Riverstone seeks transition insurance for board
Riverstone Networks — in the midst of closing a $207 million bankruptcy sale to Lucent Technologies – has asked that stockholders pay more than $2 million to continue a backup liability insurance policy during the transition.
The $2.3 million “tail insurance” policy would protect members of the board of directors from previous potential claims from any “alleged wrongful act” committed in their position six years back from when the company’s current policy expires. Without this coverage during the “crucial wind down” period of the bankruptcy sale, the executives might quit, according to the April 7 filing.
Riverstone has been the target of several accounting investigations since it spun off from Cabletron Systems – once New Hampshire’s largest employer — in 2001. It settled one suit with shareholders, and the Securities and Exchange Commission dropped an investigation against the company when it revoked its trading certificate shortly after the company filed Chapter 11 bankruptcy in February.
But the possibility remains that federal authorities or a shareholders group could file suit against executives or board members individually. That is what happened in the case of Cabletron’s main spinoff company, Enterasys Networks, which faced similar investigations into accounting policies resulting from actions immediately following the spinoff.
Getting liability insurance is difficult under any circumstance, but it is particularly difficult for a bankrupt company that has not filed accurate financial information and is no longer traded on any public exchange, according to the filing. Tail coverage – which is often used during mergers and transitions – is particularly expensive. However, the company was able to get a good price on the insurance from AIG/National Union, according to the filing. – BOB SANDERS