Orchestra's bankruptcy risks forfeit of $50M gift

When Leonore Annenberg, widow of billionaire publisher Walter Annenberg, decided to give $50 million to the endowment of the Philadelphia Orchestra, she created a donor agreement stipulating in great detail how the money should be handled, and how the investment proceeds could be spent.

The 2003 gift, the largest in the orchestra's history, remains the keystone in the group's endowment, contributing up to several million dollars a year to the budget.

But turning over $50 million wasn't the end of the Annenberg Foundation's relationship with the orchestra. Although Leonore Annenberg died in 2009, the 12-page agreement bearing her signature remains in effect, and among the controls it outlines is a startling stipulation:

The foundation may ask for the money back if the orchestra files for bankruptcy.

The Philadelphia Orchestra Association filed for reorganization last month, unleashing fears that the Annenberg Foundation will try to reverse its munificence.

"I don't know the answer. That will be a board decision," orchestra president Allison B. Vulgamore said, referring to the Annenberg board, which consists of Walter Annenberg's daughter and three grandchildren. "What I am learning as I get to know the foundation is they have a very strong board that meets often to debate topics."

The Los Angeles foundation has retained David C. Ulich, a Los Angeles partner with Sheppard, Mullin, Richter & Hampton, who has filed notice to appear in the Orchestra Association's case, now before U.S. Bankruptcy Court Judge Eric L. Frank.

Annenberg Foundation executive director Leonard Aube said: "We're watching. Our trustees are voracious readers and are aware of the situation, but there's nothing actionable at this point."

On what the foundation might do, he said:

"I'm not offering a perspective either way. . . . It would not be appropriate to channel or anticipate the board."

Several observers close to the situation, who declined to be identified, said they could not predict whether the $1.7 billion Annenberg Foundation would try to recall the balance of the donation - a gift made, to a large extent, based on the warmth between Leonore Annenberg and former orchestra music director Christoph Eschenbach. Both Annenbergs had a long history of interest in the Philadelphia Orchestra and the Academy of Music, giving about $100 million over several decades to both institutions.