Nortel Networks Spins Off Channelware Inc - Company Business and Marketing

Cambridge Telcom Report, July 12, 1999

Nortel Networks (NYSE/TSE: NT) Tuesday announced the spin off of Channelware Inc., a Nortel Networks Venture, as a separate company. Subsequent to the spin off, Channelware has secured financing of US$9.2 million in a private placement deal with Yorkton Securities Inc. acting as the underwriter. Among the new investors is Sofinov, a subsidiary of the Caisse de d\006p\027t et placement du Qu\006bec. After closing of the equity financing, Nortel Networks owns approximately 45 percent of the voting equity of Channelware.

The emergence of Channelware Inc. is a keynote event for Nortel Networks and is the latest in a succession of research and development projects with commercial potential to be identified, nurtured and spun off. It follows Nortel Networks successful spin offs of Entrust Technologies Inc., a leader in enterprise security solutions, and Elastic Networks, a provider of high-speed Internet access and mobile IP computing solutions.

"Channelware's NetActive technology is a prime example of a radically innovative, Internet-based concept being developed into a stand alone business," says Joanne Hyland, vice- president of New Business Opportunities, Nortel Networks. "Over 24 months and with assistance of our incubator program, it's been nurtured to a point where it can stand alone as a viable business capitalizing on new market opportunities. Indeed, Channelware was especially exciting because it had the potential to open up a totally new market space from the very beginning."

Channelware already has agreements with the top interactive entertainment software publishers on programs to distribute PC games that are accessible and affordable. Channelware's NetActive anti-piracy technology, embedded in a PC game, enables game publishers to distribute the games to the mass market. By way of a brief Internet connection, each individual using a NetActive game is presented with customized purchase preferences, which can range from rental, rent-to-own, outright purchase or even a free trial of the full-game, all from one CD, in real time.

"For the past two years, software based entertainment has outpaced both television and movies as the preferred source of entertainment for consumers," says Channelware president and chief executive officer Jeff Dodge. "With our NetActive technology, PC entertainment can expand even more to become a true mass market industry." Channelware is currently focussed on developing programs to distribute NetActive PC games in selected retail stores across North America.

"The Channelware spin off continues a Nortel Networks' strategy to establish independent businesses with the flexibility to form strategic partnerships to accelerate the adoption of innovative new technologies," said John Roth, vice-chairman and CEO, Nortel Networks. "It also provides added value to research and ideas which are not core to Nortel Networks' business but have the potential to contribute to our overall shareholder value."

Channelware, a business created under the Nortel Networks Ventures program, is the inventor of NetActive technology. Channelware is a leading supplier of alternative sales channels and marketing programs for the retail and interactive entertainment software industries. Through its NetActive technology, software becomes more accessible and affordable to mass market consumers.

Nortel Networks delivers value to customers around the world through Unified Networks solutions, spanning mission-critical telephony and IP-optimized networks. Customers include public and private enterprises and institutions; Internet service providers; local, long-distance, cellular and PCS communications companies, cable television carriers, and utilities.

Nortel Networks' common shares are listed on the New York, Toronto, Montreal, Vancouver, and London stock exchanges. Nortel Networks had 1998 revenues of US$17.6 billion and has approximately 75,000 employees worldwide.