Radio One Inc. chief executive Alfred C. Liggins III said yesterday that he is paying back a controversial $21.1 million loan he received from the company to buy stock in 2001.
The company, which also gave smaller loans to three other top executives, announced Liggins's repayment plans yesterday. The company has called the loans an effort to retain employees who were being recruited by companies offering incentives such as stock options during the technology boom.
Loans to executives to buy stock were outlawed the following year by the corporate governance law known as the Sarbanes-Oxley Act, passed as accounting scandals at Adelphia Communications Corp. and WorldCom Inc. were unfolding. Executives at both of those companies were lent hundreds of millions of dollars in transactions that were not disclosed to shareholders.
Liggins said he has paid back about $17.8 million of his Radio One loan in the form of 1,125,000 shares of the company's stock and $2 million in cash. He said he will pay the remainder before the loan is due in April. According to a Securities and Exchange Commission report Liggins filed this month, he still owns 10.5 million shares of Lanham-based Radio One, which operates 69 stations in 22 cities and targets African American listeners.
"I'm glad these notes are finally getting repaid," Liggins said in an interview yesterday. "It became controversial after other companies and people did bad, fraudulent things. Even though there was nothing bad or fraudulent about what we did, the climate was anti-anything that sounded like a loan."
Radio One's loans became part of the national discussion on executive compensation and corporate governance when company executives discussed them during a 2002 conference call with analysts. In the days that followed, Radio One shares fell more than 22 percent. Investors were rankled by Liggins's loan to buy 1.5 million shares of company stock, a $7 million loan to the company's chief financial officer Scott R. Royster to buy 1 million shares and a $2 million loan to general counsel Linda J. Eckard Vilardo to buy 250,000 shares. Royster and Vilardo's loans are not due until 2010 and 2008, respectively, or 60 days after they leave the company. Last month, Royster paid back a separate $750,000 non-interest-bearing loan he was given in 2002.
"In retrospect, [the loans] turned out to be something the market felt was too generous for executives," said Kit Spring, a radio analyst at Stifel, Nicolaus & Co. in Denver. "At the time, I think it was reasonable. They had always disclosed it. It was never a hidden loan."
Liggins said that some of the loans are being repaid now because they are due and that others will be paid according to the employment contracts.
"The way we structured these loans, the company took back a note for stock we sold the employees," Liggins said. "I thought it was a good structure at the time because the employee was absolutely at risk and the employee owed the money. It retains good people and keeps them focused on shareholder value and driving the stock price."
Charles M. Elson, chairman of the University of Delaware's corporate governance center, said that even when such loans were legal, they were viewed as a potentially inappropriate use of corporate assets. "They were considered a legal practice, but they were never considered a good practice," he said.
Radio One's stock closed yesterday at $14.65, up 7 cents.
"At this stage in the game," Spring said, "investors are comfortable that it already happened, and what's done is done."
