Nortel Networks (Ireland) Limited (In Administration) ( the Company )

Transcription

1 Ernst & Young LLP 1 More London Place London SE1 2AF Tel: Fax: TO ALL KNOWN CREDITORS 25 July 2014 Ref: MLP/7E/DH/DM/DC/LO3541/PCF16 Deirdre Coakley Direct line: +353 (0) deirdre.coakley@ie.ey.com Dear Sirs Nortel Networks (Ireland) Limited (In Administration) ( the Company ) High Court of Justice of England and Wales, Chancery Division, Companies Court Case number 541 of 2009 We write, in accordance with Rule 2.47 of The Insolvency Rules 1986, to provide creditors with an eleventh report on the progress of the Administration (the Report ). This Report covers the period from 14 January 2014 to 13 July 2014 and should be read in conjunction with the Joint Administrators previous reports dated 12 August 2009, 13 February 2010, 6 August 2010, 10 February 2011, 29 July 2011, 31 January 2012, 27 July 2012, 8 February 2013, 29 July 2013 and 5 February 2014 as well as the Joint Administrators Statement of Proposals dated 23 February Additional copies of this Report, and the previous reports referred to, can be made available on request or can be obtained at the following address: The Company entered administration (the Administration ) on 14 January 2009 when A R Bloom of Ernst & Young LLP, 1 More London Place, London SE1 2AF and D M Hughes of Ernst & Young, Chartered Accountants, Ernst & Young Building, Harcourt Centre, Harcourt Street, Dublin 2, Ireland, were appointed to act as joint administrators (the Joint Administrators ) by an order (the Order ) of the High Court of Justice of England and Wales (the Court ), following an application made by the Company s directors. This was part of a wider restructuring of the Nortel group of companies. Nortel Networks Corporation ( NNC ), the ultimate parent company of the Nortel group, Nortel Networks Limited ( NNL ) and certain of its other Canadian subsidiaries filed an application for creditor protection under the Companies Creditors Arrangement Act ( CCAA ) in Canada to facilitate a comprehensive business and financial restructuring. Nortel Networks Inc ( NNI ), Nortel Networks Capital Corporation and a number of other US Nortel group companies filed petitions in the United States under Chapter 11 of the US Bankruptcy Code.

2 2 At the same time as the appointment of the Joint Administrators, the Court, following applications made by the directors of each company, made administration orders in respect of 18 other Nortel group companies based in the Europe, Middle East and Africa region ( EMEA ). Article 3 of the EC Regulation on Insolvency Proceedings 1346/2000 (the EC Regulation ), states that the relevant court of the EU Member State in which the centre of main interests ( COMI ) of a company is situated had jurisdiction to open main insolvency proceedings in respect of that company. In the case of the 19 EMEA group companies (the EMEA Companies ), the Court was satisfied that each had its centre of main interests in England and, as such, the Court had jurisdiction to open main insolvency proceedings, namely administration, in respect of each company. Details of all 19 companies that entered administration are provided at Appendix 1. The Nortel group of companies (the Group ) reports in US dollars ( US$ ), and accordingly all amounts referred to in this report are in US$ unless otherwise stated. Please refer to the disclaimer at the end of the principal section of this report.

3 3 1. Executive Summary of Progress of the Administration Purpose of the Administration The Joint Administrators continued to trade the Company's businesses with a view to achieving either a rescue of the Company as a going concern or a better result for the Company s creditors as a whole than would be likely if the Company were wound up. In 2009, it became clear that, owing to the financial and market pressures facing the Nortel businesses, the sale of all businesses would be necessary and a rescue of the Company as a going concern would not be possible. The Joint Administrators considered that the decision to continue to trade, even at a carefully monitored loss, in order to achieve going concern values for the businesses and business assets, and to avoid contingent claims, would be to the benefit of creditors as a whole. This decision is justified by the realisations achieved (subject to a final apportionment of those proceeds to the Company) and contingent claims avoided. Sale of Businesses and Assets The Group principally operated in four business segments: Enterprise Solutions ( Enterprise ); Metro Ethernet Networks ( MEN ); Carrier Networks, which comprises Global System for Mobile Communications ( GSM ), Carrier VoIP Application Solutions ( CVAS ) and the Multi Service Switch business ( MSS ); and Code Division Multiple Access ( CDMA ). The disposal of all core global businesses and the principal assets of the Group were completed in Following the global sales, the Group has very few assets left to realise. The headline aggregate gross sale proceeds of the global disposals, including the gross sale proceeds from the sale of the residual Intellectual Property, total approximately $7.5 billion (before transaction costs, adjustments and escrow balances) and in accordance with the agreed basis for the global disposals, this amount remains in escrow pending allocation within the Group (as further explained below). Next Steps The Joint Administrators, having completed the principal trading phase of the Administration, remain focused on winding down the Company s affairs and resolving outstanding issues with the other Group companies. The key remaining issues for the Company are to deal with the resolution of intra-group issues, such as allocation of the sale proceeds within the Group (Purchase Price Allocation, or PPA ), the Financial Support Direction claims of the UK Pensions Regulator ( TPR ) asserted against certain EMEA Companies and the development of an appropriate process to agree creditors claims and distribute available funds to them. Further information is contained in the sections that follow. Real Estate The Company has vacated two of its three leasehold offices, and in November 2010 assigned the lease for the third office at Galway to Avaya Inc. A small area in nearby premises was sublet from Avaya until June 2012 for the continuing employees. Nortel took over this lease for a 12 month period until June This has recently been extended for a further three years with an option to break on the giving of one month s notice.

4 4 Employees Through the various business sales, the Joint Administrators have succeeded in transferring 287 employment contracts to the purchasers of the businesses. Employee numbers as at 13 July 2014 Employees at appointment 318 Additional employees 35 Transferred with business sales (287) Resignations and other leavers (30) Redundancies (28) Employees continuing as at 13 July The remaining employees are retained by the Joint Administrators to assist with the winding up of the Company and the other EMEA Companies.

5 5 2. Receipts and Payments Account Attached at Appendix 2 is the Joint Administrators receipts and payments ( R & P ) account for the period from 14 January 2014 to 13 July 2014 in respect of the Company. The R & P for the period shows total receipts of US$2.23 million and payments of US$2.42 million excluding FX translation movements. The Company held cash in various currencies equivalent to US$91.27 million at 13 July The R & P account is a statement of cash received and cash paid out, and does not reflect estimated future receipts or payments, including proceeds from the sales of businesses held in escrow pending allocation amongst the Group Companies. Further detailed notes are provided in Appendix 2.

6 6 3. Joint Administrators Remuneration and Disbursements It is the responsibility of the Committee to approve the Joint Administrators fees. During the period from 30 November 2013 to 30 May 2014 the Joint Administrators incurred time costs of GB 173, as well as transaction time costs of GB 2, in respect of the same period. We continue to apportion certain other time costs for workstreams undertaken for the benefit of all EMEA entities. During the period from 30 November 2013 to 30 May 2014, GB 482, has been allocated to the Company in respect of these apportionments. An analysis of the time spent is at Appendix 3. Payments to Other Professionals The Joint Administrators continue to engage the following professional advisors to assist them in the Administration. These professionals work on a time cost basis and internal review processes are undertaken to assess their invoices. During the period from 14 January 2014 to 13 July 2014 the following has been paid: Osborne Clarke - GBP 2,437 (Legal Advisors) Local Counsel 120,615 (Legal Advisors) Please note the above legal fees figure has been converted using monthly spot rates. As such, there may be a minimal difference between this figure and the figure reported in our R&Ps in Appendix 2 (which uses an average spot rate over the period 14 January 2014 to 13 July 2014). Since the Joint Administrators appointment, various costs (and in particular legal costs) have been incurred for the benefit of EMEA as a whole in respect of the various business sales and the PPA process. These costs have been paid by Nortel Networks UK Limited ( NNUK ) and have not yet been charged to the individual entities. At the conclusion of the PPA process, it is intended that these costs will be apportioned between the EMEA entities in proportion to each company s share of global sale proceeds. The costs of professional advisors who assist the Company with discrete matters in the usual course of business (for instance, debtor collection proceedings) are not included in this report.

7 7 4. Future Conduct of the Administration Purchase Price Allocation The Business Disposals As has been explained in our previous reports, there has been a lengthy process of mediation and court applications and hearings to try and resolve the issue of apportioning the proceeds of the sales of the business and assets between the estates, and also to resolve the various inter-estate claims. We previously reported that despite the objections of the Joint Administrators (which included subsequent appeals), the various US and Canadian courts held that the allocation argument should be heard at a joint hearing in Delaware and Toronto, with the Judges deciding on the outcome in the absence of any settlement. This joint hearing would be immediately followed by hearings in respect of the inter-estate claims. The date of the allocation hearing was set at 12 May 2014 and the claims hearing was set for 7 July As previously reported, the Joint Administrators reached a settlement with the US estate in December 2013 whereby all claims between the US estate, the Company, other EMEA entities and the UK Pension Interest ( UKPI ) were dropped in return for the US paying $75 million in cash; $37.5 million directly to the UKPI and $37.5m to the various EMEA estates. As a result, the claims hearing on 7 July 2014 was only in respect of claims involving the Canadian estate. During the reporting period, the Canadian judge, Justice Morawetz, resigned from the case and has since been replaced by Justice Newbould. For the purposes of this report, references to the Judges shall mean Justice Gross and Justice Newbould. Since the beginning of the year the Joint Administrators have spent their time on the dual process of preparing for and overseeing the litigation process and also attempting to settle the allocation argument position with the other estates as well as the various claims being brought against NNL. There have been several attempts to settle by all parties, with initiatives put forward by each estate which have all been considered in good faith. The parties, however, have been unable to reach any agreements. As a result the allocation trial commenced on 12 May 2014 and although all of the witnesses have now been heard and cross examined, final written arguments are due to be submitted by 7 August 2014 with the closing statements due to be heard on 22 and 23 September Throughout the trial (and after) the Joint Administrators have and will continue to carefully consider whether any settlements can be reached with the other parties (or any of them). The Joint Administrators do not anticipate any judgment until Q and there is a great deal of uncertainty as to the nature of any appeals process, should any of the parties wish to pursue such an appeal. The separate hearing, with respect to the inter-estate claims, was due to commence on 7 July 2014, however, the Joint Administrators of the EMEA entities, including the Company, reached a settlement agreement with the Canadian entities and the Canadian Monitor in respect of the Canadian claims.

8 8 The settlement will result in a withdrawal of the majority of the EMEA entities claims against the Canadian estate and, importantly, for the majority of EMEA entities including the Company, the Canadian entities will no longer participate in any future distribution to creditors. Subject to certain court approvals pending as at the date of this report, it is anticipated that in due course these arrangements will be extended to all EMEA filed entities. The Pensions Regulator in the UK TPR, a UK statutory body, has made claims against several Nortel group companies in EMEA, including the Company ( target companies ), and North America. Its Determinations Panel issued a decision in June 2010 that Financial Support Directions ( FSD ) should be issued, which would require the target companies to provide financial support to the Nortel Networks UK Limited pension scheme (the UK Pension Scheme ). The UK Pension Scheme is estimated to have a deficit of c. GB 2.1 billion. The Joint Administrators have referred the decision of the Determinations Panel to the Upper Tribunal (the Reference ). The Reference challenges this decision on behalf of the Company, as well as for each of the other target companies over which the Joint Administrators are appointed. Pending a determination of the Reference by the Upper Tribunal, no FSD may be issued to the target companies. In order to consider the consequences of TPR's action should a FSD or Contribution Notice ever be imposed, the Joint Administrators sought directions from the Court to determine whether a FSD or Contribution Notice can be claimed against an insolvent company and if it can, whether that claim would rank as an unsecured claim alongside other unsecured creditors, as a priority expense claim or as a 'non-provable debt' which would only be paid after all other creditors. With some reluctance, the English High Court and Court of Appeal concluded that they were bound by previous Court authority and decided that any liability under a FSD or Contribution Notice would rank as a priority expense claim in administration or liquidation, ahead of the claims of unsecured creditors. The Joint Administrators appealed to the UK Supreme Court and judgment was handed down on 24 July The Supreme Court allowed the appeal and overturned the decisions of the High Court and Court of Appeal. Accepting the arguments of the Joint Administrators, the Supreme Court decided that any liability in respect of a FSD or Contribution Notice issued against the Company would rank as a provable debt alongside those of unsecured creditors. The Supreme Court judgment deals only with how any liability under a FSD or Contribution Notice would rank against the Company. It has not been determined that the Company or any other Nortel entity in EMEA is under any obligation to make a contribution to the UK Pension Scheme. The Reference which will determine whether any FSD or Contribution Notice will be imposed on the Company has been stayed. The Joint Administrators expect that these proceedings are likely to be resumed only after resolution of PPA and other intra Group matters. The Joint Administrators will continue to vigorously defend the Company's position in relation to the action by TPR and it is not at all certain that any FSD or Contribution Notice will ultimately be imposed. The Joint Administrators will continue to update the Committee as appropriate of any key issues and their resolution.

9 9 Distributions to Creditors The Joint Administrators continue to invite submissions of claim forms as part of the informal claims process, which commenced in July At this time, given the extant issues in respect of TPR and PPA, it is not possible to make a distribution to the creditors of the Company or any of the other Nortel entities over which the Joint Administrators are appointed and which are a target of TPR, or to say when a formal creditor claims process can be commenced. However, the Joint Administrators continue to explore all possible avenues to resolve the issues, accelerate a distribution to creditors and minimise the expenses of the Administration. Before PPA receipts from the business disposal escrow accounts and the receipt of future intra-group dividends, the Joint Administrators anticipate that there will be, absent any unforeseen liabilities arising, in the region of US$85 million available to distribute to the creditors of the Company. The Joint Administrators are, however, still neither able to confirm the quantum of the preappointment creditor claims nor the likely return for individual creditors or classes of creditor. These will be determined for the most part by the following key factors: a. Continued analysis of the claims notified to the Joint Administrators in the informal claims process and the outcome of a subsequent formal proof of debt procedure; b. The imposition of any FSD on the Company by TPR. As set out above, it is not certain as to whether any such FSD will actually be imposed, nor is there clarity as to the quantum of the potential liability being sought. It should be noted that the Joint Administrators continue to defend the Company s position in respect of the action by TPR. The Joint Administrators are hopeful that the imposition of any such FSD can be successfully resisted; c. Finalisation of quantum of certain complex liabilities and claims; d. Finalisation of ranking of creditor claims which will be determined as part of the distribution process; and e. The outcome of the PPA process. Exit Strategy The Joint Administrators applied to Court in November 2013 and obtained a further extension of the Administration of each of the EMEA Companies until 13 January 2016 to allow for the completion of an orderly wind down process and the resolution of issues with other group companies. The Joint Administrators continue to explore the most appropriate exit route from the Administration for the Company and the other EMEA companies in Administration; that is to say the method by which creditors claims are agreed, funds are distributed to creditors and the Company s affairs generally are brought to a conclusion. The Joint Administrators will be required to carry out statutory obligations such as formalising the calling of proofs of debt, obtaining creditor agreements, finalising all asset realisations, dealing with all sale proceeds and inter-company claims, agreeing all other creditor claims and establishing the mechanics of distributing funds.

10 10 In any scenario, the distribution process used will be subject to timing implications, cost, the size of entity under review, relevant currencies, local law provisions on claims and local processes of other Group entities in relation to intra group dividends, in addition to UK legislation. The appropriate process of agreeing claims and distributing funds to creditors has not yet been determined. However, the process could be done within the Administration (with the Court s approval), within a company voluntary arrangement under the English Insolvency Act 1986, or a liquidation process. The appropriate process will be determined based on what is in the best interests of the Company and its creditors as a whole. 5. Other Matters The Committee The committee of creditors was formed at the creditors meeting held on 13 March The Joint Administrators continue to provide detailed information to the members of the Committee as the Administration progresses and matters evolve. The Joint Administrators will continue to keep the Committee apprised of developments. The Prescribed Part Section 176A of the Insolvency Act 1986 does not apply to this Administration as there is no qualifying floating charge security, and as such there is no Prescribed Part to be set aside for nonpreferential creditors.

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12 Appendix 1 Appendix 1 Nortel Networks (Ireland) Limited (In Administration) Company Information Registered number: Company name: Registered office address Previous names: Nortel Networks (Ireland) Limited Mervue Business Park, Mervue, Galway, Ireland Nortel (Ireland) Limited Details of the Administrators and of their appointment Administrators: A R Bloom of Ernst & Young LLP, 1 More London Place, London, SE1 2AF and D M Hughes of Ernst & Young, Chartered Accountants, Ernst & Young Building, Harcourt Centre, Dublin 2, Ireland Date of appointment: 14 January 2009 By whom appointed: Court reference: Division of the Administrators responsibility: The appointment was made by the High Court of Justice, Chancery Division, Companies Court on the application of the Company's directors. High Court of Justice, Chancery Division, Companies Court - case 541 of 2009 Any of the functions to be performed or powers exercisable by the administrators may be carried out/exercised by any one of them acting alone or by any or all of them acting jointly. Statement Concerning the EC Regulation on Insolvency Proceedings 2000 The EC Council Regulation on Insolvency Proceedings 2000 applies to this administration and the proceedings are main proceedings. This means that this administration is conducted according to English insolvency legislation and is not governed by the insolvency law of any other European Union Member State.

13 Appendix 1 Share Capital Class Authorised Issued & Fully paid Number Number Ordinary 900, , , , Preference 100, , , , Shareholders Nortel Networks Limited % Directors (current and for the last three years) and company secretary (current) Name Director or secretary Date appointed Date resigned Current shareholding David Quane Simon Freemantle Bernadette O'Connor DHKN Director 16/02/ Director 14/01/ Secretary 01/10/

14 Summary of Nortel Group Structure Appendix 1

15 Appendix 1 The EMEA Companies in English administration proceedings Legal Entity Nortel Networks UK Limited Nortel Networks S.A. Nortel Networks France S.A.S. Nortel Networks (Ireland) Limited Nortel GmbH Nortel Networks Oy Nortel Networks Romania SRL Nortel Networks AB Nortel Networks N.V. Nortel Networks S.p.A. Nortel Networks B.V. Nortel Networks International Finance & Holding B.V. Nortel Networks Polska Sp. z o.o. Nortel Networks (Austria) GmbH Nortel Networks s.r.o. Nortel Networks Engineering Service Kft Nortel Networks Portugal, S.A. Nortel Networks Hispania, S.A. Nortel Networks Slovensko s.r.o. Country of Incorporation England France France Ireland Germany Finland Romania Sweden Belgium Italy Netherlands Netherlands Poland Austria Czech Republic Hungary Portugal Spain Slovakia

16 Appendix 2 Appendix 2 Nortel Networks (Ireland) Limited (In Administration) Joint Administrators Abstract of Receipts and Payments from 14 January 2009 to 13 July 2014 Nortel Networks (Ireland) Limited (in Administration) Administrators' receipts and payments account for the period: 14 January 2009 to 13 July 2014 Currency: USD Period 14 January 2009 to 13 January 2014 Period 14 January 2014 to 13 July 2014 Total to 13 July 2014 Opening balance 59,686,822 59,686,822 Receipts Trading: - Post appointment sales 268,566,001 19, ,585,585 - TSA receipts 7,179, ,179,779 - Property income 1,505,779-1,505,779 - Overpayment refunds 1,138,544 38,735 1,177,279 - Asset sales 658, ,491 - Other receipts 413,336 9, ,442 Other: - Pre appointment sales 103,382, ,382,736 - US Settlement Allocation on Claims - 2,108,058 2,108,058 - Bank interest 2,368,140 51,856 2,419, ,212,450 2,227, ,440,145 Payments Trading: - Intercompany (246,728,712) - (246,728,712) - Payroll, employee benefits, and payroll taxes (45,823,280) (1,232,487) (47,055,767) - Accounts payable - inventory related (26,250,817) (39,622) (26,290,439) - Pension contributions (5,051,658) (141,377) (5,193,035) - Other taxes (3,246,689) - (3,246,689) - Property costs (2,788,097) (43,406) (2,831,503) - Other payments (2,958,734) (5,675) (2,964,409) - Utilities (1,339,116) - (1,339,116) - Contractors (325,034) - (325,034) - Trade payables (5,009) - (5,009) Other: - Joint Administrators' fees and disbursements (12,792,817) (731,918) (13,524,736) - Legal fees (5,012,817) (169,404) (5,182,221) - Restructuring costs (2,235,751) - (2,235,751) - FX Translation movement 2,673,184 (492,819) 2,180,365 - FX Translation movement on FX transactions within the entity (559,390) - (559,390) - Other professional services costs (440,961) (55,757) (496,718) - Bank charges and interest (56,385) (3,480) (59,865) (352,942,083) (2,915,945) (355,858,028) Closing balance 91,957,188 91,268,938 Account reconciliations: Local Accounts 1,608,013 1,446,488 Administration Accounts 90,349,175 89,822,450 91,957,188 91,268,938

17 Appendix 2 Nortel Networks (Ireland) Limited (In Administration) Joint Administrators Abstract of Receipts and Payments from 14 January 2009 to 13 July 2014 Nortel Networks (Ireland) Limited (in Administration) Administrators' receipts and payments account for the period: 14 January 2009 to 13 July 2014 Currency: EUR Period 14 January 2009 to 13 January 2014 Period 14 January 2014 to 13 July 2014 Total to 13 July 2014 Opening balance 46,344,299 46,344,299 Receipts Trading: - Post appointment sales 194,675,897 14, ,690,183 - TSA receipts 5,417, ,417,757 - Property income 1,140,584-1,140,584 - Overpayment refunds 874,812 28, ,067 - Asset sales 501, ,667 - Other receipts 306,087 6, ,729 Other: - Pre appointment sales 74,207,842-74,207,842 - FX Translation movement 859, ,737 1,035,860 - US Settlement Allocation on Claims - 1,537,743 1,537,743 - Bank interest 1,759,056 37,827 1,796, ,742,564 1,801, ,544,313 Payments Trading: - Intercompany (178,423,094) - (178,423,094) - Payroll, employee benefits, and payroll taxes (33,364,388) (899,035) (34,263,424) - Accounts payable - inventory related (19,279,386) (32,443) (19,311,829) - Pension contributions (3,663,289) (103,127) (3,766,416) - Other taxes (2,603,564) - (2,603,564) - Other payments (2,255,600) (4,139) (2,259,739) - Property costs (2,032,375) (31,662) (2,064,037) - Utilities (996,094) - (996,094) - Contractors (237,887) - (237,887) - Trade payables (3,595) - (3,595) Other: - Joint Administrators' fees and disbursements (9,477,956) (530,397) (10,008,353) - Legal fees (3,693,845) (123,571) (3,817,416) - Restructuring costs (1,692,360) - (1,692,360) - FX Translation movement on FX transactions within the entity (1,177,497) - (1,177,497) - Other professional services costs (333,919) (40,672) (374,590) - Bank charges and interest (42,085) (2,539) (44,623) (259,276,933) (1,767,586) (261,044,519) Closing balance 66,809,930 66,844,093 Account reconciliations: Local Accounts 1,168,275 1,059,388 Administration Accounts 65,641,658 65,784,705 66,809,930 66,844,093

18 Appendix 2 Nortel Networks (Ireland) Limited (In Administration) Receipts and payments comments There has been a significant reduction in the receipts and payments activity during the interim period against prior periods. This is representative of the wind down position of the business. Notes to R & P Note 1 Account balances have all been reported in a local currency, Euro, in addition to a common currency across all entities, USD. Opening balances have been converted using January 2009 month end spot rates and closing balances converted using June month end spot rates which have been provided by the Company. This approach is in line with the Company s internal reporting procedures. Transactions that have taken place through the accounts over the course of the reporting period (14 January 2014 to 13 July 2014) have been converted at average spot rates over this period, which have been sourced from the foreign exchange website Oanda. Consequently, foreign exchange movements have occurred in the period as a result of fluctuations in currency conversion rates. These are translation movements only and do not reflect an actual receipt or payment. Note 2 The numbers used to prepare the receipts and payments summary have been provided by the Company and are unaudited. Material items have been reviewed for accuracy and reasonableness. Note 3 The amounts reported are inclusive of sales tax where applicable. Note 4 All amounts referred to below are in USD unless stated otherwise. RECEIPTS There was cash on appointment held in Euro, GBP, CAD, DKK, NOK and USD accounts, which totalled $59.7 million. Total receipts since 13 January 2014 equate to $2.2 million. This primarily relates to the receipt of the Company s allocation of the settlement of claims between the US and EMEA, as referred to in our last progress report. US Settlement on Claims The Company s allocation of the US settlement on claims between EMEA totals to $2.1 million. Bank Interest Bank interest amounts received since 13 January 2014 total $0.1 million.

19 Appendix 2 Nortel Networks (Ireland) Limited (In Administration) Receipts and payments comments (continued) PAYMENTS Total payments since 13 January 2014 equate to $2.4 million (excluding FX movements). This primarily relates to payroll, the Joint Administrators remuneration, and legal fees Payroll Payroll costs since 13 January 2014 total $1.2 million and include net pay in addition to employee expenses, employee benefits and payroll taxes. Joint Administrators remuneration The Joint Administrators remuneration since 13 January 2014 total $0.7 million. These costs relate to fees and disbursements incurred in the course of the administration. Legal Fees Legal fees paid since 13 January 2014 total $0.2 million. Foreign exchange translation movement The total FX translation movement to 13 July 2014 is largely a result of a number fluctuating exchange rates against the USD. As such the total FX translation movement to 13 July 2014 does not represent a true monetary gain.

20 Appendix 3 Appendix 3 Nortel Networks (Ireland) Limited (In Administration) The Joint Administrators fees comprise the following three elements: Administration time costs Administration time costs are those fees incurred by the Joint Administrators in respect of the overall management of the Administration of the Company. They do not include core fees in relation to the sales of the businesses nor any reallocation of centrally incurred costs. These time costs are categorised into various workstreams and detailed in a table in accordance with the Statement of Insolvency Practice 9, an English regulatory requirement. These workstreams include, amongst others, creditors, employees, property, pensions and statutory. Reallocated time costs Throughout the Administration process, certain fees of the Joint Administrators have been charged centrally, for activities relating to all EMEA filed entities. Appropriate apportionment rates have been applied to these fees and the costs are apportioned accordingly between the various EMEA entities, including the Company. Please note, not all workstreams are apportioned to all EMEA entities. Total reallocated time costs across all EMEA entities for the period were GB 5,775, Transaction time costs The Joint Administrators have incurred fees in respect of the global business and asset sales. Apportionment rates have been applied to these fees, based on a provisional purchase price allocation ( PPA ) scenario, and the respective portions have been charged to each entity in EMEA, including the Company. In the fullness of time, there will be a true up of transaction time costs in accordance with actual PPA to each EMEA entity. Total transaction time costs across all EMEA entities for the period were GB 30, Total time costs for the Administration in respect of the period from 30 November 2013 to 30 May 2014 Time costs for the Administration for the period 30/11/2013 to 30/05/2014 Administration time costs 173, Reallocation of time costs 482, Transaction time costs 2, Total time costs 658,499.02

21 Appendix 3 Nortel Networks (Ireland) Limited (In Administration) Summary of Joint Administrators time costs in respect of the period from 30 November 2013 to 30 May 2014 (GBP) Excluding core M&A transaction time Activity Partner / Executive Director Director Hours Assistant Director Manager Executive Analyst Total sum of Average hourly hours rate Time costs for period Time costs for the Adminstration to date Cash forecasting , Communications , Creditors , , Customers , Day , Debtors , Directors , Employees , Estimated outcome , Fees , , Finance, accounting and administration , ,048, Legal , , M&A , Other assets , Pensions , Pre administration , Property , Statutory , , Strategy , Suppliers , Tax , , Trading , Grand Total , ,918, Average hourly rate Time costs for the period 74, , , , , Time costs for the Administration to date 765, ,505, , ,266, , , Time costs for the Administration to date may show minor variances from one progress report to the next, owing to timing differences and adjustments being made to prior period time reports. This information should not be considered definitive and is provided to creditors only for guidance.

22 Appendix 3 Administration fee analysis (GBP) Summary of total reallocated time costs for all EMEA filed entities in respect of the period from 30 November 2013 to 30 May 2014 Activity Partner Director / Executive Director Assistant Director Manager Executive / Assistant Executive Analyst Total sum of hours Average hourly rate ( ) Total reallocated time costs for the Period ( ) Total reallocated time costs to 30 May 2014 ( ) PPA, Claims & Strategy , , , , , , ,163, ,175, IT , , ,064, Finance, Accounting & Administration , , ,575, EMEA tax & VAT advisory , , ,969, Trading ,794, Creditors , ,773, Transfer Pricing ,745, Exit Strategy , ,654, Customers ,446, Debtors ,077, Canada / USA ,005, Intellectual Property Portfolio , Estimated Outcome Statement , Branches & equity interests , , Progress Reports , , France settlement , , CVA Planning , , Grand Total , , , , , , ,775, ,007, Average hourly rate ( ) Total reallocated time costs for the Period ( ) 705, , ,340, , ,273, , Total reallocated time costs to 30 May 2014 ( ) 4,825, ,897, ,940, ,270, ,954, ,119, Hours

23 Appendix 3 Administration fee analysis (GBP) Summary of total core M&A transactions time costs for all EMEA filed entities in respect of the period from 30 November 2013 to 30 May 2014 Activity Partner Director / Executive Director Hours Assistant Director Manager Executive Analyst Total sum of hours Average hourly rate ( ) Total transaction time costs for the Period ( ) Total transaction time costs to 30 May 2014 ( ) M&A / Transitional Services ,054, Purchase Price Allocation ,328, M&A / Equinox , ,522, M&A / Netas ,197, M&A Snow , ,793, M&A / GSM , ,584, M&A / Carrier , ,326, M&A / Passport ,119, Other Assets , M&A , M&A Iceberg , M&A / Velocity , Grand Total , ,766, Average hourly rate ( ) Total transaction time costs for the Period ( ) - 29, , Total transaction time costs to 30 May 2014 ( ) 2,559, ,167, ,962, ,873, ,639, , Note Time costs in respect of transactions for the period from 30 November 2013 to 30 May 2014 have been apportioned on a provisional basis, having regard to the nature of the work done and the extent of progress made in respect of some, but not all, core M&A transactions. The allocation is provisional and will change as the transactions progress and the outcome of the PPA is clear. Please note the Joint Administrators have only apportioned core M&A transaction time costs in respect of those transactions that have made sufficient progress. Therefore further core M&A transaction time costs will be apportioned in due course to the Company, and reapportioned as the outcome of the PPA process becomes clear.

24 Appendix 4 Appendix 4 Nortel Networks (Ireland) Limited (In Administration) Office Holders Charging Policy for Fees The statutory provisions relating to remuneration are set out in Rule of the Rules. Further information is given in the Association of Business Recovery Professionals publication A Creditors Guide to Administrators Fees, a copy of which may be accessed from the web site of the Insolvency Practitioners Association at (follow Regulation and Guidance then Creditors Guides to Fees ), or is available in hard copy upon written request to the Administrators. The creditors have determined that the Administrators remuneration should be fixed on the basis of time properly spent by the Administrators and their staff in attending to matters arising in the Administration. The Administrators have engaged managers and other staff to work on the cases. The work required is delegated to the most appropriate level of staff taking account of the nature of the work and the individual s experience. Additional assistance is provided by accounting and treasury executives dealing with the Company s bank accounts and statutory compliance diaries, secretaries providing typing and other support services and filing clerks. Work carried out by all staff is subject to the overall supervision of the Administrators. All time spent by staff working directly on case-related matters is charged to a separate time code established for each case. Each member of staff has a specific hourly rate, which is subject to change over time. The average hourly rate for each category of staff over the period is shown in Appendix 3, as are the current hourly rates used. The current hourly rates may be higher than the average rates, if hourly rates have increased over the period covered by this report. Office Holders Charging Policy for Disbursements Statement of Insolvency Practice No. 9 ( SIP 9 ) published by R3 (The Association of Business Recovery Professionals) divides disbursements into two categories. Category 1 disbursements comprise payments made by the office holders firm, which comprise specific expenditure relating to the administration of the insolvent s affairs and referable to payment to an independent third party. These disbursements can be paid from the insolvent s assets without approval from the Committee. In line with SIP 9, it is our policy to disclose such disbursements drawn but not to seek approval for their payment. Category 2 disbursements comprise payments made by the office holders firm which include elements of shared or overhead costs. Such disbursements are subject to approval from Creditors Committee as if they were remuneration. It is our policy, in line with SIP 9, to seek approval for this category of disbursement before they are drawn.

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