-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EXF048K4wBpq+CeoC3MN9Xpb5P2z/Al1FF8sY5/7GlfoiRy9TobhuQ5OI6B0YjuV IrW7NXdGb9aibd0MzvaRlQ== 0000771950-05-000008.txt : 20050316 0000771950-05-000008.hdr.sgml : 20050316 20050316170014 ACCESSION NUMBER: 0000771950-05-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050316 DATE AS OF CHANGE: 20050316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTWOOD ONE INC /DE/ CENTRAL INDEX KEY: 0000771950 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 953980449 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14691 FILM NUMBER: 05686264 BUSINESS ADDRESS: STREET 1: 40 WEST 57TH STREET STREET 2: 5TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2126412063 MAIL ADDRESS: STREET 1: 40 WEST 57TH STREET STREET 2: 5TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: WESTWOOD ONE DELAWARE INC /CA/ DATE OF NAME CHANGE: 19860408 10-K 1 won10k2004.txt WON 2004 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to ______ Commission file number 0-13020 WESTWOOD ONE, INC. (Exact name of registrant as specified in its charter) Delaware 95-3980449 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 40 West 57th Street 10019 New York, NY (Zip Code (Address of principal executive offices) Registrant's telephone number, including area code: (212) 641-2000 Securities Registered Pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, par value $0.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ___ The aggregate market value of Common Stock held by non-affiliates of the registrant was approximately $1.91 billion based on the last reported sales price of the registrant's Common Stock on June 30, 2004 (the last business day of the most recently completed second quarter) and assuming solely for the purpose of this calculation that all directors and officers of the registrant are "affiliates." The determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 1, 2005, 94,355,915 shares (excluding treasury shares) of Common Stock, par value $0.01 per share, were outstanding and 291,796 shares of Class B Stock, par value $0.01 per share, were outstanding. Documents Incorporated By Reference Portions of the registrant's definitive proxy statement for its 2005 annual meeting of shareholders (which will be filed with the Commission within 120 days of the registrant's 2004 fiscal year end) are incorporated by reference in Part III of this Form 10-K. PART I Item 1. Business In this report, "Westwood One," "Company," "registrant," "we," "us" and "our" refer to Westwood One, Inc. General Westwood One supplies radio and television stations with information services and programming. The Company is the largest domestic outsource provider of traffic reporting services and the nation's largest radio network, producing and distributing national news, sports, talk, music and special event programs, in addition to local news, sports, weather, video news and other information programming. The Company derives substantially all of its revenues from the sale of :10 second, :30 second and :60 second commercial airtime to advertisers. The Company obtains the commercial airtime it sells to advertisers from radio and television affiliates in exchange for the programming or information services it provides to them. In some cases, the Company supplements the commercial airtime it receives from programming and information services by providing affiliates with compensation to obtain additional commercial airtime. That commercial airtime is sold to local/regional advertisers (typically :10 second commercial airtime) and to national advertisers (typically :30 or :60 second commercial airtime). By purchasing commercial airtime from the Company, advertisers are able to have their commercial messages broadcast on radio and television stations throughout the United States, reaching demographically defined listening audiences. The Company provides local traffic and information broadcast reports in over 95 of the top 100 Metro Survey Area markets (referred to herein as "MSA markets") in the United States. The Company also offers radio stations traditional news services, including CBS Radio news and CNN Radio news, in addition to seven 24-hour satellite-delivered continuous play music formats ("24/7 Formats") and weekday and weekend news and entertainment features and programs. These programs include: major sporting events, including the National Football League, Notre Dame football and other college football and basketball games, the National Hockey League, the Masters and the Olympics, live personality intensive talk shows, live concert broadcasts, countdown shows, music and interview programs, and exclusive satellite simulcasts with cable networks. Westwood One is managed by Infinity Broadcasting Corporation ("Infinity"), a wholly-owned subsidiary of Viacom Inc., pursuant to a management agreement between the Company and Infinity which expires on March 31, 2009 (the "Agreement" or "Management Agreement"). Industry Background Radio Broadcasting There are approximately 11,000 commercial radio stations in the United States. A radio station selects a style of programming ("format") to attract a target listening audience and thereby attracts advertisers that are targeting that audience demographic. There are many formats from which a station may select, including news, talk, sports and various types of music and entertainment programming. A radio station has two principal ways of effectively competing for revenues. First, it can differentiate itself in its local market by selecting and successfully executing a format targeted at a particular audience thus enabling advertisers to place their commercial messages on stations aimed at audiences with certain demographic characteristics. A station can also broadcast special programming, syndicated shows, sporting events or national news products, such as those supplied by Westwood One, not available to its competitors within its format. National programming broadcast on an exclusive geographic basis can help differentiate a station within its market, and thereby enable a station to increase its audience and advertising revenue. Radio Advertising Radio advertising time can be purchased on a local, regional or national basis. Local and regional purchases allow an advertiser to select specific radio stations in chosen geographic markets for the broadcast of commercial messages. Local and regional purchases are typically best suited for an advertiser whose business or ad campaign is in a specific geographic area. Advertising purchased from a national radio network allows an advertiser to target its commercial messages to a specific demographic audience, nationally, on a cost-efficient basis. In addition, an advertiser can choose to emphasize its message in a certain market or markets by supplementing a national purchase with local and/or regional purchases. To plan its network audience delivery and demographic composition, specific measurement information is available to advertisers from independent rating services such as Arbitron and their RADAR rating service. The rating service provides demographic information such as the age and gender composition of the listening audiences. Consequently, advertisers can verify that their advertisements are being heard by their target listening audience. Business Strategy/Services The Company's business strategy is to provide for the programming needs of radio stations by supplying to radio stations programs and services that individual stations may not be able to produce on their own on a cost effective basis. The Company offers radio stations traffic and news information as well as a wide selection of regularly scheduled and special event syndicated programming and 24/7 Formats. The information, programs and formats are produced by the Company and, therefore, the stations typically have virtually no production costs. With respect to the Company's programs and formats, each program or format is offered for broadcast by the Company exclusively to one station in its geographic market, which assists the station in competing for audience share in its local marketplace. In addition, except for news programming, Westwood One's programs contain available commercial airtime that the stations may sell to local advertisers. Westwood One typically distributes promotional announcements to the stations and occasionally places advertisements in trade and consumer publications to further promote the upcoming broadcast of its programs. In 1996, the Company expanded its product offerings to include providing local traffic, news, sports and weather programming to radio stations and other media outlets in selected cities across the United States. This expansion gave the Company's advertisers the ability to easily supplement their national purchases with local and regional purchases from the Company. It also allowed the Company to develop relationships with local and regional advertisers. In 1996 and 1998, the Company acquired the operating assets of Shadow Traffic in a total of 14 major metropolitan markets (4 in 1996 and 10 in 1998). In 1999, Westwood One significantly expanded its local and regional reach through its merger with the country's largest traffic service provider, Metro Networks, Inc., which broadcast information reports in 67 of the 75 largest MSA markets in the United States. Since then, the Company has expanded its reach to more than 95 of the top 100 MSA markets. In late 2000, the Company continued its expansion of products with its acquisition of the operating assets of SmartRoute Systems, Inc. ("SmartRoute"), a company which collects, organizes and distributes a database of advanced traveller information through various electronic media and telecommunications. Westwood One enters into affiliation arrangements with radio stations which require the affiliate to provide the Company with a specific number of commercial positions which it aggregates by similar day and time periods and resells to its advertisers. Some affiliation agreements also require a station to broadcast the Company's programs and to use a portion of the program's commercial slots to air national advertisements and any related promotional spots. With respect to 24/7 Formats, the Company typically receives a portion of the commercial airtime and a cash fee from the affiliated stations in exchange for the stations receiving the right to broadcast the formats. Affiliation arrangements specify the number of times and the approximate daypart each program and advertisement may be broadcast. Westwood One requires that each station complete and promptly return to the Company an affidavit (proof-of-performance) that verifies the time of each broadcast. Affiliation agreements generally run for a period of at least one year and are automatically renewable for subsequent periods. The Company has agreements with over 5,000 radio stations, many of which have more than one arrangement. The Company has personnel responsible for station sales and marketing its programs to radio stations. The Company's staff develops and maintains close, professional relationships with radio station personnel to provide them with quick programming assistance. Local Traffic and Information Programming The Company, through its Traffic and Information Division, provides traffic reports and local news, weather and sports information programming to radio and television affiliates. The Company gathers traffic and other data utilizing the Company's information-gathering infrastructure, which includes aircraft (helicopters and -2- airplanes), broadcast-quality remote camera systems positioned at strategically located fixed positions and on aircraft, mobile units and wireless systems, and by accessing various government-based traffic tracking systems. The Company also gathers information from various third-party news and information services. The information is processed, converted into broadcast copy and entered into the Company's computer systems by the Company's local writers and producers. This permits the Company to easily resell the information to third parties for distribution through the internet, wireless devices or personal digital assistants ("PDAs") and various other distribution channels. The Company's professional announcers read the customized reports on the air. The Company's information reports (including the length of report, content of report, specific geographic coverage area, time of broadcast, number of reports aired per day, broadcaster's style, etc.) are customized to meet each individual affiliate's requirements. The Company typically works closely with the program directors, news directors and general managers of its affiliates to ensure that the Company's services meet its affiliates' goals and standards. The Company and its affiliates jointly select the on-air talent to ensure that each on-air talent's style is appropriate for the station's format. The Company's on-air talent often become integral "personalities" on such affiliate stations as a result of their significant on-air presence and interaction with the stations' on-air personnel. In order to realize operating efficiencies, the Company endeavors to utilize its professional on-air talent on multiple affiliate stations within a particular market. The Company believes that its extensive fleet of aircraft and other information-gathering technology and broadcast equipment have allowed the Company to provide high quality programming, enabling it to retain and expand its affiliate base. In the aggregate, the Company utilizes approximately: 125 helicopters and fixed-wing aircraft; 39 mobile units; 32 airborne camera systems; 125 fixed-position camera systems; 70 broadcast studios; and 1,400 broadcasters and producers. The Company also maintains a staff of computer programmers and graphics experts to supply customized graphics and other visual programming elements to television station affiliates. In addition, the Company's operations centers and broadcast studios have sophisticated computer technology, video and broadcast equipment and cellular and wireless technology, which enables the Company's on-air talent to deliver reports to its affiliates. The infrastructure and resources dedicated to a specific market by the Company are determined by the size of the market, the number of affiliates the Company serves in the market and the type of services being provided. The Company generally does not require its affiliates to identify the Company as the supplier of its information reports. This provides the Company's affiliates with a high degree of customization and flexibility, as each affiliate has the right to present the information reports provided by the Company as if the affiliate had generated the reports with its own resources. As a result of its extensive network of operations and talent, the Company regularly reports breaking and important news stories and provides its affiliates with live coverage of these stories. The Company is able to customize and personalize its reports of breaking stories using its individual affiliates' call letters from the scene of news events. Past examples have included, among others, providing live airborne coverage of the September 11 terrorist attack on the World Trade Center and the Seattle earthquake. By using our news helicopters, the Company feeds live video to television affiliates around the country. Moreover, by leveraging our infrastructure, the same reporters provide live customized airborne reports for the Company's radio affiliates via the Company's Metro Source service, which is described below. The Company believes that it is the only radio network news organization that has local studio operations that cover in excess of 95 markets and that is able to provide customized reports to these markets. Metro Source, an information service available to subscribing affiliates, is an information system and digital audio workstation that allows the Company's news affiliates to receive via satellite and view, write, edit and report the latest news, features and show preparation material. With this product, the Company provides continuously updated and breaking news, weather, sports, business and entertainment information to its affiliate stations which have subscribed to the service. Information and content for Metro Source is primarily generated from the Company's staff of news bureau chiefs, state correspondents and professional news writers and reporters. Local, regional and national news and information stories are fed to the Company's national news operations center in Phoenix, Arizona where the information is verified, edited, produced and disseminated via satellite to the Company's internal Metro Source workstations located in each of its operations centers and to workstations located at affiliate radio stations nationwide. Metro Source includes proprietary software that allows for customizing reports and editing in both audio and text formats. The benefit to stations is that Metro Source allows them to substantially reduce time and cost from the news gathering and editing process at the station level, while providing greater volume and quality news and information coverage from a single source. -3- Television Programming Services The Company supplies Television Traffic Services ("MetroTV Services") to over 200 television stations. Similar to its radio programming services, with its MetroTV Services the Company supplies customized information reports which are generally delivered on air by its reporters to its television station affiliates. In addition, the Company supplies customized graphics and other visual programming elements to its television station affiliates. The Company utilizes live studio cameras in order to enable its traffic reporters to provide its Video News Services on television from the Company's local broadcast studios. In addition, the Company provides its Video News Services from its aircraft and fixed-position based camera systems. The Video News Services include: (i) live video coverage from strategically located fixed-position camera systems; (ii) live video news feeds from the Company's aircraft; and (iii) full-service, 24 hours per day/7 days per week video coverage from the Company's camera crews using broadcast quality camera equipment and news vehicles. SmartRoute Systems In 2000 the Company acquired the operating assets of SmartRoute ("SRS") which develops non-broadcast traffic information. SRS develops innovative techniques for gathering local traffic and transportation information, as well as new methods of distributing such information to the public. The Company believes that in order to remain competitive and to continue to provide an information product of the highest quality to its affiliates, it is necessary to invest in and participate in the development of new technology. The Company is currently working with several public and private entities across the United States to improve dissemination of traffic and transportation information. SRS revenues are not presently a significant source of revenues to the Company. The Company, through SmartRoute, collects, organizes and distributes a database of advanced traveler information to automobiles, homes and offices through various electronic media and telecommunications. The Company delivers its information under the SRS brand name. In addition, the Company has participated in a number of Federal and State funded Intelligent Transportation System projects, including various operational, 511 Interactive Voice Response ("IVR"), advanced web sites, and combined advanced traveler and transit information systems for Massachusetts, Florida, North Carolina, Virginia, Missouri and New Jersey Departments of Transportation. SRS also operates Traffic Management Centers for Jacksonville, Florida; Massachusetts; South East Florida; and New Jersey Departments of Transportation. The Company has been working with a variety of private companies to deploy commercial products and services involving traveler information. These relationships allow for the provision of information on a personalized basis through numerous delivery mechanisms, including the internet, paging, FM subcarrier, traditional cellular and newly-developed and evolving wireless systems. Information can be delivered to a wide array of devices including pagers, computers, and in-vehicle navigation and information systems. National Radio Programming The Company produces and distributes 24/7 Formats, regularly scheduled and special syndicated programs, including exclusive live concerts, music and interview shows, national music countdowns, lifestyle short features, news broadcasts, talk programs, sporting events, and sports features. The Company controls most aspects of the production of its programs, thereby being able to tailor its programs to respond to current and changing listening preferences. The Company produces regularly scheduled short-form programs (typically five minutes or less), long-form programs (typically 60 minutes or longer) and 24/7 Formats. Typically, the short-form programs are produced at the Company's in-house facilities located in Culver City, California, and New York, New York. The long-form programs include shows produced primarily at the Company's in-house production facilities and recordings of live concert performances and sports events made on location. The 24/7 Formats are produced at the Company's facilities in Valencia, California. Westwood One also produces and distributes special event syndicated programs. In 2004, the Company produced and distributed numerous special event programs, including exclusive radio broadcasts of The Grammy Awards, the Academy of Country Music Awards, MTV Music Awards and the BET Awards, among others. Westwood One obtains most of the programming for its concert series by recording live concert performances of prominent recording artists. The agreements with these artists often provide the exclusive right to broadcast the concerts -4- worldwide over the radio (whether live or pre-recorded) for a specified period of time. The Company may also obtain interviews with the recording artist and retain a copy of the recording of the concert and the interview for use in its radio programs and as additions to its extensive tape library. The agreements provide the artist with master recordings of their concerts and nationwide exposure on affiliated radio stations. In certain cases, the artists may receive compensation. Westwood One's syndicated programs are primarily produced at its in-house production facilities. The Company determines the content and style of a program based on the target audience it wishes to reach. The Company assigns a producer, writer, narrator or host, interviewer and other personnel to record and produce the programs. Because Westwood One controls the production process, it can refine the programs' content to respond to the needs of its affiliated stations and national advertisers. In addition, the Company can alter program content in response to current and anticipated audience demand. The Company produces and distributes seven 24/7 Formats providing music, news and talk programming for Country, Hot Country, Adult Contemporary, Soft Adult Contemporary, Oldies, Adult Standards, and the Adult Rock and Roll formats. Using its production facilities in Valencia, California, the Company provides all the programming for stations affiliated with each of these formats. Affiliates compensate the Company for these formats by providing the Company with a portion of their commercial air time and, in most cases, cash fees. The Company believes that its tape library is a valuable asset for its future programming and revenue generating capabilities. The library contains previously broadcast programs, live concert performances, interviews, daily news programs, sports and entertainment features, Capitol Hill hearings and other special events. New programs can be created and developed at a low cost by excerpting material from the library. Advertising Sales and Marketing The Company packages its radio commercial airtime on a network basis, covering all affiliates in relevant markets, either locally, regionally or nationally. This packaged airtime typically appeals to advertisers seeking a broad demographic reach. Because the Company generally sells its commercial airtime on a network basis rather than station-by-station, the Company does not compete for advertising dollars with its local radio station affiliates. The Company believes that this is a key factor in maintaining its affiliate relationships. The Company packages its television commercial airtime on a local, regional and national network basis. The Company has developed a separate sales force to sell its television commercial airtime and to optimize the efforts of the Company's national internal structure of sales representatives. The Company's advertising sales force is comprised of approximately 260 sales representatives and sales managers. In most of the markets in which the Traffic and Information Division conducts operations, the Company maintains an advertising sales office as part of its operations center. The Company's advertising sales force is able to sell available commercial airtime in any and all of the Company's markets in addition to selling such airtime in each local market, which the Company believes affords its sales representatives an advantage over certain of its competitors. For example, an airline advertiser can purchase sponsorship advertising packages in multiple markets from the Company's local sales representative in the city in which the airline is headquartered. The Company's typical radio advertisement for traffic and information programming consists of an opening announcement and a ten-second commercial message presented immediately prior to, in the middle of, or immediately following a regularly scheduled information report. Because the Company has numerous radio station affiliates in each of its markets (averaging approximately 25 affiliates per market in our top 50 markets), the Company believes that its traffic and information broadcasts reach more people, more often, in a higher impact manner than can be achieved using any other advertising medium. The Company combines its commercial airtime into multiple "sponsorship" packages which it then sells as an information sponsorship package to advertisers throughout its networks on a local, regional or national basis, primarily during morning and afternoon drive periods. The Company generally does not allow an advertiser to select individual stations from its networks on which to run its advertising campaign. The Company believes that the positioning of advertisements within or adjacent to its information reports appeals to advertisers because the advertisers' messages are broadcast along with regularly scheduled programming during peak morning and afternoon drive times when a majority of the radio audience is listening. Radio advertisements broadcast during these times typically generate premium rates. Moreover, surveys commissioned by the Company demonstrate that because the Company's customized information reports are related to topics of significant interest to listeners, listeners often seek out the Company's information reports. Since advertisers' messages are embedded in the Company's -5- information reports, such messages have a high degree of impact on listeners and generally will not be "pre-empted" (i.e., moved by the radio station to another time slot). Most of the Company's advertisements are read live by the Company's on-air talent, providing the Company's advertisers with the added benefit of an implied endorsement for their product. Westwood One's Network Division provides national advertisers with a cost-effective way to communicate their commercial messages to large listening audiences nationwide through purchases of commercial airtime in its national radio networks and programs. An advertiser can obtain both frequency (number of exposures to the target audience) and reach (size of listening audience) by purchasing advertising time from the Company. By purchasing time in networks or programs directed to different formats, advertisers can be assured of obtaining high market penetration and visibility as their commercial messages will be broadcast on several stations in the same market at the same time. The Company, on occasion, supports its national sponsors with promotional announcements and advertisements in trade and consumer publications. This support promotes the upcoming broadcasts of Company programs and is designed to increase the advertisers' target listening audience. Generally, the Company provides its MetroTV Services to television stations in exchange for thirty-second commercial airtime that the Company packages and sells on a national basis. The amount and placement of the commercial airtime that the Company receives from television stations varies by market and the type of service provided by the Company. As the Company has provided enhanced television video services, it has been able to acquire more valuable commercial airtime. The Company believes that it offers advertisers significant benefits because, unlike traditional television networks, the Company often delivers more than one station in major markets and advertisers may select specific markets. The Company has established a morning TV news network for its advertisers' commercials to air during local news programming and local news breaks from 5:30 a.m. to 9:00 a.m. Because the Company has affiliated a large number of network television stations in major markets, its morning news network delivers a significant national household rating in an efficient and compelling local news environment. As the Company continues to expand its service offerings for local television affiliates, it plans to create additional news networks to leverage its television news gathering infrastructure. Competition In the MSA markets in which it operates, the Company competes for advertising revenue with local print and other forms of communications media including magazines, outdoor advertising, network radio and network television advertising, transit advertising, direct response advertising, yellow page directories, internet/new media and point-of-sale advertising. Although the Company is significantly larger than the next largest provider of traffic and local information services, there are several multi-market operations providing local radio and television programming services in various markets. In addition, the consolidation of the radio industry has created opportunities for large radio groups, such as Clear Channel Communications, to gather information on their own. In marketing its programs to national advertisers, the Company directly competes with other radio networks as well as with independent radio syndication producers and distributors. More recently, as a result of consolidation in the radio industry, companies owning large groups of stations have begun to create competing networks that have resulted in additional competition for network radio advertising expenditures. In addition, the Company competes for advertising revenue with network television, cable television, print and other forms of communications media. The Company believes that the quality of its programming and the strength of its station relations and advertising sales forces enable it to compete effectively with other forms of communication media. Westwood One markets its programs to radio stations, including affiliates of other radio networks, that it believes will have the largest and most desirable listening audience for each of its programs. The Company often has different programs airing on a number of stations in the same geographic market at the same time. The Company believes that in comparison with any other independent radio syndication producer and distributor or radio network it has a more diversified selection of programming from which national advertisers and radio stations may choose. In addition, the Company both produces and distributes programs, thereby enabling it to respond more effectively to the demands of advertisers and radio stations. The increase in the number of program formats has led to increased competition among local radio stations for audience. As stations attempt to differentiate themselves in an increasingly competitive environment, their demand for quality programming available from outside programming sources increases. This demand has been intensified by high operating and production costs at local radio stations and increased competition for local advertising revenue. -6- Government Regulation Radio broadcasting and station ownership are regulated by the Federal Communications Commission (the "FCC"). Westwood One, as a producer and distributor of radio programs and information services, is generally not subject to regulation by the FCC. The Traffic and Information Division utilizes FCC regulated two-way radio frequencies pursuant to licenses issued by the FCC. Employees On February 1, 2005, Westwood One had approximately 2,547 employees, including an advertising sales force of approximately 260 people and 846 part-time employees. In addition, the Company maintains continuing relationships with numerous independent writers, program hosts, technical personnel and producers. Approximately 689 of the Company's employees are covered by collective bargaining agreements. The Company believes relations with its employees, unions, and independent contractors are satisfactory. Available Information The Company is a Delaware corporation, having re-incorporated in Delaware on June 21, 1985. Our current and periodic reports filed with the Securities and Exchange Commission ("SEC"), including amendments to those reports, may be obtained through our internet website at www.westwoodone.com free of charge as soon as reasonably practicable after we file these reports with the SEC. Item 2. Properties The Company owns a 7,300 square-foot building in Culver City, California, which houses the syndicated program production facilities and a 14,000 square-foot building in Culver City, California, which contains administrative, and sales and marketing, as well as its two traffic and news reporting divisions, Metro Networks and Shadow Broadcast Services. The Company also owns a 7,900 square-foot building adjacent to its administrative and sales and marketing offices in Culver City, California, which it subleases. In addition, the Company leases operation centers/broadcast studios and marketing and administrative offices across the United States consisting of over 365,000 square feet in the aggregate, pursuant to the terms of various lease agreements. The Company believes that its facilities are adequate for its current level of operations. Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders None. -7- PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters On March 1, 2005 there were approximately 211 holders of record of the Company's Common Stock, several of which represent "street accounts" of securities brokers. Based upon the number of proxies requested by brokers in conjunction with its 2004 shareholders' meeting, the Company estimates that the total number of beneficial holders of the Company's Common Stock exceeds 5,000. Since December 15, 1998, the Company's Common Stock has been traded on the New York Stock Exchange ("NYSE") under the symbol "WON". The following table sets forth the range of high and low last sales prices on the NYSE for the Common Stock for the calendar quarters indicated. 2004 High Low ---- ---- --- First Quarter $34.66 $27.82 Second Quarter 32.40 22.76 Third Quarter 24.36 19.21 Fourth Quarter 26.95 20.12 2003 ---- First Quarter $39.15 $29.60 Second Quarter 35.56 31.05 Third Quarter 33.73 29.30 Fourth Quarter 34.40 29.60 The last sales price for the Company's Common Stock on the NYSE on March 1, 2005 was $22.00. The Company does not intend to pay cash dividends. No cash dividend was paid on the Company's stock during 2004 or 2003, and the payment of dividends is restricted by the terms of its loan agreements, to the extent that such a payment would cause an event of default. There is no established public trading market for our Class B Stock. However, the Class B Stock is convertible to Common Stock on a share-for-share basis. On March 1, 2005 there were 3 holders of record of the Company's Class B Stock. Equity Compensation Plan Information The following table contains information regarding equity compensation plans and warrants issued to Infinity under the Management Agreement as of December 31, 2004:
Number of securities to be issued upon exercise of Weighted average exercise Number of securities outstanding options, price of outstanding remaining available for Plan Category warrants and rights options, warrants and rights future issuance ------------- ------------------- ---------------------------- --------------- Equity compensation plans approved by security holders Options (1) 7,996,018 $24.90 600,345 Warrants (2) 4,500,000 49.44 N/A Equity compensation plans not approved by security holders - - - ---------- ------- Total 12,496,018 600,345 ========== =======
(1) Options included herein were granted or are available for grant as part of the Company's 1989 and/or 1999 stock option plans that were approved by shareholders of the Company. The Company's 1999 stock option plan provides for mandatory grants of options to members of the Company's Board of Directors on an annual basis. The Compensation Committee of the Board of Directors approves periodic option grants to Executive Officers and other employees based on their contributions to the operations of the Company. -8- (2) Warrants included herein were granted to Infinity in conjunction with the Infinity Management Agreement, and were approved by shareholders of the Company on May 29, 2002. Of the seven warrants issued, two warrants to purchase an aggregate of 2,000,000 shares of Common Stock each have an exercise price of $43.11 and $48.36, respectively, and become exercisable only 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. Of the remaining five warrants to purchase an aggregate of 2,500,000 shares of Common Stock, the exercise price for each of the five warrants is equal to $38.87, $44.70, $51.40, $59.11, and $67.98, respectively. The five warrants have a term of 10 years (only if they become exercisable) and become exercisable on January 2, 2005, 2006, 2007, 2008, and 2009, respectively. However, in order for the warrants to become exercisable, the average price of the Company's Common Stock for each of the 15 trading days prior to January 2 of such 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 Company's average stock price for the 15 trading days prior to January 2, 2005 must equal or exceed $40.56 for the warrants to become exercisable. The average stock price for the 15 trading days prior to January 2, 2005 did not equal or exceed $40.56, and therefore, the warrants did not become exercisable. Issuer Purchases of Equity Securities
Approximate Dollar Total Number Value of Shares that Shares Purchased as May Yet Be Purchased Part of Publicly Under the Plans ors Number of Shares Average Price Paid Announced Plans or Programs Period Purchased in Period Per Share Programs (A) - ------ ------------------- --------- -------- -------- October 2004 475,000 $20.93 11,191,224 $186,460,000 November 2004 860,000 22.84 12,051,224 166,819,000 December 2004 185,000 25.31 12,236,224 162,138,000 ------- 1,520,000 $22.54 =========
(A) Represents remaining authorization from the $250 million repurchase authorization approved on September 25, 2002 and the additional $250 million repurchase authorization approved by the Company's Board of Directors on February 24, 2004. Item 6. Selected Financial Data (In thousands except per share data)
2004 (1) 2003 (1) 2002 (1) 2001 2000 ---- ---- ---- ---- ---- OPERATING RESULTS FOR YEAR ENDED DECEMBER 31: Net Revenues $562,246 $539,226 $550,751 $515,940 $553,693 Operating and Corporate Costs, Excluding Depreciation and Amortization 378,240 357,688 360,390 349,936 388,095 Depreciation and Amortization 18,429 11,513 11,464 67,611 62,104 Operating Income 165,577 170,025 178,897 98,393 103,494 Net Income $95,490 $100,039 $109,115 $43,195 $42,283 Income Per Basic Share $.98 $.99 $ 1.03 $.40 $.38 Income Per Diluted Share $.97 $.97 $ 1.00 $.38 $.36 BALANCE SHEET DATA AT DECEMBER 31: Current Assets $174,346 $165,495 $153,628 $140,527 $ 153,881 Working Capital 93,005 81,433 63,542 35,012 15,679 Total Assets 1,246,279 1,262,034 1,266,312 1,210,017 1,285,556 Long-Term Debt 359,439 300,366 232,135 152,000 168,000 Total Shareholders' Equity 784,493 835,950 903,040 915,371 949,892
-9- (1) Results for the years ended December 31, 2004, 2003, and 2002 include the effects of adopting Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). Retroactive application prior to January 1, 2002 was prohibited. - -- No cash dividend was paid on the Company's Common Stock during the periods presented above. -10- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (In thousands except for share and per share amounts) EXECUTIVE OVERVIEW Westwood One supplies radio and television stations with content, information services, and programming. The Company is the largest domestic outsource provider of traffic reporting services and the nation's largest radio network, producing and distributing national news, sports, talk, music and special event programs, in addition to local news, sports, weather, video news and other information programming. The commercial airtime that we sell to our advertisers is acquired from radio and television affiliates in exchange for our programming, content, information, and in certain circumstances, cash compensation. The radio broadcasting industry has experienced a significant amount of consolidation in recent years. As a result, certain major radio station groups, including Infinity and Clear Channel Communications, have emerged as powerful forces in the industry. Westwood One is managed by Infinity under a Management Agreement, which expires on March 31, 2009. While Westwood One provides programming to all major radio station groups, the Company has affiliation agreements with most of Infinity's owned and operated radio stations, which in the aggregate, provide the Company with a significant portion of the audience that it sells to advertisers. Accordingly, the Company's operating performance could be materially adversely impacted by its inability to continue to renew its affiliate agreements with Infinity stations. The Company derives substantially all of its revenues from the sale of :10 second, :30 second and :60 second commercial airtime to advertisers. Our advertisers who target local/regional audiences generally find the most effective method is to purchase shorter duration :10 second advertisements, which are principally correlated to traffic and information related programming and content. Our advertisers who target national audiences generally find the most cost effective method is to purchase longer :30 or :60 second advertisements, which are principally correlated to news, talk, sports and music and entertainment related programming and content. A growing number of advertisers purchase both local/regional and national airtime. Generally, the greater amount of programming we provide our affiliates the greater amount of commercial airtime becomes available for the Company to sell. Additionally, over an extended period of time an increase in the listening audience results in our ability to generate more revenues. Our goal is to maximize the yield of our available commercial airtime to optimize revenues. In managing our business, we develop programming and exploit the commercial airtime by concurrently taking into consideration the demands of our advertisers on both a market specific and national basis, the demands of the owners and management of our radio station affiliates, and the demands of our programming partners and talent. Our continued success and prospects for growth are dependent upon our ability to manage the aforementioned factors in a cost effective manner. Our results may also be impacted by overall economic conditions, trends in demand for radio related advertising, competition, and risks inherent in our customer base, including customer attrition and our ability to generate new business opportunities to offset any attrition. There are a variety of factors that influence the Company's revenues on a periodic basis including but not limited to: (i) economic conditions and the relative strength or weakness in the United States economy, (ii) advertiser spending patterns and the timing of the broadcasting of our programming, principally the seasonal nature of sports programming, (iii) advertiser demand on a local/regional or national basis for radio related advertising products, (iv) increases or decreases in our portfolio of program offerings and related audiences, including changes in the demographic composition of our audience base and (v) competitive and alternative programs and advertising mediums. Our ability to specifically isolate the relative historical aggregate impact of price and volume is not practical as commercial airtime is sold and managed on an order-by-order basis. It should be noted, however, that the Company closely monitors advertiser commitments for the current calendar year, with particular emphasis placed on a prospective three month period. Factors impacting the pricing of commercial airtime include, but are not limited to: (i) the dollar value, length and breadth of the order, (ii) the desired reach and audience demographic, (iii) the quantity of commercial airtime available for the desired demographic requested by the advertiser for sale at the time their order is negotiated; and (iv) the proximity of the date of the order placement to the desired broadcast date of the commercial airtime. Our commercial airtime is perishable, and accordingly, our revenues are significantly impacted by the commercial airtime available at the time we enter into an arrangement with an advertiser. The principal critical components of our operating expenses are programming, production and distribution costs (including affiliate compensation and broadcast rights fees), selling expenses (including bad debt expenses, commissions and promotional expenses), depreciation and amortization, and -11- corporate, general and administrative expenses. Corporate general and administrative expenses are primarily comprised of costs associated with the Infinity Management Agreement, personnel costs and other administrative expenses, including those associated with corporate governance matters. We consider the Company's operating cost structure to be predominantly fixed in nature, and as a result, the Company needs at least several months lead-time to make modifications to its cost structure to react to what it believes are more than temporary increases or decreases in advertiser demand. This factor is important in predicting the Company's performance in periods when advertiser revenues are increasing or decreasing. In periods where advertiser revenues are increasing, the fixed nature of a substantial portion of our costs means that Operating Income will grow faster than the related growth in revenue. Conversely, in a period of declining revenues Operating Income will decrease by a greater percentage than the decline in revenue because of the lead-time needed to reduce the Company's operating cost structure. Furthermore, if the Company perceives a decline in revenue to be temporary, it may choose not to reduce its fixed costs, or may even increase its fixed costs, so as to not limit its future growth potential when the advertising marketplace rebounds. Revenues Revenues presented by type of commercial advertisements are as follows for the years ending December 31,:
2004 2003 2002 ---- ---- ---- $ % of Total $ % of Total $ % of Total -------- ---------- -------- ---------- -------- ---------- Local/Regional $299,307 53% $283,687 53% $302,554 55% National 262,939 47% 255,539 47% 248,197 45% ------- ---- -------- ---- -------- ---- Total (1) $562,246 100% $539,226 100% $550,751 100% ======== ==== ======== ==== ======== ====
(1) As described above, the Company currently aggregates revenue data based on the type of commercial airtime sold. A number of advertisers purchase both local/regional and national commercial airtime. Accordingly, this factor should be considered in evaluating the relative revenues generated on a local/regional versus national basis. Our objective is to optimize total revenues from those advertisers. Revenues for the year ended December 31, 2004 increased $23,020, or 4.3%, compared with the year ended December 31, 2003. The increase in revenues is attributable to an increase in demand for the Company's local/regional commercial airtime, coupled with non-comparable revenues associated with the Company's exclusive 2004 Summer Olympic broadcast. During the year ended December 31, 2004, revenues aggregated from the sale of local/regional airtime increased approximately 5.5%, or approximately $15,620, while national based revenues increased approximately 2.9%, or $7,400. The increase in local/regional revenues was facilitated by a combination of an overall increase in demand for our :10 second commercial airtime, an increase in the quantity of commercial airtime available for sale, improved inventory utilization and management resulting from a centralization of sales management functions, and the increased demand for information services and data by terrestrial and non-terrestrial users. Further, the increase in demand for our local/regional commercial airtime was greatest in the Western and Mid-Western regions. In 2004, the increase in our aggregated national based revenues was primarily in the news and sports programming categories as a result of an estimated $6.0 million of revenue associated with the Company's exclusive 2004 Summer Olympics radio broadcast and a better radio advertising climate. Revenues for the year ended December 31, 2003 decreased $11,525, or 2.0%, compared with the year ended December 31, 2002. The decrease was due principally to the absence of approximately $6,000 of revenues recorded in the prior year from the Company's exclusive 2002 Winter Olympics radio broadcast, an overall reduction in advertiser demand for our commercial airtime immediately prior to and concurrent with the commencement of the war with Iraq, weaker relative demand in certain local/regional markets, reduced fee based traffic information revenues of approximately $1,000 due to the expiration of certain contracts, partially offset by approximately $7,000 of incremental revenues attributable to new programming developed to reach national audiences. During the year ended December 31, 2003, revenues aggregated from the sale of local/regional airtime declined approximately 6.2%, or approximately $18,867, while national based revenues increased approximately 3.0%, or $7,342. The decrease in local/regional revenue was greatest in the northeast and Texas regions, while revenue in the western region increased. Despite the decrease in local/regional revenues, the Company continued to invest in new traffic and information markets. -12- In 2003, the increase in our aggregated national based revenues was accomplished through attaining higher revenues in the news and sports programming categories through adding new sports programming and effective management of our commercial airtime partially offset by the absence of revenues from the 2002 Winter Olympics. We expect our revenues in 2005 to increase compared with 2004, resulting primarily from an anticipated overall increase in demand for our commercial airtime offerings due to the implementation of sales strategies to optimize network audience delivery, new programming, inventory management initiatives, and the development of new distribution alternatives for our content. Operating Costs Operating costs for the years ended December 31, 2004, 2003 and 2002 were as follows:
2004 2003 2002 ---- ---- ---- $ % of total $ % of total $ % of total -------- ---------- -------- --------- -------- --------- Programming, production and distribution expenses $278,232 75% $261,754 75% $254,779 72% Selling expenses 53,246 15% 53,264 15% 59,725 17% Other operating expenses 38,156 10% 35,564 10% 37,881 11% -------- --- ------- ---- -------- ---- $369,634 100% $350,582 100% $352,385 100% ======== ==== ======== ==== ======== ====
Operating costs increased 5.4% to $369,634 in 2004 from $350,582 in 2003, and decreased 1.0% in 2003 from $352,385 in 2002. The increase in 2004 was principally attributable to an estimated $6.0 million of costs associated with our exclusive broadcast of the 2004 Summer Olympic games, increases in programming, production and distribution expenses resulting from the investment in national audiences as a result of adding station affiliations, expanding into approximately four new traffic and information markets, the development of new program offerings and normal recurring contractual rate increases with respect to existing programming. In addition, during the year ended December 31, 2003 the Company received proceeds of $3.2 million from an insurance settlement related to claims attributable to the September 11, 2001 terrorist attacks which offset reported operating expenses for the year ended December 31, 2003. The 2003 decrease was principally attributable to approximately $3,200 of proceeds from an insurance settlement related to claims resulting from the September 11, 2001 terrorist attacks (included in Other operating expenses in the table above). Excluding this item, operating costs increased approximately $1,400, or 0.4% in 2003. The net increase is primarily attributable to: (i) increases in programming, production and distribution expenses resulting from costs related to the development of new or expanded program offerings, new traffic and information markets, higher sports rights fees resulting from both new programming and contractual rate increases with respect to existing program commitments and additional news costs to cover the war with Iraq, partially offset by the absence of costs associated with the Company's broadcast of the 2002 Winter Olympics, (ii) lower Selling expenses including lower bad debt expense (approximately $2,800), resulting from the absence of a significant customer's bankruptcy in 2002, and lower employee related expenses, principally resulting from lower commissions earned by the Company's sales personnel due to lower revenues and (iii) lower Other operating expenses due principally to the insurance settlement discussed above. We currently anticipate that operating costs will increase in 2005 compared with 2004 due to expenses resulting from planned additional investments in our national network audiences and programs and normal recurring contractual cost increases. In addition, we expect to make certain continued investments in our sales support functions to support our planned growth in revenues. Depreciation and Amortization Depreciation and amortization increased 60.1% to $18,429 in 2004 from $11,513 in 2003, and increased nominally to $11,513 in 2003 from $11,464 in 2002. The increase in 2004 was principally attributable to higher amortization resulting from an increase in the fair market value of the warrants issued to Infinity as a part of the extension of the Management Agreement which was effective in the second quarter of 2004. Corporate General and Administrative Expenses Corporate general and administrative expenses increased 21.1% to $8,606 in 2004 from $7,106 in 2003, and decreased 11.2% in 2003 from $8,005 in 2002. The 2004 -13- increase was principally attributable to higher expenses associated with our corporate governance activities, including fees incurred for professional services and increased severance amounts. The 2003 decrease was principally attributable to lower compensation expense to Infinity as no incentive bonus was earned, partially offset by higher expenses associated with our corporate governance activities, including fees incurred for professional services. We expect our corporate general and administrative costs to increase in 2005 compared with 2004. We expect to incur increased expenses relating to our compliance and corporate governance activities. Further, we note that our incentive bonus arrangement with Infinity is variable, contingent upon our performance. Operating Income Operating income decreased 2.6% to $165,577 in 2004 from $170,025 in 2003, and decreased 5.0% in 2003 from $178,897 in 2002. The 2004 decrease was principally attributable to higher depreciation and amortization expense and operating costs partially offset by increased net revenues. The 2003 decrease was principally attributable to the decline in revenues. Interest Expense Interest expense was $11,911, $10,132 and $6,955 in 2004, 2003 and 2002, respectively. The 2004 increase was attributable to higher outstanding debt and the accelerated amortization of previously capitalized deferred debt issuance costs in connection with the refinancing of our bank credit facility. The 2003 increase was attributable to higher outstanding debt in 2003 as a result of the Company's issuance of $200,000 in a combination of 7 and 10-year fixed rate Senior Unsecured Notes in the fourth quarter of 2002 and higher average interest rates. Our average effective interest rate for 2004, 2003 and 2002 was 3.1%, 3.1% and 2.9%, respectively. The increase in the 2004 and 2003 debt levels result from share repurchases pursuant to the Company's stock repurchase program, which is further described below. We expect that our interest expense will increase in 2005 commensurate with our anticipated higher average debt levels. Other (Income) Expense The Company owned 450,000 shares of common stock in SportsLine.com, Inc. ("SportsLine," previously known as SportsLine USA, Inc.). In December of 2004, SportsLine was acquired by Viacom Inc. and the terms of the acquisition provided that all public shareholders' of SportsLine were entitled to receive cash upon closing of the transaction. Included in Other Income for the period ending December 31, 2004, is a net gain of $787,500 resulting from the sale of the Company's interest in SportsLine. Provision for income taxes The income tax provisions for 2004, 2003 and 2002 are based on annual effective tax rates of 38.2%, 37.5% and 36.6%, respectively, resulting in income tax expense of $59,124, $59,906 and $62,937 in 2004, 2003 and 2002, respectively. The Company's effective income tax rate in 2004 was higher than in 2003 principally as a result of higher state taxes resulting from recent tax developments in the states in which we operate. The Company's effective rate increased in 2003 from 2002 as a result of similar state changes. For the years ended December 31, 2004, 2003 and 2002 a portion of the Company's income tax expense is non-cash as a result of tax deductions related to stock option exercises and warrant purchases of $18,182, $3,911 and $39,245 respectively, which are credited directly to additional paid in capital. Net income Net income in 2004 decreased 4.5% to $95,490 ($.98 per basic share and $.97 per diluted share) from $100,039 ($.99 per basic share and $.97 per diluted share) in 2003 and decreased 8.3% in 2003 from $109,115 ($1.03 per basic share and $1.00 per diluted share) in 2002. Earnings per share Weighted averages shares outstanding for purposes of computing basic earnings per share were 97,177,000, 101,243,000 and 105,992,000 in 2004, 2003 and 2002, respectively. The decreases in each of the previous two periods were primarily attributable to Common Stock repurchases under the Company's stock repurchase program partially offset by additional share issuances as a result of stock option exercises. Weighted average shares outstanding for purposes of computing diluted earnings per share were 98,454,000, 103,625,000 and 109,101,000 in 2004, 2003 and 2002, respectively. The changes in weighted average diluted shares are due principally to the decrease in basic shares and the effect of the decrease in the Company's share price, partially offset by the effect of stock option grants. -14- Liquidity and Capital Resources The Company continually projects anticipated cash requirements, which include share repurchases, acquisitions, capital expenditures, and principal and interest payments on its outstanding indebtedness. Funding requirements are financed through cash flow from operations and the issuance of short-term borrowings and/or long-term debt. At December 31, 2004, the Company's principal sources of liquidity were its cash and cash equivalents of $10,932 and available borrowings under its bank facility which is further described below. The Company has and continues to expect to generate significant cash flows from operating activities. For the years ended December 31, 2004, 2003 and 2002, net cash provided by operating activities were $127,974, $107,870 and $147,618, respectively. For 2004, net cash from operating activities increased $20,104 from 2003. The increase is primarily attributable to a decrease in cash taxes paid resulting from higher tax benefits from the exercise of stock options. For 2003, net cash from operating activities decreased $39,748 from 2002. The reduction is primarily attributable to an increase in cash taxes paid resulting from lower tax benefits from the exercise of stock options and warrants. Upon the adoption of Statement of Financial Accounting Standards 123R, the tax benefit from the exercise of stock options will be classified as a financing activity. At December 31, 2004, the Company has an unsecured five-year $120,000 term loan, and a five-year $180,000 revolving credit facility (collectively the "New Facility"), both of which mature in 2009. This new facility was entered into with a syndicate of banks led by JP Morgan Chase Bank and Bank of America on March 3, 2004 when the Company refinanced its existing senior loan agreement. In connection with the closing of the facility, the Company borrowed the full amount of the term loan, the proceeds of which were used to repay the outstanding borrowing under the existing facility. As of December 31, 2004, the Company had available borrowings of $140,000 under its New Facility. Interest on the New Facility is payable at the prime rate plus an applicable margin of up to ..25% or LIBOR plus an applicable margin of up to 1.25%, at the Company's option. In addition, the Company has entered into fixed to floating interest rate swap agreements for 50% of the notional amount of its two senior unsecured Notes. The New Facility and/or Notes contain covenants relating to dividends, liens, indebtedness, capital expenditures, and interest coverage and leverage ratios. None of these covenants are expected to have an impact on the Company's ability to operate and manage its business. In conjunction with the Company's objective of enhancing shareholder value, the Company's Board of Directors has authorized a stock repurchase program. In 2004, the Company purchased 8,456,000 shares of the Company's Common Stock for a total cost of $216,503. In 2003, the Company purchased approximately 5,534,000 shares of the Company's Common Stock for a total cost of $180,412 and in 2002, purchased approximately 7,414,000 shares of the Company's Common Stock and warrants for a total cost of $239,407. In 2005 (through January 2005), the Company repurchased an additional 635,000 shares of Common Stock at a cost of $15,893. The Company expects to continue to use its cash flow and credit facilities to repurchase its Common Stock. At the end of January 2005, the Company had authorization to repurchase up to an additional $146,245 of its Common Stock. The Company's business does not require, and is not expected to require, significant cash outlays for capital expenditures. The Company believes that its cash, other liquid assets, operating cash flows and available bank borrowings, taken together, provide adequate resources to fund ongoing operating requirements. Contractual Obligations and Commitments The following table lists the Company's future contractual obligations and commitments as of December 31, 2004:
Payments due by Period ------------------------ Contractual Obligations Total <1 year 1 - 3 years 3 - 5 years >5 years ----------------------- ----- ------- ----------- ----------- -------- Long-term Debt (1) $443,944 $13,931 $27,861 $23,511 $378,641 Capital Lease Obligations 6,400 $ 960 $1,920 $1,920 1,600 Operating Leases 36,465 7,039 12,635 10,387 6,404 Other Long-term Obligations 241,320 61,534 106,389 59,396 14,001 -------- ------- ------- ------- -------- Total Contractual Obligations $728,129 $83,464 $148,805 $95,214 $400,646 ======== ======= ======== ======= ========
(1) Includes the estimated net interest payments on fixed and variable rate debt and related interest rate swaps. Estimated interest payments on floating rate instruments are computed using the Company's interest rate as of December 31, 2004, and borrowings outstanding are assumed to remain at current levels. -15- The Company has long-term noncancelable operating lease commitments for office space and equipment. The Company has also entered into capital leases for satellite transponders. Included in Other Long-term Obligations enumerated in the table above, are various contractual agreements to pay for talent, broadcast rights, research and various related party arrangements, including $126,830 of payments due under the Management and Representation Agreements. See Related Parties below and Note 2 to the consolidated financial statements for further discussion. Related Parties Infinity holds a common equity position in the Company and provides ongoing management services to the Company under the terms of the Management Agreement. In return for receiving services under the Management Agreement, the Company compensates Infinity via an annual base fee and provides Infinity the opportunity to earn an incentive bonus if the Company exceeds pre-determined targeted cash flows. For the year ended December 31, 2004, 2003 and 2002, Infinity earned cash compensation of $2,959, $2,793 and $5,012, respectively. In addition to the base fee and incentive compensation described above, the Company granted to Infinity two fully vested and non-forfeitable warrants to purchase 4,000,000 shares of the Company's Common Stock in the aggregate (comprised of one warrant to purchase 2,000,000 shares at an exercise price of $10.00 per share and another warrant to purchase 2,000,000 shares at an exercise price of $12.50 per share) in connection with extending the term of the Management Agreement in March 1999 for an additional term of five years commencing April 1, 1999. Such warrants were only exercisable to the extent the Company's Common Stock reached certain market prices, which have subsequently been achieved. In 2002 Infinity sold its $12.50 warrant, representing 2,000,000 shares of Common Stock, to the Company for cash consideration of $51,070. In 2001, Infinity sold its $10.00 warrant, representing 2,000,000 shares of Common Stock, to the Company for cash consideration of $41,350. The repurchase of the Infinity warrants for cash consideration has been reflected as a reduction to Additional Paid in Capital during 2002 and 2001. On May 29, 2002, the Company's shareholders ratified an extension of the Management Agreement for an additional five-year term, which commenced April 1, 2004 and expires on March 31, 2009. In return for receiving services under the Management Agreement, the Company will continue to compensate Infinity via an annual base fee and an opportunity to earn an annual incentive bonus provided certain performance objectives are met. Additionally, the Company granted to Infinity seven fully vested and nonforfeitable warrants to purchase 4,500,000 shares of the Company's Common Stock (comprised of two warrants to purchase 1,000,000 Common shares per warrant and five warrants to purchase 500,000 Common shares per warrant). For additional information on these warrants see Note 2 to our consolidated financial statements. In addition to the Management Agreement described above, the Company also enters into other transactions with Infinity in the normal course of business. Such arrangements include a representation agreement (including a related news programming agreement, a license agreement and a technical services agreement with an affiliate of Infinity - the "Representation Agreement") to operate the CBS Radio Networks, affiliation agreements with many of Infinity's radio stations and the purchase of programming rights from Infinity and affiliates of Infinity. The Management Agreement provides that all transactions, other than the Management Agreement and Representation Agreement to operate the CBS Radio Networks which were ratified by the Company's shareholders, between the Company and Infinity or its affiliates must be on a basis that is at least as favorable to the Company as if the transaction were entered into with an independent third party. In addition, subject to specified exceptions, all agreements between the Company and Infinity or any of its affiliates must be approved by the Company's Board of Directors. During 2004, the Company incurred expenses aggregating approximately $84,338 for the Representation Agreement, affiliation agreements and the purchase of programming rights from Infinity and affiliates ($80,659 in 2003 and $77,566 in 2002). Critical Accounting Policies and Estimates Westwood One's financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Management continually evaluates its estimates and judgments including those related to allowances for doubtful accounts, useful lives of property, plant and equipment and intangible assets, and other contingencies. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that of our significant accounting policies, the following may involve a higher degree of judgment or complexity. Allowances for doubtful accounts - we maintain allowances for doubtful accounts -16- for estimated losses which may result from the inability of our customers to make required payments. We base our allowances on the likelihood of recoverability of accounts receivable by aging category, based on past experience and taking into account current collection trends that are expected to continue. If economic or specific industry trends worsen beyond our estimates, we would be required to increase our allowances for doubtful accounts. Alternatively, if trends improve beyond our estimates, we would be required to decrease our allowance for doubtful accounts. Our estimates are reviewed periodically, and adjustments are reflected through bad debt expense in the period they become known. Our bad debt expense approximated $874, or 0.2% of revenue, in 2004, $3,624, or 0.7% of revenue, in 2003, and $6,379, or 1.2% of revenue, in 2002. Changes in our bad debt experience can materially affect our results of operations. Our allowance for bad debts requires us to consider anticipated collection trends and requires a high degree of judgment. In addition, as fully described herein, our results in any reporting period could be impacted by relatively few significant bad debts. Estimated useful lives of property, plant and equipment, and intangible assets - we estimate the useful lives of property, plant and equipment and intangible assets in order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The useful lives, which are disclosed in Note 1 of the consolidated financial statements, are estimated at the time the asset is acquired and are based on historical experience with similar assets as well as taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation and amortization expense in future periods. During 2002, the Company changed the useful lives of certain studio and broadcasting equipment. Alternately, these types of technological changes could result in the recognition of an impairment charge to reflect the write-down in value of the asset. Westwood evaluates its intangible assets for impairment annually or more frequently if impairment indicators arise in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. Westwood's intangible asset balance is material ($988 million at December 31, 2004), and the evaluation of intangible assets requires that the Company make important assumptions and judgments about future operating results and cash flows as well as discount rates. In estimating future operating results and cash flows, the Company considers internal budgets and strategic plans, expected long term growth rates, and the effects of external factors and market conditions. If actual future operating results and cash flows or external conditions differ from the Company's judgments, or if changes in assumed discount rates are made, an impairment charge may be necessary to reduce the carrying value of intangible assets, which charge could be material to the Company's operations. Valuation of stock options and warrants and barter transactions -- For purposes of computing the value of stock options and warrants, various valuation methods and assumptions can be used. The selection of a different valuation method or use of different assumptions may result in a value that is significantly different from that computed by the Company. In certain circumstances, usually depending on the complexity of the calculation, we may employ the services of a valuation expert. Barter transactions represent the exchange of commercial announcements for merchandise or services. These transactions are recorded at the fair market value of the commercial announcements relinquished, or the fair value of the merchandise and services received. A wide range of factors could materially affect the fair market value of commercial airtime sold in future periods (See Section on "Forward-Looking Statements and Factors Affecting Forward-Looking Statements" on page 18), which would require the Company to increase or decrease the amount of assets and liabilities and related revenue and expenses recorded from prospective barter transactions. Recent Accounting Pronouncements Affecting Future Results In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. The Company is required to adopt SFAS 123R in the second quarter of fiscal 2005. Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company is evaluating the requirements of SFAS 123R and expects that the adoption of SFAS -17- 123R will have a material impact on the Company's consolidated results of operations and earnings per share. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123R. The Company believes the pro forma disclosures in Note 1, "Significant Accounting Policies," on page F-8 under "Stock-Based Compensation" provide an appropriate short-term indicator of the level of expense that will be recognized in accordance with SFAS No. 123R. However, the total expense recorded in future periods will depend on several variables, including the number of shared-based awards that vest and the fair value of those vested awards. In October 2004, the American Jobs Creation Act of 2004 (the "AJCA") was passed. The AJCA provides a deduction for income from qualified domestic production activities which will be phased in from 2005 through 2010. In return, the AJCA also provides for a two-year phase-out of the existing extra-territorial income exclusion for foreign sales that was viewed to be inconsistent with international trade protocols by the European Union. In December 2004, the FASB issued FASB Staff Position ("FSP") No. 109-1, "Application of FASB Statement No.109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities by the American Jobs Creation Act of 2004." FSP 109-1 treats the deduction as a "special deduction" as described in FAS No. 109. As such, the special deduction has no effect on deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the same period in which the deduction is claimed in the tax return. We are currently evaluating the impact the AJCA will have on our results of operations and financial position. The AJCA also creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. This aspect of the AJCA legislation will not have an impact on the Company's results of operations and financial position as the Company does not have foreign operations. In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets--an Amendment of APB No. 29" (SFAS 153). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have "commercial substance." This standard is effective for nonmonetary asset exchanges occurring after July 1, 2005. The adoption of this standard is not expected to impact the Company's Consolidated Financial Statements. Forward-Looking Statements and Factors Affecting Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on the behalf of the Company. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These statements are based on management's views and assumptions at the time the statements are made, however no assurances can be given that management's expectations will come to pass. The forward-looking statements included in this document, including those related to our revenue, operating costs, general and administrative costs, interest expense and capital expenditure trend for 2005, are only made as of the date of this document and the Company does not have any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Factors That May Affect Forward-Looking Statements A wide range of factors could materially affect future developments and performance including the following: - -- The Company is managed by Infinity under the terms of the Management Agreement, which expires in 2009. In addition, the Company has extensive business dealings with Infinity and its affiliates in its normal course of business. The Company's business prospects could be adversely affected by its inability to retain Infinity's services under the Management Agreement beyond the contractual term. - -- The Company competes in a highly competitive business. Its radio programming competes for audiences and advertising revenues directly with radio and television stations and other syndicated programming, as well as with such other media as newspapers, magazines, cable television, outdoor advertising and direct mail. Audience ratings and revenue shares are subject to change and any adverse change in a particular geographic area could have a material and adverse effect on the Company's ability to attract not only advertisers in that region, but national advertisers as well. Future operations are further subject to many factors which could have an adverse effect upon the Company's financial performance. These factors include: -18- - economic conditions, both generally and relative to the broadcasting industry; - shifts in population and other demographics; - the level of competition for advertising dollars; - fluctuations in programming costs; - technological changes and innovations; - changes in labor conditions; and - changes in governmental regulations and policies and actions of federal regulatory bodies. Although the Company believes that its radio programming will be able to compete effectively and will continue to attract audiences and advertisers, there can be no assurance that the Company will be able to maintain or increase the current audience ratings and advertising revenues. -- The radio broadcasting industry has experienced a significant amount of consolidation in recent years. As a result, certain major groups, including Infinity and Clear Channel Communications ("Clear Channel"), have emerged as powerful forces in the industry. Given the size and financial resources of these station groups, they may be able to develop their own programming as a substitute to that offered by the Company or, alternatively, they could seek to obtain programming from the Company's competitors. Any such occurrences, or merely the threat of such occurrences, could adversely affect the Company's ability to negotiate favorable terms with its station affiliates, to attract audiences and to attract advertisers. In addition, a major station group has recently announced plans to reduce overall amounts of commercial inventory broadcast on their radio stations. To the extent similar initiatives are adopted by other major station groups, this could adversely impact the amount of commercial inventory made available to the Company or increase the cost of such commercial inventory at the time of renewal of existing affiliate agreements. -- Changes in U.S. financial and equity markets, including market disruptions and significant interest rate fluctuations, could impede the Company's access to, or increase the cost of, external financing for its operations and investments. -- The Company believes relations with its employees and independent contractors are satisfactory. However, the Company may be adversely affected by future labor disputes, which may lead to increased costs or disruption of operations in any of the Company s business units. This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative, but by no means all inclusive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Item 7A. Qualitative and Quantitative Disclosures about Market Risk In the normal course of business, the Company employs established policies and procedures to manage its exposure to changes in interest rates using financial instruments. The Company uses derivative financial instruments (fixed-to-floating interest rate swap agreements) for the purpose of hedging specific exposures and holds all derivatives for purposes other than trading. All derivative financial instruments held reduce the risk of the underlying hedged item and are designated at inception as hedges with respect to the underlying hedged item. Hedges of fair value exposure are entered into in order to hedge the fair value of a recognized asset, liability, or a firm commitment. In order to achieve a desired proportion of variable and fixed rate debt, in December 2002, the Company entered into a seven year interest rate swap agreement covering $25 million notional value of its outstanding borrowing to effectively float the interest rate at three-month LIBOR plus 74 basis points and two ten year interest rate swap agreements covering $75 million notional value of its outstanding borrowing to effectively float the interest rate at three-month LIBOR plus 80 basis points. These swap transactions allow the Company to benefit from short-term declines in interest rates. The instruments meet all of the criteria of a fair-value hedge. The Company has the appropriate documentation, including the risk management objective and strategy for undertaking the hedge, identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and how the hedging instrument's effectiveness offsets the exposure to changes in the hedged item's fair value or variability in cash flows attributable to the hedged risk. With respect to the borrowings pursuant to the Company's revolving credit facility, the interest rate on the borrowings is based on the prime rate plus an applicable margin of up to .25%, or LIBOR plus an applicable margin of up to 1.25%, as chosen by the Company. Historically, the Company has typically chosen the LIBOR option with a three month maturity. Every .25% change in interest rates has the effect of increasing or decreasing our annual interest expense by $5,000 for every $2 million of outstanding debt. As of December 31, 2004, the Company had $160,000 outstanding under the new facility. -19- The Company continually monitors its positions with, and the credit quality of, the financial institutions that are counterparties to its financial instruments, and does not anticipate nonperformance by the counterparties. The Company's receivables do not represent a significant concentration of credit risk due to the wide variety of customers and markets in which the Company operates. Item 8. Financial Statements and Supplementary Data The Consolidated Financial Statements and the related notes and schedules were prepared by and are the responsibility of management. The financial statements and related notes were prepared in conformity with generally accepted accounting principles and include amounts based upon management's best estimates and judgments. All financial information in this annual report is consistent with the consolidated financial statements. The Company maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and properly recorded, and that accounting records may be relied upon for the preparation of consolidated financial statements and other financial information. The design, monitoring, and revision of internal accounting control systems involve, among other things, management's judgment with respect to the relative cost and expected benefits of specific control measures. Westwood One's consolidated financial statements have been audited by PricewaterhouseCoopers LLP, independent registered accountants, who have expressed their opinion with respect to the presentation of these statements. The Audit Committee of the Board of Directors, which is comprised solely of directors who are not employees of the Company, meets periodically with the independent auditors, as well as with management, to review accounting, auditing, internal accounting controls and financial reporting matters. The Audit Committee, pursuant to its Charter, is also responsible for retaining the Company's independent accountants. The independent accountants have full and free access to the Audit Committee with and without management's presence. Further, as a result of changes in the listing standards for the New York Stock Exchange and as a result of the Sarbanes-Oxley Act of 2002, members of the Audit Committee will be required to meet stringent independence standards and at least one member must have financial expertise. The majority of our Audit Committee members satisfy the new independence standards and the Audit Committee also has at least one member with financial expertise. The Consolidated Financial Statements and the related notes and schedules of the Company are indexed on page F-1 of this Report, and attached hereto as pages F-1 through F-18 and by this reference incorporated herein. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Disclosure Controls and Procedures The Company's management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of December 31, 2004 (the "Evaluation"). Based upon the Evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. Management's Report on Internal Control over Financial Reporting The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. -20- Management evaluated the effectiveness of the Company's internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control--Integrated Framework. Management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2004 and concluded that it is effective. The Company's independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Company's internal control over financial reporting and management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, and has expressed unqualified opinions in their report which appears on page F-2. Changes in Internal Control over Financial Reporting There was no change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. Other Information None. -21- PART III Item 10. Directors and Executive Officers of the Registrant This information is incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year. Additionally, the Company has submitted to the NYSE a certification by its Chief Executive Officer that as of June 1, 2004, he is not aware of any violation by the Company of the NYSE's Corporate Governance listing standards. Item 11. Executive Compensation This information is incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This information is incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after then end of the Company's fiscal year. Item 13. Certain Relationships and Related Transactions This information is incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year. Item 14. Principal Accountant Fees and Services This information is incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year. -22- PART IV Item 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of this Report on Form 10-K 1, 2.Financial statements and schedules to be filed hereunder are indexed on page F-1 hereof. 3. Exhibits EXHIBIT NUMBER DESCRIPTION 3.1 Restated Certificate of Incorporation, as filed on October 25, 2002. (14) 3.2 Bylaws of Registrant as currently in effect. (6) 4.1 Note Purchase Agreement, dated December 3, 2002, between Registrant and the Purchasers. (15) *10.1 Employment Agreement, dated April 29, 1998, between Registrant and Norman J. Pattiz. (8) *10.2 Amendment to Employment Agreement, dated October 27, 2003, between Registrant and Norman J. Pattiz. (16) 10.3 Form of Indemnification Agreement between Registrant and its Directors and Executive Officers. (1) 10.4 Credit Agreement, dated March 2, 2004, between Registrant and The Lenders and JPMorgan Chase Bank as Administrative Agent. (16) 10.5 Purchase Agreement, dated as of August 24, 1987, between Registrant and National Broadcasting Company, Inc. (2) 10.6 Agreement and Plan of Merger among Registrant, Copter Acquisition Corp. and Metro Networks, Inc. dated of June 1, 1999 (9) 10.7 Amendment No. 1 to the Agreement and Plan Merger, dated as of August 20, 1999, by and among Registrant, Copter Acquisition Corp. and Metro Networks, Inc. (10) 10.8 Management Agreement, dated as of March 30, 1999, and amended on April 15, 2002 between Registrant and Infinity Broadcasting Corporation. (9) (13) 10.9 Representation Agreement, dated as of March 31, 1997, between Registrant and CBS, Inc. (7) (13) *10.10 Westwood One Amended 1999 Stock Incentive Plan. (9) *10.11 Westwood One, Inc. 1989 Stock Incentive Plan. (3) *10.12 Amendments to the Westwood One, Inc. Amended 1989 Stock Incentive Plan. (4) (5) 10.13 Leases, dated August 9, 1999, between Lefrak SBN LP and Westwood One, Inc. and between Infinity and Westwood One, Inc. relating to New York, New York offices. (11) 10.14 Form of Stock Option Agreement under Registrant's 1999 Stock Incentive Plan. (17) *10.15 Employment Agreement, effective January 1, 2004, between Registrant and Andrew Zaref. *10.16 Employment Agreement, effective May 1, 2004, between Registrant and Peter Kosann. *10.17 Employment Agreement, dated June 1, 1999, as amended between Registrant and Charles I. Bortnick. 21. List of Subsidiaries. (16) 22. Consent of Independent Registerd Public Accounting Firm. 31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ********************************* *Indicates a management contract or compensatory plan -23- (1) Filed as part of Registrant's September 25, 1986 proxy statement and incorporated herein by reference. (2) Filed an exhibit to Registrant's current report on Form 8-K dated September 4, 1987 and incorporated herein by reference. (3) Filed as part of Registrant's March 27, 1992 proxy statement and incorporated herein by reference. (4) Filed as an exhibit to Registrant's July 20, 1994 proxy statement and incorporated herein by reference. (5) Filed as an exhibit to Registrant's May 17, 1996 proxy statement and incorporated herein by reference. (6) Filed as an exhibit to Registrant's Quarterly report on Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference. (7) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference. (8) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference. (9) Filed as an exhibit to Registrant's August 24, 1999 proxy statement and incorporated herein by reference. (10) Filed as an exhibit to Registrant's current report on Form 8-K dated October 1, 1999 and incorporated herein by reference. (11) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference. (12) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference. (13) Filed as an exhibit to Registrant's April 29, 2002 proxy statement and incorporated herein by reference. (14) Filed as an exhibit to Registrant's Quarterly report on Form 10-Q for the quarter ended September 30, 2002 and incorporated herein by reference. (15) Filed as an exhibit to Registrant's current report on Form 8-K dated December 3, 2002 and incorporated herein by reference. (16) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference. (17) Filed as an exhibit to Registrant's current report on Form 8-K dated October 12, 2004 and incorporated herein by reference. -24- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WESTWOOD ONE, INC. Date: March 15, 2005 By /S/ ANDREW ZAREF ------------------ Andrew Zaref Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /S/ SHANE COPPOLA Director, President and March 15, 2005 - ------------------ Chief Executive Officer Shane Coppola (Principal Executive Officer) /S/ ANDREW ZAREF Chief Financial Officer March 15, 2005 - ----------------- (Principal Financial Officer and Andrew Zaref Chief Accounting Officer) /S/ NORMAN J. PATTIZ Chairman of the Board of March 15, 2005 - -------------------- Directors Norman J. Pattiz /S/ DAVID L. DENNIS Director March 15, 2005 - ------------------- David L. Dennis /S/ GERALD GREENBERG Director March 15, 2005 - --------------------- Gerald Greenberg /S/ ROBERT K. HERDMAN Director March 15, 2005 - --------------------- Robert K. Herdman /S/ JOEL HOLLANDER Director March 15, 2005 - ------------------- Joel Hollander /S/ DENNIS HOLT Director March 15, 2005 - ---------------- Dennis Holt /S/ MARIA D. HUMMER Director March 15, 2005 - -------------------- Maria D. Hummer /S/ STEVEN A. LERMAN Director March 15, 2005 - --------------------- Steven A. Lerman /S/ GEORGE MILES Director March 15, 2005 - ---------------- George Miles /S/ LESLIE MOONVES Director March 15, 2005 - ------------------- Leslie Moonves /S/ JOSEPH B. SMITH Director March 15, 2005 - -------------------- Joseph B. Smith /S/ FARID SULEMAN Director March 15, 2005 - ----------------- Farid Suleman -25- WESTWOOD ONE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
1. Consolidated Financial Statements Page ---- --Report of Independent Registered Public Accounting Firm F-2 --Consolidated Balance Sheets at December 31, 2004 and 2003 F-3 --Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002 F-4 --Consolidated Statements of Shareholders' Equity for the years ended December 31, 2004, and 2003 F-5 --Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 F-6 --Notes to Consolidated Financial Statements F-7 - F-18 2. Financial Statement Schedule: II. -Valuation and Qualifying Accounts F-18
All other schedules have been omitted because they are not applicable, the required information is immaterial, or the required information is included in the consolidated financial statements or notes thereto. Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Westwood One, Inc.: We have completed an integrated audit of Westwood One, Inc.'s ("Westwood" or "the Company") 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below. Consolidated financial statements and financial statement schedule In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Westwood One, Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Internal control over financial reporting Also, in our opinion, management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. New York, NY /S/ PRICEWATERHOUSECOOPERS LLP March 15, 2005 ------------------------------ PricewaterhouseCoopers LLP F-2 WESTWOOD ONE, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) December 31, December 31, 2004 2003 ---- ---- ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 10,932 $ 8,665 Accounts receivable, net of allowance for doubtful accounts of $2,566 (2004) and $4,334 (2003) 142,014 135,720 Prepaid and other assets 21,400 21,110 ----------- ----------- Total Current Assets 174,346 165,495 PROPERTY AND EQUIPMENT, NET 47,397 50,562 GOODWILL 981,969 990,472 INTANGIBLE ASSETS, NET 6,176 7,626 OTHER ASSETS 36,391 47,879 ----------- ----------- TOTAL ASSETS $ 1,246,279 $ 1,262,034 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable 13,135 13,136 Amounts payable to related parties 20,274 18,680 Deferred revenues 14,258 12,215 Income taxes payable 5,211 7,949 Accrued expenses and other liabilities 28,463 32,082 ----------- ----------- Total Current Liabilities 81,341 84,062 LONG-TERM DEBT 359,439 300,366 DEFERRED INCOME TAXES 12,541 32,713 OTHER LIABILITIES 8,465 8,943 ----------- ----------- TOTAL LIABILITIES 461,786 426,084 ----------- ----------- COMMITMENT AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock: authorized 10,000,000 shares, none outstanding - - Common stock, $.01 par value: authorized, 254,832,450 shares; issued and outstanding, 94,353,675 (2004) and 99,056,659 (2003) 944 991 Class B stock, $.01 par value: authorized, 3,000,000 shares: issued and outstanding, 291,796 (2004) and 703,466 (2003) 3 7 Additional paid-in capital 369,036 517,132 Accumulated earnings 414,510 319,020 ----------- ------------ 784,493 837,150 Less treasury stock, at cost; 0 (2004) and 35,000 (2003) shares - (1,200) ----------- ------------ TOTAL SHAREHOLDERS' EQUITY 784,493 835,950 ----------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,246,279 $ 1,262,034 =========== ===========
See accompanying notes to consolidated financial statements. F - 3 WESTWOOD ONE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Year Ended December 31, --------------------------------------- 2004 2003 2002 ---- ---- ---- REVENUES $ 562,246 $ 539,226 $ 550,751 --------- --------- --------- Operating Costs (includes related party expenses of $84,338, $80,659, and $77,566, respectively) 369,634 350,582 352,385 Depreciation and Amortization (includes related party warrant amortization of $7,618, $1,352 and $1,352, respectively) 18,429 11,513 11,464 Corporate General and Administrative Expenses (includes related party expenses of $2,959, $2,793 and $5,012 respectively) 8,606 7,106 8,005 --------- --------- --------- 396,669 369,201 371,854 --------- --------- --------- OPERATING INCOME 165,577 170,025 178,897 Interest Expense 11,911 10,132 6,955 Other (Income) Expense (948) (52) (110) --------- --------- --------- INCOME BEFORE TAXES 154,614 159,945 172,052 INCOME TAXES 59,124 59,906 62,937 --------- --------- --------- NET INCOME $ 95,490 $ 100,039 $ 109,115 ========= ========= ========= INCOME PER SHARE: Basic $ 0.98 $ 0.99 $ 1.03 Diluted $ 0.97 $ 0.97 $ 1.00 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 97,117 101,243 105,992 Diluted 98,454 103,625 109,101
See accompanying notes to consolidated financial statements. F - 4 WESTWOOD ONE, INC CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
Common Stock Class B Stock Additional Treasury Stock Total --------------- --------------- Paid-in Retained -------------- Shareholders' Shares Amount Shares Amount Capital Earnings Shares Amount Equity ---------------- ------ ------ -------- -------- ------ ------ ------ BALANCE AT DECEMBER 31, 2002 103,989 $ 1,040 704 $ 7 $ 684,311 $ 218,981 (35) $ (1,299) $ 903,040 Net income for 2003 - - - - - 100,039 - - 100,039 Issuance of common stock under stock option plans 602 6 - - 13,277 - - - 13,283 Purchase of treasury stock - - - - - - (5,534) (180,412) (180,412) Retirement of treasury stock (5,534) (55) - - (180,456) - 5,534 180,511 - ------ ----- --- --- --------- --------- ------ -------- -------- BALANCE AT DECEMBER 31, 2003 99,057 $ 991 704 $ 7 $ 517,132 $ 319,020 (35) $ (1,200) $ 835,950 Net income for 2004 - - - - - 95,490 - - 95,490 Issuance of common stock under stock option plans 3,788 38 (412) (4) 69,522 - - - 69,556 Purchase of treasury stock - - - - - - (8,456) (216,503) (216,503) Retirement of treasury stock (8,491) (85) - - (217,618) - 8,491 217,703 - ------- ------ ---- ----- --------- --------- ------ ------- --------- BALANCE AT DECEMBER 31, 2004 94,354 $ 944 292 $ 3 $ 369,036 $ 414,510 - $ - $ 784,493 ======= ======= ==== ===== ========= ========= ======= ======== =========
See accompanying notes to consolidated financial statements. F - 5 WESTWOOD ONE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
December 31, --------------------------------------- 2004 2003 2002 ---- ---- ---- CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 95,490 $ 100,039 $ 109,115 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,429 11,513 11,464 Deferred taxes 642 5,331 6,355 Non-cash stock compensation 391 - - Amortization of deferred financing costs 709 635 562 -------- --------- --------- 115,661 117,518 127,496 Changes in assets and liabilities: Accounts receivable (7,082) (4,044) (7,943) Prepaid and other assets 1,929 (1,186) (839) Deferred revenue 2,043 (525) (968) Income taxes payable 17,324 2,822 45,098 Accounts payable and accrued expenses and other liabilities (3,495) (8,348) (5,958) Amounts payable to related parties 1,594 1,633 (9,268) ------- --------- --------- Net Cash Provided By Operating Activities 127,974 107,870 147,618 ------- --------- --------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures (5,920) (4,370) (4,252) Acquisition of companies and other 6 (602) (808) ------- --------- --------- Net Cash Used in Investing Activities (5,914) (4,972) (5,060) ------- --------- --------- CASH FLOW FROM FINANCING ACTIVITIES: Issuance of common stock 38,595 9,372 30,186 Borrowings under bank and other long-term obligations 195,000 70,000 200,000 Debt repayments and payments of capital lease obligations (135,602) (564) (129,883) Repurchase of common stock (216,503) (180,412) (188,337) Repurchase of warrants from related party - - (51,070) Deferred financing costs (1,283) - (592) -------- --------- --------- Net Cash Used in Financing Activities (119,793) (101,604) (139,696) -------- --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 2,267 1,294 2,862 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,665 7,371 4,509 -------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,932 $ 8,665 $ 7,371 ======== ========= =========
See accompanying notes to consolidated financial statements. F - 6 WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) NOTE 1 - Summary of Significant Accounting Policies: Nature of Business Westwood One, Inc. and subsidiaries (the "Company") supplies radio and television station affiliates with a broad range of programming and information services. The Company is the largest domestic outsource provider of traffic reporting services and the nation's largest radio network, producing and distributing national news, sports, talk, music and special event programs, in addition to local news, sports, weather, video news and other information programming. Westwood One is managed by Infinity Broadcasting Corporation ("Infinity"), a wholly-owned subsidiary of Viacom Inc, pursuant to a management agreement between the Company and Infinity which expires on March 31, 2009 (the "Agreement" or "Management Agreement"). Principles of Consolidation The consolidated financial statements include the accounts of all majority and wholly-owned subsidiaries. Revenue Recognition Revenue is recognized when earned which is at the time commercial advertisements are broadcast. Payments received in advance are deferred until earned and such amounts are included as a component of Deferred Revenue in the accompanying Balance Sheet. Barter transactions represent the exchange of commercial announcements for merchandise or services. These transactions are recorded at the fair market value of the commercial announcements relinquished, or the fair value of the merchandise and services received. Revenue is recognized on barter transactions when the advertisements are broadcast. Expenses are recorded when the merchandise or service is utilized. Barter revenue of $22,083, $22,441 and $19,595 has been recognized for the years ended December 31, 2004, 2003 and 2002, respectively and barter expenses of $20,808, $20,885 and $18,886 have been recognized for the years ended December 31, 2004, 2003 and 2002, respectively. Program Rights Program rights are stated at the lower of cost, less accumulated amortization, or net realizable value. Program rights and the related liabilities are recorded when the license period begins and the program is available for use, and are charged to expense when the event is broadcast. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Management continually evaluates its estimates and judgments including those related to allowances for doubtful accounts, useful lives of property, plant and equipment and intangible assets, income taxes and other contingencies. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable in the circumstances. Actual results may differ from those estimates under different assumptions or conditions. Cash Equivalents The Company considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. The carrying amount of cash equivalents approximates fair value because of the short maturity of these instruments. Financial Instruments The Company uses derivative financial instruments (fixed-to-floating interest rate swap agreements) for the purpose of hedging specific exposures and holds all derivatives for purposes other than trading. All derivative financial instruments held reduce the risk of the underlying hedged item and are designated at inception as hedges with respect to the underlying hedged item. Hedges of fair value exposure are entered into in order to hedge the fair value of a recognized asset, liability, or a firm commitment. Derivative contracts are entered into with major creditworthy institutions to minimize the risk of credit loss and are structured to be 100% effective. F-7 WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) Depreciation Depreciation is computed using the straight line method over the estimated useful lives of the assets, as follows: Buildings and improvements 40 years Recording, broadcasting and studio equipment 5 - 10 years Furniture, and equipment and other 3 - 10 years Goodwill and Intangible Assets Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142 ("SFAS 142") "Goodwill and Other Intangible Assets". The Statements require all business combinations to be accounted for under the purchase method and prohibits the amortization of goodwill and indefinite-lived intangible assets, requires that goodwill and indefinite-lived intangible assets be tested annually for impairment (and in interim periods if events occur indicating that the carrying value of goodwill and/or indefinite-lived intangible assets may be impaired), requires that reporting units be identified for the purpose of assessing potential future impairments of goodwill, and removes the forty-year limitation on the amortization period of intangible assets that have finite lives. Goodwill represents the excess of cost over fair value of net assets of businesses acquired. In accordance with SFAS 142, the value assigned to goodwill and indefinite lived intangible assets is not amortized to expense, but rather the fair value of the reporting unit is compared to its carrying amount on an annual basis to determine if there is a potential impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill and intangible assets is less than their carrying value, determined based on discounted cash flows, market multiples or appraised values as appropriate. The Company has determined that there was no impairment of goodwill or intangible assets as a result of completing impairment reviews. Intangible assets subject to amortization primarily consist of affiliation agreements that were acquired in prior years. Such affiliate contracts, when aggregated, create a nationwide audience that is sold to national advertisers. The intangible asset values assigned to the affiliate agreements for each acquisition were determined based upon the expected discounted aggregate cash flows to be derived over the life of the affiliate relationship. The method of amortizing the intangible asset values reflects, based upon the Company's historical experience, an accelerated rate of attrition in the affiliate base over the expected life of the affiliate relationships. Accordingly, the Company amortizes the value assigned to affiliate agreements on an accelerated basis (periods ranging from 4 to 20 years with a weighted-average amortization period of approximately 8 years) consistent with the pattern of cash flows which are expected to be derived. Stock-Based Compensation Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," and related Interpretations. No compensation expense has been recognized for stock option grants as all such grants had an exercise price not less than the fair market value on the date of grant, except for a non-cash stock compensation charge recorded of $391,000 in connection with the modification of the terms of previously granted stock options coinciding with the change in status of an employee to an independent contractor. Had compensation cost been determined in accordance with the methodology prescribed by SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: F-8 WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts)
2004 2003 2002 ---- ---- ---- Net Income as Reported $95,490 $100,039 $109,115 Deduct: Total stock based compensation expense determined under fair- value based method, net of tax 9,588 8,809 8,444 ------- -------- -------- Pro Forma Net Income $85,902 $91,230 $100,671 ======= ======= ======== Net Income Per Share: Basic - As Reported $.98 $.99 $1.03 ==== ==== ===== Basic - Pro Forma $.88 $.90 $.95 ==== ==== ==== Diluted - As Reported $.97 $.97 $1.00 ==== ==== ===== Diluted - Pro Forma $.87 $.88 $.92 ==== ==== ====
Income Taxes The Company uses the asset and liability method of financial accounting and reporting for income taxes required by Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". Under SFAS 109, deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. Earnings per Share Basic earnings per share excludes all dilution and is calculated using the weighted average number of common shares outstanding in the period. Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares are related to warrants and stock options. The following number of common equivalent shares were added to the basic weighted average shares outstanding for each period: 2004 2003 2002 ---- ---- ---- Options 1,337,000 2,382,000 2,967,000 Warrants - - 142,000 Common equivalent shares are excluded in periods in which they are anti-dilutive. The following options were excluded from the calculation of diluted earnings per share because the exercise price was greater than the average market price of the Company's Common Stock for the years presented: 2004 2003 2002 ---- ---- ---- Options 3,779,700 1,904,382 390,000 The per share exercise prices of the options excluded were $26.96-$38.34 in 2004, $32.90-38.34 in 2003, and $37.00-$38.34 in 2002. Also excluded from the weighted average share computation were 4,500,000 warrants issued in May 2002 in conjunction with extending the terms of the Company's management agreement with a related party. See Note 2 for a further discussion of the warrant terms. Recent Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. The Company is required to adopt SFAS 123R in the second quarter of fiscal 2005. Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, F-9 prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company is evaluating the requirements of SFAS 123R and expects that the adoption of SFAS 123R will have a material impact on the Company's consolidated results of operations and earnings per share. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123R. The Company believes the pro forma disclosures in Note 1, "Significant Accounting Policies," on page F-8 under "Stock-Based Compensation" provide an appropriate short-term indicator of the level of expense that will be recognized in accordance with SFAS No. 123R. However, the total expense recorded in future periods will depend on several variables, including the number of shared-based awards that vest and the fair value of those vested awards. In October 2004, the American Jobs Creation Act of 2004 (the "AJCA") was passed. The AJCA provides a deduction for income from qualified domestic production activities which will be phased in from 2005 through 2010. In return, the AJCA also provides for a two-year phase-out of the existing extra-territorial income exclusion for foreign sales that was viewed to be inconsistent with international trade protocols by the European Union. In December 2004, the FASB issued FASB Staff Position ("FSP") No. 109-1, "Application of FASB Statement No.109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities by the American Jobs Creation Act of 2004." FSP 109-1 treats the deduction as a "special deduction" as described in FAS No. 109. As such, the special deduction has no effect on deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the same period in which the deduction is claimed in the tax return. We are currently evaluating the impact the AJCA will have on our results of operations and financial position. The AJCA also creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. This aspect of the AJCA legislation will not have an impact on the Company's results of operations and financial position as the Company does not have foreign operations. In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets--an Amendment of APB No. 29" (SFAS 153). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have "commercial substance." This standard is effective for nonmonetary asset exchanges occurring after July 1, 2005. The adoption of this standard is not expected to impact the Company's Consolidated Financial Statements. Reclassification Certain amounts reported in prior years have been reclassified to conform to the current year presentation. NOTE 2 - Related Party Transactions: In return for receiving services under the Management Agreement, the Company compensates Infinity via an annual base fee and provides Infinity the opportunity to earn an incentive bonus if the Company exceeds pre-determined targeted cash flows. For the year ended December 31, 2004, 2003 and 2002, Infinity earned cash compensation of $2,959, $2,793 and $5,012, respectively, pursuant to this Management Agreement. In addition to the base fee and incentive compensation described above, the Company granted to Infinity two fully vested and non-forfeitable warrants to purchase 4,000,000 shares of the Company's Common Stock in the aggregate (comprised of one warrant to purchase 2,000,000 shares at an exercise price of $10.00 per share and another warrant to purchase 2,000,000 shares at an exercise price of $12.50 per share) in connection with extending the term of the Management Agreement in March 1999 for an additional term of five years commencing April 1, 1999. Such warrants were only exercisable to the extent the Company's Common Stock reached certain market prices, which have subsequently been achieved. In 2002 Infinity sold its $12.50 warrant, representing 2,000,000 shares of Common Stock, to the Company for cash consideration of $51,070. In 2001, Infinity sold its $10.00 warrant, representing 2,000,000 shares of Common Stock, to the Company for cash consideration of $41,350. The repurchase of the Infinity warrants for cash consideration has been reflected as a reduction to Additional Paid in Capital during 2002 and 2001. F-10 WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) On May 29, 2002, the Company's shareholders ratified an extension of the Management Agreement for an additional five-year term which commences April 1, 2004 and expires on March 31, 2009. In return for receiving services under the Management Agreement, the Company will continue to compensate Infinity via an annual base fee and an opportunity to earn an annual incentive bonus provided certain performance objectives are met. Additionally, the Company granted to Infinity seven fully vested and non-forfeitable warrants to purchase 4,500,000 shares of the Company's Common Stock in the aggregate (comprised of two warrants to purchase 1,000,000 Common shares per warrant and five warrants to purchase 500,000 Common shares per warrant) to purchase Company Common Stock. Of the seven warrants issued, the two one million share warrants have an exercise price of $43.11 and $48.36, respectively, and become exercisable if 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. The exercise prices for the five remaining warrants is equal to $38.87, $44.70, $51.40, $59.11 and $67.98, respectively. These warrants each have a term of 10 years, commencing on the date they become exercisable, and become exercisable on January 2, 2005, 2006, 2007, 2008, and 2009, respectively, subject to a trading price condition. The trading price condition specifies that 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 Company's average stock price for the 15 trading days prior to January 2, 2005 must equal or exceed $40.56 for the warrants to become exercisable. The Company's stock price did not equal or exceed $40.56 for the 15 trading days prior to January 2, 2005 and therefore, the warrants did not become exercisable. In connection with the May 2002 issuance of warrants to Infinity for management services to be provided to the Company in the future, the Company originally reflected the fair value of the warrant issuance of $48,530 as a component of Other Assets with a corresponding increase to additional paid in capital in the accompanying balance sheet. At December 31, 2003, the unamortized value of the May 2002 warrants was $48,350, of which $7,200 was included as a component of Prepaid and Other current assets and $41,330 was included as a component of Other Assets in the accompanying consolidated balance sheet. Upon commencement of the term of the service period to which the warrants relate (April 1, 2004), the Company commenced amortizing the cost of the warrants issued ratably over the five-year service period. At December 31, 2004, the unamortized value of the May 2002 warrants was $41,250, of which $9,706 was included as a component of Prepaid and Other assets and $31,544 was included as a component of Other Assets in the accompanying consolidated balance sheet. In addition to the Management Agreement described above, the Company also enters into other transactions with Infinity in the normal course of business. Such arrangements include a Representation Agreement (including a related news programming agreement, a license agreement and a technical services agreement with an affiliate of Infinity - the "Representation Agreement") to operate the CBS Radio Networks, affiliation agreements with many of Infinity's radio stations and the purchase of programming rights from Infinity and affiliates of Infinity. The Management Agreement provides that all transactions, other than the Management Agreement and Representation Agreement to operate the CBS Radio Networks which were ratified by the Company's shareholders, between the Company and Infinity or its affiliates must be on a basis that is at least as favorable to the Company as if the transactions were entered into with an independent third party. In addition, subject to specified exceptions, all agreements between the Company and Infinity or any of its affiliates must be approved by the Company's Board of Directors. The Company incurred the following expenses relating to transactions with Infinity or its affiliates for the following years: Nature ------ 2004 2003 2002 ---- ---- ---- Representation Agreement $25,093 $24,575 $23,309 Programming and Affiliations 59,245 56,084 54,257 Management Agreement (excluding warrant amortization) 2,959 2,793 5,012 Warrant Amortization 7,618 1,352 1,352 ------ ------ ------ $94,915 $84,804 $83,930 ======= ======= ======= Expenses incurred for the Representation Agreement and programming and affiliate arrangements are included as a component of Operating Costs in the accompanying Consolidated Statement of Operations. Expenses incurred for the Management F-11 Agreement (excluding warrant amortization) and amortization of the warrants granted to Infinity under the Management Agreement are included as a component of Corporate General and Administrative expenses and Depreciation and Amortization, respectively, in the accompanying Consolidated Statement of Operations. NOTE 3 - Property and Equipment: Property and equipment is recorded at cost and is summarized as follows at:
December 31, ------------ 2004 2003 ---- ---- Land, buildings and improvements..................... $14,208 $14,088 Recording, broadcasting and studio equipment......... 68,405 64,234 Furniture and equipment and other.................... 12,105 15,567 ------- ------ 94,718 93,889 Less: Accumulated depreciation and amortization..... 47,321 43,327 ------- ------ Property and equipment, net.................. $47,397 $50,562 ======= =======
Depreciation expense was $9,085 in 2004, $7,898 in 2003, and $7,711 in 2002. The Company has entered into one capital lease totaling $6,723. Accumulated amortization related to for the capital lease was $2,241 and $1,569 as of December 31, 2004 and 2003, respectively. NOTE 4 - Goodwill and Intangible Assets: The changes in the carrying amount of goodwill for the years ended December 31, 2004 and 2003 follows:
2004 2003 ---- ---- Balance at January 1, $990,472 $990,192 Goodwill acquired during the period - 280 Pre-acquisition contingencies related to income taxes and other (8,503) - -------- -------- $981,969 $990,472 ========= ========
At December 31, 2004, the gross value of the Company's amortizable intangible assets was approximately $28,780 with accumulated amortization of approximately $22,603. As of December 31, 2003, the gross value of the Company's amortizable intangible assets was approximately $28,780 with accumulated amortization of approximately $21,154. Amortization expense was $1,449, $2,263 and $2,401, for the year ended December 31, 2004, 2003 and 2002, respectively. The Company's estimated aggregate amortization expense for intangibles for fiscal year 2005, 2006, 2007, 2008 and 2009 are $1,169, $783, $783, $783 and $783, respectively. NOTE 5 - Debt: Long-term debt consists of the following at:
December 31, ---------------------- 2004 2003 ---- ---- Revolving Credit Facility/Term Loan........ $160,000 $100,000 4.64% Senior Unsecured Notes due on November 30, 2009.................. 50,000 50,000 5.26% Senior Unsecured Notes due on November 30, 2012.................. 150,000 150,000 Fair market value of Swap.................. (561) 366 -------- -------- $359,439 $300,366 ======== ========
On March 3, 2004, the Company refinanced its existing senior loan agreement with a syndicate of banks led by JP Morgan Chase Bank and Bank of America. The new facility is comprised of a five-year $120,000 term and a five-year $180,000 F-12 WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) revolving credit facility (collectively the "New Facility"). In connection with the closing of the facility, the Company borrowed the full amount of the term loan, the proceeds of which were used to repay the outstanding borrowings under the existing Facility. Interest on the New Facility is payable at the prime rate plus an applicable margin of up to .25% or LIBOR plus an applicable margin of up to 1.25%, at the Company's option. The New Facility contains covenants relating to dividends, liens, indebtedness capital expenditures and interest coverage and leverage ratios. At December 31, 2004, the Company had available borrowings under the New Facility of $140,000. As of December 31, 2004, the applicable margin was LIBOR plus .625%. Additionally, at December 31, 2004, the Company had borrowed $160,000 under the New Facility at a weighted-average interest rate of 2.2% (including the applicable margin). As of December 31, 2003, the Company had borrowed $100,000 under the previous revolving credit facility at a weighted-average interest rate of 1.8% (including applicable margin). On December 3, 2002, the Company issued, through a private placement, $150,000 of ten-year Senior Unsecured Notes due November 30, 2012 and $ 50,000 of seven-year Senior Unsecured Notes due November 30, 2009 (collectively the "Notes"). Interest on the Notes is payable semi-annually in May and November. The Notes, which are unsecured, contain covenants relating to indebtedness and interest coverage ratios that are identical to those contained in the Company's New Facility. The Notes may be prepaid at the option of the Company upon providing proper notice and by paying principal, interest and an early payment penalty. The aggregate maturities of debt for the next five years and thereafter, pursuant to the Company's debt agreements as in effect at December 31, 2004, are as follows (excludes market value adjustments): Year ---- 2005...................... $ - 2006...................... - 2007...................... - 2008...................... - 2009...................... 210,000 2010 and thereafter..... 150,000 -------- $360,000 NOTE 6 - Financial Instruments: Interest Rate Risk Management In order to achieve a desired proportion of variable and fixed rate debt, the Company entered into fixed-to-floating interest rate swap agreements covering one-half of the notional amounts of the Notes. These swap transactions allow the Company to benefit from short-term declines in interest rates while having the long-term stability of fairly low fixed rates. The instruments meet all of the criteria of a fair-value hedge. The Company has the appropriate documentation, including the risk management objective and strategy for undertaking the hedge, identification of the hedged instrument, the hedge item, the nature of the risk being hedged, and how the hedging instrument's effectiveness offsets the exposure to changes in the hedged item's fair value or variability in cash flows attributable to the hedge risk. At December 31, 2004, the Company had the following interest rate swaps:
Interest Rate ---------------------- Maturity Dates Notional Principal Amount Paid (1) Received Variable Rate Index - -------------- ------------------------- -------- -------- ------------------- November 2009 $25,000 2.4% 3.907% 3 Month LIBOR November 2012 $25,000 2.4% 4.410% 3 Month LIBOR November 2012 $50,000 2.4% 4.535% 3 Month LIBOR
(1) The interest rate paid at December 31, 2003 was 1.173%. The estimated fair value of the Company's interest rate swaps at December 31, 2004 and 2003 were ($561) and $366, respectively. F-13 WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) Fair Value of Financial Instruments The Company's financial instruments included cash, cash equivalents, receivables, accounts payable, borrowings and interest rate contracts. At December 31, 2003 and 2002, the fair values of cash and cash equivalents, receivables and accounts payable approximated carrying values because of the short-term nature of these instruments. The estimated fair values of other financial instruments subject to fair value disclosures, determined based on broker quotes or quoted market prices or rates for the same or similar instruments, and the related carrying amounts are as follows:
December 31, 2004 December 31, 2003 ----------------- ----------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- Borrowings (Short and Long Term) $ 360,000 $ 358,878 $ 300,000 $300,732 Risk management contracts: Interest rate swaps (561) (561) 366 366
Credit Concentrations The Company continually monitors its positions with, and the credit quality of, the financial institutions that are counterparties to its financial instruments, and does not anticipate nonperformance by the counterparties. The Company's receivables do not represent a significant concentration of credit risk at December 31, 2004, due to the wide variety of customers and markets in which the Company operates. NOTE 7 - Shareholders' Equity: The authorized capital stock of the Company consists of Common Stock, Class B Stock and Preferred Stock. Common Stock is entitled to one vote per share while Class B Stock is entitled to 50 votes per share. Class B Stock is convertible to Common Stock on a share-for-share basis. As further discussed in Note 2, in conjunction with the renewal and extension of the Company's Management Agreement with Infinity in May 2002, the Company granted to Infinity fully vested and nonforfeitable warrants to purchase up to 4,500,000 shares of Company Common Stock. The Company has reflected the fair value of the warrants issued of $48,530 as a component of additional paid in capital. During 2002, Infinity sold their $12.50 warrants to the Company for cash consideration of $51,070. The purchase of the warrants resulted in a reduction to additional paid in capital equal to the amount of cash consideration paid. The aforementioned warrants were granted to Infinity in connection with the extension of the Management Agreement in March 1999 (see Note 2). The Company's Board of Directors has approved plans to purchase shares of the Company's Common Stock to enhance shareholder value. The Company purchased 8,456,000 shares in 2004 for approximately $216,503, 5,534,000 shares in 2003 for approximately $180,412, and 5,414,000 shares in 2002 for approximately $188,337. On September 27, 2004 a shareholder converted 411,670 shares of Class B Stock into an equal number of shares of Common Stock. NOTE 8 - Stock Options: The Company established stock option plans in 1989 and 1999 (collectively "the Plan") which provide for the granting of options to directors, officers and key employees to purchase stock at its market value on the date the options are granted. Under the 1989 Plan, 12,600,000 shares were reserved for grant through March 1999. This plan expired, but certain previous grants remain outstanding at December 31, 2004. On September 22, 1999, the stockholders ratified the Company's 1999 stock incentive plan which authorized the grant of up to 8,000,000 shares of Common Stock. Options granted generally become exercisable after one year in 20% increments per year and expire within ten years from the date of grant. F-14 WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) The weighted average fair value of the options granted in 2004, 2003 and 2002 is estimated at $6.77, $10.09 and $11.46, respectively, measured on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: 2004 2003 2002 ---- ---- ---- Risk Free Interest Rate............... 3.5% 3.3% 3.4% Expected Life (In Years)............ 5 5 5 Expected Volatility................... 28.3% 29.6% 29.0% Expected Dividend Yield............... - - - Information concerning options outstanding under the Plan is as follows for:
2004 2003 2002 ---- ---- ---- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding at beginning of period........................... 10,319,549 $21.27 9,442,330 $19.40 11,089,934 $16.01 Granted during the period............. 1,472,000 $21.38 1,568,500 $31.32 1,272,500 $35.79 Exercised during the period........... (3,376,786) $11.43 (602,381) $15.56 (2,505,674) $12.21 Forfeited during the period........... (418,745) $31.19 (88,900) $36.79 (414,430) $23.43 ---------- --------- ---------- Outstanding at end of period.......... 7,996,018 $24.90 10,319,549 $21.27 9,442,330 $19.40 ========== ========== =========- Available for stock option issuance at end of period.................... 600,345 1,653,600 3,133,200 ========== ========= ==========
At December 31, 2004, options to purchase 4,089,918 shares of Common Stock were currently exercisable at a weighted average exercise price of $22.57. The following table contains additional information with respect to options at December 31, 2004:
Remaining Weighted Weighted Average Average Number of Exercise Contractual Options Price Life (In Years) ------- ----- -------------- Options Outstanding at Exercise Price Ranges of: $5.34-$19.29...................................... 1,497,658 $11.89 3.2 $20.25-26.96...................................... 2,818,660 $21.31 7.8 $30.19-$38.34..................................... 3,679,700 $32.94 7.3 --------- 7,996,018 $24.90 6.7 =========
NOTE 9 - Income Taxes: The components of the provision for income taxes follows:
Year Ended December 31, ------------------------------------ Current 2004 2003 2002 ---- ---- ---- Federal......................... $51,205 $49,138 $52,982 State........................... 7,277 5,437 3,600 ------- ------- ------- 58,482 54,575 56,582 ------- ------- ------- Deferred Federal......................... 483 4,842 5,705 State........................... 159 489 650 ------- ------- ------- 642 5,331 6,355 ------- ------- ------- Income Tax....................... $59,124 $59,906 $62,937 ======= ======= =======
F-15 WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities on the Company's balance sheet and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities follow: December 31, ---------------------- 2004 2003 ---- ---- Deferred tax liabilities: Goodwill, intangibles and other............ $9,174 $28,566 Property and equipment..................... 7,758 4,783 Other...................................... 188 126 ------- ------- Total deferred tax liabilities.......... 17,120 33,475 ------- ------- Deferred tax assets: Allowance for doubtful accounts......... 978 1,394 Deferred Compensation................... 4,060 1,013 Accrued expenses and other.............. 519 0 ------- ------- Total deferred tax assets............... 5,557 2,407 ------- ------- Net deferred tax liabilities................ 11,563 31,068 ------- ------- Net deferred tax asset - current............ 978 1,645 ------- ------- Net deferred tax liability - long-term...... $12,541 $32,713 ======= ======= The reconciliation of the federal statutory income tax rate to the Company's effective income tax rate follows: Year Ended December 31, ----------------------- 2004 2003 2002 ---- ---- ---- Federal statutory rate............... 35.0% 35.0% 35.0% State taxes net of federal benefit... 3.2 2.5 1.6 ---- ---- ---- Effective tax rate................... 38.2% 37.5% 36.6% ===== ===== ===== In 2004, 2003 and 2002, $18,182, $3,911 and $39,245 respectively, of income tax benefits attributable to employee stock and warrant transactions were allocated to shareholders' equity. NOTE 10 - Commitments and Contingencies: The Company has various non-cancelable, long-term operating leases for office space and equipment. In addition, the Company is committed under various contractual agreements to pay for talent, broadcast rights, research, the CBS Representation Agreement and the Management Agreement with Infinity. The approximate aggregate future minimum obligations under such operating leases and contractual agreements for the five years after December 31, 2004 and thereafter, are set forth below:
Leases ------------------------------- Year Capital Operating Other Total - ---- ------- --------- ----- ----- 2005........... $960 $7,039 $61,534 $ 69,533 2006........... 960 6,724 58,772 66,456 2007........... 960 5,911 47,618 54,489 2008........... 960 5,158 44,746 50,864 2009........... 960 5,229 14,649 20,838 Thereafter..... 1,600 6,404 14,001 22,005 ----- ----- ------ ------ $6,400 $36,465 $241,320 $284,185 ====== ======= ======== ========
The present value of net minimum payments under capital leases was $5,182 at December 31, 2004. Rent expense charged to operations for 2004, 2003, and 2002 was $8,485, $8,597 and $9,193, respectively. F-16 WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) Included in Other in the table above is $162,955 of commitments due to Viacom and its affiliates pursuant to various agreements as described in Note 2. NOTE 11 - Supplemental Cash Flow and Other Information: Supplemental information on cash flows, is summarized as follows: Year Ended December 31, ------------------------------- 2004 2003 2002 ---- ---- ---- Cash paid for: Interest............................. $13,564 $12,047 $5,687 Income taxes......................... 41,158 51,755 8,561 The Company had certain cash investing and financing activities. During 2002, the Company issued warrants to purchase up to 4,500,000 shares of its Common Stock to Infinity with a value of $48,530. Insurance Claim The Company has insurance policies that cover business interruption related to September 11, 2001 terrorist attacks. For the year ended December 31, 2003, the Company recorded $3,200 as a reduction to operating costs in the accompanying Consolidated Statements of Operations, reflecting the settlement of its business interruption insurance claim. NOTE 12 - Quarterly Results of Operations (unaudited): The following is a tabulation of the unaudited quarterly results of operations. The quarterly results are presented for the years ended December 31, 2004 and 2003. (In thousands, except per share data)
First Second Third Fourth For the Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ------- 2004 ---- Net revenues................................... $129,608 $139,585 $141,422 $151,632 $562,246 Operating income............................... 30,988 43,062 40,419 51,108 165,577 Net income ................................... 17,547 25,106 23,236 29,601 95,490 Net income per share: Basic .................................... $.18 $.26 $.24 $.31 $.98 Diluted .................................. $.18 $.26 $.24 $.31 $.97 2003 ---- Net revenues................................... $125,795 $132,675 $134,680 $146,076 $539,226 Operating income............................... 29,219 41,664 46,782 52,360 170,025 Net income ................................... 16,914 24,336 27,710 31,079 100,039 Net income per share: Basic .................................... $.16 $.24 $.28 $.31 $.99 Diluted .................................. $.16 $.23 $.27 $.31 $.97
F-17 WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) Schedule II - Valuation and Qualifying Accounts ----------------------------------------------- Allowance for Doubtful Accounts
Additions Deductions ------------------------------------- ---------------- Balance at Balance at Beginning of Charged to Costs Charged to Write-offs and End of Period And Expenses Other Accounts Other Adjustments Period ------------ ---------------- -------------- ----------------- ---------- 2004 $4,334 $874 - ($2,642) $2,566 2003 11,757 3,624 - (11,047) 4,334 2002 9,282 6,379 - (3,904) 11,757
F-18 EX-10 3 won200410kexhibit10_15.txt WON 2004 10K EXHIBIT 10.15 EXHIBIT 10.15 EMPLOYMENT AGREEMENT This Agreement ("Agreement") is entered into by and between Andrew Zaref ("Employee") and Westwood One, Inc., a Delaware corporation (the "Company"). WITNESSETH: WHEREAS, the Company desires to engage the services of Employee and the Employee wishes to serve as the Chief Financial Officer of the Company on the terms and conditions herein contained; and NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. Employment. The Company hereby employs Employee, and Employee accepts such employment, and agrees to devote Employee's full time and efforts to the interests of the Company upon the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions for termination hereinafter provided, Employee's term of employment by the Company shall commence no later than January 1, 2004 (the "Effective Date") and unless terminated by the Company or Employee pursuant to this Agreement shall continue in effect until December 31, 2006 (the "Term"). Employee shall be based in Company's New York City office. 3. Services to be Rendered by Employee. (a) During the Employment Period, Employee shall serve as the Chief Financial Officer of the Company. Subject to the direction of the Chief Executive Officer, Employee shall perform such duties as from time to time may be delegated to Employee. Employee shall devote all of Employee's professional time, energy and ability to the proper and efficient conduct of the Company's business. Employee shall observe and comply with all reasonable lawful directions and instructions by and on the part of the Chief Executive Officer and endeavor to promote the interests of the Company and not at any time do anything within the control of the Employee which may cause or tend to be likely to cause any loss or damage to the Company in business, reputation or otherwise. (b) The Company may, in its sole discretion, restrict, expand, change or otherwise alter the Employee's duties, title or responsibilities. Any change shall be binding on Employee for all purposes of this Agreement. (c) Employee acknowledges that Employee will comply with his duties under applicable laws and therein have and owe fiduciary duties to the Company and its shareholders including, without limitation, the duties of care, confidentiality and loyalty. (d) Employee acknowledges that Employee has received a copy of the Company's Sexual Harassment Policies and Procedures, Code of Ethics and Conflicts of Interest Policy, and understands and has acknowledged such policies. Page 1 4. Compensation. (a) Base Salary. For the services to be rendered by Employee during Employee's employment by the Company, the Company shall pay Employee, and Employee agrees to accept, an annual base salary (the "Base Salary") of $350,000 for the period January 1, 2004 through December 31, 2004 (Year One), $375,000 for the period January 1, 2005 through December 31, 2005 (Year Two) and $400,000 for the period January 1, 2006 to December 31, 2006 (Year Three). (b) Discretionary Bonus. Employee shall be eligible for a discretionary bonus target of $150,000 for Year One, $175,000 for Year Two and $200,000 for Year Three in the sole and absolute discretion of the Chief Executive Officer, Board of Directors or its Compensation Committee. For Year One only, Employee shall receive no less than $100,000 in bonus provided that the Company meets its annual financial objectives and targets for the 2004 calendar year. Any bonus awarded will be payable in accordance with the Company's normal payroll practices payable in February of the subsequent year. Employee shall not be eligible for any bonus for a calendar year, pro-rated or otherwise, if the Employee is not an Employee of the Company: (i) at the end of the applicable contract year; (ii) if Employee has breached this Agreement. (c) Stock Options. At the next meeting of the Compensation Committee of the Board of Directors, you shall be awarded a grant of fifty thousand (50,000) options to purchase Company's Common Stock, under the Company's Stock Option Plan, with an exercise price equal to the closing price of a share of the Common Stock on the grant date. In addition, during your employment under this Agreement, at the discretion of the Board of Directors or a Committee of the Board you shall be eligible to receive 50,000 stock options per annum subject to the Company's Stock Option Plan. The grant dates shall be consistent with the Company's annual Employee grant date. (d) Paydates; Customary Employee Deductions. Employee's Base Salary shall be payable semi-monthly in arrears on the fifteenth day and on the last day of each calendar month or such other date in conformity with the Company's payroll policies in effect from time to time. For any and all compensation or bonus paid by the Company to Employee if any, pursuant to this Section 4, the Company shall be entitled to deduct income tax withholdings, social security and other customary employee deductions in conformity with the Company's payroll policies in effect from time to time. 5. Expenses. Subject to compliance by Employee with such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Company, the Company shall reimburse Employee, or cause Employee to be reimbursed, in cash for all reasonable expenses including for purposes of clarity, reasonable costs associated with professional organizations, training, etc. accompanied by receipts. The Company currently maintains trade relationships for restaurants, hotels, automobile rentals, courier services, promotional items, etc. which may be used from time to time to cover ordinary and necessary expenses of Employee. Page 2 6. Benefits. (a) Company Plans; Insurance. During the Employment Period, Employee shall be entitled to participate in all benefit plans, programs, group insurance policies, vacation sick leave and other benefits that may from time to time be established by the Company for its employees, provided that Employee is eligible under the respective provisions thereof. (b) Vacation. Employee shall be entitled each year to a vacation in accordance with the prevailing practice of the Company in regard to vacations for its employees. 7. Termination of Employment. (a). Termination for Cause. During the Employment Period, the Company shall have the right to terminate the employment of Employee hereunder immediately by giving notice thereof to Employee in the event of any of the following: (i) if Employee has (a) willfully failed, refused or habitually has neglected to carry out or to perform the reasonable duties required of Employee hereunder or otherwise breached any provision of this Agreement (other than Sections 8, 9 and 12 hereof, which are governed by Section 7(a)(iv) hereof); (b) willfully breached any statutory or common law duty; or (c) breached Section 3(c) or 3(d) of this Agreement. (ii) if Employee commits a felony or a crime involving moral turpitude or if the Company, acting in good faith and upon reasonable grounds, determines that Employee has willfully engaged in conduct which would injure the reputation of the Company or otherwise adversely affect its interest if Employee were retained as an employee of the Company; (iii) if Employee breaches any of the provisions of Section 8, 9 or 12 hereof or breaches any of the terms or obligations of any other noncompetition and/or confidentiality agreements entered into between Employee and the Company, or the Company's Related Entities (as defined in Section 20 hereof), if any; or (iv) if Employee steals or embezzles assets of the Company, (v) in the event of any termination of employment pursuant to this Section 7A, Employee shall be entitled to receive (i) the Base Salary herein provided prorated to the date of such termination, (ii) Employee's present entitlement, if any, under the Company's employee benefit plans, stock options to the date of termination and (iii) no other compensation, (vi) if Employee is terminated for any reason other than those contained in 7(a)(i) to 7(a)(v), then employee shall be entitled to receive all remaining base compensation as described in Section 4(a), Page 3 from the effective termination date to the end of the term and the bonus compensation described in Section 4(b) from the effective termination date to the end of the term, paid in accordance with the Company's then current payroll practices, however, once Employee secures future employment or engages in any entrepreneurial or consulting activity, the bonus compensation payments will be forfeited in their entirety. B. Good Reason Termination. You may terminate your employment under this Agreement for Good Reason at any time during the term by written notice to the Company no more than 30 days after the occurrence of the event constituting Good Reason. Such notice shall state an effective date no earlier than 30 business days after the date it is given; provided that the Company may set an effective date for your notice at any time after receipt of your notice. The Company shall have 10 business days from giving of such notice within which to cure and, in the event of such cure, your notice shall be of no further force or effect. Good Reason shall mean without your consent: (i) the material breach by the Company of its material obligations under this Agreement. (ii) a change in your principal work location more then 50 miles from your principal work location. (iii)the withdrawal of material portion of your duties described in paragraph 3, or a Change in Control (as defined in section 13 of this Agreement). (iv) in the event that your employment terminates under Paragraph 7(B), you shall thereafter receive, less applicable withholding taxes,: (a) your salary, as described in Section 4(a), as is in effect on the date on which your employment terminates, until the end of the term, paid in accordance with the Company's then effective payroll practices; (b) bonus compensation, as described in Section 4(b), for the remaining term, payable in accordance with the Company's then current payroll practices, however, once Employee secures future employment or engages in any entrepreneurial or consulting activity, the bonus compensation payments will be forfeited in their entirety. Page 4 (c) medical and dental insurance coverage provided by COBRA at no cost to you (except as herein after described) pursuant to benefit plans determined by the Company until the end of the term or if earlier, the date on which you become eligible for medical and dental coverage from a third party provided that, during the period that the Company provides you with this coverage, an amount equal to the applicable COBRA premiums (or such other amounts as may be required by law) will be included in your income for tax purposes to the extent required by law and the Company may withhold taxes from your compensation for this purpose; and provided further, that you may elect to continue your medical and dental insurance coverage under COBRA at your own expense for the balance, if any, of the period required by law; (d) with respect to any stock options granted to you by the Company, all outstanding stock options that have previously vested and become exercisable by the date of such termination shall remain exercisable for three (3) months after such date, or if earlier, until their expiration date C. Employee's employment with the Company shall automatically terminate (without notice to Employee's estate) upon the death or loss of legal capacity of Employee. D. Non-Renewal Notice/Payments. (i) if (x) Company notifies you that it has elected not to extend or renew this Agreement (such notice is referred to as a "Non-Renewal Notice") less than three (3) months before the end of the Term and terminates your employment without cause within three (3) months after the Term; or (y) your employment terminates under Paragraph 7(B) or (C) less than three (3) months before the end of the Term, you shall continue to receive your then current salary for the balance of the three (3) months from the date on which Non-Renewal Notice is given or your employment terminates, whichever is earlier (ii) if the Company does not give you a Non-Renewal Notice by the end of the Term and you remain employed through that date but have not entered into a new contractual relationship with the Company, and the Company terminates your employment without cause within three (3) months after the end of the Term, you shall continue to receive your then current salary for the balance, if any, of the three (3) months after expiration of the Term. 8. No Conflict of Interest; Proper Conduct; Restricted Activities. (a) The Company and Employee acknowledge and agree that the Company has divulged and expects to divulge to Employee certain confidential information and trade secrets relating to the Company's business, provide information relating to the Company's customer base and otherwise provide Employee with the ability Page 5 to injure the Company's goodwill unless certain reasonable restrictions are imposed upon Employee which are contained in this Section. Employee agrees that such restrictions are reasonable and necessary to protect the goodwill, confidential information and other legitimate business interests of the Company and such restrictions are entered into freely by Employee. Employee acknowledges that the Company's business and Employee's responsibilities are nationwide. The confidential information and trade secrets expected to be divulged to Employee shall include information and trade secrets regarding the Company's business and operations nationwide. (b) While employed by the Company, Employee will not compete with the Company, directly or indirectly, either for Employee or as a member of any association, partnership, joint venture, limited liability partnership or limited liability company or other entity, or as a stockholder (except as a stockholder of less than one percent (1%) of the issued and outstanding stock of a publicly-held corporation whose gross assets exceed $100,000,000), investor, officer or director of a corporation, or as an employee, agent, trustee, associate or consultant of any person, association, trust, partnership, joint venture, registered limited liability partnership or limited liability company, corporation or other entity, in any business in competition with that carried on by the Company or its Related Entities. Employee shall not, without the Company's prior written consent, engage in any activity during Employee's employment that would conflict with, interfere with, impede or hamper the performance of Employee's duties for the Company or would otherwise be prejudicial to the Company's business interests. Employee shall not commit any act or become involved in any situation or occurrence that, in the Company's reasonable judgment, could tend to bring Employee or the Company into public disrepute, contempt, scandal or ridicule, could provoke, insult or offend the community or any group or class thereof, or could reflect unfavorably upon the Company or any of its Sponsors or Affiliates. Employee shall comply with all applicable laws and regulations governing the Company and its business, including without limitation, regulations promulgated by the Federal Communications Commission or any other regulatory agency. (c) Employee further agrees that, for a period of three (3) months from and after Employee's last day of employment under this Agreement (the "Restricted Period"), regardless of cause, Employee will not engage in or carry on, directly or indirectly, either for Employee or as a member of an association, trust, partnership, joint venture, limited liability partnership or limited liability company or other entity, or as a stockholder (other than as a stockholder of less than one percent (1%) of the issued and outstanding stock of a publicly-held corporation, whose gross assets exceed $100,000,000), or as an investor, officer or director of a corporation, or as an employee, agent, trustee, associate or consultant of any person, association, trust, partnership, corporation, joint venture, registered limited liability partnership or limited liability company, or other entity, any Restricted Activity. Restricted Activities shall consist of: (i) providing services to a traffic, news, sports, weather or other information report gathering or broadcast service or to a radio network or syndicator, or any direct or indirect competitor of Westwood or its Related Entities; or (ii) forming or providing operational assistance to any business or a division of any business engaged in the foregoing activities. It is understood however, that Employee will continue to have the rights to vest and exercise his options during this Restricted Period. (d) Employee further covenants and agrees that during the Restricted Period, Employee will not either individually, or on behalf of any other person, Page 6 association, trust, partnership, joint venture, limited liability partnership or limited company or other entity as an owner, member, partner, agent, trustee, shareholder, joint venturer or otherwise, directly or indirectly, solicit any customer and/or Sponsor of the Company or its Related Entities in competition with the Company. (e) Employee further agrees that during the Restricted Period, Employee will neither employ nor offer to employ nor solicit employment of any employee or consultant of the Company or its Related Entities. (f) Employee further agrees not to solicit, divert or attempt to divert any business, patronage or customer of the Company or its Related Entities to Employee or a competitor or rival of the Company or its Related Entities during the Restricted Period. (g) Employee agrees that the limitations set forth herein on Employee's rights are reasonable and necessary for the protection of the Company and its Related Entities. In this regard, Employee specifically agrees that the limitations as to period of time and geographic area, as well as all other restrictions on Employee's activities specified herein, are reasonable and necessary for the protection of the Company and its Related Entities. (h) Employee agrees that the remedy at law for any breach by Employee of this Section 8 will be inadequate and that the Company shall be entitled to injunctive relief (without bond or other undertaking). Employee and Company agree that to the extent a court of competent jurisdiction or appropriate arbitral tribunal finds any of the foregoing covenants to be overly broad based on applicable law, then the parties agree that the court shall reform the covenants to the extent necessary to cause such covenants to be reasonable and enforce such covenants as reformed against Employee. (j) Employee agrees that during the Term and for the Restricted Period, you shall not, in any communication with the press or other media or any customer, client, supplier or Westwood One, criticize, ridicule, or make any statement which disparages or derogatory of the Company or any of its affiliates or any of their respective Directors of Senior Officers. Page 7 9. Confidential Information and the Results of Services. Employee acknowledges that the Company has established a valuable and extensive trade in the services it provides, which has been developed at considerable expense to the Company. Employee agrees that, by virtue of the special knowledge that Employee has received or will receive from the Company, and the relationship of trust and confidence between Employee and the Company, Employee has or will have certain information and knowledge of the operations of the Company that are confidential and proprietary in nature, including, without limitation, information about Affiliates and Sponsors. Employee agrees that during the term hereof and at any time thereafter Employee will not make use of or disclose, without the prior consent of the Company, Confidential Information (as hereinafter defined) relating to the Company and any of its Related Entities (including, without limitation, its Sponsor lists, its Affiliates, its technical systems, its contracts, its methods of operation, its business plans and opportunities, its strategic plans and its trade secrets), and further, that Employee will return to the Company all written materials in Employee's possession embodying such Confidential Information. For purposes of this Agreement, "Confidential Information" means information obtained by Employee during Employee's employment relationship with the Company which concerns the affairs of the Company or its Related Entities and which the Company has requested be held in confidence or could reasonably be expected to desire to be held in confidence, or the disclosure of which would likely be embarrassing, detrimental or disadvantageous to the Company or its Related Entities. Confidential Information shall also include the terms of this Agreement (except with respect to Employee's legal and tax advisors, and immediate family). Confidential Information, however, shall not include information, which Employee can show by written document to be: (a) Information that is at the time of receipt by Employee in the public domain or is otherwise generally known in the industry or subsequently enters the public domain or becomes generally known in the industry through no fault of Employee; (b) Information that at any time is received in good faith by Employee from a third party which was lawfully in possession of the same and had the right to disclose the same. The parties hereto agree that the remedy at law for any breach of Employee's obligations under this Section 9 of this Agreement would be inadequate and that any enforcing party shall be entitled to injunctive or other equitable relief (without bond or undertaking) in any proceeding which may be brought to enforce any provisions of this Section. 10. Advertising and Publicity. Employee hereby grants the Company the royalty-free right to use and license others to use Employee's name, nickname, recorded voice, biographical material, portraits, pictures, and likenesses for advertising purposes and purposes of trade, promotion and publicity in connection with the institutions, services and products for the Company, its Related Entities, Sponsors and Affiliates, such uses to be at such times, in such manner and through such media as the Company may in its sole discretion determine. Such right shall last for so long as Employee is employed by the Company and, in connection with the use or exploitation of any material in which Employee has been involved during Employee's employment, perpetually thereafter. Employee shall not authorize or release any advertising or promotional matter or publicity in any form with reference to Employee's services hereunder, or to the Company's or its Related Entities' programs, Sponsors or Affiliates, without the Company's prior written consent. Page 8 11. Work for Hire. Employee agrees that any ideas, concepts, techniques, or computer programs relating to the business or operations of the Company and its Related Entities which are developed by Employee during Employee's employment hereunder, including each program and announcement prepared for broadcast, and the titles, content, format, idea, theme, script, characteristics, and other attributes thereof, shall be deemed to have been made within the scope of Employee's employment and therefore constitute works for hire and shall automatically upon their creation become the exclusive property of the Company. To the extent such items are not works for hire under applicable law, Employee assigns them and any and all intangible proprietary rights relating thereto to the Company in their entirety and agrees to execute any and all documents necessary or desired by the Company to reflect the Company's ownership thereof. 12. Communications Act of 1934. Employee represents and warrants that neither Employee nor, to the best of Employee's knowledge, information and belief, any other person, has accepted or agreed to accept, or has paid or provided or agreed to pay or provide, any money, service or any other valuable consideration, as defined in Section 507 of the Communications Act of 1934, as amended, for the broadcast of any matter contained in programs. Employee further represents and warrants that, during Employee's employment, Employee shall comply with all legal requirements. 13. Merger or Reorganization. The event of any merger, consolidation, dissolution or reorganization of the Company (including but not limited to any reorganization where the Company is not the surviving or resulting entity), or any transfer of all or substantially all of the assets of the Company to an entity other than Viacom, Inc. or any of its subsidiaries or affiliates, shall be considered a Change in Control (herein referred to as "Change in Control"). To clarify any merger, consolidation, dissolution or reorganization with Viacom, Inc. or any of its subsidiaries or affiliates would not be deemed a Change in Control. The provisions of this Agreement shall inure to the benefit of and shall be binding upon the surviving or resulting partnership or the corporation (or other entity) or person(s) to which such assets shall be transferred. 14. Remedies. Except as it may elect otherwise, the Company shall have all rights, powers or remedies provided by law or equity for breach of this Agreement available to it, it being understood and agreed that no one of them shall be considered as exclusive of the others or as exclusive of any other rights, powers and remedies allowed by law. The exercise or partial exercise of any right, power or remedy shall neither constitute the election thereof nor the waiver of any other right, power or remedy. Without limiting the generality of the foregoing, Employee agrees that, in addition to all other rights and remedies available at law or in equity, the Company shall be entitled to enforcement of this Agreement in accordance with the principles of equity (without bond or undertaking), the remedy at law being hereby agreed and acknowledged by Employee to be inadequate. 15. Waiver of Breach of Agreement. If either party waives a breach of this Agreement by the other party, that waiver will not operate or be construed as a waiver of any subsequent breaches. 16. Assignment. The rights of the Company hereunder may, without the consent of Employee, be assigned by the Company to any Related Entity or successor of the Company or any entity which acquires all or substantially all Page 9 of the Company's assets. Except as provided in the preceding sentence or in Section 13 hereof, the Company may not assign all or any of its rights, duties or obligations hereunder without the prior written consent of Employee. This Agreement is not assignable by Employee. Any attempt by Employee to assign this Agreement, or any portion thereof, shall be deemed null and void and of no force and effect. 17. Notices. All notices, requests, demands and other communications permitted or required hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if deposited in the United States mail, first class, postage prepaid, registered or certified, addressed as follows: (a) If to Employee, addressed to Employee at the address set forth below Employee's name on the execution page hereof. (b) If to the Company, addressed to: Westwood One, Inc. 40 West 57th Street, 15th Floor New York, New York 10019 Attention: Chief Executive Officer With a copy to the General Counsel or to such other address as either party hereto may request by written notice as herein provided. 18. Severability. Any provision hereof prohibited by or unenforceable under any applicable law of any jurisdiction shall as to such jurisdiction be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement. It is the desire of the parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held unenforceable, the parties hereby agree and consent that such provision shall be reformed to make it a valid and enforceable provision to the maximum extent permitted by law. 19. Title and Headings; Exhibits. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. Any and all exhibits referred to herein are, by such reference, incorporated herein and made a part hereof. 20. Certain Definitions. As used in this Agreement, the following capitalized terms shall have the meanings indicated: (a) Affiliates. Any organization, entity or person with whom the Company or any of the Company's Related Entities has or had a contract or other arrangement to provide traffic, news, weather, sports, entertainment or other information or national or regional radio network or syndicated programming, whether by broadcast, computer or any other means. Page 10 (b) Change in Control. The event of any merger, consolidation, dissolution or reorganization of the Company (including but not limited to any reorganization where the Company is not the surviving or resulting entity), or any transfer of all or substantially all of the assets of the Company to an entity other than Viacom, Inc. or any of its subsidiaries or affiliates, shall be considered a Change in Control. (c) Sponsor(s). Any and all client advertisers of the Company or its Related Entities including without limitation advertisers whose commercial material is to be, is or was incorporated in any one or more of the Company's programs or announcements, live or recorded, broadcast over the facilities of the Company, by the Company, or pursuant to an arrangement with a Affiliate. (d) Related Entity or Related Entities. Any entity (or entities) that directly or indirectly controls, is controlled by, or is under common control with the Company (or its successor or assign), including but not limited to Westwood One Radio Networks, Inc., Westwood One Radio, Inc., Metro Networks Communications, Inc. and Metro Networks Communications, Limited Partnership. The term "entity" as used in this Section 20(c) means an individual, corporation, partnership, joint venture, limited liability partnership or limited liability company, trust, unincorporated organization, association or other entity. As used in this Section 20(c), the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise. 21. Choice of Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 22. Arbitration. The parties hereby agree that any and all claims or controversies relating to Employee's employment with the Company, or termination thereof, including but not limited to claims for breach of contract, tort, unlawful discrimination or harassment (as well as any claims arising under Title VII, the Americans with Disabilities Act, and the Age Discrimination in Employment Act), and any violation of any state or federal law ("Arbitrable Claims"), except for equitable relief sought by a party in aid of arbitration, shall be resolved by arbitration in accordance with the then applicable JAMS Employment Arbitration Rules And Procedures. However, claims under applicable workers' compensation laws or the National Labor Relations Act shall not be subject to arbitration. Arbitration under this Agreement shall be the exclusive remedy for all Arbitrable Claims and shall be final and binding on all parties. Unless the parties mutually agree otherwise, the Arbitrator shall be selected from a panel provided by JAMS and the arbitration shall be held in New York County, New York. Any court having jurisdiction thereof may enter judgment on the award rendered by the arbitrator(s). THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY OF ANY MATTERS SUBJECT TO ARBITRATION UNDER THIS AGREEMENT. 23. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, executors, successors and permitted assigns. Page 11 24. Entire Agreement and Amendment. This Agreement supersedes all prior understandings and agreements between the parties (including the Company's Related Entities) with respect to the subject matter hereof. This Agreement contains the entire agreement of the parties with respect to the subject matter covered hereby and may be amended, waived or terminated only by an instrument in writing executed by both parties hereto. 25. Execution by Company. Submission of this Agreement to Employee, or Employee's agents or attorneys, for examination or signature does not constitute or imply an offer of employment, and this Agreement shall have no binding effect until execution hereof by both the Company and Employee. 26. No Inference Against Author. No provision of this Agreement shall be interpreted against any party because such party or its legal representative drafted such provision. IN WITNESS WHEREOF, this Agreement is EXECUTED as of the ___ day of ___________, 2003 to be EFFECTIVE FOR ALL PURPOSES as of the Effective Date. "COMPANY" WESTWOOD ONE, INC. By:/S/ JACQUES TORTOROLI ------------------------ Printed Name: Jacques Tortoroli Title: Executive Vice President and Chief Financial Officer "EMPLOYEE" /S/ ANDREW ZAREF ------------------------------- Andrew Zaref Address: 21 Glen Rock Road Cedar Grove, NJ 07009 Page 12 EX-10 4 won200410kexhibit10_16.txt WON 2004 10K EXHIBIT 10.16 EXHIBIT 10.16 EMPLOYMENT AGREEMENT This agreement ("Agreement") is entered into by and between Peter Kosann ("Employee") and Westwood One, Inc., a Delaware corporation (the "Company"). WITNESSETH: WHEREAS, the Company is in the business of selling network radio broadcast advertising, and developing, producing and broadcasting network radio programming and traffic, news, sports, weather and other radio information reports; and WHEREAS, Employee has extensive management, sales, marketing and operations experience; and WHEREAS, the Company desires to engage the services of Employee to serve as the President of Sales of the Company on the terms and conditions herein contained; and NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. Employment. The Company hereby employs Employee, and Employee accepts such employment, and agrees to devote Employee's full time and efforts to the interests of the Company upon the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions for termination hereinafter provided, Employee's term of employment by the Company shall commence no later than May 1, 2003 (the "Effective Date") and shall continue in effect until April 30, 2006 (the "Term"). Unless otherwise terminated pursuant hereto, if Employee continues to be employed by the Company after the Term, then Employee's employment shall be deemed to continue on a month-to-month basis until such time as either party shall deliver written notice to the other party and this Agreement shall terminate thirty (30) days after the giving of such notice. Except as otherwise set forth herein, if either party hereto desires to terminate this Agreement at the end of the Term or thereafter, the same thirty (30) days prior written notice shall apply. The period from the Effective Date through the date thirty (30) days from the date any notice of termination referred to above is delivered is hereinafter referred to as the "Employment Period". 3. Services to be Rendered by Employee. (a) During the Employment Period, Employee shall serve as the President of Sales of the Company or in such other position as is determined from time to time by the Company's Chief Executive Officer ("Chief Executive Officer"), President ("President"), the Board of Directors (the "Board of Directors") or their designee located in Company's New York office. Subject to the direction of the Chief Executive Officer or President, Board of Directors or their designee, Employee shall perform such duties as from time to time may be delegated to Employee by such parties. Employee shall devote all of Employee's professional Page 1 time, energy and ability to the proper and efficient conduct of the Company's business. Employee shall observe and comply with all reasonable lawful directions and instructions by and on the part of the Chief Executive Officer or President, the Board of Directors or their designee and endeavor to promote the interests of the Company and not at any time do anything which may cause or tend to be likely to cause any loss or damage to the Company in business, reputation or otherwise. (b) The Company may from time to time call on Employee to perform services related to the business of developing and broadcasting network and syndicated radio programming and traffic, news, sports and weather reports, which may include (in the Company's sole discretion) contributing to the day-to-day management and operation of such business, soliciting Sponsors and Affiliates (as such terms are defined in Section 20 hereof) or dealing with their accounts or other activities related to the Company's business, as reasonably specified from time to time by the Chief Executive Officer, the President, the Board of Directors or their designee. Subject to the foregoing, Employee's specific responsibilities shall include overseeing and directing all aspects of sales for the Company's network and syndicated programming division and radio advertising sales for the Company's Metro Networks division. The Company may, in its sole discretion, restrict, expand, change or otherwise alter the Employee's duties, title or responsibilities. Any change shall be binding on Employee for all purposes of this Agreement. However, in the event Company materially changes Employee's responsibilities or changes the reporting of Employee from the President of the Company to another individual, (other than to the Board of Directors) Employee may terminate this Agreement upon 30 days notice. (c) Employee acknowledges that Employee will have and owe fiduciary duties to the Company and its shareholders including, without limitation, the duties of care, confidentiality and loyalty. (d) Employee acknowledges that Employee has received a copy of the Company's Sexual Harassment Policies and Procedures, Code of Ethics and Conflicts of Interest policy, and understands and has acknowledged such policies. 4. Compensation. (a) Base Salary. For the services to be rendered by Employee during Employee's employment by the Company, the Company shall pay Employee, and Employee agrees to accept, a monthly base salary (the "Base Salary") of Four Hundred and Twenty-Five Thousand Dollars ($425,000) for prorated for calendar year 2003. For calendar year 2004, 2005 and 2006 the Base Salary for each year shall be increased to reflect a 3% increase over the prior year. (b) Discretionary Bonus. Employee shall be eligible for an annual bonus pursuant to Schedule 1 attached hereto. For the years 2004 and 2005, the parties agree to negotiate mutually-agreeable goals that the Company may use as general guidelines to determine Employee's eligibility for a discretionary bonus. Any cash component of any bonus will be payable in accordance with the Company's normal payroll practices. All Bonuses payable hereunder this plan shall be paid the February following the calendar year in accordance with companies practice. Employee shall not be eligible for any bonus for a calendar year, pro-rated or otherwise, if the Employee is not an Employee of the Company: (i) at the end of the applicable calendar year; (ii) at the time such bonus is to be paid, or (iii) if Employee has breached this Agreement. Page 2 Paydates; Customary Employee Deductions. Employee's Base Salary shall be payable semi-monthly in arrears on the fifteenth day and on the last day of each calendar month or such other date in conformity with the Company's payroll policies in effect from time to time. For any and all compensation or bonus paid by the Company to Employee pursuant to this Section 4, the Company shall be entitled to deduct income tax withholdings, social security and other customary employee deductions in conformity with the Company's payroll policies in effect from time to time. (d) Stock Options. Employee will be entitled to stock options as determined by the Board of Directors. 5. Expenses. Subject to compliance by Employee with such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Company, the Company shall reimburse Employee, or cause Employee to be reimbursed, in cash for all reasonable expenses including but not limited to reasonable car allowance and parking expenses upon submission of receipts. The Company currently maintains trade relationships for restaurants, hotels, automobile rentals, courier services, promotional items, etc. which may be used from time to time to cover ordinary and necessary expenses of Employee. 6. Benefits. (a) Company Plans; Insurance. During the Employment Period, Employee shall be entitled to participate in all benefit plans, programs, group insurance policies, vacation sick leave and other benefits that may from time to time be established by the Company for its employees, provided that Employee is eligible under the respective provisions thereof. (b) Vacation. Employee shall be entitled each year to a vacation in accordance with the prevailing practice of the Company in regard to vacations for its employees. 7. Termination of Employment. (a) During the Employment Period, the Company shall have the right, if exercised in good faith, to terminate the employment of Employee hereunder immediately by giving notice thereof to Employee in the event of any of the following: (i) if Employee has (A) willfully failed, refused or habitually has neglected to carry out or to perform the reasonable duties required of Employee hereunder or otherwise breached any provision of this Agreement (other than Sections 8, 9 and 12 hereof, which are governed by Section 7(a)(iv) hereof); (B) willfully breached any statutory or common law duty; or (C) breached Section 3(c) or 3(d) of this Agreement. (ii) if Employee commits a felony or a crime involving moral turpitude or if the Company, acting in good faith and upon reasonable grounds, determines that Employee has willfully engaged in conduct which would Page 3 injure the reputation of the Company or otherwise adversely affect its interest if Employee were retained as an employee of the Company; (iii) if Employee becomes unable by reason of physical disability or other incapacity (as may be defined in applicable disability insurance policies) to carry out or to perform the duties required of Employee hereunder for a continuous period of ninety (90) days; provided, however, that Employee's compensation during any period in which Employee is unable to perform the duties required of Employee hereunder shall be reduced in accordance with the Company's policies and by any disability payments (excluding any reimbursements for medical expenses and the like) which Employee is entitled to receive under group or other disability insurance policies of the Company during such period; (iv) if Employee breaches any of the provisions of Section 8, 9 or 12 hereof or breaches any of the terms or obligations of any other noncompetition and/or confidentiality agreements entered into between Employee and the Company, or the Company's Related Entities (as defined in Section 20 hereof), if any; or (v) if employee steals or embezzles assets of the Company. (b) Employee's employment with the Company shall automatically terminate (without notice to Employee's estate) upon the death or loss of legal capacity of Employee. (c) In the event of any termination of employment pursuant to this Section 7, Employee (or Employee's estate, as the case may be) shall be entitled to receive (i) the Base Salary herein provided prorated to the date of such termination, (ii) Employee's present entitlement, if any, under the Company's employee benefit plans, stock option plans and programs and (iii) no other compensation. 8. No Conflict of Interest; Proper Conduct; Restricted Activities. (a) The Company and Employee acknowledge and agree that the Company has divulged and expects to divulge to Employee certain confidential information and trade secrets relating to the Company's business, provide information relating to the Company's customer base and otherwise provide Employee with the ability to injure the Company's goodwill unless certain reasonable restrictions are imposed upon Employee which are contained in this Section. Employee agrees that such restrictions are reasonable and necessary to protect the goodwill, confidential information and other legitimate business interests of the Company and such restrictions are entered into freely by Employee. Employee acknowledges that the Company's business and Employee's responsibilities are nationwide. The confidential information and trade secrets expected to be divulged to Employee shall include information and trade secrets regarding the Company's business and operations nationwide. (b) While employed by the Company, Employee will not compete with the Company, directly or indirectly, either for Employee or as a member of any association, partnership, joint venture, limited liability partnership or limited liability company or other entity, or as a stockholder (except as a Page 4 stockholder of less than one percent (1%) of the issued and outstanding stock of a publicly-held corporation whose gross assets exceed $100,000,000), investor, officer or director of a corporation, or as an employee, agent, trustee, associate or consultant of any person, association, trust, partnership, joint venture, registered limited liability partnership or limited liability company, corporation or other entity, in any business in competition with that carried on by the Company or its Related Entities. Employee shall not, without the Company's prior written consent, engage in any activity during Employee's employment that would conflict with, interfere with, impede or hamper the performance of Employee's duties for the Company or would otherwise be prejudicial to the Company's business interests. Employee shall not commit any act or become involved in any situation or occurrence that, in the Company's reasonable judgment, could tend to bring Employee or the Company into public disrepute, contempt, scandal or ridicule, could provoke, insult or offend the community or any group or class thereof, or could reflect unfavorably upon the Company or any of its Sponsors or Affiliates. Employee shall comply with all applicable laws and regulations governing the Company and its business, including without limitation, regulations promulgated by the Federal Communications Commission or any other regulatory agency. (c) Subsequent to the term, in consideration of three months base salary, Employee further agrees that, for a period of six months from and after Employee's last day of employment under this Agreement (the "Restricted Period"), regardless of cause, Employee will not engage in or carry on, directly or indirectly, either for Employee or as a member of an association, trust, partnership, joint venture, limited liability partnership or limited liability company or other entity, or as a stockholder (other than as a stockholder of less than one percent (1%) of the issued and outstanding stock of a publicly-held corporation, whose gross assets exceed $100,000,000), or as an investor, officer or director of a corporation, or as an employee, agent, trustee, associate or consultant of any person, association, trust, partnership, corporation, joint venture, registered limited liability partnership or limited liability company, or other entity, any Restricted Activity. Restricted Activities shall consist of: (i) providing services to a traffic, news, sports, weather or other information report gathering or broadcast service or to a radio network or syndicator, or any direct or indirect competitor of Westwood or its Related Entities; (ii) soliciting Sponsors and dealing with accounts with respect thereto; (iii) soliciting Affiliates to enter into any contract or arrangement with any person or organization to provide traffic, news, weather, sports or other information report gathering or broadcast services or national or regional radio network or syndicated programming; or (v) forming or providing operational assistance to any business or a division of any business engaged in the foregoing activities. During this period Employee will be a consultant to the Company and will be entitled to benefits and continued vesting of previously issued stock options in accordance with stock option plan. (d) Employee further covenants and agrees that during the Restricted Period, Employee will not either individually, or on behalf of any other person, association, trust, partnership, joint venture, limited liability partnership or limited company or other entity as an owner, member, partner, agent, trustee, shareholder, joint venturer or otherwise, directly or indirectly, solicit any customer and/or Sponsor of the Company or its Related Entities in competition with the Company. (e) Employee further agrees that during the Restricted Period, Employee will neither employ nor offer to employ nor solicit employment of any employee or consultant of the Company or its Related Entities. Page 5 (f) Employee further agrees not to solicit, divert or attempt to divert any business, patronage or customer of the Company or its Related Entities to Employee or a competitor or rival of the Company or its Related Entities during the Restricted Period. (g) Employee agrees that the limitations set forth herein on Employee's rights are reasonable and necessary for the protection of the Company and its Related Entities. In this regard, Employee specifically agrees that the limitations as to period of time and geographic area, as well as all other restrictions on Employee's activities specified herein, are reasonable and necessary for the protection of the Company and its Related Entities. (h) Employee agrees that the remedy at law for any breach by Employee of this Section 8 will be inadequate and that the Company shall be entitled to injunctive relief (without bond or other undertaking). (i) Employee and Company agree that to the extent a court of competent jurisdiction or appropriate arbitral tribunal finds any of the foregoing covenants to be overly broad based on applicable law, then the parties agree that the court shall reform the covenants to the extent necessary to cause such covenants to be reasonable and enforce such covenants as reformed against Employee. 9. Confidential Information and the Results of Services. Employee acknowledges that the Company has established a valuable and extensive trade in the services it provides, which has been developed at considerable expense to the Company. Employee agrees that, by virtue of the special knowledge that Employee has received or will receive from the Company, and the relationship of trust and confidence between Employee and the Company, Employee has or will have certain information and knowledge of the operations of the Company that are confidential and proprietary in nature, including, without limitation, information about Affiliates and Sponsors. Employee agrees that during the term hereof and at any time thereafter Employee will not make use of or disclose, without the prior consent of the Company, Confidential Information (as hereinafter defined) relating to the Company and any of its Related Entities (including, without limitation, its Sponsor lists, its Affiliates, its technical systems, its contracts, its methods of operation, its business plans and opportunities, its strategic plans and its trade secrets), and further, that Employee will return to the Company all written materials in Employee's possession embodying such Confidential Information. For purposes of this Agreement, "Confidential Information" means information obtained by Employee during Employee's employment relationship with the Company which concerns the affairs of the Company or its Related Entities and which the Company has requested be held in confidence or could reasonably be expected to desire to be held in confidence, or the disclosure of which would likely be embarrassing, detrimental or disadvantageous to the Company or its Related Entities. Confidential Information shall also include the terms of this Agreement (except with respect to Employee's legal and tax advisors, and immediate family). Confidential Information, however, shall not include information which Employee can show by written document to be: (a) Information that is at the time of receipt by Employee in the public domain or is otherwise generally known in the industry or subsequently enters the public domain or becomes generally known in the industry through no fault of Employee; Page 6 (b) Information that at any time is received in good faith by Employee from a third party which was lawfully in possession of the same and had the right to disclose the same. The parties hereto agree that the remedy at law for any breach of Employee's obligations under this Section 9 of this Agreement would be inadequate and that any enforcing party shall be entitled to injunctive or other equitable relief (without bond or undertaking) in any proceeding which may be brought to enforce any provisions of this Section. 10. Advertising and Publicity. Employee hereby grants the Company the royalty-free right to use and license others to use Employee's name, nickname, recorded voice, biographical material, portraits, pictures, and likenesses for advertising purposes and purposes of trade, promotion and publicity in connection with the institutions, services and products for the Company, its Related Entities, Sponsors and Affiliates, such uses to be at such times, in such manner and through such media as the Company may in its sole discretion determine. Such right shall last for so long as Employee is employed by the Company and, in connection with the use or exploitation of any material in which Employee has been involved during Employee's employment, perpetually thereafter. Employee shall not authorize or release any advertising or promotional matter or publicity in any form with reference to Employee's services hereunder, or to the Company's or its Related Entities' programs, Sponsors or Affiliates, without the Company's prior written consent. 11. Work for Hire. Employee agrees that any ideas, concepts, techniques, or computer programs relating to the business or operations of the Company and its Related Entities which are developed by Employee during Employee's employment hereunder, including each program and announcement prepared for broadcast, and the titles, content, format, idea, theme, script, characteristics, and other attributes thereof, shall be deemed to have been made within the scope of Employee's employment and therefore constitute works for hire and shall automatically upon their creation become the exclusive property of the Company. To the extent such items are not works for hire under applicable law, Employee assigns them and any and all intangible proprietary rights relating thereto to the Company in their entirety and agrees to execute any and all documents necessary or desired by the Company to reflect the Company's ownership thereof. 12. Communications Act of 1934. Employee represents and warrants that neither Employee nor, to the best of Employee's knowledge, information and belief, any other person, has accepted or agreed to accept, or has paid or provided or agreed to pay or provide, any money, service or any other valuable consideration, as defined in Section 507 of the Communications Act of 1934, as amended, for the broadcast of any matter contained in programs. Employee further represents and warrants that, during Employee's employment, Employee shall comply with all legal requirements. 13. Merger or Reorganization. In the event of any merger, consolidation, dissolution or reorganization of the Company (including but not limited to any reorganization where the Company is not the surviving or resulting entity), or any transfer of all or substantially all of the assets of the Company, the provisions of this Agreement shall inure to the benefit of and shall be binding upon the surviving or resulting partnership or the corporation (or other entity) or person(s) to which such assets shall be transferred. Page 7 14. Remedies. Except as it may elect otherwise, the Company shall have all rights, powers or remedies provided by law or equity for breach of this Agreement available to it, it being understood and agreed that no one of them shall be considered as exclusive of the others or as exclusive of any other rights, powers and remedies allowed by law. The exercise or partial exercise of any right, power or remedy shall neither constitute the election thereof nor the waiver of any other right, power or remedy. Without limiting the generality of the foregoing, Employee agrees that, in addition to all other rights and remedies available at law or in equity, the Company shall be entitled to enforcement of this Agreement in accordance with the principles of equity (without bond or undertaking), the remedy at law being hereby agreed and acknowledged by Employee to be inadequate. 15. Waiver of Breach of Agreement. If either party waives a breach of this Agreement by the other party, that waiver will not operate or be construed as a waiver of any subsequent breaches. 16. Assignment. The rights of the Company hereunder may, without the consent of Employee, be assigned by the Company to any Related Entity or successor of the Company or any entity which acquires all or substantially all of the Company's assets. Except as provided in the preceding sentence or in Section 13 hereof, the Company may not assign all or any of its rights, duties or obligations hereunder without the prior written consent of Employee. This Agreement is not assignable by Employee. Any attempt by Employee to assign this Agreement, or any portion thereof, shall be deemed null and void and of no force and effect. 17. Notices. All notices, requests, demands and other communications permitted or required hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if deposited in the United States mail, first class, postage prepaid, registered or certified, addressed as follows: (a) If to Employee, addressed to Employee at the address set forth below Employee's name on the execution page hereof. (b) If to the Company, addressed to: Westwood One, Inc. 40 West 57th Street, 15th Floor New York, New York 10019 Attention: President or to such other address as either party hereto may request by written notice as herein provided. 18. Severability. Any provision hereof prohibited by or unenforceable under any applicable law of any jurisdiction shall as to such jurisdiction be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement. It is the desire of the parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held unenforceable, the parties hereby agree and consent Page 8 that such provision shall be reformed to make it a valid and enforceable provision to the maximum extent permitted by law. 19. Title and Headings; Exhibits. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. Any and all exhibits referred to herein are, by such reference, incorporated herein and made a part hereof. 20. Certain Definitions. As used in this Agreement, the following capitalized terms shall have the meanings indicated: (a) Affiliates. Any organization, entity or person with whom the Company or any of the Company's Related Entities has or had a contract or other arrangement to provide traffic, news, weather, sports, entertainment or other information or national or regional radio network or syndicated programming, whether by broadcast, computer or any other means. (b) Sponsor(s). Any and all client advertisers of the Company or its Related Entities including without limitation advertisers whose commercial material is to be, is or was incorporated in any one or more of the Company's programs or announcements, live or recorded, broadcast over the facilities of the Company, by the Company, or pursuant to an arrangement with a Affiliate. (c) Related Entity or Related Entities. Any entity (or entities) that directly or indirectly controls, is controlled by, or is under common control with the Company (or its successor or assign), including but not limited to Westwood One Radio Networks, Inc., Westwood One Radio, Inc., Metro Networks Communications, Inc. and Metro Networks Communications, Limited Partnership. The term "entity" as used in this Section 20(c) means an individual, corporation, partnership, joint venture, limited liability partnership or limited liability company, trust, unincorporated organization, association or other entity. As used in this Section 20(c), the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise. 21. Choice of Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 22. Arbitration. The parties hereby agree that any and all claims or controversies relating to Employee's employment with the Company, or termination thereof, including but not limited to claims for breach of contract, tort, unlawful discrimination or harassment (as well as any claims arising under Title VII, the Americans with Disabilities Act, and the Age Discrimination in Employment Act), and any violation of any state or federal law ("Arbitrable Page 9 Claims"), except for equitable relief sought by a party in aid of arbitration, shall be resolved by arbitration in accordance with the then applicable JAMS Employment Arbitration Rules And Procedures. However, claims under applicable workers' compensation laws or the National Labor Relations Act shall not be subject to arbitration. Arbitration under this Agreement shall be the exclusive remedy for all Arbitrable Claims and shall be final and binding on all parties. Unless the parties mutually agree otherwise, the Arbitrator shall be selected from a panel provided by JAMS and the arbitration shall be held in New York County, New York. Any court having jurisdiction thereof may enter judgment on the award rendered by the arbitrator(s). THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY OF ANY MATTERS SUBJECT TO ARBITRATION UNDER THIS AGREEMENT. 23. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, executors, successors and permitted assigns. 24. Entire Agreement and Amendment. This Agreement supersedes all prior understandings and agreements between the parties (including the Company's Related Entities) with respect to the subject matter hereof. This Agreement contains the entire agreement of the parties with respect to the subject matter covered hereby and may be amended, waived or terminated only by an instrument in writing executed by both parties hereto. 25. Execution by Company. Submission of this Agreement to Employee, or Employee's agents or attorneys, for examination or signature does not constitute or imply an offer of employment, and this Agreement shall have no binding effect until execution hereof by both the Company and Employee. Page 10 26. No Inference Against Author. No provision of this Agreement shall be interpreted against any party because such party or its legal representative drafted such provision. 27. Confidentiality. The terms of this Agreement shall remain confidential except to the extent the disclosure of same is required under any government or securities regulation including, but not limited, to proxy disclosure, SEC and NYSE requirements and individual state requirements. IN WITNESS WHEREOF, this Agreement is EXECUTED as of the 23rd day of July 2003 to be EFFECTIVE FOR ALL PURPOSES as of the Effective Date. "COMPANY" WESTWOOD ONE, INC. By:/S/ SHANE COPPOLA -------------------------------- Printed Name: Shane Coppola Title: President and CEO "EMPLOYEE" /S/ PETER KOSANN --------------------------------- Peter Kosann Address: 86 South Road Harrison, NY 10528 Page 11 Schedule 1 Bonus Criteria Employee may earn a maximum bonus for the year 2003 of $575,000 based on the performance of each division as set forth below. Network Division In the event the net sales for the Network division reaches or exceeds $252,000,000, Employee would earn a bonus of $200,000. In the event Net sales for the Network division reaches or exceeds the 2003 budget ($262,000,000) Employee shall receive an additional $200,000. Metro Division In the event net radio cash sales for the third and fourth quarter of 2003 for the Metro division exceeds the net radio cash sales for the third and fourth quarter of 2002 ($131,000,000) by 3%, Employee shall receive a bonus of $100,000. If the net radio cash sales for the third and fourth quarter of 2003 for the Metro division exceeds the net radio cash sales for the third and fourth quarter of 2002 by 5%, Employee shall receive an additional bonus of $75,000. All bonuses payable under this plan shall be paid in February in accordance with Company practice. Bonus plans for the years 2004 and 2005 shall be determined at the Company's sole discretion with a bonus potential to Employee of $575,000 per year. Page 12 EX-10 5 won200410kexhibit10_17.txt WON 2004 10K EXHIBIT 10.17 EXHIBIT 10.17 EXECUTION COPY EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of June 1, 1999 (this "Agreement"), is entered into by and between CHARLES I. BORTNICK ("Employee") and WESTWOOD ONE, INC., a Delaware corporation (the "Company"). RECITALS: WHEREAS, the Company is in the business of managing a sales force, selling broadcast and other advertising, and developing, producing and broadcasting traffic, news, sports, weather and other information reports throughout the United States; and WHEREAS, Employee has extensive management, marketing and operations experience; and WHEREAS, the Company desires to engage the services of Employee to serve as President and Chief Operating Officer of the Company's Metro/Shadow operations ("Metro/Shadow") on the terms and conditions herein contained; and NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. Employment. The Company hereby engages and employs Employee, and Employee accepts such employment, to render such services to the Company as President and Chief Operating Officer of Metro/Shadow as are customarily rendered by and required by such a position, and Employee agrees to devote Employee's full time and efforts to the interests of the Company upon the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions for termination hereinafter provided, Employee's term of employment by the Company shall commence at the Effective Time (as defined in the Agreement and Plan of Merger, dated as of June 1, 1999, by and among the Company, Metro Networks, Inc. and Copter Acquisition Corp. (the "Effective Date"), and shall continue in effect until the later of (i) twenty-four (24) months from the Effective Date and (ii) December 31, 2001 (the "Term"). Unless otherwise terminated pursuant hereto, if Employee continues to be employed by the Company after the Term, then Employee's employment shall be deemed to continue on a month-to-month basis until such time as either party shall deliver written notice to the other party and this Agreement shall terminate ninety (90) days after the giving of such notice. Except as otherwise set forth herein, if either party hereto desires to terminate this Agreement at the end of the Term or thereafter, the same ninety (90) days prior written notice shall apply. The period from the Effective Date through the date ninety (90) days from the date any notice of termination 1 referred to above is delivered is hereinafter referred to as the "Employment Period". Unless otherwise terminated pursuant to Section 7, if the Company terminates Employee's employment at the end of the Term or anytime thereafter, or the parties are unable to agree on the terms of a new agreement at the end of the Term and Employee terminates his employment, the Company shall pay Employee the equivalent of his monthly Base Salary (as defined herein) for ninety (90) days following the end of Employee's employment. 3. Services to be Rendered by Employee. (a) During the Employment Period, Employee shall serve as President and COO of Metro/Shadow. Employee shall perform such executive duties as from time to time may be delegated to Employee by such parties. Employee shall devote all of Employee's professional time, energy and ability to the proper and efficient conduct of the Company's business. Employee shall observe and comply with all reasonable lawful directions and instructions by and on the part of the Chief Executive Officer or the Board of Directors of the Company (the "Board of Directors") or their designees, and endeavor to promote the interests of the Company and not at any time do anything which may cause or tend to be likely to cause any loss or damage to the Company in business, reputation or otherwise. (b) The Company may from time to time call on Employee to perform services related to the business of developing and broadcasting traffic, news, sports and weather reports, which may include (in the Company's sole discretion) contributing to the day-to-day management and operation of such business, soliciting Sponsors, Corporate Affiliates (as such terms are defined in Section 14 hereof) or customers or dealing with their accounts, or the television or radio broadcast of traffic, news, sports and weather reports, or other activities related to the Company's business, as reasonably specified from time to time by the Chief Executive Officer, the Board of Directors or their designees. The Company shall not relocate Employee to another city without Employee's prior consent. (c) Employee acknowledges that the Company does not allow personal trade. 4. Compensation. (a) Base Salary. For the services to be rendered by Employee during Employee's employment by the Company, the Company shall pay Employee, and Employee agrees to accept, a base salary (the "Base Salary") of $325,000 for year one and $350,000 for year two, in each case payable in accordance with the Company's standard payroll procedures. (b) Bonus. Employee shall be eligible for a potential cash bonus of $125,000 for year one and $150,000 for year two, in each case based on achieving cash flow objectives established by the Chief Executive Officer, which objectives may be modified by the Chief Executive Officer based on changes in facts or circumstances in his/her reasonable discretion. 2 (c) Options. Employee will be granted options, at the then current market price on the date of grant, under the Company's 1999 Stock Option Plan to purchase seventy-five thousand (75,000) shares, of the Company's common stock, par value $.01 per share, on each of the Effective Date and the first anniversary of the Effective Date. The option agreement relating to such options shall provide that such options shall vest ratably over 5 years, provided, however, that vesting will be accelerated if employee is terminated without cause (for purposes of this Agreement, termination for cause shall be limited to termination pursuant to Sections 7(a)(i), (ii), (iv) and (v) hereof), or if this Agreement is not renewed on terms substantially similar to this Agreement, excluding the annual grant of stock options. 5. Expenses. Upon submission of all necessary properly completed expense reports requested by the Company, the Company shall reimburse Employee, or cause Employee to be reimbursed, in cash for all reasonable, receipt-supported, business expenses incurred by Employee in accordance with the Company's policies in effect from time to time. 6. Benefits. (a) Company Plans; Insurance. During the Term, Employee shall receive all the benefits currently available to comparable level employees of the Company. Employee recognizes the right of the Company to change, amend or terminate any of the afore-mentioned employee benefit programs at any time. (b) Vacation. Employee shall be entitled to vacation time in accordance with the Company's employee handbook. Such vacation time may only be used subject to reasonable approval by the Chief Executive Officer of the Company. (c) Years of Service. For purposes of determining years of service, Employee shall be given credit for years of service at Metro/Shadow and its subsidiaries. 7. Termination of Employment; Suspension. (a) During the Employment Period, the Company shall have the right, to terminate the employment of Employee hereunder immediately with or without notice thereof to Employee in the event of any of the following: (i) if Employee has (A) willfully failed, refused or habitually has neglected to carry out or to perform the reasonable duties required of Employee hereunder or otherwise breached any material provision of this Agreement (other than Sections 8 and 13 hereof, which are governed by Section 7(a)(iv) hereof) after ten (10) days prior written notice from the Chief Executive Officer or the Board of Directors of such failure or neglect and the failure or neglect remains unremedied following such ten (10) days period, or (B) willfully breached any statutory or common law duty. 3 (ii) if Employee is convicted of a felony or a crime involving moral turpitude or if the Company, acting in good faith and upon reasonable grounds, determines that Employee has willfully engaged in conduct which would injure the reputation of the Company or otherwise adversely affect its interest if Employee were retained as an employee of the Company; (iii) if Employee becomes unable by reason of physical disability or other incapacity (as may be defined in applicable disability insurance policies) to carry out or to perform the duties required of Employee hereunder for a continuous period of ninety (90) days; provided, however, that Employee's compensation during any period in which Employee is unable to perform the duties required of Employee hereunder shall be reduced in accordance with the Company's policies and by any disability payments (excluding any reimbursements for medical expenses and the like) which Employee is entitled to receive under group or other disability insurance policies of the Company during such period; (iv) if Employee breaches any of the provisions of Section 8 or 13 hereof or breaches any of the terms or obligations of any other noncompetition and/or confidentiality agreements entered into between Employee and the Company, or the Company Group (as hereinafter defined), if any; or (v) if employee steals or embezzles assets of the Company. (b) Employee's employment with the Company shall automatically terminate (without notice to Employee's estate) upon the death or loss of legal capacity of Employee. (c) If Employee willfully fails to perform in any material respect any of the obligations set forth in this Agreement, or in the event of any willful breach by Employee of any representation, warranty, term, obligation or condition of this Agreement, the Company shall have the right, at its sole option, in addition to the rights set forth in this Agreement or any other rights at law or in equity, to discipline Employee, by suspension from work, and/or suspension of or reduction in pay. (d) In the event of any termination of employment pursuant to this Section 7, Employee (or Employee's estate, as the case may be) shall be entitled to receive (i) the Base Salary herein provided prorated to the date of such termination, (ii) Employee's present entitlement, if any, under the Company's employee benefit plans and programs and (iii) no other compensation. 8. Confidentiality; Non-Competition; Non-Solicitation. (a) Employee recognizes and acknowledges that he has had access to certain information of members of the Company Group (as hereinafter defined) and that such information is confidential and constitutes valuable, special and unique property of such members of the Company Group. 4 Employee shall not, directly or indirectly, at any time after the Effective Date, disclose, divulge, publish or otherwise communicate to anyone, nor retain, copy or permit to be copied, or make use of for personal purposes or for the benefit of any person, firm, corporation or other entity (other than the Company Group) any Confidential Information (as defined below) of any member of the Company Group (regardless of whether developed by such party) without the prior written consent of the Company. As used herein, "Company Group" means the Company and its subsidiaries, and any entity that directly or indirectly controls, is controlled by, or is under common control with, the Company and its subsidiaries. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract or otherwise. (b) The term "Confidential Information" with respect to any person means any trade secrets and any other secret or confidential information or knowledge and shall include, but shall not be limited to, (i) the plans, methods, costs, prices, uses and applications of products and services relating to the Business (as hereinafter defined), (ii) results of investigations, studies or research relating to the Business, (iii) information relating to employees, agents, broadcasters, customers, suppliers and advertisers of the Business, (iv) all products, processes, compositions, samples, formulae, computer programs and information systems relating to the Business, (v) all servicing, marketing, programming or business methods and techniques relating to the Business and (vi) all business plans, financial matters and all information relating to mergers and acquisitions relating to the Business, in all such cases before or during the term of this Agreement, that are not available to the public or that are maintained as confidential by any member of the Company Group. (c) During the Term of this Agreement and for a period of one year thereafter, without the prior written consent of the Company, Employee shall not, and shall not permit any person or entity who or which Employee controls (as defined above) to, within the United States (the "Territory"), engage directly or indirectly in the Business (other than engaging in such businesses pursuant to Employee's employment or consultation with, participation in the management of, or ownership of securities in, the Company Group). For purposes of this Agreement, "Business" shall mean the businesses of the Company (as now conducted or contemplated to be conducted) including without limitation, the businesses of (i) providing traffic reporting services, however distributed, including, without limitation, to television and radio stations, Internet service providers and any other person or entity who or which may distribute such services or information through any media, now existing or hereafter available or (ii) providing local news, sports or weather reporting to radio stations. Employee shall be deemed to engage in the Business if Employee, directly or indirectly (including, without limitation, through any person or entity who or which Employee controls), engages or invests in, owns, manages, operates, controls or participates in the ownership, management, operation or control of, is employed by, provides financial support, or renders services or 5 advice to, any business engaged in the Business; provided, however, that (x) Employee or any such person or entity may invest in the securities of any enterprise (but without otherwise participating in the activities of such enterprise) if (1) such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended, and (2) Employee does not beneficially own (as defined Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) 5% or more of the outstanding equity of such enterprise and (y) Employee shall not be deemed to engage in the Business as a result of his employment with a business so engaged so long as the responsibilities and activities with respect to his employment are not related, directly or indirectly, in any material respect to the conduct by such business of its Business. (d) During the Term of this Agreement and for a period of one year thereafter, Employee shall not, directly or indirectly, request, induce, attempt to influence or have any other business contact with any employee, officer, agent or consultant of any member of the Company Group or any talent providing services to the Company Group, to terminate his or her relationship with such member of the Company Group. 9. Enforceability. Employee agrees that if a court of competent jurisdiction determines that the length of time or any other restriction, or portion thereof, set forth in this Agreement is overly restrictive and unenforceable, the court may reduce or modify such restrictions to those which it deems reasonable and enforceable under the circumstances, and as so reduced or modified, the parties hereto agree that the restrictions of this Agreement shall remain in full force and effect. Employee further agrees that if a court of competent jurisdiction determines that any provision of this Agreement is invalid or against public policy, the remaining provisions of this Agreement and the remainder of this Agreement shall not be affected thereby, and shall remain in full force and effect. Employee acknowledges that the restrictions imposed by the Agreement are legitimate, reasonable and necessary to protect the Company Group's investment in its businesses and the goodwill thereof. Employee acknowledges that the scope and duration of the restrictions contained herein are reasonable in light of the time that Employee has been engaged in the Business, Employee's reputation in the markets for the Business and Employee's relationship with the suppliers, customers, advertisers and clients of the Company Group. Employee further acknowledges that the restrictions contained herein are not burdensome to Employee in light of the consideration paid therefor and the other opportunities that remain open to Employee. 10. Remedies. Employee acknowledges that money damages or other remedy at law would not be a sufficient or adequate remedy for any breach or violation of, or default under, this Agreement, but Employee agrees that in addition to all other remedies available to the other parties hereto, such other parties shall be entitled to the fullest extent permitted by law to an injunction restraining such breach, violation or default or threatened breach, violation or default and to any other equitable relief, including, without limitation, restraining orders, injunctive relief and specific performance, without the posting of a bond or other security interest being required. 6 11. Advertising and Publicity. Employee hereby grants the Company the royalty-free right to use and license others to use Employee's name, nickname, recorded voice, biographical material, portraits, pictures, and likenesses for advertising purposes and purposes of trade, promotion and publicity in connection with the institutions, services and products for the Company Group, Sponsors and Corporate Affiliates, such uses to be at such times, in such manner and through such media as the Company may in its sole discretion determine. Such right shall last for so long as Employee is employed by the Company and, in connection with the use or exploitation of any material in which Employee has been involved during Employee's employment, perpetually thereafter. Employee shall not authorize or release any advertising or promotional matter or publicity in any form with reference to Employee's services hereunder, or to the Company Group's programs, Sponsors or Corporate Affiliates, without the Company's prior written consent. 12. Work for Hire. Employee agrees that any ideas, concepts, techniques, or computer programs relating to the business or operations of the Company Group which are developed by Employee during Employee's employment hereunder, including each program and announcement prepared for broadcast, and the titles, content, format, idea, theme, script, characteristics, and other attributes thereof, shall be deemed to have been made within the scope of Employee's employment and therefore constitute works for hire and shall automatically upon their creation become the exclusive property of the Company. To the extent such items are not works for hire under applicable law, Employee assigns them and any and all intangible proprietary rights relating thereto to the Company in their entirety and agrees to execute any and all documents necessary or desired by the Company to reflect the Company's ownership thereof. 13. Communications Act of 1934. Employee represents and warrants that neither Employee nor, to the best of Employee's knowledge, information and belief, any other person, has accepted or agreed to accept, or has paid or provided or agreed to pay or provide, any money, service or any other valuable consideration, as defined in Section 507 of the Communications Act of 1934, as amended, for the broadcast of any matter contained in programs. Employee further represents and warrants that, during Employee's employment, Employee shall comply with all legal requirements. 14. Certain Definitions. As used in this Agreement, the following capitalized terms shall have the meanings indicated: (a) Corporate Affiliates. Any organization, entity or person with whom the Company has or had a contract or other arrangement to provide traffic, news, weather, sports or other information, whether by broadcast, computer or any other means. (b) Sponsor(s). Any and all client advertisers of the Company (including their subsidiaries and affiliates), including, without limitation, advertisers whose commercial material is to be, is or was incorporated in any one or more of the Company's programs or announcements, live or recorded, broadcast over the facilities of the Company, by the Company, or pursuant to an arrangement with a Corporate Affiliate. 7 15. No Waiver. No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. 16. Successors and Assigns. This Agreement shall inure to the benefit of and the successors and assigns of the Company. The Company may assign its rights under this Agreement in connection with any sale, transfer of other disposition of all or a substantial portion of the stock or assets of the Company. Employee may not assign his duties or obligations hereunder, but this Agreement shall be enforceable against Employee's successors and legal representatives to the extent of any violation hereof by Employee. 17. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by cable, telegram, confirmed facsimile or telex, or by first class mail (postage prepaid, return receipt requested), to the other party as follows: if to the Company to: Westwood One, Inc. 9540 Washington Boulevard Culver City, California 90232 Attention: Joel Hollander Facsimile: (310) 840-4059 with a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: Howard Chatzinoff, Esq. Facsimile: (212) 310-8007 if to Employee to: Charles Bortnick c/o Metro Networks, Inc. 2800 Post Oak Blvd. Suite 4000 Houston, Texas 77056 Facsimile: (713) 407-6049 with a copy to: Neil A. Torpey, Esq. Paul, Hastings, Janofsky & Walker LLP 399 Park Avenue New York, New York 10022 Facsimile: (212) 319-4090 8 or to such other address as the person to whom notice is given may have previously furnished to the other in writing in the manner set forth above. 18. Severability. If any term or other provision of this Agreement is invalid, illegal or unenforceable, all other provisions of this Agreement shall remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. 19. Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 20. Governing Law. This Agreement shall be instituted and enforced in accordance with, and governed by, the laws of the State of New York applicable to contracts to be made, executed, delivered and performed wholly within such state and, in any case, without regard to the conflicts of law principles and policies of such state. 21. Waiver of Rights and Consent to Arbitration. Employee shall and does hereby irrevocably waive the right to file any complaints against the Company with any federal, state or local agencies, including but not limited to, the Equal Employment Opportunity Commission, and any state Commission on Human Rights or to file any claim, institute litigation or other legal action based on the employment relationship or any activity covered by the terms of this agreement. Employee agrees and acknowledges that in exchange for the relinquishment of those rights that any dispute, controversy or claim arising out of this Agreement, or the employment relationship between Employee and the Company, except for equitable relief sought by the Company in aid of arbitration, shall be finally settled by arbitration in the State of New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date of this Agreement and judgment upon the award may be entered in any court having jurisdiction thereof. 22. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be original but all of which shall constitute one and the same agreement. 23. Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 24. Execution by Company. Submission of this Agreement to Employee, or Employee's agents or attorneys, for examination or signature does not constitute or imply an offer of employment, and this Agreement shall have no binding effect until execution hereof by both the Company and Employee. 9 25. No Inference Against Author. No provision of this Agreement shall be interpreted against any party because such party or its legal representative drafted such provision. [SIGNATURES BEGIN ON NEXT PAGE] SIGNATURE PAGE TO EMPLOYMENT AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the day and year first written above. WESTWOOD ONE, INC. By:/S/ FARID SULEMAN -------------------- Name: Farid Suleman Title: Executive Vice President, Chief Financial Officer and Secretary /S/ CHARLES BORTNICK -------------------- CHARLES BORTNICK 11 AMENDMENT 1 TO EMPLOYMENT AGREEMENT BETWEEN WESTWOOD ONE, INC. AND CHARLES I. BORTNICK The following, upon execution by the parties hereto shall constitute an amendment to the Employment Agreement entered into by and between Westwood One, Inc. (the "Company") and Charles I. Bortnick ("Employee"), dated as of June 1, 1999 (the "Agreement"). 1. Section 4(a) of the Agreement shall be amended and restated as follows: "(a) Base Salary. For the services to be rendered by Employee during Employee's employment by the Company commencing January 1, 2002, the Company shall pay Employee, and Employee agrees to accept, an annual base salary (the "Base Salary") of $375,000, payable in accordance with the Company's standard payroll procedures." 2. Section 4(b) of the Agreement shall be amended and restated as follows: "(b) Bonus. Employee will be eligible for a discretionary cash bonus of up to Two Hundred Thousand ($200,000.00) Dollars in the sole and absolute discretion of the Board of Directors or its Compensation Committee or their designee. " 3. The word "Term" in Section 6(a) of the Agreement shall be replaced with "Employment Period". 4. The phrase "Term of this Agreement" in the first lines of Sections 8(c) and (d) of the Agreement shall be replaced with "Employment Period". 5. Employee's address for notices in Section 17 of the Agreement shall be deleted and restated as "Charles I. Bortnick 27 Pepper Creek Drive Pepper Pike, Ohio 44124" 6. The effective date of this Amendment shall be January 1, 2002. 1 7. All other provisions of the Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, this Amendment is EXECUTED as of the 1st day of January, 2002. WESTWOOD ONE, INC. By:/S/ JOEL HOLLANDER - --------------------- Name: Joel Hollander Title: President and CEO EMPLOYEE /S/ CHUCK BORTNICK - ------------------ Chuck Bortnick 2 AMENDMENT 2 TO EMPLOYMENT AGREEMENT BETWEEN WESTWOOD ONE, INC. AND CHARLES I. BORTNICK The following, upon execution by the parties hereto shall constitute an amendment to the Employment Agreement entered into by and between Westwood One, Inc. (the "Company") and Charles I. Bortnick ("Employee"), dated as of June 1, 1999 (the "Agreement"). 1. Prior to August 1, 2002, Employee shall relocate to the New York Metropolitan area (e.g. Westchester County) and work out of the Company's New York corporate offices during the term of this Agreement. The Company shall pay certain moving expenses related to Employee's relocation, as mutually agreed to between the parties. 2. The date "December 31, 2001" in Section 2 of the Agreement shall be replaced with "December 31, 2004". 3. Section 1 and 3(a) of the Agreement are amended by deleting "President and Chief Operating Officer" and replacing it with Westwood One - Chief Operating Officer and Metro Networks - President." 4. Section 4(a) of the Agreement shall be amended and restated as follows: "(a) Base Salary. (i) For the services to be rendered by Employee during Employee's employment by the Company commencing January 1, 2002 to the commencement of the Base Salary in (a)(ii) below, the Company shall pay Employee, and Employee agrees to accept, an annual base salary (the "Base Salary") of $375,000, payable in accordance with the Company's standard payroll procedures. (ii) For the services to be rendered by Employee during Employee's employment by the Company commencing on August 1, 2002 through December 31, 2003, the Company shall pay Employee, and Employee agrees to accept, an annual base salary (the "Base Salary") of $425,000, payable in accordance with the Company's standard payroll procedures. (iii)For the services to be rendered by Employee during Employee's employment by the Company commencing January 1, 2004, the Company shall pay Employee, and Employee agrees to accept, an annual base salary (the "Base Salary") of $450,000, payable in accordance with the Company's standard payroll procedures." 2 5. Section 4(b) of the Agreement shall be amended and restated as follows: "(b) Bonus. Employee will be eligible for a discretionary cash bonus of up to Two Hundred Thousand ($200,000.00) Dollars per annum in the sole and absolute discretion of the Board of Directors or its Compensation Committee or their designee. Such bonus potential shall increase to (i) $275,000 on August 1, 2002 and (ii) $325,000 in calendar year 2004. The parties agree that the bonus potential for calendar year 2002 shall be a prorated number based upon the date when the bonus potential increases." 6. A new Section 5.1 shall be added as follows: "5.1 The Company shall provide a leased vehicle to Employee at a cost of not more than $500.00 per month on or about August 1, 2002. The Company shall provide insurance for such vehicle. The Company also agrees to pay for Employee's parking near its offices in New York City." 7. The effective date of this Amendment shall be June 1, 2002. 8. All other provisions of the Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, this Amendment is EXECUTED as of the 5th day of June, 2002. WESTWOOD ONE, INC. By:/S/ JOEL HOLLANDER - --------------------- Name: Joel Hollander Title: President and CEO EMPLOYEE /S/ CHUCK BORTNICK - ------------------ Chuck Bortnick 3 Amendment 3 to Employment Agreement Between Westwood One, Inc. And Charles I. Bortnick Dated June 1, 2004 The following, upon execution by the parties hereto, shall constitute Amendment 3 to the Employment Agreement and the Amendments thereto, by and between Westwood One, Inc. ("Company") and Charles I. Bortnick ("Employee") dated as of June 1, 1999 (the "Agreement"). 1. The term of Employment in Section 2 of the Agreement shall be extended to December 31, 2006. 2. Section 4 shall be amended to add a Section 4(a)(iv) as follows: "4(a)(iv)-For the services to be rendered by Employee during Employee's employment by the Company commencing January 1, 2005, the Company shall pay Employee, and Employee agrees to accept an annual base salary (the "Base Salary") of $475,000 payable in accordance with the Company's standard payroll procedures." For the services to be rendered by Employee during Employee's employment by the Company commencing January 1, 2006, the Company shall pay Employee, and Employee agrees to accept an annual base salary (the "Base Salary") of $500,000 payable in accordance with the Company's standard payroll procedures." 3. Section 4(b) "Bonus" of the Agreement shall be amended to add the following new Section 4(b)(iii) in the second sentence of that section as follows: (iii) And $350,000 each year for calendar year's 2005 and 2006. 4. Section 4(d) of the Agreement shall be deleted in its entirety. 5. All other provisions of the Agreement and the Amendments thereto shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, this Amendment 3 is executed as of this 10th day of June 2004. Westwood One, Inc. Employee /S/ SHANE COPPOLA /S/ CHARLES I. BORTNICK - ----------------- ----------------------- Shane Coppola Charles I. Bortnick President EX-22 6 won200410kexhibit22.txt WON 2004 10K EXHIBIT 22 EXHIBIT 22 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-68785, No. 333-89595 and No. 333-85609) of Westwood One, Inc. of our report dated March 15, 2005 relating to the financial statements, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated March 15, 2005 relating to the financial statement schedule, which appears in this Form 10-K. /S/ PRICEWATERHOUSECOOPERS LLP - ------------------------------ PricewaterhouseCoopers LLP New York, New York March 15, 2005 EX-31 7 won200410kexhibit31_1.txt WON 2004 10K EXHIBIT 31 EXHIBIT 31.1 CHIEF EXECUTIVE OFFICER CERTIFICATION I, Shane Coppola, Chief Executive Officer of the Company, certify that: 1) I have reviewed this annual report on Form 10-K of Westwood One, Inc.; 2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have; (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and; 5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /S/ SHANE COPPOLA - ----------------- Shane Coppola Chief Executive Officer March 15, 2005 EX-31 8 won200410kexhibit31_2.txt WON 2004 10K EXHIBIT 31 EXHIBIT 31.2 CHIEF FINANCIAL OFFICER CERTIFICATION I, Andrew Zaref, Chief Financial Officer of the Company, certify that: 1) I have reviewed this annual report on Form 10-K of Westwood One, Inc.; 2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have; (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and; 5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. /S/ ANDREW ZAREF - ---------------- Andrew Zaref Chief Financial Officer March 15, 2005 EX-32 9 won200410kexhibit32_1.txt WON 2004 10K EXHIBIT 32 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 0F THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Westwood One, Inc. (the "Company") on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, Shane Coppola, Chief Executive Officer of the Company, certify that to my knowledge: 1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ SHANE COPPOLA - ----------------- Shane Coppola March 15, 2005 This statement is being furnished to the Securities and Exchange Commission as an exhibit to this Annual Report on Form 10-K. EX-32 10 won200410kexhibit32_2.txt WON 2004 10K EXHIBIT 32 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 0F THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Westwood One, Inc. (the "Company") on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, Andrew Zaref, Chief Financial Officer of the Company, certify that to my knowledge: 1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ ANDREW ZAREF - ---------------- Andrew Zaref March 15, 2005 This statement is being furnished to the Securities and Exchange Commission as an exhibit to this Annual Report on Form 10-K. -----END PRIVACY-ENHANCED MESSAGE-----