A Mike Z Note on Jan 31 to Employees

From: Mike Zafirovski, CEO (TORWM:8442)
Sent: Saturday, January 31, 2009 5:38 AM
To: Nortel employees
Subject: Message to Employees

Team Nortel:

It has been just over two weeks since we filed, and three things are top of my mind as I write to you this week. First, how are we doing with customers and will they stick with us? Second, how do we ensure customer-oriented innovation keeps driving our business? And, third, what has been the impact of the filing on you and your confidence in the company (actually my biggest concern).

First, regarding customers. We are making headway in stabilizing our business. I am continuing to talk to and visit our major customers to ensure that they understand the filing and that we are committed to meeting their needs. Across the company, sales, operations and leadership teams are squarely focused on the outreach with customers, suppliers and partners who continue to express words of support. In some cases, we are even garnering new wins in the midst of the filing process. In spite of both the economic uncertainty and increasingly aggressive competition, we are pressing ahead and making the case for Nortel innovation and our ability to continue to serve our customers well. Many customers are listening, and responding positively.

This is a tough but most critical job facing our people in the field. Initiatives like "Everybody Sells Nortel" give our sales efforts a boost and remind us that we are all customer-facing on some level. Keeping every customer is a priority for us. The focus in the weeks ahead is to transform words of encouragement from customers into orders and business opportunities. I have no illusions about the steep hill we need to climb. And, I know that some business may be at risk. But the daily battle to win our customers over and keep them engaged continues. And, I'll report back on it regularly.

Second, remaining an innovation-driven company. Innovation that adds real value to our customers, whether driving revenue, service or productivity gains, is at the heart of Nortel. This is critical to keeping customers, and we must stay loyal to our roots as an R&D-driven business. Analysts and even the media have been clear about something we have always known - our installed base is very appreciative of Nortel innovation, know-how and service capabilities. And customers do turn to us to deliver leading-edge technology. Virtually every industry analyst report I have seen refers to the strength of our technology and the value it brings to customers. We have made many investments over the last few years, and although these will be more focused going forward, customer-oriented innovation will remain the core of our company. It is in our DNA.

Third, the filings' impact on you and your confidence in Nortel. We are a people- and innovation-driven business. In fact, that is really what we are; highly skilled and talented people are what built Nortel - and what will see us through the current times. However, I also recognize how tough the past two weeks, and last several years for that matter, have been on you as professionals and as individuals.

Since we filed, there has been a lot of anxiety and discussion across the company and, I am sure, at the kitchen table with your families. The announcement that severances would not be paid in the impacted countries came as a shock to many, and as a personal disappointment in the company and in your leadership team. Believe me, I understand this.

Let me explain as best I can how this came about because you deserve to know. Management and the Board ultimately decided to file for creditor protection due to our need to conserve cash and preserve the business, as I explained last week. We looked at severance as part of this. Frankly, it was item #1 on the agenda. But in the end, it came down to a simple, but extremely difficult decision. Do we pay severance and risk our financial footing further - putting the company at risk - or do we forgo severance and arm ourselves so that we may continue the fight and save this company?

We took this extremely seriously and until the last minute, looked for options that would allow us to continue with our long-standing practice of giving notified employees a soft landing in harsh economic times. However, our financial advisors, hired by the company and Board to guide us through this process, made it very clear: the creditors would never accept it, and the company could not afford it. This applies to severance payments outstanding at the date of filing and for severance payments for future notifications while we are in filing status.

Our collective ultimate goal must be a Nortel that continues to deliver value and innovation our customers need. To have the opportunity to achieve this, we had no choice - and simply did not have the funds to both drive our future and provide severance. To be clear, severance costs are a real obligation for the company, and those already on notification, as well as those to be impacted in the future will have real unsecured claims against concrete liabilities on the company's books. In line with this, our ability to maximize the future value of unsecured claims is one of the key objectives of the filing process we are in today.

The severance decision was one of the most difficult decisions anyone around the table has ever made and to this day the impacts continue to be on our minds - mine as well as your leadership team and the Board. I know this explanation doesn't help those of you who may be impacted. But I wanted you to know the facts.

None of this is easy. We are living in an unprecedented economic downturn and are feeling the impact on our business and our cash flow. And, as I've said before, there are more job impacts to come.

In this environment, and with so many personal unknowns, I know how tough it is to stay motivated. I understand your frustration and disappointment. But, the simple truth is that Nortel's future is in our hands - and we have to fight on. From the emails I receive, I know many of you are, in fact, fighting, and fighting hard. That you are working tirelessly in the face of all the uncertainty and distractions. You are showing the world that as tough as this is - you are tougher! Thank you.

We now have to face the future. Day in and day out it is up to us to prove why Nortel is important - why our innovation matters - and how together we will move this company forward. As I said, the hill we have to climb is steep. But together, we can climb it.

Thank you for all that you do, every day, for Nortel, for your colleagues and for our customers.

Mike