Shareholder info
Distribution of Nortel - May 1, 2000
Effective May 1, 2000, BCE distributed approximately 35% of its ownership interest in Nortel Networks Corporation (Nortel) to BCE common shareholders. The transaction had important tax implications for BCE shareholders.
The following information is a summary and is provided for your convenience:
The following summarizes certain information contained in the Notice of Application and Joint Arrangement Circular, (the "Joint Arrangement Circular") of BCE Inc. and Nortel Networks Corporation dated February 29, 2000 . This summary is qualified in its entirety by the more detailed information contained in the Joint Arrangement Circular, in the Annexes attached thereto and in the document incorporated by reference therein. Shareholders are urged to read the Joint Arrangement Circular, the attached Annexes and the document incorporated therein by reference carefully and in their entirety.
Background information
As a result of the completion of the Arrangement, BCE common shareholders retained their existing shares and for those who were BCE common shareholders of record on May 5, 2000, received 1.570386 common shares of Nortel Networks for every BCE common share owned. This distribution took into account the impact of Nortel's 2-for-1 stock split, which occurred as part of the Arrangement. Fractional shares of Nortel Networks were not distributed and were aggregated and sold through Computershare Trust Company of Canada, with the net proceeds being paid to holders based on their fractional entitlements.
Summary of the tax implications for Canadian shareholders
A Canadian resident BCE common shareholder that holds BCE common shares as capital property, other than a dissenting BCE shareholder, will not generally realize a capital gain or loss as a result of the Arrangement, except in connection with cash received in lieu of a Nortel Networks fractional share. The capital gain or loss will be equal to the difference between the cash received and such shareholder's adjusted cost base (ACB) in the Nortel Networks fractional share. For a shareholder to determine his or her capital gain or loss as a result of the cash received in lieu of a fractional share and on subsequent dispositions of his or her BCE common shares or Nortel Networks common shares, a shareholder who held BCE common shares as capital property prior to the Arrangement must divide his or her ACB of BCE common shares between the common shares of BCE retained and the common shares of Nortel Networks received by such holder on the Arrangement. BCE has determined that, in its view and that of its advisors, such a shareholder's ACB of BCE common shares pre-arrangement should be allocated as follows:
| BCE common shares | 30.79% |
| Nortel Networks common shares | 69.21% |
It should be noted that the above allocation is not binding upon the Canada Customs and Revenue Agency.
Summary of the tax implications for U S shareholders
NOTE: When we first announced the BCE/Nortel transaction in January 2000, we began a communications program to remind holders of BCE common shares, who would later be asked to approve the distribution, of the tax consequences to both Canadian and U S shareholders. BCE went beyond standard legal practices in this regard. Press releases, the Joint Arrangement Circular sent to all shareholders as well as a letter determining the cost base allocation of the transaction repeatedly reminded shareholders of the tax consequences described below. Shareholders were urged to consult their tax advisors.
A BCE shareholder that is a U S taxpayer will be required to treat this distribution as a taxable dividend according to U S tax laws. The dividend will be equal to the fair market value of the Nortel Networks common shares on May 1, 2000, the effective date of the Arrangement.
U S tax laws do not prescribe any specific method for determining fair market value, however, one acceptable alternative is to use the average high and low prices for Nortel Networks common shares on the effective date. Based on information from the New York Stock Exchange, the high and low for a whole Nortel Networks common share on May 1, 2000 were U S$120.25 and U S$114.50 per share respectively, before taking into account Nortel Networks' 2-for-1 stock split.
Your tax basis for Nortel Networks common shares will also equal this fair market value. No change should be made in the tax basis of your BCE shares.
It should be noted that the above discussion is not binding upon the United States Internal Revenue Service and shareholders (including shareholders who seek to utilize a date other than the effective date of the Arrangement or who have special facts) are urged to consult their own tax advisors.