NORTEL CCAA PROCEEDING

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1 February 16, 2009 NORTEL CCAA PROCEEDING Nortel shares once traded at $ On January 13, 2009 they were 38.5 cents. On January 14, 2009, Nortel filed an application with the Court for protection from its creditors under the Companies' Creditors Arrangement Act (the CCAA ). COMPANIES CREDITORS ARRANGEMENT ACT The CCAA permits insolvent companies to enter into Court sanctioned arrangements with creditors. Nortel, like many other Canadian companies, filed for protection from its creditors under the CCAA when it found itself in financial difficulties. The CCAA is an alternative to bankruptcy and liquidation. It is a federal law that gives a company time and breathing space to restructure its operations and finances. In order to file for protection a company need only have $5 Million in debt and meet certain other criteria. STAY OF PROCEEDINGS Nortel certainly met the basic tests for granting its application under the CCAA and, as usual, a Monitor, in this case Ernst and Young, was appointed by the Court to oversee Nortel s restructuring. A company in Nortel s situation is generally permitted to continue carrying on business and to pay those financial obligations that arise in the ordinary course of business, i.e., wages, parts. When a company files for protection under the CCAA, the Court will almost always include a stay of proceedings in its first or Initial Order. As long as a CCAA stay of proceedings order remains in place, all proceedings against the company are halted and none can be commenced without approval of the Court. For instance, without the approval of the Court, the creditors can't seize the company's property, demand the immediate repayment of loans or petition the Company into bankruptcy. In fact, some Initial Orders have even attempted to restrict access to the grievance procedure.

2 In addition, certain rights of the company s creditors are held in abeyance. For example, a creditor supplying goods to the company under a contract cannot cease providing those goods even if it hasn t been paid for the goods it supplied before the issuance of the Initial Order. As well, under the Initial Order, Nortel can, and in fact has, rescinded leases with its landlords on lands it occupies and is authorized to refuse to pay certain debts which it incurred prior to the filing of its CCAA application. In the case of CAW-Canada members and former members, Nortel has interpreted the Initial Order as permitting it to cease paying certain payments which would normally be paid under the existing and prior collective agreements between the Union and the Company. Specifically, Nortel has ceased making Voluntary Retirement Option, Retirement Allowance and severance/termination payments. EXTENSIONS OF THE STAY OF PROCEEDINGS Under CCAA, the Court can extend the stay of proceedings order many times, and will usually do so if it appears that progress is being made to restructure the company and find a compromise with the creditors. On January 10, 2009, the Nortel Initial Order granted by the court was extended until mid- March. CCAA PROCESS At the same time that Nortel filed an application under the CCAA, it also filed for protection in the United States, Britan and other contries in which it operates. The major filings by Nortel were where its primary assets are located, that being Canada and the U.S. A filing for court-ordered bankruptcy protection in the United States comes under Chapter 11 of the U.S. Bankruptcy Code; hence the common expression of "filing for Chapter 11." For our purposes, the main difference is that American companies under Chapter 11 are able to get labour contracts rewritten as part of their restructuring; Canadian companies under CCAA protection usually must abide by existing contracts. In addition, Chapter 11 is a detailed piece of legislation that has specific statutory requirements. The CCAA is much more flexible and gives a Canadian judge much more leeway in resolving legal and other disputes that arise during the course of the process and in addressing the particualr circumstances of a restructuring. On the other hand, there is a lack of hard and fast rules which would allow someone to determine what will happen during the course of a CCAA proceeding. All creditors and stakeholders are eligible to participate in the CCAA process, although only a few usually become involved because of the cost of legal representation versus the amount of the debt they are owed. Government agencies, including pension oversight, tax collection and environmental regulators are often involved to protect public interests.

3 With respect to debts owed to creditors, there is usually a claims process by which the creditors file documents evidencing the claims that they have arising before or after the Initial Order is granted. For example, in most cases where an employee is terminated after the initial order is granted, the termination and severance pay owing becomes a debt that is subject to the CCAA proceeding and the employee becomes just another creditor. COMPROMISE The primary goal of a restructuring process under the CCAA is for the company to emerge from the creditor protection as a company that is able to continue in operation. As part of the process to emerge from creditor protection, the company is required to file a restructuring or reorganization plan, including a plan for the repayment, in whole or in part, of the debts it owes to its creditors. Negotiations between the company and its debtors can take weeks or even months in order to come to agreement on a plan of compromise to be submitted by the Company. By way of example, such a plan may create a pool of funds for creditors whose claims are affected and provide for distribution of those funds. Alternatively, a plan may provide for the incorporation of a new entity for the purpose of continuing the business or the sale of all or part of the business to another company. If the creditors have no faith in the plan proposed by the company the Court may authorize the creditors to submit a plan which they have prepared. In any event, when negotiating the plan, all sides are trying to find a compromise with which they can live (for example, creditors might agree to accept 50 cents on each dollar of debt). For the creditors, the alternative to a court sanctioned compromise is that the Company will fail and the creditors will get little or nothing if a bankruptcy filing is made by one of the creditors. Generally there are in fact several plans, which are based on the nature of the creditors claims against the debtor. Different classes of creditors typically receive different treatment depending upon their bargaining strength, nature of the claims and the value of any security they have. Creditors in the same class generally receive the same or similar treatment. To be accepted, a plan requires simple majority support (50% +1) from creditors who hold at least 2/3 of the value of the claims in each class. Where the debtor intends to continue carrying on business, employees and key suppliers are often classed as unaffected creditors, i.e. with unionized workers, the debtor would have to continue abiding by the collective agreement. In the end, any compromise arrangement between creditors and the company must be approved by the court. NO APPROVAL OF THE COMPROMISE If a restructuring attempt is not successful, or if the court doesn t approve a compromise, a company can be petitioned into receivership or bankruptcy.

4 The main difference between a CCAA filing and the alternative is that receivership or bankruptcy means that the company is no longer a going concern and its assets are liquidated and distributed to the crediotrs. An analogy is that under the CCAA, a company is put on life support in the hope that it will survive and become healthy again. Under bankruptcy, the company is dead and everyone is trying to get what they can from the estate. BANKRUPTCY If bankruptcy or receivership occurs, it must be remembered that all creditors are not created equal. Normally, the order in which creditors get paid is determined by their priority. Secured creditors, including banks and debt-holders, typically head the list when it comes to getting back their money. Secured creditors usually hold a security agreement such as a mortgage or other formal agreement giving them specific hold on the assets of the company. Unsecured creditors are next on the list of repayment. Unsecured creditors have lent money or provided goods or services to a debtor without securing the debt against the company s assets. One category of unsecured creditor is the preferred creditor. This category includes employees who are owed wages and vacation pay, albeit, the preferred part of their total claim is limited to $ The remainder is simply an unsecured claim. NORTEL OUTCOME The ultimate outcome of the Nortel CCAA is far from certain. It is possible that, in the event a compromise cannot be reached with its creditors, Nortel will fail and the secured creditors of the company will claim against most of the proceeds from the sale of its operations and assets. It is possible that Nortel will be able to restructure and negotiate a plan of compromise that will allow it to continue operating into the future. In that case there will likely have to be compromises made regarding the debts owed to all of Nortel s creditors, including its employees and retirees. Clearly, one of the most important debts, from the perspective of CAW employees and retirees, is the unfunded liability owing by Nortel to the Negotiated Pension Plan. There are also outstanding Retirement Allowance Payments, Voluntary Retirement Option payments, and termination/severance payments owing to permanently laid-off and terminated employees. These are but a few of the debts that may be the subject of any plan of compromise which may be put to a creditor vote and ultimately to the court for approval. There are hundreds of millions, perhaps billions, of dollars in debt owed by Nortel to its creditors, of which the debts owed to our members and retirees are but a small part. However, we have certain laws upon which we can rely to get the best resolution in the event a compromise must be made and we will not give up anything that we do not absolutely have to.

5 THE CCAA AND UNIONS In the case of Syndicat national de l amiante d Abestos inc v. Jeffrey Mine the Quebec Court of Appeal determined that an order under the CCAA which unilaterally preempts the provisions of a collective agreement governing remuneration is illegal and amounts to a violation of rights stemming from certification with the relevant labour board. The court went on to find that collective agreements continue to apply like any contract of service that has not been modified by mutual agreement. Accordingly, unionized workers were, in keeping with their collective agreement, entitled to be paid for services provided after the date of the order which permitted the company to attempt restructuring. WHAT ARE WE DOING The CAW-Canada has filed two Notices of Appearance with the Court. The first is on behalf of the current employees of Nortel who are members of the CAW-Canada. The second is on behalf of all retirees of Nortel who were in the past represented by the CAW- Canada. We have also put Nortel and the other creditors on notice that we will be filing two motions with the Court, which will probably be heard within the next month. The first motion seeks an order of the Court authorizing one or more retirees to represent all retirees of who were formerly represented by the National Automobile, Aerospace, Transportation and General Workers Union of Canada (CAW-Canada) and its Locals 27, 1525, 1530, 1535, 1837, 1839, 1905, and/or The second motion is for an order requiring that the Applicant(s) recommence certain periodic payments to retirees pursuant to its obligations under a collective agreement between Nortel and the CAW-Canada. Although there is no assurance that we will be successful on the second motion, and therefore require that Nortel recommence the RAP, VRO and severance payments, we will do all we can to convince the Court that these payment should be resumed. RETAINER AGREEMENTS Although we have received retainer agreements from some of the Nortel employees who were once members of the CAW-Canada, it would be of great assistance if we could get one from each such person. Copies of the Retainer Agreements, including agreements for survivors of former members, can be downloaded from this site. DOCUMENTS All of the documents relating to the Nortel CCAA proceeding can be found at the following web-site:

6 WAGE EARNER PROTECTION PROGRAM The Wage Earner Protection Program provides guaranteed payment of unpaid wages and vacation pay that are owed to eligible workers, to a maximum of four weeks of insurable earnings under the Employment Insurance (EI) Act (currently about $3,000). It does not include severance or termination pay. An individual whose employment is terminated as a result of a bankruptcy or receivership, and is owed wages or vacation pay, will need to file a proof of claim with the trustee or receiver. The individual s claim under the WEPP is reduced by any amount paid to them by a receiver or a trustee in bankruptcy. At this point we have no information that the employment of any Nortel employee has been terminated without the full payment of wages or vacation pay. If this should occur, please contact your Local Union immediately.