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Adelphia Withholds Severance From Rigas

Scandal: The company reportedly will rescind its $4.2-million package for the former chairman, who faces fraud charges.

September 12, 2002|From Times Wire Services

Adelphia Communications Corp. won't make $4.2 million in payments to John J. Rigas under a severance agreement reached when the cable TV systems company founder and former chief executive stepped down in May, according to a person who has been briefed on the situation.

No payments had been made yet under the severance agreement, said the person, who agreed to speak on condition of anonymity. The company has been operating under bankruptcy protection since late June.

The reversal comes as WorldCom Inc. weighs rescinding the severance of former CEO Bernard J. Ebbers.

Adelphia agreed to a three-year package for Rigas in May, two months after the company disclosed that it had guaranteed $3.1 billion in loans to partnerships controlled by his family. Since then, Adelphia, with $20 billion in debt, has filed for bankruptcy protection and filed a racketeering suit against the Rigases.

On July 24, Rigas, two of his three sons and two other former Adelphia executives were arrested on bank-and securities-fraud charges. Federal prosecutors allege that Rigas and his family used the company as a "personal piggy bank," according to court papers.

"The greater the separation between Adelphia and the Rigas family the better," said Steve Pfeiffer, an analyst at Columbia Management Group, which sold its Adelphia shares and bonds shortly after the cable company disclosed the loans. "Every dollar Adelphia is not paying out to someone else is a good thing."

Executive compensation has come under more scrutiny since energy trader Enron Corp. and long-distance telephone provider WorldCom filed for bankruptcy protection amid accounting scandals.

WorldCom's board is considering rescinding a severance package for Ebbers that includes a $1.5-million lifetime annual pension and a $408.2-million loan, said Stuart Pierson, an attorney for board member Stiles Kellett.

Adelphia, now headed by interim Chief Executive and Chairman Erland Kailbourne, last month nominated Rod Cornelius, a former vice chairman of Renaissance Cable, and Anthony Kronman, the dean of Yale Law School, to the board.

"It's more than disturbing when anyone, including a corporate board, would decide to breach a contract presumably signed in good faith," said Peter Fleming, Rigas' attorney. Adelphia spokesman Eric Andrus declined to comment.

Rigas was to get annual severance payments of $1.4 million for three years. He was promised office equipment and a secretary, use of company jets in an emergency and health-care coverage for him and his wife, Doris, for life, according to a filing with the Securities and Exchange Commission.

In return, the Rigases agreed to contribute cash flow generated from their cable-television properties and to forgive about $567 million in convertible debt. The family also placed its stock in a voting trust controlled by the board.

Coudersport, Pa.-based Adelphia has since asked a federal bankruptcy judge to block the Rigases from selling property it says was purchased with company funds. The cable operator argued that such sales would violate bankruptcy law provisions that protect assets of a company reorganizing under Chapter 11.

Rigas and his three sons resigned before allegations surfaced that they had used company funds to pay loans, buy stock and bankroll extravagances such as an African safari and luxury apartments. The disclosure of the guaranteed loans to family partnerships prompted investigations by federal prosecutors in two states and by the SEC.

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Associated Press and Bloomberg News were used in compiling this report.

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