Notes on the August 2009 Canadian web seminar

Representation Status
Koskie Minsky has been recognized by the court as the legal counsel for most ex-employees. The estimate is about 19,000 Canadian ex-employee claimants. K.M. will be representing 9,900 non-negotiated pension plan members, 1000 severed and people on Long Term Disability. They have received info from Nortel with the address list of all retirees, but are missing about 15,000 email addresses. Make sure your friends know to check the Canadian website to be registered and keep up to date. Active employees will have separate representation, as will CAW employees and those who choose to opt out.

Asset sales.
In Canada the process calls for written offers for the assets. There are 1 or 2 rounds of submission. It is a closed court process. The submissions are reviewed by the Monitor who recommends and seeks court approval.
In US the assets are sold by auction. Prospective buyers are identified and made public. A so called “stalking horse” bid is made by the first party. An auction is then scheduled and held with other bidders. The sale goes to the highest bidder.
The assets are sold from the country with the most involvement. Hence Wireless and Enterprise were sold through the US process.

Lock Box
All cash realized by the sales will be held in a lock box under joint jurisdiction of the courts. The monitor administers and manages the account. To release the funds a negotiation process is needed to reach an equitable allocation. If a compromise is not reached it could lead to protected litigation which would not a good thing since it will involve long legal wrangling and will cost a lot. The NRPC and KM are fully engaged to make sure Canada gets a fair realization. At this stage, there is no clear process or methodology for allocation of sale of assets among the estates. There still remains a large amount of intellectual property which has not been included in the sales and which also will require a methodology for disposition and allocation.

Monitor & Company
The monitor has become more involved in the management of the company. This way they can better look after the creditors. In the US there is the creditor’s committee- like the monitor, and in the UK there is an administrator. All decisions need court approval and therefore one area can’t be swamped by other jurisdictions. The Company is in a holding pattern. (1) Ongoing operations in selling units and transferring the people involved to purchasers (2) status quo on remaining units trying to keep some business flowing. There are only 3 remaining directors on the board which makes it easier to get decisions made. They are being paid a bit more but it is a lot cheaper than 9 directors

Funding on Canadian side.
The Canadian entity is a net spender of cash mainly because of R&D. It is reimbursed by non-Canadian entities which needs court approval in all areas. $157M been agreed to flow into Canada to keep it operating. Further negotiations are needed to continue. The monitor is working that.

Claims process
To ascertain the value of the claims everyone has to make a claim. Ex-employees (non negotiated) in Canada do not have to make their own individual claims since K.M. will handle that in a separate process. The CAW will work the claims for their members. All others must make their own claims.

Is is very difficult to say what the value of a pension claim might be. The fund is in a state of flux as the market shifts. Data from the company will help determine the formulae and assumptions that will be used. It will take a long while to work out. There may be a phased distribution where dollars are given out in a series of steps. There will be challenges to claims. People who don’t have real claims will try to get in on the process. K.M. will fight all claims that don’t appear real or justified.

Individuals in the pension plan will not be required to compile their own claim. There will be an omnibus claim filed in one big claim based on common methods of calculation with factors used to give the best possible numbers. There will be a communications with individuals to make sure that their claim is correct and agreed to.

Canadian Pension Plan Funding
In March it was estimated to be 69%. It could be higher due to market changes. All assets in the pension plan will have to be evaluated to determine the shortfall. The shortfall cannot be determined until all pension details are worked out. Nortel is still paying something into the fund.

Pension payments
The pension payments will continue as normal for now. There is no wind-up yet. The superintendent of pensions is a party in the court proceedings. Quebec and Ontario will press the case for an orderly process. Some money is still coming in to pay for unfunded liabilities and the intent is to keep that going as long as possible.

Severance
The court refused to pay severance. An appeal is underway. If granted approval to appeal, the hearing will be held in the Sept-Oct time frame. Provincial law has statutes protecting those with severance.

Health and Welfare Trust
Only administered by Sunlife. The trust has some assets which were partially pre-funded by Nortel in the past. K.M. should obtain standing on this by December. There is no law regarding pre-funding.

Tax impacts of payout
When settlement is made the process is normally lump sum payment which could require tax payments. If possible K.M. will work to have any settlements for pension used to top up the pension fund.

BIA amendment.
A petition has been circulating and will be presented to the Parliament. It may be too late however for Nortel pensioners. The NRPC political action committee is lobbying Investment Canada to use parts of the sale of assets for Nortel ex-employees.

Annuities
When the plan winds up pensions will be calculated on the funding ratio of the trust fund and converted to annuities. The Quebec Government has enacted a law (rule 1) which will allow pensioners with Quebec service to opt to have the government hold their pensions for up to 5 years in order to let the market improve. This would allow the pensioner to determine when to convert it to an annuity in order to maximize payments.

Hardship Cases
A hardship protocol has been approved by the court. People who are suffering financial hardship due to the loss of severance or other Nortel payment can apply. Check the K.M. and Ernst & Young websites. This will be an advance on any ultimate claim made.

Retainers
Koskie Minsky are now being paid by Nortel in an arms length mode as ordered by the court. There is no connection between K.M. and Nortel other than their representation on our behalf. K.M. will be returning the $150C ($120US) within the next month to everyone who sent them in. K.M. will be representing all ex-Nortel employees except negotiated (CAW), those who opt out, and some high level ex-executives.