Adelphia shareholders ask judge to block new hires
Reuters, 02.18.03, 6:45 PM ET
By Siobhan Kennedy
NEW YORK, Feb 18 (Reuters) - The five largest shareholders of bankrupt Adelphia Communications Corp. <ADELQ.PK> and founder John Rigas have asked a judge to reject plans by the cable operator to hire two executives and pay them up to $41 million in salary and bonuses over three years.
John Rigas, who has been indicted on charges of securities fraud alongside his two sons John and Timothy, said in a filing the appointment of William Schleyer and Ronald Cooper appeared only to benefit the creditors and lacked concern for the company's shareholders.
Adelphia filed for Chapter 11 bankruptcy protection in late June after the disclosure of billions of dollars in off-balance sheet loans guaranteed by Adelphia to entities controlled by the Rigases. When it filed for bankruptcy, the company had defaulted on some $7 billion of debt.
The search for new executives began in July, and last month Coudersport, Pennsylvania-based Adelphia filed a motion asking Judge Robert Gerber, of the U.S. bankruptcy court in Manhattan, to approve Schleyer and Cooper, two former AT&T Broadband executives, as Adelphia's top officers.
Under the terms of the package, the executives will be paid up to $41 million in combined salaries, stock options and bonuses. As part of the package, Schleyer will receive a signing bonus of $1.7 million and an annual salary of $1.275 million, while Cooper will get $1.13 million starting fee and $850,000 in salary.
"These front-loaded incentives will not encourage the executives to maximize the value of Adelphia, but, rather, appear to benefit only the company's creditors," the Rigases said in a filing where they also objected to the proposal to move Adelphia's management to Denver, Colorado, from its current home in Coudersport, Pennsylvania.
Adelphia said it "remained confident that Bill Schleyer and Ron Cooper are the ideal executives to rebuild Adelphia and...our compensation agreements with these proven executives are reasonable and appropriate."
In a separate filing, attorneys for the Committee of Adelphia's Equity Security Holders -- which represents five of the largest non-Rigas family shareholders -- also highlighted a penalty fee of $7.65 million which could go to Schleyer if Adelphia chooses not to make him chairman.
"He has the option to walk and be paid $7.65 million," Norman Kinel of the law firm Sidley Austin Brown & Wood representing the shareholders, said. "That's quite a big incentive to leave."
The current plan calls for Schleyer to be named both chairman and chief executive while Cooper will be named president and chief operating officer.
In general, the salary and compensation proposed was "grossly excessive," Kinel told Reuters, adding the total combined packaged worked out to about $6,570 per hour per executive.
"That's way above the going market rates and not comparable to executives at similar companies," he said.
He also noted that both executives were being offered contracts that did not require them to devote their full time to Adelphia, enabling them to take board memberships with other companies and/or participate in the running of other organizations.
Adelphia had tried to argue that the executive pay packages were modeled on the deal worked out for Michael Capellas, the new CEO of bankrupt telecommunications giant WorldCom Inc. <WCOEQ.PK>
But Kinel dismissed that argument, saying WorldCom's revenues were ten times greater than Adelphia's, that it employed four times as many staff and that it had four times the amount of stated assets.
"So we don't think that there's any valid basis to compare Adelphia to Worldcom," he said.
A court hearing to approve the appointment of Schleyer and Cooper and their salaries is set for Feb. 24.
Copyright 2003, Reuters News Service
$6,570.00 per hour???
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