Securities Law & Instruments


Subsection 59(1) of Schedule 1 to the Regulation - issuer exempt from payment of feeotherwise payable pursuant to subsection 23(1) of the Schedule in connection with a"three-cornered" amalgamation where trades exempt from registration and prospectusrequirements pursuant to section 2.8 of Ontario Securities Commission Rule 45-501Exempt Distributions.

Statutes Cited

Securities Act, R.S.O. 1990, c.S.5, as am., s. 72(1)(i)

Regulations Cited

Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am., ss. 23(1)and 59(1) of Schedule 1.

Rules Cited

Ontario Securities Commission Rule 45-501 Exempt Distributions (1998), 21 OSCB6548.

R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act")


R.R.O. 1990, REGULATION 1015, AS AMENDED (the "Regulation")



(Subsection 59(1) of Schedule I)


UPON the application of Nortel Networks Corporation ("Nortel Networks") to theOntario Securities Commission ("Commission") for an exemption pursuant to subsection59(1) of Schedule I (the "Schedule") to the Regulation exempting Nortel Networks from therequirement to pay the fee otherwise payable under section 7.7 of Commission Rule45-501 Exempt Distributions ("Rule 45-501") and subsection 23(1) of the Schedule;

AND UPON considering the application and the recommendation of the staff of theCommission;

AND UPON Nortel Networks having represented to the Commission that:

1. Nortel Networks is a corporation organized under the laws of Canada, is a reportingissuer under the Act and, to the best of its knowledge, is not in default of any of therequirements of the Act or the rules or regulations made thereunder.

2. Periphonics Corporation ("Periphonics") is a corporation organized under the lawsof the State of Delaware and is not a reporting issuer under the Act.

3. Effective November 12, 1999 (the "Effective Time"), North Subsidiary, Inc. ("NorthSub"), a corporation organized under the laws of the State of Delaware and awholly-owned subsidiary of Nortel Networks, merged with and into Periphonicssuch that Periphonics survived and continued as a Delaware corporation("MergedCo") and as a wholly-owned subsidiary of Nortel Networks (the "Merger").

4. In connection with the Merger, the following securities transactions, among others,occurred automatically by operation of law:

(a) except as described in subparagraph (d) below, each share of common stockof Periphonics (a "Periphonics Share") outstanding immediately prior to theEffective Time was converted into the right to receive 0.62 of a commonshare of Nortel Networks (a "Nortel Networks Share"), provided that eachPeriphonics stockholder who would otherwise have been entitled to receivea fractional Periphonics Share was instead entitled to receive a cashpayment in lieu of a fractional share;

(b) in consideration for the issuance by Nortel Networks of the Nortel NetworksShares referred to in subparagraph (a) above, MergedCo issued to NortelNetworks 13,573,242 shares of its common stock (the "MergedCo Shares"),par value U.S.$0.01 per share, such number of MergedCo Shares equal tothe number of Periphonics Shares outstanding immediately prior to theEffective Time;

(c) the sole share of North Sub common stock outstanding immediately prior tothe Effective Time was converted into one share of preferred stock, parvalue U.S.$0.001, of MergedCo (such preferred stock and the MergedCoShares together, the "MergedCo Securities"); and

(d) each of the Periphonics Shares held by Periphonics or any wholly-ownedsubsidiary of Periphonics, or owned by Nortel Networks or its subsidiaries,immediately prior to the Effective Time was cancelled and retired, and noconsideration was exchanged therefor.

5. At the Effective Time, the aggregate value of the MergedCo Securities was asfollows: (i) the aggregate value of the MergedCo Shares was approximatelyU.S.$624.8 million (based upon the closing price of U.S.$74.25 per share for NortelNetworks Shares on the New York Stock Exchange on November 11, 1999),representing the consideration received by Nortel Networks for the issuance of8,415,410 Nortel Networks Shares in the Merger to former stockholders ofPeriphonics; and (ii) the value of the share of preferred stock of MergedCo wasapproximately U.S.$100, representing the conversion of the sole issued andoutstanding share of North Sub in the Merger.

6. Pursuant to section 2.8 of Rule 45-501, the trades referred to in subparagraphs4(a), (b) and (c) above, were exempt from the registration and prospectusrequirements of the Act (the "Prospectus Exemption").

7. The issuance of the MergedCo Shares to Nortel Networks in the Merger was aninter-company transaction carried out for technical legal reasons.

8. Because the MergedCo Shares represent the consideration received by NortelNetworks for all the Nortel Networks Shares issued in the Merger, using the valueof the MergedCo Shares to calculate the Commission's fee would subject the entirevalue of the acquisition to Ontario filing fees notwithstanding that, to the knowledgeof Nortel Networks, Ontario resident beneficial holders of Periphonics Sharesreceived only approximately 0.01% of the Nortel Networks Shares issued in theMerger.

9. The MergedCo preferred stock issued in the Merger was issued upon theconversion of the only outstanding share of common stock of North Sub, which washeld by Nortel Networks prior to the Merger.

10. Pursuant to section 7.7 of Rule 45-501 and subsection 23(1) of the Schedule, thefee payable by Nortel Networks to the Commission in respect of the Merger isrequired to be calculated on the basis of 0.02% of the aggregate value of thesecurities distributed in Ontario in reliance upon the Prospectus Exemption.

11. Subsection 23(1) of the Schedule would therefore technically require NortelNetworks to pay a fee calculated on a basis which would include the entire valueof the MergedCo securities. The entire value of MergedCo Securities at theEffective Time was approximately U.S.$624.8 million and results in a fee ofapproximately U.S.$112,471.96 (inclusive of the 10% reduction in fees pursuant tosubsection 1.1(2) of the Schedule).

AND UPON the Commission being satisfied that to do so would not be prejudicialto the public interest;

IT IS RULED, pursuant to subsection 59(1) of the Schedule, that Nortel Networksis exempt from payment of the fees required pursuant to section 7.7 of Rule 45-501 andsubsection 23(1) of the Schedule in connection with the trades described insubparagraphs 4(b) and (c) above.

March 10th, 2000.

"Howard I. Wetston"      "Morley P. Carscallen"