TORONTO – Nortel announced today that it has signed an agreement in principle to settle two major class action lawsuits filed in New York.
The lawsuits were the result of Nortel’s much-documented accounting and financial woes, which have since been cleaned up.
"Our intent is to achieve a fair resolution of these lawsuits and avoid a prolonged, uncertain and costly litigation process," said Harry Pearce, Nortel’s chairman of the board, in a statement. "A final settlement would remove a significant impediment to Nortel’s future success and allow (new president and CEO) Mike Zafirovski and the Nortel team to move forward."
"Resolving these important issues will enhance the company’s ability to focus on our transformation and renewal priorities and our customers," said Zafirovski.
"The proposed settlement would be part of, and is conditioned on, Nortel reaching a global settlement encompassing all pending shareholder class actions and proposed shareholder class actions commenced against the company and certain other defendants following the company’s announcement of revised financial guidance during 2001, and the company’s revision of its 2003 financial results and restatement of other prior periods. The proposed settlement is also conditioned on Nortel and the lead plaintiffs reaching agreement on corporate governance related matters and the resolution of insurance related issues," says the press release.
Under the terms of the proposed global settlement contemplated by the agreement in principle, Nortel would make a payment of US$575 million in cash, issue 628,667,750 of its common shares (representing 14.5% of its current equity), and contribute one-half of any recovery in the existing litigation by Nortel against Messrs. Frank Dunn, Douglas Beatty and Michael Gollogly, the company’s former senior officers who were terminated for cause in April 2004, says the release.
That pegs the total value of the proposed settlement at about $2.5 billion, given that Nortel shares traded in the US$3.00 range today.
The agreement in principle is also conditioned on the contribution of available insurance, which has yet to be resolved and would also be conditioned on the receipt of all required court, securities regulatory and stock exchange approvals.
The total settlement amount will include all plaintiffs’ court-approved attorneys’ fees. Nortel has agreed to respond to the corporate governance proposals of the lead plaintiffs and enter into a dialogue to review the Company’s corporate governance.
The proposed settlement would contain no admission of wrongdoing by the company or any of the other defendants.
Nortel will continue to co-operate fully with the U.S. and Canadian securities regulators and law enforcement authorities in their ongoing investigations relating to the company’s accounting restatements, and the proposed settlement does not relate to these ongoing investigations. The proposed settlement also does not encompass a related ERISA action and the pending application in Canada for leave to commence a derivative action against certain current and former officers and directors of Nortel. No additional reserves have been taken by the company at this time for any potential judgments, fines, penalties or settlements that may arise from these pending investigations or actions, says the press release.
