Securities Law & Instruments


MRRS for Exemptive Relief Applications- exemption from eligibility requirements under National Instrument44-102 Shelf Distributions to enable issuer to distribute equityunits, subject to conditions - acceptance of prospectus supplementpertaining to equity units.

Applicable Ontario Statutes

Securities Act R.S.O. 1990,c. S.5, as am.

Applicable Ontario Rules

National Instrument 44-102Shelf Distributions, ss. 3.1, 4.1.







WHEREAS the local securitiesregulatory authority or regulator (the "Decision Maker")in each of British Columbia, Alberta, Saskatchewan, Manitoba,Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island,Newfoundland and Labrador, the Northwest Territories, the YukonTerritory and the Territory of Nunavut (the "Jurisdictions")has received an application (the "Application") fromNortel Networks Corporation ("Nortel") for a decisionunder the securities legislation of the Jurisdictions (the "Legislation")that:

(a) Nortel be exempt fromthe requirements of section 3.1 of National Instrument 44-102Shelf Distributions ("44-102") such that Nortelmay distribute certain securities under a base shelf prospectusas supplemented by a shelf prospectus supplement; and

(b) The Decision Makershave accepted a draft shelf prospectus supplement pertainingto the distribution of certain of such securities;

AND WHEREAS under theMutual Reliance Review System for Exemptive Relief Applications(the "System") the Ontario Securities Commission isthe principal regulator for this Application;

AND WHEREAS Nortel hasrepresented to the Decision Makers that:

1. Nortel is a corporationincorporated under the laws of Canada, is a reporting issuerin each of the Jurisdictions where such concept exists and,to the best of its knowledge, is not in default of any requirementof the Legislation.

2. Nortel is qualified tofile a prospectus in the form of a short form prospectus undersection 2.2 of National Instrument 44-101 Short Form ProspectusDistributions ("44-101").

3. Nortel Networks Limitedis a corporation incorporated under the laws of Canada, isa reporting issuer in each of the Jurisdictions where suchconcept exists and, to the best of its knowledge, is not indefault of any requirement of the Legislation. All of theoutstanding common shares of Nortel Networks Limited are heldby Nortel.

4. Nortel Networks Limitedis eligible to file a prospectus in the form of a short formprospectus under section 2.6 of 44-101 for a distributionof debt securities or preferred shares convertible into securitiesof a credit supporter, including Nortel.

5. On May 13, 2002, Norteland Nortel Networks Limited filed a preliminary short formbase shelf prospectus (the "Canadian Base Shelf")with the Decision Makers in accordance with 44-102. It isanticipated that Nortel and Nortel Networks Limited will filethe Canadian Base Shelf in final form with the Decision Makerson or about May 30, 2002. The Canadian Base Shelf is an "unallocatedshelf" and effectively incorporates a prospectus (the"U.S. Shelf Prospectus") filed by Nortel and NortelNetworks Limited with the United States Securities and ExchangeCommission on May 13, 2002.

6. Under the Canadian BaseShelf, Nortel may issue various types of securities, includingshare purchase contracts. Share purchase contracts may beissued by Nortel separately or as part of units consistingof a share purchase contract and debt securities of Nortelor obligations of third parties (including U.S. treasury securities).

7. Nortel is contemplatingqualifying for sale in Canada and the U.S. (the "Offering")certain equity units (the "Equity Units") whichwould each initially evidence a holder's ownership of:

(i) a prepaid forward purchasecontract entitling the holder thereof to receive a determinablenumber of common shares ("Common Shares") of Nortel(the "Purchase Contract"); and

(ii) A number of specifiedUnited States zero-coupon treasury securities (the "TreasuryComponent").

8. In connection with theOffering, the Equity Units would be qualified for sale inthe Jurisdictions under the final Canadian Base Shelf, assupplemented by a shelf prospectus supplement to be filedin accordance with 44-102. The Purchase Contract is a "specifiedderivative" within the meaning of 44-102. Accordingly,Nortel filed with each Decision Maker a draft preliminaryshelf prospectus supplement on May 29, 2002 (the "EquityUnits Supplement") in respect of the Offering for pre-clearanceas contemplated by subsection 4.1(2) of 44-102. The EquityUnits Supplement is in substantially final form.

9. In accordance with theterms of a purchase contract agreement (the "PurchaseContract Agreement") to be entered into between Norteland a purchase contract agent (the "Purchase ContractAgent"), on behalf of the holders of the Purchase Contracts,each Purchase Contract would entitle the holder to delivery(without any further consideration) of a number of CommonShares to be determined by reference to the average of theclosing prices of the Common Shares on the New York StockExchange during a period of time shortly before the settlementdate (the "Settlement Date"), which is expectedto be three years from the closing date of the Offering (unlessan acceleration event occurs prior to such date or the holderhas elected an early settlement option, as described below).

10. A representative of theunderwriters of the Offering would purchase United Stateszero-coupon treasury securities (the "U.S. Treasury Strips")with the portion of the Equity Unit price allocable to theTreasury Components and deliver them to a custodian (the "Custodian")who would hold them as agent for the holders of the EquityUnits, in accordance with the terms of a custodial agreementto be entered into between the Custodian and the PurchaseContract Agent, on behalf of the holders of the Equity Units.

11. The U.S. Treasury Stripswill be in face amounts and have semi-annual maturity datesstructured to provide holders of Equity Units with a semi-annualdistribution in an amount to be fixed at the time of pricingof the Offering. Each semi-annual distribution would consistof the maturity of a U.S. Treasury Strip payable by the U.S.Government to the Custodian, which would then be remittedby the Custodian to the Purchase Contract Agent for paymentto holders of the Equity Units. Nortel will not have any obligationsor liabilities in respect of the Treasury Components.

12. Holders of Equity Unitsmay choose to hold their Purchase Contracts and their TreasuryComponents separately, rather than in the form of Equity Units,in which case the corresponding Equity Units would be cancelled.Equity Units may also be recreated at any time by depositingwith the Purchase Contract Agent and the Custodian, as thecase may be, for each Equity Unit being recreated, one PurchaseContract and each of the U.S. Treasury Strips which has notyet matured and remains in the Treasury Component.

13. The Purchase ContractAgreement will provide that a holder of Equity Units may electto accelerate the Settlement Date (the "Early SettlementOption") in respect of such holder's Purchase Contractsand receive a specified number of Common Shares per PurchaseContract which will depend upon the date of election. Uponthe exercise of the Early Settlement Option by a holder ofPurchase Contracts held in the form of Equity Units, suchholder will receive the U.S. Treasury Strips evidenced bysuch holder's Treasury Components.

14. The Purchase ContractAgreement will also provide that, upon the occurrence of certainspecified events of bankruptcy, insolvency or reorganizationwith respect to Nortel (each such event, an "AccelerationEvent"), the Settlement Date will automatically accelerateand the holders of Equity Units will be entitled to receivea specified number of Common Shares per Purchase Contract.Upon the occurrence of an Acceleration Event, holders of PurchaseContracts held in the form of Equity Units will receive theU.S. Treasury Strips evidenced by the holder's Treasury Components.

15. Pursuant to section 3.1of 44-102, an issuer is permitted to establish a base shelfprospectus pertaining to one or more securities for whichthe issuer is qualified to file a prospectus in the form ofa short form prospectus. Nortel is not qualified to file aprospectus in the form of a short form prospectus for theTreasury Components and therefore is not qualified to filea prospectus in the form of a short form prospectus for theEligible Units. Nortel is therefore unable to effect the Offeringunder the Canadian Base Shelf without relief from the eligibilityrequirements of 44-102.

16. Nortel is of the viewthat prospective purchasers of Eligible Units will not deriveany additional benefit or protection from the disclosure requiredby a long form prospectus. The risks associated with holdingU.S. treasury securities in the form of the Treasury Componentsare limited to the creditworthiness of the U.S. Government.

AND WHEREAS under theSystem, this MRRS Decision Document evidences the decision ofeach Decision Maker (collectively, the "Decision");

AND WHEREAS each of theDecision Makers is satisfied that the test contained in theLegislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;

THE DECISION of the DecisionMakers under the Legislation is that Nortel is exempt from therequirements of section 3.1 of 44-102, such that Nortel maydistribute units ("Eligible Units") consisting of"share purchase contracts" (as defined in the CanadianBase Shelf) and United States Treasury securities under thefinal Canadian Base Shelf, as supplemented by a shelf prospectussupplement; provided that Nortel shall file before or concurrentlywith the filing of the final Canadian Base Shelf an undertakingwith the Decision Makers that it will not distribute under thefinal Canadian Base Shelf any Eligible Units in a Jurisdiction,unless:

(a) the draft shelf prospectussupplement or, if more than one shelf prospectus supplementis to be used, each of the draft shelf prospectus supplements,pertaining to the distribution of the Eligible Units havebeen delivered to the applicable Decision Maker in substantiallyfinal form; and

(b) either (i) the DecisionMaker has confirmed his or her acceptance of each draftshelf prospectus supplement in substantially final formor each shelf prospectus supplement in final form, or (ii)21 days have elapsed since the date of delivery to the DecisionMaker of each draft shelf prospectus supplement in substantiallyfinal form and the Decision Maker has not provided writtencomments on the draft shelf prospectus supplement.

THE FURTHER DECISIONof the Decision Makers under the Legislation is that, in accordancewith clause 4.1(2)(b) of 44-102 and the undertaking of Nortelreferred to above, the Decision Makers have accepted the EquityUnits Supplement pertaining to the distribution of Equity Units.

May 31, 2002.

"Iva Vranic"


AND THE FURTHER DECISIONof the Decision Makers under the Legislation is that the Applicationand the Decision shall be held in confidence by the DecisionMakers until the earlier of (a) the public announcement of anoffering of Equity Units under the Equity Unit Supplement, and(b) September 1, 2002.

May 31, 2002.

"Paul M. Moore"                    "HowardI. Wetston"