US Bankruptcy court grants stipulations for IRS & PBGC

Nortel has been negotiating with the IRS and the PBGC regarding their claims against Nortel and have been able to get the bankruptcy judge to approve stipulations which provide liens to the IRS and the PBGC against proceeds from the sale of the Enterprise business to Avaya. See dockets 1658 and 1659 on the Epiq Solutions web site. The stipulations are in dockets 1495 and 1639. The deal with Avaya was contingent on the IRS and PBGC waiving any claims and potential claims against the Purchaser and the Non-Debtor Subsidiaries.

There is a lot of legalese in the dockets which clouds the meaning of these agreements but it appears to me that in order to meet the terms of the contract with Avaya the IRS and PBGC may have obtained some form of agreement that gives them a better position in terms of their claims against Nortel. Not being a lawyer I find the language frustrating and intentionally unclear.

Example of the detail as stated in the stipulation for the PBGC:

PBGC Waiver and Release.

Effective at the closing of the sale of the Enterprise Business to the Purchaser, which will be contemporanous with the payment by the Purchaser into escrow of the Enterprise Proceeds (as defined below), the PBGC hereby releases, and waives against the Non-Debtor Subsidiaries, and their respective assets, any claim, lien, interest or obligation for joint or several liability, the right to assert or take any action giving rise to any such claim, lien, interest or obligation, and the right to assess or impose any such liability, arising before or after the date of this Stipulation under Title IV of ERISA or under Sections 430 or 412 of the IRC, or Sections 302 or 303 of ERISA (the “PBGC Waiver”) solely as to the Pension Plan. This Stipulation shall not effect the liability of any other entity to the Pension Plan or to the PBGC with respect to the Pension Plan.

The PBGC Lien.

In consideration for the PBGC Waiver, NNI grants to the PBGC a lien (the “PBGC Lien”) on the proceeds ultimately allocated to the sale of the NGS Shares and the DiamondWare Shares (the “Share Sale Proceeds”), with such sale being effectuated pursuant to the Amended and Restated Asset and Share Sale Agreement by and among Nortel Networks Corporation, Nortel Networks Limited, Nortel Networks Inc., and other identified sellers, and Avaya Inc., dated as of September 14, 2009 (as amended and as may be amended from time to time, the “Avaya Agreement”), which was approved by the Bankruptcy Court pursuant to the Order Authorizing and Approving (A) The Sale of Certain Assets of, and Equity Interests In, Debtors’ Enterprise Solutions Business, (B) The Assumption and Assignment of Certain Contracts and Leases and (C) The Assumption and Sublease of Certain Leases entered by the Bankruptcy Court on September 16, 2009 (the “Sale Order”). The Parties agree that any purchase price adjustments required under Section 2.2 of the Avaya Agreement attributable or allocable to NGS and DiamondWare shall be explicitly included in the determination of the Share Sale Proceeds after the determination of the Enterprise Proceeds (ashereinafter defined) and the US Sale Proceeds (as hereinafter defined). The PBGC Lien shall be in an amount equal to the lien imposed by Section 4068 of ERISA with respect to the liabiltiy of NNI and any member of its “controlled group” as defined in Section 4001(a)(14) of ERISA (collectively, the “Nortel Entities”) to the PBGC under Section 4062 of ERISA as a result of the termination of the Pension Plan, provided, however, that nothing in this Stipulation acknowledges or creates, or has the effect of acknowledging or creating, in favor of the PBGC a claim against any of the Nortel Entities or against any assets of any of the foregoing in an amount, or entitled to a priority, greater than the PBGC would have had in the absence of this Stipulation. The PBGC Lien will not be less than 30% of the Share Sale Proceeds.