Canadian network-gear maker Nortel Networks Corp. is on the way to clearing up two class-action lawsuits fielded by shareholders, announcing Wednesday that it has reached a settlement with the lead plaintiffs in the cases.
The lawsuits, filed in federal court for the Southern District of New York, stemmed from financial-reporting troubles that have plagued Toronto-based Nortel for almost two years.
Those troubles stemmed from accusations of financial irregularities surrounding its 2001 guidance and 2003 financial statements that led to investigations by U.S. and Canadian securities authorities, which are still ongoing.
Under the settlement, Nortel will pay $575 million in cash, issue 628,667,750 common shares equaling 14.5% of its current equity and kick in one-half of any award in existing suits it has filed against its former executive leadership, including former CEO Frank Dunn, former chief financial officer Douglas Beatty and former controller Michael Gollogly. All three were fired in April 2004 after the financial-misdeed allegations came to light.
"Our intent is to achieve a fair resolution of these lawsuits and avoid a prolonged, uncertain and costly litigation process," chairman Harry Pearce said. "A final settlement would remove a significant impediment to Nortel's future success and allow [Nortel CEO] Mike Zafirovski and the Nortel team to move forward."
The proposed settlements would be part of the company’s effort to reach an umbrella settlement encompassing all pending and proposed shareholder class-action suits surrounding revised financial guidance during 2001 and revisions to its 2003 earnings.
They also hinge on Nortel and the lead plaintiffs agreeing to corporate-governance-related matters and insurance-related issues.
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