April 13, 1999

TORONTO -- Nortel Networks* [NYSE: NT/TSE: NTL] announced today an agreement to acquire Shasta Networks, Inc, a privately-held company based in Sunnyvale, CA, which has developed a new class of service-enabling gateways and subscriber policy management systems at the "subscriber edge" of Internet Protocol (IP) public data networks. Nortel Networks and Shasta Networks will enable the next generation of IP value-added services for the mass business market.

Nortel Networks will pay up to US$340 million in common shares and cash for Shasta Networks, Inc, a portion of which will be deferred and paid contingent upon Shasta Networks achieving certain business objectives. The acquisition is expected to close within 30 days, and comes three months after the acquisition of Cambrian Systems Corporation, a leader in Optical Internet technologies for metropolitan networks.

"With the acquisition of Shasta Networks we are extending our Carrier and Enterprise leadership in delivering IP services to the mass business market," said John Roth, vice chairman and CEO, Nortel Networks. "We are now the first major networking company to enable both high-speed access and a new class of IP services for the mass business market. The capabilities and tools we deliver will allow Carriers, Service Providers and other third parties to unlock the door to a US$23 billion market opportunity."

Nortel Networks will combine its Intranet Services technology with Shasta's product line to deliver technologies that enable Carriers to create a new generation of IP services for the mass market over the first-mile infrastructure. Service Providers will use these capabilities to address the small and medium business market and specialized communities of interest such as franchise and dealer networks. They will be able to easily craft, implement and support new IP-based services such as Virtual Private Networks (VPNs), eCommerce, managed security, inexpensive wide area networking and performance control unheard of with today's Internet.

"With this announcement, Nortel Networks is changing the rules of the game in the IP market", said Clarence Chandran, president, Carrier Packet Solutions, Nortel Networks. "As Carriers begin the transition to the new IP public data network, Nortel Networks brings to the table not only its brand name, worldwide distribution and third-party integration capabilities but now also Shasta. Today we are showing our real and deep understanding of the needs and strengths of Carrier customers and ISPs as they tackle the immense opportunity for high-speed IP services. This is more than just another connectivity play."

"Shasta was founded to meet the need for an entirely new class of networking system", said Anthony Alles, co-founder and president of Shasta Networks. "Systems that go far beyond legacy connectivity solutions to finally enable intelligent, profitable IP public data networks. Shasta has a world-class team and solution, and we knew we needed a world-class partner to take our products to the Carrier market and ISPs. Only Nortel Networks, of all the major networking vendors, truly gets the importance of IP services. We know that with Nortel Networks' critical expertise, technologies and access to the global Carrier and ISP spaces, that we both now have the means to realize our vision and seize leadership in this immense new market."

New IP Capabilities
Shasta's Subscriber Service System (SSS) is the industry's first carrier grade, integrated hardware, software and operations system for enabling the scalable deployment of network-based, value-added services. The SSS allows IP Service Providers, for the first time, to logically aggregate tens of thousands of subscribers and centrally provision for these subscribers highly customized, access independent IP services, such as virtual private networks, managed firewalls and quality of service policies. Until now, such capabilities have been available only through expensive combinations of many types of single function CPE, which are difficult and costly to deploy, manage and upgrade, particularly relative to new, low cost access technologies like Digital Subscriber Line (DSL).

Redefining the Economics of Networking
Together, Nortel Networks and Shasta will drive the industry evolution from 'dumb' IP connectivity to new, low-cost, carrier-grade IP-based services that enable eCommerce for the mass business market. By unifying Shasta's product portfolio with other Nortel Networks products, new service elements can also be easily added, such as IP telephony, to enable virtually limitless service creation possibilities. These capabilities will both address the real needs of the mass business market for outsourced services, while also building a profitable new business model for Service Providers and Carriers, leveraging their existing strengths in segmented marketing and sales.

Increasing Momentum In IP Services Leadership
With the announced acquisition of Shasta, Nortel Networks is increasing its momentum in IP-enabled services. Today's announcement builds on other IP service and network announcements: Aptis Communications, Inc (April, 1998), delivering carrier-grade remote access for consumers; Bay Networks, Inc (August, 1998), delivering extranet switch, policy services, cable modems, routing and management; and most recently Cambrian Systems Corporation (December 1998), enhancing Nortel Networks' delivery of metropolitan high-speed on-ramps to the Optical Internet. Recently, Nortel Networks announced agreements with major national and global carriers for first-mile and central office evolution capability that include IP, Packet, DSL and Cable technologies.

"With the acquisition of Cambrian Systems, we are speeding up on-ramps to the Internet backbone and creating the Optical Internet", said Clarence Chandran. "With today's announcement, Carriers and Service Providers can overlay the next generation Internet with new value-added services that create new revenue streams and competitive advantage - for themselves and for the mass business market."

The market for IP Services is growing at 30 percent per year and will be US$23 billion by 2001 according to International Data Corporation.

Anthony Alles, Tom Daly and Arthur Lin, previously executives at Cisco Systems, founded Shasta Networks in March 1998. Its chairman and CEO, Wu Fu Chen, was co-founder of Cascade Communications and numerous other networking startups. These include Ardent Communications, which was acquired by Cisco Systems, where Mr. Chen was vice president of Technologies prior to joining Shasta. Shasta's approximately 70 employees will continue to be based in Sunnyvale, CA, and will work with Nortel Networks' significant Enterprise and Carrier capabilities in Silicon Valley. Shasta was selected by Data Communications magazine as one of its "Hot Startups" of 1998. Shasta was also selected by Technologic Partners, an industry analyst firm, for its 1998 "Investors' Choice" honors. Its products are currently in beta testing with Carriers worldwide and are expected to be commercially deployed in the third quarter of 1999.

Nortel Networks delivers value to customers around the world through Unified Networks* solutions, spanning mission-critical telephony and IP-optimized networks. Customers include public and private enterprises and institutions; Internet service providers; local, long-distance, cellular and PCS communications companies, cable television carriers, and utilities.

Nortel Networks' common shares are listed on the New York, Toronto, Montreal, Vancouver, and London stock exchanges. Nortel Networks had 1998 revenues of US$17.6 billion and has approximately 75,000 employees worldwide.

* Nortel Networks, the Nortel Networks Globemark, Unified Networks and How the world shares ideas are trademarks of Northern Telecom Limited

*Bay Networks is a trademark of Bay Networks, Inc.