesTrade and other accounts payable

$
1,486


$
998


$
2,382


$
(3,637
)

$
1,229Payroll and benefit-related liabilities


134



259



296







689Contractual liabilities


17



47



208







272Restructuring liabilities


11



46



43







100Other accrued liabilities


463



1,246



2,091



(1
)


3,799Long-term debt due within one year


1



12



10







23Total current liabilities


2,112



2,608



5,030



(3,638
)


6,112Long-term debt


2,243



94



329







2,666Deferred income taxes  net










17







17Other liabilities


1,071



716



1,102



(15
)


2,874Total liabilities


5,426



3,418



6,478



(3,653
)


11,669Minority interests in subsidiary companies










294







294Shareholders equity


6,010



7,732



2,165



(9,897
)


6,010Total liabilities and shareholders equity

$
11,436


$
11,150


$
8,937


$
(13,550
)

$
17,973  155




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Nortel





Non-Networks


Guarantor


GuarantorLimited


Subsidiary


Subsidiaries


Eliminations


Total(Millions of U.S. Dollars)ASSETSCurrent assetsCash and cash equivalents

$
626


$
1,145


$
1,716


$



$
3,487Restricted cash and cash equivalents


18



19



50



(43
)


44Accounts receivable  net






3,081



12,225



(11,597
)


3,709Inventories  net


145



547



1,311



(14
)


1,989Deferred income taxes  net


45



225



6







276Other current assets


128



110



274







512Total current assets


962



5,127



15,582



(11,654
)


10,017Investments


6,629



5,239



3,266



(14,930
)


204Plant and equipment  net


490



446



590







1,526Goodwill






1,878



473







2,351Intangible assets  net






45



196







241Deferred income taxes  net


1,847



1,338



678







3,863Other assets


246



364



725



(655
)


680Total assets

$
10,174


$
14,437


$
21,510


$
(27,239
)

$
18,882LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesTrade and other accounts payable

$
8


$
3,763


$
8,950


$
(11,597
)

$
1,124Payroll and benefit-related liabilities


114



259



264







637Contractual liabilities


11



59



173







243Restructuring liabilities


10



52



35







97Other accrued liabilities


529



1,312



1,915







3,756Long-term debt due within one year


1



9



8







18Total current liabilities


673



5,454



11,345



(11,597
)


5,875Long-term debt


2,218



102



326







2,646Deferred income taxes  net










97







97Other liabilities


1,390



1,219



2,174



(655
)


4,128Total liabilities


4,281



6,775



13,942



(12,252
)


12,746Minority interests in subsidiary companies










243







243Shareholders equity


5,893



7,662



7,325



(14,987
)


5,893Total liabilities and shareholders equity

$
10,174


$
14,437


$
21,510


$
(27,239
)

$
18,882  156




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Nortel





Non-Networks


Guarantor


GuarantorLimited


Subsidiary


Subsidiaries


Eliminations


Total(Millions of U.S. Dollars)Cash flows from (used in) operating activitiesNet earnings (loss)

$
(798
)

$
9


$
460


$
(469
)

$
(798
)Adjustment to reconcile to net earnings (loss)


579



(8
)


(49
)


469



991Net cash from (used in) operating activities


(219
)


1



411







193Cash flows from (used in) investing activitiesExpenditures for plant and equipment


(81
)


(64
)


(90
)






(235
)Proceeds on disposals of plant and equipment


58



5



27







90Change in restricted cash and cash equivalents






(6
)


(16
)






(22
)Acquisitions of investments and businesses  net of
    cash acquired


(4
)


(6
)


(75
)






(85
)Proceeds from the sales of investments and businesses and
    assets  net


(60
)


62



73







75Net cash from (used in) investing activities


(87
)


(9
)


(81
)






(177
)Cash flows from (used in) financing activitiesDividends paid, including paid by subsidiaries to minority
    interests


(42
)






(10
)






(52
)Increase in notes payable










76







76Decrease in notes payable










(81
)






(81
)Repayments of capital leases payable


(3
)


(9
)


(12
)






(24
)Net cash from (used in) financing activities


(45
)


(9
)


(27
)






(81
)Effect of foreign exchange rate changes on cash and cash
    equivalents


54







50







104Net increase (decrease) in cash and cash equivalents


(297
)


(17
)


353







39Cash and cash equivalents at beginning of year


626



1,145



1,716







3,487Cash and cash equivalents at end of year

$
329


$
1,128


$
2,069


$



$
3,526  157




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Nortel





Non-Networks


Guarantor


GuarantorLimited


Subsidiary


Subsidiaries


Eliminations


Total(Millions of U.S. Dollars)Cash flows from (used in) operating activitiesNet earnings (loss)

$
(32
)

$
(51
)

$
532


$
(481
)

$
(32
)Adjustment to reconcile to net earnings (loss)


(567
)


155



(320
)


481



(251
)Net cash from (used in) operating activities


(599
)


104



212







(283
)Cash flows from (used in) investing activitiesExpenditures for plant and equipment


(100
)


(122
)


(94
)






(316
)Proceeds on disposals of plant and equipment


88







55







143Change in restricted cash and cash equivalents


33



(2
)


5







36Acquisitions of investments and businesses  net of
    cash acquired






(108
)


(38
)






(146
)Proceeds from the sales of investments and businesses and assets


341



79



180







600Net cash from (used in) investing activities


362



(153
)


108







317Cash flows from (used in) financing activitiesDividends paid, including paid by subsidiaries to minority
    interests


(60
)














(60
)Increase in notes payable










105







105Decrease in notes payable










(79
)






(79
)Proceeds from issuance of long-term debt


2,000



1,300











3,300Repayments of long-term debt


(1,275
)


(1,300
)


(150
)






(2,725
)Debt issuance costs


(42
)














(42
)Increase in capital leases payable






1











1Repayments of capital leases payable


(5
)


(8
)


(4
)






(17
)Net cash from (used in) financing activities


618



(7
)


(128
)






483Effect of foreign exchange rate changes on cash and cash
    equivalents










94







94Net increase (decrease) in cash and cash equivalents


381



(56
)


286







611Cash and cash equivalents at beginning of year


245



1,201



1,430







2,876Cash and cash equivalents at end of year

$
626


$
1,145


$
1,716


$



$
3,487  158




---



##### Table of Contents



NORTEL
    NETWORKS LIMITED
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Nortel





Non-Networks


Guarantor


GuarantorLimited


Subsidiary


Subsidiaries


Eliminations


Total(Millions of U.S. Dollars)Cash flows from (used in) operating activitiesNet earnings (loss)

$
(47
)

$
(348
)

$
(45
)

$
393


$
(47
)Adjustment to reconcile to net earnings (loss)


4



(168
)


432



(393
)


(125
)Net cash from (used in) operating activities


(43
)


(516
)


387







(172
)Cash flows from (used in) investing activitiesExpenditures for plant and equipment


(42
)


(104
)


(110
)






(256
)Proceeds on disposals of plant and equipment


9



1











10Change in restricted cash and cash equivalents


4



1



(2
)






3Acquisitions of investments and businesses  net of
    cash acquired






(22
)


(629
)






(651
)Proceeds from the sales of investments and businesses and assets


343



107



20







470Net cash from (used in) investing activities


314



(17
)


(721
)






(424
)Cash flows from (used in) financing activitiesDividends paid, including paid by subsidiaries to minority
    interests


(43
)














(43
)Increase in notes payable










70







70Decrease in notes payable










(83
)






(83
)Repayments of capital leases payable


(1
)


(8
)










(9
)Net cash from (used in) financing activities


(44
)


(8
)


(13
)






(65
)Effect of foreign exchange rate changes on cash and cash
    equivalents


1







(103
)






(102
)Net cash from (used in) continuing operations


228



(541
)


(450
)






(763
)Net cash from (used in) discontinued operations










33







33Net increase (decrease) in cash and cash equivalents


228



(541
)


(417
)






(730
)Cash and cash equivalents at beginning of year


17



1,742



1,847







3,606Cash and cash equivalents at end of year

$
245


$
1,201


$
1,430


$



$
2,876    159




---



##### Table of Contents



Quarterly
    Financial Data (Unaudited)
      4th Quarter


3rd Quarter


2nd Quarter


1st Quarter2007


2006


2007


2006


2007


2006


2007


2006(Millions of U.S. Dollars)Revenues

$
3,198


$
3,322


$
2,705


$
2,926


$
2,562


$
2,780


$
2,483


$
2,390Gross Profit


1,399



1,321



1,176



1,115



1,048



1,068



1,004



926Special Charges


38



30



56



21



36



49



80



5Other income  net


95



11



161



66



112



58



76



51Net earnings (loss)


(824
)


180



89



17



40



(116
)


(103
)


(113
)     
    During the fourth quarter of 2007, Nortel incurred a
    non-cash
    charge of $1,064 to increase the valuation allowance against the
    Canadian deferred tax asset due to changes in the Canadian tax
    profile.
    During the fourth quarter of 2007, Nortel recognized a gain in
    currency exchange of $40 as a result of the strengthening of the
    Canadian Dollar against the U.S. Dollar. 160




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
    Form 10-K
   Deloitte &
    Touche LLP
       161




---



##### Table of Contents



Schedule II
    Consolidated
  NORTEL
    NETWORKS LIMITED
    Valuation and Qualifying Accounts and Reserves
    Provision For
    Uncollectibles(a)
  Balance at


Charged





Balance atBeginning of


to Costs





End ofYear


and Expenses


Deductions(b)


Year(c)U.S. GAAP(Millions of U.S. Dollars)Year 2007

$
122


$
2


$
27


$
97Year 2006

$
173


$
5


$
56


$
122Year 2005

$
179


$
(10
)

$
(4
)

$
173      (a)
    Excludes Discontinued Operations.(b)
    Includes acquisitions and disposals
    of subsidiaries and divisions and amounts written off, and
    foreign exchange translation adjustments.(c)
    Includes provisions for
    uncollectibles on long-term accounts receivable of $35, $34 and
    $33 as of December 31, 2007, 2006 and 2005, respectively. 162




---



##### Table of Contents



ITEM 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    ITEM 9A.
    Controls
    and Procedures  Management
    Conclusions Concerning Disclosure Controls and
    Procedures
  All
    dollar amounts in this Item 9A are in millions of U.S.
    Dollars unless otherwise stated.
  Rule 13a-15
  Managements
    Report on Internal Control Over Financial Reporting
  Rules 13a-15(f)
  
    pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflect the transactions and
    dispositions of our assets;
    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with U.S. GAAP, and that receipts and
    expenditures are being made only in accordance with
    authorizations of management and the Board of Directors; and
    provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    assets that could have a material effect on the financial
    statements.        Elimination
    of the Material Weakness Reported in the 2006 Annual Report;
    Remedial Measures
  Rule 12b-5
  Material
    Weakness Elimination
    Lack of sufficient cross-functional communication and
    coordination, including further definition of roles and
    responsibilities, with respect to the scope and timing of
    customer arrangements, insufficient segregation of duties in
 163




---



##### Table of Contents



certain areas, delayed implementation of Nortel review
    processes and personnel for the LG-Nortel joint venture, and
    insufficient controls over certain end user computing
    applications, all of which impact upon the appropriate
    application of U.S. GAAP to revenue generating
    transactions.
      Cross-Functional
    Communication and Coordination
  and/or
    non-finance
  Segregation
    of Duties
   164




---



##### Table of Contents



LG-Nortel
    End
    User Computing Applications
    Continuous
    Improvement
    Other
    Remedial Measures
  Form 10-K.
  
    establishing standards of conduct to be enforced through
    appropriate discipline;
    infusing strong technical skills and experience into the Finance
    organization;
    requiring comprehensive, ongoing training on increasingly
    complex accounting standards;
    strengthening and improving internal controls and processes;
    establishing a compliance program throughout the Company that is
    appropriately staffed and funded;
    requiring management to provide clear and concise information,
    in a timely manner, to the Board of Directors to facilitate its
    decision-making; and
    implementing an information technology platform that improves
    the reliability of financial reporting and reduces the
    opportunities for manipulation of results.    Form 10-K,
 165




---



##### Table of Contents



People
      Technology
    Conclusion
    Changes
    in Internal Control Over Financial Reporting
    
    On October 1st, 2007, SAP was implemented in the Guangdong
    Nortel (GDNT) joint venture. This implementation resulted in the
    automation of a number of controls in several financial
    processes including, accounts receivable, accounts payable,
    intercompany, manual journal entries, revenue recognition,
    foreign exchange, U.S. GAAP translation and financial close
    processes. 166




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Form 10-K.
                  167




---



##### Table of Contents



ITEM 9B.
    Other
    Information   168




---



##### Table of Contents



PART III    ITEM 10.
    Directors,
    Executive Officers and Corporate Governance  Board of
    Directors
    Jalynn H. Bennett, C.M.
    (1)
    Nortel Board/Committee Membership

Public Board MembershipBoard of directors (NNC and NNL)

Canadian Imperial Bank of CommerceCompensation and human resources committee (NNC and NNL)

Teck Cominco Ltd.Pension fund policy committee (NNL)   Securities
    Held(2)Total Market Value of Common SharesCommon Shares

Share Units


and Share Units at Year End(#)

(#)(3)


($)(4)


16,015



241,666  169




---



##### Table of Contents



Dr. Manfred Bischoff
    (1)
    Nortel Board/Committee Membership

Public Board MembershipBoard of directors (NNC and NNL)


Daimler AGCompensation and human resources committee (NNC and NNL)


Fraport AGPension fund policy committee (NNL)


Royal KPN N.V.Litigation committee (NNC)


Unicredit   Securities
    Held(2)Total Market Value of Common SharesCommon Shares

Share Units


and Share Units at Year End(#)

(#)(3)


($)(4)


13,525



204,092   The Hon. James Baxter
    Hunt, Jr.
 (5)
   (1)
    Nortel Board/Committee Membership

Public Board MembershipBoard of directors (NNC and NNL)Audit committee (NNC and NNL)Nominating and governance committee (NNC)  Chair   Securities
    Held(2)Total Market Value of Common SharesCommon Shares

Share Units


and Share Units at Year End(#)

(#)(3)


($)(4)


16,795



253,437  170




---



##### Table of Contents



Dr. Kristina M. Johnson
      (1)
  crystal-on-silicon
  Nortel Board/Committee Membership

Public Board MembershipBoard of directors (NNC and NNL)

Boston ScientificCompensation and human resources committee (NNC and NNL)

AES CorporationPension fund policy committee (NNL)

Minerals Technologies   Securities
    Held(2)Total Market Value of Common SharesCommon Shares

Share Units


and Share Units at Year End(#)

(#)(3)


($)(4)


5,733



86,511   John A. MacNaughton,
    C.M.
    (1)
    Nortel Board/Committee Membership

Public Board MembershipBoard of directors (NNC and NNL)

TransCanada CorporationAudit committee (NNC and NNL)  Chair

TransCanada Pipelines LimitedNominating and governance committee (NNC)   Securities
    Held(2)Total Market Value of Common SharesCommon Shares

Share Units


and Share Units at Year End(#)

(#)(3)


($)(4)10,000


18,537



430,623  171




---



##### Table of Contents



The Hon. John P.
    Manley, P.C.
    (1)
    Nortel Board/Committee Membership

Public Board MembershipBoard of directors (NNC and NNL)

Canadian Imperial Bank of CommerceCompensation and human resources committee (NNC and NNL)

Canadian Pacific RailwayPension fund policy committee (NNL)  Chair   Securities
    Held(2)Total Market Value of Common SharesCommon Shares

Share Units


and Share Units at Year End(#)

(#)(3)


($)(4)


17,616



265,825   Richard D. McCormick
      (1)
    Nortel Board/Committee Membership

Public Board MembershipBoard of directors (NNC and NNL)

United Technologies CorporationCompensation and human resources committee (NNC and
    NNL)  Chair

Wells Fargo and CompanyLitigation committee (NNC)Nominating and governance committee (NNC)   Securities
    Held(2)Total Market Value of Common SharesCommon Shares

Share Units


and Share Units at Year End(#)

(#)(3)


($)(4)10,000


18,642



432,208  172




---



##### Table of Contents



Claude Mongeau
      (1)
    Nortel Board/Committee Membership

Public Board MembershipBoard of directors (NNC and NNL)


SNC-Lavalin Group Inc.Audit committee (NNC and NNL)Pension fund policy committee (NNL)   Securities
    Held(2)Total Market Value of Common SharesCommon Shares

Share Units


and Share Units at Year End(#)

(#)(3)


($)(4)


10,809



163,108   Harry J. Pearce
      (1)
    Nortel Board/Committee Membership

Public Board MembershipBoard of directors (NNC and NNL)  Chair



Marriott International, Inc.Litigation committee (NNC)  Chair



MDU Resources Group, Inc.   Securities
    Held(2)Total Market Value of Common SharesCommon Shares

Share Units


and Share Units at Year End(#)

(#)(3)


($)(4)11,600


12,812



368,377  173




---



##### Table of Contents



John D. Watson, FCA
     (1)
    Nortel Board/Committee Membership

Public Board MembershipBoard of directors (NNC and NNL)



UTS Energy CorporationAudit committee (NNC and NNL)



Talisman Energy Inc.Nominating and governance committee (NNC)   Securities
    Held(2)Total Market Value of Common SharesCommon Shares

Share Units


and Share Units at Year End(#)

(#)(3)


($)(4)


10,809



163,108   Mike S. Zafirovski
         Nortel Board/Committee Membership

Public Board MembershipBoard of directors (NNC and NNL)


The Boeing Company   Common Shares and Share Units
    Held(2)(6)Total Market Value of Common SharesCommon Shares

Share Units


and Share Units at Year End(#)

(#)(3)


($)(4)125,029






1,886,688   Options
    Held(2)(6)Total Market Value ofUnexercised OptionsNumber


Exercise


Total


at Year EndDate Granted

Expiry Date

Granted


Price


Unexercised


($)(4)November 15, 2005

November 14, 2015


500,000


$
31.00



500,000




(7)June 14, 2006

June 13, 2016


167,500


$
21.20



167,500




(7)March 21, 2007

March 20, 2017


269,000


$
25.82
(8)


269,000




(7)   Restricted Stock Units
    Held(2)(6)Total Market Value ofRestricted Stock Unitsthat have not VestedNumber


Number of Restricted Stock Units


at Year EndDate Granted

Granted


that have not Vested


($)(4)November 15, 2005


226,500



135,900



2,050,731   (1)
    Independent refers to
    the standards of independence attached to and forming part of
    our Statement of Governance Guidelines, the listing standards of
    the NYSE and applicable SEC and Canadian Securities
    Administrators, or CSA, rules and policies.(2)
    Except for Mr. Zafirovski,
    none of the directors hold any stock options, restricted stock
    units or performance stock units of NNC. For detailed
    information on stock options, restricted stock units and
    performance stock units held by Mr. Zafirovski, see
    Executive Compensation. 174




---



##### Table of Contents



(3)
    Represents the aggregate number of
    share units held under the Directors Deferred Share
    Compensation Plans of the Company and NNC, or the DSC Plans, as
    of December 31, 2007 rounded down to the nearest whole
    number. Each share unit entitles the holder to receive one
    common share. Share units are settled in common shares, net of
    taxes, when the director ceases to be a member of the Nortel
    boards. Mr. Zafirovski is not eligible to participate under
    the DSC Plans.(4)
    Based on the closing market price
    on the NYSE on December 31, 2007 of $15.09, rounded to the
    nearest dollar and assumes all vesting criteria have been
    satisfied, as applicable.(5)
    Governor Hunt turned 70 years
    of age during 2007. On May 31, 2007, the nominating and
    governance committee determined that, as a result of, among
    other things, his strong leadership qualities, Governor Hunt
    will be permitted to continue to serve on the Nortel boards for
    at least five years from the date of his first election.
    Governor Hunt abstained from the assessment and determination of
    his continued service.(6)
    Does not include the total market
    value of the unvested performance stock units held by
    Mr. Zafirovski as of December 31, 2007 as payout is
    based on corporate performance.(7)
    As at December 31, 2007, the
    exercise price of Mr. Zafirovskis options was greater
    than the closing market price on NYSE of $15.09.(8)
    Canadian grant issued with an
    exercise price of CAN$29.90. Table reflects equivalent
    U.S. Dollar exercise price converted using the
    March 21, 2007 Bank of Canada noon rate of exchange of
    US$1.00=CAN$1.1578.   175




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##### Table of Contents



Executive
    Officers and Certain Other Non-Executive Board-Appointed
    Officers
    Year ofName and Age

Office and Position Currently Held

AppointmentSteven John Bandrowczak (47)

Chief Information Officer


2007Alvio Silvio Barrios (40)

President, CALA


2007Robert John Bartzokas (56)

Chief Compliance Officer


2006Paviter Singh Binning (47)

Executive Vice-President and Chief Financial Officer


2007Dennis James Carey (61)

Executive Vice-President, Corporate Operations


2006Tracy Sarah JaneConnelly McGilley (36)*

Associate General Counsel  Corporate and Assistant
    Secretary


2006Gordon Allan Davies (45)

Deputy General Counsel and Corporate Secretary


2008William John Donovan (50)*

Senior Vice-President, Business Transformation


2006David William Drinkwater (59)

Chief Legal Officer


2005Darryl Alexander Edwards (46)

President, EMEA


2006Lauren Patricia Flaherty (50)

Chief Marketing Officer


2006Joseph Gerard Flanagan (36)

Senior Vice-President, Global Operations


2007Jesse Joel Hackney, Jr. (38)

President, Enterprise Solutions


2007Paul Wesley Karr (52)

Controller


2005William Joseph LaSalle (55)*

General Counsel  Operations


2005Kimberly Susan Lechner (42)*

Assistant Controller


2005Peter Look (50)*

Vice-President, Tax


2006Richard Stephen Lowe (57)

President, Carrier Networks


2007Pierre David MacKinnon (46)

Chairman, LG-Nortel JV and GM, WiMAX


2006Michael Walton McCorkle (55)

Treasurer (interim)


2007Philippe Morin (42)

President, Metro Ethernet Networks


2006William Kenneth Nelson (52)

Executive Vice-President, Global Sales


2008Michael Pangia (46)

President, Asia Region


2006George Andrew Riedel (50)

Chief Strategy Officer


2006John Joseph Roese (37)

Chief Technology Officer


2006Anna Ventresca (43)*

Assistant General Counsel  Corporate and Assistant
    Secretary


2007Dietmar Martin Wendt (48)

President, Global Services


2006Mike Svetozar Zafirovski (54)

President and Chief Executive Officer


2005      *
    Non-executive board appointed
    officers    
    S.J. Bandrowczak was appointed Chief Information Officer
    effective July 16, 2007. Prior to joining Nortel, he was
    Senior Vice-President and Chief Information Officer at Lenovo
    Group, a global producer of PC products and value-added
    professional services, from 2005 to 2007 where he enacted a
    24-month
    plan to build the companys IT infrastructure. From 2002 to
    2005, Mr. Bandrowczak was Executive Vice-President and
    Chief Information Officer for DHL Worldwide, a global market
    leader in the international express and logistics industry.
    A.S. Barrios was appointed President, CALA Region, effective
    June 1, 2007. Mr. Barrios has been with Nortel for
    13 years where he has held various positions of increasing
    responsibility within the Companys engineering, marketing
    and sales organizations. Most recently, he was Vice-President
    responsible for some of Nortels largest customers and
    strategic accounts in the CALA region.
    R.J. Bartzokas was appointed Chief Compliance Officer in January
    2006, prior to which he was Chief Audit and Security Officer
    from October 2005 to January 2006 and Vice-President, Audit from
    July 2005 to October 2005. Mr. Bartzokas has over
    30 years of accounting, auditing and compliance experience,
    including most recently as 176




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##### Table of Contents



Vice President, Audit and Compliance of Amerada Hess Corporation
    from January 1995 to June 2005. He previously held senior level
    audit positions with Getty Oil Company and Price
    Waterhouse & Co. 
    P.S. Binning was appointed Executive Vice-President and Chief
    Financial Officer effective November 12, 2007, prior to
    which he was Group Finance Director at Hanson PLC, a global
    supplier of heavy building materials to the construction
    industry, from January to September 2007. While at Hanson, he
    was responsible for leading the Hanson finance function
    including Group Finance, Treasury, Tax, Investor Relations, Risk
    Management, Internal Audit and Operational and Regional finance
    organizations. He also had responsibility for the Corporate
    Communications, IT and Strategy functions. From 2003 to 2006,
    Mr. Binning was Chief Financial Officer at Marconi PLC, a
    global telecoms equipment vendor (which was acquired by
    Swedish-based Ericsson), where his responsibilities included
    Group Finance, Investor Relations, Tax, Treasury, Group
    Strategy, Risk Management, Internal Audit and Operational and
    Regional finance functions. He previously held various finance
    leadership positions at Diageo PLC, global consumer goods
    business, from 1986 to 2003. His positions at Diageo included
    senior corporate and operational finance roles.
    D.J. Carey was appointed as Executive Vice-President, Corporate
    Operations effective January 2006. Prior to his appointment,
    Mr. Carey held various leadership positions at Motorola,
    GE, The Home Depot and AT&T. Mr. Carey was Executive
    Vice-President, President and Chief Executive Officer,
    Integrated Electronic Systems at Motorola from November 2002 to
    November 2005 where he was responsible for the growth and
    profitability of a portfolio of eight different businesses. He
    also served as Vice President and General Manager for Corporate
    Productivity and Mergers and Acquisitions for AT&T and as
    Executive Vice President for Business Development, Strategy and
    Corporate Operations for The Home Depot after having been
    Executive Vice President and Chief Financial Officer.
    T.S.J. Connelly McGilley was named Associate General
    Counsel  Corporate and Assistant Secretary in October
    2006. She was Assistant Secretary from December 2004 to October
    2006 and Counsel  Securities in the NNL legal
    department from July 1999 to December 2004.
    G.A. Davies was named Deputy General Counsel effective
    January 18, 2008, prior to which he was General
    Counsel  Corporate from September 2005 to January
    2008. For the period from May 1 to November 11, 2007,
    Mr. Davies also acted as Chief Legal Officer on an interim
    basis. Mr. Davies has also acted as Corporate Secretary
    since December 2004. Mr. Davies previously held various
    senior positions in the legal department in North America and
    Europe since 1993.
    D.W. Drinkwater, prior to his appointment as Chief Legal Officer
    in December 2005, carried on a consulting business and held
    various corporate directorships from August 2004 to December
    2005. Mr. Drinkwater was Executive Vice President and Chief
    Financial Officer of the Ontario Power Generation Inc., a Crown
    corporation for electricity generation in the Province of
    Ontario, from April 2003 to July 2004 and prior thereto, was
    Executive Vice President, Corporate Development and Legal
    Affairs of Ontario Power Generation Inc. from December 2000 to
    April 2003. Mr. Drinkwater acted as Chief Financial Officer
    of Nortel on an interim basis for the period from May 1 to
    November 11, 2007. Mr. Drinkwaters background
    prior to joining Nortel includes working both as a partner in a
    top-tier Toronto law firm and as Vice President, Law and
    General Counsel with Bell Canada.
    L.P. Flaherty was appointed Chief Marketing Officer effective
    May 1, 2006. Prior to joining Nortel, she gained more than
    25 years experience with IBM. At IBM, she served as Vice
    President of Worldwide Marketing for some of IBMs largest
    and most important global businesses, including
    Small & Medium Business Segment, On-Demand Business
    Unit, Software and Server Marketing, where she drove long-term
    business strategy, global branding and advertising, channel and
    product marketing, and communications including public
    relations, interactive/web marketing, events, demand generation
    and sales enablement.
    J.G. Flanagan was appointed Senior Vice-President, Global
    Operations effective September 19, 2007. He joined Nortel
    in 2006 as Vice-President Global Order Management. Prior to
    joining Nortel, Mr. Flanagan had more than ten years
    of leadership experience at GE in general management, commercial
    strategy, supply chain operations and services deployment. From
    2002 to 2004, Mr. Flanagan was General Manager of GEs
    Industrial Controls Business, responsible for the growth and
    profitability of the Global IEC Industrial Controls business.
    Most recently prior to joining Nortel, Mr. Flanagan was
    General Manager, Operations GE Consumer & Industrial
    EMEA from 2004 to 2006 based in Budapest, Hungary. In this
    position, he was responsible for the customer service
    operations, distribution and fulfillment of GEs
    Consumer & Industrial EMEA Division.
    J.J. Hackney, Jr. was appointed as President, Enterprise
    Solutions effective September 19, 2007. He was Senior
    Vice-President, Global Operations and Quality from April 2006 to
    September 2007, prior to which he was Senior Vice-President,
    Supply Chain and Quality from December 2005 to April 2006. Prior
    to joining Nortel in 2005, Mr. Hackney had more than
    14 years of global leadership experience at GE in roles
    spanning audit, supply chain, operations, product management and
    general management. Most recently, Mr. Hackney was
    Division General Manager  GE
    Consumer & Industrial in Barcelona, Spain from 2001 to
    2006. In this position, he was responsible 177




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##### Table of Contents



for the growth and profitability of the Global IEC Electrical
    Components and Systems Division, with 12 plants and more than
    7,000 employees across Europe, Middle East and Africa. 
    P.W. Karr was appointed as Controller in May 2005, prior to
    which he was Vice-President and Financial Controller of global
    pharmaceutical company Bristol-Myers Squibb from November 2003
    to December 2004. Prior thereto, Mr. Karr held numerous
    senior positions with GE from February 1994 to October 2003,
    most recently as Senior Vice-President and Chief Accounting
    Officer, GE Capital Markets Services during 2003. Prior thereto,
    Mr. Karr spent over 15 years with Deloitte &
    Touche, including as National Consultation Partner in 1992 and
    1993.
    K.S. Lechner was appointed Assistant Controller in October 2005,
    prior to which she was Director, Finance from 2001 to 2005.
    P. Look was appointed as Vice-President, Tax in June 2006, prior
    to which he was Vice-President, Treasurer and Chief Tax Officer
    from March 2003 to November 2005 and Vice-President, Tax from
    April 2000 to March 2003 for Visteon Corporation, a spin-off of
    the Ford Motor Company, where he had global responsibility for
    funding and liquidity, capital markets, investor relations and
    tax compliance and planning.
    P.D. MacKinnon was appointed as Chairman, LG-Nortel in October
    2005 at the formation of the LG-Nortel joint venture. In
    February 2006, he was appointed President, LG-Nortel Business
    Unit in a full time JV role until August 2006 when he remained
    as Chairman, LG-Nortel JV and was appointed General Manager,
    WiMAX. Mr. MacKinnon was also President, GSM/UMTS from
    October 2004 to February 2006. MacKinnon previously served as
    Nortels Senior Vice-President Wireless Networks Americas
    from 2002 to 2004, responsible for product sales and marketing.
    M.W. McCorkle was appointed Treasurer on an interim basis
    effective August 10, 2007, prior to which he was Assistant
    Treasurer since 2005. Mr. McCorkle was Director, Structured
    Finance, Nortel EMEA from 1999 to 2003 and Leader, Structured
    Finance, Nortel EMEA from 2003 to 2005.
    P. Morin was appointed as President, Metro Ethernet Networks in
    May 2006. From January 2003 to May 2006, Mr. Morin held the
    position of General Manager, Optical Networks where he helped to
    ensure Nortels continued leadership and business momentum
    in optical networks.
    W.K. Nelson was appointed as Executive Vice-President, Global
    Sales effective January 18, 2008. Prior to joining Nortel,
    Mr. Nelson was Senior Vice-President and General Manager of
    the Resource Management Software Group of information technology
    company EMC from January 2001 to January 2008 where he had
    global responsibility for the Resource Management Software Group
    and drove both business development and strategy for EMCs
    global telecommunications, media and entertainment business unit.
    M. Pangia was appointed as President, Asia Region in June 2006.
    During his 21 years with Nortel, he has held various senior
    management positions. His previous roles included
    Vice-President, Global Enterprise Operations and Services and
    Vice-President of Finance for the Optical business unit. Prior
    to his current assignment, he was Chief Operating Officer for
    the Asia Pacific region. He has worked in the U.S., Canada,
    Europe and the Caribbean & Latin American regions
    before coming to Asia.
    G.A. Riedel was appointed Chief Strategy Officer in February
    2006. From March 2003 to February 2006, he was Vice-President,
    Strategy and Corporate Development at Juniper Networks, an
    information technology company. In this role, Mr. Riedel
    was involved in developing and executing a growth strategy to
    expand Junipers portfolio and partnerships. He was heavily
    engaged in a number of Junipers acquisitions and strategic
    partnerships. Prior to his position with Juniper,
    Mr. Riedel held a number of positions during 15 years
    with the Boston-based management consulting firm
    McKinsey & Company, the most recent being Director,
    Australia and Singapore from November 1987 to December 2002.
    J.J. Roese was appointed as Chief Technology Officer in June
    2006, prior to which he was employed as Vice-President and Chief
    Technology Officer, Networking Technologies at semiconductor
    company Broadcom Corporation. At Broadcom, Mr. Roese was
    responsible for the long-term architecture and technical
    strategy for networking technologies. From 2001 to 2005, he was
    Vice-President and Chief Technology Officer with Enterasys
    Network, which specializes in network security for enterprises.
    At Enterasys, Mr. Roese oversaw the development of the
    companys technology architectures.
    A. Ventresca was named Assistant General Counsel 
    Corporate and Assistant Secretary in July 2007. She was
    Associate General Counsel  Corporate and Assistant
    Secretary from October 2006 to July 2007 and Assistant Secretary
    from August 2005 to October 2006. Ms. Ventresca was
    Counsel  Securities in the NNL legal department prior
    thereto.
    D.M. Wendt was appointed President, Global Services effective
    May 1, 2006. Prior to joining Nortel, he gained more than
    25 years experience with IBM. Most recently, Mr. Wendt
    was Vice President, IBM Asia Pacific Information Technology
    Services Transformation from January to April 2006, Vice
    President, IBM Systems and 178




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##### Table of Contents



Technology Group, Asia Pacific from 2004 to 2006 and Vice
    President, IBM Asia Pacific Integrated Technology Services,
    Central Europe & Russia from 2002 to 2004.  Section 16(a)
    Beneficial Ownership Reporting Compliance
    Code of
    Ethics
      Nomination
    of Directors
     179




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##### Table of Contents



Re-Election
    of Directors
       skills and competencies under the skills matrix
   attendance at regularly scheduled board and committee meetings
   public board membership

   age
   outside interests, including any change in employment
   length of service on the Nortel boards   Nomination
    of New Directors
     180




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##### Table of Contents



Audit
    Committee
  Audit Committees of NNC and NNL
   John A. MacNaughton
    (Chair)

Independent*The Hon. James Baxter Hunt, Jr.

Independent*Claude Mongeau

Independent*John D. Watson

Independent*   *
    The Nortel boards have also determined that at least one member
    of the audit committees meets the NYSE standard of having
    accounting or related financial management
    expertise, and that Messrs. Watson and Mongeau each
    meet the criteria required by applicable SEC rules for an
    audit committee financial expert (U.S. GAAP).  Key Responsibilities
    
    the reliability and integrity of the accounting principles and
    practices, financial statements and other financial reporting,
    and disclosure principles and practices followed by management
    of Nortel;
    the establishment by management of an adequate system of
    internal controls and procedures;
    the effectiveness of the internal controls and
    procedures; and
    the compliance by NNL with legal and regulatory requirements.    Independent Auditors
    181




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##### Table of Contents



ITEM 11.
    Executive
    Compensation  Compensation
    Discussion and Analysis
    Nortels principal executive officer

   Mike S. Zafirovski, President and Chief
    Executive OfficerEach of the three individuals who acted as Nortels
    principal financial officer during 2007

   Pavi S. Binning, Executive
    Vice-President and Chief Financial Officer from November 12,
    2007 to present
       David W. Drinkwater, Chief Financial
    Officer (interim) from May 1, 2007 to November 11, 2007
       Peter W. Currie, Executive
    Vice-President and Chief Financial Officer from February 14,
    2005 to April 30, 2007Nortels next three most highly compensated executive
    officers

   Dennis J. Carey, Executive
    Vice-President, Corporate Operations
       Richard S. Lowe, President, Carrier
    Networks
       J. Joel Hackney, Jr., President,
    Enterprise SolutionsTwo additional individuals that would have been among
    Nortels most highly compensated executive officers except
    that they were not serving as executive officers of Nortel as of
    December 31, 2007

   Stephen F. Slattery, President,
    Enterprise Solutions  departure effective September
    30, 2007
       Dion C. Joannou, President, North
    America  departure effective August 31, 2007       Objectives
    of Named Executive Officer Compensation Program
  Competitive
    Compensation
   182




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Accenture
    Cisco Systems
    Intel
    Microsoft
    Qualcomm
    Unisys

Agilent Technologies
    Corning
    Juniper
    Motorola
    Seagate Technology
    Xerox

Applied Materials
    Electronic Data Systems
    Lexmark
    NCR
    Sun Microsystems

Avaya
    EMC
    Lucent
    Oracle
    Texas Instruments         Align the
    Interests of Named Executive Officers with the Interests of
    Shareholders
    Retention
    Elements
    of Compensation
    Base
    Salary
   183




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##### Table of Contents



Short-Term
    Incentives
      
    
    Target Percentage:  The target percentage for
    each of the named executive officers is set out below.
    Individual target percentages are initially determined upon
    commencement of employment. In setting or revising the target
    percentages, we benchmark against targets set by the comparator
    companies for executives holding similar positions. The CHRC
    annually reviews benchmarking results prepared by management
    with respect to target percentages and modifies such percentages
    as roles and responsibilities change.  TargetName

PercentageM.S. Zafirovski


150
%D.W. Drinkwater


80
%R.S. Lowe


100
%P.S. Binning


100
%D.J. Carey


100
%J.J. Hackney, Jr.


100
%   
    Individual Performance Factor:  The individual
    performance factor is determined through the annual executive
    review process described below based on an evaluation of the
    named executive officers performance in regard to certain
    criteria established at the beginning of each year. For the 2007
    bonuses under the Incentive Plan, the individual performance
    factor for the named executive officers could have ranged from 0
    to 1.5. There is no specific linear correlation between the
    achievement of objectives and the individual performance factor.
    Certain achievements may be weighted more heavily than others.
    However, all achievements (or lack thereof) and other subjective
    considerations play a part in the ultimate determination of the
    individual performance factor. For information on the individual
    performance of the named executive officers for 2007, see
     2007 Compensation for the Named Executive
    Officers. 184




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##### Table of Contents




    Corporate Performance Factor:  The corporate
    performance factor is based on certain corporate business and
    financial goals established at the beginning of the performance
    period and approved by the CHRC and the Nortel boards. The
    financial metrics have different weightings applied to them and
    in addition, there may also be certain qualitative factors such
    as quality and customer satisfaction that may be included in the
    overall assessment of corporate performance. The corporate
    performance factor is deemed to be 1.0. (achievement) throughout
    the plan period and is then adjusted by the CHRC and the Nortel
    boards based on their determination of corporate performance,
    Actual performance with respect to each financial metric will
    correspond to a factor (the AIP Factor) on the payout slope
    approved for such financial metric. An AIP Factor can be greater
    or less than 1.0 and the calculation for correspondence of
    performance to the AIP Factor can be different for each
    financial metric. The payout slope is designed to reflect the
    corporate and business goals for the particular financial
    metric. Each resulting AIP Factor is then multiplied by the
    weighting assigned to the applicable financial metric. Different
    combinations of actual corporate performance under each of the
    financial metrics could result in achieving the target corporate
    performance factor of 1.0 and, as a result, the achievement of
    any one target is not necessarily determinative in calculating a
    named executive officers bonus.      Percentage








ResultingFinancial Metric

Achieved of Target


AIP Factor


Weighting


AchievementRevenue


98
%


90
%


25
%


0.22Operating Margin


62
%


30
%


50
%


0.15Free Cash Flow


0
%


0
%


25
%


0   world-class
  Long-Term
    Incentives
   185




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##### Table of Contents



2007 Long-Term Incentive

ObjectivesStock Options

   To align compensation with Company
    performance as they become valuable to the executive only if the
    share price increases from the date of grant.
       Secondarily, to retain executives as
    they vest over time.Restricted Stock Units

   To encourage the retention of executive
    officers as they vest over time.Performance Stock Units

   To further link compensation with
    Nortels performance as measured by the relative total
    shareholder return, or rTSR.  rTSR provides a transparent and
    straightforward calculation of Nortels performance.   Performance stock units vest at the end
    of a three year performance period, subject to the CHRC
    determining the percentage of target payout, if any, based on
    the level of achievement of the performance criteria.   The Dow Jones Technology Titans 30 Index
    (Tech Titans Index) was selected by the CHRC as the comparator
    of shareholder return as it presents an objective approach to
    performance measurement.  NNCs ranking relative to these
    companies will determine the percentage payout (between 0% and
    200%) received by each named executive officer of his or her
    performance stock unit award.   For the performance stock units granted
    in 2007, the performance period is January 1, 2007 
    December 31, 2009.  The CHRC will measure NNCs total
    shareholder return against performance as of December 31, 2009
    of the companies included in the Tech Titans Index at the start
    of the performance period on January 1, 2007.  Index changes
    during the performance period will not be taken into account to
    avoid an upward performance bias.  The Tech Titans Index on
    January 1, 2007 consisted of Alcatel-Lucent, Analog Devices,
    Apple, Applied Materials, Canon, Cisco Systems, Dell, Electronic
    Data Systems, EMC, Ericsson, Google, Hewlett-Packard, Hon Hai
    Precision Industry, IBM, Intel, Microsoft, Motorola, NEC, Nokia,
    Oracle, Qualcomm, Ricoh, Samsung Electronics, SAP,
    STMicroelectronics, Sun Microsystems, Taiwan Semiconductor,
    Texas Instruments, Xerox and Yahoo.  When the Tech Titans Index
    was initially selected for these purposes in 2006, NNC was
    included in the index.   The table below sets out percentage
    payouts as they correspond to different Nortel performance
    rankings compared to these companies.  The percentage payout for
    the achievement of a ranking between any two of the specified
    rankings would be determined on a linear basis.   The CHRC will measure actual performance
    and determine relative Nortel ranking and the associated payout
    to executives at the end of the third year of the performance
    period.   Percentage Payment of IndividualsPerformance

Performance Stock Unit AwardThreshold performance at a rank of 22nd


50
%Target performance at a rank of 15th


100
%Superior performance at a rank of 8th


150
%Maximum performance at a rank of
    3rd


200
%  186




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##### Table of Contents



The total intended value of the long-term incentives was
    determined based on a combination of factors

   Benchmarking of each component part of
    total target compensation (base salary, short-term incentives
    and long-term incentives)
       Internal comparison of roles and
    responsibilities of executive officers at similar levels
       Specific individual circumstancesThe total intended value of the long-term incentives was then
    converted to the respective number of stock options, restricted
    stock units and performance stock units

   Based on the twenty day average closing
    price of Common shares on the NYSE as at a date within one week
    prior to review by the CHRC
       In the case of stock options, included
    the Black Scholes option valuation factor       Approximate







Decrease inLength of







Share PriceDelay from

Share Price at


Share Price at


from PlanningPlanning

Planning


Grant


to GrantYear

to Grant

($)


($)


($)2007


1 month



27.93



25.82



2.112006


4 months



31.00



21.20



9.80      187




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##### Table of Contents



Grant DateIntended


Fair Market


AccountingPlanning Value


Value


ValueYear

($)


($)


($)2007


7,499,205



6,096,836



6,424,0112006


7,007,938



4,617,141



4,153,218   Special
    One-Time Awards
    Other
    Compensation
  gross-ups
  CIC
    Plan
     188




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##### Table of Contents



Pension
    Plans
    Policies
    and Guidelines
    Policy on
    Company Aircraft
    Policy on
    Award of Equity-Based Compensation
    
    approved at a meeting that occurs on or prior to the grant date
    for the award;
    made in accordance with the applicable equity incentive plan,
    securities law and stock exchange requirements; and 189




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##### Table of Contents




    unless otherwise determined by the CHRC: (i) for annual
    awards, have an effective grant date that is at least two
    complete business days after the filing by the Company and NNC
    with the SEC of their Annual Report on
    Form 10-K
    and that is otherwise during a window period under our
    applicable corporate policy; and (ii) for awards made for
    other valid business reasons, have an effective grant date that
    is during a window period under our applicable corporate policy.    Policy on
    Recoupment of Incentive Compensation
    Share
    Ownership and Shareholder Alignment
    Base Salary Range in

PercentageUS/CDN Dollars

of SalaryChief Executive Officer


500
%$400,000 and up


300
%$300,000 to $399,999


200
%$200,000 to $299,999


100
%$100,000 to $199,999


50
%$0 to $99,999


0
%      190




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##### Table of Contents



Tax
    and Accounting Effects
        Performance
    Evaluations
    and/or
 191




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##### Table of Contents



Base Salary

   Evaluation of 2006 performance was a
    factor in determining whether to increase base salary for 2007Short-Term Incentives

   Individual performance objectives for
    the 2007 short-term incentive program were set at the beginning
    of 2007
       The individual performance factor for
    2007 under the Incentive Plan was determined by:
       Evaluation of 2007 performance for each
    named executive officer against his individual objectives
       Each named executive officer was also
    evaluated for relative impact on the overall business objectives
    of Nortel and other subjective criteria, including the personal
    effectiveness of the named executive officer as compared to the
    performance of his peers (except in Mr. Zafirovskis
    case)
       On February 22, 2008, cash bonuses under
    the 2007 short-term incentive program were approved based on
    individual performance factors and the corporate performance
    factorLong-Term Incentives

   Evaluation of 2006 performance was a
    factor in determining the amount of long-term incentives to be
    awarded in 2007
       Except for Mr. Zafirovski, the entire
    executive population was grouped into ten tiers for the purpose
    of awarding long-term incentives in 2007
       While the actual amount of the long-term
    incentives awarded to each tier was based on competitive
    benchmarking, the tier ranking of each named executive officer
    was determined based on an evaluation of the impact of the named
    executive officer on Nortels overall business objectives
    and other subjective criteria, including the personal
    effectiveness of the named executive officer as compared to the
    performance of his peers
       Based on these assessments, the named
    executive officers were placed in the top three of ten tiers
       The amount of Mr. Zafirovskis
    long-term incentives for 2007 was determined as a result of an
    evaluation of his 2006 performance and other subjective
    considerations, including his personal effectiveness   The
    Role of Management and Consultants in Nortels Executive
    Officer Compensation Program
          2007
    Compensation for the Named Executive Officers
   192




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##### Table of Contents



Mr. Zafirovski
          2007 Performance Objective

Assessment Strengthen Nortels strategic direction

 Under his leadership, Nortels three-pronged
    strategy  Transformed Enterprise, Next-Generation
    Mobility and Convergence, and Services  generated
    further market and customer momentum demonstrated by key marquee
    customer wins and further strengthening of Nortels market
    position for the future Shaped Nortels portfolio to drive
    profitability and growth in 2007 and beyond Significantly strengthened strategic partnerships
    augmenting Nortels value proposition Deliver solid financial progress

 Achieved
    full-year
    operating margin of $401 million, the highest annual
    operating margin since 2000 Expanded revenues in key strategic segments (e.g.
    Enterprise, Wireless, Optical, and Services) Deliver continued operational excellence

 Significantly improved Nortels supply
    chain, quality, customer support and cost structure Optimized R&D investment and cost structure
    strengthening Nortels competitive position Build world-class management team, culture and
    process

 Led the settlement of regulatory investigations
    with the SEC and the OSC, including the strong endorsement by
    the SEC of the significant remedial actions undertaken by
    management and the Nortel boards Elimination of the revenue-related material
    weakness in internal control over financial reporting Led the continued revitalization of the
    Companys leadership around organizational effectiveness to
    significantly improve its ability to identify and accelerate
    high-potential
    talent, improve employee engagement, mentoring and diversity Accelerated organizational and people development
    through well instituted programs  193




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##### Table of Contents



Mr. Binning
    Mr. Drinkwater
        2007 Performance Objective

Assessment Drive successful completion of regulatory
    investigations

 Settlement of regulatory investigations with the
    SEC and OSC including the strong endorsement by the SEC of the
    significant remedial actions undertaken by management and the
    Nortel boards Deliver cost savings

 Completed the reorganization of legal department
    and met targets in 2007 budget Drive strong productivity

 Delivered on process improvements using Six Sigma
    initiatives through implementation of contract management
    system     Mr. Currie
   194




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##### Table of Contents



Mr. Carey
      2007 Performance Objective

Assessment Deliver cost savings

 Significant annual gross savings under the
    Business Transformation initiatives, including the achievement
    of a substantial reduction in Corporate Operations costs Enhance organization and talent management

 Successful completion of strategic decision making process with respect to organizational effectiveness, feedback to leaders (performance, potential, development), succession planning, early identification of high-potential talent and continuous leadership development
 Strengthened the leadership team through worldwide recruitment and internal promotions of key executives
 Drove managerial excellence program design and launched an improved program to identify and develop emerging leaders at all levels Drive customer and employee satisfaction

 Directed a substantial number of Lean Six Sigma projects focused primarily on customer satisfaction improvement
 Employee satisfaction increased with world-class participation levels in employee survey   Mr. Lowe
      2007 Performance Objective

Assessment Drive profitable growth in Carrier Networks

 Revenue for Carrier Networks increased by $111
    million in 2007
     Management earnings before taxes for Carrier
    Networks increased by $339 million in 2007 Improve customer satisfaction

 Reduced costs related to warranties and key product deficiencies
 Achieved significant improvement in plan of record predictability and in time to market intervals  195




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##### Table of Contents



Mr. Hackney
    325,000
  2007 Performance Objective

AssessmentPresident, Enterprise Solutions Improve financial metrics

 Achieved strong operational growth (Q4 revenues up
    14% from Q3) Increased competitiveness

 Driving growth in new marketsSenior Vice-President, Global Operations and Quality Increase customer satisfaction

 Substantial improvement in customer satisfaction
    including increasing customer response times and outage
    resolution Improved competitiveness

 Drove variable cost productivity and reduced sales,
    general and administrative expenses
     Decreased inventory days and improved cash
    conversion cycle   Mr. Slattery
    Mr. Joannou
   196




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##### Table of Contents



Reported
    Versus Received Pay
    Summary
    Compensation Table for Fiscal Year 2007
    Change inPension Valueand NonqualifiedNon-Stock


DeferredStock


Option


Incentive Plan


Compensation


All OtherName and




Salary


Bonus


Awards


Awards


Compensation


Earnings


Compensation


TotalPrincipal Position

Year


($)


($)


($)(1)


($)(1)


($)(2)


($)(3)


($)(4)


($)M.S. Zafirovski


2007



1,272,941
(5)






3,307,423



3,116,588



1,288,853
(5)


698,714



378,559
(5)


10,063,078


President and Chief


2006



1,198,991
(5)






1,873,624



2,279,594



1,174,263
(5)


690,396



1,060,553
(5)


8,277,421Executive Officer





































P.S.
    Binning(6)


2007



97,191
(5)






38,966















17,260
(5)


153,417Executive Vice-President and Chief Financial OfficerD.W.
    Drinkwater(6)


2007



512,486
(5)


93,179
(5)(7)


516,875



174,490



225,494
(5)






65,964
(5)


1,588,488Former Chief Financial Officer (interim)/Chief Legal Officer





































P.W.
    Currie(6)


2007



208,333







1,497,423



1,747,422











533,374
(5)


3,986,552Former Executive


2006



619,656







690,478



560,810



312,500







69,644
(5)


2,253,088Vice-President
    and Chief Financial OfficerD.J. Carey


2007



550,000







965,766



206,382



357,500



22,539



583,825
(5)


2,686,012


Executive Vice-President, Corporate OperationsR.S. Lowe


2007



500,000
(8)






864,003



836,007



250,000



304,314



3,691



2,758,015President, Carrier Networks


2006



494,656
(8)






466,544



689,196



225,000



302,109



9,000



2,186,505J.J. Hackney, Jr.


2007



463,405







765,746



386,419



325,000







98,038



2,038,608


President, Enterprise Solutions


2006



425,000



125,000



420,054



271,998



195,500







248,761
(5)


1,686,313S.F.
    Slattery(9)


2007



375,000







1,075,796



983,304







52,938



232,386



2,719,424Former President, Enterprise SolutionsD.C.
    Joannou(9)


2007



346,667



375,000
(10)


815,959



812,838







24,177



251,662



2,626,303


Former President,


2006



515,725



375,000
(10)


447,561



412,980



325,000



25,264



9,000



2,110,530North America     (1)
    Amounts set forth in the
    Stock Awards and Option Awards columns
    represent the respective amounts recognized as compensation
    expense by Nortel for financial statement reporting purposes in
    fiscal years 2007 and 2006 with respect to outstanding
    restricted stock unit and performance stock unit awards and
    stock option awards, respectively, in accordance with
    FAS 123R. A discussion of the assumptions used in this
    valuation with respect to awards made in fiscal year
    2007 may be found in note 17, Share-based
    compensation plans to the accompanying audited
    consolidated financial statements. A discussion of the
    assumptions used in this valuation with respect to awards made
    in fiscal years prior to fiscal year 2007 may be found in the
    corresponding notes to the Companys consolidated financial
    statements for the fiscal year in which the award was made. The
    following table sets forth the amount out of the total in the
    Stock Awards and Option Awards column
    that is compensation cost related to awards granted in each of
    2007 and 2006, respectively, and certain specified
    instances of accelerated compensation cost recognition.  197




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##### Table of Contents



Stock Awards


Option AwardsName

Year


($)


($)M.S. Zafirovski


2007



817,307



620,2002006



470,093



282,562P.S. Binning


2007



38,966



D.W. Drinkwater


2007



173,300



62,481P.W.
    Currie(a)


2007







2006



160,961



50,608D.J.
    Carey(b)


2007



320,925



120,393R.S.
    Lowe(c)


2007



246,471



455,4522006



140,841



306,545J.J. Hackney, Jr.


2007



246,471



88,5342006



92,553



33,739S.F.
    Slattery(d)


2007



330,496



227,726D.C.
    Joannou(e)


2007







2006



140,841



42,173     (a)
    No awards were granted in 2007. The
    entire compensation cost recognized in 2007 is related to awards
    granted prior to 2007 and reflects accelerated recognition of
    compensation cost for stock awards and stock options granted in
    2005 and 2006 due to accelerated vesting upon retirement.(b)
    Compensation cost reported for 2007
    also reflects accelerated recognition of compensation cost for
    stock options granted in 2006 and 2007 due to retirement
    eligibility as of the first fiscal quarter of 2009.(c)
    Compensation cost reported for 2007
    and 2006 also reflects accelerated recognition of compensation
    cost for stock options granted in 2007 and 2006, respectively,
    due to retirement eligibility.(d)
    Compensation cost reported for 2007
    reflects accelerated recognition of compensation cost for stock
    awards and stock options granted in 2005, 2006 and 2007.
    Mr. Slattery began his severance period effective
    October 1, 2007. The severance period does not represent a
    substantive service requirement. As all performance conditions
    have been completed, compensation costs have been accelerated.(e)
    Awards granted in 2007 were
    forfeited at termination. The entire compensation cost
    recognized in 2007 is related to awards granted prior to 2007
    and reflects accelerated recognition of compensation cost for
    stock awards and stock options granted in 2005 and 2006.
    Mr. Joannou began his severance period effective
    September 1, 2007. The severance period does not represent
    a substantive service requirement. As all performance conditions
    have been completed, compensation costs have been accelerated. (2)
    Represents incentive cash awards
    earned under the Incentive Plan.(3)
    Represents the aggregate increase
    in the actuarial present value of accumulated benefits under the
    defined benefit and actuarial pension plans (including
    supplemental plans) from the plan measurement date used for
    financial statement reporting purposes with respect to the prior
    completed fiscal year to the plan measurement date used for
    financial statement reporting purposes with respect to the
    covered fiscal year as follows:  AmountName

Year


Plan Name

($)M.S. Zafirovski


2007


Special Pension Benefit Arrangement


698,7142006


Special Pension Benefit Arrangement


690,396D.J. Carey


2007


Nortel Networks Retirement Income Plan


6,219Nortel Networks Restoration Plan


16,320R.S. Lowe


2007


Nortel Networks Retirement Income Plan


1,840Nortel Networks Restoration Plan


(18,423
)Nortel Networks Managerial and Non-Negotiated Pension Plan


71,162Nortel Networks Excess Plan


223,238Nortel Networks Transitional Retirement Allowance Plan


26,4972006


Nortel Networks Retirement Income Plan


28,218Nortel Networks Restoration Plan


23,009Nortel Networks Managerial and Non-Negotiated Pension Plan


81,677Nortel Networks Excess Plan


156,363Nortel Networks Transitional Retirement Allowance Plan


12,842S.F. Slattery


2007


Nortel Networks Retirement Income Plan


782Nortel Networks Restoration Plan


(4,883
)Nortel Networks Managerial and Non-Negotiated Pension Plan


20,935Nortel Networks Excess Plan


60,044Nortel Networks Transitional Retirement Allowance Plan


(23,940
)D.C. Joannou


2007


Nortel Networks Retirement Income Plan


7,765Nortel Networks Restoration Plan


16,4122006


Nortel Networks Retirement Income Plan


6,762Nortel Networks Restoration Plan


18,502   (4)
    Incremental cost of travel on the
    company aircraft is calculated based on the total direct (or
    variable) operating costs (fuel, maintenance labor, parts and
    materials, outside services, crew expenses, catering and
    commissary, handling, landing and navigation fees, maintenance 198




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##### Table of Contents



reserves and miscellaneous
    expenses) in month traveled divided by the total flight hours of
    the aircraft during the month. The cost per flight hour is then
    multiplied by personal flight hours (including so-called
    deadhead flights resulting from the plane returning
    empty to its home base after taking the executive to his or her
    destination, or for the aircraft traveling empty to a
    destination to pick up the executive). Incremental cost of all
    other perquisites is the actual cost incurred. The following
    amounts were paid by, or reimbursed by, Nortel in 2007 for:  M.S. Zafirovski

   the incremental cost of personal travel
    on the company aircraft and commercial airlines principally
    related to commuting ($136,262), personal use of ground
    transportation ($25,595), relocation expenses, tax preparation
    service, financial planning fees and a business club membership   Company contributions under the
    Managerial and Non-Negotiated Plan (Part III) defined
    contribution pension plan ($18,636) and the Nortel Networks
    Limited Investment Plan for Employees  Canada
    ($157,044)P.S. Binning

   relocation expenses, including temporary
    car lease ($15,830)   taxes paid on his behalf for a car lease
    benefit and for tax preparation serviceD.W. Drinkwater

   tax preparation service ($2,489) and
    spousal travel costs ($10,279)   Company contributions under the
    Managerial and Non-Negotiated Plan (Part III) defined
    contribution pension plan ($18,636) and the Nortel Networks
    Limited Investment Plan for Employees  Canada
    ($34,335)   taxes paid on his behalf for tax
    preparation serviceP.W. Currie

   Company contributions under the Nortel
    Networks Limited Investment Plan for Employees 
    Canada ($61,110)   payments made pursuant to the letter
    agreement dated February 5, 2007, concerning the cessation
    of his employment on April 30, 2007, for salary continuance
    ($416,667), accrued and unused vacation ($51,542) and tax
    preparation service   taxes paid on his behalf for tax
    preparation serviceD.J. Carey

   the incremental cost of personal travel
    on the company aircraft and commercial airlines principally
    related to commuting ($38,777), relocation expenses ($161,605),
    personal use of ground transportation and tax preparation service   taxes ($369,162) pursuant to the
    tax-equalization provisions in his employment agreement and
    taxes paid on his behalf for tax preparation serviceR.S. Lowe

   Company contributions under the Nortel
    Networks Long-Term Investment Plan ($3,462)   taxes paid on his behalf for tax
    preparation serviceJ.J. Hackney, Jr.

   Company contributions under the Nortel
    Networks Long-Term Investment Plan ($13,500) and the Nortel
    Networks Long-Term Investment Restoration Plan ($25,299)   taxes ($58,916) pursuant to the
    Permanent Relocation Program provisions in his employment
    agreement and taxes paid on his behalf for tax preparation
    serviceS.F. Slattery

   Company contributions under the Nortel
    Networks Long-Term Investment Plan ($8,100)   payments earned or made pursuant to the
    letter agreement dated September 18, 2007, concerning the
    cessation of his employment on September 30, 2007, for severance
    allowance ($125,000), accrued and unused vacation ($96,154) and
    attorneys fees   taxes paid on his behalf for tax
    preparation serviceD.C. Joannou

   Company contributions under the Nortel
    Networks Long-Term Investment Plan ($8,100)   payments earned or made pursuant to the
    letter agreement dated July 27, 2007, concerning the cessation
    of his employment on August 31, 2007, for severance
    allowance ($173,333) and accrued and unused vacation ($70,000)   taxes paid on his behalf for tax
    preparation service   (5)
    Represents the U.S. Dollar
    equivalent of certain payments actually earned or paid in local
    currency. Amounts for the incremental cost of air travel in
    Canadian Dollars have been converted using the month-end
    exchange rate in effect during the applicable month of travel.
    Amounts representing relocation expenses and ground travel
    submitted in local currency have been converted using the
    exchange rate in effect at the time the expense is submitted for
    payment. All other compensation paid in Canadian Dollars has
    been converted using the average of the exchange rates in effect
    during 2007 equal to US$1.00 = CAN$1.0732 and during 2006 equal
    to US$1.00 = CAN$1.1343, respectively, other than
    Mr. Zafirovskis salary from November 13, 2006
    until December 31, 2006, which was converted to
    U.S. Dollars using the average of the month-end exchange
    rates for November and December 2006 equal to US$1.00 =
    CAN$1.1455, and Mr. Binnings salary which was
    converted to U.S. Dollars using the average of the
    month-end exchange rates for November and December 2007 equal to
    US$1.00 = CAN$0.9849. Mr. Zafirovski did not receive a
    salary increase in 2007. Since November 13, 2006,
    Mr. Zafirovskis base salary has been paid in Canadian
    Dollars, prior to which it was paid in U.S. Dollars. The
    increase between 2006 and 2007 reflected in the
    Salary column is attributable to this currency
    conversion.(6)
    On February 7, 2007, we
    announced that Mr. Currie decided to step down from his
    position as Executive Vice-President and Chief Financial Officer
    effective April 30, 2007. Mr. Drinkwater was appointed
    Chief Financial Officer on an interim basis, effective
    May 1, 2007. Effective November 12, 2007,
    Mr. Binning was appointed Executive Vice-President and
    Chief Financial Officer, at which time Mr. Drinkwater
    resumed his role as Chief Legal Officer.(7)
    Represents a one-time special bonus
    approved by the CHRC in recognition of
    Mr. Drinkwaters service as Chief Financial Officer
    for the period from May 1, 2007 to November 11, 2007.(8)
    Mr. Lowes base salary
    was increased to $500,000 effective March 20, 2006. The
    differences in base salary showing from 2006 to 2007 reflects
    that Mr. Lowe did not earn a full years base salary
    at this rate in 2006. He did not receive a salary increase in
    2007. 199




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##### Table of Contents



(9)
    On September 19, 2007, we
    announced the departure of Mr. Slattery as President,
    Enterprise Solutions effective September 30, 2007. On
    August 1, 2007, we announced the departure of
    Mr. Joannou as President, North America effective
    August 31, 2007.(10)
    Represents a special bonus pursuant
    to a letter agreement entered into on September 29, 2005
    between the Company and Mr. Joannou. The first of two
    $375,000 installments was made in 2006 and the second was made
    in 2007.  Material
    Terms of Employment Agreements and Arrangements with Named
    Executive Officers
    Mr. Zafirovski
        Mr. Binning
     200




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##### Table of Contents



Mr. Drinkwater
    Mr. Carey
    Mr. Lowe
    Mr. Hackney
    Grants of
    Plan-Based Awards in Fiscal Year 2007
    AllAll


OtherOther


Option


Exercise





GrantStock


Awards:


or





DateEstimated Possible











Awards:


Number of


Base


Closing


FairGrant Date/

Payouts under


Estimated Future Payouts


Number of


Securities


Price of


Price on


Value ofCorporate

Non-Equity Incentive


under Equity Incentive


Shares of


Under-


Option


Grant


Stock andApproval

Plan Awards


Plan Awards


Stock or


lying


Awards


Date on


OptionDate

Target


Max


Threshold


Target


Max


Units


Options


($/Sh)


NYSE


AwardsName

(1)

($)


($)


(#)


(#)


(#)


(#)


(#)


(2)


($)


($)(3)M.S. Zafirovski

March 21/
    March 15


























269,000



25.82
(4)


26.11



3,190,537March 21/
    March 15










67,000



134,000



268,000



















2,906,299


1,909,411
(5)


3,818,822
(5)






























P. S.
    Binning(6)

November 15/
    November 15






















81,000















1,514,700D. W. Drinkwater

March 21/
    March 15


























27,100



25.82
(4)


26.11



321,426March 21/
    March 15






















13,500















348,570March 21/
    March 15










6,750



13,500



27,000



















292,799


409,989
(5)


819,978
(5)






























P.W.
    Currie(7)(8)
























81,000















1,514,700 201




---



##### Table of Contents



AllAll


OtherOther


Option


Exercise





GrantStock


Awards:


or





DateEstimated Possible











Awards:


Number of


Base


Closing


FairGrant Date/

Payouts under


Estimated Future Payouts


Number of


Securities


Price of


Price on


Value ofCorporate

Non-Equity Incentive


under Equity Incentive


Shares of


Under-


Option


Grant


Stock andApproval

Plan Awards


Plan Awards


Stock or


lying


Awards


Date on


OptionDate

Target


Max


Threshold


Target


Max


Units


Options


($/Sh)


NYSE


AwardsName

(1)

($)


($)


(#)


(#)


(#)


(#)


(#)


(2)


($)


($)(3)D.J. Carey

March 21/
    March 15


























50,000



25.82



26.11



593,037March 21/
    March 15






















25,000















645,500March 21/
    March 15










12,500



25,000



50,000



















542,220


550,000



1,100,000































R.S. Lowe

March 21/
    March 15


























38,400



25.82



26.11



455,452March 21/
    March 15






















19,200















495,744March 21/
    March 15










9,600



19,200



38,400



















416,425


500,000



1,000,000































J.J. Hackney, Jr.

March 21/
    March 15


























38,400



25.82



26.11



455,452March 21/
    March 15






















19,200















495,744March 21/
    March 15










9,600



19,200



38,400



















416,425


500,000



1,000,000































S.F.
    Slattery(7)

March 21/
    March 15


























38,400



25.82



26.11



455,452March 21/
    March 15






















19,200















495,744March 21/
    March 15










9,600



19,200



38,400



















416,425


























38,400



25.82



26.11



455,452D. C.
    Joannou(7)(9)

March 21/
    March 15


























50,000



25.82



26.11



593,037March 21/
    March 15






















25,000















645,500March 21/
    March 15










12,500



25,000



50,000



















542,220


























50,000



25.82



26.11



593,037     (1)
    Grants were approved by the CHRC at
    its March 15, 2007 meeting in accordance with the equity
    policy. The grant to Mr. Zafirovski was approved at the
    March 15, 2007 meeting of the Nortel boards also in
    accordance with the equity policy. These grants were approved
    with a March 21, 2007 effective date provided that the
    following conditions were satisfied: (i) the opening of a
    window period as a result of the filing of financial statements
    for the year ended December 31, 2006; and
    (ii) satisfactory completion of consultation with the SEC.
    All 2007 long-term incentives were awarded in accordance with
    the SIP and applicable securities laws and stock exchange
    requirements. The grant for Mr. Binning was approved by the
    CHRC by written resolution with an effective date of
    November 15, 2007.(2)
    Stock options are awarded at an
    option price not less than the market value (as
    determined in accordance with the SIP) of a common share of the
    Company on the grant date. For a description of the methodology
    of determining the exercise price, see Equity Based
    Compensation Plans  Nortel 2005 Stock Incentive
    Plan.(3)
    Aggregate grant date fair values
    computed in accordance with FAS 123R. For a detailed
    description of the assumptions made in the valuation of stock
    options, restricted stock units and performance stock units, see
    note 18 Share-based compensation plans to the
    accompanying audited consolidated financial statements.(4)
    Canadian grants issued with an
    exercise price of CAN$29.90. Table reflects equivalent
    U.S. Dollar exercise price converted using the
    March 21, 2007 Bank of Canada noon rate of exchange rate of
    US$1.00 = CAN$1.1578.(5)
    Amounts have been converted using
    the average of the exchange rates in effect during 2007 equal to
    US$1.00 = CAN$1.0732.(6)
    Mr. Binning commenced
    employment on November 12, 2007. Based on his hire date, he
    was not eligible for an Incentive Plan award in 2007 as he was
    not actively employed in an eligible role for at least three
    full calendar months in the plan period.(7)
    Did not receive an Incentive Plan
    award in 2007 due to change in employment status. Employees who
    terminate before December 31 of a plan period are not eligible
    to receive a plan award for that plan period.(8)
    No stock awards or option awards
    were granted to Mr. Currie in 2007.(9)
    The stock awards and option awards
    granted to Mr. Joannou in 2007 were forfeited at
    termination. 202




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##### Table of Contents



Outstanding
    Equity Awards at End of Fiscal Year 2007
    Option Awards

Stock AwardsEquity


EquityIncentive


IncentivePlan


PlanAwards:


Awards:Number of


Market orMarket


Unearned


Payout ValueNumber of


Number of










Value of


Shares,


of UnearnedSecurities


Securities







Number of


Shares or


Units or


Shares, UnitsUnderlying


Underlying







Shares or


Units of


Other


or OtherUnexercised


Unexercised


Option




Units of


Stock That


Rights That


Rights ThatOptions


Options


Exercise


Option

Stock That


Have Not


Have Not


Have Not(#)


(#)


Price


Expiration

Have Not Vested


Vested


Vested


VestedName

Exercisable


Unexercisable


($)(1)


Date

(#)


($)


(#)(2)


($)(3)M.S Zafirovski


200,000



300,000
(4)


31.00


November 14, 2015


135,900
(5)


2,050,731







41,875



125,625
(6)


21.20


June 13, 2016










56,500
(7)


852,585



269,000
(8)


25.82
(9)

March 20, 2017










67,000
(10)


1,011,030P. S. Binning
















81,000
(11)


1,222,290







D.W Drinkwater


5,000



5,000
(12)


32.10
(13)

December, 18, 2015


4,734
(14)


71,436







5,000



15,000
(15)


21.20
(16)

June 13, 2016


7,667
(17)


115,695



5,750
(7)


86,768



27,100
(18)


25.82
(9)

March 20, 2017


13,500
(19)


203,715



6,750
(10)


101,858P.W Currie


50,000



50,000
(20)


31.80
(21)

April 30, 2012(22)


16,666
(23)


251,490







30,000







21.20
(16)

April 30, 2010(22)


13,334
(24)


201,210



10,000
(25)


150,900D.J. Carey


6,250



18,750
(26)


21.20


June 13, 2016


45,000
(27)


679,050



8,750
(7)


132,038



50,000
(28)


25.82


March 20, 2017


25,000
(29)


377,250



12,500
(10)


188,625R.S. Lowe


2,800







112.90


January 28, 2008














1,600







146.10


July 30, 2008














3,200







101.48


October 28, 2008














1,600







155.33


January 27, 2009














2,666







71.60


November 29, 2009














2,666







71.60


January 26, 2010














1,333







71.60


June 28, 2010














4,000







71.60


September 27, 2010














4,000







71.60


January 24, 2011














15,000







51.50


February 27, 2012














37,500



37,500
(30)


31.80


September 6, 2015




























10,000
(31)


150,900







6,250



18,750
(32)


21.20


June 13, 2016


11,667
(33)


176,055



8,750
(7)


132,038



38,400
(34)


25.82


March 20, 2017


19,200
(35)


289,728



9,600
(10)


144,864J.J. Hackney, Jr.


25,000



25,000
(36)


29.80


December 8, 2015


11,000
(37)


165,990







5,000



15,000
(38)


21.20


June 13, 2016


7,667
(39)


115,695



5,750
(7)


86,768



38,400
(40)


25.82


March 20, 2017


19,200
(41)


289,728



9,600
(10)


144,864S.F. Slattery


720







112.90


January 28, 2008














1,066







101.48


October 28, 2008














1,866







71.60


June 29, 2009(22)














1,666







71.60


June 29, 2009(22)














2,000







71.60


June 29, 2009(22)














20,000







51.50


June 29, 2009(22)














37,500



37,500
(42)


31.80


June 29, 2009(22)




























10,000
(43)


150,900







6,250



18,750
(44)


21.20


June 29, 2009(22)


11,667
(45)


176,055











38,400
(46)


25.82


June 29, 2009(22)


19,200
(47)


289,728







 203




---



##### Table of Contents



Option Awards

Stock AwardsEquity


EquityIncentive


IncentivePlan


PlanAwards:


Awards:Number of


Market orMarket


Unearned


Payout ValueNumber of


Number of










Value of


Shares,


of UnearnedSecurities


Securities







Number of


Shares or


Units or


Shares, UnitsUnderlying


Underlying







Shares or


Units of


Other


or OtherUnexercised


Unexercised


Option




Units of


Stock That


Rights That


Rights ThatOptions


Options


Exercise


Option

Stock That


Have Not


Have Not


Have Not(#)


(#)


Price


Expiration

Have Not Vested


Vested


Vested


VestedName

Exercisable


Unexercisable


($)(1)


Date

(#)


($)


(#)(2)


($)(3)D. C. Joannou


133







112.90


January 28, 2008














1,066







101.48


October 28, 2008














1,333







155.33


January 27, 2009














1,333







71.60


May 29, 2009(22)














333







71.60


May 29, 2009(22)














800







71.60


May 29, 2009(22)














9,000







51.50


May 29, 2009(22)














37,500



37,500
(48)


30.70


May 29, 2009(22)


10,000
(49)


150,900







6,250



18,750
(50)


21.20


May 29, 2009(22)


11,667
(51)


176,055







   (1)
    Historical exercise prices have
    been adjusted to reflect the
    1-for-10
    consolidation of NNCs issued and outstanding common shares
    effective December 1, 2006.(2)
    The market value is computed by
    multiplying the closing market price of NNCs common shares
    on the NYSE on December 31, 2007 ($15.09), by the number of
    shares or units held.(3)
    The number of unearned performance
    stock units is based on a threshold payout of 50% of award.(4)
    100,000 options will vest on each
    of November 15, 2008, November 15, 2009 and
    November 15, 2010.(5)
    45,300 restricted stock units will
    vest on each of November 15, 2008, November 15, 2009
    and November 15, 2010.(6)
    41,875 options will vest on each of
    June 14, 2008, June 14, 2009 and June 14, 2010.(7)
    Performance stock units will vest
    on December 31, 2008.(8)
    67,250 options will vest on each of
    March 21, 2008, March 21, 2009, March 21, 2010
    and March 21, 2011.(9)
    Canadian grant issued with an
    exercise price of CAN$29.90. Table reflects equivalent
    U.S. Dollar exercise price converted using the
    March 21, 2007 Bank of Canada noon rate of exchange of
    US$1.00 = CAN$1.1578.(10)
    Performance stock units will vest
    on December 31, 2009.(11)
    16,200 restricted stock units will
    vest on each of November 15, 2008, November 15, 2009,
    November 15, 2010, November 15, 2011 and
    November 15, 2012.(12)
    2,500 options will vest on each of
    December 19, 2008 and December 19, 2009.(13)
    Canadian grant issued with an
    exercise price of CAN$37.40. Table reflects equivalent
    U.S. Dollar exercise price converted using the
    December 19, 2005 Bank of Canada noon rate of exchange of
    US$1.00 = CAN$1.1634.(14)
    4,734 restricted stock units will
    vest on December 19, 2008.(15)
    5,000 options will vest on each of
    June 14, 2008, June 14, 2009 and June 14, 2010.(16)
    Canadian grant issued with an
    exercise price of CAN$23.60. Table reflects equivalent
    U.S. exercise price converted using the June 14, 2006
    Bank of Canada noon rate of exchange of US$1.00 = CAN$1.1122.(17)
    3,833 restricted stock units will
    vest on June 14, 2008 and 3,834 restricted stock units will
    vest on June 14, 2009.(18)
    6,775 options will vest on each of
    March 21, 2008, March 21, 2009, March 21, 2010
    and March 21, 2011.(19)
    4,500 restricted stock units will
    vest on each of March 21, 2008, March 21, 2009 and
    March 21, 2010.(20)
    25,000 options will vest on
    September 7, 2008 and 25,000 options will vest on
    May 1, 2009. Accelerated vesting of final tranche of
    options due to retirement.(21)
    Canadian grant issued with an
    exercise price of CAN$37.80. Table reflects equivalent
    U.S. Dollar exercise price converted using the
    September 7, 2005 Bank of Canada noon rate of exchange of
    US$1.00 = CAN$1.1863.(22)
    Option term shortened due to change
    in employment status.(23)
    16,666 restricted stock units will
    vest on September 7, 2008.(24)
    6,667 restricted stock units will
    vest on June 14, 2008. The settlement of the remaining
    outstanding restricted stock units will be accelerated on a
    prorated basis with 5,845 restricted stock units settling on
    May 1, 2009 and the outstanding balance of 822 expiring on
    May 1, 2009.(25)
    Performance stock units will vest
    on December 31, 2008. Due to retirement a pro-rata
    settlement contingent on the achievement of the performance
    criteria will be made upon vest.(26)
    6,250 options will vest on each of
    June 14, 2008, June 14, 2009 and June 14, 2010.(27)
    22,500 restricted stock units will
    vest on each of June 14, 2008 and June 14, 2009.(28)
    12,500 options will vest on each of
    March 21, 2008, March 21, 2009, March 21, 2010
    and March 21, 2011.(29)
    8,333 restricted stock units will
    vest on each of March 21, 2008 and March 21, 2009 and
    8,334 restricted stock units will vest on March 21, 2010.(30)
    18,750 options will vest on each of
    September 7, 2008 and September 7, 2009.(31)
    10,000 restricted stock units will
    vest on September 28, 2008.(32)
    6,250 options will vest on each of
    June 14, 2008, June 14, 2009 and June 14, 2010.(33)
    5,833 restricted stock units will
    vest on June 14, 2008 and 5,834 restricted stock units will
    vest on June 14, 2009. 204




---



##### Table of Contents



(34) 9,600 options will vest
    on each of March 21, 2008, March 21, 2009,
    March 21, 2010 and March 21, 2011.
 (35)
    6,400 restricted stock units will
    vest on each of March 21, 2008, March 21, 2009 and
    March 21, 2010.(36)
    12,500 options will vest on each of
    December 9, 2008 and December 9, 2009.(37)
    11,000 restricted stock units will
    vest on December 9, 2008.(38)
    5,000 options will vest on each of
    June 14, 2008, June 14, 2009 and June 14, 2010.(39)
    3,833 restricted stock units will
    vest on June 14, 2008 and 3,834 restricted stock units will
    vest on June 14, 2009.(40)
    9,600 options will vest on each of
    March 21, 2008, March 21, 2009, March 21, 2010
    and March 21, 2011.(41)
    6,400 restricted stock units will
    vest on each of March 21, 2008, March 21, 2009 and
    March 21, 2010.(42)
    18,750 options will vest on
    September 7, 2008. The last tranche will expire unvested on
    severance end date.(43)
    10,000 restricted stock units vest
    on September 28, 2008.(44)
    6,250 options will vest on
    June 14, 2008. The remaining unvested options will expire
    on severance end date.(45)
    5,833 restricted stock units will
    vest on June 14, 2008. The remaining unvested restricted
    stock units will expire on severance end date.(46)
    9,600 options will vest on each of
    March 21, 2008 and March 21, 2009. The remaining
    unvested options will expire on severance end date.(47)
    6,400 restricted stock units will
    vest on each of March 21, 2008 and March 21, 2009. The
    remaining unvested restricted stock units will expire on
    severance end date.(48)
    18,750 options will vest on
    November 22, 2008. The remaining unvested options will
    expire on severance end date.(49)
    10,000 restricted stock units will
    vest on November 22, 2008.(50)
    6,250 options will vest on
    June 14, 2008. The remaining unvested options will expire
    on severance end date.(51)
    5,833 restricted stock units will
    vest on June 14, 2008. The remaining unvested restricted
    stock units will expire on severance end date.  Option
    Exercises and Stock Vested in Fiscal Year 2007
    Option Awards


Stock AwardsNumber of Shares


Value Realized on


Number of Shares


Value Realized onAcquired on Exercise


Exercise


Acquired on Vesting


VestingName

(#)


($)


(#)


($)M.S. Zafirovski










45,300



832,614
(1)P.S. Binning














D.W. Drinkwater










3,833



96,937
(2)







4,733



74,308
(3)P.W. Currie










6,666



168,583
(2)







16,667



282,339
(4)D.J. Carey










22,500



569,025
(2)R.S. Lowe










5,833



147,517
(2)







10,000



169,800
(5)J.J. Hackney, Jr.










3,833



96,937
(2)







11,000



186,120
(6)S.F. Slattery










5,833



147,517
(2)







10,000



169,800
(5)D.C. Joannou










5,833



147,517
(2)







10,000



169,500
(7)      (1)
    Based on November 15, 2007
    NYSE market close price of $18.38.(2)
    Based on June 14, 2007 NYSE
    market close price of $25.29.(3)
    Based on December 19, 2007
    NYSE market close price of $15.70.(4)
    Based on September 7, 2007
    NYSE market close price of $16.94.(5)
    Based on September 28, 2007
    NYSE market close price of $16.98.(6)
    Restricted stock units vested
    Sunday December 9, 2007. Based on December 7, 2007
    NYSE market close price of $16.92.(7)
    Restricted stock units vested on
    November 22, 2007. Due to market holiday, settlement based
    on November 21, 2007 NYSE market close price of $16.95. 205




---



##### Table of Contents



Pension
    Benefits for Fiscal Year 2007
    Number ofYears


Present Value of


PaymentsCredited


Accumulated


During LastService


Benefit


Fiscal YearName

Plan Name

(#)


($)(1)


($)M.S. Zafirovski

Special Pension Benefit Arrangement


1.96



1,389,110
(2)


P.S. Binning












D.W. Drinkwater












P.W. Currie












D.J. Carey

Nortel Networks Retirement Income Plan


2



15,228
(3)Nortel Networks Restoration Plan


2



20,252
(3)R.S. Lowe

Nortel Networks Retirement Income Plan


11



327,945
(3)


Nortel Networks Restoration Plan


11



606,634
(3)


Nortel Networks Managerial and Non-Negotiated Pension Plan


16.83



702,869
(4)


Nortel Networks Excess Plan


16.83



786,895
(4)


Nortel Networks Transitional Retirement Allowance Plan


16.83



108,938
(4)


J.J. Hackney, Jr.












S.F. Slattery

Nortel Networks Retirement Income Plan


12



179,595
(3)


Nortel Networks Restoration Plan


12



375,088
(3)


Nortel Networks Managerial and Non-Negotiated Pension Plan


9.50



302,967
(4)


Nortel Networks Excess Plan


9.50



198,202
(4)


Nortel Networks Transitional Retirement Allowance Plan


9.50




(4)


D.C. Joannou

Nortel Networks Retirement Income Plan


14



100,076
(3)


Nortel Networks Restoration Plan


14



226,461
(3)


     (1)
    In accordance with CSA Staff Notice
    51-314 
    Retirement Benefits Disclosure, the present value of accumulated
    benefits are estimated amounts based on assumptions, which
    represent contractual entitlements that may change over time.
    The method used to determine such estimated amounts will not be
    identical to the method used by other issuers and, as a result,
    the figures may not be directly comparable across companies. For
    the underlying assumptions for the Companys defined
    benefit plans, see note 8, Employee benefit
    plans to the accompanying audited consolidated financial
    statements.(2)
    Mr. Zafirovski is eligible for
    a special pension benefit. He is entitled to a pension of
    $355,000 per year after five years of service. The pension is to
    commence at age 60 and is payable as a joint and survivor
    60% annuity. As Mr. Zafirovski was hired on
    October 17, 2005, he had accrued 1.96 years as at the
    plan measurement date of September 30, 2007. The
    accumulated benefit is based on the ratio of this period of
    service to five years. The present value represents this portion
    of the benefit discounted from the date of commencement back to
    September 30, 2007, based on a discount rate of 5.56% and
    post retirement mortality based on the RP2000 Table Projected to
    2016.(3)
    The following assumptions were used
    in the calculations of the present value of accumulated benefits
    under the Nortel Networks Retirement Income Plan and the Nortel
    Networks Restoration Plan: Assumed retirement age: pension
    benefits are assumed to begin at each participants
    earliest unreduced retirement age, age 65; Discount rate:
    the applicable discount rates are 5.92% as of September 30,
    2006 and 6.26% for the Nortel Networks Retirement Income Plan
    and 6.07% for the Nortel Networks Restoration Plan as of
    September 30, 2007; Future interest crediting rate
    assumption: Cash Balance amounts are projected to the assumed
    retirement age based on the future investment crediting rate
    assumptions of 6.00% as of September 30, 2006 and 5.50% as
    of September 30, 2007; Pension Service Plan (PSP) amounts
    are projected to the assumed retirement age based on the future
    investment crediting rate plan provision of 6.00%. These rates
    are used in conjunction with the discount rate to estimate the
    present value amounts.(4)
    The following assumptions were used
    in the calculations of the present value of accumulated
    benefits: Discount rate: the applicable discount rates are 5.61%
    for our Nortel Networks Managerial and Non-Negotiated Pension
    Plan Part I, 5.60% for the Nortel Networks Excess Plan,
    5.42% for our Nortel Networks Transitional Retirement Allowance
    Plan and 5.56% for our Special Pension Benefit Arrangement;
    Consumer Price Index: 2.50%; Annual increases of 3.50% to the
    Income Tax Act (Canada), or ITA, maximum after 2009; Mortality
    Table: RP2000 Table Projected to 2016. The earliest age the
    member can retire without benefit reduction has been used as the
    assumed retirement age. A retirement age of 60 has been used for
    the Managerial and Non-Negotiated Pension Plan and the Excess
    Plan for Part I members and an assumed retirement age of 65
    has been used for the Transitional Retirement Allowance Plan.    Nortel
    Networks Retirement Income Plan
   206




---



##### Table of Contents



If age + service years is

The percentage credit for the year is45 or less

2%46  55

5%56  65

9%66  75

13%76 or more

20%         Nortel
    Networks Restoration Plan
    Nortel
    Networks Managerial and Non-Negotiated Pension
    Plan
    1 3
 207




---



##### Table of Contents



If age + service years is

The percentage credit for the year is45 or less

2%46  55

5%56  65

9%66  75

13%76 or more

20%       Nortel
    Networks Excess Plan
    Nortel
    Networks Transitional Retirement Allowance Plan
     208




---



##### Table of Contents



Nonqualified
    Deferred Compensation for Fiscal Year 2007
    Executive


Registrant


Aggregate


Aggregate


Aggregatecontributions


contributions


earnings


withdrawals/


balancein last FY


in last FY


in last FY


distributions


at last FYEName

($)


($)


($)


($)


($)M.S. Zafirovski


















P.S. Binning


















D.W. Drinkwater


















P.W. Currie


















D.J. Carey


















R.S. Lowe










72,301
(1)






1,959,578
(1)J.J. Hackney, Jr.






25,299
(2)


1,263
(2)






37,326
(2)S.F. Slattery










3,054
(1)






115,551
(1)D.C. Joannou


















     (1)
    Amounts represent participation in
    the Nortel Networks U.S. Deferred Compensation Plan.(2)
    Amounts represent participation in
    the Nortel Networks Long-Term Investment Restoration Plan, which
    is a non-tax qualified plan. The Nortel Networks Long-Term
    Investment Plan is a tax qualified plan. The Long-Term
    Investment Restoration Plan is intended to provide employees
    with the portion of the matching contribution, if any, which
    cannot be made under the Nortel Networks Long-Term Investment
    Plan because of the compensation limitations of
    Section 401(a)(17) of the Code. The Company contributions
    to the Long-Term Investment Restoration Plan disclosed in the
    Nonqualified Deferred Compensation Table were made by the
    Company as matching contributions with respect to
    Mr. Hackneys contributions to the Nortel Networks
    Long-Term Investment Plan and could not be made by the Company
    under the Nortel Networks Long-Term Investment Plan because of
    the compensation limits of Section 401(a)(17) of the Code.
    This amount is also reported in the Summary Compensation Table.  Nortel
    Networks U.S. Deferred Compensation Plan
  U.S.-based
           209




---



##### Table of Contents



Nortel
    Networks Long-Term Investment Restoration Plan
              Potential
    Payments upon Termination or Change in Control
  CIC
    Plan
    Change in
    Control
    
    any person or group acquires beneficial ownership of securities
    of NNC representing more than 20% of the outstanding securities
    entitled to vote in the election of directors of NNC, other than
    in connection with a permitted business combination
    (as defined in the CIC Plan);
    NNC participates in a business combination, including, among
    other things, a merger, amalgamation, reorganization, sale of
    all or substantially all of its assets, or plan of arrangement,
    unless: (i) the business combination only involves NNC, and
    one and more affiliated entities; or (ii) following the
    completion of all steps involved in the transaction or
    transactions pursuant to which the business combination is
    effected, NNCs common shareholders beneficially own,
    directly or indirectly, more than 50% of the then-outstanding
    voting shares of the entity resulting from the business
    combination (or of the person that ultimately controls such
    entity, whether directly or indirectly) and at least a majority
    of the members of the board of directors of the entity resulting
    from the business 210




---



##### Table of Contents



combination (or the person that ultimately controls such entity,
    whether directly or indirectly) were members of the board of
    directors of NNC when the business combination was approved or
    the initial agreement in connection with the business
    combination was executed; 
    the persons who were directors of NNC on the effective date of
    the CIC Plan (or the incumbent directors) cease (for reasons
    other than death or disability) to constitute at least a
    majority of the board of directors of NNC; provided, that any
    person who was not a director on the effective date of the CIC
    Plan shall be deemed to be an incumbent director if such person
    was elected or appointed to the board of directors of NNC by, or
    on the recommendation of or with the approval of, at least
    two-thirds of the directors who then qualify as incumbent
    directors, unless such election, appointment, recommendation or
    approval was the result of any actual or publicly threatened
    proxy contest for the election of directors; or
    any other event occurs which the board of directors of NNC
    determines in good faith could reasonably be expected to give
    rise to a change in control, resulting from situations such as:
    (i) any person acquiring a significant interest in Nortel;
    or (ii) the election of a person to a Nortel board in
    circumstances in which management has not solicited proxies in
    respect of such decision.  Termination
    Due to Change in Control
    
    the payment of an amount equal to three times (in the case of
    the chief executive officer) and two times (in the case of
    tier 1 executives) of the participants annual base
    salary;
    the payment of an amount equal to 300% (in the case of the chief
    executive officer) and 200% (in the case of tier 1
    executives) of the participants target annual incentive
    bonus; and
    subject to the provisions of any stock incentive plan that are
    contrary to the CIC Plan and which cannot be waived or amended
    by the Company:  
    accelerated vesting of all unvested stock options held
    immediately prior to the termination date for both the chief
    executive officer and tier 1 executives in accordance with
    the applicable stock incentive plan, provided that no award
    under the SIP become vested earlier than the first anniversary
    date of the effective date of such award;
    continued ability to exercise vested stock options during the
    period ending on the third year anniversary of the termination
    date for the chief executive officer and during the period
    ending on the two year anniversary of the termination date for
    tier 1 executives; and
    all unvested restricted stock units, performance stock units or
    other stock based incentive awards that are outstanding
    immediately prior to the termination date, other than stock
    options, (i) granted on or after June 1, 2007 deemed
    to have vested on a pro rata basis as of the termination date
    and (ii) granted prior to June 1, 2007 deemed to have
    fully vested based on 100% of unvested target amount; provided
    that payment in settlement of any such restricted stock units,
    performance stock units or other stock based incentive awards
    shall be in cash, shares or a combination thereof in accordance
    with the applicable settlement provisions of the CIC Plan, the
    applicable stock incentive plan
    and/or the
    instrument of award for the particular award.    
    outplacement counseling services of a firm chosen from time to
    time by the participant, for a period not to exceed
    18 months after the payment date;
    maintenance of coverage for the maximum extended reporting
    period available under any directors and officers
    liability insurance that is in place on the termination date, in
    the event that such policy is cancelled or not renewed;
    during the period ending on the three year anniversary of the
    termination date for the chief executive officer, and the two
    year anniversary of the termination date for tier 1
    executives, continued coverage under each of the Nortel life
    insurance, medical, dental, health and disability plans or
    arrangements in which the specified executive was entitled to
    participate immediately prior to the earlier of the termination
    date or the change in control date at a cost to the executive no
    greater than the actual amount that the executive paid or would
    have paid for such coverage 211




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##### Table of Contents



immediately prior to the earlier of the termination date or the
    change in control date and otherwise in accordance with the
    terms of such plans and arrangements as in effect immediately
    prior to the earlier of the termination date or the change in
    control date, provided that certain conditions are satisfied; and 
    if a specified executive participates in any deferred
    compensation, pension or supplementary retirement plans offered
    by Nortel, then upon such specified executives termination
    due to change in control, and except as otherwise specifically
    provided in the CIC Plan, such executive shall be entitled to
    payments under such plans in accordance with the terms of each
    such plan.  Potential
    Payments under the CIC Plan
    HealthStock








BenefitsSalary


Bonus


Options


RSUs


PSUs


Coverage


Other


TotalName

Tier


($)(1)


($)(2)


($)(3)(4)


($)(4)(5)


($)(4)(6)


($)(7)


($)(8)


($)M.S.
    Zafirovski(9)


CEO



3,818,822



5,728,233







2,050,731



1,705,170



75,000



20,000



13,397,956P.S.
    Binning(9)


1



1,272,829



1,272,829















50,000



20,000



2,615,658D.W. Drinkwater


1



1,024,972



819,977







187,131



173,535



50,000



20,000



2,275,615D.J. Carey


1



1,100,000



1,100,000







679,050



264,075



50,000



20,000



3,213,125R.S. Lowe


1



1,000,000



1,000,000







326,955



264,075



50,000



20,000



2,661,030J.J. Hackney,
    Jr.(9)


1



900,000



900,000







945,645



173,535



50,000



20,000



2,989,180     (1)
    Salary payout is equivalent to
    three times annual salary for Mr. Zafirovski as President
    and Chief Executive Officer and two times annual salary for
    other named executive officers as Tier 1 executives.
    Mr. Zafirovskis annual salary of CAN$1,366,120,
    Mr. Binnings annual salary of CAN$683,000 and
    Mr. Drinkwaters annual salary of CAN$550,000 have
    been converted to U.S. Dollars using the 2007 average
    exchange rate of US$1.00 = CAN$1.0732.(2)
    Bonus payout is equivalent to 300%
    of the annual bonus that Mr. Zafirovski would have been
    entitled to as Chief Executive Officer and to 200% of the annual
    bonus that each of the other named executive officers would have
    been entitled to as tier 1 executives. Bonus entitlement
    converted to U.S. Dollars using the 2007 average exchange
    rate of US$1.00 = CAN$1.0732.(3)
    Calculated as the intrinsic value
    per option, multiplied by the number of options that become
    immediately vested upon change in control. The intrinsic value
    per option is calculated as the excess of the closing market
    price on NYSE on December 31, 2007 of $15.09 over the
    exercise price of the option. If the value is less than zero, it
    is deemed to be zero for the purpose of this calculation.(4)
    The following number of options,
    restricted stock units and performance stock units would have
    immediately vested upon change of control, excluding all
    options, restricted stock units and performance stock units
    granted less than one year prior to December 31, 2007:  Number of Options


Number of RSUs


Number of PSUsName

(#)


(#)


(#)M.S. Zafirovski


425,625



135,900



113,000P.S. Binning










D.W. Drinkwater


20,000



12,401



11,500D.J. Carey


18,750



45,000



17,500R.S. Lowe


56,250



21,667



17,500J.J. Hackney, Jr.


40,000



18,667



11,500     (5)
    Calculated as the intrinsic value
    per restricted stock unit, multiplied by the number of
    restricted stock units that become immediately vested. The
    intrinsic value per restricted stock unit is determined based on
    the closing market price on NYSE on December 31, 2007 of
    $15.09.(6)
    Calculated as the intrinsic value
    per performance stock unit, multiplied by the number of
    performance stock units that become immediately vested. The
    intrinsic value per performance stock unit is determined based
    on the closing market price on NYSE on December 31, 2007 of
    $15.09.(7)
    Based on an estimated annual cost
    of $25,000. Mr. Zafirovskis payout is based on three
    year coverage as provided for the chief executive officer under
    the CIC Plan. Payout for the remaining named executive officers
    is based on two year coverage as defined under tier 1
    executives under the CIC Plan.(8)
    Other coverage includes
    outplacement counseling estimated at a cost of $20,000 per named
    executive officer.(9)
    Payment to Mr. Zafirovski
    under his employment agreement would make him ineligible for
    these payments and benefits under the CIC Plan. Payment to
    Messrs. Binning and Hackney of these CIC Plan benefits
    would make them ineligible for the payments and benefits under
    their respective employment agreements.  Employment
    Agreements
   212




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##### Table of Contents



Mr. Zafirovski
    
    the equivalent of two years base salary paid bi-weekly;
    the equivalent of two years Incentive Plan payment at target to
    be paid in a lump sum; and
    the opportunity to continue health, life insurance and AD&D
    benefits coverage in which he is then enrolled for two years
    following employment termination at active employee rates and
    the continued vesting of outstanding stock options or restricted
    stock units during the salary continuance period, other than the
    new hire stock options and restricted stock units, which
    immediately vest on the date of separation.    Mr. Binning
    
    the equivalent of no less than 18 months base salary paid
    bi-weekly; and
    the opportunity to continue health, life insurance and AD&D
    benefits coverage in which he is enrolled for 18 months
    following employment termination and active employee rates.    Mr. Carey
    
    the equivalent of 24 months base salary paid
    bi-weekly;
    and
    the opportunity to continue health, life insurance and AD&D
    benefits coverage in which he is enrolled for 24 months
    following employment termination at active employee rates.  and/or
 213




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##### Table of Contents



Mr. Hackney
    
    the equivalent of 18 months base salary paid bi-weekly;
    the opportunity to continue health, life insurance and AD&D
    benefits coverage in which he is enrolled for 18 months
    following employment termination at active employee rates; and
    acceleration of vesting of new hire stock option grant and
    restricted stock units to the later of his termination date or
    the first anniversary of the date of the grant.  and/or
  Potential
    Payments under Employment Agreements
    Salary














HealthContinuance


Base





Stock





BenefitsPeriod


Salary


Bonus


Options


RSUs


Coverage


TotalName

(# of Months)


($)


($)


($)(1)


($)(2)


($)(3)


($)M.S. Zafirovski


24



2,545,881
(4)


3,818,822
(5)






2,050,731



50,000



8,465,434P.S. Binning


18



954,622
(4)










1,222,290



37,500



2,214,412D.J. Carey


24



1,100,000











930,540



50,000



2,080,540J.J. Hackney, Jr.


18



750,000











474,837



37,500



1,262,337     (1)
    The dollar value of stock options
    is calculated as the intrinsic value per stock option multiplied
    by the number of stock options that become vested. For stock
    options that become immediately vested on termination, the
    intrinsic value per stock option is determined based on the
    closing market price on NYSE on December 31, 2007 of
    $15.09. For stock options that continue to vest during the
    applicable salary continuance period, the intrinsic value per
    stock option is estimated based on the closing market price on
    NYSE on December 31, 2007 of $15.09. See
     Potential Payments under Equity Compensation
    Plans. The following number of stock options would have
    vested if involuntary termination had occurred on
    December 31, 2007:  Immediately Vest on


Vest During ApplicableTermination


Salary Continuance PeriodName

(#)


(#)M.S. Zafirovski


300,000



218,250P.S. Binning






D.J. Carey






37,500J.J. Hackney, Jr.


25,000



29,200   (2)
    The dollar value of restricted
    stock units is calculated as the intrinsic value per stock
    option multiplied by the number of restricted stock units that
    become vested. For restricted stock units that become
    immediately vested on termination, the intrinsic value per
    restricted stock unit is determined based on the closing market
    price on NYSE on December 31, 2007 of $15.09. For
    restricted stock units that continue to vest during the
    applicable salary continuance period, the intrinsic value per
    restricted stock unit is estimated based on the closing market
    price on NYSE on December 31, 2007 of $15.09. See
     Potential Payments under Equity Compensation
    Plans. The following number of restricted stock units
    would have vested if involuntary termination had occurred on
    December 31, 2007:  Immediately Vest on


Vest During ApplicableTermination


Salary Continuance PeriodName

(#)


(#)M.S. Zafirovski


135,900



P.S. Binning






81,000D.J. Carey






61,666J.J. Hackney, Jr.


11,000



20,467   (3)
    Based on an estimated annual cost
    of $25,000.(4)
    Mr. Zafirovskis annual
    salary of CAN$1,366,120 and Mr. Binnings annual
    salary of CAN$683,000 have been converted to U.S. Dollars
    using the 2007 average exchange rate of US$1.00 = CAN$1.0732.(5)
    Mr. Zafirovskis bonus
    entitlement has been converted to U.S. Dollars using the
    2007 average exchange rate of US$1.00 = CAN$1.0732. 214




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##### Table of Contents



Potential
    Payments under Equity Compensation Plans
    Director
    Compensation for Fiscal Year 2007
    Change in PensionValue andNonqualifiedDeferredFees Earned or








Non-Equity


Compensation


All OtherPaid in Cash


Stock Awards


Option Awards


Incentive Plan


Earnings


Compensation


TotalName

($)(1)(2)(3)


($)


($)


Compensation ($)


($)


($)(4)


($)J.H. Bennett


150,000



















526
(5)


150,526Dr. M. Bischoff


162,500



















1,502
(6)


164,002The Hon. J.B. Hunt, Jr.


165,000



















2,415
(6)


167,415Dr. K.M. Johnson


145,810



















2,415
(6)


148,225J.A. MacNaughton


185,000



















526
(5)


185,526The Hon. J.P. Manley


165,000



















526
(5)


165,526R.D. McCormick


177,500



















2,415
(6)


179,915C. Mongeau


150,000



















526
(5)


150,526H.J. Pearce


512,500



















2,415
(6)


514,915J.D. Watson


150,000



















526
(5)


150,526     (1)
    Each non-employee director of the
    Company and NNC may elect to receive all or a portion of
    compensation for services rendered as a member of the Nortel
    boards, any committees thereof, and as board or committee chair,
    in the form of share units, in cash or in a combination of share
    units and cash, under the DSC Plans. For a summary of the
    applicable director fees, see  Directors
    Compensation Schedule. The directors made the following
    elections for 2007:  Election  Board,

Election  Long-TermDirector

Committee and Chair Fees

Incentive FeesJ.H. Bennett

100% share units

100% share unitsDr. M. Bischoff

100% share units*

100% share unitsThe Hon. J.B. Hunt, Jr.

100% share units

100% share unitsDr. K.M. Johnson

50% share units, 50% cash

100% share unitsJ.A. MacNaughton

100% share units

100% share unitsThe Hon. J.P. Manley

100% share units

100% share unitsR.D. McCormick

100% share units

100% share unitsC. Mongeau

100% share units

100% share unitsH.J. Pearce

50% share units, 50% cash*
    100% cash  board chair fees

100% share unitsJ.D. Watson

100% share units

100% share units   *
    Prior to October 1, 2007, Dr. Bischoff elected to
    receive 50% of his 2007 compensation in the form of share units
    and effective October 1, 2007, he changed his election to
    receive 100% of his future compensation in the form of share
    units.  (2)
    Share units are credited on a
    quarterly basis, and the number of share units received is equal
    to the amount of fees expressed in U.S. Dollars, converted
    to Canadian Dollars, divided by the market value expressed in
    Canadian Dollars (as determined in accordance with the DSC
    Plans) of common shares on the last trading day of each quarter.
    Generally, share units are settled through open market purchases
    (net of taxes) on the fourth trading day following the release
    of NNCs financial results after the director ceases to be
    a member of the applicable board, and each share unit entitles
    the holder to receive one common share. Nortel pays all
    administrative fees, including 215




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##### Table of Contents



applicable brokers
    commissions, under the terms of the DSC Plans. Share units for
    the fiscal year ended December 31, 2007 were credited based
    on the following exchange rates and prices:  Average of High and LowPrices for a Board Lot ofLast Trading Day of

Bank of Canada Noon

Company Shares on NYSE2007 Fiscal Quarter

Quarter

Rate of Exchange

(expressed in CAN$)First quarter

March 30, 2007

US$1.00 = CAN$1.1529

$
27.67Second quarter

June 29, 2007

US$1.00 = CAN$1.0634

$
25.81Third quarter

September 28, 2007

US$1.00 = CAN$0.9963

$
16.93Fourth quarter

December 31, 2007

US$1.00 = CAN$0.9881

$
15.14   (3)
    The following table sets forth the
    number of share units received under the DSC Plans by each
    director during the fiscal year ended December 31, 2007
    rounded down to the nearest whole number:  Number of 2007




Number of 2007Share Units




Share UnitsDirector

(#)


Director

(#)J.H. Bennett


7,763


Dr. M. Bischoff


6,858The Hon. J.B. Hunt, Jr.


8,538


Dr. K.M. Johnson


5,733J.A. MacNaughton


9,573


The Hon. J.P. Manley


8,538R.D. McCormick


9,184


C. Mongeau


7,761H.J. Pearce


5,887


J.D. Watson


7,761     (4)
    All other compensation paid in
    Canadian Dollars has been converted using the average of the
    exchange rates in effect during 2007 equal to US$1.00 =
    CAN$1.0732. (5) Represents amounts paid by
    the Company for (i) life insurance premiums and
    (ii) taxes with respect to the life insurance premiums.
 (6)
    Represents amounts paid by the
    Company for (i) life insurance premiums and (ii) taxes
    with respect to the life insurance premiums and non-resident tax
    return preparation services.  Directors
    Compensation Schedule
    Annual NNL board retainer





$
50,000Annual committee membership retainer for serving on:Nominating and governance committee of NNC





$
12,500Audit committee of NNC

$
6,250


$
12,500Audit committee of NNL

$
6,250Compensation and human resources committee of NNC and NNL





$
12,500Pension fund policy committee of NNL





$
12,500Litigation committee of NNC





$
12,500Annual fee for the non-executive chair of the board of NNC

$
180,000


$
360,000Annual fee for the non-executive chair of the board of NNL

$
180,000Annual retainer for chairing the:Nominating and governance committee of NNC





$
15,000Audit committee of NNC

$
17,500


$
35,000Audit committee of NNL

$
17,500Compensation and human resources committee of NNC and NNL





$
15,000Pension fund policy committee of NNL





$
15,000Litigation committee of NNC





$
15,000Annual NNL long-term incentive fee*





$
75,000     *
    On October 3, 2007, the Nortel
    boards approved an increase to the NNL long-term incentive fee
    from $75,000 to $125,000 per year payable quarterly effective
    January 2008. 216




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##### Table of Contents



Share
    Ownership Guidelines
    Indemnification
    
    in connection with a claim, action, suit, application,
    litigation, charge, complaint, prosecution, assessment,
    reassessment, investigation, inquiry, hearing or other
    proceeding of any nature or kind whatsoever, whether civil,
    criminal, administrative or otherwise, made, asserted against or
    affecting such director or in which such director is required by
    law to participate or in which such director participates at
    NNCs request or in which such director chooses to
    participate, if it relates to, arises from, or is based on such
    individuals service as a director or officer of the
    Company or service as a director or officer of another entity at
    our request; or
    otherwise related to, arising from or based on such
    individuals service as a director or officer of Nortel or
    service as a director or officer of another entity at our
    request, except if such indemnification or reimbursement would
    be prohibited by the Canada Business Corporations Act, or any
    other applicable law.    Compensation
    committee interlocks and insider participation
     217




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##### Table of Contents



Compensation
    committee report
  Regulation S-K Form 10-K
    ITEM 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Equity-Based
    Compensation Plans
  Common
    Shares Issuable under Equity-Based Compensation
    Plans
    Number of common sharesNumber of common shares



remaining available for issuanceissuable on exercise or settlement

Weighted average exercise price of

under equity compensation plansof outstanding options, RSUs and

outstanding options

(excluding common sharesPlan category

PSUs(1)(a)

($)(2)(b)

reflected in column
    (a))(1)(c)Equity compensation plans approved by
    shareholders(3)

Options: 28,998,281
    RSUs: 2,705,673 
    PSUs: 819,300

Options: $72.84

Options, RSUs and PSUs:
    13,514,289(4)Equity compensation plans not approved by
    shareholders(5)

Options: 492,654

Options: $352.73

Total

Options: 29,490,935
    RSUs: 2,705,673
    PSUs: 819,300

Options: $77.52

Options, RSUs and PSUs:
    13,514,289(4)     (1)
    RSUs means restricted stock units
    issued under the SIP and PSUs means performance stock units
    issued under the SIP.(2)
    Weighted average exercise price of
    options only. RSUs and PSUs do not have an exercise price. Each
    RSU and PSU entitles the holder thereof to receive one common
    share upon settlement thereof.(3)
    Consists of the SIP, the 2000 Plan
    and the 1986 Plan.(4)
    Includes common shares previously
    available for issuance under the 1986 Plan and 2000 Plan which
    became available for issuance under the SIP as of
    January 1, 2006. Of the 13,514,289 common shares remaining
    available for issuance under the SIP, only 5,371,576 remain
    available for issuance as RSUs
    and/or PSUs.(5)
    Plans that were assumed by Nortel
    in merger, consolidation or other acquisition transactions and
    under which no subsequent grants may be made. Common shares are
    issued from treasury to satisfy such awards.      Nortel
    2005 Stock Incentive Plan
   218




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##### Table of Contents



1-for-10
    
    to increase the number of common shares issuable under the SIP
    or the Share Increase Amendment, by 14 million;
    to add certain additional types of amendments to the SIP or
    awards under it requiring shareholder approval, or the Amending
    Amendments; and
    other amendments desirable to reflect current market practices
    or clarify or correct certain provisions of the SIP, or the
    Additional Amendments, and together with the Share Increase
    Amendments and the Amending Amendments, the 2008
    Amendments.      Non-employee
  Common
    Shares Available for Issuance under the SIP
  and/or and/or and/or and/or
   219




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##### Table of Contents



Material
    Features of the SIP
  www.nortel.com/shareholders
  Awards
    under the SIP
  and/or
  Stock
    Options and SARs
    and/or
  
    Retirement.  If a participants active
    employment terminates due to his or her retirement (as defined
    in the SIP), the participants unvested options
    and/or SARs
    will become vested as of the later of (i) the
    participants date of retirement and (ii) the first
    anniversary of the effective date of grant of such options
    and/or SARs.
    To the extent vested, the participant will have three years
    following the date of retirement to exercise his or her options
    and/or SARs.
    Death.  If a participants active
    employment terminates due to his or her death, all of the
    participants unvested options
    and/or SARs
    will become immediately vested and will remain exercisable for
    two years following the date of the participants death.
    Involuntary Termination other than for
    Cause.  If a participants active employment
    is terminated other than for cause (as defined in the SIP) and
    the participant receives severance benefits, including pay in
    lieu of notice, the participants unvested options
    and/or SARs
    will continue to vest during a period generally corresponding to
    the period following the participants termination for
    which he or she receives salary replacement payments. During
    such extended vesting period and for 90 days thereafter,
    the participant will be permitted to exercise vested options
    and/or SARs.
    A participant whose active employment is terminated by Nortel
    other than for cause and who does not receive severance benefits
    will have 90 days following termination to exercise vested
    options
    and/or SARs
    and his or her unvested options
    and/or SARs
    will be cancelled.
    Termination for Cause.  If a participants
    active employment is terminated for cause (as defined in the
    SIP), any and all outstanding options, whether or not vested,
    will be immediately forfeited and cancelled.
    Resignation by a Participant.  If a participant
    resigns from his or her employment, the participants
    unvested options
    and/or SARs
    will be cancelled, and the participant will have 90 days
    following his or her date of termination to exercise vested
    options
    and/or SARs.  Restricted
    Stock Units and Performance Stock Units
   220




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##### Table of Contents




    Retirement.  If a participants active
    employment terminates due to his or her retirement (as defined
    in the SIP), a pro rata portion of the participants
    unvested restricted stock units will immediately vest and the
    remaining portion will be forfeited and cancelled, provided,
    however, no portion of a restricted stock unit award shall
    become vested earlier than the first anniversary of the
    effective date of the award.
    Death.  If a participants active
    employment terminates due to his or her death, a pro rata
    portion of the participants unvested restricted stock
    units will immediately vest and the remaining portion will be
    forfeited and cancelled, provided, however, no portion of a
    restricted stock unit award shall become vested earlier than the
    first anniversary of the effective date of the award.
    Involuntary Termination Other than for
    Cause.  If a participants active employment
    is terminated other than for cause (as defined in the SIP) and
    the participant receives severance benefits, including pay in
    lieu of notice, the participants unvested restricted stock
    units will continue to vest during a period generally
    corresponding to the period following the participants
    termination for which he or she receives salary replacement
    payments after which time any unvested restricted stock units
    will be forfeited and cancelled. If after such severance period,
    the participant is eligible to retire under applicable laws, a
    pro rata portion of the then unvested restricted stock units
    will immediately vest and the remaining portion will be
    forfeited and cancelled.
    Termination for Cause:  If a participants
    active employment is terminated for cause (as defined in the
    SIP), any and all outstanding restricted stock units will be
    immediately forfeited and cancelled.
    Resignation by a Participant.  If a participant
    resigns from his or her employment, the participants
    unvested restricted stock units will be cancelled.    
    Retirement.  If a participants active
    employment terminates due to his or her retirement (as defined
    in the SIP), a pro rata portion of the performance stock units
    to be settled will vest on the third anniversary of the
    beginning of the performance period, subject to the CHRC
    determining that the percentage, which may be greater or lesser
    than 100%, of the Performance Stock Units that will become
    vested depending on the extent of satisfaction of the
    performance criteria and provided the participant has been a
    regular full-time employee of Nortel for at least twelve months
    since the effective date of award of the performance stock
    units, and the remaining portion of such performance stock units
    will be forfeited and cancelled.
    Death.  If a participants active
    employment terminates due to his or her death and the
    participant has been a regular full-time employee of Nortel for
    at least twelve months since the effective date of award of the
    performance stock units, a pro rata portion of the
    participants unvested performance stock units will
    immediately vest based on the target amount.
    Termination (Involuntary or for Cause).  If a
    participants active employment is terminated (including
    for cause (as defined in the SIP)), the participants
    unvested performance stock units will be immediately forfeited
    and cancelled.
    Resignation by a Participant.  If a participant
    resigns from his or her employment, the participants
    unvested restricted stock units will be cancelled.    Vesting
    Conditions
   221




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Performance
    Vesting Conditions for Certain Awards Intended to Qualify as
    Performance-Based Compensation under Section 162(m) of the
    Code
       Cash Flow

   Operating profit or net operating profit   Earnings per share

   Operating margin or profit margin   Earnings before interest, taxes and/or
    amortization

   Return on operating revenue   Return on sales

   Return on invested capital   Total shareholder return

   Market segment share   Share price performance

   Product release schedules   Return on capital

   New product innovation   Return on assets or net assets

   Product cost reduction   Revenue

   Brand recognition/acceptance   Income or net income

   Product ship targets   Operating income or net operating income

   Customer satisfaction     Definition
    of Market Value
   222




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Transferability
    Participants
    in Jurisdictions Outside of Canada and the United
    States
    Amendments
    
    increase the maximum number of NNC shares for which awards may
    be granted under the SIP;
    reduce the exercise price or base price at which options or SARs
    may be granted;
    reduce the exercise price or base price of outstanding options
    or SARs;
    extend the term of the SIP or the maximum term of options or
    SARs granted under the SIP;
    change the class of persons eligible for grant of awards under
    the SIP;
    increase any other limit with respect to the number of Nortel
    shares that may be granted with respect to any type of award, a
    single participant or any group of participants; or
    reduce below one year the minimum period required as a condition
    to the vesting of any award (other than in the case of a
    participants death).    Adjustments
    U.S.
    Federal Income Tax Consequences Relating to the
    SIP
      Nonqualified
    Stock Options
   223




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##### Table of Contents



Incentive
    Stock Options
            Other
    Possible Tax Consequences
  Section 162(m).
 224




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##### Table of Contents



Section 409A.
  Section 280G.
  New
    Plan Benefits
    Nortel
    Networks Corporation 2000 Stock Option Plan and 1986 Stock
    Option Plan
      Terms
    Relating to 1986 Plan (pre-May 15, 2000)
    
    Retirement.  If a participants active
    employment terminates due to his or her retirement (as defined
    in the 1986 Plan), the participants unvested options will
    become vested on the later of (i) the date of the
    participants retirement and (ii) the first
    anniversary of the effective date of grant of such options. To
    the extent vested, the participant will have 36 months
    following the date of retirement to exercise his or her options.
    Death.  If a participants active
    employment terminates due to his or her death, all of the
    participants unvested options will become immediately
    vested and will remain exercisable for 24 months following
    the date of the participants death.
    Involuntary Termination Other than for
    Cause.  If a participants active employment
    is terminated other than for cause (as defined in the 1986 Plan)
    and the participant receives severance benefits, including pay
    in lieu of notice, the participants unvested options will
    continue to vest during a period generally corresponding to the
    period following the participants termination for which he
    or she receives salary replacement payments. During such
    extended vesting period, the participant will be permitted to
    exercise vested options. A participant whose active employment
    is terminated by Nortel other than for cause and who does not
    receive severance benefits must exercise unvested options before
    his or her termination date or his or her unvested options will
    be cancelled.
    Termination for Cause.  If a participants
    active employment is terminated for cause (as defined in the
    1986 Plan), all outstanding options will be immediately
    forfeited and cancelled.
    Resignation by a Participant.  If a participant
    resigns from his or her employment, the participants
    unvested options will be cancelled.  Terms
    Relating to 1986 Plan (post May 15, 2000) and 2000
    Plan
    
    Retirement.  If a participants active
    employment terminates due to his or her retirement (as defined
    in the 1986 Plan and 2000 Plan, as applicable), the
    participants unvested options will become vested on the
    later of (i) the date 225




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##### Table of Contents



of the participants retirement and (ii) the first
    anniversary of the effective date of grant of such options. To
    the extent vested, the participant will have 36 months
    following the date of retirement to exercise his or her options. 
    Death.  If a participants active
    employment terminates due to his or her death, all of the
    participants unvested options will become immediately
    vested and will remain exercisable for 24 months following
    the date of the participants death.
    Involuntary Termination Other than for
    Cause.  If a participants active employment
    is terminated other than for cause (as defined in the 1986 Plan
    and 2000 Plan, as applicable) and the participant receives
    severance benefits, including pay in lieu of notice, the
    participants unvested options will continue to vest during
    a period generally corresponding to the period following the
    participants termination for which he or she receives
    salary replacement payments. During such extended vesting period
    and for 90 days thereafter, the participant will be
    permitted to exercise vested options. A participant whose active
    employment is terminated by Nortel other than for cause and who
    does not receive severance benefits will have 90 days
    following termination to exercise vested options and his or her
    unvested options will be cancelled.
    Termination for Cause.  If a participants
    active employment is terminated for cause (as defined in the
    1986 Plan and the 2000 Plan), all outstanding options will be
    immediately forfeited and cancelled.
    Resignation by a Participant.  If a participant
    resigns from his or her employment, the participants
    unvested options will be cancelled. Options vested on
    termination may be exercised during the 90 day period
    following termination.  Assumed
    Plans
    Security
    ownership of directors and management
        226




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Amount and Nature ofTitle of Class

Beneficial OwnershipName of Beneficial Owner

of Security

(#)(1)J.H. Bennett

Common shares


Share units


16,015Dr. M. Bischoff

Common shares


Share units


13,525The Hon. J.B. Hunt, Jr.

Common shares


Share units


16,795Dr. K.M. Johnson

Common shares


Share units


5,733J.A. MacNaughton

Common shares


10,000Share units


18,537The Hon. J.P. Manley

Common shares


Share units


17,616R.D. McCormick

Common shares


10,000Share units


18,642C. Mongeau

Common shares


Share units


10,809H.J. Pearce

Common shares


11,600Share units


12,812J.D. Watson

Common shares


Share units


10,809M.S. Zafirovski

Common shares


434,154
(2)P.S. Binning

Common shares


D.W. Drinkwater

Common shares


28,434
(2)D.J. Carey

Common shares


40,033
(2)R.S. Lowe

Common shares


130,462
(2)J.J. Hackney, Jr.

Common shares


61,261
(2)Directors and executive officers as a group (consisting of
    31 persons, comprised of the current directors and current
    executive officers)

Common shares
    Share units


1,195,344
(3)141,293     (1)
    Except as set forth below, each
    person has sole investment and voting power with respect to the
    common shares beneficially owned by such person. Includes common
    shares subject to stock options exercisable on February 19,
    2008 or that become exercisable within 60 days after such
    date (whether or not the market price of the underlying common
    shares is below the stock option exercise price). As of
    February 19, 2008, each director and named executive
    officer individually, and the directors and executive officers
    as a group, beneficially owned less than 1.0% of the outstanding
    common shares.(2)
    Includes common shares subject to
    stock options as follows: 309,125 for Mr. Zafirovski;
    16,775 for Mr. Drinkwater; 18,750 for Mr. Carey;
    89,415 for Mr. Lowe; and 39,600 for Mr. Hackney; and
    restricted common shares subject to restricted stock units as
    follows: 0 for Mr. Zafirovski; 4,500 for
    Mr. Drinkwater; 8,333 for Mr. Carey; 6,400 for
    Mr. Lowe; and 6,400 for Mr. Hackney.(3)
    Includes 799,890 common shares
    subject to stock options, 66,781 common shares subject to
    restricted stock units and 1,420 common shares as to which
    investment and voting power is shared with one or more other
    persons.  VOTING
    SHARES
    Amount and Nature


Percent ofName and address

of Beneficial Ownership


Outstanding Common SharesNortel Networks Corporation
    195 The West Mall
    Toronto, Ontario M9C 5K1


Common Shares



100
%  227




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##### Table of Contents



ITEM 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Transactions
    with Related Persons
    Board
    Composition
    Public
    Board Membership Policy
    Interlocking
    Directorships
    Independence
    of Directors
     228




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##### Table of Contents



ITEM 14.
    Principal
    Accountant Fees and Services  Auditor
    Independence
      Audit
    Fees
  Form 10-K; Forms 10-Q Form 10-K; Form 10-K; Forms 10-Q
  Audit-Related
    Fees
   229




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##### Table of Contents



Tax
    Fees
    All
    Other Fees
    Change in
    Independent Public Accountants
        Form 10-K,
  Regulation S-K (Regulation S-K).
    00-21 97-2 81-1 97-2
 230




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##### Table of Contents



Regulation S-K) Regulation S-K).
   231




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##### Table of Contents



PART IV  ITEM 15.
    Exhibits
    and Financial Statement Schedules  1.
    Financial
    Statements    2.
    Financial
    Statement Schedules  PageQuarterly Financial Data (Unaudited)


160Report of Independent Registered Chartered Accountants


83II  Valuation and Qualifying Accounts and Reserves,
    Provision for Uncollectibles


162     3.
    Other
    Documents Filed as a Part of This Report  Managements Report on Internal Control over Financial
    Reporting


163Report of Independent Public Accounting Firm


167     4.
    Exhibit Index  Form 10-K.
    ExhibitNo.

Description*2


Amended and Restated Arrangement Agreement involving BCE Inc.,
    Nortel Networks Corporation, formerly known as New Nortel Inc.,
    and Nortel Networks Limited, formerly known as Nortel Networks
    Corporation, made as of January 26, 2000, as amended and
    restated March 13, 2000 (including Plan of Arrangement
    under Section 192 of the Canada Business Corporations
    Act) (filed as Exhibit 2.1 to Nortel Networks
    Limiteds Current Report on
    Form 8-K
    dated May 1, 2000).*3
.1

Restated Certificate and Articles of Incorporation of Nortel
    Networks Limited (filed as Exhibit 3 to Nortel Networks
    Limiteds Current Report on
    Form 8-K
    dated October 18, 2000).*3
.2

By-Law No. 1 of Nortel Networks Limited (filed as
    Exhibit 3.2 to Nortel Networks Limiteds Annual Report
    on
    Form 10-K
    for the year ended December 31, 2000).*4
.1

Indenture dated as of November 30, 1988, between Nortel
    Networks Limited and The Toronto-Dominion Bank
    Trust Company, as trustee, related to debt securities
    authenticated and delivered thereunder, which comprised the
    6% Notes due September 1, 2003, and the
    6.875% Notes due September 1, 2023 issued by Nortel
    Networks Limited (filed as Exhibit 4.1 to Nortel Networks
    Corporations Annual Report on
    Form 10-K
    for the year ended December 31, 1999).*4
.2

Indenture dated as of February 15, 1996, among Nortel
    Networks Limited, as issuer and guarantor, Nortel Networks
    Capital Corporation, formerly Northern Telecom Capital
    Corporation, as issuer, and The Bank of New York, as trustee,
    related to debt securities and guarantees authenticated and
    delivered thereunder, which comprised the 7.40% Notes due
    2006 and the 7.875% Notes due 2026 (filed as
    Exhibit 4.1 to Registration Statement on
    Form S-3
    (No. 333-1720)
    of Nortel Networks Limited and Nortel Networks Capital
    Corporation). 232




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##### Table of Contents



ExhibitNo.

Description*4
.3

Indenture dated as of August 15, 2001 between Nortel
    Networks Corporation, Nortel Networks Limited, as guarantor, and
    Bankers Trust Company, as trustee, related to convertible
    debt securities and guarantees authenticated and delivered
    thereunder, which comprised the 4.25% Convertible Senior
    Notes due 2008 (filed as Exhibit 4 to Nortel Networks
    Corporations Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001).*4
.4

Amended and Restated Shareholders Rights Plan Agreement dated as
    of February 28, 2006 between Nortel Networks Corporation
    and Computershare Trust Company of Canada, as rights agent
    (filed as Exhibit 3 to Nortel Networks Limiteds
    Form 8-A12B/A
    dated June 29, 2006).*4
.5

Second Supplemental Indenture dated as of May 1, 2007 to
    Indenture dated as of July 5, 2006 among Nortel Networks
    Limited, Nortel Networks Corporation, Nortel Networks Inc. and
    The Bank of New York, as trustee (filed as Exhibit 4.2 to
    Nortel Networks Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2007).*4
.6

First Supplemental Indenture dated as of July 5, 2006 to
    Indenture dated as of July 5, 2006 among Nortel Networks
    Limited, Nortel Networks Corporation, Nortel Networks Inc. and
    The Bank of New York, as trustee (filed as Exhibit 4.2 to
    Nortel Networks Limiteds Current Report on
    Form 8-K
    dated July 6, 2006).*4
.7

Indenture dated as of July 5, 2006 among Nortel Networks
    Limited, Nortel Networks Corporation, Nortel Networks Inc. and
    The Bank of New York, as trustee (filed as Exhibit 4.1 to
    Nortel Networks Limiteds Current Report on
    Form 8-K
    dated July 6, 2006).*4
.8

Purchase Agreement dated June 29, 2006 among Nortel
    Networks Limited, Nortel Networks Corporation, Nortel Networks
    Inc. and the representative of the initial purchasers with
    regards to U.S. $1,000,000,000 Floating Rate Senior Notes due
    2011, U.S. $550,000,000 10.125% Senior Notes due 2013, U.S.
    $450,000,000 10.750% Senior Notes due 2016 (filed as
    Exhibit 10.1 to Nortel Networks Limiteds Current
    Report on
    Form 8-K
    dated July 6, 2006).*4
.9

Registration Rights Agreement dated July 5, 2006 among
    Nortel Networks Limited, Nortel Networks Corporation, Nortel
    Networks Inc. and the representative of the initial purchasers
    with regards to U.S. $1,000,000,000 Floating Rate Senior Notes
    due 2011, U.S. $550,000,000 10.125% Senior Notes due 2013,
    U.S. $450,000,000 10.750% Senior Notes due 2016 (filed as
    Exhibit 10.2 to Nortel Networks Limiteds Current
    Report on
    Form 8-K
    dated July 6, 2006).*4
.10

Indenture dated as of March 28, 2007 among Nortel Networks
    Corporation, Nortel Networks Limited, Nortel Networks Inc. and
    The Bank of New York, as trustee (filed as Exhibit 4.1 to
    Nortel Networks Limiteds current report on
    Form 8-K
    dated March 28, 2007).*4
.11

Purchase Agreement dated March 22, 2007 among Nortel
    Networks Corporation, Nortel Networks Limited, Nortel Networks
    Inc. and the representatives of initial purchasers (filed as
    Exhibit 10.1 to Nortel Networks Limiteds current
    report on
    Form 8-K
    dated March 28, 2007).*4
.12

Registration Rights Agreement dated March 28, 2007 among
    Nortel Networks Corporation, Nortel Networks Limited, Nortel
    Networks Inc. and the representatives of the initial purchasers
    (filed as Exhibit 10.2 to Nortel Networks Limiteds
    current report on
    Form 8-K
    dated March 28, 2007).*10
.1

Third Amended and Restated Reciprocal Credit Agreement dated as
    of December 19, 2002 between Nortel Networks Corporation,
    Nortel Networks Limited and the other parties who have executed
    the agreement (filed as Exhibit 10.1 to Nortel Networks
    Corporations Annual Report on
    Form 10-K
    for the year ended December 31, 2002).*10
.2

Nortel Networks Supplementary Executive Retirement Plan, as
    amended effective October 18, 2001 and October 23,
    2002 (filed as Exhibit 10.2 to Nortel Networks
    Limiteds Annual Report on
    Form 10-K
    for the year ended December 31, 2002).*10
.3

Statement describing the retirement arrangements of the former
    President and Chief Executive Officer (filed as
    Exhibit 10.5 to Nortel Networks Limiteds Annual
    Report on
    Form 10-K
    for the year ended December 31, 2001).*10
.4

Nortel Networks Corporation Executive Retention and Termination
    Plan, as amended and restated, effective from June 26,
    2002, amended and restated with effect from June 1, 2007
    including the name change to Nortel Networks Corporation Change
    in Control Plan (filed as Exhibit 10.4 to Nortel Networks
    Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2007).*10
.5

Assumption Agreement between Nortel Networks Corporation and
    Nortel Networks Limited dated March 5, 2001, regarding the
    assumption and agreement by Nortel Networks Corporation to
    perform certain covenants and obligations of Nortel Networks
    Limited under the Nortel Networks Limited Executive Retention
    and Termination Plan (filed as Exhibit 10.20 to Nortel
    Networks Limiteds Annual Report on
    Form 10-K
    for the year ended December 31, 2000). 233




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##### Table of Contents



ExhibitNo.

Description*10
.6

Nortel Networks Limited SUCCESS Plan approved on July 25,
    2002, as amended and restated on July 28, 2003 with effect
    from January 1, 2003, as amended on July 28, 2003 with
    effect from January 1, 2003, as amended on
    February 26, 2004 with effect from January 1, 2004, as
    amended March 9, 2006 with effect from January 1,
    2006, as amended March 15, 2007 with effect from
    January 1, 2007 including name change to Nortel Networks
    Limited Annual Incentive Plan (filed as Exhibit 10.5 to
    Nortel Networks Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2007).*10
.7

Supplementary Pension Credits Arrangement (filed as
    Exhibit 10.14 to Nortel Networks Corporations
    Registration Statement dated August 28, 1975 on
    Form S-1
    (No. 2-71087)).*10
.8

Statements describing the right of certain executives in Canada
    to defer all or part of their short-term and long-term incentive
    awards (filed as Exhibit 10.4 to Nortel Networks
    Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2000).*10
.9

Statement describing eligibility for the Group Life Insurance
    Plan for directors who are not salaried employees of Nortel
    Networks Corporation (filed as Exhibit 10.30 to Nortel
    Networks Limiteds Annual Report on
    Form 10-K
    for the year ended December 31, 2002).*10
.10

Amended general description of cash bonus for employees and
    executives of Nortel Networks Corporation and Nortel Networks
    Limited as originally filed as Exhibit 10.3 to Nortel
    Networks Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2002 (filed as
    Exhibit 10.1 to the Nortel Networks Limiteds
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2003).*10
.11

Nortel Networks Limited Directors Deferred Share
    Compensation Plan effective June 30, 1998 and amended and
    restated as of May 1, 2000, as further amended and restated
    effective January 1, 2002, as amended and restated
    May 29, 2003, as amended and restated December 18,
    2003 effective January 1, 2004, as restated on
    June 29, 2005 and amended December 7, 2005 (filed as
    Exhibit 10.66 to Nortel Networks Limiteds Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005).*10
.12

Nortel Networks U.S. Deferred Compensation Plan (filed as
    Exhibit 4.3 to Post-Effective Amendment No. 1 to
    Nortel Networks Corporations Registration Statement dated
    May 16, 2000 on
    Form S-8
    (No. 333-11558)).*10
.13

Master Facility Agreement dated as of February 14, 2003,
    and amended by Amending Agreement No. 1 dated July 10,
    2003, between Nortel Networks Limited and Export Development
    Canada, and as further amended by letter agreements dated
    March 29, 2004, May 28, 2004, August 20, 2004,
    September 29, 2004, October 29, 2004,
    November 19, 2004, December 10, 2004, January 14,
    2005, February 15, 2005, March 15, 2005,
    April 29, 2005, May 31, 2005, amended and restated as
    of October 24, 2005 and further amended by Amendment
    No. 1 and Waiver dated May 9, 2006 and Amendment
    No. 2 dated December 12, 2006 and Waiver dated
    March 9, 2007 and further amended by Second Amended and
    Restated Master Facility Agreement dated December 14, 2007
    (filed as Exhibit 99.1 to Nortel Networks Limiteds
    Current Report on
    Form 8-K
    dated December 18, 2007).*10
.14

Master Indemnity Agreement dated as of February 14, 2003
    between Nortel Networks Limited and Export Development Canada
    amended and restated as of October 24, 2005 (filed as
    Exhibit 10.3 to Nortel Networks Limiteds Current
    Report on
    Form 8-K
    dated October 28, 2005).*10
.15

Letter dated June 23, 2003 from the former President and
    Chief Executive Officer of Nortel Networks, to the Joint
    Leadership Resources Committee of the Board of Directors of
    Nortel Networks Corporation and Nortel Networks Limited
    regarding the voluntary return for cancellation of certain stock
    options to purchase common shares of Nortel Networks Corporation
    (filed as Exhibit 10.3 to the Nortel Networks
    Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2003).*10
.16

Summary statement of terms of initial compensation arrangements
    related to the president and chief executive officer approved by
    the Board of Directors of Nortel Networks Corporation and Nortel
    Networks Limited as of April 29, 2004 (filed as
    Exhibit 10.1 to Nortel Networks Limiteds Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2004).*10
.17

Asset Purchase Agreement dated June 29, 2004 among Nortel
    Networks Limited, Flextronics International Ltd. and Flextronics
    Telecom Systems, Ltd., amended as of November 1, 2004,
    February 7, 2005, August 22, 2005 and twice as of
    May 8, 2006 (filed as Exhibits 10.2 and 10.3 to Nortel
    Networks Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006).**10
.18

Amended and Restated Master Contract Manufacturing Services
    Agreement dated June 29, 2004 between Nortel Networks
    Limited and Flextronics Telecom Systems, Ltd., amended as of
    November 1, 2004 and May 8, 2006 (most recently filed
    as Exhibit 99.1 to Nortel Networks Limiteds current
    report on
    Form 8-K
    dated June 4, 2007).**10
.19

Master Repair Services Agreement dated June 29, 2004
    between Nortel Networks Limited and Flextronics Telecom Systems
    Limited, amended as of February 8, 2005 and May 8,
    2006 (most recently filed as Exhibit 99.2 to Nortel
    Networks Limiteds current report on
    Form 8-K
    dated June 4, 2007). 234




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##### Table of Contents



ExhibitNo.

Description**10
.20

Master Contract Logistics Services Agreement dated June 29,
    2004 between Nortel Networks Limited and Flextronics Telecom
    Systems, Ltd., amended as of February 8, 2005 (most
    recently filed as Exhibit 99.3 to Nortel Networks
    Limiteds current report on
    Form 8-K
    dated June 4, 2007).**10
.21

Letter Agreement dated June 29, 2004 among Nortel Networks
    Limited, Flextronics International Ltd. and Flextronics Telecom
    Systems, Ltd. amended and restated as of May 8, 2006 (filed
    as Exhibit 10.6 to Nortel Networks Limiteds Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2006).*10
.22

Letter, dated January 10, 2005, to Mr. Lynton (Red)
    Wilson, the Chairman of the Board of Nortel Networks
    Corporation, and modified March 1, 2005 and delivered on
    August 11, 2005 from certain officers of Nortel Networks
    Limited (filed as Exhibit 10.1 to Nortel Networks
    Limiteds Current Report on
    Form 8-K
    dated August 18, 2005).*10
.23

Peter W. Currie, Executive Vice-President and Chief Financial
    Officer, Letter Agreement dated February 4, 2007 (filed as
    Exhibit 10.4 to Nortel Networks Limiteds Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2007). The Letter Agreement
    terminated the remuneration arrangement previously filed as
    Exhibit 10.2 to Nortel Networks Limiteds Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2005.*10
.24

Summary statement of terms of the additional special pension
    benefits for the Vice-Chairman and Chief Executive Officer
    approved by the Joint Leadership Resources Committee of the
    Board of Directors of Nortel Networks Corporation and Nortel
    Networks Limited and the Independent members of the Board of
    Directors of Nortel Networks Corporation and Nortel Networks
    Limited on March 22, 2005 (filed as Exhibit 10.8 to
    Nortel Networks Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2005).*10
.25

Agreement and Plan of Merger dated as of April 25, 2005, by
    and among Nortel Networks Inc., PS Merger Sub, Inc. and PEC
    Solutions, Inc. (filed as Exhibit 99(d)(1) to Nortel
    Networks Inc. Current Report on Form SC TO-T dated
    May 3, 2005 and filed as Exhibit 10.9 to Nortel
    Networks Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2005).*10
.26

The Nortel 2005 Stock Incentive Plan (as filed with the 2005
    Proxy Statement) as Amended and Restated on November 6,
    2006 with effect on December 1, 2006 (filed as
    Exhibit 10.87 to Nortel Networks Corporations Annual
    Report on
    Form 10-K
    for the year ended December 31, 2006).*10
.27

Summary statement of the interest payable on the special pension
    benefits for the Vice-Chairman and Chief Executive Officer of
    Nortel Networks Corporation and Nortel Networks Limited approved
    by the Joint Leadership Resources Committee of the Board of
    Directors of Nortel Networks Corporation and Nortel Networks
    Limited and the independent members of the Board of Directors of
    Nortel Networks Corporation and Nortel Networks Limited on
    May 27, 2005 (filed as Exhibit 10.2 to Nortel Networks
    Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2005).*10
.28

Form of Indemnity Agreement effective on or as of June 29,
    2005 entered into between Nortel Networks Corporation and each
    of the following Directors: Harry J. Pearce, Ronald W. Osborne,
    Richard D. McCormick, John A. MacNaughton, James B. Hunt, Jr.
    and Jalynn H. Bennett (filed as Exhibit 10.4 to Nortel
    Networks Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2005).*10
.29

Summary of remuneration, retirement compensation and group life
    insurance of the Chairman of the Board, Directors and Chairman
    of Nortel Networks Limited Committees effective June 29,
    2005 (filed as Exhibit 10.5 to Nortel Networks
    Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2005).*10
.30

Nortel Networks Corporation 1986 Stock Option Plan, as Amended
    and Restated, as amended effective April 30, 1992,
    April 27, 1995, December 28, 1995, April 8, 1998,
    February 25, 1999, April 29, 1999, September 1,
    1999, December 16, 1999, May 1, 2000 and
    January 31, 2002 (filed as Exhibit 10.1 to Nortel
    Networks Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2002).*10
.31

Nortel Networks Corporation 2000 Stock Option Plan as amended
    effective May 1, 2000 and January 31, 2002 (filed as
    Exhibit 10.2 to Nortel Networks Limiteds Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2002).*10
.32

Forms of Instruments of Grant generally provided to optionees
    granted options under the Nortel Networks Corporation 1986 Stock
    Option Plan, as Amended and Restated or the Nortel Networks
    Corporation 2000 Stock Option Plan (filed as Exhibit 10.9
    to Nortel Networks Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2005).*10
.33

Proxy Agreement effective as of July 29, 2005 with respect
    to Capital Stock of Nortel Government Solutions Incorporated by
    and among Nortel Networks Corporation, Nortel Networks Limited,
    Nortel Networks Inc., Nortel Government Solutions Incorporated,
    James Frey, Thomas McInerney, Gregory Newbold, and the United
    States Department of Defense (filed as Exhibit 10.1 to
    Nortel Networks Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2005).*10
.34

Escrow Agreement dated as of March 1, 2005 and as entered
    into on August 11, 2005 between Nortel Networks
    Corporation, Computershare Trust Company of Canada and
    certain officers of Nortel Networks Corporation (filed as
    Exhibit 10.3 to Nortel Networks Limiteds Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2005). 235




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##### Table of Contents



ExhibitNo.

Description*10
.35

Termination Agreement dated September 7, 2005 between
    Nicholas DeRoma, Chief Legal Officer and Nortel Networks
    Corporation (filed as Exhibit 10.6 to Nortel Networks
    Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2005). This Agreement
    terminated the remuneration arrangement previously filed as
    Exhibits 10.2 and 10.3 on
    Form 10-K
    for the year ended December 31, 2001.*10
.36

William A. Owens letter agreement entered into on
    December 1, 2005, concerning the cessation of
    Mr. Owens responsibilities as Vice-Chairman and Chief
    Executive Officer of Nortel Networks Corporation and Nortel
    Networks Limited effective November 15, 2005 (filed as
    Exhibit 10.61 to Nortel Networks Limiteds
    Form 10-K
    for the year ended December 31, 2005). The letter agreement
    terminated the employment arrangements previously filed as
    Exhibit 10.2 to Nortel Networks Limiteds Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2004.*10
.37

Nicholas DeRoma, former Chief Legal Officer, Letter Agreement
    dated December 20, 2005 amending the Termination Agreement
    dated September 7, 2005 (filed as Exhibit 10.62 to
    Nortel Networks Limiteds
    Form 10-K
    for the year ended December 31, 2005).*10
.38

Steve Pusey, Executive Vice-President and President, Eurasia,
    Letter Agreement dated September 29, 2005 concerning
    retention bonus (filed as Exhibit 10.63 to Nortel Networks
    Limiteds
    Form 10-K
    for the year ended December 31, 2005).*10
.39

Summary statement of employment terms and conditions for Mike
    Zafirovski, President and Chief Executive Officer effective
    November 15, 2005, as approved by the Joint Leadership
    Resources Committee of the Board of Directors of Nortel Networks
    Corporation and Nortel Networks Limited and the Independent
    members of the Board of Directors of Nortel Networks Corporation
    and Nortel Networks Limited on October 16, 2005 and form or
    instrument of award for restricted stock units and form of
    instrument of award for stock options granted on
    November 15, 2005 under the Nortel 2005 Stock Incentive
    Plan to Mike Zafirovski, President and Chief Executive Officer
    (filed as Exhibit 10.65 to Nortel Networks Limiteds
    Form 10-Q
    for the quarter ended September 30, 2006).*10
.40

Mike Zafirovski, President and Chief Executive Officer,
    Indemnity Agreement dated January 18, 2006 with effect from
    October 31, 2005 (filed as Exhibit 10.65 to Nortel
    Networks Limiteds
    Form 10-K
    for the year ended December 31, 2005).*10
.41

Pascal Debon letter agreement dated February 21, 2006,
    concerning the cessation of Mr. Debons
    responsibilities as Senior Advisor of Nortel Networks
    Corporation and Nortel Networks Limited effective
    December 23, 2005 (filed as Exhibit 10.67 to Nortel
    Networks Limiteds
    Form 10-K
    for the year ended December 31, 2005).*10
.42

Brian McFadden letter agreement dated February 21, 2006,
    concerning the cessation of Mr. McFaddens
    responsibilities as Chief Research Officer of Nortel Networks
    Corporation and Nortel Networks Limited effective
    December 23, 2005 (filed as Exhibit 10.68 to Nortel
    Networks Limiteds
    Form 10-K
    for the year ended December 31, 2005).*10
.43

Notice of Blackout to Nortel Networks Corporations Board
    of Directors and Executive Officers Regarding Suspension of
    Trading dated March 10, 2006 (filed as Exhibit 99.2 to
    Nortel Networks Corporations Current Report on
    Form 8-K
    dated March 10, 2006).*10
.44

Commitment Letter dated February 1, 2006 among Nortel
    Networks Corporation, Nortel Networks Inc., J.P. Morgan
    Securities Inc., JPMorgan Chase Bank, N.A. and Citigroup Global
    Markets Inc. (filed as Exhibit 10.1 to Nortel Networks
    Limiteds Current Report on
    Form 8-K
    dated February 2, 2006).*10
.45

Commitment Advice Letter Agreement dated February 1, 2006
    among Nortel Networks Corporation, Nortel Networks Inc., Royal
    Bank of Canada and J.P. Morgan Securities Inc. (filed as
    Exhibit 10.2 to Nortel Networks Limiteds Current
    Report on
    Form 8-K
    dated February 2, 2006).*10
.46

Commitment Advice Letter Agreement dated February 1, 2006
    among Nortel Networks Corporation, Nortel Networks Inc., Export
    Development Canada and J.P. Morgan Securities Inc. (filed
    as Exhibit 10.3 to Nortel Networks Limiteds Current
    Report on
    Form 8-K
    dated February 2, 2006).*10
.47

Securities Demand Letter dated February 1, 2006 among
    Nortel Networks Corporation, Nortel Networks Inc.,
    J.P. Morgan Securities Inc. and JPMorgan Chase Bank, N.A.
    (filed as Exhibit 10.4 to Nortel Networks Limiteds
    Current Report on
    Form 8-K
    dated February 2, 2006).*10
.48

Credit Agreement dated February 14, 2006 among Nortel
    Networks Inc., the lenders party thereto, JPMorgan Chase Bank,
    N.A., J.P. Morgan Securities Inc., Citigroup Global
    Markets, Inc., Citicorp USA, Inc., Royal Bank of Canada as
    amended May 9, 2006 and May 19, 2006 (filed as
    Exhibit 10.1 to Nortel Networks Limiteds Current
    Report on
    Form 8-K
    dated May 19, 2006).*10
.49

Guarantee Agreement dated February 14, 2006 among Nortel
    Networks Inc., Nortel Networks Limited, Nortel Networks
    Corporation, JPMorgan Chase Bank, N.A., and Export Development
    Canada. (filed as Exhibit 10.2 to Nortel Networks
    Limiteds Current Report on
    Form 8-K
    dated February 21, 2006). 236




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##### Table of Contents



ExhibitNo.

Description*10
.50

U.S. Security Agreement dated February 14, 2006 among
    Nortel Networks Inc., the subsidiary lien grantors from time to
    time party thereto, JPMorgan Chase Bank and Export Development
    Canada. (filed as Exhibit 10.3 to Nortel Networks
    Limiteds Current Report on
    Form 8-K
    dated February 21, 2006).*10
.51

Canadian Security Agreement dated February 14, 2006 among
    Nortel Networks Limited, Nortel Networks Corporation, the
    subsidiary lien grantors from time to time party thereto,
    JPMorgan Chase Bank and Export Development Canada (filed as
    Exhibit 10.4 to Nortel Networks Limiteds Current
    Report on
    Form 8-K
    dated February 21, 2006).*10
.52

Forms of Instruments of Award as amended on April 11, 2007
    generally provided to recipients of Restricted Stock Units and
    Performance Stock Units granted under the Nortel 2005 Stock
    Incentive Plan, as Amended and Restated and Form of Instrument
    of Grant as amended on April 4, 2007 generally provided to
    recipients of stock options granted under the Nortel 2005 Stock
    Incentive Plan, as Amended and Restated (filed as
    Exhibit 10.6 to Nortel Networks Corporations
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2007).*10
.53

Stipulation and Agreement of Settlement, dated June 20,
    2006, in the matter captioned In re Nortel Networks Corp.
    Securities Litigation, United States District Court for the
    Southern District of New York, Consolidated Civil Action
    No. 01 Civ. 1855 (RMB) (filed as Exhibit 99.1 to
    Nortel Networks Limiteds current report on
    Form 8-K
    dated December 12, 2007).*10
.54

Stipulation and Agreement of Settlement, dated June 20,
    2006, in the matter captioned In re Nortel Networks Corp.
    Securities Litigation, United States District Court for the
    Southern District of New York, Master File
    No. 05-MD1659
    (LAP) (filed as Exhibit 99.2 to Nortel Networks
    Limiteds current report on
    Form 8-K
    dated December 12, 2007).*10
.55

Court Order, dated June 20, 2006, in the matter captioned
    Frohlinger et. al. v. Nortel Networks Corporation et.
    al., Ontario Superior Court of Justice, Court File
    No. 02-CL-4605
    (Ont.Sup.Ct.J.) (filed as Exhibit 10.12 to Nortel Networks
    Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006).*10
.56

Court Order, dated June 20, 2006, in the matter captioned
    Association de Protection des Epargnants et. al.
    Investisseurs du Quebec v. Corporation Nortel Networks,
    Superior Court of Quebec, District of Montreal,
    No. 500-06-000126-017
    (filed as Exhibit 10.13 to Nortel Networks Limiteds
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006).*10
.57

Court Order, dated June 20, 2006, in the matter captioned
    Jeffery et. al. v. Nortel Networks Corporation et.
    al., Supreme Court of British Columbia, Vancouver Registry
    Court File No. S015159 (B.C.S.C.) (filed as
    Exhibit 10.14 to Nortel Networks Limiteds Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2006).*10
.58

Court Order, dated June 20, 2006, in the matter captioned
    Gallardi v. Nortel Networks Corporation et. al.,
    Ontario Superior Court of Justice, Court File
    No. 05-CV-285606CP
    (Ont.Sup.Ct.J.) (filed as Exhibit 10.15 to Nortel Networks
    Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006).*10
.59

Court Order, dated June 20, 2006, in the matter captioned
    Skarstedt v. Corporation Nortel Networks, Superior
    Court of Quebec, District of Montreal,
    No. 500-06-000277-059
    (filed as Exhibit 10.16 to Nortel Networks Limiteds
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006).*10
.60

Resolution effective June 28, 2006 for Mike Zafirovski,
    President and Chief Executive Officer of NNC and NNL outlining
    acceptance by Boards of Directors of Nortel Networks Corporation
    and Nortel Networks Limited of the voluntary reduction by
    Mr. Zafirovski of a special lifetime annual pension benefit
    by 29% resulting in a payout of US$355,000 per year rather than
    US$500,000 per year (filed as Exhibit 10.17 to Nortel
    Networks Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006).*10
.61

Form of indemnity agreement entered into between Nortel Networks
    Corporation and members of the Board of Directors of Nortel
    Networks Corporation on or after September 6, 2006 (filed
    as Exhibit 10.4 to Nortel Networks Limiteds Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2006).*10
.62

Summary statement of employment terms and conditions for Mike
    Zafirovski, President and Chief Executive Officer,
    November 15, 2005 as approved by the Joint Leadership
    Resources Committee of the Board of Directors of Nortel Networks
    Corporation and Nortel Networks Limited and the Independent
    members of the Board of Directors of Nortel Networks Corporation
    and Nortel Networks Limited on October 16, 2005 and form of
    instrument of award for restricted stock units and form of
    instrument of award for stock options granted on
    November 15, 2005 under the Nortel 2005 Stock Incentive
    Plan to Mike Zafirovski, President and Chief Executive Officer
    (filed as Exhibit 10.5 to Nortel Networks Limiteds
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006). 237




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##### Table of Contents



ExhibitNo.

Description**10
.63

Agreement between Nortel Networks Limited and Flextronics
    Telecom Systems, Inc. dated October 13, 2006, amending the
    asset purchase agreement dated June 29, 2004 among Nortel,
    and Flextronics International Ltd., and Flextronics Telecom,
    which was filed as Exhibit 10.3 to Nortel Networks
    Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004, as amended from time
    to time, the amended and restated master contract manufacturing
    services agreement dated as of June 29, 2004, which was
    filed as Exhibit 10.4 to Nortel Networks Limiteds
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004, as amended from time
    to time, and the letter agreement dated June 29, 2004,
    which was filed as Exhibit 10.7 to Nortel Networks
    Limiteds Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004, as amended and
    restated (filed as Exhibit 10.83 to Nortel Networks
    Limiteds Annual Report on
    Form 10-K
    for the year ended December 31, 2006).*10
.64

Share and Asset Sale Agreement between Nortel Networks Limited
    and Alcatel-Lucent dated December 4, 2006, as amended
    December 29, 2006 and June 28, 2007 (filed as
    Exhibit 10.5 to Nortel Networks Corporations
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2007).*10
.65

Dion Joannou letter agreement dated July 27, 2007
    concerning the cessation of Mr. Joannous
    responsibilities as President, North America of Nortel Networks
    Corporation and Nortel Networks Limited effective
    August 31, 2007 (filed as Exhibit 10.1 to Nortel
    Networks Corporations Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007).*10
.66

Compensation and Human Resources Committee Policy on Company
    Aircraft dated July 31, 2007 (filed as Exhibit 10.2 to
    Nortel Networks Corporations Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007).*10
.67

Paviter Binning, Executive Vice-President and Chief Financial
    Officer of Nortel Networks Corporation and Nortel Networks
    Limited, Employment Letter dated September 28, 2007 (filed
    as Exhibit 10.3 to Nortel Networks Corporations
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007).10
.68

Nortel Networks Corporation Share Purchase Plan for S. 16
    Executive Officers dated November 8, 2007.10
.69

Amended and Restated Summary of remuneration, retirement
    compensation and group life insurance of the Chairman of the
    Board, Directors and Chairman of Committees of Nortel Networks
    Limited as amended October 3, 2007 with effect from
    January 1, 2008.10
.70

Nortel Networks Limited Directors Deferred Share
    Compensation Plan as amended and restated on October 3,
    2007 effective August 30, 2007.10
.71

Joel Hackney, President, Enterprise Solutions Employment Letter
    amended effective September 19, 2007.10
.72

Nortel Networks Supplementary Executive Retirement Plan, as
    amended by Resolutions by the Pension Investment Committee dated
    December 19, 2007 and December 20, 2007 with effect
    from January 1, 2008.10
.73

The Nortel 2005 Stock Incentive Plan as amended and restated on
    January 18, 2008.10
.74

David Drinkwater, Chief Legal Officer, Letter regarding special
    bonus dated October 4, 2007.10
.75

Pay-Off Letter dated July 5, 2006 under the Credit
    Agreement dated February 14, 2006 among Nortel Networks
    Inc. and JPMorgan Chase Bank, N.A., J.P. Morgan Securities
    Inc. and Citigroup Global Markets Inc., Citicorp USA, Inc.,
    Royal Bank of Canada and Export Development Canada, the Lenders
    party thereto.10
.76

Consent of Defendants Nortel Networks Corporation and Nortel
    Networks Limited dated September 28, 2007, in the matter
    captioned Securities and Exchange Commission V. Nortel
    Network Corporation and Nortel Networks Limited, United
    States District Court for the Southern District of
    New York, Civil Docket for Case
    No.: 1:07-cv-08851-LAP.12
.

Computation of Ratios.14
.

Nortel Code of Business Conduct.21
.

Subsidiaries of the Registrant.23
.1

Consent of KPMG LLP.23
.2

Consent of Deloitte & Touche LLP.24
.

Power of Attorney of certain directors and officers.31
.1

Rule 13a  14(a)/15d  14(a)
    Certification of the President and Chief Executive Officer.31
.2

Rule 13a  14(a)/15d  14(a)
    Certification of the Executive Vice-President and Chief
    Financial Officer.32
.

Certification of the President and Chief Executive Officer and
    Executive Vice-President and Chief Financial Officer pursuant to
    18 U.S.C. Section 1350 as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002    *
    Incorporated by Reference.  **
    Incorporated by Reference. Certain portions of this Exhibit have
    been omitted based upon a request for confidential treatment.
    These portions have been filed separately with the United States
    Securities and Exchange Commission. 238




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##### Table of Contents



SIGNATURES  th
    By:
    /s/  Mike
    S. Zafirovski (Mike S. Zafirovski,
   th
  Signature

TitlePrincipal
    Executive Officer/s/  Mike
    S. Zafirovski(Mike
    S. Zafirovski)

President and Chief Executive Officer,
    and a DirectorPrincipal Financial Officer/s/  Paviter
    s. Binning(Paviter
    s. Binning)

Executive Vice-President and
    Chief Financial OfficerPrincipal Accounting Officer/s/  Paul
    W. Karr(Paul
    W. Karr)

Controller  239




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##### Table of Contents



Directors
  J.H.
    Bennett*(J.H.
    Bennett)

R.D.
    McCormick*(R.D.
    McCormick)M.
    Bischoff*(M.
    Bischoff)

C.
    Mongeau(C.
    Mongeau)J.B.
    Hunt, Jr.*(J.B.
    Hunt, Jr.)

H.J.
    Pearce*(H.J.
    Pearce)K.M.
    Johnson*(K.M.
    Johnson)

J.D.
    Watson*(J.D.
    Watson)J.A.
    MacNaughton*(J.A.
    MacNaughton)

M.S.
    Zafirovski*(M.S.
    Zafirovski)J.P.
    Manley*(J.P.
    Manley)/s/  Gordon
    A. DaviesBy:* (Gordon
    A. Davies, as
    attorney-in-fact
    February 27, 2008.)  240