NORTEL S CCAA FILING: INFORMATION MEETING FOR FORMER EMPLOYEES OF NORTEL RE: NORTEL NETWORKS LIMITED MANAGERIAL AND NON- NEGOTIATED PENSION PLAN and OTHER BENEFITS February 17, 2009 Kirkland Sports Complex
Agenda Initiative Introduction Al Shellard Susan Philpott Koskie Minsky Marcel Rivest Rivest, Schmidt Q & A Wrap-up Koskie Minsky, Marcel Rivest & Committee 2
Nortel Retirees Protection Committee (NRPC) history Initiated in Ottawa Late 2008 A search for Canadian precedents for legal protection of pension plans leads to Koskie Minsky LLP (KM) Jan 2009 Nortel files for bankruptcy protection Jan 14 Ottawa team conferences with KM lawyers Jan 14 - NRPC is born - Information/sign-up meeting set for Jan 21 3
Nortel Retirees Protection Committee (NRPC) history Some Toronto retirees learn of the NRPC initiative Jan 16 Meeting arranged with these retirees and KM lawyers Jan 20 - This group agrees to join the NRPC initiative as the Toronto Committee - Information meeting planned for Jan 30 KM book hall and write notice of meeting Jan 22 4
NRPC s National Goal GOAL: One National NRPC Committee with geographic representation and breadth of expertise NRPC Subcommittees to Date: Ottawa Originating Committee Toronto Montreal Calgary London Belleville Vancouver 5
KOSKIE MINSKY LLP Mark Zigler Managing Partner Susan Philpott Head of Pension Group Firm expertise: Pension and Benefits Insolvency Law Marcel Rivest - Koskie Minsky will be working alongside Marcel Rivest, a Quebecbased lawyer with expertise in this area of law 6
KOSKIE MINSKY LLP Experienced in the area of CCAA restructurings Air Canada Stelco Irwin Toy Eaton s Many others 7
NORTEL S CCAA FILING January 14, 2009: Nortel Networks Corporation (NNC) and several Nortel affiliates filed for court protection from their creditors Canada: Nortel filed for protection under the Companies Creditors Arrangement Act ( CCAA ) United States: Nortel filed for corresponding protection under Chapter 11 and 15 of the U.S. Bankruptcy Code UK: Proceedings have been filed as well 8
CORPORATE RESTRUCTURINGS: GENERALLY Companies in financial difficulty often file for protection from their creditors in order to facilitate a restructuring of the company Insolvency legislation works to stop creditors from making claims against the company s assets during the restructuring 9
NORTEL: CCAA APPLICATION Nortel filed for protection under the CCAA Not a bankruptcy! Nortel says it will attempt to restructure and become a financially viable company Business as usual 10
NORTEL: CCAA APPLICATION Ultimate outcome is uncertain: May continue as a going concern; or May declare bankruptcy. Regardless of the outcome, compromises will be necessary CCAA restructurings require compromises to be made by all creditors, including employees and retirees 11
THE CCAA: A Plan of Arrangement Court-supervised process Monitor appointed to oversee process Plan of Arrangement is made between the company and its creditors The Court has very broad discretion and will use creative solutions to reach a successful restructuring 12
THE CCAA: A Plan of Arrangement No hard and fast rules to determine what will happen throughout the Court process Judge of Ontario Superior Court of Justice must approve the Plan of Arrangement Final resolution of Plan of Arrangement must be voted on and agreed to by the majority of company s creditors 13
THE CCAA: Parties to the Process All creditors and stakeholders participate in the restructuring Major creditors likely to each retain their own counsel The Pension Plan administrator and the Government are often involved Retirees and members of Pension Plans are often represented by court-appointed counsel 14
THE CCAA: Successful Restructuring If a CCAA restructuring succeeds: Company will emerge from court protection or be sold May involve new financing agreements May involve new arrangements between the company and its employees, retirees, lenders and trade creditors Company will continue in business 15
THE CCAA: Failed Restructuring If a CCAA restructuring fails, then the company may: Become a bankrupt under the Bankruptcy and Insolvency Act (BIA) A Receiver may be appointed Both routes generally involve the sale of assets or business liquidation 16
CCAA: Pensions and Benefits Pensions and benefits are affected by CCAA restructurings Pension Plan and benefits may be continued and preserved (e.g. Air Canada, Stelco and Algoma) Pension Plan may be wound-up 17
CCAA: Retiree Health Benefits Retiree health benefits are often an issue in a CCAA restructuring Health benefits are not protected by any legislation or by a Government guarantee fund Benefits are funded by Nortel s operating assets unsecured claim in the proceedings Currently, the benefits are being paid, but we are talking to the Company about what will happen in the future 18
CCAA: Other Employment-Based Claims Severance and termination packages have been suspended Transition Retirement Allowance (TRA) payments have stopped Excess pension and SERP payments have stopped 19
CCAA: Pensions Funds currently in the registered Pension Fund are protected Funds are held in trust and do not form part of Nortel s assets Problem deficiency in the Pension Fund Underfunded Pension Plan: Assets in the Fund are insufficient to cover the Pension Plan s liabilities Will a purchaser assume pension liabilities? 20
PBGF: Pension Law Protection PBGF may help to fund your Pension Plan for pensioners employed in Ontario Pension benefits are guaranteed in Ontario under the Pension Benefits Guarantee Fund (PBGF) for the first $1,000 worth of pension benefits you are entitled to This applies to underfunded pension plans that are being wound up 21
HOW DOES THE PBGF WORK? Example: $2000 monthly pension and a Pension Plan that is only 75% funded Government tops-up payment to ensure that the first $1000 is fully protected In this case, the Government would pay $250 monthly to ensure the first $1000 is fully paid The last $1000 is paid by the Plan at 75% (or $750) Total pension is reduced to $1750 22
LIMITS TO THE PBGF Benefit improvements in last 3 years prior to an insolvency are not covered Only Ontario employment is covered by the PBGF Issue: Nortel retirees worked in other provinces (Quebec, Alberta) 23
PBGF: Pension Law Protection But the PBGF is underfunded itself The Ontario Government must commit to loan money to the PBGF In the past, the government has done so (i.e. Stelco) Or, the Ontario Government could fund the Plan directly Uncertain what will happen at this point 24
Quebec: Bill 1 Protections New legislation permits the government to take over administration of a pension plan instead of winding it up immediately. 5 years Guarantee minimum payments based on the funded level of the plan at takeover, AND If the funded level improves, passed on to plan members 25
NORTEL S PENSION PLAN As of December 31, 2007 (AIR) Active Members: 5464 Inactive Members: 9746 As of December 31, 2006 (AV) Inactive Members: 9553 Deferred Pensioners: 4067 Pensioners: 4882 Survivors: 604 26
NORTEL S PENSION FUND Going Concern Position as of December 31, 2006 Assets: $2,459,036,000 Liabilities: $2,326,395,000 Funding Excess: $132,641,000 27
NORTEL S PENSION FUND Wind-Up Position as of December 31, 2006 Assets: $2,439,036,000 Liabilities: $2,822,651,000 Wind-Up Deficiency - $383,615,000 28
NORTEL: What has happened since December 2006? 2007 AIR: Market value of assets decreased $118 M in 2007 2008 - Unknown Equity markets are down over 40% worldwide for 2008 29
UPDATE ON NORTEL S CCAA FILING Application Granted: January 14, 2009; Stay extended to May 1, 2009 Monitor: Ernst & Young has been appointed Koskie Minsky LLP has been in contact with the Monitor and Nortel Many creditors have retained counsel The PBGF has retained counsel 30
RETAINING COUNSEL Counsel can be retained to represent the pension and other non-pension benefits interests of former employees of Nortel in the CCAA proceedings The Nortel Networks Limited Managerial and Non-Negotiated Pension Plan is a distinct group Different interests than current Nortel employees and members of other Nortel Pension Plans 31
RETAINING COUNSEL Formation of the NRPC By retaining counsel and having the NRPC appointed as representative of your Pension Plan: Stronger voice Better protection for your pensions Court will recognize group as a creditor Court may agree that NRPC s legal expenses should be paid by Nortel 32
REPRESENTATIVE COUNSEL: THE PROCESS Retain Koskie Minsky LLP as counsel Apply to Court to have NRPC appointed as Representative of the Pension Plan members Apply to Court to have Koskie Minsky LLP appointed as Representative Counsel to NRPC Apply to Court for an Order to have NRPC s legal expenses paid by Nortel 33
RETAINING COUNSEL Sign an Authorization and Retainer Provide your contact information to NRPC Make nominal payment to NRPC may be refunded if the Court orders Nortel to pay NRPC s legal expenses 34
Montreal Committee George Young Al Shellard Ken Lyons Serge Dery Raynald Dion Gilles Ouellette Ward Whittingham Bill Veteranyi Mike Brault Des O Farrell Chick Taylor Claude Gauthier Wilf Hall Dave Agnew (NRPC liaison) Information web site at www.nortelpensioners.ca 35
THANK YOU! The NRPC and Koskie Minsky LLP thank you for your attendance today For future updates, please visit Koskie Minsky s website at www.kmlaw.ca 36