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:

 

o   Preliminary Proxy Statement

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

þ  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 Registrant)

 

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 September 22, 2008 at 12:00 p.m. (noon), Pacific Time, at the Company’s offices located at 8965 Lindblade Street, Culver City, CA 90232-2689. A copy of the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2007, 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, 2007 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.

 

The purpose of the Annual Meeting is to elect three directors, to ratify the appointment of the Company’s independent registered public accounting firm and to conduct such other business as may properly come before the meeting. At the Annual Meeting, the holders of Common Stock (including the holders of Preferred Stock on an as-converted basis), voting alone, will elect two independent members of the Company’s Board of Directors. Holders of the recently issued 7.5% Series A Convertible Preferred Stock will elect one non-independent member of the Company’s Board of Directors to serve as a Preferred Stock designee. Holders of the Common Stock (including the holders of Preferred Stock on an as-converted basis) and Class B Stock, voting together, will 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.

 

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

 

August 18, 2008

40 West 57^th Street

New York, NY 10019

 

 

Proxy Statement

 

 

GENERAL

 

This proxy statement (first mailed to shareholders on or about August 18, 2008) 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 September 22, 2008 at 12:00 p.m. (noon), Pacific Time, at the Company’s offices located at 8965 Lindblade Street, Culver City, CA 90232-2689, 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, 2007, 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 and such other business as may properly come before the meeting. In addition, management will report on the performance of the Company during 2007 and respond to questions from shareholders.

 

Who is entitled to vote at the meeting?

 

Only shareholders of record at the close of business on August 8, 2008, 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 101,344,709 shares of Common Stock of the Company (“Common Stock”) outstanding, excluding treasury shares, 291,722 shares of Class B Stock of the Company (“Class B Stock”) outstanding and 75,000 (convertible into 25,266,133 shares of Common Stock as of the record date) shares of 7.5% Series A Convertible Preferred Stock (“Preferred Stock”) outstanding. The holders of the Class B Stock are entitled to vote on all matters on which holders of Common Stock vote except for the election of Messrs. Ming and Nunez as directors of the Company, where the Common Stock votes separately as a class (together with the Preferred Stock on an as-converted basis) and the Class B Stock does not vote. The holders of Preferred Stock are entitled to vote on all matters on which holders of Common Stock vote, on an as-converted basis, as described below. When the holders of Preferred Stock are entitled to vote separately as a class (e.g., Preferred Stock director designees), the holders of Preferred Stock receive one vote for each share of Preferred Stock.

 

What are the voting rights of holders of the Company’s Common Stock, Class B Stock and Preferred 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 on those matters on which the Class B stock is entitled to vote. Accordingly, on matters on which both the Common Stock and the Class B Stock are entitled to vote, holders of the Company’s Common Stock are entitled to an aggregate of 101,352,476 votes (71.8% of the voting power) and holders of the Company’s Class B Stock are entitled to an aggregate of 14,586,100 votes (10.3% of the voting power). Under the Company’s certificate of designations of 7.5% Series A Convertible Preferred Stock (“Certificate of

Designations”), effective as of June 19, 2008, each holder of outstanding Preferred Stock is entitled to cast one (1) vote for each share of Common Stock the Preferred Stock could be converted into pursuant to the terms of the Certificate of Designations. Thus, holders of the Company’s Preferred Stock are currently entitled to an aggregate of 25,266,133 votes (17.9% of the voting power) on matters where they vote on an as-converted basis with the Common Stock and the Class B stock. Such amount was determined by multiplying the 75,000 shares by the liquidation preference (i.e., $1,000 plus dividends that had accrued as of the record date) and dividing such amount by the $3.00/share conversion price. Of the foregoing capital stock, only the Common Stock is publicly traded. Holders of Common Stock will not have any rights of appraisal or similar dissenter’s rights with respect to any matter to be acted upon at the annual meeting.

 

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 Messrs. Ming and Nunez, 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 (including the voting power of the Preferred Stock on an as-converted basis) will constitute a quorum, permitting the shareholders to take action on those matters. With respect to the election of Mr. Weingarten who is a Preferred Stock designee, the presence at the meeting, in person or by proxy, of the holders of a majority of the shares of Preferred Stock outstanding on the record date will constitute a quorum, permitting the holders of Preferred 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 (including the voting power of the Preferred Stock on an as-converted basis) on an as-converted basis) 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.

 

What vote is required to approve each item?

 

The affirmative vote of a majority of the votes represented in person or by proxy at the meeting and entitled to be cast will be required to approve each such matter. Other than with respect to the election of the directors, the Common Stock (including the holders of Preferred Stock on an as-converted basis) and the Class B Stock vote together as a class on the matters proposed. With respect to the election of Messrs. Ming and Nunez (independent director nominees), the Common Stock (including the holders of Preferred Stock on an as-converted basis) votes separately as a class and the Class B Stock does not vote. With respect to the election of Mr. Weingarten, the Preferred Stock designee to the Board, the Preferred Stock votes separately as a class and the Common Stock and Class B Stock do 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. Information included herein for persons who beneficially own more than 5% of our Common Stock is based on information contained in the most recent Schedule 13D/13G filings and other filings made by such persons with the Securities and Exchange Commission (the “SEC”) as well as other information 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, Class B Stock and Preferred 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 ownership holdings as of June 30, 2008. On such date, there were 101,352,476 shares of Common Stock outstanding and 291,722 shares of Class B Stock outstanding and 75,000 shares of Preferred 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. None of such individuals hold Preferred Stock. For purposes of calculating the percentage ownership of each large shareholder, the Company used ownership holdings as of June 30, 2008. As of June 30, 2008, there were 101,352,476 shares of Common Stock outstanding and 291,722 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 August 29, 2008, 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 that 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 eleven 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. Although one such independent director is nominated to the Board at the request of the Majority Preferred Holders (defined below), all such independent directors (other than as set forth below) are elected by holders of Common Stock (including the holders of Preferred Stock on an as-converted basis) voting alone as a class. The Company’s certificate of designations provides that as long as Gores Radio owns at least 50% of the Preferred Stock acquired by it on June 19, 2008, the holders of a majority of the outstanding shares of Preferred Stock (the “Majority Preferred Holders”) have the right to name three members to the Board (referred to herein as the Preferred Stock designees). Of such three directors, one has been named as a Class III director, one as a Class II director and one as a Class I director. The Majority Preferred Holders, voting alone as a class, elect the three Preferred Stock designees. The remaining members of the Board are elected by all shareholders voting together as a single class provided that holders of Common Stock (including the holders of Preferred Stock on an as-converted basis) have the right to elect one-fifth (1/5) of the total number of the directors (i.e., two directors) without the vote of holders of the Class B stock.

 

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 are considered “material relationships” 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, Little, Ming, Nunez 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?

 

With the exception of the Preferred Stock designees to the Board and the independent director nominee selected by the Majority Preferred Holders as described above, 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 (including the independent director nominee selected by the Majority Preferred Holders) 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 June 30, 2008.

 

 

 

* Member

 

** Chair

 

(I) — Independent

 

(PS) — Preferred Stock designee

 

 

The principal occupations and professional background of the eleven directors, including the three director nominees (Messrs. Ming, Nunez and Weingarten), are as follows:

 

Mr. Beusse — has been a director of the Company since his appointment as the Company’s President and CEO on January 8, 2008. Mr. Beusse served as the President of Time4 Media, a former division of Time Inc. from January 2006 to March 2007, at which time the division was sold by Time Inc. From March 2001 to October 2005, he held various positions at Rodale, Inc., ranging from Senior Vice President of Rodale Sports Group (March 2001 to November 2001) to President Men’s Health/Sports Content Group (December 2001 to December 2004) and President of Magazine Publishing until October 2005.

 

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 is a founder and has been a principal of Evanston Advisors, Inc., a strategic advisory and consulting firm, since December 2007. Mr. Dennis has been a Managing Director of Pacific Venture Group, a healthcare venture capital firm, from November 2004 to July 2008. 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. Honour — has been a director of the Company since June 19, 2008. Mr. Honour joined Gores in 2002 and is currently Senior Managing Director of The Gores Group, LLC, which is the investment manager of Gores Capital

Partners L.P., Gores Capital Partners II, L.P. and their related investment entities, and the managing member of Gores Radio Holdings, LLC. Mr. Honour is responsible for originating and structuring transactions and pursuing strategic initiatives at Gores. From 2001 to 2002, Mr. Honour served as a Managing Director at UBS Warburg, where he was responsible for relationships with technology-focused financial sponsors, including Gores, and created the firm’s Transaction Development Group, which brought transaction ideas to financial sponsors, including Gores. Prior to joining UBS Warburg, Mr. Honour was an investment banker at Donaldson, Lufkin & Jenrette. Mr. Honour earned his B.S. in Business Administration and B.A. in Economics, cum laude, from Pepperdine University, and his M.B.A. from the Wharton School of the University of Pennsylvania with an emphasis in finance and marketing. Mr. Honour is also a director of various Gores portfolio companies.

 

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. Nunez — has been a director of the Company since June 19, 2008. Mr. Nunez is currently an agent in the Motion Picture department of Creative Artists Agency (CAA), a talent and literary agency based in Los Angeles, where he is involved in the representation of actors, directors, production companies and film financiers with respect to transactions ranging from traditional talent employment and production arrangements, to the territorial sales of motion picture distribution rights worldwide, as well as the structuring of many international co-productions. Prior to joining CAA in 1991, Mr. Nunez was at International Creative Management (ICM) and was an attorney for an entertainment law firm in Los Angeles. In 2006, Nunez was named a Commissioner for the Latin Media & Entertainment Commission, an organization that advises the Mayor of New York City on strategic business development of the Latin Media and Entertainment Industry. Mr. Nunez holds a J.D. from the Pepperdine University School of Law and a B.S. from Rutgers University.

 

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.

 

Mr. Stone — has been a director of the Company since June 19, 2008. Mr. Stone is currently President, Gores Operations Group, and Senior Managing Director of The Gores Group, LLC, which is the investment manager of Gores Capital Partners L.P., Gores Capital Partners II, L.P. and their related investment entities, and the managing member of

Gores Radio Holdings, LLC. Mr. Stone has responsibility for Gores’ worldwide operations group, oversight of all Gores portfolio companies and operational due diligence efforts. Mr. Stone joined Gores in 2005 from Sentient Jet, a provider of private jet membership, where he served as CEO from 2002 to 2004. Prior to Sentient Jet, from 1998 to 2002, Mr. Stone served as CEO of Narus, a global telecommunication software company and from 1997 to 1998, as CEO of Sentex Systems, an international security and access control manufacturing company. Mr. Stone holds an MBA in Finance and Multinational Management from The Wharton School and a B.S. in Finance with Computer Science and Mathematics concentrations from the University of Maine. Mr. Stone is also a director of various Gores portfolio companies.

 

Mr. Weingarten — has been a director of the Company since June 19, 2008. Mr. Weingarten is currently a Managing Director of The Gores Group, LLC, which is the investment manager of Gores Capital Partners L.P., Gores Capital Partners II, L.P. and their related investment entities, and the managing member of Gores Radio Holdings, LLC. Prior to joining The Gores Group in 2002, Mr. Weingarten was a director at UBS Investment Bank. Prior thereto, Mr. Weingarten was an investment professional at Apollo Management, L.P. as well as a private investment firm investing capital for two high net worth families. Mr. Weingarten was previously a member of the mergers & acquisitions group within the investment banking division at Goldman Sachs & Co. Mr. Weingarten graduated summa cum laude from The Wharton School of the University of Pennsylvania, with a B.S. in Economics and a dual concentration in Finance and Entrepreneurial Management. Mr. Weingarten is also a director of various Gores portfolio companies and is a member of the Board of Governors at Cedars-Sinai Medical Center.

 

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), Ming and Nunez. Mr. Greenberg served as a member of the Audit Committee during fiscal year 2007 and part of fiscal year 2008 until his resignation on June 19, 2008. Mr. Smith served as a member of the Audit Committee during fiscal year 2007 until his resignation on September 13, 2007. Pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”) and the NYSE listing standards, the Board has determined that Messrs. Little, Ming and Nunez meet the requirements of independence proscribed thereunder. In addition, the Board has determined that each of Messrs. Little and Ming is an “audit committee financial expert” pursuant to SOX and the NYSE listing standards. For further information concerning Mr. Little’s and Mr. Ming’s qualifications as an “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 registered public accounting firm; reviewing with the independent registered public accounting firm 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 registered public accounting firm on a regular basis. For additional information on the Audit Committee’s role and its oversight of the independent registered public accounting firm during 2007, see “Report of the Audit Committee.” There were nine meetings of the Audit Committee in 2007.

 

The Compensation Committee

 

The current members of the Compensation Committee are Messrs. Ming (Chair), Dennis and Smith. Mr. Greenberg served as a member of the Compensation Committee during fiscal year 2007 and part of fiscal year 2008 until his resignation on June 19, 2008. 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.

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):

 

 

In carrying out its responsibilities, the Committee is authorized to engage outside advisors to consult with the Committee as it deems appropriate. There were seven meetings of the Compensation Committee in 2007.

 

The Nominating and Governance Committee

 

The current members of the Nominating and Governance Committee are Messrs. Dennis (Chair), Carnesale and Nunez. Mr. Greenberg served as a member of the Nominating and Governance Committee during fiscal year 2007 and part of fiscal year 2008 until his resignation on June 19, 2008. 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 that are submitted, along with biographical and business experience information, to the Nominating and Governance Committee at the Company’s principal executive office. There was one meeting of the Nominating and Governance Committee in 2007.

 

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

 

How often did the Board meet during 2007?

 

The Board met eight times during 2007. 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 all 9 of the 9 then-current directors were present at the 2007 Annual Meeting of Shareholders held in February 2008. 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 by contacting the Company at (212) 641-2000 or sending a letter to 40 West 57^th Street, 5^th Floor, New York, NY 10019, Attn: Secretary.

 

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 57^th Street, 5^th 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 that CBS Radio provides 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 did have written procedures regarding transactions with its manager, CBS Radio, in the Management Agreement between the Company and CBS Radio (the “Management Agreement”), which terminated on March 3, 2008, but was in effect for all of fiscal year 2007. 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 had to 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 had to be approved by the Company’s Board. Such exceptions included, 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.

 

Did the Company participate in any related party transactions in 2007, or does the Company contemplate being a participant in any related party transaction in 2008?

 

Except for the transactions with CBS Radio and Gerald Greenberg described below, the Company is not aware of any transaction entered into in 2007, or any transaction currently proposed, in which a related person has, or will have, a direct or indirect material interest.

 

CBS Radio.  On March 3, 2008, the Company closed the Master Agreement with CBS Radio which documents a long-term arrangement between the parties through March 31, 2017. On that date, the Management Agreement and CBS Representation Agreement terminated and the CBS warrants described below were cancelled. Also, on January 8, 2008 and March 3, 2008, respectively, two employees of CBS Radio who served on the Company’s Board during 2007 (Messrs. Kosann and Berger) resigned as directors of the Company. As of March 3, 2008, CBS Radio beneficially owned 16 million shares of the Common Stock of the Company (the same number of shares it held through 2007). During 2007 and continuing in 2008, 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 fiscal year 2007, when the Management Agreement was still in place, CBS Radio provided to the Company the services of a chief executive officer and a chief financial officer. Pursuant to the Management Agreement, the

Company was obligated to pay to CBS Radio an annual base fee (which base fee was $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 2007 was approximately $3,394,000.

 

In addition, under the Management Agreement, the Company was obligated to pay 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 was also required to 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 year 2007 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 had an exercise price of $43.11 and $48.36, respectively, and became 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 was equal to $38.87, $44.70, $51.40, $59.11 and $67.98, respectively. These warrants each had a term of 10 years and became exercisable on January 2, 2005, 2006, 2007, 2008, and 2009, respectively, subject to a trading price condition. The trading price condition specified 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, the $51.40 warrants and the $59.11 warrants, respectively, the Company’s average stock price for the 15 trading days prior to January 2, 2005, January 2, 2006, January 2, 2007 and January 2, 2008, respectively, did not equal or exceed the requisite target price, and, therefore, such warrants did not become exercisable. As of December 31, 2007, 1,500,000 of these warrants were cancelled as our Common Stock did not reach the specified price targets necessary for the warrants to become exercisable. As described above, on March 3, 2008, all warrants issued to CBS Radio were cancelled in accordance with the terms of the Master Agreement which closed on that date. The registration rights agreement covering the shares of Common Stock issuable upon exercise of the warrants was also terminated on March 3, 2008, however, the Company and CBS Radio entered into a new registration rights agreement which provides registration rights to the 16,000,000 shares of Company Common Stock held by CBS Radio and its affiliates.

 

Until March 3, 2008, the Company had a Representation Agreement with CBS Radio to operate the CBS Radio Networks until March 31, 2009. Under the agreement, the Company retained all revenue and was responsible for all expenses of the CBS Radio Networks. During 2007, we incurred expenses aggregating approximately $66,633,000 for the Representation Agreement, affiliation agreements and the purchase of programming rights from CBS Radio and affiliates. The description and amounts regarding related party transactions set forth in this proxy statement also reflect transactions between us and Viacom Inc. Viacom is an affiliate of CBS Radio, as National Amusements, Inc. beneficially owns a majority of the voting powers of all classes of common stock of each of CBS Corporation and Viacom.

 

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.

 

Gerald Greenberg.  Gerald Greenberg, a director of the Company from May 1994 to June 2008, through his company Mirage Music Entertainment, Inc. (“Mirage”) entered into a two-year consulting agreement with the Company on July 1, 2008 in connection with the Company’s active review of its audio archives, including the development of a plan to monetize such assets. Under the terms of the agreement, Mr. Greenberg, who has extensive contacts and relationships in the music industry, will serve as a consultant to the Company in connection with the aforementioned archive project, and will provide assistance to the Company in connection with negotiating exploitation rights to certain archive material. Mirage will also be compensated for any unique opportunities originated and presented by it to the Company, as further set forth in the consulting agreement. In connection with such agreement, on the effective date thereof (i.e., July 1, 2008), Mr. Greenberg received a stock option to purchase 100,000 shares of Company common stock at an exercise price of $1.30 (the closing price of the Company’s common stock on July 1, 2008). Mirage will receive a minimum annual retainer of $100,000 (“Retainer”) and a project fee equal to 10% of net

profit in excess of the Retainer for projects in which Mirage undertakes an active and integral role. If the programming for which the idea, concept and talent originates solely from Mirage, it will receive 20% (not 10%) of net profit in excess of the Retainer.

 

Norman J. Pattiz.  Norm Pattiz, founder of the Company, Chair of the Company’s Board and a director since the founding of the Company in 1974, intends to form a production company (“NPC”), which he would wholly own and over which he would exercise operating control. NPC would only produce programming that the Company has considered and evaluated, and determined that it should not produce at the Company’s own cost and expense (“NPC Programming”). To date, Mr. Pattiz and the Company have discussed, but not finalized, the terms of an arrangement whereby NPC would produce NPC Programming at NPC’s sole cost and expense for the exclusive distribution/exploitation by the Company in certain media. As currently contemplated, the Company would be responsible for: (1) arranging distribution of the NPC Programming to its customers, including radio station affiliates (in certain cases, NPC would deliver to the Company an initial group of radio station affiliates to broadcast the NPC Programming) and (2) selling advertising for broadcast within the NPC Programming. In return, the Company would pay a distribution fee to NPC and enter into a revenue-sharing arrangement for revenue generated by Company from the NPC Programming. The Company believes that if it reaches this arrangement with NPC, the Company will benefit by expanding the breadth of programming offerings the Company has the opportunity to distribute to its customers while mitigating the financial commitment and downside risk associated with the fixed cost of programming production.

 

At this time, the Board has authorized Mr. Pattiz to pursue a particular NPC Programming opportunity but no definitive terms with respect thereto have been agreed upon by the parties. Any agreement and transaction contemplated thereby would require the approval of the Company’s Board. To the extent NPC and the Company enter into a definitive agreement, the Board would provide Mr. Pattiz with a waiver of the Company’s Code of Ethics which, among other things, prohibits Company employees and directors from owning a greater than 5% interest in a company that transacts business with the Company or from being an owner, partner or employee of an organization involved in the radio, music or entertainment business.

 

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 2007 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:

 

1)  Reviewing and discussing the preparation of quarterly and annual financial reports with the Company’s management and its independent registered public accounting firm;

 

2) Supervising the relationship between the Company and its independent registered public accounting firm, including discussing the matters required by Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees” (“SAS 61”) and PCAOB “Auditing Standard No. 2” An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements” (as revised by Auditing Standard No. 5, “PCAOB 2”) with its independent registered public accounting firm, evaluating the independence of the auditors in accordance with Independence Standards Board Standard No. 1, as amended “Independence Discussions with Audit Committees,” and recommending their appointment or removal and reviewing the scope of their audit and non-audit services and related fees;

 

3)  Overseeing management’s implementation of effective systems of internal controls;

 

4)  Reviewing and approving the internal corporate audit staff functions; and

 

 

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 proxy statement.

 

The Audit Committee appointed PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the year ended December 31, 2008 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, 2007 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, 2008.

 

Fees to Independent Registered Public Accounting Firm

 

The following table presents fees billed for fiscal years 2007 and 2006 for professional services rendered by PwC for the audit of the Company’s financial statements for fiscal years 2007 and 2006 as well as fees billed for audit-related services, tax services and all other services rendered by PwC for 2007 and 2006.

 

 

All audit-related services were approved by the Audit Committee, which concluded that the provision of such services by PwC did not impair that firm’s independence in the conduct of the audit.

 

Audit Committee Pre-Approval Policies and Procedures

 

All services provided to the Company by PwC in 2007 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 PwC 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

H. Melvin Ming

Emanuel Nunez

 

 

EXECUTIVE OFFICERS

 

The following is a list of the Company’s executive officers. Only the 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” are considered “named executive officers” (also referred to in this proxy statement as “NEOs”). The Compensation Discussion and Analysis that appears below relates only to the NEOs for fiscal year 2007. As previously noted, on July 12, 2007, Mr. Zaref’s employment with the Company ceased, 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 (or CAO), in addition to his other positions listed below. Finally, as previously disclosed in a Form 8-K filed with the SEC on January 11, 2008, Mr. Beusse was named President and CEO on January 8, 2008, replacing Mr. Kosann, a CBS employee. Messrs. Hersam and Kalin, both executive officers in 2008 but not NEOs for fiscal year 2007, were appointed on May 12, 2008 and July 7, 2008, respectively.

 

 

 

 

 

The professional background of the executive officers who are not also directors of the Company follows:

 

Gary J. Yusko

 

Gary J. Yusko (age 53) 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 nearly 20 years, most recently as the Company’s Executive Vice President 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.

 

Steven Kalin

 

Steven Kalin (age 44) serves as the Company’s Chief Operating Officer. Mr. Kalin joined the Company in July 2008. From 2002 to 2007, Mr. Kalin served as Executive Vice President and Chief Operating Officer of Rodale, Inc. Prior to his tenure at Rodale, Mr. Kalin served as Chief Financial Officer and Chief Operating Officer of Medscape; Vice President of Business Development for ESPN Internet Ventures and as a consultant with McKinsey & Company in the firm’s media practice.

Andrew Hersam

 

Andrew Hersam (age 44) serves as the Company’s Chief Revenue Officer. From 2003 to 2008, Mr. Hersam was Vice President and Publishing Director at Rodale Inc. where he helped drive the Runner’s World brand’s advertising and sponsorship revenue for print, digital and events. Prior to joining Rodale, Hersam served as New York Advertising Sales Director and Sales Development Director for Sports Illustrated (1997-2003). Mr. Hersam also held several advertising sales positions including Advertising Director at Details magazine and Director of Corporate Sales at Times-Mirror Magazines earlier in his career.

 

David Hillman

 

David Hillman (age 39) serves as the Company’s Chief Administrative Officer; Executive Vice President, Business Affairs and General Counsel. 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 and Chief Administrative Officer on July 10, 2007.

 

Paul Gregrey

 

Paul Gregrey (age 48) 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. As noted above, Mr. Gregrey was notified on August 7, 2008 that his employment was being terminated effective April 1, 2009, the date his employment agreement is scheduled to expire.

 

Former Executive Officer:

 

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

 

Andrew Zaref (age 42) served as the Company’s Executive Vice President and Chief Financial Officer through June 12, 2007. 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.

 

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

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The following narrative is describes how the Company determined 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 were determined and by whom. 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 2007, except that references are made below to the Company’s employment agreement with Thomas F.X. Beusse, who became the Company’s Chief Executive Officer and President on January 8, 2008 and the terms of Amendment No. 3 to the Company’s employment agreement with Norman J. Pattiz, the Company’s Chairman of the Board, which amendment became effective on January 8, 2008. The terms of Mr. Beusse’s employment agreement and Amendment No. 3 to Mr. Pattiz’s employment agreement 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, was and is primarily responsible for determining the compensation of the Company’s NEOs on an annual basis. The Committee exercised 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 then CEO, based on CBS Radio’s recommendation) to the Committee. Depending on the circumstances

and as described in greater detail below, the Committee is generally 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 its outside legal counsel. CBS Radio, which owns 15.8% of the Company (taking into account the 14,285,714 shares of Common Stock and the warrants to purchase 10,000,000 shares of Common Stock issued to Gores Radio) and which under a long standing management agreement managed the Company until March 3, 2008, played a significant role in reviewing, recommending and establishing NEO’s compensation in fiscal years 2006 and 2007, as described below. As the manager of the Company (until March 3, 2008), CBS Radio employed the Company’s CEO, Mr. Kosann, and pursuant to its employment agreement with the CEO, CBS Radio determined the CEO’s base salary and potential discretionary annual bonus. With respect to Mr. Beusse, who was hired while CBS Radio was the manager of the Company, CBS Radio consented to Mr. Beusse’s employment as the Company’s CEO, and agreed to reimburse the Company for Mr. Beusse’s salary through the closing date of the Master Agreement (which occurred on March 3, 2008).

 

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 currently 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) has been to attract, retain and motivate management in a manner that is in the best interests of the Company’s shareholders. 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:

 

 

Process and Roles of Parties

 

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 historically reviewed them with a representative of CBS Radio, which acted as manager of the Company until March 3, 2008. 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 was made by CBS Radio while it was manager of the Company.

 

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, 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 Company 2005 Equity Compensation Plan (the “2005 Plan”) and/or the Company’s 1999 Equity Compensation Plan (the “1999 Plan”)) and the present value of the award. The Committee receives significant input from management, as appropriate, and the Committee met separately with CBS Radio (when CBS Radio was the Company’s manager), to understand and factor into its decisions as full a picture of the relevant facts and circumstances as possible.

 

How large a role was played by CBS Radio, as manager of the Company through March 2008, in determining compensation to NEOs?

 

Through March 3, 2008, CBS Radio was 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 was then included in dialogue among the Committee, the Board and management regarding management’s recommendations. CBS Radio played a particularly significant role in the CEO’s and CFO’s compensation, as: (i) the Company’s CEO was compensated (in cash, not equity) pursuant to an employment agreement with CBS Radio (until Mr. Beusse was hired in January 2008 as described below), and not the Company, and (ii) the current CFO’s salary and bonus was paid by the Company but was partially reimbursed by CBS Radio, and such employment agreement was with, and was negotiated by, the Company in conjunction with CBS Radio.

 

However, as discussed elsewhere in this proxy statement, on March 3, 2008, the Management Agreement pursuant to which CBS Radio managed the Company was terminated. As a result, the Company’s CEO is no longer employed by, and the CFO’s compensation is not reimbursed by, CBS Radio. Accordingly, CBS Radio will not have the role described in this proxy statement in determining compensation in fiscal year 2008. Because the Master Agreement with CBS Radio was signed in October 2007, and the parties anticipated closing in the first quarter of 2008, unlike Mr. Kosann’s agreement, Mr. Beusse’s employment agreement was made directly with the Company. Under the terms of a consent agreement (a copy of which was filed with the SEC on January 10, 2008 as an exhibit to a Form 8-K), CBS Radio consented to Mr. Beusse’s employment as the Company’s CEO, and agreed to reimburse the Company for Mr. Beusse’s salary through the closing date of the Master Agreement (which occurred on March 3, 2008).

 

When do NEOs receive their discretionary compensation awards?

 

Beginning with awards made in 2007, the Company has made 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, made equity compensation awards at other times in connection with a new employee’s date of hire or in connection with a significant promotion (as with Mr. Hillman to CAO). While the Committee does not have a formal written policy on awarding equity compensation based on material non-public information, it has taken steps to try to ensure that it does not do so. While management generally proposes equity compensation awards for Company employees for the Committee’s consideration in January and/or February, the Committee has determined not to make equity compensation awards to key employees (including NEOs) until after the Company’s earnings for the most recent fiscal year end have been announced. In 2008, the Committee was mindful of the ongoing discussion with Gores Radio and the impending closing of the CBS transaction, and determined equity

compensation should not be awarded until after both transactions were announced. 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 2006 and 2007 were made by the Committee in March 2007 and March 2008, respectively.

 

What are the elements of compensation to NEOs?

 

There are three main components of compensation: (1) base salary; (2) discretionary annual bonus; and (3) equity compensation. The Company generally establishes a NEO’s base salary in the individual’s employment agreement, based generally on competitive pay levels, the Company’s internal pay structure and appropriate fixed pay to compensate sufficiently the NEOs for performing his/her duties and responsibilities. However, for the most part, all other payments (e.g., signing bonus, retention bonus, annual discretionary bonus, equity compensation awards) are wholly-discretionary and/or contingent on the NEO remaining with the Company. In the case of Messrs. Hillman and Gregrey, the Company awarded “retention bonuses” to retain the services of NEOs for multi-year periods. Mr. Yusko received a signing bonus which, subject to certain circumstances, is recoupable by the Company if he does not remain employed by the Company for two years. Mr. Beusse is guaranteed to receive a minimum of $300,000 for his 2008 bonus. However, with the exception of the foregoing, the Committee has believed discretionary annual bonuses should be used to reward a NEO’s outstanding individual performance and that 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. Given the recent performance of the Company’s Common Stock, a larger portion of NEOs’ compensation has been their cash compensation (salary plus bonus) as compared to their equity compensation.

 

The following table shows the compensation awarded to each NEO for the 2007 performance year:

 

 

 

 

How was the compensation of the Company’s new President and CEO determined and how does it differ from the compensation awarded to other NEOs?

 

In the fourth quarter of 2007, the Board commenced a search for a Company CEO, in anticipation of the termination of the Company’s Management Agreement with CBS Radio. Significantly, this CEO would be the first CEO hired, and employed, directly by the Company since 1994, when the Management Agreement with CBS Radio originally went into effect, and this new CEO would be tasked with growing the Company as an independent (non-CBS managed) company. A search firm was hired; after several months, a leading candidate was identified, and terms of employment were negotiated. The terms of his compensation, when compared to other NEOs’ employment agreements, are distinguishable in a number of significant ways:

 

 

Committee members worked intensively over the course of a number of weeks, and met several times to negotiate and structure the terms of Mr. Beusse’s employment agreement. They were assisted by the Committee’s compensation adviser and their outside legal counsel. The amount of Mr. Beusse’s equity compensation award upon signing was a topic of significant discussion. The 1,000,000 stock option award represented nearly 1% of the Company’s outstanding Common Stock on a fully-diluted basis and based solely on this number, was on the high-end of equity compensation awards made to CEOs in the industry. However, the Committee took into account the following in determining the stock option award was appropriate: (1) Mr. Beusse’s base salary ($700,000 for three years) and 2008 bonus guarantee ($300,000) were average for CEOs in the industry; (2) future bonus payments and equity compensation awards would be made in the sole discretion of the Committee based on the achievement of performance goals; and (3) the stock option award had a value in the middle of the range of other awards made to other CEOs in the industry, in large part because of the Company’s depressed share price. The size of the award and the accelerated vesting provisions applicable to his equity compensation were also critical components to securing Mr. Beusse’s employment. Given the Company’s ongoing strategic process (which was disclosed in the Company’s filings with the SEC), change in control provisions were substantially negotiated. In addition, as noted elsewhere, the Committee designated one-half of the award as a “material inducement grant” under NYSE rules.

 

Finally, because the Committee wished to secure a material non-compete from Mr. Beusse in the event of his termination, the Committee agreed to a $1.9 million severance payment contingent on obtaining a release from Mr. Beusse and his agreement not to compete with the Company for two years. Given such payment and the accelerated vesting provisions of Mr. Beusse’s equity compensation upon certain termination events, the Company provided Mr. Beusse with a 280G gross-up payment so that any taxes associated with such payments would be borne by the Company, and not Mr. Beusse. However, the Committee also negotiated that if the total benefits payable to Mr. Beusse upon a change in control do not exceed 110% of the maximum amount that could be paid to Mr. Beusse without the imposition of any excise tax, then the benefits would be reduced so no excise tax was payable and no 280G payment would be made.

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

 

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 has not been significantly involved in the structuring of employment agreements which set forth a NEO’s base salary, although the Company reviews and ultimately approves such employment agreements (other than the employment agreement between the CEO and CBS Radio when Mr. Kosann was CEO). Recently, the Committee took an active role in structuring employment agreements in the following instances: Amendment No. 3 to the employment agreement for the Company’s Chairman (Mr. Pattiz), the employment agreements for the CEO (Mr. Beusse) and CFO (Mr. Yusko) and Amendment No. 2 to the employment agreement for Mr. Hillman when he became CAO in July 2007. Mr. Yusko was hired, and Mr. Hillman was appointed CAO, at approximately the same time the Board and CBS Radio reached an agreement on the terms of Mr. Kosann’s ultimate separation from the Company. Given that Mr. Kosann’s departure was announced in July 2007, the Board determined Mr. Yusko and Mr. Hillman should serve increased management functions until a replacement CEO was hired. This was a key factor in appointing Mr. Hillman to the position of CAO and increasing his base salary effective with such appointment and in providing Mr. Yusko (who was previously employed by the Company from 1987 to 2006) with equity compensation and a cash signing bonus upon his execution of an employment agreement.

 

Both Mr. Hillman’s original employment agreement (executed in 2004) when he was appointed General Counsel and Mr. Gregrey’s original employment agreement (executed in 2003) when he was appointed EVP, Network Sales were negotiated by the Company’s CEO, in part because they were not new executive hires. Both individuals have been employed by the Company for several years (since 2000 and 1999, respectively) and other than incremental increases in their base salaries and their change in title, their agreements did not change in any material respect.

 

Discretionary Annual Compensation Bonus

 

In 2007, 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 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 in 2006. This trend continued in 2007 as the Company experienced a 15% decrease in EBITDA when compared to 2006 and a material decline in its stock price. However, unlike 2006, when the actual bonuses paid to the NEOs were substantially below their target amounts, the Committee believed in 2007 that Messrs. Yusko and Hillman should be compensated for their role in negotiating and closing the Master Agreement with CBS Radio and providing such information and counsel as requested of them in connection with the Company’s strategic review process, which culminated in the Company’s execution of a purchase agreement with Gores Radio, as described above. The Committee determined that Mr. Yusko’s bonus (as a% of target) should be viewed in the context of his having re-joined the Company after the first half of the year (on July 16, 2007). Mr. Kosann, who served as the Company’s CEO for all of 2007 received the same bonus as in 2006 in large part because of the terms of his separation from the Company. Mr. Zaref whose employment with the Company ceased in July 2007, did not receive a bonus for fiscal year 2007.

 

 

 

 

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 their individual performance and the performance of departments over which they exercise substantial control. The Committee took into account the Company’s revenue, net income, cash flow and stock price when analyzing Company performance, while simultaneously recognizing the current challenges in the radio industry and the culmination of a year-long discussion 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 July 2007 in connection with his promotion to CAO.

 

Equity Compensation

 

Equity is a critical component of the Company’s compensation plan. Equity compensation awards are made under the Company’s 2005 Plan or 1999 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 were made available for issuance under the 2005 Plan. As of March 31, 2008, approximately 3.2 million of such shares remain available for issuance by the Company under the 2005 Plan, and approximately 2.9 million shares remain available for issuance under the 1999 Plan until March 31, 2009.

In March 2008 (for services rendered in 2007), the Committee determined to make all equity grants awarded at that time in the form of stock options, as opposed to a combination of restricted stock and stock options, and issued such under the 1999 Plan. Having become an independent company, entered into a new long-term distribution arrangement with CBS Radio and secured a significant level of financing from Gores Radio, the Company has recently expressed an interest in making selective investments in the Company. Given the foregoing and the roles of Messrs. Yusko and Hillman in such, Messrs. Yusko and Hillman received significant stock option awards, compared to other employees of the Company.

 

 

In connection with the various new employment agreements and/or amendments to existing arrangements, the following awards were made to NEOs during 2007 and early 2008 in order to provide significant incentives and retention value to NEOs as well as further align the interests of NEOs with our shareholders:

 

 

Payments Upon Termination

 

Certain NEOs are entitled to cash payments upon various termination scenarios, including upon a change in control, death or disability, good reason, or termination without cause. These payments are more particularly described under the table entitled “Potential Payments upon Termination or Change in Control”; the summaries of employment agreements that follow under the heading entitled “Employment Agreements”; and the narrative that follows regarding such payments. The Company does not have any arrangements with its NEOs, written or otherwise, for 280G “gross-up” or similar type payments, with the exception of Mr. Beusse (not a NEO in 2007), the terms of which are set forth under the section entitled “Employment Agreements” below. In the case of death or disability, only Mr. Pattiz is entitled to a payment in excess of any accrued salary, bonus or benefits.

 

Duration of Vesting Term

 

In March 2007, the Committee set the vesting period of equity compensation awarded as part of the annual grant to employees in 2007 at three years, and maintained this vesting period in 2008 for awards made as part of the 2008 annual grant to employees. As noted above, both Messrs. Yusko and Hillman received a one-time grant of equity compensation which vests over two years in connection with their appointments as CFO and CAO, respectively. The Committee viewed the two-year vesting term of such grants as a special circumstance because of Messrs. Yusko’s and Hillman’s roles in the CBS and Gores transactions as discussed above. 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

 

2005 Plan.  From the executive’s perspective, 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 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, and made stock options the sole component of equity compensation grants in March 2008, in part because of the steep decline in the Company’s stock price in 2007, and made those awards under the 1999 Plan.

 

1999 Plan.  In part because of the depressed stock price, and in part because of the limited number of shares available for issuance under the 2005 Plan (particularly after taking into account the aggregate 750,000 stock options awarded to Messrs. Pattiz and Beusse in January 2008 under the 2005 Plan), the equity compensation awards made in March 2008 as part of the annual equity compensation awards to employees were granted under the terms of the 1999 Plan. Issuing the stock options under the 1999 Plan does not change in any material respect any rights of the awardees with respect to the stock options. The awards made under such plan also expressly incorporate the defined terms “cause” and “change in control” and the effect of such terms from the 2005 Plan. Unless expressly negotiated otherwise, unvested stock options continue to be forfeited upon an employee’s termination, including by death or disability. In addition, any outstanding options that were issued in March 2008 under the 1999 Plan, like those previously issued under the 2005 Plan, will 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 delayed 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.

 

Unvested awards generally are forfeited upon an employee’s termination, including by death or disability, except when termination occurs within a 24-month period after a change of control, or when termination is without cause or for good reason. 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.

 

2005 Plan’s Definition of Change in Control

 

Under the 2005 Plan, a “change in control” generally is: (i) the acquisition by any person of 35% or more of the Company’s outstanding Common Stock; (ii) a change in the individuals constituting a majority of the Board; (iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets or stock of another corporation resulting in a change of ownership of more than 50% of the voting securities entitled to vote generally in the election of directors, (iv) a shareholder approved complete liquidation or dissolution of the Company; or (v) the consummation of any other transaction involving a significant issuance of the Company’s securities, a change in the Board composition or other material event that the Board determines to be a change in control.

 

For the definitions used in NEOs’ employment agreements, please refer to the summaries under the heading “Employment Agreements” which appears below.

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.”

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with Company management the Compensation Discussion and Analysis which appears above. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that it approve the inclusion of the Compensation Discussion and Analysis in this proxy statement filed with the SEC.

 

Submitted by the members of the Compensation Committee:

 

H. Melvin Ming, Chair (as of June 19, 2008; previously the Compensation Committee was chaired by Gerald Greenberg)
David L. Dennis
Joseph B. Smith

 

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 years ended December 31, 2006 and December 31, 2007, respectively.

 

 

 

 

 

GRANTS OF PLAN-BASED AWARDS IN 2007(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, 2007.

 

 

 

 

 

The following summary is applicable solely to the equity compensation awarded in 2007 as reported in the table entitled “Grants of Plan-Based Awards in 2007” which appears above.

 

Vesting

 

The following terms do not apply to Mr. Pattiz’s equity compensation. For a description of the terms applicable to his awards, see the summary of Mr. Pattiz’s employment agreement under the heading “Employment Agreements” which appears below.

 

All awards of stock options, restricted stock and RSUs listed in the table “Grants of Plan-Based Awards in 2007” were granted under the 2005 Plan and vest in equal installments over a three-year period, commencing on the first anniversary of the date of grant (with the exception of the awards of 15,000 shares of restricted stock made to each of Messrs. Yusko and Hillman in July 2007 which vest over two years). Upon a participant’s termination, 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). Under the terms of the 2005 Plan, a participant forfeits any unvested stock options on the date of his termination, however, different terms were negotiated in the employment agreements for Messrs. Pattiz, Beusse and Yusko, which terms are described in more detail below.

 

When terms such as participant, termination, retirement, cause and change in control are used for purposes of referring to equity compensation, such have the meaning set forth in the 2005 Plan. A “participant” means a recipient of awards under an equity compensation plan (for purposes of this proxy statement, the employee).

Change of Control Provisions

 

With respect to all equity compensation awards made under the 2005 Plan (or those issued in March 2008 under the 1999 Plan incorporating 2005 Plan terms relating to a change in control), if an employee is terminated without cause during the 24-month period following a change in control, all unvested stock options, restricted stock and RSUs (as described above) shall immediately vest provided an employee is still a participant on that date.

 

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 were deferred until such individual’s termination. Since the 2005 awards, no grants of equity compensation have been deferred.

 

OUTSTANDING EQUITY AWARDS AT 2007 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, 2007.