SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
---------
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 Commission file number 0-13020
WESTWOOD ONE, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3980449
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9540 Washington Boulevard
Culver City, CA 90232
(Address of principal executive offices)
(310) 204-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b)of the Act:
Name of Each Exchange on
Title of each class Which Registered
- ------------------- ----------------
None None
Securities registered pursuant to Section 12(g)of the Act:
Common Stock
(Title of Class)
Seven Year Common Stock Purchase Warrants
(Title of Class)
----------------
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. [ ]
The aggregate market value of Common Stock held by non-affiliates as of
February 13, 1998 was approximately $790 million.
As of February 13, 1998, 31,351,435 shares (excluding 3,290,295 treasury
shares) of Common Stock were outstanding and 351,733 shares of Class B Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its annual
meeting of shareholders (which will be filed with the Commission within 120 days
of the registrant's last fiscal year end) are incorporated in Part III of this
Form 10-K.
<PAGE>
PART I
Item 1. Business
General
Westwood One, Inc. (the "Company" or "Westwood One") is a leading producer and
distributor of nationally sponsored radio programs and is the nation's largest
radio network as a result of its March 1997 agreement to represent the CBS Radio
Networks. In addition, the Company owns and operates Westwood One Broadcasting
Services, Inc. ("WBS"), which provides local traffic, news, sports and weather
programming to radio stations and other media outlets in New York, Chicago, Los
Angeles and Philadelphia. Westwood One is managed by CBS Radio Group (the
successor to Infinity Broadcasting Corporation) pursuant to a five-year
Management Agreement which expires on March 31, 1999.
The Company's principal source of revenue is selling radio time to advertisers
through one of its three operating divisions: Westwood One Radio Networks,
Westwood One Entertainment (collectively, the "Network Divisions"), and WBS. The
Company generates revenue principally by its Network Divisions entering into
radio station affiliation agreements to obtain audience and commercial spots and
then selling the spots to national advertisers. WBS generates revenue
principally by selling audience it obtains from radio stations and other media
outlets where it has operations to local as well as national advertisers. The
Company is strategically positioned to provide a broad range of programming and
services which both deliver audience to advertisers and news, talk, sports, and
entertainment programs to radio stations.
Westwood One Radio Networks offers radio stations four traditional news
services, CBS Radio news, CNN Radio, NBC Radio news and Mutual news, plus
youth-oriented network news and entertainment programming from The Source and
CBS Spectrum, in addition to eight 24-hour satellite-delivered continuous play
music formats and weekday and weekend news and entertainment features and
programs.
Westwood One Entertainment produces sports, talk, music and special event
programming. These programs include: major sporting events (principally covering
the NFL, Notre Dame football and other college football, basketball games, NHL
and the Olympics); live, personality intensive talk shows; live concert
broadcasts; countdown shows; music and interview programs; and exclusive
satellite simulcasts with HBO and other cable networks.
The Company's programs are broadcast in every radio market in the United States
measured by The Arbitron Ratings Company ("Arbitron"), the leading rating
service, as well as being broadcast internationally.
WBS provides radio stations and other media outlets, including television and
cable companies, with local traffic, news, sports and weather programming in New
York, Chicago, Los Angeles and Philadelphia.
Westwood One, through its Divisions, enables national advertisers to purchase
advertising time and to have their commercial messages broadcast on radio
stations throughout the United States, reaching demographically defined
listening audiences. The Company delivers both of the major demographic groups
targeted by national advertisers: the 25 to 54-year old adult market and the 12
to 34-year-old youth market. The Company currently sells advertising time to
over 300 national advertisers, including each of the 25 largest network radio
advertisers. Radio stations are able to obtain quality programming from Westwood
One to meet their objective of attracting larger listening audiences and
increasing local advertising revenue. Westwood One, through the development of
internal programming as well as through acquisitions, has developed an extensive
tape library of previously aired programs, interviews, live concert
performances, news and special events.
Westwood One is managed by CBS Radio Group pursuant to a Management Agreement
between the Company and CBS Radio Group under which (a) the Chief Executive
Officer of CBS Radio Group, currently Mel Karmazin, became the Chief Executive
Officer of the Company, (b) the Chief Financial Officer of CBS Radio Group,
currently Farid Suleman, became the Chief Financial Officer of the Company. In
1994, CBS Radio Group began managing the business and operations for an annual
base fee of $2,000,000 (adjusted for inflation), an annual cash bonus (payable
in the event of meeting certain financial targets) and warrants to acquire
shares of Common Stock exercisable after the Company's Common Stock reaches
certain market prices per share. In addition, a Voting Agreement was
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executed providing for the reconstitution of the Board of Directors into a
maximum nine-member Board (currently eight members due to the sale of Common
Stock by Norman Pattiz) and the voting of Norman Pattiz's shares of the
Company's Common Stock and Class B Stock and the shares of the Common Stock held
by Infinity Network, Inc. ("INI"), a wholly-owned subsidiary of CBS Radio
Group.
Industry Background
Radio Broadcasting
As of January 1, 1998, there were approximately 10,300 commercial radio stations
in the United States.
A radio station selects a style of programming ("format") to attract a target
listening audience and thereby attract commercial advertising directed at that
audience. There are many formats from which a station may select, including
news, talk, sports and various types of music and entertainment programming.
The diversity in program formats has intensified competition among stations for
local advertising revenue. A radio station has two principal ways of effectively
competing for these 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 product, such as 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 local advertising revenue.
Radio Advertising
Radio advertising time can be purchased on a local, regional or national basis.
Local purchases allow an advertiser to select specific radio stations in chosen
geographic markets for the broadcast of commercial messages. However, this
process can be expensive and inefficient. 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 radio network is one
method by which an advertiser targets its commercial messages to a specific
demographic audience, achieving national coverage 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.
In recent years, the increase in the number of program formats has led to more
demographically specific listening audiences making radio an attractive
alternative medium for national advertisers. In addition, nationally broadcast
news, concerts and special event programming have made radio an effective medium
of reach (size of listening audiences) as well as frequency (number of exposures
to the target audience).
To verify audience delivery and demographic composition, specific measurement
information is available to national advertisers by independent rating services
such as Arbitron and Statistical Research, Inc.'s RADAR. These rating services
provide demographic information such as the age and sex composition of the
listening audiences. Consequently, national advertisers can verify that their
advertisements are being heard by their target listening audience.
Business Strategy
Westwood One's Network Divisions provide targeted radio audiences and commercial
spots to national advertisers through its recognized programming and other
network products. The Company, through its various radio networks, produces and
distributes quality programming to radio stations seeking to increase their
listening audience and improve local and national advertising revenue. The
Company sells advertising time within its programs to national advertisers
desiring to reach large listening audiences nationwide with specific demographic
characteristics.
In 1996, the Company expanded its strategy to include providing local traffic,
news, sports and weather programming
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to radio stations and other media outlets in selected cities across the United
States. In March 1996, WBS acquired the operating assets of New York Shadow
Traffic Limited Partnership, Chicago Shadow Traffic Limited Partnership, Los
Angeles Shadow Traffic Limited Partnership, and Philadelphia Express Traffic
Limited Partnership (collectively "Shadow Traffic") and has options to
acquire the remaining Shadow operations in other cities.
Radio Programming
The Company produces and distributes 24-hour continuous play 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 production of its programs, therefore being
able to tailor its programs to respond to current and changing listening
preferences. The Company produces regularly scheduled short-form programs
(typically 5 minutes or less), long-form programs (typically 60 minutes or
longer) and 24-hour continuous play formats. Typically, the short-form programs
are produced at the Company's in-house facilities located in Culver City,
California, New York, New York and Arlington, Virginia. The long-form programs
include shows produced entirely at the Company's in-house production facilities
and recordings of live concert performances and sports events made on location.
The 24-hour continuous play formats are produced at the Company's facilities in
Valencia, California.
Westwood One also produces and distributes special event syndicated programs. In
1997 the Company produced and distributed numerous special event programs,
including exclusive broadcasts of Garth Brooks Live from Central Park, U2 Live
from Sarajevo, MTV 1997 Video Music Awards and The Rolling Stones "Bridges to
Babylon" Tour Live Pay-per-view from St. Louis.
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
worldwide over the radio (whether live or pre-recorded) for a specific 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 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 eight 24-hour continuous play formats
providing music, news and talk programming for Country, Hot Country, Adult
Contemporary, Soft AC, Oldies, Adult Standards, Adult Rock and Roll and the 70's
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.
Affiliated Radio Stations
The Network Divisions' radio network 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.
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The Company offers radio stations a wide selection of regularly scheduled and
special event syndicated programming as well as 24-hour continuous play formats.
These programs and formats are completely produced by the Company and,
therefore, the stations have no production costs. Typically, each program 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 air time that the stations may sell to
local advertisers. Westwood One typically distributes promotional announcements
to the stations and places advertisements in trade and consumer publications to
further promote the upcoming broadcast of its programs.
Westwood One's networks enter into affiliation agreements with radio stations.
In the case of news and current events programming, the agreements commit the
station to broadcast only the advertisements associated with these programs and
allows the station flexibility to have the news headlined by their newscasters.
The other affiliation agreements 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 the 24-hour
formats, the Company may also receive a fee from the affiliated stations for the
right to broadcast the formats. Radio stations in the top 200 national markets
may also receive compensation for airing national advertising spots.
Affiliation agreements 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 for Westwood One's entertainment programming are non-cancelable for
26 weeks and are automatically renewed for subsequent 26-week periods, if not
canceled 30 days prior to the end of the existing contract term. Affiliation
agreements for Westwood One's news and current events programming generally run
for a period of at least one year, are automatically renewable for subsequent
periods and are cancelable by either the Company or the station upon 90 days'
notice.
The Company has a number of people responsible for station relations and
marketing its programs to radio stations. Station relationships are managed
geographically to allow the marketing staff to concentrate on specific
geographical regions. This enables the Company's staff to develop and maintain
close, professional relationships with radio station personnel and to provide
them with quick programming assistance.
National Advertisers
Westwood One provides national advertisers with a cost-effective way to
communicate their commercial messages to large listening audiences nationwide
that have specific demographic characteristics. An advertiser can obtain both
frequency (number of exposures to the target audience) and reach (size of
listening audience) by purchasing advertising time in the Company's programs. By
purchasing time in 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 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.
The Company sells its commercial time to advertisers either as "bulk" or
"flighted" purchases. Bulk purchases are long-term contracts (26 to 52 weeks)
that are sold "up-front" (early advertiser commitments for national broadcast
time). Flighted purchases are contracts for a specific, short-term period of
time (one to six weeks) that are sold at or above prevailing market prices.
Advertising prices vary significantly based on prevailing market conditions.
Generally, the contracts provide that advertising orders are firm and
non-cancelable. The Company's strategy for growth in advertising revenue is to
increase the amount of advertising time sold on the usually more profitable
flighted basis, to increase revenue of the non-RADAR rated programs, and to
increase audience size for news, talk and current events programming.
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Local Traffic and Information Programming
In 1996, the Company expanded its business to include the production and
distribution of local traffic, news, sports and weather programming in selected
metropolitan areas (initially New York, Chicago, Los Angeles and Philadelphia).
The programming is produced in facilities rented by the Company in those
metropolitan areas. Local traffic information is obtained through the
utilization of strategically placed cameras overlooking portions of major
freeways, monitoring police radio bands, phone calls from drivers, and through
patrolling freeways with rented aircraft.
Competition
The Company operates in a very competitive environment. 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 consolidations in the radio
industry, companies owning large groups of stations have begun to create
competing networks that will result in additional competition for network radio
advertising expenditures. In addition, Westwood One competes for advertising
revenue with network television, cable television, print and other forms of
communications media. The Company believes that the high 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.
WBS, in the metropolitan areas in which it operates, competes for advertising
revenue with local print and other forms of communications media. The Company's
principal competitor providing local traffic is Metro Networks.
Government Regulation
Radio broadcasting and station ownership are regulated by the FCC. Westwood One,
as a producer and distributor of radio programs, is generally not subject to
regulation by the FCC. Shadow Traffic utilizes FCC regulated frequencies
pursuant to licenses issued by the FCC.
Employees
On February 13, 1998, Westwood One had 635 full-time employees, including a
domestic advertising sales force of 96 people. In addition, the Company
maintains continuing relationships with approximately 92 independent writers,
program hosts, technical personnel and producers. Certain employees at the
Mutual Broadcasting System, NBC Radio Networks, and Unistar Radio Networks
("Unistar") are covered by collective bargaining agreements. The Company
believes relations with its employees and independent contractors are good.
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Item 2. Properties
The Company owns a 7,600 square-foot building in Culver City, California in
which its production facilities are located and a 14,000 square-foot building
and an adjacent 10,000 square-foot building in Culver City, California which
contains administrative, sales and marketing offices, and storage space. In
addition, the Company leases offices in New York; Chicago; Detroit; Dallas;
Philadelphia; San Francisco; Arlington, Virginia and Valencia, California.
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
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of the year ended December 31, 1997.
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PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
On February 13, 1998 there were approximately 220 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 shareholders' meeting on June 17, 1997, the Company
estimates that the total number of beneficial holders of the Company's Common
Stock exceeds 4,500.
The Company's Common Stock has been traded in the over-the-counter market under
the NASDAQ symbol WONE since the Company's initial public offering on April 24,
1984. The following table sets forth the range of high and low last sales prices
on the NASDAQ/National Market System, as reported by NASDAQ, for the Common
Stock for the calendar quarters indicated.
1997 High Low
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First Quarter . . . . . . . . . . 19 11/16 16 3/4
Second Quarter . . . . . . . . . . 32 1/4 19 1/8
Third Quarter . . . . . . . . . . . 33 5/8 27 5/16
Fourth Quarter . . . . . . . . . . . 37 1/8 29
1996 High Low
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First Quarter . . . . . . . . . . 18 1/2 14 1/8
Second Quarter . . . . . . . . . . 18 5/8 15 1/8
Third Quarter . . . . . . . . . . . 18 3/8 13 1/2
Fourth Quarter . . . . . . . . . . . 18 5/8 15 3/8
No cash dividend was paid on the Company's stock during 1997 or 1996, and the
payment of dividends is restricted by the terms of its loan agreements.
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Item 6. Selected Financial Data
(In thousands except per share data)
The table below summarizes selected consolidated financial data of the Company
for each of the last five fiscal years:
<TABLE>
<CAPTION>
OPERATING RESULTS FOR YEAR ENDED: December 31, November 30,
---------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET REVENUES $240,790 $171,784 $145,729 $136,340 $84,014
OPERATING EXPENSES, EXCLUDING
DEPRECIATION AND AMORTIZATION 191,854 132,247 112,661 112,198 69,821
DEPRECIATION AND AMORTIZATION 13,031 12,265 13,753 18,160 16,384
OPERATING INCOME (LOSS) 35,905 27,272 19,315 5,982 (2,191)
INCOME (LOSS) FROM CONTINUING
OPERATIONS 25,496 17,500 9,685 (2,730) (8,682)
(LOSS) FROM DISCONTINUED OPERATIONS
- - - - (15,227)
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 25,496 17,500 9,685 (2,730) (23,909)
EXTRAORDINARY (LOSS) - - - (590) -
NET INCOME (LOSS) $25,496 $17,500 $9,685 ($3,320) $23,909)
INCOME (LOSS) PER SHARE:
BASIC:
Continuing Operations $ .83 $ .56 $ .31 ($ .09) ($ .57)
Discontinued Operations - - - - ( 1.01)
Income (Loss) Before Extraordinary Item .83 .56 .31 ( .09) ( 1.58)
Extraordinary Item - - - ( .02) -
Net Income (Loss) $ .83 $ .56 $ .31 ($ .11) ($1.58)
DILUTED:
Continuing Operations $ .74 $ .51 $ .28 ($ .09) ($ .57)
Discontinued Operations - - - - ( 1.01)
Income (Loss) Before Extraordinary Item .74 .51 $ .28 ( .09) ( 1.58)
Extraordinary Item - - - ( .02) -
Net Income (Loss) $ .74 $ .51 $ .28 ($ .11) ($1.58)
BALANCE SHEET DATE AT: December, 31 November 30,
---------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
CURRENT ASSETS $ 77,933 $48,379 $41,885 $46,157 $32,987
WORKING CAPITAL 12,180 (3,647) 6,563 7,685 (1,503)
TOTAL ASSETS 335,850 273,046 245,595 260,112 152,067
LONG-TERM DEBT 115,000 130,443 107,943 115,443 51,943
TOTAL SHAREHOLDERS' EQUITY 124,678 86,848 94,123 95,454 55,151
</TABLE>
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Results for the year ended December 31, 1996 include Shadow Traffic from the
time it was acquired in March 1996.
Results for the year ended December 31, 1994 include Unistar from the time it
was acquired in February 1994.
No cash dividend was paid on the Company's Common Stock during the periods
presented above.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(In thousands except for per share amounts)
On March 31, 1997, the Company entered into a Representation Agreement with CBS
Inc. to operate the CBS Radio Networks. The Company retains all revenue and is
responsible for all expenses of the CBS Radio Networks from the effective date
of the Representation Agreement.
Results of Operations
Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Net revenues increased 40% to $240,790 in 1997
from $171,784 in 1996, and increased 18% in 1996 from $145,729 in 1995. The
increase in 1997 net revenue was primarily due to the inclusion of the results
of the CBS Radio Networks, the acquisition of Shadow Traffic, and higher
advertising rates for the Company's programs, partially offset by the
non-recurrence of the 1996 Summer Olympics. The increase in 1996 net revenues
was primarily due to the acquisition of Shadow Traffic effective March 1, 1996
and the Company's exclusive radio rights to the 1996 Summer Olympics.
Operating costs and expenses excluding depreciation and amortization increased
48% to $186,918 in 1997 from $126,702 in 1996, and increased 19% in 1996 from $
106,685 in 1995. The 1997 increase was primarily attributable to the inclusion
of the CBS Radio Networks, including fees payable to CBS in connection with the
Representation Agreement and the acquisition of Shadow Traffic, partially offset
by lower station compensation expenses for the Company's network operation and
the non- recurrence of costs associated with the Company's coverage of the 1996
Summer Olympics. The 1996 increase was primarily attributable to the acquisition
of Shadow Traffic and costs associated with the 1996 Summer Olympics, partially
offset by lower station compensation expenses.
Corporate general and administrative expenses decreased 11% to $4,936 in 1997
from $5,545 in 1996, and decreased 7% in 1996 from $ 5,976 in 1995. The decrease
in 1997 is primarily attributable to lower compensation expense. The decrease in
1996 was principally attributable to a reduction in corporate staff.
Operating income increased 32% to $35,905 in 1997 from $27,272 in 1996, and
increased 41% in 1996 from $19,315 in 1995. The 1997 improvement is principally
attributable to higher revenue and consolidations in operations resulting from
the inclusions of the CBS Radio Networks and the Shadow Traffic acquisition,
partially offset by the non- recurrence of the 1996 Summer Olympics. The
improvement in 1996 was attributable to the acquisition of Shadow Traffic, the
1996 Summer Olympics, controlling costs and lower amortization of programming
costs and rights.
Interest expense was $8,513, $8,749 and $9,524 in 1997, 1996 and 1995,
respectively. The 1997 decrease was primarily attributable to lower debt levels
as a result of the conversion to Common Stock of the Company's 6 3/4%
Convertible Subordinated Debentures (the "6 3/4% Debentures") and lower interest
rates. The decrease in 1996 was primarily attributable to lower interest rates,
partially offset by higher debt levels due to the purchase of Shadow Traffic.
The income tax provisions for 1997, 1996 and 1995 were based on annual effective
tax rates of 8%, 7% and 5%, respectively, as a result of the utilization of net
operating loss carryforwards. In 1998, the Company expects to record income tax
expense at a normalized tax rate of approximately 41% of income before taxes.
Net income in 1997 increased 46% to $25,496 ($.83 per basic share and $.74 per
diluted share) from $17,500 ($.56 per basic share and $.51 per diluted share) in
1996, and increased 81% in 1996 from $9,685 ($.31 per basic share and $.28 per
diluted share) in 1995.
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The Company has adopted SFAS 128 "Earnings per Share" and in accordance with the
pronouncement has restated all previously reported per share amounts to present
both Basic and Diluted earnings per share amounts. Weighted averages shares
outstanding for purposes of computing basic earnings per share were 30,750,
31,018 and 31,400 in 1997, 1996 and 1995, respectively. The 1997 decrease was
attributable to the Company's stock repurchase program, partially offset by
additional share issuances as a result of the conversion to Common Stock of the
Company's 6 3/4% Convertible Debentures and approximately 2,036 shares of Common
Stock being issued as a result of warrants being exercised. The 1996 decrease is
due principally to the Company's stock repurchase program. Weighted average
shares outstanding for purposes of computing diluted earnings per share were
34,651, 34,521 and 35,209 in 1997, 1996 and 1995, respectively. The changes in
weighted average shares are due principally to the Company's stock repurchase
program partially offset by the effect of stock option grants.
Liquidity and Capital Resources
At December 31, 1997, the Company's cash and cash equivalents were $2,763 and
available borrowings under its loan agreement of $35,000.
For 1997, net cash from operating activities was $19,931, a decrease of $13,306
from 1996. The decrease was primarily attributable to an increase in accounts
receivable as a result of the inclusion of the CBS Radio Networks, partially
offset by higher cash flow from operations and an increase in accrued expenses.
As part of the Representation Agreement with CBS, CBS provided a $9,012 working
capital loan to the Company which is payable on March 31, 1999. In addition, on
July 21, 1997, $15,293 principal amount of the Company's 6 3/4% Debentures were
converted into approximately 622 shares of the Company's Common Stock. The
remaining outstanding balance of the issuance was redeemed for cash. In the
Company's third quarter, warrants covering approximately 2,036 shares were
exercised, resulting in a cash inflow of $35,114 to the Company.
During 1997, the Company purchased 1,377 shares of the Company's Common Stock
and 500 warrants for a total cost of $49,434. During 1996, the Company purchased
1,288 shares of the Company's Common Stock and 500 warrants for a total cost of
$25,689. In 1998 (through March 6), the Company repurchased an additional 161
shares of Common Stock at a cost of $5,007. The stock buybacks have been funded
principally from the Company's free cash flow.
The Company has addressed the impact the Year 2000 issue will have on its
operations and believes the costs to be incurred to resolve this issue will not
be significant.
Item 8. Financial Statements and Supplementary Data
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-15 and by this reference incorporated herein.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
-10-
<PAGE>
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.
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
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.
-11-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this Report on Form 10-K
1. Financial statements and schedules to be filed thereunder are indexed
on page F-1 hereof.
2. Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Certificate of Incorporation of Registrant. (1)
3.2 Agreement of Merger. (1)
3.3 Certificate of Amendment of Certificate of Incorporation, as filed on
October 10, 1986. (2)
3.4 Certificate of Amendment of Certificate of Incorporation, as filed on
October 9, 1986. (3)
3.5 Certificate of Amendment of Certificate of Incorporation, as filed on
March 23, 1987. (3)
3.6 Certificate of Correction of Certificate of Amendment, as filed on
March 31, 1987 at 10:00 a.m. (3)
3.7 Certificate of Correction of Certificate of Amendment, as filed on
March 31, 1987 at 10:01 a.m. (3)
3.8 Bylaws of Registrant as currently in effect. (14)
*10.1 Employment Agreement and Registration Rights Agreement, dated
October 18, 1993, between Registrant and Norman J. Pattiz. (12)
*10.2 First Amendment to Employment Agreement, dated January 26, 1994,
between Registrant and Norman J. Pattiz. (12)
*10.3 Second Amendment to Employment Agreement, dated February 2, 1994,
between Registrant and Norman J. Pattiz. (14)
10.4 Form of Indemnification Agreement Between Registrant and its Directors
and Executive Officers. (4)
10.5 Amended and Restated Credit Agreement, dated September 30, 1996,
between Registrant and The Chase Manhattan Bank and Co-Agents. (17)
10.6 Purchase Agreement, dated as of August 24, 1987, between Registrant
and National Broadcasting Company, Inc. (5)
10.7 Securities Purchase Agreement, dated November 4, 1993, between
Registrant and Infinity Network, Inc. (11) *10.8 Management Agreement,
dated as of February 4, 1994, between Registrant and Infinity
Broadcasting Corporation. (11)
*10.9 Extension Agreement, dated as of March 1, 1997, between Registrant
and Infinity Broadcasting Corporation *10.10 Voting Agreement, dated
as of February 4, 1994, among Registrant, Infinity Network, Inc.,
Infinity Broadcasting Corporation and Norman J. Pattiz. (11)
10.11 Representation Agreement, dated as of March 31, 1997, between
Registrant and CBS, Inc.
10.12 Asset Purchase Agreement, dated March 4, 1996, between Westwood One
Broadcasting Services, Inc. and Chicago Shadow Traffic Limited
Partnership, New York Shadow Traffic Limited Partnership, Los Angeles
Shadow Traffic Limited Partnership, Philadelphia Express Traffic
Limited Partnership, City Traffic Corp., Express Traffic Corp. and
Alan Markowitz. (15)
10.13 Westwood One, Inc. 1989 Stock Incentive Plan. (9)
10.14 Amendments to the Westwood One, Inc. Amended 1989 Stock Incentive
Plan. (13) (16)
10.15 Lease, dated July 19, 1989, between First Ball Associates Limited
Partnership and Registrant, relating to Arlington, Virginia offices.(6)
10.16 Lease, dated June 18, 1990, between Broadway 52nd Associates and
Unistar Communications Group, Inc. relating to New York, New York
offices. (14)
10.17 Lease, dated December 18, 1991, between Valencia Paragon Associates,
Ltd., and Unistar Communications Group, Inc. relating to Valencia,
California offices. (14)
10.18 Digital Audio Transmission Service Agreement, dated June 5, 1990,
between Registrant and GE American Communications, Inc. (7)
10.19 Transmission Service Agreement, dated May 28, 1993, between IDB
Communications Group, Inc. and Unistar Radio Networks, Inc. (14)
10.20 Agreement for Cancellation of Loan Documents, Guarantees and Securities
Purchase Documents, dated as of November 19, 1993, between Registrant,
Westwood One Stations Group, Inc., Westwood One Stations-LA, Inc.,
Radio & Records, Inc. and Westinghouse Electric Corporation. (12)
-12-
<PAGE>
22 List of Subsidiaries
24 Consent of Independent Accountants
27 Financial Data Schedule
**********************
* Indicates a management contract or compensatory plan.
(1) Filed as an exhibit to Registrant's registration statement on Form S-1
(File Number 2-98695) and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's registration statement on Form S-1
(Registration Number 33-9006) and incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Form 8 dated March 1, 1988
(File Number 0-13020), and incorporated herein by reference.
(4) Filed as part of Registrant's September 25, 1986 proxy statement
(File Number 0-13020) and incorporated herein by reference.
(5) Filed an exhibit to Registrant's current report on Form 8-K dated
September 4, 1987 (File Number 0-13020) and incorporated herein by
reference.
(6) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1989 (File Number 0-13020) and
incorporated herein by reference.
(7) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1990 (File Number 0-13020) and
incorporated herein by reference.
(8) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1991 File Number 0-13020) and
incorporated herein by reference.
(9) Filed as part of Registrant's March 27, 1992 proxy statement (File
Number 0-13020) and incorporated herein by reference.
(10) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1992 (File Number 0-13020) and
incorporated herein by reference.
(11) Filed as part of Registrant's January 7, 1994 proxy statement (File
Number 0-13020) and incorporated herein by reference.
(12) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1993 (File Number 0-13020) and
incorporated herein by reference.
(13) Filed as an exhibit to Registrant's July 20, 1994 proxy statement (File
Number 0-13020) and incorporated herein by reference.
(14) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 (File Number 0-13020) and incorporated
herein by reference.
(15) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 (File Number 0-13020) and incorporated
herein by reference.
(16) Filed as an exhibit to Registrant's May 17, 1996 proxy statement (File
Number 0-13020) and incorporated herein by reference.
(17) Filed as an exhibit to Registrant's Quarterly report on Form 10-Q for
the quarter ended September 30, 1996 File Number 0-13020) and
incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1997.
-13-
<PAGE>
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.
March 26, 1997 By /s/ FARID SULEMAN
---------------------
Farid Suleman
Director, Secretary and 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
Principal Executive Officer:
/s/ MEL A. KARMAZIN Director, President and March 26, 1997
- ---------------------------- Chief Executive Officer
Mel A. Karmazin
Principal Financial Officer and
Chief Accounting Officer:
/s/ FARID SULEMAN Director, Secretary and March 26, 1997
- ---------------------------- Chief Financial Officer
Farid Suleman
Additional Directors:
/s/ NORMAN J. PATTIZ Chairman of the Board of March 26, 1997
- ---------------------------- Directors
Norman J. Pattiz
/s/ DAVID L. DENNIS Director March 26, 1997
- ----------------------------
David L. Dennis
/s/ GERALD GREENBERG Director March 26, 1997
- ----------------------------
Gerald Greenberg
/s/ STEVEN A. LERMAN Director March 26, 1997
- ----------------------------
Steven A. Lerman
/s/ PAUL KRASNOW Director March 26, 1997
- ----------------------------
Paul Krasnow
/s/ JOSEPH B. SMITH Director March 26, 1997
- ----------------------------
Joseph B. Smith
-14-
<PAGE>
WESTWOOD ONE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
1. Consolidated Financial Statements Page
----
--Report of Independent Accountants F-2
--Consolidated Balance Sheets at December 31, 1997
and 1996 F-3
--Consolidated Statements of Operations for the years
ended December 31, 1997, 1996 and 1995 F-4
--Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995 F-5
--Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 F-6
--Notes to Consolidated Financial Statements F-7 - F14
2. Financial Statement Schedules:
IX. --Short-term Borrowings F-15
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.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Westwood One, Inc.
In our opinion, the consolidated financial statements listed in the index to
consolidated financial statements and financial statement schedules on page F-1
present fairly, in all material respects, the financial position of Westwood
One, Inc. ("the Company") and its subsidiaries at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit 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 the opinion expressed above.
PRICE WATERHOUSE LLP
Century City, California
February 18, 1998
F-2
<PAGE>
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------ ------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,763 $ 2,655
Accounts receivable, net of allowance for doubtful accounts
of $2,907 (1997) and $1,724 (1996) 67,765 41,325
Other current assets 7,405 4,399
-------- --------
Total Current Assets 77,933 48,379
PROPERTY AND EQUIPMENT, NET 15,516 16,146
INTANGIBLE ASSETS, NET 204,339 201,730
DEFERRED TAXES 28,722 -
OTHER ASSETS 9,340 6,791
-------- --------
TOTAL ASSETS $335,850 $273,046
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 15,511 $ 13,250
Income taxes payable 3,564 2,472
Deferred revenue 4,670 3,767
Other accrued expenses and liabilities 27,077 21,694
Amounts payable to affiliates 14,931 10,843
-------- --------
Total Current Liabilities 65,753 52,026
LONG-TERM DEBT 115,000 130,443
DEFERRED TAXES 18,155 -
OTHER LIABILITIES 12,264 3,729
-------- --------
TOTAL LIABILITIES 211,172 186,198
-------- --------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock: authorized 10,000,000 shares, none outstanding - -
Common stock, $.01 par value: authorized, 117,000,000 shares;
issued and outstanding, 34,639,730 (1997) and 31,817,652 (1996) 347 318
Class B stock, $.01 par value: authorized, 3,000,000 shares:
issued and outstanding, 351,733 (1997 and 1996) 4 4
Additional paid-in capital 201,759 152,708
Accumulated deficit (11,903) (37,399)
-------- --------
190,207 115,631
Less treasury stock, at cost; 3,272,295 (1997) and 1,895,395 (1996) shares (65,529) (28,783)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 124,678 86,848
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $335,850 $273,046
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
GROSS REVENUES $278,978 $198,988 $169,598
Less Agency Commissions 38,188 27,204 23,869
-------- -------- --------
NET REVENUES 240,790 171,784 145,729
-------- -------- --------
Operating Costs and Expenses Excluding
Depreciation and Amortization 186,918 126,702 106,685
Depreciation and Amortization 13,031 12,265 13,753
Corporate General and Administrative Expenses 4,936 5,545 5,976
-------- -------- --------
204,885 144,512 126,414
-------- -------- --------
OPERATING INCOME 35,905 27,272 19,315
Interest Expense 8,513 8,749 9,524
Other Income (334) (307) (389)
-------- -------- --------
INCOME BEFORE TAXES 27,726 18,830 10,180
INCOME TAXES 2,230 1,330 495
-------- -------- --------
NET INCOME $25,496 $17,500 $9,685
======= ======= =======
INCOME PER SHARE:
Basic $ .83 $ .56 $ .31
Diluted $ .74 $ .51 $ .28
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 30,750 31,018 31,400
Diluted 34,651 34,521 35,209
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Stock Class B Stock Paid-in Accumulated Treasury Stock
Shares Amount Shares Amount Capital (Deficit) Shares Amount
------ ------ ------ ------ ------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 ............. 30,653 $307 352 $4 $159,727 ($64,584) - -
Net income for 1995 ..................... - - - - - 9,685 - -
Issuance of common stock under
stock option plans .................... 754 7 - - 3,215 - - -
Issuance of common stock under
warrants .............................. 100 1 - - 236 - - -
Purchase and cancellation of warrant .... - - - - (5,631) - - -
Purchase of treasury stock .............. - - - - - - 607 8,844
------- ---- ---- ---- -------- --------- ------- -------
BALANCE AT DECEMBER 31, 1995 ............. 31,507 315 352 4 157,547 (54,899) 607 8,844
Net income for 1996 ..................... - - - - - 17,500 - -
Issuance of common stock under
stock option plans .................... 311 3 - - 911 - - -
Purchase and cancellation of warrant .... - - - - (5,750) - - -
Purchase of treasury stock .............. - - - - - - 1,288 19,939
------- ---- ---- ---- -------- --------- ------ -------
BALANCE AT DECEMBER 31, 1996 ............. 31,818 318 352 4 152,708 (37,399) 1,895 28,783
Net income for 1997 ..................... - - - - - 25,496 - -
Issuance of common stock under
stock option plans .................... 164 2 - - 1,183 - - -
Issuance of common stock under
warrants .............................. 2,036 21 - - 35,093 - - -
Conversion of 6 3/4% debentures to
common stock ......................... 622 6 - - 14,896 - - -
Purchase and cancellation of warrant .... - - - - (12,688) - - -
Income tax benefit of option and warrant
exercises ............................. - - - - 10,567 - - -
Purchase of treasury stock .............. - - - - - - 1,377 36,746
------- ---- ---- ---- -------- --------- ------ -------
BALANCE AT DECEMBER 31, 1997 ............. 34,640 $347 352 $4 $201,759 ($11,903) 3,272 $65,529
======= ===== ==== ==== ======== ========= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $25,496 $17,500 $9,685
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 13,031 12,265 13,753
Other 320 403 (206)
------- -------- --------
38,847 30,168 23,232
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (26,440) (489) 1,040
Decrease (increase) in prepaid assets (3,006) 310 (430)
Increase in accounts payable and accrued liabilities 10,530 3,248 381
-------- -------- --------
Net Cash Provided By Operating Activities 19,931 33,237 24,223
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of businesses and other (CBS Radio Networks
in 1997 and Shadow Traffic in 1996) (13,839) (26,172) (1,106)
Capital expenditures (1,711) (1,701) (1,229)
-------- -------- --------
Net Cash Used For Investing Activities (15,550) (27,873) (2,335)
-------- -------- --------
CASH PROVIDED BEFORE FINANCING ACTIVITIES 4,381 5,364 21,888
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Debt repayments - (1,250) (12,500)
Borrowings under bank and other long-term obligations 8,862 23,750 -
Issuance of common stock 36,299 914 3,459
Repurchase of common stock and warrants (49,434) (25,689) (14,475)
Deferred financing costs - (690) (555)
-------- -------- --------
NET CASH (USED FOR) FINANCING ACTIVITIES (4,273) (2,965) (24,071)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 108 2,399 (2,183)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,655 256 2,439
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,763 $2,655 $256
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 1 - Summary of Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements include the accounts of all wholly-owned
subsidiaries.
Revenue Recognition
Revenue is recognized when commercial advertisements are broadcast.
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.
Depreciation
Depreciation is computed using the straight line method over the estimated
useful lives of the assets.
Measurement of Intangible Asset Impairment
At each balance sheet date, the Company determines whether an impairment of
Intangible Assets has occurred based upon expectations of nondiscounted
broadcast cash flow. Broadcast Cash Flow is based on the consolidated statement
of operations, calculated by subtracting from net revenue, operating costs and
expenses excluding depreciation and amortization. To date, the Company has not
experienced an impairment in any of its intangible assets. However, should such
an impairment exist, the impairment will be measured as the amount by which the
carrying amount of the asset exceeds its fair value, as defined by Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 ("FAS 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.
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 (FAS 109), "Accounting for Income Taxes". Under FAS 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.
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 and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results may differ from those estimates.
NOTE 2 - Earnings per Share:
The Company has adopted SFAS 128 "Earnings per Share" and in accordance with the
pronouncement has restated all previously reported per share amounts to conform
to the new presentation. The pronouncement requires companies to disclose
"Basic" and "Diluted" earnings per share amounts. Basic earnings per share
excludes all dilution and is calculated using the weighted average number of
shares outstanding in the period. Diluted earnings
F-7
<PAGE>
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
per share reflects the potential dilution that would occur if all financial
instruments which may be exchanged for equity securities were exercised or
converted to common stock.
The Company has issued options and warrants which may have a dilutive effect on
reported earnings if they were exercised or converted to Common Stock. The
following number of shares related to options and warrants were added to the
basic weighted average shares outstanding to arrive at the diluted weighted
average shares outstanding for each period:
1997 1996 1995
---- ---- ----
Warrants 3,182,000 3,029,000 3,264,000
Options 719,000 474,000 545,000
The following securities were not included in the computation of diluted
earnings per share for the years presented because the exercise price was
greater than the average market price of the Company's Common Stock:
1997 1996 1995
---- ---- ----
Options 790,000 50,000 740,000
Warrants - 2,499,000 2,499,000
The per share exercise prices of the options were $30.00 and $17.50 in 1997 and
1996, respectively, and $14.50 - $16.31 in 1995. The per share exercise price of
warrants was $17.25.
Shares issuable upon conversion of the Company's 6 3/4% Convertible Subordinated
Debentures were not included for purposes of calculating diluted earnings per
share because they were antidilutive securities.
NOTE 3 - Acquisitions of businesses:
On March 1, 1996, the Company through its wholly-owned subsidiary Westwood One
Broadcasting Services Inc. acquired the operating assets of New York Shadow
Traffic Limited Partnership, Chicago Shadow Traffic Limited Partnership, Los
Angeles Shadow Traffic Limited Partnership and Philadelphia Express Traffic
Limited Partnership (collectively "Shadow Traffic") for $20,000 plus expenses,
subject to an adjustment based on the future cash flow of Shadow Traffic. The
acquisition was accounted for as a purchase, and accordingly, Shadow Traffic's
operating results are included with those of the Company from the date of
acquisition. The purchase price has been allocated to the assets and liabilities
acquired based on preliminary estimates of their respective fair values. The
intangible assets acquired as part of the purchase are being amortized over 15
years.
On March 31, 1997, the Company entered into a representation and management
agreement (the "Representation Agreement") with CBS Inc. ("CBS"), whereby the
Company will operate the CBS Radio Networks for an initial two-year period
ending March 31, 1999. In accordance with the Representation Agreement, the
Company pays CBS a representation fee and retains all revenues from sales of
commercial time and is responsible for all expenses of the CBS Radio Networks.
Accordingly, the operating results of CBS Radio Network are included with those
of the Company from the effective date of the Representation Agreement. Pursuant
to the Representation Agreement, CBS provided a working capital loan of $9,012,
repayable on March 31, 1999, with interest payable at 50 basis points over the
six-month LIBOR rate. The Company is required to pay a representation fee of
$10,000 and $12,000 respectively in the first and second year of the
Representation Agreement and to reimburse CBS for certain programming costs,
including news, that CBS provides to Westwood One.
F-8
<PAGE>
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 - Property and Equipment:
Property and equipment is recorded at cost and is summarized as follows at:
December 31,
-----------------------
1997 1996
---- ----
Land........................................... $ 3,378 $ 3,378
Recording and studio equipment................. 17,522 16,117
Buildings and leasehold improvements........... 7,977 7,972
Furniture and equipment........................ 7,328 6,734
Transportation equipment....................... 480 557
Construction-in-progress....................... - 1,378
------- ------
36,685 36,136
Less: Accumulated depreciation
and amortization...................... 21,169 19,990
------- ------
Property and equipment, net............. $15,516 $16,146
======= =======
Depreciation expense was $2,341 in 1997, $2,472 in 1996, and $2,340 in 1995.
NOTE 5 - Intangible Assets:
Intangible assets are summarized as follows at:
December 31,
-------------------------
1997 1996
---- ----
Goodwill, less accumulated amortization
of $32,166 (1997) and $26,205 (1996) ......... $164,862 $168,249
Acquired station affiliation agreements,
less accumulated amortization of $7,670
1997) and $6,274 (1996)...................... 16,109 17,505
Other intangible assets, less accumulated
amortization of $7,562 (1997) and $5,622
(1996) ....................................... 23,368 15,978
-------- --------
Intangible assets, net................... $204,339 $201,730
======== ========
Intangible assets, except for acquired station affiliation agreements, are
generally amortized on a straight-line basis principally over 40 years.
Station affiliation agreements are comprised of values assigned to agreements
acquired as part of the purchase of radio networks and are amortized using an
accelerated method over 40 years. The period of amortization is evaluated
periodically to determine whether a revision to the estimated useful life is
warranted.
F-9
<PAGE>
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 - Debt:
Long-term debt consists of the following at:
December 31,
-----------------------
1997 1996
---- ----
Revolving Credit Facility/Term Loans............... $115,000 $115,000
6 3/4% Convertible Subordinated Debentures
maturing 2011..................................... - 15,443
-------- --------
$115,000 $130,443
======== ========
The Company's amended senior loan agreement with a syndicate of banks, led by
Chase Manhattan Bank, provides for an unsecured $75,000 revolving credit
facility and an unsecured $75,000 term loan (the "Facility"). The Facility is
available until September 30, 2004. At December 31, 1997, the Company had
available borrowings under the Facility of $35,000. Interest 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. At December 31, 1997, the
applicable margin was LIBOR plus .5%. At December 31, 1997, the Company had
borrowed $40,000 under the revolving credit facility and $75,000 under the term
loan at a weighted-average interest rate of 6.3%. The Facility contains
covenants relating to dividends, liens, indebtedness, capital expenditures and
interest coverage and leverage ratios.
On July 21, 1997, $15,293 principal amount of the Company's 6 3/4% Convertible
Subordinated Debenture were converted into approximately 622,000 shares of the
Company's Common Stock and the remaining balance of $150 was redeemed for cash,
thereby resulting in a complete redemption of the securities.
The aggregate maturities of long-term debt for the next five fiscal years and
thereafter, pursuant to the Company's debt agreements as in effect at December
31, 1997, are as follows:
Year
----
2000................................. $ 10,000
2001................................. 10,000
2002................................. 17,500
Thereafter........................... 77,500
--------
$115,000
========
The fair value of debt approximates its carrying value.
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.
In connection with the Company's purchase of Unistar, the Company sold 5 million
shares of common stock and a warrant to purchase up to an additional 3 million
shares of common stock at an exercise price of $3.00 per share (subject to
certain vesting conditions) to a wholly-owned subsidiary of Infinity
Broadcasting Corporation for $15,000.
F-10
<PAGE>
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 - Stock Options:
The Company has a stock option plan established in 1989 which provides 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. There are 6,800,000
shares authorized under the 1989 Plan, as amended. Options granted generally
become exercisable after one year in 20% increments per year and expire within
ten years from the date of grant.
The Company applies APB 25 and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its stock
option plans. Had compensation cost been determined in accordance with the
methodology prescribed by FAS 123, the Company's net income and earnings per
share would have been reduced by approximately $2,835 ($.09 per basic share and
$.08 per diluted share) in 1997, $795 ($.03 per basic share and $.02 per diluted
share) in 1996 and $134 in 1995. The weighted average fair value of the options
granted in 1997, 1996 and 1995 is estimated at $37.31, $24.30 and $20.74,
respectively, on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
1997 1996
---- ----
Weighted Average Risk Free Interest Rate 6.3% 6.1%
Expected Life (In Years) 5 5
Expected Volatility 53.9% 31.1%
Expected Dividend Yield - -
Expected Forfeitures per Year 5% 5%
Information concerning options outstanding under the Plan is as follows for the
year ended:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period 1,732,500 $10.30 2,036,875 $ 9.02 1,686,875 $ 5.65
Granted during the period 1,660,000 $23.84 50,000 $17.50 675,000 $14.47
Exercised during the period (166,500) $ 7.24 (310,625) $ 3.01 (304,375) $ 2.92
Forfeited during the period (215,500) $16.65 (43,750) $10.61 (20,625) $ 2.19
--------- -------- --------
Outstanding at end of period 3,010,500 $17.48 1,732,500 $10.30 2,036,875 $ 9.02
========= ========= =========
Available for new stock options
at end of period 1,527,000 971,500 977,750
========= ======= =======
</TABLE>
F-11
<PAGE>
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 1997, options to purchase 794,500 shares of common stock were
currently exerciseable at a weighted average exercise price of $9.12.
The following table contains additional information with respect to options at
December 31, 1997:
<TABLE>
<CAPTION>
Remaining
Weighted Weighted
Average Average
Number of Exercise Contractual
Options Price Life (In Years)
------- ----- ---------------
<S> <C> <C> <C>
Options Outstanding at Exercise Price Ranges of:
$ 1.81 - $ 2.75 102,500 $ 2.27 3.9
$ 5.38 - $ 9.75 828,000 $ 8.59 6.6
$12.75 - $18.25 1,290,000 $16.74 8.6
$30.00 790,000 $30.00 9.5
-------
3,010,500 $17.48 8.1
=========
</TABLE>
On December 1, 1986, the Chairman of the Board was granted options not covered
by the Plan to acquire 525,000 shares of common stock, which vested ratably over
a seven-year term or immediately upon a change in control of the Company. The
options became exercisable at the fair market value of the common stock, as
defined, on the date of vesting. At December 31, 1997, options covering 75,000
shares were outstanding and exercisable at $16.31 per share.
NOTE 9 - Income Taxes:
As of December 31, 1997, the Company had approximately $58,000 of available U.S.
net operating loss carryforwards for tax purposes, which begin to expire in
2002. Utilization of the carryforwards is dependent upon future taxable income
and the absence of any significant changes in the stock ownership of the
Company.
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:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
Affiliation agreements............................. $7,237 $ 7,840
Purchase accruals.................................. 10,705 7,705
Other.............................................. 214 594
------- -------
Total deferred tax liabilities................... 18,155 16,139
------- -------
Deferred tax assets:
Net operating loss................................. 20,433 24,104
Accrued liabilities and reserves................... 6,986 5,724
Tax credits (AMT and ITC).......................... 1,303 1,850
------- -------
Total deferred tax assets........................ 28,722 31,678
------- -------
Valuation allowance.................................. - 15,539
------- -------
Net deferred tax assets.............................. $10,567 $ -
======= =======
</TABLE>
F-12
<PAGE>
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 1997, as a result of its current trend of positive operating results, the
Company determined that it no longer needed to maintain a valuation allowance
for its net deferred tax assets. Accordingly, the benefit of the resulting net
operating losses was credited to paid-in-capital.
The components of the provision for income taxes related to continuing
operations is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
<S> <C> <C> <C>
Current payable: 1997 1996 1995
---- ---- ----
Federal........................................ $ 483 $ 520 $ 280
State.......................................... 1,747 810 215
------ ------ ------
Total income tax expense....................... $2,330 $1,330 $ 495
====== ====== ======
</TABLE>
NOTE 10 - Related Party Transactions:
In connection with the acquisition of Unistar, the Company sold 5,000,000 shares
of the Company's common stock and a warrant to purchase up to an additional
3,000,000 shares to INI (See Note 7) and entered into a Management Agreement
with CBS Radio Group. Pursuant to the Management Agreement, the Company paid
or accrued expenses aggregating $2,713 to CBS Radio Group in 1997 ($2,825 in
1996). As part of the Management Agreement, CBS Radio Group was given
1,500,000 warrants to acquire shares of common stock after the Company's common
stock reaches certain market prices per share. In 1997, the Company purchased
and cancelled CBS Radio Group's $5.00 incentive warrants covering 500,000
common shares for $12,688. In 1996, the Company purchased and cancelled CBS
Radio Group's $4.00 incentive warrants covering 500,000 common shares for
$5,750.
On March 31, 1997, the Company entered into a Representation Agreement with CBS
(Note 3). In addition, several of CBS Radio Group's radio stations are
affiliated with the Company's radio networks and the Company purchases several
programs from CBS Radio Group. During 1997 the Company incurred expenses
aggregating approximately $61,564 for the Representation Agreement and CBS
Radio Group affiliations and programs ($22,886 in 1996).
NOTE 11 - 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, certain
digital audio transmission services, the CBS Representation Agreement and the
Management Agreement with CBS Radio Group. The approximate aggregate future
minimum obligations under such operating leases and contractual agreements for
the five years after December 31, 1997, are set forth below:
Year
------
1998................................. $ 57,506
1999................................. 25,671
2000................................. 16,984
2001................................. 8,459
2002................................. 10,365
--------
$118,985
========
F-13
<PAGE>
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12 - Supplemental Cash Flow Information:
Supplemental Information on cash flows, including amounts from discontinued
operations, and non-cash transactions is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash paid for:
Interest......................................... $ 8,245 $6,837 $9,597
Income taxes..................................... 1,174 754 326
Non-cash investing and financing activities:
Conversion of 6 3/4% Debentures
to common stock................................. $15,293 - -
</TABLE>
NOTE 13 - 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, 1997 and
1996.
(In thousands, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth For the
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
1997
----
<S> <C> <C> <C> <C> <C>
Net revenues...................................... $41,461 $66,117 $63,373 $69,839 $240,790
Operating income.................................. 2,758 11,960 10,778 10,409 35,905
Net income ....................................... 504 8,983 7,866 8,143 25,496
Net income per share:
Basic ....................................... $ 0.02 $ 0.30 $ 0.25 $ 0.26 $ 0.83
Diluted ..................................... 0.02 0.26 0.23 0.23 0.74
1996
----
Net revenues...................................... $33,848 $45,392 $47,561 $44,983 $171,784
Operating income ................................. 1,330 9,548 8,956 7,438 27,272
Net income (loss) ................................ (639) 6,991 6,465 4,683 17,500
Net income (loss) per share:
Basic ...................................... $ (0.02) $ 0.23 $ 0.21 $ 0.15 $ 0.56
Diluted .................................... (0.02) 0.20 0.19 0.14 0.51
</TABLE>
F-14
<PAGE>
WESTWOOD ONE, INC.
SCHEDULE IX
CONSOLIDATED SHORT-TERM BORROWINGS
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
MAXIMUM AVERAGE WEIGHTED
AMOUNT AMOUNT AVERAGE
CATEGORY OF BALANCE WEIGHTED OUT- OUT- INTEREST
AGGREGATE AT AVERAGE STANDING STANDING RATE
SHORT-TERM END OF INTEREST DURING THE DURING THE DURING THE
BORROWINGS PERIOD RATE PERIOD PERIOD PERIOD
- ---------- -------- ------ -------- -------- --------
Year ended
December 31,
1996:
Notes payable $ - - $10,000 $1,760 6.4 %
</TABLE>
Notes: Short-term borrowings during the years covered by this schedule consist
of loans made under various established credit lines. The average amount
outstanding during each period was computed by dividing the average outstanding
principal balance by 365 days. The weighted average interest rate during each
period was computed by dividing the actual interest expense on such borrowings
by the average amount outstanding during that period. The Company did not have
any short-term borrowings in 1997 and 1995.
F-15
REPRESENTATION AGREEMENT
REPRESENTATION AGREEMENT, dated as of March 31, 1997, between
CBS INC., a New York corporation ("Owner"), and WESTWOOD ONE, INC., a Delaware
corporation ("Representative").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Owner owns and operates the CBS Radio Networks
(collectively, the "Networks"), which provide news, sports and other programming
to affiliated stations nationwide; and
WHEREAS, Representative is engaged, among other
things, in the business of operating radio networks; and
WHEREAS, Owner desires to engage Representative to represent
Owner with respect to the day-to-day business and operations of the Networks and
the Designated Network Offices (as defined in Section 8.4), and Representative
is willing to provide such representation, on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto covenant and agree as
follows:
ARTICLE 1
Services
--------
Section 1.1. Provision of Services.
---------------------
(a) Description. Owner hereby engages Repre sentative, as an
-----------
independent contractor, and Representative hereby accepts such engagement, on
the terms and subject to the conditions set forth in this Agreement, to
represent Owner in the day-to-day business and operations of the Networks and
the Designated Network Offices and, except as otherwise provided herein, to make
all decisions relating to such operations not requiring Owner Approval (as
defined in Section 10.1), and to provide such additional services, if any, as
Owner may request in writing from time to time on terms mutually satisfactory to
the parties hereto (all of the foregoing collectively, the "Services"). The
Services shall include making all decisions (subject to the provisions of
Section 10.1 (Owner Approval --------------- Matters)), with respect to (i)
sales of commercial time on the Networks, (ii) ------- marketing with respect to
the Networks, (iii) relations with all radio stations affiliated with one or
more of the Networks and (iv) subject to the provisions of Section 6.2
(Programming), programming for the Networks (including, without -----------
limitation, the execution, renewal, amendment, modification or termination of
all Personal Services Contracts (as defined in Section 8.1(b)) and Programming
Agreements (as defined in Section 8.1(c)), other than those related to Owner
Programming (as defined below). As used herein, "Owner Programming" shall mean
(i) the programming provided pursuant to the News Agreement (as defined in
Section 6.2(a)), (ii) the programming listed on Schedule 1.1(a) hereto
(including the Programming Agreements and Personal Services Contracts listed
therein) and (iii) such other programming (and the related Personal Services
Contracts and Programming Agreements) for the Networks as may from time to time
be derived from or associated with programming broadcast by or talent associated
with the CBS Television Network (e.g., college football bowl games). The ----
Services shall not include the exercise by Owner of its rights and obligations
under this Agreement, which rights and obligations shall be exercised and
performed by, or as directed by, the executive management and Board of Directors
of Owner. The parties hereto acknowledge that Representative is being engaged to
provide the Services principally due to its expertise in such matters.
(b) Manner. The Services shall be performed by Representative
------
with such care as a prudent manager would use in the conduct of his company's
affairs, and Representative
<PAGE>
shall accord the Networks the same priority as Representative accords its own
operations and the operations of other radio networks managed or represented by
Repre sentative. In providing the Services and representing Owner with respect
to the Networks, Representative shall use its reasonable commercial efforts to
(i) promote the Networks as an advertising medium and (ii) seek to preserve and
maximize the long-term value of the Networks, including the "CBS Radio Network"
tradename. Representative shall, at Representative's expense, furnish to Owner
the services of such full-time and part-time employees of Representative,
including, without limitation, executive, technical, marketing, research and
sales personnel and such other personnel as may be required properly to render
the Services. Representative hereby undertakes, on the terms set forth in the
first sentence of this Section 1.1(b), to cause the Services to be provided such
that Owner complies in all material respects with all obligations required
thereof by the Network Agreements (as defined in Section 8.1) and by all
applicable laws, rules and regulations.
(c) Affiliate Matters. Subject to the provisions of Sections
------------------
8.3 (New Affiliation Agreements) and 10.1 (Owner Approval Matters), in providing
-------------------------- ----------------------
the Services and represent ing Owner with respect to the Networks,
Representative shall use its reasonable commercial efforts to retain affiliates
of the Networks, conduct affiliate relations, and seek to extend Affiliation
Agreements (as defined in Section 8.1(a)) and enter into new Affiliation
Agreements.
(d) Consultation. Owner and Representative will consult with
------------
each other from time to time with respect to the Services, the Networks and the
performance of their respective obligations hereunder and under the other
agreements contemplated hereby.
Section 1.2. Reports; Access to Information.
------------------------------
(a) Notice. Representative shall notify Owner as promptly as
------
practicable after the occurrence of any of the following:
(i) receipt by Representative of (A) any notice or inquiry
from any governmental authority with respect to the transactions
contemplated by this Agreement or the other agreements contemplated
hereby or (B) any written notice from any governmental authority or
third party of any claim or legal process or notification that, in the
reasonable opinion of Representative, is or is likely to become
material to the Networks; or
(ii) any other development that, in the reason able opinion of
Representative, materially affects or is likely to materially affect
the Networks or the ability of Representative to fulfill its
obligations under this Agreement.
(b) Requests for Information. Representative promptly shall
-------------------------
provide to Owner such information (including financial information) concerning
the results of operations and business of the Networks as Owner reasonably may
request from time to time.
(c) Access. Representative shall make available for inspection
------
by Owner or its representatives, during normal business hours, Representative's
books of account relating to the Networks, and all other records, books and
other information received, compiled or otherwise maintained by Representative
with respect to the Networks, and all other documents reasonably requested by
Owner and its officers, managerial employees, counsel and auditors.
(d) Advertising Information. Without limiting
-----------------------
the foregoing provisions of this Section 1.2, during the
2
<PAGE>
last six months of the Term (as defined in Section 2.1), in order to facilitate
Owner's determination whether to seek to extend the term of this Agreement or
take other actions with respect to the Networks upon expiration of the Term,
Representative shall make or cause to be made available to Owner and its
representatives such information as Owner reasonably requests relating to the
historical advertising revenues of the Networks during the Term and the booked
advertising sales relating to the Networks.
Section 1.3. Title. Representative acknowledges that, except
-----
as provided in Section 4.2 (Working Capital), it will acquire no right, title or
---------------
interest in any property or assets of Owner by reason of this Agreement or
Representative's provision of the Services hereunder. Representative further
acknowledges that all records, books and other information received, compiled or
otherwise maintained by Representative with respect to the Networks in
connection with Representative's provision of the Services hereunder are solely
the property of Owner and shall be returned to Owner promptly upon the
expiration or earlier termination of the Term; provided, however, that Owner
-------- -------
shall, upon reasonable request of Representative and at reasonable times, and
subject to such confidentiality arrangements as Owner reasonably requests,
permit Representative to make reasonable examination of such books, records and
other information and permit Representative to make copies of the relevant
portions of such books, records and other information.
Section 1.4. Power of Attorney. Subject to the provisions of
-----------------
Sections 6.2 (Programming) and 10.1 (Owner Approval Matters), Owner appoints
----------- -----------------------
Representative its attorney-in-fact for the Networks during the Term and
authorizes Representative, in the name and on behalf of the Networks, to make,
execute, deliver, acknowledge, swear to, file and record all documents as may be
necessary, in the discretion of Representative, in the performance of the
Services hereunder.
ARTICLE 2
Term
----
Section 2.1. Term. The term during which the Services shall
----
be provided (the "Term") shall be a period of two (2) years commencing at 12:01
a.m. on March 31, 1997 (the "Effective Date") and terminating on the earlier of
(a) 11:59 p.m. on March 30, 1999 and (b) the termination of this Agreement
pursuant to Article 14 (Termination).
-----------
ARTICLE 3
Payments
--------
Section 3.1. Representation Rights Fee. Representative shall
-------------------------
pay to Owner for the right to render Services under this Agreement a fixed
representation fee (the "Representation Rights Fee") of $22,000,000. The
Representation Rights Fee shall be payable quarterly in arrears (a) in four (4)
equal installments of $2,500,000 on each of June 30, 1997, September 30, 1997,
December 31, 1997 and March 30, 1998, and (b) in four equal installments of
$3,000,000 on each of June 30, 1998, September 30, 1998, December 31, 1998 and
March 30, 1999.
Section 3.2. Commitment Fee. In consideration of Owner's
---------------
agreement set forth in Section 6.4(b) (O&O Commitment-Commitment),
---------------------------
Representative shall pay to Owner, for each twelve-month period during the Term
(each, a "Contract Year") ----------- (each, an "Annual Commitment Fee"). The
Annual Commitment Fee shall be payable quarterly in arrears in four (4) equal
installments on June 30,
3
<PAGE>
September 30, December 31 and March 30 of each Contract Year. Notwithstanding
the foregoing, the Annual Commitment Fee shall be subject to adjustment as
provided in Sections 6.4(a) (O&O Commitment-O&O Affiliated Stations), 6.4(c)
-----------------------------------------
(O&O Commitment-Transfers of O&O Affiliated Stations) and 6.4(d) (O&O
----------------------------------------------------------- ---
Commitment-Additional O&O Affiliated Stations). Each date on which a payment of
- ----------------------------------------------
the Representation Rights Fee or the Annual Commitment Fee is required to be
made under this Article 3 is referred to herein as a "Payment Date."
Section 3.3. Unconditional Obligations. Except as
-------------------------
otherwise set forth herein, the obligations of Representative to pay the
Representation Rights Fee and the Annual Commitment Fee are unconditional.
ARTICLE 4
Expenses; Working Capital
-------------------------
Section 4.1. Operating Expenses.
------------------
(a) General. From and after the Effective Date, subject to
-------
Section 4.1(b), all expenses of representing and operating the business of the
Networks and operating the Designated Network Offices arising from events which
occur from and after the Effective Date, including, without limitation, those
expenses described in the Networks' budget attached hereto as Schedule 4.1 (the
"Budget") and the expenses of performing Owner's obligations under all Network
Agreements, shall be the responsibility of, and shall be borne by,
Representative.
(b) Designated Network Offices. Subject to the provisions of
---------------------------
Section 8.4 (Designated Network Offices), (i) in the case of each Designated
----------------------------
Network Office owned by Owner or an affiliate of Owner, Owner will allocate
expenses to each such Designated Network Office in accordance with its
historical practices (but in no event in excess of the amounts set forth in the
Budget (for the periods covered thereby)) and (b) in the case of each other
Designated Network Office, Representative shall be responsible for all
obligations of Owner or its affiliate accruing from and after the Effective Date
under the applicable lease.
(c) No Expense Reimbursement. Representative shall not be
--------------------------
reimbursed for any out-of-pocket costs or expenses incurred by or on behalf of
Representative in connection with or relating to the provision of the Services.
Section 4.2. Working Capital.
---------------
(a) February Statement. Attached hereto as Schedule 4.2(a) is
------------------
a statement (the "February Statement"), which has been prepared in accordance
with the principles set forth in Schedule 4.2(a), setting forth the calculation
of Working Capital (as hereinafter defined) of the Networks as of February 28,
1997. The Working Capital as of such date is set forth under the caption
"Working Capital Retained."
(b) Opening Working Capital Statement. Not later than 120
---------------------------------
days after the Effective Date, Representative shall prepare a statement in
accordance with those principles, practices and captions utilized in preparing
the February Statement which shall set forth the Working Capital of the Networks
as of the opening of business on the Effective Date (the "Opening Working
Capital Statement"), and deliver the Opening Working Capital Statement to Owner.
4
<PAGE>
(c) Resolution of Disputes. After delivery of the Opening
------------------------
Working Capital Statement pursuant to Section 4.2(b), Owner shall have thirty
(30) days to review the Opening Working Capital Statement (the "Review Period")
and notify Representative in writing (in reasonable detail) (a "Dispute Notice")
of any proposed adjustments thereto. If Owner does not so notify Representative
during the Review Period, the Opening Working Capital Statement and
Representative's calculation of the Working Capital of the Networks as of the
opening of business on the Effective Date shall be deemed final and binding on
both parties (absent manifest error). If Owner delivers a Dispute Notice during
the Review Period and Owner and Representative fail to resolve (which resolution
may include, for example, the exclusion from Working Capital of any account
receivable or payable as to which a dispute exists) any dispute with respect to
any such proposed adjustment to the amount of Working Capital set forth in the
Opening Working Capital Statement within ten (10) business days following
delivery of such Dispute Notice (the "Negotiation Period"), such dispute shall
be submitted to a nationally-recognized firm of independent public accountants
jointly selected by Owner and Representative whose determination with respect to
any such proposed adjustment(s) shall be final and binding on both parties
(absent manifest error); provided, however, that if Owner and Representative
-------- -------
fail to agree upon such firm within five (5) business days following the
Negotiation Period, each of Owner and Representative shall during such five (5)
business day period name such a firm, and such firms shall in turn select a
third such firm (the firm selected pursuant to this Section 4.2(b) being
referred to as the "Referee"), whose determination with respect to any such
proposed adjustment(s) shall be final and binding on both parties.
Representative and Owner agree to share equally the costs and expenses of the
Referee, but each party shall bear its own legal and other expenses, if any.
(d) Opening Working Capital Amount. The amount finally
---------------------------------
determined as the Working Capital as of the Effective Date pursuant to this
Section 4.2 is referred to in this Agreement as the "Opening Working Capital
Amount".
(e) Definition of Working Capital. For purposes of this
--------------------------------
Agreement, "Working Capital" shall mean, as of any date, the excess of the
current assets (excluding cash) over the current liabilities of the Networks as
of such date, calculated in accordance with the principles, practices and
captions utilized in preparing the February Statement.
(f) Transfer of Working Capital. On the Effective Date, Owner
---------------------------
shall transfer to Representative all assets (including accounts receivable), and
Representative shall assume Owner's liabilities (including accounts pay able),
included in Working Capital as of the Effective Date. Following the Effective
Date, (i) each of Owner and Representative shall use reasonable efforts to
collect all accounts receivable included in Working Capital as of the Effective
Date and (ii) Owner shall remit promptly to Representative all amounts received
by Owner as payments in respect of accounts receivable included in Working
Capital as of the Effective Date. If any of the accounts receivable included in
Working Capital as of the Effective Date have not been collected as of December
31, 1997, Owner shall purchase such uncollected accounts receivable ("Opening
Purchased Accounts Receivable") from Representative not later than January 10,
1998 for 85% of their gross amount (before agency commissions), less any reserve
for doubtful accounts reflected as an offset to a current asset on the Opening
Working Capital Statement (such amounts, in the aggregate, the "Opening
Purchased Accounts Receivable Amount"), except that Owner will not be required
to purchase any accounts receivable as to which Representative has waived the
right to collect all or a portion of the sum due. For purposes of determining
whether or not an account receivable has been collected, all payments of
accounts receivable shall be applied against the oldest outstanding account
receivable from the applicable obligor, unless such obligor specifies the
receivable against which payment is being made. The Opening Purchased Accounts
Receivable Amount shall be paid by reducing the amount of the Opening Working
Capital Balance, as provided in Section 14.5(a)(ii) (Certain Matters
---------------
Upon Termination - Release of Rights; Payment). If Owner is required to, and
- ------------------------------------------------
does, purchase any such accounts receivable, Representative will execute
5
<PAGE>
appropriate documents of assignment transferring such Opening Purchased Accounts
Receivable to Owner and, if Owner so requests, Representative will attempt to
collect such Opening Purchased Accounts Receivable as agent for Owner and to
remit promptly to Owner any sums that are collected.
(g) Interest Payments. The Opening Working Capital Balance (as
-----------------
defined in Section 14.5(a)(ii)) shall bear interest, during each six-month
interest period during the Term, at a rate (the "Interest Rate") per annum equal
to 50 basis points above the six-month London interbank market rate ("LIBOR")
(as set forth on the Telerate Screen as of 10:00 A.M., London time, two business
days prior to the beginning of such interest period or, if such rate does not
appear on such screen at such time, such rate shall be determined by reference
to such other publicly available service for displaying LIBOR rates as may be
agreed upon by Owner and Representative). For purposes of this Section 4.2(g),
the Opening Working Capital Balance shall be deemed to include the Severance
Amount (as defined in Section 7.2(f)) from the date that is forty-five (45) days
after the Effective Date until the Severance Amount has been paid by
Representative to Owner in accordance with the provisions of Section 7.2(f)
(Transferred Employees -- Severance). Interest shall be paid annually on March
---------
30, 1998 and March 30, 1999 in immediately available funds; provided, however,
-------- -------
that if this Agreement is terminated prior to the expiration of the Term, the
payment required to be made pursuant to Section 14.5(a)(ii) (Certain Matters
----------------
Upon Termination Release of Rights; Payment) shall be accompanied by a payment
- ---------------------------------------------
of all interest accrued under this Section 4.1(g) through the date of such
payment unless Owner has exercised the Purchase Right (as defined in Section
14.6(a)), in which event the Opening Working Capital Balance shall continue to
bear interest until Owner or Representative, as the case may be, makes the
payment contemplated by Section 14.6(g) (Purchase of Final Working Capital -
-----------------------------------
Payment).
- -------
ARTICLE 5
Revenues
Section 5.1. Advertising Revenues. During the Term,
----------------------
Representative shall have the exclusive authority, subject at all times to
compliance with all applicable laws, rules and regulations and all Network
Agreements (including all Advertising Arrangements (as defined in Section
8.1(d))), to sell for its own account commercial time on the Networks and,
subject to the provisions of Section 14.6 (Purchase of Final Working Capital),
----------------------------------
to retain all revenues from the sale of such commercial time.
ARTICLE 6
Owner Agreements
Section 6.1. License Agreement. On the Effective Date, Owner
------------------
and Representative shall enter into a license agreement in the form attached
hereto as Exhibit A (the "License Agreement") pursuant to which Owner shall
grant to Representative a royalty-free license to use the tradename "CBS Radio
Network" in connection with Representative's performance of the Services during
the Term.
Section 6.2. Programming. (a) News Agreement. On the
----------- --------------
Effective Date, Owner and Representative shall enter into a programming
agreement in the form attached hereto as Exhibit B (the "News Agreement").
(b) Programming Decisions. (i) During the Term, Owner shall
----------------------
continue, in the ordinary course of business, to make all decisions (other than
with respect to the Services) concerning the Owner Programming, including all
6
<PAGE>
decisions relating to the execution, renewal, amendment, modification or
termination of all Personal Services Contracts and Programming Agreements
related thereto (including those Personal Services Contracts and Programming
Agreements described on Schedule 1.1(a), collectively, the "Owner Programming
Agreements"); provided, however, that no renewal, amendment, modification or
-------- -------
termination that materially affects Representative's obligations in respect of
such Owner Programming shall be made without the prior consent of the Manager
(as defined in the Infinity Agreement) or, if the Infinity Agreement has been
terminated, Representative. Owner shall consult with Representative with respect
to such decisions involving any proposed execution, amendment, modification,
renewal or termination of any Owner Programming Agreement (it being understood
that Representative shall not have any right hereunder to approve any of the
foregoing). Notwithstanding anything to the contrary contained in this
Agreement, it is understood and agreed that Representative shall make a
decisions with respect to whether the Networks should carry Owner Programming
not currently carried by the Networks.
(iiDuring the Term, Representative shall, in the
ordinary course of business, make all decisions concerning the programming on
the Networks (other than the Owner Programming), including all decisions
relating to the execution, renewal, amendment, modification or termination of
all Personal Services Contracts and Programming Agreements (other than the Owner
Programming Agreements). Without the written consent of Representative, Owner
shall not execute, amend, modify, renew or terminate any Personal Services
Contract or Programming Agreement that is not an Owner Programming Agreement.
Owner has advised Representa tive, and Representative acknowledges, that
Representative's decisions with respect to programming that is not Owner
Programming may have an effect on Owner's strategies with respect to the CBS
Television Network. Accordingly, Repre sentative shall consult with Owner with
respect to decisions involving any proposed execution, amendment, modification,
renewal or termination of any Personal Services Contract or Programming
Agreement that is not an Owner Programming Agreement (it being understood that
Owner shall not have any right hereunder to approve any of the foregoing).
Section 6.3. Technical Services Agreement. On the Effective
----------------------------
Date, Owner and Representative shall enter into a service agreement in the form
attached hereto as Exhibit C (the "Technical Services Agreement").
Section 6.4. O&O Commitment. (a) O&O Affiliated Stations.
--------------- -------------------------
Attached hereto as Schedule 6.4(a) is a true, correct and complete list, which
has been prepared by Owner, of all radio stations owned and operated by Owner
that are affiliates of one or more of the Networks as of the date hereof (each,
an "O&O Affiliated Station" and, collectively, the "O&O Affiliated Stations").
Schedule 6.4(a) also sets forth, among other things, the amount of affiliate
compensa tion budgeted to be paid or allocated by or on behalf of the Networks
to each such O&O Affiliated Station during the year ending December 31, 1997.
If, during the course of any three-month period during the Term, (x) the average
number of commercial minutes per week actually provided by all O&O Affiliated
Stations in an individual market is less than 95% of the number of budgeted
commercial minutes per week for all O&O Affiliated Stations in such market, or
(y) fewer than 95% of such commercial minutes aired by all O&O Affiliated
Stations in an individual market are aired during the daypart during which they
are specified to be aired, Owner and Representative will discuss in good faith
making appropriate adjustments to the Annual Commitment Fee. For purposes of the
foregoing, a Transferred Station (as defined in Section 6.4(c) shall no longer
be deemed an O&O Affiliated Station and, accordingly, the foregoing
calculations shall be made without reference to the budgeted commercial minutes
for any Transferred Station. Owner shall cause each O&O Affiliated Station, in a
timely manner, to complete and submit to the Networks an affidavit of
performance certifying (i) the actual number of budgeted commercial minutes
provided during each week during the Term and (ii) that all commercials aired
during such week were aired during the specified daypart and, if not, the
deviation from such specified daypart.
(b) Commitment. Owner hereby agrees to cause all of the O&O
----------
Affiliated Stations to continue to be affiliates of the Networks with which it
is affiliated as of the date hereof until the earlier of (i) the expiration or
7
<PAGE>
earlier termination of the Term or (ii) with respect to any O&O Affiliated
Station, such time as such O&O Affiliated Station no longer is owned and
operated by Owner.
(c) Transfers of O&O Affiliated Stations. If, during the
------------------------------------
Term, an O&O Affiliated Station is sold, exchanged or otherwise transferred by
Owner (a "Transferred Station") (the effective date of any such transfer being
referred to as the "Transfer Date"), the amount of the Annual Commitment Fee for
the Contract Year in which the Transfer Date occurs and the following Contract
Year (if any) shall be reduced, effective as of the Transfer Date, by an amount
equal to the affiliate compensation for the Transferred Station set forth in
Schedule 6.4(a) with respect to such Transferred Station (prorated for the
remaining period of the Contract Year in which the Transfer Date occurs). Any
such reduction in respect of a Contract Year shall be applied to reduce equally
all remaining installments of the Annual Commitment Fee in such Contract Year.
Owner shall use its reasonable commercial efforts to cause the purchaser of a
Transferred Station to assume the Affiliation Agreement applicable to such
Transferred Station and thereby have such Transferred Station continue to be
affiliated with those Networks with which it is affiliated immediately prior to
the Effective Date.
(d) Additional O&O Affiliated Stations. If, during the Term,
----------------------------------
(i) Owner acquires a radio station and desires that such station become an
affiliate of the CBS Spectrum Radio Network or the CBS Radio Network (if not
already an affiliate thereof), or (ii) Owner desires that a radio station
currently owned and operated by Owner and not affiliated with either or both of
such Networks become an affiliate of such Network(s) with which such station is
not affiliated, Representative shall, if so requested by Owner, enter into an
affiliation agreement on behalf of such Network(s) with respect to such station
and the Annual Commitment Fee shall be increased by an amount to be agreed upon
in good faith by the parties (prorated for the remaining period of the Contract
Year in which the Transfer Date occurs). Any such increase in respect of a
Contract Year shall be applied to increase equally all remaining installments of
the Annual Commitment Fee in such Contract Year.
(e) No Limitations on Owner. Nothing contained in this Section
-----------------------
6.4 shall restrict or limit in any respect whatsoever Owner's right to sell,
transfer or otherwise dispose of any radio station which is or becomes an O&O
Affiliated Station.
ARTICLE 7
Employee Matters
----------------
Section 7.1. Current Employees. Owner has provided to
-------------------
Representative a true, correct and complete list of all employees of Owner
employed on the date hereof principally in connection with the business of the
Networks (the "Network Employee"). Such list sets forth, for each Network
Employee, his or her hire date (and any other date relevant to credit for
employee benefits purposes) and separately identifies those Network Employees
(i) who are active employees as of the date of such list (including those on
vacation, sickness or an authorized leave of absence of less than six months for
any reason, including disability) and (ii) who are not actively working on such
date by reason of a leave of absence of more than six months.
Section 7.2. Transferred Employees. (a) Designated Employees.
--------------------- --------------------
Representative has advised Owner as to those Network Employees that
Representative desires to employ from and after the Effective Date (the
"Designated Employees").
(b) Notification to Designated Employees. Prior to the
------------------------------------
Effective Date, Owner shall notify in writing each Designated Employee of the
pending transfer of such Designated Employee's employment by Owner to
Representative on the Effective Date and that, if such Designated Employee
8
<PAGE>
accepts such offer of employment pursuant to the terms set forth below, such
Designated Employee will be employed by Representative beginning on the
Effective Date (or such later date provided in Section 7.1(c)) at a comparable
rate of pay and position and in the same city as in effect for each such
Designated Employee immediately prior to the Effective Date.
(c) Offer of Employment. Representative shall offer employment
-------------------
as of the Effective Date to all Designated Employees and shall employ, effective
as of the Effective Date, all the Designated Employees who accept such offer of
employment. For any Designated Employee who accepts such offer of employment but
is not actually at work on the Effective Date, Representative shall not be
obligated to employ such Designated Employee unless such Designated Employee
shall return to work no later than the date which is the earlier to occur of (A)
the date on which any previously authorized leave of absence expires or is
terminated and (B) the date that is sixty (60) days from the Effective Date, and
the date of effective employment for any such Designated Employee shall be the
date of return to employment within such period (all such Designated Employees,
when employed by Representative, are referred to as the "Transferred
Employees").
(d) Benefits. (i) Effective on the Effective Date (or on the
--------
date of effective employment, if later), Representative shall provide the
Transferred Employees with benefits which are substantially equivalent in the
aggregate to the benefits enjoyed by similarly situated employees of
Representative.
(ii) Effective as of the Effective Date (or
on the date of effective employment, if later), each Transferred Employee (and
the eligible dependents thereof) shall be eligible for coverage under the
employee benefit plans of Representative and shall cease to accrue benefits
under the employee benefit plans of Owner. Representative's plans shall not
contain exclusions for pre-existing conditions unless such exclusions were
applicable to Transferred Employees under Owner's medical, dental and health
plans prior to the date of coverage under Representative's plans.
(iii) Representative's medical, dental and
health plans providing benefits to Transferred Employees shall afford each
Transferred Employee (and the eligible dependents thereof) full credit for the
amount of all deductibles and co-pays paid for the plan year under Owner's plans
that includes the Effective Date (or the date of effective employment, if
later).
(iv) Benefits provided under any employee
benefit plan (as defined in Section 7.2(g)) of Representa tive shall credit each
Transferred Employee for purposes of eligibility and vesting under such plans
with all service with Owner, to the extent that such service was credited under
comparable plans of Owner.
(v) For purposes of determining the amount
of any entitlement of any Transferred Employee under Representative's vacation
policy, Representative will take into account and credit such Transferred
Employee's length of service with Owner. With respect to any accrued but unused
vacation time to which any Transferred Employee is entitled under a vacation
policy applicable to such Transferred Employee (the "Vacation Policy") prior to
the Effective Date, Representative shall allow such Transferred Employee to use
such accrued vacation to the same extent and on the same basis as such
Transferred Employee could have used such unused time had such Transferred
Employee remained an employee of Owner; provided, however, that if
-------- -------
Representative deems it necessary to disallow such employee from taking such
accrued vacation, then Representative shall be liable for and pay in cash to
each such Transferred Employee an amount equal to such vacation time in
accordance with the terms of the Vacation Policy.
(e) Allocation of Responsibility. Except as otherwise provided
----------------------------
in Section 4.2(f) (Working Capital - Transfer of Working Capital), Owner shall
-------------------------------------------
be solely responsible for all salaries and other compensation payable to or
9
<PAGE>
accrued by or on behalf of any Transferred Employee in respect of any period of
employment by Owner prior to the Effective Date (or the date of effective
employment, if later), and Representative shall be solely responsible for any
salaries and other compensation payable to or accrued by or on behalf of any
Transferred Employee in respect of any period on and after the Effective Date
(or the date of effective employment, if later).
(f) Severance. Owner shall be responsible for all severance
---------
obligations, if any, to all Network Employees who (x) are not Transferred
Employees, (y) are Transferred Employees but resign their employment with
Representative within sixty (60) days following the Effective Date (it being
understood that any such employee may not be entitled to receive severance
payments from Owner in such circumstances) or (z) are Transferred Employees
whose employment with Representative has been terminated by Representative
within ninety (90) days following Effective Date (or the date of effective
employment, if later) (collectively, "Terminated Employees"). This section does
not purport to increase, decrease, eliminate or create any severance rights with
respect to any third party. The amount of severance actually paid by Owner to
Terminated Employees pursuant to this Section 7.2(f) shall be paid in accordance
with the terms of severance policy previously delivered to Representative and
shall be referred to herein as the "Severance Amount." Owner shall inform
Representative in writing of the Severance Amount not later than July 15, 1997,
and Representative shall pay the Severance Amount to Owner not later than five
(5) business days after Owner delivers such notice to Representative; provided,
--------
however, that such amount shall be payable solely from the proceeds, if any, of
- -------
Working Capital as of the Effective Date.
(g) Indemnification. (i) Owner shall indemnify and hold
---------------
Representative harmless from all Losses (as defined in Section 11.1) arising out
of any (A) claims under any "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained or contributed to by Owner, including, without limitation,
any Internal Revenue Service ("IRS") claim relating to the qualification of any
employee benefit plan and accompanying trust under the Internal Revenue Code of
1986, as amended (the "Code") and (B) except to the extent included in the
Working Capital liabilities assumed by Representative pursuant to Section 4.2(f)
(Working Capital - Transfer of Working Capital), claims for employment-related
---------------------------------------------
obligations, with respect to any Network Employees (other than Transferred
Employees) regardless of when accrued or incurred and with respect to any
Transferred Employees to the extent accrued or incurred prior to the Effective
Date or the date of effective employment, if later, or by reason of any
transactions taking place as of the Effective Date or the date of effective
employment, if later, including, without limitation, salaries, bonuses, deferred
compensation, accrued but unpaid vacation days, accrued but unpaid sick leave,
relocation obligations, tuition reimbursement obligations, severance obligations
(subject to the limitations set forth in Section 7.2(f) (Transferred Employees -
-----------------------
Severance)), medical, dental or life insurance obligations and workers
- ---------
compensation obligations.
(ii) Representative shall indemnify and hold Owner
harmless from all Losses arising out of any (A) claims under any employee
benefit plan, including, without limitation any IRS claim relating to the
qualification of any employee benefit plan and accompanying trust under the
Code, maintained or contributed to by Representative and (B) claims for
employment-related obligations with respect to any Transferred Employee accrued
or incurred on or after the Effective Date or the date of effective employment,
if later, including, without limitation, salaries, bonuses, deferred
compensation, vacation obligations, relocation obligations, tuition
reimbursement obligations, severance obligations (except as set forth in Section
7.2(f) (Transferred Employees-Severance)), medical, dental or life insurance
--------------------------------
obligations and workers compensation obligations.
10
<PAGE>
(h) No Third-Party Beneficiaries. Nothing in this Agreement
------------------------------
shall require the continued employment of any Transferred Employee or prevent
Representative from taking any action or refraining from taking any action with
respect to a Transferred Employee which Owner could take or refrain from taking
prior to the date hereof. No provisions of this Agreement shall create any third
party beneficiary rights of any employee or former employee (including any
beneficiary or dependent thereof) of Owner in respect of continued employment
(or resumed employment) with Owner or with Representative or in respect of any
other matter.
ARTICLE 8
Network Agreements and Arrangements
-----------------------------------
Section 8.1. Owner hereby represents and warrants to
Representative as follows:
(a) Affiliates. Set forth on Schedule 8.1(a) hereto, with
----------
respect to each Network, is a true, correct and complete list of all radio
stations affiliated with such Network as of the date thereof (all affiliation
agreements with radio stations affiliated with one or more of the Networks in
effect from time to time during the Term are referred to herein as "Affiliation
Agreements").
(b) Personal Services Contracts. Set forth on Schedule 8.1(b)
---------------------------
hereto is a true, correct and complete description of all personal services
contracts of Owner with respect to the Networks as of the date thereof (as the
same may be amended, modified, renewed or extended by Owner or Representative
during the Term in accordance with this Agreement, and together with all other
personal services contracts entered into by Owner or Representative during the
Term with respect to the Networks in accordance with this Agreement, the
"Personal Services Contracts").
(c) Programming Agreements. Set forth on Schedule 8.1(c)
-----------------------
hereto is a true, correct and complete list (as of the date thereof) of all
broadcast rights agreements between Owner and third parties with respect to the
provision of programming to or for the Networks (as the same may be amended,
modified, renewed or extended by Owner or Representative during the Term in
accordance with this Agreement, and together with all other broadcast rights
agreements entered into by Owner or Representative during the Term with respect
to the Networks in accordance with this Agreement, the "Programming
Agreements").
(d) Advertising Sales. Set forth on Schedule 8.1(d) hereto is
------------------
a true, correct and complete list (as of the date thereof) of the booked gross
advertising sales, by advertiser/product, for the Networks for the period from
December 30, 1996 through December 28, 1997 (all agreements and arrangements
with advertisers or their representatives relating to the Networks as in effect
from time to time during the Term are referred to herein "Advertising
Arrangements").
(e) Network Offices. Set forth on Schedule 8.1(e) hereto is
----------------
true, correct and complete list of the locations of all Network Offices and
occupancy information with respect to each such Network Office.
As used in this Agreement, "Network Agreements" refers collectively to all
Affiliation Agreements, Personal Services Contracts, Programming Agreements and
Advertising Arrangements.
Section 8.2. Performance of Network Agreements. During the
-----------------------------------
Term, Representative shall pay, satisfy and discharge the liabilities,
obligations and commitments of Owner arising or accruing after the Effective
Date under all Network Agreements.
11
<PAGE>
Section 8.3. New Affiliation Agreements. Subject to the
----------------------------
provisions of Section 10.1 (Owner Approval Matters), all Affiliation Agreements
----------------------
entered into during the Term shall be required to be entered into by
Representative on behalf of Owner, and Representative shall not enter into any
such new Affiliation Agreement in its own name.
Section 8.4 Designated Network Offices. Not later than April
--------------------------
15, 1997, Representative shall specify to Owner in writing those Network Offices
that Representative intends to operate on or after the Effective Date (the
"Designated Network Offices"). Without limiting the provisions of Sections
4.1(a) (Operating Expenses - General) and 4.1(b) (Operating Expenses -
-------------------------------- ----------------------
Designated Network Offices), if Representative determines on or after the
- ----------------------------
Effective Date that it no longer intends to utilize any Designated Network
Office, Representative shall so notify Owner in writing not less than ninety
(90) days prior to the date on which Representative intends to vacate such
premises and, if Owner or an affiliate is the landlord of such premises,
Representative shall have no further responsibility for the expenses of
operating such Designated Network Office from and after the date such premises
are so vacated. If the landlord for any such premises is not Owner or an
affiliate of Owner, Representative shall be responsible for any and all costs
and expenses, including fees and penalties, in connection with the cessation of
use of such premises (whether resulting from the continuation or termination of
the lease, or otherwise), and all other amounts payable by the tenant under the
applicable lease.
Section 8.5. Assignments. Owner is not assigning and shall
-----------
have no obligation to assign any Network Agreement or any other agreement to
Representative.
ARTICLE 9
Infinity Agreement
------------------
Section 9.1. Waiver of Infinity Agreement. Effective as of
----------------------------
the Effective Date, Representative hereby permanently waives the provisions of
Section 4.1(a)(i) of the Management Agreement, dated as of February 3, 1994 and
amended as of December 16, 1996 and as of March 26, 1997, between Representative
and Infinity Broadcasting Corporation (the "Infinity Agreement"), but only
insofar as such provisions conflict with the common ownership by Westinghouse
Electric Corporation of Infinity Broadcasting Corporation and the Networks and
the activities of the officers of Infinity Broadcasting Corporation relating to
the Networks. Representative is delivering to Owner on the date hereof a true,
correct and complete copy of the Infinity Agreement.
ARTICLE 10
Owner Approval Matters
----------------------
Section 10.1. Owner Approval Matters. Notwithstanding anything
----------------------
to the contrary contained herein, Representative shall not take any of the
following actions without the prior written approval of the Chairman or the
Chief Financial Officer of CBS Radio: (a) institute any legal proceedings on
behalf of the Networks (other than ordinary course collection matters instituted
by Representative following not less than thirty (30) days' prior written notice
to Owner); or (b) enter into, terminate, extend or modify in any material
respect any Affiliation Agreement.
12
<PAGE>
ARTICLE 11
Conditions
----------
Section 11.1. Conditions. The rights and obligations of the
parties hereto that are to commence on the Effective Date shall be subject to
the following conditions, which may be waived by the applicable party:
(a) Representations, Warranties and Covenants. The
-----------------------------------------
representations and warranties of the other party made in this Agreement shall
be true and correct in all material respects as of the Effective Date as though
made on such date, and the other party shall have performed all obligations
required to be performed by it under this Agreement at or prior to the Effective
Date. Each party shall have received an officer's certificate of the other
party, dated the Effective Date, to the foregoing effect.
(b) Absence of Certain Termination Events. There shall not
-------------------------------------
have occurred an event that would permit either party to terminate this
Agreement pursuant to Section 14.2 (Termination for Change in FCC Rules or
---------------------------------------
Policies; Legal Proceedings) or, in the case of Owner, would permit Owner to
- -----------------------------
terminate this Agreement pursuant to Sections 14.3(a) (Owner Termination
------------------
Events-Termination of Infinity Agreement) or 14.3(b) (Owner Termination
- --------------------------------------------- ------------------
Events-Loss of Key Executives).
- -----------------------------
ARTICLE 12
Indemnification
---------------
Section 12.1. Indemnification.
---------------
(a) Indemnification of Representative by Owner. From and after
------------------------------------------
the Effective Date, Owner shall indemnify and hold Representative, its
affiliates and their respective directors, officers, affiliates, employees and
agents, and the successors and assigns of any of them, harmless from and against
any and all actions, claims, damages and liabilities (and all actions in respect
thereof and any legal or other expenses in giving testimony or furnishing
documents in response to a subpoena or otherwise and whether or not a party
thereto), whether or not arising out of third party claims, including reasonable
legal fees and expenses in connection with, and other costs of, investigating,
preparing or defending any such action or claim, whether or not in connection
with litigation in which such person is a party, and as and when incurred
(collectively, "Losses"), caused by, relating to, based upon or arising out of
(directly or indirectly) (i) any liabilities, obligations or commitments of
Owner or the Networks (whether absolute, accrued, contingent or otherwise)
existing as of or prior to the Effective Date or arising out of facts and
circumstances existing as of or prior thereto, which were not expressly assumed
by Representative hereunder; (ii) any breach of, or inaccuracy in, any
representation or warranty of Owner in this Agreement, the License Agreement,
the News Agreement, the Technical Services Agreement or any certificate or other
document delivered pursuant hereto or thereto or in connection herewith or
therewith; and (iii) any breach of any covenant or agreement of Owner contained
in this Agreement, the License Agreement, the News Agreement or the Technical
Services Agreement.
(b) Indemnification of Owner by Representative. From and after
------------------------------------------
the Effective Date, Representative shall indemnify and hold Owner, its
affiliates and their respective directors, officers, affiliates, employees and
agents, and the successors and assigns of any of them, harmless from and against
any and all Losses caused by, relating to, based upon or arising out of
(directly or indirectly) (i) any liabilities, obligations or commitments
13
<PAGE>
(whether absolute, accrued, contingent or otherwise) (x) assumed by
Representative hereunder or (y) arising or accruing after the Effective Date
under the Network Agreements or Representative's performance of the Services or
operation of the Networks on or after the Effective Date through the expiration
date or termination date hereof (except to the extent caused by, relating to,
based upon or arising out of (directly or indirectly) the matters described in
clauses (ii) and (iii) of Section 12.1(a) or actions taken by Owner under the
Owner Programming Agree ments); (ii) any breach of, or inaccuracy in, any
representation or warranty of Representative in this Agreement, the License
Agreement, the News Agreement, the Technical Services Agreement or any
certificate or other document delivered pursuant hereto or thereto or in
connection herewith or therewith; and (iii) any breach of any covenant or
agreement of Representative contained in this Agreement, the License Agreement,
the News Agreement or the Technical Services Agreement.
Section 12.2. Procedure for Indemnification.
-----------------------------
(a) Notice of Claims. In the event of a claim for breach of
-----------------
the representations and warranties contained in this Agreement or for failure to
fulfill a covenant or agreement, the party asserting such breach or failure
shall provide a written notice to the other party which shall state specifically
the representation, warranty, covenant or agreement with respect to which the
claim is made, the facts giving rise to an alleged basis for the claim and the
amount of liability asserted against the other party by reason of the claim.
(b) Procedures -- Third Party Claims. If any suit, action,
--------------------------------
proceeding or investigation shall be commenced or any claim or demand shall be
asserted by any third party (a "Third Party Claim") in respect of which
indemnification may be sought by any party or parties from any other party or
parties under the provisions of this Article 12, the party or parties seeking
indemnification (collectively, the "Indemnitee") shall promptly provide written
notice to the party or parties from which indemnification is sought
(collectively, the "Indemnitor"); provided, however, that any failure by an
-------- -------
Indemnitee to so notify an Indemnitor will not relieve the Indemnitor from its
obligations hereunder, except to the extent that such failure shall have
prejudiced the defense of such Third Party Claim. The Indemnitor shall have the
right to control (except where an insurance carrier has the right to control or
where an insurance policy or applicable law prohibits the Indemnitor from taking
control of) the defense of any Third Party Claim; provided, however, that the
-------- -------
Indemnitee may participate in any such proceeding with counsel of its choice and
at its own expense unless there exists a conflict between the Indemnitor and the
Indemnitee as to their respective legal defenses, in which case the fees and
expenses of any such counsel shall be reimbursed by the Indemnitor. Except as
otherwise set forth herein, the Indemnitee shall have the right to participate
in (but not control) the defense of any Third Party Claim and to retain its own
counsel in connection therewith, but the fees and expenses of any such counsel
for the Indemnitee shall be borne by the Indemnitee. The Indemnitor shall not,
without the prior written consent of the Indemnitee, effect any settlement of
any pending or threatened proceeding in respect of which such Indemnitee is, or
with reasonable foreseeability could have been, a party and indemnity could have
been sought to be collected from the Indemnitor, unless such settlement includes
an unconditional release of such Indemnitee from all liability arising out of
such proceeding (provided, however, that, whether or not such a release is
-------- -------
required to be obtained, the Indemnitor shall remain liable to such Indemnitee
in accordance with Section 12.1 (Indemnification) in the event that a Third
---------------
Party Claim is subsequently brought against or sought to be collected from such
Indemnitee). The Indemnitor shall be liable for all Losses arising out of any
settlement of any Third Party Claim; provided, however, that the Indemnitor
shall not be liable for any settlement of any Third Party Claim brought against
or sought to be collected from an Indemnitee, the settlement of which is
effected by such Indemnitee without such Indemnitor's written consent, but if
settled with such Indemnitor's written consent, or if there is a final judgment
for the plaintiff in any such Third Party Claim, such Indemnitor shall (to the
extent stated above) indemnify the Indemnitee from and against any Losses in
14
<PAGE>
connection with such Third Party Claim. The indemnification required by Section
12.1 (Indemnification) shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or Losses are incurred.
Section 12.3. Survival of Representations, Warranties and
----------------------------------------------
Covenants. The representations and warranties contained in this Agreement, the
- ---------
License Agreement, the News Agreement, the Technical Services Agreement or any
certificate, document or instrument delivered pursuant hereto or thereto shall
survive for a period of six (6) months following the termination of this
Agreement (the "Survival Period"). No claim may be brought under this Agreement
unless the requisite written notice is given on or prior to the termination of
the Survival Period. In any event such notice is given prior to the termination
of the Survival Period, the right to indemnification with respect thereto shall
survive until such claim is finally resolved and any obligations thereto ar
fully satisfied. Any investigation by or on behalf of any party thereto shall
not constitute a waiver as to enforcement of any representation or warranty
contained herein.
ARTICLE 13
Events of Default and Cure Periods
----------------------------------
Section 13.1. Events of Default. The following shall, after
-----------------
the expiration of the applicable cure periods (if any) as set forth in Section
13.2 (Cure Periods), each constitute an "Event of Default" under this Agreement.
------------
(a) Non-Payment. Representative's failure to pay when due the
-----------
fees or other amounts payable by Representative under this Agreement, the News
Agreement or the Technical Services Agreement;
(b) Default in Covenants. Either party defaults in any
----------------------
material respect in the performance of any covenant or undertaking contained in
this Agreement, the License Agreement, the News Agreement or the Technical
Services
Agreement;
(c) Breach of Representation. Any representation or warranty
-------------------------
made by either party to this Agreement, the License Agreement, the News
Agreement or the Technical Services Agreement proves to have been false or
misleading in any material respect as of the time made.
(d) Bankruptcy. Either party (a) makes a general assignment
----------
for the benefit of creditors, or (b) files or has filed against it a petition
for bankruptcy, for reorganization or an arrangement, or for the appointment of
a receiver, trustee or similar creditors' representative for the property or
assets of such party under any federal or state insolvency law, which, if filed
against such party, has not been dismissed or discharged within sixty( 60) days
thereafter.
Section 13.2. Cure Periods. Except for an Event of Default
-------------
described in Section 13.1(a) (as to which there shall be a ten (10) day cure
period), an Event of Default shall not be deemed to have occurred until thirty
(30) days after the non-defaulting party has provided the defaulting party with
written notice specifying the event or events that, if not cured, would
constitute an Event of Default and specifying the actions necessary to cure the
default(s) within such period. Such thirty (30) day period may be extended for a
reasonable period of time if the defaulting party is acting in good faith to
cure and such delay is not materially adverse to the other party.
15
<PAGE>
ARTICLE 14
Termination
-----------
Section 14.1. Termination Upon Default. Upon the
------------------------
occurrence of an Event of Default, the non-defaulting party may terminate this
Agreement, provided that it is not also in material default of this Agreement,
the License Agreement or the News Agreement. Without limiting Owner's remedies
hereunder in connection with a default by Representative, if Representative has
defaulted in the performance of its obligations, all amounts accrued or payable
to Owner hereunder or under the News Agreement or the Technical Services
Agreement up to the date of termination which have not been paid shall
immediately become due and payable.
Section 14.2. Termination for Change in FCC Rules or
--------------------------------------
Policies; Legal Proceedings. Either party may terminate this Agreement upon
- -----------------------------
written notice to the other if:
(a) FCC Matters. There has been a material change in FCC rules
-----------
or policies that would cause this Agree ment to be in violation thereof and such
change is in effect and not the subject of an appeal or further administrative
review; provided, however, that in such event the parties shall negotiate in
-------- -------
good faith and attempt to agree to an amendment to this Agreement that will
provide the parties with a valid and enforceable agreement that conforms to the
new FCC rules or policies.
(b) Legal Proceedings. An action or proceeding shall have
------------------
been instituted by any governmental authority seeking to restrain, prohibit or
otherwise limit in any material respect the consummation of the transactions
contemplated hereby or the performance by any party of its obligations hereunder
or under the License Agreement, the News Agreement or the Technical Services
Agreement, or a court or governmental authority shall have issued any order
restraining, prohibiting or limiting in any material respect the consummation of
such transaction or the performance of such obligations, or which could
reasonably be expected to adversely affect the business of the Networks.
Section 14.3. Owner Termination Events. Owner may terminate
------------------------
this Agreement if:
(a) Termination of Infinity Agreement. The Infinity
---------------------------------
Agreement shall have expired without renewal or shall have been terminated
pursuant to Section 3.2 thereof; or
(b) Loss of Key Executive. Neither Mel Karmazin nor a
------------------------
successor reasonably satisfactory to Owner shall be actively engaged in managing
the business of Representative.
Section 14.4. Representative Termination Events.
---------------------------------
Representative may terminate this Agreement, upon not less than ninety (90)
days' prior written notice to Owner, if:
(a) Termination of Infinity Agreement. The Infinity Agreement
---------------------------------
shall have (i) expired without renewal, (ii) been terminated pursuant to Section
3.2(a) or 3.2(c) thereof or (iii) been terminated pursuant to Section 3.2(b)(i)
thereof; or
16
<PAGE>
(b) Loss of Key Executive. Neither Mel Karmazin nor a
------------------------
successor reasonably satisfactory to Representative shall be actively engaged in
managing the business of Representative. Notwithstanding the foregoing,
Representative may not terminate this Agreement pursuant to this Section 14.4
(other than pursuant to Section 14.4(a)(iii) and other than if Mr. Karmazin's
employment by Manager (as defined in the Infinity Agreement) has been terminated
by Owner) prior to the first anniversary of the Effective Date.
Section 14.5. Certain Matters Upon Termination.
--------------------------------
(a) Release of Rights; Payment. Except as provided in Section
---------------------------
14.6 (Purchase of Final Working Capital), if this Agreement expires or is
------------------------------------
terminated for any reason in accordance herewith:
(i) Representative shall cease providing the Services
and, following such expiration or termination, shall
cooperate with Owner in connection with the resumption by Owner
of overall management of the Networks;
(ii) Representative shall, on the expiration date or, in
the case of earlier termination, not later than sixty (60)
days following the termination date, pay to Owner, by wire
transfer of immediately available funds, the sum of (x) an
amount (the "Opening Working Capital Balance") equal to (A)
the Opening Working Capital Amount, minus (B) the Severance
-----
Amount actually paid to Owner pursuant to Section 7.2(f)
(Transferred Employees-Severance), minus (C) the Opening
------------------------------- -----
Purchased Accounts Receivable Amount and (y) accrued
interest thereon as provided in Section 4.2(g)
(Working Capital-Interest Payments); and
---------------------------------
(iii) In the case of earlier termination, Representative
shall pay to Owner, by wire transfer of immediately available
funds, not later than sixty (60) days following the
termination date, all amounts of the Representation Rights
Fee and the Annual Commitment Fee accrued through the
termination date, together with interest thereon at the
Interest Rate from and including the next scheduled Payment
Date through but excluding the actual date of payment;
provided, however, that if Representative terminates this
-------- -------
Agreement pursuant to Section 14.4 (other than Section
14.4(a)(iii) and other than if Mr. Karmazin's employment
by Manager has been terminated by Owner), Representative
shall pay to Owner, by wire transfer of immediately available
funds, not later than sixty (60) days following the termination
date, all remaining installments of the Representation Rights
Fee and the Annual Commitment Fee for the remainder of the
Term, together with interest thereon at the Interest Rate
from and including the next scheduled Payment Date through
but excluding the actual date of payment.
(b) Indemnification Rights Survive. No expiration or
----------------------------------
termination of this Agreement shall terminate the obligation of any party to
indemnify the other under Section 7.2(g) (Transferred Employees -
---------------------------
Indemnification) or Section 12.1 (Indemnification) or limit or impair any
- --------------- ---------------
party's rights to receive payments due and owing hereunder on or before the date
of such termination.
17
<PAGE>
Section 14.6. Purchase of Final Working Capital.
---------------------------------
(a) Purchase Right. Notwithstanding anything to the contrary
--------------
contained in this Agreement, Owner shall have the right (the "Purchase Right"),
but not the obligation, upon the expiration or earlier termination of the Term,
to acquire all of Representative's right, title and interest in and to, and
shall in connection therewith assume Representative's liabilities included in,
all items of Working Capital set forth in the Final Working Capital Amount (as
hereinafter defined).
(b) Exercise. If Owner desires to exercise the Purchase Right
--------
(i) upon expiration of the Term, Owner shall provide written notice to such
effect to Representative not less than sixty (60) days prior to the end of the
second Contract Year or (ii) in connection with a termination of this Agreement
other than upon its expiration, Owner shall provide written notice to such
effect to Representative prior to the effective date of any such termination.
(c) Final Working Capital Statement. Not later than sixty
-------------------------------
(60) days after the expiration date or effective date of any such termination,
as the case may be (in any such case, the "Termination Date"), Representative
shall prepare a statement in accordance with those principles, practices and
captions utilized in preparing the Opening Working Capital Statement which shall
set forth the Working Capital of the Networks as of the close of business on the
Termination Date (the "Final Working Capital Statement"), and shall deliver the
Final Working Capital Statement to Owner.
(d) Resolution of Disputes. The provisions of Section 4.2(c)
(Working Capital-Resolution of Disputes) shall apply mutatis mutandi to the
---------------------------------------- ------- -------
review by Owner of the Final Working Capital Statement delivered pursuant to
Section 14.6(c) and the resolution of any disputes relating to the calculation
of the Final Working Capital Amount.
(e) Final Working Capital Amount. The amount finally
---------------------------------
determined as the Working Capital as of the Termination Date pursuant to this
Section 14.6 is referred to in this Agreement as the "Final Working Capital
Amount".
(f) Transfer of Final Working Capital. If Owner exercises
---------------------------------
the Purchase Right, on the Termination Date, (i) Representative shall transfer
to Owner all assets (including accounts receivable), and Owner shall assume
Representative's liabilities (including accounts payable), included in the Final
Working Capital Statement, (ii) to the extent practicable, Representative shall
assign, transfer and convey to Owner all of Representative's rights in, to and
under all Advertising Arrangements existing on the Termination Date relating to
the Networks (collectively, the "Assigned Advertising Arrangements") (it being
agreed that Representative shall use its reasonable efforts to promptly obtain
and deliver to Owner, at Representative's expense, any necessary consents to the
assignment of the Assigned Advertising Arrangements to Owner) and (iii) Owner
shall assume from Representative all liabilities, obligations and commitments of
Representative arising or accruing on or after the Termination Date pursuant to
the Assigned Advertising Arrangements (solely to the extent of the Networks'
interest therein). Following the Termination Date, (i) each of Owner and
Representative shall use reasonable commercial efforts to collect all accounts
receivable included in Working Capital as of the Termination Date and (ii)
Representative shall remit promptly to Owner all amounts received by
Representative as payments in respect of accounts receivable included in Working
Capital as of the Termination Date. If any of the accounts receivable included
in Working Capital as of the Termination Date have not been collected as of the
date that is nine months following the Termination Date, Representative shall
purchase such uncollected accounts receivable ("Final Purchased Accounts
Receivable") from Owner not later than ten days following the expiration of such
nine month period for 85% of their gross amount (before agency commissions),
less any reserve for doubtful accounts reflected as an offset to a current asset
on the Final Working Capital Statement (such amounts, in the aggregate, the
"Final Purchased Accounts Receivable Amount"), except that Representative will
18
<PAGE>
not be required to purchase any accounts receivable as to which Owner has waived
the right to collect all or a portion of the sum due. For purposes of
determining whether or not an account receivable has been collected, all
payments of accounts receivable shall be applied against the oldest outstanding
account receivable from the applicable obligor, unless such obligor specifies
the receivable against which payment is being made. The Final Purchased Accounts
Receivable Amount shall be paid, by wire transfer in immediately available
funds, not later than the expiration of such ten-day period. If Representative
is required to, and does, purchase any such accounts receivable, Owner will
execute appropriate documents of assignment, transferring such Final Purchased
Accounts Receivable to Representative, and if Representative so requests, Owner
will attempt to collect such Final Purchased Accounts Receivable as agent for
Representative and to remit promptly to Representative any sums that are
collected.
(g) Payment. Not later than ten (10) days following the final
-------
determination of the Final Working Capital Amount, (i) if the Final Working
Capital Amount exceeds the Opening Working Capital Balance (plus accrued
interest thereon as provided in Section 4.2(g) (Working Capital - Interest
---------------------------
Payments)), Owner shall pay to Representative, by wire transfer of immediately
- --------
available funds, an amount equal to the amount of such excess, and (ii) if the
Opening Working Capital Balance (plus accrued interest thereon as provided in
Section 4.2(g) (Working Capital - Interest Payments)) exceeds the Final Working
------------------------------------
Capital Amount, Representative shall pay to Owner, by wire transfer of
immediately available funds, an amount equal to the amount of such excess.
Section 14.7. Attorneys' Fees and Costs. In the event any
action or proceeding is commenced by either party to enforce the provisions of
this Agreement or to seek remedies for a breach or wrongful termination of this
Agreement, the prevailing party in such an action or proceeding shall be
entitled to the award of its reasonable attorneys' fees and costs incurred in
and relating to such an action or proceeding.
ARTICLE 15
Representations and Warranties
------------------------------
Section 15.1. Representations and Warranties of Owner.
---------------------------------------
Owner hereby represents and warrants that:
(a) Organization and Standing. Owner is a corporation duly
--------------------------
formed, validly existing and in good standing under the laws of the State of New
York, and has all necessary corporate power and authority to carry on the
business of the Networks and to perform its obligations hereunder.
(b) Authorization and Binding Obligation. Owner has all
necessary power and authority to enter into and perform this Agreement, the
License Agreement, the News Agreement and the Technical Services Agreement and
the transactions contemplated hereby and thereby, and Owner's execution,
delivery and performance of this Agreement, the License Agreement, the News
Agreement and the Technical Services Agreement have been duly and validly
authorized and all necessary action on its part. This Agreement has been, and
upon execution and delivery thereof on the Effective Date each of the License
Agreement, the News Agreement and the Technical Services Agreement will have
been duly executed and delivered by Owner and constitutes and will constitute
its valid and binding obligations enforceable against Owner in accordance with
their respective terms.
(c) Absence of Conflicting Agreements or Required Consents.
---------------------------------------------------------
The execution, delivery and performance of this Agreement, the License
Agreement, the News Agreement and the Technical Services Agreement by Owner: (i)
do not and will not violate any provision of Owner's organizational documents;
(ii) do not and will not require the consent of or any filing with any third
19
<PAGE>
party or governmental authority; (iii) do not and will not violate any
applicable law, judgment, order, injunction, decree, rule, regulation or ruling
of any governmental authority; and (iv) do not and will not, either alone or
with the giving of notice or the passage of time, or both, conflict with,
constitute grounds for termination or acceleration of or result in a breach of
the terms, conditions or provisions of, or constitute a default under any
agreement, lease, instrument, license or permit to which Owner is now subject.
(d) Network Agreements. Each Network Agreement is valid and
-------------------
enforceable in accordance with its terms and (i) neither Owner nor, to the
knowledge of Owner, any other party thereto, is in breach of or in default of
under any such Network Agreement, (ii) to the knowledge of Owner, there has not
occurred an event which, after the giving of notice or the lapse of time or
both, would constitute a default, or result in a breach of, any such Network
Agreement, (iii) contains the full extent of the monetary obligations (whether
absolute, accrued, contingent or otherwise) of Owner under such Network
Agreement, (iv) none of the rights of Owner under any such Network Agreement
would be subject to termination or modification as a result of the consummation
of the transactions contemplated by this Agreement and (v) no consent or
approval of any third party is required under any Network Agreement to the
consummation of the transactions contemplated hereby.
(e) Opening Working Capital. The accounts receivable and the
-----------------------
accounts payable of Owner reflected on the Opening Working Capital Statement
will have arisen from bona fide transactions in the ordinary course of business.
(f) Absence of Proceedings. There is no action, suit or
------------------------
proceeding, at law or an equity, by or before any court, tribunal or
governmental authority pending or, to the knowledge of Owner, threatened, which,
if adversely determined, would materially and adversely affect Owner's ability
to perform its obligations hereunder or under the License Agreement, the News
Agreement or the Technical Services Agreement or the validity or enforceability
of this Agreement or such other agreements.
Section 15.2. Representations and Warranties of
---------------------------------
Representative. Representative hereby represents and warrants that:
- --------------
(a) Organization and Standing. Representative is a corporation
-------------------------
duly formed, validly existing and in good standing under the laws of the State
of Delaware and has all necessary corporate power and authority to perform its
obligations hereunder.
(b) Authorization and Binding Obligation. Representative has
-------------------------------------
all necessary power and authority to enter into and perform this Agreement, the
License Agreement, the News Agreement and the Technical Services Agreement and
the transactions contemplated hereby and thereby, and Representative's
execution, delivery and performance of this Agreement have been duly and validly
authorized by all necessary action on its part. This Agreement has been, and
upon execution and delivery thereof the License Agreement, the News Agreement
and the Technical Services Agreement will have been duly executed and delivered
by Representative and constitutes and will constitute its valid and binding
obligations enforceable against Representative in accordance with their
respective terms.
(c) Absence of Conflicting Agreements or Required Consents.
---------------------------------------------------------
The execution, delivery and performance of this Agreement, the License
Agreement, the News Agreement and the Technical Services Agreement by
Representative: (i) do not and will not violate any provision of
Representative's organizational documents; (ii) do not and will not require the
consent of or any filing with any third party or governmental authority; (iii)
do not and will not violate any applicable law, judgment, order, injunction,
decree, rule, regulation or ruling of any governmental authority; and (iv) do
not and will not, either alone or with the giving of notice or the passage of
20
<PAGE>
time, or both, conflict with, constitute grounds for termination or acceleration
of or result in a breach of the terms, conditions or provisions of, or
constitute a default under any agreement, lease, instrument, license or permit
to which Representative is now subject.
(d) Absence of Proceedings. There is no action, suit or
------------------------
proceeding, at law or an equity, by or before any court, tribunal or
governmental authority pending or, to the knowledge of Representative,
threatened, which, if adversely determined, would materially and adversely
affect Representative's ability to perform its obligations hereunder or under
the License Agreement, the News Agreement or the Technical Services Agreement or
the validity or enforceability of this Agreement or such other agreements.
ARTICLE 16
Confidentiality
---------------
Section 16.1. Confidentiality. Representative shall treat
---------------
confidentially all records, books and other information of any type received or
compiled for the benefit of Owner hereunder in connection with this Agreement.
Representative agrees not to disclose any such records, books and information to
any third party (other than directors, officers, partners, employees or outside
advisors of such party and other than expressly in the performance of such
party's obligations hereunder) without the prior written consent of Owner. The
foregoing agreement shall not be applicable to any information that is (i)
publicly available when provided or that thereafter becomes publicly available
other than through a breach by such party of its agreements hereunder, (ii)
required to be disclosed by Representative by judicial or administrative process
in connection with any action, suit, proceeding or claim or otherwise by
applicable law or (iii) known by Representative on the date of this Agreement,
not otherwise primarily related to the business of the Networks or any Network
Office and not otherwise subject to a confidentiality agreement with or other
obligation of secrecy to Owner or any other party. Information shall be deemed
"publicly available" and not subject to Representative's agreement hereunder if
such information becomes a matter of public knowledge or is contained in
materials available to the public or is obtained by Representative's from any
source other than Owner (or its directors, officers, partners, employees or
outside advisors), provided that such source has not to Representative's actual
knowledge entered into a confidentiality agreement with Owner with respect to
such information.
ARTICLE 17
Miscellaneous
-------------
Section 17.1. No Partnership or Joint Venture. This Agreement
-------------------------------
is not intended to be and shall not be construed as a partnership or joint
venture agreement between the parties. Except as otherwise specifically provided
in this Agreement, no party to this Agreement shall be authorized to act as
agent of or otherwise represent the other party to this Agreement.
Section 17.2. Entire Agreement; Schedules; Amendment; Waiver.
----------------------------------------------
This Agreement, the License Agreement, the News Agreement and the Technical
Services Agreement, and the exhibits and schedules hereto and thereto, embody
the entire agreement and understanding of the parties hereto and supersede any
and all prior agreements, arrangements and understandings relating to the
matters provided for herein. No amendment, waiver of compliance with any
provision or condition hereof, or consent pursuant to this Agreement, shall be
effective unless evidenced by an instrument in writing signed by the party
against whom enforcement of any amendment, waiver or consent is sought. No
failure or delay on the part of Owner or Representative in exercising any right
or power under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
21
<PAGE>
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the parties to this Agreement are cumulative and are not
exclusive of any right or remedies which either may otherwise have.
Section 17.3. Further Assurances. Each of Owner and
------------------
Representative agrees to execute and deliver such instruments and take such
other actions as may reasonably be required to carry out the intent of this
Agreement.
Section 17.4. Benefit and Assignment. This Agreement shall
----------------------
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. Neither Representative nor Owner may assign
its rights under this Agreement without prior written consent of the other party
hereto.
Section 17.5. Headings. The headings set forth in this
--------
Agreement are for convenience only and will not control or affect the meaning or
construction of the provisions of this Agreement.
Section 17.6. Governing Law. The construction and
-------------
performance of this Agreement shall be governed by the laws of the State of New
York without regard to its principles of conflict of laws.
Section 17.7 Notices. All notices, requests, demands and other
-------
communications which are required or may be given under this Agreement shall be
in writing, and addressed as follows:
If to Owner:
CBS Radio
40 West 57th Street
New York, New York 10019
Attention: Chairman
Telephone: (212) 314-9200
Facsimile: (212) 314-9336
With copies to:
CBS Inc.
51 West 52nd Street
New York, New York 10019
Attention: Law Department
Telephone: (212) 975-4321
Facsimile: (212) 975-3744
With a copy to:
Westinghouse Electric Corporation
Westinghouse Building
11 Stanwix Street
Pittsburgh, Pennsylvania 15222-1304
Attention: General Counsel
Telephone: (412) 642-3966
Facsimile: (412) 642-5224
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Howard Chatzinoff, Esq.
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
22
<PAGE>
If to Representative:
Westwood One, Inc.
9540 Washington Blvd.
Culver City, California 90232
Attention: Chairman
Telephone: (310) 204-5000
Facsimile: (310) 836-0834
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, California 90071
Attention: Brian J. McCarthy, Esq.
Telephone: (213) 687-5000
Facsimile: (213) 687-5600
Any such notice, request, demand or communication shall be deemed to have been
duly delivered and received (a) upon hand delivery thereof during business
hours, (b) upon the earlier of receipt of three (3) days after posting by
registered mail or certified mail, return receipt requested, (c) on the next
business day following delivery to a reliable or recognized air freight delivery
service, and (d) on the date of transmission, if sent by facsimile during normal
business hours (but only if a hard copy is also send by overnight courier), but
in each case only if sent in the same manner to all persons entitled to receive
notice or a copy. Any party may, with written notice to the other, change the
place for which all further notices to such party shall be sent. All costs and
expenses for the delivery of notices hereunder shall be borne and paid for by
the delivering party.
Section 17.8. Severability. If any of the provisions of this
------------
Agreement shall be held unenforceable, then the remaining provisions shall be
construed as if such unenforceable provisions were not contained herein. Any
provision of this Agreement which is unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such unenforceability
without invalidating the remaining provisions hereof, and any such
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provisions in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto hereby waive any provision of law now or
hereafter in effect which renders any provisions hereof unenforceable in any
respect.
Section 17.9. Counterparts. This Agreement may be
------------
executed in two or more counterparts, each of which will be deemed an original
and all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this
Representation Agreement as of the date first above written.
CBS INC.
By:__________________________
Name:________________________
Title:_______________________
WESTWOOD ONE, INC.
By:_________________________
Name:_______________________
Title:______________________
23
EXHIBIT 10.11
WESTWOOD ONE, INC.
LIST OF SUBSIDIARIES
WESTWOOD ONE RADIO, INC.
MUTUAL BROADCASTING SYSTEM, INC.
WESTWOOD ONE RADIO NETWORKS, INC.
WESTWOOD NATIONAL RADIO CORPORATION, INC.
NATIONAL RADIO NETWORK, INC.
THE SOURCE, INC.
TALKNET, INC.
WESTWOOD ONE SATELLITE SYSTEMS, INC.
KM RECORDS, INC.
WESTWOOD ONE STATIONS GROUP, INC.
WESTWOOD ONE STATIONS - L.A., INC.
WESTWOOD ONE STATIONS - NYC, INC.
WESTWOOD ONE BROADCASTING SERVICES, INC.
EXHIBIT 22
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (No. 33-57637, No.
33-28849 and No. 33-64666) of Westwood One, Inc., of our report dated February
18, 1998 appearing on page F-2 of this Form 10-K.
PRICE WATERHOUSE LLP
Century City, California
March 26, 1998
EXHIBIT 24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,763
<SECURITIES> 0
<RECEIVABLES> 67,765<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 77,933
<PP&E> 15,516<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 335,850
<CURRENT-LIABILITIES> 65,753
<BONDS> 115,000
0
0
<COMMON> 351<F3>
<OTHER-SE> 124,327
<TOTAL-LIABILITY-AND-EQUITY> 335,850
<SALES> 0
<TOTAL-REVENUES> 240,790<F4>
<CGS> 0
<TOTAL-COSTS> 186,918<F5>
<OTHER-EXPENSES> 17,967<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,513
<INCOME-PRETAX> 27,726
<INCOME-TAX> 2,230
<INCOME-CONTINUING> 25,496
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,496
<EPS-PRIMARY> .83
<EPS-DILUTED> .74
<FN>
<F1>REFLECTED NET OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>REFLECTED NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION.
<F3>COMPRISED OF COMMON STOCK AND CLASS B STOCK.
<F4>COMPRISED OF NET REVENUES.
<F5>COMPRISED OF OPERATING COSTS AND EXPENSES EXCLUDING DEPRECIATION AND
AMORTIZATION.
<F6>COMPRISED OF DEPRECIATION AND AMORTIZATION, AND CORPORATE GENERAL AND
ADMINISTRATIVE EXPENSES.
</FN>
</TABLE>
