After first insisting that they were allowed under the terms of its Chapter 11 reorganization plan, Citadel Broadcasting has now relented and canceled the stock grants made to top management and members of the board of directors. The action came just before a scheduled hearing on a legal action brought by one of its creditors turned shareholders which sought to have a judge throw out the stock grants.
According to a notice filed with the US Bankruptcy Court by R2 Investments, which had sued Citadel over the stock grants, the radio company’s directors and top executives “have voluntarily agreed to rescind their awards of restricted stock,” so the hearing which had been scheduled for Wednesday (11/3) has been adjourned until November 10th, next Wednesday. Instead, the board of directors plans to issue stock options, which is what R2 claims was the only type of stock compensation allowed under the Chapter 11 plan.
R2 had claimed that the restricted stock grants were worth $110 in total, with more than $55 million of that going to CEO Farid Suleman. RBR-TVBR had estimated the value of Suleman’s shares at $43.5 million. R2 had complained to the court that granting stock rather than options would reward managers with a big payoff even if they performed poorly.
UPDATE: Suleman and the other recipients formally filed with the SEC on Wednesday afternoon that they had forfeited the restricted stock grants.
RBR-TVBR observation: Restricted stock has recently become the preferred way of rewarding management at many public companies because of scandals and lawsuits, particularly involving high-tech companies, over the pricing of options. But now we see that restricted stock grants can spark lawsuits as well.