RBR-TVBR First
One of the creditors from Citadel Broadcasting’s recent Chapter 11 proceeding is crying foul over the stock grants the company made to its top managers and directors just two months after emerging from bankruptcy court. R2 Investments calls it fraud and wants the bankruptcy court to void the stock grants.
According to the court filing by R2, the Chapter 11 Plan approved by R2 and other creditors allowed for the new Citadel to award stock options, which the recipients would have to pay out of their own pockets to exercise once they had vested over three years. Instead, in what R2 calls “a shocking display of corporate greed and dishonesty,” the board and managers rewarded themselves with stock grants which vest in only two years and require no out-of-pocket payment. R2 claims the grants are 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 Investments – sometimes referred to as “R-Squared” – is a Cayman Islands-based hedge fund linked to Texas investor Geoffrey Raynor. It was one of the investors which had battled with Emmis Communications CEO Jeff Smulyan over the payout to preferred shareholders in the latest failed attempt to take Emmis private. R2 did not state in its court filing how much of Citadel’s new stock/warrants and/or new bonds it holds.
“Despite having just emerged from bankruptcy (with substantially the same management that caused the company to file bankruptcy), Citadel now has the highest paid management in the terrestrial broadcasting industry,” said R2 in its motion seeking an order forcing Citadel to comply with the terms of its reorganization plan. It complains that Suleman, other top managers and the company’s new directors turned the terms of the reorganization plan’s attempt to properly incentivize management on its head with an Equity Incentive Program that will benefit the managers even if they destroy company value.
Citadel disputes the R2 claims and sent this statement to RBR-TVBR: “The filing by R2 Investments contains misleading and inaccurate charges. The Board of Citadel Broadcasting, which was appointed by the lenders, acted appropriately, within its authority under the Equity Incentive Plan that was filed with the Court and in the best interests of the company. When the Court reviews the record, we are confident this motion will be dismissed.”
A hearing before US Bankruptcy Judge Burton Lifland on the motion to void the stock grants is set for November 3rd.
RBR-TVBR observation: At current trading values, the restricted shares granted to Farid Suleman are worth about $42.8 million. Citadel’s Class A stock, Class B stock and warrants to acquire Class A stock (at a strike price of zero) all traded at $22.50 in the past week.
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