Nortel Networks Corporation and Nortel Networks Limited, 2011 CanLII 11977

Headnote National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions -Issuer and parent issuer subject of creditor protection proceedings in Canada, United States and elsewhere – issuers in process of selling principal operating businesses and remaining businesses – issuers are reporting issuers in Canada and “venture issuers” for purposes of National Instrument 51-102 – Continuous Disclosure (NI 51-102) – issuer was formerly an “SEC issuer” as defined in NI 51-102 and National Instrument 52-107 - Acceptable Accounting Principles, Auditing Standards and Reporting Currency (NI 52-107) but has completed deregistration process – parent issuer continues to be an SEC issuer – no securities of either issuer trade on any exchange – issuers have publicly announced holders of equity securities unlikely to receive any value from creditor protection proceedings – creditors of issuers unlikely to receive full recovery – issuers seeking to reduce costs to maximize value of their estates for the benefit of creditors – parent issuer and issuer formerly complied with Canadian reporting requirements by filing corresponding U.S. filings in accordance with NI 51-102 and 52-107 – parent issuer will continue to be an SEC issuer under NI 51-102 and NI 52-107 and will continue to file all required disclosure on SEDAR – as a result of deregistration, issuer no longer an SEC issuer for purposes of NI 51-102 or NI 52-107 and required to file financial statements prepared in accordance with Canadian GAAP and to file executive compensation disclosure prepared in accordance with Form 6 of NI 51-102 (NI 51-102F6) – parent issuer and issuer further seeking relief from delivery requirements to deliver financial statements and MD&A to holders of equity securities – in light of expectation that equity securities will receive no value in the creditor protection proceedings and ultimately will be cancelled, filers do not believe incurrence of printing, mailing and handling costs justified – Relief granted, subject to conditions, to permit issuer to file specified disclosure in accordance with specified U.S. requirements until conclusion of creditor protection proceedings - Applicable Legislative Provisions National Instrument 52-107 – Acceptable Accounting Principles, Auditing Standards and Reporting Currency, ss. 3.2, and 3.3 National Instrument 51-102 – Continuous Disclosure Obligations, ss. 4.6, 5.6 and 11.6(2)

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

NORTEL NETWORKS CORPORATION

AND NORTEL NETWORKS LIMITED

DECISION

Background

The principal regulator has received an application from Nortel Networks Corporation (NNC) and Nortel Networks Limited (NNL, and collectively with NNC, the Filers) under the securities legislation of Ontario (the Legislation) for a decision pursuant to Section 5.1 of National Instrument 52-107 - Acceptable Accounting Principles and Auditing Standards (NI 52-107) and Section 13.1 of National Instrument 51-102 - Continuous Disclosure Obligations (NI 51-102) that: (1) NNL is exempt from (i) the requirements of Sections 3.2 and 3.3 of NI 52-107 for all financial statements (as such term is defined in NI 52-107 and NI 51-102) for periods beginning on or after January 1, 2011 until the conclusion of the CCAA Proceedings (as defined below) (collectively, the Extended Exempted Periods), and (ii) the requirements of Section 11.6(2) of NI 51-102 for its financial years ending on or after December 31, 2010 until the conclusion of the CCAA Proceedings; and (2) each of the Filers is exempt from the requirements of Sections 4.6 and 5.6 of NI 51-102 until the conclusion of the CCAA Proceedings (collectively, the Exemptions Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filers have provided notice that Section 4.7(1) of Multilateral Instrument 11-102 - Passport System is intended to be relied upon in each of the provinces and territories of Canada other than Ontario (together with Ontario, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 – Definitions have the same meaning in this decision, unless they are otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

1. NNC is incorporated under the Canada Business Corporations Act (the CBCA) and is a reporting issuer in each Jurisdiction where such concept exists.

2. NNL is incorporated under the CBCA and is a reporting issuer in each Jurisdiction where such concept exists.

3. For the purposes of Parts 4, 5, 6 and 9 of NI 51-102, and for the purposes of Form 51-102F1 and Form 51-102F6 under NI 51-102, as at the end of the Filers’ most recently completed financial year, being December 31, 2010, each of the Filers was a venture issuer, as such term is defined in NI 51-102.

4. The Filers are not in default of any of their respective obligations as reporting issuers under the securities legislation of any of the Jurisdictions.

5. NNC’s issued share capital and outstanding debt securities consist of common shares, together with associated rights under a shareholder rights protection plan (the NNC Common Shares) and two series of convertible senior notes (collectively, the NNC Notes), which notes are fully and unconditionally guaranteed by NNL and a subsidiary of the Filers.

6. NNL’s issued share capital and outstanding debt securities consist of common shares (the NNL Common Shares) all of which are held by NNC, two series of Class A Preferred Shares (collectively, the NNL Preferred Shares), three series of senior notes which notes are fully and unconditionally guaranteed by NNC and a subsidiary of the Filers (collectively, the High Yield Notes) and one other series of notes (collectively with the High Yield Notes, the NNL Notes). NNL has also fully and unconditionally guaranteed the payment of a series of notes issued by a subsidiary of the Filers.

7. NNL is NNC’s principal direct operating subsidiary and NNL’s financial results are consolidated with the financial results of NNC.

8. Since January 14, 2009, the Filers and certain of their Canadian subsidiaries have been operating under court protection from their creditors in Canada under the Companies’ Creditors Arrangement Act (the CCAA Proceedings) and certain other subsidiaries of the Filers have been operating under court protection from their creditors under applicable bankruptcy or insolvency legislation in the United States and various other countries (together with the CCAA Proceedings, the Creditor Protection Proceedings).

9. Pursuant to the Creditor Protection Proceedings, the Filers have sold substantially all of their businesses, substantially all of the net proceeds of which are being held in escrow pending agreement or other final determination on the allocation of such proceeds among the Filers and those subsidiaries of the Filers that participated in the sales.

10. The Filers are now focused on providing global transitional services to the purchasers of the businesses, pursuant to contractual obligations entered into in connection with the sales, and on maximizing cash flows and sale proceeds of their remaining assets. This includes the winding up of the Filers’ remaining operations and subsidiaries globally.

11. Although creditor claims against the Filers in the CCAA Proceedings have not been finally determined or resolved, it is all but certain that unsecured creditors of the Filers will not receive full recovery on the debts owed to them. Consequently, such creditors have an interest in preserving the assets of the Filers. The Filers, in turn, have a responsibility to reduce unnecessary costs and take other steps to maximize the value of their estates for their respective creditors.

12. The timing of the filing and approval of a plan of arrangement by the Filers and other debtor subsidiaries in the CCAA Proceedings currently remains uncertain and is dependent upon, among other things, the final resolution of the allocation of sale proceeds and creditor claims matters.

13. Since the commencement of the Creditor Protection Proceedings, the Filers have disclosed in numerous news releases and in other continuous disclosure documents the expectation that the holders of NNC Common Shares and NNL Preferred Shares will not receive any value from the Creditor Protection Proceedings and that such proceedings will ultimately result in the cancellation of such equity interests.

14. The NNC Common Shares were delisted from the New York Stock Exchange on February 2, 2009. The NNC Common Shares and the NNL Preferred Shares were delisted from the Toronto Stock Exchange on June 26, 2009. The NNC Common Shares and the NNL Preferred Shares are not currently listed on any stock exchange.

15. None of the NNC Notes or the NNL Notes are listed on any stock exchange.

16. Each of the Filers is required to meet the continuous disclosure requirements prescribed by Canadian securities legislation for venture issuers (Canadian Reporting Requirements).

17. NNC is, and until March 18, 2010 NNL was, an SEC issuer, as such term is defined in NI 51-102 and NI 52-107. In accordance with NI 51-102 and NI 52-107, NNC complies with, and until March 18, 2010 NNL complied with, certain of its Canadian Reporting Requirements by filing corresponding disclosure documents prepared in accordance with, and filed within the time periods prescribed by, the periodic reporting requirements of the 1934 Act (U.S. Reporting Requirements and, collectively with the Canadian Reporting Requirements, the Reporting Obligations).

18. NNC qualifies as a smaller reporting company as defined under Regulation S-K under the 1934 Act (a Smaller Reporting Company). The disclosure requirements for Smaller Reporting Companies under the 1934 Act are, in certain respects, less onerous than those applicable to issuers that do not qualify as Smaller Reporting Companies.

19. Prior to Deregistration (as defined below), NNL did not qualify as a Smaller Reporting Company.

20. As part of their ongoing cost reduction activities, the Filers and certain of their subsidiaries, on March 11, 2010, made the necessary filings with the SEC to reflect the automatic suspension of the reporting requirements under the 1934 Act with respect to their debt securities and related guarantees. Also, on March 18, 2010, NNL made the necessary filings with the SEC under the 1934 Act to terminate the registration of the NNL Common Shares under the 1934 Act and suspend NNL’s obligations to file periodic reports with the SEC, including Forms 10-K, 10-Q and 8-K. As a result of the foregoing processes, known as “deregistration” (Deregistration), as of March 18, 2010 NNL had no further obligations under the 1934 Act to file periodic reports with the SEC.

21. Following Deregistration:

(a) the NNC Common Shares remain registered under section 12(g) of the 1934 Act;

(b) NNC continues to be subject to U.S. Reporting Requirements as a Smaller Reporting Company and is, therefore, required to prepare its annual and interim financial statements in accordance with U.S. GAAP, as such term is defined in NI 52-107, and file disclosure documents in accordance with U.S. Reporting Requirements;

(c) NNC continues to be eligible to rely on the exceptions applicable to SEC issuers provided for in NI 51-102 and NI 52-107 in respect of Canadian Reporting Requirements; and

(d) all periodic reports, including interim and annual financial statements and related management’s discussion and analysis of financial condition and results of operations (MD&A) and officer’s certificates contained therein, that are filed by NNC with the SEC continue to be filed in Canada on SEDAR in accordance with NI 51-102 and NI 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings.

22. As a result of Deregistration, as of March 18, 2010 NNL was no longer required to comply with U.S. Reporting Requirements and was, therefore, no longer an SEC issuer for the purposes of NI 51-102 or NI 52-107. Absent the 2010 Exemptive Relief (as defined below), NNL would have had to commence reporting under Canadian securities legislation in accordance with the disclosure requirements applicable to reporting issuers that are not SEC issuers.

23. On April 15, 2010, NNL obtained discretionary exemptions (collectively, the 2010 Exemptive Relief) from the following continuous disclosure requirements in all Jurisdictions, subject to certain conditions:

(a) the requirements of Sections 3.1 and 3.2 (as then in effect) of NI 52-107 for its financial year ended December 31, 2009, for each of the interim periods in its financial year ending December 31, 2010, and for its financial year ending December 31, 2010 (the Exempted Periods), provided its financial statements for the Exempted Periods were prepared in accordance with U.S. GAAP as supplemented by the requirements of Regulation S-X under the 1934 Act that are applicable to NNC (i.e., as if NNL were also a Smaller Reporting Company) and, in the case of its annual financial statements for the Exempted Periods, such financial statements were audited in accordance with U.S. GAAS (as such term was then defined in NI 52-107) and accompanied by an auditor’s report prepared in accordance with U.S. GAAS that complied with paragraphs (a) through (d) of Section 4.2 (as then in effect) of NI 52-107, as if such Section were applicable; and

(b) the requirements of Section 11.6(2) of NI 51-102 for its financial year ended December 31, 2009, provided that NNL satisfied the executive compensation disclosure required by Section 11.6(1) of NI 51-102 for such financial year by providing the information required by Item 402 (“Executive Compensation”) of Regulation S-K under the 1934 Act.

24. If the Exemptions Sought are not granted, NNL would be required under NI 52-107 to file financial statements prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises (IFRS) commencing with the first quarter of 2011. Further, NNL would be required to file executive compensation disclosure prepared in accordance with the form requirements of Form 51-102F6 commencing with its financial year ended December 31, 2010.

25. NNL is NNC’s principal direct operating subsidiary and NNL’s financial results continue to be consolidated with the financial results of NNC.

26. The Filers also continue to have the same NEOs, as such term is defined in Form 51-102F6, and the executive compensation disclosure required to be filed by NNC in satisfaction of its Reporting Obligations for its financial year ended December 31, 2010 would be the same as the executive compensation disclosure that NNL would be required to file to satisfy the corresponding Canadian Reporting Requirements for such financial year if NNL were an SEC issuer that qualified as a Smaller Reporting Company.

27. NNL has reported its financial results in accordance with U.S. GAAP since January 1, 2000 and has publicly disclosed its expectation that, in view of its circumstances, it will not be adopting IFRS.

28. In light of the expectation that the NNC Common Shares and NNL Preferred Shares will receive no value in the Creditor Protection Proceedings and ultimately will be cancelled, the Filers and the Monitor do not believe that the incurrence of further printing, mailing and handling costs to satisfy the delivery requirements of NI 51-102 are justified or consistent with the interests and expectations of creditors of the Filers.

Decision

The principal regulator is satisfied that this decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemptions Sought are granted provided that the following conditions are satisfied:

(a) NNC remains the holder of all of the NNL Common Shares;

(b) NNC continues to be an SEC issuer;

(c) NNL’s financial results continue to be consolidated with the financial results of NNC in NNC’s financial statements filed in satisfaction of its Reporting Obligations;

(d) for the Extended Exempted Periods, NNL prepares its financial statements in accordance with U.S. GAAP as supplemented by the requirements of Regulation S-X under the 1934 Act that are applicable to NNC and, in the case of its financial statements that are required by securities legislation to be audited, such financial statements are audited in accordance with U.S. PCAOB GAAS (as such term is defined in NI 52-107 and NI 51-102) and accompanied by an auditor’s report prepared in accordance with U.S. PCAOB GAAS that complies with the requirements of Section 3.8 of NI 52-107, as if such Section were applicable;

(e) NNL satisfies the executive compensation disclosure required pursuant to Section 11.6(1) of NI 51-102 for its financial years ending on or after December 31, 2010 until the conclusion of the CCAA Proceedings by providing the information required by Item 402 (“Executive Compensation”) of Regulation S‑K under the 1934 Act, which, so long as NNC qualifies as a Smaller Reporting Company, may be provided as if NNL were also a Smaller Reporting Company; and

(f) each of the Filers issues and files a news release at the time it files its financial statements and related MD&A disclosing that such filings have been made and that such filings will be available on such Filer’s website and providing its website address, and such filings are made available on such Filer’s website as soon as reasonably practicable thereafter;

and provided further that the Filers shall give the principal regulator prompt written notice, including reasonable details, of (i) any changes in the representations contained in paragraphs 4, 11 (with respect to the expectation that unsecured creditors of the Filers will not receive full recovery on the debts owed to them), 14, 15, 16, 17, 21, 25, 26 and 28 hereof that occur prior to the conclusion of the CCAA Proceedings, and (ii) the conclusion of the CCAA Proceedings.

Ontario Securities Commission

Date: March 9, 2011

“Michael Brown”

Michael Brown Assistant Manager, Corporate Finance Ontario Securities Commission

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