A quorum exists when the holders of a majority of the outstanding shares of Radio One voting common stock are present at the meeting in person or by proxy. A quorum is necessary to take action at the meeting. Abstentions and instructions to withhold voting authority, but not broker non-votes, are counted as present for purposes of determining whether there is a quorum. A broker non-vote occurs when a nominee who holds shares for a beneficial owner does not vote on a proposal because the nominee does not have discretionary voting power and has not received voting instructions from the beneficial owner. In the event that a quorum is not obtained at the meeting, we expect that the meeting will be adjourned or postponed to solicit additional proxies.
If a quorum is not present, the shareholders present in person or by proxy may adjourn the meeting to another time or place. Unless the adjournment is for more than thirty30 days or a new record date is set for the adjourned meeting, no further notice of the adjourned meeting need be given. At the adjourned meeting, we may transact any business which might have been transacted at the original meeting.
• the affirmative vote of a plurality of the votes cast by all eligible holders of Class A common stock will be necessary for the election of Terry L. Jones and Brian W. McNeill as Class A directors;
• the affirmative vote of a plurality of the votes cast by all eligible holders of Class A common stock and Class B common stock will be necessary for the election of the remaining director nominees;
• the affirmative vote of a majority of the votes cast by all eligible holders of Class A common stock and Class B common stock will be necessary for the ratification of the appointment of the independent registered public accounting firm.
We have been advised by various members of management and the board of directors who, in the aggregate, hold or otherwise have voting power with respect to 662,900 shares of Class A common stock and 2,861,843 shares of Class B common stock (together representing approximately 92.7%93.11% of the votes possible) that they intend to vote such shares in favor of each of the proposals to be presented for consideration and approval at the meeting.
We will pay all expenses incurred in connection with this proxy solicitation. We will solicit proxies by mail, and the directors, officers and employees of Radio One may also solicit proxies by telephone, facsimile, telegram or in person. Those persons will receive no additional compensation for these services but will be reimbursed for reasonable out-of-pocket expenses.
Votes cast by proxy or in person at the meeting will be tabulated by the inspectors of election appointed for the meeting.
Nominated for Class A Director in Proposal 1.
Five other directors will be elected by the holders of Class A common stock and Class B common stock voting together at the meeting, to serve until the 20102012 annual meeting. The five nominees are Catherine L. Hughes, Alfred C. Liggins, III, D. Geoffrey Armstrong, Ronald E. Blaylock and B. Doyle Mitchell, Jr. Each of the nominees is an incumbent director. Each of Mr. Armstrong, Mr. Blaylock and Mr. Mitchell also qualifies as an independent director as that term is defined in Rule 5605(a)(2) of the NASDAQ MarketplaceListing Rules. These nominees have consented to serve if elected, but should any nominee be unavailable to serve, your proxy will vote for the substitute nominee recommended by the board of directors. To be elected, the five persons nominated for director must receive the affirmative vote of a plurality of the votes cast by all stockholders entitled to vote. There is no cumulative voting for the board of directors. The table below contains certain biographical information about the nominees.
each of the Persons Nominated in Proposal 2.
Our stockholders may communicate directly with the board of directors. All communications should be in written form and directed to Radio One’s Assistant Secretary at the following address:
Radio One, Inc.
Communications should be enclosed in a sealed envelope that prominently indicates that it is intended for Radio One’s board of directors. Each communication intended for Radio One’s board of directors and received by the Assistant Secretary that is related to the operation of Radio One and is relevant to the director’s service on the board shall be forwarded to the specified party following its clearance through normal review and appropriate security procedures.
The board has a standing audit committee, compensation committee and nominating committee.
The audit committee consists of D. Geoffrey Armstrong, Brian W. McNeill and B. Doyle Mitchell, Jr., each of whom satisfiessatisfy the requirements for audit committee membership under the listing standards of the NASDAQ Stock Market. Each of the audit committee members is independent,an “independent director”, as that term is defined in Rule 56055605(a)(2) of the NASDAQ MarketplaceListing Rules. The board of directors has determined that both Mr. Armstrong and Mr. Mitchell qualify as “audit committee financial experts”experts,” as defined by Item 401(h) of Regulation S-K of the Securities Act of 1933. The board has adopted a written audit committee charter, which is available on our website at www.radio-one.com/about/audit_committee.asp. The audit committee met seven times and acted one time by unanimous written consent during 2008.the calendar year ended December 31, 2010.
The audit committee is responsible for oversight of the quality and integrity of the accounting, auditing and reporting practices of Radio One, and as part of this responsibility the audit committee:
• reviews the services performed by our independent registered public accounting firm, including non-audit services, if any;
• reviews the adequacy of the system of internal accounting controls and internal control over financial reporting;
• reviews and discusses the financial statements and accounting policies with management and our independent registered public accounting firm;
• reviews the performance and fees of our independent registered public accounting firm;
• reviews related party transactions, if any.
Our compensation committee consists of Terry L. Jones, Brian W. McNeill and D. Geoffrey Armstrong. The compensation committee held sixone formal meetingsmeeting and acted once by written consent during 2008, as well as multiple informal meetings and discussions among the members.calendar year ended December 31, 2010. The board has adopted a written compensation committee charter. The functions of the compensation committee include:
• reviewing and approving the salaries, bonuses and other compensation of our executive officers, including stock option or restricted stock grants;
• establishing and reviewing policies regarding executive officer compensation and perquisites; and
• performing such other duties as shall from time to time be delegated by the board.
Our nominating committee consists of Alfred C. Liggins, III, Catherine L. Hughes, Terry L. Jones and Brian W. McNeill. The nominating committee is responsible for recommending the criteria for selection of board members and assisting the board in identifying candidates. The nominating committee held one meeting during 2008.the calendar year ended December 31, 2010. The nominating committee does not have a charter.
The nominating committee reviews the qualifications of all persons recommended by stockholders as nominees to the board of directors to determine whether the recommended nominees will make good candidates for consideration for membership on the board. The nominating committee has not established specific minimum qualifications for recommended nominees. However, as a matter of practice, the nominating committee evaluates recommended nominees for directors based on their integrity, judgment, independence, financial and business acumen, relevant experience, and their ability to act on behalf of all stockholders, as well as meet the needs of the board.board of directors, including the need to have diverse perspective. In the consideration of diversity of perspective, the nominating committee is most concerned with finding nominees that counter any perceived weaknesses in board composition. Such weaknesses may include weaknesses in perspective based upon race, gender, skill sets and industry insight particularly as the Company diversifies its business. Following such evaluation, the nominating committee will make recommendations for director membership and review the recommendations with the board of directors, which will decide whether to invite the candidate to be a nominee for election to the board. The nominating committee recommended to the board that the incumbent directors be nominated for re-election to the board at the 2010 annual meeting.
For a stockholder to submit a candidate for consideration to the nominating committee, a stockholder must notify Radio One’s Assistant Secretary. To make a recommendation for director nomination in advance of anthe 2011 annual meeting of Radio One, a stockholder must notifyhave notified Radio One’s Assistant Secretary in writing no later than January 15, 2011, the date that was expected to be approximately 120 days prior to the anniversarymailing of the date ofproxy statement for the prior year’s2011 annual meeting proxy statement.of stockholders. Notices should be sent to:
Radio One, Inc.
All notices must include all information relating to the stockholder and the proposed nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for elections of directors under the proxy rules of the United States Securities Exchange Commission.
Section 16(a) of the Securities Exchange Act of 1934 requires Radio One’s directors and executive officers and persons who beneficially own more than ten percent of our common stock to file with the Securities and Exchange Commission (“SEC”) reports showing ownership and changes in ownership of our common stock and other equity securities. On the basis of reports and representations submitted by Radio One’s directors, executive officers, and greater than ten percent owners, we believe that all required Section 16(a) filings for the fiscal year ended December 31, 2008 were timely made.
Controlled Company Exemption
We are a “controlled company” under rules governing the listing of our securities on the NASDAQ Stock Market because more than 50% of our voting power is held by Catherine L. Hughes, our Chairperson of the Board and Secretary, and Alfred C. Liggins, III, our CEOChief Executive Officer and President. SeePresident, is included above in “Security OwnershipProposal 2 — Election of Beneficial Owners and Management” Other Directorsabove. Therefore, we are not subject to NASDAQ Stock Market listing rules that would otherwise require us to have (i) a majority of independent directors on the board; (ii) a compensation committee composed solely of independent directors; (iii) a nominating committee composed solely of independent directors; (iv) compensation of our executive officers determined by a majority of the independent directors or a compensation committee composed solely of independent directors; and (v) director nominees selected, or recommended for the board’s selection, either by a majority of the independent directors or a nominating committee composed solely of independent directors..”
Peter D. Thompson Executive Vice President and Chief Financial Officer Age: 46 | Mr. Thompson has been Chief Financial Officer (“CFO”) of Radio One since February 2008. Mr. Thompson joined the Company in October 2007, as the Company’s Executive Vice President of Business Development. Prior to his employment with the Company, Mr. Thompson worked on various business development projects for Radio One. Prior to working with the Company, Mr. Thompson served as a public accountant and spent 13 years at Universal Music in the United Kingdom, including five years serving as CFO. |
Barry A. Mayo President, Radio Division Age: 58 | Mr. Mayo has been President of Radio One’s Radio Division since August 2007. Prior to joining Radio One, Mr. Mayo served as a consultant to the Company through his firm Mayomedia, a media consulting firm specializing in urban markets. Mr. Mayo has held numerous senior management positions during his 30 plus years of experience in the industry. He began as a program director and he helped create one of the largest urban stations in the country, WRKS-FM, in New York. Three years after joining the programming staff at WRKS-FM, Mr. Mayo became Vice President and General Manager of that station. In 1988, he and a group of partners founded Broadcast Partners. While Mr. Mayo served as President, Broadcast Partners grew into an eleven-station, publicly traded company with stations in Dallas, New York, Chicago and Charlotte. In 1995, Mr. Mayo sold his share of Broadcast Partners and founded Mayomedia. In 2003, he was recruited back to New York to become the Senior Vice President and Market Manager for Emmis Radio. He left Emmis Radio in 2006 to resume his consulting career and began working with Radio One in July 2006 as a consultant. |
Linda J. Vilardo Vice President, Assistant Secretary and Chief Administrative Officer Age: 53 | Ms. Vilardo has been Chief Administrative Officer (“CAO”) of Radio One since November 2004, Assistant Secretary since April 1999, Vice President since February 2001, and was General Counsel from January 1998 to January 2005. Prior to joining Radio One, Ms. Vilardo was a partner in the Washington, DC office of Davis Wright Tremaine LLP, where she represented Radio One as outside counsel. From 1992 to 1997, she was a shareholder of Roberts & Eckard, P.C., a firm that she co-founded. Ms. Vilardo is a graduate of Gettysburg College, the National Law Center at George Washington University and the University of Glasgow. |
Code of Ethics
We have adopted a Codecode of Ethicsethics that applies to all of our directors, officers and employees and meets the requirements of the rules of the SEC and the NASDAQ Stock Market. The Codecode of Ethicsethics is available on our website, www.radio-one.com, or can be obtained without charge by written request to Assistant Secretary, Radio One, Inc., 5900 Princess Garden Parkway, 7th Floor, Lanham, MD 20706. We do not anticipate making material amendments to or waivers from the provisions of the Codecode of Ethics.ethics. If we make any material amendments to our Codecode of Ethics,ethics, or if our board of directors grants any waiver from a provision thereof to our executive officers or directors, we will disclose the nature of such amendment or waiver, the name of the person(s) to whom the waiver was granted and the date of the amendment or waiver in a current report on Form 8-K.
Stockholder Submissions
For a stockholder to submit a candidate for consideration to the nominating committee, a stockholder must notify Radio One’s Assistant Secretary. To make a recommendation for director nomination in advance of the 2011 annual meeting of Radio One, a stockholder must have notified Radio One’s Assistant Secretary in writing no later than January 15, 2011, the date that was expected to be approximately 120 days prior to the mailing of the proxy statement for the 2011 annual meeting of stockholders. Notices should be sent to:
Assistant Secretary
Radio One, Inc.
5900 Princess Garden Parkway, 7th Floor
Lanham, MD 20706
All notices must include all information relating to the stockholder and the proposed nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for elections of directors under the proxy rules of the United States Securities Exchange Commission.
EXECUTIVE OFFICERS
In the table below we set forth certain information on those persons currently serving as our executive officers. Biographical information on Catherine L. Hughes, Chairperson of the Board and Secretary, and Alfred C. Liggins, III, Chief Executive Officer and President, is included above in “Proposal 2 — Election of Other Directors.”
Peter D. Thompson Executive Vice President and Chief Financial Officer Age: 46 | Mr. Thompson has been Chief Financial Officer (“CFO”) of Radio One since February 2008. Mr. Thompson joined the Company in October 2007, as the Company’s Executive Vice President of Business Development. Prior to his employment with the Company, Mr. Thompson worked on various business development projects for Radio One. Prior to working with the Company, Mr. Thompson served as a public accountant and spent 13 years at Universal Music in the United Kingdom, including five years serving as CFO. |
Barry A. Mayo President, Radio Division Age: 58 | Mr. Mayo has been President of Radio One’s Radio Division since August 2007. Prior to joining Radio One, Mr. Mayo served as a consultant to the Company through his firm Mayomedia, a media consulting firm specializing in urban markets. Mr. Mayo has held numerous senior management positions during his 30 plus years of experience in the industry. He began as a program director and he helped create one of the largest urban stations in the country, WRKS-FM, in New York. Three years after joining the programming staff at WRKS-FM, Mr. Mayo became Vice President and General Manager of that station. In 1988, he and a group of partners founded Broadcast Partners. While Mr. Mayo served as President, Broadcast Partners grew into an eleven-station, publicly traded company with stations in Dallas, New York, Chicago and Charlotte. In 1995, Mr. Mayo sold his share of Broadcast Partners and founded Mayomedia. In 2003, he was recruited back to New York to become the Senior Vice President and Market Manager for Emmis Radio. He left Emmis Radio in 2006 to resume his consulting career and began working with Radio One in July 2006 as a consultant. |
Linda J. Vilardo Vice President, Assistant Secretary and Chief Administrative Officer Age: 53 | Ms. Vilardo has been Chief Administrative Officer (“CAO”) of Radio One since November 2004, Assistant Secretary since April 1999, Vice President since February 2001, and was General Counsel from January 1998 to January 2005. Prior to joining Radio One, Ms. Vilardo was a partner in the Washington, DC office of Davis Wright Tremaine LLP, where she represented Radio One as outside counsel. From 1992 to 1997, she was a shareholder of Roberts & Eckard, P.C., a firm that she co-founded. Ms. Vilardo is a graduate of Gettysburg College, the National Law Center at George Washington University and the University of Glasgow. |
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The Company has four classes of common stock, Class A, Class B, Class C and Class D. Generally, except as summarized below, the shares of each class are identical in all respects and entitle the holders thereof to the same rights and privileges. However, with respect to voting rights, each share of Class A common stock entitles its holder to one vote and each share of Class B common stock entitles its holder to ten votes. The holders of Class C and Class D common stock are not entitled to vote on any matters. The holders of Class A common stock can convert such shares into shares of Class C or Class D common stock. Subject to certain limitations, the holders of Class B common stock can convert such shares into shares of Class A common stock. The holders of Class C common stock can convert such shares into shares of Class A common stock. The holders of Class D common stock have no such conversion rights.
The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 15, 2011 by:
each person (or group of affiliated persons) known by us to be the beneficial owner of more than five percent of any class of common stock;
each of the current executive officers named in the Summary Compensation Table;
each of our directors and nominees for director; and
all of our directors and executive officers as a group.
In the case of persons other than our executive officers, directors and nominees, such information is based solely upon a review of the latest schedules 13D or 13G, as amended. Each individual stockholder possesses sole voting and investment power with respect to the shares listed, unless otherwise noted. Information with respect to the beneficial ownership of the shares has been provided by the stockholders. The number of shares of stock includes all shares that may be acquired within 60 days of March 15, 2011.
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| Catherine L. Hughes (1)(2)(3)(4)(6) | | | 1,000 | | | | * | | | | 851,536 | | | 29.8 | % | | | 1,579,674 | | | 50.6 | % | | | 4,942,410 | | | 10.9 | % | | | 13.56 | % | | | 27.1 | % |
| Alfred C. Liggins, III (1)(3)(4)(5)(6) | | | 574,909 | | | | 20.3 | % | | | 2,010,307 | | | 70.2 | % | | | 1,541,374 | | | 49.4 | % | | | 10,190,777 | | | 22.4 | % | | | 26.32 | % | | | 65.8 | % |
| Barry A. Mayo (7) | | | | | | | | | | | | | | | | | | | | | | | | | 107,727 | | | * | | | | * | | | | 0.00 | % |
| Linda J. Vilardo (8) | | | 1,000 | | | | * | | | | | | | | | | | | | | | | | | 20,216 | | | * | | | | * | | | | * | % |
| Terry L. Jones (9) | | | 49,557 | | | | 1.8 | % | | | | | | | | | | | | | | | | | 685,115 | | | 1.5 | % | | | 1.5 | % | | | * | % |
| Brian W. McNeill (10) | | | 26,434 | | | | * | | | | | | | | | | | | | | | | | | 873,108 | | | 1.9 | % | | | 1.9 | % | | | * | % |
| D. Geoffrey Armstrong (11) | | | 10,000 | | | | * | | | | | | | | | | | | | | | | | | 189,403 | | | * | | | | * | | | | * | % |
| Ronald E. Blaylock (12) | | | | | | | | | | | | | | | | | | | | | | | | | 56,673 | | | * | | | | * | | | | 0.00 | % |
| B. Doyle Mitchell, Jr. (13) | | | | | | | | | | | | | | | | | | | | | | | | | 21,673 | | | * | | | | * | | | | 0.00 | % |
| Peter D. Thompson (14) | | | | | | | | | | | | | | | | | | | | | | | | | 165,538 | | | * | | | | * | | | | 0.00 | % |
| Dimensional Fund Advisors, L.P. (15) | | | | | | | | | | | | | | | | | | | | | | 3,004,754 | | | 6.6 | % | | | 6.2 | % | | | 0.00 | % |
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| All Directors and Named Executives as a group (10 persons) | | | 662,900 | | | | 23.4 | % | | | 2,861,843 | | | 100.0 | % | | | 3,121,048 | | | 100.0 | % | | | 17,252,640 | | | 37.9 | % | | | | | | | | |
| (1) | Includes 31,211 shares of Class C common stock and 62,997 shares of Class D common stock held by Hughes-Liggins & Company, L.L.C., the members of which are the Catherine L. Hughes Revocable Trust, dated March 2, 1999, of which Ms. Hughes is the trustee and sole beneficiary (the “Hughes Revocable Trust”), and the Alfred C. Liggins, III Revocable Trust, dated March 2, 1999, of which Mr. Liggins is the trustee and sole beneficiary (the “Liggins Revocable Trust”). The address of Ms. Hughes and Mr. Liggins is 5900 Princess Garden Parkway, 7th Floor, Lanham, MD 20706. |
| (2) | The shares of Class B common stock, 247,366 shares of Class C common stock and 3,810,409 shares of Class D common stock are held by the Hughes Revocable Trust; 192,142 shares of Class C common stock and 286,875 shares of Class D common stock are held by the Catherine L. Hughes Charitable Lead Annuity Trust, dated March 2, 1999, of which Harold Malloy is trustee; 1,124,560 shares of Class C common stock are held by the Catherine L. Hughes Dynastic Trust, dated March 2, 1999, of which Ms. Hughes is the trustee and sole beneficiary. |
| (3) | The shares of Class A common stock and Class B common stock are subject to a voting agreement between Ms. Hughes and Mr. Liggins with respect to the election of Radio One’s directors. |
| (4) | As of March 15, 2011, the combined economic and voting interests of Ms. Hughes and Mr. Liggins were 39.9% and 92.8%, respectively. |
| (5) | The shares of Class B common stock, 605,313 shares of Class C common stock, and 5,611,565 shares of Class D common stock are held by the Liggins Revocable Trust; and 920,456 shares of Class C common stock are held by the Alfred C. Liggins, III Dynastic Trust dated March 2, 1999, of which Mr. Liggins is the trustee and sole beneficiary. |
| (6) | Ms. Hughes' total of Class D shares includes 600,000 shares of Class D common stock obtainable upon the exercise of stock options. Mr. Liggins' total of Class D shares includes 2,650,000 shares of Class D common stock obtainable upon the exercise of stock options. |
| (7) | Includes 50,000 shares of Class D common stock obtainable upon the exercise of stock options. |
| (8) | Includes 1,000 shares of Class A common stock. |
| (9) | Includes 51,673 shares of Class D common stock obtainable upon the exercise of stock options and 300 shares of Class A common stock and 600 shares of Class D common stock held by Mr. Jones as custodian for his daughter. |
| (10) | Includes 51,673 shares of Class D common stock obtainable upon the exercise of stock options. |
| (11) | Includes 51,673 shares of Class D common stock obtainable upon the exercise of stock options. |
| (12) | Includes 46,673 shares of Class D common stock obtainable upon the exercise of stock options. |
| (13) | Includes 21,673 shares of Class D common stock obtainable upon the exercise of stock options. |
| (14) | Includes 75,000 shares of Class D common stock obtainable upon the exercise of stock options. |
| (15) | The address of Dimensional Fund Advisors L.P. is 1299 Ocean Avenue, Santa Monica, CA 90401. This information is based on a Schedule 13G/A filed on February 10, 2010. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Radio One’s directors and executive officers and persons who beneficially own more than ten percent of our common stock to file with the Securities and Exchange Commission (“SEC”) reports showing ownership and changes in ownership of our common stock and other equity securities. On the basis of reports and representations submitted by Radio One’s directors, executive officers, and greater than ten percent owners, we believe that all required Section 16(a) filings for the fiscal year ended December 31, 2010 were timely made.
COMPENSATION DISCUSSION AND ANALYSIS
The following materials onfirst part of the narrative below, entitled Compensation Policies and Philosophy, discusses in detail our compensation philosophy and practices. The second part of the Compensation Discussion and Analysis, entitled 2010 Compensation Actions, discusses compensation decisions and Executive Compensation replace in their entirety those materials as set forth inactions for our Annual Report on Form 10-K/A filed April 30,named executives that occurred during calendar year 2010, including certain actions with respect to fiscal year 2009. After the filing of its Form 10-Q for the period ended September 30, 2009, the Company will be filing an amended 10-K/A to update the information on Compensation Discussion and Analysis and Executive Compensation set forth in our Annual Report on Form 10-K/A filed April 30, 2009. The updated information will be consistent with the information set forth below.
The Company’s compensation committee (for purposes of this discussion, the “Committee”) is appointed by the Boardboard of directors and has responsibility for establishing, implementing and monitoring adherence to the Company’s compensation philosophy. The Committee oversees the compensation of the Company’s executive officers and determines the compensation of the Chairperson and the CEO. The Committee strives to ensure that the total compensation paid to the Company’s named executive officers is fair, reasonable and competitive and provides an appropriate mix of different compensation elements that find a balance between current versus long-term compensation and cash versus equity incentive compensation.
We are a “controlled company” under the NASDAQ listing rule as more than 50% of our voting power is held by Catherine L. Hughes, our Chairperson of the Board and Secretary, and Alfred C. Liggins, III, our CEO and President. While we arewere therefore not subject to NASDAQ rules that would require us to have a compensation committee composed solely of independent directors, a majorityduring the year ended December 31, 2010, all of the members of the Committee arewere independent directors. Throughout this discussion, we refer to the individuals who served during calendar year 20082010 as the Company’s Chairperson, CEO, Chief Financial Officer (“CFO”), Chief Administrative Officer (“CAO”) and President-Radio Division (“PRD”), as the Company’s “named executive officers.”
Compensation Policies and Philosophy
The overall objective of our compensation plan is to attract, motivate, retain and reward the top-quality management that we need in order to operate successfully and meet our strategic objectives, including our diversification into a broader multi-media company. To achieve this, we aim to provide a compensation package that is competitive in the markets and industries in which we compete for talent, that provides rewards for achieving financial, operational and strategic performance goals and aligns executives’ financial interests with those of our stockholders.shareholders.
We operate in the intensely competitive media industry, which is characterized by rapidly changing technology, evolving industry standards, frequent introduction of new media services, price and cost competition, limited advertising dollars, and extensive regulation. We face many aggressive and well-financed competitors. In this environment, our success depends on attracting and maintaining a leadership team with the integrity, skills, and dedication needed to manage a dynamic organization and the vision to anticipate and respond to future market developments. We use our executive compensation program to help us achieve this objective. Part of the compensation package, principally the annual salary, benefits and perquisites, is designed to enable us to assemble and retain a group of executives who have the collective and individual experience and abilities necessary to run our business to meet these challenges. Other parts, principally the annual bonus opportunity and the stock-based awards, are intended to focus these executives on achieving financial results that enhance the value of our stockholders’ investment. At the same time, the compensation structure is flexible, so that we can meet the changing needs of our business over time and reward executive officers and managers based on the financial performance of operations under their control.
Our compensation packages also take into account the economic and general business conditions at the time in which compensation decisions are made. While we may adjust and refine our compensation packages as operating conditions change, we believe it is important to maintain consistency in our compensation philosophy and approach. We recognize that value-creating performance by an executive or group of executives does not always translate immediately into appreciation of our stock price, particularly in periods of industry transformation and/or general economic stress such as the one we are currently experiencing.volatility. Management and the Committee are aware of the impact that industry transformation and the currentgeneral economic crisisvolatility has had on the Company’s stock price, but the Committee intends to continue to reward management performance based on its belief that over time strong operating performance, including performance in diversifying the Company’s multi-media platform will be reflected through stock price appreciation. In the context of industry decline, the Committee also believes that performance as measured against the industry in general and relative to the markets in which we operate should be given consideration. That said, we believe that it is appropriate for certain components of compensation to decline and/or for management to share in corporate-wide financial sacrifice in challenging operating environments and during periods of economic stress and reduced earnings and significantly lower stock prices. It is in this overall context that we negotiated certain employment arrangements and set 2008 incentive compensation.earnings.
Process
The Committee meets periodically throughout the year. In addition, members of the Committee discuss compensation matters with our CEO and CFO and among themselves informally outside of meetings. The CEO may make recommendations to the Committee concerning the amount and form of compensation to all named executive officers. In establishing the compensation levels for Radio One’s Chairperson and CEO in connection with their April 2008 employment agreements, the Committee itself engaged the services of Pearl Meyers & Partners, LLC (“Pearl Meyers”), a nationally recognized compensation consultant, (“Pearl Meyers”) and outside counsel to ensure compliance with its fiduciary duties. TheIn connection with the Chairperson’s and CEO’s April 2008 employment agreements, the Committee usesused its compensation consultant to provide advice that will assist in the continual development and evaluation of compensation policies and the Committee’s determinations of the Chairperson’s and CEO’s compensation awards. The role of the outside consultant is to provide a broader market view, access to data and independent, third-party advice and expertise in executive compensation issues. The outside consultant, however, is not consulted by the Committee on all executive compensation issues or all aspects of any particular issue, but is used as the Committee deems appropriate.
The Committee uses judgment and discretion rather than relying solely on formulaic results. The Committee considers a number of qualitative and quantitative factors, including the competitive market for executives, the level and types of compensation paid to executive officers in similar positions by comparable companies, performance in the context of the economic environment relative to other companies, vision and ability to create further growth, the ability to lead others and an evaluation of Radio One’s financial and operational performance. We review the compensation paid to executives at other radio broadcasting companies as a reference point for determining the competitiveness of our executive compensation and to determine a competitive range of compensation observed in the marketplace. For 2008,Generally speaking, our peer group of radio broadcasting companies includedincludes Citadel Broadcasting Corporation, Cox Radio, Inc., Emmis Communications Corp., Entercom Communications Corp. and Saga Communications, Inc. The major compensation elements that may be examined in that analysis could include: base salary; actual total cash compensation (base salary plus annual bonus); and total direct compensation (base salary plus annual bonus plus the expected value of long-term incentives). In addition, given the diversity of our business, the Committee may review the compensation practices at companies with which it competes for talent, including television, cable, film, online, software and other publicly held businesses with a scope and complexity similar to ours. However, the Committee does not attempt to benchmark or set each compensation element for its named executive officers within a particular range or percentile related to levels provided by industry peers. Rather, the Committee uses market comparisons as one factor in making compensation decisions and to understand current compensation trends and practices in the marketplace. Other factors considered when making individual executive compensation decisions include individual contribution and performance, reporting structure, internal pay relationships, complexity and importance of roles and responsibilities, leadership and growth potential.
Principal Components of Executive Compensation
We seek to achieve our compensation philosophy through three key compensation elements:
a performance-based annual bonus (that constitutes the short-term incentive element of our program), which may be paid in cash, restricted stock shares or a combination of these; and
| · | a performance-based annual bonus (that constitutes the short-term incentive element of our program), which may be paid in cash, restricted stock shares or a combination of these; and |
grants of long-term, equity-based compensation (that constitute the long-term incentive element of our program), such as stock options and/or restricted stock shares, which may be subject to time-based and/or performance-based vesting requirements.
| · | grants of long-term, equity-based compensation (that constitute the long-term incentive element of our program), such as stock options and/or restricted stock shares, which may be subject to time-based and/or performance-based vesting requirements. |
The Committee believes that this three-part approach is consistent with programs adopted by similarly situated companies, allows us to stay competitive in our industry and best serves the interests of our stockholders by linking significant components of executive compensation to company performance. The approach enables us to meet the requirements of the competitive environment in which we operate, while ensuring that named executive officers are compensated in a manner that advances both the short-termshort and long-term interests of our stockholders. Under this approach, compensation for our named executive officers involves a high proportion of pay that is “at risk,”risk”, namely, the annual bonus and the value of stock options and restricted stock units. Stock options and/or restricted stock units relate a significant portion of each named executive officer’s long-term remuneration directly to the stock price appreciation realized by our stockholders.
Base salary. Our objective with respect to base salary is to pay our executives compensation that is competitive in the marketplace and reflects the level of responsibility and performance of the executive, the executive’s experience and tenure, the scope and complexity of the position, the compensation of the executive compared to the compensation of our other key salaried employees, the compensation paid for comparable positions by other companies in the radio broadcast industry, and the performance of our Company.
Non-Equity Incentive Plan Compensation. Our executives are eligible to receive an annual bonus intended to provide financial incentives for performance and to align the goals and performance of the executive to our overall objectives. The Committee has significant flexibility in awarding cash bonuses. The Committee may consider, among other things, year-to-year revenue growth compared to that of the radio industry in general or the markets in which we operate, same station revenue, operating performance versus our business plan, acquisitions and divestitures, employee retention, sales and operating initiatives, and stock price performance compared to the industry peer group. Bonus recommendations for named executive officers other than the CEO are proposed by the CEO, reviewed, revised when appropriate, and approved by the Committee. The Committee establishes the bonus level for the CEO.
Long-term Incentives. We believe that equity ownership by Company executives provides incentive to build stockholder value, aligns the interests of the executives with the interests of stockholders and serves as motivation for long-term performance. The Company’s equity incentive compensation program is designed to recognize scope of responsibilities, reward demonstrated performance and leadership, align the interests of the named executive with those of our stockholdersshareholders and retain key employees. We believe that providing grants of stock options and/or restricted stock shares effectively focuses the named executives on delivering long-term value to our stockholdersshareholders because options only have value to the extent the price of our stock on the date of exercise exceeds the stock price on the grant date, and shares of restricted stock reward and retain the named executive officer by offering them the opportunity to receive shares of stock on the date the restrictions lapse so long as they continue to be employed by the Company. Until May 5, 2009, stock awards were made pursuant to the Radio One Amended and Restated 1999 Stock Option and Restricted Stock Grant Plan, which was approved by our stockholders (as amended, the “1999 Stock Plan”). The 1999 Stock Plan expired by its terms on May 5, 2009. At our 2009 annual stockholders meeting we are proposing to adopt a new stock plan to alignheld December 16, 2009, our stockholders adopted the interests of the executives with the interests of stockholders. The terms of the proposed new stock plan are outlined in Proposal 4 on page 41 of this document.Radio One 2009 Stock Option and Restricted Stock Grant Plan (the “2009 Stock Plan”).
Under the 19992009 Stock Plan, the Committee couldcan award stock options or grant restricted stock to any executive officer or other eligible participants under the plan, on its own initiative or at the recommendation of management. The Committee determines the number of incentive awards granted to our named executive officers on an individual, discretionary basis. The level of long-term incentive compensation generally is determined with consideration given to total compensation provided to named executive officers, publicly available market data on total compensation packages, the value of long-term incentive grants at peer companies, total stockholder return, stockholder dilution and input from the CEO. In accordance with our Stock Plan Administration Procedures, as approved by the Committee, the grant date and pricing date for awards approved by the Committee to named executive officers (other than a company-widecompany wide grant) is the next monthly grant date immediately following the meeting of the Committee at which the awards were approved. Under our Stock Plan Administration Procedures, monthly grant dates are generally defined as the fifth day of each month, or the next NASDAQ trading day in the event the fifth day is not a business day. For example, if the Committee approved an award at any time between January 5, 2010 and February 4, 2010, the applicable monthly grant date would be February 5, 2010, and, thus, the grant date and pricing date would be February 5, 2010. If the Committee approved an award at any time between February 5, 2010 and March 4, 2010, the applicable monthly grant date would be March 5, 2010, and, thus, the grant date and pricing date would be March 5, 2010. However, it is also our practice in granting options or stock awards to wait for the release of any material non-public information and settlement of that information in the marketplace. Thus, for example, if the Committee approved an award at any time between January 5, 2010 and February 4, 2010, and, it was determined that material non-public information existed, the grant date for the awards would be delayed until March 5, 2010, assuming the information in question was communicated to the marketplace prior to such date. The Stock Plan Administration Procedures, as approved by the Committee, would remain in effect under any new stock plan.
In accordance with the Company’s Stock Plan Administration Procedures, in 2008 the grant date of equity awards (stock options and restricted stock) to the named executive officers occurred on June 5, 2008. The closing price of shares of the Company’s Class D common stock on that date was $1.41.
When authorized by the Committee to do so, the CEO or CFO may make stock option awards or restricted stock grants to new hires, contractors or consultants and to existing employees uponon promotion or other change in employee status, in accordance with the Committee’s delegation of authority. Historically, we have utilized stock options as our primary means of providing long-term incentive compensation. Statement of Accounting Standards Codification ("ASC'(“ASC”) Topic 718, "Compensation -“Compensation – Stock Compensation,,"” sets forth accounting requirements for share-based compensation to employees using a fair-value based method. We did not make a company-wide grant of stock options or other equity incentive awards in 2008.
2008 Base and Other2010 Compensation Decisions
Compensation to Chairperson and Founder
On April 16, 2008, the Company entered into a three (3) year employment agreement with Catherine L. Hughes, the Company’s Chairperson and Founder. Ms. Hughes’ employment agreement provides for an annual base salary of $750,000 that may be increased annually in the discretion of the Committee. Ms. Hughes is also eligible for an annual incentive bonus to be awarded in the sole discretion of the Committee, up to a maximum of $250,000. In determining the Chairperson and Founding Advisor’s base compensation and bonus potential, the Committee consulted with Pearl Meyers and considered a variety of factors including Ms. Hughes' contributions as a spokesperson and the “public face” of Radio One, her unique stature within the African-American community, her ability to draw artists, entertainers and political figures to the various Radio One properties and her continuing contributions to the Company and its subsidiaries as both a radio and media personality. In addition, the Committee noted that the Chairperson is active in the Company’s strategic leadership including leading, coordinating and organizing community events and discussions on issues affecting the industry or the African-American community. In determining to increase the Chairperson’s base salary from approximately $450,000 in 2007 to $750,000 in 2008, the Committee noted that Ms. Hughes’ base compensation had remained effectively flat since 2002, with only cost of living adjustments. The Committee further considered that the Chairperson’s previous compensation did not take into account her current more dynamic role as both a business advisor and as a media personality. In comparing the base compensation paid to Ms. Hughes versus other industry executives, the Committee once again noted Ms. Hughes’ more dynamic role and determined that Ms. Hughes is a unique Company asset and uniquely situated in her role with the Company.
In conjunction with her employment agreement, the Chairperson was granted options to purchase 600,000 shares of Class D common stock as well as 150,000 restricted shares of Class D common stock. These options and restricted shares were awarded under the 1999 Stock Plan. Both grants will vest ratably annually over the life of the three year employment agreement or alternatively, fully in the event of a Change of Control of the Company (as defined in the 1999 Stock Plan). The Committee determined the number of incentive awards granted to the Chairperson in the manner described above in the section titled “Principal Components of Executive Compensation, Long-term Incentives.”
Compensation to Chief Executive Officer
Background
The CEO’s prior employment agreement expired in April 2005. Between that time and April 2008, given the shift in media spend over the past several years, the Company has diversified, and continues to diversify, its business to become a multi-media content provider to the African-American consumer. The Company’s media portfolio now includes our interest in TV One, our 51% interest in Reach Media, our acquisition of Giant Magazine, and, most recently, our acquisition of Community Connect Inc. Mr. Liggins was the chief architect of this diversification, and was the founding visionary of TV One, individually formulating the concept and taking the lead in bringing the concept into existence. Against this backdrop and looking to the future, the Board and the Committee determined that Mr. Liggins is both a unique asset and uniquely situated to lead Radio One into the future.
In the early part of 2006, Mr. Liggins and the Committee began negotiating a new employment agreement. The Committee engaged the services of Pearl Meyers to assist and advise the Committee with its deliberations with respect to overall compensation for the CEO. The Committee’s focus was twofold. First, it sought to structure incentives designed to maximize overall shareholder value in the context of the Company’s diversification strategy. Second, it sought to cure past compensation arrangements the results of which the Committee deemed punitive to Mr. Liggins. With input from Pearl Meyers and outside counsel, the Committee considered publicly available data concerning compensation programs offered by other companies. The Committee did not attempt to benchmark or set any compensation element for the CEO within a particular range related to levels provided by industry peers. Rather, the Committee used market comparisons as one factor in making its compensation decision. In reviewing these comparables, the Committee analyzed the complexity and diversity of the business models of these peers, as well as the contributions of the executives responsible for the creation, operation and strategic oversight of those models. The process was both dynamic and vigorous, with the Committee meeting numerous times, having multiple discussions and reviewing various proposals before approving the final compensation package.
Base Salary “Signing Bonus”
In January 2009, the CEO directed the CFO, CAO and Performance Bonus
On April 16, 2008,the PRD (the “Executive Officer Response Team”) to determine appropriate actions to take to provide for the Company’s continued covenant compliance and operational performance given the severity of the decline in the economic environment and the resulting impact upon the Company’s operations. The Executive Officer Response Team, in consultation with other Company executives, determined that the Company entered intoshould implement a three (3) year employment agreement with Mr. Liggins.variety of cost savings initiatives in response to the deteriorating economic conditions and as a preemptive measure in response to potential further economic decline. The employment agreement provides for an annual baseExecutive Officer Response Team recommended, among other actions: (i) Company-wide salary of $980,000reductions; (ii) a “use it or lose it” vacation policy; and (ii) mandatory vacation through office closings in order to provide expense savings and financial flexibility to the Company. The Executive Officer Response Team made this recommendation to the CEO, including a recommendation that may be increased annuallyall named executive officers participate in the discretionsalary reduction program. The CEO adopted the recommendation and reported to the Committee that all named executive officers would accept salary cuts of seven percent. Thus, without action by the Committee, each of the Committee. Mr. Liggins also received a $1,000,000 “signing bonus” which served as a retroactivenamed executive officers agreed to waive all contractual rights to any automatic salary increase for 2009 and instead accepted seven percent salary reductions (the “2009 Salary Reductions”) from their 2008 compensation adjustment,levels until such time as it was determined that the CEO was underpaid for the three years prior to execution of the 2008 employment agreement. Under the terms of his employment agreement, the CEO’s bonus award has two components. The first component, equaling 50% of the award, issuch reductions were no longer necessary based on the achievementfinancial status of the pre-established individualCompany. Effective April 1, 2010, the 2009 Salary Reductions were lifted for all Company staff, including each of the named executive officers, except for the PRD, whose salary was reinstated January 1, 2010 as a part of his new employment agreement as described below.
2009 and 2010 Non-Equity Incentive Plan Compensation
This cash-based element of compensation provides executives an incentive and a reward for achieving meaningful near-term performance objectives. The Committee believes that it is important for the Company to meet its performance goals in order to pay cash bonuses to the named executive officers as determined bya group, but that it is also important to retain flexibility to allocate the Committeebonus pool among individuals. During the quarter ended December 31, 2009, the Company accrued monies for certain corporate bonuses, including bonus amounts that would be paid to the named executive officers, typically in consultation with the CEO. The performance goals for the CEO for 2008 are discussed in more detail in the section below regarding 2008 individual performance reviews and performance-based annual bonus decisions. The second component, equaling the balance of the award, is determined at the discretion of the Committee. The CEO’s bonus award may not in the aggregate exceed his annual base salary. The bonus is typically paid in the first quarterMarch of the year following such accrual (e.g., bonus amounts accrued in and for fiscal year 2009, would normally be paid in March 2010). However, in February 2010, given continued uncertainty about the yeareconomy and the pace of recovery in the advertising industry generally and the radio sector in particular, the non-executive members of the board of directors determined that it was in the best interests of the Company to defer payment of any 2009 corporate bonuses, including bonus amounts that would be paid to the named executive officers (the “2009 Executive Bonuses”), for whicha period not to extend beyond December 31, 2010. At the bonus is earned, if applicable.
As noted above, in setting compensation for executives, includingtime, the CEO,non-executive members of the board of directors retained the Committee’s full discretion to allocate payments to individual named executive officers. On December 21, 2010, the Committee reviewed the compensation paidmet to executives at other radio broadcasting companies as a reference point for determining the competitiveness of our executive compensation and to obtain a general understanding of current compensation practices. In fulfilling its mandate to ensure that the total compensation paid to Mr. Liggins was fair, reasonable and competitive, the Committee reviewed the compensation paid to chief executives at other radio broadcasting companies to determine if Mr. Liggins’ compensation was “in the ballpark” with respect to fair, reasonable and competitive compensation and to establish a starting place in its compensation review. This process also helped the Committee to fulfill its fiduciary duties to avoid the waste of corporate assets by providing a construct within which to set Mr. Liggins’ compensation without overpaying versus the market for similar executive talent. In reviewing compensation data for the CEO, the Committee started by comparing Mr. Liggins' salary to that of chief executives at a historical “peer group” of pure play radio broadcasting companies that the Company had compared itself to prior to its business diversification. This historical peer group included Citadel Broadcasting Corporation, Cox Radio, Inc., Emmis Communications Corp., Entercom Communications Corp. and Saga Communications, Inc. (the “Historical Peer Group”). The Committee used publicly available data (such as data filed with the SEC in proxy statements) for market comparisons as a beginning basis for making its compensation decision. For example, the Committee reviewed total annual compensation paid to executives at the Historical Peer Group companies and contrasted that to the total annual compensation opportunities made available to the CEO. In reviewing the data, the Committee observed that Mr. Liggins’ past compensation made him an outlier (to the low side) with respect to our Historical Peer Group. However, given the complexity of our multi-media platform versus pure play radio broadcasting companies, the Committee determined that benchmarking against chief executives at the Historical Peer Group companies, while of some value, would have understated the value of the contributions of the CEO because, in the Committee’s view, the management, vision and leadership abilities required to lead a multi-media company are somewhat broader than those required to lead a pure-play radio broadcasting company. Thus, the Compensation Committee considered other factors in setting Mr. Liggins' compensation including the complexity of our business model versus the Historical Peer Group, individual contribution and performance, reporting structure, internal pay relationships, community and industry prominence, and leadership and growth potential. Considering all of these factors, and having made a determination that there was no directly comparable company or companies with which to benchmark against, the Committee determined that the CEO’s annual base salary of $980,000 reflected current market compensation and that retroactive compensation was warranted in the form of the $1,000,000 “signing bonus” to remedy past underpayments of base salary. The Committee arrived at the amount of the $1,000,000 signing bonus through the exercise of its discretion and business judgment as it considered the additional duties Mr. Liggins held versus the Historical Peer Group over the three-year period he was employed without an employment agreement, his contributions in leading the Company’s diversification effort and his outlier compensation (to the low side)make determinations with respect to the Historical Peer Group.
“Make-Whole Payment”
In 2008, in addition2009 Executive Bonuses as well as to his compensationconsider executive bonuses for suchthe calendar year the Company paidending December 31, 2010 (the “2010 Executive Bonuses”). What follows below is a “make-whole” payment of $4,800,000, which is included in the annual bonus payments in the Summary Compensation Table. On April 9, 2001, as required by the terms of his prior employment agreement with the Company, Mr. Liggins purchased 1,500,000 sharesdiscussion of the Company’s Class D common stock at a purchase price of $14.07 per share. The stock was purchased with the proceeds of a full recourse loan from the Company in the amount of approximately $21.1 million. The loan accrued interest at an annual rate of 5.80% (adjustable based on the applicable federal rate). Mr. Liggins made an interest payment on the loan in the amount of $2.0 million in December 2004. Mr. Liggins made a principal repayment of approximately $17.8 million on his loan in February 2005 and repaid the full remaining balanceconsiderations for each of the loan in an amount of approximately $6.0 million in March 2005. The repayment of approximately $17.8 million was effected using 1,125,000 shares of2009 Executive Bonuses and the Company’s Class D common stock owned by the CEO valued at a per share price of $15.82. All shares transferred to the Company in satisfaction of this loan have been retired. The remaining sums paid by the CEO were paid in cash.2010 Executive Bonuses.
Over the four-year period that the loan was outstanding, Mr. Liggins’ total compensation was slightly over $4,000,000. The Committee determined that the out-of-pocket interest payments resulted in Mr. Liggins in effect working for a net negative compensation over that period. After consideration of the unique circumstances concerning that loan arrangement, the Committee deemed the end result of this particular arrangement, when viewed in hindsight, as having been punitive to the CEO, a result that had not been the intent of the Board in structuring the loan. Therefore, the make-whole payment was designed to reimburse Mr. Liggins for the interest paid to the Company under the terms of the loan arrangement. Understanding that the make-whole payment represented a significant cash outlay, the Committee structured it in a manner to permit deferment in order to meet the Company's cash flow needs and to maintain debt covenant compliance. However, deferment was not required as the Company had adequate capital and cash flows to make such payment and maintain its covenant compliance during the second quarter of 2008. The Committee believes this compensation element provided an appropriate remedy for the unintended consequences of a loan/stock purchase arrangement which had as its original purpose to incent and reward Mr. Liggins’ performance.
TV One Award
Under the terms of his employment agreement, Mr. Liggins is eligible to receive an amount equal to eight percent (8%) of any proceeds from distributions or other liquidity events in excess of the return of the Company’s aggregate investment in TV One (the “TV One Award”). The Company’s obligation to pay the TV One Award will be triggered (i) only after the Company’s recovery of the aggregate amount of its capital contribution in TV One and (ii) only upon actual receipt of (A) distributions of cash or marketable securities or (B) proceeds from a liquidity event with respect to the Company’s membership interest in TV One. In June 2008, the Company engaged a third-party valuation firm to perform a fair valuation of TV One and the TV One Award. The TV One valuation, which is based upon the value of TV One’s assets, including its cash flows, is reviewed at least annually. As of September 30, 2009 the Company assessed the estimated fair value of the TV One Award to be approximately $4.3 million.
Mr. Liggins was granted the TV One award in recognition of his contributions in founding TV One on behalf of the Company. TV One was the brainchild of Mr. Liggins in the late 1990s and it would not exist today if it were not for his vision, initiative and efforts. Starting with TV One, Mr. Liggins effectively directed Radio One’s diversification strategy years before the onset of the decline experienced in recent years in the core radio business. The Committee and the Board believed then and continue to believe that it was appropriate to reward Mr. Liggins for his vision, his full contribution of that vision and ideas to the Company’s diversification strategy, and his efforts in bringing the vision not only to fruition, but to a viable state through the partnerships and distribution deals with Comcast and DIRECTV.
Long-Term Incentive Award
In conjunction with his new employment agreement, the CEO was granted options to purchase 1,150,000 shares of Class D common stock as well as 300,000 restricted shares of Class D common stock. The grants vest ratably annually over the life of the CEO’s three-year employment agreement or alternatively, fully in the event of a Change of Control of the Company (as defined in the 1999 Stock Plan). The Committee determined the number of incentive awards granted to the CEO in the manner described above in the section entitled “Principal Components of Executive Compensation, Long-term Incentives.”
Compensation to Chief Financial Officer
On August 6, 2007, the Company announced that Scott R. Royster, the Company’s former CFO, would leave Radio One effective December 31, 2007. Immediately after the announcement, the Company hired an executive search firm and began a search for a new CFO. During the Company’s search for a new CFO, management interviewed multiple candidates and evaluated their qualifications and compensation proposals. During this period, Peter D. Thompson was employed by the Company as its Executive Vice President of Business Development. Ultimately, it was decided that Mr. Thompson was the best qualified candidate for the CFO position. Having reviewed compensation proposals from candidates active in the marketplace and that had interviewed with the Company, the CEO proposed an offer for Mr. Thompson’s employment as CFO to the Committee. Taking into account the compensation of the former CFO and noting that the proposal was within the range of proposals made by similarly experienced candidates, the Committee approved the proposal and the making of an offer to Mr. Thompson to serve as the Company’s new CFO. Mr. Thompson serves as CFO under an agreement that provides for a base salary of $375,000, and which is subject to an annual increase of not less than 3%. The agreement also provided for a 2008 discretionary cash bonus in an amount not to exceed $75,000; however, given the extraordinary effects of the current global financial and economic crisis, the unprecedented market conditions, overall operational performance in 2008 and the continued uncertainty with respect to operational performance in 2009, Mr. Thompson was not paid such bonus for fiscal year 2008. Effective January 1, 2009, Mr. Thompson became eligible to receive discretionary bonus compensation in an amount to be determined by the CEO upon performance that satisfies certain criteria as determined by the CEO. While the CEO determines the amount of bonus compensation and performance criteria, the CEO submits such determination to the Committee for final approval. This approach was taken to promote internal pay equity among the CFO and the other named executive officers.
On March 31, 2008, in connection with his appointment as CFO, Mr. Thompson was granted 75,000 shares of restricted stock and options for another 75,000 shares of Class D common stock, all to vest ratably annually over the three-year term of the agreement. The Committee determined the number of incentive awards granted to the CFO in the manner described above in the section titled “Principal Components of Executive Compensation, Long-term Incentives.”
2008 Individual Performance Reviews and Performance-Based Annual Bonus DecisionsCriteria
Our CEO provides input into the compensation discussion and makes recommendations to the Committee for annual compensation changes and bonuses for the named executive officers and the appropriateness of additional long-term incentive compensation. The CEO considers each executive officer'sofficer’s performance during the year, including accomplishments, areas of strength, and areas for development. The CEO bases his evaluation on his knowledge of each executive officer's performance and an individual self-assessment completed by each executive officer.officer’s performance. The CEO also reviews comparable compensation data and makes a recommendation to the committee on base salary, performance-based annual bonus, and equity awards for each executive officer. The Company’s Vice President of Human Resources reviewsmay be asked to review the market compensation data to assist with compensation recommendations. Performance criteria were established for certain other named executive officers as follows for 2008:2009:
Performance Criteria for the Chairperson. The Chairperson’s employment agreement provides for an annual cash bonus at the discretion of the board up to a maximum of $250,000. In exercising its discretion whether or not to pay the Chairperson such bonus, the Committee generally considers the Company’s overall performance for a given fiscal year and the Chairperson’s contributions to the success of the Company.
Performance Criteria for the CEO. The Committee establishes the bonus level for the CEO. Under the terms of his new employment agreement, the CEO’s bonus award may not in the aggregate exceed his annual base salary. The CEO’s bonus award has two components. The first component, equaling 50% of the award, is based on the achievement of pre-established individual and Company performance goals, as determined by the Committee in consultation with the CEO (the “Performance Goals Portion”). For calendar year 2008,2009, the elements and allocations of the Performance Goals Portion were as follows: (i) Company consolidated performance as measured by performance against each of budgeted revenue, expenses and cash flow - allocation equaled 15% (5% per measure) or maximum payout of $73,500; (ii) radio market performance against the top half of publicly reporting radio companies - allocation equaled 15% or maximum payout of $73,500; (iii) balance sheet management measured by compliance with bank covenants, resource allocation, asset dispositions, stock buy backs and debt retirement - allocation equaled 20% or maximum payout of $98,000; (iv) TV One performance measured by performance against budgeted revenue and achievement of breakeven status and negotiation of an investor buy-out -budgeted EBITDA allocation equaled 25% (8.33%(12.25% per measure) or maximum payout of $122,500; and (v) interactive group performance measured by performance against budgeted revenue, expenses and cash flow - allocation equaled 25% (8.33% per measure) or maximum payout of $122,500. While in some instances specific thresholds were not developed, aA discussion of thresholds and the Committee’s observations in determining Mr. Liggins’ performance-based bonus compensation is included below in the Section titled “2008“2009 Performance-Based Annual Bonus Decisions.” In thosecertain instances where specific thresholdsonly target levels were established, the applicable allocated portion of the Performance Goals Portionperformance portion was to be credited on an “all or nothing” basis. Thus, if the performance measure was missed, the CEO would not receive any portion of the allocation toward his bonus payment. In other instances bonus targets were established but a pro rata payout was triggered so long as the Company attained 90% of the target. For example, if a budgeted revenue target of $100 was established and the Company achieved $95.60 of revenue, then the CEO would receive 56% of his budgeted revenue allocation. If the Company had achieved $96.50 of revenue, the CEO would receive 65% of his budgeted revenue allocation. In no case was the threshold level less than 90% of the targeted level. The second component, equaling the balance of the award, is determined at the discretion of the Committee. In determining the amount of the discretionary portion of the CEO’s bonus, the Committee may consider factors such as “over-performance” versus all or any one of the pre-established individual and Company performance goals under the Performance Goals Portion of the bonus.
Performance Criteria for the CFO. Effective as of January 1, 2009, the CFO was eligible to receive discretionary bonus compensation in an amount to be determined by the CEO at the conclusion of each fiscal year during which (i) the CFO remains employed by Company and (ii) the CFO’s performance satisfies certain criteria as determined by Company’s CEO. For calendar year 2008, Mr. Thompson’s employment agreement provided for a discretionary cash bonus in an amount not to exceed $75,000. While Mr. Thompson’s bonus was discretionary, consideration was given to2009, the CFO’s performance criteria that werewas essentially the same as that of the CEO. In addition, the CFO had the following goals: (i) complete a review and assessment of the structure of the finance department; (ii) negotiate and successfully close upon refinancing or amendment of the Community Connect Inc. acquisition;Company’s outstanding debt instruments; (ii) develop strategy and plans for long-term financing needs; (iii) monitor financial results of Interactive One and track the division against the approved budget plan; (iv) develop strategy and plans for long-term financing needs; and (v)(iv) execution on other directives from the Boardboard of directors and CEO. While in some instances specific thresholds were not developed, aA discussion of thresholds and the Committee’s observations in determining Mr. Thompson’s performance-based bonus compensation is included below in the Section titled “2008“2009 Performance-Based Annual Bonus Decisions.”
Performance Criteria for the President, Radio Division (“PRD”).PRD. Under his employment agreement that was in effect during calendar year 2008,2009, the PRD’s bonus was also comprised of a performance based portion and a discretionary portion. Each portion had a maximum payout of $100,000. Performance metrics and allocations for the PRD’s discretionary performance bonus were as follows for calendar year 2008:2009: (i) Market share growth - allocation equaled 45%50% or payout of $45,000$50,000 upon attainment of goal; (ii) achievement of budgeted revenue - allocation equaled 10% or payout of $10,000 upon attainment of goal; (iii) achievement of budgeted operating profit - allocation equaled 10%25% or payout of $10,000$25,000 upon attainment of goal; (iv)and (iii) achievement of budgeted expenses - allocation equaled 5%25% or payout of $5,000 upon attainment of goal; and (v) programming/ratings achievement - allocation equaled 30% or payout of $30,000$25,000 upon attainment of goal. Other factors that could be considered in the PRD’s final bonus determination were: (i) execution of the Black America Study; (ii) recruitment and retention of key talent and employees; (iii) progress on revenue goals for radio station websites; and (iv)(ii) execution on other directives from the Boardboard of directors and CEO. While in some instances specific thresholds were not developed, aA discussion of thresholds and the Committee’s observations in determining Mr. Mayo’s performance-based bonus compensation is included below in the Section titled “2008“2009 Performance-Based Annual Bonus Decisions.” In thosecertain instances where specific thresholds were established, the applicable allocated portion of the performance portion was to be credited on an “all or nothing” basis. Thus, if the performance measure was missed, the PRD would not receive any portion of the allocation toward his bonus payment. In other instances, thresholds and payouts may have been on a “sliding scale” basis. The second component, equaling the balance of the award, is determined at the discretion of the Committee. In determining the amount of the discretionary portion of the PRD’s bonus, the Committee may consider factors such as “over-performance” versus all or any one of the pre-established individual and Company performance goals under the performance portion of the bonus.
Performance Criteria for the CAO. The CAO’s employment agreement with the Company expired on October 31, 2008 and the CAO is now employed by the Company as an “at-will” employee. The CAO is entitled to participate in all employee benefit programs generally offered to the Company’s employees. Further, the CAO receives a discretionary bonus in an amount determined by the CEO. In exercising its discretion whether or not to pay the CAO such bonus, the Committee generally considers the Company’s overall performance for a given fiscal year and the CAO’s contributions to the success of the Company, including the CAO’s execution on any directives from the board of directors and CEO.
2009 Performance-Based Annual Bonus Decisions
In making final 20082009 performance-based annual bonus decisions, the Committee considered named executive officer performance against the applicable performance criteria. In considering the above-described performance criteria for the Chairperson, CEO, CFO, CAO and PRD,the Committee made the following observations in determining performance-based bonus compensation:
(i) The Committee considered the Company’s 20082009 operating performance versus our 20082009 business plan. In this regard, the Committee recognized that while a number of the plan objectives (or bonus thresholds) were not fully achieved, the 20082009 advertising market was far weaker than expected, which createdremained weak, creating a more difficult operating environment. Specifically, our 2008 business plan was based upon an assumption of flat market revenue growth compared to an actual market revenue decline of 8.8% in the markets in which we operate. In this context the Committee noted that our revenue decline of 6.1%, bettered the performance of our peers by 270 basis points in the markets in which we operate. This was indicative of a market share gain of 20 basis points. The Committee further noted that in measuring the Company’s consolidated performance as measured by performance againsttargets, while none of the Company’s budgeted targets were met, actual achievement of the targets for budgeted revenue, operating profit, expenses and cash flow only the Company’s budgeted expense target was met.in excess of 95%.
(ii) The Committee considered that for 2008 our total shareholder return failed to exceed that of the Historical Peer Group. Specifically, the total shareholder returns of our Class A and Class D common stock were declines of 81% and 91%, respectively, compared to a decline of 76% for the Peer Group. In considering the stock performance, the Committee also considered the current listing status of the Company’s Class A and Class D common stock and the notificationscalendar year 2009, the Company received from the NASDAQ Stock Market considering the possibility of delisting.
outperformed its markets by 150 basis points leading to approximately $4.0 million in incremental revenue.
(iii) The Committee considered that for 2008,2009, despite unprecedented market conditions, we wereThe Company was able to maintain compliance with the financial covenants contained in ourits credit facility. Specifically, as of December 31, 2008,2009, the Company’s Senior Secured Leverage Ratio (as defined under ourits senior credit facilities)facility) was 3.38x3.88x versus a covenant maximum of 4.0x, the Company’s Total Leverage Ratio (as defined under ourits senior credit facilities)facility) was 6.14x7.20x versus a covenant maximum of 7.25x and the Company’s Interest Coverage Ratio (as defined under ourits senior credit facilities)facility) was 1.92x2.36x versus a covenant minimum of 1.75x.
(iv) Consideration was given to balance sheet management in light of the difficult economic conditions of 2008.2009. It was noted that the Company finished 2008 with total debt of approximately $675.2$654.0 million, down from approximately $815.5$675.6 million at year end 2007.2008. The Committee also noted the Company’s repurchase of $196.0$2.5 million of Company debt at an average discount of 38.4%50.0%. The Committee determined that these opportunistic actions substantially increased the amount of capacity that the Company had under its bank covenants.
(v) The Committee considered the Company’s initiatives to enhance shareholder value including ourits repurchase during fiscal year 20082009 of 20.527.7 million shares of Company stock for approximately $12.1$19.7 million, at an average price per share of $0.59.$0.71.
(vi) The Committee considered our strategic initiatives including: (a) our sale of KRBV-FM, in Los Angeles for $137.5 million; (b) our acquisition of WPRS-FM in the Washington, DC market, for $38.0 million; and (c) the launch of a new scheduling and ratings verification system in our Houston market.
(vii) The Committee considered actions taken towards driving long-term shareholder value and propelling the Company towards its multi-media strategy, including: (a) the acquisition of Community Connect Inc.; (b) the performance of new and enhanced brands (including TV One, Interactive One, Hello Beautiful, GIANT Magazine and The Urban Daily); (c) leadership by means of increased training and key hires and promotions; and (d) industry initiatives and leadership.
(viii) With respect to the performance of TV One, the Committee noted that while TV One’s budgeted revenue was achieved in full as was its break-even point for profitability. The Committee further noted that the Company did not have any buy-out rights with respect toslightly below expectations, TV One investors until 2009.One’s budgeted EBITDA surpassed budget.
(ix)(vii) With respect to the performance of Interactive One, the Committee noted that while the division achieved only 87% ofdid not achieve its budgeted revenue, expenses were approximately $4.0$5.6 million better than budget and cash flow losses were approximately $2.0 million better than budget.EBITDA surpassed the payout hurdle.
While considering eachWith respect to the discretionary portions of the above observations, and each of the named executive’s respective performance against applicable performance criteria, and upon recommendation of the CEO,2009 Executive Bonuses, the Committee determinedconsidered a number of non-performance related factors, including but not limited to: (i) the Company’s successful completion on November 24, 2010 of: (x) the exchange of approximately $97.0 million of $101.5 million in aggregate principal amount outstanding of our 2011 Notes; (y) the exchange of approximately $199.3 million of $200.0 million in aggregate principal amount outstanding of our 2013 Notes; and (z) the amendment and restatement of Company’s senior credit facility (collectively, the “November 2010 Transactions”); (ii) the Committee’s determination with respect to executive bonuses for the calendar year ended December 31, 2008, that given the extraordinary effects of the then current global financial and economic crisis, the unprecedented market conditions, overall operational performance in 2008 and the continued uncertainty with respect to operational performance in 2009, exceptno 2008 executive bonuses were paid despite the named executives having satisfied a number of their performance criteria; (iii) hardship caused by the delay in certain limited circumstances mandated by contract or by pre-established compensation plans rewarding certain employees for revenue generation or achieving certain ratings goals, bonuses would not be paid on a Company-wide basis. While this determination does not preclude payment although the full amount of performance-based annual bonuses in the normal course in future years, the determination did preclude the payment2009 Executive Bonuses had been accrued but withheld throughout substantially all of performance based bonuses for calendar year 2008 to all2010; (iv) that the named executive officers except for a $5,000 cash paymentvoluntarily implemented and participated in the 2009 Salary Reductions; and (v) corporate cost saving measures implemented to be paid in 2010 to Mr. Mayo for achievement of his budgeted expense goal.
2009 Compensation Changes
In January 2009, the CEO directed the CFO, CAO and the PRD (the “Named Executive Response Team”) to determine appropriate actions to take to provide for the Company’sensure continued covenant compliance and operational performance givenand affecting the severitynamed executive officers during calendar year 2009, including but not limited to the Company’s move to a “use it or lose it” vacation policy and mandatory vacation through office closings in order to provide expense savings and financial flexibility to the Company. Finally, the Committee noted that the November 2010 Transactions provided the Company with future financial flexibility and avoided default and maturities issues that had prompted the non-executive members of the declineboard of directors to determine that it was in the economic environmentbest interests of the Company to defer payment of any 2009 corporate bonuses, including the 2009 Executive Bonuses.
2010 Individual Performance Criteria
Performance Criteria for the Chairperson. For calendar year 2010, the basis of the Chairperson bonus remained discretionary, as discussed above.
Performance Criteria for the CEO. For calendar year 2010, the elements and allocations of the CEO’s Performance Goals Portion were the same as for calendar year 2009, as discussed above.
Performance Criteria for the CFO. For calendar year 2010, the elements and allocations of the CFO’s Performance Goals Portion were the same as for calendar year 2009, as discussed above.
Performance Criteria for the PRD. Under his employment agreement that was in effect during calendar year 2010, the PRD’s bonus was also comprised of a performance based portion and a discretionary portion. Each portion had a maximum payout of $100,000. Performance metrics and allocations for the PRD’s discretionary performance bonus were as follows for calendar year 2010: (i) Market share growth - allocation equaled 50% or payout of $50,000 upon attainment of goal; (ii) achievement of budgeted operating profit - allocation equaled 20% or payout of $20,000 upon attainment of goal; (iii) achievement of budgeted expenses - allocation equaled 10% or payout of $10,000 upon attainment of goal; (iv) achievement of budgeted net revenue for radio websites - allocation equaled 10% or payout of $10,000 upon attainment of goal; (v) achievement of increased traffic for radio websites - allocation equaled 10% or payout of $10,000 upon attainment of goal. Other factors that could be considered in the PRD’s final bonus determination were: (i) recruitment and retention of key talent and employees; and (ii) execution on other directives from the board of directors and CEO. While in some instances specific thresholds were not developed, a discussion of thresholds and the resulting impact uponCommittee’s observations in determining The PRD's performance-based bonus compensation is included below in the Section titled “2010 Performance-Based Annual Bonus Decisions.” In certain instances where specific thresholds were established, the applicable allocated portion of the performance portion was to be credited on an “all or nothing” basis. Thus, if the performance measure was missed, the PRD would not receive any portion of the allocation toward his bonus payment. In other instances, thresholds and payouts may have been on a “sliding scale” basis. The second component, equaling the balance of the award, is determined at the discretion of the Committee. In determining the amount of the discretionary portion of the PRD’s bonus, the Committee may consider factors such as “over-performance” versus all or any one of the pre-established individual and Company performance goals under the performance portion of the bonus.
Performance Criteria for the CAO. For calendar year 2010, the basis of the CAO’s bonus remained discretionary, as discussed above.
2010 Performance-Based Annual Bonus Decisions
As of the date of this proxy statement, the Committee has not made any determinations with respect to 2010 Executive Bonuses.
Long-term Incentives
As noted above, the 2009 Stock Plan was approved by the stockholders at the Company’s operations.annual meeting on December 16, 2009. The Named Executive Response Team,2009 Stock Plan succeeded the Company’s 1999 Stock Plan which had expired by its terms on May 5, 2009. The terms of the 2009 Stock Plan were substantially similar to the terms of the 1999 Stock Plan. On December 16, 2009, the compensation committee and the non-executive members of the board of directors reaffirmed a decision of the compensation committee from May 21, 2009 and approved a long-term incentive plan (the “2009 LTIP”) for certain “key” employees of the Company. The purpose of the 2009 LTIP was to retain and incent these “key” employees in consultation with other Company executives, determined thatlight of sacrifices made as a result of the Company should implement a variety of cost savings initiatives described above in response to the deteriorating economic conditions in 2008 and as a preemptive measure2009. These sacrifices included not receiving performance-based bonuses in response to potential further economic decline. The Named Executive Response Team recommended temporary Company-wide2008, salary reductions and shorter work weeksmandatory vacation through office closings in order to provide expense savings and financial flexibility to the Company. The Named Executive Response Team made this recommendation to2009 LTIP was comprised of 3,250,000 shares of Class D Common Stock (the “LTIP Shares”). On January 5, 2010, the CEO,LTIP Shares were granted in the form of restricted stock and allocated among 31 employees of the Company, including a recommendation that allthe named executive officers. The named executive officers participatewere allocated LTIP Shares as follows: (i) the CEO (1.0 million shares); (ii) the Chairperson (300,000 shares); (iii) the CFO (225,000 shares); (iv) the CAO (225,000 shares); and (v) the PRD (130,000 shares). The remaining 1,370,000 shares were allocated among 26 other “key” employees. All awards vest in three installments of 33 1/3% on: (i) June 5, 2010; (ii) June 5, 2011 and (iii) June 5, 2012. The compensation committee and the non-executive members of the board of directors approved a salary reduction program. The CEO adoptedshortened vesting period for the recommendationfirst installment as the Company originally intended to implement the 2009 LTIP in June 2009. However, as the 2009 Stock Plan was not approved until December 16, 2009, the compensation committee and reportedthe non-executive members of the board of directors thought it was inequitable to penalize the Committee that all2009 LTIP awardees because of the delayed approval of the 2009 Stock Plan.1 In accordance with the Company’s Stock Plan Administration Procedures (as described above), the grant date for the LTIP Shares, including LTIP Shares granted to named executive officers, would accept salary cutswas January 5, 2010. The closing price of seven percent. Thus, without action by the Committee, eachshares of the named executive officers agreed to waive all contractual rights to any automatic salary increase for 2009 and instead accepted seven percent salary reductions from their 2008 compensation levels until such time as it is determinedCompany’s Class D common stock on that such reductions are no longer necessary based on the financial status of the Company.date was $3.17.
Employment Agreements
Chairperson.Catherine L. Hughes, our founder, serves as our Chairperson of the board of directors and Secretary. Ms. Hughes’Hughes' three (3) year employment agreement, dated April 16, 2008, provides for an annual base salary of $750,000 that may be increased annually at the discretion of the board. The employment agreement also provides for an annual cash bonus at the discretion of the board up to a maximum of $250,000. Ms. Hughes is also entitled to receive a pro-rata portion of her bonus upon termination due to death or disability. As noted above, other than Mr. Mayo, no member of the executive team, including theThe Chairperson was awardedpaid a performance-baseddiscretionary bonus of $250,000 for fiscal year 2008.2009. No determination as to the Chairperson's 2010 bonus has been made as of the date of this proxy statement. Ms. Hughes also receives standard retirement, welfare and fringe benefits, as well as vehicle and wireless communication allowances and financial manager services.
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In conjunction with her April 16, 2008 employment agreement, the Chairperson was granted options to purchase 600,000 shares of Class D common stock as well as 150,000 restricted shares of Class D common stock. These options and restricted shares were awarded under the 1999 Stock Plan. Both grants will vest ratably annually over the life of the three year employment agreement or alternatively, fully in the event of a Change of Control of the Company (as defined in the 1999 Stock Plan). The Committee determined the number of incentive awards granted to the Chairperson in the manner described above in the section titled "Principal Components of Executive Compensation, Long-term Incentives." In accordance with the Company's Stock Plan Administration Procedures, the grants to Ms. Hughes in connection with her April 2008 employment agreement occurred on June 5, 2008. The closing price of shares of the Company's Class D common stock on that date was $1.41.President and Chief Executive Officer. Alfred C. Liggins, III is employed as our President and CEO and is a member of the board of directors. Under the terms of his three (3) year employment agreement dated April 16, 2008, Mr. Liggins receives a base salary of $980,000 which is subject to an annual increase at the discretion of the board of directors. Mr. Liggins is also eligible for a bonus award up to an amount equal to his base salary and comprised of two components. The first component, equaling 50% of the award, is based on the achievement of pre-established individual and Company performance goals, as determined by the Committee in consultation with Mr. Liggins. The second component, equaling the balance of the award, is determined at the discretion of the Committee. Mr. Liggins is also entitled to receive a pro-rata portion of his bonus upon termination due to death or disability. A discussion of the element and allocations of the CEO's performance based bonus for fiscal years 2009 and 2010 is included above in the Section titled "2009 and 2010 Non-Equity Incentive Plan Compensation." The CEO was not paid a performance-based bonus of $980,000 for fiscal year 2009. No determination as to the CEO's 2010 bonus has been made as of the date of this proxy statement.
1 The annual stockholders meeting at which the new 2009 Stock Plan was approved was delayed as a result of the Company’s receipt of certain comment letters from the SEC regarding certain disclosures made in our Form 10-K/A for the year ended December 31, 2008.
In recognition of his contributions in founding TV One on behalf of the Company, Mr. Liggins is also eligible to receive an amount equal to 8% of any dividends paid in respect of the Company’s investment in TV One and 8% of the proceeds of the Company’s investment in TV One (the “TV One Award”). In both events, the Company’s obligation to pay any portion of the TV One Award is only triggered after the Company’s recovery of the full amount of its cumulative capital contributions to TV One. Mr. Liggins will only receive the TV One Award upon actual cash distributions or distributions of marketable securities. Mr. Liggins’ rights to the TV One Award (i) cease if he is terminated for cause or he resigns without good reason and (ii) expire at the end of the term of his employment agreement. Mr. Liggins also receives standard retirement, welfare and fringe benefits, as well as vehicle and wireless communication allowances and a personal assistant and financial manager services.
In conjunction with his April 16, 2008 employment agreement, the CEO was granted options to purchase 1,150,000 shares of Class D common stock as well as 300,000 restricted shares of Class D common stock. The grants vest ratably annually over the life of the CEO’s three year employment agreement or alternatively, fully in the event of a Change of Control of the Company (as defined in the 1999 Stock Plan). The Committee determined the number of incentive awards granted to the CEO in the manner described above in the section entitled “Principal Components of Executive Compensation, Long-term Incentives.” In accordance with the Company’s Stock Plan Administration Procedures, the grants to Mr. Liggins in connection with his April 2008 employment agreement occurred on June 5, 2008. The closing price of shares of the Company’s Class D common stock on that date was $1.41.
Chief Financial Officer. During the calendar year ended December 31, 2010, Peter D. Thompson iswas employed as Executive Vice President and CFO pursuant to a three (3) year employment agreement dated March 31, 2008 with the Company.February 2008. The employment agreement providesprovided for a base salary of $375,000 which iswas subject to an annual increase of not less than 3%. The agreement also providesprovided for an annual discretionary cash bonus in an amount not to exceed $75,000 in 2008 and, thereafter, in an amount to be determined by the CEO. Mr. Thompson is also entitled to receive a pro-rata portion of his bonus upon termination due to death or disability. Mr. ThompsonA discussion of the element and allocations of the CFO's performance based bonus for fiscal years 2009 and 2010 is included above in the Section titled “2009 and 2010 Non-Equity Incentive Plan Compensation.” The CFO was not paid a performance-based bonus of $200,000 for fiscal year 2008.2009. No determination as to the CFO's 2010 bonus has been made as of the date of this proxy statement. Mr. Thompson also receives standard retirement, welfare and fringe benefits, as well as a vehicle allowance.
On March 31, 2008, in connection with his appointment as CFO, Mr. Thompson was granted 75,000 shares of restricted stock and options for another 75,000 shares of Class D common stock, all to vest ratably annually over the three year term of the agreement. The Committee determined the number of incentive awards granted to the CFO in the manner described above in the section titled "Principal Components of Executive Compensation, Long-term Incentives." In accordance with the Company's Stock Plan Administration Procedures, the grants to Mr. Thompson in connection with his March 2008 employment agreement occurred on June 5, 2008. The closing price of shares of the Company's Class D common stock on that date was $1.41.
On March 3, 2011, the Company and Mr. Thompson entered into a new employment agreement. The new employment agreement provides for a base salary of $550,000. The agreement also provided for an annual discretionary cash bonus in an amount not to exceed $200,000 and a "signing bonus" in the amount of $158,000. Mr. Thompson is also entitled to receive a pro-rata portion of his bonus upon termination due to death or disability. Mr. Thompson also receives standard retirement, welfare and fringe benefits, as well as a vehicle allowance.
President,President, Radio Division. During 2008, Until August 5, 2009, Barry A. Mayo was employed as President, Radio Division pursuant to an employment agreement with the Company. The employment agreement provided for a base salary of $500,000 which was subject to an annual increase of not less than 3%. The employment agreement also provided for (i) a quarterly bonus not to exceed $25,000 during each quarter Mr. Mayo remainsremained employed with the Company and satisfied certain broadcast revenue flow goals established by the Company and (ii) an annual cash bonus at the discretion of the board of directors. Mr. Mayo was also entitled to receive a pro-rata portion of his bonus upon termination due to death or disability. Mr. Mayo earned a performance-basedA discussion of the PRD's performance based bonus for fiscal year 2008years 2009 and 2010 is included above in the amountSection titled "2009 and 2010 Non-Equity Incentive Plan Compensation." Mr. Mayo received a total bonus of $5,000 that will be paid during$170,000 for fiscal year 2010.2009. No determination as to the PRD's 2010 bonus has been made as of the date of this proxy statement. Mr. Mayo also received standard retirement, welfare and fringe benefits, as well as a vehicle allowance.allowance and certain expenses related to his travel to the Company's corporate headquarters.
Effective August 5, 2009, the Company entered into a new employment agreement with Mr. Mayo, the term of which is through June 6, 2012. The new employment agreement provides for a base salary of $550,000, effective January 1, 2010, which is subject to an annual increase of not less than 3%. The employment agreement also provides for an annual bonus comprised of (i) a cash bonus of up to $100,000 for achieving certain objective metrics and (ii) a cash bonus of up to $100,000 to be paid at the discretion of the board of directors for having achieved satisfactory operating results. Mr. Mayo is also entitled to receive a pro-rata potion of the bonus upon termination due to death or disability. Mr. Mayo also receives standard retirement, welfare and fringe benefits, as well, as a vehicle allowance and certain expenses related to his travel to the Company’sCompany's corporate headquarters.
Chief Administrative Officer. Linda J. Vilardo is employed as CAO, Vice President and Assistant Secretary of the Company. Ms. Vilardo’sVilardo's employment agreement with the Company expired on October 31, 2008 and Ms. Vilardo is now employed by the Company as an “at-will”"at-will" employee. Ms. Vilardo is entitled to participate in all employee benefit programs generally offered to the Company’sCompany's employees. Under Ms. Vilardo’s employment agreement, which was effective October 31, 2000, and that expired October 31, 2008, if Ms. Vilardo remained employed by Radio One through October 31, 2008, she was entitled to receivereceived a discretionary bonus in the amount of $2.0 million. In November 2008, the Company paid Ms. Vilardo the retention bonus pursuant to the terms of her now expired employment agreement. Ms. Vilardo was not paid a performance-based bonus$200,000 for fiscal year 2008.2009. No determination as to Ms. Vilardo's 2010 bonus has been made as of the date of this proxy statement. Ms. Vilardo also receives standard retirement, welfare and fringe benefits.
Post-Termination and Change in Control Benefits
Under the employment agreements that we have entered into with Catherine L. Hughes, Alfred C. Liggins, Peter D. Thompson, and Barry A. Mayo, each executive’s unvested equity awards will become fully exercisable immediately upon a Change of Control (as defined in the Company’s Amended and Restated 19992009 Stock Option and Restricted Stock Grant Plan). Under the terms of her employment agreement, upon termination without cause or for good reason within two years offollowing a change of control, if Ms. Hughes is terminated without cause or terminates her employment for good reason, Ms. Hughes will receive an amount equal to three times the sum of (1) her annual base salary and (2) the average of her last three annual incentive bonus payments, in a cash lump sum within five days of such termination, a pro-rated annual bonus for the year of termination, and continued welfare benefits for three years, subject to all applicable federal, state and local deductions. Similarly, under the terms of his employment agreement, upon termination without cause or for good reason within two years offollowing a change of control if Mr. Liggins is terminated without cause or terminates his employment for good reason, Mr. Liggins will receive an amount equal to three times the sum of (1) his annual base salary and (2) the average of his last three annual incentive bonus payments, in a cash lump sum within five days of such termination, a pro-rated annual bonus for the year of termination, and continued welfare benefits for three years, subject to all applicable federal, state and local deductions.
Please see the table, titled “Potential Payments upon Termination or Change in Control” on page 3031 of this proxy statement for quantitative information about the payments that might occur upon various termination events.
Under Ms. Hughes'Hughes and Mr. Liggins'Liggins employment agreements the terms “cause” and “good reason” are defined generally as follows:
“Cause” means (i) the commission by the executive of a felony, fraud, embezzlement or an act of serious, criminal moral turpitude which, in case of any of the foregoing, in the good faith judgment of the Board, is likely to cause material harm to the business of the Company and the Company affiliates, taken as a whole, provided, that in the absence of a conviction or plea of nolo contendere, the Company will have the burden of proving the commission of such act by clear and convincing evidence, (ii) the commission of an act by the executive constituting material financial dishonesty against the Company or any Company affiliate, provided, that in the absence of a conviction or plea of nolo contendere, the Company will have the burden of proving the commission of such act by a preponderance of the evidence, (iii) the repeated refusal by the executive to use his reasonable and diligent efforts to follow the lawful and reasonable directives of the Board, or (iv) the executive’s willful gross neglect in carrying out his material duties and responsibilities under the agreement, provided, that unless the Board reasonably determines that a breach described in clause (iii) or (iv) is not curable, the executive will, be given written notice of such breach and will be given an opportunity to cure such breach to the reasonable satisfaction of the Board within thirty (30) days of receipt of such written notice.
“Good Reason” shall be deemed to exist if, without the express written consent of the executive, (a) the executive’s rate of annual base salary is reduced, (b) the executive suffers a substantial reduction in his title, duties or responsibilities, (c) the Company fails to pay the executive’s annual base salary when due or to pay any other material amount due to the executive hereunder within five (5) days of written notice from the executive, (d) the Company materially breaches the agreement and fails to correct such breach within thirty (30) days after receiving the executive’s demand that it remedy the breach, or (e) the Company fails to obtain a satisfactory written agreement from any successor to assume and agree to perform the agreement, which successor the executive reasonably concludes is capable of performing the Company’s financial obligations under this Agreement.
The foregoing summaries of the definitions of “cause” and “good reason” are qualified in their entirety by reference to the actual terms of the employment agreements filed with that certain Form 8-K filed April 18, 2008.
Under the terms of his employment agreement, in the event that Mr. Thompson is terminated other than for cause, provided Mr. Thompson executes a general liability release, the Company will pay Mr. Thompson severance in an amount equal to three month’s base compensation, subject to all applicable federal, state and local deductions.
Under the terms of his prior employment agreement, in the event that Mr. Mayo is terminated other than for cause, provided Mr. Mayo executes a general liability release, the Company will pay Mr. Mayo severance in the amount of $300,000, subject to all applicable federal, state and local deductions. Under the terms of his new employment agreement, in the event that Mr. Mayo is terminated other than for cause, provided Mr. Mayo executes a general liability release, the Company will pay Mr. Mayo severance in an amount equal to six (6) months’ base compensation, subject to all applicable federal, state and local deductions.
Other Benefits and Perquisites
As part of our competitive compensation package to attract and retain talented employees, we offer retirement, health and other benefits to our employees. Our named executive officers participate in the same benefit plans as our other salaried employees. The only benefit programs offered to our named executive officers either exclusively or with terms different from those offered to other eligible employees are the following:
Deferred Compensation. We have a deferred compensation plan that allows Catherine L. Hughes, our Chairperson, to defer compensation on a voluntary, non-tax qualified basis. Under the plan in effect during 2008,2009 and 2010, Ms. Hughes deferred $16,000 and $24,000, respectively, of her base salary (and no amounts of bonus) until death, disability, retirement or termination. The amount owed to her as deferred compensation is an unfunded and unsecured general obligation of our Company. Deferred amounts accrue interest based upon the return earned on an investment account with a designated brokerage firm established by Radio One. All deferred amounts are payable in a lump sum 30 days after the date of the event causing the distribution to be paid. No named executive officer earns above-market or preferential earnings on nonqualified deferred compensation.
Other Perquisites. We provide few perquisites to our named executive officers. Currently, we provide or reimburse executives for a company automobile, driver and various administrative services including a financial manager and a personal assistant.
We have set forth the incremental cost of providing these benefits and perquisites to our named executives in the 20082010 Summary Compensation Table in the “All Other Compensation” column.
401(k) Plan
We adopted a defined contribution 401(k) savings and retirement plan effective October 1, 1994. In 2009,2010, participants could contribute up to $16,500 of their gross compensation, subject to certain limitations. In 2011, participants may contribute up to $16,500 of their gross compensation, subject to certain limitations. Employees age 50 or older can make an additional catch-up contribution of up to $5,500. Effective January 1, 2006, we instituted a match of fifty cents for every dollar an employee contributes up to 6% of the employee’s salary, subject to certain limitations. However, effective January 1, 2008, we indefinitely suspended the matching component of our 401(k) savings and retirement plan.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes limitations upon the federal income tax deductibility of compensation paid to certain named executive officers. On June 4, 2008, the Internal Revenue Service issued Notice 2008-4, which defines the group of named executive officers who are considered covered employees for purposes of Section 162(m) of the Internal Revenue Code. The Notice specifically excludes the chief financial officer from coverage under Section 162(m) and provides that the only individuals who will be considered covered employees are the chief executive officer and the three highest compensated officers (other than the chief executive officer or chief financial officer). Previously, the chief executive officer and the four other highest compensated officers were subject to Section 162(m), and the chief financial officer was not automatically excluded. Under the 162(m) limitations, we may deduct up to $1,000,000 of compensation for such executive officer in any one year or may deduct all compensation, even if over $1,000,000, if we meet certain specified conditions (such as certain performance-based compensation that has been approved by stockholders). As the net cost of compensation, including its deductibility, is weighed by the Committee against many factors in determining executive compensation, the Committee may determine that it is appropriate and in Radio One’s best interest to authorize compensation that is not deductible, whether by reason of Section 162(m) or otherwise.
1 The annual stockholders meeting at which the new 2009 Stock Plan was approved was delayed as a result of the Company’s receipt of certain comment letters from the SEC regarding certain disclosures made in our Form 10-K/A for the year ended December 31, 2008.
