Company Name: Newbridge Networks Corp.
Public Availability Date:  July 27, 1992

INQUIRY LETTER

HUNTON & WILLIAMS
200 PARK AVENUE
NEW YORK, NEW YORK 10166-0136
TELEPHONE (212) 309-1000

July 13, 1992

Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Newbridge Networks Corporation

Ladies and Gentlemen:

On behalf of Newbridge Networks Corporation (the "Company"), we respectfully request that the staff of the Division of Corporation Finance (the "Division") recommend that the United States Securities and Exchange Commission (the "Commission") take no action with respect to (a) the issuance of the Companys common shares (the "Common Shares") in connection with the settlement of the class action pending against the Company without registration under the Securities Act of 1933, as amended (the "Act"), in reliance on the exemption from registration contained in Section 3(a)(10) of the Act, (b) the public resale by members of the plaintiff class (the "Class Members") and by counsel for the plaintiffs who are not deemed to be affiliates of the Company of the Common Shares obtained in the settlement without registration under the Act and without compliance with Rule 144 and (c) the public resale of such shares by any Class Members or by counsel for the plaintiffs who are deemed to be affiliates of the Company in compliance with Rule 144 under the Act without regard to the holding period requirement of that Rule.

Facts

The Company is a Canadian company subject to the informational filing requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is current in all of its required filings under the Exchange Act. The Companys Common Shares are registered under Section 12(g) of the Exchange Act and are quoted for trading on the NASDAQ National Market System (the "NASDAQ NMS") in the United States and are listed for trading on The Toronto Stock Exchange in Canada.

The Company, its United States subsidiary and certain of its executive officers were named as defendants in three lawsuits filed in May and June 1990. By court order, the lawsuits were consolidated under an amended complaint filed on December 3, 1990 (the "Consolidated Action"). The Consolidated Action purports to be a class action on behalf of a class of persons who purchased Common Shares of the Company from July 28, 1989 through June 6, 1990 (the "Class Period") and alleges that the Company and the other defendants violated United States federal securities laws. The Consolidated Action is pending before the United States District Court for the District of Columbia (the "Court"). The Company and the other defendants have expressly denied any liability under the securities laws alleged to have been violated. On December 17, 1991, the plaintiffs and the defendants reached an agreement in principle to settle, as against all the defendants, the Consolidated Action. The terms of the proposed settlement are set forth in an Agreement of Settlement dated February 26, 1992 (the "Settlement Agreement") which has been filed with the Court. The Settlement Agreement, a copy of which has been provided for the Divisions reference, provides, in relevant part, as follows:

A. In full and complete settlement and compromise of all asserted and potential claims of the plaintiffs and the other Class Members against the defendants, the defendants agree to pay US$1.5 million to the plaintiffs and to issue 600,000 freely tradeable Common Shares of the Company for the benefit of all Class Members who do not exclude themselves from the Consolidated Action. However, if, for the ten trading days before the Courts approval of the settlement, the average of the daily average on each of those ten trading days of the high and low sales prices of the Common Shares on the NASDAQ NMS is less than US$6.25, the number of shares will be increased so that the total value of the Common Shares to be issued is US$3.75 million. The US$1.5 million cash contribution, plus any interest thereon, together with the Common Shares are referred to as the "Settlement Proceeds".

B. In the event that (i) persons who are eligible to be included in the class and who purchased more than 1,000,000 Common Shares in the aggregate or (ii) any four persons who are eligible to be included in the class and who purchased more than 500,000 Common Shares in the aggregate request exclusion, the defendants shall be entitled to withdraw from the settlement. If the defendants choose not to exercise their option to withdraw, they shall be entitled to reduce the Settlement Proceeds (x) by US$1.00 from the cash portion for every excluded Common Share above 1,000,000 shares up to 1,100,000 shares and thereafter by 4/25 of a Common Share for every excluded Common Share above 1,100,000 shares if they are entitled to withdraw under clause (i) above, or (y) by US$1.00 from the cash portion for every excluded Common Share above 500,000 up to 600,000 and thereafter by 4/25 of a Common Share for every excluded Common Share above 600,000 shares if they are entitled to withdraw under clause (ii) above.

C. The costs of printing, mailing, publishing, other costs of providing notice of the settlement to the Class Members and other costs of administering the settlement shall be borne by the plaintiffs. Any award of attorneys fees or reimbursement of expenses to plaintiffs counsel as may be approved by the Court will be paid out of the Settlement Proceeds before any distributions to Class Members. Plaintiffs counsel has applied to the Court for an award of attorneys fees in an amount equal to 30% of the Settlement Proceeds, to be paid proportionately in cash and Common Shares, and for reimbursement of expenses in the amount of $128,547.11.

D. The Settlement Proceeds, net of the payments described in paragraph C (the "Net Settlement Proceeds"), will be allocated and distributed to each Class Member who submits a valid proof of claim along with proper documentation and who does not request exclusion. The Net Settlement Proceeds shall be allocated pro rata in the following manner among Class Members who file valid proof of claim forms ("Claimants"). Each Claimants "Recognized Loss" shall be calculated as the amount paid for Common Shares purchased during the Class Period (including commissions) less the greater of (i) the amount realized (net of commissions) from the sale of any such Common Shares during the Class Period and (ii) the product of the number of Common Shares so purchased and US$5.925, which is the average of the daily average of the high and low sales prices of the Common Shares on the NASDAQ NMS for each of the five trading days commencing June 7, 1990. Each Claimant shall be entitled to a pro rata share of the Net Settlement Proceeds as determined by the ratio of his, her, or its Recognized Loss to the aggregate Recognized Loss of all Claimants, provided that no Claimant shall receive more than 125% of his, her, or its Recognized Loss. If there are any Settlement Proceeds remaining after all distributions to Claimants and payment of all other amounts required by the Settlement Agreement and the Court, such remaining Settlement Proceeds shall be returned to the Company.

At the request of the parties pursuant to the Settlement Agreement, the Court entered an order on May 1, 1992 (the "Class Notice Order") conditionally certifying a class for purposes of the proposed settlement pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure. The class consists of all persons who purchased Common Shares of the Company from the United States underwriters in the initial public offering of the Common Shares and on the NASDAQ NMS during the Class Period, but does not include the Company, its United States subsidiary, the individual defendants or members of their immediate families, or affiliates, successors or assigns of any of the defendants. The Court also scheduled a hearing for September 23, 1992 (the "Hearing") pursuant to Rule 23(e) to determine whether the proposed settlement (including the issuance of the Common Shares) is fair, reasonable and adequate to the Class Members and to approve the Settlement Agreement. Pursuant to the Class Notice Order, notice of the proposed settlement and of the Hearing has been given by mail to all Class Members who could reasonably be identified from stock transfer records and otherwise by publication twice in the national edition of The Wall Street Journal. Each Class Member will has the right to appear at the Hearing and show cause why the proposed settlement should not be approved as fair, reasonable and adequate. A copy of the Class Notice Order has been provided for the Divisions reference.

In connection with the Hearing, the Company plans to provide the Court with copies of its quarterly reports on Form 10-Q and its annual report on Form 10-K filed with the Commission during the year prior to the Hearing. In the notice of the Hearing, the Class Members were informed that they may obtain copies of such filings through plaintiffs counsel, and the Company will deliver copies of such filings to plaintiffs counsel. In addition, the Court will be informed that, if it approves the proposed settlement, the Common Shares issued as part of the settlement will not be required to be registered under the Act pursuant to the exemption contained in Section 3(a)(10) of the Act.

Discussion

A. The Section 3(a)(10) Exemption

Section 3(a)(10) of the Act provides an exemption from registration under the Act for "any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly in cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court. . . ." The principle that the Section 3(a)(10) exemption is available for securities distributed by an issuer pursuant to the settlement of a class action which has been approved by a court as fair and reasonable after a hearing of which all members of the class had been given notice has been well established in a series of no-action letters. Windmere Corporation (May 20, 1992); Riverbend International Corporation (March 30, 1990); Pacific Scientific Company (July 31, 1989); Cavanagh Communities Corporation (June 22, 1987); Trilogy Limited (February 28, 1986); Anacomp Inc. (June 24, 1985); Basic Earth Sciences Systems, Inc. (October 24, 1985); Fuqua Industries, Inc. (March 15, 1978); Mr. Steak, Inc. (November 11, 1976); Karacorp Industries, Inc. (July 22, 1976); Mohawk Data Sciences Corporation (December 10, 1975).

The Division has articulated the following four requirements that must be met in order for the Section 3(a)(10) exemption to be available to an issuer that issues securities in settlement of pending class action litigation: (1) the court must hold a hearing on the fairness of the terms and conditions of the issuance of all such securities; (2) all persons to whom such securities are to be issued must receive notice of the hearing and of the right to be heard; (3) the court must be advised prior to the hearing that if the terms and conditions of the settlement are approved, registration of the securities will not be required under the Act by virtue of the courts approval; and (4) the court must approve the fairness of the terms and conditions of settlement. Cavanagh Communities Corporation (June 22, 1987). The circumstances under which the Companys Common Shares will be issued in connection with the proposed settlement of the Consolidated Action will fulfill all of these requirements. First, pursuant to Rule 23(e) the Court will hold the Hearing to determine whether the proposed settlement (including the issuance of the Common Shares to the Class Members) is fair, reasonable and adequate. Second, Class Members will have received notice of the Hearing and have the right to appear at the Hearing. Notice of the Hearing has been given by mail to anyone who could reasonably be identified from the stock transfer records and who purchased Common Shares of the Company from the United States underwriters in the initial public offering and on the NASDAQ NMS during the Class Period. In addition, notice of the Hearing has been published twice in The Wall Street Journal. Pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, these notification procedures were approved by the Court in the Class Notice Order. Third, the Court will be informed that, if it approves the proposed settlement, the Common Shares will not be required to be registered under the Act pursuant to the Section 3(a)(10) exemption.

Finally, under Rule 23(e), in order for the Settlement Agreement to be binding the Court must find that the terms and conditions of the proposed settlement are fair, reasonable and adequate and in the best interests of all those who will be affected by it. See, generally, C. Wright, A. Miller & M. Kane, 7A FEDERAL PRACTICE AND PROCEDURE §1797.1 (1986). In the series of no-action letters cited above, the Division has consistently taken the position that court approval pursuant to Rule 23(e) of a settlement involving the issuance of securities to members of the plaintiff class satisfies the requirements of the Section 3(a)(10) exemption. E.g., Windmere Corporation (May 20, 1992). In addition, in situations not involving the settlement of pending litigation, the Division has also taken the position that a determination by a court that the terms of a proposed transaction are fair or reasonable satisfies the requirements of Section 3(a)(10). LAC Minerals Ltd. (June 27, 1991) (court to determine that an intelligent and honest man might reasonably approve the terms of the transaction); O.F.C. Corporation (August 4, 1989) (court found proposed transaction to be fair).

Based upon the foregoing, it is our opinion that the issuance of Common Shares by the Company in connection with the settlement as described above would be exempt from the registration requirements of the Act under Section 3(a)(10).

B. Public Resale of Common Shares Issued in the Settlement

The Division has also taken the position that securities issued without registration pursuant to Section 3(a)(10) to persons who are not deemed to be affiliates of the issuer are not "restricted securities" under Rule 144 and may be publicly resold without registration in reliance on the exemption contained in Section 4(1) of the Act. Riverbend International Corporation (March 30, 1990); Pacific Scientific Company (July 31, 1989); Cavanagh Communities Corporation (June 22, 1987); Trilogy Limited (February 28, 1986); Anacomp Inc. (June 24, 1985); Basic Earth Sciences Systems, Inc. (September 24, 1985); Karacorp Industries, Inc. (July 22, 1976).

In the case of the Companys proposed settlement, it appears that no Class Member is or will be an "affiliate" of the Company because no such Class Member is or will be an officer or director of the Company or a person in a control relationship with the Company and no member of the families of any such persons is eligible to receive Common Shares in the settlement. Furthermore, there is no arrangement or understanding of any kind between the Company and any Class Member with respect to the retention or disposition of the securities after the distribution. Finally, although at this time it cannot be precisely determined how many Class Members there are or how many Class Members will submit proof of claim forms, it is highly unlikely that any Class Member will receive more than 1% of the total number of Common Shares outstanding after giving effect to the settlement. As at April 30, 1992, there were 35,153,832 Common Shares outstanding. The Common Shares were actively traded on the NASDAQ NMS during the Class Period, and therefore the potential number of Class Members is quite large. Moreover, the number of Common Shares to be issued in the settlement will be small relative to the number of Common Shares outstanding at the time of the issuance. The precise number of Common Shares to be issued cannot be determined at this time because the number will be determined by the reported sales prices of the Common Shares on the NASDAQ NMS during certain trading days preceding the Hearing. However, using the average of the high and low sales prices of the Common Shares on the NASDAQ NMS on July 10, 1992, US$16-1/4, the number of Common Shares to be issued in the settlement would remain 600,000. This figure represents approximately 1.7% of the total number of Common Shares currently outstanding. The 600,000 Common Shares are also substantially less than the average weekly trading volume of the Common Shares on the NASDAQ NMS in 1991 (745,561 shares), in the first six months of 1992 (approximately 1,978,384 shares) and in June 1992 (approximately 1,459,625 shares), as well as being even further below the average weekly trading volume of the Common Shares on the NASDAQ NMS and The Toronto Stock Exchange combined for the same periods (1,274,827 shares, approximately 2,600,593 shares and approximately 1,662,938 shares, respectively).

The Division has taken the position that, in situations where counsel receives up to one-third of the securities issued in connection with a settlement, such securities are not "restricted securities" for purposes of Rule 144 and may be freely resold without registration, although any person receiving securities in a settlement, including counsel, who is deemed to be an affiliate must make resales in compliance with Rule 144, except for the holding period requirement. Riverbend International Corporation (March 30, 1990). Plaintiffs counsel has applied to the Court for an award of attorneys fees in an amount equal to 30% of the Settlement Proceeds, to be paid out of both the cash and the Common Shares included in the Settlement Proceeds, and for reimbursement of expenses in the amount of $128,547.11. They have agreed that their applications for fees and expenses in the aggregate shall not exceed one-third of the Settlement Proceeds. If the Court approves the pending fee application and awards the full 30% of the Settlement Proceeds, and if the number of Common Shares to be issued in the settlement remains 600,000, plaintiffs counsel would receive 180,000 Common Shares, or approximately 0.5% of the total number of Common Shares outstanding after giving effect to the settlement. These shares would be distributed among the six law firms representing the plaintiffs. Plaintiffs counsel have agreed to file Forms 144 in connection with the resale of any Common Shares received in the settlement if they are deemed to be affiliates of the Company.

Based upon the foregoing, it is also our opinion that the Common Shares to be issued to the Class Members, or to plaintiffs counsel, in the settlement will not be "restricted securities" as defined in Rule 144(a)(3) under the Act and that Class Members, or plaintiffs counsel, who acquire such Common Shares and who are not deemed to be affiliates of the Company may freely resell such Common Shares without registration under the exemption contained in Section 4(1) of the Act, while Class Members, or plaintiffs counsel, who are deemed to be affiliates may resell such shares in compliance with Rule 144 under the Act except for the holding period under that rule.

Request for Advice

We respectfully request that the Division confirm that it will not recommend any action to the Commission under the Act in the event of the issuance of Common Shares to Class Members, or to plaintiffs counsel, as described in this letter or in the event of a public resale of such Common Shares by any such Class Member, or plaintiffs counsel, in the absence of an effective registration statement under the Act.

In the event the Division should reach a preliminary conclusion that it will be unable to take the no-action position we are requesting, we would appreciate an opportunity to discuss the matter further prior to the issuance of a formal response.

If you have any questions or need any additional information with respect to this matter, please call me at (212) 309-1015.

Very truly yours,

/s/ RAUL GRABLE

Raul Grable

cc: James C. Avis, Esq.

Vice President, General Counsel

and Secretary

Newbridge Networks Corporation

STAFF REPLY LETTER

July 27, 1992

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

RE: Newbridge Networks Corporation (the "Company")

Incoming letter dated July 13, 1992

Based upon the facts presented in your letter and contingent upon approval of the Settlement Agreement by the Court, this Division will not recommend any enforcement action to the Commission if the Company, in reliance upon your opinion as counsel that registration is not required, issues the Companys Common Shares in connection with the settlement of the class action pending against the Company, as described in your letter, without registration under the Securities Act of 1933. Recipients of such Common Shares who are not affiliates of the Company may resell such Common Shares for their own accounts without regard to Rule 144. Recipients of such Common Shares who are affiliates of the Company may resell pursuant to Rule 144. Because the Common Shares will not be restricted securities, the holding period requirement of Rule 144(d) is inapplicable.

Because these positions are based on the representations made to the Commission in your letter, it should be noted that any different facts or conditions might require another conclusion. Moreover, the response on registration only expresses the Divisions position on enforcement action and does not purport to express any legal conclusion on the question presented.

Sincerely,

Anne M. Krauskopf

Special Counsel