<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1998
REGISTRATION NO. 333-46929
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
YOUNG & RUBICAM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7311 13-1493710
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
285 MADISON AVENUE
NEW YORK, NEW YORK 10017
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEPHANIE W. ABRAMSON, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
YOUNG & RUBICAM INC.
285 MADISON AVENUE
NEW YORK, NEW YORK 10017
(212) 210-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PETER H. DARROW, ESQ. MARK C. SMITH, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
ONE LIBERTY PLAZA 919 THIRD AVENUE
NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10022
(212) 225-2000 (212) 735-3000
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus; one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in connection with a concurrent international
offering outside the United States and Canada (the "International Prospectus").
The U.S. Prospectus and the International Prospectus will be identical in all
respects except for the front cover pages, the back cover pages and an
additional page for the International Prospectus. The form of the U.S.
Prospectus is included herein; the form of the front cover page of the
International Prospectus follows the front cover page of the U.S. Prospectus,
the form of the back cover page of the International Prospectus follows the back
cover page of the U.S. Prospectus and the form of additional page for the
International Prospectus follows the "Available Information" section of the U.S.
Prospectus.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 5, 1998
PROSPECTUS
, 1998
16,600,000 SHARES
[YOUNG & RUBICAM INC. LOGO]
COMMON STOCK
Of the 16,600,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), of Young & Rubicam Inc. ("Y&R" or the "Company") offered
hereby, 13,280,000 shares are initially being offered in the United States and
Canada (the "U.S. Offering") by the underwriters of the U.S. Offering named
herein (the "U.S. Underwriters") and 3,320,000 shares are initially being
offered in a concurrent international offering outside the United States and
Canada (the "International Offering," and together with the U.S. Offering, the
"Offerings") by the managers of the International Offering named herein (the
"International Managers"). The initial public offering price and the per share
underwriting discounts and commissions will be identical for each of the
Offerings. Of the 16,600,000 shares of Common Stock offered hereby, 6,666,667
shares are being sold by the Company and 9,933,333 shares are being sold by
certain selling stockholders (the "Selling Stockholders"). The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholders. See "Principal and Selling Stockholders."
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price of the
Common Stock offered pursuant to the Offerings will be between $21.00 and $24.00
per share. For information relating to the factors to be considered in
determining the initial public offering price, see "Underwriting."
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "YNR."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total(3)..................... $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the International Managers (collectively, the
"Underwriters") against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $ which will be paid by the
Company.
(3) Certain non-management Selling Stockholders have granted to the U.S.
Underwriters an option, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of 2,490,000 additional shares of Common Stock
at the Price to the Public less Underwriting Discounts and Commissions,
solely to cover over-allotments, if any. If the option is exercised in full,
the total Price to the Public, Underwriting Discounts and Commissions,
Proceeds to the Company and Proceeds to the Selling Stockholders will be
$ , $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock offered hereby are being offered by the several
U.S. Underwriters when, as and if delivered to and accepted by the U.S.
Underwriters against payment therefor and subject to various prior conditions,
including their right to reject orders in whole or in part. It is expected that
delivery of share certificates representing the Common Stock will be made in New
York, New York on or about , 1998.
JOINT GLOBAL COORDINATORS AND JOINT BOOK-RUNNING MANAGERS
DONALDSON, LUFKIN & JENRETTE BEAR, STEARNS & CO. INC.
SECURITIES
CORPORATION
------------------------------
FURMAN SELZ
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[INTERNATIONAL COVER PAGE]
SUBJECT TO COMPLETION, DATED MAY 5, 1998
PROSPECTUS
, 1998
16,600,000 SHARES
[YOUNG & RUBICAM INC. LOGO]
COMMON STOCK
Of the 16,600,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), of Young & Rubicam Inc. ("Y&R" or the "Company") offered
hereby, 3,320,000 shares are initially being offered outside the United States
and Canada (the "International Offering") by the managers of the International
Offering named herein (the "International Managers") and 13,280,000 shares are
initially being offered in a concurrent offering in the United States and Canada
(the "U.S. Offering," and together with the International Offering, the
"Offerings") by the underwriters of the U.S. Offering named herein (the "U.S.
Underwriters"). The initial public offering price and the per share underwriting
discounts and commissions will be identical for each of the Offerings. Of the
16,600,000 shares of Common Stock offered hereby, 6,666,667 shares are being
sold by the Company and 9,933,333 shares are being sold by certain selling
stockholders (the "Selling Stockholders"). The Company will not receive any of
the proceeds from the sale of shares of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price of the
Common Stock offered pursuant to the Offerings will be between $21.00 and $24.00
per share. For information relating to the factors to be considered in
determining the initial public offering price, see "Underwriting."
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "YNR."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total(3)..................... $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the International Managers (collectively, the
"Underwriters") against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $ which will be paid by the
Company.
(3) Certain non-management Selling Stockholders have granted to the U.S.
Underwriters an option, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of 2,490,000 additional shares of Common Stock
at the Price to the Public less Underwriting Discounts and Commissions,
solely to cover over-allotments, if any. If the option is exercised in full,
the total Price to the Public, Underwriting Discounts and Commissions,
Proceeds to the Company and Proceeds to the Selling Stockholders will be
$ , $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock offered hereby are being offered by the several
International Managers when, as and if delivered to and accepted by the
International Managers against payment therefor and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of share certificates representing the Common Stock will
be made in New York, New York on or about , 1998.
JOINT GLOBAL COORDINATORS AND JOINT BOOK-RUNNING MANAGERS
DONALDSON, LUFKIN & JENRETTE BEAR, STEARNS INTERNATIONAL LIMITED
INTERNATIONAL
------------------------------
FURMAN SELZ
GOLDMAN SACHS INTERNATIONAL
SALOMON SMITH BARNEY INTERNATIONAL
<PAGE> 5
[Photograph of a magazine open to a page containing a print advertisement for
Young & Rubicam Inc.]
[fold-out page]
[Photograph of keys of computer keyboard very close-up predominantly in green. A
question mark, semicolon, colon and comma are identifiable.]
[fold-out page]
[Photograph of printing press roller of typewritten numbers and symbols very
close-up predominantly in purple. The numbers 3, 4, 5, 6, 7, 8 and 9 and a plus
sign are repeated in rows on the page.]
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERINGS,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 6
This Prospectus, information included in future filings by the Company with
the United States Securities and Exchange Commission (the "Commission"), and
information contained in written material, press releases and oral statements
issued by or on behalf of the Company contain, or may contain, statements that
constitute forward-looking statements. These statements appear in a number of
places in this Prospectus and include statements regarding the intent, belief or
current expectations of the Company or its officers (including statements
preceded by, followed by or that include forward-looking terminology such as
"may," "will," "should," "believes," "expects," "anticipates," "estimates,"
"continues" or similar expressions or comparable terminology, including the
negative thereof) with respect to various matters. These forward-looking
statements include statements in the "Business -- Industry Overview,"
" -- Industry Trends" and " -- Strategy" sections of this Prospectus relating to
trends in the advertising and marketing and communications industries, including
with respect to anticipated advertising expenditures (and the growth thereof) in
the world's advertising markets, as well as statements relating to the Company's
performance in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" sections of this Prospectus. It is
important to note that the Company's actual results could differ materially from
those anticipated in these forward-looking statements depending on, among other
important factors, (i) revenues received from clients, including pursuant to
incentive compensation arrangements entered into by the Company with certain
clients, (ii) gains or losses of clients and client business and projects, as
well as changes in the marketing and communications budgets of clients, (iii)
the overall level of economic activity in the principal markets in which the
Company conducts business and other trends affecting the Company's financial
condition or results of operations, (iv) the impact of competition in the
marketing and communications industry and (v) the Company's liquidity and
financing plans. All forward-looking statements in this Prospectus are based on
information available to the Company on the date hereof. In addition, the
matters set forth under the caption "Risk Factors" in the Prospectus constitute
cautionary statements identifying important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements.
Information regarding worldwide advertising expenditures, historical and
projected growth in advertising expenditures and comparative rankings of the
size of Young & Rubicam Inc., its affiliates, subsidiaries and operating units
has been obtained from industry sources, principally Advertising Age,
McCann-Erickson Report, O'Dwyer's PR Services Report, Med Ad News and Design
Week. All information regarding comparative size rankings is based on 1996
billings or revenues.
References in this Prospectus to the years 1993, 1994, 1995, 1996 and 1997
are, unless the context otherwise requires, to the Company's fiscal years ended
December 31.
Young & Rubicam, Y&R, Young & Rubicam Advertising, Y&R Advertising,
Wunderman Cato Johnson, WCJ, The Chapman Agency, The Bravo Group,
Burson-Marsteller, Marsteller Advertising, Cohn & Wolfe, Landor Associates,
Sudler & Hennessey, BrandAsset Valuator, Brand Dialogue, The Media Edge and The
Mead Point Group are trademarks of the Company. Other trademarks referenced
herein are trademarks of their respective legal owners.
3
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Company's consolidated financial
statements and notes thereto (the "Consolidated Financial Statements"),
appearing elsewhere in this Prospectus. Except as otherwise indicated herein,
the information in this Prospectus (i) assumes an initial public offering price
of $22.50 per share of Common Stock, the mid-point of the range set forth on the
cover page of this Prospectus, (ii) reflects a stock dividend of 14 shares of
Common Stock payable for each share of Common Stock outstanding as of the date
of effectiveness of the Registration Statement of which this Prospectus is a
part, payable on such date (the "Stock Split"), (iii) reflects the
effectiveness, upon the closing of the Offerings, of an Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws of Young & Rubicam
Inc. and (iv) assumes that the U.S. Underwriters' over-allotment option is not
exercised. Unless otherwise indicated, all references to the "Company" and "Y&R"
refer to Young & Rubicam Inc., its predecessors and its consolidated
subsidiaries, including Young & Rubicam L.P.
THE COMPANY
Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world. Since its founding 75 years ago, Y&R
has evolved from a single New York-based advertising agency to a diversified
global marketing and communications company operating in 128 cities in 76
countries worldwide as of December 31, 1997. The Company operates through such
internationally recognized market leaders as Young & Rubicam Advertising
(full-service advertising), Wunderman Cato Johnson (direct marketing and sales
promotion), Burson-Marsteller (perception management and public relations),
Landor Associates (branding consultation and design services) and Sudler &
Hennessey (healthcare communications). Y&R's revenues in 1997 were approximately
$1.4 billion, having grown at a compound annual rate of 12.9% from 1995 to 1997.
Through multi-disciplinary, client-focused teams, Y&R provides clients with
global access to fully integrated marketing and communications solutions. Among
Y&R's approximately 5,500 client accounts are a number of large multinational
organizations, including AT&T, Citibank, Colgate-Palmolive, Ford and Philip
Morris. Y&R has maintained long-standing relationships with many of its clients,
with the average length of relationship for the top 20 clients exceeding 20
years.
Y&R's mission is to be its clients' most valued business partner in
building, leveraging, protecting and managing clients' brands for both
short-term results and long-term growth. Consistent with its mission, Y&R has
developed an organizational and management structure designed to meet the
diverse needs of its large global clients as well as the more specialized needs
of its other clients. The Company's strategy combines this organizational and
management structure with the aggressive pursuit of new business opportunities
and continued investment in Y&R's business, personnel and superior consumer
knowledge.
In late 1992, Y&R created the Key Corporate Account ("KCA") program to
enhance the coordination of services sought by clients from both a global
coverage as well as an integrated solutions perspective. KCAs are large global
client accounts that, as a group, contribute the greatest share of Y&R's
revenues and profits, and are served on a multinational basis by two or more of
Y&R's businesses. Y&R currently designates 42 of its client accounts as KCAs.
Revenues from the KCAs, as a group, increased by 14.6% in 1997, and accounted
for approximately 45.5% and 46.1% of consolidated revenues in 1996 and 1997,
respectively. In order to further strengthen client relationships and reward Y&R
for meeting or exceeding certain performance targets, Y&R is working with KCAs
to adopt incentive compensation arrangements that align Y&R's compensation with
its performance and its clients' business performance.
As part of Y&R's client focus, Peter A. Georgescu, Chairman and Chief
Executive Officer of Y&R, John P. McGarry, Jr., President of Y&R, Edward H.
Vick, Chief Operating Officer of Y&R and the Chairman and Chief Executive
Officer of Young & Rubicam Advertising, and Thomas D. Bell, Jr., Executive Vice
President of Y&R and President and Chief Executive Officer of Burson-Marsteller,
all retain ongoing responsibilities for individual KCAs in addition to their
managerial roles.
4
<PAGE> 8
INDUSTRY TRENDS
The marketing and communications industry encompasses a wide range of
services used to develop and deliver messages to both broad and targeted
audiences through multiple communications channels. Several significant trends
are changing the dynamics of the marketing and communications industry,
including the following:
Growth in United States Marketing and Communications Markets. Advertising
expenditures in the United States have continued to grow, increasing from
approximately $140 billion in 1993 to approximately $175 billion in 1996.
Growth in International Marketing and Communications Markets. Since 1986,
non-U.S. advertising expenditures have grown more rapidly than U.S.
expenditures, and according to industry sources, have increased from
approximately 44% of worldwide expenditures in 1986 to approximately 55% in
1996.
Investment in Brand Development. Over the last several years, advertisers
have focused on the image or brand identity of their organizations, products and
services in an effort to differentiate themselves from competitors and increase
brand loyalty.
Demand for Integrated Service Offerings. Demand has increased for globally
integrated marketing and communications solutions as companies seek consistent
and effective delivery of their messages through multiple communications
channels and across a variety of geographic markets.
Increased Emphasis on Targeted Marketing. The desire of companies to reach
their target audiences and quantify the effectiveness of their communications
has resulted in greater demand for customized direct marketing methods, such as
database marketing, infomercials, in-store promotions and interactive programs.
STRATEGY
Y&R's strategy consists of the following key components:
Increase Penetration of Key Corporate Accounts. Y&R believes that
significant opportunities exist to increase its share of KCA marketing and
communications expenditures by leveraging its global network to provide
integrated services to KCAs. In recent years, Y&R has successfully increased its
share of the marketing and communications expenditures of certain KCAs. KCAs
also have increased their use of multiple services offered by Y&R over the same
period. During 1997, Y&R's 20 largest clients used the capabilities of an
average of five of the Company's marketing and communications services.
Develop New Client Relationships. The Company believes that there are
significant opportunities for future revenue and profit growth by providing
services to new clients in targeted industry sectors and to those clients
seeking to build and maintain global, regional and local brands. Y&R has
successfully used its integrated and global approach as an effective tool in
winning new business.
Leverage Existing Global Network. With a worldwide presence in 76
countries, the Company believes that it is well positioned to continue to
benefit from the trend towards the globalization of client marketing and
communications needs and the consolidation of such needs with a single
international service provider.
Capitalize on Existing Capabilities. Y&R intends to continue the
development of its existing capabilities into more visible and accessible client
services. For example, Y&R recently launched a new unit, Brand Dialogue, by
combining the existing interactive capabilities of Young & Rubicam Advertising
and Wunderman Cato Johnson in the United States, Latin America, Europe and
Asia/Pacific.
Utilize Superior Consumer Knowledge and Brand Insights. To assist its
clients in building, leveraging, protecting and managing their brands, Y&R has
developed and is maintaining extensive knowledge of consumer brand perceptions.
For example, Y&R has developed BrandAsset Valuator ("BAV"), a proprietary
database that reflects the perceptions of over 95,000 consumers in 32 countries
on five continents. The Company believes that BAV is the first global consumer
study that provides an empirically derived model for how brands gain and lose
their strength over time.
5
<PAGE> 9
Cultivate Creative Excellence. Y&R intends to continue emphasizing the
importance of creative marketing and communications. Y&R has created numerous
memorable marketing and communications programs for clients, including "The
Softer Side of Sears," "Everybody Needs a Little KFC," "It's All Within Your
Reach" for AT&T, "The Document Company" for Xerox and "Be All That You Can Be"
for the United States Army, as well as identity and design assignments,
including the creation of corporate identities, for Lucent Technologies,
Netscape and the 2002 Salt Lake City Olympics.
Improve Operating Efficiencies. The Company believes that opportunities
exist to improve operating efficiencies in order to expand margins and increase
future profitability. For example, Y&R has implemented initiatives which have
both improved productivity and reduced compensation expense as a percentage of
consolidated revenues.
Expand Capabilities Through Acquisitions. In order to add new
capabilities, enhance its existing capabilities and expand the geographic scope
of its operations, Y&R regularly evaluates and intends to pursue appropriate
acquisition opportunities.
THE RECAPITALIZATION
From the time of its founding until 1996, Y&R was wholly owned by its
employees. In December 1996, Y&R consummated a recapitalization (the
"Recapitalization"). The purpose of the Recapitalization was to realign the
ownership of the Company with those senior employees who would most actively
lead Y&R's future growth, to establish an equity-based incentive program to
motivate current and future employees and to enhance Y&R's ability to make
strategic investments in people, services and products. In connection with the
Recapitalization, predecessor companies of Y&R acquired, canceled or exchanged
all outstanding equity units, issued new shares of Common Stock and granted
certain restricted stock awards and options to acquire shares of Common Stock to
approximately 325 employees. In addition, at the time of the consummation of the
Recapitalization, Hellman & Friedman Capital Partners III, L.P., H&F Orchard
Partners III, L.P. and H&F International Partners III, L.P. (collectively, the
"H&F Investors"), and six other investors not affiliated with the Company
(together with the H&F Investors, the "Recapitalization Investors") and certain
employees and former employees of Y&R contributed an aggregate of $242 million
to the Company in exchange for shares of Common Stock and options to acquire
additional shares of Common Stock.
The Company's principal executive office is located at 285 Madison Avenue,
New York, New York 10017, and its telephone number is (212) 210-3000.
RECENT UNAUDITED FINANCIAL RESULTS
The following table sets forth certain unaudited consolidated results of
operations data for the Company for the three months ended March 31, 1997 and
1998. The unaudited quarterly data should be read in conjunction with the
additional annual financial information included in "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Consolidated Financial Statements appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Revenues.................................................... $298.2 $348.2
Income from operations...................................... 14.1 25.3
Net income.................................................. 4.1 12.2
</TABLE>
6
<PAGE> 10
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by:
The Company.......................... 6,666,667 shares
The Selling Stockholders............. 9,933,333 shares
--------------------
Total........................... 16,600,000 shares
Common Stock offered:
U.S. Offering........................ 13,280,000 shares
International Offering............... 3,320,000 shares
--------------------
Total........................... 16,600,000 shares
Common Stock to be outstanding after the
Offerings............................... 66,228,322 shares(1)
</TABLE>
Dividend Policy................ The Company expects to commence the
declaration and payment of a regular
quarterly cash dividend in the last quarter
of 1998. See "Dividend Policy."
Use of Proceeds................ The net proceeds to be received by the
Company from the Offerings are estimated to
be approximately $139,500,000 after deducting
underwriting discounts and commissions and
estimated offering expenses payable by the
Company. The Company intends to use such net
proceeds to repay a portion of the borrowings
outstanding under the term loan portion of
its existing credit facilities. See
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations -- Liquidity and Capital
Resources." The Company will not receive any
of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See
"Use of Proceeds."
Proposed New York Stock
Exchange Symbol................ "YNR"
- ---------------------------
(1) As of the date hereof, the number of shares of Common Stock outstanding
excludes (i) an aggregate of 28,844,880 shares reserved for issuance upon
the exercise of outstanding options under the Young & Rubicam Holdings Inc.
Management Stock Option Plan (under which no additional awards will be made)
and the Young & Rubicam Inc. 1997 Incentive Compensation Plan (collectively,
the "Stock Option Plans") at a weighted average exercise price of $6.98 per
share and (ii) an aggregate of 2,598,105 shares reserved for issuance upon
the exercise of outstanding options issued to certain of the
Recapitalization Investors at a weighted average exercise price of $7.67 per
share. The number of shares of Common Stock outstanding includes an
aggregate of 9,231,105 shares of Restricted Stock (as defined herein)
allocated to employees as of the date of consummation of the Offerings. See
"Management -- Executive Compensation" and "Capitalization." All of such
shares are subject to 180-day lock-up agreements following the Offerings.
See "Shares Eligible for Future Sale."
RISK FACTORS
Prior to making an investment in the Common Stock offered hereby,
prospective purchasers of the Common Stock should take into account the specific
risks set forth under "Risk Factors" as well as the other information set forth
in this Prospectus.
7
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $1,085,494 $1,222,139 $ 1,382,740
Compensation expense, including employee
benefits(1)...................................... 672,026 730,261 836,150
General and administrative expenses(1).............. 356,523 391,617 463,936
Recapitalization-related charges(2)................. -- 315,397 --
Other operating charges(2).......................... 31,465 17,166 11,925
---------- ---------- -----------
Operating expenses............................... 1,060,014 1,454,441 1,312,011
---------- ---------- -----------
Income (loss) from operations....................... 25,480 (232,302) 70,729
Net income (loss)................................... 820 (238,311) (23,938)
Basic and diluted loss per common share(3).......... $ (.51)
Weighted average shares outstanding(3).............. 46,949,355
Supplemental loss per common share(4)............... $ (.37)
OTHER OPERATING DATA:
EBITDA(1)(5)........................................ $ 72,972 $ 147,221 $ 139,375
Net cash provided by operating activities........... 79,809 178,064 224,511
Net cash used in investing activities............... 45,821 76,094 67,142
Net cash used in financing activities............... 50,025 12,614 98,667
Capital expenditures................................ 42,096 51,792 51,899
International revenues as a % of total
revenues(6)...................................... 54.7% 53.3% 52.2%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(10) AS ADJUSTED(11)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets(7)..................................... $1,528,019 $1,528,019 $1,613,176
Total debt(8)....................................... 351,051 351,051 211,551
Mandatorily redeemable equity securities(9)......... 508,471 -- --
Total (deficit) equity.............................. (661,714) (153,243) 71,414
</TABLE>
- ------------------------------
(1) For a discussion of charges included in compensation expense, including
employee benefits, and general and administrative expenses, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
(2) For a discussion of Recapitalization-related and other operating charges,
see Notes 4 and 6 to the Consolidated Financial Statements.
(3) Basic net loss per common share for 1997 was computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. The weighted average number of common shares outstanding excludes
11,086,950 shares of Common Stock held by the Restricted Stock Trust (as
defined herein), as such shares vest upon the consummation of an initial
public offering, or the six-month anniversary thereof, a condition which
was not satisfied at December 31, 1997. Diluted net loss per common share
for 1997 was computed in the same manner as basic net loss per common share
since the inclusion of potential common shares would be antidilutive.
At December 31, 1997, the Company had outstanding options to purchase
31,013,205 shares of Common Stock, with a weighted average exercise price
of $6.84, that could potentially dilute basic earnings per share in the
future. These options were excluded from the computation of diluted net
loss per common share because the effect for 1997 would be antidilutive. In
addition, at December 31, 1997, a maximum of 11,086,950 shares of Common
Stock held by the Restricted Stock Trust would vest and be dilutive as a
result of the consummation of the Offerings. See "Management -- Executive
Compensation -- The Restricted Stock Plan and Trust Agreement" and Notes 3,
15 and 21 to the Consolidated Financial Statements.
Earnings per share for 1995 and 1996 cannot be computed because the
Company's capital structure prior to the Recapitalization consisted of both
common shares and limited partnership units in predecessor entities. See
Note 4 to the Consolidated Financial Statements.
(4) The supplemental loss per common share was computed by dividing the
supplemental loss of $19,587 by the supplemental common shares of
53,616,022. The supplemental loss of $19,587 has been computed by adjusting
the historical net loss for 1997 to reflect the following: (i) additional
interest cost, net of the related tax benefit, of $1,410 (computed
utilizing an interest rate and statutory tax rate of 7.0% and 41.0%,
respectively) associated with the $161,700 of Recapitalization-related
borrowings under the Company's existing credit facilities, which occurred
on March 18, 1997, as if such borrowings had occurred as of January 1, 1997
and (ii) the reduction in interest cost, net of tax, of $5,761 (computed
utilizing an interest rate and statutory tax rate of 7.0% and 41.0%,
respectively), associated with $139,500 of the net proceeds of the
Offerings to the Company, which is expected to be utilized to
8
<PAGE> 12
repay a portion of the outstanding borrowings under the term loan portion of the
Company's existing credit facilities, as if the debt repayment had occurred as
of January 1, 1997.
The supplemental shares of 53,616,022 were computed by adding the 6,666,667
shares of Common Stock offered by the Company to the 46,949,355 weighted average
shares outstanding as of December 31, 1997. See "Capitalization."
Based upon an assumed initial public offering price of $22.50, the consummation
of the Offerings will give rise to a non-recurring, non-cash, pre-tax charge of
$207,700 ($122,543 net of the related tax benefit assuming a statutory tax
rate of 41.0%) arising from the vesting of the aggregate of 9,231,105
shares of Restricted Stock (as defined below) allocated to employees as of
the date of the consummation of the Offerings. The determination of
supplemental loss for 1997 does not give effect to this charge due to its
non-recurring nature. See "Management -- Executive Compensation -- The
Restricted Stock Plan and Trust Agreement" and Note 15 to the Consolidated
Financial Statements.
(5) EBITDA is defined as income (loss) from operations before depreciation and
amortization, other non-cash charges and Recapitalization-related charges.
EBITDA is presented because it is a widely accepted financial indicator and
is generally consistent with the definition used for covenant purposes
contained in the Company's existing credit facilities; however, EBITDA may
not be comparable to other registrants' calculation of EBITDA or similarly
titled items. EBITDA should not be considered as an alternative to net
income (loss) as a measure of operating results in accordance with
generally accepted accounting principles or as an alternative to cash flows
as a measure of liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."
EBITDA for 1996 and 1997 is before $11,096 and $11,925, respectively, of
non-cash charges primarily related to impairment write-downs which are
included in other operating charges. See Notes 4 and 6 to the Consolidated
Financial Statements.
(6) International revenues include all revenues earned outside the United
States.
(7) Total assets as of December 31, 1997 (actual, pro forma and pro forma as
adjusted) include net deferred tax assets of $157,024, $75,135 of which
relate to net operating loss ("NOL") carryforwards of approximately
$140,409 for U.S. tax purposes and approximately $69,231 for foreign tax
purposes. See Note 9 to the Consolidated Financial Statements.
(8) Total debt includes current and non-current loans and installment notes.
See Notes 13 and 14 to the Consolidated Financial Statements.
(9) From the date of consummation of the Recapitalization and through the date
of consummation of the Offerings, all outstanding shares of Common Stock,
exclusive of shares of Common Stock held in the Restricted Stock Trust, are
redeemable, subject to certain restrictions, at the option of the
stockholder. Accordingly, all such shares of Common Stock have been
recorded at their redemption values and classified as Mandatorily
Redeemable Equity Securities in the Company's historical balance sheets at
December 31, 1996 and 1997, respectively. See Notes 2, 15 and 16 to the
Consolidated Financial Statements.
(10) The pro forma December 31, 1997 balance sheet reflects the termination of
the redemption feature and subsequent reclassification of Mandatorily
Redeemable Equity Securities, as discussed in Note (9) above, to
stockholders' deficit. See "Capitalization" and Notes 2, 15 and 16 to the
Consolidated Financial Statements.
(11) The pro forma as adjusted balance sheet reflects the following: (i) an
increase in total assets of $85,157, resulting from the tax benefits
arising from the compensation charge associated with the vesting of the
Restricted Stock as further described in Note (4) above; (ii) a decrease in
total debt resulting from the sale by the Company of 6,666,667 shares of
Common Stock in the Offerings and the application of $139,500 of the net
proceeds to the Company to repay a portion of the outstanding borrowings
under the term loan portion of the Company's existing credit facilities;
and (iii) a $224,657 increase in total equity resulting from the $139,500
net proceeds to the Company from the Offerings and $85,157 resulting from
the vesting of Restricted Stock upon consummation of the Offerings as
discussed in (i) above. See "Capitalization."
9
<PAGE> 13
RISK FACTORS
A prospective investor should consider carefully all of the information
contained in this Prospectus before deciding whether to purchase the Common
Stock offered hereby and, in particular, the following factors.
RECENT HISTORY OF NET LOSSES
The Company reported a net loss for 1996 and 1997 of $238.3 million and
$23.9 million, respectively. In addition, the Company expects to report a net
loss for 1998 resulting from charges relating to the Offerings. The Company
expects to recognize a non-cash compensation charge of $207.7 million in
connection with the vesting of the Restricted Stock upon consummation of the
Offerings. The Company also expects to enter into a new revolving credit
facility to become effective upon completion of the Offerings, and as a result
expects to write off approximately $7.4 million, which represents the
unamortized portion of capitalized charges relating to the Company's existing
$700 million senior secured credit facilities as of March 31, 1998 (the "Credit
Facilities"), which will be repaid and replaced with net proceeds to the Company
from the Offerings and borrowings under the new revolving credit facility.
COMPETITION
The marketing and communications industry is highly competitive. Y&R's
principal competitors are large multinational marketing and communications
companies, as well as numerous smaller agencies that operate in one or more
countries or local markets. Y&R must compete with such other companies and
agencies to maintain existing client relationships and to obtain new clients and
assignments. Some clients, such as U.S. governmental agencies, require agencies
to compete for business at mandatory intervals. Principal competitive factors
include an agency's creative reputation, knowledge of media, financial controls,
geographical coverage and diversity, relationships with clients and quality and
breadth of services. Recently, traditional advertising agencies have also been
competing with major consulting firms which have developed practices in
marketing and communications, and with smaller companies such as systems
integrators, database marketing and modeling companies and telemarketers, which
are offering technological solutions to marketing and communications issues
faced by clients.
Representation of a client does not necessarily mean that all advertising
or public relations for that client is handled by one agency. Many large
multinational companies are served by a number of agencies within the marketing
and communications industry. In many cases, clients' conflicts policies or
desires to be served by multiple agencies result in one or more global agency
networks representing a client only for a portion of its marketing and
communications needs or only in particular geographic areas. In addition, the
ability of agencies within marketing and communications organizations to acquire
new clients or additional assignments from existing clients may be limited by
the conflicts policy followed by many clients not to permit agencies to perform
similar services for competing products or companies. Y&R's principal
international competitors are holding companies for more than one global
advertising agency network, which, in some situations, may permit separate
agency networks within such holding companies to perform services for competing
products or for products of competing companies. The Company has one global
advertising agency network, and accordingly Y&R's ability to compete for new
advertising assignments and, to a lesser extent, other marketing and
communications assignments, may be limited by these conflicts policies. Industry
practices in other areas of the marketing and communications business reflect
similar concerns with respect to client relationships. See
"Business -- Competition."
TREND TOWARDS CONSOLIDATION OF GLOBAL ACCOUNTS WITH GLOBAL AGENCIES
The Company believes that large multinational companies will seek to
consolidate their accounts with one organization that can fulfill their
marketing and communications needs worldwide. There can be no assurance that the
Company will continue to benefit from this trend towards consolidation of global
accounts. In addition, this trend towards consolidation of global accounts
requires companies seeking to compete effectively in the international marketing
and communications industry to make significant investments in additional
offices and personnel around the world and in new and improved technology for
linking such offices
10
<PAGE> 14
and people. Y&R's international network of employees and offices are linked by
computer networks which require significant capital expenditures for
maintenance, expansion and upgrades. To the extent that Y&R's competitors may
have broader geographic scope or greater financial resources to invest in
additional offices, personnel or technology, such competitors may be better able
than Y&R to take advantage of an opportunity for the consolidation of a global
account. In such event, Y&R's prospects, business, financial condition and
results of operations could be adversely affected.
CONCENTRATION OF REVENUES FROM A LIMITED NUMBER OF LARGE CLIENTS
A relatively small number of clients contributes a significant percentage
of Y&R's consolidated revenues. In 1997, Y&R's 20 largest clients contributed
approximately 40.5% of consolidated revenues, its three largest clients
contributed approximately 18.6% of consolidated revenues and its largest client,
Ford Motor Company, contributed approximately 10.0% of consolidated revenues.
Based upon Y&R's strategy of increasing its penetration of existing large
clients, it is possible that Y&R's dependence on revenues from such clients will
increase in the future. Most of Y&R's agreements with U.S.-based clients are
cancelable on 90 days' notice, and its agreements with non-U.S. clients
typically are cancelable on 90 to 180 days' notice. In addition, clients
generally are able to reduce marketing and communications spending or cancel
projects at any time for any reason. There can be no assurance that any of Y&R's
clients will continue to utilize Y&R and its services to the same extent, or at
all, in the future. A significant reduction in the marketing and communications
spending by, or the loss of one or more of, Y&R's largest clients, if not
replaced by new client accounts or an increase in business from existing
clients, would have a material adverse effect on Y&R's prospects, business,
financial condition and results of operations. See "Business."
CLIENT TURNOVER; DEVELOPMENT OF NEW CLIENTS
The success of a marketing and communications organization depends on its
continuing ability to attract and retain clients. Y&R has approximately 5,500
client accounts worldwide. Although historically Y&R has had long-term
relationships with many of its largest clients, clients may move their
advertising and other communications assignments from agency to agency, or may
divide their assignments among two or more agencies, with relative ease. In
addition, the perception management and public relations business, as well as
the branding consultation and design business, are principally project-based and
require new assignments in order to maintain and increase revenues. As is
typical in the marketing and communications industry, Y&R has lost or resigned
client accounts and assignments for a variety of reasons, including conflicts
with newly acquired clients. Although typically Y&R has been able to replace
such client and revenue losses with new clients and assignments, there can be no
assurance that Y&R will continue to be successful in replacing clients or in
replacing revenues when a client significantly reduces the amount of work given
to Y&R. The failure to maintain existing clients or attract new clients could
have a material adverse effect on Y&R's prospects, business, financial condition
and results of operations. See "Business."
CYCLICAL INDUSTRY
The marketing and communications industry is cyclical because it is subject
to downturns in general economic conditions and changes in client business and
marketing budgets. There can be no assurance that the Company's prospects,
business, financial condition and results of operations would not be materially
adversely affected by a downturn in general economic conditions in one or more
markets or changes in client business and marketing budgets. See "Business."
CURRENCY RISK
The Company's Consolidated Financial Statements are denominated in U.S.
dollars. Y&R derived approximately 52.2% of its revenues from operations outside
of the United States in 1997. Currency fluctuations may give rise to translation
gains or losses when financial statements of foreign operating units are
translated into U.S. dollars. Significant strengthening of the U.S. dollar
against other major foreign currencies could have a material adverse effect on
Y&R's results of operations. With limited exceptions, Y&R does not
11
<PAGE> 15
actively hedge its foreign currency exposure. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
CONTROL OF Y&R
Substantially all of Y&R's Common Stock is owned by employee equityholders
(the "Management Investors") and the Recapitalization Investors. See
"Management." All Common Stock held at any time by Management Investors is
deposited in a voting trust (the "Management Voting Trust") which is controlled
by eight members of Y&R's senior management, in their capacities as voting
trustees (the "Voting Trustees"). Upon consummation of the Offerings, the
Management Voting Trust will hold voting power over approximately 53.8% of the
outstanding shares of Common Stock (assuming the exercise of all currently
vested options). As a result, the Management Voting Trust will be able to
exercise substantial control over any matters requiring the vote of
stockholders, including the election of Directors, which could delay or prevent
a change in control of the Company. Furthermore, the vote of Peter A. Georgescu
(or any other person duly elected Chief Executive Officer of Y&R with the prior
approval of the Management Voting Trust) will bind the Management Voting Trust
unless he (or his successor) is outvoted by the vote of six of the other Voting
Trustees. As a result of the foregoing, Peter A. Georgescu (or any such
successor) will be able to exercise a significant degree of control over
business decisions affecting Y&R. The Management Voting Trust will remain in
existence following consummation of the Offerings but will terminate no later
than 24 months after the consummation of the Offerings. See "Description of
Capital Stock -- The Management Voting Trust Agreement." In the event that,
following the termination of the Management Voting Trust, management of the
Company continues to own collectively a significant percentage of the
outstanding shares of Common Stock, management acting together would be able to
exercise a significant degree of control over business decisions affecting Y&R.
Upon consummation of the Offerings, the H&F Investors are expected to
beneficially own an aggregate of approximately 35.1% of the outstanding shares
of Common Stock (assuming the exercise of all currently vested options). As a
result of their stock ownership, the H&F Investors currently are, and upon
consummation of the Offerings will be, able to influence matters requiring the
vote of stockholders, including the election of Directors. In addition, pursuant
to the Amended Stockholders' Agreement (as defined herein), the H&F Investors
will have the right to nominate and have elected two members of the Company's
Board of Directors (the "Board" or the "Company Board") for so long as they
continue to hold, in the aggregate, at least 10% of the Outstanding Shares (as
defined in the Amended Stockholders' Agreement), and one member of the Board for
so long as they continue to hold, in the aggregate, at least 5% of the
Outstanding Shares. Should the Management Voting Trust and the H&F Investors act
together, they would be able to elect the members of the Board and exercise a
controlling influence over the business and affairs of the Company. In addition,
the Management Voting Trust and the H&F Investors could, acting together, delay
or prevent a change in control of the Company. See "-- Certain Anti-Takeover
Effects" and "Description of Capital Stock -- The Stockholders' Agreement."
DEPENDENCE ON KEY PERSONNEL
The Company's ability to maintain its competitive position is dependent on
the services of its senior management. The loss of the services of one or more
members of senior management could have a material adverse effect on the
Company. In addition, the success of Y&R has been, and will continue to be,
highly dependent upon the skills of its creative, research, media and account
personnel and practice group specialists, and their relationships with clients.
Employees generally are not subject to contracts of employment and are,
therefore, typically able to move within the industry with relative ease.
Although the Management Voting Trust Agreement (as defined herein) and certain
stock option and restricted stock agreements contain non-competition and
non-solicitation covenants, there can be no assurance that such provisions will
be effective in helping Y&R retain qualified personnel or that Y&R would not be
adversely affected by the failure to retain such personnel.
If Y&R were unable to continue to attract and retain additional key
personnel, or if it were unable to retain and motivate its existing key
personnel, its prospects, business, financial condition and results of
12
<PAGE> 16
operations would be materially adversely affected. See "Management" and
"Description of Capital Stock -- The Management Voting Trust Agreement."
RISKS OF MULTINATIONAL OPERATIONS
The Company conducts business in various developing countries in Asia,
Latin America, Eastern Europe and Africa, where the systems and bodies of
commercial law and trade practices arising thereunder are evolving. Commercial
laws in such countries are often vague, arbitrary, contradictory, inconsistently
administered and retroactively applied. Under such circumstances, it is
difficult for the Company to determine with certainty at all times the exact
requirements of such local laws. If the Company consistently were unable to
remain in compliance with local laws in such developing countries, it could have
a material adverse impact on Y&R's prospects, business, results of operations
and financial condition. In addition, the global nature of the Company's
operations poses various challenges to the Company's management and its
financial, accounting and other systems which, if not satisfactorily met, could
have a material adverse impact on the Company's prospects, business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations."
TERMS OF CERTAIN INDEBTEDNESS
The Company's Credit Facilities contain certain financial and operating
covenants and require the Company to achieve or maintain certain financial
ratios and net worth requirements, and restrict the Company's ability to incur
additional indebtedness, sell assets, redeem equity, pay cash dividends, make
acquisitions and take other specified actions. The Company's obligations under
the Credit Facilities are secured by a security interest in certain domestic
assets, including its headquarters building in New York, all of the capital
stock of the direct and indirect domestic subsidiaries of the Company and 66.7%
of the capital stock of the Company's first-tier non-U.S. subsidiaries. The net
proceeds to the Company from the Offerings are expected to be used to repay a
portion of the borrowings outstanding under the term loan portion of the Credit
Facilities. The Company expects to enter into a $400 million unsecured revolving
credit facility (the "New Facility") to become effective upon the consummation
of the Offerings, and has received an executed commitment letter for an
aggregate of $150 million of the $400 million total from two commercial banks.
The New Facility is expected to contain certain financial and operating
restrictions and covenant requirements. Consummation of the New Facility is
subject to execution of definitive documentation and a number of other closing
conditions, and there can be no assurance that the Company will be successful in
consummating such Facility.
Outstanding borrowings under the Credit Facilities, which aggregated $330.6
million at December 31, 1997, bear interest at rates that fluctuate with changes
in certain prevailing market interest rates. Any increase in interest rates
would adversely affect Y&R's net income and the cash flow available after debt
service to fund operations and expansion. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
ACQUISITION STRATEGY RISKS
Y&R's business strategy includes increasing its share of clients' marketing
expenditures by adding to or enhancing its existing marketing and communications
capabilities, and expanding its geographic reach. Y&R intends to implement this
strategy in part by making acquisitions. There can be no assurance that the
Company will be successful in identifying appropriate acquisition candidates or
consummating acquisitions on terms satisfactory to Y&R, or that any newly
acquired companies will be successfully integrated into Y&R's existing global
network. The Company may use Common Stock (which could result in dilution to
purchasers of Common Stock offered hereby) or may incur indebtedness (which may
be long-term), expend cash or use a combination thereof for all or part of the
consideration to be paid in future acquisitions. While the Company regularly
evaluates potential acquisition opportunities, it has no present commitments,
agreements or understandings with respect to any material acquisition. See
"Business."
13
<PAGE> 17
THIRD PARTY LIABILITY
Y&R from time to time may be, or may be joined as, a defendant in
litigation brought against its clients by third parties, including, without
limitation, claims brought by such clients' competitors, regulatory bodies or
consumers, alleging that advertising claims made with respect to such client's
products or services are false, deceptive or misleading, that such clients'
products are defective or injurious or that marketing and communications
materials created for such clients infringe on the proprietary rights of third
parties. If, in such circumstances, Y&R is not insured under the terms of the
insurance policies with its insurers or is not indemnified under the terms of
its agreements with such clients (or such indemnification is unavailable) with
respect to such claims, then the damages, costs, expenses or attorneys' fees
arising from any such claims could have an adverse effect on Y&R's prospects,
business, results of operations and financial condition. In addition, Y&R's
contracts with clients sometimes require it to indemnify clients for claims
brought by competitors or others claiming that advertisements or other
communications infringe on intellectual property rights. Although Y&R maintains
an insurance program, including insurance for advertising agency liability,
there can be no assurance that such insurance will be available, or will be
sufficient to cover any claim if available, in the event a significant adverse
claim is made. In the opinion of management, none of the existing claims and
legal actions to which the Company currently is a party is expected to have a
material adverse effect on the Company.
YEAR 2000 RISK
The Company is conducting a comprehensive review of its computer systems to
identify all software applications that could be affected by the inability of
many existing computer systems to process time-sensitive data accurately beyond
the year 1999 (referred to as the "Year 2000" issue). The Company intends to
modify or replace all affected systems for compliance with the Year 2000 issue
and is also monitoring the adequacy of the processes and progress of third-party
vendors of systems that may be affected by the Year 2000 issue. Y&R is dependent
on third-party computer systems and applications, particularly with respect to
such critical tasks as accounting, billing and buying, planning and paying for
media, as well as on its own computer systems. While Y&R believes its process is
designed to be successful, because of the complexity of the Year 2000 issue and
the interdependence of organizations using computer systems, there can be no
assurance that Y&R's efforts, or those of third parties with whom Y&R interacts,
will be satisfactorily completed in a timely fashion. Failure to satisfactorily
address the Year 2000 issue could have a material adverse effect on Y&R's
prospects, business, financial condition and results of operations. The costs of
the Company's Year 2000 project have not been determined but are not expected to
have a material adverse effect on the Company. However, there can be no
assurance that Y&R will not experience cost overruns or delays in connection
with its plan for replacing or modifying systems, which could have a material
adverse effect on Y&R's prospects, business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Compliance."
DIVIDEND POLICY
Although the Company intends to commence the declaration and payment of a
regular quarterly cash dividend in the last quarter of 1998, the Company's
ability to pay dividends will depend upon, among other factors, the Company's
results of operations, financial condition and capital requirements. In
addition, the covenants under the Credit Facilities currently prohibit Y&R from
the declaration and payment of cash dividends. The terms of the New Facility,
which the Company expects to enter into upon consummation of the Offerings, are
expected to permit the payment of cash dividends except in the event of a
continuing default under the credit agreement. Any cash dividend is therefore
contingent upon the consummation of the New Facility, which is subject to
execution of definitive documentation and a number of other closing conditions,
and there can be no assurance that the Company will be successful in
consummating such Facility. See "Dividend Policy."
14
<PAGE> 18
BENEFIT TO EXISTING STOCKHOLDERS
The initial public offering price of the shares of Common Stock to be sold
in the Offerings is substantially in excess of the net tangible book value per
share, which results in a benefit to existing stockholders of the Company. See
"-- Immediate and Substantial Dilution" and "Dilution." Consummation of the
Offerings will result in the vesting of the Company's Restricted Stock (as
defined below), which will provide a substantial benefit to management
stockholders who have been allocated shares of Restricted Stock. In addition,
consummation of the Offerings will result in the elimination of the Company's
right to repurchase shares of Common Stock held by Management Investors upon
their termination of employment. See "The Company -- The Recapitalization" and
"Description of Capital Stock -- The Stockholders' Agreement."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of the Common Stock is substantially in
excess of the net tangible book value per share. As a result, purchasers of
Common Stock in the Offerings will experience immediate and substantial dilution
of $23.18 per share. See "Dilution."
ABSENCE OF PRIOR MARKET FOR COMMON STOCK
Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market for the
Common Stock will develop or will continue if it develops. The initial public
offering price of the Common Stock will be determined by negotiations between
the Company and representatives of the Underwriters and may not be indicative of
the market price of the Common Stock following the Offerings. See
"Underwriting." The market price of the Common Stock could be subject to
significant fluctuations in response to various factors and events, including
the liquidity of the market for the Common Stock, differences between the
Company's actual financial or operating results and those expected by investors
and analysts, changes in analysts' recommendations or projections, marketing and
communications budgets of clients, new statutes or regulations or changes in
interpretations of existing statutes and regulations affecting the Company's
business, changes in general economic or market conditions and broad market
fluctuations.
POSSIBLE ADVERSE IMPACT ON SHARE PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Following the Offerings, the Company will have 66,228,322 shares of Common
Stock outstanding. Of these, 20,239,045 shares will be freely transferable by
persons other than "affiliates" of the Company without restriction or further
registration under the Securities Act. The remaining 45,989,277 outstanding
shares of Common Stock will be "restricted securities" within the meaning of
Rule 144 under the Securities Act or securities issued and sold pursuant to
Regulation S under the Securities Act and subject to transfer restrictions.
Following the Offerings and subject to certain 180-day lock-up agreements
described herein, certain of the Recapitalization Investors will have demand and
piggyback registration rights with respect to an aggregate of 22,199,002 shares
of Common Stock. In addition, beginning 90 days after the date of this
Prospectus, such shares will be eligible for sale in the public market without
registration under the Securities Act, subject to compliance with the resale
volume limitations and other restrictions of Rule 144 under the Securities Act.
Subject to certain 180-day lock-up agreements described herein, and beginning 90
days after the date of this Prospectus, shares of Common Stock held by
Management Investors will be eligible for sale in the public market without
registration under the Securities Act, subject to compliance with the resale
volume limitations and other restrictions of Rule 144 under the Securities Act.
Future sales of the Common Stock, or the perception that such sales could occur,
could adversely affect prevailing market prices for the Common Stock. See
"Shares Eligible for Future Sale" and "Underwriting."
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Company's Charter") and the Company's Amended and Restated
By-Laws (the "Company's By-Laws"), which will become effective upon consummation
of the Offerings, and of the Delaware General Corporation Law
15
<PAGE> 19
(the "DGCL") may have the effect of delaying, deterring or preventing a change
in control of the Company not approved by the Company Board. These provisions
include (i) a classified Board, (ii) a requirement that no action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, (iii) a requirement that special meetings of
stockholders be called only by the Chairman of the Board or the Company Board,
(iv) advance notice requirements for stockholder proposals and nominations, (v)
limitations on the ability of stockholders to amend, alter or repeal certain
provisions of the Company's Charter and the Company's By-Laws, (vi)
authorization for the Company Board to issue without stockholder approval
preferred stock with such terms as the Board may determine and (vii)
authorization for the Company Board to consider the interests of clients and
other customers, creditors, employees and other constituencies of the Company
and its subsidiaries and the effect upon communities in which the Company and
its subsidiaries do business, in evaluating proposed corporate transactions.
With certain exceptions, Section 203 of the DGCL ("Section 203") imposes certain
restrictions on mergers and other business combinations between the Company and
any holder of 15% or more of the Company's Common Stock (other than the H&F
Investors and their permitted transferees, who have been exempted from these
restrictions by the Company Board). In addition, the Company has adopted a
stockholder rights plan that will become effective prior to consummation of the
Offerings (the "Rights Plan") under which the H&F Investors and their permitted
transferees will have the benefit of certain exceptions. The Rights Plan is
designed to protect stockholders in the event of an unsolicited offer and other
takeover tactics which, in the opinion of the Company Board, could impair the
Company's ability to represent stockholder interests. The provisions of the
Rights Plan may render an unsolicited takeover of the Company more difficult or
less likely to occur or might prevent such a takeover.
These provisions of the Company's Charter and the Company's By-Laws, the
DGCL and the Rights Plan, together with the control of 53.8% of the outstanding
shares of Common Stock by the Management Voting Trust upon consummation of the
Offerings (assuming the exercise of all currently vested options) could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company, although such proposals, if made, might be considered
desirable by a majority of the Company's stockholders. Such provisions could
also make it more difficult for third parties to remove and replace the members
of the Company Board. Moreover, these provisions could diminish the
opportunities for a stockholder to participate in certain tender offers,
including tender offers at prices above the then-current market price of the
Company's Common Stock, and may also inhibit increases in the market price of
the Company's Common Stock that could result from takeover attempts or
speculation. In addition, certain options issued to employees of the Company
contain change in control provisions that could have the effect of delaying,
deterring or preventing a change in control of the Company. See
"Management -- Executive Compensation -- 1997 ICP -- Acceleration of Vesting"
and "Description of Capital Stock -- Anti-Takeover Effects of Certain Provisions
of the Charter, the By-Laws, the Rights Plan and Delaware Law."
16
<PAGE> 20
THE COMPANY
GENERAL
Since its founding 75 years ago by John Orr Young, an account executive,
and Raymond Rubicam, a copywriter, Y&R has evolved from a single New York-based
advertising agency to a diversified global marketing and communications
organization. In its early years, the Company grew its core advertising business
by either opening additional offices in the United States and abroad, or by
acquiring established local agencies and fully integrating them into the Company
under the Y&R name. By the early 1970s, the Company had established a network of
approximately 40 Young & Rubicam Advertising agency offices in the United States
and 22 other countries.
In 1973, Y&R began to expand its capabilities beyond traditional general
advertising by acquiring well-established leaders in other marketing and
communications disciplines. Y&R began this diversification with its acquisitions
of Wunderman Ricotta & Kline (the predecessor to Wunderman Worldwide), a direct
marketing firm, and Sudler & Hennessey, a healthcare communications specialist.
In 1976, the Company added the sales promotion firm, Cato Johnson Associates,
which was merged with Wunderman Worldwide in 1992 to form Wunderman Cato
Johnson. Y&R continued implementing its diversification strategy with its
acquisitions of Burson-Marsteller, a public relations company, in 1979 and
Landor Associates, a branding consultation and strategic design firm, in 1989.
Y&R has been successful in integrating the diverse capabilities of these
companies, which the Company believes enables it to better serve clients'
marketing and communications needs on a global basis.
The Company's principal executive office is located at 285 Madison Avenue,
New York, New York 10017, and its telephone number is (212) 210-3000.
THE RECAPITALIZATION
From the time of its founding until 1996, Y&R was wholly owned by its
employees. In December 1996, Y&R consummated the Recapitalization. The purpose
of the Recapitalization was to realign the ownership of the Company with those
senior employees who would most actively lead Y&R's future growth, to establish
an equity-based incentive program to motivate current and future employees and
to enhance its ability to make strategic investments in people, services and
products. In connection with the Recapitalization, predecessor companies of Y&R
acquired for cash, canceled or exchanged all then outstanding equity and
equity-based compensation units, including shares of common stock, limited
partnership interests, options to acquire shares of common stock and limited
partnership interests, and growth participation units (collectively, the
"Predecessor Units"). In place of the Predecessor Units, the Company issued new
shares of Common Stock and granted certain restricted stock awards and options
to acquire shares of Common Stock to approximately 325 employees. In addition,
at the time of consummation of the Recapitalization, an aggregate of $242
million was contributed to the Company in exchange for an aggregate of
31,566,345 shares of Common Stock and options to acquire an additional aggregate
of 2,598,105 shares of Common Stock. The Recapitalization Investors contributed
an aggregate of $231.7 million in exchange for 30,228,195 shares of Common Stock
and options to purchase an additional 2,598,105 shares of Common Stock and are
selling an aggregate of 7,831,473 shares of Common Stock in the Offerings, and
55 Management Investors contributed an aggregate of $10.3 million in exchange
for 1,338,150 shares of Common Stock and no options, of which 223,065 shares of
Common Stock were received by four Management Investors who are selling an
aggregate of 443,205 shares of Common Stock in the Offerings. See "Principal and
Selling Stockholders."
Upon consummation of the Recapitalization, the H&F Investors were granted
registration rights as well as the right to nominate and have elected three
members of the Company Board and to designate jointly with the Management Voting
Trust two additional members of the Company Board. See "Risk Factors -- Control
of Y&R," "Management -- Executive Compensation" and "-- Officers and Directors,"
"Shares Eligible for Future Sale" and "Description of Capital Stock -- The
Management Voting Trust Agreement."
In connection with the Recapitalization, the Company entered into the $700
million Credit Facilities, a portion of the proceeds of which were used to
prepay the Company's indebtedness under its previous credit facilities.
Recapitalization-related borrowings under the Credit Facilities totalled $361.7
million, $200.0
17
<PAGE> 21
million of which was borrowed on December 12, 1996 and $161.7 million of which
was borrowed on March 18, 1997.
At the time of the Recapitalization, Y&R adopted certain incentive
compensation plans, including the Young & Rubicam Holdings Inc. Management Stock
Option Plan (the "Management Stock Option Plan") and the Young & Rubicam
Holdings Inc. Restricted Stock Plan (the "Restricted Stock Plan"), designed to
attract, retain and motivate key employees. The Management Stock Option Plan
provides for the grant of options to purchase Common Stock. At the time of the
Recapitalization, non-qualified options to purchase 16,823,565 shares of Common
Stock of Y&R were granted to certain members of Y&R management in consideration
of their surrender for cancellation of all or a portion of their outstanding
options to purchase equity units of predecessor companies of Y&R (the "Rollover
Options"). The Rollover Options were immediately vested and exercisable upon
grant. Each Rollover Option has an exercise price of $1.92 per share. In
addition to the Rollover Options, immediately following the closing of the
Recapitalization, non-qualified options with exercise prices of $7.67 per share
with respect to 5,200,590 shares of Common Stock were granted to certain key
employees of Y&R (the "Closing Options"). Each Closing Option became exercisable
immediately upon grant with respect to 40% of the shares subject thereto and
will become exercisable (i) on the third anniversary of its grant date with
respect to 30% of such shares and (ii) on the fifth anniversary of its grant
date with respect to the remaining 30% of such shares. See
"Management -- Executive Compensation -- Management Stock Option Plan."
Pursuant to the Restricted Stock Plan, Y&R issued a total of 11,086,950
shares of Common Stock to a trust (the "Restricted Stock Trust") established by
Y&R for allocation to key employees of Y&R. Of such amount, as of the date of
consummation of the Offerings, 9,231,105 shares of Common Stock will have been
allocated to employees pursuant to the Restricted Stock Plan ("Restricted
Stock"). The Restricted Stock Plan provides that such shares will vest upon the
six-month anniversary of the consummation of the Offerings, subject to the power
of the Board of Directors to accelerate the vesting and distribution date to the
consummation of the Offerings. The Board of Directors has so accelerated the
vesting and distribution date, subject to the ability of the holders to sell
such number of shares of Restricted Stock in the Offerings as is necessary to
fund the personal tax liabilities associated with the vesting and distribution
thereof. In addition, in the event the Restricted Stock does not vest upon
consummation of the Offerings, the Restricted Stock will vest upon the earliest
to occur of the six-month anniversary of the consummation of the Offerings,
certain change of control events and certain other events described in the
Restricted Stock Plan, provided that in all cases each such employee is then
still employed by Y&R. Certain of such shares of Restricted Stock will be placed
in a deferral trust upon vesting thereof and the holders will have such shares
distributed to them from such deferral trust at specified times in the future.
See "Management -- Executive Compensation."
All shares of Common Stock (including all shares of Common Stock issued
upon the exercise of options) held by current or former members of Y&R
management and all shares of Common Stock held in the Restricted Stock Trust are
required to be deposited in the Management Voting Trust, the Voting Trustees of
which have the power to vote all shares of Common Stock held by it. The voting
rights of the Management Voting Trust are exercised by eight members of Y&R
senior management in their capacities as Voting Trustees. The Management Voting
Trust will remain in existence following consummation of the Offerings but will
terminate no later than 24 months after the consummation of the Offerings. See
"Shares Eligible for Future Sale" and "Description of Capital Stock -- The
Management Voting Trust Agreement."
18
<PAGE> 22
USE OF PROCEEDS
The net proceeds to the Company from the Offerings, assuming an initial
public offering price of $22.50 per share, the midpoint of the range set forth
on the cover page of this Prospectus (after deducting applicable underwriting
discounts and commissions and estimated offering expenses payable by the
Company), are estimated to be approximately $139.5 million. The Company intends
to use such net proceeds to repay a portion of the borrowings outstanding under
the term loan portion of the Credit Facilities. The Company will not receive any
of the proceeds from the sale of shares of Common Stock by the Selling
Stockholders. As of December 31, 1997, there was an aggregate of $330.6 million
outstanding under the term loan, which bore interest at a rate of 6.875% per
annum. The term loan portion of the Credit Facilities is repayable in quarterly
installments which commenced on September 30, 1997 with final maturity on March
31, 2003. The proceeds of the term loan portion of the Credit Facilities were
received by the Company in December 1996 and March 1997 and were used by the
Company primarily to prepay indebtedness, to repurchase equity units from
certain employees and to repay certain expenses in connection with the
Recapitalization.
DIVIDEND POLICY
Since the consummation of the Recapitalization, the Company has not
declared or paid any cash or other dividends on its Common Stock (other than the
Stock Split). The Company expects to commence the declaration and payment of a
regular quarterly cash dividend in the last quarter of 1998. However, any
determination to pay dividends will be at the discretion of the Company Board
and will depend upon, among other factors, the Company's results of operations,
financial condition, capital requirements and contractual restrictions pursuant
to the Company's Credit Facilities. The covenants under the Company's existing
Credit Facilities currently prohibit Y&R from declaring and paying cash
dividends; any cash dividend is therefore contingent upon a renegotiation or
refinancing of the existing Credit Facilities in order to remove such
restriction. The Company has received a commitment letter in respect of the New
Facility, which the Company expects to enter into effective upon the
consummation of the Offerings. The New Facility, which would replace the Credit
Facilities, is expected to contain certain financial and operating restrictions
and covenant requirements and to permit the payment of cash dividends except in
the event of a continuing default under the credit agreement. The net proceeds
to the Company from the Offerings, together with borrowings under the New
Facility, are expected to be used to repay all outstanding borrowings under the
Credit Facilities upon consummation of the Offerings. The New Facility is
subject to execution of definitive documentation and a number of other closing
conditions, and there can be no assurance that the Company will be successful in
consummating such Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
19
<PAGE> 23
CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth the Company's consolidated cash and cash
equivalents, current portion of installment notes and loans payable and
capitalization as of December 31, 1997 on (i) an actual basis; (ii) a pro forma
basis giving effect to the termination of the redemption feature and subsequent
reclassification of the Mandatorily Redeemable Equity Securities to
stockholders' deficit upon consummation of the Offerings; and (iii) a pro forma
as adjusted basis giving further effect to the sale of 6,666,667 shares of
Common Stock offered by the Company hereby and the application of the estimated
net proceeds therefrom as described in "Use of Proceeds" and the non-recurring,
non-cash, after-tax compensation charge resulting from the vesting of Restricted
Stock.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 160,263 $ 160,263 $ 160,263
========= ========= =========
Current portion of installment notes and loans payable...... 13,996 13,996 13,996
========= ========= =========
Long-term debt:
Installment notes payable................................. 6,503 6,503 6,503
Loans payable:
Term loan facility(1).................................. 299,000 299,000 159,500
Revolving credit facility.............................. 31,552 31,552 31,552
--------- --------- ---------
Total long-term debt.............................. 337,055 337,055 197,555
--------- --------- ---------
Mandatorily Redeemable Equity Securities:
Common Stock, $.01 par value, 250,000,000 shares
authorized; 50,658,180 shares issued and outstanding
(actual) and no shares issued and outstanding (pro
forma and pro forma as adjusted)(2).................... 508,471 -- --
--------- --------- ---------
Stockholders' deficit:
Cumulative Preferred Stock:
Money Market Preferred Stock -- variable dividend;
liquidating value of $7.67 per share; one-tenth of
one vote per share; 10,000,000 shares authorized; 87
shares issued and outstanding (actual, pro forma and
pro forma as adjusted)............................... -- -- --
Cumulative Participating Junior Preferred
Stock -- $ dividend; liquidating value of
$1.00 per share; 100 votes per share; 2,500,000
shares authorized (pro forma as adjusted); no shares
issued and outstanding (pro forma as adjusted)(3).... -- -- --
Common Stock, $.01 par value, 250,000,000 shares
authorized (actual and pro forma); 250,000,000 shares
authorized (pro forma as adjusted); 11,086,950 shares
issued and outstanding (actual); 61,745,130 shares
issued and outstanding (pro forma) and 66,555,952
shares issued and outstanding (pro forma as
adjusted)(2)(4)(5)..................................... 111 617 665
Capital surplus(2)(5)..................................... 23,613 531,578 741,991
Accumulated deficit(6).................................... (522,866) (522,866) (645,409)
Cumulative translation adjustment......................... (16,577) (16,577) (16,577)
Pension liability adjustment.............................. (706) (706) (706)
--------- --------- ---------
Subtotal.................................................. (516,425) (7,954) 79,964
Common stock in treasury.................................... (8,550) (8,550) (8,550)
Unearned compensation-Restricted Stock(5)................... (136,739) (136,739) --
--------- --------- ---------
Total stockholders' (deficit) equity.............. (661,714) (153,243) 71,414
--------- --------- ---------
Total capitalization.............................. $ 183,812 $ 183,812 $ 268,969
========= ========= =========
</TABLE>
20
<PAGE> 24
- ------------------------------
(1) The pro forma as adjusted column reflects the application of $139,500 of
estimated net proceeds to the Company from the Offerings to repay a portion
of the borrowings outstanding under the term loan portion of the Credit
Facilities.
(2) From the date of consummation of the Recapitalization and through the date
of consummation of the Offerings, all outstanding shares of Common Stock,
exclusive of shares of Common Stock held in the Restricted Stock Trust, are
redeemable, subject to certain restrictions, at the option of the
stockholder. Accordingly, all such shares of Common Stock have been recorded
at their redemption values and classified as Mandatorily Redeemable Equity
Securities in the Company's historical balance sheets at December 31, 1996
and 1997, respectively. The pro forma December 31, 1997 balance sheet
reflects the reclassification of the $508,471 carrying value of Mandatorily
Redeemable Equity Securities to stockholders' deficit in connection with the
termination of the redemption feature upon consummation of the Offerings, of
which $506 is attributable to the par value of the 50,658,180 common shares
and the remaining $507,965 is attributable to capital surplus. See Notes 2,
15 and 16 to the Consolidated Financial Statements.
(3) Reflects the authorization of 2,500,000 shares of Cumulative Participating
Junior Preferred Stock which is effective upon the closing of the Offerings.
See "Description of Capital Stock -- Rights Plan."
(4) Excludes 31,013,205 shares of Common Stock issuable upon exercise of options
outstanding at a weighted average exercise price of $6.84 at December 31,
1997. See "Management -- Executive Compensation."
(5) Pro forma as adjusted common stock and capital surplus reflect an increase
of $48 and $210,413, respectively, for the following: (i) a $139,500
increase resulting from the issuance of 6,666,667 newly issued shares of
Common Stock in the Offerings (of the $139,500 net increase in stockholders'
equity, $67 is attributable to Common Stock for the par value of the
6,666,667 shares issued with the remaining $139,433 increasing capital
surplus); (ii) a $207,700 increase resulting from the vesting of the
9,231,105 shares of Restricted Stock (based upon an assumed initial public
offering price of $22.50 per share) allocated to employees as of the date of
consummation of the Offerings (of the $207,700 aggregate increase to Common
Stock and capital surplus, $92 is attributable to Common Stock for the par
value of the 9,231,105 shares vested and $207,608 is attributable to capital
surplus); and (iii) the elimination of the unearned compensation included as
a component of stockholders' equity resulting from recognition of the
Restricted Stock compensation charge (discussed in Note (6) below) in
connection with the vesting of such awards upon consummation of the
Offerings (this charge results in a $111 decrease in Common Stock (par value
of the 11,086,950 shares of Common Stock held by the Restricted Stock Trust
outstanding at December 31, 1997) and a decrease in capital surplus of
$136,628).
(6) Reflects the vesting of the aggregate 9,231,105 shares of Restricted Stock
allocated to employees as of the consummation of the Offerings and the
resulting non-recurring, non-cash, after-tax compensation charge estimated
at $122,543 (at an assumed initial public offering price of $22.50 per
share) as an increase in the accumulated deficit herein. The charge to
compensation expense will occur upon consummation of the Offerings. See
"Management -- Executive Compensation -- The Restricted Stock Plan and Trust
Agreement" and Note 15 to the Consolidated Financial Statements.
21
<PAGE> 25
DILUTION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As of December 31, 1997, after giving effect to the termination of the
redemption feature of the Mandatorily Redeemable Equity Securities upon the
consummation of the Offerings, the Company had a pro forma deficit in net
tangible book value of $269,880, or $4.37 per share of Common Stock based upon
61,745,130 pro forma shares of Common Stock outstanding. The deficit in pro
forma net tangible book value per share is determined by dividing the pro forma
deficit in net tangible book value of the Company (total tangible assets less
total liabilities) on such date by the number of pro forma shares of Common
Stock outstanding as of such date. After giving effect to the sale by the
Company of the 6,666,667 shares of Common Stock offered hereby and after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company, the Company's pro forma as adjusted deficit in net
tangible book value as of December 31, 1997 would have been $45,223 or $.68 per
share of Common Stock. This represents an immediate decrease in the deficit in
the pro forma net tangible book value of $3.69 per share to existing
stockholders and immediate dilution of $23.18 per share to new investors
purchasing shares of Common Stock in the Offerings. The following table
illustrates dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $22.50
Pro forma deficit in net tangible book value per share
before the Offerings................................... $4.37
Decrease in deficit in pro forma net tangible book value
per share attributable to new investors................ $3.69
-----
Pro forma as adjusted deficit in net tangible book value per
share after the Offerings................................. $ .68
------
Dilution per share to new investors......................... $23.18
======
</TABLE>
The following table sets forth, as of the date of this Prospectus, a
comparison of the number of shares of Common Stock owned by the existing
stockholders and the new investors, the total consideration paid and the average
price per share paid by the Company's existing stockholders and new investors
purchasing shares of Common Stock from the Company in the Offerings.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............... 59,561,655 90% $273,695 65% $ 4.60
New investors(1)....................... 6,666,667 10 150,000 35 22.50
----------- --- -------- ---
Total........................ 66,228,322 100% $423,695 100%
=========== === ======== ===
</TABLE>
- ------------------------------
(1) Sales of Common Stock by the Selling Stockholders in the Offerings will
reduce the number of shares of Common Stock held by existing stockholders to
49,628,322, or approximately 75% of the total shares of Common Stock
outstanding after the Offerings and will increase the number of shares held
by new investors to 16,600,000, or approximately 25% of the total shares of
Common Stock outstanding after the Offerings. See "Principal and Selling
Stockholders."
The foregoing tables exclude (i) an aggregate of 28,844,880 shares of
Common Stock reserved for issuance upon exercise of outstanding options under
the Stock Option Plans and (ii) an aggregate of 2,598,105 shares reserved for
issuance upon the exercise of outstanding options issued to certain of the
Recapitalization Investors. See "Management -- Executive
Compensation -- Management Stock Option Plan" and "-- 1997 ICP."
22
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following selected consolidated balance sheet data and consolidated
statement of operations data as of and for the years 1993 through 1997 have been
derived from the Company's audited annual consolidated financial statements,
including the consolidated balance sheets at December 31, 1996 and 1997 and the
related consolidated statements of operations and of cash flows for the three
years ended December 31, 1997 and the notes thereto appearing elsewhere in this
Prospectus. The selected consolidated financial data set forth below should be
read in conjunction with, and are qualified in their entirety by reference to,
the Consolidated Financial Statements and related notes thereto appearing
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $905,770 $959,275 $1,085,494 $1,222,139 $1,382,740
Compensation expense, including employee
benefits(1)................................... 583,723 594,322 672,026 730,261 836,150
General and administrative expenses(1).......... 312,083 323,087 356,523 391,617 463,936
Recapitalization-related charges(2)............. -- -- -- 315,397 --
Other operating (income) charges(2)............. (11,714) 4,507 31,465 17,166 11,925
-------- -------- ---------- ---------- ----------
Operating expenses............................ 884,092 921,916 1,060,014 1,454,441 1,312,011
-------- -------- ---------- ---------- ----------
Income (loss) from operations................... 21,678 37,359 25,480 (232,302) 70,729
Interest income................................. 10,646 12,100 9,866 10,269 8,454
Interest expense................................ (17,958) (23,027) (27,441) (28,584) (42,879)
-------- -------- ---------- ---------- ----------
Income (loss) before income taxes............... 14,366 26,432 7,905 (250,617) 36,304
Income tax provision (benefit).................. 8,583 12,998 9,130 (20,611) 58,290
-------- -------- ---------- ---------- ----------
5,783 13,434 (1,225) (230,006) (21,986)
Equity in net income (loss) of unconsolidated
companies..................................... 102 4,740 5,197 (9,837) 342
Minority interest in net (income) loss of
consolidated subsidiaries..................... (1,271) (2,742) (3,152) 1,532 (2,294)
-------- -------- ---------- ---------- ----------
Income after taxes and before accounting
changes....................................... 4,614 15,432 820 (238,311) (23,938)
Cumulative effect of accounting changes (net of
tax benefit of $3,400)........................ (5,100) -- -- -- --
-------- -------- ---------- ---------- ----------
Net (loss) income............................... $ (486) $ 15,432 $ 820 $ (238,311) $ (23,938)
======== ======== ========== ========== ==========
Basic and diluted loss per common share(3)...... $ (.51)
Weighted average shares outstanding(3).......... 46,949,355
Supplemental loss per common share(4)........... $ (.37)
OTHER OPERATING DATA:
EBITDA(1)(5).................................... $ 59,282 $ 77,662 $ 72,972 $ 147,221 $ 139,375
Net cash provided by operating activities....... 15,426 43,314 79,809 178,064 224,511
Net cash used in investing activities........... 34,226 49,941 45,821 76,094 67,142
Net cash (provided by) used in financing
activities.................................... (41,644) 30,705 50,025 12,614 98,667
Capital expenditures............................ 25,241 33,196 42,096 51,792 51,899
International revenues as a % of total
revenues(6)................................... 51.7% 53.6% 54.7% 53.3% 52.2%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------------
1997 1997
1993 1994 1995 1996 ACTUAL PRO FORMA(11)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)(7).... $100,519 $ 72,651 $ 27,827 $ (196,509) $ (106,169) $ (106,169)
Total assets(8)................. 998,808 1,118,846 1,226,581 1,598,812 1,528,019 1,528,019
Total debt(9)................... 197,929 256,032 230,831 267,238 351,051 351,051
Mandatorily Redeemable Equity
Securities(10)................ -- -- -- 363,264 508,471 --
Total equity (deficit).......... 123,661 69,982 (55,485) (480,033) (661,714) (153,243)
</TABLE>
23
<PAGE> 27
- ------------------------------
(1) For a discussion of charges included in compensation expense, including
employee benefits, and general and administrative expenses, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
(2) For a discussion of Recapitalization-related and other operating charges,
see Notes 4 and 6 to the Consolidated Financial Statements.
(3) Basic net loss per common share for 1997 was computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. The weighted average number of common shares outstanding excludes
11,086,950 shares of Common Stock held by the Restricted Stock Trust, as
such shares vest upon the consummation of an initial public offering, or
the six-month anniversary thereof, a condition which was not satisfied at
December 31, 1997. Diluted net loss per common share for 1997 was computed
in the same manner as basic net loss per common share since the inclusion
of potential common shares would be antidilutive.
At December 31, 1997, the Company had outstanding options to purchase
31,013,205 shares of Common Stock with a weighted average exercise price of
$6.84 that could potentially dilute basic earnings per share in the future.
These options were excluded from the computation of diluted net loss per
common share because the effect for 1997 would be antidilutive. In
addition, at December 31, 1997, a maximum of 11,086,950 shares of Common
Stock held by the Restricted Stock Trust would vest and be dilutive as a
result of the consummation of the Offerings. See "Management -- Executive
Compensation -- The Restricted Stock Plan and Trust Agreement" and Notes 3,
15 and 21 to the Consolidated Financial Statements.
Earnings per share for 1995 and 1996 cannot be computed because the
Company's capital structure prior to the Recapitalization consisted of both
common shares and limited partnership units in predecessor entities. See
Note 4 to the Consolidated Financial Statements.
(4) The supplemental loss per common share was computed by dividing the
supplemental loss of $19,587 by the supplemental shares of 53,616,022. The
supplemental loss of $19,587 has been computed by adjusting the historical
net loss for 1997 to reflect the following: (i) additional interest cost,
net of the related tax benefit of $1,410 (computed utilizing an interest
rate and statutory tax rate of 7.0% and 41.0% respectively), associated
with the $161,700 of Recapitalization-related borrowings under the
Company's Credit Facilities, which occurred on March 18, 1997, as if such
borrowings had occurred as of January 1, 1997 and (ii) the reduction in
interest cost, net of tax, of $5,761 (computed utilizing an interest rate
and statutory tax rate of 7.0% and 41.0% respectively) associated with
$139,500 of the net proceeds of the Offerings to the Company, which is
expected to be utilized to repay a portion of the outstanding borrowings
under the term loan portion of the Company's Credit Facilities, as if the
debt repayment had occurred as of January 1, 1997.
The supplemental shares of 53,616,022 were computed by adding the 6,666,667
shares of Common Stock offered by the Company to the 46,949,355 weighted
average shares outstanding as of December 31, 1997. See "Capitalization."
Based upon an assumed initial public offering price of $22.50, the
consummation of the Offerings will give rise to a non-recurring, non-cash,
pre-tax charge of $207,700 ($122,543 net of the related tax benefit
assuming a statutory tax rate of 41.0%) arising from the vesting of the
aggregate of 9,231,105 shares of Restricted Stock allocated to employees as
of the date of the consummation of the Offerings. The determination of
supplemental loss for 1997 does not give effect to this charge due to its
non-recurring nature. See "Management -- Executive Compensation -- The
Restricted Stock Plan and Trust Agreement" and Note 15 to the Consolidated
Financial Statements.
(5) EBITDA is defined as income (loss) from operations, before depreciation and
amortization, other non-cash charges and Recapitalization-related charges.
EBITDA is presented because it is a widely accepted financial indicator and
is generally consistent with the definition used for covenant purposes
contained in the Company's existing credit facilities; however, EBITDA may
not be comparable to other registrants' calculation of EBITDA or similarly
titled items. EBITDA should not be considered as an alternative to net
income (loss) as a measure of operating results in accordance with
generally accepted accounting principles or as an alternative to cash flows
as a measure of liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."
EBITDA for 1996 and 1997 are before $11,096 and $11,925, respectively, of
non-cash charges primarily related to impairment write-downs which are
included in other operating charges. See Notes 4 and 6 to the Consolidated
Financial Statements.
(6) International revenues include all revenues earned outside the United
States.
(7) Working capital deficit as of December 31, 1996 includes approximately
$161,700 of accruals related to the Recapitalization which were paid in
1997 through long-term borrowings. Working capital deficit as of December
31, 1997 is the result of improved collection of accounts receivable and
use of cash to repay short-term borrowings under the Company's Credit
Facilities during 1997. See the Consolidated Statements of Cash Flows and
Note 4 to the Consolidated Financial Statements.
(8) Total assets as of December 31, 1997 (actual and pro forma) include net
deferred tax assets of $157,024, $75,135 of which relate to NOL
carryforwards of approximately $140,409 for U.S. tax purposes and
approximately $69,231 for foreign tax purposes. See Note 9 to the
Consolidated Financial Statements.
(9) Total debt includes current and non-current loans and installment notes.
See Notes 13 and 14 to the Consolidated Financial Statements.
(10) From the date of consummation of the Recapitalization and through the date
of consummation of the Offerings, all outstanding shares of Common Stock,
exclusive of shares of Common Stock held in the Restricted Stock Trust, are
redeemable, subject to certain restrictions, at the option of the
stockholder. Accordingly, all such shares of Common Stock have been
recorded at their redemption values and classified as Mandatorily
Redeemable Equity Securities in the Company's historical balance sheets at
December 31, 1996 and 1997, respectively. See Notes 2, 15 and 16 to the
Consolidated Financial Statements.
(11) The pro forma December 31, 1997 balance sheet reflects the termination of
the redemption feature and subsequent reclassification of Mandatorily
Redeemable Equity Securities, as discussed in Note (10) above, to
stockholders' equity. See "Capitalization" and Notes 2, 15 and 16 to the
Consolidated Financial Statements.
24
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements.
OVERVIEW
Y&R is the fifth largest marketing and communications organization in the
world, with integrated services in advertising, direct marketing and sales
promotion, perception management and public relations, branding consultation and
design services, and healthcare communications. Y&R's revenues were
approximately $1.4 billion in 1997, having grown at a compound annual rate of
12.9% from 1995 to 1997.
Y&R's revenues consist principally of commissions and fees received by the
Company from its clients. Commissions are derived using a negotiated percentage
of an advertiser's media and production spending through Y&R. Fees are based on
hours spent and costs incurred by agency staff plus a negotiated mark-up.
Commission revenue is recognized primarily when media placements appear on
television, on radio or in print, and when labor and production costs are
billed. Fee revenue is recognized when services are rendered.
Y&R has also implemented certain incentive-oriented compensation
arrangements with several clients to further strengthen client relationships and
reward Y&R for superior performance. These incentive arrangements create a range
of compensation which could result in either higher or lower revenues and
operating margins than a more traditional commission or fee arrangement.
Incentive levels are determined with reference to agreed upon operating,
performance and other benchmarks, with respect to both clients' businesses as
well as Y&R's performance. Although incentive arrangements did not materially
impact Y&R's revenues in 1997, management believes that additional clients may
request that Y&R institute incentive compensation arrangements in the future.
Y&R's revenues are diversified across geographic regions, various sectors
of the economy and among many clients. In 1997, approximately 47.8% of Y&R's
revenues were derived from its U.S. operations, with approximately 34.2% coming
from its European operations and the rest divided among its operations in Latin
America, Australia/New Zealand, Asia, Canada and Africa. For the years 1995,
1996 and 1997, the Company's revenue from any one country, other than the United
States, has not exceeded 10% of the Company's consolidated revenues. The United
Kingdom, Germany, Brazil, France, Australia, the Netherlands, Italy, Canada and
Switzerland represent the Company's largest sources of revenues by country
(other than the United States). See Note 10 to the Consolidated Financial
Statements. Y&R represents clients in various industries, including automotive,
consumer packaged goods, financial services, food and beverage, government
services and telecommunications. Y&R's revenues are diversified across its
approximately 5,500 client accounts, with the largest client, Ford Motor
Company, and the top 20 clients accounting for approximately 10.0% and 40.5%,
respectively, of revenues in 1997.
Y&R has two principal categories of operating expenses: compensation
expense and general and administrative expenses. Y&R's largest expense is
compensation, which includes the salaries, bonuses and benefits of all
employees, as well as fees paid to freelance contractors. General and
administrative expenses principally consist of facilities' costs, depreciation,
amortization, new business costs, travel expenses and professional fees.
From the time of its founding until 1996, Y&R was wholly owned by its
employees. As further described in Note 4 to the Consolidated Financial
Statements, in December 1996, Y&R consummated the Recapitalization, which
resulted in the recording of a pre-tax charge of $315.4 million in 1996. In
connection with the Recapitalization, the Company issued Restricted Stock. Based
upon an assumed initial offering price of $22.50, the consummation of the
Offerings will give rise to a non-recurring, non-cash, pre-tax charge of $207.7
million ($122.5 million net of the related tax benefit assuming a statutory tax
rate of 41.0%) from the vesting of an aggregate of 9,231,105 shares of
Restricted Stock allocated to employees as of the date of consummation of the
Offerings.
25
<PAGE> 29
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
derived from the Company's consolidated statements of operations and the
percentages of revenue represented by such items. Totals may not add due to
rounding.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
% OF % OF % OF
1995 REVENUES 1996 REVENUES 1997 REVENUES
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $1,085.5 100.0% $1,222.1 100.0% $1,382.7 100.0%
Compensation expense, including employee
benefits.............................. 672.0 61.9% 730.3 59.8% 836.2 60.5%
General and administrative expenses..... 356.5 32.8% 391.6 32.0% 463.9 33.6%
Recapitalization-related charges........ -- 0.0% 315.4 25.8% -- 0.0%
Other operating charges................. 31.5 2.9% 17.2 1.4% 11.9 0.9%
------- --------- ------- --------- ------- ---------
Income (loss) from operations........... 25.5 2.3% (232.3) (19.0%) 70.7 5.1%
Net income (loss)....................... $ 0.8 0.1% ($238.3) (19.5%) ($ 23.9) (1.7%)
======= ========= ======= ========= ======= =========
EBITDA.................................. $ 73.0 6.7% $ 147.2 12.0% $ 139.4 10.1%
</TABLE>
1997 COMPARED TO 1996
Consolidated worldwide revenues for 1997 increased by 13.1% to $1,382.7
million from $1,222.1 million in 1996. Consolidated U.S. revenues for 1997
increased by 15.8% to $661.3 million from $571.1 million in 1996. Consolidated
international revenues for 1997 increased by 10.8% to $721.4 million from $651.0
million in 1996. Of the worldwide revenue increase, 13.6% was due to organic
growth (including net new business gains and higher net revenues from existing
clients) and 3.0% was due to the acquisition of majority interests in
investments previously accounted for under the equity method. Such increases
were partially offset by a 3.5% decline related to a strengthening (on average)
of the U.S. dollar against foreign currencies. New business was generated from
new client accounts such as Campbell's Soup, Citibank, Merck and United
Airlines.
Compensation expense for 1997 increased by 14.5% to $836.2 million from
$730.3 million in 1996. Compensation expense for 1997 increased as a percentage
of revenues to 60.5% from 59.8% in 1996. The growth in compensation expense was
generally in line with revenue growth and also included a $12.3 million charge
primarily for deferred compensation awards granted to senior executives in 1997.
General and administrative expenses for 1997 increased by 18.5% to $463.9
million from $391.6 million in 1996. General and administrative expenses
increased as a percentage of revenues to 33.6% in 1997 from 32.0% in 1996. The
higher rate of growth in general and administrative expenses compared to
revenues was primarily attributable to a $25.5 million write-off of accounts
receivable, costs billable to clients and other capitalized costs recorded in
1997 with respect to the operations of Burson-Marsteller in Europe and Asia. The
write-offs in Europe were primarily related to Burson-Marsteller's
implementation of a new management information system in 1997 which resulted in
delayed and inaccurate billing of certain clients and necessitated the creation
of additional reserves against accounts receivable and costs billable to
clients. The write-offs in Asia were attributable to the Company's evaluation of
Burson-Marsteller's recent operating performance in Asia and the determination
that Burson-Marsteller was unlikely to collect certain accounts receivable and
costs billable to clients. As a result of its analysis of the circumstances
which led to these write-offs, the Company has made management changes at
Burson-Marsteller in Europe and Asia and implemented additional financial
control and reporting requirements for these operations, including strengthening
controls and procedures regarding regional billing and collection practices.
In 1997, the Company had income from operations of $70.7 million compared
to a loss from operations of $232.3 million in 1996, primarily due to the
Recapitalization-related charges of $315.4 million. Income from operations in
1997 included $47.6 million of depreciation expense, $9.1 million of goodwill
amortization and $11.9 million of other operating charges for asset impairment
write-downs principally related to certain
26
<PAGE> 30
operations in the United States, Africa, Latin America and Europe. As a result,
EBITDA for 1997 was $139.4 million.
Net interest expense (interest expense net of interest income) increased by
$16.1 million in 1997 compared to 1996. The increase was primarily due to higher
average borrowing levels in 1997 as a result of the Recapitalization in December
1996. The net proceeds to the Company from the Offerings are expected to be used
to repay a portion of the borrowings under the term loan portion of the Credit
Facilities. Therefore, the Company expects to have lower average borrowing
levels in 1998.
The effective income tax rate for 1997 was 160.6%. The primary difference
between the U.S. statutory tax rate and Y&R's effective tax rate in 1997
resulted from incremental foreign taxes arising from losses outside the United
States which provided little or no tax benefit. The effective income tax rate
for 1996 was a benefit of 8.2%. This reflects the tax benefit from the
Recapitalization-related charges partially offset by foreign income taxed at
rates greater than the U.S. statutory rate. See Note 9 to the Consolidated
Financial Statements.
Net income of unconsolidated companies was $0.3 million in 1997 compared to
a loss of $9.8 million in 1996. A $9.3 million charge to write down an
Australian equity investment was recorded in 1996.
Minority interest in net loss of consolidated subsidiaries increased $3.8
million in 1997 compared to 1996, primarily reflecting the minority interest
share of charges for asset impairment write-downs relating to an Italian
operation in 1996.
Net loss for 1997 was $23.9 million compared to a net loss of $238.3
million in 1996, primarily as a result of charges recorded in connection with
the Recapitalization.
1996 COMPARED TO 1995
Consolidated worldwide revenues for 1996 increased by 12.6% to $1,222.1
million from $1,085.5 million in 1995. Consolidated U.S. revenues for 1996
increased by 16.0% to $571.1 million from $492.3 million in 1995. Consolidated
international revenues for 1996 increased by 9.7% to $651.0 million from $593.2
million in 1995. Of the worldwide revenue increase, 12.9% was attributable to
organic growth (including net new business gains and higher net revenues from
existing clients) and 0.7% was due to businesses acquired. Such increases were
partially offset by a 1.0% decline related to a strengthening (on average) of
the U.S. dollar against foreign currencies. New business was generated from new
client accounts such as Blockbuster Video, Equal, Ericsson, H&R Block and
Novell.
Compensation expense for 1996 increased by 8.7% to $730.3 million from
$672.0 million in 1995. Compensation expense decreased as a percentage of
revenues to 59.8% in 1996 from 61.9% in 1995. Such decrease primarily reflects
productivity improvements resulting from selected staff reductions in connection
with a productivity improvement plan implemented by the Company at the end of
1995.
General and administrative expenses for 1996 increased by 9.8% to $391.6
million from $356.5 million in 1995. General and administrative expenses
decreased as a percentage of revenues to 32.0% in 1996 from 32.8% in 1995,
primarily due to improved cost controls.
Recapitalization-related expenses of $315.4 million were incurred in 1996,
primarily related to the cancellation of the Company's former equity-based
compensation and stock option plans. See Note 4 to the Consolidated Financial
Statements.
In 1996, the Company recorded a $17.2 million charge for asset impairment
write-downs for certain European and Latin American operations. In 1995, the
Company recorded a restructuring charge of $24.4 million in connection with a
productivity improvement plan and charges of $7.1 million, primarily to dispose
of certain non-strategic European agencies.
In 1996, the Company had a loss from operations of $232.3 million compared
to income from operations of $25.5 million in 1995. The loss from operations of
$232.3 million in 1996 included $42.0 million of depreciation expense, $11.0
million of goodwill amortization, $315.4 million of Recapitalization-related
27
<PAGE> 31
charges and $11.1 million of non-cash, non-recurring operating charges
principally for asset impairment write-downs for certain operations in Europe
and Latin America. As a result, EBITDA for 1996 was $147.2 million.
Net interest expense (interest expense net of interest income) increased by
$0.7 million in 1996 compared to 1995. The increase was primarily due to $2.9
million in prepayment penalties relating to the repayment, in connection with
the Recapitalization, of $100 million of 7.01% senior notes and $40 million of
8.75% senior notes. Excluding these prepayment penalties, net interest expense
in 1996 decreased by $2.2 million versus 1995, resulting from lower average
interest rates combined with lower average borrowing levels in 1996. See Note 4
to the Consolidated Financial Statements.
The effective income tax rate for 1996 was a benefit of 8.2%. This reflects
the tax benefit for the Recapitalization-related charges partially offset by
foreign income taxed at rates greater than the U.S. statutory rate. The
effective income tax rate for 1995 was 115.5%. The primary difference between
the statutory tax rate and Y&R's effective tax rate in 1995 resulted from
foreign income taxed at rates greater than the U.S. statutory rate. See Note 9
to the Consolidated Financial Statements.
Net loss of unconsolidated companies was $9.8 million in 1996 compared to
income of $5.2 million in 1995. A $9.3 million charge to write down an
Australian equity investment as well as lower earnings reported by the Company's
joint ventures with Dentsu, Inc. contributed to the net loss in 1996.
Minority interest in net loss of consolidated subsidiaries decreased $4.7
million in 1996 compared to 1995, reflecting the minority interest share of
charges for asset impairment write-downs relating to an Italian operation in
1996.
Net loss for 1996 was $238.3 million compared to net income of $0.8 million
in 1995, primarily as a result of charges recorded in connection with the
Recapitalization.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its working capital, capital
expenditures, acquisitions and equity repurchases from cash generated from
operations and third party borrowings.
Cash and cash equivalents at December 31, 1997 increased by 45.5% to $160.3
million from $110.2 million at December 31, 1996. For 1997, the Company
generated operating cash flows of $224.5 million which represented a 26.1%
increase in operating cash flows versus 1996. The Company achieved an
improvement in net cash flow from operating activities due, in part, to
increased focus on cash flow management, including improvements in the timing of
billings and the relationship between the collection of accounts receivable and
the payment of obligations to media and other suppliers. Operating cash flows
and third-party borrowings were used for capital expenditures, acquisition
requirements and equity repurchases.
Investing activities in 1997 included $51.9 million for capital
expenditures and $11.3 million for acquisitions. The majority of capital
expenditures were for technology-related purchases, while the remaining
expenditures were for leasehold improvements, furniture and equipment. The $11.3
million for acquisitions primarily consisted of increases in investments in
equity affiliates in the United States, Europe, Latin America and Australia/New
Zealand. Capital expenditures are estimated to be approximately $72.5 million
for 1998 primarily for real estate and information technology, with the increase
over 1997 primarily related to leasehold improvements in London and New York.
In December 1996, Y&R consummated the Recapitalization. Pursuant to the
Recapitalization, all of the Company's outstanding equity and equity-related
units and options to purchase such units were either acquired for cash
consideration or cancelled and exchanged for new equity interests or options to
purchase new equity interests. The Recapitalization was financed by $242 million
contributed by the Recapitalization Investors and by borrowings under the Credit
Facilities. The Credit Facilities consist of a six and one-half year $400
million term loan and a six and one-half year $300 million revolving credit
facility. The Company's obligations under the Credit Facilities are secured by a
security interest in certain domestic assets, including its headquarters
building in New York, all of the capital stock of the direct and indirect
domestic subsidiaries of the Company and 66.7% of the capital stock of the
Company's first-tier non-U.S. subsidiaries. As a result of
28
<PAGE> 32
the timing of Recapitalization-related payments, net cash used in financing
activities increased from $12.6 million in 1996 to $98.7 million in 1997.
At December 31, 1997, the Company had $330.6 million in outstanding
indebtedness under the Credit Facilities. The Company expects to fund its
payments of principal and interest under the Credit Facilities with internally
generated funds and from various external sources including the net proceeds
from the sale of Common Stock by the Company in the Offerings and borrowings
under the New Facility.
At December 31, 1997, the Company recorded a net deferred tax asset of
$157.0 million, $75.1 million of which related to net operating loss ("NOL")
carryforwards of approximately $140.4 million for U.S. tax purposes which expire
in the year 2012 and approximately $69.2 million of NOL carryforwards for
foreign tax purposes with carryforward periods ranging from one year to an
indefinite time. The available net deferred tax assets principally resulted from
compensation payments made in connection with the Recapitalization. Based upon
an assumed initial public offering price of $22.50, the consummation of the
Offerings will give rise to a non-recurring, non-cash, pre-tax charge of $207.7
million, which will generate additional tax benefits to the Company estimated at
$85.2 million.
As required by the Credit Facilities, the Company has entered into interest
rate exchange agreements with off-balance sheet risk in order to reduce its
exposure to changes in interest rates on its variable rate long-term debt. As of
December 31, 1997, the Company had obtained interest rate protection agreements
with respect to $275.0 million of indebtedness, which effectively changed the
Company's interest rate under the Credit Facilities to fixed rate borrowings.
The interest rate protection agreements mature at various times through 2001.
The Company's Consolidated Financial Statements are denominated in U.S.
dollars. In 1997, Y&R derived approximately 52.2% of its revenues from
operations outside of the United States. Currency fluctuations may give rise to
translation gains or losses when financial statements of foreign operating units
are translated into U.S. dollars. Significant strengthening of the U.S. dollar
against other major foreign currencies could have a material adverse effect on
Y&R's results of operations. Most of the Company's revenues are billed in the
same currency as the costs incurred to support the revenues, thereby reducing
exposure to currency fluctuations. The Company typically does not hedge foreign
currency profits into U.S. dollars, believing that over time the costs of a
hedging program would outweigh any benefit of greater predictability in the
Company's U.S. dollar-denominated profits. However, the Company selectively
hedges some positions where management believes it is economically beneficial to
do so, and bases its foreign subsidiary capitalization, debt and dividend
policies on minimizing currency risk. The Company also seeks, through pricing
and other means, to anticipate and avoid economic currency losses.
Management believes cash flows from operations coupled with availability
under the New Facility are adequate to support its short-term cash requirements
for capital expenditures, repayment of debt and maintenance of working capital.
The Company anticipates that future cash flows from operations plus funds from
various external sources including the New Facility and additional financings
will be adequate to support the long-term cash requirements as presently
contemplated.
The Company expects to prepay certain non-negotiable subordinated payment
obligations of approximately $15.2 million on June 30, 1998 using available cash
or borrowings under the New Facility. The non-negotiable subordinated payment
obligations were incurred by the Company in connection with the termination of
employment of certain former employee stockholders. Such payment obligations are
repayable at the Company's election in four annual installments and bear
interest at a rate equal to the applicable United States federal rate in effect
under Section 1274(d) of the Internal Revenue Code of 1986, as amended.
The Company expects to commence the declaration and payment of a regular
quarterly cash dividend in the last quarter of 1998. However, any determination
to pay dividends will be at the discretion of the Company Board and will depend
upon, among other factors, the Company's results of operations, financial
condition, capital requirements and contractual restrictions pursuant to the
Company's Credit Facilities. The covenants under the Company's existing Credit
Facilities currently prohibit Y&R from declaring and paying cash dividends; any
cash dividend is therefore contingent upon a renegotiation or refinancing of the
existing Credit
29
<PAGE> 33
Facilities in order to remove such restriction. The Company has received a
commitment letter in respect of the New Facility, which the Company expects to
enter into effective upon the consummation of the Offerings. The New Facility,
which would replace the Credit Facilities, is expected to contain certain
financial and operating restrictions and covenant requirements, and is expected
to permit the payment of cash dividends except in the event of a continuing
default under the credit agreement. The net proceeds to the Company from the
Offerings, together with borrowings under the New Facility, are expected to be
used to repay all outstanding borrowings under the Credit Facilities upon
consummation of the Offerings. The New Facility is subject to execution of
definitive documentation and a number of other closing conditions, and there can
be no assurance that the Company will be successful in consummating the New
Facility.
SEASONALITY
The Company's revenues generally reflect the media buying patterns of
advertisers and are concentrated in the second and fourth quarters of the year.
YEAR 2000 COMPLIANCE
The Company is conducting a comprehensive review of its computer systems to
identify all software applications that could be affected by the inability of
many existing computer systems to process time-sensitive data accurately beyond
the year 1999 (referred to as the "Year 2000" issue). The Company intends to
modify or replace all affected systems for compliance with the Year 2000 issue.
The Company is also monitoring the adequacy of the processes and progress of
third-party vendors of systems that may be affected by the Year 2000 issue. Y&R
is dependent on third-party computer systems and applications, particularly with
respect to such critical tasks as accounting, billing and buying, planning and
paying for media, as well as on its own computer systems. While Y&R believes its
process is designed to be successful, because of the complexity of the Year 2000
issue and the interdependence of organizations using computer systems, it is
possible that Y&R's efforts, or those of third parties with whom Y&R interacts,
will not be satisfactorily completed in a timely fashion. Failure to
satisfactorily address the Year 2000 issue could have a material adverse effect
on Y&R's prospects, business, financial condition and results of operations.
The costs of Y&R's Year 2000 project have not been determined but are not
expected to have a material adverse effect on the Company. However, there can be
no assurance that Y&R will not experience cost overruns or delays in connection
with its plan for replacing or modifying systems, which could have a material
adverse effect on Y&R's prospects, business, financial condition and results of
operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"), were issued. In February 1998, Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" -- ("SFAS 132"), was issued. The Company
anticipates that the adoption of SFAS 130, SFAS 131 and SFAS 132 will not have a
significant effect on its 1998 financial statements. See Note 2 to the
Consolidated Financial Statements.
30
<PAGE> 34
RECENT UNAUDITED FINANCIAL RESULTS
The following table sets forth certain unaudited consolidated results of
operations data for the Company for the three months ended March 31, 1997 and
1998. The unaudited quarterly data should be read in conjunction with the
additional annual financial information included in "Selected Consolidated
Financial Data" and Consolidated Financial Statements appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Revenues.................................................... $298.2 $348.2
Income from operations...................................... 14.1 25.3
Net income.................................................. 4.1 12.2
</TABLE>
31
<PAGE> 35
BUSINESS
GENERAL
Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world. Since its founding 75 years ago, Y&R
has evolved from a single New York-based advertising agency to a diversified
global marketing and communications company operating in 128 cities in 76
countries worldwide as of December 31, 1997. The Company operates through such
internationally recognized market leaders as Young & Rubicam Advertising
(full-service advertising), Wunderman Cato Johnson (direct marketing and sales
promotion), Burson-Marsteller (perception management and public relations),
Landor Associates (branding consultation and design services) and Sudler &
Hennessey (healthcare communications), along with smaller complementary business
units, including The Bravo Group (multi-cultural marketing and communications),
Brand Dialogue (digital interactive branding and digital commerce), The Chapman
Agency (direct marketing) and The Media Edge (media planning, buying and
placement services). Y&R's revenues in 1997 were approximately $1.4 billion,
having grown at a compound annual rate of 12.9% from 1995 to 1997.
Through multi-disciplinary, client-focused teams, Y&R provides clients with
global access to fully integrated marketing and communications solutions. Among
Y&R's approximately 5,500 client accounts are a number of large multinational
organizations, including AT&T, Citibank, Colgate-Palmolive, Ford and Philip
Morris. Y&R has maintained long-standing relationships with many of its clients,
with the average length of relationship for the top 20 clients exceeding 20
years.
Y&R's mission is to be its clients' most valued business partner in
building, leveraging, protecting and managing clients' brands for both
short-term results and long-term growth. Consistent with its mission, Y&R has
developed an organizational and management structure designed to meet the
diverse needs of its large global clients as well as the more specialized needs
of its other clients. The Company's strategy combines this organizational and
management structure with the aggressive pursuit of new business opportunities
and continued investment in Y&R's business, personnel and superior consumer
knowledge. Y&R further seeks to fulfill its mission by providing clients with
superior creative services and extensive research capabilities, including access
to Y&R's proprietary research tool, BrandAsset Valuator.
In late 1992, Y&R created the Key Corporate Account ("KCA") program to
enhance the coordination of services sought by clients from both a global
coverage as well as an integrated solutions perspective. KCAs are large global
client accounts that, as a group, contribute the greatest share of Y&R's
revenues and profits, and are served on a multinational basis by two or more of
Y&R's businesses. Y&R currently designates 42 of its client accounts as KCAs.
Revenues from the KCAs, as a group, increased by 14.6% in 1997, and accounted
for approximately 45.5% and 46.1% of consolidated revenues in 1996 and 1997,
respectively. In order to further strengthen client relationships and reward Y&R
for meeting or exceeding certain performance targets, Y&R is working with KCAs
to adopt incentive compensation arrangements that align Y&R's compensation with
its performance and its clients' business performance.
As part of Y&R's client focus, Peter A. Georgescu, Chairman and Chief
Executive Officer of Y&R, John P. McGarry, Jr., President of Y&R, Edward H.
Vick, Chief Operating Officer of Y&R and Chairman and Chief Executive Officer of
Young & Rubicam Advertising, and Thomas D. Bell, Jr., Executive Vice President
of Y&R and President and Chief Executive Officer of Burson-Marsteller, all
retain ongoing responsibilities for individual KCAs in addition to their
managerial roles.
INDUSTRY OVERVIEW
The marketing and communications industry encompasses a wide range of
services used to develop and deliver messages to both broad and targeted
audiences through multiple communication channels. The industry includes
traditional advertising services as well as other marketing and communications
services such as direct marketing and sales promotion, public relations,
branding consultation and design services, new media marketing and other
specialized services.
32
<PAGE> 36
Traditional advertising services include the development and planning of
marketing and branding campaigns; the creative design and production of
advertisements; the planning and buying of time and/or space in a variety of
media, including broadcast and cable television, radio, newspapers, general
interest/ specialty magazines, billboards and the internet; and the provision of
consumer, product and other market research to clients on an ongoing basis.
According to industry sources, growth in advertising expenditures has
accelerated in recent years following the economic recession in the early 1990s,
and worldwide advertising expenditures totaled approximately $387 billion in
1996. Industry sources have predicted that worldwide advertising spending will
grow approximately 6% in 1998.
Direct marketing and sales promotion incorporate a broad range of services,
including direct mail and direct response television advertising (using
toll-free 800 numbers), inbound and outbound telemarketing and database
marketing. Sales promotion includes the planning, design and implementation of
merchandising and sales promotions as well as design and implementation of
targeted interactive campaigns. Industry sources have estimated a growth rate in
1998 of approximately 10% for both direct marketing and sales promotion.
Perception management and public relations address clients' external
corporate or brand positioning, public image and relations with key external
constituencies. Functions provided by public relations firms include corporate
communications, public affairs, lobbying, crisis management, issue advertising
and internal, consumer grassroots communications.
Branding consultation and design services encompass a range of services to
create, build and revitalize clients' brands. Among these services are corporate
identity, package design, retail design and branded environments, verbal
branding and nomenclature systems, corporate literature and interactive
branding.
New media marketing services include interactive marketing campaigns and
strategic consulting services, the design of internet websites, banners and home
pages, the development of corporate intranets and digital commerce applications.
INDUSTRY TRENDS
Several significant trends are changing the dynamics of the marketing and
communications industries, including the following:
GROWTH IN UNITED STATES MARKETING AND COMMUNICATIONS MARKETS. According to
industry sources, advertising expenditures in the United States have continued
to grow, increasing from approximately $140 billion in 1993 to approximately
$175 billion in 1996. In industries such as telecommunications, where regulatory
developments have encouraged increased competition among industry participants,
a growing number of companies have sought to establish and enhance their brand
images through comprehensive marketing and communications programs. In the
healthcare industry, recent regulatory changes that eased restrictions on
direct-to-consumer communications by pharmaceutical companies have also resulted
in significant additional marketing and communications expenditures.
GROWTH OF INTERNATIONAL MARKETING AND COMMUNICATIONS MARKETS. The
globalization of markets and the deregulation of certain sectors of
international markets have led to growth in demand for marketing and
communications services by large corporate clients. An increasing number of
companies are expanding globally and, where appropriate, are seeking consistent
brand images and market positions for their products throughout the world. At
the same time, however, companies continue to rely on their marketing and
communications advisors to tailor their regional and local marketing approach to
the demands, tastes and desires of the local marketplace. As international
markets have expanded, particularly the markets in the Asia/Pacific and Latin
American regions, non-U.S. advertising expenditures have grown more rapidly than
U.S. expenditures. According to industry sources, non-U.S. advertising
expenditures have increased from approximately 44% of worldwide expenditures in
1986 to approximately 55% in 1996.
INVESTMENT IN BRAND DEVELOPMENT. In the 1980s, many advertisers focused
their marketing campaigns on promotional advertising that emphasized price
competition, often reducing brand loyalty. Over the last several years, however,
advertisers have focused on the image or brand identity of their organizations,
products and services in an effort to differentiate themselves from competitors
and increase brand loyalty. This
33
<PAGE> 37
emphasis on brand development has increased the demand for delivery of
consistent messages and, as a result, companies are seeking marketing and
communications organizations which are able to coordinate resources across
multiple disciplines, geographies and media.
DEMAND FOR INTEGRATED SERVICE OFFERINGS. Increasingly, certain clients are
turning to large marketing and communications organizations to provide
integrated services across multiple disciplines. Such clients are seeking
integrated services to ensure a consistent brand presence and maximize the
effectiveness of their messages around the world, better coordinate their
marketing activities and simplify and strengthen their relationships with their
marketing partners. The demand for globally-integrated services has led to the
creation of a small number of global marketing and communications companies,
including Y&R, which strive to provide their clients with a full range of
services in each of the local markets in which their clients operate. In
addition, a substantial number of clients continue to require access to
specialized service providers. Y&R has over 20 years of experience in organizing
its companies to address this client need.
INCREASED EMPHASIS ON TARGETED MARKETING. The desire of companies to reach
their target audiences and quantify the effectiveness of their communications
has resulted in greater demand for customized direct marketing methods, such as
database marketing, infomercials, in-store promotions and interactive programs.
These techniques enable companies to quantify the success of their campaigns and
monitor the return on investment of their marketing expenditures through such
mechanisms as response rate tracking. The desire to create more targeted
marketing has been enhanced by the emergence of new media which permits more
interactive methods of customizing and delivering messages. In certain
developing economies, the technology infrastructure is improving, indicating
increased potential for database marketing and communications.
STRATEGY
Y&R's strategy consists of the following key components:
INCREASE PENETRATION OF KEY CORPORATE ACCOUNTS. Y&R believes that
significant opportunities exist to increase its share of KCA marketing and
communications expenditures by leveraging its global network to provide
integrated services to KCAs. Y&R has successfully increased its share of the
marketing and communications expenditures of certain KCAs over the past few
years. For example, Y&R has significantly expanded its relationship with Ford,
winning new assignments in Brazil, Germany, Canada and the United States for
Young & Rubicam Advertising, Wunderman Cato Johnson, Landor Associates and Brand
Dialogue. KCAs also have increased their use of multiple services offered by Y&R
over the same period. During 1997, Y&R's 20 largest clients used the
capabilities of an average of five of the Company's marketing and communications
services.
Y&R has implemented a team concept for certain KCAs which utilize
advertising, direct marketing and other marketing and communications services
offered by Y&R. Each client team aligns Y&R employees from separate disciplines
within the Company around KCAs and offers incentives to these employees to
provide the highest quality service to the client without regard to Y&R's own
internal corporate structure. In addition, Y&R seeks to improve KCA satisfaction
by retaining independent consultants to conduct third-party audits with clients
which measure Y&R's performance on a variety of criteria. Y&R intends to use
this objective information to identify strengths, weaknesses and opportunities
within KCA relationships.
DEVELOP NEW CLIENT RELATIONSHIPS. The Company believes that there are
significant opportunities for future revenue and profit growth by providing
services to new clients in targeted industry sectors and to those clients
seeking to build and maintain global, regional and local brands. Y&R has
successfully used its integrated and global approach as an effective tool in
winning new business. Y&R's win of the global Citibank account in August 1997
exemplifies the success of this strategy. Management believes that the
acquisition of this new business was due, in part, to Y&R's ability to
coordinate advertising and direct marketing activities for Citibank around the
world. The Company believes that Citibank consolidated its advertising and
direct marketing accounts with Y&R in order to establish a consistent brand
identity around the world. In addition to Citibank, during the last 18 months,
Y&R has won new business from clients including United Airlines and Campbell's
Soup, both of whom were designated as KCAs.
34
<PAGE> 38
LEVERAGE EXISTING GLOBAL NETWORK. With a worldwide presence in 76
countries (including 14 countries where Y&R is represented by non-equity
affiliations with local partners), the Company believes that it is well
positioned to continue to benefit from the trend towards the globalization of
client marketing and communications needs and the consolidation of such needs
with a single international service provider. For example, in late 1995,
Colgate-Palmolive consolidated its global advertising with Y&R, enabling
Colgate-Palmolive to replace multiple campaigns created by various local
agencies with a single campaign coordinated by Y&R's global network, while
providing substantial cost savings to Colgate-Palmolive.
CAPITALIZE ON EXISTING CAPABILITIES. Y&R intends to continue the
development of its existing capabilities into more visible and accessible client
services. For example, in 1997, Y&R launched a new unit, Brand Dialogue, to
serve its clients in the areas of digital interactive branding and digital
commerce and in the development and implementation of various interactive
strategies, including website design, creation and production. To create this
integrated unit, Y&R combined the existing interactive capabilities of Young &
Rubicam Advertising and Wunderman Cato Johnson in the United States, Latin
America, Europe and Asia/ Pacific. Management believes that Brand Dialogue
represents a growth opportunity for Y&R, and the Company intends to make
significant investments in new and emerging technologies to capitalize on these
opportunities.
In addition, in July 1997, the Company consolidated the United States media
planning, buying and placement capabilities of Young & Rubicam Advertising,
Wunderman Cato Johnson and The Media Edge (a media company acquired by Y&R in
1996) under The Media Edge name. With this consolidation, Y&R created a major
United States media agency, thereby enhancing its ability to negotiate
effectively and secure discounts for media purchases on behalf of its clients.
The Company believes that The Media Edge will provide a variety of media
alternatives in various markets to existing and future clients. Y&R plans to
continue to identify and leverage strengths and capabilities that can provide
further differentiation for the Company and that can evolve into businesses that
generate incremental revenues and profits.
UTILIZE SUPERIOR CONSUMER KNOWLEDGE AND BRAND INSIGHTS. To assist its
clients in building, leveraging, protecting and managing their brands, Y&R has
developed and is maintaining extensive knowledge of consumer brand perceptions.
In 1994, Y&R launched BrandAsset Valuator ("BAV"), a proprietary database of
consumer perceptions for building and managing brands. In its first two phases,
in 1994 and the second half of 1997, the BAV project involved the gathering of
information on approximately 10,000 brands, including over 9,000 local and
regional brands and 550 global brands. BAV provides an understanding of how
consumers evaluate brands, how brands evolve over time and how brands are
managed successfully. The Company believes that BAV, in which the Company has
made significant investments over the past five years, is the first global
consumer study that provides an empirically derived model for how brands gain
and lose their strength. The Company further believes that BAV, which reflects
the perceptions of over 95,000 consumers in 32 countries in the Americas,
Europe, Asia, Australia and Africa, is the most extensive database of
information concerning consumer perceptions of brands. Management believes that
Y&R's comprehensive research capabilities, including BAV, have become a
significant factor in attracting new clients and winning new assignments from
existing clients. The Company plans to continue to invest in BAV, and believes
that knowledge of consumers' changing perceptions of brands will continue to
provide Y&R with a significant competitive advantage.
CULTIVATE CREATIVE EXCELLENCE. Y&R intends to continue emphasizing the
importance of creative marketing and communications. The creative leadership of
Y&R has been recognized over the years through the receipt of various industry
awards, including Cannes Lions and Clio Awards for excellence in television and
print advertising, EFFIES (awards for effective advertising) and a number of
other awards for direct marketing and design services. Y&R also has created
numerous memorable marketing and communications programs for clients, including
"The Softer Side of Sears," "Everybody Needs a Little KFC," "It's All Within
Your Reach" for AT&T, "The Document Company" for Xerox, and "Be All That You Can
Be" for the United States Army, as well as identity and design assignments,
including the creation of corporate identities, for Lucent Technologies,
Netscape and the 2002 Salt Lake City Olympics.
35
<PAGE> 39
IMPROVE OPERATING EFFICIENCIES. The Company believes that opportunities
exist to further improve operating efficiencies in order to expand margins and
increase future profitability. For example, Y&R has implemented initiatives
which have both improved productivity and reduced compensation expense as a
percentage of consolidated revenues.
EXPAND CAPABILITIES THROUGH ACQUISITIONS. In order to add new
capabilities, enhance its existing capabilities and expand the geographic scope
of its operations, Y&R regularly evaluates and intends to pursue appropriate
acquisition opportunities. Management believes that significant opportunities
exist to expand its businesses. Historically, in order to expand capabilities
beyond traditional advertising, Y&R has acquired well-established leaders in
other marketing and communications disciplines. More recently, the Company has
acquired smaller niche agencies or companies to enhance existing capabilities or
expand geographic coverage.
OPERATIONS
The Company's operations are aligned under two senior executives. Young &
Rubicam Advertising and Wunderman Cato Johnson, along with the smaller
complementary business units, Brand Dialogue, The Bravo Group, The Chapman
Agency and The Media Edge, report to Edward H. Vick, Chief Operating Officer of
the Company, as well as Chairman and Chief Executive Officer of Young & Rubicam
Advertising. As appropriate, Young & Rubicam Advertising and Wunderman Cato
Johnson work in partnership to service those clients who demand integrated
advertising and direct marketing capabilities. Burson-Marsteller, Landor
Associates, Sudler & Hennessey and Cohn & Wolfe report to Thomas D. Bell, Jr.,
Executive Vice President of the Company, as well as President and Chief
Executive Officer of Burson-Marsteller.
YOUNG & RUBICAM ADVERTISING. Young & Rubicam Advertising is one of the
world's leading full-service consumer advertising agencies, offering expertise
in creative development, consumer research and marketing, and media buying and
planning. In 1996, Young & Rubicam Advertising was ranked by industry sources as
the ninth largest advertising agency based in the United States.
Young & Rubicam Advertising has had a number of recent new business wins.
In August 1997, Citibank consolidated its worldwide advertising and direct
marketing business with Y&R. In addition, since 1995, Young & Rubicam
Advertising has won substantial new business from Colgate-Palmolive, United
Airlines and Campbell's Soup. In June 1997, Young & Rubicam Advertising extended
its long-term relationship with the United States Army, an account which is
subject to a government-mandated review every five years. In October 1997, Young
& Rubicam Advertising won the assignment to develop a campaign for Census 2000,
the first unified, paid advertising campaign undertaken by the United States
Bureau of the Census. Young & Rubicam Advertising also continues to expand
relationships with existing clients, including creating AT&T's corporate
branding campaign, and together with Wunderman Cato Johnson, developing the
campaign for the launches of Sears' Home Services Division, the Navigator
sport-utility vehicle for Ford's Lincoln-Mercury division in the United States
and the Puma, Ka and Galaxy automobiles for Ford in selected international
markets.
Young & Rubicam Advertising has long been involved in various public
interest and public service efforts. Young & Rubicam Advertising handles public
service accounts for The National Urban League, The United Negro College Fund
and, through its work with the Ad Council, is launching a series of programs to
benefit children throughout the United States and, separately, to assist
battered women.
Young & Rubicam Advertising operates in 91 cities in 61 countries
worldwide, in the Americas, Europe and Africa. Young & Rubicam Advertising
services clients through the Dentsu, Young & Rubicam Partnerships across
Asia/Pacific.
DENTSU, YOUNG & RUBICAM PARTNERSHIPS. The Dentsu, Young & Rubicam
Partnerships ("DY&R") are a network of full-service advertising agencies that
provide Young & Rubicam Advertising with access to major markets across the
Asia/Pacific region. DY&R was created as a joint venture between Y&R and Dentsu,
Inc. ("Dentsu") in 1991. In 1996, Dentsu ranked as the fourth largest marketing
and communications organization in the world and the largest marketing and
communications organization based in Asia/Pacific. DY&R is a series of local
ventures in which Y&R typically has a 50% interest, and is jointly managed and
operated by
36
<PAGE> 40
Y&R and Dentsu. To maximize local brand equity and minimize conflicts, DY&R
operates under different brand names and management in each of its three
regions -- Asia, Australia/New Zealand and the United States. DY&R primarily
services major clients of Dentsu and Y&R in Asia, including Y&R's KCAs, but also
has its own local clients in each region. In Asia/Pacific, DY&R has recently won
regional business from Fuji and Citibank and has been awarded additional work
from Ford, Sony, Ericsson and Cadbury-Schweppes in specific markets. DY&R
operates in 27 cities in 16 countries across Asia/Pacific and the United States,
where it operates as The Lord Group.
WUNDERMAN CATO JOHNSON. Wunderman Cato Johnson ("WCJ") is one of the
world's leading behavior-driven marketing and communications companies.
Behavior-driven marketing and communications are designed to assist clients in
producing immediate sales and building brand and customer equity. WCJ addresses
its clients' marketing objectives through direct marketing, sales promotion,
television commercials and infomercials, customer loyalty programs, relationship
marketing programs, database development and management, merchandising,
entertainment and sports marketing, lead generation and new product launches.
WCJ focuses on converting "consumers" to "customers" and mass markets to
individual relationships. WCJ seeks to motivate behavior by focusing on
identifying and acquiring the most valuable customer prospects for clients,
building loyalty among its clients' most profitable customers and managing the
customer's interactions with the brand, the trade and the sales force.
WCJ provides services to KCAs such as AT&T, DuPont, Ford, Taco Bell and the
United States Postal Service. Recent new business projects include the creation
of a global promotion for Ericsson, and, together with Young & Rubicam
Advertising, the launches of the Sears Home Services Division and the Navigator
for Ford's Lincoln-Mercury division.
WCJ was created by the 1992 merger of Wunderman Worldwide, a direct
marketing company acquired by Y&R in 1973, and Cato Johnson Associates, a sales
promotion company acquired by Y&R in 1976. Headquartered in New York, WCJ
operates in 49 cities in 32 countries worldwide. WCJ also has major database
facilities in Europe and Latin America.
OTHER CAPABILITIES. Brand Dialogue specializes in digital interactive
branding and digital commerce. Brand Dialogue's primary offerings consist of:
(i) web advertising, including the design, creation and production of worldwide
websites, banners, home pages and comprehensive interactive campaigns; (ii)
digital commerce applications; (iii) the development of corporate intranets to
improve communications and productivity within and among a defined set of users;
and (iv) interactive marketing consulting services. Brand Dialogue has obtained
new business from both existing Y&R KCAs and other clients, as well as new
clients. During 1997, Brand Dialogue won notable and varied assignments from
clients such as AT&T, Citibank, Ford, United Airlines, the United States Postal
Service and Xerox.
The Bravo Group ("Bravo") creates multi-cultural marketing and
communications programs targeted to the fast-growing U.S. Hispanic community.
Bravo's multi-disciplinary services include advertising, promotion and event
marketing, public relations, research and direct marketing. Bravo provides
services for selected KCAs including American Home Products-Whitehall, AT&T,
Campbell's Soup, Clorox, Kraft and the United States Postal Service.
The Chapman Agency ("Chapman") is a specialized direct marketing agency
which provides a range of services in the United States primarily to the
telecommunications, financial services, technology and healthcare industries.
Chapman focuses on communications designed to build individual relationships
with individual customers, and works with its clients to maximize customer
profitability and build enduring brands over time. Chapman is also involved in
both the development and application of database marketing and communications
techniques. Chapman provides services to Bristol-Myers Squibb, Dow Jones, DuPont
and SmithKline Beecham.
The Media Edge provides integrated media planning, buying and placement
services for both Young & Rubicam Advertising and WCJ. In addition, The Media
Edge provides planning and buying of both traditional and direct response media.
Management believes that The Media Edge is positioned to act as an independent
full-service media provider, offering a range of media-related services to
clients other than those of Young & Rubicam Advertising and WCJ, as well as to
smaller independent advertising and communica-
37
<PAGE> 41
tions agencies. The Company believes that these capabilities will enable The
Media Edge to take advantage of opportunities presented by the trend of clients
separating media responsibility assignments from other advertising services.
During 1997, The Media Edge won significant new business, including a number of
agency of record assignments (a preferred media provider designation) and media
research and modeling assignments, from clients such as International Distillers
and Vintners (Grand Metropolitan), Monsanto, Ore-Ida (Heinz), and Revlon. In
addition, The Media Edge recently expanded its relationship with Sears and
retained its long-term relationship with the Irish Tourist Board.
BURSON-MARSTELLER. Burson-Marsteller is one of the world's leading
international perception management, public relations and public affairs
companies. It provides a comprehensive range of perception management
capabilities to its clients, including issues analysis, crisis management,
consumer and business marketing and research, corporate communications, investor
relations and public affairs advocacy. The perception management process begins
with a statement of the desired business results and then identifies current and
targeted perceptions, as well as different approaches to create the desired
mindset with key audiences.
Burson-Marsteller believes a shift is occurring in the perception
management and public relations field, away from a focus on executional delivery
based upon a client's specific instructions and towards a more consultative and
interactive relationship. To that end, in 1996 and 1997, Burson-Marsteller
implemented a client-focused practice structure in the United States. This
client-focused practice structure has replaced the traditional geographic
organizational model in the United States and helps ensure the firm's
professional client teams have the experience and insight required to provide
clients with the in-depth capabilities and knowledge to meet their needs. In
Europe and Asia, Burson-Marsteller intends to maintain a primarily geographic
organizational model and to implement, where feasible, elements of a
client-focused practice structure. Burson-Marsteller's functional and industry
practice areas currently include corporate, healthcare, marketing, advertising,
media, public affairs, strategic consulting and technology. Burson-Marsteller's
resources include three kinds of specialists: (i) industry specialists who are
experienced in specific fields; (ii) practice specialists who are experienced in
specific perception management, public relations and public affairs disciplines;
and (iii) creative and media specialists who are skilled in using a variety of
techniques and different technologies to deliver messages with impact.
Burson-Marsteller serves as counselor to a diverse body of clients ranging
from major corporations, business associations and professional organizations to
governmental bodies and non-profit institutions. During the last 18 months,
Burson-Marsteller has undertaken significant assignments for Qualcomm, Sun
Microsystems and Unilever. In addition, Burson-Marsteller has expanded and
strengthened relationships with existing clients such as Andersen Consulting,
Johnson & Johnson and Philip Morris.
Burson-Marsteller was founded in 1953 and was acquired by Y&R in 1979.
Burson-Marsteller is head-quartered in New York and operates in 46 cities in 36
countries around the world. The Burson-Marsteller network also includes Black,
Kelly, Scruggs & Healey Inc., a lobbying and public affairs firm based in
Washington D.C., Marsteller Advertising, which specializes in corporate,
business-to-business and issues advertising campaigns, with offices in New York,
Chicago, Pittsburgh and London, and The Mead Point Group, a small, strategic
consulting firm located in Greenwich, Connecticut.
LANDOR ASSOCIATES. Landor Associates ("Landor") is one of the world's
leading branding consultancies and strategic design firms. Landor creates,
builds and revitalizes clients' brands and helps position these brands for
continued success. Landor's branding and identity consultants, designers and
researchers work with clients on a full range of branding and identity projects,
including corporate identity, packaging and brand identity systems, retail
design and branded environments, interactive branding and design, verbal
branding and nomenclature systems, corporate literature, brand extensions and
new brand development.
Landor has broad international experience across various industries, and
clients include automobile manufacturers, banks and financial institutions,
commercial airlines, communications and information companies, consumer
products, entertainment industry concerns, hotels, major industrials, packaged
goods companies and petroleum retailers.
38
<PAGE> 42
Landor has gained substantial new business momentum during the last 18
months, and has been awarded corporate identity assignments for the 2002 Salt
Lake City Olympics, Lucent Technologies and Delta Airlines; package design
assignments for Frito-Lay and Kellogg's; and branded environment assignments for
Taco Bell, Pizza Hut and Sears. In addition, Landor has expanded relationships
with existing clients. During 1996, Landor was retained by Coors Beer (as sole
supplier) to design packaging, and more recently this assignment expanded to
include verbal branding. In addition, during 1997, Landor worked to develop the
name and corporate identity for Visteon, a Ford subsidiary that supplies
component parts to the automotive industry.
Landor was founded in 1941 and was acquired by Y&R in 1989. Landor is
headquartered in San Francisco and operates in 15 cities in 11 countries
worldwide, including multidisciplinary consulting and design studios in New
York, Seattle, Mexico City, Hamburg, London, Paris, Hong Kong and Tokyo.
SUDLER & HENNESSEY. Sudler & Hennessey ("S&H") is one of the world's
leading healthcare communications firms, developing strategic promotional and
educational programs for a wide spectrum of healthcare brands. S&H creates
advertising, direct marketing and sales promotion programs for prescription
drugs and over-the-counter medications. In addition, S&H provides strategic
consultancy and communications support in the areas of managed care, medical
devices and equipment, nutrition, veterinary medicine and general healthcare.
Communications programs produced by S&H on behalf of its largely pharmaceutical
industry client base are directed to a wide range of healthcare professionals as
well as patients and their support networks.
S&H's medical education division, IntraMed, develops continuing educational
programming on behalf of its pharmaceutical and consumer care clients. These
educational efforts bring credible third-party support to healthcare
professionals as well as patient educational communications.
The healthcare communications industry experienced significant growth
during 1997, due both to a dramatic increase in direct-to-consumer healthcare
communications and numerous new product introductions. S&H has capitalized on
this growth, winning significant new business around the world, including
product launch assignments from Abbott Laboratories, Merck, Roche and Zeneca.
S&H was founded in 1941 and was acquired by Y&R in 1973. S&H is
headquartered in New York and operates in 16 cities in 11 countries in North
America, Europe and Asia/Pacific.
COHN & WOLFE. Cohn & Wolfe is a full-service public relations firm that
provides creative, results-driven services to its clients. Cohn & Wolfe helps
its clients establish and communicate corporate and brand identity, launch new
products and expand sales. Areas of expertise include consumer marketing, sports
publicity and issues management, as well as healthcare, information technology
and business-to-business communications. Current clients include Eli Lilly,
Reebok, Deloitte & Touche, SmithKline Beecham, Phillip Morris, Sony, NEC and the
United States Postal Service.
Cohn & Wolfe was founded in 1970 and was acquired by Burson-Marsteller in
1984. Cohn & Wolfe operates in 12 cities in 11 countries in North America,
Europe and Australia.
COMPETITION
The marketing and communications industry is highly competitive. Y&R's
principal competitors in the advertising, direct marketing and perception
management and public relations businesses are large multinational marketing and
communications companies, as well as numerous smaller agencies that operate only
in the United States or in one or more countries or local markets. Y&R must
compete with such other companies and agencies to maintain existing client
relationships and to obtain new clients and assignments. Some clients, such as
U.S. governmental agencies, require agencies to compete for business at
mandatory intervals. Principal competitive factors include an agency's creative
reputation, knowledge of media, financial controls, geographical coverage and
diversity, relationships with clients and quality and breadth of services.
Recently, traditional advertising agencies have also been competing with major
consulting firms which have developed practices in marketing and communications,
and with smaller companies such as systems integrators, database marketing and
modeling companies and telemarketers, which offer technological solutions to
marketing and communications issues faced by clients. In addition, the trend
towards consolidation of global accounts requires companies seeking to compete
effectively in the international marketing and
39
<PAGE> 43
communications industry to make significant investments in additional offices
and personnel around the world and in new and improved technology for linking
such offices and people.
United States clients typically may cancel contracts with agencies upon 90
days' notice, and non-U.S. clients typically also may cancel contracts with
agencies on 90 to 180 days' notice. However, Y&R believes that clients may find
it increasingly difficult to terminate relationships with agencies which
represent their brands on a global basis because of the complexity of
coordinating creative, media and non-media services. In addition, clients
generally remain able to move from one agency to another with relative ease. As
is typical in the marketing and communications industry, Y&R has lost or
resigned client accounts and assignments for a variety of reasons, including due
to conflicts with newly acquired clients. Although Y&R typically has replaced
such losses with new clients and assignments, there can be no assurance that Y&R
will continue to be successful in replacing clients that may leave Y&R or in
replacing revenues when a client significantly reduces the amount of work given
to Y&R.
Representation of a client does not necessarily mean that all advertising
or public relations for that client are handled by one agency. Many large
multinational companies are served by a number of agencies within the marketing
and communications industry. In many cases, clients' conflicts policies or
desire to be served by multiple agencies result in one or more global agency
networks representing a client only for a portion of its marketing and
communications needs or only in particular geographic areas. In addition, the
ability of agencies within marketing and communications organizations to acquire
new clients or additional assignments from existing clients may be limited by
the conflicts policy followed by many clients not to permit agencies to perform
similar services for competing products or companies. Y&R's principal
international competitors are holding companies for more than one global
advertising agency network, which, in some situations, may permit separate
agency networks within such holding companies to perform services for competing
products or for products of competing companies. The Company has one global
advertising agency network, and accordingly, Y&R's ability to compete for new
advertising assignments and, to a lesser extent, other marketing and
communications assignments may be limited by these conflicts policies. Industry
practices in other areas of the marketing and communications business reflect
similar concerns with respect to client relationships.
REGULATION
The regulation of advertising takes several forms. The primary source of
governmental regulation in the United States is the Federal Trade Commission
("FTC") which is charged with administering the Federal Trade Commission Act
(the "FTC Act"). The FTC Act covers a wide range of practices involving false,
misleading and unfair advertising. In the event of violations of federal laws
and regulations, the FTC may seek cease and desist orders, may impose monetary
penalties and may require other remedies. The Federal Food and Drug
Administration, the Federal Communications Commission and other agencies also
have regulatory authority that affects the advertising business. In addition,
many state and local governments have adopted statutes and regulations similar
in scope to the FTC Act and the regulations thereunder.
Self-regulatory activities have become significant in the advertising
business. The Council of Better Business Bureaus has created the National
Advertising Division and the National Advertising Review Board which review and
process possible violations of proper business conduct through advertising. The
national television networks and various other media have also adopted strict
and extensive regulations governing the advertising that they will accept for
broadcast or publication. Trade associations in certain industries publish
advertising guidelines for their members and, in addition, various consumer
groups have been and continue to be powerful advocates of increased regulation
of advertising.
Advertising is also subject to regulation in countries other than the
United States in which Y&R and its affiliates do business. Y&R has developed
internal review procedures to help ensure that its work product, as well as that
of its affiliates, is in compliance with standards of accuracy, fair disclosure
and ethical proprieties, including those established by federal, state and local
laws and regulations and the pre-clearance procedures of the broadcast media.
In addition, as an international organization Y&R is subject to the Foreign
Corrupt Practices Act (the "FCPA"). The FCPA imposes civil and criminal fines
and penalties on companies and individuals which violate its anti-bribery and
other provisions.
40
<PAGE> 44
EMPLOYEES
Y&R has approximately 13,000 employees (including part-time employees)
worldwide. None of Y&R's U.S. employees are covered by collective bargaining
agreements. Management believes that the Company's relations with employees are
good.
PRINCIPAL PROPERTIES
Y&R owns its headquarters office building at 285 Madison Avenue, New York,
New York. Y&R has granted a mortgage on such property to the lenders under the
Credit Facilities. Y&R leases other offices and space for its facilities in New
York City and elsewhere throughout the world. The following table sets forth
certain information relating to Y&R's principal properties:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE
LOCATION USE FOOTAGE EXPIRATION
<S> <C> <C> <C>
285 Madison Avenue, Young & Rubicam Advertising, Brand 370,000 N/A (owned)
New York, New York Dialogue and corporate headquarters
230 Park Avenue South, Burson-Marsteller, Chapman, Bravo and 340,500 1/22/06
New York, New York Landor
Gallus Park, Young & Rubicam Advertising, WCJ, 154,000 4/26/04
Frankfurt, Germany Burson-Marsteller and Sudler &
Hennessey
Greater London House, Young & Rubicam Advertising, WCJ and 80,000 5/31/13
London, U.K. Sudler & Hennessey
200 Renaissance Center, Young & Rubicam Advertising and WCJ 96,000 11/30/99
Detroit, Michigan
675 Avenue of the Americas, WCJ 92,500 6/30/03
New York, New York
49-59 Avenue Andre Morizet, Young & Rubicam Advertising and WCJ 65,000 12/31/98
Paris, France
One South Wacker Drive, Young & Rubicam Advertising, WCJ and 63,000 11/30/99
Chicago, Illinois Landor
100 First Plaza, Young & Rubicam Advertising, WCJ, 63,000 5/11/03
San Francisco, California Burson-Marsteller and Bravo
1801 K Street N.W., Burson-Marsteller and Cohn & Wolfe 60,000 10/31/06
Washington, D.C.
295 Madison Avenue, Young & Rubicam Advertising 51,500 12/31/03
New York, New York
</TABLE>
Y&R's planned capital expenditures for 1998 include expenditures for
leasehold improvements of facilities which, when completed, are expected to
result in a configuration of owned and leased facilities which Y&R believes will
be adequate for its current and anticipated purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
LEGAL PROCEEDINGS
Y&R is involved from time to time in various claims and legal actions
incident to its operations, both as plaintiff and defendant. In the opinion of
management, none of these existing claims is expected to have a material adverse
effect on the Company.
41
<PAGE> 45
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and Directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Peter A. Georgescu..... 58 Chief Executive Officer of the Company and Chairman of the
Board
Alan J. Sheldon........ 56 Vice Chairman and Managing Director of the Company
John P. McGarry, Jr.... 58 President of the Company
Edward H. Vick......... 54 Chief Operating Officer of the Company, Chairman and Chief
Executive Officer of Young & Rubicam Advertising and
Director
Thomas D. Bell, Jr. ... 48 Executive Vice President of the Company, President and Chief
Executive Officer of Burson-Marsteller and Director
Stephanie W. Executive Vice President and General Counsel of the Company
Abramson............. 53
Michael J. Dolan....... 51 Vice Chairman and Chief Financial Officer of the Company and
Director
F. Warren Hellman...... 63 Director
Philip U. Director
Hammarskjold......... 33
Richard S. Bodman...... 60 Director
Alan D. Schwartz....... 48 Director
John F. McGillicuddy... 67 Director
</TABLE>
The business address of each of the Company's executive officers is 285
Madison Avenue, New York, New York 10017. The business address of Messrs.
Hellman and Hammarskjold is One Maritime Plaza, San Francisco, California 94111.
The business address of Mr. Schwartz is 245 Park Avenue, New York, New York
10167. The business address of Mr. Bodman is c/o AT&T Ventures, Chevy Chase
Metro Building, 2 Wisconsin Circle, Suite 610, Chevy Chase, Maryland 20815-7003.
The business address of Mr. McGillicuddy is 270 Park Avenue, 32nd Floor, New
York, New York 10017.
PETER A. GEORGESCU Mr. Georgescu has been Chairman and Chief Executive
Officer of Young & Rubicam Inc. since 1994. He has been a Director of the
Company since 1980. Mr. Georgescu's career at Y&R spans 34 years with top
management experience both in the United States and Europe. Prior to becoming
Chairman, Mr. Georgescu was President of the Company for four years. Mr.
Georgescu joined Young & Rubicam New York in 1963 as a trainee and has held
various positions in research, account management and marketing in New York,
Chicago and Amsterdam. Mr. Georgescu is a member of the Board of Directors of
Briggs and Stratton Company.
ALAN J. SHELDON Mr. Sheldon has been Vice Chairman and Managing Director
of Young & Rubicam Inc. since July 1996. Mr. Sheldon was a Director of the
Company from 1988 to February 1998. From 1994 to 1996, he was Chief Operating
Officer of Young & Rubicam Advertising. Mr. Sheldon was also Chief Financial
Officer of Young & Rubicam Europe from 1993 to 1994, after serving as Executive
Vice President and General Manager of Young & Rubicam Inc. since 1990. Mr.
Sheldon joined Y&R in 1968 in Corporate Finance and subsequently served in
several senior positions at Y&R and Young & Rubicam Advertising.
JOHN P. MCGARRY, JR. Mr. McGarry has been President of the Company since
April 1996. Prior to assuming his present post, he held several positions at Y&R
including Chairman and Chief Executive Officer of Young & Rubicam Advertising,
President and Chief Executive Officer of Young & Rubicam Advertising North
America, President and Chief Executive Officer of Young & Rubicam USA, and
President of Young & Rubicam New York. Mr. McGarry joined Y&R in 1965.
EDWARD H. VICK Mr. Vick has been Chief Operating Officer of the Company
since November 1997 and Chairman and Chief Executive Officer of Young & Rubicam
Advertising since April 1996. He has been a Director of the Company since
February 1998. Mr. Vick joined Young & Rubicam New York as its President and
Chief Executive Officer in February 1994. He began his career with Benton &
Bowles and was a Senior
42
<PAGE> 46
Vice President of Ogilvy & Mather. From 1985 to 1991, he was President of
Ammirati & Puris and, in 1991, was President and Chief Executive Officer of
Levine, Huntley, Vick and Beaver. In 1992, Mr. Vick came to Y&R as President and
Chief Executive Officer of Landor.
THOMAS D. BELL, JR. Mr. Bell has been Executive Vice President of the
Company since 1995 and President and Chief Executive Officer of
Burson-Marsteller since 1995. He has been a Director of the Company since
February 1998. From 1994 to 1995, Mr. Bell served as Vice Chairman of Gulfstream
Aerospace Corporation. Prior thereto, Mr. Bell was Vice Chairman and Chief
Operating Officer of Burson-Marsteller from 1991 to 1994. Before initially
joining Burson-Marsteller in 1989, Mr. Bell held senior positions in business
and government. Mr. Bell is a member of the Board of Directors of Gulfstream
Aerospace Corporation, Lincoln National Corporation and Lincoln Life & Annuity
of New York.
STEPHANIE W. ABRAMSON Ms. Abramson has been Executive Vice President and
General Counsel of the Company since 1995. Ms. Abramson was a Director of the
Company from 1995 until February 1998. From 1980 until joining Y&R in 1995, she
was a partner with Morgan, Lewis & Bockius LLP.
MICHAEL J. DOLAN Mr. Dolan has been Vice Chairman and Chief Financial
Officer and a Director of the Company since July 1996. Prior thereto, from 1991
to 1996, he was President and Chief Executive Officer of the joint venture,
Snack Ventures Europe, between PepsiCo Foods International ("PFI") and General
Mills. Mr. Dolan also served PFI as Senior Vice President, Operations. From 1987
to 1991, Mr. Dolan was with Peter Kiewet Sons, Inc. ("PKS"), a construction and
mining conglomerate. While at PKS, he served as Corporate Executive Vice
President for Continental Can Company when it was acquired and restructured by
PKS.
F. WARREN HELLMAN Mr. Hellman has been a Director of the Company since
December 1996. Mr. Hellman is Chairman of Hellman & Friedman LLC ("Hellman &
Friedman"), a private investment company he founded in 1984. Prior thereto, Mr.
Hellman was President and a Director of Lehman Brothers, as well as head of its
Investment Banking Division, and Chairman of Lehman Corporation (a closed-end
investment company). Mr. Hellman serves on the Company Board as a representative
of the H&F Investors. Mr. Hellman is a member of the Board of Directors of Levi
Strauss & Co., Franklin Resources, Inc., Il Fornaio (America) Corp., MobileMedia
Corporation and PowerBar Inc., as well as a number of private and venture-backed
companies.
PHILIP U. HAMMARSKJOLD Mr. Hammarskjold has been a Director of the Company
since December 1996. Mr. Hammarskjold is a Managing Director of Hellman &
Friedman. Prior to joining Hellman & Friedman in 1992, Mr. Hammarskjold was
employed by Dominquez Barry Samuel Montagu in Australia and by Morgan Stanley &
Co. in New York. Mr. Hammarskjold serves on the Company Board as a
representative of the H&F Investors. Mr. Hammarskjold is a member of the Board
of Directors of The Covenant Group, Inc.
RICHARD S. BODMAN Mr. Bodman has been a Director of the Company since
April 1998. Mr. Bodman has been Managing General Partner of AT&T Ventures, LLC
("AT&T Ventures"), a company which manages a venture capital pool investing in
early stage businesses related to telecommunications and information technology
since May 1996. Prior to joining AT&T Ventures, from 1990 until May 1996, Mr.
Bodman was Senior Vice President for Corporate Strategy & Development and a
member of the Management Executive Committee of AT&T. Mr. Bodman is a member of
the Board of Directors of Reed Elsevier plc, Tyco International, Inc. and ISS
Group.
ALAN D. SCHWARTZ Mr. Schwartz has been a Director of the Company since
December 1996. Mr. Schwartz is Executive Vice President and Head of the
Investment Banking Department at Bear, Stearns & Co. Inc. He is also a member of
the Executive Committee of the parent company, The Bear Stearns Companies Inc.
Mr. Schwartz joined Bear Stearns in 1976. Mr. Schwartz is a member of the Board
of Directors of Unique Casual Restaurants, Inc.
JOHN F. MCGILLICUDDY Mr. McGillicuddy has been a Director of the Company
since May 1997. Mr. McGillicuddy was the Chairman and Chief Executive Officer of
Chemical Banking Corporation from 1992 to 1993 and Chairman and Chief Executive
Officer of Manufacturers Hanover Corporation and Manufacturers Hanover Trust
Company from 1979 to 1991. Mr. McGillicuddy is a member of the Board of
Directors of UAL Corporation, USX Corporation and Southern Peru Copper
Corporation.
43
<PAGE> 47
The Company intends that the Board will continue to be comprised of a
majority of Directors who are independent of management.
Upon the completion of the Offerings, the Board will be divided into three
classes, as nearly equal in number as is possible, serving staggered three-year
terms so that the Directors' initial terms will expire at the annual meetings of
the Company's stockholders held in 1999, 2000 and 2001, respectively. At each
annual meeting of the Company's stockholders, successors to the class of
Directors whose term expires at such meeting will be elected to serve for
three-year terms and until their successors are elected and qualified. Messrs.
Hellman, Schwartz and Vick will be Class I Directors, with terms expiring in
1999. Messrs. Dolan, Georgescu and Hammarskjold will be Class II Directors, with
terms expiring in 2000. Messrs. Bell, Bodman and McGillicuddy will be Class III
Directors, with terms expiring in 2001.
The H&F Investors will have the right to nominate and elect two members of
the Board for so long as they continue to hold in the aggregate at least 10% of
the Outstanding Shares (as defined in the Stockholders' Agreement) and one
member of the Board for so long as they continue to hold in the aggregate at
least 5% of the Outstanding Shares. See "Description of Capital Stock -- The
Stockholders' Agreement."
Executive officers are appointed by, and serve at the discretion of, the
Company Board.
COMMITTEES
The Compensation Committee of Y&R consists of Messrs. Georgescu,
Hammarskjold and Schwartz, Chairman. The Compensation Committee reviews the
compensation of officers of Y&R and makes recommendations to the Board regarding
such compensation and reviews and administers the Restricted Stock Plan and the
Stock Option Plans. Following the consummation of the Offerings, the
Compensation Committee will be comprised entirely of Directors who are
independent of management.
The Audit Committee of Y&R consists of Messrs. Georgescu, McGillicuddy and
Hellman, Chairman. The Audit Committee is responsible for reviewing any
transactions (other than compensation arrangements) between Y&R and its
executive officers and Directors, the plans for and results of audits of Y&R,
and the results of any internal audits, compliance with any written policies and
procedures and the adequacy of Y&R's systems of internal accounting controls.
The Audit Committee also considers annually the qualifications of Y&R's
independent auditors. Following the consummation of the Offerings, the Audit
Committee will be comprised entirely of Directors who are independent of
management in accordance with New York Stock Exchange policy.
The Board may create such other committees as it may determine from time to
time.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Charter and the Company's Bylaws contain provisions
indemnifying the Directors and executive officers of Y&R to the fullest extent
permitted by law. Section 102(b)(7) of the DGCL provides that Delaware
corporations may include in their certificates of incorporation a provision
eliminating or limiting the personal liability of Directors to the corporation
or its stockholders for monetary damages for breach of their fiduciary duty
including acts constituting gross negligence, except under certain
circumstances, including breach of the Director's duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law or any transaction from which the Director derived improper
personal benefit. The Company's Charter provides that Y&R's Directors are not
liable to it or its stockholders for monetary damages for breach of their
fiduciary duties, subject to the exceptions specified by Delaware law.
COMPENSATION OF DIRECTORS
The Company compensates only those members of the Board who are not
employees of the Company for their participation as Directors. During 1997, Alan
D. Schwartz and John C. McGillicuddy each received $50,000 as an annual stipend
for serving as a member of the Board and each, along with Richard S. Bodman,
will receive $50,000 in 1998. Messrs. Hellman and Hammarskjold each waived such
fee in 1997 and have indicated that they intend to waive it in the future.
Out-of-pocket expenses for attendance at meetings of the Board are reimbursed
for all members.
44
<PAGE> 48
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to the Chief Executive Officer and the four other most highly
compensated executive officers who were serving as executive officers on
December 31, 1997 (collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------- -----------------------
RESTRICTED SECURITIES ALL
NAME AND STOCK UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS(2) OPTIONS COMPENSATION(3)
<S> <C> <C> <C> <C> <C> <C>
Peter A. Georgescu................ 1997 $950,000 $598,500 -- -- $8,000
Chairman and Chief Executive
Officer, Young & Rubicam Inc.
Edward H. Vick.................... 1997 $700,000 $272,250 $740,000 172,500 $8,199
Chairman and Chief Executive
Officer, Young & Rubicam
Advertising
John P. McGarry, Jr. ............. 1997 $730,000 $297,000 -- -- $8,000
President, Young & Rubicam Inc.
Thomas D. Bell, Jr. .............. 1997 $575,000 $168,750 -- 176,550 $8,000
President and Chief Executive
Officer, Burson-Marsteller
Michael J. Dolan.................. 1997 $550,000 $198,000 $555,000 150,000 $2,190
Vice Chairman and Chief
Financial Officer, Young &
Rubicam Inc.
</TABLE>
- ------------------------------
(1) The named executive officers were awarded annual cash bonuses under the Key
Corporation Managers Bonus Plan, which bonuses were generally based on the
Company's achievement of target levels of operating profit and EBITA
(earnings before interest, taxes and amortization), each as defined in such
plan, as well as the achievement of individual objectives. The Company
intends to grant future annual cash bonuses under the 1997 ICP based on
substantially similar Company and individual performance criteria.
(2) The total number and value of shares of Restricted Stock held by the named
executive officers under the Restricted Stock Plan at December 31, 1997
(based on the value of the Common Stock as of December 31, 1997 as
determined by the Company Board, based upon the valuation opinion of an
independent investment bank, taking into account that prior to the
Offerings, the Company was privately held and that the shares were subject
to contractual transfer restrictions) are as follows: Mr.
Georgescu -- 430,440 shares ($5,308,760); Mr. Vick -- 339,405 shares
($4,185,995); Mr. McGarry -- 155,850 shares ($1,922,150); Mr.
Bell -- 284,790 shares ($3,512,410); and Mr. Dolan -- 305,865 shares
($3,772,335). The Company Board has elected to accelerate the vesting of the
Restricted Stock to the date on which the Offerings are consummated,
provided there is market demand for the sale by the Management Investors of
a sufficient number of shares of Restricted Stock as is necessary to fund
their personal tax liabilities associated with the vesting of the Restricted
Stock. Accordingly, assuming sufficient demand for such shares exists, all
Restricted Stock awarded to the named executive officers will vest and be
distributed to the recipients or a deferral trust, as the case may be, upon
the consummation of the Offerings. If the Restricted Stock does not vest
upon the consummation of the Offerings, then it will vest upon the earliest
of (i) the six-month anniversary of the consummation of the Offerings; (ii)
if occurring during the six-month period following the Offerings,
termination of employment without cause, voluntary termination of employment
with the Company's written approval, death, permanent disability or, in
certain cases, retirement from the Company; (iii) a change of control of the
Company; or (iv) the occurrence of any other event determined by the
Compensation Committee with the written consent of the Management Voting
Trust. Dividends on Restricted Stock are paid on the same basis as ordinary
dividends on the Common Stock and may be distributed to the holders of such
Restricted Stock. 60,000 shares and 45,000 shares of Restricted Stock,
respectively, of Messrs. Vick and Dolan's Restricted Stock awards were
granted to them in December 1997 and are required to be placed in a deferral
trust upon vesting thereof pursuant to the Deferred Compensation Plan. Such
deferral trust will hold the shares prior to their distribution to Messrs.
Vick and Dolan which will occur with respect to 33 1/3% of the shares on
January 15, 2001, with respect to an additional 33 1/3% of the shares on
January 15, 2002, and with respect to the remaining 33 1/3% of the shares on
January 15, 2003. Certain of the named executive officers have voluntarily
elected under the Deferred Compensation Plan to have their Restricted Stock
placed in a deferral trust upon vesting thereof, and to have such shares
distributed to them from such deferral trust at specified times in the
future.
(3) "All other compensation" for 1997 consisted of the Company's contribution
of: (i) $8,000 on behalf of each of the named executive officers (other than
Mr. Dolan) as matching contributions under the Young & Rubicam Employees'
Savings Plan ("Savings Plan") and (ii) an additional $199 and $2,190 on
behalf of Mr. Vick and Mr. Dolan, respectively, as matching contributions
under the Company's Education Incentive Plan (pursuant to which U.S.
employees may elect to have limited amounts of compensation, together with a
Company match, invested in a group annuity insurance contract for purposes
of meeting their children's future education costs). See "-- Savings Plan."
45
<PAGE> 49
During 1997, stock option grants covering 11,469,150 shares in the
aggregate were awarded to 442 employees under the Company's Stock Option Plans.
The option grants in 1997 for the named executive officers are shown in the
following table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
----------------------------------------------------- --------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Peter A. Georgescu.......... -- -- -- -- -- --
Edward H. Vick.............. 172,500(1) 1.5% $12.33 12/17/07 $1,337,973 $3,390,687
John P. McGarry, Jr......... -- -- -- -- -- --
Thomas D. Bell, Jr.......... 176,550(2) 1.5% $12.33 12/17/07 $1,369,387 $3,470,295
Michael J. Dolan............ 150,000(1) 1.3% $12.33 12/17/07 $1,163,455 $2,948,424
</TABLE>
- ------------------------------
(1) These represent non-qualified options granted under the 1997 ICP. Such
options have a ten-year term and will become exercisable with respect to
33 1/3% of the shares subject to any such option on December 31, 2000, with
respect to an additional 33 1/3% of such shares on December 31, 2001 and
with respect to the remaining 33 1/3% of such shares on December 31, 2002.
These options will become fully exercisable with respect to 100% of the
shares subject thereto upon a change in control of the Company (as defined
in the 1997 ICP) or termination of employment due to death or disability.
Upon termination of employment for any other reason, the portion of any such
option that was not exercisable at such time will expire.
(2) This represents a non-qualified option granted under the 1997 ICP. Such
option has a ten-year term and will become exercisable nine years and nine
months from the date of grant, unless Burson-Marsteller, Landor Associates,
Sudler & Hennessey and Cohn & Wolfe achieve a targeted operating profit
budget commitment for the year ending December 31, 1998, in which case it
will become exercisable with respect to 33 1/3% of the shares subject to
such option on December 31, 2000, with respect to an additional 33 1/3% of
such shares on December 31, 2001 and with respect to the remaining 33 1/3%
of such shares on December 31, 2002. This option will become fully
exercisable with respect to 100% of the shares subject thereto upon a change
in control of the Company (as defined in the 1997 ICP) or termination of
employment due to death or disability. Upon termination of employment for
any other reason, the portion of such option that was not exercisable at
such time will expire.
The exercise of options during 1997, number of options held and their value
at year-end for the named executive officers are shown in the following table:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END
ACQUIRED ON VALUE -------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Peter A. Georgescu......... -- -- --/-- --/--
Edward H. Vick............. -- -- 895,245(1)/172,500(2) $9,325,469/--
John P. McGarry, Jr........ 241,110 $1,386,383 --/-- --/--
Thomas D. Bell, Jr. ....... -- -- 1,165,215(1)/176,550(3) $12,137,656/--
Michael J. Dolan........... -- -- 104,340(4)/306,525(5) $486,948/$730,422
</TABLE>
- ------------------------------
(1) This represents a Rollover Option granted under the Management Stock Option
Plan (see "-- Management Stock Option Plan").
(2) See footnote (1) to the option grant table on the preceding page.
(3) See footnote (2) to the option grant table on the preceding page.
(4) This represents a Closing Option granted under the Management Stock Option
Plan (see "-- Management Stock Option Plan").
(5) This represents (i) with respect to 150,000 shares, a non-qualified option
granted under the 1997 ICP with the terms set forth in footnote (1) to the
option grant table on the preceding page and (ii) with respect to 156,525
shares, a Closing Option granted under the Management Stock Option Plan (see
"-- Management Stock Option Plan").
MANAGEMENT STOCK OPTION PLAN. At the time of the Recapitalization, the
Compensation Committee granted an aggregate of 16,823,565 Rollover Options to
certain members of management of Y&R in
46
<PAGE> 50
consideration of their surrender for cancellation of all or a portion of their
outstanding options to purchase equity units of predecessor companies of Y&R, as
well as an aggregate of 5,200,590 Closing Options pursuant to the Management
Stock Option Plan. The Rollover Options were immediately vested and exercisable
upon grant. Each Rollover Option has an exercise price of $1.92 per share of
Common Stock subject to such Rollover Option, with certain limited exceptions
outside the United States, and has a term of five years with respect to 50% of
the shares subject thereto and a term of seven years with respect to the other
50%. Each Closing Option became exercisable immediately with respect to 40% of
the shares subject thereto and will become exercisable (i) on the third
anniversary of its grant date with respect to 30% of such shares and (ii) on the
fifth anniversary of its grant date with respect to the remaining 30% of such
shares. The exercise price for the Closing Options is $7.67 per share of Common
Stock. Since the time of the Recapitalization, the Compensation Committee
granted an aggregate of 1,891,200 additional options with the same terms and
conditions as the Closing Options (such options, together with the Closing
Options, the "Executive Options"). Through April 15, 1998, an aggregate of
754,185 Rollover Options were exercised and the underlying shares repurchased by
the Company and an aggregate of 426,870 Executive Options were forfeited, all in
connection with the termination of the employment of the option holder. In
addition, through April 15, 1998, an aggregate of 4,078,695 shares of Common
Stock were issued upon exercise of Rollover Options and an aggregate of 307,980
shares of Common Stock were issued upon exercise of Executive Options.
Executive Options will not be exercisable after the expiration of ten years
from the date of grant of such Executive Option. Upon termination of employment
for any reason, all Rollover Options and all Executive Options that are then
exercisable will remain exercisable for 30 days and will then be canceled if not
exercised. All Executive Options that have not yet become exercisable will be
canceled immediately on termination of employment.
Among other powers, the Compensation Committee has the authority to
accelerate the right to exercise any or all of the Executive Options, provided
that with respect to the period during which the Recapitalization Investors own
at least 20% of the Outstanding Shares (the "Extended Consent Period"), such
action shall only be effective with the written consent of the Recapitalization
Investors unless such acceleration involves only the waiver of any terms or
conditions not expressly provided for by the Management Stock Option Plan.
No employee may be granted a Rollover Option or Executive Option under the
Management Stock Option Plan unless he or she is or becomes a party to the
Stockholders' Agreement and the Management Voting Trust Agreement, so long as
those agreements are in effect. The Rollover Options and Executive Options are
transferable only by will or intestate succession and upon such a transfer the
transferee must agree to be bound by the Management Stock Option Plan and to
execute any other agreement which the Compensation Committee may prescribe,
including any supplements to the Stockholders' Agreement and Management Voting
Trust Agreement
The Compensation Committee, with the written consent of the
Recapitalization Investors during the Extended Consent Period, and the
Management Voting Trust may at any time terminate the Management Stock Option
Plan or any Rollover Options or Executive Options then outstanding. Upon the
termination of an outstanding Rollover Option or Executive Option, Y&R would pay
cash consideration for each share underlying such Rollover Option or Executive
Option equal to the value of a share of Common Stock less the exercise price per
share and any applicable withholding taxes or other similar charges. The
Compensation Committee may amend the Management Stock Option Plan and the terms
and conditions of the Rollover Options and the Executive Options with the
written consent of the Recapitalization Investors (during the Extended Consent
Period with respect to any amendment accelerating the right to exercise any or
all of the Executive Options or any other amendment improving the terms of the
Rollover Options or Executive Options unless such acceleration or amendment
involves the waiver or amendment of any terms or conditions not expressly
provided for by the Management Stock Option Plan) and the Management Voting
Trust, provided that no amendment may impair the rights of a holder of a
Rollover Option or Executive Option without such holder's consent and that no
amendment may increase the aggregate number of shares of Common Stock which may
be issued pursuant to Rollover Options and Executive Options granted under the
Management Stock Option Plan or change the definition of employees eligible for
grants without the approval of the stockholders of Y&R. However, the
Compensation Committee is authorized to make certain adjustments to
47
<PAGE> 51
the Management Stock Option Plan and any outstanding Rollover Options or
Executive Options in the event of a change in the capitalization of Y&R due to
certain corporate events specified in the Management Stock Option Plan.
Under U.S. tax law, the exercise of any Rollover Option or Executive Option
will be a taxable event for U.S. taxpayers, and Y&R will have withholding
obligations. For purposes of U.S. federal income tax, upon exercise, a holder
will be deemed to have received ordinary income in an amount equal to the
difference between the exercise price of the Rollover Option or Executive
Option, as the case may be, and the fair market value of the shares of Common
Stock received on exercise, and, generally, the Company will be entitled to a
tax deduction in an amount equal to the amount of ordinary income realized by
the holder. In order to exercise either a Rollover Option or Executive Option,
the employee will also need to pay the exercise price. Under the Management
Stock Option Plan, upon exercise of a Rollover Option or Executive Option, the
employee may pay the exercise price either in cash or, subject to the approval
of the Compensation Committee, by (i) delivering a number of shares of Common
Stock already owned by such employee with the appropriate value or (ii) a
recourse note to Y&R with such terms and conditions as the Compensation
Committee may require, including a pledge of the related shares. Further, upon
such exercise of a Rollover or Executive Option, the employee may pay the
withholding taxes or other similar charges which are incurred in connection with
such exercise by the same methods and subject to the same approvals as for the
payment of the exercise price or, in addition, subject to the approval of the
Compensation Committee, by having Y&R withhold a number of shares of Common
Stock of the appropriate value from those to be distributed upon such exercise.
Moreover, if the Compensation Committee consents, the employee may have a number
of shares of Common Stock either withheld from those to be distributed upon
exercise or delivered to Y&R with the appropriate value to satisfy the estimated
total taxes and charges that would be incurred by the employee as a result of
such exercise.
The Company has adopted a new incentive compensation plan that has
superseded the Management Stock Option Plan with respect to all future grants of
options. See "-- 1997 ICP" below.
THE RESTRICTED STOCK PLAN AND TRUST AGREEMENT. Pursuant to the Restricted
Stock Plan, upon consummation of the Recapitalization, Y&R issued a total of
11,086,950 shares of Common Stock to the Restricted Stock Trust. Common Stock
held in the Restricted Stock Trust may be granted as Restricted Stock by the
Compensation Committee pursuant to the Restricted Stock Plan. Immediately after
closing of the Recapitalization, the Compensation Committee allocated an
aggregate of 6,172,440 shares of Restricted Stock to certain key employees.
Since the time of the Recapitalization, the Compensation Committee has further
allocated an aggregate of 2,528,865 shares of Restricted Stock through December
31, 1997, including 1,832,235 shares of Restricted Stock in December 1997. An
aggregate of 254,385 shares of Restricted Stock has been forfeited since the
Recapitalization as a result of the termination of the employment of the
Restricted Stock grantee. In January 1998, the Compensation Committee allocated
an aggregate of 368,595 shares of Restricted Stock to members of senior
management, including to each of the named executive officers. Such allocations
were made to the recipients in lieu of target bonus increases and/or salary
increases in 1997 and 1998. In 1998, the Compensation Committee also allocated
an additional 415,590 shares of Restricted Stock under the Restricted Stock
Plan. Upon any such award, an account is established in the Restricted Stock
Trust for such employee and the appropriate number of shares of Restricted Stock
is allocated to such account.
The Company Board has elected to accelerate the vesting of the Restricted
Stock to the date on which the Offerings are consummated and the amounts held in
each such employee's account in the Restricted Stock Trust will be distributed
to such employees or to a deferral trust pursuant to the Deferred Compensation
Plan on such date, provided there is market demand for the sale by the
Management Investors of a sufficient number of shares of Restricted Stock as is
necessary to fund their personal tax liabilities associated with the vesting of
the Restricted Stock. If the Restricted Stock does not vest upon the
consummation of the Offerings, then it will vest upon the earliest of (i) the
six-month anniversary of the consummation of the Offerings; (ii) if occurring
during the six-month period following the Offerings, termination of employment
without cause, voluntary termination of employment with the Company's written
approval, death, permanent disability or, in certain cases, retirement from the
Company; (iii) a change of control of the Company; or (iv) the occurrence
48
<PAGE> 52
of any other event determined by the Compensation Committee with the written
consent of the Management Voting Trust. With respect to any award granted within
six months of a vesting event outlined above, the Compensation Committee may
provide that such award will not vest upon such vesting event. Restricted Stock
awards may also be subject to other conditions as may be prescribed by the
Compensation Committee in the agreement evidencing such awards.
Shares of Restricted Stock granted in December 1997 will vest as described
above, and recipients of such 1,832,235 shares of Restricted Stock, as a
condition to such grant, will be required to place such shares in a deferral
trust upon vesting (subject to the claims of the creditors of the Company in the
event of its insolvency) pursuant to the Deferred Compensation Plan. Such
deferral trust will hold the shares prior to their distribution to such
recipients which will occur with respect to 33 1/3% of the shares on January 15,
2001, with respect to an additional 33 1/3% of the shares on January 15, 2002
and with respect to the remaining 33 1/3% of the shares on January 15, 2003.
Upon termination of employment for any reason prior to vesting an employee
will forfeit all unvested Restricted Stock granted to him or her without
consideration on the date of such termination.
Dividends payable in cash with respect to Restricted Stock awarded to an
employee may be remitted to such employee (less any applicable withholding tax
or other similar changes) as the Compensation Committee, in its sole discretion,
may determine. Any non-cash dividend with respect to Restricted Stock shall
remain in the Restricted Stock Trust and shall be credited to the account of the
employee to whom any such Restricted Stock has been awarded. While the
Management Voting Trust Agreement is in effect, all Restricted Stock shall be
delivered to the Management Voting Trust and voted in accordance with the
provisions of the Management Voting Trust Agreement. After the Management Voting
Trust Agreement is no longer in effect, each employee who has been awarded
Restricted Stock shall be entitled to instruct the trustee of the Restricted
Stock Trust as to the voting of such Restricted Stock held in his account.
Restricted Stock as to which no voting instructions are received by the trustee
or which have not been granted to any employee shall be voted by the trustee pro
rata in accordance with the vote of the Restricted Stock which has been granted
as to which voting instructions have been given.
Among other powers, the Compensation Committee shall have the authority to
accelerate the vesting of all awards and the release of the related Restricted
Stock.
No employee may be granted an award of Restricted Stock under the
Restricted Stock Plan unless he or she is or becomes a party to the
Stockholders' Agreement and the Management Voting Trust Agreement, so long as
those agreements are in effect. Subject to the following sentence, Restricted
Stock granted to an employee and held in the Restricted Stock Trust is not
transferable and any attempt to transfer such Restricted Stock may lead to its
forfeiture without consideration. Restricted Stock which vests as a result of
the death of the employee during the six-month period after an initial public
offering may be transferred by will or intestate succession and upon such a
transfer the transferee must agree to be bound by the Restricted Stock Plan and
to execute any other agreement which the Compensation Committee may prescribe,
including any supplements to the Stockholders' Agreement and Management Voting
Trust Agreement.
The Compensation Committee, with the written consent of the Management
Voting Trust, may at any time terminate the Restricted Stock Plan or any awards
of Restricted Stock then outstanding. Upon the termination of the Restricted
Stock Plan or of an outstanding award of Restricted Stock, the Compensation
Committee may, with the written consent of the Management Voting Trust, either
declare that a vesting event has occurred and release Restricted Stock to
employees or cause Y&R to pay an amount in cash equal to the value of the
Restricted Stock subject to such terminated award minus any applicable
withholding taxes or other similar charges. Within two years of any such
termination of the Restricted Stock Plan, the Compensation Committee shall
distribute any unawarded Restricted Stock remaining in the Restricted Stock
Trust to such employees as it may designate. In no event shall any Restricted
Stock revert to Y&R as a result of the termination of the Restricted Stock Plan
or any award of Restricted Stock. The Compensation Committee may amend the
Restricted Stock Plan and the terms and conditions of any awards of Restricted
Stock with the written consent of the Management Voting Trust, provided that no
amendment may impair the rights of a holder of any such award without such
holder's consent. However, the Compensation Committee is
49
<PAGE> 53
authorized to make certain adjustments to the Restricted Stock Plan and any
outstanding awards of Restricted Stock in the event of a change in the
capitalization of Y&R due to certain corporate events specified in the
Restricted Stock Plan.
Under U.S. tax law, the vesting and distribution of the Restricted Stock
will be a taxable event for U.S. taxpayers, and Y&R will have withholding
obligations. For purposes of U.S. federal income tax, an award holder will be
deemed to have received ordinary income in an amount equal to the fair market
value of the shares of Common Stock received and, generally, the Company will be
entitled to a tax deduction in an amount equal to the amount of ordinary income
realized by the award holder. Under the Restricted Stock Plan, upon the vesting
and receipt of Restricted Stock, the employee may pay the withholding taxes or
other similar charges either in cash or, subject to the approval of the
Compensation Committee, by (i) delivering a number of shares of Common Stock
already owned by such employee with the appropriate value, (ii) a recourse note
to Y&R with such terms and conditions as the Compensation Committee may require,
including a pledge of the related shares or (iii) having a number of shares of
Restricted Stock of the appropriate value withheld from those to be distributed.
Moreover, if the Compensation Committee consents, the employee may have a number
of shares of Common Stock either withheld from those to be distributed or
delivered to Y&R with the appropriate value to satisfy the estimated total taxes
and charges that would be incurred by the employee as a result of such vesting
and distribution.
The Company has adopted a new incentive compensation plan that has amended
and restated the Restricted Stock Plan with respect to all grants made
subsequent to March 31, 1998. See "-- 1997 ICP" below. In order to assist the
Company and its affiliates in meeting various cash compensation obligations of
the Company and its affiliates, the Company has amended the agreement governing
the Restricted Stock Trust to provide for cash distributions to be made from the
Restricted Stock Trust to pay salaries and for the benefit of participants in
various annual bonus programs as the Compensation Committee may direct, and to
permit the trustee of the Restricted Stock Trust to require the Company to
purchase unallocated shares of Common Stock held therein such that proceeds from
the sale are sufficient to make such salary and bonus payments. Pursuant to such
amendment, the Company will repurchase the remaining 1,855,845 unallocated
shares of Common Stock in the Restricted Stock Trust upon the consummation of
the Offerings.
1997 ICP. In December 1997, the Company adopted the 1997 Incentive
Compensation Plan (the "1997 ICP"). The 1997 ICP has superseded the Management
Stock Option Plan and has amended and restated the Restricted Stock Plan (the
Management Stock Option Plan and the Restricted Stock Plan (prior to such
amendment and restatement), the "Preexisting Plans"), although all awards
granted prior to the adoption of the 1997 ICP, and any grants of Restricted
Stock made after such adoption but on or prior to March 31, 1998, will remain
outstanding in accordance with their terms and be subject to the terms of the
Preexisting Plans.
The Board believes that attracting and retaining key employees is essential
to the Company's growth and success. In addition, the Board believes that the
long-term success of the Company is enhanced by a competitive and comprehensive
compensation program, which may include tailored types of incentives designed to
motivate and reward such persons for outstanding service, including awards that
link compensation to applicable measures of the Company's performance and the
creation of stockholder value. Such awards should enable the Company to attract
and retain key employees and enable such persons to acquire and/or increase
their proprietary interest in the Company and thereby align their interests with
the interests of the Company's stockholders. In addition, the Board believes
that the Compensation Committee should be given as much flexibility as possible
to provide for annual and long-term incentive awards contingent on performance.
The Company granted non-qualified options to employees to purchase an
aggregate of 9,577,950 shares of Common Stock in December 1997 under the 1997
ICP. Such options have an exercise price equal to $12.33 per share, which
represents the fair market value of the Common Stock as of the date of grant
(which takes into account that prior to the Offerings, the Company was privately
held and that the shares were subject to contractual transfer restrictions, but
does not give effect to the applicable put and call provisions of the
Stockholders' Agreement). These options will expire if not exercised ten years
after the date of grant and will
50
<PAGE> 54
be fully exercisable with respect to 33 1/3% of the shares subject to such
option on December 31, 2000, with respect to an additional 33 1/3% of such
shares on December 31, 2001, and with respect to the remaining 33 1/3% of such
shares on December 31, 2002. Out of the options granted in December 1997,
options to purchase 975,600 and 176,550 shares of Common Stock, respectively,
granted to employees of Burson-Marsteller will not become exercisable until nine
years and nine months from the date of their grant, unless Burson-Marsteller or
the group of Burson-Marsteller, Landor Associates, Sudler & Hennessey and Cohn &
Wolfe, as the case may be, achieves a targeted operating profit budget
commitment for the year ending December 31, 1998, in which case the vesting
schedule set forth in the previous sentence will apply to such options. All of
these options will become fully exercisable with respect to 100% of the shares
subject thereto upon a change in control of the Company (as defined in the 1997
ICP) or termination of employment due to death or disability. Upon termination
of employment for any other reason, the portion of any such option that was not
exercisable at such time will expire.
The following is a description of the material features of the 1997 ICP.
Types of Awards. The terms of the 1997 ICP provide for grants of stock
options, stock appreciation rights ("SARs"), restricted stock, deferred stock,
other stock-related awards, and performance or annual incentive awards that may
be settled in cash, stock or other property ("Awards").
Shares Subject to the 1997 ICP; Annual Per-Person Limitations. Under the
1997 ICP, the total number of shares of the Common Stock reserved and available
for delivery to participants in connection with Awards is (i) 19,125,000, plus
(ii) the number of shares of Common Stock subject to awards under Preexisting
Plans that become available (generally due to cancellation or forfeiture) after
the effective date of the 1997 ICP; provided, however, that the total number of
shares of Common Stock with respect to which incentive stock options ("ISOs")
may be granted shall not exceed one million. Any shares of Common Stock
delivered under the 1997 ICP may consist of authorized and unissued shares or
treasury shares.
The 1997 ICP imposes individual limitations on the amount of certain Awards
in order to comply with Section 162(m) of the Internal Revenue Code (the
"Code"). Under these limitations, during any fiscal year the number of options,
SARs, shares of restricted stock, shares of deferred stock, shares of Common
Stock issued as a bonus or in lieu of other obligations, and other stock-based
Awards granted to any one participant must not exceed 200,000 shares for each
type of such Award, subject to adjustment in certain circumstances. In addition,
the maximum cash amount that may be earned as a final annual incentive award or
other annual cash Award in respect of any fiscal year by any one participant and
the maximum cash amount that may be earned as a final performance award or other
cash Award in respect of a performance period other than an annual period by any
one participant may not exceed $10 million. The Company intends for Awards
granted to "covered employees (as defined in Section 162(m)) under the 1997 ICP
to qualify as "performance-based compensation" (as defined in Section 162(m) and
regulations thereunder) for purposes of Section 162(m) to the extent such Awards
may otherwise be subject thereto.
The Compensation Committee is authorized to adjust the number and kind of
shares subject to the aggregate share limitations and annual limitations under
the 1997 ICP and subject to outstanding Awards (including adjustments to
exercise prices and number of shares of options and other affected terms of
Awards) in the event that a dividend or other distribution (whether in cash,
shares, or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or event affects the
Common Stock so that an adjustment is determined by the Compensation Committee
to be appropriate. The Compensation Committee is also authorized to adjust
performance conditions and other terms and conditions of Awards in response to
these kinds of events or in response to changes in applicable laws, regulations,
or accounting principles or in view of any other circumstances deemed relevant
by the Compensation Committee; provided that no such adjustment may be made if
and to the extent if would cause Awards to "covered employees" intended to so
qualify to fail to qualify as "performance-based compensation" for purposes of
Section 162(m) of the Code.
Eligibility. Executive officers and other officers and employees of the
Company or any affiliate, including any such person who may also be a director
of the Company, and each other person who provides services to the Company or
any affiliate shall be eligible to be granted Awards under the 1997 ICP. An
affiliate
51
<PAGE> 55
of the Company for this purpose includes any entity required to be aggregated
with the Company under Section 414 of the Code and any 10% owned joint venture
or partnership of the Company or an affiliate.
Administration. The 1997 ICP is administered by the Compensation Committee
except to the extent the Board elects to administer the 1997 ICP. Subject to the
terms and conditions of the 1997 ICP, the Compensation Committee is authorized
to select participants, determine the type and number of Awards to be granted
and the number of shares of Common Stock to which Awards will relate, specify
times at which Awards will be exercisable or settleable (including performance
conditions that may be required as a condition thereof), set other terms and
conditions of such Awards, prescribe forms of Award agreements, interpret and
specify rules and regulations relating to the 1997 ICP, and make all other
determinations that may be necessary or advisable for the administration of the
1997 ICP. The 1997 ICP provides that Compensation Committee members shall not be
personally liable, and shall be fully indemnified, in connection with any
action, determination, or interpretation taken or made in good faith under the
1997 ICP.
Stock Options and SARs. The Compensation Committee is authorized to grant
stock options, including both ISOs that can result in potentially favorable tax
treatment to the participant and non-qualified stock options (i.e., options not
qualifying as ISOs), and SARs entitling the participant to receive the excess of
the fair market value of a share of Common Stock on the date of exercise over
the grant price of the SAR. The exercise price per share subject to an option
and the grant price of an SAR is determined by the Compensation Committee, but
must not be less than the fair market value of a share of Common Stock on the
date of grant (except to the extent of in-the-money awards or cash obligations
surrendered by the participant at the time of grant). The maximum term of each
option or SAR, the times at which each option or SAR will be exercisable, and
provisions requiring forfeiture of unexercised options or SARs at or following
termination of employment generally is fixed by the Compensation Committee,
except no option or SAR may have a term exceeding ten years. Options may be
exercised by payment of the exercise price in cash, Common Stock, outstanding
Awards, or other property (possibly including notes or obligations to make
payment on a deferred basis) having a fair market value equal to the exercise
price, as the Compensation Committee may determine from time to time. Methods of
exercise and settlement and other terms of the SARs are determined by the
Compensation Committee.
Restricted and Deferred Stock. The Compensation Committee is authorized to
grant restricted stock and deferred stock. Restricted stock is a grant of Common
Stock which may not be sold or disposed of, and which may be forfeited in the
event of certain terminations of employment and/or failure to meet certain
performance requirements prior to the end of a restricted period as specified by
the Compensation Committee. A participant granted restricted stock generally has
all of the rights of a shareholder of the Company, including the right to vote
the shares and to receive dividends thereon, unless otherwise determined by the
Compensation Committee. An Award of deferred stock confers upon a participant
the right to receive shares or cash (or a combination) at the end of a specified
deferral period, subject to possible forfeiture of the Award in the event of
certain terminations of employment and/or failure to meet certain performance
requirements prior to the end of a specified period (which period need not
extend for the entire duration of the deferral period). Prior to settlement, an
Award of deferred stock carries no voting or dividend rights or other rights
associated with share ownership, although dividend equivalents may be granted,
as discussed below.
Dividend Equivalents. The Compensation Committee is authorized to grant
dividend equivalents conferring on participants the right to receive cash,
shares, other Awards, or other property equal in value to dividends paid on a
specific number of shares, or other periodic payments. Dividend equivalents may
be granted on a free-standing basis or in connection with another Award, may be
paid currently or on a deferred basis, and, if deferred, may be deemed to have
been reinvested in additional shares, Awards, or other investment vehicles
specified by the Compensation Committee.
Bonus Stock and Awards in Lieu of Cash Obligations. The Compensation
Committee is authorized to grant shares as a bonus free of restrictions, or to
grant shares or other Awards in lieu of obligations to pay cash or deliver other
property under the 1997 ICP or other plans or compensatory arrangements, subject
to such terms as the Compensation Committee may specify.
52
<PAGE> 56
Other Stock-Based Awards. The 1997 ICP authorizes the Compensation
Committee to grant Awards that are denominated or payable in, valued by
reference to, or otherwise based on or related to shares. Such Awards might
include convertible or exchangeable debt securities, other rights convertible or
exchangeable into shares, purchase rights for shares, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Compensation Committee, and Awards valued by reference to the
book value of shares or the value of securities of or the performance of
specified affiliates. The Compensation Committee determines the terms and
conditions of such Awards, including consideration to be paid to exercise Awards
in the nature of purchase rights, the period during which Awards will be
outstanding, and forfeiture conditions and restrictions on Awards.
Performance Awards, Including Annual Incentive Awards. The right of a
participant to exercise or receive a grant or settlement of an Award, and the
timing thereof, may be subject to such performance conditions as may be
specified by the Compensation Committee (measurable over performance periods of
up to 10 years). In addition, the 1997 ICP authorizes specific annual incentive
awards, which represent a conditional right to receive cash, shares or other
Awards upon achievement of preestablished performance goals during a specified
one-year period. Performance awards and annual incentive awards granted to
persons the Compensation Committee expects will, for the year in which a
deduction arises, be among the Chief Executive Officer and four other most
highly compensated executive officers, will, if so intended by the Compensation
Committee, be subject to provisions that should qualify such Awards as
"performance-based compensation" not subject to the limitation on tax
deductibility by the Company under Code Section 162(m).
The performance goals to be achieved as a condition of payment or
settlement of a performance award or annual incentive award will consist of (i)
one or more business criteria and (ii) a targeted level or levels of performance
with respect to each such business criteria as specified by the Committee. In
the case of performance awards intended to meet the requirements of Code Section
162(m), the business criteria used must be one of those specified in the 1997
ICP, although for other participants the Compensation Committee may specify any
other criteria. The business criteria specified in the 1997 ICP are: (1)
earnings per share; (2) increase in revenues; (3) cash flow; (4) cash flow
return on investment; (5) return on net assets, return on assets, return on
investment, return on capital, return on equity; (6) economic value added; (7)
operating margin; (8) net income, net income before taxes, operating profits,
earnings before interest, taxes and amortization, earnings before interest,
taxes, depreciation and amortization; (9) total shareholder return; (10) ratio
of staff cost to revenues or gross margin; and (11) any of the above goals as
compared to the performance of a published or special index deemed applicable by
the Compensation Committee including, but not limited to, the Standard & Poor's
500 Stock Index or a group of comparator companies.
In granting annual incentive or performance awards, the Compensation
Committee shall establish a performance goal or goals and may establish unfunded
award "pools," the amounts of which will be based upon the achievement of such
performance goal or goals using one or more of the business criteria described
in the preceding paragraph. During the first 90 days of a fiscal year or
performance period, the Compensation Committee will determine who will
potentially receive annual incentive or performance awards for that fiscal year
or performance period, either out of the pool or otherwise, and the amounts
potentially payable with respect thereto. After the end of each fiscal year or
performance period, the Compensation Committee will determine the amount, if
any, of the pool and the maximum amount of potential annual incentive or
performance awards payable to each participant in the pool, or the amount of any
potential annual incentive or performance award otherwise payable to a
participant. The Compensation Committee may, in its discretion, determine that
the amount payable as a final annual incentive or performance award will be
increased or reduced from the amount of any potential Award, but may not
exercise discretion to increase any such amount in the case of an Award intended
to qualify under Code Section 162(m).
Subject to the requirements of the 1997 ICP, the Compensation Committee
will determine other performance award and annual incentive award terms,
including the required levels of performance with respect to the business
criteria, the corresponding amounts payable upon achievement of such levels of
performance, termination and forfeiture provisions, and the form of settlement.
53
<PAGE> 57
Other Terms of Awards. Awards may be settled in the form of cash, Common
Stock, other Awards, or other property, in the discretion of the Compensation
Committee. The Compensation Committee may require or permit participants to
defer the settlement of all or part of an Award in accordance with such terms
and conditions as the Compensation Committee may establish, including payment or
crediting of interest or dividend equivalents on deferred amounts, and the
crediting of earnings, gains, and losses based on deemed investment of deferred
amounts in specified investment vehicles. The Compensation Committee is
authorized to place cash, shares, or other property in trusts or make other
arrangements to provide for payment of the Company's obligations under the 1997
ICP. The Compensation Committee may condition any payment relating to an Award
on the withholding of taxes and may provide that a portion of any shares or
other property to be distributed will be withheld (or previously acquired shares
or other property surrendered by the participant) to satisfy withholding and
other tax obligations. Awards granted under the 1997 ICP generally may not be
pledged or otherwise encumbered and are not transferable except by will or by
the laws of descent and distribution, or to a designated beneficiary upon the
participant's death, except that the Compensation Committee may, in its
discretion, permit transfers for estate planning or other purposes.
Awards under the 1997 ICP are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Compensation Committee may, however, grant Awards in exchange for other Awards
under the 1997 ICP, awards under other plans of the Company, or other rights to
payment from the Company, and may grant Awards in addition to and in tandem with
such other Awards, awards, or rights as well.
The Compensation Committee may cancel or rescind Awards, or require
repayment of any profits resulting from Awards, if the participant fails to
comply with certain restrictive or other covenants set forth in the 1997 ICP
and/or an Award agreement.
Acceleration of Vesting. The Compensation Committee may, in its
discretion, accelerate the exercisability, the lapsing of restrictions, or the
expiration of deferral or vesting periods of any Award, and such accelerated
exercisability, lapse, expiration and vesting shall occur automatically in the
case of a "change in control" of the Company except to the extent otherwise
provided in the Award agreement. In addition, the Compensation Committee may
provide that the performance goals relating to any performance-based award will
be deemed to have been met upon the occurrence of any change in control. "Change
in control" is defined in the 1997 ICP to include (i)(x) any person (other than
the Company, certain companies owned by the stockholders of the Company or any
employee benefit plans of the Company) becoming the beneficial owner of
securities representing 40% or more of the combined voting power of the
Company's then outstanding securities and (y) so long as the Management Voting
Trust is still in existence, representing a greater percentage of the combined
voting power of the Company's then outstanding securities than is represented by
securities held by the Management Voting Trust, provided, that all shares of
Common Stock subject to vested options under the 1997 ICP and the Management
Stock Option Plan (not including options which would vest on such change in
control) are counted as outstanding securities of the Company; (ii) during a
two-year period, individuals who constitute the Board at the start of such
period, and any new director whose election or nomination for election to the
Board was approved by a vote of at least two-thirds of the directors then in
office who either were directors at the start of such period or whose election
or nomination was previously so approved (excluding directors whose elections
were as a result of certain proxy contests or who were designated by any entity
who had entered into a change in control agreement with the Company), ceasing to
constitute a majority of the Board; (iii) the consummation of a merger or
consolidation of the Company with another entity which would result in either
(A) the voting securities of the Company outstanding immediately prior to such
merger or consolidation failing to represent (either by remaining outstanding or
being converted into voting securities of the surviving or resulting entity) 40%
or more of the combined voting power of the surviving or resulting entity
outstanding immediately after such merger or consolidation or (B)(I) the voting
securities of the Company outstanding immediately prior to such merger or
consolidation continuing to represent at least 40% but less than 60% of the
combined voting power of the surviving or resulting entity outstanding
immediately after such merger or consolidation and (II) as a result of such
merger or consolidation, there is an acceleration of the vesting or
exercisability of any material amount of, or material
54
<PAGE> 58
percentage of, outstanding stock options or other stock awards granted by the
entity with which such merger or consolidation is taking place or any of its
affiliates; (iv) the stockholders of the Company approve a plan or agreement for
the sale or disposition of all or substantially all of the consolidated assets
of the Company (other than a sale or disposition immediately after which such
assets will be owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of common stock of the
Company immediately prior thereto) in which case the Board shall determine the
effective date of the change in control; or (v) any other event which the Board
determines, in its discretion, would materially alter the structure of the
Company or its ownership. A change in control will also be deemed to have
occurred immediately prior to the consummation of (i) a tender offer for
securities of the Company representing more than 50% of the combined voting
power of the Company's then outstanding securities in which there is not
disclosed an intention to follow the consummation of the tender offer with a
merger, reorganization, consolidation, share exchange or similar transaction or
(ii) a tender offer for securities of the Company representing any percentage of
the combined voting power of the Company's then outstanding securities in which
there is disclosed an intention to follow the consummation of the tender offer
with a merger, reorganization, consolidation, share exchange or similar
transaction in which the value of the consideration to be offered for such
securities is lower than the value of the consideration offered for such
securities in the tender offer (as determined by the Board at the time) in order
to allow holders of previously unexercisable Options the opportunity to
participate therein with respect to shares underlying such Options.
Amendment and Termination of the 1997 ICP. The Board may amend, alter,
suspend, discontinue, or terminate the 1997 ICP or the Compensation Committee's
authority to grant Awards without the consent of shareholders or participants,
except shareholder approval must be obtained for any amendment or alteration if
required by law or regulation or under the rules of any stock exchange or
automated quotation system on which the shares are then listed or quoted and
participant consent must be obtained if such action would materially and
adversely affect the rights of a participant under an outstanding Award.
Shareholder approval will not be deemed to be required under laws or
regulations, such as those relating to ISOs, that condition favorable treatment
of participants on such approval, although the Board may, in its discretion,
seek shareholder approval in any circumstance in which it deems such approval
advisable. Thus, shareholder approval will not necessarily be required for
amendments that might increase the cost of the 1997 ICP or broaden eligibility.
The Committee may amend, alter, suspend, discontinue or terminate any
outstanding Award or Award agreement, except as otherwise provided in the 1997
ICP. Participant consent must be obtained if such action would materially and
adversely affect the rights of a participant under such Award. Notwithstanding
the foregoing, the Compensation Committee may terminate any outstanding Award in
whole or in part, provided that upon such termination the Company pays to such
Participant (i) with respect to an option (whether or not exercisable) or
portion thereof, an amount in cash for each share of Common Stock subject to
such option or portion thereof being terminated equal to the excess, if any, of
(a) the value at which a share of Common Stock received pursuant to the exercise
of such option would have been valued by the Company at that time for purposes
of determining applicable withholding taxes or other similar charges, over
(b) the sum of the exercise price per share of such option and applicable
withholding taxes and other similar charges, and (ii) with respect to any other
type of Award, an amount in Common Stock or cash (as determined by the
Compensation Committee in its sole discretion) equal to the value of such Award
or portion thereof being terminated as of the date of termination (assuming the
acceleration of the exercisability of such Award or portion thereof, the lapsing
of any restrictions on such Award or portion thereof or the expiration of any
deferral or vesting period of such Award or portion thereof) as determined by
the Compensation Committee in its sole discretion.
Federal Income Tax Implications. The following is a summary description of
the federal income tax consequences generally arising with respect to Awards
under the 1997 ICP.
The grant of an option or SAR will create no tax consequences for the
participant or the Company. A participant will not generally recognize taxable
income upon exercising an ISO (except that the alternative minimum tax may
apply). Upon exercising an option other than an ISO, the participant must
generally recognize ordinary income equal to the difference between the exercise
price and fair market value of the freely transferable and nonforfeitable shares
acquired on the date of exercise. Upon exercising an SAR, the
55
<PAGE> 59
participant must generally recognize ordinary income equal to the cash or the
fair market value of the freely transferable and nonforfeitable shares received.
Upon a disposition of shares acquired upon exercise of an ISO before the
end of the applicable ISO holding periods, the participant must generally
recognize ordinary income equal to the lesser of (i) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price, or (ii)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participant's disposition of shares acquired upon the
exercise of an option (including an ISO for which the ISO holding periods are
met) or SAR generally will result in short-term or long-term capital gain or
loss measured by the difference between the sale price and the participant's tax
basis in such shares (the tax basis generally being the exercise price plus any
amount previously recognized as ordinary income in connection with the exercise
of the option or SAR).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an
option or SAR. The Company generally is not entitled to a tax deduction relating
to amounts that represent a capital gain to a participant. Accordingly, the
Company will not be entitled to any tax deduction with respect to an ISO if the
participant holds the shares for the ISO holding periods prior to disposition of
the shares.
With respect to Awards granted under the 1997 ICP that result in the
payment or issuance of cash or shares or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares or other property received. Thus,
deferral of the time of payment or issuance will generally result in the
deferral of the time the participant will be liable for income taxes with
respect to such payment or issuance. The Company generally will be entitled to a
deduction in an amount equal to the ordinary income recognized by the
participant.
With respect to Awards involving the issuance of shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the fair market value of the shares or other property received at the first time
the shares or other property becomes transferable or is not subject to a
substantial risk of forfeiture, whichever occurs earlier. A participant may
elect to be taxed at the time of receipt of shares or other property rather than
upon lapse of restrictions on transferability or substantial risk of forfeiture,
but if the participant subsequently forfeits such shares or property, the
participant would not be entitled to any tax deduction, including as a capital
loss, for the value of the shares or property on which he previously paid tax.
The participant must file such election with the Internal Revenue Service within
30 days of the receipt of the shares or other property. The Company generally
will be entitled to a deduction in an amount equal to the ordinary income
recognized by the participant.
Awards that are granted, accelerated or enhanced upon the occurrence of a
change in control may give rise, in whole or in part, to "excess parachute
payments" within the meaning of Section 280G of the Code and, to such extent,
will be non-deductible by the Company and subject to a 20% excise tax by the
participant.
DEFERRED COMPENSATION PLAN. In December 1997, the Company also adopted the
Deferred Compensation Plan in order to permit certain members of a select group
of management or highly compensated employees of the Company and its affiliates
to defer receipt of specified portions of compensation (either cash, stock or
stock-based compensation) and to have such deferred amounts treated as if
invested in specified investment vehicles, all in accordance with the terms of
the Deferred Compensation Plan. Amounts deferred under the Deferred Compensation
Plan will be distributed to a participant as soon as practicable after the date
or dates (including upon the occurrence of specified events), and in such number
of installments, as may be elected by the participant or earlier in the case of
Retirement, Disability or a Change in Control (as defined in the 1997 ICP). The
Deferred Compensation Plan will be "unfunded". However, the Compensation
Committee has authorized the creation of a trust to aid in meeting the Company's
obligations thereunder. Such trust will be subject to the claims of the
creditors of the Company in the event of the Company's insolvency.
CAREER CASH BALANCE PLAN (THE "CCB PLAN"). The CCB Plan is a defined
benefit plan available to all employees of the Company and its participating
affiliates. Subject to certain limitations, most vested
56
<PAGE> 60
retirement benefits available under the CCB Plan are insured by the Pension
Benefit Guaranty Corporation. The Company pays the full cost of the benefit
provided under the CCB Plan. Eligible retired employees may begin receiving full
CCB Plan benefits at or after age 60 if he or she had at least five years of
service. Alternatively a reduced benefit is payable at age 55 at the election of
the participant. Under the CCB Plan, effective July 1, 1996, the Company
annually credits to each participant's account 3.2% of the participant's salary.
Salary is defined to include base salary or wages and excludes bonus, overtime,
commissions and other special compensation. The Company will credit to each
account interest equal to the average 1-year U.S. Treasury Bill interest rate
for the month of November for the previous calendar year, rounded up to the
nearest tenth of a percent, up to a maximum average of $150,000, multiplied by
the number of benefit years (equal to twelve months of service or 2,280 hours).
If the present value of the earned benefit at the time of termination is less
than $3,500, the participant receives a lump sum distribution from the Company.
If the earned benefit is greater than $3,500, the cash balance account is
payable as a lump sum in cash or as an annuity (under certain circumstances) to
the participant for reinvestment in other qualified plans prior to retirement at
the participant's election, or for distribution upon retirement. CCB Plan
benefits are not reduced by Social Security benefits. Loans cannot be taken from
the CCB Plan.
The estimated annual benefits payable upon retirement at normal retirement
age for the named executive officers are as follows: Mr. Georgescu -- $18,756,
Mr. Vick -- $3,384, Mr. McGarry -- $18,756, Mr. Bell -- $4,632, and Mr.
Dolan -- $1,152.
SAVINGS PLAN. The Savings Plan is a defined contribution plan to which
employees may make contributions after one hour of service with the Company and
to which the Company will make matching contributions on behalf of employees who
have completed at least 1,000 hours of service with the Company. Eligible
employees may choose to save up to 15% of their base pay and up to 10% of their
additional pay (e.g., overtime, bonus, etc.) in any calendar year. Eligible
employees can elect the amount of base pay they want to contribute to the
Savings Plan through payroll deductions and can elect to save with before-tax
and/or after-tax dollars. The Company matches employee contributions
dollar-for-dollar at year-end up to the first 5% of annual base pay, provided
the eligible participant is employed at year-end. Savings Plan accounts
(consisting of employee contributions, Company contributions and earnings) grow
on a tax-deferred basis. Such accounts can be invested by the participant in any
of the investment options made available by the Company from time to time.
SELECTED EXECUTIVE RETIREMENT INCOME PLAN ("SERIP"). The SERIP is a
supplemental executive retirement arrangement for selected members of senior
management under separate contracts with the Company. Subject to certain
non-competition and non-solicitation provisions, cash payments in a fixed annual
amount varying as to each individual will be made to a participant whose rights
have vested in accordance with his agreement when such participant's employment
terminates or when he reaches a specified age (typically 60), whichever occurs
later. Payments are made for the balance of the participant's life and, if fewer
than ten annual payments are made during the participant's life, his beneficiary
will receive the balance of the payments until ten annual payments are made. The
Company's obligations to participants under the SERIP are subordinate in right
of payment to its obligations to senior lenders and certain other creditors.
The estimated annual benefits payable upon retirement at normal retirement
age for the named executive officers are as follows: Mr.
Georgescu -- $1,050,000, Mr. Vick -- $300,000, Mr. McGarry -- $200,000, Mr.
Bell -- none, and Mr. Dolan -- none.
THE YOUNG & RUBICAM PROFIT SHARING PLAN (INACTIVE) (THE "PROFIT SHARING
PLAN"). The Profit Sharing Plan is a defined contribution plan which has been
inactive since 1975 and is being continued only for the benefit of current and
former employees (and their beneficiaries) who still have Profit Sharing Plan
account balances. Participants can direct the investment of their Profit Sharing
Plan account balances in any of the investment options made available by the
Company from time to time. Certain named executive officers have accrued
benefits under the Profit Sharing Plan but no additional accruals have been made
for their accounts since 1975. The Company recently merged the Profit Sharing
Plan into the Savings Plan.
57
<PAGE> 61
EMPLOYMENT AND TERMINATION OF EMPLOYMENT ARRANGEMENTS. The Company and
Michael Dolan entered into a letter agreement, as amended, regarding Mr. Dolan's
principal terms of employment with the Company as Vice Chairman and Chief
Financial Officer. This letter agreement entitles Mr. Dolan to an annual base
salary and eligibility for a bonus under the Key Corporation Managers Bonus Plan
as well as to the same perquisites and benefits under Company policies as other
employees of the same rank. This letter agreement also provides that if Mr.
Dolan should die while in the employ of the Company prior to the consummation of
an initial public offering, the Company will treat as vested all shares of
Restricted Stock and options to purchase Common Stock to the extent necessary to
realize a value of $1,500,000 to Mr. Dolan.
Under the Management Voting Trust Agreement, Y&R has agreed to give each
Management Investor, including each named executive officer, six months
severance pay upon termination of employment for any reason other than for
cause, but each Management Investor is required to waive any possible right to
more than six months severance pay (and any claims for damages under any
employment agreement). Upon termination of the Management Voting Trust, in the
event of termination of employment, the named executive officers may be eligible
to receive severance pay of up to 13 weeks base salary (based upon length of
service) pursuant to a severance plan previously established for U.S. employees
of the Company.
The Management Voting Trust has the unqualified right and power to vote and
to execute consents with respect to all shares of Common Stock held by the
Management Voting Trust. The voting rights of the Management Voting Trust will
be exercised by certain members of senior management of Y&R, as Voting Trustees.
The Voting Trustees are Peter A. Georgescu, Stephanie W. Abramson, Thomas D.
Bell, Jr., Michael J. Dolan, Mitchell Kurz, John P. McGarry, Jr., Alan J.
Sheldon and Edward H. Vick. So long as Peter A. Georgescu (or a successor Chief
Executive Officer elected with the approval of the Management Voting Trust) is a
Voting Trustee, his (or such successor's) decision will be binding unless he is
outvoted by a super majority of the other Voting Trustees. If at any time there
is no Chief Executive Officer, or if the Chief Executive Officer was not
approved in advance by the Management Voting Trust, a majority vote of the
Voting Trustees will constitute the action of the Management Voting Trust. The
foregoing voting procedures will also apply to the election of Voting Trustees.
CERTAIN TRANSACTIONS
Upon consummation of the Recapitalization, certain of the Recapitalization
Investors were granted an approval right over a number of specified fundamental
corporate actions, and were granted the right to nominate and have elected three
members of the Company Board. After the Offerings, such approval right will
terminate, and the H&F Investors will retain the right to nominate and have
elected (i) two members of the Board for so long as such investors continue to
hold, in the aggregate, at least 10% of the Outstanding Shares and (ii) one
member of the Board for so long as the H&F Investors continue to hold, in the
aggregate, at least 5% of the Outstanding Shares.
In addition, certain of the Recapitalization Investors have demand and
piggyback registration rights with respect to the Common Stock they hold. Such
Recapitalization Investors have the right to have shares they hold included in
any public offering of Common Stock made by the Company, and after the
Offerings, such Recapitalization Investors will have certain demand registration
rights to require the Company to register for resale shares of Common Stock held
by the Recapitalization Investors. See "Shares Eligible for Future Sale."
58
<PAGE> 62
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock and options to purchase Common Stock as of April
15, 1998 and as adjusted to reflect the sale of 16,600,000 shares of Common
Stock in the Offerings, including beneficial ownership by (i) each person who is
known by the Company to own beneficially 5% or more of the outstanding shares of
the Common Stock, (ii) each of the Company's Directors and named executive
officers, (iii) all Directors and executive officers as a group and (iv) the
Selling Stockholders. The information in the table assumes that all shares of
Restricted Stock vest within 60 days. The information in the table below has
been calculated in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934, as amended. Except as indicated in the footnotes to the table, the
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable. The address of each of the Selling
Stockholders other than the H&F Investors is c/o the Company at 285 Madison
Avenue, New York, New York 10017. The address of the H&F Investors is c/o
Hellman & Friedman LLC, One Maritime Plaza, San Francisco, California 94111.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS
-----------------------------------------
SHARES AND SHARES BEING
NAME VESTED OPTIONS VESTED OPTIONS PERCENT OFFERED
<S> <C> <C> <C> <C>
Management Voting Trust(1)... 45,294,150 14,104,845 60.0% 2,101,860
Hellman & Friedman Capital
Partners III, L.P.......... 28,961,100 2,311,590 45.4% 7,002,762
H&F Orchard Partners III,
L.P........................ 2,109,060 168,270 3.4% 509,969
H&F International Partners
III, L.P................... 631,770 50,400 1.0% 152,761
BearTel Corp. ............... 260,880 -- * 63,160
Peter A. Georgescu(2)........ 1,783,560 -- 2.9% --
Edward H. Vick (2)........... 1,495,290 895,245 2.4% 156,465
Thomas D. Bell, Jr.(2)....... 1,463,655 1,165,215 2.3% 167,130
John P. McGarry, Jr.(2)...... 1,155,450 -- 1.9% 141,810
Michael J. Dolan(2).......... 419,631 104,346 * --
Richard S. Bodman............ -- -- * --
Philip U. Hammarskjold(3).... -- -- *
F. Warren Hellman(3)......... -- -- *
John F. McGillicuddy......... 13,035 -- * --
Alan D. Schwartz(4).......... -- -- *
All directors and executive
officers as a group........ 7,708,509 2,190,894 12.1% 517,665
Stephanie W. Abramson(2)..... 475,353 26,088 * 7,260
American Media Management,
Inc. ...................... 141,750 11,310 * 34,275
Frank Anfield................ 368,520 21,465 * 40,005
Matt Asinari................. 156,525 26,085 * 73,050
Jean-Marc Bara............... 304,080 -- * 73,455
Stephen Baum................. 21,600 -- * 12,090
Ted Bell..................... 827,820 334,065 1.3% 79,635
Bill Borrelle................ 17,025 -- * 7,305
Roger Chiocchi............... 79,140 25,875 * 2,160
Michael Claes................ 47,550 24,360 * 7,305
Neil Clark................... 91,305 52,170 * 21,915
Don Cogman................... 425,745 191,775 * 16,665
Janet Coombs................. 178,770 104,355 * 31,590
Cindy Giller................. 9,780 -- * 5,475
H. Irving Grousbeck.......... 283,485 22,620 * 68,546
Barbara Jack................. 600,750 395,565 1.0% 3,960
Paul Jandreau-Smith.......... 153,525 85,725 * 15,915
William Johnston............. 82,605 60,000 * 1,875
Christopher Komisarjevsky.... 153,420 109,575 * 2,640
Philippe Krakowsky........... 64,560 26,085 * 18,270
Kurt Krauss.................. 21,600 -- * 12,090
Stephanie Kugelman........... 473,355 88,485 * 25,530
Mitchell Kurz(2)............. 1,397,745 589,455 2.3% 210,825
Jay Kushner.................. 100,500 42,000 * 25,200
Anthony Manson............... 21,030 -- * 9,135
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER OFFERINGS
--------------------------------------------
SHARES AND
NAME VESTED OPTIONS VESTED OPTIONS PERCENT
<S> <C> <C> <C>
Management Voting Trust(1)... 43,192,290 14,104,845 53.8%
Hellman & Friedman Capital
Partners III, L.P.......... 21,958,338 2,311,590 32.0%
H&F Orchard Partners III,
L.P........................ 1,599,091 168,270 2.4%
H&F International Partners
III, L.P................... 479,009 50,400 *
BearTel Corp. ............... 197,720 -- *
Peter A. Georgescu(2)........ 1,783,560 -- 2.7%
Edward H. Vick (2)........... 1,338,825 895,245 2.0%
Thomas D. Bell, Jr.(2)....... 1,296,525 1,165,215 1.9%
John P. McGarry, Jr.(2)...... 1,013,640 -- 1.5%
Michael J. Dolan(2).......... 419,631 104,346 *
Richard S. Bodman............ -- -- *
Philip U. Hammarskjold(3).... -- -- *
F. Warren Hellman(3)......... -- -- *
John F. McGillicuddy......... 13,035 -- *
Alan D. Schwartz(4).......... -- -- *
All directors and executive
officers as a group........ 7,190,844 2,190,894 10.5%
Stephanie W. Abramson(2)..... 468,093 26,088 *
American Media Management,
Inc. ...................... 107,475 11,310 *
Frank Anfield................ 328,515 21,465 *
Matt Asinari................. 83,475 26,085 *
Jean-Marc Bara............... 230,625 -- *
Stephen Baum................. 9,510 -- *
Ted Bell..................... 748,185 334,065 1.1%
Bill Borrelle................ 9,720 -- *
Roger Chiocchi............... 76,980 25,875 *
Michael Claes................ 40,245 24,360 *
Neil Clark................... 69,390 52,170 *
Don Cogman................... 409,080 191,775 *
Janet Coombs................. 147,180 104,355 *
Cindy Giller................. 4,305 -- *
H. Irving Grousbeck.......... 214,939 22,620 *
Barbara Jack................. 596,790 395,565 *
Paul Jandreau-Smith.......... 137,610 85,725 *
William Johnston............. 80,730 60,000 *
Christopher Komisarjevsky.... 150,780 109,575 *
Philippe Krakowsky........... 46,290 26,085 *
Kurt Krauss.................. 9,510 -- *
Stephanie Kugelman........... 447,825 88,485 *
Mitchell Kurz(2)............. 1,186,920 589,455 1.8%
Jay Kushner.................. 75,300 42,000 *
Anthony Manson............... 11,895 -- *
</TABLE>
59
<PAGE> 63
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS
-----------------------------------------
SHARES AND SHARES BEING
NAME VESTED OPTIONS VESTED OPTIONS PERCENT OFFERED
<S> <C> <C> <C> <C>
Thomas McQueeney............. 201,060 -- * 36,525
William Melzer............... 532,605 434,790 * 47,220
Craig Middleton.............. 242,310 26,085 * 77,010
Fernan Montero............... 980,535 -- 1.6% 64,065
James O'Malley............... 26,610 13,560 * 7,305
Steve Oroho.................. 217,590 112,605 * 825
Stewart Owen................. 268,365 119,265 * 67,335
Graham Phillips.............. 52,170 -- * 29,220
Dan Plouffe.................. 7,500 -- * 4,200
Tim Pollak................... 981,165 -- 1.6% 91,305
Hans-Henrik Rasmussen........ 118,110 -- * 52,230
Ken Rietz.................... 135,150 117,390 * 9,945
Ilene Rosenthal.............. 21,360 -- * 2,130
Michael Samet................ 328,740 14,625 * 101,145
Carol Schautz................ 117,315 -- * 15,450
Matthew Schetlick............ 118,485 60,870 * 32,265
Nico Schou................... 22,965 -- * 9,210
Alan Sheldon(2).............. 902,535 -- 1.5% 45,000
Barbara Smith................ 62,625 10,440 * 7,305
Stanley Stefanski............ 675,285 111,675 1.1% 150,690
Clay Timon................... 603,735 521,745 1.0% 40,875
Joanne Zaiac................. 179,010 -- * 41,850
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER OFFERINGS
--------------------------------------------
SHARES AND
NAME VESTED OPTIONS VESTED OPTIONS PERCENT
<S> <C> <C> <C>
Thomas McQueeney............. 164,535 -- *
William Melzer............... 485,385 434,790 *
Craig Middleton.............. 165,300 26,085 *
Fernan Montero............... 916,470 -- 1.4%
James O'Malley............... 19,305 13,560 *
Steve Oroho.................. 216,765 112,605 *
Stewart Owen................. 201,030 119,265 *
Graham Phillips.............. 22,950 -- *
Dan Plouffe.................. 3,300 -- *
Tim Pollak................... 889,860 -- 1.3%
Hans-Henrik Rasmussen........ 65,880 -- *
Ken Rietz.................... 125,205 117,390 *
Ilene Rosenthal.............. 19,230 -- *
Michael Samet................ 227,595 14,625 *
Carol Schautz................ 101,865 -- *
Matthew Schetlick............ 86,220 60,870 *
Nico Schou................... 13,755 -- *
Alan Sheldon(2).............. 857,535 -- 1.3%
Barbara Smith................ 55,320 10,440 *
Stanley Stefanski............ 524,595 111,675 *
Clay Timon................... 562,860 521,745 *
Joanne Zaiac................. 137,160 -- *
</TABLE>
- ------------------------------
* Less than one percent.
(1) "Beneficial Ownership Prior to Offerings" includes 11,086,950 shares held
in the Restricted Stock Trust and "Beneficial Ownership After Offerings"
includes 9,231,105 shares which will vest and be distributed by the
Restricted Stock Trust upon consummation of the Offerings. Beneficial
ownership by the Management Voting Trust includes an aggregate of 2,101,860
shares offered hereby by Management Investors who are Selling Stockholders,
which shares are held by the Management Voting Trust. Other than the H&F
Investors, BearTel Corp., H. Irving Grousbeck and American Media
Management, Inc., all Selling Stockholders are Management Investors who are
officers, directors or employees of the Company and whose shares of Common
Stock are held by the Management Voting Trust. See "Management -- Executive
Officers and Directors." All such shares offered hereby will be delivered
out of the Management Voting Trust upon consummation of the Offerings. All
shares of Common Stock held by Management Investors have been deposited
into the Management Voting Trust, and the Management Voting Trust exercises
sole voting power over all such shares. See "Description of Capital
Stock -- The Management Voting Trust Agreement."
(2) This amount does not include any of the 45,294,150 shares beneficially
owned by the Management Voting Trust prior to the Offerings in excess of
the amount reported as beneficially owned by the stockholder, which the
stockholder may be deemed to beneficially own as a result of such
stockholder's position as a Voting Trustee of the Management Voting Trust.
The stockholder disclaims beneficial ownership of any such shares in excess
of the amount reported as beneficially owned by such stockholder.
(3) Excludes 31,701,930 shares beneficially owned by the H&F Investors. The
sole general partner of the H&F Investors is H&F Investors III ("Investors
III"). The managing general partner of Investors III is Hellman & Friedman
Associates III, L.P. ("Associates III"), and the general partners of
Associates III are H&F Management III, L.L.C. ("Management III LLC") and
H&F Investors III, Inc. ("H&F Inc."). The sole shareholder of H&F Inc. is
The Hellman Family Revocable Trust (the "Trust"). Mr. Hammarskjold is a
member of Management III LLC. Mr. Hellman is a managing member of
Management III LLC, a director of H&F Inc. and a trustee of the Trust.
Investors III, Associates III, Management III LLC, H&F Inc., the Trust and
Messrs. Hammarskjold and Hellman exercise, directly or indirectly, voting
and investment discretion with respect to the shares held by the H&F
Investors and could be deemed to beneficially own such shares, but each of
them disclaims such beneficial ownership except to the extent of its or his
indirect pecuniary interest in such shares.
(4) Excludes 260,880 shares held by BearTel Corp., a company affiliated with
Bear, Stearns & Co. Inc., of which Mr. Schwartz is an executive officer.
60
<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 250,000,000 shares of Common Stock, par
value $0.01 per share (the "Common Stock"), and 10,000,000 shares of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"). As of April 15, 1998,
and after giving effect to the Stock Split, the Company's issued and outstanding
capital stock consisted of 59,561,655 shares of issued and outstanding Common
Stock held by approximately 210 holders and 87 shares of issued and outstanding
Money Market Preferred Stock, par value $0.01 per share (the "Money Market
Preferred Stock") held by one holder. Based upon shares outstanding as of April
15, 1998, the Company estimates that immediately after the closing of the
Offerings there will be an aggregate of 66,228,322 shares of Common Stock issued
and outstanding, 31,442,985 shares of Common Stock will be issuable upon
exercise of outstanding options, 87 shares of Money Market Preferred Stock will
be issued and outstanding and no other shares of Preferred Stock will be issued
and outstanding. All of the Company's issued and outstanding capital stock has
been fully paid.
The following description of the Company's capital stock does not purport
to be complete and is subject to and qualified in its entirety by the Company's
Charter and the Company's By-Laws, which are included as exhibits to the
Registration Statement of which this Prospectus forms a part, and by the
provisions of applicable Delaware law.
The Company's Charter and the Company's By-Laws contain certain provisions
that are intended to enhance the likelihood of continuity and stability in the
composition of the Board and which may have the effect of delaying, deferring,
or preventing a future takeover or change in control of the Company unless such
takeover or change in control is approved by the Board.
COMMON STOCK
The holders of Common Stock will be entitled to one vote for each share on
all matters voted on by stockholders, and the holders of such shares, together
with the holders of shares of Money Market Preferred Stock (as described
herein), will possess all voting power, except as otherwise required by law or
as provided in the Company's Charter. Holders of Common Stock who are employees
of Y&R or its affiliates are subject to the provisions of the Management Voting
Trust and the Stockholders' Agreement and will be subject to the provisions of
the Amended Stockholders' Agreement upon consummation of the Offerings. See
"-- The Management Voting Trust Agreement" and "The Stockholders' Agreement."
The holders of Common Stock will not have cumulative voting rights. Holders of
Common Stock will not have any preemptive right to subscribe for or purchase any
kind or class of securities of the Company. Holders of Common Stock will have no
subscription, conversion or redemption rights, and will not be subject to
further calls or assessments. Subject to any preferential or other rights of any
outstanding series of Preferred Stock that may be designated by the Company
Board, the holders of Common Stock will be entitled to such dividends, if any,
as may be declared from time to time by the Company Board. The Company's Credit
Facilities contain restrictive covenants that limit the Company's ability to pay
cash dividends or make certain stock repurchases above certain permitted limits
without the prior written consent of the lenders. The New Facility, which the
Company expects to enter into effective upon the consummation of the Offerings,
is expected to permit the payment of cash dividends except in the event of a
continuing default under the credit agreement. See "Dividend Policy." In the
event of the liquidation, dissolution or winding up of the Company, holders of
Common Stock will be entitled to receive on a pro rata basis any assets of the
Company remaining after provision for payment of creditors and after payment of
any liquidation preferences to holders of Preferred Stock.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock.
The Company Board has the authority to establish and designate series of the
Preferred Stock and, except with respect to the Money Market Preferred Stock, to
fix the number of shares constituting each such series, to fix the designations
and the relative rights, preferences and limitations of the shares of each such
series and the variations in the
61
<PAGE> 65
relative rights, preferences and limitations as between such series, and to
increase and decrease the number of shares constituting each such series. See
"-- Authorized But Unissued Capital Stock" and "-- Anti-Takeover Effects of
Certain Provisions of the Charter, the By-Laws, the Rights Plan and Delaware
Law -- Preferred Stock."
The Company's Charter designates an initial series of Preferred Stock,
consisting of 50,000 shares, as the Money Market Preferred Stock. Holders of
Money Market Preferred Stock are entitled to receive, subject to declaration by
the Board, certain cumulative cash dividends which are payable quarterly and
calculated with reference to the interest rate for the three-month London
interbank deposit market. On or after December 12, 2001, any Money Market
Preferred Stock issued and outstanding for five years may, at the option of the
Board and subject to providing holders with notice of redemption, be redeemed by
the Company at a redemption price per share of $115.00 (together with all
accrued and unpaid dividends thereon). Redeemed Money Market Preferred Stock may
be reissued by the Board as shares of such series or as shares of any other
series of Preferred Stock. Shares of Money Market Preferred Stock are not
convertible, have a liquidation preference of $115.00 per share (together with
all accrued and unpaid dividends thereon) and have voting rights equal to
one-tenth of one vote for each share of Money Market Preferred Stock.
Effective upon the closing of the Offerings, in connection with the Rights
Plan, the Company's Charter will authorize a series of Preferred Stock
designated Cumulative Participating Junior Preferred Stock (the "Junior
Preferred Stock"), consisting of 2,500,000 shares. For a description of the
Rights Plan and the Junior Preferred Stock, see "-- Rights Plan" and
"-- Anti-Takeover Effects of Certain Provisions of the Charter, the By-Laws, the
Rights Plan and Delaware Law."
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Based on the calculations set forth above, the Company estimates that,
following the completion of the Offerings, it will have approximately
183,771,678 shares of authorized but unissued Common Stock (including an
aggregate of 28,844,880 shares reserved for issuance upon the exercise of
options under the Stock Option Plans and 2,598,105 shares reserved for issuance
upon the exercise of options issued to certain of the Recapitalization Investors
and 9,999,913 shares of authorized but unissued Preferred Stock (including the
2,500,000 shares designated as Junior Preferred Stock and 49,913 shares
designated as Money Market Preferred Stock). Delaware law does not require
stockholder approval for the issuance of authorized shares. However, the listing
requirements of the New York Stock Exchange, which apply so long as the Common
Stock is listed on such exchange, require prior stockholder approval of certain
issuances, including issuances of shares bearing voting power equal to or
exceeding 20% of the pre-issuance outstanding voting power or pre-issuance
outstanding number of shares of Common Stock. These additional shares could be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. The Company
currently does not have any plans to issue additional shares of Common Stock or
Preferred Stock other than in connection with employee compensation plans. See
"Management -- Executive Compensation." One of the effects of the existence of
unissued and unreserved Common Stock and Preferred Stock may be to enable the
Board of the Company to issue shares to persons friendly to current management,
which issuance could render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of the Company's management and
possibly deprive the stockholders of the opportunity to sell their shares of
Common Stock at prices higher than prevailing market prices. Such additional
shares also could be used to dilute the stock ownership of persons seeking to
obtain control of the Company pursuant to the operation of the Rights Plan,
which is discussed below. See "-- Anti-Takeover Effects of Certain Provisions of
the Charter, the By-Laws, the Rights Plan and Delaware Law."
THE MANAGEMENT VOTING TRUST AGREEMENT
Pursuant to the agreement establishing the Management Voting Trust (the
"Management Voting Trust Agreement"), the Management Investors and the
Restricted Stock Trust are required to deposit with the Management Voting Trust
all shares of Common Stock and all shares of Money Market Preferred Stock
acquired by them prior to the termination of the Management Voting Trust
(including Common Stock acquired upon the exercise of options, distributions
from the Restricted Stock Trust or
62
<PAGE> 66
otherwise). Common Stock sold in the public market by Management Investors and
the Restricted Stock Trust will be withdrawn from, and delivered free of, the
Management Voting Trust.
The Management Voting Trust will have the unqualified right and power to
vote and to execute consents with respect to all shares of Common Stock and all
shares of Money Market Preferred Stock held by the Management Voting Trust. The
voting rights of the Management Voting Trust are exercised by certain members of
senior management of Y&R, in their capacities as Voting Trustees. The current
Voting Trustees are Peter A. Georgescu, Stephanie W. Abramson, Thomas D. Bell,
Jr., Michael J. Dolan, Mitchell Kurz, John P. McGarry, Jr., Alan J. Sheldon and
Edward H. Vick (each of whom is currently a member of the senior management of
Y&R). So long as Peter A. Georgescu (or a successor Chief Executive Officer
elected with the approval of the Management Voting Trust) is a Voting Trustee,
any action (i) approved in writing or at a meeting by Peter A. Georgescu (or
such successor) and any two other Voting Trustees and (ii) any action approved
over the objection of Peter A. Georgescu (or such successor) at a meeting of the
Voting Trustees by an aggregate vote of Voting Trustees equal to not less than
the total number of Voting Trustees then in office minus two, shall constitute
the action of, and shall be binding upon, the Management Voting Trust (unless
there shall be fewer than seven Voting Trustees then in office, in which event
any action under clause (ii) shall require the vote of all the Voting Trustees
other than Peter A. Georgescu (or such successor)). The foregoing voting
procedures will also apply to the election and removal of Voting Trustees, to
proposals to increase or decrease the number of Voting Trustees and to proposals
to amend the foregoing voting procedures.
The Management Voting Trust will terminate at such time that (i) no person
(including the Recapitalization Investors and the Management Voting Trust) is
the owner of more than 20% of the Outstanding Shares, (ii) the number of shares
of Common Stock held by the Management Voting Trust is less than 10% of the
Outstanding Shares or (iii) the Voting Trustees determine to terminate the
Management Voting Trust. Pursuant to an irrevocable unanimous written consent of
the Voting Trustees, the Management Voting Trust will terminate 24 months after
the consummation of the Offerings, assuming no earlier termination in accordance
with its terms.
The Management Voting Trust has issued and will issue voting trust
certificates ("Voting Trust Certificates") representing the shares of Common
Stock and Money Market Preferred Stock deposited with it. The Voting Trust
Certificates will be subject to the transfer restrictions set forth in the
Amended Stockholders' Agreement. See "-- The Stockholders' Agreement."
Y&R has agreed to assume all liability and indemnify and defend all Voting
Trustees and their successors, assigns, agents and servants from any and all
losses incurred or asserted against any Voting Trustees relating to their
administration of the Management Voting Trust, unless there is clear and
convincing evidence that such losses were proximately caused by an act or
omission that was not taken in good faith or not reasonably believed to be in
the best interest of Y&R and the Management Investors as a group. See
"Management -- Limitation of Liability and Indemnification."
Under the Management Voting Trust Agreement and certain stock option and
restricted stock agreements, each of the Management Investors is subject to
certain non-competition, non-solicitation, confidentiality and notice
requirements in connection with the termination of such person's employment.
They include the following: (i) for one year after termination of employment, a
Management Investor may not work for any competitor of Y&R on the account of any
client of Y&R or any of its affiliates with whom such Management Investor had a
direct relationship or as to which such Management Investor had a significant
supervisory responsibility or otherwise was significantly involved at any time
during the two years prior to termination; (ii) for six months after termination
of employment, (a) a Management Investor with principally corporate type job
responsibilities that do not principally involve client service related
functions may not work for a principal competitor of Y&R or any of its
affiliates in any substantially similar role as that held with Y&R or any of its
affiliates during the two years prior to termination, and (b) a Management
Investor with principally client service related responsibilities may not work
for a competitor of Y&R or its affiliates on the account of any substantial
competitor (or directly for such competitor) of any client of Y&R or any of its
affiliates for whom such Management Investor had substantial responsibility
during the two years prior to termination; (iii) for one year after termination
of employment, a Management Investor may not (a) directly
63
<PAGE> 67
or indirectly solicit or hire, or assist in the soliciting or hiring of, any
person employed by Y&R or any of its affiliates as of the date of termination or
any person who was then being recruited by Y&R or any of its subsidiaries or (b)
induce any such employee to terminate his or her employment with Y&R or any of
its affiliates; (iv) a Management Investor shall keep confidential information
of Y&R, its affiliates and their clients learned during his or her employment
and (v) a Management Investor shall give six weeks written notice prior to
voluntary termination unless a shorter period is approved by the Company.
Y&R has agreed, under the Management Voting Trust Agreement, to give each
Management Investor six months severance pay upon termination of employment for
any reason other than for cause (as defined), and each Management Investor is
required to waive any possible right to more than six months' severance pay (or
similar compensation) (and any claims for damages under any employment
agreement). Y&R has the right under the Stockholders' Agreement to offset
against any payments to be made in connection with the purchase of securities
from a Management Investor in connection with his or her termination of
employment (i) any severance or similar obligations to be paid to such
Management Investor in excess of or in addition to six months severance pay
required to be made under applicable law despite such Management Investor's
waiver of entitlement thereto, as provided in the Management Voting Trust
Agreement) and (ii) any damages or expenses incurred as a result of any
malfeasance by such Management Investor or a breach by such Management Investor
of the covenants described in the preceding paragraph.
THE STOCKHOLDERS' AGREEMENT
In connection with the Recapitalization, the Recapitalization Investors,
the Management Investors, the Restricted Stock Trust, the Management Voting
Trust and Y&R entered into a stockholders' agreement (the "Stockholders'
Agreement") with respect to the restrictions on transferability of shares of
Common Stock and related Voting Trust Certificates, and with respect to the
management of Y&R.
Upon consummation of the Offerings, the Stockholders' Agreement will be
terminated as to certain parties, and the H&F Investors, the Management
Investors, the Management Voting Trust and Y&R will enter into an amended
stockholders' agreement (the "Amended Stockholders' Agreement").
RIGHT TO NOMINATE DIRECTORS. Under the Amended Stockholders' Agreement,
the H&F Investors will have the right to nominate and have elected two members
of the Company Board for so long as they continue to hold, in the aggregate, at
least 10% of the Outstanding Shares, and one member of the Board for so long as
they continue to hold, in the aggregate, at least 5% of the Outstanding Shares.
Outstanding Shares is defined in the Stockholders' Agreement to include all
shares of Common Stock subject to vested options (not including options which
would vest on a change in control).
TRANSFER RESTRICTIONS. Under the Amended Stockholders' Agreement, the
transfer restrictions described below will apply. Purported transfers in
violation of these restrictions will be null and void.
H&F Investors may not transfer shares of Common Stock, options to purchase
Common Stock or other voting capital stock, (i) prior to termination of the
Management Voting Trust (which will occur no later than the second anniversary
of the consummation of the Offerings), if at least 20% of the Outstanding Shares
are then subject to the Management Voting Trust, to any party who as a result
thereof would (together with its affiliates) own a percentage of the Outstanding
Shares which is greater than the percentage then subject to the Management
Voting Trust, or (ii) after such termination of the Management Voting Trust and
(A) prior to the first anniversary of such termination, to any party who as a
result thereof would (together with its affiliates) own a percentage of the
Outstanding Shares which is greater than the greater of (1) 20% and (2) the
percentage of the Outstanding Shares subject to the Management Voting Trust upon
termination thereof (the "Termination Percentage") less 5% and (B) from and
after the first anniversary of such termination until December 12, 2002, to any
party who as a result thereof would (together with its affiliates) own a
percentage of the Outstanding Shares which is greater than the greater of (1)
20% and (2) the Termination Percentage less 10%, unless, in any such case (A)
Y&R fails to arrange for the sale of such shares to a third party for the
benefit of the H&F Investors at a price to the H&F Investors not less than the
price proposed to be paid by the proposed transferee and (B) the Management
Voting Trust (or, following its
64
<PAGE> 68
termination, the Company) consents to the proposed transfer, which consent may
not be unreasonably withheld.
Prior to termination of the Management Voting Trust, proposed transfers of
shares of Common Stock, options to purchase Common Stock or other voting capital
stock by Management Investors (other than transfers by will or intestate
succession) to any party who as a result thereof (together with its affiliates)
would own more than 20% of the Outstanding Shares are subject to a right of
first refusal by each of Y&R and the H&F Investors, exercisable in that order.
CERTAIN TRANSFER RESTRICTIONS
The following transfer restrictions apply to shares of Common Stock issued
to Management Investors pursuant to Regulation S under the Securities Act, but
will not apply to shares of Common Stock sold in the Offerings. Under the
Company's By-Laws, any direct or indirect sale, transfer, assignment, pledge,
hypothecation or other encumbrance or disposition (a "Transfer") of legal or
beneficial ownership of any stock heretofore or hereafter issued and sold by the
Company pursuant to Regulation S under the Securities Act of 1933, as amended
(the "Securities Act"), may be made only (i) pursuant to an effective
registration statement under the Securities Act or (ii) pursuant to a
transaction that is exempt from, or not subject to, the registration
requirements of the Securities Act. Neither the Company nor any employee or
agent of the Company shall record any Transfer prohibited by the preceding
sentence, and the purported transferee of such a prohibited Transfer (the
"Purported Transferee") shall not be recognized as a securityholder of the
Company for any purpose whatsoever in respect of the security or securities that
are the subject of the prohibited Transfer. The Purported Transferee shall not
be entitled, with respect to such securities, to any rights of a securityholder
of the Company, including without limitation, in the case of securities that are
Common Stock, the right to vote such Common Stock or to receive dividends or
distributions in respect thereof, if any. All certificates representing
securities subject to the transfer restrictions set forth in this Article V
shall bear a legend to the effect that the securities represented by such
certificates are subject to such restrictions, unless and until the Company
determines in its sole discretion that such legend may be removed consistent
with applicable law.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of the Company has any preemptive right to
subscribe for or purchase any kind or class of securities of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York.
RIGHTS PLAN
The Company has adopted the Rights Plan and expects to enter into a Rights
Agreement (the "Rights Agreement") between the Company and The Bank of New York,
as Rights Agent (the "Rights Agent"), prior to consummation of the Offerings. In
connection with the Rights Plan, the Board has declared a dividend distribution
of one Right for each share of Common Stock outstanding immediately prior to
consummation of the Offerings and after the Stock Split (the "Record Date"). The
dividend is payable immediately prior to consummation of the Offerings. The
Company will distribute one associated Right with each share of Common Stock
distributed in the Offerings. The terms of the Rights are set forth in the
Rights Agreement. The Company's Charter authorizes the Board to adopt a
stockholder rights plan such as the Rights Plan.
Each Right entitles the registered holder under certain circumstances to
purchase from the Company one one-hundredth of a share of Junior Preferred Stock
at a purchase price of $ , subject to adjustment (the "Purchase
Price"). The Purchase Price shall be payable in cash or by certified check or
bank draft.
Junior Preferred Stock purchasable upon exercise of the Rights will not be
redeemable. Each share of Junior Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per
65
<PAGE> 69
share but will be entitled to an aggregate dividend of 100 times the dividend
declared per share of Common Stock. In the event of liquidation, the holders of
shares of Junior Preferred Stock will be entitled to a minimum preferential
liquidation payment of $1 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment. Each share of Junior Preferred Stock will have 100 votes, voting
together with the Common Stock and the Money Market Preferred Stock and, in the
event of certain dividend arrearages, will also have the right to elect one
director voting as a class. In the event of any merger, consolidation or other
transaction in which shares of Common Stock are exchanged, each share of Junior
Preferred Stock will be entitled to receive 100 times the amount received per
share of Common Stock. These rights are protected by customary anti-dilution
provisions. Because of the nature of their dividend, liquidation and voting
rights, the value of the one-one-hundredth interest in a share of Junior
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.
Until the close of business on the earlier of (i) the tenth business day
after the Stock Acquisition Date (as defined below) and (ii) the tenth business
day (or such later day as may be determined by action of the Company Board prior
to such time as any person becomes an Acquiring Person (as defined below)) after
the date of the commencement by any person (other than any Company Entity (as
defined below)) of, or the first public announcement of the intent of any person
(other than any Company Entity) to commence (which intention to commence remains
in effect for five business days after such announcement), a tender or exchange
offer the consummation of which would result in any person becoming an Acquiring
Person (the earlier of the dates referred to in clauses (i) and (ii) above being
herein referred to as the "Distribution Date"), the Rights will be evidenced by
the certificates representing shares of Common Stock and no separate Right
Certificates (as defined below) will be issued or distributed. All shares of
Common Stock outstanding as of the Record Date or issued prior to the earlier of
the Distribution Date or the Expiration Date (as defined below) will be issued
with Rights.
The term "Stock Acquisition Date" means the time and day of the first
public announcement (which includes, without limitation, the filing of a report
pursuant to the Exchange Act) by the Company or an Acquiring Person indicating
that an Acquiring Person has become such.
The term "Acquiring Person" means (i) any person (other than the H&F
Investors and other than any Permitted H&F 15% Transferee (as defined below))
who or which, together with all affiliates and associates of such person,
acquires beneficial ownership (as defined in the Rights Agreement) of 15% or
more of the then outstanding shares of Common Stock (other than as a result of
an Approved Offer (as defined below)), or (ii) the H&F Investors if, after the
Offerings, the H&F Investors, together with all of their affiliates and
associates, acquire beneficial ownership of any additional shares of Common
Stock such that following such acquisition (A) the H&F Investors beneficially
own in excess of 15% of the then outstanding shares of Common Stock and (B) if
the Management Voting Trust is then in existence, following such acquisition the
H&F Investors beneficially own a greater percentage of the Diluted Shares
Outstanding (as defined below) than the percentage of the Diluted Shares
Outstanding subject to the Management Voting Trust at the time of such
acquisition (it being understood that neither sales by, nor termination of, the
Management Voting Trust will trigger this provision absent a subsequent
acquisition of beneficial ownership of additional shares by the H&F Investors or
any of their affiliates or associates) or (iii) any Permitted H&F 15% Transferee
if contemporaneously with or subsequent to the transfer from the H&F Investors
that resulted in such person becoming a Permitted H&F 15% Transferee, such
Permitted H&F 15% Transferee, together with all affiliates and associates of
such Permitted H&F 15% Transferee, acquires beneficial ownership of any
additional shares; provided, however, that (1) a person shall not become an
Acquiring Person if such person, together with all of its affiliates and
associates, becomes the beneficial owner of 15% or more (in the case of clause
(i) above) of the then outstanding shares of Common Stock as a result of a
reduction in the number of shares of Common Stock outstanding due to the
repurchase of shares of Common Stock by the Company, unless and until such time
as such person purchases or otherwise becomes (as a result of actions taken by
such person or any of its affiliates or associates) the beneficial owner of any
additional shares of Common Stock; (2) the term "Acquiring Person" shall not
include any Company Entity; and (3) the term "Acquiring Person" shall not
include any person who or which, together with all affiliates and associates of
such person, becomes the beneficial owner of 15% or more of the then outstanding
shares of Common Stock (in the case of clause (i)
66
<PAGE> 70
above) or any additional shares of Common Stock (in the case of clauses (ii) and
(iii) above) but who acquired beneficial ownership of shares of Common Stock
inadvertently, and such person promptly (and in any event within 10 business
days after being so requested by the Company) enters into an irrevocable
commitment satisfactory to the Company Board promptly (and in any event within
20 business days or such shorter period as shall be determined by the Company
Board) to divest, and thereafter promptly divests as required by such
commitment, sufficient shares of Common Stock so that such person, together with
all of its affiliates and associates, ceases to be a beneficial owner of 15% or
more of the then outstanding shares of Common Stock (in the case of clause (i)
above) or any additional shares of Common Stock (in the case of clauses (ii) and
(iii) above).
The term "Company Entity" means any of the Company, any wholly owned
subsidiary of the Company, any employee benefit plan or employee stock plan of
the Company or any wholly owned subsidiary of the Company, any person or entity
holding shares of Common Stock which was organized, appointed or established by
the Company or any such wholly owned subsidiary for or pursuant to the terms of
any such plan, the Management Voting Trust, the Restricted Stock Trust, the
trustees under the Management Voting Trust or the Restricted Stock Trust, any
affiliate or associate of the Management Voting Trust or the Restricted Stock
Trust or any trustee under either such trust and any group that includes the
Management Voting Trust, the Restricted Stock Trust, any trustee under either
such trust or any affiliate or associate thereof.
The term "Permitted H&F 15% Transferee" means any person who is a Permitted
H&F Transferee (as defined below) who or which, immediately after the transfer
from the H&F Investors that resulted in such person becoming a Permitted H&F
Transferee, together with all affiliates and associates of such person, is the
beneficial owner of 15% or more of the then outstanding shares of Common Stock.
The term "Permitted H&F Transferee" means any person that acquires
beneficial ownership of shares of Common Stock from the H&F Investors pursuant
to a transfer that is either not restricted under, or occurs in compliance with,
the transfer restrictions applicable to the H&F Investors set forth in the
Amended Stockholders' Agreement.
The term "Approved Offer" means a tender offer or exchange offer for all
the outstanding shares of Common Stock which is at a price and on terms
approved, prior to the acceptance for payment of shares under such tender or
exchange offer, by the Company Board.
The term "Diluted Shares Outstanding" as of any given time means the sum of
(a) the number of shares of Common Stock then issued and outstanding (including
all shares of Common Stock held in the Restricted Stock Trust) and (b) the
number of shares of Common Stock issuable upon exercise of the (1) HFCP Options
(as defined in the Amended Stockholders' Agreement) and the Rollover Options and
(2) all other options, warrants and rights to acquire, and the conversion of any
securities convertible into, shares of Common Stock, to the extent such rights
to acquire shares of Common Stock are then exercisable. For purposes of clause
(ii)(B) of the definition of "Acquiring Person" above, when calculating the
percentage of the Diluted Shares Outstanding owned by the H&F Investors or the
Management Voting Trust, as the case may be, the H&F Investors or the Management
Voting Trust, as the case may be, shall be deemed to own all shares of Common
Stock beneficially owned by them assuming the exercise of all of their options,
warrants and rights to acquire, and the conversion by them of any securities
convertible into, shares of Common Stock to the extent, but only to the extent,
such rights to acquire shares of Common Stock are then exercisable by them. For
purposes of calculating the percentage of Diluted Shares Outstanding owned by
the Management Voting Trust, the Management Voting Trust shall be deemed to own
all shares of Common Stock (including all shares of Common Stock required to be
deposited thereunder upon exercise of vested options) then subject to the
Management Voting Trust.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Certificates
representing shares of Common Stock issued after the Record Date and prior to
the earlier of the Distribution Date and the Expiration Date will contain a
legend incorporating the Rights Agreement by reference. Until the Distribution
Date, the surrender for transfer of any of the
67
<PAGE> 71
certificates representing shares of Common Stock outstanding as of the Record
Date or issued prior to the Distribution Date will also constitute the transfer
of the Rights associated with the Common Stock represented by such certificate
and the number of Rights associated with each share of Common Stock will be
proportionately adjusted in the event of any dividend in Common Stock on the
Common Stock or subdivision, combination or reclassification of the Common
Stock. In the event that the Company purchases or acquires any shares of Common
Stock after the Record Date but prior to the Distribution Date, any Rights
associated with such shares of Common Stock shall be deemed canceled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the shares of Common Stock which are no longer outstanding. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Rights Certificates") will be mailed to holders of record of Common
Stock as of the close of business on the Distribution Date and such separate
Rights Certificates alone will evidence the Rights. The Rights are not
exercisable until the Distribution Date. The Rights will expire at the close of
business on May 31, 2008, unless they have previously expired in connection with
an Approved Offer (as described in the Rights Agreement) or have been previously
exchanged for shares of Common Stock or have been previously redeemed by the
Company as described below (the date and time of the earliest of such events to
occur, the "Expiration Date").
Immediately upon the Stock Acquisition Date, proper provision shall be made
so that each holder of a Right will thereafter have the right to receive, upon
exercise, Common Stock (or, in certain circumstances, cash, property or other
securities of the Company) having a preexisting market value (as of shortly
before the Stock Acquisition Date), equal to two times the then current Purchase
Price of the Right. Notwithstanding any of the foregoing, following the
occurrence of the Stock Acquisition Date, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person and certain related parties will become null and void.
To illustrate the rights described in the preceding paragraph, at a
Purchase Price of $ per Right, each Right not owned by an Acquiring Person
(or by certain related parties) following an event set forth in the preceding
paragraph would entitle its holder to purchase Common Stock (or other
consideration, as noted above) with a preexisting market value of $ for
$ . Assuming that the Common Stock has a preexisting market value of
$ at such time, the holder of each Right would be entitled to purchase six
shares of Common Stock for $ .
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business consolidation transaction,
(ii) the Company is the surviving corporation in a merger or other business
consolidation with any person and the Common Stock is changed into or exchanged
for stock or other securities of any other person or cash or any other property
(other than, in the case of any transaction described in (i) or (ii), a merger
or consolidation which would result in all of the voting securities of the
Company outstanding immediately prior thereto continuing to represent all of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation and holders of such securities
not having changed as a result of such merger or consolidation) or (iii) 50% or
more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except Rights that previously have been voided as set forth
above) shall thereafter have the right to receive, upon exercise, common stock
of the acquiring company having a market value equal to two times the then
current Purchase Price of the Right.
The Purchase Price payable, and the fraction of a share of Junior Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Junior Preferred Stock (prior to the Distribution Date) or the Common Stock,
(ii) if holders of the Junior Preferred Stock are granted certain rights or
warrants to subscribe for Junior Preferred Stock or convertible securities at
less than the current market price of the Junior Preferred Stock, or (iii) upon
the distribution to holders of the Junior Preferred Stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends below certain
levels or dividends payable in shares of Junior Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. In addition, to the extent that the Company does not
68
<PAGE> 72
have sufficient shares of Common Stock issuable upon exercise of the Rights
following the Stock Acquisition Date, the Company may, under certain
circumstances, reduce the Purchase Price. No fractional shares of Junior
Preferred Stock (other than fractions which are integral multiples of one
one-hundredth) will be issued and, in lieu thereof, an adjustment in cash will
be made based on the market price of the Junior Preferred Stock or the Common
Stock on the last trading date prior to the date of exercise.
At any time until the Stock Acquisition Date, the Company may redeem the
Rights in whole, but not in part, at a price of $0.01 per Right (payable in
cash, shares of Common Stock or other consideration deemed appropriate by the
Board). Immediately upon the action of the Board ordering redemption of the
Rights, the Rights will terminate and thereafter the only right of the holders
of Rights will be to receive the $0.01 redemption price. In addition, at any
time after the Stock Acquisition Date, the Board may elect to exchange all or
part of the then-outstanding and exercisable Rights (other than Rights that have
become null and void as described above) for one share of Company Common Stock.
Both the redemption price and the exchange rate are subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) or for common stock of an
acquiring company as set forth above.
Any of the provisions of the Rights Agreement may be amended by the Board
prior to the Stock Acquisition Date. After the Stock Acquisition Date, the
provisions of the Rights Agreement may be amended by the Board in order to cure
any ambiguity, to correct any defects or inconsistencies, to make changes which
do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person) or to shorten or lengthen any time period
under the Rights Agreement; provided, however, that no amendment to adjust the
time period governing redemption or to modify the ability (or inability) of the
Board to redeem the Rights shall be made at such time when the Rights are not
redeemable.
As long as the Rights are attached to the Common Stock, the Company will
issue one Right for each share of Common Stock issued prior to the Distribution
Date so that all such shares will have attached Rights. Two million five hundred
thousand shares of Junior Preferred Stock will initially be reserved for
issuance upon exercise of the Rights.
The Rights have certain anti-takeover effects. See "-- Anti-Takeover
Effects of Certain Provisions of the Charter, the By-Laws, the Rights Plan and
Delaware Law."
The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the Rights Agreement, which is filed as an exhibit to
the Registration Statement and is incorporated herein by reference.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CHARTER, THE BY-LAWS, THE
RIGHTS PLAN AND DELAWARE LAW
The Company's Charter, the Company's By-Laws, the Rights Plan and the DGCL
contain certain provisions that could make more difficult the acquisition of
control of the Company by means of a tender offer, open market purchases, a
proxy contest or otherwise. Set forth below is a description of such provisions
in the Company's Charter, the Company's By-Laws, the Rights Plan and the DGCL.
The following description is intended as a summary only and is qualified in its
entirety by reference to the Company's Charter, the Company's By-Laws and the
Rights Agreement, the forms of which are included as exhibits to the
Registration Statement of which this Prospectus forms a part, and to the DGCL.
Upon consummation of the Offerings, the Management Voting Trust will hold
approximately 53.8% of the outstanding shares of Common Stock (assuming the
exercise of all currently vested options), which could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. See "Description of Capital Stock -- The Management Voting Trust
Agreement."
CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS. The Company's Charter
provides that the number of Directors shall be not less than five nor more than
fifteen, with the exact number of Directors to be determined from time to time
by a majority of the entire Board. The Directors shall be divided into three
classes, as nearly equal in number as is possible, serving staggered three-year
terms so that Directors' initial
69
<PAGE> 73
terms will expire at the annual meeting of the Company's stockholders held in
1999, 2000 and 2001, respectively. Starting with the 1999 annual meeting of the
Company's stockholders, one class of Directors will be elected each year for a
three-year term. See "Management."
The Company believes that a classified Board will help to assure the
continuity and stability of the Board and the Company's business strategies and
policies, since a majority of the Directors at any given time will have had
prior experience as Directors of the Company. The Company believes that this in
turn will permit the Board to represent more effectively the interests of
stockholders.
With a classified Board, at least two annual meetings of stockholders,
instead of one, will generally be required to effect a change in a majority of
the members of the Board. As a result, the classification of the Board of the
Company may discourage proxy contests for the election of Directors, unsolicited
tender offers or purchases of a substantial block of the Common Stock because it
could prevent an acquirer from obtaining control of the Board in a relatively
short period of time. In addition, pursuant to the DGCL and the Company's
Charter, a Director may be removed only for cause and only by the affirmative
vote of holders of not less than 80% of the outstanding shares of Common Stock
entitled to vote thereon. As a result, a classified Board delays stockholders
who do not agree with the policies of the Board from replacing Directors, unless
they can demonstrate that the Directors should be removed for cause and obtain
the requisite vote. Such a delay may help ensure that the Company Board, if
confronted with a proxy contest or an unsolicited proposal for an extraordinary
corporate transaction, will have sufficient time to review the proposal and
appropriate alternatives to the proposal and to act in what it believes is the
best interest of the Company's stockholders.
FILLING VACANCIES ON THE BOARD. The Company's Charter provides that,
subject to the rights of holders of any shares of Preferred Stock, any vacancy
in the Board that results from an increase in the number of Directors may be
filled only by a majority of the Directors then in office, provided that a
quorum is present, and any other vacancy may be filled by a majority of the
Directors then in office, even if less than a quorum, or by the sole remaining
Director. Accordingly, these provisions could temporarily prevent any
stockholder from obtaining majority representation on the Board by enlarging the
Board and filling the new Directorships with its own nominees.
WRITTEN CONSENTS AND SPECIAL MEETINGS. The Company's Charter provides that
no action required or permitted to be taken at any annual or special meeting of
stockholders may be taken by stockholders of the Company except at such a
meeting of stockholders. The Company's By-Laws provide that special meetings of
stockholders may be called only by the Chairman of the Board or the Company
Board. Stockholders are not permitted to call a special meeting or to require
that the Board call a special meeting of stockholders. Moreover, the business
permitted to be conducted at any special meeting of stockholders is limited to
the purpose or purposes specified in the written notice of such meeting. The
provisions of the Company's Charter prohibiting action by written consent
without a meeting and the provisions of the Company's By-Laws governing the
calling of and matters considered at special meetings may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting.
These provisions would also prevent the holders of a majority of the voting
power of the outstanding shares of stock entitled to vote generally in the
election of Directors from using the written consent procedure to take
stockholder action and from taking action by written consent without giving all
the stockholders entitled to vote on a proposed action the opportunity to
participate in determining such proposed action at a meeting.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS. The
Company's By-Laws establish an advance notice provision with regard to the
nomination, other than by or at the direction of the Board, of candidates for
election as Directors, or the bringing before any annual meeting of any
stockholder proposal (the "Notice of Meeting Provision").
The Notice of Meeting Provision provides that, subject to any rights of
holders of any Preferred Stock, business other than that proposed by the Board
may be transacted and candidates for Director other than those selected by the
Board may be nominated at the annual meeting only if the Secretary of the
Company has received a written notice identifying such business or candidates
and providing specified additional information not less than ninety nor more
than one hundred twenty days before the first Tuesday in June (or, if the Board
has set a different date for the annual meeting, not less than ninety nor more
than one hundred twenty days before such other date or, if such other date has
not been publicly disclosed or announced at least one hundred
70
<PAGE> 74
five days in advance, then not less than fifteen days after such public
disclosure or announcement). In addition, not more than ten days after receipt
by the sponsoring stockholder of the Secretary's written request, the sponsoring
stockholder must provide the Secretary with such additional information as the
Secretary may reasonably require.
By requiring advance notice of nominations by stockholders, the Notice of
Meeting Provision will afford the Board a meaningful opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform the stockholders about such qualifications. By
requiring advance notice of proposed business, the Notice of Meeting Proposal
Provision will provide the Board with a meaningful opportunity to inform
stockholders, prior to such meeting, of any business proposed to be conducted at
such meeting, together with any recommendation or statement of the Board's
position as to action to be taken with respect to such business, so as to enable
stockholders better to determine whether they desire to attend such a meeting or
to grant a proxy to the Board as to the disposition of any such business.
Although the Company's By-Laws do not give the Board any power to approve or
disapprove stockholder nominations for the election of Directors or proposals
for action, they may have the effect of precluding a contest for the election of
Directors or the consideration of stockholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of Directors or to approve its
proposal without regard to whether consideration of such nominees or proposals
might be harmful or beneficial to the Company and its stockholders.
RESTRICTIONS ON AMENDMENT. The Company's Charter provides that the
approval of holders of at least 80% of the voting power entitled to vote
generally in the election of Directors, voting together as a single class, is
required to adopt any charter provision inconsistent with or to alter, amend or
repeal the provisions of the Company's Charter classifying the Board; governing
the removal of directors; establishing the minimum and maximum number of members
of the Board; eliminating the ability of stockholders to act by written consent;
authorizing the Board to consider the interests of clients and other customers,
creditors, employees and other constituencies of the Corporation and its
subsidiaries and the effect upon communities in which the Corporation and its
subsidiaries do business, in evaluating proposed corporate transactions;
establishing the Board's authority to issue, without a vote or any other action
of the stockholders, any or all authorized shares of stock of the Corporation,
securities convertible into or exchangeable for any authorized shares of stock
of the Corporation and warrants, options or rights to purchase, subscribe for or
otherwise acquire shares of stock of the Corporation for any such consideration
and on such terms as the Board in its discretion lawfully may determine; and
authorizing that the By-Laws of the Corporation may establish procedures
regulating the submission by stockholders of nominations and proposals for
consideration at meetings of stockholders of the Corporation. In addition, the
Company's Charter provides that the approval of the Board or the affirmative
vote of the holders of 80% of the voting power entitled to vote generally in the
election of Directors, voting together as a single class, is required to alter,
amend or repeal the above provisions of the Company's Charter or to adopt any
provision of the Charter inconsistent with such provisions or to alter, amend or
repeal certain provisions of the Company's By-Laws or to adopt any provision of
the By-Laws inconsistent with such provisions.
PREFERRED STOCK. Subject to the Company's Charter and applicable law, the
authority of the Company Board with respect to each series of Preferred Stock,
excluding the Money Market Preferred Stock, includes but is not limited to the
authority to generally determine the following: the designation of such series,
the number of shares initially constituting such series and whether to increase
or decrease such number of shares, dividend rights and rates, terms of
redemption and redemption prices, liquidation preferences, voting rights,
conversion rights, whether a sinking fund will be provided for the redemption of
the shares of such series (and, if so, the terms and conditions thereof) and
whether a purchase fund shall be provided for the shares of such series (and, if
so, the terms and conditions thereof).
The Company believes that the availability of the Preferred Stock will
provide increased flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs that might arise. Having such
authorized shares available for issuance will allow the Company to issue shares
of Preferred Stock without the expense and delay of a special stockholders'
meeting. The authorized shares of Preferred Stock, as well as shares of Common
Stock, will be available for issuance without further action by the
stockholders, unless such action is required by applicable law or the rules of
any stock exchange on which the Company's securities
71
<PAGE> 75
may be listed. Although the Board has no current intention to do so, it would
have the power (subject to applicable law) to issue a series of Preferred Stock
that could, depending on the terms of such series, impede the completion of a
merger, tender offer or other takeover attempt. For instance, subject to
applicable law, such series of Preferred Stock might impede a business
combination by including class voting rights that would enable the holder to
block such a transaction. The Board will make any determination to issue such
shares based on its judgment as to the best interests of the Company and its
stockholders. The Board, in so acting, could issue Preferred Stock having terms
which could discourage an acquisition attempt or other transaction that some, or
a majority, of the stockholders might believe to be in their best interest or in
which stockholders might receive a premium for their stock over the then market
price of such stock. See "-- Rights Plan."
OTHER CONSIDERATIONS. Article XII of the Company's Charter generally
provides that, in determining whether to take or refrain from taking corporate
action on any matter, including proposing any matter to the stockholders of the
Company, the Company Board may, but shall not be obligated to, take into account
the interests of clients and other customers, creditors, employees and other
constituencies of the Company and its subsidiaries and the effect upon
communities in which the Company and its subsidiaries do business.
CERTAIN EFFECTS OF THE RIGHTS PLAN. The Rights Plan is designed to protect
stockholders of the Company in the event of unsolicited offers to acquire the
Company and other coercive takeover tactics which, in the opinion of the Board,
could impair its ability to represent stockholder interests. The provisions of
the Rights Agreement may render an unsolicited takeover of the Company more
difficult or less likely to occur or might prevent such a takeover, even though
such takeover may offer the Company's stockholders the opportunity to sell their
stock at a price above the then prevailing market rate and may be favored by a
majority of the Company's stockholders. See "-- Rights Plan." The Company's
Charter authorizes the Board to adopt a stockholder rights plan.
DELAWARE BUSINESS COMBINATION STATUTE. The terms of Section 203 of the
DGCL apply to the Company. With certain exceptions, Section 203 generally
prohibits an "interested stockholder" from engaging in a broad range of
"business combination" transactions, including mergers, consolidations and sales
of 10% or more of a corporation's assets, with a Delaware corporation for three
years following the date on which such person became an interested stockholder
unless (i) the transaction that results in the person's becoming an interested
stockholder or the business combination is approved by the board of directors of
the corporation before the person becomes an interested stockholder, (ii) upon
consummation of the transaction which results in the stockholder becoming an
interested stockholder, the interested stockholder owns 85% or more of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also officers
and shares owned by certain employee stock plans, or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by holders of at least
two-thirds of the corporation's outstanding voting stock, excluding shares owned
by the interested stockholder, at a meeting of stockholders. Under Section 203,
an "interested stockholder" is generally defined as any person (and the
affiliates and associates of any such person), other than the corporation and
any direct or indirect majority-owned subsidiary, that is (a) the owner of 15%
or more of the outstanding voting stock of the corporation or (b) an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder. The restrictions contained in
Section 203 do not apply to a corporation that so provides in an amendment to
its certificate of incorporation or by-laws passed by a majority of its
outstanding voting shares, but such stockholder action generally does not become
effective for 12 months following its adoption and would not apply to persons
who were already interested stockholders at the time of the amendment. The
Company's Charter and Company's By-Laws do not exclude the Company from the
restrictions imposed under Section 203, but the Company's Charter provides that
in no case shall the H&F Investors or any person who is a Permitted H&F 15%
Transferee, regardless of the total percentage of the Company's Common Stock or
other voting stock owned by the H&F Investors or such person, be deemed an
interested stockholder for any purpose under Section 203 whatsoever.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period.
72
<PAGE> 76
The provisions of Section 203 may encourage companies interested in acquiring
the Company to negotiate in advance with the Company Board, because the
stockholder approval requirement would be avoided if the Board approves either
the business combination or the transaction which results in the stockholder
becoming an interested stockholder. Such provisions also may have the effect of
preventing changes in the Board. It is further possible that such provisions
could make it more difficult to accomplish transactions which stockholders may
otherwise deem to be in their best interests.
73
<PAGE> 77
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no market for the Common Stock and
there is no assurance that a significant public market for the Common Stock will
develop or be sustained after the Offerings. Sales of substantial amounts of
Common Stock in the public market following the Offerings could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to raise capital through the sale of its equity securities.
Upon the closing of the Offerings, the Company will have outstanding
66,228,322 shares of Common Stock. Of these shares, approximately (i) 20,239,045
shares will be freely tradeable by persons, other than "affiliates" of the
Company, without restriction under the Securities Act of 1933, as amended (the
"Securities Act"); (ii) 44,952,822 shares will be "restricted" securities,
within the meaning of Rule 144 under the Securities Act, and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption provided by Rule 144; and
(iii) 1,036,455 shares originally issued pursuant to Regulation S under the
Securities Act will be subject to transfer restrictions thereunder.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated),
including any affiliate of the Company, who has beneficially owned restricted
securities for at least one year (including the holding period of any prior
owner except an affiliate of the Company) would be entitled to sell within any
three-month period, a number of shares that does not exceed the greater of: (i)
one percent of the number of Common Stock then outstanding (approximately
662,283 shares immediately after the Offerings); or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned restricted
securities for at least two years (including the holding period of any prior
owner except an affiliate of the Company), is entitled to sell such shares
without complying with the manner of sale, public information requirements,
volume limitations or notice requirements of Rule 144. Sale of shares by
affiliates of the Company will continue to be subject to such volume
limitations, and manner of sale, notice and public information requirements.
Each of the Company, all of the Management Investors, the Directors, and
the Recapitalization Investors, including the Selling Stockholders, who, upon
consummation of the Offerings, will collectively be the beneficial owners of an
aggregate of 49,628,322 shares of Common Stock and hold vested options to
acquire an aggregate of 16,702,950 shares of Common Stock have agreed not to (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise), without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation and Bear,
Stearns & Co. Inc. (and, in the case of Management Investors, the Company), for
a period of 180 days after the date of this Prospectus (except that (i) the
Company may grant stock options or stock awards pursuant to the Company's
existing benefit or compensation plans, (ii) the Company may issue shares of
Common Stock upon the exercise of options, warrants or Rights or the conversion
of currently outstanding securities, (iii) the H&F Investors may transfer shares
of Common Stock to partners or affiliates thereof in transactions not involving
a public offering provided that each transferee agrees in writing to be bound by
the restrictions set forth in this paragraph and (iv) the Company may issue,
offer and sell shares of Common Stock or securities convertible, exercisable or
exchangeable therefor in transactions not involving a public offering as
consideration for the acquisition (pursuant to merger or otherwise) of one or
more entities provided that each recipient of such securities agrees in writing
to be bound by the restrictions set forth in this paragraph). In addition,
during such period, the Company has also agreed not to file any registration
statement with respect to, and the Company's executive officers and Directors,
and certain other stockholders, including the Selling Stockholders, have agreed
not to make any demand for, or exercise any right with respect
74
<PAGE> 78
to, the registration of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation and Bear, Stearns
& Co. Inc., except that the Company may file a registration statement on Form
S-8 under the Act to register shares of Common Stock issuable upon the exercise
of options. The Company intends to file a registration statement on Form S-8
under the Act on or shortly after the date of consummation of the Offerings. See
"Underwriting."
REGISTRATION RIGHTS AGREEMENT
In connection with the Recapitalization, Y&R, the Recapitalization
Investors and the Management Voting Trust entered into a Registration Rights
Agreement in favor of the Recapitalization Investors and, to the extent
necessary to permit a Management Investor to pay taxes when such sales would not
otherwise be permitted, the Management Investors, under which registration
rights are available after the consummation of the Offerings. Pursuant to the
Registration Rights Agreement, effective upon consummation of the Offerings, the
Company has granted (i) the Recapitalization Investors the right to require,
subject to the terms and conditions set forth therein, the Company to register
shares of Common Stock held by them for sale in accordance with their intended
method of disposition thereof and (ii) the Management Voting Trust the right to
require, subject to the terms and conditions set forth therein, the Company to
register such number of shares of Common Stock as is necessary to permit
Management Investors to pay taxes as a result of the exercise by such Management
Investors of Rollover Options or Closing Options or the vesting of Restricted
Stock awarded to such Management Investors (each a "demand registration"),
provided that in the case of the Management Voting Trust no such request may be
made without the consent of the Company. Subject to certain limitations, the
Recapitalization Investors may request up to four demand registrations and the
Management Voting Trust may request up to two demand registrations. The Company
will not be required to effect any demand registration if (i) the aggregate
market value of the shares of Common Stock proposed to be registered is less
than $100 million or (ii) such demand registration is requested by the
Recapitalization Investors or the Management Voting Trust within six months of
the effective date of a prior demand registration requested by the
Recapitalization Investors or the Management Voting Trust, respectively. The
Company may postpone the filing of a demand registration for up to 60 days in
certain circumstances.
In addition, the Company has granted the Recapitalization Investors and the
Management Voting Trust (to the extent of such number of shares of Common Stock
as is necessary to permit Management Investors to pay taxes as a result of the
exercise by such Management Investors of Rollover Options or Closing Options or
the vesting of Restricted Stock awarded to such Management Investors) the right,
subject to certain exceptions, to participate in registrations of Common Stock
initiated by the Company on its own behalf or on behalf of any other stockholder
(a "piggy-back registration"). The Recapitalization Investors and the Management
Voting Trust (on behalf of those Management Investors that are Selling
Stockholders) have exercised these piggy-back registration rights in connection
with the Offerings.
The Registration Rights Agreement provides that if requested by the
managing underwriter(s) of any underwritten offering of shares of Common Stock,
the Recapitalization Investors and the Management Voting Trust will agree, on
the same terms applicable to officers and directors of the Company, not to
effect any public sale or distribution of any shares of Common Stock for a
period of up to 180 days following and 15 days prior to the date of the final
prospectus contained in the registration statement filed in connection with such
offering. See "Underwriting."
The Company is required to pay expenses incurred by it and the reasonable
fees and disbursements of one counsel to the selling stockholders under the
Registration Rights Agreement in connection with the demand and piggy-back
registrations under the Registration Rights Agreement. In connection with any
registration under the Registration Rights Agreement, the Company has agreed to
indemnify five of the Recapitalization Investors against certain liabilities,
including liabilities under the Securities Act, and to contribute to certain
payments they may be required to make. The Registration Rights Agreement will
terminate on December 12, 2011.
75
<PAGE> 79
CERTAIN U.S. TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
person that, for U.S. federal income tax purposes, is not a U.S. Person (a
"non-U.S. holder"). For purposes of this Section a "U.S. Person" means a citizen
or resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source or a trust if (i) a U.S. court
is able to exercise primary supervision over the trust's administration and (ii)
one or more United States persons have the authority to control all of the
trust's substantial decisions, and the term "United States" means the U.S. of
America (including the States and the District of Columbia). The discussion does
not consider specific facts and circumstances that may be relevant to a
particular non-U.S. holder's tax position. Accordingly, each non-U.S. holder is
urged to consult its own tax advisor with respect to the U.S. tax consequences
of the ownership and disposition of Common Stock, as well as any tax
consequences that may arise under the laws of any state, municipality, foreign
country or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a non-U.S. holder of Common Stock ordinarily will be
subject to withholding of U.S. federal income tax at a 30 percent rate, or at a
lower rate under an applicable income tax treaty that provides for a reduced
rate of withholding. However, if the dividends are effectively connected with
the conduct by the holder of a trade or business within the United States, then
the dividends will be exempt from the withholding tax described above and
instead will be subject to U.S. federal income tax on a net income basis.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain realized on a disposition of Common Stock, provided that (a)
the gain is not effectively connected with a trade or business conducted by the
non-U.S. holder in the United States and (b) in the case of a non-U.S. holder
who is an individual and who holds the Common Stock as a capital asset, such
holder is present in the United States for less than 183 days in the taxable
year of the sale and other conditions are met.
FEDERAL ESTATE TAXES
Common Stock owned or treated as being owned by a non-U.S. holder at the
time of death will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
U.S. information reporting requirements and backup withholding tax will not
apply to dividends paid on Common Stock to a non-U.S. holder address outside the
United States, except that with regard to payments made after December 31, 1998,
a Non-U.S. Holder will be entitled to such an exemption only if it provides a
Form W-8 (or satisfies certain documentary evidence requirements for
establishing that it is a non-United States person) or otherwise establishes an
exemption. As a general matter, information reporting and backup withholding
also will not apply to a payment of the proceeds of a sale of Common Stock
effected outside the United States by a foreign office of a foreign broker.
However, information reporting requirements (but not backup withholding) will
apply to a payment of the proceeds of a sale of Common Stock effected outside
the United States by a foreign office of a broker if the broker (i) is a U.S.
person, (ii) derives 50 percent or more of its gross income for certain periods
from the conduct of a trade or business in the United States, or (iii) is a
"controlled foreign corporation" as to the United States, or (iv) with respect
to payments made after December 31, 1998, is a foreign partnership that, at any
time during its taxable year is 50 percent or more (by income or capital
interest) owned by U.S. persons or is engaged in the conduct of a U.S. trade or
business, unless the broker has documentary evidence in its records that the
holder is a non-U.S. holder and certain conditions are met, or the holder
otherwise establishes an exemption. Payment by a United States office of a
broker of the proceeds of a sale of Common Stock will be subject to both backup
withholding and information reporting unless the holder certifies its non-United
States status under penalties of perjury or otherwise establishes an exemption.
76
<PAGE> 80
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1998 (the "Underwriting Agreement"), the U.S. Underwriters named
below (the "U.S. Underwriters"), who are represented by Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), Bear, Stearns & Co. Inc. ("Bear
Stearns"), Furman Selz LLC, Goldman, Sachs & Co. and Smith Barney Inc. (the
"U.S. Representatives"), and the International Managers named below (the
"International Managers" and, together with the U.S. Underwriters, the
"Underwriters"), who are represented by Donaldson, Lufkin & Jenrette
International ("DLJ International"), Bear, Stearns International Limited, Furman
Selz LLC, Goldman Sachs International and Smith Barney Inc. are acting as
representatives (the "International Representatives" and, together with the U.S.
Representatives, the "Representatives"), have severally agreed to purchase from
the Company and the Selling Stockholders the respective number of shares of
Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Bear, Stearns & Co. Inc. ...................................
Furman Selz LLC.............................................
Goldman, Sachs & Co. .......................................
Smith Barney Inc............................................
----------
Subtotal............................................... 13,280,000
==========
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette International..................
Bear, Stearns International Limited.........................
Furman Selz LLC.............................................
Goldman Sachs International.................................
Smith Barney Inc............................................
---------
Subtotal...............................................
=========
Total............................................. 3,320,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the
initial offering of the Common Stock, the public offering price and other
selling terms may be changed by the Representatives at any time without notice.
The Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The H&F Investors, H. Irving Grousbeck and American Media Management, Inc.
have granted to the U.S. Underwriters an option, exercisable within 30 days
after the date of this Prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of 2,490,000 additional shares of Common Stock at
the initial public offering price less underwriting discounts and commissions.
The U.S. Underwriters may exercise such option solely to cover over-allotments,
if any, made in connection with the Offerings. To the extent that the U.S.
Underwriters exercise such option, each U.S. Underwriter will become obligated,
subject to certain
77
<PAGE> 81
conditions, to purchase its pro rata portion of such additional shares based on
such U.S. Underwriter's percentage underwriting commitment in the U.S. portion
of the Offerings as indicated in the preceding table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, all of the Management Investors, the Directors and the
Recapitalization Investors (including the Selling Stockholders) has agreed not
to (i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ and
Bear Stearns (and, in the case of Management Investors, the Company) (except
that (i) the Company may grant stock options or stock awards pursuant to the
Company's existing benefit or compensation plans, (ii) the Company may issue
shares of Common Stock upon the exercise of options, warrants or Rights or the
conversion of currently outstanding securities, (iii) the H&F Investors may
transfer shares of Common Stock to partners or affiliates thereof in
transactions not involving a public offering provided that each transferee
agrees in writing to be bound by the restrictions set forth in this paragraph
and (iv) the Company may issue, offer and sell shares of Common Stock or
securities convertible, exercisable or exchangeable therefor in transactions not
involving a public offering as consideration for the acquisition (pursuant to
merger or otherwise) of one or more entities provided that each recipient of
such securities agrees in writing to be bound by the restrictions set forth in
this paragraph). In addition, during such period, the Company has also agreed
not to file any registration statement with respect to, and each of its
executive officers, directors and certain stockholders of the Company (including
the Selling Stockholders) has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
without the prior written consent of DLJ and Bear Stearns, except that the
Company may file a registration statement on Form S-8 under the Act to register
shares of Common Stock issuable upon the exercise of options. The Company
intends to file a registration statement on Form S-8 under the Act on or shortly
after the date of consummation of the Offerings.
Prior to the Offerings, there has been no established public trading market
for the Common Stock. The initial public offering price for the shares of Common
Stock offered hereby will be determined by negotiation between the Company and
the Representatives. The factors to be considered in determining the initial
public offering price include the history of and the prospects for the industry
in which the Company competes, the past and present operations of the Company,
the prospects for future earnings of the Company, the recent market prices of
securities of generally comparable companies and the general condition of the
securities markets at the time of the Offerings.
The Common Stock has been approved for listing on the New York Stock
Exchange (the "NYSE") under the symbol "YNR," subject to official notice of
issuance. In order to meet the requirements for listing the Common Stock on the
NYSE, the U.S. Underwriters have undertaken to sell lots of 100 or more shares
to a minimum of 2,000 beneficial owners.
Pursuant to an Agreement Between U.S. Underwriters and International
Managers (the "Intersyndicate Agreement"), each U.S. Underwriter has represented
and agreed that, with certain exceptions, (i) it is not purchasing any shares of
Common Stock offered hereby for the account of anyone other than a United States
or Canadian Person (as defined below) and (ii) it has not offered or sold, and
will not offer or sell, directly or indirectly, any shares of Common Stock
offered hereby or distribute any prospectus relating to such shares of Common
Stock outside the United States or Canada or to anyone other than a United
States or Canadian Person. Pursuant to the Intersyndicate Agreement, each
International Manager has represented and agreed that, with certain exceptions,
(i) it is not purchasing any shares of Common Stock offered hereby for the
78
<PAGE> 82
account of any United States or Canadian Person and (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Common
stock offered hereby or distribute any prospectus relating to such shares of
Common Stock in the United States or Canada or to any United States or Canadian
Person. With respect to any Underwriter that is both a U.S. Underwriter and an
International Manager, the foregoing representations and agreements (i) made by
it in its capacity as a U.S. Underwriter apply only to it in its capacity as a
U.S. Underwriter and (ii) made by it in its capacity as an International Manager
apply only to it in its capacity as an International Manager. The foregoing
limitations do not apply to stabilization transactions and to certain other
transactions specified in the Intersyndicate Agreement. As used herein, "United
States or Canadian Person" means any individual who is resident in the United
States or Canada, or any corporation, pension, profit-sharing or other trust or
other entity organized under or governed by the laws of the United States or
Canada or of any political subdivision thereof (other than the foreign branch of
any United States or Canadian Person), and includes any United States or
Canadian branch of a person other than a United States or Canadian Person.
Pursuant to the Intersyndicate Agreement, sales may be made between the
syndicates of U.S. Underwriters and International Managers of such number of
shares of Common Stock offered hereby as may be mutually agreed. Unless
otherwise determined by the Representatives, the per share price of any shares
of Common Stock so sold shall be the initial public offering price set forth on
cover page hereof, in United States dollars, less an amount not greater than the
per share amount of the concession to dealers set forth above.
Pursuant to the Intersyndicate Agreement, each U.S. Underwriter has
represented and agreed that (i) it has not offered or sold and will not offer or
sell, directly or indirectly, any shares of Common Stock offered hereby in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and (ii) without limiting the generality of the foregoing, any offer or
sale of such shares of Common Stock in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province or territory
of Canada in which such offer or sale is made. Each U.S. Underwriter has further
agreed to send to any dealer who purchases from it any shares of Common Stock
offered hereby a notice stating in substance that by purchasing such shares of
Common Stock such dealer represents and agrees that (i) it has not offered or
sold and will not offer or sell, directly or indirectly, any of such shares of
Common Stock in any province or territory of Canada or to, or for the benefit
of, any resident of any province or territory of Canada in contravention of
securities laws thereof, (ii) any offer or sale of such shares of Common Stock
in Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the province or territory of Canada in which such offer or
sale is made and (iii) it will send to any other dealer to whom it sells any of
such shares of Common Stock a notice containing substantially the same statement
as is contained in this sentence.
Pursuant to the Intersyndicate Agreement, each International Manager has
represented and agreed that (i) it has not offered or sold and, prior to the
date six months after the closing date for the sale of shares of Common Stock to
the International Managers pursuant to the Underwriting Agreement, will not
offer or sell, any shares of Common Stock offered hereby to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the shares
of Common Stock offered hereby in, from or otherwise involving the United
Kingdom; and (iii) it has only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with the
Offerings to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom the document may otherwise lawfully be issued or passed
on.
Pursuant to the Intersyndicate Agreement, each International Manager has
further represented and agreed that it has not offered or sold and will not
offer or sell, directly or indirectly, any shares of Common Stock acquired in
connection with the distribution contemplated hereby in Japan or to or for the
account of
79
<PAGE> 83
any resident thereof, except for offers or sales to Japanese International
Managers or dealers and except pursuant to an exemption from the registration
requirements of the Securities and Exchange Law of Japan and otherwise in
compliance with applicable provisions of Japanese law. Each International
manager has further agreed to send to any dealer who purchases from it any
shares of Common Stock offered hereby a notice stating in substance that by
purchasing such shares of Common Stock such dealer represents and agrees that
(i) it has not offered or sold and will not offer or sell, directly or
indirectly, any of such shares on Common Stock in Japan or to or for the account
of any resident thereof, except for offers or sales to Japanese International
Managers or dealers and except pursuant to an exemption from the registration
requirements of the Securities and Exchange Law of Japan and otherwise in
compliance with applicable provisions of Japanese law and (ii) it will send to
any other dealer to whom it sells any of such shares of Common Stock a notice
containing substantially the same statement as is contained in this sentence.
Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offerings and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby in any jurisdiction in
which such an offer or a solicitation is unlawful.
In connection with the Offerings, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot in connection with
the Offerings, creating a syndicate short position. The Underwriters may bid for
and purchase shares of Common Stock in the open market to cover such syndicate
short position or to stabilize the price of the Common Stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members,
if DLJ repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilization transactions or otherwise or if DLJ receives a
report that indicates that the clients of such syndicate members have "flipped"
the Common Stock. These activities may stabilize or maintain the market price of
the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
830,000 of the shares offered hereby have been reserved for sale to certain
employees of the Company and certain of its subsidiaries, certain clients and
certain other persons designated by the Company ("Eligible Participants"), in
each case to the extent permitted by applicable law. The price per share of the
shares to be sold to Eligible Participants will be the same as the price to the
public in the Offerings. The maximum investment of any Eligible Participant may
be limited by the Company in its sole discretion. This program is being
administered by DLJ or DLJ International or, where required by applicable law, a
locally licensed or authorized broker-dealer. It is currently anticipated that
the number of shares to be sold under this program will not exceed 5% of the
number of shares of Common Stock offered in connection with the Offerings.
Bear Stearns from time to time performs investment banking and other
financial services for the Company and its affiliates for which Bear Stearns may
receive advisory or transaction fees, as applicable, plus out-of-pocket
expenses, of the nature and in amounts customary in the industry for such
services. Alan D. Schwartz, an Executive Vice President and Head of the
Investment Banking Department of Bear Stearns, is a member of the Company Board.
BearTel Corp., a company affiliated with Bear Stearns, is a Selling Stockholder
in the Offerings. See "Principal and Selling Stockholders."
80
<PAGE> 84
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cleary, Gottlieb, Steen & Hamilton, New York, New York.
Certain legal matters in connection with the Offerings will be passed upon for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1997 and
for each of the three years in the period ended December 31, 1997 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on authority of said firm as
experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement"), of which
this Prospectus forms a part, covering the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, certain items of which are omitted as
permitted by the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in its entirety by such
reference.
Following the Offerings, the Company will become subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith will be required to file reports and other information with
the Commission. The Registration Statement (including exhibits), as well as such
reports and other information, when so filed, can be inspected without charge
and copied, at prescribed rates, at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
regional offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material may be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates or at the Commission's web site at
http.//www.sec.gov. Such reports and other information may also be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005, once the Common Stock has been approved for listing.
The Company will furnish its stockholders annual reports and unaudited
quarterly reports for the first three quarters of each fiscal year. Annual
reports will include audited consolidated financial statements prepared in
accordance with U.S. generally accepted accounting principles. The financial
statements included in the annual reports will be examined and reported upon,
with an opinion expressed, by the Company's independent auditors.
81
<PAGE> 85
[ADDITIONAL PAGE FOR INTERNATIONAL PROSPECTUS]
ADDITIONAL INFORMATION
The following information is required pursuant to the United Kingdom Public
Offers of Securities Regulations 1995. A copy of this document, which comprises
a prospectus prepared in accordance with the Public Offers of Securities
Regulations 1995, has been delivered to the Registrar of Companies in England
and Wales in accordance with Regulation 4(2) of those Regulations.
RESPONSIBILITY
The Directors of the Company accept responsibility for the information
contained in this document. To the best knowledge and belief of such persons
(who have taken all reasonable care to ensure that such is the case), such
information is in accordance with the facts and does not omit anything likely to
affect the import of such information. The business address of Messrs.
Georgescu, Vick, Bell and Dolan is 285 Madison Avenue, New York, New York 10017.
The business address of Messrs. Hellman and Hammarskjold is One Maritime Plaza,
San Francisco, California 94111. The business address of Mr. Schwartz is 245
Park Avenue, New York, New York 10167. The business address of Mr. Bodman is c/o
AT&T Ventures, Chevy Chase Metro Building, 2 Wisconsin Circle, Suite 610, Chevy
Chase, Maryland 20815-7003. The business address of Mr. McGillicuddy is 270 Park
Avenue, 32nd Floor, New York, New York 10017.
DIRECTORS' SERVICE CONTRACTS
Any service contracts with Directors are determinable by the Company upon
less than one year's notice without payment of compensation.
INCORPORATION AND PURPOSE
The Company was incorporated as a corporation with limited liability under
the laws of the State of Delaware in October 1996 under the name "Young &
Rubicam Inc." The Company's Charter provides that the purposes for which the
Company is formed are to engage in any lawful act or activity for which
corporations may be organized and incorporated under the General Corporation Law
of the State of Delaware. The principal offices of the Company in the United
Kingdom are Young & Rubicam Holdings (U.K.) Ltd., Greater London House,
Hampstead Road, London NW1 7QP, United Kingdom.
CONSENT
Price Waterhouse LLP have given and have not withdrawn their written
consent to the inclusion of their report and, for the purposes of paragraph
45(2)(a)(iv) of Schedule 1 of The Public Offers of Securities Regulations 1995,
accept responsibility for the report and have not become aware, since the date
of the audit report, of any matter affecting the validity of the report at that
date. The address of Price Waterhouse LLP is 1177 Avenue of the Americas, New
York, New York 10036.
THE OFFER
The Offering in the United Kingdom commenced on April 20, 1998 and will
remain open until the date on which the Registration Statement is declared
effective by the Commission, which is expected to occur on or about May ,
1998. DLJ International will contact Eligible Participants in the United Kingdom
to arrange for the sale of shares of Common Stock offered hereby. Eligible
Participants may choose which specified number of shares of Common Stock they
wish to purchase on the share reservation form to be provided to them by DLJ
International. DLJ International will provide information on setting up the
appropriate account with them for payment and delivery of shares of Common
Stock, which is expected to occur on or about May , 1998. Payment for such
shares shall be upon their delivery.
IF YOU ARE IN ANY DOUBT ABOUT THE CONTENTS OF THIS DOCUMENT YOU SHOULD
CONSULT A PERSON AUTHORIZED UNDER THE FINANCIAL SERVICES ACT 1986 WHO
SPECIALIZES IN ADVISING ON THE ACQUISITION OF SHARES AND OTHER SECURITIES.
82
<PAGE> 86
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... F-3
Consolidated Statements of Operations for the three years
ended December 31, 1997................................... F-4
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997................................... F-5
Consolidated Statements of Changes in Equity (Deficit) for
the three years ended December 31, 1997................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Young & Rubicam Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in equity
(deficit) present fairly, in all material respects, the financial position of
Young & Rubicam Inc. and its subsidiaries at December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 19, 1998
F-2
<PAGE> 88
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1997
------------------------ ------------
PRO FORMA
1996 1997 (SEE NOTE 2)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 110,180 $ 160,263 $ 160,263
Accounts receivable, net of allowance for doubtful
accounts of $9,849 and $14,125 at December 31, 1996 and
1997, respectively...................................... 847,653 790,342 790,342
Costs billable to clients................................. 78,723 50,479 50,479
Other receivables......................................... 50,302 35,218 35,218
Deferred income taxes..................................... 78,732 32,832 32,832
Prepaid expenses and other assets......................... 17,102 16,891 16,891
Due from employees........................................ 2,340 1,098 1,098
---------- ---------- ----------
Total Current Assets................................ 1,185,032 1,087,123 1,087,123
---------- ---------- ----------
NONCURRENT ASSETS
Property and equipment, net............................... 129,088 125,014 125,014
Deferred income taxes..................................... 79,411 124,192 124,192
Goodwill, less accumulated amortization of $64,062 and
$80,166 at December 31, 1996 and 1997, respectively..... 131,511 116,637 116,637
Equity in net assets of and advances to unconsolidated
companies............................................... 25,219 26,393 26,393
Due from employees........................................ 705 300 300
Other assets.............................................. 47,846 48,360 48,360
---------- ---------- ----------
Total Noncurrent Assets............................. 413,780 440,896 440,896
---------- ---------- ----------
Total Assets........................................ $1,598,812 $1,528,019 $1,528,019
========== ========== ==========
CURRENT LIABILITIES
Loans payable............................................. $ 36,282 $ 10,765 $ 10,765
Accounts payable.......................................... 805,710 811,162 811,162
Installment notes payable -- related parties.............. 24,874 3,231 3,231
Accrued expenses and other liabilities.................... 247,816 273,011 273,011
Accrued payroll and bonuses............................... 252,487 65,458 65,458
Income taxes payable...................................... 14,372 29,665 29,665
---------- ---------- ----------
Total Current Liabilities........................... 1,381,541 1,193,292 1,193,292
---------- ---------- ----------
NONCURRENT LIABILITIES
Loans payable............................................. 206,082 330,552 330,552
Installment notes payable -- related parties.............. -- 6,503 6,503
Deferred compensation -- related parties.................. 17,887 31,077 31,077
Other liabilities......................................... 104,502 112,851 112,851
---------- ---------- ----------
Total Noncurrent Liabilities........................ 328,471 480,983 480,983
---------- ---------- ----------
Commitments and Contingencies (Note 18)
Minority Interest........................................... 5,569 6,987 6,987
---------- ---------- ----------
MANDATORILY REDEEMABLE EQUITY SECURITIES
Common stock, par value $.01 per share;
authorized -- 250,000,000 shares at December 31, 1996
and 1997 (actual and pro forma); issued and
outstanding -- 47,382,330 shares, 50,658,180 shares and
0 shares at December 31, 1996 (actual), December 31,
1997 (actual) and pro forma December 31, 1997,
respectively............................................ 363,264 508,471 --
---------- ---------- ----------
STOCKHOLDERS' DEFICIT
Money Market Preferred Stock -- Cumulative variable
dividend; liquidating value of $7.67 per share;
one-tenth of one vote per share; 10,000,000 shares
authorized December 31, 1996 and 1997 (actual and pro
forma); 87 shares issued and outstanding (actual and pro
forma).................................................. -- -- --
Common stock, par value $.01 per share; authorized
250,000,000 shares at December 31, 1996 and 1997 (actual
and pro forma); issued and outstanding -- 11,086,950
shares at December 31, 1996 and 1997 (actual) and
61,745,130 shares pro forma December 31, 1997........... 111 111 617
Capital surplus........................................... 106,825 23,613 531,578
Accumulated deficit....................................... (498,928) (522,866) (522,866)
Cumulative translation adjustment......................... (2,322) (16,577) (16,577)
Pension liability adjustment.............................. (719) (706) (706)
---------- ---------- ----------
(395,033) (516,425) (7,954)
Common stock in treasury, at cost; 0 shares at December
31, 1996 and 1,115,160 shares at December 31, 1997
(actual and pro forma).................................. -- (8,550) (8,550)
Unearned compensation -- Restricted Stock................. (85,000) (136,739) (136,739)
---------- ---------- ----------
Total Stockholders' Deficit......................... (480,033) (661,714) (153,243)
---------- ---------- ----------
Total Liabilities, Mandatorily Redeemable Equity
Securities and Stockholders' Deficit.............. $1,598,812 $1,528,019 $1,528,019
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 89
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Revenues............................................... $1,085,494 $1,222,139 $1,382,740
Compensation expense, including employee benefits...... 672,026 730,261 836,150
General and administrative expenses.................... 356,523 391,617 463,936
Recapitalization-related charges....................... -- 315,397 --
Other operating charges................................ 31,465 17,166 11,925
---------- ---------- ----------
Operating expenses..................................... 1,060,014 1,454,441 1,312,011
---------- ---------- ----------
Income (loss) from operations.......................... 25,480 (232,302) 70,729
Interest income........................................ 9,866 10,269 8,454
Interest expense....................................... (27,441) (28,584) (42,879)
---------- ---------- ----------
Income (loss) before income taxes...................... 7,905 (250,617) 36,304
Income tax provision (benefit)......................... 9,130 (20,611) 58,290
---------- ---------- ----------
(1,225) (230,006) (21,986)
Equity in net income (loss) of unconsolidated
companies............................................ 5,197 (9,837) 342
Minority interest in net (income) loss of consolidated
subsidiaries......................................... (3,152) 1,532 (2,294)
---------- ---------- ----------
Net income (loss)...................................... $ 820 $ (238,311) $ (23,938)
========== ========== ==========
Basic and diluted loss per common share (Note 3)....... $ (.51)
==========
Weighted average shares outstanding (Note 3)........... 46,949,355
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 90
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 820 $(238,311) $ (23,938)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Recapitalization-related charges............................ -- 315,397 --
Depreciation and amortization............................... 47,492 53,030 56,721
Other operating charges..................................... 24,360 11,096 11,925
Deferred income tax expense................................. (14,866) (59,671) (384)
Equity in net (income) loss of unconsolidated companies..... (5,197) 9,837 (342)
Dividends from unconsolidated companies..................... 2,101 2,691 2,728
Minority interest in net income (loss) of consolidated
subsidiaries.............................................. 3,152 (1,532) 2,294
Change in assets and liabilities, excluding effects from
acquisitions, dispositions, recapitalization and foreign
exchange:
Accounts receivable......................................... (44,156) (209,518) 42,144
Costs billable to clients................................... (19,637) 7,784 25,622
Other receivables........................................... 5,462 (2,883) 13,930
Prepaid expenses and other assets........................... (1,922) 5,342 (876)
Due from employees.......................................... (453) 3,434 1,145
Accounts payable............................................ 58,635 256,460 18,547
Accrued expenses and other liabilities...................... 7,368 (7,565) 25,621
Accrued payroll and bonuses................................. (90) 3,192 2,179
Income taxes payable........................................ 2,383 4,263 19,352
Deferred compensation....................................... 10,921 4,950 13,052
Other liabilities........................................... 2,188 11,225 9,457
Other....................................................... 1,248 8,843 5,334
-------- --------- ---------
Net cash provided by operating activities................... 79,809 178,064 224,511
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment......................... (42,096) (51,792) (51,899)
Acquisitions, net of cash acquired.......................... (5,298) (23,887) (11,281)
Investment in net assets of and advances to unconsolidated
companies................................................. (189) (775) (5,640)
Proceeds from notes receivable.............................. 1,762 360 1,678
-------- --------- ---------
Net cash used in investing activities....................... (45,821) (76,094) (67,142)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable, long-term...................... -- 319,282 226,770
Repayment of loans payable, long-term....................... (29,743) (252,496) (105,870)
Proceeds from loans payable, short-term, net................ 11,052 27,849 20,103
Deferred financing costs.................................... -- (9,157) --
Recapitalization cash contributions......................... -- 242,007 --
Recapitalization payments................................... -- (323,920) (247,789)
Payments of non-recapitalization deferred compensation...... (15,243) (13,886) (961)
Proceeds (loans) due from employees, net.................... 1,145 2,262 (157)
Common stock/LPUs issued.................................... 9,732 4,163 10,390
Common stock/LPUs repurchased............................... (21,647) (8,971) (1,500)
Dividends paid on preferred and common stock................ (491) (696) --
(Dividends paid to) capital contributions from minority
shareholders.............................................. (1,770) 1,652 347
Distributions to limited partners........................... (3,060) (703) --
-------- --------- ---------
Net cash used in financing activities....................... (50,025) (12,614) (98,667)
-------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... 1,148 (822) (8,619)
-------- --------- ---------
Net (decrease) increase in cash and cash equivalents........ (14,889) 88,534 50,083
Cash and cash equivalents, beginning of period.............. 36,535 21,646 110,180
-------- --------- ---------
Cash and cash equivalents, end of period.................... $ 21,646 $ 110,180 $ 160,263
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................... $ 30,161 $ 28,612 $ 39,986
======== ========= =========
Income taxes paid........................................... $ 20,350 $ 20,732 $ 25,020
======== ========= =========
NONCASH INVESTING ACTIVITY
Common Stock issued in acquisitions......................... -- -- $ 1,126
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 91
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED AND
LIMITED UNDISTRIBUTED
NON-VOTING VOTING PARTNERS' EARNINGS COMMON
PREFERRED COMMON COMMON CONTRIBUTED CAPITAL (ACCUMULATED STOCK IN RESTRICTED
STOCK STOCK STOCK EQUITY SURPLUS DEFICIT) TREASURY STOCK
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................. $ 63 $ 4,000 $ -- $ 946 $ 53,006 $ 29,616 $ 3,298 $ --
==== ======= ===== ======= ========= ========= ======= =========
Net income............. -- -- -- -- -- 820 -- --
Dividends paid......... -- -- -- -- -- (491) -- --
Common stock/Limited
Partnership Units
issued............... 28 -- -- 1,359 12,237 183 (72) --
Limited Partnership
Units
repurchased/capital
distributions........ -- -- -- (4,000) -- (6,733) -- --
Common Stock
repurchased.......... (25) -- -- -- (10,051) (5,759) 91 --
Capitalization of tax
benefits of options
exercised............ -- -- -- -- 29 -- -- --
Equityholder loans..... -- -- -- 4,231 1,882 -- -- --
---- ------- ----- ------- --------- --------- ------- ---------
BALANCE AT DECEMBER 31,
1995................. $ 66 $ 4,000 $ -- $ 2,536 $ 57,103 $ 17,636 $ 3,317 $ --
==== ======= ===== ======= ========= ========= ======= =========
Net loss............... -- -- -- -- -- (238,311) -- --
Dividends paid......... -- -- -- -- -- (696) -- --
Common stock/Limited
Partnership Units
issued............... 3 -- -- 4,067 13,269 -- (61) --
Limited Partnership
Units
repurchased/capital
distributions........ -- -- -- (2,370) -- (3,329) -- --
Common stock
repurchased.......... (2) -- -- -- (14,699) (8,863) 123 --
Recapitalization
redemptions.......... (67) (3,900) -- (1,534) (36,435) (265,365) (3,379) --
Recapitalization
issuances............ -- -- 427 -- 326,590 -- -- (85,000)
Recapitalization
exchanges............ -- (100) 158 (2,914) 122,732 -- -- --
Mandatorily Redeemable
Equity Securities.... -- -- (474) -- (362,790) -- -- --
Equityholder loans..... -- -- -- 215 1,055 -- -- --
---- ------- ----- ------- --------- --------- ------- ---------
BALANCE AT DECEMBER 31,
1996................. $ -- $ -- $ 111 $ -- $ 106,825 $(498,928) $ -- $ (85,000)
==== ======= ===== ======= ========= ========= ======= =========
Net loss............... -- -- -- -- -- (23,938) -- --
Common stock issued.... -- -- -- -- 1,501 -- -- --
Common stock
repurchased.......... -- -- -- -- -- -- (8,550) --
Unearned
compensation --
Restricted Stock..... -- -- -- -- 51,739 -- -- (51,739)
Common stock options
exercised............ -- -- 44 -- 8,711 -- -- --
Accretion of
Mandatorily
Redeemable Equity
Securities........... -- -- (44) -- (145,163) -- -- --
---- ------- ----- ------- --------- --------- ------- ---------
BALANCE AT DECEMBER 31,
1997................. $ -- $ -- $ 111 $ -- $ 23,613 $(522,866) $(8,550) $(136,739)
==== ======= ===== ======= ========= ========= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 92
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- OPERATIONS AND BASIS OF PRESENTATION:
NATURE OF OPERATIONS: Young and Rubicam Inc. (the "Company") is a global
marketing and communications enterprise with integrated services in advertising,
perception management and public relations, identity and design, sales
promotion, direct marketing and healthcare communications. The Company operates
in the U.S., Canada, Europe, Latin America and Asia/Pacific as well as through
certain affiliations in other parts of the world.
BASIS OF PRESENTATION: On December 12, 1996, the Company effected a
recapitalization (the "Recapitalization"). As the equity holders prior to the
Recapitalization retained control of the Company, the financial statements
reflect the consolidated financial position, results of operations and cash
flows of the Company on a continuous basis (see Note 4).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company, a Delaware corporation, and all subsidiaries in
which it holds a controlling interest, including a Delaware Limited Partnership,
Young & Rubicam L.P. (the "LP"). Investments in affiliates in which the Company
owns more than 20% but less than or equal to 50% of the voting interest are
accounted for under the equity method. All significant intercompany transactions
are eliminated.
UNAUDITED PRO FORMA BALANCE SHEET: The unaudited pro forma balance sheet at
December 31, 1997 has been presented after giving effect to the termination of
the redeemable feature and subsequent reclassification of the Mandatorily
Redeemable Equity Securities to stockholders' deficit concurrent with the
closing of the contemplated initial public offering (see Note 16).
CASH EQUIVALENTS: The Company considers all highly liquid instruments with
an initial maturity of three months or less at the time of purchase to be cash
equivalents.
REVENUE RECOGNITION: Revenue from advertising and related services is
comprised of commissions and fees derived from billings to clients for media and
production activities. Public relations, sales promotion and other services are
generally billed on the basis of negotiated fees. Commission revenue is
recognized primarily when media placements appear on television, on radio or in
print, and when labor and production costs are billed. Fee revenue is recognized
when services are rendered.
BENEFIT PLANS: The Company maintains a noncontributory defined benefit
pension plan for all full-time U.S. employees. The Company also contributes to
government mandated plans and maintains various noncontributory retirement plans
at certain foreign subsidiaries in accordance with local laws and customs. The
Company also maintains deferred compensation plans and has made appropriate
provisions for future payments due under these plans.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are computed
using the straight-line method over the estimated useful life of the respective
asset. Leasehold improvements are amortized over the shorter of their estimated
useful life or the remaining term of the lease. Goodwill is amortized on a
straight-line basis generally over twenty to forty years.
INCOME TAXES: In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes", deferred tax assets
and liabilities are determined based on differences between the financial
reporting and the tax basis of assets and liabilities and are measured by
applying enacted tax rates and laws to taxable years in which such differences
are expected to reverse. The Company's practice is to provide currently for
taxes that will be payable upon remittance of foreign earnings of subsidiaries
and affiliates to the extent that such earnings are not considered to be
indefinitely reinvested.
STOCK-BASED COMPENSATION: SFAS No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123") encourages entities to account for employee stock
options or similar equity instruments using a
F-7
<PAGE> 93
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fair value approach for all such plans. However, it also allows an entity to
continue to measure compensation costs for those plans using the method
prescribed by Accounting Principles Bulletin ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company has elected to continue to account
for such plans under the provisions of APB Opinion No. 25 and has included, in
Note 17, the required SFAS 123 pro forma disclosures of net income (loss) and
earnings (loss) per share as if the fair value-based method of accounting had
been applied.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of certain non-U.S.
subsidiaries are translated at current exchange rates, and related revenues and
expenses are translated at average exchange rates in effect during the period.
Resulting translation adjustments are recorded as a component of stockholders'
deficit in the accompanying Consolidated Balance Sheets. Financial results of
non-U.S. subsidiaries in countries with highly inflationary economies are
translated using a combination of current and historical exchange rates and any
translation adjustments are included in net income (loss) along with all
transaction gains and losses for the period.
DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Derivative financial instruments are used by the Company principally in the
management of its interest rate and foreign currency exposures. The Company does
not hold or issue derivative financial investments for trading purposes. Gains
and losses on hedges of existing assets and liabilities are included in the
carrying amounts of those assets and liabilities and are ultimately recognized
in income as part of those carrying amounts. Gains and losses related to hedges
of firm commitments are also deferred and included in the basis of the
transaction when it is completed. Amounts to be paid or received under interest
rate swap agreements are accrued as interest and are recognized over the life of
the swap agreements as an adjustment to interest expense.
LONG-LIVED ASSETS: In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
("SFAS 121") management reviews long-lived assets and the related intangible
assets for impairment whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. Recoverability of these
assets is determined by comparing the forecasted undiscounted net cash flows of
the operation to which the assets relate, to the carrying amount including
associated intangible assets of such operation. If the operation is determined
to be unable to recover the carrying amount of its assets, then intangible
assets are written down first, followed by the other long-lived assets of the
operation, to fair value. Fair value is determined based on discounted cash
flows or appraised values, depending upon the nature of the assets.
CONCENTRATIONS OF CREDIT RISK: The Company's clients are engaged in various
businesses located primarily in North America, Europe, Latin America and
Asia/Pacific. The Company performs ongoing credit evaluations of its clients.
Reserves for credit losses are maintained at levels considered adequate by
management. The Company invests its excess cash in deposits with major banks and
in money market securities. These securities typically mature within 90 days and
bear minimal risk. Additionally, due to the Company's strategy, the Company is
dependent upon a relatively small number of clients who contribute a significant
percentage of revenues. The Company's largest client accounted for approximately
9%, 9%, and 10% of consolidated revenues for the years ended December 31, 1995,
1996 and 1997, respectively.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997, SFAS No. 130, "Reporting
Comprehensive Income", ("SFAS 130") was issued. SFAS 130 establishes standards
for the reporting of comprehensive income and its components. It requires all
items that are required to be recognized as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other income statement
F-8
<PAGE> 94
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
information. SFAS 130 is effective for financial statements for periods
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods presented for comparative purposes is required upon adoption.
In June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", ("SFAS 131") was issued. SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in annual
financial statements and in interim financial reports issued to shareholders.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997.
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits", ("SFAS 132") was issued. SFAS 132 revises
disclosures about pensions and other postretirement benefit plans. SFAS 132 is
effective for financial statements for periods beginning after December 15,
1997. Restatement of disclosures for earlier periods provided for comparative
purposes is required upon adoption.
The Company anticipates that the adoption of SFAS 130, SFAS 131 and SFAS
132 will not have a significant effect on its 1998 financial statements.
NOTE 3 -- NET LOSS PER COMMON SHARE:
The Company computes earnings (loss) per share in accordance with SFAS No.
128, "Earnings Per Share".
Basic net loss per share was computed by dividing net loss by the
weighted-average number of common shares outstanding during the period. In
computing basic net loss per share, the Company's 11,086,950 shares of
restricted stock were excluded from the weighted average number of common shares
outstanding as such shares vest upon the six-month anniversary of an initial
public offering or the six-month anniversary thereof, a condition which was not
satisfied at December 31, 1997. Diluted net loss per share for the period was
computed in the same manner as basic net loss per share since the Company
experienced a net loss for the period and therefore including potential common
shares would be antidilutive.
There are 31,013,205 common stock options that could potentially dilute
basic earnings (loss) per share in the future that were excluded from the
computation of diluted net loss per share because the effect would be
antidilutive. In addition, there exists 11,086,950 shares of Restricted Stock,
which would also be potentially dilutive upon the occurrence of the Company's
contemplated initial public offering which is further described in Note 21.
Earnings per share for the years ended December 31, 1996 and 1995 cannot be
computed because the Company's capital structure prior to the 1996
Recapitalization consisted of both common shares and Limited Partnership Units
in Predecessor entities (see Note 4).
NOTE 4 -- RECAPITALIZATION:
On December 12, 1996, a recapitalization (the "Recapitalization") was
effected of Young & Rubicam Inc., a New York corporation (the "Predecessor
Company") whereby (a) the Predecessor Company, Young & Rubicam Holdings Inc.
("Holdings"), or subsidiaries of the Predecessor Company (i) acquired 2,058,678
of the 2,458,102 outstanding shares of Predecessor Company common stock for an
amount equal to $115 per share less the principal and accrued interest of any
outstanding loans relating to such shares (which loans were thereby repaid),
(ii) acquired 760,232 of the 1,869,682 outstanding Limited Partnership Units of
the LP ("LPUs") together with any related subordinated promissory notes of the
Predecessor Company for an amount equal to $115 per LPU less the principal and
accrued interest of any outstanding loans relating to such LPUs (which loans
were thereby repaid); (iii) canceled 332,636 of the 690,249 common stock options
and 596,448 of the 1,600,414 LPU options (collectively, the "Nonrollover
Options") and all outstanding Growth
F-9
<PAGE> 95
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Participation Units ("GPUs") for cash consideration of $115 per unit less the
aggregate option exercise price and (iv) exchanged for, or canceled in
consideration of, the remaining outstanding common stock, LPUs and options on
common stock and LPUs held by certain members of the management of the
Predecessor Company (the "Management Investors") for 15,815,985 shares of
Holdings common stock and 16,823,565 options on common stock of Holdings
("Rollover Options"); (b) Hellman & Friedman Capital Partners III, L.P. ("HFCP")
and certain other investors contributed $242 million in cash to Holdings in
exchange for 31,566,345 shares of Holdings common stock at a price of $7.67 per
share ($115 per share prior to the stock dividend which is further described in
Note 20) and 2,598,105 options to purchase additional shares of Holdings common
stock at $7.67 per share ($115 per share prior to the stock dividend which is
further described in Note 20)(the "HFCP Options" -- see Note 17), and (c) Senior
Secured Credit Facilities of $700 million (the "Credit Facilities") were
arranged (see Note 14).
Common stock, LPUs, Nonrollover Options on common stock and LPUs and GPUs
held by non U.S.-based equity holders were acquired or canceled prior to
December 31, 1996. Payment for previously tendered Nonrollover options and GPUs
of $161.7 million (included as a component of accrued payroll and bonuses at
December 31, 1996) held by U.S. based equity holders occurred on March 18, 1997.
Following the closing of the Recapitalization, Holdings was merged with and
into the Predecessor Company. As a result of the merger, the 1,391 outstanding
shares of Predecessor Company preferred stock were each converted into the right
to receive par value $50 in cash. On December 31, 1996, the Predecessor Company
then merged into Young & Rubicam Inc., a Delaware corporation (the "Company").
Under the Stockholders' Agreement, the Management Investors are required to
deposit all Company common stock currently held or acquired in the future into a
voting trust (the "Management Voting Trust") under which all rights to vote such
shares are assigned to certain members of the Company's senior management as
voting trustees. In the event that HFCP holds greater than 49% of Company common
stock, HFCP is required to transfer those shares in excess of 49% to a separate
voting trust (the "HFCP Voting Trust") with the Chief Executive Officer of the
Company as voting trustee, provided that the Company is not in default under
certain terms of the Credit Facilities.
As the equity holders of the Predecessor Company retained control of the
Company, the transaction has been reported as a recapitalization. The financial
statements reflect the financial position, results of operations and cash flows
of the Company and the Predecessor Company on a continuous basis. The excess of
the Predecessor common stock and LPUs repurchase transaction amount over the
stated amount of the Predecessor common stock and LPUs repurchased has been
reported as a distribution to equity holders and charged to limited partners'
contributed equity, capital surplus and accumulated deficit.
As a result of the Recapitalization, the Company recorded charges of $315.4
million, primarily related to compensation. A summary of the significant
Recapitalization and related charges include the following:
(1) The cancellation of 1,244,647 GPUs outstanding for cash
consideration of $115 per unit. Compensation expense of $83.1 million
represents the difference between the cash consideration paid to GPU
holders and the amount of previously accrued compensation under the
original terms of the GPU plan.
(2) The cancellation of 929,084 Nonrollover Options for cash
consideration. The cash consideration and the associated compensation
expense of $66.6 million represents the difference between the transaction
price of $115 and the $40.2 million aggregate exercise price of the
Nonrollover Options.
(3) Cancellation of the remaining outstanding options and award of
Rollover Options to acquire 16,823,565 shares of Company common stock at an
exercise price of $1.92 ($28.75 per share prior to the stock split which is
further described in Note 20) per share, with certain limited exceptions
outside of the U.S. As a result of the change in the terms of the former
stock option plan, which resulted in a new measurement date, the Company
recognized compensation expense of $96.7 million representing the
F-10
<PAGE> 96
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
difference between the transaction price per Rollover Option of $7.67 ($115
per share prior to the stock split which is further described in Note 20)
and the aggregate exercise price of the Rollover Options.
(4) Professional fees and other charges amounted to approximately $69
million.
NOTE 5 -- EQUITY IN NET ASSETS OF UNCONSOLIDATED COMPANIES:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ----------------- -----------------
EQUITY
EQUITY EQUITY EQUITY EQUITY EQUITY IN NET
OWNERSHIP IN NET IN NET IN NET IN NET IN NET INCOME
INTEREST ASSETS INCOME ASSETS INCOME ASSETS (LOSS)
AFFILIATE (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Dentsu, Y&R Partnerships........ 50% $16,957 $ 534 $12,954 $(9,181) $17,510 $ 2,587
J.M.C. Creatividad Orientada
(Venezuela)................... 49% 4,509 1,315 2,471 (2,038) 953 (1,515)
Prolam (Chile).................. 30% 3,106 968 2,656 262 2,851 825
Eco S.A. (Guatemala)............ 40% 1,864 372 2,134 26 2,206 96
Cresswell, Munsell, Fultz &
Zirbel........................ 33% 1,245 524 1,635 624 1,922 508
National Public Relations
(Canada)...................... 22% 414 333 607 204 647 98
ViceVersa (Uruguay)............. 35% 652 401 883 224 -- --
Other........................... 50% or less 8,618 750 1,879 42 304 (2,257)
------- ------ ------- ------- ------- -------
$37,365 $5,197 $25,219 $(9,837) $26,393 $ 342
======= ====== ======= ======= ======= =======
</TABLE>
The summarized financial information below represents an aggregation of the
Company's unconsolidated companies.
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
EARNINGS DATA
Revenues................................................. $234,891 $238,810 $207,668
Income from operations................................... 29,398 22,132 13,768
Net income (loss)........................................ 14,984 (16,097) 4,347
Company's equity in net earnings (loss).................. $ 5,197 $ (9,837) $ 342
======== ======== ========
BALANCE SHEET DATA
Current assets........................................... $361,451 $348,325 $321,372
Noncurrent assets........................................ 54,954 33,996 40,147
Current liabilities...................................... 335,490 323,406 287,101
Noncurrent liabilities................................... 18,902 11,683 13,215
Equity................................................... 62,013 47,232 61,203
Company's equity in net assets........................... $ 37,365 $ 25,219 $ 26,393
======== ======== ========
</TABLE>
NOTE 6 -- ACQUISITIONS, DISPOSITIONS AND OTHER OPERATING CHARGES:
In 1995, the Predecessor Company increased its ownership interests in
advertising agencies in Holland (from 49% to 70%) and Spain (from 49% to 77%),
as well as a public relations firm in Belgium (from 40% to 85%). In addition,
the Predecessor Company acquired the remaining 40% interest in an advertising
agency in the Czech Republic, the remaining 25% interest in an agency in
Hungary, the remaining 20% interest in a direct marketing operation in South
Africa and the remaining 10% interest in an advertising agency, also in South
Africa. The purchase price of these investments was $5.4 million. Other regional
investment activity
F-11
<PAGE> 97
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
took place in Latin America in 1995, with increased ownership interests in
advertising agencies in Guatemala (from 25% to 40%) and Uruguay (from 20% to
35%).
In 1995, the D,Y&R Partnerships also acquired a 40% interest in an
advertising agency in India (Y&R's effective ownership is 20%). The cost of this
investment to Y&R was $2.2 million.
A wholly owned public relations subsidiary in Canada was merged in 1995
with another Canadian public relations firm. The Company has a 22% interest in
the merged operation.
In 1995, the Predecessor Company approved a productivity improvement plan
which resulted in the elimination of 500 positions throughout its worldwide
operations. The Predecessor Company recorded a charge in 1995 of $24.4 million
to cover the expected severance, benefits and social law costs which were paid
during 1996 relating to this staff reduction.
Also in 1995, losses of $7.1 million were recorded primarily to cancel a
long-term agreement with a service provider as well as to dispose of certain
non-strategic European agencies. The aforementioned charges are included in
other operating charges in the accompanying Consolidated Statement of
Operations.
In 1996, the Predecessor Company acquired substantially all of the assets
of one advertising agency and one media buying agency in the United States and
acquired the remaining 28% equity interest in an advertising agency in
Switzerland. In addition, the Predecessor Company increased its ownership
interests in three advertising agencies in Europe. Other regional activity took
place in Korea where the Company acquired a 25% equity interest in a public
relations agency. The purchase price of these investments was $26.8 million.
In 1996, a $17.2 million charge was recorded for asset impairment
writedowns principally related to certain operations in Europe and Latin
America.
In 1997, the Company acquired the remaining 60% equity interest in an
advertising agency in France and a 51% equity interest in an advertising agency
in Brazil. In addition, the Company increased its ownership interests in one
advertising agency in Latin America and one agency in Europe. The Company also
acquired substantially all of the assets of one public relations agency and
acquired a 70% equity interest in a German public relations agency and the
remaining 49% equity interest in a Japanese public relations agency. The
purchase price of these investments was $14.7 million.
Effective January 1, 1997, the Company acquired an additional 37.5% equity
interest in the former Australian and New Zealand joint ventures with Dentsu. In
consideration for this additional equity interest, the Company contributed to
Dentsu, 12.5% of its equity interest in its advertising and direct marketing
agencies in Australia and New Zealand.
In 1997, an $11.9 million charge was recorded for asset impairment
writedowns principally related to certain operations in the U.S., Africa, Latin
America and Europe.
NOTE 7 -- PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost and are comprised of the
following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
USEFUL LIVES 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Land and buildings............ 20-40 years $ 31,901 $ 29,716
Furniture, fixtures and
equipment................... 3-10 years 220,728 235,836
Leasehold improvements........ Shorter of 10 years or life of lease 78,414 77,804
Automobiles................... 3-5 years 6,315 6,609
-------- --------
337,358 349,965
-------- --------
Less -- Accumulated
depreciation and
amortization................ 208,270 224,951
-------- --------
$129,088 $125,014
======== ========
</TABLE>
F-12
<PAGE> 98
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, 1996 and 1997, depreciation expense amounted to $38.2 million,
$42.0 million and $47.6 million, respectively.
NOTE 8 -- CERTAIN LIABILITIES:
Accrued expenses and other liabilities include $71.3 million and $41.0
million of bank overdrafts as of December 31, 1996 and 1997, respectively.
Accrued payroll and bonuses are comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Accrued costs -- Recapitalization........................... $161,700 $ --
Accrued payroll and bonuses................................. 90,787 65,458
-------- -------
$252,487 $65,458
======== =======
</TABLE>
NOTE 9 -- INCOME TAXES:
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic........................................... $(22,957) $(242,578) $12,304
Foreign............................................ 30,862 (8,039) 24,000
-------- --------- -------
Total.............................................. $ 7,905 $(250,617) $36,304
======== ========= =======
</TABLE>
The following summarizes the provision (benefit) for income taxes:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT:
Federal.......................................... $ 1,295 $ 16,993 $ 18,195
State and local.................................. 2,138 3,921 4,220
Foreign.......................................... 20,563 18,146 36,259
-------- -------- --------
23,996 39,060 58,674
-------- -------- --------
DEFERRED:
Federal.......................................... (7,548) (51,363) 7,547
State and local.................................. (2,811) (22,111) 2,472
Foreign.......................................... (4,507) 13,803 (10,403)
-------- -------- --------
(14,866) (59,671) (384)
-------- -------- --------
Provision (benefit) for income taxes............... $ 9,130 $(20,611) $ 58,290
======== ======== ========
</TABLE>
F-13
<PAGE> 99
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of the United States statutory rate to the effective
rate is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
PERCENT OF INCOME (LOSS) BEFORE TAXES 1995 1996 1997
<S> <C> <C> <C>
United States statutory rate................................ 35.0% (35.0)% 35.0%
Federal tax savings attributable to limited partnership
structure................................................. (27.6) -- --
State and local income taxes, net of federal tax effect..... (7.1) (4.5) 17.1
Foreign income taxed greater than the United States
statutory rate............................................ 64.2 15.2 107.2
Change in valuation allowance and related components........ 11.5 5.9 (13.1)
Amortization of goodwill.................................... 14.3 2.1 8.5
Travel, entertainment and other non-deductible expenses..... 19.7 8.4 6.2
Other, net.................................................. 5.5 (0.3) (0.3)
----- ----- -----
Consolidated effective rate................................. 115.5% (8.2)% 160.6%
===== ===== =====
</TABLE>
The Company's share of the undistributed earnings of foreign subsidiaries
not included in its consolidated Federal income tax return that could be subject
to additional income taxes if remitted, was approximately $49.5 million at
December 31, 1997. No provision has been recorded for the U.S. or foreign taxes
that could result from the remittance of such undistributed earnings since the
earnings are permanently reinvested outside the U.S. and it is not practicable
to estimate the amount of such taxes. Withholding taxes of approximately $6.4
million would be payable upon remittance of all previously unremitted earnings
at December 31, 1997.
The components of the Company's net deferred income tax assets are:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Bad debt reserve............................................ $ 1,785 $ 3,118
Accrued expenses and other.................................. 5,195 --
Net operating loss carryforwards............................ 7,377 32,797
Deferred compensation....................................... 76,170 1,172
-------- --------
90,527 37,087
Valuation allowance......................................... (11,795) (4,255)
-------- --------
Current portion............................................. 78,732 32,832
-------- --------
Deferred compensation....................................... 42,646 40,650
Depreciable and amortizable assets.......................... 26,671 30,561
Long-term leases............................................ 7,351 7,436
Postretirement benefits..................................... 3,570 3,654
Other non-current items..................................... 810 11,989
Net operating loss carryforwards............................ 10,259 42,338
Tax credit carryforwards.................................... -- 3,658
-------- --------
91,307 140,286
Valuation allowance......................................... (11,896) (16,094)
-------- --------
Non-current portion......................................... 79,411 124,192
-------- --------
Net deferred income tax assets.............................. $158,143 $157,024
======== ========
</TABLE>
The Company's net deferred income tax assets arise from temporary
differences which represent the cumulative deductible or taxable amounts
recorded in the financial statements in different years than
F-14
<PAGE> 100
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized in the tax returns. The majority of the temporary differences result
from expenses accrued for financial reporting purposes which are not deductible
for tax purposes until actually paid and net operating losses.
The net operating loss ("NOL") carryforwards represent the benefit recorded
for U.S., state and local, and foreign NOLs. At December 31, 1997, the Company
had approximately $140.4 million of NOL carryforwards for U.S. tax purposes
which expire in the year 2012 and approximately $69.2 million of NOL
carryforwards for foreign tax purposes with carryforward periods ranging from
one year to an indefinite time. The Company had approximately $3.2 million of
alternative minimum tax credits which are not subject to expiration and $0.4
million of foreign tax credits which expire in the year 2001.
The Company is required to provide a valuation allowance against deferred
income tax assets when it is more likely than not that some or all of the
deferred tax assets will not be realized. A valuation allowance of $13.5 million
was recorded at December 31, 1994. The valuation allowance increased $0.9
million to $14.4 million at December 31, 1995, increased $9.3 million to $23.7
million at December 31, 1996 and decreased $3.3 million to $20.4 million at
December 31, 1997. The valuation allowances represent a provision for
uncertainty as to the realization of certain deferred tax assets, including net
operating loss carryforwards in certain jurisdictions. The Company has
concluded, that based upon expected future results, it is more likely than not
that the net deferred tax asset balance will be realized.
NOTE 10 -- WORLDWIDE OPERATIONS:
Financial information by geographic area is as follows:
<TABLE>
<CAPTION>
UNITED STATES EUROPE OTHER TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995
Revenues............................ $ 492,265 $411,283 $181,946 $1,085,494
(Loss) income from operations....... (7,695) 14,899 18,276 25,480
Identifiable assets................. 511,779 499,335 215,467 1,226,581
1996
Revenues............................ $ 571,155 $444,644 $206,340 $1,222,139
(Loss) income from operations....... (239,201) (3,627) 10,526 (232,302)
Identifiable assets................. 819,828 533,318 245,666 1,598,812
1997
Revenues............................ $ 661,367 $472,225 249,148 $1,382,740
(Loss) income from operations....... 42,816 29,527 (1,614) 70,729
Identifiable assets................. 687,462 582,424 258,133 1,528,019
</TABLE>
Foreign currency transactions and remeasurement losses resulting from
operations in highly inflationary economies are included in general and
administrative expenses. These amounts were comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Foreign currency transaction losses...................... $1,101 $ 887 $1,344
Remeasurement losses resulting from operations in highly
inflationary economies................................. 1,156 1,653 2,603
------ ------ ------
$2,257 $2,540 $3,947
====== ====== ======
</TABLE>
F-15
<PAGE> 101
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- EMPLOYEE BENEFITS:
The Company has a defined benefit pension plan ("the Plan") that covers all
full-time U.S. employees upon commencement of employment. Contributions to the
Plan are based upon current costs and prior service costs. Both costs are
actuarially computed and the latter are amortized over the average remaining
service period. Effective July 1, 1996, the Predecessor Company amended the
Plan. Benefits credited to each employee's account under the Plan are based on
3.2% of the employee's annual compensation up to $150,000. The Plan also credits
each employee's account with interest equal to the average one year U.S.
Treasury Bill interest rate multiplied by the account balance at the beginning
of the year. Subject to certain limitations, most vested retirement benefits
available under the Plan are insured by the Pension Benefit Guaranty Corporation
("PBGC"). The Company is in compliance with the minimum funding standards
required by the Employee Retirement Income Security Act of 1974 ("ERISA").
In connection with the Recapitalization transaction, the Company
contributed an additional $12.5 million to the Plan on December 23, 1996,
pursuant to an agreement with the PBGC. Total contributions made in 1996 and
1997 were $18.9 million and $6.6 million, respectively.
The Company also agreed to make future contributions to the Plan in an
amount required to cause the credit balance at the end of each Plan year to be
at least equal to the required credit balance of $12.5 million plus interest.
The Company is not required to make any payment that would not be deductible
under Internal Revenue Code section 404. The Company's credit balance
maintenance requirement terminates when the Company's debt obtains specified
rating levels (or, if there are no such ratings from certain major ratings
agencies, when the Company meets a fixed charge coverage ratio test), but in no
event earlier than December 31, 2001. In addition, such credit balance
maintenance requirements terminate if the Plan's unfunded benefit liabilities
are zero at the end of two consecutive Plan years.
The Company also contributes to government mandated plans and maintains
various noncontributory retirement plans at certain foreign subsidiaries, some
of which are considered to be defined benefit plans for accounting purposes.
A summary of the components of net periodic pension cost for the defined
benefit plans is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------ ------------------------------ ------------------------------
U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service costs for benefits
earned during the
period.................. $ 2,774 $ 717 $ 3,491 $ 2,834 $ 674 $ 3,508 $ 2,671 $ 550 $ 3,221
Interest costs on
projected benefit
obligation.............. 8,074 946 9,020 8,488 893 9,381 8,804 789 9,593
Actual return on plan
assets.................. (15,960) -- (15,960) (11,070) -- (11,070) (15,558) -- (15,558)
Net amortization and
deferral................ 9,390 182 9,572 5,668 188 5,856 6,862 150 7,012
-------- ------ -------- -------- ------ -------- -------- ------ --------
Net periodic pension cost
of the plans............ $ 4,278 $1,845 $ 6,123 $ 5,920 $1,755 $ 7,675 $ 2,779 1,489 4,268
======== ====== ======== ======== ====== ======== ======== ====== ========
</TABLE>
F-16
<PAGE> 102
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the defined benefit plans is summarized as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------------
1996 1997
------------------------------ ------------------------------
U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligation including vested benefits of
$119,093 and $134,491 at December 31, 1996
and 1997, respectively...................... $111,921 $ 10,350 $122,271 $126,975 $ 9,557 $136,532
-------- -------- -------- -------- -------- --------
Projected benefit obligation.................. 114,710 12,198 126,908 130,036 10,753 140,789
Plan assets at fair value, primarily fixed
income and equity securities................ 114,264 -- 114,264 129,421 -- 129,421
-------- -------- -------- -------- -------- --------
Projected benefit obligation in excess of plan
assets...................................... (446) (12,198) (12,644) (615) (10,753) (11,368)
Unrecognized net transition (asset)
obligation.................................. (225) 644 419 (164) 471 307
Unrecognized prior service benefit............ (2,953) -- (2,953) (2,542) -- (2,542)
Unrecognized net loss......................... 12,811 1,813 14,624 16,352 1,260 17,612
Additional liability.......................... -- (719) (719) -- (706) (706)
-------- -------- -------- -------- -------- --------
(Accrued) prepaid pension costs for defined
benefit plans............................... $ 9,187 $(10,460) $ (1,273) $ 13,031 $ (9,728) $ 3,303
======== ======== ======== ======== ======== ========
</TABLE>
Assumptions used were:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------- ----------------
U.S. NON-U.S. U.S. NON-U.S. U.S. NON-U.S.
<S> <C> <C> <C> <C> <C> <C>
Discount and settlement rate........................ 7.5% 6.5%-8.5% 8.0% 7.0%-8.0% 7.25% 6.5%-7.0%
Rate of increase in compensation levels............. 7.0% 3.5%-5.5% 5.5% 3.5%-5.0% 5.0% 3.5%-5.0%
Expected long-term rate of return on assets......... 9.0% N/A 9.0% N/A 9.0% N/A
</TABLE>
In 1996 and 1997, the Company recorded liabilities of $0.7 million for the
portion of its unfunded pension liabilities that had not been recognized as
expense and an adjustment to equity of $0.7 million.
Contributions to other foreign defined contribution plans were $5.9
million, $6.2 million and $7.5 million in 1995, 1996 and 1997, respectively.
The Company also has an employee savings plan that qualifies as a deferred
salary arrangement under section 401(k) of the Internal Revenue Code. Under the
plan, participating U.S. employees may defer a portion of their pre-tax earnings
up to the Internal Revenue Service annual contribution limit. The Company
currently matches 100% of each employee's contribution up to a maximum of 5% of
the employee's earnings up to $150,000. Amounts expensed by the Company for its
contributions to the plan were $6.4 million, $7.0 million and $7.8 million in
1995, 1996 and 1997, respectively. Prior to the Recapitalization, the Company's
contribution was made through the issuance of the Company's common stock. All of
the shares of common stock held in the Plan were purchased by Holdings as part
of the Recapitalization. Subsequent to the Recapitalization, matching
contributions are satisfied in cash.
NOTE 12 -- DEFERRED COMPENSATION:
The Predecessor Company maintained a non-qualified deferred compensation
plan for its key executives, the Growth Participation Plan. Participation in the
plan was at the discretion of management. Awards of growth participation units
("GPUs") granted under the plan generally vested at the rate of 20% per year. As
a result of the Recapitalization, all GPUs (whether fully or partially vested)
were canceled for cash consideration of $115 per unit (see Note 4).
F-17
<PAGE> 103
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company maintains other deferred cash incentive plans which are either
tied to operating performance or contractual deferred compensation agreements.
The costs of these compensation plans are expensed currently. At December 31,
1996 and 1997, included in other non-current liabilities were deferred
compensation liabilities of $17.9 million and $31.1 million, respectively.
NOTE 13 -- INSTALLMENT PAYMENT OBLIGATIONS:
Prior to 1997, the Company issued installment notes payable to former
equityholders of the Predecessor Company which arose out of the repurchase of
Common Stock and LPUs upon termination of employment. Installment notes were
paid in five annual installments, the first of which was payable 90 days
following termination of employment. In connection with the Recapitalization,
all foreign installment notes outstanding at December 12, 1996 were assumed and
repaid. The remaining current installment notes of $24.9 million at December 31,
1996 were repaid in the first quarter of 1997.
Effective in 1997 and pursuant to the Stockholders' Agreement, the Company
may, at its election, pay for shares purchased from Management Investors
pursuant to a call or put at the applicable call price or the applicable put
price in up to four equal installments. The first such installment is payable in
cash upon the applicable payment date (generally the June 30 or December 31
closest in time following termination of employment) and the remaining
installments are evidenced by a non-negotiable obligation from the Company to
the Management Investor. At December 31, 1997, current and non-current
installment notes of $3.2 million and $6.5 million, respectively, were payable
to former Management Investors.
Interest accrues and is payable annually with each installment payment at a
rate equal to the applicable federal rate in effect as published by the Internal
Revenue Service, compounded semi-annually. For 1997, the interest rate ranged
from 5.68% to 6.14%.
NOTE 14 -- LOANS PAYABLE:
Short Term: The Company's short term loans payable are primarily advances
under bank lines of credit and generally bear interest at prevailing market
rates. The Company's current loans payable of $36.3 million and $10.8 million
include the short-term portion of long-term loans payable of $14.7 million and
$1.2 million at December 31, 1996 and 1997 respectively.
Long-term loans payable are comprised of the following at December 31:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Senior Secured Credit Facilities............................ $219,282 $330,552
Capital lease obligations................................... 611 404
Other borrowings............................................ 859 818
-------- --------
220,752 331,774
Less -- Current portion..................................... 14,670 1,222
-------- --------
$206,082 $330,552
======== ========
</TABLE>
In connection with the Recapitalization, in December 1996, the Company
entered into Senior Secured Credit Facilities (the "Credit Facilities")
amounting to $700 million with a group of banks arranged by Bank of America,
with The Bank of New York, Citibank N.A., Credit Lyonnais and Wachovia Bank as
managing agents. The Credit Facilities consist of a six and one-half year $400
million term loan and a six and one-half year $300 million revolving credit
facility. The term loan is available in two drawings of $200 million each: the
F-18
<PAGE> 104
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
first drawdown occurred in December 1996, while the second drawdown occurred on
March 18, 1997. The Company's obligations under the Credit Facilities are
secured by a security interest in certain domestic assets, including its
headquarters building in New York, all of the capital stock of the direct and
indirect domestic subsidiaries of the Company and 66.7% of the capital stock of
the Company's first-tier non-U.S. subsidiaries. The Company pays a commitment
fee ranging from 0.20% to 0.50% on the unused portion of the total Credit
Facilities. The Credit Facilities include several credit sensitive pricing
options (LIBOR, Base Rate Loans, Fronted Loans and Swing Line Loans), letter of
credit issuances and a $175 million multi-currency subfacility. The applicable
interest rate was 6.915% and 6.875% at December 31, 1996 and 1997, respectively.
The Credit Facilities contain various covenants which contain interest,
fixed charge, and debt coverage ratios, the maintenance of minimum net worth and
limitations on the amount of debt, liens, asset sales, dividends and
acquisitions. Deferred financing costs of $9.2 million were capitalized and are
being amortized over the six and one-half year term of the Credit Facilities.
The Company is required to enter into interest rate protection agreements
with respect to $100 million of the initial drawdown and $100 million of the
second drawdown.
In December 1996, the Company entered into a two year $50 million notional
principal amount interest rate floored-swap, and pays, on a quarterly basis,
fixed interest equal to 6.00% and receives interest based on floating
three-month LIBOR. If LIBOR is less than 5.00%, the Company receives the
difference between 5.00% and the three-month LIBOR. This agreement expires
December 29, 1998.
In January 1997, the Company entered into a one year $50 million notional
principal amount interest rate cap. The interest rate cap resulted in the
Company receiving quarterly, the difference between the amount that three-month
LIBOR exceeded the cap rate of 6.25%. This agreement expired January 27, 1998.
In February 1997, the Company entered into a four year $50 million notional
principal amount interest rate swap. The interest rate swap will result in the
Company paying, on a quarterly basis, fixed interest equal to 6.11% and
receiving interest based on floating three month LIBOR. This four year interest
rate swap agreement expires February 20, 2001.
In March 1997, the Company entered into a two year $50 million notional
principal amount interest rate floored-swap, and pays, on a quarterly basis,
fixed interest equal to 6.36% and receives interest based on floating
three-month LIBOR. If LIBOR is less than 5.00%, the Company receives the
difference between 5.00% and the three-month LIBOR. This agreement expires March
24, 1999.
In April 1997, the Company entered into a one year $50 million notional
principal amount interest rate cap. The interest rate cap will result in the
Company receiving quarterly, the difference between the amount that three-month
LIBOR exceeds the cap rate of 6.50%. This agreement expires May 1, 1998.
In June 1997, the Company entered into a four year $25 million notional
principal amount interest rate swap. The interest rate swap will result in the
Company paying, on a quarterly basis, fixed interest equal to 6.365% and
receiving interest based on floating three-month LIBOR. This four year interest
rate swap agreement expires June 18, 2001.
In February 1996, the Predecessor Company entered into a 10-year, $100
million, 7.01% Senior Note transaction with a group of insurance companies. The
proceeds were used to reduce the Revolving Credit Agreement borrowings. This
note was repaid by proceeds from the Credit Facilities. A prepayment penalty of
$1.8 million was paid in 1996 and is included as a component of interest
expense.
In June 1996, the Predecessor Company entered into a $150 million, five
year Revolving Credit Agreement. The Company paid a facility fee ranging from
0.125% to 0.30% on the full amount of the committed facility. This agreement
included several pricing options (LIBOR, Bid Loans and Swing Line
F-19
<PAGE> 105
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans), letter of credit issuances and multi-currency borrowing options. This
Revolving Credit Agreement was repaid by proceeds from the Credit Facilities.
In June 1994, the Predecessor Company entered into a $225 million, three
year Revolving Credit Agreement. The Company paid a facility fee ranging from
0.20% to 0.375% on the full amount of the committed facility. This revolving
credit agreement included several pricing options (LIBOR, Bid Loans and Swing
Line Loans), letter of credit issuances and multicurrency borrowing options. The
Revolving Credit Agreement was replaced by the five year Revolving Credit
Agreement entered into in June 1996.
In October 1991, the Predecessor Company arranged a seven year $40 million,
8.75% Senior Note transaction with the Prudential Insurance Company. This note
was repaid by proceeds from the Credit Facilities. A prepayment penalty of $1.1
million was paid in 1996 and is included as a component of interest expense.
In January 1991, the Predecessor Company entered into a five year, $20
million notional principal amount interest rate swap. The Predecessor Company
paid, on a semi-annual basis, fixed interest rate equal to 8.485% and received
interest based on floating six-month LIBOR. This agreement expired January 22,
1996.
At December 31, 1997, the Company had $690 million in availability under
its commercial lines of credit ($449 million in the U.S. and $241 million
outside the U.S.). Unused commercial lines of credit at December 31, 1997 were
$349 million. The Company paid commitment fees of approximately $0.9 million on
the unused portion of the U.S. credit lines and varying fees on the foreign
credit lines. At December 31, 1996, the Company had $802 million in availability
under its commercial lines of credit ($540 million in the U.S. and $262 million
outside the U.S.). Unused commercial lines of credit at December 31, 1996 were
$560 million. The Company paid commitment fees of approximately $0.1 million on
the unused portion of the U.S. credit lines and varying fees on the foreign
credit lines.
Repayment requirements on long-term loans existing at December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
TOTAL
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 1,222
1999........................................................ 50,250
2000........................................................ 68,750
2001........................................................ 71,250
2002........................................................ 84,583
Thereafter.................................................. 55,719
--------
$331,774
========
</TABLE>
F-20
<PAGE> 106
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- EQUITY:
The following schedule summarizes the changes in the number of outstanding
shares of preferred stock, common stock, LPUs and treasury stock:
<TABLE>
<CAPTION>
VOTING LIMITED
PREFERRED COMMON NON-VOTING PARTNERSHIP COMMON STOCK
STOCK STOCK COMMON STOCK UNITS IN TREASURY
<S> <C> <C> <C> <C> <C>
BALANCE 12/31/94............ 1,252 -- 16,000,000 2,465,729 13,190,263
------ ---------- ----------- ---------- -----------
Issued...................... 563 -- -- 43,000 (289,970)
Repurchased................. (491) -- -- (476,719) 365,779
------ ---------- ----------- ---------- -----------
BALANCE 12/31/95............ 1,324 -- 16,000,000 2,032,010 13,266,072
------ ---------- ----------- ---------- -----------
Issued...................... 67 -- -- 83,993 (215,907)
Repurchased................. -- -- -- (246,321) 491,733
Recapitalization............ (1,391) 58,469,280 (16,000,000) (1,869,682) (13,541,898)
------ ---------- ----------- ---------- -----------
BALANCE 12/31/96............ -- 58,469,280 -- -- --
------ ---------- ----------- ---------- -----------
Issued...................... -- 4,391,010 -- -- --
Repurchased................. -- (1,115,160) -- -- 1,115,160
------ ---------- ----------- ---------- -----------
BALANCE 12/31/97............ -- 61,745,130 -- -- 1,115,160
====== ========== =========== ========== ===========
</TABLE>
The preferred stock of the Predecessor Company was owned by members of the
Predecessor Company's Board of Directors. The Predecessor Company had the right
to reacquire the preferred stock when the holder ceased to be a member of the
Board of Directors.
On December 12, 1996, all outstanding Predecessor Company equity was
purchased for cash or exchanged for Company common stock pursuant to the
Recapitalization. In addition, all outstanding Predecessor Company options were
canceled for cash consideration or the award of Company options and all
outstanding GPUs were canceled for cash consideration (see Note 4). In addition,
all treasury shares were retired.
In connection with the consummation of the Recapitalization in December
1996, the Company created a class of preferred stock designated as Money Market
Preferred Stock (the "Money Market Preferred"). The Money Market Preferred
carries a variable rate dividend and is redeemable at the Company's election for
$7.67 per share following the fifth anniversary of the issuance thereof. At
December 31, 1996 and 1997, 10,000,000 shares of Money Market Preferred were
authorized. 87 shares of Money Market Preferred were issued and outstanding at
December 31, 1996 and 1997.
In connection with the Recapitalization, the Company also issued 11,086,950
shares of common stock ("Restricted Shares") to a trust ("Restricted Stock
Trust"). All Restricted Shares held in the Restricted Stock Trust are deposited
in the Management Voting Trust. Any employee awarded Restricted Shares under the
plan will become vested in the Restricted Shares on the earlier of (i) a change
of control event (as defined); (ii) the consummation of an initial public
offering or the six month anniversary following an initial public offering if,
in connection with the offering, the holders are unable to sell such Restricted
Shares; and (iii) upon any other event as determined by the Compensation
Committee of the Board of Directors with the written consent of the HFCP
Investors, if prior to an initial public offering, and the Management Voting
Trust. The Company has recorded unearned compensation of $85 million and $136.7
million, representing the fair value of the Restricted Shares at December 31,
1996 and 1997, respectively. Compensation expense will be recognized when
vesting becomes probable and will be equal to the fair value of the common stock
at the time that the Restricted Shares become vested. At December 31, 1996 and
1997, a total of 11,086,950 shares were outstanding and held in the Restricted
Stock Trust.
F-21
<PAGE> 107
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- MANDATORILY REDEEMABLE EQUITY SECURITIES:
Concurrent with the Recapitalization, the Company entered into a
Stockholders' agreement which includes both put rights and calls on the
Company's common stock. The Company has the right to purchase shares and the
stockholder has the right to cause the Company to purchase such shares at
certain times and subject to certain conditions. The put provision becomes
enforceable upon termination of employment for Management Investors if the
Company has not previously exercised its call right and upon the six-year
anniversary of the Recapitalization for HFCP. The carrying value of the
mandatorily redeemable equity securities held by the Management Investors is
equivalent to the redemption value of $7.67 and $12.33 at December 31, 1996 and
1997, respectively. The carrying value of the Mandatorily Redeemable Equity
Securities for common shares held by HFCP is being accreted to redemption value
over the six year period from the date of the Recapitalization. Accordingly, the
carrying value of Mandatorily Redeemable Equity Securities held by HFCP was
$7.67 and $8.47 at December 31, 1996 and 1997, respectively.
The accretion from carrying value to redemption value for the respective
periods is reflected as a charge to capital surplus. Both the calls and puts
terminate upon the earlier to occur of an initial public offering or such time
as the Common Stock is listed for trading on a national securities exchange.
NOTE 17 -- OPTIONS:
Under the Company's 1992 Stock Option Plan, options to purchase an
aggregate of 8,000,000 shares of common stock, at a price not less than the
prior year-end book value, as defined, could be granted to key employees. The
Predecessor Company also had an LPU Option Plan with substantially the same
terms as the common stock option plan. In accordance with the Recapitalization
(as discussed below), all prior option plans were terminated.
In connection with the Recapitalization, the shareholders approved a stock
option plan (the "Stock Option Plan") which allowed the Board of Directors to
grant to employees of the Company options to purchase up to 33,173,565 shares of
Company common stock. The Stock Option Plan governs both the Rollover Options
and certain other executive options (the "Executive Options").
At the closing of the Recapitalization (see Note 4), the Board of Directors
granted the Rollover Options which were immediately vested and exercisable. Each
Rollover Option has an exercise price of $1.92 per share, with certain limited
exceptions outside of the U.S. Of the Rollover Options, 50% have a term of five
years and the remaining 50% have a term of seven years. In connection with the
issuance of the Rollover Options, the Company recognized compensation expense of
$96.7 million (see Note 4).
At the closing of the Recapitalization, the Board of Directors granted to
employees 5,200,590 options to purchase shares of Company common stock at $7.67
per share (the "Closing Options"). The Closing Options vest as follows: 40% on
the grant date, 30% on the third anniversary of the grant date and 30% on the
fifth anniversary of the grant date.
Pursuant to the Stock Option Plan, the Board of Directors had the right to
grant additional options (the "Additional Options") to purchase up to 2,974,410
shares of Company common stock plus any shares that became available through the
cancellation of unexercised Executive Options. Through December 31, 1997,
Additional Options to purchase 1,891,200 shares of Company common stock had been
granted, each at $7.67 per share. As a result, during 1997 the Company
recognized a compensation charge of $1.3 million representing the difference
between the estimated fair market value of Company common stock and the exercise
price of $7.67 on date of grant in accordance with the applicable vesting
provisions of the Additional Options.
F-22
<PAGE> 108
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, at the closing of the Recapitalization, the Company issued
options to HFCP (see Note 4) to purchase 2,598,105 shares of Company common
stock at $7.67 per share which were exercisable immediately and expire on the
seventh anniversary of the closing. The HFCP Options are not governed under the
Stock Option Plan.
In December 1997, the Company adopted the Young & Rubicam Inc. 1997
Incentive Compensation Plan (the "Incentive Compensation Plan" or "ICP"). The
ICP superseded the Stock Option Plan and amended and restated the Restricted
Stock Plan (the Stock Option Plan and the Restricted Stock Plan (prior to such
amendment and restatement) (the "Preexisting Plans"), although all awards
granted prior to the adoption of the ICP, and any grants of Restricted Stock
made after such adoption but on or prior to March 31, 1998, will remain
outstanding in accordance with their terms and will be subject to the terms of
the Preexisting Plans.
The ICP provides for grants of stock options, stock appreciation rights
("SARS"), Restricted Stock, deferred stock, other stock-related awards, and
performance or annual incentive awards that may be settled in cash, stock or
other property ("Awards"). Under the ICP, the total number of shares of Company
common stock reserved and available for delivery to participants in connection
with Awards is 19,125,000, plus the number of shares of Company common stock
subject to awards under the Preexisting Plans that become available (generally
due to cancellation or forfeiture) after the effective date of the ICP;
provided, however that the total number of shares of Company common stock with
respect to which incentive stock options ("ISO") may be granted shall not exceed
15,000,000. Any shares of Company common stock delivered under the ICP may
consist of authorized and unissued shares or treasury shares.
The Board of Directors is authorized to grant stock options, including both
incentive stock options, non-qualified stock options, and SARS entitling the
participant to receive the excess of the fair market value of a share of common
stock on the date of exercise over the grant price of the SAR. The exercise
price per share subject to an option and the grant price of a SAR is determined
by the Board of Directors, but must not be less than the fair market value of a
share of common stock on the date of grant. The maximum term of each option or
SAR, the times at which each option or SAR will be exercisable, and provisions
requiring forfeiture of unexercised options or SARS at or following termination
of employment generally is fixed by the Board of Directors, except no option or
SAR may have a term exceeding ten years.
The Board of Directors may, at its discretion, accelerate the
exercisability, the lapsing of restrictions, or the expiration of deferral or
vesting periods of any award, and such accelerated exercisability, lapse,
expiration and vesting shall occur automatically in the case of a "change in
control" of the Company except to the extent otherwise provided in the award
agreement. In addition, the Board of Directors may provide that the performance
goals relating to any performance-based awards will be deemed to have been met
upon the occurrence of any change in control.
In December 1997, the Company granted options to employees to purchase an
aggregate of 9,577,950 shares of Company common stock at $12.33 per share, the
fair market value of such common stock as of the date of grant. Each such option
will expire if not exercised ten years after the date of grant and will be fully
exercisable on the fifth anniversary of the date of grant if the recipient
remains an employee of the Company or an affiliate as of such date; provided,
however, that in the event that the Company completes an initial public offering
of its common stock prior to December 31, 1999, the exercisability of 33 1/3% of
the shares subject to any such option will accelerate to December 31, 2000, if
the recipient remains an employee of the Company or an affiliate as of December
31, 2000, and an additional 33 1/3% of the shares subject to any such option
will accelerate to December 31, 2001, if the recipient remains an employee of
the Company or an affiliate as of December 31, 2001. Of the 9,577,950 options
granted in December 1997, options to purchase 1,152,150 shares of common stock
will not become exercisable until nine years and nine months from the date
F-23
<PAGE> 109
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of grant, unless certain 1998 operating targets are met, in which case the
vesting schedule described above will apply.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123"). In accordance with the provisions of SFAS 123, the
Company applies APB Opinion No. 25, and related interpretations in accounting
for its plans. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under its plans
consistent with the methodology prescribed by SFAS 123, the Company's SFAS 123
net loss would be increased by $1.3 million and $9.4 million for 1995 and 1996
and the net loss and net loss per common share would be increased by $6.3
million and $.13, respectively, for 1997.
These SFAS 123 pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years. The fair value for these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following assumptions for the
period ended December 31, 1995, 1996 and 1997, respectively:
ADDITIONAL OPTIONS
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Expected term.......................... 2-10 years 5-10 years 10 years
Risk-free rate......................... 5.41%-7.22% 5.92%-6.61% 5.59%-7.12%
Dividend yield......................... 0% 0% 0%
Expected volatility.................... 0% 0% 0%
</TABLE>
The weighted-average fair value and weighted average exercise price of
options granted prior to the Recapitalization for which the exercise price
equals the fair value of Company common stock on the grant date was $11.23 and
$44.65 in 1995, respectively, and $13.28 and $47.14, in 1996, respectively. The
weighted-average fair value and weighted-average exercise price of options
granted on and subsequent to the Recapitalization for which the exercise price
equals the fair value of Company common stock on the grant date was $3.69 and
$7.67 in 1996, respectively, and $5.28 and $12.33 in 1997, respectively.
The weighted-average fair value and weighted-average exercise price of
options granted for which the exercise price was less than the fair value of
Company common stock on the grant date was $6.30 and $1.97 in 1996, respectively
and $6.76 and $7.67 in 1997, respectively. There were no option issuances prior
to the Recapitalization for which the exercise price was less than the estimated
fair value of Company common stock on the date of grant.
The Black-Scholes option valuation model was developed for use in
estimating the weighted-average fair value of traded options which have no
vesting restrictions and are fully transferable. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in managements opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
F-24
<PAGE> 110
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions involving options are summarized as follows:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
<S> <C> <C>
JANUARY 1, 1995............................................. 1,633,110 $40.51
Granted................................................... 1,197,722 44.72
Exercised................................................. (144,400) 34.26
Cancellations............................................. (260,324) 40.17
---------- ------
DECEMBER 31, 1995........................................... 2,426,108 42.99
---------- ------
Granted................................................... 284,773 47.14
Exercised................................................. (252,278) 41.94
Cancellations............................................. (167,940) 42.83
Recapitalization cancellations............................ (2,290,663) 43.64
Recapitalization grants................................... 24,622,260 3.76
---------- ------
DECEMBER 31, 1996........................................... 24,622,260 3.76
---------- ------
Granted................................................... 11,469,150 11.56
Exercised................................................. (4,250,790) 2.19
Cancellations............................................. (827,415) 4.50
---------- ------
DECEMBER 31, 1997........................................... 31,013,205 6.84
========== ======
</TABLE>
The following information is as of December 31, 1997:
<TABLE>
<S> <C> <C> <C>
Number outstanding................................... 12,312,690 9,122,565 9,577,950
------------- ---------- ---------
Weighted-average contractual life, in years.......... 6 10 10
Weighted-average exercise price...................... $ 1.92 $ 7.67 $ 12.33
------------- ---------- ---------
Number exercisable................................... 12,312,690 4,930,305 0
------------- ---------- ---------
Weighted-average exercise price...................... $ 1.92 $ 7.67 $ 12.33
------------- ---------- ---------
</TABLE>
The following information is as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C> <C>
Range of Exercise Prices............................... $35.85-$44.65 $ 1.92 $ 7.67
------------- ---------- ---------
Number outstanding..................................... 2,426,108 16,823,565 7,798,695
------------- ---------- ---------
Weighted-average contractual life, in years............ 5 6 10
Weighted-average exercise price........................ $ 42.96 $ 1.92 $ 7.67
------------- ---------- ---------
Number exercisable..................................... 544,004 16,823,565 4,678,335
------------- ---------- ---------
Weighted-average exercise price........................ $ 40.92 $ 1.92 $ 7.67
------------- ---------- ---------
</TABLE>
NOTE 18 -- LITIGATION, COMMITMENTS AND CONTINGENT LIABILITIES:
The Company has performed, and continues to perform, services for clients
in a wide range of businesses, including tobacco products manufacturers. As a
result, the Company may from time to time be joined as a defendant in litigation
brought against its clients and others by third parties, including its
competitors, governmental and regulatory bodies, or consumers, alleging that
advertising claims made through the
F-25
<PAGE> 111
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company with respect to such clients' products are false, deceptive or
misleading; that such clients products are defective, injurious or pose some
manner of threat to the public generally; or that marketing or communications
materials created for such clients infringe upon the proprietary rights of third
parties. The Company's practice is to attempt to minimize such potential
liabilities through insurance coverage and/or indemnification provisions in its
agreements with clients and others.
Recently, the Company was named as a defendant in an action brought by a
county government against tobacco products manufacturers (including a current
and a former client of the Company) and others alleging that, because the
Company performed advertising and other professional services for such clients,
the Company is liable for damages for health and other claims. While this action
is in its early stages and the allegations against the Company have not been
made with specificity, the Company believes it has meritorious defenses to the
claims and intends to contest them vigorously.
The Company is named as party in litigation matters which arise in the
ordinary course of its business, including claims by former employees for money
damages and other relief based upon the circumstances or consequences of their
separation from employment. The Company believes that it has meritorious
defenses to these claims, and is contesting such claims vigorously. In addition,
the Company is covered by insurance with respect to some of such claims.
Accordingly, the Company does not expect such matters to have a material adverse
effect on its consolidated financial position, results of operations or cash
flows.
Net rental expense was $62.4 million, $62.9 million, and $74.4 million in
1995, 1996 and 1997, respectively. Future minimum rental commitments as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998................................................... $ 62,863
1999................................................... 54,525
2000................................................... 42,924
2001................................................... 40,162
2002................................................... 39,119
Thereafter............................................. 108,437
</TABLE>
Certain leases contain renewal options calling for increased rentals.
Others contain certain escalation clauses relating to taxes and other operating
expenses.
At December 31, 1996, the Company had outstanding guarantees of $18.6
million in support of credit lines of unconsolidated companies. At December 31,
1997, the Company had outstanding guarantees of $7.6 million in support of
credit lines of unconsolidated companies.
The Company and its corporate affiliates conduct business in various
developing countries in Asia, Africa, Latin America and Eastern Europe, where
the systems and bodies of commercial law and trade practices arising thereunder
are in a continuing state of evolution. Commercial laws in such countries are
often vague, arbitrary, contradictory, inconsistently administered and
retroactively applied. Under such circumstances, it is difficult for the Company
to determine with certainty at all times the exact requirements of such local
laws. Nevertheless, the Company believes that any difficulty in compliance with
local laws in such developing countries will not have a materially adverse
impact on the consolidated financial position, results of operations or cash
flows of the Company.
NOTE 19 -- FAIR VALUE OF FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES:
At December 31, 1996 and 1997, the carrying value of the Company's
financial instruments approximated fair value in all material respects.
F-26
<PAGE> 112
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company entered into interest rate exchange agreements with off-balance
sheet risk in order to reduce its exposure to changes in interest rates on its
variable rate long-term debt. These interest rate exchange agreements included
interest rate swaps, interest rate floors and interest rate caps. At December
31, 1996 and 1997, the notional amount of these agreements was $50 million and
$275 million, respectively (see Note 14). The fair value, which has been
estimated based upon quotations from independent third party banks, approximated
the notional amount at December 31, 1996 and 1997.
The Company enters into forward foreign exchange contracts to hedge certain
assets and liabilities which are recorded in a currency different from that in
which they settle. The purpose of these contracts is almost exclusively to hedge
intercompany transactions. The Company's forward foreign exchange contracts do
not create exchange rate risk because gains and losses on these contracts
generally offset losses and gains on the foreign currency denominated
intercompany transactions. The gains and losses on these positions are deferred
and included in the basis of the transaction upon settlement. The terms of these
contracts are generally a one month maturity. The tables below summarize the
Company's forward foreign exchange contracts outstanding at December 31, 1996
and 1997. The "buy" amounts represent the U.S. dollar equivalent of commitments
to purchase the respective currency, and the "sell" amounts represent the U.S.
dollar equivalent of commitments to sell the respective currency.
<TABLE>
<CAPTION>
1996 COMPANY BUYS COMPANY SELLS
(IN THOUSANDS)
<S> <C> <C>
Canadian Dollar............................................. $ -- $8,399
Italian Lira................................................ 4,524 --
Swiss Franc................................................. 5,934 --
Japanese Yen................................................ 6,199 --
------- ------
$16,657 $8,399
======= ======
</TABLE>
<TABLE>
<CAPTION>
1997 COMPANY BUYS COMPANY SELLS
(IN THOUSANDS)
<S> <C> <C>
German Deutschemark......................................... $ -- $13,318
Italian Lira................................................ -- 3,901
Swedish Krona............................................... -- 1,268
Swiss Franc................................................. 6,849 --
Japanese Yen................................................ 5,975 --
------- -------
$12,824 $18,487
======= =======
</TABLE>
Management believes the risk of incurring losses due to credit risk and
foreign exchange would not have a material adverse impact on the consolidated
financial position, results of operations or cash flows of the Company.
NOTE 20 -- SUBSEQUENT EVENT -- COMMON STOCK DIVIDEND
On April 6, 1998, the Board of Directors declared a stock dividend of 14
shares of common stock payable for each share of common stock outstanding on the
effective date of the Company's planned initial public offering (see note 21).
Common stock and accumulated deficit reflected in the historical balance sheets
at December 31, 1996 and 1997 have been restated to reflect the common stock
dividend. The number of common shares the Company is authorized to issue was
also increased from 10 million to 250 million and the number of authorized
preferred shares, none of which have been issued, was increased from 50,000 to
10 million.
F-27
<PAGE> 113
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All references in the consolidated financial statements to shares, share
prices, per share data, including stock option and stock option plan
information, for periods after the 1996 Recapitalization are reflected on a post
dividend basis. All references in the historical financial statements to common
shares and Limited Partnership Units in Predecessor entities including option
and option plan information are reflected on a pre-dividend basis.
NOTE 21 -- PUBLIC OFFERING AND RELATED TRANSACTIONS SUBSEQUENT TO THE DATE OF
THE INDEPENDENT ACCOUNTANTS REPORT (UNAUDITED)
OFFERING: On February 26, 1998, the Company filed a Registration Statement
on Form S-1. Total proceeds to be raised in connection with the public offerings
are estimated at $430 million, comprised of approximately $150 million raised
from the sale of newly issued common shares and approximately $280 million
raised from common shares to be sold from certain selling stockholders. The
Company intends to use the estimated net proceeds from the sale of newly issued
common shares to repay borrowings under the term loan portion of its Credit
Facilities. The Company will not receive any of the net proceeds from the sale
of common stock by the selling stockholders.
NEW DEBT FACILITY: On March 10, 1998, the Company received an executed
commitment letter (the "Commitment") from Citibank N.A. and the Bank of America
National Trust and Savings Association for an aggregate of $150 million of a
$400 million, 5 year multicurrency revolving credit facility (the "Facility").
The Commitment is subject to, among other things, the receipt of commitments
from other lenders to provide not less than $250 million and the consummation of
the initial public offering resulting in not less than $100 million of cash
proceeds to the Company. Under the proposed terms of the Facility, interest
charged on loans will include base rate, Eurodollar and Eurocurrency rates, plus
applicable margins tied to the leverage ratio ranging from 0.04% to 0.05%.
RESTRICTED STOCK: In March 1998, the Company amended the Restricted Stock
Trust agreement which will result in the redemption of 1,855,845 of the
11,086,950 shares of common stock previously held in the Restricted Stock Trust
upon consummation of the initial public offering. Based upon an assumed initial
public offering price of $22.50, the consummation of the offering will give rise
to a non-recurring, non-cash, pre-tax charge of $207.7 million arising from the
vesting of the aggregate 9,231,105 shares of Restricted Stock.
F-28
<PAGE> 114
[PHOTOGRAPH OF OLD-FASHIONED
HANDWRITING ON HEAVY PAPER
VERY CLOSE-UP PREDOMINANTLY
IN ORANGE AND YELLOW.
NO PARTICULAR WORDS
CAN BE IDENTIFIED.]
<PAGE> 115
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE UNDERWRITERS OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 10
The Company........................... 17
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 22
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 32
Management............................ 42
Certain Transactions.................. 58
Principal and Selling Stockholders.... 59
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 74
Certain U.S. Tax Consequences to Non-
United States Holders............... 76
Underwriting.......................... 77
Legal Matters......................... 81
Experts............................... 81
Available Information................. 81
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
16,600,000 SHARES
[YOUNG & RUBICAM INC. LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
FURMAN SELZ
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
, 1998
======================================================
<PAGE> 116
[INTERNATIONAL BACK COVER PAGE]
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE UNDERWRITERS OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 10
The Company........................... 17
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 22
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 32
Management............................ 42
Certain Transactions.................. 58
Principal and Selling Stockholders.... 59
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 74
Certain U.S. Tax Consequences to Non-
United States Holders............... 76
Underwriting.......................... 77
Legal Matters......................... 81
Experts............................... 81
Available Information................. 81
Additional Information................ 82
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
16,600,000 SHARES
[YOUNG & RUBICAM INC. LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
FURMAN SELZ
GOLDMAN SACHS INTERNATIONAL
SALOMON SMITH BARNEY INTERNATIONAL
, 1998
======================================================
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Common Stock being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 135,158
NASD filing fee............................................. 30,500
New York Stock Exchange listing fee......................... 336,640
Legal fees and expenses..................................... 900,000
Accounting fees and expenses................................ 500,000
Printing and engraving expenses............................. 325,000
Registrar and transfer agent's fee.......................... 20,000
Miscellaneous............................................... 2,702
----------
Total............................................. $2,250,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XI of the Company's Charter provides substantially as follows:
Section 1. Elimination of Certain Liability of Directors. A director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
Section 2. Indemnification and Insurance.
(a) Right to indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended but, in the case of any such amendment, to the fullest
extent permitted by law, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment), against all expense, liability and
loss (including, without limitation, attorneys' fees, judgments, fines, amounts
paid or to be paid in settlement, and excise taxes or penalties arising under
the Employee Retirement Income Security Act of 1974) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in paragraph (b)
hereof, the Company shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Company. The right to indemnification conferred in this Section shall be a
contract right and shall include the right to be paid by the Company the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the General Corporation Law of the
State of Delaware requires, the payment of such expenses incurred by a director
or
II-1
<PAGE> 118
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Company of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified under this
Section or otherwise. The Company may, by action of the Board of Directors,
provide indemnification to employees and agents of the Company with the same
scope and effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Company within thirty days after a
written claim has been received by the Company, the claimant may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim and, if successful in whole or in part, the claimant shall be entitled to
be paid also the expense of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the Company)
that the claimant has not met the standards of conduct which make it permissible
under the General Corporation Law of the State of Delaware for the Company to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Company. Neither the failure of the Company (including
its Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Company
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware.
Section 145 of the DGCL provides as follows:
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
II-2
<PAGE> 119
procure a judgment in its favor by reason of the fact that the person is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
II-3
<PAGE> 120
corporation as such person would have respect to such constituent corporation if
its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "servicing at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expense proved by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
Section 5 of the Management Voting Trust Agreement provides substantially
as follows:
The Company hereby agrees to assume liability for and does hereby
indemnify, protect, save and hold harmless the Voting Trustees and their
successors, assigns, agents and servants to the full extent lawful from and
against any and all liabilities, obligations, losses, damages, penalties, taxes,
claims, actions, suits, costs, expenses or disbursements (including legal fees
and expenses) of any kind and nature whatsoever ("Losses") that may be imposed,
incurred by or asserted against the Voting Trustees or any of them individually
in any way relating to or arising under the Management Voting Trust Agreement or
the enforcement of any of the terms thereof or in any way relating to or arising
out of the administration of the trusts created thereby or the action or
inaction of the Management Voting Trust thereunder, unless the Company shall
sustain the burden of proving by clear and convincing evidence that such Losses
were proximately caused by an act or omission on the part of such Voting Trustee
or Voting Trustees that was not taken in good faith or that was not reasonably
believed to be in or not opposed to the best interests of the Company and the
Management Investors as a group. The Company shall advance to any Voting Trustee
all reasonable expenses in connection with litigation arising under the
Management Voting Trust Agreement or the enforcement of any of the terms thereof
or in any way relating to or arising out of the administration of the trusts
created thereby or the action or inaction of the Management Voting Trust
thereunder, including, but not limited to, expenses in connection with
litigation in which such Voting Trustee purports to seek to enforce any portion
of the Management Voting Trust Agreement. A Voting Trustee shall be required to
execute an undertaking agreeing to repay the Company the amount so advanced in
the event it is ultimately determined that such Voting Trustee is not entitled
to indemnification with respect to such Losses, but the Voting Trustee shall not
be required to give a bond or any security for the advancement of such expenses.
To the extent insurance is available on commercially reasonable terms, the
Company will procure and maintain (for the benefit of the Company and the Voting
Trustees) insurance covering the Voting Trustees at least to the extent their
conduct would give rise to indemnification under the Management Voting Trust
Agreement. The provisions contained in this indemnification section shall
survive the termination of the Management Voting Trust Agreement.
The Restricted Stock Plan and the Management Stock Option Plan each provide
that no member of the Compensation Committee of the Company Board or of the
Company Board shall be liable for any action or determination made in good faith
with respect to such plan or any grant under such plan. The Restricted Stock
Plan and the Management Stock Plan each provide that to the fullest extent
permitted by law, the Company shall indemnify and save harmless each person made
or threatened to be made a party to any civil or criminal action or proceeding
by reason of the fact that such person, or such person's testator or intestate,
is or was a member of the Compensation Committee of the Company Board. The 1997
ICP Plan provides that no
II-4
<PAGE> 121
member of the Compensation Committee or any officer or employee of the Company
or an affiliate acting at the direction or on behalf of the Compensation
Committee shall be personally liable for any action or determination taken or
made in good faith with respect to the 1997 ICP Plan, and shall, to the extent
permitted by law, be fully indemnified and protected by the Company with respect
to any such action or determination.
Y&R also carries liability insurance covering officers and directors.
Pursuant to the proposed form of Underwriting Agreement, the Underwriters
have agreed to indemnify the directors and officers of Y&R in certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1996, in connection with the Recapitalization, Y&R (i) issued
and sold 30,228,195 shares of Common Stock to the Recapitalization Investors and
one entity affiliated with an independent member of the Board for cash
consideration of $231,749,495, (ii) issued and sold 17,154,135 shares of Common
Stock to 182 employees in exchange for a combination of cash, notes, shares of
common stock, $.25 par value, of Young & Rubicam Inc., a New York corporation,
and limited partnership units of Young & Rubicam L.P., a Delaware limited
partnership, (iii) granted 16,823,565 Rollover Options to its employees in
consideration of the surrender for cancellation of all or a portion of their
outstanding employee options, and (iv) granted 5,200,590 Executive Options to
its employees without consideration pursuant to the Management Stock Option
Plan.
In August 1997, two members of management of the Company purchased an
aggregate of 12,900 shares of Common Stock for an aggregate purchase price of
$98,900. In October 1997, four members of management of the Company purchased an
aggregate of 36,000 shares of Common Stock for an aggregate purchase price of
$276,000. In November 1997, the Company purchased additional equity interests in
two of its Argentine subsidiaries using an aggregate of 91,320 shares of Common
Stock as part of the consideration therefor.
During 1997, management investors whose employment with the Company was
terminated exercised Rollover Options to purchase an aggregate of 463,065 shares
of Common Stock at $1.92 per share, or an aggregate of $887,541. All of such
shares of Common Stock were repurchased by the Company pursuant to the call
provisions of the Stockholders Agreement at a price equal to $7.67 per share.
In December 1997, the Company issued and sold 4,250,790 shares of Common
Stock to its employees for an aggregate amount of $9,314,483 pursuant to the
exercise of Rollover Options and Executive Options. In March 1998, the Company
issued and sold 135,885 shares of Common Stock to its employees for an aggregate
amount of $864,196 pursuant to the exercise of Rollover Options and Executive
Options.
All of the sales of Y&R securities described above were deemed to be exempt
from the registration requirements under the Securities Act pursuant to Section
4(2) thereof, and in reliance on Rule 701 promulgated under Section 3(b) thereof
and Regulation D and Regulation S thereunder. Each recipient of such securities
represented in each transaction such recipient's intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions.
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement..............................
3.1 Amended and Restated Certificate of Incorporation of
Registrant+.................................................
3.2 Amendment to Amended and Restated Certificate of
Incorporation of Registrant+................................
3.3 Amended and Restated Bylaws of Registrant+..................
3.4 Form of Amended and Restated Certificate of Incorporation of
Registrant to become effective upon the closing of the
Offerings under the Registration Statement+.................
</TABLE>
II-5
<PAGE> 122
<TABLE>
<C> <S>
3.5 Form of Amended and Restated Bylaws of Registrant to become
effective upon the closing of the Offerings under the
Registration Statement+.....................................
4.1 Specimen Certificate of Common Stock of Registrant..........
4.2 Form of Rights Agreement+...................................
4.3 Form of Certificate of Designation for Registrant's
Cumulative Participating Junior Preferred Stock+............
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton, counsel to
the Registrant, as to the legality of the shares of Common
Stock being registered......................................
9.1 Management Voting Trust Agreement, dated as of December 12,
1996+.......................................................
9.2 Young & Rubicam Inc. Restricted Stock Trust Agreement, dated
as of December 12, 1996+....................................
10.1 $700,000,000 Credit and Guarantee Agreement, dated as of
December 12, 1996+..........................................
10.2 Amended Stockholders' Agreement.............................
10.3 Contribution Agreement dated October 30, 1996+..............
10.4 Young & Rubicam Holdings Inc. Restricted Stock Plan+........
10.5 Young & Rubicam Holdings Inc. Management Stock Option
Plan+.......................................................
10.6 Young & Rubicam Inc. 1997 Incentive Compensation Plan+......
10.7 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with Peter
Georgescu+..................................................
10.8 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995, with Peter Georgescu+....
10.9 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1986, with Peter Georgescu+....
10.10 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with John McGarry+.....
10.11 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1986, with John McGarry+.......
10.12 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 31, 1994, with John McGarry+.....
10.13 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with Edward Vick+......
10.14 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995, with Edward Vick+........
10.15 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997 with Alan J.
Sheldon+....................................................
10.16 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995 with Alan Sheldon+........
10.17 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1988 with Alan Sheldon+........
10.18 Registration Rights Agreement, dated as of December 12,
1996+.......................................................
10.19 Letter Agreement dated as of October 16, 1997 by and between
Young & Rubicam Inc. and Michael J. Dolan+..................
10.20 Letter Agreement dated June 28, 1996 by and between Young &
Rubicam Inc. and Michael J. Dolan+..........................
10.21 Lease agreement for 230 Park Avenue South+..................
10.22 H&F Option Agreement, dated as of December 12, 1996, among
Y&R Holdings, Y&R Inc., Y&R Inc., and H&F Capital Partners
III, L.P.+..................................................
</TABLE>
II-6
<PAGE> 123
<TABLE>
<C> <S>
10.23 H&F Option Agreement, dated as of December 12, 1996, among Y&R Holdings, Y&R Inc., Y&R Inc., and H&F
Orchard Partners III, L.P.+..............................................................................
10.24 Form of Young & Rubicam Inc. Key Corporation Managers Bonus Plan+........................................
10.25 Amendment No. 1 to Restricted Stock Trust Agreement dated as of March 13, 1998+..........................
10.26 Young & Rubicam Inc. Deferred Compensation Plan+.........................................................
10.27 Young & Rubicam Inc. Grantor Trust Agreement.............................................................
10.28 Amendment to Young & Rubicam Inc. 1997 Incentive Compensation Plan.......................................
10.29 Form of Credit Agreement for the New Facility............................................................
21.1 List of Subsidiaries+....................................................................................
23.1 Consent of Price Waterhouse LLP..........................................................................
23.2 Consent of Cleary, Gottlieb, Steen & Hamilton (included in opinion to be filed as Exhibit 5.1)...........
24.1 Powers of Attorney (included on signature pages)+........................................................
</TABLE>
- ------------------------------
+ Previously filed.
(b) Financial Statement Schedules
Schedule II -- Young & Rubicam Inc. and Subsidiary Companies Valuation and
Qualifying Accounts and Reserves.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
(b) (1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(c) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
II-7
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 3 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on May 4, 1998.
YOUNG & RUBICAM INC.
By: /s/ STEPHANIE W. ABRAMSON
------------------------------------
Name: Stephanie W. Abramson
Title: General Counsel and
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and Chief May 4, 1998
- ------------------------------------------------ Executive Officer (principal
Peter A. Georgescu executive officer)
* Vice Chairman, Chief Financial May 4, 1998
- ------------------------------------------------ Officer and Director (principal
Michael J. Dolan financial officer)
* Senior Vice President, Finance May 4, 1998
- ------------------------------------------------ (principal accounting officer)
Kevin Lavan
* Chief Operating Officer and Director May 4, 1998
- ------------------------------------------------
Edward H. Vick
* Executive Vice President and May 4, 1998
- ------------------------------------------------ Director
Thomas D. Bell, Jr.
* Director May 4, 1998
- ------------------------------------------------
F. Warren Hellman
* Director May 4, 1998
- ------------------------------------------------
Richard S. Bodman
* Director May 4, 1998
- ------------------------------------------------
Philip U. Hammarskjold
* Director May 4, 1998
- ------------------------------------------------
Alan D. Schwartz
* Director May 4, 1998
- ------------------------------------------------
John F. McGillicuddy
</TABLE>
*By: /s/ STEPHANIE W. ABRAMSON
---------------------------------
Name: Stephanie W. Abramson,
Title: Attorney-in-Fact
II-8
<PAGE> 125
SCHEDULE II
YOUNG AND RUBICAM INC. AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------------
BALANCE AT CHARGED TO COSTS CHARGED TO BALANCE
DESCRIPTION BEGINNING AND EXPENSES OTHER ACCOUNTS DEDUCTIONS AT END
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1995
Allowance for Doubtful Accounts...... $ 8,284 $ 8,352 -- $ 5,110 $11,526
======= ======= == ======= =======
Year ended December 31, 1996
Allowance for Doubtful Accounts...... $11,526 $11,411 -- $13,088 $ 9,849
======= ======= == ======= =======
Year ended December 31, 1997
Allowance for Doubtful Accounts...... $ 9,849 $14,269 -- $ 9,993 $14,125
======= ======= == ======= =======
</TABLE>
S-1
<PAGE> 126
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
3.1 Amended and Restated Certificate of Incorporation of
Registrant+.................................................
3.2 Amendment to Amended and Restated Certificate of
Incorporation of Registrant+................................
3.3 Amended and Restated Bylaws of Registrant+..................
3.4 Form of Amended and Restated Certificate of Incorporation of
Registrant to become effective upon the closing of the
Offerings under the Registration Statement+.................
3.5 Form of Amended and Restated Bylaws of Registrant to become
effective upon the closing of the Offerings under the
Registration Statement+.....................................
4.1 Specimen Certificate of Common Stock of Registrant..........
4.2 Form of Rights Agreement+...................................
4.3 Form of Certificate of Designation for Registrant's
Cumulative Participating Junior Preferred Stock+............
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton, counsel to
the Registrant, as to the legality of the shares of Common
Stock being registered......................................
9.1 Management Voting Trust Agreement, dated as of December 12,
1996+.......................................................
9.2 Young & Rubicam Inc. Restricted Stock Trust Agreement, dated
as of December 12, 1996+....................................
10.1 $700,000,000 Credit and Guarantee Agreement, dated as of
December 12, 1996+..........................................
10.2 Amended Stockholders' Agreement.............................
10.3 Contribution Agreement dated October 30, 1996+..............
10.4 Young & Rubicam Holdings Inc. Restricted Stock Plan+........
10.5 Young & Rubicam Holdings Inc. Management Stock Option
Plan+.......................................................
10.6 Young & Rubicam Inc. 1997 Incentive Compensation Plan+......
10.7 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with Peter
Georgescu+..................................................
10.8 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995, with Peter Georgescu+....
10.9 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1986, with Peter Georgescu+....
10.10 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with John McGarry+.....
10.11 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1986, with John McGarry+.......
10.12 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 31, 1994, with John McGarry+.....
10.13 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with Edward Vick+......
10.14 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995, with Edward Vick+........
10.15 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997 with Alan J.
Sheldon+....................................................
</TABLE>
<PAGE> 127
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.16 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995 with Alan Sheldon+........
10.17 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1988 with Alan Sheldon+........
10.18 Registration Rights Agreement, dated as of December 12,
1996+.......................................................
10.19 Letter Agreement dated as of October 16, 1997 by and between
Young & Rubicam Inc. and Michael J. Dolan+..................
10.20 Letter Agreement dated June 28, 1996 by and between Young &
Rubicam Inc. and Michael J. Dolan+..........................
10.21 Lease agreement for 230 Park Avenue South+..................
10.22 H&F Option Agreement, dated as of December 12, 1996, among
Y&R Holdings, Y&R Inc., Y&R Inc., and H&F Capital Partners
III, L.P.+..................................................
10.23 H&F Option Agreement, dated as of December 12, 1996, among
Y&R Holdings, Y&R Inc., Y&R Inc., and H&F Orchard Partners
III, L.P.+..................................................
10.24 Form of Young & Rubicam Inc. Key Corporation Managers Bonus
Plan+.......................................................
10.25 Amendment No. 1 to Restricted Stock Trust Agreement dated as
of March 13, 1998+..........................................
10.26 Young & Rubicam Inc. Deferred Compensation Plan+............
10.27 Young & Rubicam Inc. Grantor Trust Agreement................
10.28 Amendment to Young & Rubicam Inc. 1997 Incentive
Compensation Plan...........................................
10.29 Form of Credit Agreement for the New Facility...............
21.1 List of Subsidiaries+.......................................
23.1 Consent of Price Waterhouse LLP.............................
23.2 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
opinion to be filed as Exhibit 5.1).........................
24.1 Powers of Attorney (included on signature pages)+...........
</TABLE>
- ------------------------------
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
16,600,000 Shares
Young & Rubicam Inc.
Common Stock
UNDERWRITING AGREEMENT
__________, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
FURMAN SELZ LLC
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
As representatives of the
several U.S. Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities
Corporation
277 Park Avenue
New York, New York 10172
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
FURMAN SELZ LLC
GOLDMAN SACHS INTERNATIONAL
SMITH BARNEY INC.
As representatives of the
several International
Managers named in Schedule
II hereto
c/o Donaldson, Lufkin & Jenrette International
99 Bishopsgate
London EC2M-3YH, England
<PAGE> 2
Ladies and Gentlemen:
Young & Rubicam Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several Underwriters (as defined below) an
aggregate of 6,666,667 shares of its Common Stock, par value $.01 per share
("COMMON STOCK"), certain stockholders of the Company named in Schedule III
hereto (the "Y&R SELLING STOCKHOLDERS") severally propose to sell to the several
Underwriters an aggregate of __________ shares of Common Stock, certain
stockholders of the Company named in Schedule IV(a) hereto (the "H&F SELLING
STOCKHOLDERS") severally propose to sell to the several Underwriters an
aggregate of __________ shares of Common Stock and BearTel Corp. ("BEARTEL" and,
together with the Y&R Selling Stockholders and the H&F Selling Stockholders, the
"SELLING STOCKHOLDERS") proposes to sell to the several Underwriters an
aggregate of 63,160 shares of Common Stock. The 6,666,667 shares of Common Stock
to be issued and sold by the Company are hereinafter called the "COMPANY
SHARES." The shares of Common Stock to be sold by the Y&R Selling Stockholders
are hereinafter called the "Y&R SELLING STOCKHOLDER SHARES," and, together with
the shares of Common Stock to be sold by BearTel and the H&F Selling
Stockholders, the "STOCKHOLDER SHARES." The Company Shares and the Stockholder
Shares are hereinafter collectively called the "FIRM SHARES."
It is understood that, subject to the conditions hereinafter
stated, the Stockholder Shares and 3,346,667 Company Shares (the "U.S. COMPANY
SHARES" and together with the Stockholder Shares, the "U.S. FIRM SHARES") will
be sold to the several U.S. Underwriters named in Schedule I hereto (the "U.S.
UNDERWRITERS") in connection with the offering and sale of such U.S. Firm Shares
in the United States and Canada to United States and Canadian Persons (as such
terms are defined in the Agreement Between U.S. Underwriters and International
Managers of even date herewith), and 3,320,000 Company Shares (the
"INTERNATIONAL SHARES") will be sold to the several International Managers named
in Schedule II hereto (the "INTERNATIONAL MANAGERS") in connection with the
offering and sale of such International Shares outside the United States and
Canada to persons other than United States and Canadian Persons. Donaldson,
Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc., Furman Selz
LLC, Goldman, Sachs & Co. and Smith Barney Inc. shall act as representatives
(the "U.S. REPRESENTATIVES") of the several U.S. Underwriters, and Donaldson
Lufkin & Jenrette International, Bear, Stearns International Limited, Furman
Selz LLC, Goldman Sachs International and Smith Barney Inc. shall act as
representatives (the "INTERNATIONAL REPRESENTATIVES")
2
<PAGE> 3
of the several International Managers. The U.S. Underwriters and the
International Managers are hereinafter collectively referred to as the
"UNDERWRITERS."
The individuals or entities listed on Schedule V hereto (the
"Option Selling Stockholders") also severally propose to issue and sell to the
several U.S. Underwriters not more than an additional 2,490,000 shares of Common
Stock, (the "ADDITIONAL SHARES"), if requested by the U.S. Underwriters as
provided in Section 2 hereof. The Firm Shares and the Additional Shares are
herein collectively called the "SHARES." The Company and the Selling
Stockholders are hereinafter collectively referred to as the "SELLERS."
Of the Firm Shares, 830,000 Firm Shares have been reserved
(the "RESERVED SHARES" for sale to certain investors, including certain
employees of the Company. The number of Firm Shares available to the general
public will be reduced to the extent those persons purchase Reserved Shares. Any
Reserved Shares not so purchased will be offered in the Offering. Offers and
sales of Reserved Shares to eligible employees in the Province of Ontario,
Canada will be effected by the Underwriters or their affiliates at the request
of and as agent of the Company pursuant to prospectus exemptions available in
Ontario.
SECTION 1. Registration Statement and Prospectus. The Company
has filed with the Securities and Exchange Commission (the "COMMISSION") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"ACT"), a registration statement on Form S-1, including a form of prospectus,
relating to the Shares. The registration statement contains two forms of
prospectuses to be used in connection with the offering and sale of the Shares:
the form of U.S. prospectus, to be used in connection with the offering and sale
of Shares in the United States and Canada to United States and Canadian Persons,
and the form of international prospectus, to be used in connection with the
offering and sale of Shares outside the United States and Canada to persons
other than United States and Canadian Persons. The international prospectus is
identical to the U.S. prospectus except for the outside front and back cover
pages and an additional page in the international prospectus with the caption
"Additional Information." The registration statement, as amended at the time it
became effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Act, is hereinafter referred to as the "REGISTRATION STATEMENT;" and the
U.S. prospectus and the international prospectus in the respective forms first
filed pursuant to Rule 424(b) under the Act are hereinafter collectively
referred to as the
3
<PAGE> 4
"PROSPECTUS." If the Company has filed or is required pursuant to the terms
hereof to file a registration statement pursuant to Rule 462(b) under the Act
registering additional shares of Common Stock (a "RULE 462(b) REGISTRATION
STATEMENT"), then, unless otherwise specified, any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up
Agreements. On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) the Company agrees to
issue and sell 6,666,667 Firm Shares, (ii) each Selling Stockholder agrees,
severally and not jointly, to sell the number of Firm Shares set forth opposite
such Selling Stockholder's name in Schedule III or Schedule IV hereto, as the
case may be, and (iii) each Underwriter agrees, severally and not jointly, to
purchase from each Seller at a price per Share of $______ (the "PURCHASE PRICE")
the number of Firm Shares (subject to such adjustments to eliminate fractional
shares as you may determine) that bears the same proportion to the total number
of Firm Shares to be sold by such Seller as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedules I and II hereto bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Option Selling
Stockholders severally agree to sell the Additional Shares and the U.S.
Underwriters shall have the right to purchase, severally and not jointly, up to
2,490,000 Additional Shares from the Option Selling Stockholders at the Purchase
Price. Additional Shares may be purchased solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. The
U.S. Underwriters may exercise their right to purchase Additional Shares in
whole or in part from time to time by giving written notice thereof to the
Option Selling Stockholders and the Company within 30 days after the date of
this Agreement. The U.S. Representatives shall give any such notice on behalf of
the U.S. Underwriters and such notice shall specify the aggregate number of
Additional Shares to be purchased pursuant to such exercise and the date for
payment and delivery thereof, which date shall be a business day (i) no earlier
than two business days after such notice has been given (and, in any event, no
earlier than the Closing Date (as hereinafter defined)) and (ii) no later than
ten business days after such notice has been given. If any Additional Shares are
to be purchased, (i) each Option Selling Stockholder agrees to sell to the U.S.
Underwriters the number of Additional Shares (subject to such adjustments to
eliminate fractional shares as the U.S. Representatives may determine) specified
in such notice multiplied by a fraction the numerator of which is the number of
Additional Shares set forth opposite each
4
<PAGE> 5
such Option Selling Stockholder's name on Schedule V hereto and the denominator
of which is the total number of Additional Shares and (ii) each U.S.
Underwriter, severally and not jointly, agrees to purchase from the Option
Selling Stockholders, the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Option Selling Stockholders, as the number of
U.S. Firm Shares set forth opposite the name of such U.S. Underwriter in
Schedule I bears to the total number of U.S. Firm Shares.
Each Seller hereby agrees not to (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers all
or a portion of the economic consequences associated with the ownership of any
Common Stock (regardless of whether any of the transactions described in clause
(i) or (ii) is to be settled by the delivery of Common Stock, or such other
securities, in cash or otherwise), except to the Underwriters pursuant to this
Agreement, for a period of 180 days after the date of the Prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation and
Bear, Stearns & Co. Inc. (and in the case of any Management Investor (as defined
in the Prospectus), the Company). Notwithstanding the foregoing, during such
period (i) the Company may grant stock options or stock awards pursuant to any
of the Company's existing stock option plans, (ii) the Company may issue shares
of Common Stock upon the exercise of an option, a warrant or the Rights (as
defined in the Prospectus) or the conversion of a security outstanding on the
date hereof, (iii) each H&F Selling Stockholder may transfer shares of Common
Stock to a partner or an affiliate of such H&F Selling Stockholder in a
transaction not involving a public sale, distribution or other disposition of
such common stock provided that the transferee agrees in writing to be bound by
the same restrictions and (iv) the Company may issue, offer and sell shares of
Common Stock or securities convertible, exercisable or exchangeable therefor in
transactions not involving a public offering as consideration for the
acquisition (pursuant to merger or otherwise) of one or more entities provided
that each recipient of such securities agrees in writing to be bound by the
restrictions set forth in this paragraph. The Company also agrees not to file
any registration statement with respect to any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock for
a period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation and
5
<PAGE> 6
Bear, Stearns & Co. Inc., except that the Company may file a registration
statement on Form S-8 under the Act to register the shares of Common Stock
issuable upon exercise of options granted under the Company's stock option plans
described in the Registration Statement. In addition, each Selling Stockholder
agrees that, for a period of 180 days after the date of the Prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation
and Bear, Stearns & Co. Inc., it will not make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock. The
Company shall, prior to or concurrently with the execution of this Agreement,
deliver an agreement executed by the trustees of the Management Voting Trust (as
defined in the Prospectus) to the effect that such trustees will not permit the
Management Voting Trust to, during the period commencing on the date the
trustees of the Management Voting Trust sign such agreement and ending 180 days
after the date of the Prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation and Bear, Stearns & Co.
Inc., (A) engage in any of the transactions described in the first sentence of
this paragraph or (B) make any demand for, or exercise any right with respect
to, the registration of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock. The entities listed on
Schedule VI hereto shall, prior to or concurrently with the execution of this
Agreement, execute and deliver an agreement to the effect that such entity shall
not, during the period commencing on the date such entity signs such agreement
and ending 180 days after the date of the Prospectus, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation and Bear, Stearns
& Co. Inc., (A) engage in any of the transactions described in the first
sentence of this paragraph or (B) make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
SECTION 3. Terms of Public Offering. The Sellers are advised
by you that the Underwriters propose (i) to make a public offering of their
respective portions of the Shares as soon after the execution and delivery of
this Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be
represented by definitive certificates and shall be issued in such authorized
denominations and registered in such names as Donaldson, Lufkin & Jenrette
Securities Corporation shall request no later than two business days prior to
the Closing Date or the
6
<PAGE> 7
applicable Option Closing Date (as defined below), as the case may be. The
Shares shall be delivered by or on behalf of the Sellers, with any transfer
taxes thereon duly paid by the respective Sellers, to Donaldson, Lufkin &
Jenrette Securities Corporation through the facilities of The Depository Trust
Company ("DTC"), for the respective accounts of the several Underwriters,
against payment to the Sellers of the Purchase Price therefore by wire transfer
of Federal or other funds immediately available in New York City. The
certificates representing the Shares shall be made available for inspection not
later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date, as the case may be, at the
office of DTC or its designated custodian (the "DESIGNATED OFFICE"). The time
and date of delivery and payment for the Firm Shares shall be 10:00 A.M., New
York City time, on , 1998 or such other time on the same or such other date as
Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree
in writing. The time and date of delivery and payment for the Firm Shares are
hereinafter referred to as the "CLOSING DATE." The time and date of delivery and
payment for any Additional Shares to be purchased by the U.S. Underwriters shall
be 10:00 A.M., New York City time, on the date specified in the applicable
exercise notice given by the U.S. Representatives pursuant to Section 2 or such
other time on the same or such other date as Donaldson, Lufkin & Jenrette
Securities Corporation and the Company shall agree in writing. The time and date
of delivery and payment for any Additional Shares are hereinafter referred to as
an "OPTION CLOSING DATE."
The documents to be delivered on the Closing Date or an Option
Closing Date on behalf of the parties hereto pursuant to Section 9 of this
Agreement shall be delivered at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, 919 Third Avenue, New York, New York, and the Shares shall be
delivered at the Designated Office, all on the Closing Date or such Option
Closing Date, as the case may be.
SECTION 5. Agreements of the Company. The Company agrees
with you:
(a) To advise you promptly and, if requested by you, to
confirm such advice in writing, of any request by the Commission for amendments
to the Registration Statement or amendments or supplements to the Prospectus or
for additional information, of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of
7
<PAGE> 8
any proceeding for such purposes, when any amendment to the Registration
Statement becomes effective, if the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, when the Rule
462(b) Registration Statement has become effective and of the happening of any
event during the period referred to in Section 5(d) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires any additions to or changes in the
Registration Statement or the Prospectus in order to make the statements therein
not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you three signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each other Underwriter such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which
shall be reasonably satisfactory to you, and to file the Prospectus in such form
with the Commission within the applicable period specified in Rule 424(b) under
the Act; during the period specified in Section 5(d) below, not to file any
further amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you shall not previously have been advised
and as to which you shall not have had an opportunity to comment; and, during
such period, to prepare and file with the Commission, promptly upon your
reasonable request, any amendment to the Registration Statement or amendment or
supplement to the Prospectus which may be necessary or advisable in connection
with the distribution of the Shares by you, and to use its best efforts to cause
any such amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first
business day after the date of this Agreement and from time to time thereafter
for such period as in the reasonable opinion of counsel for the Underwriters a
prospectus is required by law to be delivered in connection with sales by an
Underwriter or a dealer, to furnish in New York City to each Underwriter and any
dealer as many copies of the Prospectus (and of any amendment or supplement to
the Prospectus) as such Underwriter or dealer may reasonably request.
8
<PAGE> 9
(e) If during the period specified in Section 5(d), any event
shall occur or condition shall exist as a result of which, in the reasonable
opinion of counsel for the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if, in the reasonable opinion of counsel for the Underwriters, it
is necessary to amend or supplement the Prospectus to comply with applicable
law, forthwith to prepare and file with the Commission an appropriate amendment
or supplement to the Prospectus so that the statements in the Prospectus, as so
amended or supplemented, will not in the light of the circumstances when it is
so delivered, be misleading, or so that the Prospectus will comply with
applicable law, and to furnish to each Underwriter and to any dealer as many
copies thereof as such Underwriter or dealer may reasonably request.
(f) To endeavor to qualify the Shares for offer and sale by
the several Underwriters and by dealers under the state securities or Blue Sky
laws of such jurisdictions in the United States as you may reasonably request.
(g) To make generally available to you and to its stockholders
as soon as practicable an earnings statement covering the twelve-month period
ending June 30, 1999 that shall satisfy the provisions of Section 11(a) of the
Act.
(h) During the period ending three years after the date of
this Agreement, to furnish to you as soon as available copies of all reports or
other communications furnished to the record holders of Common Stock (for so
long as the Common Stock is registered under Section 12 of the Exchange Act (as
defined herein)) or furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is listed
and such other publicly available information concerning the Company and its
subsidiaries as you may reasonably request.
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all reasonable expenses incident to the performance of the Company's
obligations under this Agreement, including: (i) the reasonable fees,
disbursements and expenses of the Company's counsel and the Company's
accountants in connection with the registration and delivery of the Company
Shares under the Act and all other reasonable fees and expenses in connection
with the preparation, printing, filing and distribution of the Registration
Statement (including financial statements and
9
<PAGE> 10
exhibits), any preliminary prospectus, the Prospectus and all amendments and
supplements to any of the foregoing, including the mailing and delivering of
copies thereof to the Underwriters and dealers in the quantities specified
herein, (ii) all costs and expenses related to the transfer and delivery of the
Company Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) all costs of printing or producing this Agreement and any
other agreements or documents in connection with the offering, purchase, sale or
delivery of the Shares, (iv) all expenses in connection with the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the several states and all costs of printing or producing any
Preliminary and Supplemental Blue Sky Memoranda in connection therewith
(including the filing fees and the fees and disbursements of counsel for the
Underwriters in connection with such registration or qualification and memoranda
relating thereto), (v) the filing fees in connection with the review and
clearance of the offering of the Shares by the National Association of
Securities Dealers, Inc., (vi) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to the listing of the Shares on
the NYSE, (vii) the cost of printing certificates representing the Shares,
(viii) the costs and charges of any transfer agent, registrar and/or depositary,
(ix) all other costs and expenses incident to the performance of the obligations
of the Company hereunder for which provision is not otherwise made in this
Section, and (x) fifty (50) percent of all fees and disbursements of outside
counsel to the Company or Donaldson, Lufkin & Jenrette Securities Corporation
(excluding Cleary, Gottlieb, Steen & Hamilton and Skadden, Arps, Slate, Meagher
& Flom LLP), incurred in connection with matters related to the Reserved Shares,
but in each of cases (i) through (x) excluding all underwriting discounts and
commissions and all stock transfer taxes applicable to the sale of any Shares
other than Company Shares. The provisions of this Section shall not supersede or
otherwise affect any separate agreement that the Company and any Selling
Stockholders may have for allocation of such expenses among themselves.
(j) To use its best efforts to list, subject to notice of
issuance, the Shares on the NYSE.
(k) If the Registration Statement at the time of the
effectiveness of this Agreement does not cover all of the Shares, to file a Rule
462(b) Registration Statement with the Commission registering the Shares not so
covered in compliance with Rule 462(b), such that the Rule 462(b) Registration
Statement will be effective by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of
10
<PAGE> 11
the filing thereof or to give irrevocable instructions for the payment of such
fee pursuant to Rule 111(b) under the Act.
SECTION 6. Representations and Warranties of the Company. The
Company represents and warrants to each Underwriter and the H&F Selling
Stockholders that:
(a) The Registration Statement has become effective (other
than any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); and no stop order suspending the effectiveness
of the Registration Statement is in effect, and no proceedings for such purpose
are pending before or, to the knowledge of the Company, threatened by the
Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended by
any post-effective amendment, if applicable, will not, as of the applicable
effective date, contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) the International Prospectus complies,
and any amendment or supplement to the International Prospectus as of the
applicable filing date will comply in all material respects with the Public
Offers of Securities Regulations 1995 of the United Kingdom; (iii) the
Registration Statement (other than any Rule 462(b) Registration Statement to be
filed by the Company after the effectiveness of this Agreement) and the
Prospectus comply, and any amendments to the Registration Statement when they
become effective and any amendments or supplements to the Prospectus as of the
applicable filing date will comply in all material respects with the Act; (iv)
if the Company is required to file a Rule 462(b) Registration Statement after
the effectiveness of this Agreement, such Rule 462(b) Registration Statement and
any post-effective amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act; and (v)
the Prospectus does not contain and, as amended or supplemented, if applicable,
as of the Closing Date will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in the Registration Statement or the
Prospectus based upon information
11
<PAGE> 12
relating to any Underwriter furnished to the Company in writing through you
expressly for use therein.
(c) Each preliminary prospectus filed as part of Amendments
No. 2, 3, and [ ] to the registration statement as originally filed, or filed
pursuant to Rule 424 under the Act, when so filed, complied in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus filed as part of Amendments No. 2, 3, and [ ] to the
registration statement as originally filed, or filed pursuant to Rule 424 under
the Act, based upon information relating to any Underwriter furnished to the
Company in writing through you expressly for use therein. The Company
acknowledges for all purposes under this Agreement that the statements set forth
in the last paragraph of the U.S. and international prospectus front cover
pages, in the stabilization legend, and under the caption "Underwriting" (other
than in the fifth, sixth, eighth and fourteenth paragraphs and the first
sentence of the seventh paragraph of such section) constitute the only written
information furnished to the Company by any Underwriter expressly for use in the
Registration Statement, any preliminary prospectus and the Prospectus.
(d) Each of the Company and each subsidiary of the Company has
been duly incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and to
own, lease and operate its properties, and each of the Company and its
subsidiaries is duly qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such qualification,
except in each case where the failure to be in good standing or to be so
qualified would not have a Material Adverse Effect (as defined herein). As used
herein, the term "SUBSIDIARY" has the meaning set forth in Rule 1-02(x) of
Regulation S-X. Young & Rubicam L.P. ("YRLP") has been duly organized, is
validly existing and in good standing as a limited partnership under the laws of
the State of Delaware and has the partnership power and authority to carry on
its business as it is currently conducted and to own, lease and operate its
properties, and YRLP is duly qualified and is in good standing as a foreign
partnership authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be in good
12
<PAGE> 13
standing or to be so qualified would not have a Material Adverse Effect. For
United States federal income tax purposes, YRLP has been and is currently
classified as a partnership, and not as an association taxable as a corporation.
(e) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens granted or
issued by the Company or YRLP as of and for the year ended December 31, 1997
relating to or entitling any person to purchase or otherwise to acquire any
shares of the capital stock of the Company or any partnership interest in YRLP,
except as otherwise disclosed in the Registration Statement.
(f) (i) All the outstanding shares of capital stock of the
Company (including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; and (ii) the Shares to be issued
and sold by the Company have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor as provided by this Agreement, will
be validly issued, fully paid and non-assessable, and (iii) the issuance of such
Shares will not be subject to any preemptive or similar rights.
(g) All of the outstanding partnership interests in YRLP have
been duly authorized and validly issued and are fully paid and non-assessable,
and are owned by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any security interest, claim, lien, encumbrance
or adverse interest of any nature (each, a "Lien") other than Liens securing
indebtedness incurred pursuant to the Credit Facilities (as defined in the
Prospectus).
(h) The authorized capital stock of the Company conforms as to
legal matters in all material respects to the description thereof contained in
the Prospectus.
(i) Neither the Company nor any of its subsidiaries is (i) in
violation of its respective charter, by-laws or partnership agreement, as the
case may be, or (ii) in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement, mortgage,
lease or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
their respective property is bound, which default in clause (ii) would have a
material adverse effect on the business, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole (a "MATERIAL
ADVERSE EFFECT").
13
<PAGE> 14
(j) The execution and delivery of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
performance by the Company of its obligations hereunder will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as have been obtained or may
be required under the securities or Blue Sky laws of the various states and such
as have been obtained under the laws and regulations of jurisdictions outside
the United States in which the Reserved Shares are offered), (ii) (x) conflict
with or constitute a breach of any of the terms or provisions of, or a default
under, the charter or by-laws of the Company, (y) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
organizational documents of YRLP or (z) conflict with or constitute a breach of
any of the terms or provisions of, or a default under, any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which the Company
or YRLP is a party or by which the Company or YRLP or their respective property
is bound, which conflict, breach or default would have a Material Adverse
Effect, (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body or
agency having jurisdiction over the Company, YRLP or their respective property,
which violation or conflict would have a Material Adverse Effect or (iv) result
in the suspension, termination or revocation of any Authorization (as defined
below) of the Company or YRLP or any other impairment of the rights of the
holder of any such Authorization, which suspension, termination, revocation or
impairment would have a Material Adverse Effect.
(k) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened to which the Company or YRLP is a
party or to which any of their respective property is subject that are required
to be described in the Registration Statement or the Prospectus and are not so
described; nor are there any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has
violated any applicable foreign, federal, state or local law or regulation
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"), any provisions of the Employee Retirement Income
Security Act of 1974, as amended, or any provisions of the Foreign Corrupt
Practices Act or the rules and regulations promulgated
14
<PAGE> 15
thereunder, except for such violations which, singly or in the aggregate, would
not have a Material Adverse Effect.
(m) Each of the Company and YRLP has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
YRLP is in compliance with all the terms and conditions thereof and with the
rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or any of its subsidiaries; in
each case except as would not have a Material Adverse Effect.
(n) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a Material Adverse Effect.
(o) This Agreement has been duly authorized, executed and
delivered by the Company.
(p) Price Waterhouse LLP are independent public accountants
with respect to the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with the related schedule and notes, present fairly in all
material respects the
15
<PAGE> 16
consolidated financial position, results of operations and cash flows of the
Company and its subsidiaries on the basis stated therein at the respective dates
or for the respective periods to which they apply; such statements and the
related schedule and notes have been prepared in accordance with United States
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; the supporting schedules, if any,
included in the Registration Statement present fairly in accordance with United
States generally accepted accounting principles the information required to be
stated therein; and the other financial and statistical information and data set
forth under the captions "Prospectus Summary - Summary Consolidated Financial
Data," "Capitalization" and "Selected Consolidated Financial Data" in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) have been accurately derived from such financial statements and the
books and records of the Company.
(r) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds to the
Company thereof as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(s) Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company or to
require the Company to include such securities with the Shares registered
pursuant to the Registration Statement.
(t) Since the respective dates as of which information is
given in the Prospectus, other than as set forth in the Prospectus, (i) there
has not occurred any material adverse change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
and its subsidiaries, taken as a whole, (ii) there has not been any material
adverse change in the capital stock or in the long-term debt of the Company or
any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries has incurred any material liability or obligation, direct or
contingent.
(u) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters hereunder shall be
deemed to be a representation and warranty by the Company to the Underwriters as
to the matters covered thereby.
16
<PAGE> 17
(v) The Company and YRLP own or possess, or can acquire on
reasonable terms, all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names ("INTELLECTUAL PROPERTY") referenced or described
in the Prospectus as being owned by or licensed to them (it being understood
that the Company and its subsidiaries do not own or possess, and do not have the
right to acquire, any intellectual property of clients, customers or other third
parties that is employed by the Company and its subsidiaries in connection with
the business now operated by them) except where the failure to own or possess or
otherwise be able to acquire such intellectual property would not, singly or in
the aggregate, have a Material Adverse Effect; and neither the Company nor YRLP
has received any written notice of infringement of or conflict with asserted
rights of others with respect to any of such intellectual property which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a Material Adverse Effect.
(w) The Company and YRLP are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which they are engaged; and
neither the Company nor YRLP (i) has received written notice from any insurer or
agent of such insurer that substantial capital improvements or other material
expenditures will have to be made in order to continue such insurance or (ii)
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers at a cost that would not have a Material Adverse
Effect.
(x) The Company and YRLP have good and marketable title in fee
simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and
YRLP, in each case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as would not result in a
Material Adverse Effect; and any real property and buildings held under lease by
the Company and YRLP are held by them under valid, subsisting and enforceable
leases with such exceptions as would not result in a Material Adverse Effect.
(y) There is no (i) significant unfair labor practice
complaint, grievance or arbitration proceeding pending or threatened against the
Company or YRLP before the National Labor Relations Board or any state or local
labor relations
17
<PAGE> 18
board, (ii) strike, labor dispute, slowdown or stoppage pending or, to the
knowledge of the Company, threatened against the Company or YRLP or (iii) union
representation question existing with respect to the employees of the Company
and YRLP, except for such actions specified in clause (i), (ii) or (iii) above,
which, singly or in the aggregate, would not have a Material Adverse Effect. To
the Company's knowledge, no collective bargaining organizing activities are
taking place with respect to the Company or YRLP, which would, singly or in the
aggregate, have a Material Adverse Effect.
(z) The Company and YRLP maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with United States generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(aa) All material tax returns required to be filed by the
Company and each of its subsidiaries in any jurisdiction have been filed, other
than those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and other
charges due pursuant to such returns or pursuant to any assessment received by
the Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided, if
required by United States generally accepted accounting principles.
(bb) No subsidiary of the Company (excluding YRLP), is a
"significant subsidiary" within the meaning of Rule 1-02(w) of Regulation S-X.
SECTION 7. Representations and Warranties of the Selling
Stockholders. Each Selling Stockholder, severally and not jointly, represents
and warrants to each Underwriter, solely in such Selling Stockholder's capacity
as a Selling Stockholder, that:
(a) Such Selling Stockholder (i) is, and on the Closing Date
will be, the lawful owner of the Shares (other than that number of Shares, if
any, listed opposite the name of such Selling Stockholder under the heading
"Restricted Shares"
18
<PAGE> 19
in Schedule III hereto (with respect to each Selling Stockholder, such number of
Shares is hereinafter referred to as the "RESTRICTED SHARES")) to be sold by
such Selling Stockholder pursuant to this Agreement and (ii) owns, and on the
Closing Date will own such Shares, free of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever other than
pursuant to the Custody Agreement, if any, the Power of Attorney, this agreement
and other than any such restriction on transfer, lien, encumbrance, equity or
claim created by an Underwriter or resulting from any actions taken by an
Underwriter. Such Selling Stockholder (i) is the holder of an Award Granted to
such Selling Stockholder under the Young & Rubicam Holdings Inc. Restricted
Stock Plan, as amended (the "PLAN") (as such terms are defined therein), with
respect to the Restricted Shares and (ii) pursuant to the Plan and such Selling
Stockholder's Restricted Stock Agreement (as defined in the Plan), on the
Closing Date such Selling Stockholder (A) will be the lawful owner of the
Restricted Shares to be sold by such Selling Stockholder pursuant to this
Agreement and (B) will own such Restricted Shares, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and claims
whatsoever other than pursuant to the Custody Agreement, if any, the Power of
Attorney, this Agreement and other than any such restriction on transfer, lien,
encumbrance, security interest, equity or claim created by an Underwriter or
resulting from any actions taken by an Underwriter.
(b) Such Selling Stockholder has, and on the Closing Date will
have, full legal right, power and authority, and all authorization and approval
required by law, (i) to enter into this Agreement, the Letter of Transmittal and
Custody Agreement, if any, signed by such Selling Stockholder and The Bank of
New York, as Custodian (the "CUSTODY AGREEMENT"), relating to the deposit of the
Shares (other than the Restricted Shares) to be sold by such Selling Stockholder
and the Power of Attorney of such Selling Stockholder (the "POWER OF ATTORNEY")
appointing certain individuals as such Selling Stockholder's attorneys-in-fact
(with respect to the Y&R Selling Stockholders, the "Y&R ATTORNEYS," with respect
to the H&F Selling Stockholders, the "H&F ATTORNEYS," with respect to BearTel,
the "BEARTEL ATTORNEYS" and collectively the "ATTORNEYS") to the extent set
forth therein, relating to the transactions contemplated hereby and by the
Registration Statement and the Custody Agreement, if any, and (ii) to sell,
assign, transfer and deliver on the Closing Date the Shares to be sold by such
Selling Stockholder in the manner provided herein and therein.
(c) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder.
19
<PAGE> 20
(d) The Custody Agreement, if any, of such Selling Stockholder
has been duly authorized, executed and delivered by such Selling Stockholder and
is a valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms.
(e) The Power of Attorney of such Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and is a
valid and binding instrument of such Selling Stockholder, enforceable in
accordance with its terms, and, pursuant to such Power of Attorney, such Selling
Stockholder has, among other things, authorized the Attorneys, or any one of
them, to execute and deliver on such Selling Stockholder's behalf this Agreement
and any other document that they, or any one of them, may deem necessary or
desirable in connection with the transactions contemplated hereby and thereby
and to deliver the Shares to be sold by such Selling Stockholder pursuant to
this Agreement.
(f) Upon sale and delivery of and payment for the Shares to be
sold by such Selling Stockholder pursuant to this Agreement, the Underwriters
will own such Shares, free and clear of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever, other than any
such restriction on transfer, lien, encumbrance, equity or claim created by an
Underwriter or resulting from any actions taken by an Underwriter.
(g) Assuming that the representations and warranties of the
Company in Section 6 hereof are true and accurate in all material respects, the
execution and delivery of this Agreement and the Custody Agreement, if any, and
Power of Attorney of such Selling Stockholder by or on behalf of such Selling
Stockholder, the compliance by such Selling Stockholder with all the provisions
hereof and thereof and the performance by such Selling Stockholder of its
obligations hereunder and thereunder will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as have been obtained or may be
required under the securities or Blue Sky laws of the various states and such as
have been obtained under the laws and regulations of jurisdictions outside the
United States in which the Reserved Shares are offered), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the organizational documents of such Selling Stockholder, if such Selling
Stockholder is not an individual, or any indenture, loan agreement, mortgage,
lease or other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any property of such Selling
Stockholder is bound or (iii) violate or conflict with any applicable law or any
rule, regulation,
20
<PAGE> 21
judgment, order or decree of any court or any governmental body or agency having
jurisdiction over such Selling Stockholder or any property of such Selling
Stockholder.
(h) The information in the Prospectus under the caption
"Principal and Selling Stockholders" which specifically relates to such Selling
Stockholder does not, and will not on the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(i) At any time during the period described in Section 5(d),
if there is any change in the information referred to in Section 7(h), such
Selling Stockholder will promptly notify you and the Company of such change.
(j) Each certificate signed by or on behalf of such Selling
Stockholder and delivered to the Underwriters or counsel for the Underwriters
pursuant to Section 9(e) shall be deemed to be a representation and warranty by
such Selling Stockholder, in their capacity as such, to the Underwriters as to
the matters covered thereby.
SECTION 8. Indemnification. (a) The Company agrees to
indemnify and hold harmless each Underwriter, its directors, its officers and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any reasonable legal
or other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement (or
any amendment thereto), the Prospectus (or any amendment or supplement thereto)
or any preliminary prospectus filed as part of the registration statement as
originally filed or as part of any amendment thereto or filed pursuant to Rule
424 under the Act ("PRELIMINARY PROSPECTUS"), or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished in writing to the Company
21
<PAGE> 22
through you expressly for use therein provided, however, that the foregoing
indemnity agreement with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter, any director or officer of any Underwriter or
any person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act to the extent such Underwriter
failed to deliver a Prospectus (as then amended or supplemented, provided by the
Company to the several Underwriters in the requisite quantity and on a timely
basis to permit proper delivery on or prior to the Closing Date) to the person
asserting any losses, claims, damages, liabilities and judgments caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, if such material misstatement or omission or
alleged material misstatement or omission was cured in such Prospectus.
(b) The Company agrees to indemnify and hold harmless each
Selling Stockholder, its directors, its officers and each person, if any, who
controls any Selling Stockholder within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any
reasonable legal or other expenses incurred in connection with investigating or
defending any matter, including any action, that could give rise to any such
losses, claims, damages, liabilities or judgments) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any Preliminary Prospectus, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as such losses, claims, damages, liabilities or judgments are caused by
any such untrue statement or omission or alleged untrue statement or omission
based upon information relating to any Selling Stockholder furnished in writing
to the Company by such Selling Stockholder expressly for use therein.
(c) Each of the Selling Stockholders, severally and not
jointly, agrees to indemnify and hold harmless each Underwriter, its directors,
its officers and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any reasonable legal or other expenses incurred
in connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages,
22
<PAGE> 23
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), the Prospectus (or any amendment or supplement thereto) or
any Preliminary Prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, but only with respect to losses, claims,
damages, liabilities and judgments caused by an untrue statement or omission or
alleged untrue statement or omission based on information relating to such
Selling Stockholder furnished in writing by or on behalf of such Selling
Stockholder expressly for use in the Prospectus.
(d) Each of the Selling Stockholders, severally and not
jointly, agrees to indemnify and hold harmless the Company, its directors, its
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages, liabilities and judgments (including, without
limitation, any legal or other expenses incurred in connection with
investigating or defending any matter, including any action, that could give
rise to any such losses, claims, damages, liabilities or judgments) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any Preliminary Prospectus, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only with respect to losses, claims, damages, liabilities and judgments caused
by an untrue statement or omission or alleged untrue statement or omission based
on information relating to such Selling Stockholder furnished in writing by or
on behalf of such Selling Stockholder expressly for use in the Prospectus.
(e) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers, each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, each Selling Stockholder and each person,
if any, who controls such Selling Stockholder within the meaning of Section 15
of the Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Underwriter but only with reference to
information relating to such Underwriter furnished in writing to the Company
through you expressly for use in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
Preliminary Prospectus.
23
<PAGE> 24
(f) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Sections 8(a), 8(b),
8(c), 8(d) or 8(e) (the "INDEMNIFIED PARTY"), the indemnified party shall
promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing and the indemnifying party shall assume the
defense of such action, including the employment of counsel reasonably
satisfactory to the indemnified party and the payment of all reasonable fees and
expenses of such counsel, as incurred (except that in the case of any action in
respect of which indemnity may be sought pursuant to Sections 8(a), 8(b), 8(c),
8(d) and 8(e), the Underwriter shall not be required to assume the defense of
such action pursuant to this Section 8(f), but may employ separate counsel and
participate in the defense thereof, but the fees and expenses of such counsel,
except as provided below, shall be at the expense of such Underwriter). Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for (i) the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all Underwriters, their officers and directors and all persons, if
any, who control any Underwriter within the meaning of either Section 15 of the
Act or Section 20 of the Exchange Act, (ii) the reasonable fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
(x) the Company, its directors, its officers and all persons, if any, who
control the Company within the meaning of either such Section and (y) the Y&R
Selling Stockholders, (iii) the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) for BearTel and
all persons, if any, who control BearTel within the meaning of either such
Section and (iv) the reasonable fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) for any H&F Selling Stockholders
and all persons, if any, who control any H&F Selling
24
<PAGE> 25
Stockholder within the meaning of either such Section, and all such fees and
expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriters, their officers and directors and such
control persons of any Underwriters, such firm shall be designated in writing by
Donaldson, Lufkin & Jenrette Securities Corporation. In the case of any such
separate firm for the Company and such directors, officers and control persons
of the Company, such firm shall be designated in writing by the Company. In the
case of any such separate firm for the H&F Selling Stockholders and such control
persons of any H&F Selling Stockholders, such firm shall be designated in
writing by the Attorneys. The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
indemnifying party shall have received a written request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(g) To the extent the indemnification provided for in this
Section 8 is unavailable (other than in accordance with the terms hereof) to an
indemnified party or insufficient in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party or parties on
the one hand and the indemnified party or parties on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause 8(g)(i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in
25
<PAGE> 26
clause 8(g)(i) above but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party or parties on the other hand
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same respective proportion as the total net proceeds from the offering (after
deducting underwriting discounts and commissions, but before deducting expenses)
received by each Seller, and the total underwriting discounts and commissions
received by the Underwriters, bear to the total price to the public of the
Shares, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Sellers on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the respective Selling Stockholders on the one hand
or the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Sellers and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 8(g) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any reasonable legal or other expenses incurred by
such indemnified party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 8(g) are several in proportion to the
respective number of Shares purchased by each of the Underwriters hereunder and
not joint. The respective obligations of the Selling Stockholders to contribute
pursuant to this Section 8(g) are several in
26
<PAGE> 27
proportion to the respective number of Shares sold by each Selling Stockholder
hereunder and not joint.
(h) Notwithstanding anything in this Agreement to the
contrary, the maximum aggregate liability of any Selling Stockholder pursuant to
this Section 8 shall be limited to an amount equal to the gross proceeds (after
deducting underwriting discounts and commissions but before deducting expenses)
received by such Selling Stockholder from the Underwriters for the sale of the
Shares sold by such Selling Stockholder hereunder (with respect to each Selling
Stockholder, such amount is referred to as the "SELLING STOCKHOLDER PROCEEDS").
(i) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity. The provisions of this
Section 8 shall supersede the provisions of Article 5 of the Registration Rights
Agreement (as defined in the Prospectus) with respect to the offer and sale of
the Shares by the Sellers provided that the remaining provisions of the
Registration Rights Agreement shall remain in full force and effect.
(j) Each Y&R Selling Stockholder hereby designates Young &
Rubicam Inc., 285 Madison Avenue, New York, New York 10017, as its authorized
agent, upon which process may be served in any action which may be instituted in
any state or federal court in the State of New York by any Underwriter, any
director or officer of any Underwriter or any person controlling any Underwriter
asserting a claim for indemnification or contribution under or pursuant to this
Section 8, and each Y&R Selling Stockholder will accept the jurisdiction of such
court in such action, and waives, to the fullest extent permitted by applicable
law, any defense based upon lack of personal jurisdiction or venue. A copy of
any such process shall be sent or given to such Y&R Selling Stockholder, at the
address for notices specified in Section 13 hereof. Each H&F Selling Stockholder
hereby designates H&F Investors III, Inc., One Maritime Plaza, San Francisco,
California 94111 , as its authorized agent, upon which process may be served in
any action which may be instituted in any state or federal court in the State of
New York by any Underwriter, any director or officer of any Underwriter or any
person controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each H&F Selling
Stockholder will accept the jurisdiction of such court in such action, and
waives, to the fullest extent permitted by applicable law, any defense based
upon lack of personal jurisdiction or venue. A copy of any such process shall be
sent or given to such H&F Selling Stockholder, at the address for
27
<PAGE> 28
notices specified in Section 13 hereof. BearTel hereby designates Bear, Stearns
& Co. Inc., 245 Park Ave., New York, NY 10167, as its authorized agent, upon
which process may be served in any action which may be instituted in any state
or federal court in the State of New York by any Underwriter, any director or
officer of any Underwriter or any person controlling any Underwriter asserting a
claim for indemnification or contribution under or pursuant to this Section 8,
and BearTel will accept the jurisdiction of such court in such action, and
waives, to the fullest extent permitted by applicable law, any defense based
upon lack of personal jurisdiction or venue. A copy of any such process shall be
sent or given to BearTel, at the address for notices specified in Section 13
hereof.
SECTION 9. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Firm Shares under this Agreement are subject to
the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, such Rule
462(b) Registration Statement shall have become effective by 10:00 P.M., New
York City time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before the Commission.
(c) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by Peter A. Georgescu and Michael J. Dolan, in
their capacities as the Chairman of the Board and Chief Executive Officer and
Vice Chairman and Chief Financial Officer of the Company, respectively,
confirming the matters set forth in Sections 6(t) and 9(a) and that the Company
has complied with all of the agreements and satisfied all of the conditions
herein contained and required to be complied with or satisfied by the Company on
or prior to the Closing Date.
(d) Since the respective dates as of which information is
given in the Prospectus, other than as set forth in the Prospectus (exclusive of
any amendments or supplements thereto subsequent to the date of this Agreement),
(i) there shall not have occurred any change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
and its subsidiaries, taken as a
28
<PAGE> 29
whole, and (ii) there shall not have been any change in the capital stock or in
the long-term debt of the Company and its subsidiaries, taken as a whole, and
(iii) neither the Company nor any of its subsidiaries shall have incurred any
liability or obligation, direct or contingent, the effect of which, in any such
case described in clause 9(d)(i), 9(d)(ii) or 9(d)(iii), in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus.
(e) All the representations and warranties of each Selling
Stockholder contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing Date and
you shall have received on the Closing Date a certificate dated the Closing Date
executed by an Attorney pursuant to the Power of Attorney on behalf of each
Selling Stockholder to such effect and to the effect that such Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied by
such Selling Stockholder on or prior to the Closing Date.
(f) You shall have received on the Closing Date (i) an
opinion, dated the Closing Date, of Cleary, Gottlieb, Steen & Hamilton, counsel
for the Company, to the effect set forth in Appendix A hereto and (ii) an
opinion, dated the Closing Date, of Stephanie W. Abramson, General Counsel for
the Company, to the effect set forth in Appendix B hereto.
(g) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Wachtell, Lipton, Rosen & Katz, counsel for the H&F
Selling Stockholders to the effect set forth in Appendix C hereto.
(h) You shall have received on the Closing Date an opinion,
dated the Closing Date, of [ ], counsel for BearTel to the effect set forth in
Appendix D hereto.
(i) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for
the Underwriters, substantially to the effect set forth in Sections 6(b)(i),
6(b)(iii), 6(b)(iv), 6(b)(v), 6(f)(ii) and 6(o) herein.
(j) You shall have received, on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be,
29
<PAGE> 30
in form and substance satisfactory to you, from Price Waterhouse LLP,
independent public accountants, containing the information and statements of the
type ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(k) The Company and each entity listed on Schedule VI hereto
shall have delivered to you the agreements of the trustees of the Management
Voting Trust and such entities, respectively specified in Section 2 hereof which
agreements shall be in full force and effect on the Closing Date.
(l) The Shares shall have been duly listed, subject to
official notice of issuance, on the NYSE.
(m) You shall have received on the Closing Date, a certificate
of each Selling Stockholder who is not a U.S. Person (as defined under
applicable U.S. federal tax legislation) to the effect that such Selling
Stockholder is not a U.S. Person, which certificate may be in the form of a
properly completed and executed United States Treasury Department Form W-8 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
The several obligations of the U.S. Underwriters to purchase
any Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the applicable Option Closing Date of such documents as they
may reasonably request with respect to the good standing of the Company, a
certificate to the effect set forth in Section 9(c) dated the applicable Option
Closing Date, an opinion of Cleary, Gottlieb, Steen & Hamilton to the effect set
forth in paragraph 3 of Appendix A and an opinion of Wachtell, Lipton, Rosen &
Katz to the effect set forth in paragraph 5 of Appendix C.
SECTION 10. Effectiveness of Agreement and Termination. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to
the Closing Date by you by written notice to the Sellers if any of the following
has occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and
30
<PAGE> 31
adverse and, in your judgment, makes it impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus, (ii) the suspension
or material limitation of trading in securities or other instruments on the New
York Stock Exchange, the American Stock Exchange, the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the
Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, or (v) the declaration of a banking moratorium
by either federal or New York State authorities or the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase the Firm Shares or Additional Shares, as the case may be, which it has
or they have agreed to purchase hereunder on such date and the aggregate number
of Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I and Schedule
II bears to the total number of Firm Shares which all the non-defaulting
Underwriters have agreed to purchase, or in such other proportion as you may
specify, to purchase the Firm Shares or Additional Shares, as the case may be,
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase on such date; provided that in no event shall the number of Shares
which any Underwriter has agreed to purchase pursuant to Section 2 hereof be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If on the
Closing Date any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares to
be purchased by all Underwriters and arrangements satisfactory to you, the
31
<PAGE> 32
Company and the H&F Selling Stockholders for purchase of such Firm Shares are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case which does not result in termination
of this Agreement, either you or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. If, on an Option Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased on such date, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
such Additional Shares or (ii) purchase not less than the number of Additional
Shares that such non-defaulting Underwriters would have been obligated to
purchase on such date in the absence of such default. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of any such Underwriter under this Agreement.
SECTION 11. Agreements of the Selling Stockholders. Each
Selling Stockholder, severally and not jointly, agrees with you and the Company,
whether or not the transactions contemplated in this Agreement are consummated
or this Agreement is terminated, to pay or cause to be paid all reasonable
expenses incident to the performance of the Selling Stockholders' obligations
under this Agreement, including: (i) the fees, disbursements and expenses of any
Selling Stockholder's counsel in connection with the registration and delivery
of the Shares under the Act, (ii) all costs and expenses related to the transfer
and delivery of the Selling Stockholder Shares to the Underwriters, including
any transfer or other taxes payable thereon, and (iii) all other costs and
expenses incident to the performance of the obligations of the Selling
Stockholders hereunder for which provision is not otherwise made in this
Section. The provisions of this Section shall not supersede or otherwise affect
any separate agreement that the Company and any Selling Stockholders may have
for allocation of such expenses among themselves.
SECTION 12. Miscellaneous. Notices given pursuant to any
provision of this Agreement shall be addressed as follows: (i) if to the
Company, to Young & Rubicam Inc., 285 Madison Avenue, New York, New York 10017,
Attention: General Counsel, (ii) if to the Y&R Selling Stockholders, to Alan J.
Sheldon, Michael J. Dolan, or Stephanie W. Abramson, as Y&R Attorneys, c/o Young
& Rubicam Inc., 285 Madison Avenue, New York, New York 10017, (iii) if
32
<PAGE> 33
to the H&F Selling Stockholders, to Philip J. Hammarskjold and Matthew R.
Barger, as H&F Attorneys, c/o H&F Investors III, Inc., One Maritime Plaza, San
Francisco, California 94111, (iv) if to BearTel, to [ ], as BearTel Attorneys,
[ ], and (v) if to any Underwriter or to you, to you c/o Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, or in any case to such other address as the
person to be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company, the Selling
Stockholders and the several Underwriters set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will survive
delivery of and payment for the Shares, regardless of any investigation, or
statement as to the results thereof, made by or on behalf of any Underwriter,
the officers or directors of any Underwriter, any person controlling any
Underwriter, the Company, the officers or directors of the Company, any person
controlling the Company, any Selling Stockholder or any person controlling such
Selling Stockholder, acceptance of the Shares and payment for them hereunder and
termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf
of any Seller as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10 or breach of this Agreement by any
Underwriter), the Company, the H&F Selling Stockholders and BearTel agree,
severally and not jointly, to reimburse the several Underwriters for all
out-of-pocket expenses (including the reasonable fees and disbursements of
counsel) incurred by them in proportion to the number of shares to be sold by
(i) the Company and the Y&R Selling Stockholders, (ii) the H&F Selling
Stockholders and (iii) BearTel, respectively. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(i) hereof.
Each Y&R Selling Stockholder's liability for the breach of the
representations and warranties of such Y&R Selling Stockholder in or pursuant to
Section 7(a) is not limited under this Agreement. Notwithstanding the foregoing,
the aggregate liability of any Y&R Selling Stockholder for the breach of any
representations and warranties of such Y&R Selling Stockholder in or pursuant to
Sections 7(b), (c), (d), (e), (f), (g), (h), (i), and (j) shall be limited to
such Y&R Selling Stockholder's Selling Stockholder Proceeds. In the event that
the losses, claims, damages, liabilities or judgments relating to the breach by
any Y&R Selling
33
<PAGE> 34
Stockholder of any representations and warranties of such Y&R Selling
Stockholder in or pursuant to Sections 7(b), (c), (d), (e), (f), (g), (h), (i)
and (j) exceeds the Selling Stockholder Proceeds for such Y&R Selling
Stockholder, the Company agrees that it shall be wholly liable for such excess
amount. Solely with respect to each Y&R Selling Stockholder, the Company hereby
makes to each Underwriter the representations and warranties made by each such
Y&R Selling Stockholder in Sections 7(b), (c), (d), (e), (f), (g), (h), (i) and
(j), inclusive.
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Selling Stockholders, the Underwriters, the Underwriters' directors and
officers, any controlling persons referred to herein, the Company's directors
and the Company's officers who sign the Registration Statement and their
respective successors and assigns, all as and to the extent provided in this
Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include a
purchaser of any of the Shares from any of the several Underwriters merely
because of such purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
34
<PAGE> 35
Please confirm that the foregoing correctly sets forth the
agreement among the Company, the Selling Stockholders and the several
Underwriters.
Very truly yours,
YOUNG & RUBICAM INC.
By:
-------------------------------
Name:
Title:
THE Y&R SELLING
STOCKHOLDERS NAMED IN
SCHEDULE III HERETO, ACTING
SEVERALLY
By:
-------------------------------
Attorney-in-fact
THE H&F SELLING
STOCKHOLDERS NAMED IN
SCHEDULE IV(a) HERETO ACTING
SEVERALLY
By:
------------------------------
Attorney-in-fact
BEARTEL CORP.
By:
------------------------------
Attorney-in-fact
35
<PAGE> 36
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
FURMAN SELZ LLC
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
FURMAN SELZ LLC
GOLDMAN SACHS INTERNATIONAL
SMITH BARNEY INC.
Acting severally on behalf of
themselves and the several
International Managers named
in Schedule II hereto
By DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
By
36
<PAGE> 37
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
U.S. Underwriters to be Purchased
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co. Inc.
Furman Selz LLC
Goldman, Sachs & Co.
Smith Barney Inc.
----------------
Total 13,280,000
</TABLE>
1
<PAGE> 38
SCHEDULE II
<TABLE>
<CAPTION>
Number of Firm Shares
International Managers to be Purchased
- ---------------------- ---------------
<S> <C>
Donaldson, Lufkin & Jenrette
International
Bear, Stearns International Limited
Furman Selz LLC
Goldman Sachs International
Smith Barney Inc.
----------------
Total 3,320,000
</TABLE>
2
<PAGE> 39
SCHEDULE III
Y&R SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Firm
Number of Shares Being Sold
Firm Shares that Constitute
Name Being Sold Restricted Shares
- -------------------------------------------------------------- ------------------ -----------------------
<S> <C>
Edward H. Vick................................................ 156,465
Thomas D. Bell, Jr............................................ 167,130
John P. McGarry, Jr........................................... 141,810
Stephanie W. Abramson......................................... 7,260
Frank Anfield................................................. 40,005
Matt Asinari.................................................. 73,050
Jean-Marc Bara................................................ 73,455
Stephen Baum.................................................. 12,090
Ted Bell...................................................... 79,635
Bill Borrelle................................................. 7,305
Roger Chiocchi................................................ 2,160
Michael Claes................................................. 7,305
Neil Clark.................................................... 21,915
Don Cogman.................................................... 16,655
Janet Coombs.................................................. 31,590
Cindy Giller.................................................. 5,475
Barbara Jack.................................................. 3,960
Paul Jandreau-Smith........................................... 15,915
William Johnston.............................................. 1,875
Christopher Komisarjevsky..................................... 2,640
Phillipe Krakowsky............................................ 18,270
Kurt Krauss................................................... 12,090
Stephanie Kugelman............................................ 25,530
Mitchell Kurz................................................. 210,825
Jay Kushner................................................... 25,200
Anthony Mason................................................. 9,135
Thomas McQueeney.............................................. ` 36,525
William Melzer................................................ 47,220
Craig Middleton............................................... 77,010
Fernan Montero................................................ 64,065
James O'Malley................................................ 7,305
Steve Oroho................................................... 825
</TABLE>
3
<PAGE> 40
<TABLE>
<CAPTION>
Number of Firm
Number of Shares Being Sold
Firm Shares that Constitute
Name Being Sold Restricted Shares
- -------------------------------------------------------------- ------------------ -----------------------
<S> <C>
Stewart Owen.................................................. 67,335
Graham Phillips............................................... 29,220
Dan Plouffe................................................... 4,200
Tim Pollak.................................................... 91,305
Hans-Henrik Rasmussen......................................... 52,230
Ken Rietz..................................................... 9,945
Ilene Rosenthal............................................... 2,130
Michael Samet................................................. 101,145
Carol Schautz................................................. 15,450
Matthew Schetlick............................................. 32,265
Nico Schou.................................................... 9,210
Alan Sheldon.................................................. 45,000
Barbara Smith................................................. 7,305
Stanley Stefanski............................................. 150,690
Clay Timon.................................................... 40,875
Joanne Zaiac.................................................. 41,850
----------------------------------------
Total
</TABLE>
4
<PAGE> 41
SCHEDULE IV
(a) H&F SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Firm
Name Shares Being Sold
- -------------------------------------------------------------- -----------------------------
<S> <C>
Hellman & Friedman Capital Partners III, L.P. 7,002,762
H&F Orchard Partners III, L.P. 509,969
H&F International Partners III, L.P. 152,761
America Media Management, Inc. 34,275
H. Irving Grousbeck 68,546
-----------------
Total
(b)
BearTel Corp. 63,160
</TABLE>
5
<PAGE> 42
SCHEDULE V
OPTION SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Additional
Shares Subject to
Name Additional Share Option
- -------------------------------------------------------------- -------------------------------
<S> <C>
Hellman & Friedman Capital Partners III, L.P. 2,244,616
H&F Orchard Partners III, L.P. 163,462
H&F International Partners III, L.P. 48,965
America Media Management, Inc. 10,986
H. Irving Grousbeck 21,971
- -------------------------------------------------------------- -------------------------------
Total Shares Subject to Additional Share Option: 2,490,000
</TABLE>
6
<PAGE> 43
SCHEDULE VI
LOCK-UPS
Georgica Partners L.P.
Ralco, Inc.
Brown University
7
<PAGE> 44
Appendix A
FORM OF OPINION OF CLEARY, GOTTLIEB, STEEN & HAMILTON:
1. The Company is validly existing as a corporation in good
standing under the laws of the State of Delaware.
2. The Company has corporate power to own its properties and
conduct its business as described in the Prospectus, and the Company has
corporate power to issue the Securities to be sold by it, to enter into the
Underwriting Agreement and to perform its obligations thereunder.
3. The Shares have been duly authorized by all necessary
corporate action of the Company, have been validly issued by the Company and are
fully paid and nonassessable; and the holders of outstanding shares of capital
stock of the Company are not entitled to any preemptive rights to subscribe for
the Shares under the Amended and Restated Certificate of Incorporation or the
Amended and Restated By-Laws of the Company, or the General Corporation Law of
the State of Delaware.
4. The statements set forth under the heading "Description of
Capital Stock -- Common Stock" in the Prospectus, insofar as such statements
purport to summarize certain provisions of the Securities and the Amended and
Restated Certificate of Incorporation of the Company provide a fair summary of
such provisions, and the statements made in the Prospectus under the heading
"Certain U.S. Tax Consequences to Non-United States Holders", insofar as such
statements purport to summarize certain federal income tax laws of the United
States, constitute a fair summary of the principal U.S. federal income tax
consequences of an investment in the Securities by a non-U.S. holder (as defined
in the Prospectus).
5. The execution and delivery of the Underwriting Agreement
have been duly authorized by all necessary corporate action of the Company, and
the Underwriting Agreement has been duly executed and delivered by the Company.
6. The execution and delivery of the Underwriting Agreement,
the issuance and sale of the Shares to be sold by the Company to the
Underwriters pursuant to the Underwriting Agreement, and the performance by the
Company of its obligations in the Underwriting Agreement (a) do not require any
consent, approval, authorization, registration or qualification of or with any
governmental authority of the United States of America or the State of New York
or pursuant to the Delaware General Corporation Law, except such as have been
obtained or effected under the Securities Act and the Securities Exchange Act of
8
<PAGE> 45
1934, as amended (but such counsel expresses no opinion as to any consent,
approval, authorization, registration or qualification that may be required
under state securities or Blue Sky laws), and (b) do not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any of the agreements of the Company filed as exhibits to the Registration
Statement, the Amended and Restated Certificate of Incorporation of the Company
or the Amended and Restated By-laws of the Company.
7. The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the net proceeds to the Company
thereof as described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended.
8. The Registration Statement (except the financial statements
and schedules and other financial and statistical data included therein, as to
which such counsel expresses no view), at the time it became effective, and the
Prospectus (except as aforesaid), as of the date thereof, appeared on their face
to be appropriately responsive in all material respects to the requirements of
the Securities Act and the rules and regulations thereunder other than
Regulation S-T under the Securities Act. In addition, such counsel does not know
of any contracts or other documents of a character required to be filed as
exhibits to the Registration Statement or required to be described in the
Registration Statement or the Prospectus that are not filed or described as
required.
9. No information has come to such counsel's attention that
causes such counsel to believe that the Registration Statement (except the
financial statements and schedules and other financial and statistical data
included therein, as to which such counsel expresses no view), at the time it
became effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
10. No information has come to such counsel's attention that
causes such counsel to believe that the Prospectus (except the financial
statements and schedules and other financial and statistical data included
therein, as to which such counsel expresses no view), as of the date thereof or
as of the Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
11. Such counsel shall confirm that (based solely upon a
telephonic confirmation from a representative of the Commission) the
Registration Statement is effective under the Securities Act and, to the best of
such counsel's knowledge, no stop order
9
<PAGE> 46
with respect thereto has been issued, and no proceeding for that purpose has
been instituted or threatened by the Commission.
13. With respect to each Y&R Selling Stockholder that has
executed a Custody Agreement, such Custody Agreement is a valid, binding and
enforceable agreement of such Y&R Selling Stockholder.
14. The Power of Attorney executed by each Y&R Selling
Stockholder is a valid, binding and enforceable instrument of such Y&R Selling
Stockholder
15. Upon delivery to the Underwriters in the State of New York
of certificates evidencing the Y&R Selling Stockholder Shares indorsed to such
Underwriters or in blank and payment therefore by the Underwriters pursuant to
the Underwriting Agreement, the Underwriters will own the Y&R Selling
Stockholder Shares free of any adverse claim (within the meaning of the Uniform
Commercial Code as in effect in the State of New York (the "UCC")). In rendering
the foregoing opinion such counsel may assume that (i) each Underwriter takes
delivery of the Y&R Selling Stockholder Shares without notice of any adverse
claim (within the meaning of the UCC) and (ii) the signature on each indorsement
is genuine.
10
<PAGE> 47
Appendix B
FORM OF OPINION OF STEPHANIE W. ABRAMSON:
1. The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of Delaware and
has the corporate power and authority to carry on its business as described in
the Prospectus and to own, lease and operate its properties.
2. YRLP has been duly organized, is validly existing and in
good standing as a limited partnership under the laws of the State of Delaware
and has the partnership power and authority to carry on its business as it is
currently conducted and to own, lease and operate its properties.
3. The Company is duly qualified to transact business and is
in good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect.
4. YRLP is duly qualified and is in good standing as a foreign
partnership authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be in good standing or to be so
qualified would not have a Material Adverse Effect.
5. All of the issued and outstanding shares of Common Stock of
the Company, including the Shares, have been duly authorized by all necessary
corporate action of the Company, have been validly issued by the Company and are
fully paid and nonassessable; and the holders of outstanding shares of capital
stock of the Company are not entitled to any preemptive rights to subscribe for
the Shares under the Amended and Restated Certificate of Incorporation, the
Amended and Restated By-Laws of the Company, the General Corporation Law of the
State of Delaware or any contracts to which the Company is a party.
6. All of the outstanding partnership interests in YRLP have
been duly authorized and validly issued and are fully paid and non-assessable,
and are owned by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any security interest, claim, lien, encumbrance
or adverse interest of any nature.
11
<PAGE> 48
7. The execution and delivery of the Underwriting Agreement
have been duly authorized by all necessary corporate action of the Company, and
the Underwriting Agreement has been duly executed and delivered by the Company.
8. The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
9. The statements set forth under the heading "Description of
Capital Stock" and "Shares Eligible for Future Sale" and in the fifth, sixth,
eighth and fourteenth paragraphs and the first sentence of the seventh paragraph
under the heading "Underwriting" in the Prospectus and Items 14 and 15 of Part
II of the Registration Statement, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to therein,
fairly summarize the matters, documents or proceedings referred to therein.
10. The Company is not in violation of its Amended and
Restated Certificate of Incorporation or Amended and Restated By-laws, YRLP is
not in violation of its partnership agreement or other organizational documents,
and, to such counsel's knowledge, neither the Company nor YRLP is in default in
the performance of any obligation, agreement, covenant or condition contained in
any of the agreements of the Company or YRLP filed as exhibits to the
Registration Statement except for defaults which would not have a Material
Adverse Effect.
11. The execution and delivery by the Company of the
Underwriting Agreement, the issuance and sale of the Shares to be sold by the
Company to the Underwriters pursuant thereto, and the performance by the Company
of its obligations therein (a) do not require any consent, approval,
authorization, registration or qualification of or with any governmental
authority of the United States or the State of New York, except such as have
been obtained or effected under the Securities Act and the Securities Exchange
Act of 1934, as amended (but such counsel expresses no opinion as to any
consent, approval, authorization, registration or qualification that may be
required under state securities or Blue Sky laws of the United States or the
securities laws of any non-U.S. jurisdiction), (b) do not result in a breach or
violation of any of the terms or provisions of, or a default under (i) any of
the agreements of the Company or YRLP filed as exhibits to the Registration
Statement, (ii) the Amended and Restated Certificate of Incorporation or the
Amended and Restated Bylaws of the Company, (iii) the partnership agreement or
other organizational documents of YRLP or (iv) any judgment, decree or order
applicable to the Company of any United States federal or New York State court
or other governmental authority, except (in the case of (i) and (iv)) for such
breaches or violations as would not result in a Material Adverse Effect, and (c)
do not result in the suspension, termination or revocation of any Authorization
of the Company or YRLP or any other impairment of the rights of the holder of
any such Authori zation, except as would not result in a Material Adverse
Effect.
12
<PAGE> 49
12. To such counsel's knowledge after due inquiry, there are
no legal or governmental proceedings pending or threatened to which the Company
or YRLP is a party or to which any of the properties of the Company or YRLP is
subject that are required to be described in the Registration Statement or the
Prospectus that are not so described, and there are no contracts or other
documents that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
13. To such counsel's knowledge, neither the Company nor any
of its subsidiaries has violated any Environmental Law, any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act, or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a Material Adverse Effect.
14. The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the net proceeds to the
Company thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
15. To such counsel's knowledge, except as described in the
Prospectus, there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such securities
with the Shares registered pursuant to the Registration Statement.
16. Each of the Company and YRLP has such Authorizations of,
and has made all filings with and notices to, all United States federal and New
York State govern mental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including, without limitation,
under any applicable Environmental Laws, as are necessary to own, lease, license
and operate its respective properties and to conduct its busi ness, except where
the failure to have any such Authorization or to make any such filing or notice
would not, in the aggregate, have a Material Adverse Effect; each such
Authorization is valid and in full force and effect and each of the Company and
YRLP is in compliance with all the terms and conditions thereof and with the
rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such
13
<PAGE> 50
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company; in each case except as would not have a Material
Adverse Effect.
17. The Registration Statement (except the financial
statements and schedules and other financial and statistical data included
therein, as to which such counsel expresses no view), at the time it became
effective, and the Prospectus (except as aforesaid), as of the date thereof,
appeared on their face to be appropriately responsive in all material respects
to the requirements of the Securities Act and the rules and regulations
thereunder other than Regulation S-T under the Securities Act. In addition, I do
not know of any statutes, regulations, contracts or other documents of a
character required to be filed as exhibits to the Registration Statement or
required to be described in the Registration Statement or the Prospectus that
are not filed or described as required.
18. No information has come to my attention that causes me to
believe that (i) the Registration Statement (except the financial statements and
schedules and other financial and statistical data included therein, as to which
I express no view) at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Prospectus (except the financial statements and schedules and other
financial and statistical data included therein, as to which I express no view),
as of the date thereof or as of the Closing Date, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
14
<PAGE> 51
Appendix C
FORM OF OPINION OF WACHTELL, LIPTON, ROSEN & KATZ:
1. Each of the H&F Selling Stockholders is the lawful owner of
the Shares to be sold by such Selling Stockholder pursuant to the Underwriting
Agreement and owns such Shares, free of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever other than
pursuant to the Custody Agreement, the Power of Attorney, the Underwriting
Agreement and other than any such restriction on transfer, lien, encumbrance,
equity or claim created by an Underwriter or resulting from any actions taken by
an Underwriter.
2. Each of the H&F Selling Stockholders has full legal right,
power and authority, and all authorization and approval required by law, to
enter into the Underwriting Agreement and the Custody Agreement and the Power of
Attorney of such Selling Stockholder and to sell, assign, transfer and deliver
the Shares to be sold by such Selling Stockholder in the manner provided herein
and therein.
3. The Custody Agreement of each of the H&F Selling
Stockholders been duly authorized, executed and delivered by such Selling
Stockholder and is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms.
4. The Power of Attorney of each of the H&F Selling
Stockholders has been duly authorized, executed and delivered by such Selling
Stockholder and is a valid and binding instrument of such Selling Stockholder,
enforceable in accordance with its terms, and, pursuant to such Power of
Attorney, such Selling Stockholder has, among other things, authorized the
Attorneys, or any one of them, to execute and deliver on such Selling
Stockholder's behalf this Agreement and any other document they, or any one of
them, may deem necessary or desirable in connection with the transactions
contemplated hereby and thereby and to deliver the Shares to be sold by such
Selling Stockholder pursuant to this Agreement.
5. Upon sale and delivery of and payment for the Shares to be
sold by each of the H&F Selling Stockholders pursuant to the Underwriting
Agreement, and assuming the Underwriters purchase such Shares for value and in
good faith without notice of any adverse claim, the Underwriters will own such
Shares, free and clear of all restrictions on transfer, liens, encumbrances,
security interests, equities and claims whatsoever other than any such
restriction on transfer, lien, encumbrance, equity or claim created by an
Underwriter or resulting from any actions taken by an Underwriter.
15
<PAGE> 52
6. Assuming that the representations and warranties of the
Company in Section 6 of the Underwriting Agreement are true and accurate in all
material respects, the execution and delivery of the Underwriting Agreement and
the Custody Agreement and Power of Attorney of each of the H&F Selling
Stockholders by such Selling Stockholder, the compliance by such Selling
Stockholder with all the provisions hereof and thereof and the performance by
such Selling Stockholder of its obligations thereunder will not require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), conflict with or constitute
a breach of any of the terms or provisions of, or a default under, the
organizational documents of such Selling Stockholder, if such Selling
Stockholder is not an individual, or any indenture, loan agreement, mortgage,
lease or other agreement or instrument to which such Selling Stockholder is a
party or by which any property of such Selling Stockholder is bound or violate
or conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
such Selling Stockholder or any property of such Selling Stockholder.
16
<PAGE> 53
Appendix D
FORM OF OPINION OF BEARTEL COUNSEL:
1. BearTel Corp. is the lawful owner of the Shares to be sold by such
Selling Stockholder pursuant to the Underwriting Agreement and owns such Shares,
free of all restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever other than pursuant to the Custody Agreement, the
Power of Attorney, the Underwriting Agreement and other than any such
restriction on transfer, lien, encumbrance, equity or claim created by an
Underwriter or resulting from any actions taken by an Underwriter.
2. BearTel Corp. has full legal right, power and authority, and all
authorization and approval required by law, to enter into the Underwriting
Agreement and the Custody Agreement and the Power of Attorney of such Selling
Stockholder and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Stockholder in the manner provided herein and therein.
3. The Custody Agreement of BearTel Corp. has been duly authorized,
executed and delivered by such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms.
4. The Power of Attorney of BearTel Corp. has been duly authorized,
executed and delivered by such Selling Stockholder and is a valid and binding
instrument of such Selling Stockholder, enforceable in accordance with its
terms, and, pursuant to such Power of Attorney, such Selling Stockholder has,
among other things, authorized the Attorneys, or any one of them, to execute and
deliver on such Selling Stockholder's behalf this Agreement and any other
document they, or any one of them, may deem necessary or desirable in connection
with the transactions contemplated hereby and thereby and to deliver the Shares
to be sold by such Selling Stockholder pursuant to this Agreement.
5. Upon sale and delivery of and payment for the Shares to be sold by
BearTel Corp. pursuant to the Underwriting Agreement, and assuming the
Underwriters purchase such Shares for value and in good faith without notice of
any adverse claim, the Underwriters will own such Shares, free and clear of all
restrictions on transfer, liens, encumbrances, security interests, equities and
claims whatsoever other than any such restriction on transfer, lien,
encumbrance, equity or claim created by an Underwriter or resulting from any
actions taken by an Underwriter.
17
<PAGE> 54
6. Assuming that the representations and warranties of the Company in
Section 6 of the Underwriting Agreement are true and accurate in all material
respects, the execution and delivery of the Underwriting Agreement and the
Custody Agreement and Power of Attorney of BearTel Corp. by such Selling
Stockholder, the compliance by such Selling Stockholder with all the provisions
hereof and thereof and the performance by such Selling Stockholder of its
obligations thereunder will not require any consent, approval, authorization or
other order of, or qualification with, any court or governmental body or agency
(except such as may be required under the securities or Blue Sky laws of the
various states), conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the organizational documents of such Selling
Stockholder, if such Selling Stockholder is not an individual, or any indenture,
loan agreement, mortgage, lease or other agreement or instrument to which such
Selling Stockholder is a party or by which any property of such Selling
Stockholder is bound or violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body or
agency having jurisdiction over such Selling Stockholder or any property of such
Selling Stockholder.
18
<PAGE> 1
EXHIBIT 4.1
- --------------------------------------------------------------------------------
--------------------------------------
NUMBER
--------------------------------------
[YOUNG & RUBICAM CORPORATE SEAL 1996 DELAWARE]
- --------------------------------------------------------------------------------
Y&R
YOUNG & RUBICAM
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
Is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AN NONASSESSABLE SHARES OF COMMON STOCK OF
Young & Rubicam Inc. transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney on surrender of this certificate
properly endorsed. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated
COUNTERSIGNED AND REGISTERED
THE BANK OF NEW YORK
TRANSFER AGENT CHAIRMAN AND CHIEF EXECUTIVE OFFICER
AND REGISTRAR
[GRAPHIC OMITTED]
BY
[ILLEGIBLE] SIGNATURE SECRETARY
COMMON STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
AND OTHER INFORMATION
CUSIP 987425 10 5
--------------------------------------
SHARES
--------------------------------------
<PAGE> 2
YOUNG & RUBICAM INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE, TO EACH STOCKHOLDER WHO SO
REQUESTS, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE TO THE TRANSFER AGENT OR THE SECRETARY OF THE
CORPORATION.
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN
RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN YOUNG & RUBICAM INC. AND THE
BANK OF NEW YORK, DATED AS OF , 1998, AS IT MAY FROM TIME TO TIME BE
SUPPLEMENTED OR AMENDED PURSUANT TO ITS TERMS (THE "RIGHTS AGREEMENT"), THE
TERMS OF WHICH ARE HEREBY INCORPORATED BY REFERENCE AND A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF YOUNG & RUBICAM INC. UNDER CERTAIN
CIRCUMSTANCES AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE
EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS
CERTIFICATE. YOUNG & RUBICAM INC. WILL MAIL TO THE REGISTERED HOLDER OF THIS
CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE PROMPTLY AFTER RECEIPT
OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES PROVIDED FOR IN THE
RIGHTS AGREEMENT, RIGHTS ISSUED TO OR BENEFICIALLY OWNED BY ANY PERSON WHO IS AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS SHALL BECOME
NULL AND VOID.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-______Custodian______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants Act _____________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________
--------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- --------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15
<PAGE> 1
Exhibit 5.1
[CLEARY, GOTTLIEB, STEEN & HAMILTON LETTERHEAD]
Writer's Direct Dial: (212) 225-2270
May 5, 1998
Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6486
Re: Young & Rubicam Inc.
Registration Statement on Form S-1 (No. 333-46929)
Ladies and Gentlemen:
We have acted as special counsel to Young & Rubicam Inc., a Delaware
corporation (the "Company"), in connection with the registration statement on
Form S-1 (No. 333-46929) (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Act of 1933, as amended (the "Act"), for the registration of (i) 6,666,667
shares of Common Stock, par value $.01 per share (the "Common Stock"), to be
sold by the Company (the "Company Shares") and (ii) 9,933,333 shares of Common
Stock, plus an aggregate of up to 2,490,000 additional shares of Common Stock
issuable upon exercise of the overallotment option described in the Registration
Statement, to be sold by the selling stockholders named in the Registration
Statement (the "Secondary Shares" and, together with the Company Shares, the
"Shares"), and the related preferred share purchase rights (the "Rights") to be
issued pursuant to the Rights Agreement between the Company and
<PAGE> 2
Young & Rubicam Inc., p. 2
The Bank of New York, as Rights Agent (the "Rights Agent"), after giving effect
to a stock dividend of 14 shares of Common Stock which is payable for each share
of Common Stock outstanding as of the date of effectiveness of the Registration
Statement and payable on such date (the "Stock Dividend").
We have participated in the preparation of the Registration
Statement and have reviewed the originals or copies certified or otherwise
identified to our satisfaction of all such corporate records of the Company and
such other instruments and other certificates of public officials, officers and
representatives of the Company and such other persons, and we have made such
investigations of law, as we have deemed appropriate as a basis for the opinions
expressed below.
In rendering the opinions expressed below, we have assumed the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies. In addition, we have
assumed and have not verified the accuracy as to factual matters of each
document we have reviewed.
Based on the foregoing, and subject to the further assumptions and
qualifications set forth below, it is our opinion that:
1. The Company Shares have been duly authorized by all necessary
corporate action of the Company and, upon issuance of the Company Shares against
payment therefor in the manner described in the Registration Statement, will be
validly issued by the Company and will be fully paid and nonassessable.
2. The Secondary Shares have been duly authorized by all necessary
corporate action of the Company, the outstanding Secondary Shares have been
validly issued by the Company and are fully paid and nonassessable and, upon
issuance of the Secondary Shares to be issued pursuant to the Stock Dividend
such Secondary Shares will be validly issued by the Company and will be fully
paid and nonassessable.
3. Upon due authorization, execution and delivery of the Rights
Agreement by the Company and the Rights Agent, and upon issuance of the Company
Shares against payment therefor in the manner described in the Registration
Statement and issuance of the Secondary Shares to be issued pursuant to the
Stock Dividend, the Rights associated with the Shares will be validly issued.
The foregoing opinions are limited to the General Corporation Law of
the State of Delaware.
<PAGE> 3
Young & Rubicam Inc., p. 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the prospectus included in the Registration Statement. In
giving such consent, we do not thereby admit that we are "experts" within the
meaning of the Act or the rules and regulations of the Commission issued
thereunder with respect to any part of the Registration Statement, including
this exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ PETER H. DARROW
---------------------------------
Peter H. Darrow, a Partner
<PAGE> 1
EXHIBIT 10.2
- --------------------------------------------------------------------------------
STOCKHOLDERS' AGREEMENT
Dated as of May___, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions............................................. 2
ARTICLE II
GENERAL PROVISIONS RELATING TO TRANSFER OF
SHARES AND VOTING TRUST CERTIFICATES
SECTION 2.01. General Restrictions.................................... 5
SECTION 2.02. Condition to Restricted Transfers; Non-Conforming
Transfers............................................. 5
ARTICLE III
TRANSFERS OF SHARES BY THE H&F INVESTORS
SECTION 3.01. Restrictions on Transfers............................... 6
ARTICLE IV
TRANSFERS OF SHARES AND VOTING TRUST CERTIFICATES
BY THE MANAGEMENT INVESTORS AND THE MANAGEMENT VOTING TRUST
SECTION 4.01. Right of First Refusal of the Company
and the H&F Investors................................. 7
SECTION 4.02. Transfer of Payments by the Management
Voting Trust to the Management Investors.............. 9
ARTICLE V
GOVERNANCE AND MANAGEMENT OF CORPORATION
SECTION 5.01. Board of Directors...................................... 9
SECTION 5.02. Delaware Statute........................................ 10
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Termination............................................. 10
<PAGE> 3
SECTION 6.02. Legend.................................................. 11
SECTION 6.03. Binding Effect; Successors.............................. 11
SECTION 6.04. Amendment and Waiver.................................... 11
SECTION 6.05. Governing Law........................................... 11
SECTION 6.06. Specific Performance.................................... 11
SECTION 6.07. Unenforceability........................................ 12
SECTION 6.08. Headings................................................ 12
SECTION 6.09. Copies on File.......................................... 12
SECTION 6.10. Notices................................................. 12
SECTION 6.11. Waiver and Consent...................................... 13
SECTION 6.12. Recapitalizations, Exchanges, Etc.
Affecting the Company's Stock......................... 13
SECTION 6.13. Counterparts............................................ 13
ii
<PAGE> 4
STOCKHOLDERS' AGREEMENT (the "Agreement") dated as of May____, 1998,
by and among the H&F Investors, the Management Investors and the Management
Voting Trust (as such terms are defined herein) (with each of the foregoing
parties, together with such additional signatories as may be deemed added from
time to time pursuant to Section 2.02 hereof, being referred to herein as the
"Stockholders") and Young & Rubicam Inc., a Delaware corporation (the
"Company").
WHEREAS, the Stockholders, together with certain other stockholders,
collectively own all of the outstanding shares of common stock, par value $.01
per share, of the Company (the "Common Stock"), and, together with such other
stockholders, are parties to a Stockholders' Agreement (the "Prior Agreement")
dated as of December 12, 1996 providing for, among other things, the rights of
the parties thereto to hold and dispose of the Common Stock, the voting of the
Common Stock, the governance and management of the Company and certain other
matters;
WHEREAS, in connection with an initial public offering by the
Company, and a secondary offering by the H&F Investors and certain other
stockholders (collectively the "Offerings"), the parties to the Prior Agreement
wish to amend and restate the Prior Agreement, to eliminate certain stockholders
as parties thereto, to eliminate a number of provisions set forth therein, and
to restate other provisions as set forth herein;
WHEREAS, by a letter agreement of even date herewith, the parties to
the Prior Agreement are, among other things, (1) acknowledging that it does not
restrict the sale of Common Stock in the Offerings or prohibit the parties
thereto from entering into agreements to effect such Offerings and (2)
acknowledging the termination of such Prior Agreement, effective as of the
closing of the Offerings;
WHEREAS, effective upon the closing of the Offerings, this Agreement
shall become effective and shall supersede the Prior Agreement in all respects;
WHEREAS, by a letter agreement of even date herewith, the parties to
the HFCP Voting Trust Agreement (as defined herein) are acknowledging its
termination effective as of the closing of the Offerings;
WHEREAS, concurrently with the execution and delivery of the Prior
Agreement, (a) each of the Initial Management Investors (as defined therein),
the Company, certain predecessors of the Company and certain voting trustees
entered into a voting trust agreement, dated as of December 12, 1996 (the
"Management Voting Trust Agreement"), pursuant to which each of the Initial
Management Investors assigned and transferred all of the Common Stock held by
such Initial Management Investor to a voting trust created by the Management
Voting Trust Agreement (the "Management Voting Trust") and agreed to deposit
into the Management Voting Trust any shares of Common Stock which such Initial
Management Investor thereafter acquired (including pursuant to the exercise of
any options or any distribution from the Restricted Stock Trust), (b) the
Management Voting Trust delivered or caused to be delivered to each Initial
Management Investor voting trust certificates representing
<PAGE> 5
the Common Stock so deposited by such Initial Management Investor and agreed to
deliver voting trust certificates with respect to all shares of Common Stock and
other securities subsequently deposited into the Management Voting Trust (all
such voting trust certificates, the "Voting Trust Certificates");
WHEREAS, pursuant to the irrevocable unanimous written consent of
the voting trustees, effective twenty-four months after the closing of the
Offerings, the Management Voting Trust will terminate, unless terminated earlier
in accordance with its terms;
WHEREAS, pursuant to the Management Voting Trust Agreement, the
Management Voting Trust has authority to take certain actions on behalf of the
Initial Management Investors under the Prior Agreement and has authority to take
certain actions hereunder on behalf of the Management Investors, including
entering into this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" has the meaning set forth in Rule 12b-2 under the
Exchange Act.
"Agreement" has the meaning set forth in the introductory paragraph
hereof.
"Beneficial Ownership" and "beneficially own" and similar terms have
the meaning ascribed thereto in Rule 13d-3 under the Exchange Act.
"Board" means the Board of Directors of the Company.
"Company" has the meaning set forth in the introductory paragraph
hereof.
"Common Stock" has the meaning set forth in the first recital
paragraph hereof.
"Contribution Agreement" means the Contribution Agreement, dated
October 30, 1996, among the H&F Investors, the Company and certain other
parties.
"Derivative Security," with respect to a Person, means all options,
warrants or other rights to acquire, or obligations to issue, shares of capital
stock of, equity interests in, or partnership interests in, such Person, or
similar securities or contractual obligations the value
2
<PAGE> 6
of which is derived from the value of an equity interest in such Person, or
securities convertible into or exchangeable for capital stock of, equity
interests in, partnership interests in, or similar securities or contractual
obligations of, such Person.
"Executive Options" means the options to acquire Common Stock issued
as such under the Company's Stock Option Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder.
"H&F Designees" has the meaning set forth in Section 5.01(a) hereof.
"H&F Investors" means, collectively, HFCP, H&F Orchard Partners III,
L.P., a California limited partnership, H&F International Partners III, L.P., a
California limited partnership, together with any transferee of Shares from any
of the foregoing in a Restricted Transfer permitted under Articles II and III
who is required thereunder to become a party hereto.
"HFCP" means Hellman & Friedman Capital Partners III, L.P., a
California limited partnership.
"HFCP Options" means the options to purchase Common Stock issued to
the H&F Investors in connection with the Contribution Agreement.
"HFCP Voting Trust Agreement" means the voting trust agreement dated
as of December 12, 1996 by and among the Company, certain predecessors of the
Company, Peter Georgescu and the H&F Investors.
"Initial Management Investors" means each of the Persons listed on
Schedule 3 to the Prior Agreement.
"Management Investors" means the Initial Management Investors,
together with any individuals who became or become holders of Shares after
December 12, 1996 (other than the HFCP Investors, their Affiliates and permitted
transferees) who became or were or are required to become parties to the Prior
Agreement or this Agreement and the Management Voting Trust Agreement in
accordance with the terms hereof and thereof, but excludes (i) any Person who
was a party to the Management Voting Trust Agreement, but has ceased to be a
party in accordance with the terms thereof and (ii) any Person that is not an
employee of the Company or its subsidiaries.
"Management Voting Trust" has the meaning set forth in the sixth
recital paragraph hereof.
"Management Voting Trust Agreement" has the meaning set forth in the
sixth recital paragraph hereof.
3
<PAGE> 7
"Money Market Preferred Stock" means the money market preferred
stock, without par value, of the Company.
"Non-Conforming Transfer" has the meaning set forth in Section
2.02(b) hereof.
"Non-Conforming Transferee" has the meaning set forth in Section
2.02(b) hereof.
"Non-Restricted Transfer" has the meaning set forth in Section 2.01.
"Notice of Proposed Transfer" has the meaning set forth in Section
3.01(a) hereof.
"Options" means Executive Options and Roll-Over Options.
"Outstanding Shares" as of a given time means the sum of (a) the
number of shares of Common Stock then issued and outstanding (including all
shares of Common Stock held in the Restricted Stock Trust) and (b) the number of
shares of Common Stock issuable upon exercise of (1) the HFCP Options and the
Roll-Over Options and (2) all other options, warrants and rights to acquire, and
the conversion of any securities convertible into, shares of Common Stock, to
the extent such rights to acquire shares of Common Stock are then exercisable.
When calculating the percentage of the Outstanding Shares owned by a specified
Person, such Person shall be deemed to own all shares of Common Stock
beneficially owned by such Person (A) assuming the exercise of all of such
Person's options, warrants and rights to acquire, and the conversion by such
Person of any securities convertible into, shares of Common Stock only to the
extent such rights to acquire shares of Common Stock are then exercisable by
such Person and (B) in the case of any Management Investor, assuming such
Management Investor beneficially owns all shares of Common Stock allocated to
him or her under the Restricted Stock Trust, whether or not then vested. For
purposes of calculating the percentage owned by the Management Voting Trust, the
Management Voting Trust shall be deemed to own all shares of Common Stock
(including all shares of Common Stock required to be deposited thereunder upon
exercise of vested options) then subject to the Management Voting Trust.
"Person" means any individual or corporation, company, incorporated
or unincorporated association or organization, limited liability company,
partnership, estate, trust, joint venture or other entity of any kind, including
any pension, profit sharing or other benefit plan or trust, and any governmental
authority.
"Restricted Stock" means the Common Stock issued by the Company
pursuant to the Restricted Stock Plan to the Restricted Stock Trust on December
12, 1996.
"Restricted Stock Plan" means the Restricted Stock Plan in the form
attached to the Contribution Agreement as Exhibit 6.
4
<PAGE> 8
"Restricted Stock Trust" has the meaning set forth in the
Contribution Agreement.
"Restricted Stock Trust Agreement" means the Restricted Stock Trust
Agreement in the form attached to the Contribution Agreement as Exhibit 7.
"Restricted Transfer" has the meaning set forth in Section 2.01
hereof.
"Roll-Over Options" means the options to acquire Common Stock issued
as Roll-Over Options under the Stock Option Plan.
"Shares" shall mean (a) all shares of Common Stock issued and
outstanding as of, and from and after, December 12, 1996 through the date hereof
(including without limitation, all shares of Restricted Stock), together with
any other shares of Common Stock or other capital stock of the Company entitling
the record owner thereof to vote in elections of directors generally which are
issued by the Company during the life of this Agreement to any Person who is, by
the terms of this Agreement or otherwise, required to subject such shares to
this Agreement, and (b) any economic interest in such shares, whether or not
constituting Beneficial Ownership of such shares (including, without limitation,
the HFCP Options, Roll-Over Options, Executive Options, interests in the
Restricted Stock Trust, and any other options, warrants or rights to acquire
such shares).
"Stock Option Plan" means the Stock Option Plan in the form attached
to the Contribution Agreement as Exhibit 8, setting forth the terms and
conditions upon which Roll-Over Options and Executive Options may be granted to
key employees of the Company.
"Stockholders" has the meaning set forth in the introductory
paragraph hereof.
"Termination Percentage" has the meaning set forth in Section 3.01.
"Transfer" has the meaning set forth in Section 2.01 hereof.
"Ultimate General Partner" means H&F Investors III, Inc., a
California corporation, as managing general partner of Hellman & Friedman
Associates III, L.P., a California limited partnership, as managing general
partner of H&F Investors III, a California general partnership, as general
partner of each of the H&F Investors which is a partnership.
"Voting Trust Certificates" has the meaning set forth in the sixth
recital paragraph hereof.
"Voting Trustees" has the meaning set forth in the Management Voting
Trust Agreement.
5
<PAGE> 9
ARTICLE II
GENERAL PROVISIONS RELATING TO
TRANSFER OF SHARES AND VOTING TRUST CERTIFICATES
SECTION 2.01. General Restrictions. Each Stockholder agrees with
each other Stockholder and the Company that, during the time periods when the
restrictions on transfer specified in Articles III and IV hereof apply to such
Stockholder, such Stockholder shall not directly or indirectly sell, transfer,
assign, pledge, hypothecate or otherwise encumber or dispose of any Shares (or
any related Voting Trust Certificates) (each, a "Transfer") except in compliance
with the restrictions in Articles III and IV; provided, however, that no Shares
or any related Voting Trust Certificates shall, in any event, be Transferred if
such Transfer would violate any United States federal or state or foreign
securities laws. A Transfer that is not subject to Article III or Article IV, in
the sense that it does not require compliance with the procedures set forth
therein, is referred to herein as a "Non-Restricted Transfer". A Transfer that
is permitted after the procedures set forth in Article III or Article IV have
been complied with is referred to as a "Restricted Transfer".
SECTION 2.02. Condition to Restricted Transfers; Non-Conforming
Transfers. (a) During the time periods when restrictions on transfer apply to a
Stockholder, no Restricted Transfer of Shares or any related Voting Trust
Certificates by such Stockholder, other than Transfers to the Company, shall be
effective unless, as a condition to any such Restricted Transfer, each
transferee that is not a party hereto shall, prior to such Transfer, agree in
writing to be bound by all of the provisions of this Agreement applicable to the
transferor and no such transferee shall be permitted to make any Transfer other
than in accordance with the terms of this Agreement. Each such transferee shall
thereafter be deemed to be a Stockholder hereunder and shall have the benefit
of, and be subject to, all of the obligations and limitations with respect to
such transferred Shares and related Voting Trust Certificates, as the case may
be (including, without limitation, the restrictions on Transfers) to the same
extent as the original transferor under this Agreement. The foregoing provisions
of this Section 2.02(a) shall not apply to a Transfer which is a Non-Restricted
Transfer.
(b) Any purported Transfer of Shares or related Voting Trust
Certificates (1) other than a Non-Restricted Transfer or a Restricted Transfer
which complies with this Agreement or (2) in a Restricted Transfer to a
transferee who is not or does not become a Stockholder pursuant to Section
2.02(a) (each, a "Non-Conforming Transferee," and each such transfer, a
"Non-Conforming Transfer") shall be null and void. The Company and the
Management Voting Trust shall not register, recognize or give effect to any such
Non-Conforming Transfer, and the Company and the Management Voting Trust, as the
case may be, shall continue to recognize on their respective books and records
the transferor of such Shares or related Voting Trust Certificates as the holder
thereof.
6
<PAGE> 10
ARTICLE III
TRANSFERS OF SHARES BY THE H&F INVESTORS
SECTION 3.01. Restrictions on Transfers. (a) (1) Prior to the
termination of the Management Voting Trust, if (A) Shares subject to the
Management Voting Trust represent at least 20% of the Outstanding Shares and (B)
the H&F Investors propose to Transfer Shares to a Person who, as a result
thereof, would (together with its Affiliates) own Shares representing a
percentage of the Outstanding Shares which is greater than the percentage of the
Outstanding Shares subject to the Management Voting Trust, or
(2) After termination of the Management Voting Trust, and (A) prior
to the first anniversary of such termination, if the H&F Investors propose to
Transfer Shares to a Person who, as a result thereof, would (together with its
Affiliates) own Shares representing a percentage of the Outstanding Shares that
is greater than the percentage equal to the greater of (i) 20% and (ii) the
percentage of the Outstanding Shares subject to the Management Voting Trust upon
termination thereof (the "Termination Percentage") less five percent (5%), and
(B) from and after the first anniversary of such termination until December 12,
2002, if the H&F Investors propose to Transfer Shares to a Person who, as a
result thereof, would (together with its Affiliates) own Shares representing a
percentage of the Outstanding Shares which is greater than the greater of (i)
20% and (ii) a percentage which is the Termination Percentage less 10%,
then, in any such case set forth in (1) or (2) above, such Transfer
can be made only if:
(I) the H&F Investors give written notice to the Company of
the proposed Transfer (specifying the proposed transferee and the terms of
the proposed Transfer) (such notice, the "Notice of Proposed Transfer");
and
(II) the Company fails to arrange for and complete the sale of
all of the Shares subject to the proposed Transfer to one or more third
parties (including pursuant to a secondary public offering) at a price to
the H&F Investors at least equal to the price specified in the Notice of
Proposed Transfer within 180 days following the date of the Notice of
Proposed Transfer (it being understood that the H&F Investors shall be
permitted to withdraw a Notice of Proposed Transfer, at any time during
such period, in which case the Company shall not arrange for the sale of,
or sell, such Shares); and
(III) the Management Voting Trust (if it has not theretofore
terminated) or the Company (after termination of the Management Voting
Trust) thereafter consents in writing to such Transfer, which consent
shall not be unreasonably withheld (and shall either be given or withheld
no later than 10 days after the earlier of: such
7
<PAGE> 11
time as the Company concludes that it does not intend to arrange for a
sale under subsection (II) of this Section 3.01(a) or, the expiration of
such 180-day period).
(b) A Transfer of Shares by the H&F Investors prior to December 12,
2002, to any Person who, as a result thereof, would (together with its
Affiliates) own Shares representing a percentage of the Outstanding Shares that
is a smaller percentage of the Outstanding Shares than the applicable percentage
set forth in subsections (a)(1) or (a)(2), shall be a Non-Restricted Transfer.
The restrictions on Transfer set forth in subsections (a)(1) and (a)(2) hereof
shall terminate immediately on December 12, 2002, whether or not a Notice of
Proposed Transfer has theretofore being given. Transfers of Shares by the H&F
Investors after such date shall not be restricted under Articles II or III, or
otherwise, under this Agreement.
ARTICLE IV
TRANSFERS OF SHARES AND VOTING TRUST CERTIFICATES
BY THE MANAGEMENT INVESTORS AND
THE MANAGEMENT VOTING TRUST
SECTION 4.01. Right of First Refusal of the Company and the H&F
Investors. Prior to termination of the Management Voting Trust, in the event
that a Management Investor or the Management Voting Trust shall propose to
Transfer any Shares (and any related Voting Trust Certificates) owned or held by
them to any Person who, as a result thereof, together with any related Transfers
by Management Investors or the Management Voting Trust, would (together with its
Affiliates) own more than 20% of the Outstanding Shares, the Company and the H&F
Investors shall each have a right of first refusal with respect to such a
proposed Transfer, which rights shall be exercised in accordance with the
provisions of subsections (a) through (e) of this Section 4.01.
(a) With respect to any such proposed Transfer, the Management
Investor or the Management Voting Trust shall first offer to the Company (by
written notice to the Company, with a copy to the H&F Investors) the option to
purchase the Shares (together with any related Voting Trust Certificates)
proposed to be transferred at the same price and upon the same terms and
conditions as are specified in a bona fide written offer from the proposed
transferee.
(b) The offer by such Management Investor or the Management Voting
Trust to the Company shall include a copy of the written offer from such
proposed transferee setting forth all the details pertaining to any such
proposed Transfer to a third party, including the price, form of consideration
and any other terms and conditions, and the identity of the Person to whom such
Management Investor or the Management Voting Trust is proposing to Transfer such
Shares (and any related Voting Trust Certificates), including the identity of
any Person controlling such proposed transferee, as well as such evidence of the
arm's length nature of the proposed Transfer, the proposed transferee's ability
to complete the transaction and such other information as is reasonably
requested by the Company or the H&F Investors. If the Company exercises its
right to purchase all or a portion of the Shares (and any related Voting Trust
8
<PAGE> 12
Certificates) proposed to be transferred, it shall give notice thereof to the
Management Investor or the Management Voting Trust and the H&F Investors within
30 days after receipt of such offer. The consideration for Shares held by a
Management Investor or the Management Voting Trust shall be paid by the Company
to the Management Voting Trust and then delivered by the Management Voting Trust
to the Management Investor (as applicable) against delivery of his or her Voting
Trust Certificates, which Voting Trust Certificates shall be canceled. The
closing of any purchase hereunder shall take place at the offices of the Company
(or at any other place as may be designated by the Company) on a date specified
by the Company, which date shall be within 10 days after the Company's notice of
such election to such Management Investor and specified in such notice (or, if
the Company has elected to purchase less than all of such Shares, within 10 days
after the expiration of the 15-day period for election by the H&F Investors,
specified in Section 4.01(d) hereof). If the terms of the proposed Transfer
include the Transfer of the Shares (and any related Voting Trust Certificates)
for consideration other than cash, the Company will have the right to exercise
its rights hereunder either (A) by purchasing the Shares (and any related Voting
Trust Certificates) for a substantially equivalent form of consideration of
equal value in the reasonable opinion of the Board, or (B) by purchasing such
Shares (and any related Voting Trust Certificates) for cash in an amount equal
to the fair market value of such proposed consideration in the reasonable
opinion of the Board.
(c) If the Company does not elect to exercise its right to purchase
the Shares (and any related Voting Trust Certificates) proposed to be
transferred within the 30-day period provided therefor, or elects to purchase
less than all of such Shares, the H&F Investors shall have the option to
purchase all (but not less than all) of the Shares proposed to be transferred
(and any related Voting Trust Certificates) which the Company has elected not to
purchase, at the same price and upon the same terms and conditions as the offer
made by the Management Investor or the Management Voting Trust to the Company.
(d) If the H&F Investors exercise their right to purchase the Shares
(and any related Voting Trust Certificates) proposed to be transferred, they
shall give notice thereof within 15 days after the expiration of the 30-day
period referred to in Section 4.01(b) above. The consideration for Shares held
by a Management Investor or the Management Voting Trust shall be paid by the H&F
Investors to the Management Voting Trust and then delivered by the Management
Voting Trust to the Management Investor (as applicable) against delivery of his
or her Voting Trust Certificates, which Voting Trust Certificates shall be
canceled. The closing of any purchase hereunder shall take place at the offices
of the Company (or at any other place as may be designated by the H&F Investors)
on a date determined by the H&F Investors within ten (10) days after the H&F
Investors' notice of such election and specified in such notice; provided that,
if the Company has elected to purchase Shares pursuant to subsection (b) hereof,
the closing under this subsection (d) shall be at the same time and place as the
Company's closing as specified in the Company's notice. If the terms of the
proposed Transfer include the Transfer of the Shares (and any related Voting
Trust Certificates) for consideration other than cash, the H&F Investors shall
have the right to exercise their rights hereunder either (A) by purchasing the
Shares (and any related Voting Trust Certificates) for a substantially
equivalent form of consideration of equal value in the reasonable opinion of the
H&F Investors, or (B) by purchasing such Shares (and any related Voting Trust
Certificates)
9
<PAGE> 13
for cash in an amount equal to the fair market value of such proposed
consideration in the reasonable opinion of the H&F Investors; provided, however,
that, if the Company has elected to purchase Shares pursuant to subsection (b)
of this Section 4.01, the H&F Investors shall use the same form of consideration
(if possible) or, if the Company is using cash (or the H&F Investors cannot use
the alternative form of consideration), pay the amount of cash determined by the
Board to be the fair market value of the alternative compensation pursuant to
the last sentence of subsection (b) of this Section 4.01.
(e) If the Company and the H&F Investors, collectively, elect to
purchase less than all of the Shares (and any related Voting Trust Certificates)
proposed to be Transferred by the Management Investor or the Management Voting
Trust within the exercise periods provided therefor, then such elections shall
not be effective and the Management Investor or the Management Voting Trust may
sell all (but not less than all) of such Shares (and any related Voting Trust
Certificates) to the Person specified in the notice delivered to the Company and
the H&F Investors in accordance with Section 4.01(a); provided that such sale is
made within 90 days after the expiration of the H&F Investors' 15-day exercise
period, at a price and upon terms and conditions not more favorable to such
transferee than those that were specified in such notice.
SECTION 4.02. Transfer of Payments by the Management Voting Trust to
the Management Investors. All payments made by the Company or the H&F Investors
in respect of any Shares and Voting Trust Certificates purchased by the Company
or the HFCP Investors pursuant to this Article IV shall be made by the Company
or the H&F Investors, as the case may be, to the Management Voting Trust, and
the Management Voting Trust shall, upon receipt of such payment, promptly make
an identical payment to the Management Investor holding the Voting Trust
Certificates representing such Shares upon surrender by such Management Investor
of such Voting Trust Certificates to the Management Voting Trust and such Voting
Trust Certificates shall be cancelled upon such surrender.
ARTICLE V
GOVERNANCE AND MANAGEMENT OF CORPORATION
SECTION 5.01. Board of Directors. (a) The Company shall be managed
by its duly elected officers subject to the overall direction and supervision of
the Board. The Company will take all actions reasonably within its power,
including those actions of the Company specified in Section 5.01(b), to provide
that the Board will include (1) so long as the H&F Investors own at least 10% of
the Outstanding Shares, two individuals designated by the H&F Investors and (2)
so long as the H&F Investors own at least 5% of the Outstanding Shares, one
individual designated by the H&F Investors (the "H&F Designees").
(b) For so long as the H&F Investors own at least 10% of the
Outstanding Shares, the Company agrees to nominate two H&F Designees, and for so
long as the H&F Investors own at least 5% of the Outstanding Shares, the Company
agrees to nominate one
10
<PAGE> 14
H&F Designee, in each case for election to the Board. The Company agrees to
recommend to its stockholders that the H&F Designees be elected to the Board and
to cooperate and use all reasonable efforts to effectuate the election of the
H&F Designees to the Board. For so long as the Management Voting Trust is in
existence, the Management Voting Trust agrees to take all such steps (including
voting all Shares and all shares of Money Market Preferred Stock as to which it
has voting power to elect and re-elect individuals as directors, to remove
directors and to fill vacancies) as requested by the H&F Investors and permitted
to be taken by the Management Voting Trust so as to attempt to assure that the
Board includes the H&F Designee(s) at all times, to the extent required under
this Section 5.01. The H&F Investors shall be free to replace the members of the
Board designated by them, and the Company shall cooperate and use all reasonable
efforts to effectuate any such replacement requested by the H&F Investors. For
so long as the Management Voting Trust is in existence, the Management Voting
Trust agrees to take all such steps (including voting all Shares and all shares
of Money Market Preferred Stock as to which it has voting power to elect and
re-elect individuals as directors, to remove directors and to fill vacancies) as
requested by the H&F Investors and permitted to be taken by the Management
Voting Trust to attempt to effectuate any such replacement requested by the H&F
Investors.
SECTION 5.02. Delaware Statute. The Company will not take any action
to amend, eliminate or adopt any provision inconsistent with, Article XIV of its
Amended and Restated Certificate of Incorporation, a copy of which is included
in Exhibit A, or to rescind, amend, supersede or adopt any resolution
inconsistent with, the Board resolution included in Exhibit A.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Termination. The term of this Agreement varies
provision by provision as follows:
(a) The restrictions on Transfer set forth in Article III
shall terminate on December 12, 2002.
(b) The restrictions on Transfer set forth in Article IV shall
terminate on the date of termination of the Management Voting Trust.
(c) The restrictions on Transfer set forth in Article II shall
terminate at the time that related restrictions in Articles III and IV,
respectively, terminate.
(d) The provisions of Article V shall apply so long as the H&F
Investors own at least 5% of the Outstanding Shares.
11
<PAGE> 15
(e) The provisions of Article I and Article VI shall apply
until the later of (1) the termination of Articles II, III and IV pursuant
to Sections 6.01(a) through (c) and (2) the termination of Article V
pursuant to Section 6.01(d).
SECTION 6.02. Legend. All certificates representing Common Stock
held by Stockholders shall bear a legend stamped, typed or otherwise legibly
placed on the face or reverse side thereof substantially in the form set forth
below:
NOTICE IS HEREBY GIVEN THAT the securities represented by this
certificate have not been registered under the Securities Act of
1933, as amended, or the securities laws of any state of the United
States or any non-U.S. jurisdiction. The securities cannot be
offered, sold, transferred or otherwise disposed of except (1)
pursuant to an effective registration statement or amendment thereto
under such Act and any other applicable laws or (2) pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of such Act and such other applicable laws. The sale,
transfer or other disposition of the securities represented by this
certificate and certain other rights and obligations of the holder
of this certificate are also subject to a Stockholders' Agreement
dated as of May , 1998 by and among the Company and the other
parties thereto (copies of which are available for review at the
principal office of the Company by contacting the Secretary of the
Company).
SECTION 6.03. Binding Effect; Successors. This Agreement shall be
binding upon and inure to the benefit of and shall be enforceable by the parties
hereto and their respective legal representatives, heirs, legatees, successors
and assigns. The terms and provisions of this Agreement shall become effective
only upon the closing of the Offerings.
SECTION 6.04. Amendment and Waiver. This Agreement may be amended,
modified or supplemented or any term or condition waived only by a written
instrument executed by the parties hereto; provided, however, that pursuant to
the Management Voting Trust Agreement, each Management Investor has delegated to
the Voting Trustees the authority to act on his or her behalf for purposes of
this Section 6.04.
SECTION 6.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
regard to principles of conflict of laws, and each Stockholder agrees to submit
to personal jurisdiction and to waive any objection as to venue of the Court of
Chancery in the State of Delaware in connection with any action arising out of
or relating to this Agreement. Service of process on any party hereto in any
action arising out of or relating to this Agreement shall be effective if served
upon such party by mail in accordance with Section 6.10.
SECTION 6.06. Specific Performance. Each party hereto agrees that
irreparable damages would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms, or were
otherwise breached. It is,
12
<PAGE> 16
accordingly, agreed that the parties hereto shall be entitled to injunctive
relief to prevent breaches of the provisions of this Agreement, and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which they may be entitled at law or in equity.
SECTION 6.07. Unenforceability. If any provision of this Agreement
is held or deemed to be invalid or unenforceable to any extent when applied to
any Person or circumstance, the remaining provisions of this Agreement and the
enforcement of such provisions to other Persons or circumstances shall not be
affected, and each provision of this Agreement shall be enforced to the fullest
extent allowed by law.
SECTION 6.08. Headings. The headings of Articles and Sections
contained in this Agreement are solely for convenience of reference, are not
part of the agreement of the parties, and shall not affect the meaning or
interpretation of this Agreement.
SECTION 6.09. Copies on File. Copies of this Agreement and of every
agreement amending or supplementing this Agreement shall be available for review
at the Company's principal office by contacting the Secretary of the Company.
SECTION 6.10. Notices. (a) All notices, requests, demands or other
communications required by or otherwise with respect to this Agreement shall be
in writing and shall be deemed to have been duly given to any party when
delivered by hand, by messenger, or by a nationally recognized overnight
delivery company, when delivered by telecopy and confirmed by return telecopy,
or when delivered by first-class mail, postage prepaid and return receipt
requested, in each case to the applicable addresses set forth below:
If to the Company: Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.
Facsimile: (212) 210-5544
If to the H&F Investors: H&F Investors III, Inc.
One Maritime Plaza
12th Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
13
<PAGE> 17
If to the Management
Voting Trust: Management Voting Trust
c/o Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6436
Attention: Stephanie W. Abramson,
Voting Trustee Representative
Facsimile: (212) 210-5544
(or, as to any party, to such other address as such party shall from time to
time designate by written notice to the other parties). Notices sent by
registered or certified mail in accordance with this Section 6.10 shall be
deemed delivered as of the date posted in the United States mail.
(b) Whenever this Agreement contemplates delivery to, or action
(such as consent, approval or waiver) by (1) the H&F Investors, delivery to, or
action (evidenced in writing) by, the Ultimate General Partner shall bind the
H&F Investors or (2) the Management Voting Trust, delivery to, or action
(evidenced in writing) by the Voting Trustee representative (set forth in
subsection (a) of this Section 6.10) shall bind the Management Voting Trust.
Whenever the consent, approval or waiver of the H&F Investors or the Management
Voting Trust is required under this Agreement such Person agrees to act with
reasonable promptness to either grant or deny such request following receipt of
written notice of such request in accordance with Section 6.10 hereof.
SECTION 6.11. Waiver and Consent. Subject to Section 6.04 hereof,
any two of the Company, the Ultimate General Partner and the Management Voting
Trust may by notice to the third such party hereto (a) extend the time for the
performance of any of the obligations or other actions of such third party under
this Agreement; (b) waive compliance with any of the conditions or covenants of
such third party contained in this Agreement; and (c) waive or modify
performance of any of the obligations of such third party under this Agreement.
Except as provided in the preceding sentence, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained herein. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
preceding or succeeding breach and no failure by any party to exercise any right
or privilege hereunder shall be deemed a waiver of such party's rights or
privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
SECTION 6.12. Recapitalizations, Exchanges, Etc. Affecting the
Company's Stock. The provisions of this Agreement shall apply, to the full
extent set forth herein with respect to the Common Stock and Derivative
Securities, to any and all shares of capital stock, and to any and all
Derivative Securities, respectively, of the Company or any successor or assign
of the Company (whether by merger, consolidation, sale of assets, or otherwise)
which
14
<PAGE> 18
may be issued in respect of, in exchange for, or in substitution of the Common
Stock or such options, as the case may be.
SECTION 6.13. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to constitute one and the same agreement.
15
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this
Stockholders' Agreement as of the date first above written.
HELLMAN & FRIEDMAN CAPITAL
PARTNERS III, L.P.
By its General Partner,
H&F Investors III
By its Managing General Partner,
Hellman & Friedman Associates III, L.P.
By its Managing General Partner,
H&F Investors III, Inc.
By:
----------------------------------------
Name: Philip U. Hammarskjold
Title: Vice President
H&F ORCHARD PARTNERS III, L.P.
By its General Partner,
H&F Investors III
By its Managing General Partner,
Hellman & Friedman Associates III, L.P.
By its Managing General Partner,
H&F Investors III, Inc.
By:
----------------------------------------
Name: Philip U. Hammarskjold
Title: Vice President
H&F INTERNATIONAL PARTNERS III, L.P.
By its General Partner,
H&F Investors III
By its Managing General Partner,
Hellman & Friedman Associates III, L.P.
By its Managing General Partner,
H&F Investors III, Inc.
By:
----------------------------------------
Name: Philip U. Hammarskjold
Title: Vice President
<PAGE> 20
YOUNG & RUBICAM INC., a Delaware
corporation
By:
----------------------------------------
Name: Stephanie W. Abramson
Title: Secretary and Assistant
Treasurer
THE MANAGEMENT VOTING TRUST
By:
----------------------------------------
Name: Stephanie W. Abramson
Attorney-in-fact
<PAGE> 21
THE MANAGEMENT INVESTORS
By:
----------------------------------------
Stephanie W. Abramson
Attorney-in-Fact
<PAGE> 1
EXHIBIT 10.27
YOUNG & RUBICAM INC.
- --------------------------------------------------------------------------------
Grantor Trust Agreement
- --------------------------------------------------------------------------------
<PAGE> 2
YOUNG & RUBICAM INC.
- --------------------------------------------------------------------------------
Grantor Trust Agreement
- --------------------------------------------------------------------------------
Page
----
1. Establishment of Trust ............................................ 1
2. Payments to the Participants or their Beneficiaries ............... 2
3. Trustee Responsibility Regarding Payments When Company is
Insolvent ......................................................... 2
4. Payments to Company ............................................... 4
5. Establishment of Accounts and Contributions ....................... 4
6. Investment Authority .............................................. 4
7 Disposition of Income ............................................. 5
8. Accounting by Trustee ............................................. 5
9. Responsibility of the Company and Trustee ......................... 6
10. Transaction Costs, Taxes, Compensation and Expenses of Trustee .... 7
11. Resignation and Removal of Trustee ................................ 8
12. Appointment of Successor Trustee .................................. 8
13. Amendment or Termination .......................................... 9
14. Miscellaneous ..................................................... 9
15. Effective Date .................................................... 10
<PAGE> 3
YOUNG & RUBICAM INC.
- --------------------------------------------------------------------------------
Grantor Trust Agreement
- --------------------------------------------------------------------------------
THIS AGREEMENT, made as of the __ day of _____, 1998, by and between
Young & Rubicam Inc., a Delaware corporation (the "Company"), and (the
"Trustee").
WITNESSETH:
WHEREAS, the Company is obligated to pay compensation to certain
employees of the Company or its subsidiaries (the "Participants") and their
beneficiaries (the "Beneficiaries") under the Company's Deferred Compensation
Plan (the "Plan"); and
WHEREAS, the Company wishes to establish a trust (the "Trust") and
to contribute assets to the Trust that shall be held therein, subject to the
claims of the creditors of the Company in the event of insolvency, as herein
defined, until delivered to the Participants or their Beneficiaries in such
manner and at such times as specified under the Plan or until any obligations of
the Company with respect thereto are otherwise settled; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and the Internal Revenue Code of 1986, as amended (the
"Code");
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
1. Establishment of Trust
(a) The Trust shall consist of such cash and property, as is
reasonably acceptable to the Trustee, as shall be deposited with the Trustee
from time to time by the Company, which shall be the principal of the Trust, to
be held and administered as provided herein. Such property may consist of shares
of the Company's Common Stock ("Shares") or any other equity securities of the
Company designated by the Compensation Committee of the Company's Board of
Directors including Voting Trust Certificates as defined in the Management
Voting Trust Agreement, among the Company, the Young & Rubicam Restricted Stock
Trust and certain other parties, dated as of December 12, 1996 (the "Management
Voting Trust Agreement").
(b) The Trust hereby established shall be revocable by the Company;
provided, however, that upon a Change in Control as defined in the Plan, the
Trust shall become irrevocable.
<PAGE> 4
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Code, and shall be construed accordingly.
(d) Except as provided in Section 3 hereof, the principal of the
Trust, and any earnings thereon, shall be held separate and apart from other
assets of the Company and shall be used exclusively for the uses and purposes of
the Participants and their Beneficiaries. The Participants and their
Beneficiaries shall have no preferred claim on, or any beneficial ownership
interest in, any assets of the Trust. Any rights created under the Plan and this
Trust Agreement shall be mere unsecured contractual rights of the Participants
and their Beneficiaries against the Company. Any assets held by the Trust shall
be subject to the claims of the general creditors of the Company under federal
and state law in the event of insolvency, as defined and specified in Section 3
herein.
2. Payments to the Participants or their Beneficiaries
(a) The administrator (the "Administrator") appointed for purposes
of this Trust by the Compensation Committee of the Company's Board of Directors
(the "Committee") shall deliver to the Trustee written schedules (the "Payment
Schedules") in a form acceptable to the Trustee that indicate the dates or
events on which the assets of the Trust are to be paid out to the Participants
or their Beneficiaries in settlement of payment obligations of the Company under
the Plan or any other compensatory arrangement theretofore established with
respect to which the Trust is then holding assets. Except as otherwise provided
herein, the Trustee shall make payments to the Participants or their
Beneficiaries in accordance with such Payment Schedules.
(b) All payments shall be in-kind distributions of assets of the
Trust matching the form of payment specified in the Payment Schedules, unless
otherwise directed by the Administrator. Accordingly, Shares contributed to fund
a Stock-denominated obligation or award shall be distributed to a Participant or
his or her Beneficiaries pursuant to the Payment Schedules in settlement of such
obligation or award, unless otherwise directed by the Administrator.
(c) The Administrator shall advise the Trustee of the amount of
withholding of any federal, state, local or foreign taxes that may be required
to be withheld, if any, with respect to the payments of benefits pursuant to the
terms of the Plan or any other compensatory arrangement theretofore established
with respect to which the Trust is then holding assets. The Trustee shall pay
amounts withheld to the appropriate taxing authorities or determine that such
amounts have been reported, withheld and paid by the Company.
(d) For the purpose of making any cash payment or to satisfy various
withholding or other obligations hereunder, the Company may purchase from the
Trust such assets at its option for the amount it then designates as the market
value; provided that the Administrator shall certify to the Trustee that such
market value has been determined on the same basis utilized for trust reporting
purposes pursuant to Section 8(a) hereof. The Trustee may conclusively, without
further inquiry, rely upon the value determined by the Company and the
Administrator.
-2-
<PAGE> 5
3. Trustee Responsibility Regarding Payments When Company is
Insolvent
(a) The Trustee shall cease payment of benefits to the Participants
or their Beneficiaries if it has received notification hereunder or has actual
direct written knowledge that the Company is insolvent. The Company shall be
considered "insolvent" for purposes of this Trust Agreement if (i) the Company
is unable to pay its debts as they become due, or (ii) the Company is subject to
a pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, the assets of
the Trust shall be subject to claims of general creditors of the Company under
federal and state law as set forth below.
(1) The Administrator shall have the duty to inform the
Trustee in writing of the insolvency of the Company. If a person
claiming to be a creditor of the Company alleges in writing to the
Trustee that the Company has become insolvent, the Trustee shall,
within 30 days, request a certification from the Administrator as to
whether or not the Company is insolvent and, pending such
certification, the Trustee shall discontinue payment of benefits to
the Participants or their Beneficiaries. The Trustee may
conclusively, without further inquiry, rely upon the certification
that it receives.
(2) Unless the Trustee has actual direct written knowledge of
the insolvency of the Company, or has received notice from the
Company or a person claiming to be a creditor alleging that the
Company is insolvent, the Trustee shall have no duty to inquire
whether the Company is insolvent.
(3) If at any time the Trustee has determined that the Company
is insolvent pursuant to Section 3(b)(1) or (b)(2) hereof, the
Trustee shall discontinue any payments to the Participants or their
Beneficiaries and shall hold the assets of the Trust for the benefit
of the general creditors of the Company. Nothing in this Trust
Agreement shall in any way diminish any rights of the Participants
or their Beneficiaries to pursue their rights as general creditors
of the Company with respect to benefits due under the Plan, any
other compensatory arrangement theretofore established with respect
to which the Trust is then holding assets, or otherwise.
(4) The Trustee shall resume the payment of benefits to the
Participants or their Beneficiaries in accordance with Section 2 of
this Trust Agreement only after the Trustee has received a
certification referred to in Section 3(b)(1) that the Company is not
insolvent (or is no longer insolvent). The Trustee shall be entitled
to rely, without further inquiry, upon such certification.
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Participants or their Beneficiaries under the terms of the Payment Schedules for
the period of such discontinuance, less the aggregate amount of any payments
made to the Participants or their Beneficiaries by the Company in lieu of such
-3-
<PAGE> 6
payments out of the assets of the Trust under the Payment Schedules during any
such period of discontinuance. The Company shall certify to the Trustee the
amount of payments made to the Participants or their Beneficiaries by the
Company during the discontinuance.
4. Payments to Company
Subject to Sections 2(d), 6(a) and 10(a) hereof, the Company shall
have no right or power to direct the Trustee to return to the Company or to
divert to any other person any of the Trust assets before all payment of
benefits have been made to the Participants or their Beneficiaries pursuant to
the terms of the Payment Schedules. The foregoing notwithstanding, the
Administrator may direct the Trustee to return to the Company Shares and other
property attributable thereto (including, without limitation, dividends and
distributions thereon) that have been forfeited by Participants under the terms
of the Plan or other plan, program, agreement or arrangement. The Administrator
shall certify to the Trustee in writing whether all payments of benefits under
the Trust have been made. The Trustee may conclusively rely upon such
certification.
5. Establishment of Accounts and Contributions
A separate bookkeeping account ("Deferral Account") shall be
established and maintained with respect to each Participant to which shall be
credited and debited amounts as provided below. At the time of each
contribution, the Company shall certify to the Trustee the portion of the
contribution to be allocated to each Participant's Deferral Account. The Trustee
shall hold, invest and reinvest the assets of each Participants Deferral Account
in accordance with Section 6 below. A Participant's Deferral Account shall not
be reduced except upon payment of benefits from the Account, a decrease in the
value of the Account, or otherwise as provided in this Trust Agreement.
6. Investment Authority
(a) The Trustee shall generally hold assets in the form of Shares as
Shares, without diversification, and shall promptly reinvest dividends and
distributions in additional Shares. The Trustee shall hold, dispose, invest and
reinvest the assets of the Trust other than Shares, without distinction between
principal and income, in other investments as may be designated by the
Administrator. The Company shall have the right at any time, and from time to
time, in its sole discretion, to substitute assets of equal market value for any
asset held by the Trust, on the same basis as provided in Section 2(d). The
right of the Company to purchase or substitute assets held in the Trust is
exercisable by the Company in a nonfiduciary capacity.
(b) So long as the Management Voting Trust Agreement is in effect,
Shares represented by Voting Trust Certificates held in the Trust shall be voted
by the Voting Trustees in accordance with the terms of such Management Voting
Trust Agreement. Thereafter, the Trustee shall vote or abstain from voting the
Shares with respect to any matters brought before shareholders as directed by
the Administrator; provided, however, that
-4-
<PAGE> 7
the Administrator may, but shall not be required to, direct that the Trustee
shall vote or abstain from voting the Shares credited to each Participant's
Deferral Account in accordance with the instructions of the Participant. The
Trustee shall tender or not tender any Shares in any tender or exchange offer as
directed by the Administrator. With respect to any assets of the Trust other
than Shares, all rights associated with assets of the Trust shall be exercised
by the Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with the Company, the Participants or their
Beneficiaries.
(c) When disposing of assets held in the Trust, nothing shall
prevent the Trustee, upon the direction of the Administrator, from selling such
assets to the Participants or their Beneficiaries at fair market value as
determined by the Trustee.
(d) The Trustee may hold the assets of the Trust in nominee name.
(e) When the Trustee delivers property against payment, delivery of
the property and receipt of payment may not be simultaneous. The risk of
non-receipt of payment shall be the Trust's and the Trustee shall have no
liability therefor, unless such non-receipt of payment is a result of the
Trustee's (or its officers', directors', employees', nominees' or agents') gross
negligence or willful misconduct. All credits to the Trust of the anticipated
proceeds of sales and redemptions of property and of anticipated income from
property shall be conditional upon receipt by the Trustee of final payment and
may be reversed to the extent final payment is not received. At the discretion
of the Trustee, the Trust may make use of such conditional credits. To the
extent such credits do not become unconditional by receipt of final payment, the
Trust shall reimburse the Trustee upon demand for the amount of such conditional
credits so used. When the Trustee is to receive property, it is authorized to
accept documents in lieu of such property as long as such documents contain the
agreement of the issuer thereof to hold such property subject to the Trustee's
sole order. The Trustee may, in its discretion, advance funds to the Trust to
facilitate the settlement of any trade. In the event of such an advance, the
Trust shall immediately reimburse the Trustee for the amount thereof.
7. Disposition of Income
During the term of this Trust, all income received by the Trust
shall be accumulated and reinvested in accordance with Section 6 above.
8. Accounting by Trustee
(a)(1) The Trustee shall keep accurate and detailed accounts of all
its receipts, investments and disbursements under this Agreement. Such person or
persons as the Company shall designate shall be allowed to inspect the books of
account relating to the Trust upon request at any reasonable time during the
business hours of the Trustee.
(ii) Within 20 business days after the close of each calendar year,
the Trustee shall transmit to the Company, and certify the accuracy of, a
written statement of the assets and liabilities of the Trust (including each
Participant's Deferral Account) at the close of that year and a written account
of all the Trustee's transactions relating to the Trust during the period from
the last previous accounting to the close of that year. (For purposes of this
paragraph, the date of the Trustee's resignation or removal as provided in
Section 11 hereof shall be deemed to be the close of a calendar year.)
-5-
<PAGE> 8
(iii) Unless the Company shall have filed with the Trustee written
exceptions or objections to any such statement and account within 90 days after
receipt thereof, the Company shall be deemed to have approved such statement and
account, and in such case or upon the written approval by the Company of any
such statement and account, the Trustee shall be forever released and discharged
with respect to all matters and things embraced in such statement and account as
though it had been settled by decree of a court of competent jurisdiction in an
action or proceeding to which the Company and all persons having any beneficial
interest in the Trust were parties.
(b) Nothing contained in this Agreement, the Plan, Payment Schedules
or any other compensatory arrangement theretofore established with respect to
which the Trust is then holding assets shall deprive the Trustee of the right to
have a judicial settlement of its accounts. In any proceeding for a judicial
settlement of the Trustee's account or for instructions in connection with the
Trust, the only other necessary parties thereto in addition to the Trustee shall
be the Company. No person interested in the Trust, other than the Company, shall
have a right to compel an accounting, judicial or otherwise, by the Trustee, and
each Participant and Beneficiary shall be bound by all accounting by the Trustee
to the Company, as herein provided, as if the account had been settled by decree
of a court of competent jurisdiction in an action or proceeding to which such
person was a party.
9. Responsibility of the Company and Trustee
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Committee or the Administrator.
(b) The Trustee may retain and consult with counsel, who may be
counsel for the Company or for the Trustee in its individual capacity, and shall
not be deemed imprudent by reason of its taking or refraining from taking any
action in accordance with the opinion of counsel. The Trustee shall not be
required to give any bond or any other security for the faithful performance of
its duties under this Agreement, except as required by law.
(c) The Trustee shall be under no duties whatsoever, except such
duties as are specifically set forth as such in this Agreement or as otherwise
agreed to in writing by the Trustee. The Trustee shall not be compelled to take
any action toward the execution or performance of the Trust created hereunder or
to prosecute or defend any suit or claim in respect thereof, unless indemnified
to its satisfaction against loss, liability and reasonable costs and expenses.
The Trustee shall be under no liability or obligation to anyone with respect to
any failure on the part of the Company to perform any of its obligations under
this Agreement.
(d) The Company shall act in accordance with the Plan and any other
compensatory arrangement theretofore established with respect to which the Trust
is then holding assets, and the Trustee shall not be responsible in any respect
for acting in accordance with the Plan or such arrangements nor shall the
Trustee be responsible for the adequacy of the Trust to meet and discharge all
payments and liabilities thereunder. The Trustee shall be fully protected in
relying upon any written notice, certificate, instruction, direction or other
communication of any investment manager appointed by the Company, the
Administrator or
-6-
<PAGE> 9
other authorized officers of the Company that is not contrary to the express
provisions of this Agreement. The Company shall furnish the Trustee with the
name and specimen signature of the Administrator or person authorized to act on
behalf of the Administrator and other officers of the Company authorized to act
or give directions hereunder and shall promptly notify the Trustee of the
termination of the Administrator or person authorized to act on behalf of the
Administrator and the appointment of a successor thereto. Until notified to the
contrary, the Trustee shall be fully protected in relying upon the most recent
name and specimen signature(s) of the Administrator or any other authorized
officer of the Company furnished to it by the Company.
(e) Unless other evidence with respect thereto has been specifically
prescribed in this Agreement, any action of the Company under any provision of
this Agreement, including any approval of or exceptions to the Trustee's
accounts, shall be evidenced by a certificate signed by the Administrator, and
the Trustee shall be fully protected in relying upon such certificate without
further inquiry. The Trustee may accept a certificate signed by the
Administrator as proof of any fact or matter that it deems necessary or
desirable to have established in the administration of the Trust (unless other
evidence of such fact or matter is expressly prescribed herein), and the Trustee
shall be fully protected in relying upon the statements in the certificate
without further inquiry.
(f) The Trustee shall be entitled conclusively to rely upon any
written notice, instruction, direction, certificate or other communication
believed by it to be genuine and to be signed by the proper person or persons,
and the Trustee shall be under no duty to make investigation or inquiry as to
the truth or accuracy of any statement contained therein.
(g) Until notice be given to the contrary, communications to the
Trustee shall be sent to it at its offices located at ________________________,
Attention: __________________,and to the Company at its offices located at 285
Madison Avenue, New York, NY 10017-6486, Attention: General Counsel.
(h) The Trustee shall have, without exclusions, all powers conferred
on trustees by applicable law, unless expressly provided otherwise herein.
(i) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall not have any power
that could give
-7-
<PAGE> 10
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.
10. Transaction Costs, Taxes, Compensation and Expenses of Trustee
(a) The Company shall pay (or make available to the Trustee to pay)
any transaction costs and any federal, state, local or other taxes (including
withholding taxes) imposed or levied with respect to the corpus and/or income of
the Trust or any part thereof under existing or future laws, and the Company, in
its discretion, may contest the validity or amount of any transaction cost or
any tax assessment, claim or demand respecting the Trust or any part thereof.
Notwithstanding the foregoing, to the extent instructed by the Administrator and
to the extent Trust assets are available, the Trustee, solely in its capacity as
trustee and not in its individual capacity, shall advance funds to the Company
to enable the Company to satisfy any such transaction costs or taxes. Such
advances shall be repayable at such date or dates, with interest at a rate as
determined by the Administrator in its sole discretion, and such advances shall
be charged against the Deferral Accounts of one or more Participants as the
Administrator may direct. In the event the Company pays such taxes directly, the
Administrator may, in its sole discretion, require the Trustee to reimburse the
Company for the cost of funds (as determined by the Administrator) incurred by
the Company for any tax payments made on behalf of the Trust, and such
reimbursements shall be charged against the Deferral Accounts of one or more
Participants as the Administrator may direct.
(b) The Company shall pay to the Trustee from time to time such
reasonable compensation for its services as trustee as shall be agreed upon by
the Company and the Trustee. The Company shall also pay the reasonable and
necessary expenses (including reasonable fees of counsel engaged by the Trustee
pursuant to Section 9(b) of this Agreement) incurred by the Trustee in the
performance of its duties under this Agreement. Any compensation and expenses
which are otherwise reimbursable under this Section and which are not paid by
the Company may be deducted by the Trustee from the assets of the Trust in
proportion to the relative balances of Participant Deferral Accounts. If the
Trustee satisfies such obligations out of the assets of the Trust, the Company
shall immediately, upon demand by the Trustee, deposit into the Trust a sum
equal to the amount paid by the Trust.
11. Resignation and Removal of Trustee
(a) The Trustee may resign at any time by written notice to the
Company, which shall be effective 60 days after receipt of such notice unless
the Company and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on 60 days' written
notice or upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall be transferred to the successor Trustee. The
transfer shall be completed within 60 days after receipt of notice of
resignation or removal, unless the Company extends the time limit.
-8-
<PAGE> 11
(d) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 12 hereof, by the effective date of
resignation or removal under paragraph (a) or (b) of this Section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
the Trustee in connection with the proceeding shall be paid by the Company. In
no event shall the Trustee cease to be Trustee until the assets of the Trust are
transferred and delivered to the successor trustee in accordance with Section 12
hereof.
12. Appointment of Successor Trustee
If the Trustee resigns or is removed in accordance with Section 11
hereof, the Committee shall appoint a successor trustee to act hereunder after
the effective date of such removal or resignation. The appointment shall be
effective when accepted in writing by the successor trustee. Each successor
trustee shall have the powers and duties conferred upon the Trustee in this
Agreement, and the term "Trustee" as used in this Agreement shall be deemed to
include any successor trustee. Upon appointment of a successor trustee, the
Trustee shall transfer and deliver the Trust to the successor trustee, reserving
such sums as the Trustee shall deem necessary to defray its reasonable expenses
in settling its accounts, to pay any of its compensation due and unpaid and to
discharge any obligation of the Trust for which the Trustee may be liable. Any
amounts remaining shall be restored to the Trust by the Company with interest at
a rate, if any, determined by the Administrator in its sole discretion. If the
sums so reserved are not sufficient for these purposes, the Trustee shall be
entitled to recover the amount of any deficiency from the Company. When the
Trust shall have been transferred and delivered to the successor trustee and the
accounts of the Trustee have been settled as provided in Section 8 hereof, the
Trustee shall be released and discharged from all further accountability or
liability for the Trust and shall not be responsible in any way for the further
disposition of the Trust or any part thereof.
13. Amendment or Termination
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan or any other compensatory
arrangement theretofore established with respect to which the Trust is then
holding assets or shall make the Trust revocable if the Trust has become
irrevocable. The Company shall certify to the Trustee that any proposed
amendment complies with the requirements of this Section 13(a).
(b) The Trust shall not terminate until the earlier to occur of (i)
the date on which the Participants or their Beneficiaries are no longer entitled
to any benefits pursuant to the Plan or any other compensatory arrangement
theretofore established with respect to which the Trust is then holding assets
or (ii) the death of the last surviving Participant or Beneficiary. Upon
termination of the Trust, any assets remaining in the Trust shall be returned to
the Company.
14. Miscellaneous
-9-
<PAGE> 12
(a) In the event that any provision of this Trust Agreement shall be
declared illegal or invalid for any reason, such illegality or invalidity shall
not affect the remaining provisions of this Trust Agreement but shall be fully
severable, and this Trust Agreement shall be construed and enforced as if said
illegal or invalid provision had never been inserted herein.
(b) Other than by will or the laws of descent and distribution, no
right, title or interest of any kind in this Trust Agreement shall be
transferable or assignable by a Participant or his or her Beneficiary or be
subject to alienation, anticipation, encumbrance, garnishment, attachment, levy,
execution or other legal or equitable process, nor subject to the debts,
contracts, liabilities or engagements, or torts of any Participant or his or her
Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge, garnish,
attach or take any other action subject to legal or equitable process or
encumber or dispose of any interest in this Trust Agreement shall be void.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) The titles to Sections of this Trust Agreement are placed herein
for convenience of reference only, and the Trust Agreement is not to be
construed by reference thereto.
(e) This Trust Agreement shall bind and inure to the benefit of
successors and assigns of the Company and the Trustee, respectively, and the
Participants or their Beneficiaries and their legal representatives (e.g.,
executors, administrators, conservators, etc.).
(f) This Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one instrument, which may be sufficiently
evidenced by any counterpart.
15. Effective Date
The effective date of this Trust Agreement shall be the day and year
first above written.
IN WITNESS WHEREOF, the parties hereto have executed this Trust
Agreement as of the day and year first above written.
YOUNG & RUBICAM INC.
By:
-------------------------------
Title:
----------------------------
-10-
<PAGE> 13
, as Trustee
-----------------------
By:
-------------------------------
Title:
----------------------------
-11-
<PAGE> 1
Exhibit 10.28
Young & Rubicam Inc.
Amendment to 1997 Incentive Compensation Plan
1. Amendment. The Young & Rubicam Inc. 1997 Incentive Compensation
Plan is hereby amended by deleting the definition of "Eligible Person" and
replacing it with the following:
" (n) "Eligible Person" means each Executive Officer and other
officers and employees of the Corporation or of any Affiliate, including
such persons who have accepted offers of employment from the Corporation
or any Affiliate, such persons who may also be directors of the
Corporation, and each other person who provides services to the
Corporation and/or its Affiliates. An employee on leave of absence may be
considered as still in the employ of the Corporation or an Affiliate for
purposes of eligibility for participation in the Plan."
<PAGE> 1
Exhibit 10.29
---------------------------------------
U.S. $400,000,000
CREDIT AGREEMENT
Dated as of May [__], 1998
YOUNG & RUBICAM INC.
and the other Borrowers named herein or
that hereafter become Borrowers hereunder
as Borrowers
THE BANKS NAMED HEREIN
as Banks
CITIBANK, N.A.
as Administrative Agent and Documentation Agent
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
as Syndication Agent
CITICORP SECURITIES, INC.
as Arranger
BANCAMERICA ROBERTSON STEPHENS
as Co-Arranger
---------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS..........................................................................1
SECTION 1.02. COMPUTATION OF TIME PERIODS...................................................................18
SECTION 1.03. ACCOUNTING TERMS..............................................................................18
SECTION 1.04. CURRENCIES AND TYPES OF ADVANCES..............................................................18
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. THE REVOLVING CREDIT ADVANCES.................................................................18
SECTION 2.02. SWING LINE ADVANCES...........................................................................21
SECTION 2.03. FEES..........................................................................................24
SECTION 2.04. CHANGES IN COMMITMENTS........................................................................24
SECTION 2.05. REPAYMENT OF ADVANCES.........................................................................26
SECTION 2.06. INTEREST......................................................................................26
SECTION 2.07. ADDITIONAL INTEREST ON LIBO RATE ADVANCES.....................................................28
SECTION 2.08. INTEREST RATE DETERMINATIONS; CHANGES IN PRICING LEVELS.......................................28
SECTION 2.09. CONVERSION AND CONTINUATION OF ADVANCES.......................................................29
SECTION 2.10. OPTIONAL AND MANDATORY PREPAYMENTS OF ADVANCES................................................30
SECTION 2.11. INCREASED COSTS...............................................................................31
SECTION 2.12. ILLEGALITY....................................................................................32
SECTION 2.13. PAYMENTS AND COMPUTATIONS.....................................................................33
SECTION 2.14. TAXES.........................................................................................34
SECTION 2.15. PRO RATA TREATMENT............................................................................36
SECTION 2.16. SHARING OF PAYMENTS, ETC......................................................................37
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL BORROWING.....................................................38
SECTION 3.02. CONDITIONS PRECEDENT TO EACH BORROWING........................................................39
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES................................................................40
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.01. AFFIRMATIVE COVENANTS.........................................................................46
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
SECTION 5.02. NEGATIVE COVENANTS............................................................................51
SECTION 5.03 FINANCIAL COVENANTS...........................................................................55
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT.............................................................................56
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. AUTHORIZATION AND ACTION......................................................................58
SECTION 7.02. ADMINISTRATIVE AGENT'S RELIANCE, ETC..........................................................59
SECTION 7.03. CITIBANK AND AFFILIATES.......................................................................59
SECTION 7.04. BANK CREDIT DECISION..........................................................................60
SECTION 7.05. INDEMNIFICATION...............................................................................60
SECTION 7.06. SUCCESSOR ADMINISTRATIVE AGENT................................................................60
SECTION 7.07. SYNDICATION AGENT.............................................................................61
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. AMENDMENTS, ETC...............................................................................61
SECTION 8.02. NOTICES, ETC..................................................................................62
SECTION 8.03. NO WAIVER; REMEDIES...........................................................................62
SECTION 8.04. COSTS, EXPENSES AND INDEMNIFICATION...........................................................62
SECTION 8.05. RIGHT OF SET-OFF..............................................................................64
SECTION 8.06. BINDING EFFECT................................................................................64
SECTION 8.07. ASSIGNMENTS AND PARTICIPATIONS................................................................64
SECTION 8.08. GOVERNING LAW; SUBMISSION TO JURISDICTION.....................................................67
SECTION 8.09. SEVERABILITY..................................................................................68
SECTION 8.10. EXECUTION IN COUNTERPARTS.....................................................................68
SECTION 8.11. SURVIVAL......................................................................................68
SECTION 8.12. WAIVER OF JURY TRIAL..........................................................................68
SECTION 8.13. CONFIDENTIALITY...............................................................................68
SECTION 8.14. EUROPEAN MONETARY UNION.......................................................................69
SECTION 8.15. ADDITIONAL SUBSIDIARY BORROWERS...............................................................70
SECTION 8.16. WAIVER OF IMMUNITY............................................................................70
SECTION 8.17. JUDGMENT CURRENCY.............................................................................70
ARTICLE IX
GUARANTEE
SECTION 9.01. THE GUARANTEE.................................................................................71
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
SECTION 9.02 OBLIGATIONS UNCONDITIONAL......................................................................72
SECTION 9.03 REINSTATEMENT..................................................................................72
SECTION 9.04 SUBROGATION....................................................................................73
SECTION 9.05 REMEDIES.......................................................................................73
SECTION 9.06 CONTINUING GUARANTEE...........................................................................73
SECTION 9.07 INSTRUMENT FOR THE PAYMENT OF MONEY............................................................73
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C> <C>
Schedule I - ERISA Matters
Schedule II - Existing Liens
EXHIBITS
Exhibit A - Form of Note
Exhibit B-1 - Form of Notice of Revolving Credit Borrowing
Exhibit B-2 - Form of Notice of Swing Line Borrowing
Exhibit C-1 - Form of Opinion of General Counsel to the Company
Exhibit C-2 - Form of Opinion of Special Counsel to the Company
Exhibit D - Form of Opinion of Special New York Counsel to the Administrative Agent
Exhibit E - Form of Assignment and Acceptance
Exhibit F - Form of Subsidiary Borrower Supplement
</TABLE>
<PAGE> 5
CREDIT AGREEMENT dated as of May [__], 1998, among YOUNG &
RUBICAM INC., a Delaware corporation (the "Company"), the subsidiaries of the
Company listed on the signature pages hereto under the caption "Subsidiary
Borrowers" and each other subsidiary of the Borrower that hereafter becomes a
Subsidiary Borrower hereunder as provided in Section 8.15 (the "Subsidiary
Borrowers" and, together with the Company, the "Borrowers"), the banks (the
"Banks") listed on the signature pages hereof, CITIBANK, N.A. ("Citibank") as
administrative agent (in such capacity, the "Administrative Agent") for the
Banks hereunder, and Bank of America National Trust and Savings Association as
syndication agent (in such capacity, the "Syndication Agent").
The Borrowers have requested that the Banks make loans to them
in an aggregate principal amount up to but not exceeding $400,000,000 at any one
time outstanding in Dollars and/or in certain other Approved Currencies (as
hereinafter defined) for general corporate purposes, including the making of
acquisitions and repayment of the Debt (as hereinafter defined) under the
Existing Credit Agreement (as hereinafter defined), and the Banks are prepared
to make such loans upon the terms and conditions hereof.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Acquisition" shall mean any transaction, or any series of
related transactions, consummated after the date of this Agreement, by
which the Company and/or any of its Subsidiaries (a) acquires any going
business or all or substantially all of the Property of any firm,
corporation or division thereof, whether through the purchase of
assets, merger or otherwise, (b) directly or indirectly acquires (in
one transaction or as the most recent transaction in a series of
transactions) control of at least a majority of Voting Shares of
another Person or (c) directly or indirectly acquires control of a 50%
or more ownership interest in any partnership, joint venture or other
entity, or of any general partnership (or equivalent) interest in any
such entity.
"Administrative Agent's Account" shall mean, for each Approved
Currency, an account in respect of such Approved Currency designated by
the Administrative Agent in a notice to the Company and the Banks.
"Advance" means a Revolving Credit Advance or a Swing Line
Advance.
<PAGE> 6
-2-
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person. For purposes of this definition, the term
"control" (including the terms "controlling", "controlled by" and
"under common control with") of a Person means the possession, direct
or indirect, of the power to vote 10% or more of the Voting Shares of
such Person or to direct or cause the direction of the management and
policies of such Person, whether through the ownership of such Voting
Shares, by contract or otherwise.
"Alternate Currency" means any Foreign Currency that is dealt
with in the London interbank deposit market, and is freely transferable
and convertible into Dollars in the London foreign exchange market and
available to all of the Banks.
"Applicable Facility Fee Rate" for any Pricing Level Period
means the rate set forth below opposite the reference to such Pricing
Level Period:
<TABLE>
<CAPTION>
Applicable
Pricing Level Facility
Period Fee Rate (% p.a.)
------ -----------------
<S> <C> <C>
Pricing Level 1 Period 0.125%
Pricing Level 2 Period 0.150%
Pricing Level 3 Period 0.200%
</TABLE>
Each change in the Applicable Facility Fee Rate resulting from a
Pricing Level Change shall be effective on the effective date of such
Pricing Level Change. The Applicable Facility Fee Rate at the Closing
Date and until the first Pricing Level Change will be 0.150% per annum.
"Applicable Lending Office" means, with respect to each Bank,
for each Currency and Type of Advance, such Bank's Domestic Lending
Office in the case of a Base Rate Advance and such Bank's LIBO Lending
Office the case of a LIBO Rate Advance.
"Applicable Margin" in respect of any Advance for any Pricing
Level Period means the rate for the respective Type of Advance set
forth below opposite the reference to such Pricing Level Period:
Credit Agreement
<PAGE> 7
-3-
<TABLE>
<CAPTION>
Base Rate LIBO
Pricing Level Advances Rate Advances
Period (% p.a.) (% p.a.)
------ -------- --------
<S> <C> <C> <C>
Pricing Level 1 Period 0.0000% 0.2750%
Pricing Level 2 Period 0.0000% 0.3000%
Pricing Level 3 Period 0.0000% 0.3000%
</TABLE>
Each change in the Applicable Margin resulting from a Pricing Level
Change shall take effect on the effective date of such Pricing Level
Change. The Applicable Margin at the Closing Date and until the first
Pricing Level Change will be (a) 0.0000% per annum for Base Rate
Advances and (b) 0.3000% per annum for LIBO Rate Advances.
"Approved Currency" means Dollars, or, subject to Section
8.14, any Specified Eurocurrency or any Alternate Currency.
"Approved Foreign Currency" means an Approved Currency other
than Dollars.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Bank and an assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit E.
"Banks" means the Banks listed on the signature pages hereof,
and each Person that shall become a party hereto pursuant to Section
2.04(a) or Section 8.07(a), (b) and (c).
"BARS" means BancAmerica Robertson Stephens.
"Base Rate" means, for any period, a fluctuating interest rate
per annum in effect from time to time which rate per annum shall at all
times be equal to the highest of:
(a) the rate of interest announced publicly by Citibank
in New York, New York, from time to time, as
Citibank's base rate;
(b) 0.50% per annum above the Federal Funds Rate; and
(c) the sum (adjusted to the nearest 1/16 of one percent
or, if there is no nearest 1/16 of one percent, to
the next higher 1/16 of one percent) of (i) 0.50% per
annum plus (ii) the rate obtained by dividing (x) the
latest three-week moving average of secondary market
morning offering rates in the United States for
three-month certificates of deposit of major United
States money center banks, such three-week moving
average (adjusted to
Credit Agreement
<PAGE> 8
-4-
the basis of a year of 365 days) being determined
weekly on each Monday (or, if such day is not a
Business Day, on the next succeeding Business Day)
for the three-week period ending on the previous
Friday by Citibank on the basis of such rates
reported by certificate of deposit dealers to and
published by the Federal Reserve Bank of New York or,
if such publication shall be suspended or terminated,
on the basis of quotations for such rates received by
Citibank from three New York certificate of deposit
dealers of recognized standing selected by Citibank
by (y) a percentage equal to 100% minus the average
of the daily percentages specified during such
three-week period by the Board of Governors of the
Federal Reserve System (or any successor) for
determining the maximum reserve requirement
(including, but not limited to, any emergency,
supplemental or other marginal reserve requirement)
for Citibank with respect to liabilities consisting
of or including (among other liabilities) three-month
Dollar non-personal time deposits in the United
States plus (iii) the average during such three-week
period of the annual assessment rates estimated by
Citibank for determining the then current annual
assessment rate payable by Citibank to the Federal
Deposit Insurance Corporation (or any successor) for
insuring Dollar deposits of Citibank in the United
States.
Each change in any interest rate provided for herein based upon the
Base Rate resulting from a change in the Base Rate shall take effect at
the time of such change in the Base Rate.
"Base Rate Advance" means, at any time, an Advance which bears
interest at the Base Rate.
"Borrowing" means a Revolving Credit Borrowing or a Swing Line
Borrowing.
"Business Day" means a day of the year (a) on which banks are
not required or authorized to close in New York, New York, (b) if the
applicable Business Day relates to any LIBO Rate Advance, on which
dealings in deposits denominated in the Currency of such LIBO Rate
Advance are carried on in the London interbank market, and (c) if such
day relates to a Borrowing of, a payment or prepayment of principal of
or interest on, or the Interest Period for, any Advance denominated in
any Foreign Currency or a notice by the Borrower with respect to any
such Borrowing, payment, prepayment or Interest Period, that is also a
day on which commercial banks settle payments in the Principal
Financial Center for the Currency in which such Advance is denominated
and in which the London foreign exchange market settles payments in
such Currency.
"Capital Lease Obligations" means, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease
of (or other agreement conveying the right to use) real and/or personal
Property which obligations are required to be classified
Credit Agreement
<PAGE> 9
-5-
and accounted for as a capital lease on a balance sheet of such Person
under GAAP and, for purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.
"Cash Equivalents" means (a) securities with maturities of one
year or less from the date of acquisition thereof issued or fully
guaranteed or insured by the United States Government or any agency
thereof, (b) certificates of deposit and Eurodollar time deposits with
maturities of one year or less from the date of acquisition thereof and
overnight bank deposits of any Bank or of any commercial bank having
capital and surplus in excess of $500,000,000, (c) repurchase
obligations of any Bank or of any commercial bank satisfying the
requirements of clause (b) of this definition, having a term of not
more than 30 days with respect to securities issued or fully guaranteed
or insured by the United States Government, (d) commercial paper of a
domestic issuer rated at least A-2 by Standard and Poor's Rating Group
("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), (e)
securities with maturities of one year or less from the date of
acquisition thereof issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or
foreign government (as the case may be) are rated at least A by S&P or
A by Moody's, (f) securities with maturities of one year or less from
the date of acquisition thereof backed by standby letters of credit
issued by any Bank or any commercial bank satisfying the requirements
of clause (b) of this definition or (g) shares of money market mutual
or similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"Change in Control" means:
(i) any "person" or "group" (as such terms are used in
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended), other than (a) the HFCP Investors and their "affiliates"
(as such term is defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended) or (b) the Management Voting Trust or the
Management Investors becomes the "beneficial owner" (as defined in Rule
13d-3 of the Securities Exchange Act of 1934, as amended), directly or
indirectly, of Voting Shares of the Company (or other securities
convertible into such Voting Shares) representing not less than 30% of
the combined voting power of all Voting Shares of the Company; or
(ii) individuals who as of the date hereof are directors of
the Company (together with any new director whose election by the board
of directors or whose nomination for election by the stockholders of
the Company was approved by a vote of at least a majority of the
directors then in office who either were directors as of the date
hereof or whose election or nomination for election was previously so
approved) shall cease for any reason (other than solely as a result of
(a) death or disability or (b) voluntary retirement of any individual
in the ordinary course and not for reasons related to an actual
Credit Agreement
<PAGE> 10
-6-
or proposed change in control of the Company) to constitute a majority
of the board of directors of the Company; or
(iii) any Person or two or more Persons acting in concert
(excluding (a) the HFCP Investors and their "affiliates" (as such term
is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended)) or (b) the Management Voting Trust or the Management
Investors shall have acquired the power to exercise, directly or
indirectly, effective control for any purpose over Voting Shares of the
Company (or other securities convertible into such securities)
representing not less than 30% of the combined voting power of all
Voting Shares of the Company.
"Closing Date" means the date on which the Administrative
Agent notifies the Company that the conditions precedent set forth in
Section 3.01 shall have been satisfied or waived.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Commitment" has the meaning specified in Section 2.01(a)(i).
"Commitment Termination Date" means May [__], 2003, provided,
that if such date is not a Business Day, then the Commitment
Termination Date shall be the immediately preceding Business Day.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Company within the
meaning of Section 4001 of ERISA or is part of a group which includes
the Company and which is treated as a single employer under Section 414
of the Code.
"Consolidated" means, when used in connection with any term
(which is not otherwise defined herein), such term as it applies to the
Company and its Subsidiaries on a consolidated basis in accordance with
GAAP, after eliminating all intercompany items.
"Consolidated Debt" means, at any time, the aggregate
outstanding principal amount of all Debt of the Company and its
Subsidiaries, determined on a consolidated basis in accordance with
GAAP, provided, that any portion of Consolidated Debt denominated in a
currency other than Dollars, and any cash balances or securities
denominated in a currency other than Dollars, shall be converted to
Dollars in the manner set forth in the definition of "Dollar
Equivalent".
"Consolidated EBITDA" means, for any period, the amount equal
to Consolidated Net Income for such period excluding non-operating
gains or losses, plus, in each case to the extent deducted in
determining Consolidated Net Income for such period, the sum for the
Company and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP, of the following: (a) Consolidated Interest
Expense for such period, (b)
Credit Agreement
<PAGE> 11
-7-
amortization or write-off of debt issuance costs in connection with the
termination of the Existing Credit Agreement, (c) Consolidated
provision for income taxes for such period, (d) Consolidated
depreciation and amortization expense for such period, (e) Consolidated
non-cash compensation expense attributable to the vesting, in
connection with the consummation of the public offering of the shares
of common stock of the Company referred to in Section 3.01(g), of
9,231,105 shares of restricted common stock of the Company, (f) any
amounts in respect of the minority interest of any other Person in the
Company and its Subsidiaries for such period, (g) the amount of all
dividends received during such period from Persons which are not
Wholly-Owned Subsidiaries of the Company, but which the Company reports
on a consolidated basis in accordance with GAAP, (h) expenses incurred
or reserves taken during such period associated with (i) the sale of
the New York Real Property, including the relocation or consolidation
of individuals and offices located in New York City (whether or not
occupying the New York Real Property) in connection with, or in
anticipation of, such sale, or (ii) the relocation or consolidation of
individuals and offices located in New York City, currently occupying
more than 300,000 square feet, including in each case all expenses of
renovating office space, and (i) equity losses from any other Person
which is partially-owned by the Company but which is not a Wholly-Owned
Subsidiary of the Company and which is not Consolidated for such
period, minus, in each case to the extent added in determining such
Consolidated Net Income for such period, (x) any amounts in respect of
the minority interest of any other Person in the Company and its
Subsidiaries for such period, (y) the amount of all dividends paid
during such period by Persons which are not Wholly-Owned Subsidiaries
of the Company, but which the Company reports on a consolidated basis
in accordance with GAAP, and (z) equity gains from any other Person
which is partially-owned by the Company but which is not a Wholly-Owned
Subsidiary of the Company and which is not Consolidated for such
period.
"Consolidated Interest Expense" means, for any period, for the
Company and its Consolidated Subsidiaries, the sum, determined on a
consolidated basis in accordance with GAAP and without duplication, of
the aggregate amount of interest accruing during such period by the
Company and its Consolidated Subsidiaries, including the interest
portion of payments under Capital Lease Obligations and any capitalized
interest and amortization of debt discount and expense, but excluding
interest paid in kind and amortization or write-off of debt issuance
costs in connection with the termination of the Existing Credit
Agreement, provided that (a) Consolidated Interest Expense for the
period of four consecutive fiscal quarters ending June 30, 1998 shall
be equal to the product of Consolidated Interest Expense for the fiscal
quarter ending June 30, 1998 multiplied by four, (b) Consolidated
Interest Expense for the period of four consecutive fiscal quarters
ending September 30, 1998 shall be equal to the product of Consolidated
Interest Expense for the two consecutive fiscal quarters ending
September 30, 1998 multiplied by two, (c) Consolidated Interest Expense
for the period of four consecutive fiscal quarters ending December 31,
1998 shall be equal to the product of Consolidated Interest Expense for
the three consecutive fiscal quarters ending December 31, 1998
Credit Agreement
<PAGE> 12
-8-
multiplied by a fraction, the numerator of which is four and the
denominator of which is three.
"Consolidated Net Income" means, for any period, the net
income of the Company and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with GAAP for such period.
"Consolidated Subsidiary" means, at any date, any Subsidiary
of the Company the accounts of which are consolidated with those of the
Company in its consolidated financial statements prepared in accordance
with GAAP.
"Continue", "Continuation" and "Continued" each refers to a
continuation of Advances of one Type as Advances of the same Type
pursuant to Section 2.09(b).
"Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any agreement,
instrument or other undertaking to which such Person is a party or
by which it or any of its Property is bound.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.09(a), (c) or (d).
"CSI" means Citicorp Securities, Inc.
"Currency" means Dollars or any Foreign Currency.
"Debt" of any Person means, without duplication, (a)
indebtedness of such Person for borrowed money, (b) obligations of such
Person evidenced by bonds, debentures, notes or other similar
instruments (other than any subordinated payment obligations existing
on the Closing Date in respect of the repurchase, retirement or
redemption of capital stock of the Company from former Management
Investors), (c) obligations of such Person to pay the deferred purchase
price of Property or services, (d) Capital Lease Obligations of such
Person, (e) Debt of others Guaranteed by such Person, (f) Debt of
others secured by a Lien on the Property of such Person, (g) all
obligations of such Person to redeem, retire, defease or otherwise make
any payment in respect of shares of capital stock of such Person (other
than any subordinated payment obligations existing on the Closing Date
in respect of the repurchase, retirement or redemption of capital stock
of the Company from former Management Investors), and (h) all
obligations, contingent or otherwise, of such Person in respect of
letters of credit or acceptances (excluding, however, trade accounts
payable arising in the ordinary course of business and deferred rent
and deferred employee compensation incurred in the ordinary course of
business, and, in each case, not overdue).
Credit Agreement
<PAGE> 13
-9-
"Debt to EBITDA Ratio" means, on any date, the ratio of (i)
Consolidated Debt on such date to (ii) Consolidated EBITDA for the
period of four consecutive fiscal quarters of the Company ending on or
most recently ended prior to such date.
"Default" means an Event of Default or an event that, with
notice or lapse of time or both, would become an Event of Default.
"Divestiture" shall mean any transaction, or any series of
related transactions, consummated after the date of this Agreement, by
which the Company and/or any of its Subsidiaries sells, transfers or
otherwise disposes of (a) any going business or all or substantially
all of the Property of any of its Subsidiaries, whether through the
purchase of assets, merger or otherwise or (b) at least a majority of
Voting Shares of any of its Subsidiaries.
"Dollar Equivalent" means, with respect to any Advance
denominated in any Foreign Currency, the amount of Dollars that would
be required to purchase the amount of the Foreign Currency of such
Advance on the date such Advance is requested (or (a) in the case of
any determination made under Section 2.01(a)(iii) hereof, on the date
of any Borrowing referred to therein, and (b) in the case of any
determination made under Section 2.10(c) or redenomination under the
last sentence of Section 2.13(e), on the date of determination or
redenomination therein referred to), based upon the spot selling rate
at which Citibank offers to sell such Foreign Currency for Dollars in
the London foreign exchange market at approximately 11:00 a.m. London
time for delivery two Business Days later.
"Dollars" and "$" means lawful money of the United States of
America.
"Domestic Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Domestic Lending Office" below
its signature hereto or in the Assignment and Acceptance pursuant to
which it became a Bank, or such other office of such Bank as such Bank
may from time to time specify to the Borrower and the Administrative
Agent.
"Domestic Operating Subsidiary" means any Operating Subsidiary
organized under the laws of any jurisdiction within the United States.
"Environmental Laws" means any and all present and future
United States Federal, state, local and foreign laws, rules or
regulations, and any orders or decrees, in each case as now or
hereafter in effect, relating to the regulation or protection of human
health, safety or the environment or to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals or toxic
or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface
water, ground water, wetlands, land or subsurface strata, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal,
Credit Agreement
<PAGE> 14
-10-
transport or handling of pollutants, contaminants, chemicals or toxic
or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Credit Agreement" means the Credit and Guarantee
Agreement, dated as of December 12, 1996, among Young & Rubicam
Holdings Inc., the Company, Young & Rubicam Inc., a New York
corporation, Young & Rubicam L.P., the Subsidiary Borrowers party
thereto, the Lenders party thereto, Bank of America National Trust and
Savings Association, as Administrative Agent, and Bank of America
International Limited, as European Paying Agent.
"Facility Fee" has the meaning specified in Section 2.03(a).
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is
a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"Foreign Borrower" means each Borrower that is a Foreign
Operating Subsidiary.
"Foreign Currency" means, at any time, any currency other than
Dollars.
"Foreign Currency Equivalent" means, with respect to any
amount in Dollars, the amount of any Foreign Currency that could be
purchased with such amount of Dollars using the reciprocal of the
foreign exchange rate(s) specified in the definition of the term
"Dollar Equivalent", as determined by the Administrative Agent.
"Foreign Operating Subsidiary" means any Operating Subsidiary
of the Company organized under the laws of any jurisdiction outside the
United States of America.
"GAAP" has the meaning specified in Section 1.03.
Credit Agreement
<PAGE> 15
-11-
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt
of another Person, including without limitation, any obligation of such
Person (a) to purchase or pay (or supply or advance funds for the
purchase or payment of) such Debt (whether arising by virtue of
partnership arrangements, by agreement to keep- well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise), or (b) entered into for
the purpose of assuring in any other manner the holder of such Debt of
the payment thereof in whole or in part; provided, that the term
"Guarantee" shall not include any endorsement of an instrument for
deposit or collection in the ordinary course of business. The term
"Guarantee" used as verb has a corresponding meaning.
"HFCP Investors" means, collectively, Hellman & Friedman
Capital Partners III, L.P., a California limited partnership, H&F
Orchard Partners III, L.P. , a California limited partnership, and H&F
International Partners III, L.P. , a California limited partnership.
"Hostile Acquisition" means an Acquisition that has not been
approved by the board of directors of the target company prior to the
commencement of a tender offer or proxy contest in respect thereof.
"Inactive Subsidiary" means any Subsidiary of the Company
which (and only for so long as such Subsidiary) (a) is not a Borrower,
(b) is not then actually engaged in any business, (c) does not have
liabilities or obligations, and is not a party to any litigation or
other proceeding involving amounts, in excess of $1,000,000 in the
aggregate, (d) does not own Property with an aggregate book value in
excess of $1,000,000, (e) does not own any capital stock of any Person
(other than another Inactive Subsidiary) and (f) does not incur any
liabilities or obligations other than in connection with its continued
inactive existence or the liquidation or dissolution thereof.
"Insolvent" means, with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA. "Insolvency" has a correlative meaning.
"Interest Coverage Ratio" means, on any date, the ratio of (a)
Consolidated EBITDA for the period of four consecutive fiscal quarters
most recently ended on or prior to such date to (b) Consolidated
Interest Expense for such period.
"Interest Period" means, with respect to any LIBO Rate
Advance, the period beginning on the date such LIBO Rate Advance is
made, or Converted from a Base Rate
Credit Agreement
<PAGE> 16
-12-
Advance or Continued as a LIBO Rate Advance, and ending on the last day
of the period selected by the Company pursuant to the provisions below.
The duration of each Interest Period in respect of any LIBO Rate
Advance shall be 1, 2, 3 or 6 months, as the Company may, upon notice
received by the Administrative Agent not later than 12:00 noon (New
York City time) on the third Business Day prior to the first day of
such Interest Period, select; provided, however, that:
(a) the Company may not select any Interest Period in
respect of any LIBO Rate Advance that ends after the
Commitment Termination Date;
(b) each Interest Period that begins on the last
Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day
of the appropriate subsequent calendar month; and
(c) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided, that, if such
extension would cause the last day of such Interest Period to
occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding
Business Day.
"Investment" has the meaning specified in Section 5.02(d).
"Joint Venture" means any corporation, partnership,
association, business trust or other entity or organization which is
not a Subsidiary of a Borrower and in which the Company or a Subsidiary
has a significant ownership interest.
"LIBO Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "LIBO Lending Office" below its
signature hereto or in the Assignment and Acceptance pursuant to which
it became a Bank (or, if no such office is specified, its Domestic
Lending Office), or such other office of such Bank as such Bank may
from time to time specify to the Borrower and the Administrative Agent.
"LIBO Rate" means, with respect to each day during the
relevant Interest Period, the rate per annum equal to the average
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum,
if such average is not such a multiple) of the rates per annum at which
deposits in Dollars or the relevant Approved Foreign Currency are
offered by the principal office of each of the Reference Banks in
London, England to prime banks in the London (or, in the case of
English Pounds Sterling, Paris) interbank market at 11:00 A.M. (London
time) two Business Days before the first day of such Interest Period
for a period comparable to such Interest Period and in an amount
approximately equal to such Reference Banks' collective pro rata share
of the requested Advance. The LIBO Rate for any Interest Period for
each LIBO Rate Advance comprising part of each Borrowing shall
Credit Agreement
<PAGE> 17
-13-
be determined by the Administrative Agent on the basis of applicable
rates furnished to and received by the Administrative Agent from the
Reference Banks two Business Days before the first day of such Interest
Period, subject, however, to the provisions of Section 2.08.
"LIBO Rate Advance" means an Advance which bears interest as
provided in Section 2.06(a)(ii) or 2.06(b)(i)(y).
"LIBO Rate Reserve Percentage" of any Bank for any Interest
Period for any LIBO Rate Advance means the effective rate (expressed as
a percentage) at which reserve requirements (including, without
limitation, emergency, supplemental and other marginal reserve
requirements) are imposed on such Bank during such Interest Period (or
if more than one such percentage shall be so applicable, the daily
average of such percentages for those days in such Interest Period
during which any such percentage shall be so applicable) under
regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) with respect to liabilities
or assets consisting of or including Eurocurrency Liabilities having a
term equal to such Interest Period.
"Lien" means any lien, security interest or other charge or
encumbrance of any kind on or with respect to Property, including,
without limitation, the retained security title of a conditional
vendor, any easement, right of way or other encumbrance on title to
real Property and any sale of accounts or general intangibles for money
due or to become due.
"Local Time" shall mean, with respect to any Advance
denominated in or any payment to be made in any Currency, the local
time in the Principal Financial Center for the Currency in which such
Advance is denominated or such payment is to be made.
"Majority Banks" means at any time Banks holding more than 50%
of the then aggregate unpaid principal amount of the Advances held by
Banks, or, if no such principal amount is then outstanding, Banks
having more than 50% of the Commitments.
"Management Investor" means any holder of Voting Shares or of
a right to acquire Voting Shares who is a current or former employee of
the Company.
"Management Voting Trust" means the voting trust established
pursuant to the Management Voting Trust Agreement, dated as of December
12, 1996.
"Material Adverse Effect" means a material adverse effect on
(a) the business, condition (financial or otherwise) or prospects of
the Company and its Subsidiaries, taken as a whole, or (b) the
legality, validity or enforceability of this Agreement or any Note, or
(c) the ability of any Borrower to perform its obligations under this
Agreement or any Note.
Credit Agreement
<PAGE> 18
-14-
"Material Foreign Operating Subsidiary" means any Foreign
Operating Subsidiary of the Company (a) which has liabilities or
obligations, or is a party to any litigation or other proceeding
involving amounts, in excess of $5,000,000 in the aggregate, provided
that no Foreign Operating Subsidiary shall be a Material Foreign
Operating Subsidiary under this clause (a) unless a Borrower or any
Domestic Operating Subsidiary or other Material Foreign Operating
Subsidiary is or may be liable for such liabilities, obligations,
litigations or proceedings, or (b) which owns assets (net of current
liabilities (other than those owed to the Company or any of its
Subsidiaries) immediately prior to the occurrence of the relevant event
described in Section 6.01(g) with respect to such Foreign Operating
Subsidiary) with an aggregate book value in excess of $5,000,000.
"Material Lease" means any lease, sublease, license or other
occupancy agreement (a) which involves an obligation with respect to
50,000 or more square feet in area of real Property and (b) to which
any Borrower or any of its Subsidiaries is a party or pursuant to which
such Borrower or any such Subsidiary uses or occupies real Property.
"Materials of Environmental Concern" means any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Law,
including, without limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Amount" means, with respect to any Investment, the cost
to the Company and its Subsidiaries of such Investment (determined in
accordance with GAAP, but without regard to any increase or decrease in
the value of such Investment, whether resulting from profits and losses
or from changes in currency exchange rates or otherwise, or the
existence of any undistributed profits or losses with respect thereto),
less any net return of capital realized upon the sale, repayment or
other liquidation of such Investment (determined in accordance with
GAAP, but without regard to any amounts realized as earnings on such
Investment).
"New York Real Property" means the real Property owned by the
Company located at 285 Madison Avenue, New York City.
"Note" means a promissory note of any Borrower payable to the
order of any Bank, in substantially the form of Exhibit A hereto,
evidencing the aggregate indebtedness of such Borrower to such Bank
resulting from the Revolving Credit Advances made by such Bank.
Credit Agreement
<PAGE> 19
-15-
"Notice of Borrowing" means a Notice of Revolving Credit
Borrowing or a Notice of Swing Line Borrowing.
"Notice of Revolving Credit Borrowing" has the meaning
specified in Section 2.01(d)(i).
"Notice of Swing Line Borrowing" has the meaning specified in
Section 2.02(d).
"Operating Subsidiary" means any Subsidiary other than an
Inactive Subsidiary.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other
entity, or a Government Authority.
"Plan" means, at any time, any employee benefit plan which is
covered by ERISA and in respect of which the Company or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Pricing Level Change" means a change in the Debt to EBITDA
Ratio that results in the change from one Pricing Level Period to
another, each Pricing Level Change to be effective on the date of
delivery by the Borrower pursuant to Section 5.01(a)(i) and (ii) of the
financial statements that demonstrate such change; provided, that if
the Borrowers shall fail to deliver when due such financial statements,
the Pricing Level 3 Period shall be deemed to apply from the date on
which such financial statements were due until they are delivered in
accordance with said Section 5.01(a)(i) or (ii).
"Pricing Level Period" means a Pricing Level 1 Period, a
Pricing Level 2 Period or a Pricing Level 3 Period.
"Pricing Level 1 Period" means a period during which the Debt
to EBITDA Ratio is less than 1.0 to 1.0.
"Pricing Level 2 Period" means a period that is not a Pricing
Level 1 Period during which the Debt to EBITDA Ratio is less than 2.5
to 1.0.
"Pricing Level 3 Period" means a period during which the Debt
to EBITDA Ratio is greater than or equal to 2.5 to 1.0.
Credit Agreement
<PAGE> 20
-16-
"Principal Financial Center" shall mean, in the case of any
Currency, the principal financial center of the country of issue of
such Currency, as determined by the Administrative Agent.
"Property" means, with respect to any Person, any property,
assets or revenues of such Person or any interest of such Person
therein.
"Quarterly Date" means the last Business Day of each March,
June, September and December.
"Reference Banks" means the principal London office of each of
Citibank, Bank of America National Trust and Savings Association and
The Bank of New York.
"Register" has the meaning specified in Section 8.07(d).
"Related Equity Securities" means, all options, warrants or
other rights to acquire, or obligations to issue, shares of capital
stock of, equity interests in, or partnership interests in, the Company
or any of its Subsidiaries, or similar securities or contractual
obligations the value of which is derived from the value of an equity
interest in the Company or any of its Subsidiaries, or securities
convertible into or exchangeable for capital stock of, equity interests
in, partnership interests in, or similar securities or contractual
obligations of, the Company or any of its Subsidiaries.
"Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA, other than those events as to which the
thirty-day notice period is waived under subsections .13, .14, .16,
.18, .19 or .20 of PBGC Reg. Section 2615.
"Reorganization" means, with respect to any Multiemployer
Plan, the condition that such plan is in reorganization within the
meaning of Section 4241 of ERISA.
"Requirement of Law" means, as to any Person, the certificate
of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its Property or to which such Person or any of its Property is
subject.
"Responsible Officer" means, as to any Person, the chief
executive officer, the president, any member of the management
committee of such Person or any other officer of such Person designated
as such in writing by any of the foregoing officers of such Person or,
with respect to financial matters, the chief financial officer, the
chief accounting officer or the treasurer of such Person.
"Revolving Credit Advance" means an advance by a Bank to a
Borrower as part of a Revolving Credit Borrowing.
Credit Agreement
<PAGE> 21
-17-
"Revolving Credit Borrowing" means (a) a borrowing consisting
of simultaneous Revolving Credit Advances of the same Currency and Type
having the same Interest Period and (b) other than for purposes of
Section 3.02, (i) the simultaneous Conversion of Revolving Credit
Advances of one Type to Revolving Credit Advances of the other Type in
the same Currency (having, in the case of Conversions into LIBO Rate
Advances, the same Interest Period) and (ii) the simultaneous
Continuation of Revolving Credit Advances of one Type as Revolving
Credit Advances of the same Type in the same Currency and having the
same Interest Period.
"Single Employer Plan" means any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"Specified Eurocurrency" means any of English Pounds Sterling,
German Deutschemarks, French Francs, Swiss Francs or Japanese Yen.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company or other entity of
which at least a majority of the Voting Shares of such corporation,
partnership, limited liability company or other entity is at the time
directly or indirectly owned or controlled by such Person or one or
more Subsidiaries of such Person or by such Person and one or more
Subsidiaries of such Person. Unless the context otherwise indicates, a
reference to a Subsidiary, shall mean a Subsidiary of the Company.
"Swing Line Advance" means an advance made by (a) the Swing
Line Bank pursuant to Section 2.02 or (b) any other Bank pursuant to
Section 2.02(g).
"Swing Line Bank" means Citibank.
"Swing Line Borrowing" means a borrowing consisting of a Swing
Line Advance made by the Swing Line Bank.
"Swing Line Facility" means an aggregate amount not to exceed
$20,000,000 at any time outstanding.
"Swing Line Reduction" has the meaning specified in Section
2.01(a)(i).
"Termination Date" means the earlier of the Commitment
Termination Date and the date of termination in whole of the
Commitments pursuant to Section 2.04(b) or 6.01.
"Voting Shares" means, at any time, as to any Person, the
outstanding securities of such Person the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person.
Credit Agreement
<PAGE> 22
-18-
"Wholly-Owned Subsidiary" means, with respect to any Person,
any Subsidiary of such Person 100% of the Voting Shares (except
qualifying shares held by directors or others in order to comply with
local law) of which are owned by such Person and/or one or more other
Wholly-Owned Subsidiaries of such Person.
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted United States accounting principles ("GAAP"), applied on a basis
consistent (except for changes concurred in by the Borrower's independent public
accountants) with the most recent audited consolidated financial statements of
the Company and its Consolidated Subsidiaries delivered to the Banks; provided,
that if, after the date of this Agreement there are any changes to GAAP, the
Company or the Required Banks may request an amendment to any provision of this
Agreement to take account of such changes, and, until such provision is so
amended or such request withdrawn, all determinations of such provision shall be
made on the basis of GAAP applied on a basis consistent with the audited
financial statements of the Company and its Consolidated Subsidiaries most
recently delivered prior to the time such changes to GAAP became effective.
SECTION 1.04. Currencies and Types of Advances. Advances are
distinguished by "Currency" and by "Type". The "Currency" of an Advance refers
to the Currency in which it is at the time denominated. The "Type" of an Advance
refers to whether it is at the time a Base Rate Advance or a LIBO Rate Advance.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Revolving Credit Advances.
(a)(i) Each Bank severally agrees, on the terms and conditions
hereinafter set forth, to make Revolving Credit Advances to any
Borrower in Dollars or (in the case of LIBO Rate Advances only) in an
Approved Foreign Currency from time to time on any Business Day during
the period from the date hereof until the Termination Date in an
aggregate amount not to exceed at any time outstanding the amount set
opposite such Bank's name on the signature pages hereof or, if such
Bank has entered into any Assignment and Acceptance, set forth for such
Bank in the Register, as such amount may
Credit Agreement
<PAGE> 23
-19-
be increased or reduced pursuant to Section 2.04 (such Bank's
"Commitment"); provided that the aggregate amount of the Commitments of
the Banks shall be deemed used from time to time to the extent of the
aggregate amount of Swing Line Advances then outstanding, such deemed
use of the aggregate amount of the Commitments to be deemed applied to
the Banks ratably according to their respective Commitments (such
deemed use of the aggregate amount of the Commitments being a "Swing
Line Reduction").
(ii) If after giving effect to any LIBO Rate Advances under
this Section 2.01(a) more than six separate Interest Periods in respect
of LIBO Rate Advances denominated in a single Currency, or more than
twelve separate Interest Periods in respect of all LIBO Rate Advances,
would be outstanding at the same time, then such Advances shall not be
required to be made as LIBO Rate Advances.
(iii) For purposes of determining (i) whether the amount of
any Borrowing, together with all other Advances then outstanding, would
exceed the aggregate amount of the Commitments, (ii) for purposes of
Section 2.04(b), the aggregate unutilized amount of the Commitments and
(iii) for purposes of Sections 2.09, 2.10(b) and 2.10(c), the aggregate
outstanding principal amount of the Advances, the outstanding principal
amount of any Advance that is denominated in a Foreign Currency shall
be deemed to be the Dollar Equivalent of the Foreign Currency amount of
such Advance.
(b) Each Revolving Credit Borrowing (i) shall (except as
otherwise provided in Sections 2.09(c) and (d)) be in an aggregate amount not
less than (x) in the case of a Revolving Credit Borrowing comprised of Advances
denominated in Dollars, $10,000,000 or an integral multiple of $1,000,000 in
excess thereof and (y) in the case of a Revolving Credit Borrowing comprised of
Advances denominated in any Approved Foreign Currency, the Foreign Currency
Equivalent of $5,000,000 or an integral multiple of $1,000,000 in excess thereof
(rounded downwards to the nearest 1,000 units of such Approved Foreign Currency)
and (ii) shall consist of Revolving Credit Advances of the same Type (and, if
such Revolving Credit Advances are LIBO Rate Advances, having the same Interest
Period), denominated in the same Currency and made, Converted or Continued on
the same day by the Banks ratably according to their respective Commitments.
Subject to the terms and conditions of this Agreement, the Borrowers may from
time to time borrow under this Section 2.01, prepay pursuant to Section 2.10(b)
and reborrow the amount of the Commitments; provided, that no such reborrowing
shall be permitted hereunder at any time if, after giving effect thereto, the
aggregate outstanding principal amount of Advances would exceed the aggregate
amount of the Commitments at such time.
(c) The Revolving Credit Advances of each Bank made to any
Borrower under this Section 2.01 shall be evidenced by a single promissory note
of such Borrower in the amount of such Bank's Commitment in substantially the
form of Exhibit A.
(d) (i) The Company shall give the Administrative Agent notice
of each Revolving Credit Borrowing not later (x) than 12:00 noon (New
York City time) on the third Business Day (or, if such Revolving Credit
Borrowing is to be denominated in an
Credit Agreement
<PAGE> 24
-20-
Alternate Currency, 12:00 noon (London time) on the third Business Day)
prior to the date of such Revolving Credit Borrowing in the case of a
Revolving Credit Borrowing consisting of LIBO Rate Advances, or (y)
than 11:00 A.M. (New York City time) on the Business Day of the
proposed Revolving Credit Borrowing in the case of a Revolving Credit
Borrowing consisting of Base Rate Advances, and the Administrative
Agent shall give to each Bank prompt notice thereof by telecopier,
telex or cable. Each such notice of a Revolving Credit Borrowing (a
"Notice of Revolving Credit Borrowing") shall be by telecopier, telex
or cable, in substantially the form of Exhibit B-1, specifying therein
(i) the requested date of such Revolving Credit Borrowing, (ii) the
requested Currency and Type of Revolving Credit Advances comprising
such Revolving Credit Borrowing, (iii) the requested aggregate amount
of such Revolving Credit Borrowing, (iv) in the case of a Revolving
Credit Borrowing consisting of LIBO Rate Advances, the requested
initial Interest Period for each such Advance, and (v) the name of the
applicable Borrower.
(ii) Each Bank shall, before 1:00 P.M. Local Time on the date
of such Revolving Credit Borrowing, make available for the account of
its Applicable Lending Office to the Administrative Agent at the
Administrative Agent's Account for the Currency of such Revolving
Credit Advances, in same day funds, such Bank's ratable portion of such
Revolving Credit Borrowing. After the Administrative Agent's receipt of
such funds and upon fulfillment of the applicable conditions set forth
in Article III, the Administrative Agent will make such funds available
to the applicable Borrower at such account as such Borrower and the
Administrative Agent may agree.
(e) Each Notice of Revolving Credit Borrowing shall be
irrevocable and binding on the Company and the applicable Borrower. In the case
of any Revolving Credit Borrowing which the related Notice of Revolving Credit
Borrowing specifies is to be comprised of LIBO Rate Advances, the Company shall
indemnify each Bank against any loss, cost or expense incurred by such Bank as a
result of any failure to fulfill, on or before the date specified in such Notice
of Revolving Credit Borrowing, the applicable conditions set forth in Article
III, including, without limitation, any loss (excluding loss of anticipated
profits), cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Bank to fund the Revolving Credit
Advance to be made by such Bank as part of such Revolving Credit Borrowing. The
Company shall not be liable under this clause for the payment of any amounts
incurred or accrued more than 180 days prior to the date on which notice of the
event or circumstance giving rise to the obligation to make such payment is
given to the Company hereunder, except to the extent such amounts were incurred
or accrued prior to such date due solely to the retroactive nature of the
relevant requirement. The Company shall pay amounts owing to any Bank pursuant
to this Section 2.01(e) within 30 days after receipt from such Bank of a
certificate setting forth in reasonable detail the calculation of the amount
such Bank is entitled to claim under this Section 2.01(e) (which certificate
shall be conclusive and binding on the Company, absent manifest error). If the
Company objects in good faith to any payment demanded under this clause on or
before the date such payment is due, then the Company and the Bank demanding
such payment shall enter into discussions to review the amount due, and the
Company's obligation to pay such amount to such Bank shall be deferred
Credit Agreement
<PAGE> 25
-21-
for 45 days after the original demand for payment, and if the Company and such
Bank do not reach agreement during such 45-day period on the amount due, the
Company shall pay to such Bank at the end of such 45-day period the amount
certified by such Bank to be due.
(f) Unless the Administrative Agent shall have received notice
from a Bank prior to the date of any Revolving Credit Borrowing that such Bank
will not make available to the Administrative Agent such Bank's ratable portion
of such Revolving Credit Borrowing, the Administrative Agent may assume that
such Bank has made such portion available to the Administrative Agent on the
date of such Revolving Credit Borrowing in accordance with Section 2.01(d) and
the Administrative Agent may, in reliance upon such assumption, make available
to the applicable Borrower on such date a corresponding amount. If and to the
extent that such Bank shall not have so made such ratable portion available to
the Administrative Agent, such Bank and such Borrower severally agree to repay
to the Administrative Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to such Borrower until the date such amount is repaid to the
Administrative Agent, at (i) in the case of such Borrower, the interest rate
applicable at the time to the Revolving Credit Advances and (ii) in the case of
such Bank, the Federal Funds Rate. If such Bank shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Advance as part of such Revolving Credit Borrowing for
purposes of this Agreement (and such Advance shall be deemed to have been made
by such Bank on the date on which such amount is so repaid to the Administrative
Agent).
(g) The failure of any Bank to make the Revolving Credit
Advance to be made by it as part of any Revolving Credit Borrowing shall not
relieve any other Bank of its obligation, if any, hereunder to make its
Revolving Credit Advance on the date of such Revolving Credit Borrowing, but no
Bank shall be responsible for the failure of any other Bank to make the
Revolving Credit Advance to be made by such other Bank on the date of any
Revolving Credit Borrowing.
(h) The Revolving Credit Advances of each Currency and Type
made by each Bank shall be made and maintained at such Bank's Applicable Lending
Office for Revolving Credit Advances of such Currency and Type.
SECTION 2.02. Swing Line Advances.
(a) The Company may request the Swing Line Bank to make, and
the Swing Line Bank may from time to time, in its sole discretion, make, on the
terms and conditions herein set forth, Swing Line Advances to the Company on any
Business Day during the period from the date hereof until the earlier of (i) the
Termination Date and (ii) 30 days before the Commitment Termination Date in an
aggregate amount not to exceed at any time outstanding the lesser of (i) the
Swing Line Facility and (ii) the unused amount of the Commitments on such
Business Day.
Credit Agreement
<PAGE> 26
- 22 -
(b) Each Swing Line Borrowing shall be in a principal amount
not less than $1,000,000.
(c) Subject to the terms and conditions of this Agreement, the
Company may borrow under this Section 2.02, prepay pursuant to Section 2.10(a)
and reborrow hereunder; provided, that no such reborrowing shall be permitted
hereunder at any time if, after giving effect thereto, (i) the aggregate
outstanding principal amount of Advances would exceed the aggregate amount of
the Commitments at such time or (ii) the aggregate outstanding principal amount
of Swing Line Advances would exceed the amount of the Swing Line Facility at
such time.
(d) The Company may request a Swing Line Borrowing from the
Swing Line Bank under this Section 2.02 by delivering to the Administrative
Agent and the Swing Line Bank, no later than 12:00 noon (New York City time) on
the date of the proposed Swing Line Borrowing, a notice of a Swing Line
Borrowing (a "Notice of Swing Line Borrowing"), which shall be made by
telecopier, telex or cable, in substantially the form of Exhibit B-2, specifying
therein (i) the requested date of such Swing Line Borrowing (which shall be a
Business Day), (ii) the requested amount of such Swing Line Borrowing, (iii) the
requested maturity of such Swing Line Borrowing (which maturity shall be no
later than the seventh day after the requested date of such Swing Line
Borrowing) and (iv) the account of the Company to which the proceeds of such
Swing Line Borrowing are to be made available.
(e) The Swing Line Bank shall, no later than 2:00 P.M. (New
York City time) on the requested date of such Swing Line Borrowing notify the
Administrative Agent and the Company of its decision whether or not to make the
requested Swing Line Advance; provided that any failure by the Swing Line Bank
to give such notice shall not cause the Swing Line Bank to be obligated to make
such Swing Line Advance.
(f) If the Swing Line Bank, in its sole discretion, elects to
make such Swing Line Advance, it will (subject to the applicable conditions set
forth in Article III) make the amount of such Swing Line Advance available to
the Company at the account specified in the relevant Notice of Swing Line
Borrowing.
(g) Upon demand by the Swing Line Bank through the
Administrative Agent, each other Bank shall purchase from the Swing Line Bank,
and the Swing Line Bank shall sell and assign to each other Bank, such other
Bank's pro rata share (based upon such Bank's respective amount of the
Commitments at such time or, if the Commitments have terminated, such Bank's
respective amount of the Advances at such time) of the amount of each
outstanding Swing Line Advance (and related claims for accrued and unpaid
interest thereon) made by the Swing Line Bank, by making available for the
account of its Applicable Lending Office to the Administrative Agent for the
account of the Swing Line Bank by deposit to the Administrative Agent's Account,
in same day funds, an amount equal to the sum of (i) the portion of the
outstanding principal amount of such Swing Line Advances to be purchased by such
Bank plus (ii) interest accrued and unpaid to and as of such date on such
portion of the outstanding principal amount of such Swing Line Advances. Each
Bank's obligations to make such
Credit Agreement
<PAGE> 27
- 23 -
payments to the Administrative Agent for the account of the Swing Line Bank
under this paragraph (g), and the Swing Line Bank's right to receive the same,
shall be absolute and unconditional and shall not be affected by any
circumstance whatsoever, including, without limitation, the failure of any other
Bank to make its payment under this paragraph (g), the financial condition of
the Company or any other Borrower, the existence of any Default, the failure of
any of the conditions set forth in Article III to be satisfied, or the
termination of the Commitments. Each such payment to the Swing Line Bank shall
be made without any offset, abatement, withholding or reduction whatsoever. Each
Bank agrees to purchase its pro rata share of such outstanding Swing Line
Advances on (i) the Business Day on which demand therefor is made by the Swing
Line Bank, provided that notice of such demand is given not later than 11:00
A.M. (New York City time) on such Business Day or (ii) the first Business Day
next succeeding such demand if notice of such demand is given after such time.
Upon any such assignment by the Swing Line Bank to any other Bank of a portion
of the Swing Line Advances, the Swing Line Bank represents and warrants to such
other Bank that the Swing Line Bank is the legal and beneficial owner of such
interest being assigned by it, but makes no other representation or warranty and
assumes no responsibility with respect to such Swing Line Advance. If and to the
extent that any Bank shall not have so made the amount of such Swing Line
Advance available to the Administrative Agent, such Bank agrees to pay to the
Administrative Agent for the account of the Swing Line Bank forthwith on demand
such amount together with interest thereon, for each day from the date of demand
by the Swing Line Bank until the date such amount is paid to the Administrative
Agent, at the Federal Funds Rate. If such Bank shall pay to the Administrative
Agent such amount for the account of the Swing Line Bank, such amount so paid in
respect of principal shall constitute a Swing Line Advance by such Bank for
purposes of this Agreement, and the outstanding principal amount of the Swing
Line Advances made by the Swing Line Bank shall be reduced by such amount.
Credit Agreement
<PAGE> 28
- 24 -
SECTION 2.03. Fees.
(a) Facility Fee. The Borrowers jointly and severally agree to
pay to the Administrative Agent for the account of each Bank a facility fee (the
"Facility Fee") on the daily average amount (both used and unused) of such
Bank's Commitment from the date (in the case of each Bank that is a signatory
hereto) on which the Borrowers sign this Agreement and from the effective date
specified in the Assignment and Acceptance (in the case of each Bank that
becomes a party hereto pursuant to Section 2.04(a) or 8.07) pursuant to which it
became a Bank, until the Termination Date, at a rate per annum equal to the
Applicable Facility Fee Rate as in effect from time to time. Any accrued
Facility Fees shall be paid on each Quarterly Date and on the Termination Date.
(b) Administrative Agent's Fee. The Company agrees to pay to
the Administrative Agent, for the Administrative Agent's own account, an annual
administrative agency fee at the times and in the amounts heretofore agreed
between the Company and the Administrative Agent.
(c) Arrangement Fee. The Company agrees to pay (i) to CSI for
CSI's own account, an arrangement fee on the Closing Date in the amount
heretofore agreed between the Company and CSI and (ii) to BARS for BARS's own
account, an arrangement fee on the Closing Date in the amount heretofore agreed
between the Company and BARS.
(d) Upfront Fee. The Company agrees to pay to the
Administrative Agent for the account of each Bank an upfront fee on the Closing
Date in the amount heretofore agreed between the Company, the Administrative
Agent and CSI.
SECTION 2.04. Changes in Commitments.
(a) Commitment Increases. The Company shall have the right, no
more than once in any calendar year, to increase the aggregate amount of the
Commitments hereunder on and subject to the following terms and conditions:
(i) The Company may, by notice to the Administrative Agent (which shall
promptly notify the Banks), request that the Banks increase ratably
their respective Commitments by an aggregate amount up to but not
exceeding $100,000,000, specifying the amount of the proposed increase
and the proposed effective date thereof.
(ii) The Company may offer the increase to (x) then existing Banks, and each
such existing Bank shall have the right (but no obligation) to commit
to all or a specified portion of the proposed increase, or (y) other
financial institutions (each an "Additional Bank") that are not Banks
and that are reasonably acceptable to the Administrative Agent;
provided, that the commitment of any such other financial institution
shall be at least $10,000,000.
Credit Agreement
<PAGE> 29
- 25 -
(iii) Each Bank, acting in its sole discretion, shall, by notice to the
Company and the Administrative Agent given no later than the date (the
"Increase Consent Date") that is 15 days after the date of such
increase request (or, if such date is not a Business Day, the next
succeeding Business Day), advise the Company and the Administrative
Agent whether or not such Bank agrees to such increase; provided, that
each Bank that determines not to increase its Commitment (a
"Non-Increasing Bank") shall notify the Administrative Agent (which
shall notify the Banks) of such fact promptly after such determination
(but in any event no later than the Increase Consent Date) and any Bank
that does not advise the Company on or before the Increase Consent Date
shall be deemed to be a Non-Increasing Bank. The election of any Bank
to agree to such increase shall not obligate any other Bank to so
agree.
(iv) The Administrative Agent shall notify each Bank of such increase,
confirming the effective date thereof (the "Increased Commitment Date")
and the aggregate amount thereof and the amount of the increase (if
any) in each Bank's Commitment; and on such effective date, each Bank's
Commitment shall automatically, without any other action by any Person,
be increased by the additional amount agreed to by such Bank; provided
that, in the event that the amount by which the Banks have agreed to
increase their Commitments exceeds the amount of the requested increase
of the Commitments offered to the Banks, such increase in the
Commitments shall be allocated among such Banks pro rata in accordance
with the respective amounts of by which such Banks have agreed to
increase their Commitments.
(v) Each Additional Bank shall, prior to the Increased Commitment Date,
execute and deliver an agreement in form and substance satisfactory to
the Borrower and the Administrative Agent pursuant to which it
undertakes a Commitment hereunder (and such Additional Bank shall
thereupon become a "Bank" for all purposes of this Agreement).
(vi) Notwithstanding the foregoing, any increase in the aggregate
Commitments hereunder pursuant to this Section 2.04(a) shall not be
effective unless:
(x) the Company shall have given the Administrative
Agent notice of any such increase at least 20 Business Days
prior to any such Increased Commitment Date;
(y) no Default shall have occurred and be continuing
as of the date of the notice referred to in the foregoing
clause (x) or on the Increased Commitment Date; and
Credit Agreement
<PAGE> 30
- 26 -
(z) the aggregate amount of increase in the aggregate
Commitments pursuant to this Section 2.04(a) may not exceed
$100,000,000, and the amount of any single increase in the
aggregate Commitments pursuant to this Section 2.04(a) shall
be at least $25,000,000.
(b) Commitment Reductions. (i) The aggregate amount of the
Commitments shall automatically be reduced to zero on the Commitment Termination
Date.
(ii) The Company shall have the right, upon at least three
Business Days' notice to the Administrative Agent, to terminate in
whole or reduce ratably in part the unutilized portions of the
respective Commitments of the Banks, provided, that the aggregate
amount of the Commitments of the Banks shall not be reduced to an
amount which is less than the aggregate principal amount of the
Advances then outstanding (computed, in the case of Advances
denominated in a Foreign Currency, as the Dollar Equivalent thereof),
and provided, further, that each partial reduction shall be in an
aggregate amount of $10,000,000 or an integral multiple of $1,000,000
in excess thereof.
(c) Reductions Permanent. The Commitments once terminated or
reduced under this Section 2.04 may not be reinstated.
SECTION 2.05. Repayment of Advances.
(a) Advances. Each Borrower hereby promises to repay to the
Administrative Agent for the account of each Bank the principal amount of each
Revolving Credit Advance made by such Bank to such Borrower, and each Revolving
Credit Advance shall mature, on the Termination Date.
(b) Swing Line Advances. The Company hereby promises to pay to
the Swing Line Bank (with notice to the Administrative Agent), and to the
Administrative Agent for the account of each other Bank that has made a Swing
Line Advance, the outstanding principal amount of each Swing Line Advance made
by each of them, and each such Swing Line Advance shall mature, on the earlier
of the maturity date specified in the applicable Notice of Swing Line Borrowing
(which maturity shall be no later than the seventh day after the requested date
of such Swing Line Borrowing) and the Termination Date.
SECTION 2.06. Interest.
(a) Ordinary Interest. Each Borrower shall pay interest on the
unpaid principal amount of each Advance made by each Bank to such Borrower, from
the date of such Advance until such principal amount shall be paid in full, at
the following rates per annum:
(i) Base Rate Advances. If such Advance is a Base Rate
Advance, a rate per annum equal to the sum of the Base Rate in effect
from time to time plus the Applicable
Credit Agreement
<PAGE> 31
- 27 -
Margin for Base Rate Advances as in effect from time to time, payable
quarterly in arrears on each Quarterly Date and on the date such Base
Rate Advance shall be Converted or paid in full.
(ii) LIBO Rate Advances. If such Advance is a LIBO Rate
Advance, a rate per annum for the Interest Period for such Advance,
equal to the sum of the LIBO Rate for such Interest Period plus the
Applicable Margin for LIBO Rate Advances as in effect from time to
time, payable on the last day of such Interest Period and, if such
Interest Period has a duration of more than three months, on the
three-month anniversary of the first day of such Interest Period, and
on the date such LIBO Rate Advance shall be Converted or paid in full.
(iii) Swing Line Advances. If such Advance is a Swing Line
Advance, a rate per annum equal to the sum of the Base Rate in effect
from time to time (or such other rate as may be agreed to in writing by
the Company and the Swing Line Bank prior to the making of such Swing
Line Advance) plus the Applicable Margin for Base Rate Advances in
effect from time to time, payable quarterly in arrears on each
Quarterly Date, on the scheduled maturity date of such Swing Line
Advance and on the date such Swing Line Advance shall be paid in full.
(b) Default Interest. Each Borrower shall pay interest on the
unpaid principal amount of each Advance made to such Borrower that is not paid
when due (whether at stated maturity, by acceleration or otherwise), and on the
unpaid amount of any interest, fee or other amount whatsoever payable hereunder
that is not paid when due, payable on demand, at a rate per annum during the
period from the due date thereof to the date on which such amount is paid in
full equal to:
(i) in the case of any amount of principal of such Advance:
(x) in the case of any Base Rate Advance or any Swing
Line Advance, 2% per annum plus the rate which would otherwise
be applicable to such Advance, and
(y) in the case of any LIBO Rate Advance, for the
balance of the then current Interest Period, 2% per annum plus
the rate which would otherwise be applicable to such Advance
for such Interest Period and, thereafter, 2% per annum plus
the Base Rate as in effect from time to time, and
(ii) in the case of all other amounts, 2% per annum plus the
Base Rate as in effect from time to time.
SECTION 2.07. Additional Interest on LIBO Rate Advances.
Each Borrower shall pay to each Bank, so long as such Bank shall be required
under regulations of the Board of Governors of the Federal Reserve System to
maintain reserves with respect to liabilities or assets
Credit Agreement
<PAGE> 32
- 28 -
consisting of or including Eurocurrency Liabilities (or the equivalent),
additional interest on the unpaid principal amount of each LIBO Rate Advance of
such Bank made to such Borrower, from the date of such LIBO Rate Advance until
such principal amount is paid in full, at an interest rate per annum equal at
all times to the remainder obtained by subtracting (a) the LIBO Rate for the
then current Interest Period for such LIBO Rate Advance from (b) the rate
obtained by dividing such LIBO Rate by a percentage equal to 100% minus the LIBO
Rate Reserve Percentage of such Bank for such Interest Period, payable on each
date on which interest is payable on such LIBO Rate Advance. Any Bank wishing to
require payment of such additional interest on any LIBO Rate Advance shall so
notify the Borrower of such LIBO Rate Advance and the Administrative Agent and
shall furnish to such Borrower a certificate (which certificate shall be
conclusive and binding on such Borrower, absent manifest error) setting forth
the basis for such assertion and the amount to which such Bank is then entitled
under this Section.
SECTION 2.08. Interest Rate Determinations; Changes in Pricing
Levels.
(a) Each Reference Bank agrees to furnish to the
Administrative Agent, upon request of the Administrative Agent, timely
information for the purpose of determining the LIBO Rate from time to time. If
any one or more of the Reference Banks shall not furnish such timely information
to the Administrative Agent for the purpose of determining the LIBO Rate, the
Administrative Agent shall determine the LIBO Rate on the basis of timely
information furnished by the remaining Reference Banks (subject to clause (c)
below).
(b) The Administrative Agent shall give prompt notice to the
Company and the Banks of the applicable interest rate determined by the
Administrative Agent for the purpose of Section 2.06 and the applicable rate, if
any, furnished by each Reference Bank for the purpose of determining the
applicable interest rate under Section 2.06(a)(ii).
(c) If fewer than two Reference Banks furnish timely
information to the Administrative Agent for determining the LIBO Rate for the
Interest Period for any LIBO Rate Advances,
(i) the Administrative Agent shall forthwith notify the
Company and the Banks that the interest rate cannot be determined for
such LIBO Rate Advances for such Interest Period,
(ii) each such Advance will instead be made as a Base Rate
Advance, and
(iii) the obligation of the Banks to make, or to Convert
Advances into, or to Continue Advances as, LIBO Rate Advances shall be
suspended until the Administrative Agent shall notify the Company and
the Banks that the circumstances causing such suspension no longer
exist.
(d) If prior to the commencement of the Interest Period for
any Borrowing the Majority Banks notify the Administrative Agent (and the
Administrative Agent notifies the
Credit Agreement
<PAGE> 33
- 29 -
Company) that, by reason of circumstances generally affecting the London or
Paris interbank market, as the case may be, the LIBO Rate does not adequately
reflect the cost to such Banks of funding their Advances constituting part of
such Borrowing, the rate of interest applicable to each such Advance for such
Interest Period shall be the Applicable Margin plus the cost to each such Bank
from time to time of funding its Advance constituting part of such Borrowing. A
certificate or certificates of such Bank, given in good faith, as to such cost
of funding shall be conclusive and binding on each Borrower in the absence of
manifest error.
(e) If the Company shall fail to select the duration of the
Interest Period for any LIBO Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Company and the Banks and such
Advances will be made as Base Rate Advances.
SECTION 2.09. Conversion and Continuation of Advances.
(a) The Company may on any Business Day, upon notice given to
the Administrative Agent not later than 12:00 noon (New York City time) on the
third Business Day prior to the date of the proposed Conversion and subject to
the provisions of Sections 2.08 and 2.12, Convert all or any portion of the
outstanding Advances of one Type comprising part of the same Borrowing into
Advances of the other Type in the same Currency; provided, that in the case of
any such Conversion of a LIBO Rate Advance into a Base Rate Advance on a day
other than the last day of an Interest Period therefor, the Borrower of such
LIBO Rate Advance shall reimburse the Banks in respect thereof pursuant to
Section 8.04(c). Each such notice of a Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the Advances or
portions thereof to be Converted, and (iii) if such Conversion is into LIBO Rate
Advances, the duration of the Interest Period for each such Advance. Each notice
of Conversion shall be irrevocable and binding on each Borrower. Each portion of
the Advances Converted as herein provided shall be in an aggregate amount of (x)
in the case of a Conversion of Advances denominated in Dollars, $10,000,000 or
an integral multiple of $1,000,000 in excess thereof and (y) in the case of a
Conversion of Advances denominated in any Approved Foreign Currency, the Foreign
Currency Equivalent of $5,000,000 or an integral multiple of $1,000,000 in
excess thereof (rounded downwards to the nearest 1,000 units of such Approved
Foreign Currency).
(b) The Company may on any Business Day, upon notice given to
the Administrative Agent not later than 12:00 noon (New York City time) on the
third Business Day prior to the date of the proposed Continuation and subject to
the provisions of Sections 2.08 and 2.12, Continue all or any portion of the
outstanding LIBO Rate Advances comprising part of the same Borrowing into LIBO
Rate Advances in the same Currency; provided, that any such Continuation of a
LIBO Rate Advance shall be made only on the last day of an Interest Period
therefor. Each such notice of a Continuation shall, within the restrictions
specified above, specify (i) the date of such Continuation, (ii) the Advances or
portions thereof to be Continued, and (iii) if such Continuation is of a LIBO
Rate Advances, the duration of the Interest Period for each such Advance. Each
notice of Continuation shall be irrevocable and binding on each
Credit Agreement
<PAGE> 34
- 30 -
Borrower. Each portion of the Advances Continued as herein provided shall be in
an aggregate amount of (x) in the case of a Continuation of Advances denominated
in Dollars, $10,000,000 or an integral multiple of $1,000,000 in excess thereof
and (y) in the case of a Continuation of Advances denominated in any Approved
Foreign Currency, the Foreign Currency Equivalent of $5,000,000 or an integral
multiple of $1,000,000 in excess thereof (rounded downwards to the nearest 1,000
units of such Approved Foreign Currency).
(c) On the date on which the aggregate unpaid principal amount
of LIBO Rate Advances comprising any Borrowing shall be reduced, by payment or
prepayment or otherwise, to less than $2,500,000, such Advances shall
automatically Convert into Base Rate Advances.
(d) Upon the occurrence and during the continuance of any
Event of Default and upon notice from the Administrative Agent to the Company at
the request of the Majority Banks, (i) each LIBO Rate Advance will
automatically, on the last day of the Interest Period therefor, Convert into a
Base Rate Advance and (ii) the obligation of the Banks to make, or to Convert
Advances into, or to Continue Advances as, LIBO Rate Advances shall be
suspended.
(e) In the event that the Company fails to give a notice of
Continuation of a LIBO Rate Advance as provided in subsection (b) above, such
LIBO Rate Advance shall automatically be Converted into a Base Rate Advance on
the last day of the Interest Period therefor.
SECTION 2.10. Optional and Mandatory Prepayments of Advances.
(a) Prepayments Generally. Each Borrower may prepay the
Advances made to such Borrower only as provided in subsection (b) below.
(b) Optional Prepayments. The Company may, upon giving notice
to the Administrative Agent (and in the case of prepayment of a Swing Line
Advance, the Swing Line Bank) not later than 11:00 a.m. New York City time on
the date of prepayment, in the case of a Base Rate Advance or a Swing Line
Advance, and not later than two Business Days prior to the date of prepayment in
the case of a LIBO Rate Advance, in each case stating the Advances to be prepaid
and the proposed date and aggregate principal amount of the prepayment, and if
such notice is given, the Borrower of such Advances shall, prepay the
outstanding principal amounts of such Advances in whole or ratably in part,
together with accrued interest to the date of such prepayment on the principal
amount prepaid; provided, that (i) each partial prepayment of a Revolving Credit
Advance shall be in an aggregate principal amount not less than (x) in the case
of Revolving Credit Advances denominated in Dollars, $10,000,000 or an integral
multiple of $1,000,000 in excess thereof and (y) in the case of Revolving Credit
Advances denominated in any Approved Foreign Currency, the Foreign Currency
Equivalent of $5,000,000 or an integral multiple of $1,000,000 in excess thereof
(rounded downwards to the nearest 1,000 units of such Approved Foreign
Currency), (ii) each partial prepayment of a Swing Line Advance shall be in an
aggregate principal amount not less than $1,000,000 or an integral multiple
thereof and (iii) in the case of any such prepayment of a LIBO Rate Advance on a
day other than the last day of an
Credit Agreement
<PAGE> 35
- 31 -
Interest Period therefor, such Borrower shall reimburse the Banks in respect
thereof pursuant to Section 8.04(c).
(c) Mandatory Prepayments. If at any time the aggregate amount
of all Advances (for which purpose the amount of any Advance that is denominated
in a Foreign Currency shall be deemed to be the Dollar Equivalent thereof as of
the date of determination) exceeds 105% of the aggregate amount of the
Commitments as then in effect, the Administrative Agent shall use all reasonable
efforts to give prompt notice thereof to the Company, and the Company shall,
upon receipt of such notice, cause the Advances forthwith to be prepaid in an
amount so that after giving effect thereto the aggregate outstanding principal
amount of the Advances (determined as aforesaid) does not exceed the aggregate
amount of the Commitments; provided, that, any such payment shall be accompanied
by any amounts payable under Section 8.04(c). The determinations of the
Administrative Agent hereunder shall be conclusive and binding on the Borrowers
and the Banks in the absence of manifest error.
SECTION 2.11. Increased Costs.
(a) If, due to either (i) the introduction of or any change
(other than any change relating to taxes or any change by way of imposition or
increase of reserve requirements included in the LIBO Rate Reserve Percentage)
in or in the interpretation of (to the extent any such introduction or change
occurs after the date hereof) any law or regulation or (ii) the compliance with
any guideline or request of any central bank or other Governmental Authority
adopted or made after the date hereof (whether or not having the force of law),
there shall be any increase deemed by such Bank to be material in the cost to
any Bank of agreeing to make or making, funding or maintaining LIBO Rate
Advances denominated in any Currency, each Borrower shall from time to time,
within 30 days after delivery by such Bank to the Company (with a copy to the
Administrative Agent) of a certificate as to the amount of (and specifying in
reasonable detail the basis for) such increased cost, pay (subject to Section
2.11(c)) to the Administrative Agent for the account of such Bank the amount of
the increased costs set forth in such certificate (which certificate shall be
conclusive and binding for all purposes of this Agreement, absent manifest
error); provided, that, before making any such demand, each Bank agrees to use
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Applicable Lending Office if the making
of such a designation would avoid the need for, or reduce the amount of, such
increased cost and would not, in the reasonable judgment of such Bank, be
otherwise disadvantageous to such Bank.
(b) (i) If any Bank determines that compliance with any law or
regulation enacted or introduced after the date hereof or any guideline
or request of any central bank or other Governmental Authority adopted
or made after the date hereof (whether or not having the force of law)
affects or would affect the amount of capital required or expected to
be maintained by such Bank or any corporation controlling such Bank
deemed by such Bank to be material and that the amount of such capital
is increased by or based upon the existence of such Bank's Commitment
and other commitments of this type, or the Advances, then, within 30
days after delivery by such Bank to the Company (with a copy
Credit Agreement
<PAGE> 36
- 32 -
to the Administrative Agent) of a certificate as to (and specifying in
reasonable detail the basis for) the Additional Amounts (as hereinafter
defined) requested by such Bank, the Company shall pay (subject to
Section 2.11(c)) to the Administrative Agent for the account of such
Bank, from time to time as specified by such Bank, the amount specified
in such certificate (which certificate shall be conclusive and binding
for all purposes, absent manifest error); provided, that, before making
any such demand, each Bank agrees to use reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions) to
designate a different Applicable Lending Office if the making of such a
designation would avoid the need for, or reduce the amount of, such
increased cost and would not, in the reasonable judgment of such Bank,
be otherwise disadvantageous to such Bank.
(ii) For purposes hereof, the "Additional Amounts" that may be
requested by any Bank under this Section 2.11(b) means such amounts as
such Bank shall reasonably determine to be sufficient to compensate
such Bank or any corporation controlling such Bank for any costs that
such Bank reasonably determines are attributable to the maintenance by
such Bank (or such corporation) of capital in respect of its Commitment
or the Advances hereunder (such compensation to include, without
limitation, an amount equal to any reduction of the rate of return on
assets or equity of such Bank (or such corporation) to a level below
that which such Bank (or such corporation) could have achieved but for
the enactment or introduction of such law or regulation or the adoption
or making of such guideline or request).
Credit Agreement
<PAGE> 37
- 33 -
SECTION 2.12. Illegality. Notwithstanding any other provision
of this Agreement, if any Bank shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other Governmental
Authority asserts that it is unlawful, for such Bank or its LIBO Lending Office
to perform its obligations hereunder to make LIBO Rate Advances or to fund or
maintain LIBO Rate Advances hereunder, then, on notice thereof and demand
therefor by such Bank to the Company through the Administrative Agent, (a) the
obligation of the Banks to make or to Convert Advances into, or Continue
Advances as, LIBO Rate Advances shall be suspended until the Administrative
Agent shall notify the Company and the Banks that the circumstances causing such
suspension no longer exist and (b) the Borrowers shall upon demand prepay in
full all LIBO Rate Advances of all Banks then outstanding, together with
interest accrued thereon, unless the Borrowers, within five Business Days of
notice from the Administrative Agent, Convert all LIBO Rate Advances of all the
Banks then outstanding into Base Rate Advances in accordance with Section 2.09;
provided, that, before making any such demand, such Bank agrees to use
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different LIBO Lending Office if the making of such
a designation would allow such Bank or its LIBO Lending Office to continue to
perform its obligations to make LIBO Rate Advances or to continue to fund or
maintain LIBO Rate Advances and would not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank.
SECTION 2.13. Payments and Computations.
(a) (i) Except to the extent otherwise provided herein, all
payments of principal of and interest on any Advance denominated in
Dollars, and all Facility Fees and other amounts (other than the
principal of and interest on any Advance denominated in a Foreign
Currency) to be paid by the Borrowers under this Agreement and the
Notes shall be made in Dollars, and all payments of principal of and
interest on any Advance denominated in a Foreign Currency shall be made
in such Foreign Currency, in each case in immediately available funds,
without set-off or counterclaim, to the Administrative Agent's Account
for the Currency in which such Advance or other amount is denominated,
not later than 11:00 a.m. Local Time on the date on which such payment
shall become due (each payment made after such time on such due date to
be deemed to have been made on the next Business Day); provided, that
if a new Advance is to be made to a Borrower by a Bank on a date on
which such Borrower is to repay any principal of an outstanding Advance
by such Bank in the same Currency, such Bank shall apply the proceeds
of such new Advance to the payment of the principal to be repaid and
only an amount equal to the difference between the principal to be
borrowed and the principal to be repaid shall be made available by such
Bank to the Administrative Agent or paid by such Borrower to the
Administrative Agent, as the case may be.
(ii) The Administrative Agent will promptly cause to be
distributed like funds relating to the payment of principal, interest
or fees ratably (other than amounts payable pursuant to Section 2.07,
2.11, 2.14 or 8.04(c)) to the Banks for the account of their respective
Applicable Lending Offices, and like funds relating to the payment of
any
Credit Agreement
<PAGE> 38
- 34 -
other amount payable to any Bank to such Bank for the account of its
Applicable Lending Office, in each case to be applied in accordance
with the terms of this Agreement.
(iii) Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant
to Section 8.07(c), from and after the effective date specified in such
Assignment and Acceptance, the Administrative Agent shall make all
payments hereunder and under the Notes in respect of the interest
assigned thereby to the Bank assignee thereunder, and the parties to
such Assignment and Acceptance shall make all appropriate adjustments
in such payments for periods prior to such effective date directly
between themselves.
(b) All computations of interest based on the Base Rate and of
Facility Fees shall be made by the Administrative Agent on the basis of a year
of 365 or 366 days, as the case may be, and all computations of interest based
on the LIBO Rate and the Federal Funds Rate shall be made by the Administrative
Agent, and all computations of interest pursuant to Section 2.07 shall be made
by a Bank, on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest or Facility Fees are payable. Each
determination by the Administrative Agent of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes would be
due on a day other than a Business Day, such due date shall be extended to the
next succeeding Business Day, and any such extension of such due date shall in
such case be included in the computation of payment of interest or fees, as the
case may be; provided, however, if such extension would cause payment of
interest on or principal of LIBO Rate Advances to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.
(d) Unless the Administrative Agent shall have received notice
from the Company prior to the date on which any payment is due to the Banks
hereunder that a Borrower will not make such payment in full, the Administrative
Agent may assume that such Borrower has made such payment in full to the
Administrative Agent on such date and the Administrative Agent may, in reliance
upon such assumption, cause to be distributed to each Bank on such due date an
amount equal to the amount then due such Bank. If and to the extent that such
Borrower shall not have so made such payment in full to the Administrative
Agent, each Bank shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Bank together with interest thereon, for each
day from the date such amount is distributed to such Bank until the date such
Bank repays such amount to the Administrative Agent, at the Federal Funds Rate.
(e) If a Borrower shall fail to pay any principal of any
Advance when due (whether at stated maturity, by acceleration, by mandatory
prepayment or otherwise), the unpaid portion of such Advance shall, if such
Advance is not denominated in Dollars, automatically be redenominated in Dollars
on the due date thereof (or, if such due date is a day other than the last day
of the Interest Period therefor, on the last day of such Interest Period) in an
amount equal to the Dollar Equivalent thereof on the date of such redenomination
and such principal shall be
Credit Agreement
<PAGE> 39
- 35 -
payable on demand; and if such Borrower shall fail to pay any interest on any
Advance that is not denominated in Dollars, such interest shall automatically be
redenominated in Dollars on the due date thereof (or, if such due date is a day
other than the last day of the Interest Period therefor, on the last day of such
Interest Period) in an amount equal to the Dollar Equivalent thereof on the date
of such redenomination and such interest shall be payable on demand.
SECTION 2.14. Taxes.
(a) (i) Subject to Section 2.14(f), any and all payments by
the Borrowers hereunder or under the Notes shall be made, in accordance
with Section 2.13, free and clear of and without deduction for any and
all taxes, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding, in the case of each
Bank and the Administrative Agent, taxes imposed on its income, and
franchise taxes imposed on it in lieu of income taxes, by the
jurisdiction under the laws of which such Bank or the Administrative
Agent (as the case may be) is organized or any political subdivision
thereof or by any other jurisdiction as a result of a present or former
connection between such Bank or the Administrative Agent and such
jurisdiction and, in the case of each Bank, taxes imposed on its
income, and franchise taxes imposed on it in lieu of income taxes, by
the jurisdiction of such Bank's Applicable Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes").
(ii) If a Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable by such Borrower hereunder
or under any Note to any Bank or the Administrative Agent, (i) subject
to Section 2.14(f), the sum payable shall be increased as may be
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section
2.14) of Taxes such Bank or the Administrative Agent (as the case may
be) receives an amount equal to the sum it would have received had no
such deductions of Taxes been made, (ii) such Borrower shall make such
deductions and (iii) such Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, each Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies which arise from any payment made by such Borrower hereunder
or under the Notes or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or the Notes (hereinafter referred to
as "Other Taxes").
(c) Each Borrower will indemnify each Bank and the
Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes and Other Taxes imposed by any jurisdiction on
amounts payable under this Section 2.14) paid by such Bank or the Administrative
Agent (as the case may be) in respect of Advances made to such Borrower and any
liability (including penalties, interest and expenses) arising therefrom or with
Credit Agreement
<PAGE> 40
- 36 -
respect thereto. This indemnification shall be made within 30 days from the date
such Bank or the Administrative Agent (as the case may be) makes written demand
therefor, accompanied by a calculation in reasonable detail of the amount
demanded and evidence of the Taxes or Other Taxes (including, without
limitation, taxes of any kind imposed by any jurisdiction or amounts payable
under this Section 2.14) imposed on or paid by the Administrative Agent or such
Bank.
(d) Within 30 days after the date of any payment of Taxes by a
Borrower, such Borrower will furnish to the Administrative Agent, at its address
referred to in Section 8.02, the original or a certified copy of a receipt
evidencing payment thereof. If no Taxes are payable in respect of any payment by
a Borrower hereunder or under the Notes, such Borrower will furnish to the
Administrative Agent, at such address, a certificate from each appropriate
taxing authority, or an opinion in form and substance satisfactory to the
Administrative Agent of counsel acceptable to the Administrative Agent, in
either case stating that such payment is exempt from or not subject to Taxes.
(e) Each Bank that is entitled to any exemption from or
reduction of withholding tax with respect to payments hereunder and under the
Notes payable to such Bank shall, on or prior to the date of its execution and
delivery of this Agreement (in the case of each Bank that is a signatory hereto)
and on the date of the Assignment and Acceptance pursuant to which it becomes a
Bank (in the case of each other Bank that becomes a party hereto pursuant to
Section 2.04(a) or 8.07), and from time to time thereafter if requested in
writing by any Borrower (but only so long as such Bank remains lawfully able to
do so), provide such Borrower with such documentation prescribed by applicable
law or reasonably requested by such Borrower to permit payments by such Borrower
under this Agreement and the Notes to be made without withholding or at a
reduced rate of withholding. If, under applicable law, at the time a Bank first
becomes a party to this Agreement the Borrower would be required to deduct any
Taxes on any payments hereunder or under any Note payable to such Bank,
withholding tax at such rate and liabilities with respect thereto shall be
considered excluded from "Taxes" as defined in Section 2.14(a) that such
Borrower shall be liable in respect of under this Section 2.14.
(f) For any period with respect to which a Bank has failed to
provide a Borrower with the appropriate documentation described in Section
2.14(e) (other than if such failure is due to a change in law occurring
subsequent to the date on which documentation originally was required to be
provided, or if such documentation otherwise is not required under the first
sentence of paragraph(e) above), such Bank shall not be entitled to
indemnification by a Borrower under Section 2.14(a) with respect to Taxes
imposed by the jurisdiction in which such Borrower is located; provided,
however, that should a Bank become subject to Taxes because of its failure to
deliver documentation required hereunder, the Borrowers shall take such steps as
the Bank shall reasonably request to assist the Bank to recover such Taxes.
(g) Any Bank claiming any additional amounts payable pursuant
to this Section 2.14 shall use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Applicable Lending Office(s) if the making of such a change would avoid the need
for, or reduce the amount of, any such additional
Credit Agreement
<PAGE> 41
- 37 -
amounts that may thereafter accrue and would not, in the reasonable judgment of
such Bank, be otherwise disadvantageous to such Bank.
SECTION 2.15. Pro Rata Treatment. Except to the extent
otherwise provided herein:
(a) each Borrowing under Section 2.01 hereof shall be made
from the Banks pro rata according to their respective Commitments;
(b) each payment of Facility Fee under Section 2.03(a) shall
be made for the account of the Banks, and each termination or reduction
of the amount of the Commitments under Section 2.04 shall be applied to
the respective Commitments of the Banks, pro rata according to the
amounts of their respective Commitments;
(c) LIBO Rate Advances denominated in the same Currency and
having the same Interest Period shall be allocated pro rata among the
Banks according to their respective Commitments;
(d) each payment or prepayment by a Borrower of principal of
Advances of any Type and denominated in any Currency shall be made for
the account of the Banks pro rata in accordance with the respective
unpaid principal amounts of the Advances of such Type and denominated
in such Currency held by them; and
(e) each payment by a Borrower of interest on Advances of any
Type and denominated in any Currency shall be made for the account of
the Banks pro rata in accordance with the amounts of interest on
Advances of such Type and denominated in such Currency then due and
payable to them.
SECTION 2.16. Sharing of Payments, Etc. If any Bank shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise), in Dollars or any other Currency, on account of
the Advances made by it (other than pursuant to Section 2.07, 2.11, 2.14 or
8.04(c)) in excess of its ratable share of payments on account of the Advances,
as the case may be, obtained by all the Banks, such Bank shall forthwith
purchase from the other Banks such participations in the Advances made by them
as shall be necessary to cause such purchasing Bank to share the excess payment
ratably with each of them; provided, however, that if all or any portion of such
excess payment is thereafter recovered from such purchasing Bank, such purchase
from each Bank shall be rescinded and such Bank shall repay to the purchasing
Bank the purchase price to the extent of such recovery together with an amount
equal to such Bank's ratable share (according to the proportion of (a) the
amount of such Bank's required repayment to (b) the total amount so recovered
from the purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. Each Borrower
agrees that any Bank so purchasing a participation from another Bank pursuant to
this Section 2.16 may, to the fullest extent permitted by law, exercise all its
rights of
Credit Agreement
<PAGE> 42
- 38 -
payment (including the right of set-off) with respect to such participation as
fully as if such Bank were the direct creditor of such Borrower in the amount of
such participation.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Borrowing.
The obligation of each Bank to make an Advance on the occasion of the initial
Borrowing is subject to the condition precedent that the Administrative Agent
shall have received, on or prior to the day of the initial Borrowing but no
later than May 30, 1998, the following documents and evidence, each (unless
otherwise specified below) dated the date of such initial Borrowing and in form
and substance satisfactory to the Administrative Agent and (except for the
Notes) in sufficient copies for each Bank:
(a) The Notes from each Borrower payable to the order of the
respective Banks.
(b) Certified copies of the charter and by-laws (or equivalent
documents) of each Borrower and of all corporate authority for each
Borrower (including, without limitation, board of director resolutions
and evidence of the incumbency, including specimen signatures, of
officers) with respect to the execution, delivery and performance of
this Agreement and the Notes and each other document to be delivered by
such Borrower from time to time in connection herewith and the
extensions of credit hereunder (and the Administrative Agent and each
Bank may conclusively rely on such certificate until it receives notice
in writing from such Borrower to the contrary).
(c) A favorable opinion of Stephanie W. Abramson, Esq.,
General Counsel for the Company, substantially in the form of Exhibit
C-1, and a favorable opinion of Wachtell, Lipton, Rosen & Katz, special
counsel for the Company, substantially in the form of Exhibit C-2, and
a favorable opinion of counsel (which counsel shall be reasonably
acceptable as the Administrative Agent), satisfactory to the
Administrative Agent in form and substance, for each Subsidiary
Borrower that is a party to this Agreement on the Closing Date.
(d) A favorable opinion of Milbank, Tweed, Hadley & McCloy,
special New York counsel for the Administrative Agent, substantially in
the form of Exhibit D.
(e) A certificate of a senior officer of the Company
certifying that (i) no Default has occurred and is continuing as of the
date thereof, and (ii) the representations and warranties contained in
Section 4.01 are true and correct on and as of the date thereof as
Credit Agreement
<PAGE> 43
- 39 -
if made on and as of such date (except to the extent any of such
representations and warranties expressly relate to an earlier date).
(f) Evidence that the principal of and interest on, and all
other amounts owing in respect of, the Debt (including, without
limitation, any contingent or other amounts payable in respect of
letters of credit) under the Existing Credit Agreement shall have been
(or shall be simultaneously) paid in full, that any commitments to
extend credit thereunder shall have been canceled or terminated and
that all Guarantees in respect of, and all Liens securing, any such
Debt shall have been released (or arrangements for such release
satisfactory to the Majority Banks shall have been made); in addition,
the Administrative Agent shall have received from any Person holding
any Lien securing any such Debt, such Uniform Commercial Code
termination statements, mortgage releases and other instruments, in
each case in proper form for recording, as the Administrative Agent
shall have requested to release and terminate of record the Liens
securing such Debt (or arrangements for such release and termination
satisfactory to the Majority Banks shall have been made).
(g) Evidence that the Company shall have received not less
than $100,000,000 of net cash proceeds from the issuance of its common
stock in a public offering thereof registered under the Securities Act
of 1933, as amended.
SECTION 3.02. Conditions Precedent to Each Borrowing.
The obligation of each Bank to make an Advance on the occasion of each
Borrowing (including, without limitation, the initial Borrowing), and the right
of the Borrower to request a Swing Line Borrowing, shall be subject to the
further conditions precedent that on the date of such Borrowing the following
statements shall be true (and each of the giving of the applicable Notice of
Borrowing and the acceptance by the applicable Borrower of the proceeds of such
Borrowing shall constitute a representation and warranty by the Company and the
applicable Borrower that on the date of such Borrowing such statements are
true):
(a) the representations and warranties contained in Section
4.01 (not including, in the case of any Borrowing after the initial
Borrowing hereunder, the representation and warranty set forth in
Section 4.01(b)) are true and correct in all material respects on and
as of the date of such Borrowing, before and after giving effect to
such Borrowing and to the application of the proceeds therefrom, as
though made on and as of such date (except to the extent any of such
representations and warranties expressly relate to an earlier date),
and
(b) no Default has occurred and is continuing, or would result
from such Borrowing or from the application of the proceeds thereof.
Credit Agreement
<PAGE> 44
- 40 -
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties. The Company and
each Borrower that is not a Foreign Borrower jointly and severally represent and
warrant, and each Borrower that is a Foreign Borrower severally represents and
warrants (solely with respect to the representations and warranties contained in
clauses (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (n), (o) and (p) of
this Section 4.01 to the extent applicable to such Foreign Borrower and its
Subsidiaries), that:
(a) Financial Condition. The Consolidated balance sheet of the
Company and its Consolidated Subsidiaries as at December 31, 1997 and
the related Consolidated statements of income and of cash flows for the
fiscal year ended on such date, reported on by Price Waterhouse LLP,
copies of which have heretofore been furnished to each Bank, present
fairly the Consolidated financial condition of the Company and its
Consolidated Subsidiaries as at such date, and the Consolidated results
of their operations and their Consolidated cash flows for the fiscal
year then ended. All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the period involved (except as approved
by such accountants or a Responsible Officer of the Company, as the
case may be, and as disclosed therein). Neither the Company nor any of
its Consolidated Subsidiaries had, at December 31, 1997, any material
contingent liability or liability for taxes, or any long-term lease or
unusual forward or long-term commitment, including, without limitation,
any interest rate or foreign currency swap or exchange transaction,
which is not reflected in the foregoing statements or in the notes
thereto.
(b) No Change. Since December 31, 1997, there has been no
development or event which has had or could reasonably be expected to
have a Material Adverse Effect.
(c) Existence; Compliance with Law. Each Borrower (i) is duly
organized and validly existing under the laws of the jurisdiction of
its organization and, where applicable and except where the failure to
be so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, is in good standing under
the laws of the jurisdiction of its organization, (ii) has the power
and authority, and the legal right, to own and operate its Property, to
lease the Property it operates as lessee and to conduct the business in
which it is currently engaged, (iii) is duly qualified as a foreign
organization and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of Property or the conduct of
its business requires such qualification, except where the failure to
be so qualified and/or in good standing could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect, and (iv)
Credit Agreement
<PAGE> 45
- 41 -
is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not, in the aggregate, reasonably
be expected to have a Material Adverse Effect.
(d) Corporate Power; Authorization; Enforceable Obligations.
Each Borrower has the power and authority, and the legal right, to
make, deliver and perform this Agreement and to borrow hereunder and
has taken all necessary action to authorize the borrowings on the terms
and conditions of this Agreement and the Notes and to authorize the
execution, delivery and performance of this Agreement and the Notes to
which it is a party. No consent or authorization of, filing with,
notice to or other act by or in respect of (including any exchange
control approval), any Governmental Authority or any other Person is
required in connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this
Agreement or the Notes. This Agreement has been, and the Notes to which
it is a party will be, duly executed and delivered on behalf of such
Borrower. This Agreement constitutes, and the Notes to which it is a
party when executed and delivered will constitute, the legal, valid and
binding obligations of such Borrower enforceable against such Borrower
in accordance with their terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally,
general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair
dealing.
(e) No Legal Bar. The execution, delivery and performance by
each Borrower of this Agreement and the Notes to which such Borrower is
a party, the borrowings hereunder and the use of the proceeds thereof
will not violate any Requirement of Law or Contractual Obligation of
such Borrower or of any of its Subsidiaries and will not result in, or
require, the creation or imposition of any Lien on any of its or their
respective Properties pursuant to any such Requirement of Law or
Contractual Obligation.
(f) No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is
pending or, to the knowledge of each Borrower, threatened by or against
such Borrower or any of its Subsidiaries or against any of its or their
respective Properties (i) with respect to any of this Agreement, the
Notes or any of the transactions contemplated hereby or thereby or (ii)
which could reasonably be expected to have a Material Adverse Effect.
(g) No Default. Neither any Borrower nor any of its
Subsidiaries is in default under or with respect to any of its
Contractual Obligations in any respect which could reasonably be
expected to have a Material Adverse Effect. No Default has occurred and
is continuing.
(h) Ownership of Properties; Liens. Each Borrower and each of
its Subsidiaries has good record and marketable title in fee simple to
all real Property owned by it and such Borrower and each of its
Subsidiaries has a valid leasehold interest or occupancy
Credit Agreement
<PAGE> 46
- 42 -
rights with respect to all real Property leased or occupied pursuant to
the Material Leases, and none of such owned real Property is subject to
any Lien except Liens permitted by Section 5.02(b). Such Borrower and
each of its Subsidiaries has such title to their respective personal
Property, tangible and intangible, as is necessary to conduct their
respective businesses in the same manner as such businesses have been
conducted, and none of such Property is subject to any Lien except as
permitted by Section 5.02(b).
(i) Intellectual Property. Each Borrower and each of its
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the
conduct of its business as currently conducted (the "Intellectual
Property") except for those the failure to own or license which could
not reasonably be expected to have a Material Adverse Effect. No claim
has been asserted and is pending by any Person challenging or
questioning the use by such Borrower or any of its Subsidiaries of any
such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does such Borrower know of any valid basis
for any such claim, except for any such claims which, in the aggregate,
could not reasonably be expected to have a Material Adverse Effect. The
use of such Intellectual Property by such Borrower and its Subsidiaries
does not infringe on the rights of any Person, except for such claims
and infringements that, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(j) No Burdensome Restrictions. No Requirement of Law or
Contractual Obligation of each Borrower or any of its Operating
Subsidiaries could reasonably be expected to have a Material Adverse
Effect.
(k) Taxes. Each Borrower and each of its Subsidiaries has
filed or caused to be filed all tax returns which, to the knowledge of
such Borrower, are required to be filed and has paid all taxes shown to
be due and payable on said returns or on any assessments made against
it or any of its Property and all other taxes, fees or other charges
imposed on it or any of its Property by any Governmental Authority
(other than any such taxes, fees or other charges the amount or
validity of which are currently being contested in good faith by
appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of such Borrower
or its Subsidiaries, as the case may be, and other than where failures
timely and properly to file could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect);
no tax Lien has been filed, and, to the knowledge of such Borrower, no
claim is being asserted, with respect to any such tax, fee or other
charge (other than, such Liens, taxes, fees and other charges as could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect).
(l) Margin Regulations. No part of the proceeds of any
Advances will be used for "purchasing" or "carrying" any "margin stock"
within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as
now and from time to time hereafter in effect.
Credit Agreement
<PAGE> 47
- 43 -
(m) ERISA. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or
Section 302 of ERISA) has occurred during the five-year period prior to
the date on which this representation is made or deemed made with
respect to any Plan or is reasonably expected to occur, and each Plan
has complied in all material respects with the applicable provisions of
ERISA and the Code. No termination of a Single Employer Plan has
occurred, no Lien in favor of the PBGC or a Plan has arisen, during
such five-year period, and neither the borrower nor any Commonly
Controlled Entity has received any notice relating to an intent to
terminate any such Single Employer Plan or impose any such Lien. Except
as set forth on Schedule I, the present value of all accrued benefits
under each Single Employer Plan (based on those assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did
not, as of the last annual valuation date prior to the date on which
this representation is made or deemed made, exceed the fair market
value of the assets of such Plan allocable to such accrued benefits.
Neither such Borrower nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan, and neither
such Borrower nor any Commonly Controlled Entity would become subject
to any liability under ERISA if such Borrower or any such Commonly
Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which
this representation is made or deemed made. No filing has been made
pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for waiver of the minimum funding standard of any Single
Employer Plan. No such Multiemployer Plan is in Reorganization or
Insolvent.
(n) Investment Company Act; Other Regulations. Each Borrower
is not an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act
of 1940, as amended. Such Borrower is not subject to regulation under
any United States Federal or state statute or regulation (other than
Regulation X of the Board of Governors of the Federal Reserve System)
which limits its ability to incur Debt.
(o) Use of Proceeds. The proceeds of the Advances will be used
by the Borrowers (i) to repay Debt under the Existing Credit Agreement,
(ii) for acquisitions that are not Hostile Acquisitions in accordance
with Section 5.02(c) and (iii) for other general corporate purposes.
(p) Environmental Matters.
(i) To the best knowledge of each Borrower, the
facilities and Property owned, leased or operated by such
Borrower or any of its Subsidiaries (the "Applicable
Properties") do not contain, and have not previously
contained, any Materials of Environmental Concern in amounts
or concentrations which (x) constitute or constituted a
violation of, or (y) could reasonably be expected to give rise
to liability under, any Environmental Law, except in either
case insofar as
Credit Agreement
<PAGE> 48
- 44 -
such violation or liability, or any aggregation thereof, could
not reasonably be expected to have a Material Adverse Effect.
(ii) To the best knowledge of such Borrower, the
Applicable Properties and all operations at the Applicable
Properties are in compliance, and have in the last five years
been in compliance, in all material respects with all
applicable Environmental Laws, and there is no contamination
at, under or about the Properties or violation of any
Environmental Law with respect to the Applicable Properties or
the business operated by the Borrower or any of its
Subsidiaries (the "Business"), except in either case insofar
as any such noncompliance, contamination or violation, or any
aggregation thereof, could not reasonably be expected to have
a Material Adverse Effect.
(iii) Neither such Borrower nor any of its
Subsidiaries has received any notice of violation, alleged
violation, non-compliance, liability or potential liability
regarding environmental matters or compliance with
Environmental Laws with regard to any of the Applicable
Properties or the Business, nor does such Borrower have
knowledge or reason to believe that any such notice will be
received or is being threatened, except insofar as such notice
or threatened notice, or any aggregation thereof, could not
reasonably be expected to have a Material Adverse Effect.
(iv) Materials of Environmental Concern have not been
transported or disposed of from the Applicable Properties in
violation of, or in a manner or to a location which could
reasonably be expected to give rise to liability under, any
Environmental Law, nor have any Materials of Environmental
Concern been generated, treated, stored or disposed of at, on
or under any of the Applicable Properties in violation of, or
in a manner that could reasonably be expected to give rise to
liability under, any applicable Environmental Law, except
insofar as any such violation or liability referred to in this
paragraph, or any aggregation thereof, could not reasonably be
expected to have a Material Adverse Effect.
(v) No judicial proceeding or governmental or
administrative action is pending or, to the knowledge of such
Borrower, threatened, under any Environmental Law to which
such Borrower or any Subsidiary is or will be named as a party
with respect to the Applicable Properties or the Business, nor
are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any
Environmental Law with respect to the Applicable Properties or
the Business, except insofar as such proceeding, action,
decree, order or other requirement, or any aggregation
thereof, could not reasonably be expected to have a Material
Adverse Effect.
Credit Agreement
<PAGE> 49
- 45 -
(vi) To the best knowledge of such Borrower, there
has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising
from or related to the operations of such Borrower or any
Subsidiary in connection with the Applicable Properties or
otherwise in connection with the Business, in violation of or
in amounts or in a manner that could reasonably give rise to
liability under Environmental Laws, except insofar as any such
violation or liability referred to in this paragraph, or any
aggregation thereof, could not reasonably be expected to have
a Material Adverse Effect.
(q) Accuracy of Information. No statement or information
contained in this Agreement, or any other document, certificate or
written statement furnished to the Administrative Agent or the Banks or
any of them, by or on behalf of any Borrower for use in connection with
the transactions contemplated by this Agreement (including, without
limitation, any financial information furnished pursuant to Section
5.01(a)), taken as a whole, contained as of the date such statement,
information, document, certificate or written statement was so
furnished any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements contained
herein or therein in light of the circumstances in which they were was
made not misleading. The projections and pro forma financial
information, if any, contained in the materials referenced above are
based upon good faith estimates and assumptions believed by management
of such Borrower to be reasonable at the time made, it being recognized
by the Banks that such financial information as it relates to future
events is not to be viewed as fact and that actual results during the
period or periods covered by such financial information may differ from
the projected results set forth therein. There is no fact known to any
Borrower that could reasonably be expected to have a Material Adverse
Effect that has not been expressly disclosed herein or in such other
documents, certificates and written statements furnished to the
Administrative Agent for the benefit of the Banks for use in connection
with the transactions contemplated hereby.
(r) Insurance. Each Borrower and its Operating Subsidiaries
maintain with financially sound and reputable insurance companies
insurance on (or, to the extent consistent with prudent business
practice, a program of self-insurance with respect to) all their
respective Property and operations in at least such amounts and against
at least such risks (but including in any event public liability,
product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a
similar business.
(s) Year 2000. The Company has reviewed its operations and
those of its Subsidiaries with a view to assessing whether it or its
Subsidiaries' respective businesses will, in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data, be vulnerable to a Year 2000 Problem (as defined
below). Based on such review, the Company has no reason to believe that
a Material Adverse Effect will result from a Year 2000 Problem. For
purposes of this paragraph (s), "Year 2000 Problem" means any
significant risk that computer hardware
Credit Agreement
<PAGE> 50
- 46 -
or software used in the business or operations of the Company or any of
its Subsidiaries will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as
in the case of dates or time periods occurring prior to December 31,
1999.
(t) Ranking. The payment obligations of each Foreign Borrower
hereunder and under the Notes are and will at all times be
unconditional, senior unsecured and unsubordinated general obligations
of such Foreign Borrower, and rank and will at all times rank at least
pari passu with all other present and future unsecured and
unsubordinated Debt of such Foreign Borrower.
(u) Commercial Activity; Absence of Immunity. Each Foreign
Borrower is subject to civil and commercial law with respect to its
obligations under this Agreement and the Notes, and the making and
performance of this Agreement and the Notes by such Foreign Borrower
constitute private and commercial acts rather than public or
governmental acts. No Foreign Borrower is entitled to any immunity on
the ground of sovereignty or the like from the jurisdiction of any
court or from any action, suit or proceeding, or from set-off or from
the service of process in connection therewith, arising under this
Agreement or the Notes, and such Foreign Borrower's Properties are not
entitled to any immunity from attachment (before or after judgment) or
execution.
(v) Legal Form. This Agreement and the Notes are in proper
legal form under the laws of each jurisdiction under whose laws any
Foreign Borrower is organized or in which any Foreign Borrower is
domiciled for the enforcement thereof against such Foreign Borrower.
All formalities required in each such jurisdiction for the legality,
validity, enforceability or admissibility in evidence of this Agreement
and the Notes have been accomplished, and it is not necessary that this
Agreement, any Note or any other document be filed, registered or
recorded with, or executed or notarized before, any court or other
Governmental Authority of or in any such jurisdiction or that any
registration charge or stamp or similar tax be paid for the legality,
validity, enforceability or admissibility in evidence thereof.
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.01. Affirmative Covenants.
So long as any principal of or interest on any Advance or any Note or any
other amount payable hereunder shall remain outstanding or any Bank shall have
any Commitment hereunder, the Company and each Borrower that is not a Foreign
Borrower jointly and severally covenant and agree, and each Foreign Borrower
severally covenants and agrees (with respect to itself and its Subsidiaries only
and except with respect to
Credit Agreement
<PAGE> 51
- 47 -
the covenants and agreements contained in the following clauses (a) and (b) of
this Section 5.01), that:
(a) Financial Statements; Compliance Certificates. The Company
will furnish to the Administrative Agent and each Bank:
(i) as soon as available, but in any event within 100
days after the end of each fiscal year of the Company, a copy
of the Consolidated balance sheet of the Company and its
Consolidated Subsidiaries as at the end of such year and the
related Consolidated statements of income and retained
earnings and of cash flows for such year, setting forth in
each case in comparative form the figures for the previous
year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of
the scope of the audit, by Price Waterhouse LLP or other
independent certified public accountants of nationally
recognized standing; and
(ii) as soon as available, but in any event not later
than 50 days after the end of each of the first three quarters
of each fiscal year of the Company, the unaudited Consolidated
balance sheet of the Company and its Consolidated Subsidiaries
as at the end of such quarter and the related unaudited
Consolidated statements of income and retained earnings and of
cash flows of the Company and its Consolidated Subsidiaries
for such quarter and the portion of the fiscal year through
the end of such quarter, setting forth in each case in
comparative form the figures for the previous year, certified
by a Responsible Officer of the Company as being fairly stated
in all material respects (subject to normal year-end audit
adjustments);
all such financial statements shall be complete and correct in all
material respects and shall be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods
reflected therein and with prior periods (except as approved by such
accountants or officer, as the case may be, and disclosed therein).
(b) Certificates; Other Information. The Company will furnish
to the Administrative Agent and each Bank:
(i) concurrently with the delivery of the financial
statements referred to in Section 5.01(a)(i), a certificate of
the independent certified public accountants reporting on such
financial statements stating that in making the examination
necessary therefor no knowledge was obtained of any Default,
except as specified in such certificate;
(ii) concurrently with the delivery of the financial
statements referred to in Sections 5.01(a)(i) and (ii), a
certificate of a Responsible Officer of the Company, (x)
stating that, to the best of such Responsible Officer's
knowledge,
Credit Agreement
<PAGE> 52
- 48 -
during such period each Borrower has observed or performed all
of its covenants and other agreements, and satisfied every
condition, contained in this Agreement to be observed,
performed or satisfied by it, and that such Responsible
Officer has obtained no knowledge of any Default except as
specified in such certificate and (y) setting forth in
reasonable detail the calculations required to determine
compliance with Section 5.03, together with, in the event that
there is any change in GAAP subsequent to the date hereof, a
reconciliation of the calculations used to determine
compliance with Section 5.03 to the financial statements
delivered in connection with such certificate;
(iii) within five days after the same are sent,
copies of all financial statements and reports which the
Company sends to the holders of its capital stock generally,
and within five days after the same are filed, copies of all
financial statements and reports which the Company may make
to, or file with, the Securities and Exchange Commission or
any successor or analogous Governmental Authority;
(iv) concurrently with the delivery of the financial
statements referred to in Sections 5.01(a)(i) and (ii), in the
event that any Subsidiary of the Company has become an
Operating Subsidiary or any Operating Subsidiary has ceased to
constitute an Operating Subsidiary, in each case during the
immediately preceding fiscal quarter (or, in the case of the
financial statements referred to in Section 5.01(a)(i), the
fourth fiscal quarter), a notice thereof; and
(v) promptly, such additional financial and other
information as the Administrative Agent or any Bank may from
time to time reasonably request.
(c) Payment of Obligations. Each Borrower will, and will cause
each of its Operating Subsidiaries to, pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the
case may be, all its obligations of whatever nature, except where the
amount or validity thereof is being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP (or, in
the case of a Foreign Operating Subsidiary, generally accepted
accounting principles in effect in the relevant jurisdiction) with
respect thereto have been provided on the books of such Borrower or its
Operating Subsidiaries, as the case may be, and except to the extent
that the failure to so pay, discharge or otherwise satisfy its
obligations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(d) Conduct of Business and Maintenance of Existence;
Compliance with Contractual Obligations and Requirements of Law. Each
Borrower will, and will cause each of its Operating Subsidiaries to,
(i) continue to engage in business of the same general type as
conducted by the Company and its Operating Subsidiaries on the date
hereof, together with such other businesses as are reasonably related
or complementary thereto, (ii) preserve, renew and keep in full force
and effect its corporate existence
Credit Agreement
<PAGE> 53
- 49 -
except (x) as otherwise permitted pursuant to Section 5.02(c) and (y)
solely with respect to Operating Subsidiaries that are not Borrowers
and other than by reason of a merger, consolidation, amalgamation,
liquidation, winding up or dissolution, if failure to do so would not
be adverse to the Banks in any material respect, (iii) take all
reasonable action to maintain all rights, privileges and franchises
necessary in the normal conduct of its business except as otherwise
permitted pursuant to Section 5.02(c) and except if failure to do so
would not be adverse to the Banks in any material respect, and (iv)
comply with all Contractual Obligations and Requirements of Law except
to the extent that failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(e) Maintenance of Property; Insurance. Each Borrower will,
and will cause each of its Operating Subsidiaries to, (i) keep all
material Property useful and necessary in its business in good working
order and condition (ordinary wear and tear excepted), (ii) maintain
with financially sound and reputable insurance companies insurance on
(or, to the extent consistent with prudent business practice, a program
of self-insurance with respect to) all its Property and operations in
at least such amounts and against at least such risks (but including in
any event public liability, product liability and business
interruption) as are usually insured against in the same general area
by companies engaged in the same or a similar business, and (iii)
furnish to the Administrative Agent and each Bank, upon written
request, full information as to the insurance carried.
(f) Inspection of Property; Books and Records; Discussions.
Each Borrower will, and will cause each of its Operating Subsidiaries
to, keep proper books of records and account in conformity with GAAP
(or, in the case of a Foreign Operating Subsidiary, generally accepted
accounting principles in effect or applied in the relevant
jurisdiction) and all Requirements of Law; and permit representatives
of any Bank to visit and inspect any of its Property and examine and
make abstracts from any of its books and records at any reasonable time
and as often as may reasonably be desired and to discuss the business,
operations, Property and financial and other condition of such Borrower
and its Subsidiaries with officers and employees of such Borrower and
its Subsidiaries and with its independent certified public accountants.
(g) Notices. Each Borrower will promptly give notice to the
Administrative Agent and each Bank of:
(i) the occurrence of any Default;
(ii) any (x) default or event of default under any
Contractual Obligation of such Borrower or any of its
Subsidiaries which could reasonably be expected to have a
Material Adverse Effect or (y) litigation, investigation or
proceeding which may exist at any time as to which there is a
reasonable possibility of an adverse determination and which
if adversely determined, could reasonably be expected to have
a Material Adverse Effect;
Credit Agreement
<PAGE> 54
- 50 -
(iii) the following events, as soon as possible and
in any event within 30 days after such Borrower knows or has
reason to know thereof: (x) the occurrence or expected
occurrence of any Reportable Event with respect to any Plan, a
failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (y) the institution
of proceedings or the taking of any other action by the PBGC
or such Borrower or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the
terminating, Reorganization or Insolvency of, any Plan; and
(iv) any development or event which could reasonably
be expected to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a
statement of a Responsible Officer of the Company setting forth details
of the occurrence referred to therein and stating what action the
relevant Borrower or Subsidiary proposes to take with respect thereto.
(h) Environmental Laws. Each Borrower will, and will cause
each of its Operating Subsidiaries to:
(i) comply with, and ensure compliance by all tenants
and subtenants, if any, with, all applicable Environmental
Laws and obtain and comply with and maintain, and ensure that
all tenants and subtenants obtain and comply with and
maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental
Laws, except in any such case to the extent that failure to do
so could not, in the aggregate, be reasonably expected to have
a Material Adverse Effect; and
(ii) conduct and complete all investigations,
studies, sampling and testing, and all remedial, removal and
other actions required under Environmental Laws, except to the
extent that the failure to do so could not, individually or in
the aggregate, reasonably be expected to have a Material
Adverse Effect, and promptly comply with all lawful orders and
directives of all Governmental Authorities regarding
Environmental Laws, except to the extent that the same are
being contested in good faith by appropriate proceedings and
the pendency of such proceedings could not be reasonably
expected to have a Material Adverse Effect.
(i) Governmental Authorizations. Each Foreign Borrower will
promptly from time to time obtain and maintain in full force and effect
all consents or authorizations of, or approvals by, any Governmental
Authority necessary under the laws of each
Credit Agreement
<PAGE> 55
- 51 -
jurisdiction under whose laws it is organized or in which it is
domiciled for the execution, delivery and performance by it of this
Agreement and the Notes.
(j) Ranking. Each Foreign Borrower will promptly take all
actions as may be necessary to ensure that the payment obligations of
such Foreign Borrower under this Agreement and the Notes will at all
times constitute unconditional, senior unsecured and unsubordinated
general obligations of such Foreign Borrower ranking at least pari
passu with all other present and future unsecured and unsubordinated
Debt of such Foreign Borrower.
SECTION 5.02. Negative Covenants. So long as any principal of
or interest on any Advance or any Note or any other amount payable hereunder
shall remain outstanding or any Bank shall have any Commitment hereunder, the
Company and each Borrower that is not a Foreign Borrower jointly and severally
covenant and agree, and each Foreign Borrower severally covenants and agrees
(with respect to itself and its Subsidiaries only), that:
(a) Subsidiary Debt. The Company will not permit any of its
Subsidiaries to create, incur, assume or at any time be liable with
respect to any Debt, except for:
(i) Debt owing to the Banks hereunder;
(ii) Debt outstanding on December 31, 1997 and any
refinancings, renewals, extensions or refundings thereof which
do not increase the aggregate principal amount thereof;
(iii) Debt owing to the Company or to other
Wholly-Owned Subsidiaries of the Company; and
(iv) additional Debt in an aggregate principal amount
for all Subsidiaries at any one time outstanding not exceeding
$100,000,000.
(b) Liens. The Borrowers will not, and will not permit any of
their Subsidiaries to, create, incur, assume or suffer to exist any
Lien of any kind upon or in any of their respective Property, whether
now owned or hereafter acquired, except for:
(i) Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings, provided
that adequate reserves with respect thereto are maintained on
the books of such Borrower or its Subsidiaries, as the case
may be, in conformity with GAAP (or, in the case of a Foreign
Operating Subsidiary, generally accepted accounting principles
in the relevant jurisdiction);
Credit Agreement
<PAGE> 56
- 52 -
(ii) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the
ordinary course of business which are not overdue for a period
of more than 60 days or which are being contested in good
faith by appropriate proceedings or which are bonded;
(iii) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance
carriers under insurance or self-insurance arrangements;
(iv) deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the
ordinary course of business;
(v) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial in
amount and which do not in any case materially detract from
the value of the Property subject thereto or materially
interfere with the ordinary conduct of the business of such
Borrower or such Subsidiary;
(vi) Liens securing Debt of the Borrowers and their
respective Subsidiaries incurred to finance the acquisition of
fixed or capital assets, provided that (x) such Liens shall be
created substantially simultaneously with the acquisition of
such fixed or capital assets, (y) such Liens do not at any
time encumber any Property other than the Property financed by
such Debt and (z) the principal amount of Debt secured by any
such Lien shall at no time exceed an amount equal to 100% of
the original purchase price of such Property;
(vii) Liens on the Property of a corporation that
becomes a Subsidiary after the date hereof, provided that such
Liens existed at the time such corporation became a Subsidiary
and were not created in anticipation thereof;
(viii) any Lien renewing, extending, refunding or
refinancing any Lien permitted by clause (vi) or (vii) above
or (xii) below, provided that the principal amount of Debt
secured by such Lien is not increased, and such Lien is not
extended to other Property;
(ix) Liens on Property of a Subsidiary to secure
obligations of such Subsidiary to a Borrower or another
Subsidiary;
(x) judgment Liens, so long as the finality of such
judgment is being actively contested in good faith by
appropriate proceedings and execution thereon is stayed;
Credit Agreement
<PAGE> 57
- 53 -
(xi) other Liens securing Debt, provided that the
aggregate principal amount of Debt of the Company and its
Subsidiaries secured by such Liens permitted by this clause
(xi) does not at any time exceed $25,0000,000; and
(xii) Liens set forth in Schedule II; provided,
however, that no Lien otherwise permitted under clause (vi),
(vii), (viii) or (xi) hereof shall be permitted if such Lien
secures Debt which is prohibited under this Agreement.
(c) Fundamental Changes. The Borrowers will not, and will not
permit any of their Subsidiaries to, enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve (or
suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of (each a "Transfer"), all or
substantially all of their respective Property, except that:
(i) any Subsidiary of a Borrower may be merged,
consolidated or amalgamated with or into such Borrower
(provided that such Borrower shall be the continuing or
surviving corporation) or with or into any one or more other
Subsidiaries of the Company;
(ii) any Subsidiary of a Borrower may liquidate,
wind-up or dissolve if such liquidation, winding-up or
dissolution is in the best interests of such Borrower and
would not be adverse to the Banks in any material respect;
(iii) any Subsidiary of a Borrower may Transfer any
or all of its Property (upon voluntary liquidation or
otherwise) to the Company or any other Subsidiary of the
Company;
(iv) any Borrower and any Subsidiary of a Borrower
may merge, consolidate or amalgamate with or into, any other
Person provided that (i) both immediately prior to such
merger, consolidation or amalgamation and after giving effect
thereto, no Default shall exist and (y) in the case of a
merger, consolidation or amalgamation involving the Company,
the Company shall be the continuing or surviving corporation
and in the case of a merger consolidation or amalgamation
involving any other Borrower or Subsidiary, such other
Borrower or Subsidiary shall be the continuing or surviving
corporation;
(v) the Borrowers and their Subsidiaries may make
Investments permitted by Section 5.02(d);
(vi) the Borrowers and their Subsidiaries may
Transfer obsolete or worn-out Property in the ordinary course
of business;
Credit Agreement
<PAGE> 58
- 54 -
(vii) the Borrowers and their Subsidiaries may
Transfer Property for not less than fair market value in the
ordinary course of business, provided that the aggregate
purchase price for all such Transfers by the Borrowers and
their Subsidiaries after the date hereof shall not exceed
$100,000,000;
(viii) the Borrowers and their Subsidiaries may sell
inventory in the ordinary course of business;
(ix) the Borrowers and their Subsidiaries may sell or
discount without recourse accounts receivable arising in the
ordinary course of business in connection with the compromise
or collection thereof; and
(x) the Borrowers and their Subsidiaries may sell the
New York Real Property.
(d) Loans, Advances, Acquisitions and Liabilities. The
Borrowers will not, and will not permit any of their Subsidiaries to,
make any advance, loan, extension of credit or capital contribution to,
or purchase any stock, bonds, notes, debentures or other securities of
or any Property constituting a business unit of, or make any other
investment in, any Person ("Investments"), except:
(i) extensions of trade credit in the ordinary course
of business;
(ii) investments in Cash Equivalents;
(iii) any Borrower and any Subsidiary of a Borrower
may consummate any Acquisition provided that (i) both
immediately prior to such Acquisition and after giving effect
thereto, no Default shall exist, (ii) in the case of an
Acquisition involving the Company, the Company shall be the
continuing or surviving corporation and in the case of an
Acquisition involving any other Borrower or Subsidiary, such
other Borrower or Subsidiary shall be the continuing or
surviving corporation, and (iii) such Acquisition is not a
Hostile Acquisition;
(iv) loans and advances to employees of the Borrowers
and their respective Subsidiaries for travel, entertainment
and relocation expenses and in connection with management
incentive plans, in each case in the ordinary course of
business, and loans to officers of the Borrowers and their
respective Subsidiaries in the ordinary course of business, in
an aggregate amount for the Borrowers and their respective
Subsidiaries not to exceed $10,000,000 at any one time
outstanding;
Credit Agreement
<PAGE> 59
- 55 -
(v) Investments by any Borrower in any other Borrower
or in any Subsidiary of any Borrower and Investments by
Subsidiaries of any Borrower in any Borrower and in any
Subsidiary of any Borrower; and
(vi) other Investments (including Investments in any
Joint Venture), provided that the Net Amount of such
Investments shall not exceed, in the aggregate, $100,000,000;
(e) Dividends and Purchase of Stock. At any time when a
Default has occurred and is continuing, none of the Borrowers will, nor
will it permit any of its Subsidiaries to, declare or pay any dividends
on any shares of any class of its capital stock, or make any
distributions to partners or members, or apply any of its Property to
the purchase, redemption or other retirement of, or set apart any sum
for the payment of any dividends on, or for the purchase, redemption or
other retirement of, or make any other distribution by reduction of
capital or otherwise in respect of, any shares of any class of capital
stock or other equity ownership interests of any Borrower, or purchase
or acquire any shares of any class of capital stock or other equity
ownership interests of any Borrower except that (i) any Subsidiary may
declare and pay dividends with respect to their capital stock and (ii)
the Company may (x) declare and pay dividends payable solely in shares
of its capital stock and (y) pay any dividend declared prior to the
occurrence of such Default (and not in anticipation thereof), provided,
in the case of this clause (y), that such payment is made within 30
days after the declaration of such dividend.
(f) Transactions with Affiliates. The Borrowers will not, and
will not permit any of their Subsidiaries to, enter into any
transaction, including, without limitation, any purchase, sale, lease
or exchange of Property or the rendering of any service, with any
Affiliate unless such transaction is (i) not otherwise prohibited under
this Agreement and (ii) upon fair and reasonable terms no less
favorable to such Borrower or such Subsidiary, as the case may be, than
it would obtain in a comparable arm's length transaction with a Person
which is not an Affiliate.
SECTION 5.03 Financial Covenants. So long as any principal of
or interest on any Advance or any Note or any other amount payable hereunder
shall remain outstanding or any Bank shall have any Commitment hereunder, the
Company and each Borrower that is not a Foreign Borrower covenant and agree
that:
(a) Debt to EBITDA Ratio. They will not permit the Debt to
EBITDA Ratio as at the last day of any fiscal quarter to be greater
than 3.25 to 1.0.
(b) Interest Coverage Ratio. They will not permit the Interest
Coverage Ratio as at the last day of any fiscal quarter to be less than
3.50 to 1.0.
Credit Agreement
<PAGE> 60
- 56 -
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any
Advance when due in accordance with the terms hereof, whether at
maturity, by notice of intention to prepay or otherwise; or
(b) Any Borrower shall fail to pay any interest on any
Advance, or any Facility Fee or any other fee or amount payable
hereunder, within three days after any such interest or other amount
becomes due in accordance with the terms hereof; or
(c) Any representation or warranty made or deemed made by any
Borrower herein or which is contained in any certificate, document or
financial or other statement furnished by it at any time under or in
connection with this Agreement shall prove to have been incorrect in
any material respect on or as of the date made or deemed made; or
(d) Any Borrower shall default in the observance or
performance of any agreement contained in Section 5.02 of this
Agreement; or
(e) Any Borrower shall default in the observance or
performance of any other agreement contained in this Agreement (other
than as provided in paragraphs (a) through (d) of this Section), and
such default shall continue unremedied for a period of 30 days after
the earlier of (i) the date upon which written notice thereof is given
to the Company by the Administrative Agent or the Majority Banks or
(ii) the date upon which a Responsible Officer of any Borrower becomes
aware of such default; or
(f) Any Borrower or any of its Subsidiaries shall (i) default
in any payment of principal of or interest of any Debt (other than the
Advances), beyond the period of grace (not to exceed 30 days), if any,
provided in the instrument or agreement under which such Debt was
created; or (ii) default in the observance or performance of any other
agreement or condition relating to any such Debt or contained in any
instrument or agreement evidencing, securing or relating thereto, or
any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the
holder or holders of such Debt (or a trustee or agent on behalf of such
holder or holders) to cause, with the giving of notice or the lapse of
time or both if required, such Debt to become due prior to its stated
maturity; provided, however, that no Default shall exist under this
paragraph unless the aggregate amount of Debt at any time in respect of
which any default or other event or condition referred to in this
paragraph shall
Credit Agreement
<PAGE> 61
- 57 -
have occurred shall be equal to at least $5,000,000 (or the equivalent
in any one or more other currencies); or
(g) (i) Any Borrower or any of its Domestic Operating
Subsidiaries or Material Foreign Operating Subsidiaries shall commence
any case, proceeding or other action (x) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (y) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for
it or for all or any substantial part of its Property, or any Borrower
or any of its Domestic Operating Subsidiaries or Material Foreign
Operating Subsidiaries shall make a general assignment for the benefit
of its creditors; or (ii) there shall be commenced against any Borrower
or any of its Domestic Operating Subsidiaries or Material Foreign
Operating Subsidiaries any case, proceeding or other action of a nature
referred to in clause (i) above which (x) results in the entry of an
order for relief or any such adjudication or appointment or (y) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against any Borrower or any of its Domestic
Operating Subsidiaries or Material Foreign Operating Subsidiaries any
case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its Property which results in the entry of an order
for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof;
or (iv) any Borrower or any of its Domestic Operating Subsidiaries or
Material Foreign Operating Subsidiaries shall take any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or
(iii) above; or any Borrower or any of its Domestic Operating
Subsidiaries or Material Foreign Operating Subsidiaries shall generally
not, or shall be unable to, or shall admit in writing its inability to,
pay its debts as they become due; or
(h) (i) any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan or any Lien in favor of the PBGC or a Plan
shall arise on the assets of any Borrower or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Majority
Banks, likely to result in the termination of such Plan for purposes of
Title IV of ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) any Borrower or any Commonly
Controlled Entity shall or in the reasonable opinion of the Majority
Banks is likely to, incur any liability, in connection with a
withdrawal from, or the
Credit Agreement
<PAGE> 62
- 58 -
Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other
event or condition shall occur or exist with respect to a Plan; and in
each case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could
reasonably be expected to have a Material Adverse Effect; or
(i) One or more judgments or decrees shall be entered against
any Borrower or any of its Subsidiaries involving in the aggregate for
the Borrowers and their respective Subsidiaries, taken as a whole, a
liability (to the extent not paid or fully covered by insurance or
third-party indemnification from third parties which could reasonably
be expected to satisfy any indemnification claim) of $5,000,000 or
more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 60 days from the
entry thereof; or
(j) A Change in Control shall occur;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Majority Banks, by notice to the Company,
declare the obligation of each Bank to make, Convert and/or Continue Advances to
be terminated, whereupon the same shall forthwith terminate, and (ii) shall at
the request, or may with the consent, of the Majority Banks, by notice to the
Company, declare the Notes, all interest thereon and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrowers; provided, however, that
in the event of an actual or deemed entry of an order for relief with respect to
any Borrower under the United States Federal Bankruptcy Code or any analogous
statute or law in any jurisdiction outside of the United States, (x) the
obligation of each Bank to make, Convert and/or Continue Advances shall
automatically be terminated and (y) the Notes, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrowers.
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Bank hereby
appoints and authorizes the Administrative Agent to take such action as
administrative agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Administrative Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. As to any
Credit Agreement
<PAGE> 63
- 59 -
matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of the Notes), the Administrative Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Majority Banks,
and such instructions shall be binding upon all Banks and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action which exposes the Administrative Agent to personal liability or which
is contrary to this Agreement or applicable law. The Administrative Agent agrees
to give to each Bank prompt notice of each notice given to it by any Borrower
pursuant to the terms of this Agreement.
SECTION 7.02. Administrative Agent's Reliance, Etc.
Neither the Administrative Agent nor any of its directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it or
them under or in connection with this Agreement, except for its or their own
gross negligence or willful misconduct. Without limitation of the generality of
the foregoing, the Administrative Agent: (a) may treat the payee of any Note as
the holder thereof until the Administrative Agent receives and accepts an
Assignment and Acceptance entered into by the Bank which is the payee of such
Note, as assignor, and an assignee as provided in Section 8.07; (b) may consult
with legal counsel (including counsel for the Borrowers), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties or representations (whether written or oral) made in or
in connection with this Agreement; (d) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement on the part of any Borrower or to inspect the
Property (including the books and records) of any Borrower or any of their
Subsidiaries; (e) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto; and (f)
shall incur no liability under or in respect of this Agreement by acting upon
any notice, consent, certificate or other instrument or writing (which may be by
telecopier, telegram, cable or telex) believed by it to be genuine and signed or
sent by the proper party or parties.
SECTION 7.03. Citibank and Affiliates. With respect to its
Commitment, the Advances made by it and the Notes issued to it, Citibank shall
have the same rights and powers under this Agreement as any other Bank and may
exercise the same as though it were not the Administrative Agent; and the term
"Bank" or "Banks" shall, unless otherwise expressly indicated, include Citibank
in its individual capacity. Citibank and its Affiliates may accept deposits
from, lend money to, act as trustee under indentures of, and generally engage in
any kind of business with, the Borrowers, any of their Subsidiaries and any
Person who may do business with or own securities of the any Borrower or any
such Subsidiary, all as if Citibank were not the Administrative Agent and
without any duty to account therefor to the Banks.
SECTION 7.04. Bank Credit Decision. Each Bank acknowledges
that it has, independently and without reliance upon the Administrative Agent or
any other Bank and based
Credit Agreement
<PAGE> 64
- 60 -
on the financial statements referred to in Section 4.01 and such other documents
and information as it has deemed appropriate, made its own credit analysis of
the Borrowers and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
Credit Agreement
<PAGE> 65
- 61 -
SECTION 7.05. Indemnification. The Banks agree to indemnify
the Administrative Agent (to the extent not reimbursed by the Borrowers),
ratably according to the respective principal amounts of the Notes then held by
them (or if no Notes are at the time outstanding, ratably according to the
respective amounts of their Commitments), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against the Administrative Agent in any way
relating to or arising out of this Agreement or any action taken or omitted by
the Administrative Agent under this Agreement, provided, that no Bank shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Administrative Agent's gross negligence or willful misconduct. Without
limiting the foregoing, each Bank agrees to reimburse the Administrative Agent
promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by the Administrative Agent in connection with
the preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
to the extent that the Administrative Agent is not reimbursed for such expenses
by the Borrowers.
SECTION 7.06. Successor Administrative Agent. The
Administrative Agent may resign at any time by giving written notice thereof to
the Banks and the Company and may be removed at any time with or without cause
by the Majority Banks. Upon any such resignation or removal, the Majority Banks
shall have the right to appoint a successor Administrative Agent that, unless a
Default or Event of Default shall have occurred and then be continuing, is
reasonably acceptable to the Company. If no successor Administrative Agent shall
have been so appointed by the Majority Banks, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent's giving of
notice of resignation or the Majority Banks' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Banks, appoint a successor Administrative Agent, which shall be a Bank or a
commercial bank organized under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$100,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations under
this Agreement. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Article VII shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement.
SECTION 7.07. Syndication Agent. Bank of America National
Trust and Savings Association shall not have any rights (except to the extent
expressly provided herein) or obligations hereunder in its capacity as
Syndication Agent.
Credit Agreement
<PAGE> 66
- 62 -
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes, nor consent to any departure by any
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Banks, or by the Administrative Agent with
the consent of the Majority Banks, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Banks, or by the Administrative Agent with the
consent of all the Banks do any of the following: (a) waive any of the
conditions specified in Section 3.01, (b) except as provided in Section 2.04(a),
increase the Commitments of such Banks or subject such Banks to any additional
obligations, (c) reduce the principal of, or interest on, the Advances or the
Notes or any fees or other amounts payable hereunder, (d) postpone any date
fixed for any payment of principal of, or interest on, the Advances or the Notes
or any fees or other amounts payable hereunder, (e) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Advances or the
Notes, or the number of Banks, which shall be required for the Banks or any of
them to take any action hereunder, (f) amend this Section 8.01, or (g) modify
the definition of the term "Approved Foreign Currency"; provided, further, that
no amendment, waiver or consent shall, unless in writing and (i) signed by the
Administrative Agent in addition to the Banks required above to take such
action, affect the rights or duties of the Administrative Agent under this
Agreement or any Note and (ii) signed by the Swing Line Bank in addition to the
Banks required to take such action, amend Section 2.02, increase the Swing Line
Facility or otherwise affect the rights or obligations of the Swing Line Bank
under this Agreement. This Agreement and the Notes and the other documents
referred to herein constitute the entire agreement of the parties with respect
to the subject matter hereof and thereof.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered, if to any Borrower, to it care or the Company at
the Company's address at Young & Rubicam Inc, 285 Madison Avenue, New York, New
York 10017, Attention: Paul Rourke, telephone no. 212-210-4920, telecopier
number 212-210-5363; if to any Bank, at the Domestic Lending Office specified
beneath its signature hereto; and if to the Administrative Agent, Citibank,
N.A., 399 Park Avenue, New York, New York 10043, Attention: Eric Huttner,
telephone no. 212-559-8564, telecopier no. 212-793-6873; or, as to any Borrower
or the Administrative Agent, at such other address as shall be designated by
such party in a written notice to the other parties and, as to each other party,
at such other address as shall be designated by such party in a written notice
to the Company and the Administrative Agent. All such notices and communications
shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective
when deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answerback or delivered to the cable company, respectively,
except that notices and communications to the Administrative
Credit Agreement
<PAGE> 67
- 63 -
Agent pursuant to Article II or VII shall not be effective until received by the
Administrative Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Bank or the Administrative Agent to exercise, and no delay in exercising,
any right hereunder or under any Note shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs, Expenses and Indemnification.
(a) The Borrowers jointly and severally agree to pay and
reimburse promptly after demand all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification and amendment of this Agreement, the Notes and the
other documents to be delivered hereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Agent with respect thereto and with respect to advising the Administrative Agent
as to its rights and responsibilities under this Agreement. The Borrowers
further jointly and severally agree to pay on demand all costs and expenses, if
any (including, without limitation, reasonable counsel fees and expenses of the
Administrative Agent and each of the Banks), incurred by the Administrative
Agent or any Bank in connection with the enforcement (whether through
negotiations, legal proceedings or otherwise) of this Agreement, the Notes and
the other documents to be delivered hereunder, including, without limitation,
reasonable counsel fees and expenses in connection with the enforcement of
rights under this Section 8.04(a).
(b) The Borrowers hereby jointly and severally indemnify the
Administrative Agent, the Syndication Agent, CSI, BARS, each Bank and each of
their respective Affiliates and their respective officers, directors, employees,
agents, advisors and representatives (each, an "Indemnified Party") from and
against any and all claims, damages, losses, liabilities and expenses
(including, without limitation, fees and disbursements of counsel), joint or
several, that may be incurred by or asserted or awarded against any Indemnified
Party, in each case arising out of or in connection with or relating to any
investigation, litigation or proceeding or the preparation of any defense with
respect thereto arising out of or in connection with or relating to this
Agreement, the Notes or the transactions contemplated hereby or thereby or any
use made or proposed to be made with the proceeds of the Advances, whether or
not such investigation, litigation or proceeding is brought by a Borrower, any
of its shareholders or creditors, an Indemnified Party or any other Person, or
an Indemnified Party is otherwise a party thereto, and whether or not any of the
conditions precedent set forth in Article III are satisfied or the other
transactions contemplated by this Agreement are consummated, except to the
extent such claim, damage, loss, liability or expense is found by a court of
competent jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct, or from a violation by such Indemnified Party
of any law, order, regulation or agreement to which such Indemnified Party or
its properties is subject, or from a breach of this Agreement.
Credit Agreement
<PAGE> 68
- 64 -
The Borrowers hereby further agree that no Indemnified Party
shall have any liability (whether direct or indirect, in contract, tort or
otherwise) to the Borrowers for or in connection with or relating to this
Agreement, the Notes or the transactions contemplated hereby or thereby or any
use made or proposed to be made with the proceeds of the Advances, except to the
extent such liability is found by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct,
nor any liability for consequential or punitive damages.
(c) If any payment of principal of, or Conversion of, any LIBO
Rate Advance is made other than on the last day of an Interest Period for such
Advance, as a result of acceleration of the maturity of the Notes pursuant to
Section 6.01 or for any other reason whatsoever, the Borrower of such Advance
shall pay to the Administrative Agent for the account of each Bank any amounts
required to compensate such Bank for any additional losses, costs or expenses
which it may reasonably incur as a result of such payment or Conversion,
including, without limitation, any loss (excluding loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Bank to fund or maintain such Advance.
Subject to the next two sentences hereof, such Borrower shall pay amounts owing
to such Bank pursuant to this Section 8.04(c) within 30 days after receipt from
such Bank of a certificate setting forth in reasonable detail the calculation of
the amount such Bank is entitled to claim under this Section 8.04(c) (which
certificate shall be conclusive and binding on the Borrower, absent manifest
error). Such Borrower shall not be liable under this clause for the payment of
any amounts incurred or accrued more than 180 days prior to the date on which
notice of the event or circumstance giving rise to the obligation to make such
payment is given to such Borrower hereunder, except to the extent such amounts
were incurred or accrued prior to such date due solely to the retroactive nature
of the relevant requirement. If such Borrower objects in good faith to any
payment demanded under this clause on or before the date such payment is due,
then such Borrower and the Bank demanding such payment shall enter into
discussions to review the amount due, and such Borrower's obligation to pay such
amount to such Bank shall be deferred for 45 days after the original demand for
payment, and if such Borrower and such Bank do not reach agreements during such
45-day period on the amount due, such Borrower shall pay to such Bank at the end
of such 45-day period the amount certified by such Bank to be due.
SECTION 8.05. Right of Set-off. Upon (a) the occurrence and
during the continuance of any Event of Default under Section 6.01(a) or (b) or
(b) the making of the request or the granting of the consent specified by
Section 6.01 to authorize the Administrative Agent to declare the Notes due and
payable pursuant to the provisions of Section 6.01, each Bank and each of its
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Bank or such Affiliate to or for
the credit or the account of any Borrower (all such deposits and other
indebtedness being herein called "Obligations") against any and all of the
obligations of any Borrower now or hereafter existing under this Agreement and
any Note held by such Bank, whether or not such Bank shall have made any demand
under this Agreement or such Note and
Credit Agreement
<PAGE> 69
- 65 -
although the Obligations may be unmatured. Each Bank agrees promptly to notify
the Company after any such set-off and application made by such Bank or such
Affiliate, provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Bank and its
Affiliate under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which such Bank or such
Affiliate may have.
SECTION 8.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by each Borrower and the
Administrative Agent and when the Administrative Agent shall have been notified
by each Bank that such Bank has executed it and thereafter shall be binding upon
and inure to the benefit of each Borrower, the Administrative Agent and each
Bank and their respective successors and assigns, except that no Borrower shall
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the Banks.
SECTION 8.07. Assignments and Participations.
(a) Each Bank may, with notice to and the consent of the
Administrative Agent and (unless at the time an Event of Default has occurred
and is continuing) the Company, such consents not to be unreasonably withheld
(but not otherwise), assign to another bank, financial institution or other
entity (other than the Company or any Affiliate of the Company), all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it and the
Note or Notes held by it); provided, however, that (i) no such consent by the
Company or the Administrative Agent shall be required in the case of any
assignment to a Subsidiary of the assigning Bank or to another Bank, (ii) each
such assignment shall be of a constant, and not a varying, percentage of all
rights and obligations of the assigning Bank under this Agreement, (iii) the
amount of the Commitment of the assigning Bank being assigned pursuant to each
such assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $10,000,000 and shall
be an integral multiple of $1,000,000, (iv) the parties to each such assignment
shall execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, together with any Note
or Notes subject to such assignment, and (v) the parties to each such assignment
(other than the Borrower) shall deliver to the Administrative Agent a processing
and recordation fee of $3,000. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, have the rights and obligations of a Bank
hereunder and (y) the Bank assignor thereunder shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such Assignment
and Acceptance, relinquish its rights and be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Bank's rights and obligations under this
Agreement, such Bank shall cease to be a party hereto).
Credit Agreement
<PAGE> 70
- 66 -
(b) By executing and delivering an Assignment and Acceptance,
the Bank assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of any Borrower or the performance or observance by any Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Bank or any other Bank
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such assignee appoints and authorizes the
Administrative Agent to take such action as administrative agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vi) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement are required to be performed by it as a Bank.
(c) Upon its receipt of an Assignment and Acceptance executed
by an assigning Bank and an assignee, together with any Note or Notes subject to
such assignment, the Administrative Agent shall, if such Assignment and
Acceptance has been completed (and the Company and the Administrative Agent
shall have consented to the relevant assignment to the extent required pursuant
to Section 8.07(a)) and is in substantially the form of Exhibit E hereto, (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Company.
Within five Business Days after its receipt of such notice, each Borrower, at
its own expense, shall execute and deliver to the Administrative Agent, in
exchange for the surrendered Note or Notes, a Note to the order of such assignee
in an amount equal to the Commitment assumed by it pursuant to such Assignment
and Acceptance and, if the assigning Bank has retained a Commitment hereunder, a
new Note to the order of the assigning Bank in an amount equal to the Commitment
retained by it hereunder. Such new Note(s) shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Notes. All
such Notes shall be dated the effective date of such Assignment and Acceptance
and shall otherwise be in substantially the form of Exhibit A hereto.
(d) The Administrative Agent shall maintain at its address
referred to in Section 8.02 a copy of each Assignment and Acceptance delivered
to and accepted by it and a register for the recordation of the names and
addresses of each of the Banks and, with respect to Banks, the Commitment of,
and principal amount of the Advances owing to, each such Bank from time to
Credit Agreement
<PAGE> 71
- 67 -
time (the "Register"). The entries in the Register shall be conclusive and
binding for the purposes, absent manifest error, and the Borrowers, the
Administrative Agent and the Banks may treat each Person whose name is recorded
in the Register as a Bank hereunder for the purposes of this Agreement. The
Register shall be available for inspection by any Borrower or any Bank at any
reasonable time and from time to time upon reasonable prior notice.
(e) Each Bank may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note or Notes held by it);
provided, however, that (i) such Bank's obligations under this Agreement
(including, without limitation, its Commitment hereunder) shall remain
unchanged, (ii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Bank shall remain the
holder of any such Note for all purposes of this Agreement, (iv) the Borrowers,
the Administrative Agent and the other Banks shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement, and (v) no participant under any such participation
agreement shall have any right to approve any amendment or waiver of any
provision of this Agreement or any Note, or to consent to any departure by any
Borrower therefrom, except to the extent that any such amendment, waiver or
consent would (x) reduce the principal of, or interest on, the Notes or any fee
or other amounts payable hereunder, in each case to the extent the same are
subject to such participation, or (y) postpone any date fixed for the payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent the same are subject to such
participation.
(f) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrowers or any of their
Subsidiaries furnished to such Bank by or on behalf of any Borrower; provided,
that, prior to any such disclosure, the assignee or participant or proposed
assignee or participant shall agree to preserve the confidentiality of any
confidential information relating to any Borrower or any such Subsidiary
received by it from such Bank on the terms set forth in Section 8.13.
(g) Notwithstanding any other provision set forth in this
Agreement, any Bank may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Advances owing to it and the Notes held by it) in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System.
(h) All amounts payable by the Borrower to any Bank under
Sections 2.07, 2.11, 2.14 and 8.04(c) in respect of Advances held by such Bank,
and such Bank's Commitment, shall be determined as if such Bank had not sold or
agreed to sell any participations in such Advances or Commitment and as if such
Bank were funding each of such Advances and Commitments in the same way that it
is funding the portion of such Advances and Commitment in which no
participations have been sold. No assignee or other transferee of any Bank's
rights shall be
Credit Agreement
<PAGE> 72
- 68 -
entitled to receive any greater payment under Section 2.11 than such Bank would
have been entitled to receive with respect to the rights transferred, unless
such transfer is made (i) with the Company's prior written consent, (ii) by
reason of the provisions of said Section 2.11 requiring such Bank to designate a
different Applicable Lending Office as provided in said Section 2.11 or (iii) at
a time when the circumstances giving rise to such greater payment did not exist.
SECTION 8.08. Governing Law; Submission to Jurisdiction. This
Agreement and the Notes shall be governed by, and construed in accordance with,
the law of the State of New York. Each Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York state court sitting in New York City
for the purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. Each Borrower agrees that
service of all writs, process and summonses in any such legal proceedings
brought in the State of New York may be made upon the Company at its address
specified in Section 8.02 and each Borrower other than the Company hereby
appoints the Company as its agent and true and lawful attorney-in-fact in its
name, place and stead to accept such service of any and all such writs, process
and summonses, and agrees that the failure of the Company to give any notice of
any such service of process to such Borrower shall not impair or affect the
validity of such service or of any judgment based thereon. Each such appointment
shall be irrevocable to the fullest extent permitted by applicable law. Each
Borrower irrevocably waives, to the fullest extent permitted by applicable law,
any objection that it may now or hereafter have to the laying of the venue of
any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
SECTION 8.09. Severability. In case any provision in this
Agreement or in any Note shall be held to be invalid, illegal or unenforceable,
such provision shall be severable from the rest of this Agreement or such Note,
as the case may be, and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 8.10. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
Credit Agreement
<PAGE> 73
- 69 -
SECTION 8.11. Survival. The obligations of the Borrowers under
Sections 2.07, 2.11, 2.14 and 8.04, and the obligations of the Banks under
Section 7.05, shall survive the repayment of the Advances and the termination of
the Commitments. In addition, each representation and warranty made, or deemed
to be made by or in connection with any Notice of Borrowing, herein or pursuant
hereto shall survive the making of such representation and warranty as of the
date made, and no Bank shall be deemed to have waived, by reason of making any
Advance, any Default or Event of Default that may arise by reason of such
representation or warranty proving to have been false or misleading,
notwithstanding that such Bank or the Administrative Agent may have had notice
or knowledge or reason to believe that such representation or warranty was false
or misleading at the time such extension of credit was made.
SECTION 8.12. Waiver of Jury Trial. EACH OF THE BORROWERS, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 8.13. Confidentiality. Each Bank agrees to hold all
non-public information obtained pursuant to the provisions of this Agreement in
accordance with its customary procedure for handling confidential information of
this nature and in accordance with safe and sound banking practices, provided,
that nothing herein shall prevent any Bank from disclosing such information (a)
to any other Bank or to the Administrative Agent (or to Citicorp Securities,
Inc. or BancAmerica Robertson Stephens), (b) upon the order of any court or
administrative agency or otherwise to the extent required by statute, rule,
regulation or judicial process, (c) to bank examiners or upon the request or
demand of any other regulatory agency or authority, (d) which had been publicly
disclosed other than as a result of a disclosure by the Administrative Agent or
any Bank prohibited by this Agreement, (e) in connection with any litigation to
which any one or more of the Banks or the Administrative Agent is a party, or in
connection with the exercise of any remedy hereunder or under any Note, (f) to
such Bank's or Administrative Agent's legal counsel and independent auditors and
accountants and (g) subject to provisions substantially similar to those
contained in this Section, to any actual or proposed participant or assignee.
SECTION 8.14. European Monetary Union. (a) If, as a result of
the implementation of European monetary union, (i) any European Currency ceases
to be lawful currency of the nation issuing the same and is replaced by a
European common currency (the "Euro"), or (ii) any European Currency and the
Euro are at the same time recognized by any Governmental Authority of the nation
issuing such European Currency as lawful currency of such nation and the
Administrative Agent or the Majority Banks shall so request in a notice
delivered to the Company, then any amount payable hereunder by any party hereto
in such European Currency shall instead be payable in the Euro and the amount so
payable shall be determined by translating the amount payable in such European
Currency to the Euro at the exchange rate recognized by the European Central
Bank for the purpose of implementing
Credit Agreement
<PAGE> 74
- 70 -
European monetary union. Prior to the occurrence of the event or events
described in clause (i) or (ii) of the preceding sentence, each amount payable
hereunder in any European Currency will, except as otherwise provided herein,
continue to be payable only in that Currency.
(b) The Company agrees, at the request of any Bank, to
compensate such Bank for any loss, cost, expense or reduction in return that
such Bank shall reasonably determine shall be incurred or sustained by such Bank
as a result of the implementation of European monetary union and that would not
have been incurred or sustained but for the transactions provided for herein. A
certificate of a Bank setting forth such Bank's determination of the amount or
amounts necessary to compensate such Bank shall be delivered to the Company and
shall be conclusive and binding on the Company absent manifest error. The
Company shall pay such Bank the amount shown as due on any such certificate
within 10 days after receipt thereof. If the Company objects in good faith to
any payment demanded under this clause on or before the date such payment is
due, then the Company and the Bank demanding such payment shall enter into
discussions to review the amount due, and the Company's obligation to pay such
amount to such Bank shall be deferred for 45 days after the original demand for
payment, and if the Company and such Bank do not reach agreement during such
45-day period on the amount due, the Company shall pay to such Bank at the end
of such 45-day period the amount certified by such Bank to be due.
(c) The parties hereto agree, at the time of or at any time
following the implementation of European monetary union, to use reasonable
efforts to enter into an agreement amending this Agreement in order to reflect
the implementation of such monetary union, to permit (if feasible) the Euro to
qualify as an Approved Foreign Currency under the terms and conditions of the
definition of such term and to place the parties hereto in the position with
respect to the settlement of payments of the Euro as they would have been with
respect to the settlement of the Currencies it replaced.
SECTION 8.15. Additional Subsidiary Borrowers. Subject to the
conditions set forth below, any Subsidiary of the Company may become a party to
this Agreement as a Subsidiary Borrower hereunder. Any such Subsidiary shall
become a party to this Agreement at such time as (a) the Administrative Agent
shall have received (i) a supplement to this Agreement (a "Subsidiary Borrower
Supplement"), in substantially the form of Exhibit F hereto, duly executed by
such Subsidiary, (ii) a Note for each Bank, duly executed by such Subsidiary,
(iii) certified copies of the charter and by-laws (or equivalent documents) of
such Subsidiary and of all corporate authority for such Subsidiary (including,
without limitation, board of director resolutions and evidence of the
incumbency, including specimen signatures, of officers) with respect to the
execution, delivery and performance of this Agreement and the Notes and each
other document to be delivered by such Subsidiary from time to time in
connection herewith and the extensions of credit hereunder, and (iv) a favorable
opinion of counsel (which counsel shall be reasonably acceptable as the
Administrative Agent) for such Subsidiary with regard to the due organization,
power and authority of such Subsidiary to execute and deliver such Subsidiary
Borrower Supplement, and the legality, validity, binding effect and
enforceability thereof and of such Subsidiary's obligations under this Agreement
and said Notes, and the obtaining of any and
Credit Agreement
<PAGE> 75
- 71 -
all foreign exchange and other governmental approvals required in connection
therewith, and (b) the Administrative Agent shall have accepted such Subsidiary
Borrower Supplement (which the Administrative Agent shall accept upon its
receipt of the documentation required to be delivered pursuant to the foregoing
clause (a) in form and substance satisfactory to the Administrative Agent). Upon
such receipt and acceptance, such Subsidiary shall be a party hereto and shall
have the rights and obligations of a Borrower hereunder and under the Notes, and
the Administrative Agent shall notify the Banks thereof and shall deliver to
each Bank its Note of such Subsidiary.
SECTION 8.16. Waiver of Immunity. To the fullest extent
permitted by applicable law, to the extent that any Foreign Borrower may be or
become entitled to claim for itself or its Properties any immunity on the ground
of sovereignty or the like from suit, court jurisdiction, attachment prior to
judgment, attachment in aid of execution of a judgment or execution of a
judgment, and to the extent that in any jurisdiction there may be attributed
such an immunity (whether or not claimed), such Foreign Borrower hereby
irrevocably agrees not to claim and hereby irrevocably waives such immunity with
respect to its obligations under this Agreement and the Notes.
SECTION 8.17. Judgment Currency. This is an international loan
transaction in which the specification of Dollars or any Foreign Currency, as
the case may be (the "Specified Currency"), and any payment in New York County
or the country of the Specified Currency, as the case may be (the "Specified
Place"), is of the essence, and the Specified Currency shall be the currency of
account in all events relating to Loans denominated in the Specified Currency.
The payment obligations of the Borrowers under this Agreement shall not be
discharged by an amount paid in another currency or in another place, whether
pursuant to a judgment or otherwise, to the extent that the amount so paid on
conversion to the Specified Currency and transfer to the Specified Place under
normal banking procedures does not yield the amount of the Specified Currency at
the Specified Place due hereunder. If for the purpose of obtaining judgment in
any court it is necessary to convert a sum due hereunder in the Specified
Currency into another currency (the "Second Currency"), the rate of exchange
which shall be applied shall be that at which in accordance with normal banking
procedures the Administrative Agent could purchase the Specified Currency with
the Second Currency on the Business Day next preceding that on which such
judgment is rendered. The obligation of each Borrower in respect of any such sum
due from it to the Administrative Agent or any Bank hereunder shall,
notwithstanding the rate of exchange actually applied in rendering such
judgment, be discharged only to the extent that on the Business Day following
receipt by the Administrative Agent or such Bank, as the case may be, of any sum
adjudged to be due hereunder in the Second Currency to the Administrative Agent
or such Bank, as the case may be, the Administrative Agent or such Bank, as the
case may be, may in accordance with normal banking procedures purchase and
transfer to the Specified Place the Specified Currency with the amount of the
Second Currency so adjudged to be due; and the Company hereby, as a separate
obligation and notwithstanding any such judgment, agrees to indemnify the
Administrative Agent or such Bank, as the case may be, against, and to pay the
Administrative Agent or such Bank, as the case may be, on demand in the
Specified Currency, any difference between the sum originally due to the
Administrative Agent
Credit Agreement
<PAGE> 76
- 72 -
or such Bank, as the case may be, in the Specified Currency and the amount of
the Specified Currency so purchased and transferred.
ARTICLE IX
GUARANTEE
SECTION 9.01. The Guarantee. The Company hereby guarantees to
each Bank and the Administrative Agent and their respective successors and
assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Advances made
by each Bank to each Borrower other than the Company (the "Guaranteed
Borrowers") and all other amounts from time to time owing to each Bank or the
Administrative Agent by each Guaranteed Borrower under this Agreement, in each
case strictly in accordance with the terms thereof (such obligations being
herein collectively called the "Guaranteed Obligations"). The Company hereby
further agrees that if any Guaranteed Borrower shall fail to pay in full when
due (whether at stated maturity, by acceleration or otherwise) any of the
Guaranteed Obligations, the Company will promptly pay the same, without any
demand or notice whatsoever, and that in the case of any extension of time of
payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.
SECTION 9.02 Obligations Unconditional. The obligations of the
Company under Section 9.01 are, to the fullest extent permitted by applicable
law, absolute and unconditional irrespective of the authorization, legality
value, genuineness, validity, regularity or enforceability of any Subsidiary
Borrower Supplement or any of the obligations of any Guaranteed Borrower under
this Agreement or any other agreement or instrument referred to herein or
therein, or any substitution, release or exchange of any other guarantee of or
security for any of the Guaranteed Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
that might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section 9.02 that the
obligations of the Company hereunder shall be absolute and unconditional under
any and all circumstances. Without limiting the generality of the foregoing, it
is agreed that the occurrence of any one or more of the following shall not
alter or impair the liability of the Company hereunder which shall remain
absolute and unconditional as described above:
(a) at any time or from time to time, without notice to the
Company, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of this
Agreement or any other agreement or instrument referred to herein or
therein shall be done or omitted;
Credit Agreement
<PAGE> 77
- 73 -
(c) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this
Agreement or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(d) any lien or security interest granted to, or in favor of,
the Administrative Agent or any Bank or Banks as security for any of
the Guaranteed Obligations shall fail to be perfected.
The Company hereby expressly waives diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that the Administrative
Agent or any Bank exhaust any right, power or remedy or proceed against any
Guaranteed Borrower under this Agreement or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations.
SECTION 9.03 Reinstatement. The obligations of the Company
under this Article IX shall be automatically reinstated if and to the extent
that for any reason any payment by or on behalf of any Guaranteed Borrower in
respect of the Guaranteed Obligations is rescinded or must be otherwise restored
by any holder of any of the Guaranteed Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise and the Company agrees
that it will indemnify the Administrative Agent and each Bank on demand for all
reasonable costs and expenses (including, without limitation, fees of counsel)
incurred by the Administrative Agent or such Bank in connection with such
rescission or restoration, including any such costs and expenses incurred in
defending against any claim alleging that such payment constituted a preference,
fraudulent transfer or similar payment under any bankruptcy, insolvency or
similar law.
SECTION 9.04 Subrogation. The Company hereby agrees that until
the payment and satisfaction in full of all Guaranteed Obligations and the
expiration and termination of the Commitments of the Banks under this Agreement
it shall not exercise any right or remedy arising by reason of any performance
by it of its guarantee in Section 9.01, whether by subrogation or otherwise,
against any Guaranteed Borrower or any other guarantor of any of the Guaranteed
Obligations or any security for any of the Guaranteed Obligations.
SECTION 9.05 Remedies. The Company agrees that, as between the
Company and the Banks, the obligations of the Guaranteed Borrowers under this
Agreement may be declared to be forthwith due and payable as provided in Section
6.01 (and shall be deemed to have become automatically due and payable in the
circumstances provided in said Section 6.01) for purposes of Section 9.01
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or such obligations from becoming automatically due and payable) as
against any Guaranteed Borrower and that, in the event of such declaration (or
such obligations being
Credit Agreement
<PAGE> 78
- 74 -
deemed to have become automatically due and payable), such obligations (whether
or not due and payable by such Guaranteed Borrower) shall forthwith become due
and payable by the Company for purposes of Section 9.01.
SECTION 9.06 Continuing Guarantee. The guarantee in this
Article IX is a continuing guarantee of payment (and not of collection), and
shall apply to all Guaranteed Obligations whenever arising.
SECTION 9.07 Instrument for the Payment of Money. The Company
hereby acknowledges that the guarantee in this Article IX constitutes an
instrument for the payment of money, and consents and agrees that any Bank or
the Administrative Agent, at its sole option, in the event of a dispute by the
Company in the payment of any moneys due hereunder, shall have the right to
bring motion-action under New York CPLR Section 3213.
Credit Agreement
<PAGE> 79
- 75 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
YOUNG & RUBICAM INC.
By__________________________
Title:
[NAME OF GERMAN SUBSIDIARY BORROWER]
By__________________________
Title:
[NAME OF U.K. SUBSIDIARY BORROWER]
By__________________________
Title:
[NAME OF SWISS SUBSIDIARY BORROWER]
By__________________________
Title:
CITIBANK, N.A., as Administrative
Agent
By__________________________
Title:
Credit Agreement
<PAGE> 80
- 76 -
Commitment Banks
$ CITIBANK, N.A.
By____________________________
Title:
Domestic Lending Office:
399 Park Avenue
New York, NY 10043
LIBO Lending Office:
399 Park Avenue
New York, NY 10043
Address for Notices:
Citibank, N.A.
399 Park Avenue
New York, NY 10043
Attention: Eric Huttner
Telephone: 212-559-8564
Facsimile: 212-793-6873
Credit Agreement
<PAGE> 81
- 77 -
Commitment BANK OF AMERICA NATIONAL TRUST
$ AND SAVINGS ASSOCIATION
By:____________________________
Title:
Domestic Lending Office:
LIBO Lending Office:
Address for Notices:
Attention:
Telephone:
Facsimile:
Credit Agreement
<PAGE> 82
- 78 -
Commitment THE BANK OF NEW YORK
$
By:____________________________
Title:
Domestic Lending Office:
LIBO Lending Office:
Address for Notices:
Attention:
Telephone:
Facsimile:
Credit Agreement
<PAGE> 83
- 79 -
Commitment THE BANK OF NOVA SCOTIA
$
By:____________________________
Title:
Domestic Lending Office:
LIBO Lending Office:
Address for Notices:
Attention:
Telephone:
Facsimile:
Credit Agreement
<PAGE> 84
- 80 -
Commitment CREDIT AGRICOLE
$
By:____________________________
Title:
Domestic Lending Office:
LIBO Lending Office:
Address for Notices:
Attention:
Telephone:
Facsimile:
Credit Agreement
<PAGE> 85
- 81 -
Commitment CREDIT LYONNAIS
$
By:____________________________
Title:
Domestic Lending Office:
LIBO Lending Office:
Address for Notices:
Attention:
Telephone:
Facsimile:
Credit Agreement
<PAGE> 86
Commitment FLEET NATIONAL BANK
$
By:____________________________
Title:
Domestic Lending Office:
LIBO Lending Office:
Address for Notices:
Attention:
Telephone:
Facsimile:
Credit Agreement
- 82 -
<PAGE> 87
- 83 -
Commitment ING BANK N.V.
$
By:____________________________
Title:
Domestic Lending Office:
LIBO Lending Office:
Address for Notices:
Attention:
Telephone:
Facsimile:
Credit Agreement
<PAGE> 88
- 84 -
Commitment KEYBANK NATIONAL ASSOCIATION
$
By:____________________________
Title:
Domestic Lending Office:
LIBO Lending Office:
Address for Notices:
Attention:
Telephone:
Facsimile:
Credit Agreement
<PAGE> 89
- 85 -
Commitment THE FIRST NATIONAL BANK OF CHICAGO
$
By:____________________________
Title:
Domestic Lending Office:
LIBO Lending Office:
Address for Notices:
Attention:
Telephone:
Facsimile:
Credit Agreement
<PAGE> 90
- 86 -
Commitment WACHOVIA BANK, N.A.
$
By:____________________________
Title:
Domestic Lending Office:
LIBO Lending Office:
Address for Notices:
Attention:
Telephone:
Facsimile:
Credit Agreement
<PAGE> 91
SCHEDULE I
ERISA Matters
None
<PAGE> 92
SCHEDULE II
Existing Liens
None
<PAGE> 93
EXHIBIT A
FORM OF NOTE
$_________________ Dated: _________ __, _____
FOR VALUE RECEIVED, the undersigned, [NAME OF BORROWER], a
_________________ organized under the laws of _________________ (the
"Borrower"), HEREBY PROMISES TO PAY to the order of _________________ (the
"Bank") for the account of its Applicable Lending Office (as defined in the
Credit Agreement referred to below) on the Termination Date (as so defined) the
principal sum of $[amount of the Bank's Commitment in figures] or, if less the
aggregate principal amount of the Revolving Credit Advances (as defined below)
made by the Bank to the Borrower pursuant to the Credit Agreement then
outstanding; provided, that to the extent that any Revolving Credit Advance
evidenced hereby is denominated in an Approved Foreign Currency as defined in
the Credit Agreement, the principal of and interest on such Revolving Credit
Advance shall be payable in such Approved Foreign Currency.
The Borrower promises to pay interest on the unpaid principal
amount of each Revolving Credit Advance from the date of such Revolving Credit
Advance until such principal amount is paid in full, at such interest rates, and
payable at such times, as are specified in the Credit Agreement.
Both principal and interest on each Revolving Credit Advance
are payable in the Currency in which such Revolving Credit Advance is
denominated to the Administrative Agent's Account (as defined in the Credit
Agreement referred to below) for such Currency, in same day funds. Each
Revolving Credit Advance made by the Bank to the Borrower pursuant to the Credit
Agreement, and all payments made on account of principal thereof, shall be
recorded by the Bank and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this Note; provided that the failure of the
Bank to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Credit Agreement.
This Note is one of the Notes referred to in, and is entitled
to the benefits of, the Credit Agreement dated as of May [__],1998 (the "Credit
Agreement") among Young & Rubicam Inc., the Subsidiary Borrowers party thereto,
the Bank and certain other banks party thereto, and Citibank, N.A., as
Administrative Agent for the Bank and such other banks. The Credit Agreement,
among other things, (i) provides for the making of advances (the "Revolving
Credit Advances") by the Bank to the Borrower from time to time in an aggregate
amount not to exceed at any time outstanding the Dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such Revolving
Credit Advance being evidenced by this Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified.
Form of Note
<PAGE> 94
-2-
The Borrower hereby waives presentment, demand, protest and
notice of any kind. No failure to exercise, and no delay in exercising, any
rights hereunder on the part of the holder hereof shall operate as a waiver of
such rights.
This Note shall be governed by, and construed in accordance
with, the law of the State of New York, United States.
YOUNG & RUBICAM INC.
By________________________
Title:
Form of Note
<PAGE> 95
EXHIBIT B-1
NOTICE OF REVOLVING CREDIT BORROWING
Citibank, N.A., as Administrative
Agent for the Banks parties
to the Credit Agreement
referred to below
399 Park Avenue
New York, New York 10043
Attention: ___________
[Date]
Ladies and Gentlemen:
The undersigned, Young & Rubicam Inc., refers to the Credit
Agreement dated as of May [__], 1998 (the "Credit Agreement", the terms defined
therein being used herein as therein defined), among the undersigned, the
Subsidiary Borrowers party thereto, certain Banks party thereto and Citibank,
N.A., as Administrative Agent for said Banks, and hereby gives you notice,
irrevocably, pursuant to Section 2.01(d) of the Credit Agreement that the
undersigned hereby requests a Revolving Credit Borrowing under the Credit
Agreement, and in that connection sets forth below the information relating to
such Revolving Credit Borrowing (the "Proposed Borrowing") as required by
Section 2.01(d) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is ___________
__, _____.
(ii) The Currency of Revolving Credit Advances comprising the
Proposed Borrowing is ___________ and the Type of Revolving Credit
Advances comprising the Proposed Borrowing is [Base Rate Advances]
[LIBO Rate Advances].
(iii) The aggregate amount of the Proposed Borrowing is
___________.
[(iv) The initial Interest Period for each Advance made as
part of the Proposed Borrowing is ______ month[s]](1).
[(iv)][(v)] The Borrower of such Advances is ___________.
Form of Note of Revolving Credit Borrowing
_______
(1) For LIBO Rate Advances only.
<PAGE> 96
-2-
The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on the date of the Proposed
Borrowing:
(A) the representations and warranties contained in Section
4.01 [(not including the representation and warranty set forth in
Section 4.01(b))](2) are true and correct in all material respects,
before and after giving effect to the Proposed Borrowing and to the
application of the proceeds therefrom, as though made on and as of such
date (except to the extent such representations and warranties
expressly relate to an earlier date); and
(B) no Default has occurred and is continuing, or would result
from the Proposed Borrowing or from the application of the proceeds
therefrom.
Very truly yours,
YOUNG & RUBICAM INC.
By________________________
Title:
________
(2) Exclude bracketed text if the Proposed Borrowing is the initial
Borrowing under the Credit Agreement.
Form of Notice of Revolving Credit Borrowing
<PAGE> 97
EXHIBIT B-2
NOTICE OF SWING LINE BORROWING
Citibank, N.A., as Administrative
Agent for the Banks parties
to the Credit Agreement
referred to below
399 Park Avenue
New York, New York 10043
Attention: ___________
Citibank, N.A.,
as Swing Line Bank
399 Park Avenue
New York, New York 10043
Attention: ___________
[Date]
Ladies and Gentlemen:
The undersigned, Young & Rubicam Inc., refers to the Credit
Agreement dated as of May [__], 1998 (the "Credit Agreement", the terms defined
therein being used herein as therein defined), among the undersigned, the
Subsidiary Borrowers party thereto, certain Banks party thereto and Citibank,
N.A., as Administrative Agent for said Banks, and hereby gives you notice,
irrevocably, pursuant to Section 2.02(d) of the Credit Agreement that the
undersigned hereby requests a Swing Line Borrowing under the Credit Agreement,
and in that connection sets forth below the information relating to such Swing
Line (the "Proposed Borrowing") as required by Section 2.02(d) of the Credit
Agreement:
(i) The Business Day of the Proposed Borrowing is ___________
__, _____.
(ii) The aggregate amount of the Proposed Borrowing is
$___________.
(iii) The maturity of the Proposed Borrowing is ___________.
(iv) The account to which the proceeds of the Proposed
Borrowing are to be made available is ___________.
Form of Notice of Swing Line Borrowing
<PAGE> 98
-2-
The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on the date of the Proposed
Borrowing:
(A) the representations and warranties contained in Section
4.01 (not including the representation and warranty set forth in
Section 4.01(b)) are true and correct in all material respects, before
and after giving effect to the Proposed Borrowing and to the
application of the proceeds therefrom, as though made on and as of such
date (except to the extent such representations and warranties
expressly relate to an earlier date); and
(B) no Default has occurred and is continuing, or would result
from the Proposed Borrowing or from the application of the proceeds
therefrom.
Very truly yours,
YOUNG & RUBICAM INC.
By________________________
Title:
Form of Notice of Swing Line Borrowing
<PAGE> 99
EXHIBIT C-1
[Form of Opinion of General Counsel to the Company]
________, 1998
To the Banks party to the
Credit Agreement referred to
below
Citibank, N.A., as Administrative
Agent
399 Park Avenue
New York, New York 10043
Re: Credit Agreement dated as of May [__], 1998 (the "Credit
Agreement") among Young & Rubicam Inc. (the "Company"), the
Subsidiary Borrowers party thereto (the "Subsidiary Borrowers"
and, together with the Company, the "Borrowers"), the Banks
party thereto and Citibank, N.A., as Administrative Agent
Ladies and Gentlemen:
I am the general counsel of the Company and have acted as counsel
to the Company in connection with the preparation, execution and delivery of the
following documents:
(a) the Credit Agreement; and
(b) the Notes delivered to the Banks on the date hereof;
The documents described in the foregoing clauses (a) and (b) are collectively
referred to herein as the "Credit Documents". Unless otherwise indicated,
capitalized terms used but not defined herein shall have the respective meanings
set forth in the Credit Agreement. This opinion is furnished to you pursuant to
subsection 3.01(c) of the Credit Agreement.
In connection with this opinion, I have examined:
(A) the Credit Documents; and
(B) forms of the Notes to be delivered after the date hereof.
I also have examined the originals, or certified, conformed or reproduction
copies, of such records, agreements, instruments and other documents and have
made such other investigations as I have deemed relevant and necessary in
connection with the opinions expressed herein. As to
<PAGE> 100
____________, 1998
Page 2
questions of fact material to this opinion, I have relied upon certificates as
to matters of fact of public officials and of officers and representatives of
the Company. In addition, I have examined, and have relied as to matters of
fact, upon the representations made in the Credit Documents.
In rendering the opinions set forth below, I have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to me as originals, the conformity to
original documents of all documents submitted to me as certified or photostatic
copies, and the authenticity of the originals of such latter documents.
Based upon and subject to the foregoing, and subject to the
qualifications and limitations set forth herein, I am of the opinion that:
1. The Company (a) has been duly organized and is validly existing
and in good standing under the laws of the State of Delaware, (b) has the power
and authority to execute, deliver and perform each of the Credit Documents to
which it is a party and has taken all necessary action to authorize the
borrowings on the terms and conditions of the Credit Agreement and the Notes to
which it is a party and the execution, delivery and performance of the Credit
Documents to which it is a party, (c) is duly qualified as a foreign
organization and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification except where the failure to be so qualified and/or
in good standing could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect, and (d) has duly executed and delivered the Credit
Agreement and the Notes to which it is a party.
2. The execution, delivery and performance of the Credit Documents,
the borrowings under the Credit Agreement and the use of proceeds thereof will
not violate any Requirement of Law or Contractual Obligation of any Credit Party
and will not result in, or require, the creation or imposition of any Lien on
any of its or their respective properties or revenues to any such Requirement of
Law or Contractual Obligation.
3. No consent or authorization of, filing with, notice to, or other
act by or in respect of, any Governmental Authority or any other Person is
required by any Credit Party in connection with the borrowings under the Credit
Agreement or with the execution, delivery, performance, validity or
enforceability of the Credit Documents.
4. To my knowledge, there is no litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or
threatened by or against the Company or any of its Domestic Subsidiaries or
against any of their respective Properties (a) with respect to any Credit
Document or any of the transactions contemplated thereby or (b) which could
reasonably be expected to have a Material Adverse Effect.
5. No Credit Party is an "investment company" or a company
"controlled" by an "investment company" within the meaning of and subject to
regulation under the Investment Company Act of 1940, as amended.
<PAGE> 101
____________, 1998
Page 3
The opinions expressed herein are subject to the following
qualifications and comments:
(a) In connection with my opinion expressed in paragraph
1 above, I have relied upon certificates of public
officials as to good standing.
(b) My opinions in paragraphs 2 and 3 above as to
compliance with certain statutes, rules and
regulations are based upon a review of those
statutes, rules and regulations which, in my
experience, are normally applicable to borrowers
engaged in transactions of the type contemplated by
the Credit Documents and statutes, rules and
regulations applicable to corporations conducting
businesses similar to those conducted by the Credit
Parties.
I am a member of the Bar of the State of New York, and do not
express any opinion herein concerning any law other than the law of the State of
New York, the Federal law of the United States, and the Delaware General
Corporation Law.
This opinion letter is rendered to you and your permitted assignees
in connection with the above described transactions. This opinion letter may not
be relied upon by you for any other purpose, or relied upon by, or furnished to,
any other person, firm or corporation without my prior written consent.
Very truly yours,
<PAGE> 102
EXHIBIT C-2
[Form of Opinion of Special Counsel to the Company]
________, 1998
To the Banks party to the
Credit Agreement referred to
below
Citibank, N.A., as Administrative
Agent
399 Park Avenue
New York, New York 10043
Re: Credit Agreement dated as of May [__], 1998 (the "Credit
Agreement") among Young & Rubicam Inc. (the "Company"), the
Subsidiary Borrowers party thereto (the "Subsidiary Borrowers"
and, together with the Company, the "Borrowers"), the Banks
party thereto and Citibank, N.A., as Administrative Agent
Ladies and Gentlemen:
We have acted as special counsel to the Borrowers in
connection with the preparation, execution and delivery of the following
documents:
(a) the Credit Agreement; and
(b) the Notes delivered to the Banks on the date hereof.
The documents described in the foregoing clauses (a) and (b)
are collectively referred to herein as the "Credit Documents". Unless otherwise
indicated, capitalized terms used but not defined herein shall have the
respective meanings set forth in the Credit Agreement. This opinion is furnished
to you pursuant to subsection 3.01(c) of the Credit Agreement.
In connection with this opinion, we have examined:
(A) the Credit Documents; and
(B) forms of the Notes to be delivered after the date hereof.
We also have examined the originals, or certified, conformed or reproduction
copies, of such records, agreements, instruments and other documents and have
made such other investigations as we have deemed relevant and necessary in
connection with the opinions expressed herein. As to questions of fact material
to this opinion, we have relied upon certificates as to matters of fact
<PAGE> 103
______________, 1998
Page 2
of public officials and of officers and representatives of the Borrowers. In
addition, we have examined, and have relied as to matters of fact, upon the
representations made in the Credit Documents.
In rendering the opinions set forth below, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies, and the authenticity of the originals of such latter documents.
We are opining herein as to the effect on the subject transactions of
only United States Federal law, the General Corporation Law of the State of
Delaware and the laws of the State of New York (the "Subject Laws").
Based upon and subject to the foregoing, and subject to the
qualifications and limitations set forth herein, we are of the opinion that:
1. Each Credit Document constitutes and each of the Notes delivered
after the date hereof, assuming the due authorization, execution and delivery by
each Borrower which is the maker of such Note, will constitute the valid and
legally binding obligation of each Borrower which is a party thereto,
enforceable against such Borrower in accordance with its terms.
2. No consent or authorization of, filing with, notice to, or other act
by or in respect of, any Governmental Authority under the Subject Laws is
required in connection with the borrowings under the Credit Agreement or with
the execution, delivery, performance, validity or enforceability of the Credit
Documents.
3. The execution, delivery and performance by the Borrowers of the
Credit Documents and the making of the Advances under the Credit Agreement
(assuming the proceeds of the Advances are used in the manner provided in the
Credit Agreement) will not violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
The opinions expressed herein are subject to the following
qualifications and comments:
(a) Each of the Credit Documents is subject to the
effect of (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the
rights of creditors generally and (ii) the application of
general principles of equity (regardless of whether
enforcement is considered in proceedings at law or in equity).
We express no opinion as to the applicability of Section 548
of the Bankruptcy Code or Article 10 of the New York Debtor
and Creditor Law relating to fraudulent transfers to the
obligations of any Subsidiary Borrower under any of the Credit
Documents.
(b) We express no opinion as to the effect of the
laws of any jurisdiction (other than Federal laws and the laws
of the State of New York)
<PAGE> 104
______________, 1998
Page 3
wherein any Bank may be located which limit rates of interest
that may be charged or collected by such Bank.
(c) Insofar as certain provisions of the Credit
Agreement may provide for indemnification with respect to
violations of Federal or state securities law, the
enforceability thereof may be limited by public policy
considerations.
(d) The provisions of the Credit Agreement that
permit Administrative Agent or any of the Banks to take action
or make determinations, or to benefit from indemnities and
similar undertakings of any party to the Credit Documents, may
be subject to a requirement that such action be taken or such
determinations be made, and any action or inaction by
Administrative Agent or any of the Banks that may give rise to
a request for payment under such an undertaking be taken or
not taken, on a reasonable basis and in good faith.
(e) We express no opinion as to (i) whether a Federal
or state court outside of the State of New York would give
effect to the choice of New York law provided for in the
Credit Agreement, (ii) provisions of the Credit Agreement,
that relate to the subject matter jurisdiction of the Federal
or state courts of New York to adjudicate any controversy
related to the Credit Documents or the transactions
contemplated thereby, (iii) the waiver of inconvenient forum
set forth in Section 8.08 of the Credit Agreement, or (iv) the
waiver of jury trial found in Section 8.12 of the Credit
Agreement.
(f) Our opinions in paragraph 2 above as to
compliance with certain statutes, rules and regulations are
based upon a review of those statutes, rules and regulations
which, in our experience, are normally applicable to
transactions of the type contemplated by the Credit Documents
and statutes, rules and regulations applicable to corporations
conducting businesses similar to those conducted by the
Borrowers.
(g) To the extent that the obligations of any
Borrower may be dependent upon such matters, we have assumed
for purposes of this opinion that each party other than the
Borrowers (each, an "Other Party" and collectively, the "Other
Parties") to the agreements and contracts referred to herein
is duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation; that each Other
Party has the requisite corporate or other organizational
power and authority to perform its obligations under such
agreements and contracts, as applicable; and that such
agreements and contracts have been duly authorized, executed
and delivered by each Other Party. We have also assumed that
each such agreement and contract constitutes the legally valid
and binding obligation of all of the Other Parties party
thereto, enforceable against Other Parties in accordance with
its respective terms. Except as expressly covered in this
opinion, we are not expressing any opinion as to the effect of
compliance by any Bank with any state or Federal laws or
regulations applicable to the transactions because of the
nature of any of its businesses.
<PAGE> 105
______________, 1998
Page 4
This opinion letter is rendered to you and your permitted
assignees in connection with the above described transactions. This opinion
letter may not be relied upon by you for any other purpose, or relied upon by,
or furnished to, any other person, firm or corporation without our prior written
consent.
Very truly yours,
<PAGE> 106
EXHIBIT D
[Form of Opinion of Special New York Counsel
to the Administrative Agent]
___________, 1998
To the Banks party to the
Credit Agreement referred to
below
Citibank, N.A., as Administrative
Agent
399 Park Avenue
New York, New York 10043
Ladies and Gentlemen:
We have acted as special New York counsel to Citibank, N.A.,
as Administrative Agent, in connection with the Credit Agreement dated as of May
[__], 1998 (the "Credit Agreement") among Young & Rubicam Inc. (the "Company"),
the Subsidiary Borrowers party thereto (the "Subsidiary Borrowers" and, together
with the Company, the "Borrowers"), the Banks party thereto and Citibank, N.A.,
as Administrative Agent, providing for loans to be made by said Banks to the
Borrowers in an aggregate principal amount at any one time outstanding not
exceeding $400,000,000 or the equivalent in certain other currencies. Terms
defined in the Credit Agreement are used herein as defined therein. This opinion
is being delivered pursuant to Section 3.01(d) of the Credit Agreement.
In rendering the opinions expressed below, we have assumed,
with respect to all of the documents referred to in this opinion letter, that:
(i) such documents have been duly authorized by, have
been duly executed and delivered by, and (except to
the extent set forth in the opinions below as to the
Borrowers) constitute legal, valid, binding and
enforceable obligations of, all of the parties to
such documents;
(ii) all signatories to such documents have been duly
authorized;
Form of Opinion of Special New York
Counsel to the Administrative Agent
<PAGE> 107
-2-
(iii) all of the parties to such documents are duly
organized and validly existing and have the power and
authority (corporate or other) to execute, deliver
and perform such documents; and
(iv) all foreign exchange and other governmental consents
and approvals required in connection with the
execution, delivery, performance, validity or
enforceability of the Credit Agreement and the Notes
have been made or obtained and are in full force and
effect.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that the Credit Agreement constitutes,
and the Notes when duly executed and delivered for value will constitute, legal,
valid and binding obligation of the Borrowers, enforceable against the Borrowers
in accordance with their terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or transfer or
other similar laws relating to or affecting the rights of creditors generally
(including the possible judicial application of foreign laws or governmental
action affecting the rights of creditors generally) and except as the
enforceability thereof is subject to the application of general principles of
equity (regardless of whether considered in a proceeding in equity or at law),
including, without limitation, (a) the possible unavailability of specific
performance, injunctive relief or any other equitable remedy and (b) concepts of
materiality, reasonableness, good faith and fair dealing.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 8.04(b) of the Credit
Agreement may be limited by laws limiting the enforceability of
provisions exculpating or exempting a party from, or requiring
indemnification of a party for, its own action or inaction, to the
extent such action or inaction involves gross negligence, recklessness
or willful or unlawful conduct.
(B) The enforceability of provisions in the Credit Agreement
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Bank is located (other than the State of
New York) that limit the interest, fees or other charges such Bank may
impose, (ii) the second sentence of Section 2.16 of the Credit
Agreement, (iii) the second sentence of Section 8.08 of the Credit
Agreement, insofar as such sentence relates to the subject matter
jurisdiction of the United States District Court for the Southern
District of New York to adjudicate any controversy related to the
Credit Agreement, (iv) the waiver of inconvenient forum set forth in
Section 8.08 of the Credit Agreement with respect to proceedings in the
United States
Form of Opinion of Special New York
Counsel to the Administrative Agent
<PAGE> 108
-3-
District Court for the Southern District of New York, (v) Section 8.09
of the Credit Agreement.
(D) We point out with reference to obligations stated to be
payable in a currency other than Dollars that (i) a New York statute
provides that a judgment rendered by a court of the State of New York
in respect of an obligation denominated in any such other currency
would be rendered in such other currency and would be converted into
Dollars at the rate of exchange prevailing on the date of entry of the
judgment and (ii) a judgment rendered by a Federal court sitting in the
State of New York in respect of an obligation denominated in any such
other currency may be expressed in Dollars, but we express no opinion
as to the rate of exchange such Federal court would apply.
The foregoing opinions are limited to matters involving the Federal
laws of the United States and the law of the State of New York, and we do not
express any opinion as to the laws of any other jurisdiction.
This opinion letter is, pursuant to Section 3.01 of the Credit
Agreement, provided to you by us in our capacity as special New York counsel to
the Administrative Agent and may not be relied upon by any Person for any
purpose other than in connection with the transactions contemplated by the
Credit Agreement without, in each instance, our prior written consent.
Very truly yours,
Form of Opinion of Special New York
Counsel to the Administrative Agent
<PAGE> 109
EXHIBIT E
ASSIGNMENT AND ACCEPTANCE
Dated ____________ __, _____
Reference is made to the Credit Agreement dated as of May
[__], 1998 (the "Credit Agreement") among Young & Rubicam Inc., a New York
corporation (the "Company"), the Subsidiary Borrowers party thereto, the Banks
(as defined in the Credit Agreement) and Citibank, N.A., as Administrative Agent
for the Banks (the "Administrative Agent"). Terms defined in the Credit
Agreement are used herein with the same meaning.
_____________ (the "Assignor") and _____________ (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, that interest in
and to all of the Assignor's rights and obligations under the Credit Agreement
as of the date hereof which represents the percentage interest specified on
Schedule 1 of all outstanding rights and obligations under the Credit Agreement,
including, without limitation, such interest in the Assignor's Commitment, the
Revolving Credit Advances and the Swing Line Advances owing to the Assignor, and
the Notes held by the Assignor. After giving effect to such sale and assignment,
the Assignee's Commitment and the amount of the Revolving Credit Advances and
Swing Line Advances owing to the Assignee will be as set forth in Section 2 of
Schedule 1.
2. The Assignor (i) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement or any other
instrument or document furnished pursuant thereto; (iii) makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of any Borrower or the performance or observance by any Borrower of
any of its obligations under the Credit Agreement or any other instrument or
document furnished pursuant thereto; and (iv) attaches the Notes referred to in
paragraph 1 above and requests that the Administrative Agent exchange such Notes
for a new Note to the order of the Assignee in an amount equal to the Commitment
assumed by it pursuant hereto and a new Note to the order of the Assignor in an
amount equal to the Commitment retained by it under the Credit Agreement, in
each case specified on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of
the Credit Agreement, together with copies of the financial statements referred
to in Section 4.01 thereof and such
Form of Assignment and Acceptance
<PAGE> 110
-2-
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and Acceptance; (ii)
agrees that it will, independently and without reliance upon the Administrative
Agent, the Assignor or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement;
(iii) appoints and authorizes the Administrative Agent to take such action as
administrative agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (iv) agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of the Credit Agreement are required to be performed by it as a Bank;
and (v) specifies as its Domestic Lending Office (and address for notices) and
Eurodollar Lending Office the offices set forth beneath its name on the
signature pages hereof.
4. Following the execution of this Assignment and Acceptance
by the Assignor and the Assignee and the consent of the Company (to the extent
required pursuant to Section 8.07 of the Credit Agreement), it will be delivered
to the Administrative Agent for acceptance and recording by the Administrative
Agent. The effective date of this Assignment and Acceptance shall be the date of
acceptance thereof by the Administrative Agent, unless otherwise specified on
Schedule 1 hereto (the "Closing Date").
5. Upon such acceptance and recording by the Administrative
Agent, as of the Closing Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to
the extent provided in this Assignment and Acceptance, relinquish its rights and
be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative
Agent, from and after the Closing Date, the Administrative Agent shall make all
payments under the Credit Agreement and the Notes in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and fees with respect thereto) to the Assignee. The Assignor and
Assignee shall make all appropriate adjustments in payments under the Credit
Agreement and the Notes for periods prior to the Closing Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed by their respective officers thereunto
duly authorized, as of the date first above written, such execution being made
on Schedule 1 hereto.
Form of Assignment and Acceptance
<PAGE> 111
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
<TABLE>
<CAPTION>
<S> <C>
Percentage assigned to Assignee _______________%
Assignee's Commitment $______________
Aggregate outstanding principal
amount of Revolving Credit Advances assigned $______________
Principal Amount of Note payable to Assignee $______________
Principal Amount of Note payable to Assignor $______________
Aggregate outstanding principal
amount of Swing Line Advances assigned $______________
Closing Date (if other than
date of acceptance by
Administrative Agent)* __________ __, _____
</TABLE>
[NAME OF ASSIGNOR], as Assignor
By______________________________
Title:
[NAME OF ASSIGNEE], as Assignee
By______________________________
Title:
Domestic Lending Office:
Eurodollar Lending Office:
* This date should be no earlier than the date of acceptance by the
Administrative Agent.
Form of Assignment and Acceptance
<PAGE> 112
-2-
Accepted this ____ day
of _______, _____
CITIBANK, N.A., as
Administrative Agent
By_____________________
Title:
CONSENTED TO:
YOUNG & RUBICAM INC.
By_____________________
Title:
Form of Assignment and Acceptance
<PAGE> 113
EXHIBIT F
SUBSIDIARY BORROWER SUPPLEMENT
SUPPLEMENT dated as of ___________ __, _____ to the Credit
Agreement referred to below by [NAME OF SUBSIDIARY BORROWER], a ___________ duly
organized under the laws of ___________ (the "New Subsidiary Borrower").
Reference is hereby made to the Credit Agreement dated as of
May [__], 1998, among Young & Rubicam Inc. (the "Company"), the Subsidiary
Borrowers party thereto, certain Banks party thereto and Citibank, N.A., as
Administrative Agent for said Banks. Terms defined in the Credit Agreement are
used herein as defined therein. Section 8.15 of the Credit Agreement permits
Subsidiaries of the Company to become a party to the Credit Agreement as a
Subsidiary Borrower thereunder subject to certain conditions specified therein,
including execution of a supplement to the Credit Agreement in substantially the
form hereof by such Subsidiary and delivery of such supplement to the
Administrative Agent. The New Subsidiary Borrower is a Subsidiary of the Company
and desires to become a party to the Credit Agreement as a Subsidiary Borrower
thereunder. Accordingly, the New Subsidiary Borrower hereby agrees as follows:
(a) The New Subsidiary Borrower hereby acknowledges that it
has received a copy of the Credit Agreement and hereby agrees that, upon
acceptance hereof by the Administrative Agent, the New Subsidiary Borrower shall
be a party to the Credit Agreement with the rights and obligations of a Borrower
thereunder, to the same extent as if it were a Borrower originally party
thereto. Without limiting the generality of the foregoing, the New Subsidiary
Borrower hereby submits to the jurisdiction of the courts, and waives the right
to a jury trial, as provided by Sections 8.08 and 8.12 of the Credit Agreement.
(b) The New Subsidiary Borrower hereby represents and warrants
to the Administrative Agent and the Banks that the representations and
warranties set forth in Article IV of the Credit Agreement are true and correct
on and as of the date hereof.
(c) Upon acceptance hereof by the Administrative Agent, this
Supplement shall become a part of the Credit Agreement, which shall continue in
full force and effect in accordance with the provisions thereof in effect on the
date hereof, as supplemented to the date hereof.
(d) The New Subsidiary Borrower hereby instructs its counsel
to deliver the opinion referred to in Section 8.15(a)(iv) of the Credit
Agreement to the Administrative Agent and the Banks.
Form of Subsidiary Borrower Supplement
<PAGE> 114
-2-
IN WITNESS WHEREOF, the New Subsidiary Borrower has caused
this Supplement to be executed by an authorized officer as of the date first
above written.
[NAME OF SUBSIDIARY BORROWER]
By___________________________
Title:
ACCEPTED:
[NAME OF SUBSIDIARY BORROWER]
By___________________________
Title:
Form of Subsidiary Borrower Supplement
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 19, 1998
relating to the financial statements of Young & Rubicam Inc., which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedules for the three years ended December 31, 1997
listed under Item 16(b) of this Registration Statement when such schedules are
read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included these schedules. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
May 4, 1998
