There are two agreements you need to understand. Agreement #1 (“#1”) is dated 11/22/1994 and it’s between the Pension Benefit Guaranty Corporation (“PBGC”), Hillside, Sherborne, Ampex, and a bunch of entities related to Hillside and/or Sherborne. There are two provisions you need to know about #1. Let’s start with the first provision: Ampex and Hillside are jointly and severally liable for the Required Contributions to the Pension Plans. (See #1, Sections 2.1 and 2.2.) This means that if Ampex doesn’t pay, Hillside has to pay.
The second provision of #1 you need to know is that if Ampex does not contribute from their own funds an amount equal to at least 1/3 of the total Required Contributions for a period of three consecutive years, then the PBGC has the right to make Hillside assume 100% of the obligations. This event occurred by 2004 or earlier, but Ampex never asked the PBGC to make Hillside assume the pension liabilities.
Thus under Agreement #1, Hillside is 100% on the hook for the pension liabilities, one way or the other. #1 says nothing about Ampex paying Hillside back. If you don’t understand this, go back and keep rereading until you do. When you understand Agreement #1, you can graduate to Agreement #2.
Agreement #2 (#2) is dated 12/1/1994 and does not involve the PBGC. It is strictly between Hillside, Sherborne, and Ampex. Of course, Ampex was (and is) controlled by Sherborne/Newhill, and McKibben was signing #2 for both Ampex and Sherborne, which certainly looks like a conflict of interest. Moreover, Ampex has given the false impression to investors in SEC filings and to the Bankruptcy Court that Agreement #2 says that Ampex is 100% liable to Hillside. They omit critical facts. Ampex and Sherborne/Newhill are jointly and severally liable to Hillside for any Required Contributions that Hillside paid, according to #2. (See #2, Section 2.3). In addition, Sherborne/Newhill are the Guarantors, which means they guarantee to repay Hillside, if Ampex doesn’t pay Hillside. (See #2, Section 3.1.)
If you don’t understand this, go back and keep rereading until you do. When you understand Agreement #2, you can graduate to the issue of “consideration.”
For a contract to be enforceable there must be “consideration”—or something of value. In Agreement #1, Ampex had no obligation to repay Hillside. In Agreement #2, Ampex is now liable to repay Hillside from its own funds. While Sherborne/Newhill is jointly and severally liable with Ampex to repay Hillside, and the former are Guarantors, Ampex is surrendering many rights and getting nothing in return. Hence there is no apparent consideration, and there appears to be a conflict of interest as well. Consequently, Agreement #2 might not even be a valid contract.
However, even if #2 is deemed enforceable, then Hillside, Sherborne, and Ampex still violated this agreement because:
(1) Hillside did not seek payment from Sherborne/Newhill as the Guarantors of the Hillside Notes;
(2) Sherborne/Newhill did not repay Hillside; and
(3) Ampex, subject to Sherborne’s and Newhill’s control, did not demand that Sherborne/Newhill repay Hillside.
Again, if you don’t understand this, go back and keep rereading until you do. In my opinion, you do not understand what has been going on until you understand the above facts. |
