Judge OKs Riverstone distribution
A federal bankruptcy judge Tuesday approved a plan to distribute what’s left of Cabletron Systems spinoff Riverstone Networks, starting at the end of this month.
The plan will govern how RNI Wind Down Corp. will dole out the proceeds of the April sale of most of its assets to Lucent Technologies for $209 million, after paying off Riverstone’s creditors, deducting bankruptcy expenses and setting aside reserves for possible future claims against the company.
But how much will be initially distributed, how much will be held back and how much shareholders will eventually get still remains to be seen. Although previous estimates said that shareholders will receive between $1 and $1.40 a share – less than a tenth of its value in 2001, when the company was split off from Cabletron – the plan did not specify a figure.
It’s also unclear how much will be set aside to defend former officers who have been – and still may be – targets government investigations and shareholder lawsuits dating back to the company spin off from Cabletron Systems, a Rochester firm that was once the state’s largest employer.
The plan is silent on how much will be set aside for the original officers of the company – including former Cabletron CEO Piyush Patel, who engineered the spinoff and became Riverstone’s first board chairman. The former officers had asked for $20 million to defend themselves against – among other things – an ongoing Securities and Exchange Commission investigation and possible criminal prosecution for securities fraud relating to their actions at Cabletron.
It does set aside some $7 million for the company’s most recent officers, including RNI President Noel Mesel, who resigned last week – and agreed to forego some $600,000 in compensation — over a mini-scandal relating to deleted e-mails and a lost computer hard drive.
There seem to be other unresolved issues involving Mesel. At a hearing last week, attorneys for the equity committee told the court that Mesel sent out notices to the holders of stock options, saying all outstanding options would be treated as exercised as to the time immediately prior to the sale to Lucent, increasing their value by approximately $1 million dollars. Mesel owned a million options himself, said the creditors.
The committee also faulted Mesel for being “somewhat negligent” in transferring the assets to Lucent, causing a 24-day delay that cost shareholders another $5 million, though Mesel in this case would not personally benefit from this. But the committee said that it was settling the matter with Mesel because the protracted litigation and delay that would result would be more costly than any possible gains. Besides, RNI needed Mesel’s extensive knowledge about more than $40 million in claims against Riverstone, and insisted that he stay on as a compensated employee.
The plan did say that RNI would pay to defend Mesel and other officers against any litigation stemming from such issues, except in the case of willful misconduct. – BOB SANDERS