Claims Filed against Nortel in US and Canada - September 30, 2009

In Q1-3 of the current FAQ we identified two activities whereby the Pension Protection Fund (“PPF”) and the Trustee of Nortel Networks UK Pension Plan (“Plan”) could seek to recover what cash they are entitled to from the UK and North American insolvency processes.

We are now able to update you with details of a third activity which has been under consideration since shortly after NNUK entered Administration in January 2009. The Trustee (assisted by its legal and actuarial advisers and its financial adviser PricewaterhouseCoopers) has been cooperating with the UK Pensions Regulator (“TPR”) concerning possible claims for financial support to be provided by certain Nortel Group companies. Such claims can be asserted when a pension plan's sponsoring employer (in our case, NNUK) does not have sufficient resources to meet a specified amount of the plan's deficit but one or more of the other companies in the Group does have the resources to meet the balance of that amount.

The North American bankruptcy courts have established a deadline for the filing of creditors' claims (known as the ‘claims bar’ date). This date is September 30, 2009.

Accordingly, following consultation with TPR and the PPF, the Trustee and the PPF have today filed claims in the US and Canadian courts for an amount up to the Section 75 deficit in the Plan which is currently estimated to be approximately £2.1Bn as at 13 January 2009. As you will know, a similar claim has already been made by the PPF against NNUK and there are also further claims against Nortel Networks Ltd. in Canada in respect of guarantees held by the Trustee.

Whatever the claim mechanism or combination of mechanisms referred to above, the Trustee would not expect total recoveries to exceed the full Section 75 deficit.

The Trustee’s objective continues to be the recovery of more than the so called PPF or ‘Section 143 deficit’ (currently estimated to be in the region of £700M). If this is achieved and the Trustee is able to buy out benefits for members at a level greater than those provided by the PPF then the Plan would not be taken over by the PPF at the end of the assessment period.

We will keep members informed of the progress of the foregoing but it is likely to take a considerable period of time before there is a conclusion. During the process the costs incurred by the Plan and the potential recoveries will be kept under constant review.

Further updates will be posted on this website as they become available.

Section 75 Deficit

This is the difference between the Plan Actuary’s estimate of the cost of buying full Plan benefits for all Plan members from an insurance company using market conditions in existence at the relevant date and the value of Plan assets at the same date.

Section 143 Deficit ( this is lower than the Section 75 Deficit because PPF benefits are less than Plan benefits)

This is the difference between the PPF’s prescribed estimate of the cost of buying PPF defined benefits for all Plan members from an insurance company using market conditions in existence on the day before NNUK entered Administration and the value of Plan assets at the same date.

Note: This update is intended to provide a summary of certain recent events but is not intended to provide a full description of the legal framework to which those events relate.