One of WorldCom Inc.'s longest-serving directors, Stiles A. Kellett Jr., has agreed to resign from the board and pay an undisclosed sum to resolve an ongoing controversy over his lease of a corporate jet from the troubled long-distance telephone company.
Kellett, who headed WorldCom's executive-compensation committee, came under fire after the company disclosed that former chairman Bernard J. Ebbers agreed to lease the jet at the rate of $1 per month plus other expenses. During the period that the lease was in effect, Kellett approved loans, which now total $408.2 million, to Ebbers.
Richard C. Breeden, a court-appointed corporate monitor, has suggested in a memo to the board that the jet lease was a reward for approving the loans to Ebbers. He urged the board to remove Kellett. Ebbers himself was pressured to resign in April after questions were raised about the same loans.
In a presentation to the board Oct. 8, Kellett argued that there was nothing improper about the one-year lease, which expired in June. Kellett said he paid $400 an hour to operate the plane, and he also picked up the cost of the crew, fuel, maintenance and insurance.
Nevertheless, sources said, the board demanded that Kellett resign by last Friday. He agreed to a settlement on Sunday rather than engage in a fight over whether the board had the power to fire one of its own, the sources said.
In a statement released last night, Kellett said he decided to step down to save the company from further distraction as it works its way through bankruptcy. "Not only does this settlement incorporate reasonable terms, it relieves the company of the improvident risk to removing a director illegally, and hopefully impels it to more constructive action to restore its financial health," he said
Kellett's attorney, Stuart Pierson, declined to reveal the size of the settlement but said any payment would be offset by directors' fees and other reimbursements WorldCom still owed Kellett. After those fees and reimbursements are factored in, Kellett still owes the company about $156,000, Pierson said. Kellett has agreed to reimburse the company at the rate of $3,000 for each hour the plane was in flight, more than seven times the rate under the contract he signed with Ebbers. Breeden had previously recommended that Kellett reimburse the company at least $1.4 million for his use of the jet.
A WorldCom spokeswoman declined to comment last night. Breeden was traveling in Europe and was unavailable, according to his office.
WorldCom filed for bankruptcy in July after it revealed a massive accounting scandal. To date, the company has stated that it has found at least $7.7 billion in improper accounting. The Securities and Exchange Commission has filed suit against the company, alleging securities fraud. Several top executives also have been charged criminally. Sources said Breeden, who was appointed by the judge overseeing the fraud case, is seeking to replace all of the board members who were with the company when the fraud is alleged to have taken place.