UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(RULE 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.   )

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

þ  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

WESTWOOD ONE, INC.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrants)

 

Payment of Filing Fee (Check the appropriate box):

 

þ  No fee required.

 

 

 

 

 

 

 

 

 

 

 

 

o  Fee previously paid with preliminary materials.

 

 

 

 

 

 

 

 

 

 

 

Dear Shareholders:

 

Enclosed with this letter is a Proxy Statement and proxy card for the Annual Meeting of Shareholders of Westwood One, Inc. (the “Company”) to be held on [date] at [time], Pacific Time, in the [location]. A copy of the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2006, which report contains consolidated financial statements and other information of interest with respect to the Company and its shareholders is also included with this mailing. Those of you who are receiving this document as part of the annual meeting package should note that the enclosed copy of our Form 10-K/A for the year ended December 31, 2006 is being provided as our most recent annual report. Due to the time between the filing of the 10-K/A and this proxy statement, the most current information about our directors and named executive officers is contained in this proxy statement. We note however that in accordance with SEC rules, the compensation tables which appear in this proxy statement reflect compensation paid to named executive officers for fiscal year 2006. Such compensation tables have not been updated for fiscal year 2007 as such year is not yet completed.

 

The purpose of the Annual Meeting is to elect three directors, to ratify the appointment of the Company’s independent registered public accounting firm, to approve the proposed agreements and related transactions between the Company and CBS Radio Inc. (“CBS Radio”) and to conduct such other business as may properly come before the meeting. At the Annual Meeting, the holders of Common Stock, voting alone, will elect one independent member of the Company’s Board of Directors. Holders of Common Stock and Class B Stock, voting together, will elect two non-independent members of the Company’s Board of Directors, ratify the appointment of the Company’s independent registered public accounting firm, and consider and act upon such other business as may properly come before the meeting. Holders of Common Stock and Class B Stock (excluding shares held by CBS Radio and its affiliates), voting together, will vote on the proposed agreements and related transactions with CBS Radio.

 

IT IS IMPORTANT THAT YOU MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE PROVIDED POSTAGE-PAID ENVELOPE IF YOU DO NOT INTEND TO BE PRESENT AT THE MEETING. IF YOU DO LATER DECIDE TO ATTEND, YOUR PROXY WILL AUTOMATICALLY BE REVOKED IF YOU VOTE IN PERSON. ACCORDINGLY, YOU ARE URGED TO MARK, SIGN, DATE AND RETURN THE PROXY CARD NOW IN ORDER TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING.

 

We appreciate your continued support.

 

Sincerely,

 

WESTWOOD ONE, INC.

 

 

Norman J. Pattiz
Chairman of the Board

 

[          ], 2007

 

40 West 57^th Street

New York, NY 10019

 

 

Proxy Statement

 

 

GENERAL

 

This proxy statement (first mailed to shareholders on or about [          ], 2007) is furnished in connection with the solicitation of proxies by Westwood One, Inc., a Delaware corporation (the “Company” or “Westwood”), for use at the Annual Meeting of Shareholders of the Company to be held on [date] at [time], Pacific Time, in the [location], and any adjournments thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.

 

The Company’s Annual Report on Form 10-K/A for the year ended December 31, 2006, including consolidated financial statements and other information, accompanies this proxy statement but does not form a part of the proxy soliciting material.

 

ABOUT THE MEETING

 

What is the purpose of the annual meeting?

 

At our annual meeting, shareholders will act upon the matters outlined in the Notice of Annual Meeting of Shareholders accompanying this proxy statement, including the election of directors, the ratification of the selection of the Company’s independent registered public accounting firm, the approval of the proposed agreements and related transactions with CBS Radio and such other business as may properly come before the meeting. In addition, management will report on the performance of the Company during 2006 and respond to questions from shareholders.

 

Who is entitled to vote at the meeting?

 

Only shareholders of record at the close of business on [date], the record date for the meeting, are entitled to receive notice of and to participate in the annual meeting. If you were a shareholder of record on that date, you will be entitled to vote all of the shares that you held on that date at the meeting, or any postponements or adjournments of the meeting. As of the record date, there were [          ] shares of Common Stock of the Company (“Common Stock”) outstanding, excluding treasury shares, and 291,796 shares of Class B Stock of the Company (“Class B Stock”) outstanding.

 

What are the voting rights of holders of the Company’s Common Stock and Class B Stock?

 

Under the Company’s certificate of incorporation, each holder of outstanding Common Stock is entitled to cast one (1) vote for each share of Common Stock held by such holder and each holder of Class B Stock is entitled to cast fifty (50) votes for each share of Class B Stock held by such holder. Only the Common Stock is publicly traded.

 

Who can attend the meeting?

 

All shareholders as of the record date, or their duly appointed proxies, may attend the meeting. If you attend, please note that cameras, recording devices and other electronic devices will not be permitted at the meeting.

Please also note that if you hold your shares in “street name” (that is, through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date in order to gain entrance.

 

What constitutes a quorum?

 

With respect to the election of the directors to be elected by the holders of the Common Stock voting alone, the presence at the meeting, in person or by proxy, of the holders of at least one-third of the shares of Common Stock outstanding on the record date and the presence at the meeting, in person or by proxy, of the holders of a majority of the aggregate voting power of the Common Stock and the Class B Stock outstanding on the record date will constitute a quorum, permitting the holders of Common Stock to take action on that matter. With respect to all other matters to be voted on at the meeting, the presence at the meeting, in person or by proxy, of the holders of a majority of the aggregate voting power of the Common Stock and the Class B Stock outstanding on the record date will constitute a quorum, permitting the shareholders to take action on those matters.

 

Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of votes considered to be present at the meeting for purposes of determining a quorum.

 

How do I vote?

 

If you complete and properly sign and date the accompanying proxy card and return it to the Company, it will be voted as you direct. If you are a registered shareholder and attend the meeting, you may deliver your completed proxy card in person. “Street name” shareholders who wish to vote at the meeting will need to obtain a proxy form from the institution that holds their shares.

 

Can I change my vote after I return my proxy card?

 

Yes. Even after you have submitted your proxy, you may change your vote at any time before the proxy is exercised by filing with the Secretary of the Company either a notice of revocation or a duly executed proxy bearing a later date. In addition, the powers of the proxy holders will be suspended if you attend the meeting in person and vote, although attendance at the meeting will not by itself revoke a previously granted proxy.

 

What are the Board’s recommendations?

 

Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board of Directors of the Company (the “Board” or the “Board of Directors”). The Board’s recommendation is set forth together with the description of each item in this proxy statement. In summary, the Board recommends a vote:

 

 

Management is not aware of any matters, other than those specified above, that will be presented for action at the annual meeting, but if any other matters do properly come before the meeting, the proxy holders will vote as recommended by the Board of Directors or, if no recommendation is given, at their discretion.

How will the Company’s relationship with CBS Radio and its affiliates change if the proposed transactions with CBS Radio (hereinafter referred to as the “CBS transactions”) are approved?

 

If the CBS transactions are approved, as of the closing date, CBS Radio will no longer manage the Company. The Company will employ its CEO and CFO directly. CBS Radio will no longer employ the Company’s CEO nor reimburse the Company for the costs related to the Company’s CFO. On the closing date, directors of the Company who are employees of CBS Radio or its affiliates will resign from their director positions at the Company.

 

As part of the new arrangement, the Company will secure distribution of certain of its Network programming and Metro products, and all commercial inventory associated with the foregoing, to 140 CBS radio stations through March 31, 2017 (unless earlier terminated in accordance with the express terms of the agreements). The compensation payable by the Company to CBS Radio will include adjustments to compensation based on the audience delivered by each CBS radio station (in the case of Westwood One Affiliation Agreements) and its Commercial Clearance levels. The new arrangement will also clarify and better document existing practices between the Company and CBS Radio relating to the Company’s use of CBS facilities, equipment, programming and trademarks in its business.

 

Finally, as part of the proposed CBS transactions, the Company (including its affiliates) and CBS Radio (including CBS Corporation’s controlled affiliates) will mutually release each other from all potential and pre-existing claims between them, subject to certain limited exceptions which are described in more detail in Proposal 3.

 

What conditions are required to be fulfilled before the proposed CBS transactions take effect?

 

The principal conditions to the CBS transactions include, among others, approval of the proposed agreements and related transactions, by the Company’s shareholders (other than CBS Radio and its affiliates), a refinancing or modification of the Company’s credit agreement and payment by the Company of its outstanding obligations to CBS Radio, estimated to be approximately $12.8 million, plus an additional $5.0 million to be paid to CBS Radio at closing.

 

What will happen if the proposed CBS transactions are not approved by the Company’s shareholders?

 

The Company’s existing relationship with CBS Radio, including the Management Agreement, will remain in effect until March 31, 2009, at which time the Company’s distribution arrangements with CBS radio stations could cease. The Company, along with the Board and the Strategic Review Committee, will continue to review and consider various strategic alternatives for the Company.

 

If approved, when will the CBS transactions become effective?

 

The Company expects the CBS transactions would become effective during the first quarter of 2008, assuming satisfaction or waiver of all conditions to closing.

 

What vote is required to approve each item?

 

With respect to the election of directors and the ratification of auditors, the affirmative vote of a majority of the votes entitled to be cast and represented in person or by proxy at the meeting will be required to approve each such matter. With respect to the CBS transactions, the affirmative vote of the shareholders representing a majority of the Common Stock and Class B Stock (not including stock that is beneficially owned by CBS Radio or its affiliates) represented in person or by proxy at the meeting will be required to approve the agreements and related transactions with CBS Radio. The Common Stock beneficially owned by CBS Radio or its affiliates will count towards the determination of a quorum only. Other than with respect to the election of Mr. Smith, the Common Stock and the Class B Stock vote together as a class on all matters proposed. With respect to the election of Mr. Smith, the Common Stock votes separately as a class and the Class B Stock does not vote. A properly executed proxy marked “WITHHOLD AUTHORITY” with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, although it will be counted for purposes of determining whether there is a quorum. A properly

executed proxy marked “ABSTAIN” with respect to any such matter will not be voted, although it will be counted for purposes of determining whether there is a quorum. Accordingly, an abstention will have the effect of a negative vote.

 

If you hold your shares in “street name” through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with respect to some or all of the matters to be acted upon. Thus, if you do not give your broker or nominee specific instructions, your shares may not be voted on those matters and will not be counted in determining the number of shares necessary for approval. Shares represented by such “broker non-votes” will, however, be counted in determining whether there is a quorum.

 

What is beneficial ownership?

 

Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Under Rule 13d-3, certain shares may be deemed to be beneficially owned by more than one person (such as where persons share voting power or investment power). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage of ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person’s actual voting power at any particular date. The following information is based on information contained in the most recent Schedule 13D/13G filings made available to the Company.

 

How much stock do the Company’s 5% shareholders own?

 

The following table shows the amount of the Common stock and Class B stock beneficially owned (unless otherwise indicated) by our largest shareholders (those who own more than 5% of the outstanding class of shares). For purposes of calculating the percentage ownership of each large shareholder, the Company used figures as of October 31, 2007, when there were 87,113,118 shares of Common stock outstanding and 291,796 shares of Class B stock outstanding.

 

 

 

 

How much stock does the Company’s management, specifically named executive officers and directors officers own?

 

The following table shows the amount of the Common stock and Class B stock beneficially owned (unless otherwise indicated) by members of our management team, which include the current executive officers named in the Summary Compensation Table (the “named executive officers”), our directors, and our directors and named executive officers as a group. For purposes of calculating the percentage ownership of each such individual, the Company used figures as of October 31, 2007, when there were 87,113,118 shares of Common stock outstanding and 291,796 shares of Class B stock outstanding. All numbers presented below include all shares which would be vested on, or exercisable by, a holder as of December 31, 2007, as beneficial ownership is deemed to include securities that a holder has the right to acquire within 60 days. As described elsewhere in this proxy statement, a holder of restricted stock only (i.e., not RSUs) is entitled to vote the restricted shares once it has been awarded such shares. Accordingly, all restricted shares that have been awarded, whether or not vested, are reported in this table of beneficial ownership, even though a holder will not receive such shares until vesting. This is not the case with RSUs or stock options which are not deemed beneficially owned until vesting.

 

 

*Represents less than 1% of the Company’s outstanding shares of Common stock.

 

How is the Board of Directors structured and what are the terms for each class of directors?

 

The Board of Directors is divided into three classes (Class I, II, and III), each class serving for three-year terms, which terms are staggered. The Board of Directors currently is comprised of nine individuals. Only one class of directors is elected at each annual meeting. The Company’s certificate of incorporation provides that at least 331/3% of directors must be independent outside directors. Such independent directors are elected by holders of Common Stock voting alone as a class. Pursuant to the Company’s certificate of incorporation, holders of Common Stock, voting alone,

have the right to elect 20% of the Board of Directors, which is currently three directors. The independent directors will be elected each year, as set forth below. The remaining members of the Board are elected by all shareholders voting together as a single class.

 

How many Board members are Independent under the listing standards of the New York Stock Exchange?

 

Pursuant to our Corporate Governance Guidelines, a copy of which is available on our website
(www.westwoodone.com – under the caption “Investor Relations”), the Board of Directors is required to affirmatively determine that a majority of the directors is independent under the listing standards of the New York Stock Exchange (the “NYSE”). In accordance with the Guidelines, the Board of Directors undertakes an annual review of director independence. During this review, the Board considers all transactions and relationships between each director or any member of his immediate family and the Company and its affiliates. The purpose of this review is to determine whether any such relationships or transactions is considered a “material relationship” that would be inconsistent with a determination that a director is independent. The Board has not adopted any “categorical standards” for assessing independence, preferring instead to consider and disclose existing relationships with the non-management directors and the Company. The Board observes all criteria for independence established by the NYSE and other governing laws and regulations.

 

As a result of this review, the Board of Directors affirmatively determined that six directors are “independent” under the listing standards of the NYSE. The independent directors are Messrs. Carnesale, Dennis, Greenberg, Little, Ming and Smith. In determining that these six directors are independent, the Board reviewed the NYSE corporate governance rules.

 

How does the Board select nominees for the Board?

 

The Nominating and Governance Committee, which consists solely of independent directors, considers candidates for Board membership suggested by its members and other Board members, as well as management and shareholders, as stated in its Charter. While the Nominating and Governance Committee does not have a formal policy by which shareholder may recommend potential director candidates, a shareholder who wishes to recommend a prospective nominee for the Board should notify the Company’s Secretary or any member of the Nominating and Governance Committee by mail and include supporting materials the shareholder considers relevant to the potential candidate’s qualifications. Any correspondence mailed to the Company should include a clear and prominent notation that such contains a “Director Recommendation” and confirm the author is a shareholder. At a minimum, any shareholder nominee for director must satisfy the independence requirements of the New York Stock Exchange and possess the desired characteristics set forth in the Company’s Corporate Governance Guidelines.

 

Once a prospective nominee has been identified, the Nominating and Governance Committee, either with or without Board input, determines whether to conduct a full evaluation of the candidate. The preliminary determination is primarily based on the need for additional Board members to fill vacancies or to expand the size of the Board as well as a result of its review of the composition of the Board in light of the characteristics of independence, diversity, age, skills, experience, availability of service to Westwood One and other Board needs, including but not limited to audit committee financial expertise. After completing their evaluation, the Nominating and Governance Committee makes a recommendation to the full Board as to who should be nominated and the Board determines the nominee.

 

When identifying and/or recommending individuals to the Board for Board membership, the Nominating and Governance Committee is guided by the principle that such nominees should be individuals of accomplishment in their careers. Directors should exhibit the ability to make independent, analytical inquiries and demonstrate practical wisdom and mature judgment. The Nominating and Governance Committee strives to ensure directors possess the highest personal and professional ethics, integrity and values and will be committed to promoting the Company’s long-term interests. The Nominating and Governance Committee places a premium on individuals who have demonstrated expertise or experience with fields of interest which would further the Company’s business objectives, areas such as technology, advertising, college sports or weather programming. From time to time during the review and/or nomination process, the Nominating and Governance Committee will consult with outside directors and Company management and obtain feedback on their thoughts regarding potential candidates.

Who are the current Board members, what Board Committees do they serve on and what are their backgrounds and qualifications?

 

The directors and nominees for director of the Company are listed below, including their length of service, the committees on which they serve and their ages as of December 31, 2007. As described throughout this proxy statement, the CBS employees who are directors, namely Messrs. Berger and Kosann, will resign from the Board upon the closing of the CBS transactions, when and if such occurs.

 

 

 

*Member

**Chair

 

The principal occupations and professional background of the nine directors, including the three director nominees (Messrs. Kosann, Pattiz and Smith), are as follows:

 

Mr. Berger – has been a director of the Company since April 4, 2006. Mr. Berger has been the Executive Vice President and Chief Financial Officer of CBS Radio since January 2006. Mr. Berger was the Executive Vice President, Chief Financial Officer, and a member of the Board of Directors of Emmis Communications Corporation from 1999 to 2005. Prior to Emmis, Mr. Berger served as Group President of the Energy Marketing Division for LG&E Energy Corporation, where he previously served as Executive Vice President and Chief Financial Officer. Mr. Berger is a cum laude graduate of the University of Massachusetts, Amherst, with a degree in business administration. He is also a CPA who serves on numerous civic boards and committees.

 

Dr. Carnesale – has been a director of the Company since August 3, 2005. Dr. Carnesale is Chancellor Emeritus and Professor at the University of California, Los Angeles (UCLA). He served as Chancellor of UCLA from July 1, 1997 through June 20, 2006. Prior to joining UCLA, Dr. Carnesale served for 23 years as Professor of Public Policy and Administration at Harvard University’s John F. Kennedy School of Government. During that period, Dr. Carnesale also served as Provost of the University (October 1994 – June 1997) and Dean of the Kennedy School (November 1991 – December 1995). Dr. Carnesale is a director of Teradyne, Inc.

 

Mr. Dennis – has been a director of the Company since May 24, 1994. Mr. Dennis has been a Managing Director of Pacific Venture Group, a healthcare venture capital firm, since November 2004. Mr. Dennis was a private investor and consultant from December 2002 to November 2004. Mr. Dennis served as Vice Chairman, Co-President, Chief Corporate Officer and Chief Financial Officer of Tenet Healthcare, a hospital owner and healthcare provider, from March 2000 through November 2002. Mr. Dennis served as Managing Director, Investment Banking for Donaldson, Lufkin & Jenrette Securities Corporation from April 1989 to February 2000.

 

Mr. Greenberg – has been a director of the Company since May 24, 1994. Since February 2001, Mr. Greenberg has been President of Mirage Music Entertainment, a company which owns the Mirage Record label. From April 1993 to January 2001, Mr. Greenberg served as President of MJJ Music, a Michael Jackson/Sony owned record label.

Mr. Kosann – was appointed to the Board of Directors of the Company on January 1, 2006, when he became President and Chief Executive Officer of the Company. Prior to such time, Mr. Kosann was President, Sales of the Company since May 2003 and Co-Chief Operating Officer since April 2005. Mr. Kosann was the Company’s Executive Vice President – Network Advertising Sales from January 2001 to May 2003; Senior Vice President – Affiliate Sales and New Media from December 1999 to January 2001 and Vice President – Affiliate Sales from May 1999 to December 1999. Mr. Kosann was employed by Bloomberg Financial Markets from November 1992 to May 1999 in several media sales and business development capacities.

 

Mr. Little – has been a director of the Company since March 14, 2006. Mr. Little is the Chief Executive Officer and Founder of Hudson Advisory Partners (“Hudson”). Founded in August 2005, Hudson assists companies and entrepreneurs on business and capital strategy with a long-term orientation and alignment of interests. Prior to Hudson, Mr. Little spent thirteen years (1987-2000) with Donaldson, Lufkin & Jenrette Securities Corporation in its investment banking division, until it was acquired by Credit Suisse First Boston (“CSFB”) in late 2000. Mr. Little was a Managing Director in the Investment Banking Division of CSFB based in Los Angeles from late 2000 to August 2005. He served as a consultant to CSFB until December 2005. During his investment banking career, Mr. Little worked with companies in various stages of development (start-up, high-growth, mature and restructuring), executed a multitude of products (e.g., capital raising including debt and equity in public and private markets, buy and sell-side M&A and restructurings) and worked with companies in a variety of industries (e.g., retail, manufacturing, healthcare, real estate, gaming and media) in executing their capital strategies.

 

Mr. Ming – has been a director of the Company since July 7, 2006. Since October 2002, Mr. Ming has been the Chief Operating Officer of Sesame Workshop, the producers of Sesame Street and other children’s educational media. Mr. Ming joined Sesame Workshop in 1999 as the Chief Financial Officer. Prior to joining Sesame Workshop, Mr. Ming was the Chief Financial Officer of the Museum of Television and Radio in New York from 1997 to 1999; Chief Operating Officer at WQED in Pittsburgh from 1994-1996; and Chief Financial Officer and Chief Administrative Officer at Thirteen/WNET New York from 1984 to 1994. Mr. Ming is a CPA and graduated from Temple University in Philadelphia, PA.

 

Mr. Pattiz – founded the Company in 1974 and has held the position of Chairman of the Board since that time. He also was the Company’s Chief Executive Officer until February 3, 1994. From May 2000 to March 2006, Mr. Pattiz served on the Broadcasting Board of Governors (BBG) of the United States of America, which oversees all U.S. non-military international broadcast services. As chairman of BBG’s Middle East Committee, Mr. Pattiz was the driving force behind the creation of Radio Sawa and Alhurra Television, the U.S. Government’s Arabic-language radio and TV services to the 22 countries of the Middle East. Mr. Pattiz has served as a Regent of the University of California since September 2001, and chairs the Regents Oversight Committee of the Department of Energy Laboratories. He also serves on the Board of the Annenberg School of Communication at the University of Southern California, the Board of Trustees of the Museum of Television & Radio and is past president of the Broadcast Education Association. He is a member of the Council on Foreign Relations and the Pacific Council on International Policy.

 

Mr. Smith – has been a director of the Company since May 24, 1994. He was previously a director of the Company from February 1984 until February 3, 1994. Since April 1993, Mr. Smith has been the President of Unison Productions, Inc., through which he serves as an industry consultant involved in a number of projects in the entertainment business.

 

What committees has the Board established and what are the roles of the Committees?

 

The Board of Directors has an Audit Committee, Compensation Committee and Nominating and Governance Committee. The Board has adopted a written charter for each of the committees. The full text of each such charter and the Company’s Corporate Governance guidelines are available on the Company’s website at www.westwoodone.com and are available in print free of charge to any shareholder upon request. Committee membership is composed entirely of non-employee, independent members of the Board of Directors, such determination of independence having been made pursuant to NYSE listing standards. Under their respective charters, each of these committees is authorized and assured of appropriate funding to retain and consult with external advisors, consultants and counsel.

The Audit Committee

 

The current members of the Audit Committee are Messrs. Little (Chair), Greenberg and Ming. Mr. Smith served as a member of the Audit Committee during fiscal year 2006 until his resignation on September 13, 2007. Pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”) and the NYSE listing standards, Messrs. Greenberg, Little and Ming meet the requirements of independence proscribed thereunder. In addition, the Board has determined that Mr. Little is an “audit committee financial expert” pursuant to SOX and the NYSE listing standards. For further information concerning Mr. Little’s qualifications as “audit committee financial expert,” see “Who are the current Board members, what Board Committees do they serve on and what are their backgrounds and qualifications?” above.

 

The Audit Committee is responsible for, among other things, the appointment, compensation, retention and oversight of the Company’s independent auditor; reviewing with the independent auditor the scope of the audit plan and audit fees; and reviewing the Company’s financial statements and related disclosures. The Audit Committee meets separately with senior management of the Company, the Company’s General Counsel, the Company’s internal auditor and its independent auditor on a regular basis. For additional information on the Audit Committee’s role and its oversight of the independent auditor during 2006, see “Report of the Audit Committee.” There were eight meetings of the Audit Committee in 2006.

 

The Compensation Committee

 

The current members of the Compensation Committee are Messrs. Greenberg (Chair), Dennis and Smith. Each member of the Compensation Committee meets the independence requirements of the NYSE. The Compensation Committee establishes, oversees and recommends to the Board the implementation of overall compensation policies for senior executive officers as well as for compensation provided to officers pursuant to the Management Agreement and the Chairman of the Board; reviews and approves corporate goals and objectives relative to the compensation of senior executive officers; reviews the results of and procedures for the evaluation of other executive officers by the Chief Executive Officer; at the direction of the Board, establishes compensation for the Company’s non-employee directors; and oversees the administration of all qualified and non-qualified employee compensation and benefit plans, including the stock incentive plans. There were seven meetings of the Compensation Committee in 2006.

 

The Nominating and Governance Committee

 

The current members of the Nominating and Governance Committee are Messrs. Dennis (Chair), Carnesale and Greenberg. Each member of the Nominating and Governance Committee meets the independence requirements of the NYSE. The Nominating and Governance Committee is responsible for overseeing the development and implementation of the Company’s policies and practices with regard to corporate governance. The Nominating and Governance Committee is charged with recommending possible qualified candidates to the Board for election as directors of the Company and to recommend a slate of directors that the Board proposes for election by shareholders at the annual meeting. The Nominating and Governance Committee will also consider, at meetings of the Nominating and Governance Committee, those recommendations by shareholders which are submitted, along with biographical and business experience information, to the Nominating and Governance Committee at the Company’s principal executive office. There were two meetings of the Nominating and Governance Committee in 2006.

 

The Board may from time to time, establish or maintain additional committees as necessary or appropriate.

 

How often did the Board meet during 2006?

 

The Board met eight times during 2006. Each director attended more than 75% of the total number of meetings of the Board and Committees on which he or she served. The Board also meets in non-management executive sessions and has selected Mr. Dennis as presiding director for the non-management executive sessions. All directors are expected to attend the Company’s Annual Meeting of Shareholders, and 9 of the 11 then-current directors were present at the 2006 Annual Meeting of Shareholders. The Company does not have a written policy with regard to attendance of directors at the Annual Meeting of Shareholders.

Does the Company have a Code of Ethics?

 

The Company has a written policy entitled “Code of Ethics” that is applicable to all employees, officers and directors of the Company. In addition to its Code of Ethics, the Company has a Supplemental Code of Ethics for its Chief Executive Officer and Chief Financial Officer. Both the Code of Ethics and the Supplemental Code of Ethics are available on the Company’s website (www.westwoodone.com) and are available in print at no cost to any shareholder upon request.

 

How can shareholders and/or other interested parties communicate with directors, as a group or individually?

 

The Board has established a process for shareholders and/or other interested parties to communicate with Board members by email or regular mail. Shareholders and/or other interested parties may contact any of the directors, as a group (e.g., particular Board committee or non-management directors only) or individually (e.g., the presiding director of the non-management directors only), by regular mail by sending correspondence to Westwood One, Inc., 40 West 57th Street, 15th Floor, New York, NY 10019. Any envelope mailed to the Company should include a clear and prominent notation stating to whom the letter enclosed in the envelope is to be forwarded (i.e., non-management directors, as a group or individually, or to the directors, as a group or individually or to the presiding director of the non-management directors). Shareholders and/or other interested parties may also contact directors and non-management directors by sending an e-mail to dir@westwoodone.com, or to nonmanagdir@westwoodone.com, respectively. All correspondence is reviewed by the Office of the General Counsel prior to its being distributed to the parties indicated on such correspondence.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

What is the Company’s policy and/or procedure for the review, approval or ratification of related party transactions?

 

While the Company does not have a written policy outlining such, it is the Company’s practice to review all transactions with its related parties (referred to herein as “related party transactions”) as they arise. Related parties are identified by the finance, accounts payable and legal departments, who, among other things, review questionnaires submitted to the Company’s directors and officers on an annual basis, monitor Schedule 13Ds and 13Gs filed with the SEC, review employee certifications regarding code of ethics and business conduct which are updated annually, and review CBS Radio’s listings of affiliates which CBS Radio submits to the Company or files with the SEC. Any related party transaction is reviewed by either the Office of the General Counsel or Chief Financial Officer, who examines, among other things, the approximate dollar value of the transaction and the material facts surrounding the related party’s interest in, or relationship to, the related party transaction. With respect to related party transactions that involve an independent director, such parties also consider whether such transaction affects the “independence” of such director pursuant to applicable rules and regulations, including those of the NYSE and the Company’s corporate governance rules. Customarily, the Chief Financial Officer must approve any related party transaction, however, if after consultation, the General Counsel and Chief Financial Officer determine a related party transaction is significant, the transaction is then referred to the Board for its review and approval.

 

While the foregoing procedures are not in writing, the Company does have written procedures regarding transactions with its manager, CBS Radio, as set forth in the Management Agreement between the Company and CBS Radio (the “Management Agreement”), which agreement describes the terms and conditions by which CBS Radio manages the business and operations of the Company. Under the terms of the Management Agreement, all transactions (other than the Management Agreement and Representation Agreement (as described below), which agreements were ratified by the Company’s shareholders) between the Company and CBS Radio or its affiliates must be on a basis that is at least as favorable to the Company as if the transaction were entered into with an independent third party. In addition, subject to specified exceptions, all agreements between the Company and CBS Radio or any of its affiliates must be approved by the Company’s Board. Such exceptions include, among others, new or special programming agreements not requiring compensation; the renewal of existing agreements on the same or better terms or affiliation agreements involving compensation terms consistent with those of non-affiliates of CBS Radio involving annual payments of less than $500,000. If the CBS transactions are consummated, the Management Agreement will terminate.

 

Did the Company participate in any related party transactions in 2006, or does the Company contemplate being a participant in any related party transaction in 2007?

 

Except for the transactions with CBS Radio described below, the Company is not aware of any transaction entered into in 2006, or any transaction currently proposed, in which a related person has, or will have, a direct or indirect material interest. As indicated elsewhere in this proxy statement, one of the Company’s directors, Mr. Berger, is an officer of CBS Radio and, pursuant to the terms of the Management Agreement, the Company’s CEO is an employee of CBS Radio. As of October 31, 2007, CBS Radio beneficially owned 18.4% of the Common stock of the Company.

 

Through the Management Agreement, CBS Radio currently provides to the Company the services of a chief executive officer and a chief financial officer. The Management Agreement was entered into in March 1999 and was subsequently amended to, among other things, extend the Management Agreement until March 31, 2009. Pursuant to the Management Agreement, the Company is obligated to pay to CBS Radio an annual base fee (which base fee is $3,000,000, effective April 1, 2004) subject to an annual increase by a percentage amount equal to the increase based on a specified consumer price index. The expense associated with the Management Agreement in 2006 was approximately $3,273,000.

 

In addition, the Company pays to CBS Radio incentive bonus compensation in an amount equal to 10% of the amount by which the Company’s operating cash flow exceeds a target amount for the applicable year, subject to certain adjustments. The Company must also reimburse CBS Radio for certain out-of-pocket expenses incurred by CBS Radio in performing the services contemplated by the Management Agreement consistent with past practice. CBS Radio did not earn an incentive bonus in fiscal 2006 as targeted cash flow levels were not achieved. As additional compensation to CBS Radio under the Management Agreement, CBS Radio was granted seven warrants to purchase an aggregate

4,500,000 shares of the Company’s Common stock (comprised of two warrants to purchase 1,000,000 Common stock shares per warrant and five warrants to purchase 500,000 Common stock shares per warrant). Of the seven warrants issued, the two one million share warrants have an exercise price of $43.11 and $48.36, respectively, and become exercisable if (A) if the average price of the Company’s Common stock reaches a price of $64.67 and $77.38, respectively, for at least 20 out of 30 consecutive trading days for any period throughout the ten year term of the warrants or (B) upon the termination of the Management Agreement by the Company in certain circumstances as described in the terms of such warrants.

 

The exercise price for each of the five remaining warrants is equal to $38.87, $44.70, $51.40, $59.11 and $67.98, respectively. These warrants each have a term of 10 years and become exercisable on January 2, 2005, 2006, 2007, 2008, and 2009, respectively, subject to a trading price condition. The trading price condition specifies the average price of the Company’s Common stock for each of the 15 trading days prior to January 2 of the applicable year (commencing on January 2, 2005 with respect to the first 500,000 warrant tranche and each January 2 thereafter for each of the remaining four warrants) must be at least equal to both the exercise price of the warrant and 120% of the corresponding prior year 15 day trading average. In the case of the $38.87 warrants, the $44.70 warrants and the $51.40 warrants, respectively, the Company’s average stock price for the 15 trading days prior to January 2, 2005, January 2, 2006 and January 2, 2007, respectively, did not equal or exceed the requisite target price, and, therefore, such warrants did not become exercisable.

 

The Company and CBS Radio also have entered into a registration rights agreement with respect to the shares of Common stock issuable upon exercise of the warrants pursuant to which the Company granted to CBS Radio specified demand and registration rights.

 

The Company has a Representation Agreement with CBS Radio to operate the CBS Radio Networks until March 31, 2009. The Company retains all revenue and is responsible for all expenses of the CBS Radio Networks. In addition, a number of CBS Radio’s radio stations are affiliated with the Company’s radio networks and the Company purchases several programs from CBS Radio. During 2006, the Company incurred expenses aggregating approximately $69,103,000 under the Representation Agreement and for CBS Radio affiliations and programs (not giving effect to expenses incurred as a result of the Company’s agreements with Viacom Inc. and/or its non-CBS affiliates).

 

In addition to the foregoing, CBS Radio enters into other agreements with the Company in the ordinary course to purchase programming rights and affiliate stations with the Company’s network and traffic operations.

 

As discussed elsewhere in this proxy statement, the Company has executed agreements with CBS Radio which would cease CBS Radio’s management of the Company. If approved and provided the other conditions to effectiveness are satisfied, the Management Agreement and Representation Agreement would be terminated, and the warrants described above would be cancelled. In addition, the Company and CBS Radio would enter into a new registration rights agreement with respect to shares of the Company’s Common stock owned by CBS Radio and its affiliates.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires the Company’s executive officers and directors and persons who own more than ten percent of a registered class of the Company’s equity securities to file reports of ownership and changes in ownership with the SEC. Officers, directors and more than ten percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

 

Based solely on its review of the copies of such forms received by it, or written representations from its directors and executive officers, the Company believes that during 2006 its executive officers, directors and more than ten percent beneficial owners complied with all SEC filing requirements applicable to them.

Report of the Audit Committee

 

The Audit Committee operates pursuant to its Charter, which was revised and approved by the Board of Directors and is available on the Company’s website (www.westwoodone.com). The Charter, which complies with applicable SEC regulations, and NYSE rules, addresses five broad areas of responsibility of the Audit Committee:

 

 

The Audit Committee has reviewed and discussed, with both management and its independent registered public accounting firm, all financial statements prior to their filing with the SEC. Management advised the Audit Committee in each case that all financial statements were prepared in accordance with generally accepted accounting principles, and reviewed significant issues with the Audit Committee. The Audit Committee also held discussions with the Company’s independent registered public accounting firm concerning the matters required to be discussed by SAS 61, PCAOB 2 and other PCAOB and SEC regulations as such may be modified or supplemented. The Audit Committee also met separately as a group to discuss the matters contained in this report.

 

The Audit Committee appointed PricewaterhouseCoopers LLP (“PWC”) as the Company’s independent registered public accounting firm for the year ended December 31, 2007 and reviewed with the Company’s financial managers, the independent registered public accounting firm and the director of internal audit, PWC’s overall audit scopes and plans.

 

The Audit Committee also discussed with PWC their independence and received from PWC the written disclosures and the letter from PWC required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). In addition, the Audit Committee pre-approved PWC’S audit and audit related fees and has determined that the provision of non-audit services by PWC is compatible with maintaining their independence.

 

The Audit Committee also has discussed with the Company’s independent registered public accounting firm, with and without management present, their recommendations regarding the Company’s internal accounting controls and the overall quality of the Company’s financial reporting and disclosures.

 

The Audit Committee frequently met in private session separately with the senior members of the Company, CBIZ Harborview (the Company’s director of internal audit), the Company’s General Counsel and the Company’s independent registered public accounting firm. Based on its reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that it approve the inclusion of the Company’s audited financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC. The Audit Committee also recommended to the Board the approval of the Company’s independent registered public accounting firm for the year ending December 31, 2007.

Fees to Independent Registered Public Accounting Firm

 

The following table presents fees billed for fiscal years 2006 and 2005 for professional services rendered by PricewaterhouseCoopers LLP for the audit of the Company’s financial statements for fiscal years 2006 and 2005 as well as fees billed for audit-related services, tax services and all other services rendered by PricewaterhouseCoopers LLP for 2006 and 2005.

 

 

Audit Committee Pre-Approval Policies and Procedures

 

All services provided to the Company by PricewaterhouseCoopers LLP in 2006 were pre-approved by the Audit Committee. Under the Company’s pre-approval policies and procedures, the Chair of the Audit Committee is authorized to pre-approve the engagement of PricewaterhouseCoopers LLP to provide certain specified audit and non-audit services, and the engagement of any accounting firm to provide certain specified audit services.

 

Submitted by the Audit Committee

 

Grant F. Little, III, Chair of the Audit Committee

Gerald Greenberg

H. Melvin Ming

 

EXECUTIVE OFFICERS

 

The following is a list of the Company’s Chief (Principal) Executive Officer, Chief (Principal) Financial Officer, and the three most highly compensated of the Company’s executive officers (excluding the CEO and CFO) using the SEC’s methodology for determining “total compensation” for 2006. Such individuals are referred to in this proxy statement as the Company’s “named executive officers” (or “NEOs”) for 2006, to whom the Compensation Discussion and Analysis appearing below relates. As previously noted, on July 12, 2007, Mr. Zaref’s employment with the Company was terminated and on July 16, 2007, Gary J. Yusko became the Company’s Chief Financial Officer and Principal Accounting Officer, making him a “named executive officer” for fiscal year 2007. Additionally, on July 10, 2007, Mr. Hillman became the Company’s Chief Administrative Officer, in addition to the position listed below. As previously disclosed in a Form 8-K filed with the SEC on July 16, 2007, Mr. Kosann will continue to serve as President and CEO until the earlier of: (i) the closing of the proposed CBS transactions (but no earlier than December 31, 2007); or (ii) the day after the last day on which the Company files its Annual Report on Form 10-K for the year ended 2007 (but no later than March 18, 2008).

 

 

The professional background of the named executive officers for fiscal year 2006 who are not also directors of the Company follows:

 

Andrew Zaref (Mr. Zaref’s employment with the Company ceased on July 12, 2007)

 

Andrew Zaref (age 41) serves as the Company’s Executive Vice President and Chief Financial Officer and is responsible for the Company’s financial affairs. Prior to joining the Company in such position in January 2004, Mr. Zaref served as an Audit Partner in the Information, Communications and Entertainment practice of KPMG LLP. While at KPMG, Mr. Zaref played a key role in advising numerous high profile media and technology clients. Mr. Zaref is a CPA licensed in New York State.

 

David Hillman

 

David Hillman (age 38) serves as the Company’s Executive Vice President, Business Affairs and General Counsel and as of July 10, 2007, the Company’s Chief Administrative Officer. Mr. Hillman joined the Company in June 2000 as Vice President, Labor Relations and Associate General Counsel, which positions he held through September 2004, and thereafter became Senior Vice President, General Counsel in October 2004. He became an Executive Vice President in February 2006.

 

Paul Gregrey

 

Paul Gregrey (age 47) serves as the Company’s Executive Vice President, Sales, Network Division, a position he has held since May 2003. Mr. Gregrey joined the Company in 1999 as a Vice President in the Network, Western Sales division in Los Angeles and from June 2000 to May 2003, served as a Senior Vice President in the Network, Eastern Sales division in New York.

 

There is no family relationship between any Company director and named executive officer.

As indicated above, although not a named executive officer for fiscal year 2006, on July 16, 2007, Gary J. Yusko became the Company’s Chief Financial Officer and Principal Accounting Officer, making him a “named executive officer” for fiscal year 2007. Accordingly, his biography is set forth below:

 

Gary Yusko

 

Gary Yusko (age 52) serves as the Company’s Chief Financial Officer and Principal Accounting Officer and is responsible for the Company’s financial affairs. Prior to re-joining the Company in July 2007, Mr. Yusko was the CFO of Alloy, Inc., a provider of non-traditional media programs researching targeted consumer segments, a position he held since March 2006. Mr. Yusko also held the position of Senior Vice President – Finance for Intralinks, Inc., a virtual workspace provider, from August 2005 though March 2006. Prior to that time, Mr. Yusko served in various executive positions for the Company for over 20 years, most recently as the Company’s EVP of Financial Operations in 2004 and Senior Vice President – Financial Operations from 1987 to the end of 2003. During such period, Mr. Yusko also served as the Company’s Secretary and Assistant Treasurer.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The following narrative is a description of how the Company determines compensation for its named executive officers (referred to as “NEOs” or “executives” below), including the elements of their compensation and how the levels of their compensation are determined and by whom. This description will help further explain the disclosure listed in the compensation tables that follow the narrative. When references are made to “key employees,” we are referring to a broader group of senior managers, such as department heads, who may be eligible for a particular compensation element. Finally, references to the “executive team” or “management” mean the Chief Executive Officer, Chief Financial Officer and General Counsel. The information provided below is for fiscal year 2006, with the exception that a summary of the Company’s employment agreement with Gary J. Yusko, who became the Company’s Chief Financial Officer and Principal Accounting Officer, on July 16, 2007, is included herewith. The terms of Mr. Yusko’s employment are consistent with the narrative included below regarding the Company’s objectives and practices related to compensation matters.

 

Overview

 

The Company’s Compensation Committee (referred to in this narrative as the “Committee” or as the “Compensation Committee”), which is comprised of three independent directors, is primarily responsible for determining the compensation of the Company’s NEOs on an annual basis. The Committee exercises its responsibility primarily by determining two key “discretionary” components of NEO compensation: the discretionary annual bonus, payable in cash, if any, and the annual equity compensation award, if any, based on management’s recommendation (in the case of the CEO, based on CBS Radio’s recommendation) to the Committee. Depending on the circumstances, the Committee may be involved in determining NEOs’ base salaries, which typically are set when a NEO enters into an employment agreement with the Company. The Committee is aided in its decision-making process by its independent, nationally recognized compensation adviser, the Semler Brossy Consulting Group (“SBCG”), which reports directly to the Committee Chair and performs no other work for the Company. SBCG has been the adviser to the Committee since 2003. When appropriate the Committee also directly receives legal advice from Proskauer Rose LLP. CBS Radio, Inc., which owns 18.4% of the Company and which under a long standing management agreement manages the Company, plays a significant role in reviewing, recommending and establishing NEO’s compensation, as described below. In particular, in the case of the CEO, CBS Radio determined the CEO’s base salary and potential discretionary annual bonus pursuant to the CEO’s employment agreement with CBS Radio.

 

In general, the Committee seeks to provide appropriate and reasonable levels of compensation to its NEOs. The Company strives to be competitive with pay opportunities of comparable companies in the media industry, while accounting for individual performance and the overall performance of the Company. The Company provides minimal perquisites, consisting mainly of reimbursements for parking and car allowances. The Company does not provide to its

executives any other types of perquisites, including supplemental pension plans or other deferred compensation arrangements.

 

Objectives

 

The objective of the Company’s executive compensation policy (which affects NEOs) is to attract, retain and motivate management in a manner that is in the best interests of the Company’s shareholders. Compensation for NEOs and other key employees is primarily comprised of three elements: a base salary, a discretionary annual bonus and discretionary annual grants of equity compensation awards. While annual bonuses and equity compensation awards may be addressed in NEOs’ employment agreements, the awards of either or both are wholly discretionary and subject to the sole determination of the Committee (as stated in such employment agreements). The Committee believes that equity compensation awards are important contributors to the attraction, retention and motivation of the Company’s executives and more closely aligns the interest of executives and management to the interests of the Company’s shareholders.

 

The Committee has established the following objectives when determining the compensation for NEOs:

 

 

The Company generally establishes a NEO’s base salary in the individual’s employment contract, based generally on competitive pay levels and appropriate fixed pay to compensate sufficiently the NEOs for performing his/her duties and responsibilities.

 

What are the duties and responsibilities of the Committee in establishing compensation?

 

The Committee has the following responsibilities pursuant to its Charter (a copy of which is available on the Company’s website at www.westwoodone.com):

 

 

 

Each of the members of the Committee is independent within the meaning of the Company’s Corporate Governance Guidelines and the listing standards of the NYSE.

 

In carrying out its responsibilities, the Committee is authorized to engage outside advisors to consult with the Committee as it deems appropriate.

 

Process

 

What is the timeline for establishing NEOs’ discretionary compensation?

 

The Committee generally discusses NEOs’ discretionary compensation during the period beginning with the last Board meeting of the year (customarily held in December) and ending with the first Board meeting after the announcement of Company’s earnings for the full year (customarily held in March). Between those meetings, the Company reports its year-end financial results and prepares a preliminary budget setting forth goals and objectives for the upcoming year. The CEO makes recommendations to the Committee for other NEOs’ discretionary annual bonuses and equity compensation awards, including the suggested allocation between stock options, on the one hand, and restricted stock or restricted stock units (RSUs), on the other. Before management makes its recommendations to the Committee, the CEO reviews them with a representative of CBS Radio. The CEO does not make recommendations, review or otherwise participate in the process of determining his own discretionary compensation. Any proposal regarding the CEO’s discretionary compensation is made by CBS Radio.

 

What are the roles of the various parties involved in the compensation process?

 

While the Committee ultimately is responsible for making most of the compensation decisions related to NEOs, it believes it is advisable to obtain management’s insight and input as well as the independent guidance of a third-party compensation adviser. Since the middle of 2003, the SBCG has acted as such adviser to the Committee and has attended several of the Committee meetings as needed. SBCG advises the Committee as to the appropriateness and reasonableness of the awards of discretionary compensation, including with respect to companies comparable in size or otherwise similar to the Company. Its analysis may include such considerations as the form of award (cash, stock options, restricted stock or RSUs), the aggregate percentage of the Company’s stock being allocated (including how much stock remains issuable under the shareholder approved 2005 Plan) and the present value of the award. The Committee receives significant input from management, as appropriate, and the Committee meets separately with CBS Radio, to understand and factor into its decisions as full a picture of the relevant facts and circumstances as possible.

 

How large a role is played by CBS Radio, as manager of the Company, in determining compensation to NEOs?

 

CBS Radio is involved in reviewing management’s recommendations regarding discretionary annual bonuses and equity compensation awards to key employees, including NEOs, prior to the submission of such proposal to the Committee. CBS Radio is then included in future dialogue among the Committee, the Board and management regarding management’s recommendations. CBS Radio plays a particularly significant role in the CEO’s and CFO’s compensation, as: (i) the Company’s CEO is compensated pursuant to an employment agreement with CBS Radio, and not the Company, and (ii) the current CFO’s salary and bonus is paid by the Company but is reimbursed by CBS Radio, and such employment agreement is with, and was negotiated by, the Company in conjunction with CBS Radio.

 

Prior to 2004, the Company’s CEO, Joel Hollander (CEO from October 1998 to May 2003), and CFO, Jacques Tortoroli (CFO from July 2002 to December 2003), were both employees of CBS Radio. During such time period, neither individual received any salary or bonus from the Company. When Mr. Zaref became CFO in January 2004, the Committee assumed responsibility for the determination of the CFO’s salary and bonus, as well as continuing to determine any equity compensation awards.

When do NEOs receive their discretionary compensation awards?

 

The Company makes its annual discretionary compensation awards (i.e., annual bonus and equity compensation) to NEOs after the performance of the immediately preceding fiscal year, including year-end earnings, has been publicly reported and is known by Board members, including the Committee. The Committee has, in certain limited circumstances, chosen to make equity compensation awards at an earlier time to a broader group of key employees when retention and other considerations made such actions advisable. While the Committee does not have a formal written policy on awarding equity compensation based on material non-public information, it has acted to ensure that it does not do so. General awards of annual equity compensation (i.e., those not tied to a “special event” such as a promotion or extension of an employment agreement) for 2005 and 2006 were made by the Committee in February 2006 and March 2007.

 

What are the elements of compensation to NEOs and how are levels of compensation determined?

 

There are three main components of compensation: (1) base salary; (2) discretionary annual bonus; and (3) equity compensation. While two NEOs received a cash retention bonus in connection with executing their employment agreements, such is not considered a major component of compensation. Messrs. Hillman and Gregrey received retention bonuses, in the amount of $100,000 each, for their respective commitments to multi-year contracts. All of the NEOs have employment agreements with the Company (with the exception of the CEO whose agreement is with CBS Radio) and such employment agreements cover, to varying degrees, the elements of compensation comprising the Company’s compensation policy as described below in more detail under the heading “employment agreements.”

 

Base Salary

 

In determining base salary, the Committee considers an individual’s performance, experience and responsibilities, as well as the base salary levels of similarly-situated employees at comparable companies in the media industry. A base salary is meant to create a secure base of cash compensation, which is competitive in the industry. The Company relies to a large extent on the CEO’s evaluation and recommendation based on his assessment of the NEO’s performance.

 

Salaries generally are reviewed at the time a NEO enters into a new or amended employment agreement, which typically occurs upon the assumption of a new position and/or new responsibilities or the termination of the agreement. Any increase in salary is based on a review of the factors set forth above.

 

As stated in the “Overview” the Committee customarily is not involved in the structuring of employment agreements which set forth a NEO’s base salary. Two recent exceptions were the amendments to the employment agreements for the Company’s Chairman and the CFO. The Committee took an active role, along with its compensation adviser, in structuring the amendments to Mr. Pattiz’s employment agreement in 2005 based on the recommendation of the Board to the Committee. The Committee, along with its adviser, similarly took an active role in structuring the amendment to Mr. Zaref’s employment agreement in 2006, based on the CEO’s recommendation to the Committee and the input of CBS Radio.

 

The employment agreements of the General Counsel and EVP, Network Sales were negotiated by the Company’s CEO. Both individuals have been employed by the Company for several years (since 2000 and 1999, respectively) and the base salaries negotiated for them increased annually.

 

Discretionary Annual Compensation Bonus

 

In 2006, with the exception of the Company’s Chairman, NEOs were eligible to receive “discretionary annual bonuses” and their employment agreements provide a target amount for which they are eligible (Mr. Pattiz’s employment agreement does not provide for such a bonus). While the bonus amounts differ from agreement to agreement, all such bonuses are in the sole and absolute discretion of the Board of Directors or its Committee or their designee.

Each year, management makes a recommendation regarding discretionary bonuses and equity compensation for key employees to the Committee. Upon receipt of management’s recommendations, the Committee reviews with management its suggestions about the management team, and then confers with its compensation adviser and with CBS Radio. After reviewing its decisions with the full Board and taking into account the views expressed by members of the Board, the Committee makes its final determination. The Committee also takes into account a NEO’s base salary and views cash compensation as a whole when making its bonus determinations.

 

In 2006, the Company experienced a 34.9% decrease in EBITDA when compared to 2005 and a significant decline in its stock price, which played a significant role in the levels of annual (cash) discretionary bonuses awarded to NEOs. The actual bonuses paid to the NEOs for 2006 performance were substantially below their target amounts, reflecting the Committee’s view of the Company’s 2006 performance, as more specifically indicated below:

 

 

 

 

While the Committee does not have a written policy regarding bonuses payable upon attaining certain financial metrics, all members of management were judged on the basis of the Company’s overall performance and to the extent applicable, on the performance of departments over which they exercise substantial control. The Committee took into account the Company’s revenues, net income, cash flow and stock price when analyzing Company performance, while simultaneously recognizing the current challenges in the radio industry and the ongoing discussions with CBS Radio to modify and extend the various agreements between CBS Radio and the Company. In the case of Mr. Hillman, the Committee also took into account the increased responsibilities assumed by Mr. Hillman in 2006 in connection with his promotion to Executive Vice President.

 

Equity Compensation

 

Equity is a critical component of the Company’s compensation plan. Equity compensation awards are made under the Westwood One, Inc. 2005 Equity Compensation Plan (referred to herein as the “2005 Plan”), customarily on an annual basis. The Company and the Committee believe that equity compensation provides the greatest long-term value potential to both the Company and its employees in creating long-term growth and success for employees and shareholders alike. Aside from promoting retention and incentivizing management, the Company, where appropriate, uses equity rather than cash as a “signing bonus” to management-level individuals hired by the Company. The Company believes that equity compensation serves as a critical tool for attracting and retaining key talent. A total of 9.2 million shares are available for issuance under the 2005 Plan. As of December 31, 2006 (which does not include the shares awarded in March 2007), approximately 2,438,589 of such shares have been issued by the Company under the 2005 Plan.

 

In 2007 (for services rendered in 2006), the Committee determined that retaining key employees below the NEO level was important to the future success of the Company, and agreed to make equity grants for the non-NEOs solely in restricted stock this year, and not all or part in stock options as has historically been the case. For exclusively NEOs, the Committee chose to incentivize core management by tying a significant portion of their equity compensation to stock options over restricted stock. In general, the Committee felt each of the CEO, CFO and GC is more able to affect the Company’s performance and stock price and believed it was appropriate to tie a roughly equivalent value of each individual’s equity compensation between stock options and restricted stock. In March 2007, Mr. Kosann received 41,667 shares of restricted stock and 125,000 stock options and Mr. Zaref received 25,000 shares of restricted stock and 75,000 stock options. While each of Mr. Kosann and Mr. Zaref received the same number of shares of stock options and restricted stock in March 2007 as they had received in the first quarter of 2006 (with the exception that they received

restricted stock, not RSUs, in 2007), the value of such awards was approximately $899,587 less in the case of Mr. Kosann and $427,500 less in the case of Mr. Zaref than the value of the awards made to such individuals in February 2006, as the Company’s stock price (at which price the awards were granted) declined from $14.27 to $6.17 during such time period.

 

In December 2006, Mr. Pattiz received 8,333 RSUs and 25,000 stock options pursuant to his employment agreement. In March 2007, Mr. Hillman received 20,000 shares of restricted stock and 40,000 stock options and Mr. Gregrey received 39,000 shares of restricted stock. Notwithstanding the increased amount of shares awarded to Mr. Hillman and Mr. Gregrey, the value of the March 2007 awards to such individuals also was approximately $205,778 less in the case of Mr. Hillman and $84,020 less in the case of Mr. Gregrey than the value of the awards made to them in February 2006 as a result of the decline in the Company’s stock price as described above. The value of Mr. Pattiz’s December 1, 2006 award, when compared to his December 1, 2005 award, was $117,246 less.

 

Payments Upon Termination

 

Certain NEOs are entitled to cash payments upon their Termination, including upon a Change in Control and in the case of Messrs. Pattiz and Zaref, upon their death or disability. These payments are more particularly described under the headings entitled “Employment Agreements”; “Potential Payments upon Change in Control” and “Payments upon Disability or Death.” The Company does not have any arrangements with its NEOs, written or otherwise, for 280G “gross-up” or similar type payments.

 

Vesting

 

All equity compensation awarded to employees in 2006 was subject to a four-year vesting period. In March 2007, the Committee made a decision for the 2007 awards only, to shorten the vesting period to three years, in large part to help retain critical talent, recognizing that our key employees have experienced a significant decline in the value of their equity compensation as the Company’s stock price has declined and have received low annual bonuses in the last two years. Once granted, an employee is entitled to the benefits of such award upon vesting, provided, such employee remains employed by the Company for the duration of the vesting period.

 

Stock Options

 

Stock options only have value if the Company’s stock price increases after the date the stock options are granted, and their value is measured only by the increase in the stock price. Under the 2005 Plan, various forms of full value share equity compensation awards are available, including restricted stock, restricted stock units, performance shares and deferred stock. For all such full value shares, each share granted is worth more than an option share, since the value of such share is measured by the actual stock price, not just the increase in the stock price. For this reason, the 2005 Plan calls for the share authorization to be reduced by three option shares for every full value share issued. The Committee believes that stock options remain a useful management incentive tool, but for the annual 2007 grant, the Committee limited their use to NEOs, so that more retention-oriented restricted stock would be the primary component of other employees’ grants. Unvested stock options generally are forfeited upon an employee’s Termination, including by death or disability. By the terms of the awards, all outstanding options vest upon a participant’s Termination within a 24-month period after a Change in Control (as such term is defined in the 2005 Plan) has occurred.

 

Restricted Stock, RSUs

 

As mentioned above, the Company began to include restricted stock and RSUs in its equity compensation awards in May 2005, after the 2005 Plan was approved by Company shareholders. In general, only NEOs and the directors have received RSUs which gives the recipient the right to defer the receipt/payment of the stock; all other key employees, including NEOs, have received restricted stock. Generally speaking, restricted stock and RSUs are substantially similar awards, except that while a participant receives full voting and economic rights of the shares of restricted stock upon receipt of the grant, a participant does not receive such rights upon the grant of a RSU because the payment of shares underlying a RSU is deferred until vesting. While dividends, if any, begin to accrue on the date a RSU is granted, a

participant’s right to the underlying restricted shares and dividend equivalents are not received by a participant until the related RSU is distributed. Furthermore, if a participant elects to “defer” receipt of RSUs, the shares and accumulated dividends thereon, if any, are not distributed until the date of deferment. A decision to defer must be made a minimum of twelve (12) months prior to the initial vesting date and a participant generally may choose to defer his award until the last vesting date applicable to such award or his date of Termination.

 

Awards of restricted stock and RSUs are valued at the closing market price of the Company’s Common stock on the date of the grant of the award.

 

Any unvested awards generally are forfeited upon an employee’s Termination, including by death or disability. By the terms of the awards, all outstanding RSUs and restricted stock shares vest upon a participant’s Termination within a 24-month period after a Change in Control (as such term is defined in the 2005 Plan) has occurred. In Mr. Pattiz’s case only, all of his outstanding RSUs vest automatically upon a Change in Control or his Retirement (as such term is defined in the 2005 Plan). Mr. Pattiz is entitled to certain rights under the terms of his employment agreement as described in more detail below under the heading “Change of Control Provisions.” In addition, if Mr. Pattiz’s employment agreement is not renewed, Mr. Pattiz shall become a part-time employee and/or consultant of the Company for six years through November 30, 2015 and his option shares will continue to vest throughout such term.

 

How does the Committee determine the allocation between the elements of compensation?

 

In certain circumstances, the Company awards “retention bonuses” to retain the services of NEOs for multi-year periods. Discretionary annual bonuses may be used to reward a NEO’s outstanding individual performance. The Committee believes NEOs are more appropriately compensated, motivated and rewarded (and more likely to remain at the Company) when bonuses are paid in cash in a lump sum after the year has ended. Equity compensation awards, on the other hand, are intended to provide a potential for upside should the Company’s performance improve over the long-term. In recent years, a large portion of NEO’s compensation has been their salary.

 

The following table shows the compensation awarded to each NEO for the 2006 performance year:

 

 

 

 

What other factors does the Committee consider when making its decisions regarding compensation to NEOs?

 

Section 162(m) of the Internal Revenue Code of 1986, as amended (along with related regulations, the “Code”), limits the annual tax deduction a Company may take on compensation it pays to the NEOs (other than the CFO in certain instances) to covered pay of $1 million per executive in any given year. The Committee’s general policy is to structure compensation programs that allow the Company to fully deduct the compensation under Section 162(m) requirements. However, the Committee seeks to maintain the Company’s flexibility to meet its incentive and retention objectives, even if the Company may not deduct all of the compensation.

 

In 2005, the Committee began granting RSUs and restricted stock to NEOs. The Committee determined that although the amount of RSUs and restricted stock that qualifies for a deduction under Section 162(m) may be limited, the equity-based awards are a significant component of compensation that promotes long-term Company performance and management retention, and strengthen the mutuality of interests between the awardees and shareholders.

 

The Committee also considers the accounting cost and the dilutive effect of equity compensation awards when granting such awards.

 

The Committee also considers the impact of Section 409A of the Code relating to deferred compensation. To the extent permitted by the Committee, a participant may elect to defer the payment of RSUs in a manner that is intended to comply with Section 409A of the Code.

 

What role does the Committee play in establishing compensation for directors?

 

The Committee reviews and evaluates compensation for the Company’s non-employee directors on an annual basis, in consultation with its independent outside compensation adviser prior to making a recommendation to the Board. The elements of director compensation and more particulars regarding the elements are described below under the table appearing below the header “Director Compensation.”

 

What changes to compensation for named executive officers or to directors, if any, have occurred since the fiscal year ended December 31, 2006?

 

Mr. Kosann

 

On July 10, 2007, the Committee approved amending the terms of equity compensation awarded to Mr. Kosann during his tenure as President and CEO of the Company. As described elsewhere in this proxy statement, Mr. Kosann will cease to serve as the Company’s President and CEO upon the closing of the proposed transactions with CBS Radio (but no earlier than December 31, 2007) or the day after which the Company files its Form 10-K for the year ended 2007 (but no later than March 18, 2008) (the earlier of such dates being the “Termination Date”). These changes were made in light of the Company expecting that a new arrangement would be negotiated by CBS Radio and the Company, which would involve the termination of the Management Agreement, pursuant to which the services of Mr. Kosann were provided. The Committee believed securing Mr. Kosann’s services through the consummation of a new arrangement with CBS Radio or the filing of the Company’s 10-K filing, whichever occurred later, was important for the Company and its shareholders. The following terms were negotiated by the Company’s General Counsel and CBS Radio and the Company’s independent directors, including members of the Committee who were actively involved in such process. The Committee’s compensation adviser, SBCG, also reviewed the arrangement with the Committee.

 

If the proposed CBS transactions are consummated and Mr. Kosann is terminated on the Termination Date in connection with the closing, Mr. Kosann will serve the Company as a consultant from the day following the Termination Date through March 31, 2008 (the foregoing, the “CBS Transaction Condition”). During his consultancy, in accordance with the terms of the 2005 Plan, Mr. Kosann’s outstanding equity compensation will continue to vest in accordance with its current terms through and including March 31, 2008 and certain equity compensation awarded to Mr. Kosann that is scheduled to vest after March 31, 2008 will vest on March 31, 2008. Assuming the CBS Transaction Condition is satisfied, the following units/shares of unvested equity compensation that would have vested by their terms subsequent

to March 31, 2008, will vest on March 31, 2008 subject to his continued service as a consultant through such date in accordance with the foregoing amendment to Mr. Kosann’s agreement: (a) 5,208 restricted stock units (“RSUs”) (of 41,667 RSUs initially awarded to Mr. Kosann on January 3, 2006 on a four-year vesting schedule), (b) 6,944 shares of restricted stock (of 41,667 shares of restricted stock initially awarded to Mr. Kosann on March 13, 2007 on a three-year vesting schedule) and (c) 20,833 stock options (of 125,000 stock options initially awarded to Mr. Kosann on March 13, 2007 on a three -year vesting schedule) at an exercise price of $6.17 per share.

 

As part of the negotiations, the parties (with the participation of the Company’s independent directors, including members of the Committee) also agreed that if subsequent to the Company filing a definitive proxy statement, either: (1) the CBS transactions close and Mr. Kosann is terminated on the Termination Date or (2) Mr. Kosann is involuntarily terminated as CEO other than for Cause (as defined in Mr. Kosann’s employment agreement) prior to the Termination Date, the Company will reimburse CBS Radio for one-half (1/2) of Mr. Kosann’s salary through December 31, 2008 and his 2007 bonus payment (which bonus payment shall be a minimum of $150,000), subject to the conditions described in the Master Agreement attached as an exhibit to this proxy statement.

 

CFO Changes

 

As indicated elsewhere in this proxy statement, on July 12, 2007, Mr. Zaref ceased serving as the Company’s Chief Financial Officer. Gary J. Yusko became the Company’s Chief Financial Officer and Principal Accounting Officer on July 16, 2007. The material terms of Mr. Yusko’s compensation are as follows:

 

Mr. Yusko’s employment agreement is for a term of three years, beginning on July 16, 2007 and ending on July 16, 2010 (the “Term”). For each year of the Term, Mr. Yusko will be compensated at an annual base salary of $450,000, $475,000 and $500,000, respectively. Mr. Yusko will be eligible for an annual discretionary bonus for each of 2007, 2008 and 2009, in the amounts of $315,000 (of which $100,000 is guaranteed for the services to be rendered for 2007), $332,500 and $350,000, respectively, which discretionary bonus for 2008 and 2009 represents approximately 72% of Mr. Yusko’s annual base salary. Mr. Yusko also received a signing bonus of: (i) $100,000 payable in a lump sum in accordance with the Company’s normal payroll practices and (ii) on July 16, 2007, 15,000 shares of restricted stock which will vest in equal one-half increments over a two-year period on July 16, 2008 and 2009. The $100,000 signing bonus will be earned over the term of Mr. Yusko’s employment through July 15, 2009. On July 16, 2007, Mr. Yusko also received 50,000 shares of restricted stock and 75,000 stock options that will vest in equal one-third increments on July 16, 2008, 2009 and 2010 (the “July Equity Awards”), subject to his continued employment through such date. Under the Management Agreement, CBS Radio reimburses the Company for Mr. Yusko’s salary and bonus.

 

In the event of his death or disability, Mr. Yusko is entitled to any accrued and unpaid salary and any then entitlement under employee benefit plans and programs, subject to reduction for any disability payments made under the Company’s policies.

 

If Mr. Yusko is terminated without “Cause,” he is entitled to his base salary through the end of the Term (i.e., July 19, 2010) payable in accordance with the Company’s normal payroll practices and any unvested portion of the July Equity Awards would vest immediately upon the effective date of termination. If a Change in Control (as defined in the 2005 Plan) occurs, and Mr. Yusko is no longer the Company’s CFO or a material portion of his executive duties are withdrawn or significantly diminished, Mr. Yusko may terminate his employment on 30 days’ written notice by delivering written notice to the Company within 30 days after the occurrence of the Change in Control. In such event, Mr. Yusko would receive his base salary through the end of the Term payable in accordance with the Company’s normal payroll practices, and any unvested portion of the July Equity Awards would vest immediately upon the effective date of termination.

 

If Mr. Yusko is terminated, the Company may elect, at its option upon written notice delivered to Employee no later than the end of the Term, in consideration for $200,000 payable in accordance with the Company’s normal payroll practices, regardless of cause, that Employee not engage in any Restricted Activity (as such term is defined in Mr. Yusko’s employment agreement), directly or indirectly, for a period of six (6) months from and after the Term. Generally speaking, “Restricted Activities” consist of: (i) providing services to a traffic, news, sports, weather or other information report gathering or broadcast service or to a radio network or syndicator, or any direct or indirect competitor of the Company or its affiliates; (ii) soliciting client advertisers of the Company or its affiliates and dealing with accounts with respect thereto; (iii) soliciting such client advertisers to enter into any contract or arrangement with

any person or organization to provide traffic, news, weather, sports or other information report gathering or broadcast services or national or regional radio network or syndicated programming; or (iv) forming or providing operational assistance to any business or a division of any business engaged in the foregoing activities.

 

Mr. Hillman

 

As indicated elsewhere in this proxy statement, on July 10, 2007, Mr. Hillman became the Company’s Chief Administrative Officer, a newly created position. In connection therewith, Mr. Hillman received an additional year on his employment agreement, which now terminates on December 31, 2009. In addition, Mr. Hillman was awarded 15,000 shares of restricted stock which will vest in equal one-half increments over a two-year period on July 10, 2008 and 2009. Finally, Mr. Hillman’s salary was increased from $350,000 as follows: effective July 16, 2007 to $400,000; effective January 1, 2008 to $425,000 and effective January 1, 2009 to $450,000. Other than the foregoing, Mr. Hillman’s employment agreement remains the same.

 

Mr. Gregrey

 

Subsequent to the Company’s filing of its Form 10-K/A, Mr. Gregrey’s employment agreement was amended on May 4, 2007 to include a provision for payments upon his termination without “Cause.” Under such amendment, if Mr. Gregrey is terminated without “Cause,” he will receive his base salary until the end of the term of his employment agreement (i.e., April 1, 2009), payable in accordance with the Company’s normal payroll practices and (ii) any discretionary bonus earned by him but not yet paid by the Company as of the date of termination.

 

Non-employee Directors

 

Additionally, as discussed in the paragraph labeled “Equity Compensation” under the table entitled “Director Compensation” appearing below, because the Company’s 2007 annual meeting of shareholders was delayed, the non-employee directors received their annual grant of $100,000 in value of RSUs on July 12, 2007. There will not be a further grant of equity compensation to the directors in 2007 or at the annual meeting for which this proxy statement is being circulated. The Company anticipates it will next award equity compensation to the directors at a regularly scheduled 2008 annual meeting.

 

SUMMARY COMPENSATION TABLE

 

The following table and accompanying footnotes set forth the compensation earned, held by, or paid to, each of the Company’s named executive officers for the year ended December 31, 2006.

 

 

 

 

GRANTS OF PLAN-BASED AWARDS IN 2006 (1)

 

The following table provides information for awards of stock options, restricted stock and restricted stock units made to each of the Company’s named executive officers during the year ended December 31, 2006.

 

 

 

 

The following summary is applicable solely to the equity compensation awarded in 2006 as reported in the table entitled “Grants of Plan-Based Awards in 2006” which appears above.

 

Vesting

 

The following terms do not apply to Mr. Pattiz’s awards. For a description of the terms applicable to his awards, see “Mr. Pattiz’s Awards” below.

 

All awards of stock options, restricted stock and RSUs listed in the table “Grants of Plan-Based Awards in 2006” were granted under the 2005 Plan and vest in equal installments over a four-year period (with the exception of Mr. Pattiz’s awards, which vest over three years), commencing on the first anniversary of the date of grant (with the exception of the grants made on February 10, 2006 as described above). Upon a participant’s Termination (as such terms are defined in the 2005 Plan), all vested stock options remain exercisable as follows, but in no event later than ten years after the grant date: (i) three years in the event of the participant’s Retirement; (ii) one year in the event of the participant’s death (in which case the participant’s estate or legal representative may exercise such stock option) or (iii) three months for any other Termination (other than for “Cause”). A participant forfeits any unvested stock options on the date of his Termination (except for Mr. Pattiz as indicated in more detail below).

 

Undefined terms used herein (such as participant, Termination, Retirement, Cause and Change in Control) have the meaning set forth in the 2005 Plan.

 

Change of Control Provisions

 

If an employee is terminated without Cause during the 24-month period following a “Change in Control,” all unvested options, restricted stock and RSUs shall immediately vest; provided an employee is still a participant.

 

Mr. Pattiz’s Awards

 

Mr. Pattiz, who receives the same type of RSU and restricted stock award as Company directors, receives equity compensation which vests over three years and all such shares of restricted stock and RSUs vest in their entirety upon a Change in Control. Under the terms of his Employment Agreement, as amended, Mr. Pattiz is entitled to exercise at any time: (i) one-half of his outstanding option awards which have not yet become exercisable upon a Partial Event of Change and (ii) 100% of his outstanding option awards which have not yet become exercisable upon an Event of Change (as such terms are defined in his Employment Agreement). If any event constituting an Event of Change is not consummated, the options will immediately revert back to their original vesting schedule, except to the extent Mr. Pattiz has already exercised his option to purchase some or all of such options.

Dividends; Transfer Restrictions; Voting Rights

 

RSUs and restricted stock accrue dividend equivalents when dividends are paid, if any, on the Company’s Common stock beginning on the date of grant. Such dividend equivalents are credited to a book entry account, and are deemed to be reinvested in common shares on the date the cash dividend is paid. Dividend equivalents are payable, in shares of Common stock, only upon the vesting of the related restricted shares. Until the stock vests, shares of restricted stock and RSUs may not be sold, pledged, or otherwise transferred; however, once a grant of such is made, the holder is entitled to receive dividends thereon (as described above). In the case of restricted stock only (i.e., not RSUs), a holder is entitled to vote the shares once he has been awarded such shares. A holder may not vote shares associated with RSUs until the shares underlying such award have been distributed (which occurs upon vesting, unless the RSUs have been deferred as described below).

 

Right to Defer; Mandatory Deferral in 2005

 

A participant may elect to “defer” receipt of his RSUs in which case shares and any dividend equivalents thereon, are not distributed until the date of deferment. A decision to defer must be made a minimum of twelve (12) months prior to the initial vesting date and a participant may choose to defer his award until the last vesting date applicable to such award or his date of Termination. In 2005, the deferral of equity compensation awards until a participant’s Termination was mandatory. Accordingly, the grants made to all directors on May 19, 2005 and the grants made to Mr. Pattiz in December 2005 have been deferred until such individual’s Termination.

 

OUTSTANDING EQUITY AWARDS AT 2006 FISCAL YEAR-END

 

The following table sets forth, on an award-by-award basis, the number of shares covered by exercisable and unexercisable stock options and unvested restricted stock and restricted stock units outstanding to each of the Company’s named executive officers as of December 31, 2006.