Nortel Announces Inter-company Funding Agreement and Settlement of Certain Inter-company Claims

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Nortel Announces Inter-company Funding Agreement and Settlement of Certain Inter-company Claims Nortel Announces Inter-company Funding Agreement and Settlement of Certain Inter-company ClaimsNortel Announces Inter-company Funding Agreement and Settlement of Certain Inter-company Claims

23 December 2009

TORONTO - Nortel* Networks Corporation [OTC: NRTLQ] announced today that it, Nortel Networks Limited (NNL), Nortel Networks Inc. (NNI), and certain of its other Canadian and U.S. subsidiaries that have filed for creditor protection in Canada or the U.S., have entered into a Final Canadian Funding and Settlement Agreement (Agreement). The Agreement provides, among other things, for the settlement of certain intercompany claims, including in respect of amounts determined to be owed by NNL to NNI under Nortel's transfer pricing arrangements for the years 2001 through 2005. As part of the settlement, NNL has agreed to the establishment of a pre-filing claim in favour of NNI in the Canadian creditor protection proceedings in the net amount of approximately US$2.063 billion, which claim will not be subject to any offset. The Agreement also provides that NNI will pay to NNL approximately US$190 million over the course of 2010, which amount includes the contribution of NNI and certain U.S. affiliates towards certain estimated costs to be incurred by NNL on their behalf for the duration of the creditor protection proceedings. The Agreement also provides for the allocation of certain other anticipated costs to be incurred by the parties, including those relating to the divestiture of Nortel's various businesses.

The Agreement is subject to a number of conditions, including: that NNL and NNI enter into advance pricing agreements with the Canadian and U.S. tax authorities to resolve certain transfer pricing issues, on a retrospective basis, for the taxable years 2001 through 2005; and court approvals in the U.S. and Canada.

In addition, in consideration for a settlement payment of US$37.5 million, the United States Internal Revenue Service (IRS) has agreed to release all of its claims against NNI and other members of NNI's consolidated tax group for the years 1998 through 2008. As a result of this settlement, the IRS has agreed to withdraw its proof of claim against NNI in the amount of approximately US$3 billion. This settlement is a condition of the Agreement and is also subject to U.S. court approval.

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