Bankrupt MSO Adelphia Communications Corp. is withholding a $4.2 million severance package awarded earlier this year to former chairman John Rigas, according to people familiar with the situation.
Rigas, who stepped down as Adelphia chairman in May amid a major accounting scandal at the MSO, had engineered a severance package that included annual payments of $1.4 million per year for three years; lifetime health-care coverage for Rigas and his wife, Doris; use of an office, computer, telephone and secretary; and emergency use of company planes.
No payments had been made to Rigas so far, one source briefed on the matter said. The company has decided not to make the cash payments to its former chairman and is also weighing whether to continue the other benefits in the package.
"Adelphia hasn't provided any of those benefits to date and, frankly, I'd be surprised if they [the Rigases] asked for them," the source said.
Adelphia spokesman Eric Andrus declined to comment.
The Coudersport, Pa.-based MSO filed for Chapter 11 bankruptcy protection on June 25. On July 24, Rigas and his sons — former chief financial officer Timothy Rigas and former executive vice president of operations Michael Rigas — were arrested by U.S. Postal Inspectors on charges of conspiracy, bank fraud, mail fraud and wire fraud.
Two other executives — former vice president of finance Jim Brown and former assistant treasurer Michael Mulcahey — were arrested in Pennsylvania.
Shortly after the Rigases were arrested, Adelphia and the Securities and Exchange Commission filed separate civil suits against the family members.
On Sept. 10, the bankruptcy court issued an order temporarily restraining John Rigas from selling any personal real-estate assets. Adelphia had asked for the order until it can determine whether the MSO has any ownership interests in several Rigas real-estate holdings.
The severance deal was reached in May, well before Adelphia knew the full extent of the Rigases's alleged fraud.
Among the claims in the federal lawsuit filed in July: John Rigas had to be limited to withdrawing a maximum of $1 million per month from company accounts by his son Tim Rigas (he had been taking more).
Also, Tim Rigas was accused of using company planes to fly friends on golfing trips and on an African safari. Tim Rigas also used company funds to purchase a $700,000 country-club membership in Hilton Head, S.C., and spent $13 million to build a championship golf course near Adelphia's headquarters that has yet to be completed.
"So much has changed since late May," said the source briefed on the matter. "There have been so many additional discoveries that led to, in no short order, federal charges, SEC charges, the lawsuit by the company and the temporary restraining order last week or so. It's just a different situation."
While the severance agreement included a clause that would terminate the pact if Rigas was convicted of a felony, Adelphia decided to act before its founder was even indicted, an event that has yet to happen.
RIGAS LAWYERS REACT
In retaliation, an attorney Rigas retained to handle the civil suits against him said that the former chairman is refusing to place his company stock in a separate trust.
As part of the severance agreement in May, the Rigas family agreed to place its Adelphia stock — which controls about 60 percent of the company's votes — in a separate voting trust. The family also agreed to transfer certain assets, valued at about $1 billion, to Adelphia.
"That agreement has probably been in breach since the late spring," said Rigas civil attorney Stephen Harmelin. The Rigases have not placed their stock in the voting trust and "don't plan to," he added.
John Rigas's criminal lawyer, Peter Fleming, had harsher words for the MSO.
"It's more than disturbing when anyone, including a corporate board, would breach a contract presumably signed in good faith," Fleming said in a statement.
In other developments, a special committee of equity security holders has filed a motion to depose Adelphia, its bankers and its former auditor, Deloitte & Touche LLP, to gather information for the suit.
The committee also has also asked for reams of documents, including all those pertaining to the Rigas family's co-borrowing agreements; desk and pocket diaries, calendar entries, notes, expense reports or records of all officers or employees concerning any of those transactions; and all documents pertaining to any equity investment, capital contribution, credit agreement, loan agreement, purchase or lease agreement or other proposed contract made by Adelphia.
In the filing, the equity holders' committee lists 67 different types of documents and information it wants to obtain from the parties.
In its response to the motion, Adelphia said the "voluminous" discovery motion could present a substantial cost to the company.
According to the motion, Adelphia is "concerned that the estates would be obligated for the fees, in essence, of two full-time counsel to the equity committee. Add to that the cost of the two law firms engaged by the creditors committee — not to mention the anticipated cost of separate financial advisers to each committee — and the costs to these estates of committee advisers could be quite substantial."
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