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Nortel Buys Xros

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3/14/2000
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BRAMPTON, Ont. Nortel Networks* [NYSE/TSE: NT] announced today an agreement to acquire Xros, a world leader in second-generation, large-scale, fully photonic switching, for US$3.25 billion in Nortel Networks common shares on a fully diluted basis. Xros revolutionary silicon-based micro-mirror technology will allow data to be switched through large-scale optical networks entirely in the form of light. Xros is another key building block in Nortel Networks strategy to be the first-mover in delivering the all-optical Internet.

Xros (pronounced KY-ROS) provides the capability to scale network hubs with hundreds of times greater capacity than is possible with todays cross-connects. Combining this technology with Nortel Networks ultra-long-reach solution, the Qtera ULTRA, will give Nortel Networks the capability to deliver the worlds first all-optical network. As a world leader in the Optical Internet, Nortel Networks is committed to delivering a high-performance Internet with the speed, reliability, quality, and security that can meet the needs of the 21st century.

"Nortel Networks and Xros share a commitment to implement the vision of the all-optical network, delivering world-class cost of ownership and value for our customers business needs," said Clarence Chandran, president, Service Provider and Carrier Group, Nortel Networks. "An all-optical Internet will deliver millions of instant Internet sessions, thousands of video channels, and vast amounts of e-business transactions on an unprecedented scale."

Nortel Networks and Xros leading Optical Internet capabilities will be combined to deliver the industrys most powerful optical solutions in reach, bandwidth, speed, and manageability. Xros photonic switching, and Nortel Networks OPTera* Connect, Qtera ULTRA and OPTera LH will together provide customers with unprecedented flexibility.

Xros technology is designed to operate at todays industry standard, 10 Gigabits per second (Gbps), as well as the future Optical Internet speeds of 40 Gbps and 80 Gbps, capabilities that Nortel Networks has announced for introduction to the marketplace next year.

"We have again demonstrated that by aggressively pursuing a mix of alliances, acquisitions and R&D, we can answer the ever-growing bandwidth demands of our customers while at the same time exponentially driving the cost of delivering services down and opportunity to profit up," added Chandran.

Xros X-1000 switch won 'Best of Show' on March 7, 2000, at the Optical Fiber Communications conference in Baltimore, Md. The X-1000 is capable of arbitrarily connecting up to 1152 pairs of inputs and outputs with an all-optical pathway from each input to each output. The all-optical pathway makes the cross-connect completely independent of the transmission speed (bit rate) of the data and the underlying format or protocol of the data. Analysts forecast that the world market for optical bandwidth management systems will rise from an estimated US$543 million this year to US$15 billion by 2004.

Xros expects to begin customer trials with the X-1000 this summer, with shipments beginning next year. Based in Sunnyvale, Calif., the company was founded in 1996 and has 90 employees.

"We are thrilled to be joining forces with a world leader in the Optical Internet," said Greg Reznick, CEO of Xros. "We have concentrated on building world-class technology which uniquely removes the scalability bottlenecks in the optical network. With Nortel Networks broad and deep portfolio of Optical Internet capabilities and global customer reach, we are confident that our vision of an all-optical Internet will be realised."

Nortel Networks is ranked number one globally in Optical Internet solutions for 1999, according to a recent study by the DellOro Group.

The transaction, which is expected to close in the second quarter of 2000, is subject to customary regulatory approvals and the approval of Xros shareholders. It is expected to be slightly dilutive to Nortel Networks earnings per share in calendar year 2000 and accretive in calendar year 2001 (excluding acquisition-related charges). The acquisition will not impact Nortel Networks previously announced financial guidance. Based upon a determined price of Nortel Networks common shares of approximately US$118.12, the acquisition will result in Nortel Networks issuing approximately 27.5 million shares on a fully diluted basis. Nortel Networks is a world leader in the Optical Internet. More than 75 percent of North American Internet backbone traffic travels across Nortel Networks systems. In 1999, Nortel Networks set the standards for speed with its 80 Gbps line rate OPTera technology, and in bandwidth with the OPTera 1600G, which transmits 160 colours of light across a 10 Gbps systems, for total capacity of 1.6 terabits per second (Tbps).

http://www.nortelnetworks.com

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