Court File and Parties

COURT FILE NO.: CV-09-7950-00CL DATE: 2018-10-23 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF NORTEL NETWORKS CORPORATION, NORTEL NETWORKS LIMITED, NORTEL NETWORKS GLOBAL CORPORATION, NORTEL NETWORKS INTERNATIONAL CORPORATION AND NORTEL NETWORKS TECHNOLOGY CORPORATION, NORTEL COMMUNICATIONS INC., ARCHITEL SYSTEMS CORPORATION AND NORTHERN TELECOM CANADA LIMITED, Applicants

BEFORE: Regional Senior Justice G.B. Morawetz

COUNSEL: Christopher Armstrong, for the Monitor, Ernst & Young Inc. Scott Bomhof, for the US Debtors, Nortel Networks Inc. et al. Jeffrey Spiegelman, for Apex Logistics Paul McCullough, for the Ministry of the Environment, Conservation and Parks

HEARD AND DETERMINED: October 17, 2018 RELEASED: October 23, 2018

Endorsement

[1] At the conclusion of the hearing on October 17, 2018, I granted the motion with reasons to follow. These are the reasons.

[2] Ernst & Young Inc., in its capacity as monitor (the “Monitor”) of the Canadian Debtors brought a motion for:

a. an order (the “MECP Belleville Settlement Order”) approving the Belleville Property Settlement Agreement (MECP) dated October 10, 2018 among Her Majesty the Queen in Right of Ontario as Represented by the Minister of the Environment, Conservation and Parks (“MECP”), Nortel Networks Limited (“NNL”) and the Monitor (the “MECP Belleville Settlement”); and

b. an order (the “Brockville Settlement Order”) approving the Brockville Property Settlement Agreement dated April 2, 2018, among SCI Brockville Corporation (“SCI”), Sanmina Corporation, NNL and the Monitor, as amended by the Amendment to Brockville Property Settlement Agreement dated October 11, 2018 (the “Brockville Settlement”).

[3] In addition to the MECP Belleville Settlement and the Brockville Settlement, NNL and the Monitor have also entered into settlements regarding all other claims asserted against the Canadian Debtors relating to the Belleville Property and the Brockville Property (each as defined below).

[4] The Monitor reports that the MECP Belleville Settlement, the Brockville Settlement and the other settlements are the result of extensive good faith, arms’-length negotiations among the Canadian Debtors, the Monitor, MECP, SCI and various other environmental stakeholders that have been carried out over the past several years in an attempt to reach a consensual resolution regarding environmental matters pertaining to the Belleville Property and the Brockville Property and the Director’s Orders in respect thereof.

[5] The Monitor reports that the settlements provide significant benefits to the Canadian Debtors and their stakeholders by crystallizing the liabilities of NNL, which in turn allows for a reduction of related reserves and facilitates a further distribution to creditors.

[6] Although the Director’s Orders vary on a case by case basis, each required NNL to prepare, seek MECP approval of, and implement a remediation work plan for the particular Property or portions thereof.

[7] In addition to the Director’s Orders, various proofs of claim totaling in excess of Cdn. $230 million were filed against the Canadian Debtors asserting claims with respect of the environment impacts that of the various properties and, in some cases, lands adjacent thereto by various third parties. In addition, the MECP also filed an Omnibus Proof of Claim against NNL in respect of costs of remediating environmental impacts related to the properties for Cdn. $100 million (the “MECP Claims”).

[8] Excluding the MECP Claims, the filed claims relating to the Belleville Property and the Brockville Property total approximately $142 million and $35 million, respectively.

[9] Nortel’s Plan of Compromise and Arrangement (the “Plan”) received court approval in 2017. In light of the implementation of the Plan in May 2017, the Canadian Debtors and Monitor communicated to the MECP and other environmental stakeholders that, in order to facilitate the wind-down of the Canadian Estates and distributions to creditors, final resolutions of the Belleville Property and Brockville Property environmental claims were required in the near term.

[10] On October 1, 2018, counsel to the Monitor advised that all claims relating to the Belleville Property and the Brockville Property had been resolved and that the parties were in the process of finalizing documentation.

[11] The proposed MECP Belleville Settlement provides for the full and final settlement of all matters at issue among NNL, the Monitor and the MECP with respect to the Belleville Property, including the Director’s Order related to the Belleville Property and the MECP Claim.

[12] The principal terms of the MECP Settlement provide that on the effective date, the parties agree that MECP shall have a Proven, Affected, Unsecured Claim against the Canadian Estates under the Plan in the amount of Cdn. $3,500,000. On the effective date, MECP releases the Canadian Debtors, the Monitor and related parties from all claims the MECP in any way has arising out of or connected to the Belleville Property and all manner or regulatory actions and any liability arising therefrom. Further, from and after the date of the MECP Belleville Settlement, none of the released parties shall be required to perform or satisfy any environmental obligations in connection with the subject property.

[13] The parties brought to the Court’s attention that the MECP Belleville Settlement is subject to the satisfaction or waiver of certain conditions precedent, including: (i) court approval; and (ii) the Director’s Orders shall have been revoked against NNL and a withdrawal of the NNL appeal of the Director’s Orders shall be accepted and the NNL appeal dismissed by order of the Environmental Review Tribunal (the “ERT”).

[14] A hearing to have the Director’s Orders revoked as against NNL by order of the ERT is scheduled for October 23, 2018.

[15] In addition to the MECP Belleville Settlement, NNL and the Monitor also entered into settlement agreement with each of the three other claimants who asserted claims relating to the Belleville Property. The three settlements are for proven, unsecured claims aggregating approximately Cdn. $3 million, include comprehensive releases in favour of the Canadian Debtors and are conditional upon the revocation of the Belleville Property Director’s Order against NNL and the withdrawal of the NNL appeal by the Director’s Order by final order of the ERT.

[16] The Monitor advises that the individual claimants have received claims based upon alleged damages specific to them and unlike the MECP, do not have a claim in relation to the remediation of the Belleville Property. As a result, the Monitor is satisfied that the various claims accepted relating to the Belleville Property comply with the rule against double proofs.

[17] With respect to the Brockville Property, a former wholly-owned subsidiary of NNL was the owner of the Brockville Property until 1999 when the issued and outstanding shares of the subsidiary were sold to a predecessor to SCI. At the time of the sale, the Brockville Property was subject to certain environmental impacts. In connection with the sale, NNL agreed to indemnify SCI against certain environmental liabilities. Following the CCAA filing, NNL ceased to perform any remedial work at the Brockville Property effective April 23, 2012. SCI filed a Proof of Claim against NNC asserting a claim of approximately Cdn. $21.2 million, plus Cdn., $254,206.97 (the “SCI Claim”). Apex Logistics Inc. (“Apex”), the current owner of the Brockville Property, also filed a Proof of Claim in the amount of Cdn. $16,500,000.

[18] The proposed Brockville Settlement provides for a full and final settlement of all matters among NNL, the Monitor, SCI and Sanmina Corporation, including the Director’s Order relating to the Brockville Property and the Proof of Claim filed by SCI. The principal terms of the settlement provide that the parties agree that SCI shall have a Proven, Affected, Unsecured Claim against the Canadian Estates in the amount of Cdn. $10,735,000 (the “SCI Proven Claim”). Further, SCI agrees that it will perform any and all investigatory and remediation work in respect of the Brockville Property as may be required by the MECP and, on the effective date, the Sanmina parties will release the Canadian Debtors, the Monitor and their related parties from all claims the Sanmina parties may have in respect of the Brockville Property.

[19] The Settlement is subject to certain conditions precedent including: (i) court approval; (ii) the Director’s Orders shall have been irrevocably withdrawn against NNL by order of the ERT; (iii) the MECP consents to the Brockville Settlement, irrevocably withdraws the MECP Claim and delivers an executed release to the Canadian Debtors; and (iv) Apex consents to the settlement, irrevocably withdraws its Proof of Claim and delivers and executed release to the Canadian Debtors. The MECP has executed a consent to the Brockville Settlement and release pursuant to which, in exchange for payment of Cdn. $10, the MECP consents to the Brockville Settlement, agrees to take steps necessary to ensure that the Director’s Order as against NNL is revoked, and on the effective date irrevocably withdraws the MECP Claim and delivers a release to the Canadian Debtors and the Monitor.

[20] The Monitor also advises that NNL and the Monitor have reached a settlement agreement with Apex to settle Apex’s Proof of Claim in exchange for acceptance of a general unsecured claim against NNL in the amount of Cdn. $250,000.

[21] Finally, a hearing date of the Director’s Order revoked as against NNL is scheduled for October 22, 2018.

[22] Further, the NNL and the Monitor have also entered into agreement with the MECP and Apex relating the Brockville Property. The settlement has been structured such that SCI has received a claim that relates to the historic and future anticipated costs to perform investigatory remediation work at the Brockville Property, whereas Apex received a claim based upon alleged loss specific to it, but not in relation to the remediation. As a result, the Monitor is satisfied that the various claims accepted relating to the Brockville Property comply with the rules against double proofs.

[23] The Monitor has recommended approval of the MECP Belleville Settlement and the Brockville Settlement.

[24] When approving a settlement under the CCAA, the court must be satisfied that: (i) The transaction is fair and reasonable; (ii) The transaction would be beneficial to the debtor and its stakeholders generally; and (iii) The settlement is consistent with the purpose and spirit of the CCAA (see: Labourers Pension Fund of Central and Eastern Canada v. Sino-Forest Corp., 2013 ONSC 1078 at para. 49, leave to appeal to CA refused, 2013 ONCA 456, leave to appeal to SCC refused (2013) SCCA No. 395).

[25] The Monitor submits that both settlements will provide significant benefit to the Canadian Debtors and their stakeholders and assist in advancing these proceedings. In particular, the settlements will provide certainty in respect of the Canadian Debtors environmental liabilities by crystallizing the liabilities of NNL, which in turn will allow for the reduction of related reserves and facilitate a further distribution to creditors.

[26] Counsel to the Monitor points out that, over the past several years, the Canadian Debtors and the Monitor have worked with the MECP and other environmental stakeholders and interested parties in good faith in an attempt to reach a consensual and final resolution in respect of the Director’s Orders, the ERT proceedings and the various claims asserted against NNL in the CCAA proceedings. I am satisfied that both settlements have been arrived at following the exchange of significant information in respect of the claim and following an extensive negotiation process among the parties.

[27] I am also satisfied that the Monitor has a thorough understanding of the issues involved and in such circumstances I am prepared to place significant weight on the recommendation of the Monitor in support of the settlement.

[28] The proposed form of orders provide a court ordered release of the “released parties” from any liability to any person in respect of the Belleville Property and the Brockville Property, respectively, save for: (i) the claims that have been accepted by the Monitor under the MECP Belleville Settlement, the Brockville Settlement and the other settlements; and (ii) any claim that is not permitted to be released pursuant to s. 5.1(2) of the CCAA or with respect to fraud on the part of any released party.

[29] The “released parties” include the Canadian Debtors, the Monitor (both in its capacity as Monitor and in its personal capacity) and each of their respective counsel and former affiliates, directors, officers, employees, agents, trustees, beneficiaries, lawyers, personal representatives and authorized representatives.

[30] I note that courts have previously approved and granted releases, in favour of third parties, in connection with court approved settlement agreements and specifically, the court has granted a release similar to the requested releases in connection with the approval of the settlement pertaining to the London Property (see Nortel Networks Corp., (Re), 2010 ONSC 1708; Grace Canada Inc., (Re) (2008), 50 CVR (5th) 25 (Ont. SCJ (Commercial List));, and London Settlement Agreement Order dated November 28, 2017 (Court File No.: 09-CL-7950)).

[31] In Nortel Networks, (Re), the court determined that a settlement agreement containing a third-party release would be found to be fair and reasonable where the release (1) is necessary and connected to a resolution of claims against the debtor, (2) will benefit creditors generally, and (3) is not overly broad or offensive to public policy (see Nortel, supra at para. 79 and Grace, supra at para. 40).

[32] I am satisfied in these circumstances that the releases contemplated by the proposed orders are fair and reasonable and satisfy the guidelines set by the court in Nortel and Grace.

[33] In arriving at this conclusion, I am satisfied that the releases are necessary and connected to a resolution of claims against the Canadian Debtors and once implemented, represent a final resolution of all issues pertaining to the Belleville Property and the Brockville Property with respect to the CCAA proceedings.

[34] It is noted that the settlements follow on years of negotiations among the relevant parties. The Nortel proceedings have been ongoing for nearly a decade and I am satisfied that potential claimants have been given every opportunity to assert claims against the Canadian Debtors and their former directors and officers, including in respect of alleged environmental liabilities. In these circumstances, the granting of the relief sought is both fair and reasonable and will ensure finality with respect to these claims against the Canadian Estates.

[35] I also note that in addition to owners or former owners of property, environmental legislation permits the MECP to issue orders against a person who has or had “management or control” of a property, for example, former directors and officers. If pursued by the MECP, such persons could, in turn, assert claims for indemnity against the Canadian Debtors. As the settlements are intended to represent a final settlement of the liability of the Canadian Estates in relation to the Belleville Property and the Brockville Property, I am satisfied that the requested third party relief is inextricably linked to the resolution of environmental claims against the Canadian Estates and will ensure closure in respect of the Belleville Property and the Brockville Property.

[36] This closure will allow the Monitor to reduce the significant administrative and unsecured claims and reserves that were established in respect of the Canadian Debtors, potential environmental liabilities, which in turn facilitates the further distribution to creditors. As such, the proposed relief will also benefit creditors generally.

[37] I am also satisfied that the proposed releases are neither over broad nor offensive to public policy. As in Nortel, supra, the claims being released specifically relate to the subject matter of the agreement and the party granting the release received consideration in respect thereof. The releases sought are specifically tied to potential liabilities to the Canadian Debtors and their related parties and the claimants are receiving significant consideration in the form of unsecured claims totally approximately Cdn. $17.5 million. In my view, the relief sought is narrowly tailored to the specific subject matter and is not overly broad or offensive to public policy. Moreover, in my view, the releases do not purport to release any liability that cannot be released under s. 5.1(2) of the CCAA or any liability for fraud, and as such, are appropriately tailored.

[38] In the result, the requested relief is granted and the MECP Belleville Settlement Order and the Brockville Settlement Order have been signed in the form submitted.

Regional Senior Justice G.B. Morawetz Date: October 23, 2018