Nortel Networks came closer to putting its troubled past behind it yesterday when the largest North American telecoms equipment maker announced a $2.5 billion (€2.09 billion) settlement of two class-action lawsuits from shareholders over accounting fraud.

If approved, the settlement would clear the way for Nortel's new management to restore the reputation and fortunes of a company whose past success made it the pride of its native Canada. The company employs over 300 at its plant in Galway.

The settlement could be the fifth-largest class-action agreement and would see Nortel pay the plaintiffs $575 million in cash and 14.5 per cent of equity in itself, in addition to half of all recovered proceeds from lawsuits against former executives.

Yesterday's agreement reflects the effort by Mike Zafirovski, Nortel's chief executive, to focus on regaining market share after reaching a global settlement of all litigation against it. Talks for a global settlement continue but Harry Pearce, Nortel's chairman, said approval of yesterday's settlement would "remove a significant impediment to Nortel's future success".

Ongoing investigations by US and Canadian securities regulators are not covered by yesterday's agreement, which is subject to approval by both countries' regulators, stock exchanges and courts.

It also requires Nortel and the plaintiffs, which include public pensions funds in Ontario and New Jersey, to agree on governance procedure and some insurance issues.

"Our intent is to achieve a fair resolution of these lawsuits and avoid a prolonged, uncertain and costly litigation process," Mr Pearce said.

Revelations in 2003 of $3.2 billion in accounting fraud and the artificial boosting of sales forced Nortel to restate four years of results.