<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
===================================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value.................................. $350,000,000 $103,250
- -------------------------------------------------------------------------------------------------------------------
Preferred Share Purchase Rights(2).............................
- -------------------------------------------------------------------------------------------------------------------
Total.......................................................... $350,000,000 $103,250
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Rights initially will trade together with the Common Stock. The value
attributable to the Rights, if any, is reflected in the market price of the
Common Stock.
------------------------
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 and the back cover pages. 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 and
the form of the back cover page of the International Prospectus follows the back
cover page 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 FEBRUARY 26, 1998
PROSPECTUS
, 1998
SHARES
YOUNG & RUBICAM INC.
COMMON STOCK
Of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), of Young & Rubicam Inc. ("Y&R" or the "Company") offered hereby,
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 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 shares of
Common Stock offered hereby, shares are being sold by the Company and
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 $ and
$ per share. For information relating to the factors to be considered in
determining the initial public offering price, see "Underwriting."
Application will be made to list the Common Stock on the New York Stock
Exchange under the symbol "YNR."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 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) has granted to the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 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 FEBRUARY 26, 1998
PROSPECTUS
, 1998
SHARES
YOUNG & RUBICAM INC.
COMMON STOCK
Of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), of Young & Rubicam Inc. ("Y&R" or the "Company") offered hereby,
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 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 shares of
Common Stock offered hereby, shares are being sold by the Company and
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 $ and
$ per share. For information relating to the factors to be considered in
determining the initial public offering price, see "Underwriting."
Application will be made to list the Common Stock on the New York Stock
Exchange under the symbol "YNR."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 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) has granted to the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 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
[PHOTOGRAPHS TO BE INSERTED]
<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.
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."
2
<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 $ per share of Common Stock, the mid-point of the range set forth on
the cover page of this Prospectus, (ii) reflects the effectiveness, upon the
closing of the Offerings, of an Amended and Restated Certificate of
Incorporation of Young & Rubicam Inc., which among other matters, authorizes
10,000,000 shares of preferred stock and (iii) 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.
3
<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.
4
<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 certain other investors (together with the H&F Investors,
the "Recapitalization Investors") contributed $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.
5
<PAGE> 10
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by:
The Company.................... shares
The Selling Stockholders....... shares
------------------
Total..................... shares
Common Stock offered:
U.S. Offering.................. shares
International Offering......... shares
------------------
Total..................... shares
Common Stock to be outstanding after
the Offerings..................... 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 $ million 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) The number of shares of Common Stock outstanding excludes (i) an aggregate
of 1,894,340 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")
and (ii) an aggregate of 173,207 shares reserved for issuance upon the
exercise of outstanding options issued to certain of the Recapitalization
Investors. Together these options have a weighted average exercise price of
$102.64. The number of shares of Common Stock outstanding includes an
aggregate of 615,407 shares of Restricted Stock (as defined herein) to be
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.
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<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 --
Non-recurring 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).......... $ (7.65)
Weighted average shares outstanding(3).............. 3,129,957
Supplemental loss per common share(4)............... $ (5.31)
OTHER OPERATING DATA:
EBITDA(1)(5)........................................ $ 72,972 $ 147,221 $ 139,375
Net cash provided by operating activities........... 79,809 212,707 265,511
Net cash used in investing activities............... 45,821 76,094 67,142
Net cash used in financing activities............... 50,025 47,257 139,667
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 $ 1,596,145
Total debt(8)....................................... 351,051 351,051 211,551
Mandatorily redeemable equity securities(9)......... 508,471 -- --
Total (deficit) equity.............................. (661,714) (153,243) 54,383
</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 non-recurring 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
739,130 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
2,067,547 shares of Common Stock, with a weighted average exercise price of
$102.64, 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 739,130 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
and 15 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
3,685,513. 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
7
<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 3,685,513 were computed by adding the
shares of Common Stock offered by the Company to the 3,129,957 weighted
average shares outstanding as of December 31, 1997. See "Capitalization."
Based upon an assumed initial public offering price of $ , the
consummation of the Offerings will give rise to a non-recurring, non-cash,
pre-tax charge of $166,160 ($98,034 net of the related tax benefit assuming
a statutory tax rate of 41.0%) arising from the vesting of the aggregate of
615,407 shares of Restricted Stock to be 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 non-recurring 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 Restricted Stock, 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 $68,126, 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 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
$207,626 increase in total equity resulting from the $139,500 net proceeds
to the Company from the Offerings and $68,126 resulting from the vesting of
Restricted Stock upon consummation of the Offerings as discussed in (i)
above. See "Capitalization."
8
<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.
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 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
contributed approxi-
9
<PAGE> 14
mately 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 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 % 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. Furthermore, the vote of
Peter
10
<PAGE> 15
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."
Upon consummation of the Offerings, the H&F Investors are expected to
beneficially own an aggregate of approximately % 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 an agreement with the Company, 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
Stockholders' Agreement described in "Description of Capital Stock -- 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.
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
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."
11
<PAGE> 16
TERMS OF CERTAIN INDEBTEDNESS
The Company's existing $700 million senior secured credit facilities (the
"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. Upon consummation of the Offerings, Y&R expects to renegotiate or
refinance the Credit Facilities and replace them with a new credit facility. Any
credit facility resulting from such renegotiation or refinancing would also
include certain financial and operating restrictions and covenant requirements.
There can be no assurance that the Company will be successful in any such
renegotiation or refinancing.
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."
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.
12
<PAGE> 17
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. Any cash dividend is therefore
contingent upon a renegotiation or refinancing of the Credit Facilities in order
to remove such restriction, of which there can be no assurance. See "Dividend
Policy."
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. 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 shares of Common
Stock outstanding. Of these, the shares offered hereby will be freely
transferable by persons other than "affiliates" of the Company without
restriction or further registration under the Securities Act. The remaining
outstanding shares of Common Stock will be "restricted securities."
Following the Offerings and subject to certain 180-day
13
<PAGE> 18
lock-up agreements described herein, the Recapitalization Investors will have
demand and piggyback registration rights with respect to an aggregate of
shares of Common Stock. In addition, 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, 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 (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 By-Laws and the Company's Charter, (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 excepted from these restrictions by the Company). In addition, the
Company will adopt a stockholder rights plan effective upon 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 % 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."
14
<PAGE> 19
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, 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, the Recapitalization
Investors contributed $242 million to the Company in exchange for shares of
Common Stock and options to acquire additional shares of Common Stock. 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 then-existing indebtedness and borrowings under its revolving credit
facility. See "Management -- Executive Compensation," "Shares Eligible for
Future Sale" and "Description of Capital Stock -- The Management Voting Trust
Agreement."
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 1,121,571 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 $28.75 per share. In
addition to the Rollover Options, immediately following the closing of the
Recapitalization, non-qualified options with exercise prices of $115 per share
with respect to 346,706 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
15
<PAGE> 20
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 739,130 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, 615,407 shares of Common Stock will be allocated
to employees pursuant to the Restricted Stock Plan ("Restricted Stock"). The
Restricted Stock Plan provides that such shares will vest and be distributed to
each such employee 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 necessary to fund the personal tax liabilities associated with the
vesting and distribution thereof. In addition, the Restricted Stock will vest
and be distributed upon certain change of control events and upon 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."
16
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the Offerings, assuming an initial
public offering price of $ 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 $ million (approximately
$ million if the over-allotment option is exercised in full). 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. 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, of which there
can be no assurance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
17
<PAGE> 22
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 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, 10,000,000 shares authorized;
3,377,212 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 $115 per share; one-tenth of one
vote per share; 50,000 shares authorized; no shares
issued and outstanding................................ -- -- --
Cumulative Participating Junior Preferred
Stock -- $ dividend; liquidating value of
$ per share; 100 votes per share; 2,000,000
shares authorized (pro forma as adjusted); no shares
issued and outstanding (pro forma as adjusted)(3)..... -- -- --
Common Stock, $.01 par value, 10,000,000 shares authorized
(actual and pro forma); 250,000,000 shares authorized
(pro forma as adjusted); 739,130 shares issued and
outstanding (actual); 4,116,342 shares issued and
outstanding (pro forma) and 4,548,175 shares issued and
outstanding (pro forma as adjusted)(2)(4)(5)............ 7 41 46
Capital surplus(2)(5)...................................... 23,717 532,154 701,070
Accumulated deficit(6)..................................... (522,866) (522,866) (620,900)
Cumulative translation adjustment.......................... (16,577) (16,577) (16,577)
Pension liability adjustment............................... (706) (706) (706)
--------- --------- ---------
Subtotal................................................... (516,425) (7,954) 62,933
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) 54,383
--------- --------- ---------
Total capitalization............................... $ 183,812 $ 183,812 $ 251,938
========= ========= =========
</TABLE>
18
<PAGE> 23
- ------------------------------
(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 Restricted Stock, 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 $34 is attributable to
the par value of the 3,377,212 common shares and the remaining $508,437 is
attributable to capital surplus. See Notes 2, 15 and 16 to the Consolidated
Financial Statements.
(3) Reflects the authorization of 2,000,000 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 2,067,547 shares of Common Stock issuable upon exercise of options
outstanding at a weighted average exercise price of $102.64 at December 31,
1997. See "Management -- Executive Compensation."
(5) Pro forma as adjusted common stock and capital surplus reflect an increase
of $5 and $168,916, respectively, for the following: (i) a $139,500 increase
resulting from the issuance of newly issued shares of Common Stock in
the Offerings (of the $139,500 increase in stockholders' equity, $6 is
attributable to Common Stock for the par value of the shares issued
with the remaining $139,494 increasing capital surplus); (ii) a $166,160
increase resulting from the vesting of the 615,407 shares of Restricted
Stock (based upon an assumed initial public offering price of $ per
share) to be allocated to employees as of the date of consummation of the
Offerings (of the $166,160 aggregate increase to Common Stock and capital
surplus, $6 is attributable to Common Stock for the par value of the 615,407
shares vested and $166,154 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 $7 decrease in Common Stock (par value of the 739,130 shares of
Common Stock held by the Restricted Stock Trust outstanding at December 31,
1997) and a decrease in capital surplus of $136,732).
(6) Reflects the vesting of the aggregate 615,407 shares of Restricted Stock to
be allocated to employees as of the consummation of the Offerings and the
resulting non-recurring, non-cash, after-tax compensation charge estimated
at $98,034 (at an assumed initial public offering price of $ 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.
19
<PAGE> 24
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 $ , or $ per share of Common Stock based upon
4,116,342 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 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 net tangible book value as
of December 31, 1997 would have been $ or $ per share of Common Stock.
This represents an immediate decrease in the deficit in the pro forma net
tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors purchasing shares of Common Stock
in the Offerings. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma deficit in net tangible book value per share before the
Offerings...................................................... $
Decrease in deficit in pro forma net tangible book value per share
attributable to new investors.................................. $
-----
Pro forma as adjusted net tangible book value per share after the
Offerings......................................................... $
-----
Dilution per share to new investors................................. $
=====
</TABLE>
The following table sets forth, on a pro forma basis, as of December 31,
1997, the differences in the number of shares purchased from the Company, 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>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
------------------ ------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)...................... % $ % $
New investors(1)..............................
--- ----- --- ---- -
Total............................... 100% $ 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
, or approximately % of the total shares of Common Stock
outstanding after the Offerings and will increase the number of shares held
by new investors to , or approximately % of the total shares of
Common Stock outstanding after the Offerings. See "Principal and Selling
Stockholders."
The foregoing tables exclude (i) an aggregate of 1,894,340 shares of Common
Stock reserved for issuance upon exercise of outstanding options under the Stock
Option Plans and (ii) an aggregate of 173,207 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."
20
<PAGE> 25
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 --
Non-recurring 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)...... $ (7.65)
Weighted average shares outstanding(3).......... 3,129,957
Supplemental loss per common share(4)........... $ (5.31)
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 79,809 212,707 265,511
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 47,257 139,667
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>
21
<PAGE> 26
- ------------------------------
(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 non-recurring 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
739,130 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
2,067,547 shares of Common Stock with a weighted average exercise price of
$102.64 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 739,130 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
and 15 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 3,685,513. 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 3,685,513 were computed by adding the
shares of Common Stock offered by the Company to the 3,129,957 weighted
average shares outstanding as of December 31, 1997. See "Capitalization."
Based upon an assumed initial public offering price of $ , the
consummation of the Offerings will give rise to a non-recurring, non-cash,
pre-tax charge of $166,160 ($98,034 net of the related tax benefit assuming
a statutory tax rate of 41.0%) arising from the vesting of the aggregate of
615,407 shares of Restricted Stock to be 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 non-recurring 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 Restricted Stock, 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.
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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. 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 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 $ , the consummation of the
Offerings will give rise to a non-recurring, non-cash, pre-tax charge of $166.2
million ($98.0 million net of the related tax benefit assuming a statutory tax
rate of 41.0%) from the vesting of an aggregate of 615,407 shares of Restricted
Stock to be allocated to employees as of the date of consummation of the
Offerings.
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<PAGE> 28
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%
Non-recurring 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. In
conjunction with this write-off, the Company made certain management changes at
Burson-Marsteller in Europe and Asia and implemented certain additional
financial control and reporting requirements.
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 non-recurring operating charges for asset
impairment write-downs principally related to certain 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.
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<PAGE> 29
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
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.
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<PAGE> 30
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 $265.5 million which represented a 24.8%
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 real estate projects in London, New York and
Paris.
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. As a result of the timing of Recapitalization-related payments, net
cash used in financing activities increased from $47.3 million in 1996 to
$139.7 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 additional
financings and the sale of Common Stock by the Company in the Offerings.
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
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<PAGE> 31
upon an assumed initial public offering price of $ , the
consummation of the Offerings will give rise to a non-recurring, non-cash,
pre-tax charge of $166.2 million, which will generate additional tax benefits to
the Company estimated at $68.1 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 Credit Facilities 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 additional financings will be
adequate to support the long-term cash requirements as presently contemplated.
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, of which there
can be no assurance.
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
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<PAGE> 32
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 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. The Company anticipates that the
adoption of SFAS 130 and SFAS 131 will not have a significant effect on its 1998
financial statements. See Note 2 to the Consolidated Financial Statements.
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<PAGE> 33
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.
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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
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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.
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<PAGE> 36
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, Y&R recently 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 with approximately $3 billion in media billings,
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.
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<PAGE> 37
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
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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 U.S., 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-
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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.
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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
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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.
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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 113,500 6/23/98
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 the
improvement and expansion 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.
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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.......... 53 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. Abramson... 53 Executive Vice President and General Counsel of the Company
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
John L. Bunce........... 38 Director
Alan D. Schwartz........ 47 Director
John F. McGillicuddy.... 67 Director
</TABLE>
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 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.
39
<PAGE> 44
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 L.L.C. ("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 Hellman & Friedman. 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 Hellman & Friedman. Mr. Hammarskjold is a member of the Board
of Directors of The Covenant Group, Inc.
JOHN L. BUNCE, JR. Mr. Bunce has been a Director of the Company since
December 1996. Mr. Bunce is a Managing Director of Hellman & Friedman. Prior to
joining Hellman & Friedman in 1988, Mr. Bunce was a Vice President with the
venture capital firm of TA Associates. Previously, he was employed in the
Mergers & Acquisitions and Corporate Finance Departments of Lehman Brothers Kuhn
Loeb. Mr. Bunce serves on the Company Board as a representative of Hellman &
Friedman. Mr. Bunce is a member of the Board of Directors of Western Wireless
Corporation, MobileMedia Corporation, Telecab, S.A. de C.V. and Falcon Cable TV.
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.
40
<PAGE> 45
The Company intends that after the consummation of the Offerings the Board
will 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.
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."
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.
The Board may create such other committees as it may determine from time to
time.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Y&R's Amended and Restated Certificate of Incorporation and Amended and
Restated 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
Delaware General Corporation Law 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 Amended and
Restated Certificate of Incorporation 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
Only the two members of the Board who are independent of management and
affiliates of the Company, Alan D. Schwartz and John C. McGillicuddy, are
compensated for their attendance and participation as Directors. Such Directors
receive $50,000 as an annual stipend for serving as an independent member of the
Board. Out-of-pocket expenses for attendance at meetings of the Board are
reimbursed for all members.
41
<PAGE> 46
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
AWARDS
----------------------
ANNUAL COMPENSATION 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 -- -- $ 7,500
Chairman and Chief Executive
Officer, Young & Rubicam Inc.
Edward H. Vick.................... 1997 $700,000 $272,250 4,000 11,500 $ 7,699
Chairman and Chief Executive
Officer, Young & Rubicam
Advertising
John P. McGarry, Jr. ............. 1997 $730,000 $297,000 -- -- $ 7,500
President, Young & Rubicam Inc.
Thomas D. Bell, Jr. .............. 1997 $575,000 $168,750 -- 11,770 $ 7,500
President and Chief Executive
Officer, Burson-Marsteller
Michael J. Dolan.................. 1997 $550,000 $198,000 3,000 10,000 $ 9,690
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 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) are as follows: Mr. Georgescu -- 28,696
shares ($5,308,760); Mr. Vick -- 22,627 shares ($4,185,995); Mr.
McGarry -- 10,390 shares ($1,922,150); Mr. Bell -- 18,986 shares
($3,512,410); and Mr. Dolan -- 20,391 shares ($3,772,335). 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 earlier
of (i) the consummation of the Offerings, subject to the ability of holders
to sell such number of shares of Restricted Stock in the Offerings necessary
to fund the personal tax liabilities associated with the vesting and
distribution thereof (in the absence of such ability to sell in the
Offerings, the Restricted Stock will vest and be distributed upon 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. 4,000 shares and 3,000 shares of Restricted Stock,
respectively, of Messrs. Vick and Dolan's Restricted Stock awards were
granted to
42
<PAGE> 47
them in December 1997 and are required to be placed in a deferral trust upon
vesting thereof. 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 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) $7,500 on behalf of each of the named executive officers 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."
During 1997, stock option grants covering 764,610 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
INDIVIDUAL GRANTS VALUE
-------------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------------
NAME GRANTED FISCAL YEAR PRICE(1) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Peter A. Georgescu......... -- -- -- -- -- --
Edward H. Vick............. 11,500(2) 1.5% $185 12/17/07 $1,337,973 $3,390,687
John P. McGarry, Jr........ -- -- -- -- -- --
Thomas D. Bell, Jr......... 11,770(3) 1.5% $185 12/17/07 $1,369,387 $3,470,295
Michael J. Dolan........... 10,000(2) 1.3% $185 12/17/07 $1,163,455 $2,948,424
</TABLE>
- ------------------------------
(1) The exercise price of $185 per share represents the fair market value of the
shares of Common Stock as of the date of grant, as determined by the Company
Board, taking into account that prior to the Offerings, the Company was
privately held and that the shares were subject to contractual transfer
restrictions but without giving effect to the applicable put and call
provisions of the Stockholders' Agreement.
(2) 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.
(3) 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
43
<PAGE> 48
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............. -- -- 59,683/11,500(1) $9,325,469/--
John P. McGarry, Jr........ 16,074 $1,386,383 --/-- --/--
Thomas D. Bell, Jr. ....... -- -- 77,681/11,770(2) $12,137,656/--
Michael J. Dolan........... -- -- 6,956/20,435(3) $486,948/$730,422
</TABLE>
- ------------------------------
(1) See footnote (2) to the option grant table on the preceding page.
(2) See footnote (3) to the option grant table on the preceding page.
(3) This represents (i) with respect to 10,000 shares, a non-qualified option
granted under the 1997 ICP with the terms set forth in footnote (2) to the
option grant table on the preceding page and (ii) with respect to 10,435
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 1,121,571 Rollover Options to
certain members of management of Y&R 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, as well as an aggregate of 346,706
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 $28.75 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 $115 per share of Common Stock. Since the time of the
Recapitalization and through January 31, 1998, the Compensation Committee
granted an aggregate of 126,080 additional options with the same terms and
conditions as the Closing Options (such options, together with the Closing
Options, the "Executive Options"). Through January 31, 1998, an aggregate of
30,871 Rollover Options were exercised and the underlying shares were
immediately repurchased by the Company and an aggregate of 24,290 Executive
Options were forfeited, all in connection with the termination of the employment
of the option holder. In addition, through January 31, 1998, an aggregate of
269,854 shares of Common Stock were issued upon exercise of Rollover Options and
an aggregate of 13,532 shares of Common Stock were issued upon exercise of
Executive Options through January 31, 1998.
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.
44
<PAGE> 49
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 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
45
<PAGE> 50
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
739,130 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 411,496 shares of Restricted Stock to certain key employees. Since
the time of the Recapitalization, the Compensation Committee has further
allocated an aggregate of 168,591 shares of Restricted Stock, including 122,149
shares of Restricted Stock in December 1997. An aggregate of 16,959 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 24,566 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. The
Compensation Committee also currently intends to allocate up to an additional
27,713 shares of Restricted Stock under the Restricted Stock Plan by March 1998,
after which no further awards under the Restricted Stock Plan will be made. 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.
An award of Restricted Stock will vest and the amounts held in such
employee's account in the Restricted Stock Trust will be distributed to such
employee on the earlier of (i) the consummation of the Offerings, subject to the
ability of holders to sell such number of shares of Restricted Stock in the
Offerings necessary to fund the personal tax liabilities associated with the
vesting and distribution thereof (in the absence of such ability to sell in the
Offerings, the Restricted Stock will vest and be distributed upon 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. 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 122,149 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). 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. The shares of Restricted Stock granted in January 1998 and the
additional shares of Restricted Stock to be granted by March 1998 will not be
subject to any mandatory deferral requirements.
Upon termination of employment for any reason 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
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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 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 their obligations under various annual
bonus programs of the Company and its affiliates, the Company intends to amend
the agreement governing the
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Restricted Stock Trust to provide for cash distributions to be made from the
Restricted Stock Trust for the benefit of participants in such 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 bonus payments. Pursuant to such amendment, the Company expects to be
required to repurchase the remaining 123,723 unallocated shares of Common Stock
in the Restricted Trust in March 1998.
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 638,530 shares of Common Stock in December 1997 under the 1997 ICP.
Such options have an exercise price equal to $185.00 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 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 65,040 and 11,770 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) 1,275,000, 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
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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 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
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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.
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
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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.
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.
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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 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
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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 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.
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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.
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 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
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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.
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.
Executive officers are appointed by, and serve at the discretion of, the
Company Board.
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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."
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<PAGE> 61
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of January 31, 1998 and as adjusted to reflect
the sale of 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 any class 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. 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 L.L.C., One Maritime
Plaza, San Francisco, California 94111.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS AFTER OFFERINGS
--------------------- SHARES BEING --------------------
NAME SHARES PERCENT OFFERED SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Management Voting Trust(1).............. 2,101,129 51.0% %
Hellman & Friedman Capital
Partners III, L.P.(2)................... 1,930,740 45.2
H&F Orchard Partners III, L.P.(3)....... 140,604 3.4
H&F International Partners III,
L.P.(4)............................... 42,118 1.0
Peter A. Georgescu(5)(6)................ 118,904 2.9
Edward H. Vick(5)(7).................... 99,686 2.4
Thomas D. Bell, Jr.(5)(8)............... 97,577 2.3
John P. McGarry, Jr.(5)(9).............. 77,030 1.9
Michael J. Dolan (5)(10)................ 27,975 *
John L. Bunce, Jr.(11).................. -- * -- *
Philip U. Hammarskjold(11).............. -- * -- *
F. Warren Hellman(12)................... -- * -- *
John F. McGillicuddy.................... 869 * -- 869 *
Alan D. Schwartz(13).................... -- * -- *
All directors and executive officers as
a group(14)........................... 513,901 12.0%
Selling Stockholders....................
</TABLE>
- ------------------------------
* Less than one percent.
(1) The amount includes 739,130 shares held in the Restricted Stock Trust,
which shares are also subject to the Management Voting Trust. Beneficial
ownership by the Management Voting Trust includes an aggregate of
shares offered hereby by Management Investors who are Selling
Stockholders, which shares are held by the Management Voting Trust. Such
shares will be delivered out of the Management Voting Trust upon
consummation of the Offerings.
(2) This amount includes 154,106 shares issuable upon the exercise of currently
vested options.
(3) This amount includes 11,218 shares issuable upon the exercise of currently
vested options.
(4) This amount includes 3,360 shares issuable upon the exercise of currently
vested options.
(5) This amount does not include any of the 2,101,129 shares held in the
Management Voting Trust in excess of the amount reported above, 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 above.
(6) Includes 31,947 shares of Restricted Stock which, under certain
circumstances, will vest to the stockholder upon consummation of the
Offerings.
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(7) Includes 59,683 shares issuable upon exercise of currently vested options
and 23,896 shares of Restricted Stock which, under certain circumstances,
will vest to the stockholder upon consummation of the Offerings.
(8) Includes 77,681 shares issuable upon exercise of currently vested options
and 19,896 shares of Restricted Stock which, under certain circumstances,
will vest to the stockholder upon consummation of the Offerings.
(9) Includes 12,142 shares of Restricted Stock which, under certain
circumstances, will vest to the stockholder upon consummation of the
Offerings.
(10) Includes 6,956 shares issuable upon exercise of currently vested options
and 21,019 shares of Restricted Stock which, under certain circumstances,
will vest to the stockholder upon consummation of the Offerings.
(11) Excludes 2,113,462 shares owned by the H&F Investors. The stockholder is a
Managing Director of Hellman & Friedman.
(12) Excludes 2,113,462 shares owned by the H&F Investors. The stockholder is
Chairman of Hellman & Friedman, the ultimate general partner of the H&F
Investors.
(13) Excludes 17,392 shares held by BearTel Corp., a company affiliated with
Bear, Stearns & Co. Inc., of which Mr. Schwartz is an executive officer.
(14) Includes an aggregate of 162,134 shares issuable upon the exercise of
currently vested options and an aggregate of 135,809 shares of Restricted
Stock which, under certain circumstances, will vest upon consummation of
the Offerings.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the closing of the Offerings, the Company will be 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, without par value (the
"Preferred Stock"). Based upon shares outstanding as of , 1998 and
assuming no exercise of the U.S. Underwriters' over-allotment option, the
Company estimates that immediately after the closing of the Offerings there will
be an aggregate of shares of Common Stock outstanding,
shares of Common Stock will be issuable upon exercise of outstanding options and
no shares of Preferred Stock will be issued and outstanding.
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 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 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 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. The Common Stock will not have cumulative voting rights.
Subject to any preferential or other rights of any outstanding series of
Preferred Stock that may be designated by the Board of the Company, the holders
of Common Stock will be entitled to such dividends, if any, as may be declared
from time to time by the Board of the Company. See "Dividend Policy." However,
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. In
the event of the liquidation, dissolution or winding up of the Company, holders
of Common Stock are entitled to receive on a pro rata basis any assets remaining
after provision for payment of creditors and after payment of any liquidation
preferences to holders of Preferred Stock.
PREFERRED STOCK
Effective upon the closing of the Offerings, the Company will be authorized
to issue 10,000,000 shares of Preferred Stock. The Board has the authority to
issue the Preferred Stock in one or more series and, except with respect to the
Money Market Preferred Stock, to fix the price, rights, preferences, privileges
and restrictions thereof, including dividend rights, dividend rates, conversion
rights, terms of redemption, redemption prices, liquidation preferences, voting
rights and the number of shares constituting a series or the designation of such
series, without any further vote or action by the Company's stockholders. 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. 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. Money
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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, the Company's Charter shall
authorize in connection with the Rights Plan a series of Preferred Stock
designated Cumulative Participating Junior Preferred Stock (the "Junior
Preferred Stock"), consisting of 2,000,000 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
shares of authorized but unissued Common Stock (including the shares
of Common Stock reserved for issuance pursuant to employee compensation plans)
and 10,000,000 shares of authorized but unissued Preferred Stock (including the
2,000,000 shares designated as Junior Preferred Stock and the 50,000 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 remains 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 Management Voting Trust Agreement, the Management Investors
and the Restricted Stock Trust are required to deposit with the Management
Voting Trust all Common 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 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 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 "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
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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. 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 deposited with it. The Voting Trust Certificates are subject to the
transfer restrictions set forth in the 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 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 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.
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 (and any
claims for damages under any employment agreement). Y&R has the right under the
Management Voting Trust 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 (including any
payments in excess of six months severance pay required to be made under
applicable law despite such Management Investor's
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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. See "-- The Stockholders'
Agreement."
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. The H&F Investors, the Management Investors,
the Restricted Stock Trust, the Management Voting Trust and Y&R will enter into
an amended and restated 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, (i) prior to
termination of the Management Voting Trust on the second anniversary of the
consummation of the Offerings, if at least 20% of the Outstanding Shares is then
subject to the Management Voting Trust, to any party who as a result thereof
would (together with its affiliates) own a greater percentage of the Outstanding
Shares 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 (the "Termination
Percentage") less 5% and (B) from and after the second 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 termination,
the Company) consents to the proposed transfer, which consent may not be
unreasonably withheld.
Until December 12, 2002 proposed transfers of shares of Common 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.
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 .
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RIGHTS PLAN
Effective upon closing of the Offerings, the Company has adopted the Rights
Plan and has entered into a Rights Agreement (the "Rights Agreement"), dated as
of , 1998, between the Company and , as Rights
Agent (the "Rights Agent"). On , 1998, (the "Declaration Date"), the
Board declared a dividend distribution of one Right for each outstanding share
of Common Stock. The dividend is payable upon consummation of the Offerings to
the stockholders of record as of the close of business on such date (the "Record
Date"). 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 specifically authorizes the Board
to adopt a stockholder rights plan such as the Rights Plan.
Each Right entitles the registered holder 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 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 $100 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 of, or the first public announcement of the intent
of any person (other than the Company, any wholly owned subsidiary of the
Company, any employee benefit plan or employee stock plan of the Company or of
any wholly owned subsidiary of the Company or any person holding Common Stock
which was organized, appointed or established by the Company or such wholly
owned subsidiary for or pursuant to the terms of any such plan) 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 issued prior to the earlier of
the expiration of the Rights or the Distribution Date 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 Transferee (as defined below)) or
group of affiliated or associated persons who or which 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 acquire beneficial ownership of additional shares of Common Stock such
that following such acquisition the H&F Investors beneficially own in excess of
15% of
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the outstanding shares of Common Stock and, if the Management Voting Trust is
then in existence, following such acquisition the H&F Investors beneficially own
a greater percentage of the Outstanding Shares than the percentage of the
Outstanding Shares 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 (iii) any Permitted H&F Transferee who or which, immediately after any
transfer from the H&F Investors, together with all affiliates and associates of
such Permitted H&F Transferee, is the beneficial owner of 15% or more of the
then outstanding shares of Common Stock, if contemporaneously with or subsequent
to such transfer, such Permitted H&F Transferee, together with all affiliates
and associates of such Permitted H&F 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 its affiliates and associates,
becomes the beneficial owner of 15% or more (in the case of clause (i) above) or
an additional percentage (in the case of clause (ii) or (iii) 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 its affiliates
or associates) the beneficial owner of additional shares of Common Stock; (2)
the term "Acquiring Person" shall not include the Company, any wholly owned
subsidiary of the Company, any employee benefit plan or employee stock plan of
the Company or of any of its wholly owned Subsidiaries, any person holding
Common Stock which was organized, appointed or established by the Company or any
of its wholly owned subsidiaries for or pursuant to the terms of any such plan,
the Management Voting Trust, the Voting Trustees under the Management Voting
Trust, any affiliate or associate of the Management Voting Trust or any Voting
Trustee thereunder and any group that includes the Management Voting Trust, any
Voting Trustee thereunder or any affiliate or associate thereof; and (3) the
term "Acquiring Person" shall not include any person who becomes the beneficial
owner of 15% or more of the outstanding shares of Common Stock (in the case of
clause (i) above) or 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 ceases to
be a beneficial owner of 15% or more of shares of Common Stock (in the case of
clause (i) above) or additional shares of Common Stock (in the case of clauses
(ii) and (iii) above).
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 Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Common Stock. Certificates representing shares of Common Stock
issued after the Record Date will contain a legend incorporating the Rights
Agreement by reference. Until the Distribution Date, the surrender for transfer
of any of the certificates representing shares of Common Stock outstanding as of
the Record 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. 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
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exercisable until the Distribution Date. The Rights will expire at the close of
business on , 2008, unless previously redeemed by the Company as
described below.
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 value equal to two times the exercise 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 an
exercise 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 $ worth of Common Stock (or
other consideration, as noted above) for $ . Assuming that the Common Stock
has a per share 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 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 value
equal to two times the exercise 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 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
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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 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 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 Information Statement forms a part, and to
the DGCL.
CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS. The Company's Charter
provides that the number of Directors shall be not less than nor more than
, 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 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
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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 without a meeting. 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 governing action by written
consent 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.
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 sixty nor more than
ninety days before the in (or, if the Board has set a
different date for the annual meeting, not less than sixty nor more than ninety
days before such other date or, if such other date has not been publicly
disclosed at least seventy-five days in advance, then not less than fifteen days
after such public disclosure). 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;
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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 certain provisions of the Company's By-Laws or to adopt any
provision of the By-Laws inconsistent with such provisions.
PREFERRED STOCK. The Company's Charter authorizes the Board of the Company
to establish series of Preferred Stock and to determine, with respect to any
series of Preferred Stock, the terms and rights of such series, including (i)
the voting powers, if any, (ii) preferences and relative, participating,
optional and other special rights and (iii) the qualifications, limitations and
restrictions 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 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
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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, 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. Section 203 does 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 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
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. 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.
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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
shares of Common Stock. Of these shares, approximately (i)
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"); and (ii) 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.
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
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, its officers, Directors, and certain stockholders,
including the Selling Stockholders, who collectively are the beneficial owners
of an aggregate of shares of Common Stock and hold options to
acquire an aggregate of shares of Common Stock have agreed, subject
to certain conditions 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., for a period of 180 days
after the date of this Prospectus. In addition, during such period, the Company
has also agreed not to file any registration statement with respect to, and the
Company's 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 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. 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
70
<PAGE> 75
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, effective upon consummation of the Offerings, 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 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 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.
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.
71
<PAGE> 76
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.
72
<PAGE> 77
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, 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......................................................................
=======
</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....................................................................
=======
</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.
has 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 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 conditions, to purchase its pro rata portion of such
73
<PAGE> 78
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, its executive officers and directors and certain
stockholders of the Company (including the Selling Stockholders) has agreed,
subject to certain conditions, 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. 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.
Prior to the Offerings, there has been no established 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.
Application will be made to list the Common Stock on the New York Stock
Exchange (the "NYSE"). 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
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.
74
<PAGE> 79
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 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
75
<PAGE> 80
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 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.
of the shares offered hereby have been reserved for sale to
employees of the Company and its subsidiaries, certain clients and other persons
designated by the Company. The price per share of the shares to be sold to these
persons will be the same as the price to the public in the Offerings. The
maximum investment of any such person may be limited by the Company in its sole
discretion. This program is being administered by DLJ. It is currently
anticipated that the number of shares to be sold under this program will not
exceed % 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.
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.
76
<PAGE> 81
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 have 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.
77
<PAGE> 82
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> 83
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> 84
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1997
------------------------- ------------
1996 1997 PRO FORMA
(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 -- 10,000,000 shares at
December 31, 1996 and 1997 (actual and pro forma); issued and
outstanding -- 3,158,822 shares, 3,377,212 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 $115 per share; one-tenth of one vote per share; 50,000 shares
authorized December 31, 1996 and 1997 (actual and pro forma); 0 shares
issued and outstanding (actual and pro forma)............................ -- -- --
Common stock, par value $.01 per share; authorized 10,000,000 shares at
December 31, 1996 and 1997 (actual and pro forma); issued and
outstanding -- 739,130 shares at December 31, 1996 and 1997 (actual) and
4,116,342 shares pro forma December 31, 1997............................. 7 7 41
Capital surplus............................................................ 106,929 23,717 532,154
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 74,344
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> 85
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 --
Non-recurring 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)....... $ (7.65)
==========
Weighted average shares outstanding (Note 3)........... 3,129,957
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 86
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
Non-recurring 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
-------- --------- ---------
57,862 92,537 49,004
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 27,078 66,621
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.............................. 79,809 212,707 265,511
-------- --------- ---------
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 (repayments of) loans payable, short-term, net........... 11,052 (6,794) (20,897)
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) (47,257) (139,667)
-------- --------- ---------
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
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 87
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............ -- -- 28 -- 326,989 -- -- (85,000)
Recapitalization
exchanges............ -- (100) 11 (2,914) 122,879 -- -- --
Mandatorily Redeemable
Equity Securities.... -- -- (32) -- (363,232) -- -- --
Equityholder loans..... -- -- -- 215 1,055 -- -- --
---- ------- ---- ------- --------- --------- ------- ---------
BALANCE AT DECEMBER 31,
1996................. $ -- $ -- $ 7 $ -- $ 106,929 $ (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............ -- -- 3 -- 8,752 -- -- --
Accretion of
Mandatorily
Redeemable Equity
Securities........... -- -- (3) -- (145,204) -- -- --
---- ------- ---- ------- --------- --------- ------- ---------
BALANCE AT DECEMBER 31,
1997................. $ -- $ -- $ 7 $ -- $ 23,717 $ (522,866) $(8,550) $ (136,739)
==== ======= ==== ======= ========= ========= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 88
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> 89
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> 90
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.
The Company anticipates that the adoption of SFAS 130 and SFAS 131 will not
have a significant affect 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 739,130 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 2,067,547 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 739,130 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 20.
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 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 1,054,399
shares of Holdings common stock and 1,121,571
F-9
<PAGE> 91
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 shares of Holdings common stock at a
price of $115 per share and options to purchase additional shares of Holdings
common stock at $115 per share (the "HFCP Options"), 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 1,121,571 shares of Company common stock at an
exercise price of $28.75 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
difference between the transaction price per Rollover Option of $115 and
the aggregate exercise price of the Rollover Options.
(4) Professional fees and other charges amounted to approximately $69
million.
F-10
<PAGE> 92
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- EQUITY IN NET ASSETS OF UNCONSOLIDATED COMPANIES:
<TABLE>
<CAPTION>
1997
1995 1996 -----------------
---------------- ----------------- EQUITY
EQUITY EQUITY EQUITY EQUITY EQUITY IN NET
OWNERSHIP IN NET IN NET IN NET IN NET IN NET INCOME
AFFILIATE INTEREST ASSETS INCOME ASSETS INCOME ASSETS (LOSS)
(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 unaudited 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 NON-RECURRING 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 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.
F-11
<PAGE> 93
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
non-recurring 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>
During 1995, 1996 and 1997, depreciation expense amounted to $38.2 million,
$42.0 million and $47.6 million, respectively.
F-12
<PAGE> 94
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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> 95
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 tax 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> 96
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> 97
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> 98
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the defined benefit plans are 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).
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
F-17
<PAGE> 99
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 document 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
first drawdown occurred in December 1996, while the second drawdown occurred on
March 18, 1997. The Credit Facilities are secured by a perfected first priority
security interest in all of the Company's tangible and intangible assets. 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
F-18
<PAGE> 100
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-19
<PAGE> 101
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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> 102
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 PARTNERSHIPS 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) 3,897,952 (16,000,000) (1,869,682) (13,541,898)
------ --------- ----------- ---------- -----------
BALANCE 12/31/96............. -- 3,897,952 -- -- --
------ --------- ----------- ---------- -----------
Issued....................... -- 292,734 -- -- --
Repurchased.................. -- (74,344) -- -- 74,344
------ --------- ----------- ---------- -----------
BALANCE 12/31/97............. -- 4,116,342 -- -- 74,344
====== ========= =========== ========== ===========
</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 are redeemable at the Company's election
for $115 per share following the fifth anniversary of the issuance thereof. At
December 31, 1996 and 1997, 50,000 shares of Money Market Preferred were
authorized. No shares of Money Market Preferred were issued or outstanding at
December 31, 1996 and 1997.
In connection with the Recapitalization, the Company also issued 739,130
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 739,130 shares were outstanding and held in the Restricted
Stock Trust.
F-21
<PAGE> 103
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 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 $115 and $185 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 $115
and $127 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 occurrence 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 2,211,571 shares of
Company common stock. The Stock Option Plan governs both the Rollover Options
and certain other executive options (the "Executive Options").
The Rollover Options were granted at the closing of the Recapitalization
(see Note 4) and were immediately vested and exercisable. Each Rollover Option
has an exercise price of $28.75 per share, with certain limited exceptions
outside of the U.S. 50% of the Rollover Options 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 346,706 options to purchase shares of Company common stock at $115 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 198,294
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 126,080 shares of Company common stock had been
granted, each at $115 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
$115 on date of grant in accordance with the applicable vesting provisions of
the Additional Options.
Additionally, at the closing of the Recapitalization, the Company issued
options to HFCP (see Note 4) to purchase 173,207 shares of Company common stock
at $115 per share which were exercisable immediately. The HFCP Options are not
governed under the Stock Option Plan.
F-22
<PAGE> 104
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1,275,000, 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
1,000,000. 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 638,530 shares of Company common stock at $185 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 638,530 options
granted in December 1997, options to purchase 76,810 shares of common stock will
not become exercisable until nine years and nine months from the date 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
F-23
<PAGE> 105
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $2.01, 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 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,
$43.92 and $96.37, in 1996, respectively, and $79.24 and $185.00 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 $94.45 and $29.52 in 1996,
respectively and $101.36 and $115.00 in 1997, respectively. There were no option
issuances in 1995 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> 106
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 grants....................................... 1,641,484 56.43
Recapitalization cancellations................................ (2,290,663) 43.64
---------- ------
DECEMBER 31, 1996............................................... 1,641,484 56.43
---------- ------
Granted....................................................... 764,610 173.46
Exercised..................................................... (283,386) 32.87
Cancellations................................................. (55,161) 67.44
---------- ------
DECEMBER 31, 1997............................................... 2,067,547 102.64
========== ======
</TABLE>
The following information is as of December 31, 1997:
<TABLE>
<S> <C> <C> <C>
Number outstanding....................................... 820,846 608,171 638,530
------- ------- -------
Weighted-average contractual life, in years.............. 6 10 10
Weighted-average exercise price.......................... $ 28.75 $ 115 $ 185
------- ------- -------
Number exercisable....................................... 820,846 328,687 0
------- ------- -------
Weighted-average exercise price.......................... $ 28.75 $ 115 $ 185
------- ------- -------
</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 $ 28.75 $ 115
------------- ---------- --------
Number outstanding..................................... 2,426,108 1,121,571 519,913
------------- ---------- --------
Weighted-average contractual life, in years............ 5 6 10
Weighted-average exercise price........................ $ 42.96 $ 28.75 $ 115.00
------------- ---------- --------
Number exercisable..................................... 544,004 1,121,571 311,889
------------- ---------- --------
Weighted-average exercise price........................ $ 40.92 $ 28.75 $ 115
------------- ---------- --------
</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 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.
F-25
<PAGE> 107
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. 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.
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.
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.
F-26
<PAGE> 108
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 -- PUBLIC OFFERING AND RELATED TRANSACTIONS SUBSEQUENT TO THE DATE OF
THE INDEPENDENT ACCOUNTANTS REPORT (UNAUDITED)
On February 26, 1998, the Company filed a Registration Statement on Form
S-1. Total proceeds to be raised in connection with the public offering are
estimated at $350 million, comprised of approximately $150 million raised from
the sale of newly issued common shares and approximately $200 million raised
from common shares to be sold from certain selling stockholders. The Company
intends to use the $139.5 million of estimated net proceeds from the sale of
newly issued common shares to repay a portion of the 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.
F-27
<PAGE> 109
======================================================
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.................... 3
Risk Factors.......................... 9
The Company........................... 15
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 20
Selected Consolidated Financial
Data................................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 29
Management............................ 39
Certain Transactions.................. 56
Principal and Selling Stockholders.... 57
Description of Capital Stock.......... 59
Shares Eligible for Future Sale....... 70
Certain U.S. Tax Consequences to Non-
United States Holders............... 71
Underwriting.......................... 73
Legal Matters......................... 76
Experts............................... 76
Available Information................. 77
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.
======================================================
======================================================
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YOUNG & RUBICAM INC.
COMMON STOCK
------------------------
PROSPECTUS
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DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
FURMAN SELZ
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
, 1998
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<PAGE> 110
[INTERNATIONAL BACK COVER PAGE]
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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.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 3
Risk Factors.......................... 9
The Company........................... 15
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 20
Selected Consolidated Financial
Data................................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 29
Management............................ 39
Certain Transactions.................. 56
Principal and Selling Stockholders.... 57
Description of Capital Stock.......... 59
Shares Eligible for Future Sale....... 70
Certain U.S. Tax Consequences to Non-
United States Holders............... 71
Underwriting.......................... 73
Legal Matters......................... 76
Experts............................... 76
Available Information................. 77
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.
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SHARES
[LOGO]
YOUNG & RUBICAM INC.
COMMON STOCK
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PROSPECTUS
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DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
FURMAN SELZ
GOLDMAN SACHS INTERNATIONAL
SALOMON SMITH BARNEY INTERNATIONAL
, 1998
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<PAGE> 111
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:
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SEC registration fee...................................................... $103,250
NASD filing fee........................................................... 30,500
New York Stock Exchange listing fee....................................... *
Legal fees and expenses................................................... *
Accounting fees and expenses.............................................. *
Blue Sky fees and expenses................................................ *
Printing and engraving expenses........................................... *
Registrar and transfer agent's fee........................................ *
Miscellaneous............................................................. *
--------
Total........................................................... $ *
========
</TABLE>
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* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XI of Y&R's Amended and Restated Certificate of Incorporation
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
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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 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 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
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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 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 2,015,213 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 1,143,609 shares of Common
Stock to 182 employees in exchange for a combination of $131,515,035 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 1,121,571 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 346,706 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 860 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 2,400 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 6,088 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 30,871 shares
of Common Stock at $28.75 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 $115 per share.
In December 1997, the Company issued and sold 283,386 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.
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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
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1.1 Form of Underwriting Agreement*.....................................................
3.1 Amended and Restated Certificate of Incorporation of Registrant*....................
3.2 Amended and Restated Bylaws of Registrant*..........................................
3.3 Form of Amended and Restated Certificate of Incorporation of Registrant to become
effective upon the closing of the Offerings under the Registration Statement*.......
3.4 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 Excerpt from form of Amended and Restated Certificate of Incorporation of Registrant
to become effective upon the closing of the Offerings under the Registration
Statement*..........................................................................
4.3 Form of Rights Agreement to be entered into upon the closing of the Offerings under
the Registration Statement*.........................................................
4.4 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 and Restated Stockholders' Agreement, dated as of , 1998*.....
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.........................................................
</TABLE>
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<TABLE>
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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.........................................
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*...................
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>
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* To be filed by amendment.
(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
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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
each to purchaser.
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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 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 February 26, 1998.
YOUNG & RUBICAM INC.
By: /s/ PETER A. GEORGESCU
------------------------------------
Name: Peter A. Georgescu
Title: Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Young & Rubicam Inc., hereby
severally and individually constitute and appoint Michael J. Dolan, Stephanie W.
Abramson and Alan D. Sheldon and each of them, the true and lawful
attorneys-in-fact and agents of each of us to execute in the name, place and
stead of each of us (individually and in any capacity stated below) (i) any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
or instruments necessary or advisable in connection therewith, and (ii) a
Registration Statement, and any and all amendments thereto, relating to the
offering covered hereby filed pursuant to Rule 462(b) under the Securities Act
of 1933, with the Securities and Exchange Commission, each of said attorneys-in-
fact and agents to have the power to act with or without the others and to have
full power and authority to do and perform in the name and on behalf of each of
the undersigned every act whatsoever necessary or advisable to be done in and
about the premises, as fully to all intents and purposes as any of the
undersigned might or could do in person, and we hereby ratify and confirm our
signatures as they may be signed by our said attorneys-in-fact and agents or
each of them to any and all such amendments and instruments.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
instrument.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
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SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------- ----------------------
<C> <S> <C>
/s/ PETER A. GEORGESCU Chairman of the Board February 26, 1998
- --------------------------------------------- and Chief Executive
Peter A. Georgescu Officer (principal
executive officer)
/s/ MICHAEL J. DOLAN Vice Chairman, Chief February 26, 1998
- --------------------------------------------- Financial Officer
Michael J. Dolan and Director
(principal financial
officer)
/s/ KEVIN LAVAN Senior Vice President, February 26, 1998
- --------------------------------------------- Finance (principal
Kevin Lavan accounting officer)
/s/ EDWARD H. VICK Chief Operating February 26, 1998
- --------------------------------------------- Officer and Director
Edward H. Vick
</TABLE>
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<TABLE>
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SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------- ----------------------
<C> <S> <C>
/s/ THOMAS D. BELL, JR. Executive Vice February 26, 1998
- --------------------------------------------- President and
Thomas D. Bell, Jr. Director
/s/ F. WARREN HELLMAN Director February 26, 1998
- ---------------------------------------------
F. Warren Hellman
/s/ JOHN L. BUNCE, JR. Director February 26, 1998
- ---------------------------------------------
John L. Bunce, Jr.
/s/ PHILIP U. HAMMARSKJOLD Director February 26, 1998
- ---------------------------------------------
Philip U. Hammarskjold
/s/ ALAN D. SCHWARTZ Director February 26, 1998
- ---------------------------------------------
Alan D. Schwartz
/s/ JOHN F. MCGILLICUDDY Director February 26, 1998
- ---------------------------------------------
John F. McGillicuddy
</TABLE>
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SCHEDULE II
YOUNG AND RUBICAM INC. AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
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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>
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EXHIBIT INDEX
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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 Amended and Restated Bylaws of Registrant*.................................
3.3 Form of Amended and Restated Certificate of Incorporation of Registrant to
become effective upon the closing of the Offerings under the Registration
Statement*.................................................................
3.4 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 Excerpt from form of Amended and Restated Certificate of Incorporation of
Registrant to become effective upon the closing of the Offerings under the
Registration Statement*....................................................
4.3 Form of Rights Agreement to be entered into upon the closing of the
Offerings under the Registration Statement*................................
4.4 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 and Restated Stockholders' Agreement, dated as of ,
1998*......................................................................
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..........................................
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- --------------------------------------------------------------------------- ------------
<C> <S> <C>
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......................
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*..........
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>
- ------------------------------
* To be filed by amendment.
<PAGE> 1
Exhibit 9.1
MANAGEMENT VOTING TRUST AGREEMENT
THIS MANAGEMENT VOTING TRUST AGREEMENT (the "Agreement") is entered
into as of December 12, 1996, by and among Young & Rubicam Inc., a New York
corporation ("Y&R NY"), Young & Rubicam Holdings Inc., a New York corporation
("Holdings"), and Young & Rubicam Inc., a Delaware corporation ("Y&R DEL"), a
trust established pursuant to the Restricted Stock Trust Agreement (the
"Restricted Stock Trust"), each of the persons listed on Schedule A attached
hereto (the Restricted Stock Trust and such persons, collectively, the "Initial
Management Investors"), Peter A. Georgescu, Alan J. Sheldon, Stephanie W.
Abramson, Thomas D. Bell, Michael J. Dolan, Mitchell Kurz, John P. McGarry, Jr.
and Edward H. Vick as voting trustees (together with their successors, the
"Voting Trustees") of the voting trust created hereunder (the "Management Voting
Trust"). The Initial Management Investors together with any individuals who
become holders of shares of Common Stock, or interests in Common Stock, or
holders of shares of Money Market Preferred Stock, who are employees of the
Company or its Affiliates (other than the HFCP Investors and their Affiliates),
and their permitted transferees, in each case who become parties hereto in
accordance with the terms hereof are referred to herein and their permitted
transferees, in each case as the "Management Investors."
All terms defined in the Stockholders' Agreement being entered into
concurrently herewith by and among the HFCP Investors, the Director Investors,
the Initial Management Investors, the Management Voting Trust, Holdings, Y&R NY
and Y&R DEL (as such agreement may be amended or modified pursuant to its terms,
the "Stockholders' Agreement"), that are not otherwise defined herein, are used
herein with the same meaning.
RECITALS
WHEREAS, the Company and the Initial Management Investors deem it
necessary and advisable that the Management Voting Trust be the record owner of
all shares of Common Stock and Money Market Preferred Stock, other than the
shares of Common Stock owned by the HFCP Investors (or, following the Closing,
their Affiliates and permitted transferees) or the Director Investors, on the
terms and conditions set forth herein, in order to assure that, among other
things, all Management Investors vote with a single voice with respect to all
matters submitted to the vote of the stockholders of the Company;
WHEREAS, the individual Initial Management Investors (i) pursuant to
the Stock Subscription Agreement, have subscribed to shares of common stock, par
value $0.01 per share, of Holdings ("Holding Common Stock"), and pursuant to the
Stock Option Plan have been granted Roll-Over Options and Executive Options and
(ii) pursuant to the Restricted Stock Plan have been allocated an interest in
shares of Holdings Common Stock under the Restricted Stock Trust (the
"Restricted Stock");
WHEREAS, the HFCP Investors have subscribed to certain shares, and
an option to purchase shares, of Common Stock pursuant to the terms of the
Contribution Agreement;
WHEREAS, concurrently with the execution and delivery of this
Agreement, the parties hereto are entering into the Stockholders' Agreement;
<PAGE> 2
WHEREAS, immediately following the closing of the acquisition of
shares of Holdings Common Stock under the Contribution Agreement and the Stock
Subscription Agreement, Holdings will merge with and into Y&R NY (the "Holdings
Merger"), Y&R NY will be the surviving corporation in such merger, all
outstanding shares of common stock, par value $.25 per share, of Y&R NY ("Y&R NY
Common Stock") will be exchanged for cash (or, if elected by the holders
thereof, for shares of money market preferred stock, without par value, of Y&R
NY ("Y&R NY Money Market Preferred Stock")) and all outstanding shares of
Holdings Common Stock will become shares of Y&R NY Common Stock;
WHEREAS, following the Holdings Merger, upon the terms and subject
to the conditions set forth in the Contribution Agreement, Y&R NY will merge
with and into Y&R DEL (the "Company Merger"), Y&R DEL will be the surviving
corporation in such merger, all outstanding shares of Y&R NY Common Stock will
become shares of common stock, par value $.01 per share, of Y&R DEL ("Y&R DEL
Common Stock"), and all outstanding shares of Y&R NY Money Market Preferred
Stock will become shares of money market preferred stock, without par value, of
Y&R DEL ("Y&R DEL Money Market Preferred Stock") (Holdings, and its successors
by merger, Y&R NY and Y&R DEL, upon the occurrence of such mergers are referred
to collectively herein as the "Company"; the shares of Holdings Common Stock
which become shares of Y&R NY Common Stock and then become shares of Y&R DEL
Common Stock, upon the occurrence of such mergers, are hereinafter referred to
collectively herein as "Common Stock" and the shares of Y&R NY Money Market
Preferred Stock which become shares of Y&R DEL Money Market Preferred Stock,
upon the occurrence of such mergers, are hereinafter referred to collectively
herein as "Money Market Preferred Stock"); and
WHEREAS, the parties hereto deem it to be in the best interests of
the Company and the Management Investors to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and obligations set forth in this Agreement,
the parties hereto agree as follows:
1. Creation of Voting Trust.
1.1 Deposit of Shares. Each of the Management Investors hereby
assigns and transfers, and agrees to assign and transfer, to the Voting
Trustees, in their capacity as trustees of the Management Voting Trust, all of
the shares of Common Stock and all shares of Money Market Preferred Stock now or
at any time hereafter held by such Management Investor, or which such Management
Investor becomes entitled to receive, during the term of this Agreement, however
acquired (including, without limitation, pursuant to the Stock Subscription
Agreement, upon the exercise of any options to purchase Common Stock, or upon
distribution from the Restricted Stock Trust), and shall immediately deposit
with the Voting Trustees, in their capacity as trustees of the Management Voting
Trust, the certificates for any such shares now held by such Management
Investor, or which such Management Investor may receive, duly endorsed in blank
or accompanied by a proper instrument of assignment duly executed in blank. The
Company shall pay any requisite federal, state and local transfer taxes or other
taxes, or other governmental charges, if any, payable in respect of such deposit
or transfer.
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<PAGE> 3
1.2 Issuance of Stock Certificates to Management Voting Trust. Each
Management Investor agrees that, with respect to the shares of Common Stock
issued by the Company to such Management Investor pursuant to the Stock
Subscription Agreement, or upon the exercise by such Management Investor of any
options to acquire Common Stock or upon distribution from the Restricted Stock
Trust, or otherwise during the term of this Agreement, and with respect to the
shares of Money Market Preferred Stock issued by the Company in the Holdings
Merger, the Management Investor hereby directs Stephanie W. Abramson, as his or
her agent, to deposit with the Voting Trustees the shares so issued by
delivering directly to the Voting Trustees, in their capacity as trustees of the
Management Voting Trust, a certificate or certificates representing the shares
of Common Stock or Money Market Preferred Stock, as the case may be, so acquired
by and issued in the name of, such Management Investor, together with
appropriate stock powers transferring such certificate(s) to the Voting
Trustees. All certificates representing shares of Common Stock or Money Market
Preferred Stock so delivered to the Voting Trustees by any Management Investor
pursuant to this Agreement shall be surrendered by the Voting Trustees to the
Company and canceled, and new certificates shall be issued by the Company to and
in the name of the Voting Trustees, in their capacity as trustees of the
Management Voting Trust. All certificates for shares of Common Stock or Money
Market Preferred Stock issued to the Management Voting Trust pursuant to Section
1.1 or this Section 1.2, along with any other certificates for shares issued to
the Management Voting Trust pursuant to Section 3.2 hereof, shall be endorsed by
the Company with a legend to the effect that they are issued by the Company
pursuant to this Agreement and a similar notation shall appear in the
appropriate place in the transfer books of the Company.
1.3 Delivery of Voting Trust Certificates. Upon receipt by the
Voting Trustees of the certificates for any shares of Common Stock or Money
Market Preferred Stock of the Company, the Voting Trustees shall hold such
shares subject to the terms and conditions of this Agreement and shall deliver
or cause to be delivered to each respective Management Investor a voting trust
certificate ("Voting Trust Certificate") representing the shares so deposited by
such Management Investor in the form provided in Section 2.1 hereto.
1.4 Future Stockholders. Any person who has not previously become a
Management Investor and who acquires an interest in shares of Common Stock or
Money Market Preferred Stock in connection with (a) a Transfer permitted by this
Agreement to such person of Voting Trust Certificates, (b) the grant of any
options to acquire Common Stock to such person, or (c) the allocation of an
interest in Restricted Stock to such person, shall execute and deliver to the
Voting Trustees or the Agent (as hereinafter defined) on their behalf, a
supplement to this Agreement, by which such person shall agree to be bound by
the terms, limitations and conditions of this Agreement applicable to Management
Investors; provided, however, that no Voting Trust Certificates shall be issued
to such person in the case of clause (b) until such option is exercised and in
the case of clause (c) until such Restricted Stock vests and is released to such
person.
1.5 Acceptance of Trust. Each of the Management Voting Trust and the
Voting Trustees hereby accepts the trust created hereby in accordance with all
of the terms and conditions contained in this Agreement.
2. Voting Trust Certificates.
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<PAGE> 4
2.1 Form; Legend. The Voting Trust Certificates to be issued and
delivered by the Management Voting Trust under this Agreement in respect of any
shares of Common Stock or Money Market Preferred Stock shall be substantially in
the form of Exhibit 1 (or in the case of Money Market Preferred Stock, Exhibit
2) attached hereto, with such changes thereto consistent with the provisions of
this Agreement as the Voting Trustees may from time to time deem appropriate.
Each Voting Trust Certificate shall be signed by at least two Voting Trustees
and 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 non-U.S.
jurisdiction. The securities cannot be offered, sold, transferred or
otherwise disposed of except (i) pursuant to an effective registration
statement or amendment thereto under such Act and any other applicable
laws or (ii) 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 the Stockholders'
Agreement and the Management Voting Trust Agreement, each dated as of
December 12, 1996 and 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). The Company
reserves the right to refuse the transfer of such securities until all
terms and conditions have been fulfilled with respect to such transfer as
set forth in such agreements.
2.2 Transfer; Registered Holders; Transfer Books.
(a) Shares of Common Stock or Money Market Preferred Stock, as the
case may be, and the Voting Trust Certificates representing such shares are
necessarily linked and cannot be transferred separately. Any Transfer of Voting
Trust Certificates shall be deemed to effect a Transfer of the interest
represented thereby in the underlying shares, and any Transfer of an interest in
shares of Common Stock or Money Market Preferred Stock, as the case may be, with
respect to which Voting Trust Certificates have been issued shall be deemed to
effect a Transfer of such Voting Trust Certificates.
(b) Voting Trust Certificates shall be transferable only on the
books of the Management Voting Trust, upon surrender of such Voting Trust
Certificates (duly endorsed in blank or accompanied by a proper instrument of
assignment duly executed in blank, together with all requisite transfer tax
stamps attached thereto and an amount sufficient to pay all federal, state and
local taxes or other governmental charges, if any, then payable in connection
with such transfer) by the registered holder in person or by such holder's duly
authorized attorney. Upon the surrender of any Voting Trust Certificates for
transfer in conformity with this Agreement, the Management Voting Trust shall
cancel such Voting Trust Certificates and issue to the transferee new Voting
Trust Certificates in the same form and representing the same number of shares
of Common Stock or Money Market Preferred Stock, as the case may be, as the
Voting Trust Certificates presented for cancellation. Any new Voting Trust
Certificate so issued to a
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<PAGE> 5
transferee shall specify thereon the name of the Management Investor who was
initially issued the interest in Common Stock or Money Market Preferred Stock,
as the case may be, represented by such Voting Trust Certificate.
(c) The Voting Trustees shall have the power to appoint an
administrative agent (the "Agent"), which may be the Company or an employee of
the Company, for the purposes of holding and maintaining the books of the
Management Voting Trust pursuant to this Agreement. The Company shall pay any
fees and expenses incurred by the Agent, and shall provide any customary
indemnification required by the Agent, in connection with the Agent's duties
hereunder.
(d) The Management Investors represent and warrant that they are
acquiring the Voting Trust Certificates for investment purposes and not with a
view to their resale or distribution. The Management Voting Trust shall not be
required to Transfer Voting Trust Certificates unless it shall receive an
opinion of counsel satisfactory to it that no violation of the registration
provisions of the United States federal or state securities laws would result
from the transfer.
(e) The Management Voting Trust may treat the registered holder of
each of the Voting Trust Certificates as the absolute owner thereof for all
purposes whatsoever, and accordingly shall not be required to recognize any
legal, equitable or other claim or interest in each such Voting Trust
Certificate on the part of any other person, whether or not the Management
Voting Trustees shall have express or other notice thereof.
2.3 Restrictions on Transfer. No Transfer of the Voting Trust
Certificates (or the related shares of Common Stock or Money Market Preferred
Stock, as the case may be) will be effective, recognized by the Company or the
Voting Trustees or recorded on the books and records of the Company and the
Management Voting Trust unless (a) the intended transferee first becomes a party
to this Agreement, (b) in the case of Common Stock, such Transfer is permitted
under the Stockholders' Agreement and the applicable provisions of the
Stockholders' Agreement relating to Transfers are duly complied with and in the
case of Common Stock, the Management Investor complies with Section 7.2(b)
hereof if applicable. 3. Dividends; Distributions Upon Termination of Employment
of Management Investor and Certain Other Events.
3.1 Cash or Other Non-Stock Dividends. The Management Voting Trust
shall receive, subject to the terms of this Agreement, any dividends or
distributions declared and paid on the shares deposited hereunder and shall
distribute directly any such dividends or distributions to holders of Voting
Trust Certificates in proportion to their respective interests therein as shown
on the books of the Management Voting Trust, such distribution to be equivalent
to the dividends or distribution which each respective holder would have been
entitled to receive had he or she not deposited the shares of Common Stock or
Money Market Preferred Stock, as the case may be, hereunder.
3.2 Stock Dividends. The Management Voting Trust shall receive and
hold, subject to the terms of this Agreement, any shares of Common Stock or
other capital stock of the
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<PAGE> 6
Company and any securities convertible or exchangeable for shares of Common
Stock or such other capital stock or warrants to purchase Common Stock or such
other capital stock, or (unless otherwise determined by the Voting Trustees) any
stock of any other entity, issued in respect of the Company's stock by reason of
any capital reorganization, stock dividend, stock split, combination or any
other change or adjustment in respect of the shares of Common Stock or such
other capital stock held by it, and shall issue and deliver Voting Trust
Certificates therefor to the holders of the Voting Trust Certificates in
proportion to their respective interests therein as shown on the books of the
Management Voting Trust.
3.3 Distributions Upon Termination of Employment of Management
Investor. Upon surrender and delivery to the Management Voting Trust by a
Management Investor of Voting Trust Certificates representing an interest in
shares of Common Stock purchased by the Company or the HFCP Investors pursuant
to Sections 4.02, 4.03, or 4.10 of the Stockholders' Agreement, the Management
Voting Trust shall (a) transfer to such Management Investor any payments
received by the Management Voting Trust in consideration of such shares of
Common Stock and (b) deliver to the party from whom it has received such payment
certificates endorsed in blank for shares of Common Stock representing the same
number of shares of Common Stock as are represented by the Voting Trust
Certificates so surrendered and delivered to the Management Voting Trust, and
thereupon all liability of the Management Voting Trust for delivery of such
certificates shall terminate. Any Voting Trust Certificates delivered to the
Management Voting Trust pursuant to this Section 3.3 shall be canceled by the
Management Voting Trust.
3.4 Distributions to Satisfy Withholding And other Income Tax
Obligations in Connection with Distributions under the Restricted Stock Plan.
Upon surrender and delivery by the Restricted Stock Trust (or any Participant or
Permitted Transferee (each as defined in the Restricted Stock Plan)) under the
Restricted Stock Plan) to the Management Voting Trust of any Voting Trust
Certificate, the Management Voting Trust shall deliver to the Company
certificates endorsed in blank for shares of Common Stock representing the same
number of shares of Common Stock as are represented by the Voting Trust
Certificate so surrendered and delivered, and thereupon all liability of the
Management Voting Trust for delivery of such certificates shall terminate;
provided, however, that the Management Voting Trust shall not make any such
delivery pursuant to this Section 3.4 unless it has received written notice from
the Restricted Stock Trust that a Vesting Event under the Restricted Stock Plan
has occurred (as defined therein) and has received written notice from the
Restricted Stock Trust (or such Participant or Permitted Transferee) that (a)
the Restricted Stock Trust intends to deliver, or the Participant or Permitted
Transferee intends for the Management Voting Trust to deliver, to the Company a
number of shares of Common Stock in connection with a distribution of Voting
Trust Certificates under the Restricted Stock Plan in order to satisfy
applicable withholding or other income taxes or other similar charges in
connection with such a distribution and that such action is permitted under
Section 6.2 of the Restricted Stock Plan and (b) immediately upon delivery of
any such certificates to the Restricted Stock Trust, the Restricted Stock Trust
shall deliver them to the Company. If the value of the shares of Common Stock
represented by the Voting Trust Certificate so surrendered and delivered is
greater than the amount necessary to satisfy the applicable withholding or other
income taxes or other similar charges, the Management Voting Trust shall deliver
a Voting Trust Certificate representing the number of shares of Common
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<PAGE> 7
Stock equal to such excess value to the Participant or Permitted Transferee
whose Voting Trust Certificate was so surrendered and delivered in accordance
with Section 1.3 hereof.
3.5 Distributions In Connection With Indemnity Claims of the HFCP
Investors. Upon surrender and delivery by the Restricted Stock Trust to the
Management Voting Trust of any Voting Trust Certificate, the Management Voting
Trust shall deliver to the Company certificates endorsed in blank for shares of
Common Stock representing the same number of shares of Common Stock as are
represented by the Voting Trust Certificate so surrendered and delivered, and
thereupon all liability of the Management Voting Trust for delivery of such
certificates shall terminate; provided, however, that the Management Voting
Trust shall not make any such delivery pursuant to this Section 3.5 unless it
has received written notice from the Restricted Stock Trust that the Restricted
Stock Trust is required under Article IX of the Contribution Agreement and
Section 5 of the Restricted Stock Plan to deliver such certificates to the
Company. If the value of the shares of Common Stock represented by the Voting
Trust Certificate so surrendered and delivered is greater than the amount
necessary to satisfy the indemnity obligations under Article IX of the
Contribution Agreement, the Management Voting Trust shall deliver a Voting Trust
Certificate representing the number of shares of Common Stock equal to such
excess value to the Restricted Stock Trust in accordance with Section 1.3
hereof.
3.6 Distributions to Satisfy Exercise Price and Withholding And
Other Income Tax Obligations in Connection with Exercise of Options. Upon
surrender and delivery by a Management Investor who is a Participant or
Permitted Transferee (each as defined in the Stock Option Plan) under the Stock
Option Plan to the Management Voting Trust of any Voting Trust Certificate, the
Management Voting Trust shall deliver to the Company certificates endorsed in
blank for shares of Common Stock representing the same number of shares of
Common Stock as are represented by the Voting Trust Certificate so surrendered
and delivered, and thereupon all liability of the Management Voting Trust for
delivery of such certificates shall terminate; provided, however, that the
Management Voting Trust shall not make any such delivery pursuant to this
Section 3.6 unless it has received written notice from such Management Investor
that such Management Investor (i) is exercising an Option or Options in
accordance with Section 8 of the Stock Option Plan, and (ii) to the extent
permitted under Sections 8.4 or 8.1 of the Stock Option Plan, respectively,
intends the Management Voting Trust to deliver to the Company the number of
shares of Common Stock represented by the Voting Trust Certificate surrendered
and delivered to the Management Voting Trust in order to (A) satisfy applicable
withholding or other income taxes or other similar charges in connection with
the exercise of such Option or Options and/or (B) pay the exercise price for
such Option or Options. If the value of the shares of Common Stock represented
by the Voting Trust Certificate so surrendered and delivered is greater than the
amount necessary to satisfy such taxes or charges and/or to pay such exercise
price, the Management Voting Trust shall deliver a Voting Trust Certificate
representing the number of shares of Common Stock equal to such excess value to
the Participant or Permitted Transferee whose Voting Trust Certificate was so
surrendered and delivered in accordance with Section 1.3 hereof.
4. Powers and Rights of the Management Voting Trust.
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<PAGE> 8
4.1 Voting. (a) Subject to paragraph (b) below, so long as Peter A.
Georgescu (or any other person duly elected chief executive officer of the
Company with the prior approval of the Management Voting Trust) (the "CEO")
shall be a Voting Trustee, any action (i) approved in writing or at a meeting by
the CEO and any two other Voting Trustees, and (ii) any action approved over the
objection of the CEO at a meeting of Voting Trustees by a vote of that number of
Voting Trustees as equals 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 the CEO). Subject to
paragraph (b) below, if at any time there is no CEO, or if the chief executive
officer of the Company was not approved in advance by the Management Voting
Trust, a majority vote of the Voting Trustees then in office shall be sufficient
to constitute the action of, and shall be binding upon, the Management Voting
Trust, unless and until a new CEO is elected with the prior approval of the
Management Voting Trust.
(b) Pursuant to the voting rules set forth in Section 4.1(a) above,
as they may be amended pursuant to this Section 4.1(b), the Voting Trustees may
remove one or more Voting Trustees, elect one or more replacement Voting
Trustees, increase or decrease the number of Voting Trustees, elect additional
Voting Trustees to fill any vacancies, or amend the voting rules set forth in
Section 4.1(a), but in no event shall there be more than eleven Voting Trustees.
In the event that there are fewer than six Voting Trustees, the Voting Trustees
then in office shall promptly elect at least that number of new Voting Trustees
sufficient to increase the total number of Voting Trustees to six, but the
validity of any action taken by the Voting Trustees pursuant to this Section 4.1
shall not be affected by the fact that there are fewer than six Voting Trustees
in office at the time such action is taken.
4.2 Meetings; Notice. Regular meetings of the Management Voting
Trust may be held without notice at such places and times as shall be determined
from time to time by the Voting Trustees. Special meetings of the Management
Voting Trust may be called by the CEO or by any other two Voting Trustees on at
least twenty-four hours' written notice to each Voting Trustee (except to any
Voting Trustee who attends such meeting or waives such notice in writing,
whether prior to or following such meeting) delivered personally or by telegram
or facsimile transmission or by electronic mail. Meetings may be held by means
of conference telephone or similar communications equipment by means of which
all persons in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting. The requirement of
notice may be waived by any Voting Trustee in writing prior to or following the
meeting, or by such Voting Trustee's attendance at the meeting. Action may also
be taken by an action in writing executed by the requisite number of Voting
Trustees, in which event prompt notice of such act shall be given to all other
Voting Trustees.
4.3 Powers of Management Voting Trustees. The Voting Trustees, as
trustees of the Management Voting Trust, shall have the full and unqualified
right, power and authority, and are hereby fully and exclusively empowered and
authorized from the date of this Agreement until its expiration or sooner
termination, including all extensions of its term, to vote in person or by
proxy, and to execute written consents in lieu of voting with respect to, all
shares of Common Stock and Money Market Preferred Stock held by the Voting
Trustees and registered in their names, as trustees of the Management Voting
Trust, at every annual and special meeting of the
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<PAGE> 9
stockholders of the Company, or in connection with action by written consent of
stockholders in lieu of a meeting, and shall have full and complete authority to
vote upon any and all questions arising at any such meetings or in connection
with such action by written consent, including without limitation the sale or
mortgage of all of the assets and property of the Company, its merger with any
other corporation or its dissolution. The Voting Trustees shall have no
liability to any Management Investor for any act or omission unless the
Management Investor shall sustain the burden of establishing by clear and
convincing evidence that such act or omission was not taken in good faith or was
not reasonably believed to be in or not opposed to the best interests of the
Company and the Management Investors as a group, and then only to the extent of
actual, proximate, quantifiable damages. In any action by the holder of any
Voting Trust Certificate against any Voting Trustee or the Management Voting
Trust, whether at law or in equity, the prevailing party shall be entitled to
the reimbursement of such party's legal fees and expenses in connection with
such action.
4.4 Authority to Enter Into Stockholders' Agreement. Each Management
Investor hereby authorizes the Management Voting Trust to become a party to the
Stockholders' Agreement, which is being entered into concurrently herewith, and
to act on behalf of such Management Investor, pursuant to Article V and Section
6.05 of the Stockholders' Agreement.
4.5 Construction. The Voting Trustees shall be fully authorized and
empowered to construe this Agreement, and their construction of the same in good
faith shall be final, conclusive and binding upon all holders of the Voting
Trust Certificates and on all other parties interested.
4.6 Qualifications of the Voting Trustees. The Voting Trustees shall
not be required to give any bond or security for the discharge of their duties
hereunder. Each Voting Trustee may act as, and receive compensation as,
director, officer, or agent of the Company or any Subsidiary or Affiliate
thereof. Any Voting Trustee may be, but is not required to be, a beneficiary of
the Voting Trust. All Voting Trustees shall be officers of the Company and if
any Voting Trustee shall cease to be an officer of the Company, such person's
term as a Voting Trustee shall terminate automatically.
4.7 Compensation; Reimbursement. The Voting Trustees shall not be
entitled to compensation for their services performed in their capacity as
Voting Trustees. Each Voting Trustee shall be entitled to reimbursement from the
Company for reasonable expenses and charges which may be incurred as Voting
Trustee, including the fees of such agents, attorneys and counsel (who may be
agents, attorneys or counsel to the Company, if so selected by the Voting
Trustee) as such Voting Trustee may reasonably deem necessary and proper for the
carrying out of this Agreement (it being understood that each Voting Trustee
shall be entitled to retain and be reimbursed for the reasonable expenses and
charges of separate counsel if such Voting Trustee reasonably believes such
separate representation to be advisable), and all taxes or other governmental
charges paid or incurred as a result of the transfer or issuance of any Common
Stock or Voting Trust Certificates or in respect of the ownership of Common
stock held as trustee or in respect of any dividends, distributions or other
rights in respect of such stock. Any such charges or expenses incurred shall be
promptly reimbursed to the Voting Trustees by the Company.
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<PAGE> 10
4.8 Resignation. A Voting Trustee may resign at any time by written
notice of such resignation to the Company and to the other Voting Trustees. Such
resignation shall take effect upon delivery to the Company (unless otherwise
specified in such notice), whereupon all powers, rights and obligations of the
resigning Voting Trustee under this Agreement shall cease and terminate.
5. Indemnification of Voting Trustees by the Company and Management
Investors. 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 this Agreement or the enforcement of any
of the terms hereof or in any way relating to or arising out of the
administration of the trusts created hereby or the action or inaction of the
Management Voting Trust hereunder, 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 this Agreement
or the enforcement of any of the terms hereof or in any way relating to or
arising out of the administration of the trusts created hereby or the action or
inaction of the Management Voting Trust hereunder, including, but not limited
to, expenses in connection with litigation in which such Voting Trustee purports
to seek to enforce any portion of this 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 hereunder. The
provisions contained in this Section 5 shall survive the termination of this
Voting Trust Agreement.
A Voting Trustee shall not be answerable for the default or
misconduct of any agent or attorney appointed by it in pursuance hereof if such
agent or attorney shall have been selected with reasonable care.
6. Holders of Voting Trust Certificates Bound; Waiver of Claims
Against Voting Trustees. Every registered holder of a Voting Trust Certificate,
and every bearer of a Voting Trust Certificate properly endorsed in blank or
properly assigned, by the acceptance or holding thereof: (a) shall be deemed
conclusively for all purposes to have assented to this Agreement and to all of
its terms, conditions and provisions and shall be bound thereby with the same
force and effect as if such holder or bearer had executed this Agreement; (b)
severally agrees to waive and by such act does waive any and all claims of every
kind and nature which hereafter each such holder or bearer may have against the
Voting Trustees (except as provided in Section 4.3); and (c) agrees to release
and by such act does release the Voting Trustees, their successors and
10
<PAGE> 11
assigns, from any liability whatsoever arising out of or in connection with the
exercise of their powers or the performance of their duties under this
Agreement, except as expressly provided in Section 4.3.
7. Termination and Release of Common Stock and Money Market
Preferred Stock.
7.1 Termination Date. (a) The Voting Trust created by this Agreement
shall terminate without any notice or other action of the Management Voting
Trust at such time as an Initial Public Offering shall have been consummated and
(i) no Person is the owner of more than 20% of the Outstanding Shares, (ii) the
number of shares of Common Stock owned by the Management Voting Trust is less
than 10% of the Outstanding Shares or (iii) the Voting Trustees shall determine
to terminate the Voting Trust pursuant to Section 4.1 hereof.
(b) If not terminated earlier, the Voting Trust created by this
Agreement shall (subject to Section 9.3 hereof) terminate upon the tenth
anniversary hereof, unless Management Investors together owning Voting Trust
Certificates representing a majority of the voting power of the beneficial
interest in shares of Common Stock and Money Market Preferred Stock held by the
Management Voting Trust shall agree in writing within six months prior to the
tenth anniversary hereof to extend this Agreement for an additional period of
not more than ten years, in which case this Agreement shall not terminate as a
result of the occurrence of such initial tenth anniversary; provided, however,
that any Management Investor who has not agreed to such extension shall not be
subject to the extended Agreement and, upon surrender to the Management Voting
Trust of all Voting Trust Certificates owned by such Management Investor, shall
receive certificates endorsed in blank for shares of Common Stock or Money
Market Preferred Stock, as the case may be, representing the same number of
shares of Common Stock or Money Market Preferred Stock, as the case may be, as
are represented by such Voting Trust Certificates. Notwithstanding the
foregoing, if prior to the tenth anniversary of this Agreement, the New York
Business Corporation Law is amended to permit voting trusts to have a duration
in excess of ten years, and such amendment would be applicable to the Management
Voting Trust, this Agreement shall terminate (if not theretofore terminated
pursuant to Section 7.1(a)) on the earlier of the 20th anniversary hereof or the
earliest date required by law.
7.2 Exchange of Shares and Voting Trust Certificates. (a) Upon
termination of this Agreement, the Management Voting Trust, in exchange for or
upon surrender of any Voting Trust Certificates then outstanding, shall, in
accordance with the terms thereof and the certificates for shares of Common
Stock or Money Market Preferred Stock, as the case may be, received and held by
it under this Agreement, deliver to the holders of Voting Trust Certificates,
certificates endorsed in blank for shares of Common Stock or Money Market
Preferred Stock, as the case may be, representing the same number of shares of
Common Stock or Money Market Preferred Stock, as the case may be, as are
represented by such Voting Trust Certificates, and thereupon all liability of
the Management Voting Trust for delivery of such certificates shall terminate.
(b) Notwithstanding Sections 1 and 2 hereof, from and after such
time as a holder of Voting Trust Certificates is permitted under the
Stockholders' Agreement to transfer shares of Common Stock through sales
pursuant to an effective registration statement or in compliance
11
<PAGE> 12
with paragraph (f) of Rule 144 under the Exchange Act (whether or not Rule 144
is applicable) and, thereafter, in the event of such a Transfer, upon surrender
and delivery by such holder to the Management Voting Trust of any Voting Trust
Certificate, the Management Voting Trust shall deliver to such holder
certificates endorsed in blank for shares of Common Stock representing the same
number of shares of Common Stock as are represented by the Voting Trust
Certificate so surrendered and delivered, and thereupon all liability of the
Management Voting Trust for delivery of such certificates shall terminate;
provided, however, that the Management Voting Trust shall not make any such
delivery pursuant to this Section 7.2(b) unless such holder has delivered to the
Management Voting Trust (i) a certificate of his or her intention to make such a
sale and (ii) an irrevocable proxy in favor of the Voting Trustees to vote in
person or by proxy, or to execute written consents in lieu of voting with
respect to, all shares of Common Stock represented by the certificates so
delivered to such holder, which proxy shall terminate upon such sale; and,
provided, further, that notwithstanding any such delivery, unless such shares of
Common Stock are sold by such holder within 30 days after such delivery, such
holder shall be obligated to transfer such shares of Common Stock back to the
Management Voting Trust pursuant to Section 1.1 hereof upon the expiration of
such 30-day period.
(c) It shall be a condition of the delivery of certificates for
shares of Common Stock to any holder surrendering Voting Trust Certificates to
the Management Voting Trust pursuant to Section 7.2(a) or (b) hereof that such
holder has executed such documents as the Company may request with respect to
such holder's continuing agreement to be bound by the covenants set forth in
Section 8 after such delivery and after the termination of this Agreement.
8. Non-Competition; Non-Solicitation; Confidentiality and
Termination Notices. (a) Each Management Investor (other than Management
Co-Investors or individuals who are Management Investors solely as a result of
their ownership of Money Market Preferred Stock) hereby covenants and agrees
that:
(i) for one (1) year after termination of employment with the
Company (which term, as used in this Section 8, shall be deemed to include
any Affiliate of the Company) for any reason, such Management Investor
shall not work for any competitor of the Company on the account of any
client of the Company 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 such termination;
(ii) for six (6) months after termination of employment with the
Company for any reason, with respect to a Management Investor whose
principal responsibilities are of a corporate nature or for a corporate
department (e.g., finance, tax, treasury, legal, business affairs, etc.)
and do not principally involve client service related functions, such
Management Investor shall not work for a principal competitor of the
Company in a substantially similar corporate function as such Management
Investor held with the Company during the two-year period prior to
termination of employment or with respect to a Management Investor whose
principal responsibilities are of a client service related nature (e.g.,
creative, account management, etc.), such Management Investor shall not
work for a competitor of the Company on the account of any substantial
competitor of any client of the Company for which such Management Investor
had substantial
12
<PAGE> 13
responsibility during the two-year period prior to termination of
employment and shall not work directly for such a competitor of such a
client;
(iii) for one (1) year after termination of employment with
the Company for any reason, such Management Investor may not directly or
indirectly solicit or hire, or assist any other person in soliciting or
hiring, any employee of the Company (as of the date of termination) or any
person who, as of the date of termination, was in the process of being
recruited by the Company or induce any such employee to terminate his or
her employment with the Company;
(iv) such Management Investor shall retain in strictest
confidence all confidential information of the Company and its clients
learned by such Management Investor during the period of his or her
employment, and shall not disclose any of such information to anyone
outside the Company, except in the course of his or her duties for the
Company or with the Company's express written consent;
(v) such Management Investor shall give six weeks written
notice prior to voluntary termination, unless a shorter period is approved
by the Company; and
(vi) the covenants contained in this Section 8(a) are for the
benefit of the Company, shall survive any termination of this Agreement
and may be waived in whole or in part for one or more Management Investors
by the Company without the consent of the Voting Trustees or any
Management Investor.
(b) The Company agrees to give each Management Investor six months
severance pay upon termination by the Company of his or her employment other
than for Cause.
(c) To the extent permitted by applicable law, each Management
Investor waives any and all rights he or she may have to any severance pay (or
similar compensation) or any claim to damages under any employment agreement (i)
in excess of, or in addition to, the severance pay under Section 8(b) hereof
under any law or regulation or (ii) pursuant to any agreement entered into prior
to the date of the Contribution Agreement.
9. Miscellaneous.
9.1 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.
9.2 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.
9.3 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to principles of conflict laws; provided, however, that from and
after the Company Merger, (a) this Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware
without regard to principles of conflict laws and Section 7.1(b) shall be
13
<PAGE> 14
deemed deleted from this Agreement, and (b) each Management Investor 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 of the parties
hereto in any action arising out of or relating to this Agreement shall be
effective if served upon such party in accordance with Section 9.8 hereof.
9.4 Specific Performance. The parties hereto agree 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, accordingly, agreed that the parties 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.
9.5 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.
9.6 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.
9.7 Copies on File. Copies of this Agreement and of every agreement
amending or supplementing this Agreement shall be kept at the office of the
Secretary of the Company at the principal executive office of the Company and at
the registered office of Y&R DEL (which, following the Company Merger, will be
the registered office of the Company) in the State of Delaware and shall be open
to inspection in accordance with the requirements of law.
9.8 Notices. 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:
(a) If to the Company:
Young & Rubicam Inc.
285 Madison Ave.
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.
Facsimile: (212) 210-5544
(b) If to the Voting Trustees:
Trustees of the Management Voting Trust
do Young & Rubicam Inc.
14
<PAGE> 15
285 Madison Avenue
New York, New York 10017-6436
Attention: Stephanie W. Abramson,
Voting Trustee Representative
Facsimile: (212) 210-5544
(c) If to any Management Investor, at the latest address of
such Management Investor as recorded in the employment records of the
Company or its subsidiaries
or, as to the Company or the Voting Trustees, to such other address as such
party (including the Restricted Stock Trust) shall from time to time designate
by written notice to the other parties.
9.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed to constitute one and the same Agreement.
9.10 Restricted Stock Trust Agreement. The parties hereto agree that
the rights, duties and liabilities of the trustee of the Restricted Stock Trust
pursuant to this Agreement shall be subject to the Restricted Stock Trust
Agreement and that in the event of a conflict between the terms of this
Agreement and the Restricted Stock Trust Agreement in respect of such rights,
duties and liabilities, the terms of the Restricted Stock Trust Agreement shall
be controlling.
IN WITNESS WHEREOF, the respective parties have caused this
Agreement to be executed as of the date first above written.
YOUNG & RUBICAM INC., a New York
corporation
By: /s/
--------------------------
Name:
Title:
YOUNG & RUBICAM HOLDINGS INC.
By: /s/
--------------------------
Name:
Title:
YOUNG & RUBICAM INC., a Delaware
corporation
By: /s/
--------------------------
15
<PAGE> 16
Name:
Title:
VOTING TRUSTEES
/s/ Peter A. Georgescu
--------------------------
Peter A. Georgescu
Voting Trustee
/s/ Alan J. Sheldon
--------------------------
Alan J. Sheldon
Voting Trustee
/s/ Stephanie W. Abramson
--------------------------
Stephanie W. Abramson
Voting Trustee
16
<PAGE> 17
/s/ Thomas D. Bell
--------------------------
Thomas D. Bell
Voting Trustee
/s/ Michael J. Dolan
--------------------------
Michael J. Dolan
Voting Trustee
/s/ Mitchell Kurz
--------------------------
Mitchell Kurz
Voting Trustee
/s/ John P. McGarry, Jr.
--------------------------
John P. McGarry, Jr.
Voting Trustee
/s/ Edward H. Vick
--------------------------
Edward H. Vick
Voting Trustee
17
<PAGE> 18
THE INITIAL MANAGEMENT INVESTORS
named on Schedule A
attached hereto
By: /s/ Stephanie W. Abramson
--------------------------
Stephanie W. Abramson
Attorney-in-Fact
18
<PAGE> 19
YOUNG & RUBICAM RESTRICTED STOCK
TRUST
By THE BANK OF NEW YORK, Trustee
By: /s/
--------------------------
Name:
Title:
19
<PAGE> 20
Exhibit 1
to
Management
Voting Trust
Agreement
Form of Voting Trust Certificate
for Common Stock
<PAGE> 21
Certificate No.__________ No. of Shares
YOUNG & RUBICAM HOLDINGS INC.
Voting Trust Certificate
for Shares of Common Stock,
par value $0.01 per share
See Reverse for
Certain Information
THIS IS TO CERTIFY THAT, upon the terms and subject to the
conditions described in a certain Management Voting Trust Agreement (the "Voting
Trust Agreement") pursuant to which this certificate has been issued, dated as
of December 12, 1996, by and among Peter A. Georgescu, Alan J. Sheldon,
Stephanie W. Abramson, Thomas D. Bell, Michael J. Dolan, Mitchell Kurz, John P.
McGarry and Edward H. Vick, as voting trustees (the "Voting Trustees"), Young &
Rubicam Inc., a New York corporation ("Y&R NY"), Young & Rubicam Inc., a
Delaware corporation ("Y&R DEL"), and Young & Rubicam Holdings Inc., a New York
corporation ("Holdings" and, together with its successors by merger, Y&R NY and
Y&R DEL, the "Company"), and certain stockholders of the Company,
________________________________________ will be entitled to receive upon
termination of the Voting Trust Agreement (or as otherwise provided in the
Voting Trust Agreement) certificates for the number of fully-paid and
non-assessable shares of common stock, par value $0.01 each, of Holdings (or of
shares of common stock, par value $.25 and $0.01, respectively, of its
successors by merger, Y&R NY and Y&R DEL, upon the occurrence of such mergers)
hereinabove specified (the "Shares") and for the duration of such Voting Trust
Agreement, to receive all dividends or distributions (other than, unless
otherwise determined by the Voting Trustees, common stock and certain other
stock dividends specified in the Voting Trust Agreement), if any, collected by
the Voting Trustees upon a like number of the Shares standing in the name of the
Voting Trustees. Prior to the actual delivery of such certificates, the Voting
Trustees, with respect to any and all of the Shares shall possess and be
entitled to exercise, in the manner and to the extent provided in the aforesaid
Voting Trust Agreement, all of the rights of every kind of the holder of this
certificate, including the right to vote and take part in, or to consent to any
corporate or stockholders' action, it being expressly stipulated that no right
to vote, or take part in, or to consent to any corporate or stockholders'
action, shall pass by, or under, this certificate.
This certificate is not valid unless signed by at least two of the
Voting Trustees and is also subject to the terms and conditions set forth on the
reverse side hereof. The holder hereof, by accepting this certificate, manifests
his or her consent that the Voting Trustees may treat the registered holder
hereof as the true owner for all purposes, except the delivery of certificates
for Shares which delivery shall not be made without the surrender hereof.
IN WITNESS WHEREOF, the undersigned Voting Trustees, have caused
this certificate to be signed as of the 12th day of December, 1996.
/s/ /s/
- ----------------------------------- -------------------------------
,as Voting Trustee , as Voting Trustee
<PAGE> 22
Exhibit 2
to
Management Voting Trust
Agreement
Form of Voting Trust Certificate
for Money Market
Preferred Stock
<PAGE> 23
Certificate No._____________ No. of Shares __________
YOUNG & RUBICAM HOLDINGS INC.
Voting Trust Certificate
for Shares of Money Market Preferred Stock,
without par value
See Reverse for
Certain Information
THIS IS TO CERTIFY THAT, upon the terms and subject to the
conditions described in a certain Management Voting Trust Agreement (the "Voting
Trust Agreement") pursuant to which this certificate has been issued, dated as
of December 12, 1996, by and among Peter A. Georgescu, Alan J. Sheldon,
Stephanie W. Abramson, Thomas D. Bell, Michael J. Dolan, Mitchell Kurz, John P.
McGarry and Edward H. Vick, as voting trustees (the "Voting Trustees"), Young &
Rubicam Inc., a New York corporation ("Y&R NY"), Young & Rubicam Inc., a
Delaware corporation ("Y&R DEL"), and Young & Rubicam Holdings Inc., a New York
corporation ("Holdings" and, together with its successors by merger, Y&R NY and
Y&R DEL, the "Company"), and certain stockholders of the Company,
________________________________________ will be entitled to receive upon
termination of the Voting Trust Agreement (or as otherwise provided in the
Voting Trust Agreement) certificates for the number of fully-paid and
non-assessable shares of money market preferred stock, without par value, (or of
shares of money marked preferred stock, without par value, of its successors by
merger, Y&R NY and Y&R DEL, upon the occurrence of such mergers) hereinabove
specified (the "Shares") and for the duration of such Voting Trust Agreement, to
receive all dividends or distributions (other than, unless otherwise determined
by the Voting Trustees, money market preferred stock and certain other stock
dividends specified in the Voting Trust Agreement), if any, collected by the
Voting Trustees upon a like number of the Shares standing in the name of the
Voting Trustees. Prior to the actual delivery of such certificates, the Voting
Trustees, with respect to any and all of the Shares shall possess and be
entitled to exercise, in the manner and to the extent provided in the aforesaid
Voting Trust Agreement, all of the rights of every kind of the holder of this
certificate, including the right to vote and take part in, or to consent to any
corporate or stockholders' action, it being expressly stipulated that no right
to vote, or take part in, or to consent to any corporate or stockholders'
action, shall pass by, or under, this certificate.
This certificate is not valid unless signed by at least two of the
Voting Trustees and is also subject to the terms and conditions set forth on the
reverse side hereof. The holder hereof, by accepting this certificate, manifests
his or her consent that the Voting Trustees may treat the registered holder
hereof as the true owner for all purposes, except the delivery of certificates
for Shares which delivery shall not be made without the surrender hereof.
IN WITNESS WHEREOF, the undersigned Voting Trustees, have caused
this certificate to be signed as of the 12th day of December, 1996.
/s/ /s/
- ----------------------------------- -------------------------------
,as Voting Trustee , as Voting Trustee
<PAGE> 24
[REVERSE SIDE]
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 non-U.S.
jurisdiction. The securities cannot be offered, sold, transferred or otherwise
disposed of except (i) pursuant to an effective registration statement or
amendment thereto under such act and any other applicable laws or (ii) 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 the Voting Trust Agreement and
the Stockholders' Agreement, dated as of December 12, 1996, 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) and the Company reserves the right to refuse the transfer of such
securities until all terms and conditions have been fulfilled with respect to
such transfer as set forth in such agreements.
<PAGE> 1
Exhibit 9.2
EXECUTION COPY
YOUNG & RUBICAM RESTRICTED STOCK TRUST AGREEMENT
Dated as of December 12, 1996
between
Young & Rubicam Holdings Inc.
and
The Bank of New York,
as Trustee,
for the benefit of
Participants in the Young & Rubicam Holdings Inc.
Restricted Stock Plan
<PAGE> 2
TRUST AGREEMENT made and entered into as of December
12, 1996 by and between Young & Rubicam Holdings Inc., a
corporation organized under the laws of the State of New York
(hereinafter referred to as the "Company"), and The Bank of New
York, a bank organized under the laws of the State of New York
(hereinafter referred to as the "Trustee").
WHEREAS, the Company maintains the Young & Rubicam
Holdings Inc. Restricted Stock Plan, for the benefit of certain
employees and independent contractors of the Company and its
affiliates (the "Plan") (a copy of which is attached hereto as
Exhibit A), which provides for the award (each, an "Award") of
restricted shares of Common Stock (as defined in Stockholders'
Agreement among the Company, the Trust (as defined herein) and
certain other parties, dated as of December 12, 1996 (the
"Stockholders' Agreement"));
WHEREAS, the Plan contemplates that the employees and
independent contractors covered by the Plan (collectively, the
"Participants") will receive shares of Common Stock upon the
occurrence of certain events;
WHEREAS, the Company wishes to establish a trust (the
"Young & Rubicam Restricted Stock Trust" or "Trust") to aid it in
meeting its obligations pursuant to Awards granted under the Plan
and agreements with such Participants evidencing such Awards (the
"Restricted Stock Agreements") and intends to make a contribution
to the Trust for such purpose;
WHEREAS, the Company intends that such contribution
shall be held by the Trustee and invested, reinvested and
distributed, all in accordance with the provisions of this Trust
Agreement and the Plan;
WHEREAS, the Trust is intended to be a "grantor trust"
with the corpus and income of the Trust treated as assets and income
of the Company pursuant to Sections 671 through 679 of the Code
(as defined in the Contribution Agreement) and the creation of this
<PAGE> 3
Trust does not create any right in any Affiliate (as defined in
the Plan) of the Company (other than any Indemnitee (as defined
below));
WHEREAS, pursuant to Article IX of the Contribution
Agreement among the Company, the Trust and certain other parties,
including the HFCP Investors (as defined therein), dated October
30, 1996 (the "Contribution Agreement"), the assets of the Trust
shall be subject to certain claims of the Indemnitees (as defined
in the Contribution Agreement);
WHEREAS, the Company intends that the assets of the
Trust shall at all times, after the obligations to the
Indemnitees have been satisfied, also be subject to the claims of
bankruptcy and judgment creditors of the Company as provided in
Section 14 of this Trust Agreement; and
WHEREAS, pursuant to the Management Voting Trust
Agreement, among the Company, the Trust and certain other
parties, dated as of December 12, 1996 (the "Management Voting
Trust Agreement"), at any time while such Management Voting Trust
Agreement is in effect, the Trust shall assign and transfer any
shares of Common Stock held in the Trust Fund to the Voting
Trustees, in their capacity as trustees of the Management Voting
Trust (each as defined in the Management Voting Trust Agreement),
in return for Voting Trust Certificates (as defined in the
Management Voting Trust Agreement) representing the shares so
deposited by the Trust.
NOW, THEREFORE, in consideration of the mutual
covenants herein contained, the Company and the Trustee declare
and agree as follows:
SECTION 1. Establishment of the Trust.
1.1 Trust Fund. The Company hereby establishes the
Trust with the Trustee, consisting of such sums of money, shares
of Common Stock (and any related Voting Trust
2
<PAGE> 4
Certificates) and
other property acceptable to the Trustee as from time to time
shall be paid or delivered to the Trustee. The Trustee shall have
no duty or obligation to require the Company to make any
contribution to the Trust. All such money, shares of Common Stock
(and any related Voting Trust Certificates) and other property,
all investments and reinvestments made therewith or proceeds
thereof and all earnings and profits thereon, less all payments
and charges as authorized herein, shall constitute the "Trust
Fund." The Trust Fund shall be held by the Trustee in trust and
shall be dealt with in accordance with the provisions of this
Trust Agreement.
1.2 Irrevocability. Except as provided in Sections
4.5, 5.2 and 14, this Trust shall be for the exclusive purpose of
aiding the Company in meeting its obligations to Participants
under the Plan and no part of the income or corpus of the Trust
Fund shall be recoverable by the Company.
1.3 Claims of Creditors. The claims of the Indemnitees
pursuant to Article IX of the Contribution Agreement and Section
5.2 hereof shall be senior to, and satisfied prior to, the
distribution of any assets to any other creditors of the Company.
Subject to the foregoing, the Trust Fund shall at all times be
subject to the claims of bankruptcy and judgment creditors of the
Company as provided in Section 14 of this Trust Agreement. No
Participant shall have any greater claim against the Trust Fund
than a general unsecured creditor of the Company.
SECTION 2. Acceptance by the Trustee.
2.1 The Trustee accepts the Trust established under
this Trust Agreement on the terms and subject to the provisions
set forth herein, and it agrees to discharge and perform all of
the duties and obligations imposed upon it under this Trust
Agreement.
The Trustee shall be fully protected in acting in all
respects under this Agreement upon the basis that the Trust
constitutes a grantor trust pursuant to Sections 671 through 679 of
3
<PAGE> 5
the Code (as defined in the Contribution Agreement) and shall
incur no liability of any kind or nature whatsoever if the Trust,
without advance written notification from the Company of a change
in status, should fail to constitute a grantor trust.
SECTION 3. Investment of the Trust.
3.1 General Duty of Trustee. The Trustee shall hold
the shares of Common Stock (or any related Voting Trust
Certificates) in the Trust, and, with respect to any cash which
it might receive with respect to such shares, invest and reinvest
such cash in accordance with the investment guidelines attached
hereto as Exhibit B or such written guidelines as may be
substituted therefor from time to time by the Compensation
Committee of the Company (the "Committee") as may be reasonably
acceptable to the Trustee. In no event shall the Trustee engage
in any transaction with the Company or any person who, if the
Plan were subject to the Employee Retirement Income Security Act
of 1974, as it may from time to time be amended ("ERISA"), would
be a "party in interest" within the meaning of Section 3(14)(A),
(C), (E), (F), (G), (H) or (I) of ERISA by reason of being
related to the Company, except for those transactions
specifically contemplated herein or that would otherwise be
exempt under Section 408 of ERISA.
SECTION 4. Contributions and Establishment of Accounts.
4.1 Copy of the Plan. The Company has provided the
Trustee with a copy of the Plan, as in effect on the date hereof,
and shall provide the Trustee with a Company certified copy of
any amendment to the Plan promptly upon its adoption.
4.2 Establishment of Accounts. The Trustee shall
maintain within the Trust one or more separate accounts for each
Participant (each an "Account") and an account for shares of
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<PAGE> 6
Common Stock (or any related Voting Trust Certificates) held in
the Trust which are not allocated to any Accounts pursuant to
Section 4.3 (the "Unallocated Account").
4.3 Allocation of Contributions. Upon the execution and
delivery of this Trust Agreement, the Company shall deliver to
the Trustee $7,391.30. Promptly after the execution and delivery
of this Trust Agreement, the Company shall deliver 739,130 shares
of Common Stock in exchange for such cash. The delivery of such
shares of Common Stock by the Company to the Trustee shall
constitute a deemed representation by the Company to the Trustee
that (a) subject to Section 630 of the New York Business
Corporation Law, such shares are validly issued, fully paid,
nonassessable and outstanding and (b) at the time of such
transfer, such transfer does not violate any applicable federal
or state securities law. The Trustee shall not be responsible for
ensuring compliance with any tax or other governmental
requirements in connection with the purchase of the Common Stock.
The shares of Common Stock delivered to the Trustee shall be held
in the Unallocated Account pending allocation to the Accounts of
Participants in accordance with this Section. Pursuant to the
Management Voting Trust Agreement, the Trustee shall deliver such
shares of Common Stock to the Voting Trustees in return for
Voting Trust Certificates representing such shares of Common
Stock. In addition to the foregoing, the Company shall deliver to
the Trustee such amounts as it shall from time to time determine.
As soon as practicable after execution of this Trust
Agreement or after execution of any Restricted Stock Agreement,
the Company shall deliver to the Trustee a written certificate
containing a list of Participants and Awards granted to such
Participants pursuant to the Plan. The Trustee shall allocate to
an Account for a Participant the number of shares of Common Stock
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<PAGE> 7
(or related Voting Trust Certificates) set forth with respect to
such Participant's Award in such certificate.
4.4 Valuation of Accounts. The Trustee may invest any
or all of the cash held in the individual Accounts and the
Unallocated Account as a consolidated single fund. Each Account
and the Unallocated Account under the Trust Fund shall be
revalued by the Trustee as of each June 30 or December 31 (each a
"Regular Valuation Date"), at current market values. Current
market value shall be determined according to procedures
prescribed by the Committee from time to time that are reasonably
acceptable to the Trustee. Net investment gains and losses (i.e.,
appreciation or depreciation in the value of assets, income and
losses) shall be allocated by the Trustee to the Participants'
Accounts or the Unallocated Account giving rise to such
investment gain or loss. The Trustee shall maintain the record of
the value of each Participant's Account.
4.5 Limitation on Reduction of Accounts. Any Account of
a Participant shall not be reduced except (i) upon distribution
with respect to Participants or Indemnitees, as provided in
Section 5; (ii) to reflect investment losses allocated to such
Account in accordance with Section 4.4; (iii) upon payment of
taxes or expenses from a Participant's Account in accordance with
Section 6; or (iv) upon the holding of the assets of the Trust
Fund for the benefit of bankruptcy or judgment creditors of the
Company in accordance with Section 14.
4.6 Company Records. The Company shall keep accurate
books and records with respect to the Awards granted under the
Plan. The Company shall provide such information and access to
such books and records to the Trustee at such time or times as
the Trustee shall reasonably request.
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<PAGE> 8
SECTION 5. Distributions by the Trustee.
5.1 Distributions to Participants. (a) Subject to
Section 5.2 and Section 14 hereof, the Committee shall instruct
in writing the Trustee to distribute to Participants the amounts
held in the Participants' Accounts at such time as such amounts
are due to be distributed pursuant to the Plan. Notwithstanding
the foregoing provisions of this Section 5.1 but subject to
Section 5.2 hereof, the Trustee shall make payments to a
Participant, in the absence of the instructions of the Committee,
after having given 15 days' prior written notice to the HFCP
Investors and the Management Voting Trust, (i) if such
Participant claims such amounts are due and if a reputable
service provider (which has expertise in employee benefit matters
and which the Committee has appointed to determine claims for
benefits by Participants under the Plan, having given written
notice of such appointment to the Trustee) instructs in writing
the Trustee to make such payments or distributions to such
Participant or (ii) upon receipt of a final nonappealable order
of a court of competent jurisdiction determining that the Company
is obligated to make such payments or distributions to a
Participant. Except for any distribution pursuant to Section
5.2(b) hereof or Section 12.1 of the Plan, in no event shall any
distribution be made to any Participant in excess of the amount
in the Participant's Accounts. To the extent directed by the
Committee, the Trustee shall distribute any dividends on the
shares of Common Stock held in Participants' Accounts (or any
dividends with respect to the shares of Common Stock represented
by Voting Trust Certificates held in such Accounts).
(b) If any person to whom a payment or distribution is
to be made hereunder is known by the Committee to be at the time
such payment or distribution is to be made an infant, or if the
Committee determines that any person to whom a payment or
distribution is to be made hereunder is incompetent by reason of
physical or mental disability, the Trustee, at the direction of
the Committee, shall make such payment or distribution when due
to any parent of such
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<PAGE> 9
person, any guardian, committee, conservator or other legal
representative, wherever appointed, of such person, any person
with whom such person is residing, or to any other person having
the care or control of such person; provided, however, that the
Trustee shall have no responsibility for the application of such
payment or distribution by any such person to whom such payment
or distribution is made.
(c) The Committee shall file with the Trustee the
current address of each Participant as shown on the most recent
Restricted Stock Agreement executed by such Participant and from
time to time thereafter upon any change in such addresses. In the
event that any payment or distribution ordered by the Committee
shall be mailed by the Trustee by mail to the person specified in
such order at the latest address for such person filed by the
Committee with the Trustee and shall be returned to the Trustee
because such person cannot be located at such address, the
Trustee shall promptly notify the Committee of such return. Upon
the expiration of thirty (30) days after such notification, such
order shall become void, unless and until a further order of the
Committee is received by the Trustee with respect to such payment
or distribution, and the Trustee shall thereafter continue to
administer the Trust Fund as if the original order had not been
made. The Trustee shall not be responsible in any way respecting
the purpose or propriety of any payment or distribution made
pursuant to a written order of the Committee.
(d) At the direction of the Committee, the Trustee
shall transfer all or any portion of the Trust Fund held in any
Account in the Trust created hereunder or in the Unallocated
Account to any other such Account (including the Unallocated
Account).
5.2 Distributions In Connection with Indemnification.
(a) In accordance with the provisions of Section 9.3 of the
Contribution Agreement, the Trustee shall deliver a copy of the
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<PAGE> 10
Claim Notice (as defined in the Contribution Agreement) and
shares of Common Stock out of the Trust to the Company on behalf
of the Indemnitee or Indemnitees who have filed such Claim Notice
in an amount equal to the Indemnification Number (as defined in
the Contribution Agreement). The Trustee shall distribute the
following to the Company on behalf of the applicable Indemnitee
or Indemnitees until the Indemnification Number is satisfied: (i)
first, from any shares of Common Stock held in the Unallocated
Account (or any such shares represented by Voting Trust
Certificates held in the Unallocated Account), (ii) second, from
any shares of Common Stock held in the Participants' Accounts (or
any such shares represented by Voting Trust Certificates held in
such Accounts), (iii) third, from any other property held in the
Unallocated Account and (iv) fourth, from any other property held
in the Participants' Accounts; provided, however, that no such
shares or other property shall be subject to such distribution,
unless the date of the Claim Notice with respect thereto is prior
to the later of (i) the receipt by the HFCP Investors of the
Company's audited financial statements for the year ending
December 31, 1997 and (ii) the occurrence of an Initial Public
Offering or Change of Control (each as defined in the Plan). With
respect to any distributions made from Participants' Accounts,
each such Account shall be reduced pro rata with respect to
shares of Common Stock pursuant to clause (ii) above and then pro
rata with respect to any other property under clause (iv) above.
If the Management Voting Trust Agreement is in effect at the time
the Trustee is required to make a distribution pursuant to
Section 9.3 of the Contribution Agreement and the Trust Fund
holds Voting Trust Certificates in lieu of shares of Common
Stock, then the Trustee shall surrender such Voting Trust
Certificates to the Management Voting Trust and request the
Management Voting Trust to deliver the required number of shares of
Common Stock to the Company on behalf of the Indemnitee pursuant
to Section 3.5 of the Management Voting Trust Agreement. If
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<PAGE> 11
the number of shares of Common Stock to be delivered to the
Company does not equal all of the shares of Common Stock
represented by such Voting Trust Certificates surrendered, the
Management Voting Trust shall deliver Voting Trust Certificates
back to the Trustee, adjusted to reflect the reduced number of
shares of Common Stock represented by such Voting Trust
Certificates, pursuant to Section 3.5 of the Management Voting
Trust Agreement. In no event shall any distribution be made to
the Company on behalf of any Indemnitee or Indemnitees in excess
of the shares of Common Stock held in the Trust Fund at the time
a Claim Notice is received by the Trustee.
(b) If shares of Common Stock have been distributed to
the Company on behalf of any Indemnitee or Indemnitees by the Trustee
pursuant to Section 5.2(a) hereof and subsequently such shares of
Common Stock are returned to the Trustee by such Indemnitee or
Indemnitees pursuant to Section 9.3(b) of the Contribution
Agreement, the Trustee shall allocate to the Unallocated Account
and to each Participant's Account or Accounts, if any, the number
of shares of Common Stock (or related Voting Trust Certificates)
by which such Unallocated Account or Participant's Account had
been reduced upon such prior distribution to the Company on
behalf of such Indemnitee or Indemnitees. If the amounts held in
any Participant's Accounts have already been distributed to him
pursuant to Section 5.1 hereof, the Trustee shall distribute such
shares of Common Stock directly to such Participant.
(c) The Trustee shall in no event distribute amounts
held in the Participants' Accounts to Participants in accordance
with Section 5.1 hereof prior to the later of (i) delivery to the
HFCP Investors of the Company's audited financial statements for
the year ending December 31, 1997 and (ii) with respect to shares
of Common Stock having an aggregate Public Market Value (as
defined in the Stockholders' Agreement) (as of the Regular
Valuation Date preceding,
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and closest in time to, the date of the applicable Claim Notice)
equal to the amount subject to any Claim Notice then pending and
unpaid, the earlier of the date such pending claim for
indemnification is (A) paid to the Indemnitee or Indemnitees, (B)
determined pursuant to a final Order (as defined in the
Contribution Agreement) not to be payable or (C) the HFCP
Investors and the Management Voting Trust otherwise agree (such
restriction on distribution, a "Hold-Back" and the shares of
Common Stock subject to such a Hold-Back, the "Hold-Back
Amount"). Any such Hold-Back shall be allocated as follows until
such Hold-Back Amount is satisfied: (i) first from any shares of
Common Stock held in the Unallocated Account (or any such shares
represented by Voting Trust Certificates held in the Unallocated
Account), (ii) second from any shares of Common Stock held in the
Participants' Accounts (or any such shares represented by Voting
Trust Certificates held in such Accounts), (iii) third, from any
other property held in the Unallocated Account and (iv) fourth,
from any other property held in the Participants' Accounts;
provided, however, that no such shares or other property shall be
subject to such Hold-Back, unless the date of the Claim Notice
with respect thereto is prior to the later of (i) the receipt by
the HFCP Investors of the Company's audited financial statements
for the year ending December 31, 1997 and (ii) the occurrence of
an Initial Public Offering or Change of Control. With respect to
any Hold-Back Amount restricted from being distributed out of
Participants' Accounts, each such Account shall be subject to the
Hold-Back pro rata with respect to shares of Common Stock under
clause (ii) above and then pro rata with respect to any other
property under clause (iv) above. If any such shares of Common
Stock or other property is subsequently released from such a
Hold-Back, such shares or other property shall then be available
for distribution in accordance with Section 5.1 hereof.
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(d) Whenever the Trustee is required to value other
property pursuant to this Section 5.2, it shall value such
property based upon procedures agreed upon between the HFCP
Investors and the Management Voting Trust and reasonably
acceptable to the Trustee and, in the absence of such procedures,
based upon the advice of a valuation agent retained by the
Trustee. The Trustee shall be entitled to rely conclusively upon
such agent's valuation.
5.3 Protection of Trustee. The Trustee shall not make
any payments with respect to Participants or Indemnitees from the
Trust Fund except as provided in Sections 5.1, 5.2 and 5.5, and
the Trustee shall, to the maximum extent permitted by applicable
law, be fully protected in acting in respect of or upon the Plan,
the Contribution Agreement, the Management Voting Trust Agreement
and any written statement, affidavit, direction, order or
certification provided for hereunder. The Trustee shall at all
times, to the maximum extent permitted by applicable law, be
fully protected in making payments with respect to Participants
and Indemnitees pursuant hereto. With respect to any action
required to be taken, or not taken, by the Trustee based upon the
occurrence of an Initial Public Offering or Change in Control,
the Trustee must have actual knowledge of such event. With
respect to any action required to be taken, or not taken, by the
Trustee based upon a Holdback, the Trustee must have received the
Claim Notice giving rise to such Holdback. With respect to any
delivery of shares of Common Stock by the Management Voting Trust
to the Company requested by the Trustee pursuant to Section
5.2(a) hereof or any delivery of shares of Common Stock by the
Company to any Indemnitee pursuant to Section 9.3 of the
Contribution Agreement, the Trustee shall not be required to take
any action to compel any such delivery not explicitly required by
this Trust Agreement.
5.4 Company as Owner of Accounts. It is the intention
of the Company to have each Account established hereunder treated
as a separate account designed to satisfy
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the Company's legal liability under the Plan in respect of the
Participant for whom such Account has been established. The
Company therefore agrees that all income, deductions and credits
of each such Account belong to it as owner for income tax
purposes and will be included to the extent appropriate on the
Company's income tax returns.
5.5 Withholding Tax. Any amounts required to be paid
under this Section 5 shall be reduced by the amount of income or
excise tax withholding required by law, and the Committee shall
instruct in writing the Trustee as to any such amounts to be so
withheld whereupon the Trustee shall pay such amounts to the
appropriate governmental authorities. The Committee shall also
direct in writing the Trustee as to any information reporting or
filings required by applicable law. The Trustee shall not
withhold any amounts respecting any excise tax imposed pursuant
to Code Section 4999 if prior to the payment of amounts or the
distribution of any property purportedly giving rise to such
excise tax, the Participant furnishes to the Trustee an opinion
of counsel reasonably acceptable to the Trustee and the Company
in form and substance to the effect that there is a reasonable
basis to conclude that such withholding is not required.
SECTION 6. Taxes, Expenses and Compensation.
6.1 Taxes. The Trustee shall from time to time pay
taxes out of the Trust Fund of any and all kinds whatsoever which
at any time are levied or assessed upon or become payable in
respect of the Trust Fund, the income or any property forming a
part thereof, or any security transaction pertaining thereto. The
Trustee shall, in its discretion at the Company's expense,
contest the validity of such taxes in any manner deemed
appropriate by the Company or its counsel. Alternatively, the
Company may itself contest the validity of any such taxes.
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6.2 Expenses and Compensation. The Trustee shall be
paid compensation by the Company in accordance with the schedule
of fees set forth in Exhibit C hereto, as it may be amended by the
Company and the Trustee from time to time. The Trustee shall be
reimbursed by the Company for its reasonable expenses of
management and administration of the Trust (including, but not
limited to, the reasonable fees and expenses of any valuation
agent retained by the Trustee to aid in it valuation of property
held (other than Common Stock) in any Account or the Unallocated
Account) and compensation of counsel incurred in good faith by
the Trustee to assist it in such management and administration.
In the event that the Company shall fail or refuse to make such
reimbursement upon demand, the Trustee may satisfy such
obligations out of any cash assets of the Trust Fund (first out
of Unallocated Account and then by charging all Participant
Accounts in proportion to their respective Account Balances upon
the immediately preceding Regular Valuation Date); in that event,
the Company shall immediately upon demand by the Trustee deposit
into the Trust Fund a cash sum equal to the amount paid by the
Trust Fund for such fees and expenses, but the Trustee shall not
be required to take any further action to collect such amounts
from the Company.
SECTION 7. Administration and Records.
7.1 Records. The Trustee shall keep or cause to be
kept accurate and detailed accounts of any investments, receipts,
disbursements and other transactions hereunder, and all accounts,
books and records relating thereto shall be open to inspection
and audit during normal business hours by any person designated
by the Company, including an independent certified public
accountant. All such accounts, books and records shall be
preserved (in original form, or on microfilm, magnetic tape or
any other similar process) for such period as the Trustee may
determine, but the Trustee may only destroy such accounts, books
and records after first
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notifying the Company in writing of its intention to do so and
transferring to the Company any of such accounts, books and
records requested.
7.2 Settlement of Accounts. Within 60 days after the
close of each calendar year, and within 60 days after the removal
or resignation of the Trustee or the termination of the Trust, the
Trustee shall file with the Company a written account setting
forth all investments, receipts, disbursements and other
transactions effected by it during the preceding calendar year or
during the period from the close of the preceding calendar year
to the date of such removal, resignation, or termination,
including a description of all investments and securities
purchased and sold, with the cost or net proceeds of such
purchases or sales, and showing all cash, securities and other
property held at the end of such calendar year or other period
and the Trustee shall give notice of such filing to the
Management Voting Trust and the HFCP Investors. Each account so
filed shall be open to inspection at the office of the Trustee
during normal business hours by any of the Company, the
Management Voting Trust or the HFCP Investors (and any person
designated by such an entity) at a time mutually acceptable to
the Trustee and such entity (or such designee) for a period of 60
days immediately following the date on which the account is filed
with the Company.
If within 90 days after the filing of such account the
Company, acting through the Committee, has not filed with the
Trustee notice of any objection to any act or transaction of the
Trustee, the initial account shall become an account stated as
between the Trustee, the Company, and all persons having or
claiming to have an interest in the Trust Fund. If any objection
has been filed, and if the Company, acting through the Committee,
is satisfied that it should be withdrawn, the objecting party
shall in writing filed with the Trustee signify its approval of
the account, and it shall become an account stated as between the
Trustee, the Company, and all
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<PAGE> 17
persons having or claiming to have an interest in the Trust Fund.
If the account is adjusted following an objection thereto, the
Trustee shall file with the Company and make available for
inspection by any of the Management Voting Trust or the HFCP
Investors the adjusted account, and if within 30 days after such
filing of the adjusted account the Company, acting through the
Committee, has not filed with the Trustee notice of any objection
to the transactions as so adjusted, the adjusted account shall
become an account stated as between the Trustee, the Company, and
all persons having or claiming to have an interest in the Trust
Fund.
Unless an account is fraudulent, when it becomes an
account stated it shall be finally settled, and the Trustee
shall, to the maximum extent permitted by applicable law, be
forever released and discharged from all liability and
accountability with respect to the propriety of its acts and
transactions shown in such account.
7.3 Judicial Settlement. Nothing contained in this
Trust Agreement shall be construed as depriving the Trustee, the
Company, the Management Voting Trust or the HFCP Investors of the
right to have a judicial settlement of any of the Trustee's
accounts that have not previously been settled pursuant to
Section 7.2 hereof, and upon any proceeding for a judicial
settlement of the Trustee's accounts or for instructions the only
necessary parties thereto in addition to the Trustee shall be the
Company, the Management Voting Trust and the HFCP Investors.
7.4 Delivery of Records to Successor. In the event of
the removal or resignation of the Trustee, the Trustee shall
deliver to the successor Trustee all records which shall be
required by the successor Trustee to enable it to carry out the
provisions of this Trust Agreement.
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7.5 Tax Filings. In addition to any returns required of
the Trustee by law, the Trustee shall prepare and file such tax
reports, information reports and other returns as the Company and
the Trustee may from time to time agree.
SECTION 8. Removal or Resignation of the Trustee and Designation
of Successor Trustee.
8.1 Removal. At any time, the Company may remove the
Trustee with or without cause upon at least 90 days' notice in
writing to the Trustee. No removal of the Trustee shall be
effective until the Company has appointed in writing a successor
Trustee, which must be a bank or trust company, and such
successor has accepted the appointment in writing.
8.2 Resignation. Trustee may resign at any time upon at
least 90 days' notice in writing to the Company, except that any
such resignation shall not be effective until the Company has
appointed in writing a successor Trustee, which must be a bank or
trust company, acceptable to both the Management Voting Trust and
the HFCP Investors, and such successor has accepted the
appointment in writing.
8.3 Successor Trustee. Each successor Trustee, during
such period as it shall act as such, shall have the powers and
duties herein conferred upon the Trustee, and the word "Trustee"
wherever used herein, except where the context otherwise
requires, shall be deemed to include any successor Trustee. Upon
designation of a successor Trustee and delivery to the resigned
or removed Trustee of written acceptance by the successor Trustee
of such designation, such resigned or removed Trustee shall
promptly assign, transfer, deliver and pay over to such successor
Trustee, in conformity with the requirements of applicable law,
the funds and properties in its control or possession then
constituting the Trust Fund.
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SECTION 9. Enforcement of Trust Agreement.
9.1 The Company shall have the right to enforce any
provision of this Trust Agreement, any Participant shall have the
right as a beneficiary of the Trust to enforce any provision of
this Trust Agreement that affects the right, title and interest
of such Participant in the Trust and any HFCP Investor shall have
the right to enforce any provision of this Trust Agreement that
affects the right and interest of such HFCP Investor in the
Trust. In any action or proceeding affecting the Trust other than
a judicial settlement of accounts pursuant to Section 7.3 hereof,
the only necessary parties shall be the Company, the Management
Voting Trust, the Trustee and the affected Participants or
affected HFCP Investor and, except as otherwise required by
applicable law, no other person shall be entitled to any notice
or service of process. Any judgment entered in such an action or
proceeding shall to the maximum extent permitted by applicable
law be binding and conclusive on all persons having or claiming
to have any interest in the Trust.
9.2 Except for the right to enforce the Trust Agreement
as provided in Section 9.1, Participants and HFCP Investors shall
have no right to any property comprising the Trust Fund.
9.3 Neither the creation of the Trust nor anything
contained in the Trust Agreement shall be construed as giving any
Person (as defined in the Contribution Agreement), including any
individual employed by the Company or any Affiliate (as defined
in the Plan) of the Company, any equity or interest in the
assets, business, or affairs of the Company except to the extent
that any such Person is entitled to exercise stockholder rights
with respect to shares of Common Stock pursuant to Section 15.
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SECTION 10. Termination.
10.1 Except as provided in Section 14, the Trust shall
be irrevocable and shall continue until (a) all distributions
required by Section 5 have been made or (b) until the Trust Fund
contains no assets and retains no claims to recover assets from
the Company or any Indemnitee pursuant to any provision hereof,
whichever shall first occur.
10.2 Upon making distribution of the Trust Fund
pursuant to Section 10.1, the Trustee shall be relieved from all
further liability. The powers of the Trustee hereunder shall
continue so long as any assets of the Trust Fund remain in its
hands.
SECTION 11. Amendment.
11.1 Amendment. The Committee may, with the written
consent of the HFCP Investors during the Consent Period (as defined
in the Plan) and the Management Voting Trust, from time to time
amend, in whole or in part, any or all of the provisions of this
Trust Agreement; provided, however, that (a) no amendment to this
Trust Agreement or the Plan shall cause the assets of the Trust
Fund to be taxable to Participants unless such amendment shall
have received the prior written consent of the Management Voting
Trust, and (b) no amendment to this Trust Agreement or the Plan
shall (i) adversely affect the rights of any Participant under
any Award as of the date prior to such amendment or the amount of
assets of the Trust Fund allocated to any Account of any
Participant, (ii) purport to alter the irrevocable character of
the Trust established under this Trust Agreement, or (iii)
increase the duties or responsibilities or lessen the rights of
the Trustee unless the Trustee consents thereto in writing. The
Trustee shall be entitled to rely upon a certificate of the
Committee that any amendment to this Trust Agreement has been
effected in accordance with this Section 11.1.
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11.2 Execution of Amendments. The Company and the Trustee
shall execute such amendments of this Trust Agreement as shall be
necessary to give effect to any amendment made pursuant to this
Section 11.
SECTION 12. Nonalienation.
12.1 Except insofar as applicable law may otherwise
require or as set forth in the Trust Agreement, (a) no amount or
property payable to or in respect of any Participant or any
Indemnitee at any time under the Trust shall be subject in any
manner to alienation by anticipation, sale, transfer, assignment,
bankruptcy, pledge, attachment, charge, or encumbrance of any
kind, and any attempt to so alienate, sell, transfer, assign,
pledge, attach, charge, or otherwise encumber any such amount,
whether presently or thereafter payable, shall be void and (b)
the Trust Fund shall in no manner be liable for or subject to the
debts or liabilities of any Participant or any Indemnitee.
SECTION 13. Communications.
13.1 To the Company. Communications to the Company shall
be addressed to the Company at
285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.
Facsimile: (212) 210-5544
provided, however, that upon the Company's written request, such
communications shall be sent to such other address as the Company
may specify.
13.2 To the Trustee. Communications to the Trustee shall
be addressed to it at
One Wall Street
New York, NY 10286
provided, however, that upon the Trustee's written
request, such communications shall be sent to such other address
as the Trustee may specify.
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13.3 To a Participant. Communications to a Participant
shall be addressed to the Participant at the address indicated on
the most recent Restricted Stock Agreement executed by such
Participant.
13.4 To an HFCP Investor. (a) Communications to the
HFCP Investors shall be addressed to H&F Investors III, Inc. at
One Maritime Plaza
12th Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
provided, however, that upon the HFCP Investors' written request,
such communications shall be sent to such other address as the
HFCP Investors may specify.
(b) Whenever the Trust Agreement contemplates delivery
to, or action (such as consent, approval or waiver) by, the HFCP
Investors, delivery to, or action (evidenced in writing) by, the
Ultimate General Partner (as defined in the Contribution
Agreement) shall bind the HFCP Investors.
13.5 To the Management Voting Trust. (a) Communications
to the Management Voting Trust shall be addressed to the Management
Voting Trust at
c/o Young & Rubicam Holdings Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.,
Voting Trustee Representative
Facsimile: (212) 210-5544
(b) Whenever the Trust Agreement contemplates delivery
to, or action (such as consent, approval or waiver) by, the
Management Voting Trust, delivery to, or action (evidenced in
writing) by, the Voting Trustee representative (set forth in
subsection(a) of this Section 13.5) shall bind the Management
Voting Trust.
21
<PAGE> 23
(c) Whenever the Trust Agreement requires delivery to,
or action (such as consent, approval or waiver) by, the
Management Voting Trust, such delivery or action shall only be
required while the Management Voting Trust is extant.
13.6 Binding Upon Receipt. No communication shall be
binding on the Trustee until it is received by the Trustee, no
communication shall be binding on the Company until it is
received by the Company, no communication shall be binding on a
Participant until it is received by the Participant, no
communication shall be binding on an HFCP Investor until it is
received by the Ultimate General Partner and no communication
shall be binding on the Management Voting Trust until it is
received by the Voting Trustee representative (set forth in
Section 13.5(a)).
13.7 Authority to Act. The Secretary of the Company shall
from time to time certify in writing to the Trustee the person or
persons authorized to act for the Company and for the Committee
and provide the Trustee with such information regarding the
Company as the Trustee may reasonably request. The Trustee may
continue to rely on any such certification until notified in
writing to the contrary.
13.8 Authenticity of Instruments. The Trustee shall be
fully protected in acting upon any instrument, certificate, or
paper believed by it to be genuine and to be signed or presented
by the proper person or persons, and the Trustee shall be under
no duty to make any investigation or inquiry as to any statement
contained in any such writing but may accept the same as
conclusive evidence of the truth and accuracy of the statements
therein contained.
SECTION 14. Claims of Company's Creditors.
14.1 Insolvency of Company. As used in this Section
14, the Company shall be deemed to be "Insolvent" if the Company
is unable to pay its debts as they become due or is
22
<PAGE> 24
subject to a pending proceeding as a debtor under the federal
Bankruptcy Code (or any successor federal statute) or any state
bankruptcy code.
14.2 Procedure upon Insolvency. (a) The claims of the
Indemnitees pursuant to Article IX of the Contribution Agreement
and Section 5.2 hereof shall be senior to, and satisfied prior
to, the distribution of any assets to any other creditors of the
Company. Subject to the foregoing, in the event of the Insolvency
of the Company, the Trust Fund will be available to pay the
claims of any creditor of the Company to whom a distribution may
be made in accordance with state and federal bankruptcy laws. In
the event the Company becomes Insolvent, the Board of Directors
and chief executive officer of the Company shall notify the
Trustee of that event as soon as practicable. Upon receipt of
such notice, or if the Trustee receives other written allegation
of the Company's Insolvency from a third party considered by the
Trustee to be reliable and responsible, the Trustee shall cease
making payments or distributions to Participants from the Trust
Fund and, unless the Trustee shall receive an opinion under
Section 14.3 within 30 days after the first date of such
discontinuance, shall hold the assets of the Trust Fund for the
benefit of the Indemnitees and the Company's creditors. In the
case that the assets of the Trust Fund are so held, the Trustee
will deliver assets of the Trust Fund to satisfy claims of the
Indemnitees and the Company's creditors in the priority set forth
herein as directed pursuant to a final order of a court of
competent jurisdiction.
(b) The claims of the Indemnitees pursuant to Article
IX of the Contribution Agreement and Section 5.2 hereof shall be
senior to, and satisfied prior to, the distribution of any assets
to any other creditors of the Company. Subject to the foregoing,
the Trust Fund will be available to pay any claim or claims of
any judgment creditors of the Company to the extent such claim or
claims are then payable and the Company otherwise shall fail to
pay such claim or
23
<PAGE> 25
claims. The Board of Directors and the chief executive officer of
the Company shall notify the Trustee as soon as practicable in
the event of any such failure of the Company to pay a judgment
creditor. Upon receipt of such notice, or if the Trustee receives
other written allegations of the Company's failure to pay a
judgment creditor or judgment creditors from a third party
considered by the Trustee to be reliable and responsible, the
Trustee shall, to the extent of such failure, and unless the
Trustee shall receive an opinion under Section 14.3 within 30
days after the receipt of such notice, hold the assets of the
Trust Fund for the benefit of the Indemnitees and such judgment
creditor or judgment creditors. In the event that the assets are
so held, subject to the prior claim of the Indemnitees, the
Trustee will deliver assets of the Trust Fund to satisfy claims
of the Company's judgment creditors as directed pursuant to a
final order of a court of competent jurisdiction. In the event
that the Trustee is required to hold any assets of the Trust Fund
for the benefit of any judgment creditor hereunder, such assets
shall be first taken from the Unallocated Account and then from
Participants' Accounts ratably.
14.3 Resumption of Distributions. In the event the
Trustee ceases making distributions to Participants from Accounts
pursuant to Section 14.2(a), the Trustee shall resume such
distributions to Participants under this Trust Agreement in
accordance with Section 5 hereof only if the Trustee (i) has
received an opinion from the certified public accountant
regularly auditing the Company's books that the Company is not
(or no longer is) Insolvent and (ii) the resumption of payments
is not in contravention of any court order or automatic stay.
Notwithstanding the preceding sentence, the Trustee shall comply
with an order of a court of competent jurisdiction requiring such
distributions.
If the Trustee discontinues distributions to Participants
pursuant to Section 14.2(a) and subsequently resumes such payment,
the first payment on account of a Participant following
24
<PAGE> 26
such discontinuance shall, as directed by the Committee, include
an aggregate amount equal to the difference between the payments
which would have been made on account of such Participant under
this Trust Agreement but for Section 14.2(a) and the aggregate
payments actually made on account of such Participant by the
Company during any such period of discontinuance, plus interest
on such amount at a rate, as determined by the Committee based on
earnings information requested by it and provided to it by the
Trustee, that is equivalent to the net rate of return earned by
the Trust Fund during the period of such discontinuance and
payable in such form of property held in the Trust Fund as the
Committee shall direct (with such adjustments to investment gains
and losses under Section 4.4 being made as the Committee shall
direct to reflect the payment of such interest).
In the event the Trustee holds any assets of the Trust Fund for
the benefit of a judgment creditor pursuant to Section 14.2(b),
the Trustee shall, if the Trustee has received an opinion from
the certified public accountant regularly auditing the Company's
books that the Company does not owe any amount to a judgment
creditor, allocate the then remaining amounts that had been held
for the benefit of any such judgment creditor to the
Participants' Accounts that were reduced pursuant to Section
14.2(b), pro rata in proportion to the excess of the reduction in
each such Participant's Accounts over the amounts paid by the
Company to each such Participant as a result of such reduction.
No Participant shall receive a restoration that exceeds the
amount of the reduction together with the earnings that would
have accrued had no reduction been effected, less amounts paid to
the Participant by the Company as a result of the reduction.
Notwithstanding any other provision of this Section, the Trustee
shall restore Participants' Accounts in accordance with an order
of a court of competent jurisdiction. In the event the amount
available for restoration exceeds the amount required to be
restored to Participants'
25
<PAGE> 27
Accounts, such excess shall be allocated to the Unallocated
Account. In making any determination under this Section, the
Trustee may rely upon a certificate of the Board of Directors and
the chief executive officer of the Company.
SECTION 15. Voting.
While the Management Voting Trust Agreement is in
effect, the shares of Common Stock represented by the Voting Trust
Certificates held in the Trust Fund shall be voted by the Voting
Trustees in accordance with the terms of such Management Voting
Trust Agreement. After the Management Voting Trust Agreement is
no longer in effect, the provisions of this Section 15 shall
govern with respect to the voting of shares of Common Stock held
in the Trust. Each Participant shall be entitled to instruct the
Trustee as to the voting of any shares of Common Stock held in
any Account for such Participant. The Company shall, at the time
of mailing notice of any annual or special meeting of the
stockholders of the Company, send to the Trustee a copy for the
records of the Trustee and a copy for each Participant of such
notice and of all proxy solicitation material relating to such
meeting, and the Trustee shall promptly forward a copy of such
notice and material to each Participant. Each Participant may
instruct the Trustee in writing how the shares of Common Stock
held in any Account for such Participant shall be voted for such
meeting, and the Trustee shall vote the shares of Common Stock
held in any Account for any Participant in accordance with such
instructions as such Participant may give the Trustee in a timely
manner. Shares of Common Stock held in any Account with respect
to which no such instructions are so given and unallocated shares
of Common Stock held in the Unallocated Account shall be voted by
the Trustee pro rata in accordance with the vote of the allocated
shares of Common Stock as to which such instructions are so
given.
26
<PAGE> 28
SECTION 16. Consolidation, Merger or Sale of the Company.
In the case of any consolidation of the Company with,
or merger of the Company with or into, any corporation or
corporations, or any sale or conveyance of all or substantially
all of the assets of the Company, the corporation formed by such
consolidation, or with or into which the Company is merged, or
the person which acquires the assets of the Company, shall
expressly assume in writing in form satisfactory to the Trustee,
the duties and obligations of the Company under this Trust
Agreement and the Plan.
SECTION 17. Indemnification of Trustee.
The Company hereby indemnifies and holds the Trustee
harmless from and against any and all losses, damages, costs,
expenses or liabilities (herein, "Liabilities"), including
attorneys' fees and other costs of litigation incurred in good
faith by the Trustee, to which the Trustee may become subject
pursuant to, arising out of, occasioned by, incurred in
connection with or in any way associated with this Trust
Agreement, except for any act or omission constituting gross
negligence or willful misconduct of the Trustee. If one or more
Liabilities shall arise, or if the Company fails to indemnify the
Trustee as provided herein, or both, then the Trustee may engage
counsel of the Trustee's choice, but at the Company's expense,
either to conduct the defense against such Liabilities or to
conduct such actions as may be necessary to obtain the indemnity
provided for herein, or to take both such actions. The Trustee
shall notify the Company within fifteen days after the Trustee
has so engaged counsel of the name and address of such counsel.
If the Trustee shall be entitled to indemnification by the
Company pursuant to this Section 17 and the Company shall not
provide such indemnification upon demand, the Trustee may, in
accordance with Section 6.2, apply assets of the Trust Fund in
full satisfaction of the obligations for indemnification by the
Company, and any legal proceeding by the Trustee against the
Company for each indemnification shall be in behalf of the Trust.
27
<PAGE> 29
SECTION 18. Miscellaneous Provisions.
18.1 Binding Effect. This Trust Agreement shall be binding
upon the Company and the Trustee and their respective successors
and assigns.
18.2 Inquiry as to Authority. A third party dealing
with the Trustee shall not be required to make inquiry as to the
authority of the Trustee to take any action nor be under any
obligation to follow the proper application by the Trustee of the
proceeds of sale of any property sold by the Trustee or to
inquire into the validity or propriety of any act of the Trustee.
18.3 Responsibility for Company Action. The Trustee
assumes no obligation or responsibility with respect to any action
required by this Trust Agreement on the part of the Company. The
Trustee shall be under no duties except such duties as are
specifically set forth as such in this Trust Agreement or under
applicable law, and no implied covenant or obligation shall be
read into this Trust Agreement against the Trustee.
18.4 Successor to Trustee. Any corporation into which
the Trustee may be merged or with which it may be consolidated,
or any corporation resulting from any merger, reorganization or
consolidation to which the Trustee may be a party, or any
corporation to which all or substantially all the trust business
of the Trustee may be transferred shall be the successor of the
Trustee hereunder without the execution or filing of any
instrument or the performance of any act.
18.5 Titles Not to Control. Titles to the Sections of
this Trust Agreement are included for convenience only and shall not
control the meaning or interpretation of any provision of this
Trust Agreement.
18.6 Governing Law. The Trust is organized under, and
the duties, liabilities and rights of the Trustee shall be
governed by, the internal laws of the State of New York without
28
<PAGE> 30
regard to the principles of conflict of laws. With respect to
matters other than the duties, liabilities and rights of the
Trustee, prior to the Company Merger (as defined in the
Stockholders' Agreement), the Trust Agreement and the Trust shall
be governed by and construed and enforced in accordance with the
internal laws of the State of New York without regard to the
principles of conflict of laws; provided, however, that,
following the Company Merger, (a) then with respect to any
question of construction arising after such Company Merger, the
Trust Agreement and the Trust (other than with respect to matters
involving the duties, liabilities and rights of the Trustee)
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 (b) each Participant and
Permitted Transferee, each of the HFCP Investors, the Management
Voting Trust and the Trustee 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 the Trust Agreement or the Trust. Service of
process on each Participant and Permitted Transferee, each of the
HFCP Investors, the Trustee, the Management Voting Trust and the
Company in any action arising out
29
<PAGE> 31
of or relating to the Trust Agreement or the Trust shall be
effective if served upon such Person by mail in accordance with
Section 13.
IN WITNESS WHEREOF, this Trust Agreement has been duly
executed by the parties hereto as of the day and year first above
written.
Young & Rubicam Holdings Inc.
By /s/
----------------------------
Attest
/s/
- ---------------------------
The Bank of New York, as TRUSTEE
By /s/
-----------------------------
Attest
/s/
- ---------------------------
30
<PAGE> 32
STATE OF )
: ss.:
COUNTY OF )
On the _______ day of ______ 1996 before me personally
came to me known, who, being by me duly sworn, did depose and say
that he resides at ; that he is ________ of
________________________________, one of the corporations
described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation; and that he
signed his name thereto by like order.
/s/
-----------------------
Notary Public
STATE OF )
: ss.:
COUNTY OF )
On the _______ day of ______ 1996 before me personally
came to me known, who, being by me duly sworn, did depose and say
that he resides at ; that he is ________ of
________________________________, one of the corporations
described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation; and that he
signed his name thereto by like order.
/s/
-----------------------
Notary Public
<PAGE> 33
STATE OF )
: ss.:
COUNTY OF )
On the _______ day of ______ 1996 before me personally
came to me known, who, being by me duly sworn, did depose and say
that he resides at ; that he is ________ of
________________________________, one of the corporations
described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation; and that he
signed his name thereto by like order.
/s/
-----------------------
Notary Public
STATE OF )
: ss.:
COUNTY OF )
On the _______ day of ______ 1996 before me personally
came to me known, who, being by me duly sworn, did depose and say
that he resides at ; that he is ________ of
________________________________, one of the corporations
described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation; and that he
signed his name thereto by like order.
/s/
-----------------------
Notary Public
<PAGE> 34
Exhibit A
Young & Rubicam Holdings Inc. Restricted Stock Plan
<PAGE> 35
Exhibit B
Investment Guidelines
To be determined by the Committee as may be reasonably acceptable
to the Trustee.
<PAGE> 36
Exhibit C
Schedule of Fees
<PAGE> 37
The Bank of New York
Schedule of Fees
for
Rabbi Trust
for
Young & Rubicam Restricted Stock Trust
The following schedule of fees would apply to the subject trust.
Post-Funding Fees - Fees are rendered quarterly.
Administration Fee: $20,000 annually (Pre-Change in Control)
$25,000 annually (Post-Change in Control)
Special Asset Fee:
$3,000 per annum for the first passive, commingled investment
fund, mutual fund, insurance carrier, and company stock account
held as an asset per issuer.
$500 per annum for each additional special asset held in an account.
$7.50 per annum for an insurance policy held in an account.
$5,000 per annum for each actively managed account.
Transaction Fees:
Security Transaction $15.00 per security transaction
Lump Sum/Expense Payments $12.50 per check plus postage
Periodic Payments $2.00 per check plus postage
Wire Transfers (outgoing) $15.00 per transfer
Special Transaction Fees
Change of Control $10,000 per event
Insolvency $10,000 per event
Termination of the Trust $3,000 per event
Tax Form Preparation $150 per hour as incurred
Convert to Pay Status $100 per participant
Proxy Services As Incurred
Legal Fees/Out-of-Pocket Expenses As Incurred
Special Reporting Fees - Sub Plan Accounting
$1,500 annually per investment pool
$250 per plan within each pool
Fees as quoted above do not include any direct out-of-pocket or
legal expenses which would become payable in accordance with the
rabbi trust agreement. There are no initial set-up fees, except
legal fees, incurred with the establishment/conversion of the
trust to The Bank of New York.
<PAGE> 38
Fees outstanding more than 90 days will be automatically debited
to the Trust.
<PAGE> 1
Exhibit 10.3
CONTRIBUTION AGREEMENT
AMONG
YOUNG & RUBICAM INC., a New York corporation
YOUNG & RUBICAM L.P.
YOUNG & RUBICAM HOLDINGS INC.
YOUNG & RUBICAM INC., a Delaware corporation
HELLMAN & FRIEDMAN
CAPITAL PARTNERS III, L.P.
H&F ORCHARD PARTNERS III, L.P.
H&F INTERNATIONAL PARTNERS III, L.P.
AND
THE OTHER PARTIES NAMED HEREIN
Dated October 30, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions................................................................ 3
ARTICLE II
The Closing................................................................ 13
1. 2.
2.1 The Closing Date..................................... 13
2.2 Pre-Closing Actions.................................. 13
2.3 The Closing.......................................... 14
2.4 Immediate Post-Closing Actions....................... 14
2.5 Reincorporation Merger............................... 15
2.6 Special Compensation Arrangements.................... 15
ARTICLE III
Representations and Warranties of the Company and the Partnership.......... 16
3.
3.1 Organization of the Company.......................... 16
3.2 Organization of Subsidiaries......................... 16
3.3 Authorization of Agreements.......................... 16
3.4 Capitalization....................................... 17
3.5 Compliance with Other Instruments.................... 19
3.6 Financial Statements................................. 20
3.7 Absence of Certain Changes or Events................. 21
3.8 Properties........................................... 22
3.9 Intellectual Property................................ 23
3.10 Employee Benefit Plans............................... 24
3.11 Taxes................................................ 26
3.12 Compliance with Laws................................. 26
3.13 Compliance with Charter and Contracts................ 27
3.14 Litigation........................................... 28
3.15 Client Relations..................................... 28
3.16 Accounts Receivable; Work-in-Process;
Accounts Payable................................... 28
3.17 Affiliated Transactions.............................. 29
3.18 Brokers and Finders.................................. 29
(i)
<PAGE> 3
3.19 Disclosure Documents................................. 29
ARTICLE IV
Representations and Warranties of Holdings and Y&R DEL..................... 30
4.
4.1 Organization of Holdings and Y&R DEL................. 30
4.2 Authorization of Agreements.......................... 30
4.3 Capitalization....................................... 31
4.4 Compliance with Other Instruments.................... 31
4.5 Brokers and Finders.................................. 31
4.6 No Prior Activities.................................. 31
ARTICLE V
Representations and Warranties of the HFCP Investors....................... 32
5.
5.1 Organization of the HFCP Investors................... 32
5.2 Authorization of Agreements.......................... 32
5.3 Compliance with Other Instruments.................... 32
5.4 Brokers and Finders.................................. 33
5.5 Investment Intent.................................... 33
5.6 HFCP Investors Disclosure............................ 33
5.7 Plan Assets.......................................... 34
5.8 Section 280G Requirement............................. 34
ARTICLE VI
Additional Covenants and Agreements........................................ 34
6.
6.1 Interim Conduct of Business of the Company........... 34
6.2 Access to Information................................ 34
6.3 Further Assurances................................... 35
6.4 Offers and Mergers................................... 36
6.5 Brand Asset(R) Valuator.............................. 37
6.6 Amendments to Preserve Tax Treatment................. 37
6.7 NYBCL Section 912 and DGCL Section 203............... 38
6.8 Indemnification for Certain Claims................... 38
6.9 Plan Assets.......................................... 38
6.10 Waiver of Nonlapse Restrictions...................... 38
6.11 Amendment of Disclosure Letters...................... 38
(ii)
<PAGE> 4
ARTICLE VII
Conditions................................................................. 39
7.
7.1 Conditions to Each Party's Obligations............... 39
7.2 Conditions to Obligations of the HFCP
Investors.......................................... 41
7.3 Conditions to Obligations of the Company............. 42
ARTICLE VIII
Termination................................................................ 43
8.
8.1 Termination by Mutual Consent........................ 43
8.2 Termination by Either the HFCP Investors
or the Company..................................... 43
8.3 Effect of Termination and Abandonment................ 43
ARTICLE IX
Indemnification............................................................ 43
9.
9.1 Indemnification Relating to the Agreement............ 43
9.2 Notice of Potential Claims........................... 45
9.3 Indemnification Procedures........................... 46
9.4 Remedies............................................. 47
ARTICLE X
Miscellaneous and General.................................................. 47
10.
10.1 Survival............................................. 47
10.2 Expenses............................................. 48
10.3 Notices, Etc......................................... 48
10.4 Amendments, Waivers, Etc............................. 49
10.5 No Assignment........................................ 50
10.6 Entire Agreement..................................... 50
10.7 Specific Performance................................. 50
10.8 No Waiver............................................ 50
10.9 No Third Party Beneficiaries......................... 50
10.10 Public Announcements................................. 50
10.11 Governing Law........................................ 50
10.12 Counterparts......................................... 51
(iii)
<PAGE> 5
10.13 Knowledge............................................ 51
10.14 Interpretation ...................................... 51
10.15 Company Disclosure Letter............................ 51
EXHIBITS
Exhibit 1 Form of Company Merger Agreement
Exhibit 2 Form of HFCP Option Agreements
Exhibit 3 Form of Holdings Merger Agreement
Exhibit 4 Form of Management Voting Trust Agreement
Exhibit 5 Form of Partnership Merger Agreement
Exhibit 6 Form of Restricted Stock Plan
Exhibit 7 Form of Restricted Stock Trust Agreement
Exhibit 8 Form of Stock Option Plan
Exhibit 9 Form of Stockholders' Agreement
Exhibit 10 Form of Stock Subscription Agreement
Exhibit 11 Conditions to the Offers and the Special Compensation
Arrangements
ADDITIONAL DOCUMENTS DELIVERED AT SIGNING
Company Board Resolutions
Company Disclosure Letter
Holdings Board Resolutions
HFCP Investors Resolutions
HFCP Investors Disclosure Letter
Term Sheet for Money Market
Preferred Stock
ADDITIONAL AGREEMENTS DELIVERED AT CLOSING
Executive Option Agreements
HFCP Voting Trust Agreement
Registration Rights Agreement
Restricted Stock Agreements
Roll-Over Option Agreements
CONTRIBUTION AGREEMENT
(iv)
<PAGE> 6
AGREEMENT AND PLAN OF CONTRIBUTION (hereinafter called this
"Agreement"), dated October 30, 1996, among Young & Rubicam Inc., a New York
corporation (the "Company"), Young & Rubicam L.P., a Delaware limited
partnership of which the Company and Y&R Partner Two Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company ("Partner Two"), are
the sole general partners (the "Partnership"), Young & Rubicam Holdings Inc., a
New York corporation ("Holdings"), Young & Rubicam Inc., a Delaware corporation
and a wholly-owned subsidiary of Holdings ("Y&R DEL"), Hellman & Friedman
Capital Partners III, L.P., a California limited partnership ("HFCP"), H&F
Orchard Partners III, L.P., a California limited partnership, H&F International
Partners III, L.P., a California limited partnership, and certain individuals
who will, prior to the Closing (as defined herein), became parties hereto in
accordance with Section 2.3(b) hereof (such California partnerships and
individuals, collectively with HFCP, the "HFCP Investors"). At or prior to the
Closing, the Young & Rubicam Restricted Stock Trust (the "Restricted Stock
Trust") will become a party hereto in accordance with Section 2.3(b) hereof.
RECITALS
WHEREAS, the parties seek to effect the recapitalization of
the Company and the Partnership upon the terms and subject to the conditions set
forth herein (the "Recapitalization");
WHEREAS, if not defined where used, capitalized terms used in
this Agreement shall have the respective meanings set forth in Article I;
WHEREAS, (a) the Company has outstanding shares of common
stock, par value $.25 per share ("Company Common Stock"), shares of preferred
stock, without par value ("Company Preferred Stock"), options to purchase
Company Common Stock pursuant to the Young & Rubicam Inc. Stock Option Plans
(together, the "Company Option Plan", and such options the "Company Options")
and certain subordinated promissory notes issued December 31, 1988 in connection
with the formation of the Partnership, accruing interest at a rate of 9.05% per
annum and due and maturing on December 31, 2008 ("Exchange Notes"), (b) the
Partnership has outstanding limited partnership units ("LPU's"), and options to
purchase LPU's pursuant to the Young & Rubicam L.P. LPU Option Plan (the
"Partnership Option Plan", and such options the "Partnership Options") and (c)
the Company and certain of its Subsidiaries and Affiliates (including the
Partnership) have issued rights with respect to growth participation units
pursuant to the Growth Participation Plan ("GPU's" and, together with the
Company Common Stock, Company Options, LPU's and Partnership Options, sometimes
referred to collectively as "Equity Units");
WHEREAS, as part of an overall transaction including the
Recapitalization, (a) the Initial Management Investors will, pursuant to the
Stock Subscription Agreement, contribute cash, notes and/or all or a portion of
the Company Common Stock and LPU's held by such Initial Management Investors to
Holdings in return for Holdings Shares, and will surrender for cancellation all
or a portion of their Company Options and Partnership Options and receive an
award of Roll-Over Options (collectively, the "Equity Roll-Over") and (b) the
HFCP Investors will contribute an aggregate of approximately $240 million in
cash to Holdings in exchange for the
-2-
<PAGE> 7
issuance to the HFCP Investors of Holdings Shares and the HFCP Options subject
to the terms and conditions set forth herein (the "Contribution");
WHEREAS, as part of the Recapitalization and simultaneously
herewith, Holdings, the Company and the Partnership are entering into the
Holdings Merger Agreement and the Partnership Merger Agreement which provide for
the acquisition of all Equity Units not contributed to Holdings for cash in the
Company Offer and the Partnership Offer, followed by the Holdings Merger and the
Partnership Merger, described herein;
WHEREAS, immediately following the closing of the Company
Offer and the Partnership Offer, (a) the Growth Participation Plan will be
terminated in accordance with its terms, (b) Holdings will merge with and into
the Company in accordance with the Holdings Merger Agreement (the "Holdings
Merger"), the Company will be the surviving corporation in such merger, all
shares of Company Common Stock and Company Preferred Stock then outstanding and
not held by Holdings will be exchanged for cash or, if elected by the holders of
Company Common Stock, for shares of non-voting, money market preferred stock,
without par value, of the Company having the terms set forth in the term sheet
of even date herewith ("Company Money Market Preferred Stock"), and all
outstanding shares of Holdings Common Stock will become shares of Company Common
Stock, (c) Young & Rubicam Merger Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company ("Merger Sub"), will merge with the
Partnership in accordance with the Partnership Merger Agreement (the
"Partnership Merger") and all LPU's not held by the Company will be exchanged
for cash and (d) the Agreement of Limited Partnership dated December 1, 1988, as
amended, of the Partnership (the "LP Agreement"), will be amended to confirm the
allocation of tax benefits to the general partners of the Partnership;
WHEREAS, on December 31, 1996, upon the terms and subject to
the conditions set forth herein, the Company will merge with and into Y&R DEL in
accordance with the Company Merger Agreement (the "Company Merger"), Y&R DEL
will be the surviving corporation in such merger, all outstanding shares of
Company Common Stock will become shares of common stock, par value $.01 per
share, of Y&R DEL ("Y&R DEL Common Stock") and all outstanding shares of Company
Money Market Preferred Stock will become shares of non-voting, money market
preferred stock, without par value, of Y&R DEL having the same terms as the
Company Money Market Preferred Stock ("Y&R DEL Money Market Preferred Stock")
(Holdings, the Company and Y&R DEL are sometimes referred to collectively herein
as "Y&R", the shares of Holdings Common Stock which become shares of Company
Common Stock and then become shares of Y&R DEL Common Stock, upon the occurrence
of the Holdings Merger and the Company Merger, are sometimes hereinafter
referred to collectively as "Y&R Common Stock" and the shares of Company Money
Market Preferred Stock which become shares of Y&R DEL Money Market Preferred
Stock, upon the occurrence of the Company Merger, are sometimes hereinafter
referred to collectively as "Y&R Money Market Preferred Stock");
WHEREAS, the Board of Directors of the Company, and the
Company and Partner Two as the general partners of the Partnership, have
determined that it is in the best
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interests of the Company and the holders of Equity Units to effect the
transactions contemplated by this Agreement; and
WHEREAS, the parties hereto desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated herein;
NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the terms defined below shall have
the respective meanings hereinafter specified. Whenever used in this Agreement,
any noun or pronoun shall be deemed to include both the singular and plural and
to cover all genders. The name assigned this Agreement and the Section captions
used herein are for convenience of reference only and shall not affect the
interpretation or construction hereof. Unless otherwise specified, the terms
"hereof", "herein" and similar terms refer to this Agreement as a whole
(including the Exhibits, Schedules and Disclosure Letters referred to herein),
and references herein to Articles or Sections refer to Articles or Sections of
this Agreement.
"Action": Any action, suit, arbitration, inquiry, proceeding
or investigation by or before any Governmental Authority.
"Adjusted Financial Statements": As defined in Section 3.6(b).
"Adjustments": As defined in Section 3.6(b).
"Affiliate": As defined in Rule 12b-2 under the Exchange Act.
"Aggregate Roll-Over Option Spread": As defined in Section
2.2(a).
"Agreement": As defined in the Preamble.
"Audited Statements": As defined in Section 3.6(a).
"Authorization": Any consent, approval or authorization of,
expiration or termination of any waiting period requirement (including pursuant
to the HSR Act) of, or filing, registration, qualification, declaration or
designation with or by, any Governmental Authority.
"Benefit Plans": All compensation and benefit plans, contracts
and arrangements in effect as of the date hereof, including all bonus, incentive
or deferred compensation, severance pay, pension, profit sharing, savings and
thrift and medical and life insurance plans in which any
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<PAGE> 9
current or former employees, agents, directors or independent contractors of the
Company and its Subsidiaries, and their respective dependents, participate other
than (a) any such plan, contract or arrangement which is in place solely because
it is required by law, (b) any agreement with an individual that is not part of
a plan or arrangement involving similar agreements with other individuals or (c)
any oral agreement of at-will employment.
"Bonus Pool": The bonus pool provided for in the Profit
Distribution Plan of Y&R (a copy of which has heretofore been provided to the
HFCP Investors) for each fiscal year.
"Business Condition": The business, properties, operations,
financial condition or prospects of a specified Person.
"Business Day": Any day on which there is trading on the New
York Stock Exchange.
"Claim Notice": As defined in Section 9.3.
"Closing": The consummation of the Contribution.
"Closing Agreements": The HFCP Option Agreements, the HFCP
Voting Trust Agreement, the Management Voting Trust Agreement, the Registration
Rights Agreement, the Restricted Stock Plan, the Restricted Stock Agreements,
the Restricted Stock Trust Agreement, the Stock Option Plan, the Executive
Option Agreements, the Roll-Over Option Agreements, the Stockholders' Agreement
and the Stock Subscription Agreement.
"Closing Date": The date on which the Closing occurs.
"Code": The Internal Revenue Code of 1986, as amended, and all
regulations promulgated thereunder, as in effect from time to time.
"Company": As defined in the Preamble.
"Company Common Stock": As defined in the Recitals.
"Company Disclosure Letter": The letter dated the date of this
Agreement delivered concurrently herewith by the Company to the HFCP Investors.
"Company Fairness Opinion": As defined in Section 7.1(i).
"Company Financial Statements": As defined in Section 3.6(a).
"Company Merger": As defined in the Recitals.
"Company Merger Agreement": The Merger Agreement between the
Company and Y&R DEL, in the form attached hereto as Exhibit 1.
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"Company Money Market Preferred Stock": As defined in the
Recitals.
"Company Offer": As defined in Section 6.4(a).
"Company Option Plan": As defined in the Recitals.
"Company Options": As defined in the Recitals.
"Company Permitted Encumbrances" means:
(a) Encumbrances 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 the Company or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's liens or other like Encumbrances 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;
(c) 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;
(d) 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; and
(e) 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 the Company or its Subsidiaries.
"Company Preferred Stock": As defined in the Recitals.
"Company Shareholders' Meeting": As defined in Section 6.4(c).
"Company Shares": Shares of Company Common Stock.
"Contribution": As defined in the Recitals.
"Contribution Amount": $240 million, as adjusted pursuant to
Section 2.2(a).
"Controlled Group Liability": As defined in Section 3.10(e).
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"Derivative Securities": 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 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.
"DGCL": The Delaware General Corporation Law.
"Disclosure Documents": The offer to purchase and other
documents distributed to the holders of Equity Units in connection with the
Offers, the Special Compensation Arrangements and the Mergers.
"EBITA": As to any Person, for a given fiscal period, the
amount equal to consolidated net income of such Person for such fiscal period
adjusted (added to or subtracted from, as the case may be) for each of the
following items on a consolidated basis, to the extent such items would
otherwise be included in the determination of consolidated net income for such
fiscal period: (a) consolidated net interest expense, including the amortization
of debt issuance costs, (b) consolidated provision for income taxes, (c)
consolidated expense relating to amortization of intangible assets, including
depreciation of up to $6 million, on a cumulative basis, of expense for costs
incurred from and after October 1, 1996, associated with Brand Asset(R)
Valuator, (d) foreign exchange gains and losses associated with
hyperinflationary countries, (e) consolidated non-cash compensation expenses
attributable to stock, stock options and restricted stock and Derivative
Securities identified as of the date of this Agreement, including by reason of
the release of shares from the Restricted Stock Trust in connection with the
indemnification provisions of Article IX of this Agreement, (f) consolidated
cash compensation expenses attributable to repurchases of such stock, stock
options, restricted stock and Derivative Securities, (g) consolidated
non-operating gains or losses of such Person (except those associated with costs
for closing an office or charges associated with any defalcation), (h) expenses
directly associated with the 1996 Recapitalization of the Company, (i) reserves
established in connection with the impairment of long-lived assets, (j) the
minority interest of any other Person in such Person for such fiscal period, (k)
EBITA (as defined herein) for such fiscal period of any other Person which is
not Wholly-Owned by such Person, but which such Person reports on a consolidated
basis in accordance with GAAP and (l) equity earnings from any other Person
which is partially but not Wholly-Owned by such Person and which is not
consolidated for such period. Accounting terms such as "consolidated net
income," "consolidated income tax provision" and the like used in this
definition of EBITA shall have the meanings ascribed to them under GAAP.
"Encumbrance": Any lien, claim, charge, security interest,
option, mortgage, pledge or other legal or equitable encumbrance.
"Environmental Laws": All Laws and Orders issued, promulgated,
approved or entered into, in each case, as in effect on the date hereof or at
any time thereafter through the
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Closing Date, relating to the protection of the environment or the protection of
public health and safety from environmental concerns.
"Equity Roll-Over": As defined in the Recitals.
"Equity Units": As defined in the Recitals.
"ERISA": The Employee Retirement Income Security Act of 1974,
as amended, and all regulations promulgated thereunder, as in effect from time
to time.
"ERISA Affiliate": Any trade or business (whether or not
incorporated) under common control or treated as a single employer with the
Company within the meaning of Section 414(b), (c), (m) or (o) of the Code.
"Exchange Act": The Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder.
"Exchange Notes": As defined in the Recitals.
"Executive Committee Plans": The agreements entered into
between the Company and each of the current and certain former members of the
Executive Committee of the Company's Board of Directors with respect to certain
deferred compensation arrangements.
"Executive Option Agreements": The agreements relating to
Executive Options, in the form agreed to by the HFCP Investors and the Company
prior to the Closing, the substantive provisions of which shall be in accordance
with the terms set forth in the Stock Option Plan.
"Executive Options": The options to acquire Holdings Shares
(which, following the Mergers, will become options to acquire shares of Y&R
Common Stock) issued under the Executive Option Agreements.
"Existing Stockholders Agreement": As defined in Section
3.4(e).
"Foreign Post-Retirement Plan": Any Benefit Plan established
or maintained outside of the U.S. by the Company or any of its Affiliates
primarily for the benefit of non-U.S. citizens or residents which (a) provides
for retirement income for such employees, results in a deferral of income for
such employees in contemplation of retirement, or provides other post-retirement
benefits and (b) is not otherwise subject to ERISA.
"GAAP": Generally accepted accounting principles, as in effect
on the date hereof or at any time thereafter through the Closing Date.
"Governmental Authority": Any government or political
subdivision or department thereof, any governmental or regulatory body,
commission, board, bureau, agency or
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instrumentality, or any court or arbitrator or alternative dispute resolution
body, in each case whether domestic or foreign, federal, state or local.
"GPU" or "GPU's": As defined in the Recitals.
"Growth Participation Plan": As defined in Section 3.4(b).
"Hazardous Materials": All hazardous or toxic chemicals,
wastes, substances or materials, pollutants, contaminants, and petroleum or
petroleum-derived substances defined, listed, or identified as such in any
Environmental Laws.
"HFCP": As defined in the Preamble.
"HFCP Investors": As defined in the Preamble.
"HFCP Investors Disclosure Letter": The letter dated the date
of this Agreement delivered concurrently herewith by the HFCP Investors to the
Company.
"HFCP Issued Shares": A number of Holdings Shares (which,
following the Mergers, will become shares of Y&R Common Stock) equal to the
Contribution Amount divided by $115.
"HFCP Option Agreements": The Option Agreements by and between
certain of the HFCP Investors, on the one hand, and Holdings, on the other hand,
in the form attached hereto as Exhibit 2.
"HFCP Options": The options to purchase Holdings Common Stock
(which, following the Mergers, will become options to purchase Y&R Common Stock)
set forth in the HFCP Option Agreements.
"HFCP Representatives": As defined in Section 6.2.
"HFCP Voting Trust Agreement": The Voting Trust Agreement
among the HFCP Investors and Peter Georgescu, as Chief Executive Officer of the
Company, in form agreed to by the HFCP Investors and the Company prior to the
Closing, the substantive provisions of which shall be in accordance with Section
5.03 of the Stockholders' Agreement.
"Holdings": As defined in the Preamble.
"Holdings Common Stock": The common stock, par value $.01 per
share, of Holdings.
"Holdings Merger": As defined in the Recitals.
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<PAGE> 14
"Holdings Merger Agreement": The Merger Agreement between
Holdings and the Company, in the form attached hereto as Exhibit 3.
"Holdings Shares": Shares of Holdings Common Stock.
"HSR Act": The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnification Number": As defined in Section 9.3(b).
"Indemnitees": As defined in Section 9.1.
"Initial Management Investors": As defined in the
Stockholders' Agreement.
"Intellectual Property": All industrial and intellectual
property rights including, but not limited to, patents, patent applications,
trademarks, trademark applications and registrations, service marks, service
mark applications and registrations, copyrights, know-how, licenses relating to
any of the foregoing, trade secrets, proprietary processes and formulae.
"Interested Party Transaction": Any transaction or series of
similar transactions to which the Company or any of its Subsidiaries is a party
in which the amount involved exceeds $50,000 (other than compensation for
services rendered as an employee in the ordinary course of business pursuant to
the Company's compensation and bonus policies and procedures or perquisites in
lieu of such compensation), and in which any of the following persons has a
direct or indirect material interest: any director or employee of the Company or
its Subsidiaries, or any holder of more than 1% of the outstanding Equity Units.
"Interim Statements": As defined in Section 3.6(a).
"Law": Any domestic or foreign, federal, state or local, law,
statute, ordinance, rule or regulation.
"Leases": As defined in Section 3.8(d).
"License": Any license, permit, consent, certificate of
compliance, franchise approval or other similar authorization granted by any
Governmental Authority.
"Losses": As defined in Section 9.1.
"LP Agreement": As defined in the Recitals.
"LPU" or "LPU's": As defined in the Recitals.
"Management Co-Investors": As defined in the Stockholders'
Agreement.
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"Management Investors": As defined in the Stockholders'
Agreement.
"Management Voting Trust": The trust established pursuant to
the Management Voting Trust Agreement.
"Management Voting Trust Agreement": The Voting Trust
Agreement by and among the Management Investors, the Restricted Stock Trust,
Holdings, the Company and Y&R DEL, in the form attached hereto as Exhibit 4.
"Material Adverse Effect": With respect to any Person, a
material adverse effect on the Business Condition of such Person.
"Material Contract": As defined in Section 3.13(b).
"Merger Agreements": The Company Merger Agreement, the
Holdings Merger Agreement and the Partnership Merger Agreement.
"Merger Sub": As defined in the Recitals.
"Mergers": The Company Merger, the Holdings Merger and the
Partnership Merger.
"Net Equity Value Rolled": As defined in Section 2.2(a).
"NYBCL": The New York Business Corporation Law.
"Offers": The Company Offer and the Partnership Offer.
"Operating Subsidiary": Any direct or indirect Subsidiary of
the Company or the Partnership, other than any such Subsidiary which, as of the
date of this Agreement and thereafter until the Closing Date: (a) is not engaged
in any business activity and (b) has no material liabilities or obligations as
of the date hereof and will incur no liabilities or obligations other than in
connection with its formation, continued inactive existence, liquidation or
dissolution.
"Options": Collectively, the Company Options and the
Partnership Options.
"Order": Any judgment, order, injunction, decree, stipulation
or award entered or rendered by any Governmental Authority.
"Partner Two": As defined in the Recitals.
"Partnership": As defined in the Preamble.
"Partnership Merger": As defined in the Recitals.
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"Partnership Merger Agreement": The Merger Agreement among the
Company, Merger Sub and the Partnership, in the form attached hereto as Exhibit
5.
"Partnership Offer": As defined in Section 6.4(a).
"Partnership Option Plan": As defined in the Recitals.
"Partnership Options": As defined in the Recitals.
"Pension Plan": As defined in Section 3.10(b).
"Person": 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.
"Potential Indemnity Notice": As defined in Section 9.2.
"Private Placement Memorandum": The document used by Holdings,
the Company and Y&R DEL to offer Holdings Shares (which, following the Mergers,
will become shares of Y&R Common Stock) and to award Roll-Over Options to
certain holders of Equity Units on the terms and conditions set forth therein.
"Profit Sharing Plan": The Young & Rubicam Inc. Employees'
Profit Sharing Plan and related Trust, restated as of January 1, 1989.
"Proportionate EBITA": Of the Company, for a given fiscal
period, means the sum of (a) EBITA of the Company, for such period, plus (b) the
sum across all Persons which are partially but not Wholly-Owned by the Company
of (i) that Person's EBITA, for such period, multiplied by (ii) the lower of the
primary ownership percentage held in such Person (A) at December 31, 1996 or (B)
at the "as of" date for computing Proportionate EBITA. Proportionate EBITA shall
be calculated using the Company's 1996 Planning Rates in translating its foreign
operating units results into U.S. Dollars. EBITA associated with any Person (or
interests therein) or businesses acquired after the Closing will not be included
for the purposes of calculating Proportionate EBITA. EBITA associated with any
Person (or interests therein) or business sold after the Closing will be
deducted from (x) Proportionate EBITA, for the applicable portion of the fiscal
period during which such business' results were included in Proportionate EBITA,
and (y) the Proportionate EBITA targets described in Sections 4.3 and 4.4 of the
Stock Option Plan. The deduction from the Proportionate EBITA targets will be
an amount equal to (x) the applicable reduction in the primary percentage
ownership of the Person multiplied by (y) the higher of such Person's EBITA for
1996 or such Person's EBITA for the last twelve months at the time of sale. If
necessary, the Compensation Committee of the Company's Board of Directors
(comprised of the members required under Article V of the Stockholders'
Agreement) will make good faith adjustments to the Proportionate EBITA targets
described in Section 4.3
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and 4.4 of the Stock Option Plan if the EBITA of
Persons acquired or sold after the Closing cannot be separately identified.
"Public Market Value": As defined in the Stockholders'
Agreement.
"Recapitalization": As defined in the Recitals.
"Reductions": As defined in Section 3.4(c)(ii).
"Registration Rights Agreement": The Registration Rights
Agreement among Y&R, the HFCP Investors and the Management Voting Trust which
will provide for demand and piggy-back registration rights in favor of (a) the
HFCP Investors and (b) (to the extent sales are necessary to permit a Management
Investor to pay taxes, but such sales are not then permitted by such Management
Investor pursuant to Rule 144 under the Securities Act) the Management
Investors, in each case from and after the earlier of an Initial Public Offering
and the sixth anniversary of Closing, upon customary terms and conditions, in
the form agreed to by the HFCP Investors and the Company prior to the Closing.
"Restricted Stock": Shares of Y&R Common Stock or other
capital stock held in the Restricted Stock Trust.
"Restricted Stock Agreements": The Restricted Stock Agreements
in the form agreed to by the HFCP Investors and the Company prior to the
Closing, the substantive provisions of which shall be in accordance with the
terms set forth in the Restricted Stock Plan.
"Restricted Stock Plan": The Restricted Stock Plan of Y&R, in
the form attached hereto as Exhibit 6.
"Restricted Stock Trust": As defined in the Preamble.
"Restricted Stock Trust Agreement": The Restricted Stock Trust
Agreement, establishing the Restricted Stock Trust, in the form attached hereto
as Exhibit 7.
"Roll-Over Option Agreements": The agreements relating to
Roll-Over Options, in the form agreed to by the HFCP Investors and the Company
prior to the Closing, the substantive provisions of which shall be in accordance
with the terms set forth in the Stock Option Plan.
"Roll-Over Options": The options to acquire Holdings Shares
(which, following the Mergers, will become options to acquire shares of Y&R
Common Stock) issued under the Roll-Over Option Agreements.
"Savings Plan": The Young & Rubicam Inc. Employees' Savings
Plan, restated as of January 1, 1989.
"Savings Plan/Profit Sharing Plan Fairness Opinion": As
defined in Section 7.1(j).
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"Securities Act": The Securities Act of 1933, as amended, and
the regulations promulgated thereunder.
"Senior Bank Facility": The Senior Secured Credit Facilities
as contemplated by the Commitment Letter from Bank of America National Trust and
Savings Association and BA Securities, Inc. to the Company dated August 11,
1996.
"Senior Bank Lenders": The Lenders under the Senior Bank
Facility.
"Special Compensation Arrangements": As defined in Section
6.4(b).
"Stock Option Plan": The Stock Option Plan of Y&R in the form
attached hereto as Exhibit 8.
"Stockholders' Agreement": The Stockholders' Agreement by and
among Holdings, the Company, Y&R DEL and stockholders of Holdings (who,
following the Mergers, will become stockholders of Y&R) in the form attached
hereto as Exhibit 9.
"Stock Subscription Agreement": Collectively, the Stock
Subscription Agreements by and between Holdings, and each Initial Management
Investor or Director Investor, in the form attached hereto as Exhibit 10 (with
such changes as the parties shall agree prior to Closing).
"Subsidiary": As to any Person, any other Person of which 50%
or more of the equity interests, by economic value or by voting rights, are
owned, directly or indirectly, by such first Person. The Partnership and each of
its Subsidiaries shall be deemed Subsidiaries of the Company.
"Tax Returns": As defined in Section 3.11(e).
"Taxes": All taxes, charges, fees, levies or other assessments
of whatever kind or nature, including all net income, gross income, gross
receipts, premium, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, estimated, severance, stamp,
occupancy or property taxes, custom duties, fees, assessments or charges of any
kind whatever (together with any relevant interest, penalty, or addition to tax)
imposed by any Governmental Authority.
"Total Roll-Over Option Shares": As defined in Section 2.2.
"Ultimate General Partner": 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 HFCP Investors which is a partnership.
"U.S.": United States.
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"Wholly-Owned": Means, with respect to any Person, that 100%
of the equity interest in such Person is owned, directly or indirectly, by
another Person.
"Y&R": As defined in the Recitals.
"Y&R Common Stock": As defined in the Recitals.
"Y&R DEL": As defined in the Preamble.
"Y&R DEL Common Stock": As defined in the Recitals.
"Y&R DEL Money Market Preferred Stock": As defined in the
Recitals.
"Y&R Money Market Preferred Stock": As defined in the
Recitals.
ARTICLE II
THE CLOSING
2.1 The Closing Date. Subject to the terms and conditions of
this Agreement, the Closing shall take place at the offices of Wachtell, Lipton,
Rosen & Katz, New York, New York, at 10:00 a.m. on the later of Thursday,
December 12, 1996 and the date which is one Business Day following the
satisfaction or waiver of the conditions set forth in Article VII, or at such
other place or time, or on such other date, as the Company and the HFCP
Investors may agree.
2.2 Pre-Closing Actions. (a) No later than three Business Days
prior to the Closing, the Stock Subscription Agreement shall be executed by all
signatories thereto. The parties hereto shall calculate (i) the product of 115
and the total number of Holdings Shares to be issued under the Stock
Subscription Agreement in exchange for Company Shares, LPU's or cash, (ii) the
total number of Holdings Shares to be subject to Roll-Over Options under the
Stock Subscription Agreement (the "Total Roll-Over Option Shares"), (iii) the
aggregate spread (equal to $86.25 multiplied by the Total Roll-Over Option
Shares) (the "Aggregate Roll-Over Option Spread"), and (iv) the net equity value
of the Equity Units contributed to Holdings (equal to (i) plus (iii)) (the "Net
Equity Value Rolled"). The Net Equity Value Rolled shall be no less than $201.4
million and no more than $231.4 million. To the extent the Net Equity Value
Rolled exceeds $216.4 million, the Contribution Amount shall be reduced dollar
for dollar by the amount of such difference. To the extent the Net Equity Value
Rolled is less than $216.4 million, the Contribution Amount shall be increased
dollar for dollar by the amount of such difference.
(b) No later than 15 Business Days prior to the Closing, (i)
an Amended and Restated Certificate of Incorporation of Holdings, in the form
agreed to by the HFCP Investors and the Company, the governance provisions of
which shall reflect those set forth in Article V of the Stockholders' Agreement,
shall have been filed as required by the NYBCL and shall have
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become effective in accordance therewith, and Amended and Restated By-laws of
Holdings, in the form agreed to by the HFCP Investors and the Company, the
governance provisions of which shall reflect those set forth in Article V of the
Stockholders' Agreement, shall have been adopted and approved by Holdings and
(ii) an Amended and Restated Certificate of Incorporation of Y&R DEL, in
substantially in the same form as that for Holdings, shall have been filed as
required by the DGCL and shall have become effective in accordance therewith,
and Amended and Restated By-laws of Y&R DEL, in substantially the same form as
those for Holdings, shall have been approved and adopted by Y&R DEL.
(c) Immediately prior to, or concurrently with, the Closing,
(i) the parties shall take all steps necessary to adjust the size of the Board
of Directors of the Company to be nine and elect as members of the Board of
Directors of the Company each of the individuals who are to be members of the
Board of Directors of Holdings as of the Closing in accordance with the
Stockholders' Agreement and (ii) all other individuals who are then members of
the Company's Board shall resign as directors.
2.3 The Closing. At the Closing:
(a) each of the parties hereto shall execute and deliver all
certificates and other instruments and documents required by this Agreement to
be delivered at or prior to the Closing;
(b) (i) the Restricted Stock Trust Agreement shall be
executed, and the Restricted Stock Trust shall become a party to this Agreement
by executing a counterpart signature page hereto, (ii) the HFCP Investors who
are individuals shall become parties hereto, and (iii) each of the parties to
the Closing Agreements shall execute and deliver all Closing Agreements not
previously executed and delivered to the other respective parties thereto;
(c) the closing under the Stock Subscription Agreement shall
be consummated;
(d) the HFCP Investors shall deliver to Holdings the
Contribution Amount by wire transfer in immediately available funds to an
account which will be identified in writing by Holdings to the HFCP Investors
not less than three Business Days prior to the Closing Date;
(e) Holdings shall deliver to each of the HFCP Investors (i)
certificates representing the HFCP Issued Shares free and clear of all liens
(subject to Section 630 of the NYBCL) and (ii) the HFCP Option Agreements (with
the allocation of HFCP Issued Shares and the HFCP Options among the HFCP
Investors being specified by the HFCP Investors no later than three Business
Days prior to the Closing Date);
(f) the funds necessary to make the payments contemplated to
be made at Closing in the Offers, the Special Compensation Arrangements and the
Mergers shall be drawn under the Senior Bank Facility;
(g) the Company Offer and the Partnership Offer shall be
consummated in accordance with their terms;
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<PAGE> 21
(h) the Exchange Notes (net of loans with respect thereto and
accrued interest on such loans through the Closing Date, which shall be deemed
paid) surrendered under the Stock Subscription Agreement and in the Partnership
Offer shall be prepaid, in cash, together with accrued interest through the
Closing Date;
(i) any payments required under the Executive Committee Plans
shall be made; and
(j) except as otherwise agreed pursuant to Section 6.6 hereof,
the payments to be made to employees of non-U.S. Affiliates of the Company
pursuant to the Special Compensation Arrangements shall be made at the Closing.
2.4 Immediate Post-Closing Actions. Immediately following the
Closing, the following actions shall occur:
(a) the Growth Participation Plan, and the Executive Committee
Plans of (i) participants who are members of the Executive Committee of the
Company's Board of Directors as of the date hereof and (ii) any other
individuals who consent thereto, shall be terminated in accordance with their
terms;
(b) the shareholders of Holdings shall act by unanimous
written consent to approve the Holdings Merger;
(c) the Restricted Stock Plan and the Stock Option Plan and
the grants under each of them to be effective on the Closing shall be submitted
to the shareholders of Holdings for approval by unanimous written consent in
lieu of a meeting;
(d) subject to the approval of shareholders of Holdings which
will be sought pursuant to subsection (c) of this Section 2.4, an aggregate of
739,130 shares of Holdings Common Stock will be issued to the Restricted Stock
Trust in exchange for the payment to Holdings by the Restricted Stock Trust of
$0.01 per share of Holdings Common Stock so delivered to it in the manner
provided in the Restricted Stock Plan;
(e) the Company shall convene the Company Shareholders'
Meeting for shareholders to vote upon the Holdings Merger;
(f) Holdings shall be merged with and into the Company in
accordance with the provisions of Sections 901 through 903 of the NYBCL and the
Holdings Merger Agreement, the separate corporate existence of Holdings shall
thereupon cease, the Company will be the surviving corporation and any holders
of Company Common Stock who elect to receive Company Money Market Preferred
Stock in the Holdings Merger shall, in connection with such election, have
consented to the Company Merger;
(g) the Partnership Merger shall be consummated in accordance
with the Partnership Merger Agreement; and
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<PAGE> 22
(h) the LP Agreement shall be amended to confirm the
allocation of tax benefits to the general partners of the Partnership.
2.5 Reincorporation Merger.
(a) Prior to December 31, 1996, holders of Company Common
Stock and Company Money Market Preferred Stock shall act by unanimous written
consent without a meeting, and, if necessary, the Company shall act as a
stockholder of Y&R DEL by written consent of stockholders without a meeting, to
approve the Company Merger; and
(b) As of the close of business on December 31, 1996, the
Company shall be merged with and into Y&R DEL in accordance with the provisions
of Section 907 of the NYBCL and Section 252 of the DGCL, the separate corporate
existence of the Company shall thereupon cease and Y&R DEL shall be the
surviving corporation and shall continue to be governed by the laws of the State
of Delaware.
2.6 Special Compensation Arrangements.
(a) The cash consideration to be paid by the Company, the
Partnership, or other U.S. Affiliates of the Company or the Partnership, to
holders of Options and rights with respect to GPU's pursuant to the Special
Compensation Arrangements shall be paid to such holders on March 17, 1997, or as
soon thereafter as possible under the Senior Bank Facility.
(b) To the extent so agreed pursuant to Section 6.6 hereof,
the cash consideration to be paid to certain employees of non-U.S. Affiliates of
the Company pursuant to the Special Compensation Arrangements shall be paid at
the times, and subject to the terms and conditions, so agreed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE PARTNERSHIP
The Company and the Partnership hereby represent and warrant
to Holdings and the HFCP Investors that:
3.1 Organization of the Company. The Company is (and, at the
time of the Closing, will be) a corporation duly organized, validly existing and
in good standing under the laws of the State of New York and has all requisite
corporate or other power and authority to own or lease and operate its
properties, to carry on its business as now conducted, to enter into this
Agreement, and the Merger Agreements and Closing Agreements to which it is a
party, and to carry out the provisions of this Agreement and such Merger
Agreements and Closing Agreements and consummate the transactions contemplated
hereby and thereby. The Company is duly qualified and in good standing in each
jurisdiction in which the property owned, leased or
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<PAGE> 23
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failures to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on the Company
and its Subsidiaries, taken as a whole.
3.2 Organization of Subsidiaries. Each Operating Subsidiary of
the Company, including the Partnership (a) is (and at the time of the Closing,
will be) a corporation or other legal entity duly organized, validly existing
and (if applicable) in good standing under the laws of the jurisdiction of its
organization and has all requisite corporate or other power and authority to own
or lease and operate its properties, to carry on its business as now conducted,
to enter into any of this Agreement and the Merger Agreements or the Closing
Agreements to which it is a party and to carry out the provisions of such
agreements and the transactions contemplated thereby and (b) is duly qualified
and in good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failures to be so qualified or in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole. Section 3.2 of the
Company Disclosure Letter sets forth a true and correct listing of all of the
Company's Operating Subsidiaries as of the date hereof.
3.3 Authorization of Agreements. (a) This Agreement, the
Merger Agreements and each of the Closing Agreements to which the Company or any
Subsidiary of the Company is a party, and the consummation of the transactions
contemplated hereby and thereby, have been approved by the Board of Directors of
the Company, and the board of directors or general partner of each such
Subsidiary, as the case may be, and have been duly authorized by all other
necessary corporate or partnership action on the part of the Company and each
such Subsidiary, as the case may be (except for the approval of (i) the
Company's shareholders contemplated by the Holdings Merger Agreement and the
Company Merger Agreement, (ii) the approval of Holdings' shareholders
contemplated by the Holdings Merger Agreement and (iii) the approval by the
holders of LPU's contemplated by the Partnership Merger Agreement). The Company
has delivered to the HFCP Investors true and correct copies of resolutions
adopted by the Board of Directors of the Company, and the board of directors or
the general partner of each such Subsidiary, as the case may be, approving this
Agreement and the Merger Agreements and Closing Agreements to which it or any
such Subsidiary is a party.
(b) This Agreement has been duly executed and delivered (i) by
a duly authorized officer of the Company and (ii) by the Partnership, and
constitutes a valid and binding agreement of the Company and the Partnership
enforceable against the Company and the Partnership in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general application which
may affect the enforcement of creditors' rights generally, by general equitable
principles and by implied covenants of good faith and fair dealing.
(c) When executed, each of the Merger Agreements and Closing
Agreements to which the Company or any Subsidiary of the Company is a party will
have been duly executed and delivered by a duly authorized officer or other
authorized signatory of the Company or such Subsidiary, as the case may be, and
will constitute a valid and binding agreement of the Company or such Subsidiary,
as the case may be, enforceable against it in accordance with its
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<PAGE> 24
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general application which
may affect the enforcement of creditors' rights generally, by general equitable
principles and by implied covenants of good faith and fair dealing.
3.4 Capitalization. (a) (i) The authorized capital stock of
the Company consists of (A) 16,000,000 shares of Company Common Stock, of which
2,384,607 shares were outstanding as of September 30, 1996 and (B) 1,500 shares
of Company Preferred Stock, of which 1,301.5 shares were outstanding as of
September 30, 1996. Subject to Section 630 of the NYBCL, all outstanding shares
of Company Common Stock and Company Preferred Stock are duly authorized, validly
issued, fully paid and nonassessable.
(ii) As of September 30, 1996, (A) the total principal amount
of outstanding Exchange Notes was approximately $24,152,650, (B) the total
principal amount of outstanding loans with respect to Exchange Notes was
approximately $6,942,369, and (C) the total principal amount of outstanding
loans by the Company or its Subsidiaries to shareholders (with respect to such
shareholder's ownership of Company Shares) was approximately $11,694,173. There
are no loans outstanding by the Company to holders of shares of Company
Preferred Stock with respect to such shares.
(b) (i) Except as set forth in Section 3.4(b)(i) of the
Company Disclosure Letter, as of September 30, 1996, there were no outstanding
Derivative Securities of the Company, other than (A) Company Options
representing the right to purchase 723,297 shares of Company Common Stock and
(B) rights with respect to 1,249,950 GPU's issued by the Company, a Subsidiary
of the Company or an Affiliate of the Company (including the Partnership or its
Subsidiaries) pursuant to the Young & Rubicam Inc. Growth Participation Plan, as
amended, restated as of January 1, 1995 (the "Growth Participation Plan"), with
respect to which approximately $55,453,097 would have been payable by the
Company, its Subsidiaries and its Affiliates (other than the Partnership or its
Subsidiaries) as of September 30, 1996 assuming a price per GPU of $115 and (C)
the obligations under the Executive Committee Plans which shall not exceed the
amount set forth in the Company Disclosure Letter. The Company has heretofore
provided to the HFCP Investors complete and accurate copies of all agreements
and amendments thereto relating to the Executive Committee Plans.
(ii) The exercise price for the outstanding Company Options
and the number of Company Options outstanding at each such exercise price as of
September 30, 1996 are set forth in Section 3.4(b)(ii) of the Company Disclosure
Letter.
(c) (i) The Company and Partner Two are the sole general
partners and hold, respectively, 99% and 1% of the General Partnership Interest
(as such term is defined in the LP Agreement) of the Partnership. As of the date
hereof, neither the Company nor Partner Two holds any LPU's. As of September 30,
1996, there were outstanding 1,881,182 LPU's of the Partnership. There are no
outstanding equity interests in the Partnership other than (A) those represented
by the General Partnership Interests and the LPU's described in this subsection
(c) and (B) those described in subsection (d) of this Section 3.4. The
outstanding General Partnership Interests and all outstanding LPU's are duly
authorized and validly issued.
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<PAGE> 25
(ii) As of September 30, 1996, (A) the total principal amount
of outstanding loans to holders of LPU's (with respect to such holder's
ownership of LPU's) and (B) the aggregate of any prior tax-related distributions
(made pursuant to Section 5.6(a) of the LP Agreement) and other distributions
(made pursuant to Section 5.6(b) of the LP Agreement) from, and reductions
related to interest on Exchange Notes (made pursuant to Section 5.1(c) of the LP
Agreement and with respect to interest earned in 1996) in, the capital accounts
relating to LPU's (such distributions and reductions, "Reductions") was
approximately $44,867,740.
(d) (i) Except as set forth in Section 3.4(b)(i) or 3.4(d)(i)
of the Company Disclosure Letter, as of September 30, 1996, there were no
outstanding Derivative Securities of the Partnership, other than Partnership
Options representing the right to purchase 1,596,714 LPU's and rights with
respect to GPU's issued by the Partnership or a Subsidiary of the Partnership
pursuant to the Growth Participation Plan as disclosed in Section 3.4(b)(i),
with respect to which approximately $88,291,153 would have been payable by the
Partnership or its Subsidiaries as of September 30, 1996 assuming a price per
GPU of $115.
(ii) The exercise prices for the Partnership Options and the
number of Partnership Options outstanding at each such exercise price as of
September 30, 1996 are set forth in Section 3.4(d)(ii) of the Company Disclosure
Letter.
(e) Except as set forth in Section 3.4(e) of the Company
Disclosure Letter, there are no (i) agreements to which the Company or any of
its Operating Subsidiaries is a party restricting the transfer of, or affecting
the voting rights of any holder of, Company Shares, shares of Company Preferred
Stock, General Partnership Interests, LPU's, Company Options, Partnership
Options or GPU's, other than the Young & Rubicam Inc. Stockholders Agreement
(the "Existing Stockholders Agreement"), the LP Agreement, the Growth
Participation Plan, the agreements entered into between the Company and each of
the holders of shares of Company Preferred Stock, the agreements granting
Company Options and Partnership Options, the Profit Sharing Plan and the Savings
Plan, (ii) preemptive or anti-dilutive rights on the part of any holder of any
class of securities of the Company or the Partnership, or (iii) existing rights
with respect to registration under the Securities Act of any of the Company's or
the Partnership's securities. Except as set forth in Sections 3.4(b)(i), 3.4(e)
or 3.14 of the Company Disclosure Letter, no former holder of Equity Units would
be entitled to a payment in respect of such Equity Units as a result of the
consummation of the transactions contemplated hereby. Payments to such former
holders of Equity Units will not exceed the amount specified in such Sections of
the Company Disclosure Letter.
(f) Except as set forth in Sections 3.2 and 3.4(f) of the
Company Disclosure Letter, each Operating Subsidiary of the Company (other than
the Partnership) is a Wholly-Owned Subsidiary of the Company and all shares of
capital stock of or other equity interests in Operating Subsidiaries of the
Company owned by the Company, or by a direct or indirect Operating Subsidiary of
the Company, are owned free and clear of all Encumbrances.
(g) Other than as set forth in Sections 3.4(b) and 3.4(d)
hereof, and except as set forth in Section 3.4(g) of the Company Disclosure
Letter, there are no outstanding (i) Derivative
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<PAGE> 26
Securities of any Operating Subsidiary of the Company or (ii) obligations of the
Company or any Operating Subsidiary of the Company to issue shares of capital
stock of any class of, or other equity interests in, or Derivative Securities
of, any Operating Subsidiary of the Company. Except as set forth in Section
3.4(e) hereof or in Section 3.4(g) of the Company Disclosure Letter, there are
no agreements to which the Company or any Operating Subsidiary is a party
restricting the transfer of, or affecting the voting rights of any holder in,
the capital stock of, or other equity interests in, the Operating Subsidiaries
of the Company. Except as set forth in Section 3.4(g) of the Company Disclosure
Letter, and except for the Subsidiaries of Company, the Company does not own,
directly or indirectly, any shares of capital stock of, or other equity interest
in, any Person with a value in excess of $1,000,000.
(h) Except as set forth in Sections 3.2 and 3.4(h) of the
Company Disclosure Letter, since September 30, 1996, (i) no Company Common Stock
has been issued except pursuant to the exercise of Company Options outstanding
as of that date, (ii) no Company Options or rights with respect to GPU's have
been granted or awarded by the Company or its Subsidiaries, (iii) no LPU's have
been issued except pursuant to the exercise of Partnership Options outstanding
as of that date, (iv) no Partnership Options or rights with respect to GPU's
have been granted or awarded by the Partnership or its Subsidiaries, (v) no
other Derivative Securities have been issued, granted or awarded by the Company,
the Partnership or any of their Subsidiaries and (vi) none of the Company or any
of its Subsidiaries has entered into any agreements restricting the transfer of,
or affecting the voting rights of holders of, Equity Units, granted any
preemptive or anti-dilutive rights to any holder of any class of its securities,
or granted registration rights with respect to any of its securities.
(i) The total amount of loans to, and guarantees on behalf of,
holders of Equity Units by the Company or its Subsidiaries not described in
subsections (a)(ii) and (c)(ii) hereof was approximately $2,222,599 as of
September 30, 1996.
3.5 Compliance with Other Instruments. (a) The execution,
delivery and performance of this Agreement and the Merger Agreements and Closing
Agreements to which the Company or any Subsidiary of the Company is a party, and
the consummation of the transactions contemplated hereby and thereby in
accordance with the terms hereof and thereof will not result in any violation of
or conflict with, constitute a default (with or without notice or the lapse of
time) under, or give rise to a right of termination, cancellation, acceleration
of, or a right to put, or compel a tender offer for (except as contemplated in
the Recapitalization), outstanding securities under, or result in the imposition
of any Encumbrance (other than Company Permitted Encumbrances) under, or require
any consent (other than such consents as are set forth in Section 3.5(a) of the
Company Disclosure Letter) under, any term of (i) the certificate of
incorporation, by-laws or other organizational documents of the Company or any
of its Subsidiaries, or (ii) any note, bond, debt instrument, mortgage,
indenture or other agreement or instrument or, assuming the receipt of all
Authorizations, consents, approvals and waivers set forth in Section 3.5(b) of
the Company Disclosure Letter, any Law or Order, by which the Company or any of
its Subsidiaries may be bound, except for such violations, conflicts, defaults,
rights of termination, cancellation, acceleration, put or tender offer,
Encumbrances and consents which would not, either individually or in the
aggregate, have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole.
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<PAGE> 27
(b) Section 3.5(b) of the Company Disclosure Letter lists (i) all
Authorizations that are required to be made, filed, given or obtained by the
Company and any of its Subsidiaries with, to or from any Governmental Authority
in connection with the transactions contemplated to occur by this Agreement, the
Merger Agreements and the Closing Agreements and (ii) all consents, approvals
and waivers required to be given by, or obtained from, any other Persons to or
by the Company or any of its Subsidiaries in connection with the consummation of
the transactions contemplated by this Agreement, the Merger Agreements or the
Closing Agreements other than such Authorizations, consents, approvals and
waivers the failure to obtain which would not, either individually or in the
aggregate, have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole.
3.6 Financial Statements. (a) The Company has previously delivered to
the HFCP Investors correct and complete copies of its (i) audited consolidated
financial statements (including the balance sheet, statement of income and
statement of cash flows, and, in each case, the related footnotes thereto) as of
December 31, 1995, December 31, 1994 and December 31, 1993 and for the years
then ended (the "Audited Statements"), (ii) interim consolidated financial
statements (including the balance sheet, statement of income and statement of
cash flows) as of June 30, 1996 and for the six months then ended (the "Interim
Statements") and (iii) an interim profit summary (representing the Company's
internal monthly financial reporting package, which does not constitute a
complete set of financial statements and is not prepared in accordance with
GAAP) for the eight months ended August 31, 1996 (the "August Statement"). Each
of the balance sheets included in such Audited Statements and Interim Statements
(collectively, the "Company Financial Statements") presents fairly the
consolidated financial position of the Company and its Subsidiaries as of the
respective dates thereof, and each of the other related statements included in
such Company Financial Statements presents fairly the consolidated income and
cash flows, as the case may be, of the Company and its Subsidiaries for the
respective periods thereof, all in conformity with GAAP consistently applied
during the periods involved except as otherwise noted therein and subject, in
the case of the Interim Statements, to normal year-end audit adjustments.
(b) The Company has previously delivered to the HFCP Investors copies
of the "as adjusted" consolidated statements of income (and footnotes explaining
the pro forma adjustments) (i) for the years ended December 31, 1995, December
31, 1994 and December 31, 1993 and (ii) for the six months ended June 30, 1996
(the "Adjusted Financial Statements"). Except where stated, the pretax
adjustments enumerated in the notes thereto (the "Adjustments") (which, as
specified therein, include adjustments to reflect (A) the elimination of certain
charges related to the existing capital structure of the Company, (B) the
elimination of certain events characterized as one time events and (C) the
inclusion on a proportionate basis of the revenues and income of entities in
which the Company or one or more of its Subsidiaries has a partial ownership
interest) are based upon actual amounts charged or credited, as the case may be,
in the books and records of the Company and its Subsidiaries. The tax effects of
the Adjustments are estimates, made by the Company in good faith, as to what
impact such Adjustments would have on the Company's overall tax provisions. The
Company makes no representation as to the ap-
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<PAGE> 28
propriateness of the Adjustments in presenting fairly the earnings or financial
condition of the Company.
(c) Except as set forth in Section 3.6(c) of the Company Disclosure
Letter and to the extent reflected or reserved against in the Company Financial
Statements, none of the Company nor any Subsidiary of the Company has any
liabilities or obligations (of the types that, in accordance with GAAP, are
required to be reflected or reserved against in the Company Financial
Statements) of any nature, whether absolute, accrued, contingent or otherwise,
and whether due or to become due, for the periods covered thereby. Except as set
forth in Section 3.6(c) of the Company Disclosure Letter, the Company does not
know of any basis for the assertion against the Company or any Subsidiary of the
Company of any claim or liability (of the types that, in accordance with GAAP,
are required to be reflected or reserved against in the Company Financial
Statements) of any nature or in any amount not fully reflected or reserved
against in the Company Financial Statements for the periods provided.
3.7 Absence of Certain Changes or Events. Since December 31, 1995,
there has not been any material adverse change in the Business Condition of the
Company and its Subsidiaries taken as a whole, and, except as otherwise set
forth in Section 3.7 of the Company Disclosure Letter, neither the Company nor
any Subsidiary of the Company has taken any action, or permitted or suffered to
be taken any action set forth below:
(a) in the case of the Company and the Operating Subsidiaries, amended
its certificate of incorporation, by-laws, or other organizational documents
(other than (i) to change the number of directors of the Company and (ii) the
amendment of the LP Agreement in connection with the transfer of a 1% General
Partnership Interest to Partner Two);
(b) declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock or other equity interests or
purchased or redeemed, directly or indirectly, any shares of its capital stock
or other equity interests, other than (i) annual dividends and distributions,
made in accordance with past practice, in October 1996, in an aggregate amount
not to exceed $1.7 million, (ii) dividends or other distributions made by any
Subsidiary of the Company to the Company or any Subsidiary of the Company, (iii)
dividends or other distributions made by any entity in which the Company or any
Subsidiary owns a minority interest, made in the normal course of business,
consistent with past practice and (iv) the repurchases of Equity Units owned by
former employees described in Section 3.7(d) of the Company Disclosure Letter;
(c) incurred any indebtedness for borrowed money or guaranteed any such
indebtedness or issued or sold any debt securities, or refinanced any
indebtedness for borrowed money in excess of $500,000, except for amounts
available for draw under credit facilities listed as Material Contracts in
Section 3.14 of the Company Disclosure Letter and intra-Company borrowings,
indebtedness or guarantees incurred by non-U.S. Subsidiaries of the Company in
the ordinary course of business;
(d) except as contemplated under the terms of agreements in existence
on the date hereof (complete and accurate copies of which have been furnished by
the Company to the HFCP
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<PAGE> 29
Investors) engaged in any Interested Party Transaction (other than (i)
repurchases of Equity Units by the Company or the Partnership not exceeding the
dollar amount set forth in the Section 3.7(d) of the Company Disclosure Letter
in connection with the termination of employment of an employee of the Company
or any of its Subsidiaries or (ii) the issuances of Equity Units reflected in
Section 3.4 hereof or Section 3.4 of the Company Disclosure Letter);
(e) other than in the ordinary course of business, acquired assets or
properties for cash or otherwise for an amount in excess of $5 million in the
aggregate;
(f) replaced the independent auditors of the Company or made any
material change in any method of financial accounting or accounting practice,
except for any such change required by reason of a concurrent change in GAAP;
(g) sold or otherwise disposed of assets that are material to the
Company and its Subsidiaries, taken as a whole, including any operating group or
line of business, of the Company or any Subsidiary of the Company;
(h) except as set forth in Section 3.7(h) of the Company Disclosure
Letter, increased by 20% or more the annual base compensation of any officer or
employee of the Company whose annual base compensation exceeded $250,000 in the
last 12 months, or entered into or made any material change in any severance
contract or arrangement with any such officer or key employee, or made any
material change in the Bonus Pool or the overall compensation structure of the
Company and its Subsidiaries, taken as a whole;
(i) entered into any material commitment, contract or transaction, or
released or relinquished any material contract rights, other than in the
ordinary course of business consistent with past practice of the Company; or
(j) entered into any agreement to do any of the foregoing.
3.8 Properties. (a) Section 3.8(a) of the Company Disclosure Letter
contains a true and complete list of all real property owned by the Company and
its Subsidiaries. Except as set forth in Section 3.8(a) of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries owns any real
property or any interest in real property (including any option or reversionary
interest, but excluding leasehold interests).
(b) Except as set forth in Section 3.8(b) of the Company Disclosure
Letter, the real property (including, without limitation, all buildings and
structures) set forth in Section 3.8(a) of the Company Disclosure Letter is (i)
fit, suitable and reasonably adequate for the uses for which it is used, (ii) in
compliance in all material respects with all applicable building, zoning,
subdivision and other land use and similar applicable laws and all restrictions
of record and other recorded liens, (iii) not the subject of, or affected by any
condemnation, eminent domain or inverse condemnation instituted, pending or
threatened, and (iv) not the subject of any contract or other restrictions of
any nature whatsoever (recorded or unrecorded) that prevents or limits the
Company's or any of its Subsidiary's, as the case may be, right to convey any
such real property.
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<PAGE> 30
(c) Except as disclosed in Section 3.8(c) of the Company Disclosure
Letter, the Company or one or more of its Subsidiaries, as the case may be, has
good and marketable title to the real property listed in Section 3.8(a) of the
Company Disclosure Letter, free and clear of all Encumbrances except for Company
Permitted Encumbrances. The Company has previously delivered to the HFCP
Investors correct and complete copies of all title insurance policies relating
to the real property listed in Section 3.8(a) of the Company Disclosure Letter
that is located at 285 Madison Avenue, New York, New York 10017. All buildings
and structures located on the real property listed in Section 3.8(a) of the
Company Disclosure Letter are entirely within the boundaries thereof (as
specified, with respect to such real property that is located in the continental
U.S., in the legal descriptions which are included in Section 3.8(c) of the
Company Disclosure Letter), no buildings or structures not owned by the Company
or its Subsidiaries, as the case may be, encroach onto such real property and
all taxes, assessments and similar sums due and payable with respect to said
real property thereof have been paid, and all structures and other improvements
located on such real property are in reasonably satisfactory operating condition
and repair, subject to ordinary wear and tear and ongoing maintenance in the
ordinary course of business.
(d) Section 3.8(d) of the Company Disclosure Letter is a true, complete
and accurate list of each lease, sublease, license or other occupancy agreement
which involves an obligation with respect to 50,000 or more square feet in area
relating to real property and to which the Company or any of its Subsidiaries is
a party or pursuant to which the Company, the Partnership or any of their
Subsidiaries uses or occupies real property (collectively and individually,
"Leases"). None of the Company or its Subsidiaries is a party to or obligated
under any lease, sublease, license or other occupancy agreement, other than the
Leases, involving annual base rental expenses in excess of $2,500,000. The
Company or its Subsidiary, as the case may be, which is the lessee thereof
enjoys peaceful and undisturbed possession under all Leases under which it
operates. Each of such Leases is in full force and effect and (i) none of the
Company or its Subsidiaries, or, to the Company's knowledge, any other party
thereto, has breached any Lease or is in default thereunder in any material
respect, and (ii) no event has occurred which, with the passage of time or the
giving or notice, would constitute such a breach or default.
(e) The Company and its Subsidiaries have such title to all of their
respective personal property and assets, tangible and intangible as may be
necessary to conduct their respective businesses substantially in the same
manner as such businesses have been conducted, and all such tangible personal
property and assets are in reasonably satisfactory operating condition and
repair, subject to ordinary wear and tear and ongoing maintenance in the
ordinary course of business. Except as set forth in Section 3.8(e) of the
Company Disclosure Letter, (i) there is no title defect affecting any of such
personal property or assets in the United States, and all of such personal
property and assets in the United States are, in each case, free and clear of
all Encumbrances, except for Company Permitted Encumbrances and (ii) there is no
title defect affecting any of such personal property or assets outside the
United States other than such title defects as would not, either individually or
in the aggregate, have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
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3.9 Intellectual Property. (a) Except as set forth in Section 3.9 of
the Company Disclosure Letter, the Company and its Subsidiaries own, or have the
defensible right to use, the Intellectual Property used in the Company's
business (excluding Intellectual Property that clients of the Company or any of
its Subsidiaries have, or purport to have, the right to use) except where the
failure to so own or have the defensible right to use such Intellectual Property
would not, either individually or in the aggregate, have a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole.
(b) Except as set forth in Section 3.9 of the Company Disclosure
Letter, no claims which, either individually or in the aggregate, would have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole,
have been asserted by any Person (i) challenging the ownership, validity or
effectiveness of any Intellectual Property owned or used by the Company and its
Subsidiaries, (ii) to the effect that any activity of the Company or its
Subsidiaries infringes on any other party's Intellectual Property or (iii)
against the use by the Company or its Subsidiaries of any Intellectual Property
necessary for the conduct of its respective business.
3.10 Employee Benefit Plans. (a) Section 3.10(a) of the Company
Disclosure Letter contains a complete and accurate list of (i) all Benefit Plans
of the Company and its Subsidiaries maintained in the U.S. primarily for the
benefit of U.S. citizens or residents (other than such plans which are not
Pension Plans or post-retirement benefit plans and which, both individually and
in the aggregate, involve immaterial obligations) and (ii) all Benefit Plans (A)
maintained outside the U.S. primarily for the benefit of non-U.S. citizens or
residents providing for or relating to Derivative Securities or (B) which are
Foreign Post-Retirement Plans. Except as disclosed in Section 3.10(a) of the
Company Disclosure Letter, all Benefit Plans which are "employee benefit plans,"
as defined in Section 3(3) of ERISA, in all material respects are in compliance
with and have been administered in all material respects in compliance with all
applicable requirements under any Law, including but not limited to the Code and
ERISA, and all contributions required to be made to each such plan under the
terms of such plan, ERISA, the Code or other applicable Law for all periods of
time prior to the date hereof and the Closing Date have been or will be, as the
case may be, made or accrued.
(b) Except as disclosed in Section 3.10(b) of the Company Disclosure
Letter, with respect to any Benefit Plan which is intended to qualify under
section 401(a) of the Code (each, a "Pension Plan"), a favorable determination
letter as to the qualification under Section 401(a) of the Code has been issued
and the related trust has been determined to be exempt from taxation under
Section 501(a) of the Code and no amendment made (or the failure of such
amendment to be made) to any Pension Plan subsequent to the date of such
determination letter has resulted in an adverse determination by the Internal
Revenue Service or a court of competent jurisdiction as to the qualified status
of any such plan. The Company and its Subsidiaries have performed all material
obligations required to be performed by them under, and are not in default under
or in violation of, the terms of any of the Pension Plans in any material
respect. Neither the Company nor its Subsidiaries nor any other "disqualified
person" (as defined in Section 4975 of the Code) has engaged in any "prohibited
transaction" (as such term is defined in Section 4975 of the Code), which could
subject any Pension Plan (or its related trust), the Company or any of its
Subsidiaries or (to the extent indemnified by the Company or any Subsidiary) any
officer,
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director or employee of the Company or any of its Subsidiaries to any material
tax or penalty imposed under Section 4975 of the Code. Except as disclosed in
Section 3.10(b) of the Company Disclosure Letter, no Pension Plan is a "defined
benefit plan," as defined in Section 3(35) of ERISA or subject to Section 412 of
the Code, Section 302 of ERISA or Title IV of ERISA. Except as disclosed in
Section 3.10(b) of the Company Disclosure Letter, as of the last valuation date,
the assets of each Pension Plan subject to Title IV of ERISA equalled or
exceeded the accrued liabilities (within the meaning of Section 3(29) of ERISA)
of each such Pension Plan. Except as disclosed in Section 3.10(b) of the Company
Disclosure Letter, no Benefit Plan is funded through a welfare benefit fund
within the meaning of Section 419 of the Code and no benefits under any Benefit
Plan are provided through a voluntary employees' beneficiary association within
the meaning of Section 501(c)(9) of the Code.
(c) Neither the Company nor any of its Subsidiaries is required to
contribute to, or during the five-year period ending on the Closing Date will
have been required to contribute to, any "multiemployer plan," as such term is
defined in Section 4001(a)(3) of ERISA, subject to Title IV of ERISA, and
neither the Company nor any of its Subsidiaries is subject to any withdrawal or
partial withdrawal liability within the contemplation of Section 4201 of ERISA
and will not become subject thereto as a result of the transactions contemplated
by this Agreement, the Merger Agreements or any of the Closing Agreements.
(d) Except with respect to (i) the acceleration of vesting of certain
Equity Units in connection with the Equity Roll-Over under the Stock
Subscription Agreement, (ii) the vesting and cash settlement of Company Options,
Partnership Options and GPU's contemplated by Section 6.4(b) hereof, (iii) the
Executive Committee Plans, (iv) grants under the Restricted Stock Plan or the
Stock Option Plan, and (v) the agreements disclosed in Sections 3.4(b)(i) and
3.7(d) of the Company Disclosure Letter, neither the execution and delivery of
this Agreement, the Merger Agreements or Closing Agreements nor the consummation
of the transactions contemplated hereby and thereby will (A) result in any
payment (including severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director, officer, employee or other Affiliate of
the Company or any of its Subsidiaries under any Benefit Plan or otherwise, (B)
increase any benefits otherwise payable by the Company or any Subsidiary under
any Benefit Plan or (C) result in the acceleration of the time of payment, or
vesting, of any such benefits.
(e) Except as set forth in Section 3.10(e) of the Company Disclosure
Letter, neither the Company nor any ERISA Affiliate has any material Controlled
Group Liability, nor do any circumstances exist that would result in any of them
having any Controlled Group Liability. "Controlled Group Liability" means (i)
any and all liabilities under Title IV of ERISA to the Pension Benefit Guaranty
Corporation (other than for premium payments), to any "multiemployer plan", to
any participant or to the Internal Revenue Service, (ii) any and all liabilities
with respect to withdrawal or partial withdrawal from a "multiemployer plan" (as
defined in paragraph (c) of this Section 3.10) and (iii) any and all liabilities
arising from violations of the requirements of (A) Section 302 of ERISA, (B)
Sections 412 and 4971 of the Code and (C) the continuation coverage requirements
of Section 601 et seq. of ERISA and section 4980B of the Code.
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(f) There are no agreements with, or pending petitions for recognition
of, a labor union or association as the exclusive bargaining agent for any of
the employees of the Company or any of its Subsidiaries whose principal work
location is the U.S.; no such petitions have been pending at any time within two
years of the date of this Agreement, and, to the knowledge of the Company, there
has not been any organizing effort by any union or other group seeking to
represent any such employees of the Company or any of its Subsidiaries as their
exclusive bargaining agent at any time within two years of the date of this
Agreement. There are no labor strikes, work stoppages or other labor troubles,
other than routine grievance matters, now pending, or, to the Company's
knowledge, threatened, against the Company or any of its Subsidiaries, nor have
there been any such labor strikes, work stoppages or other labor troubles, other
than routine grievance matters, with respect to the Company or any of its
Subsidiaries at any time within two years of the date of this Agreement.
(g) All Foreign Post-Retirement Plans have been established, operated,
administered and maintained in material compliance with all Laws and Orders
applicable thereto, except where any failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect on the Company
and its Subsidiaries, taken as a whole. Except where it would not, individually
or in the aggregate, have a Material Adverse Effect, (i) all premiums,
contributions and any other amounts required to be paid pursuant to applicable
Foreign Post-Retirement Plan documents or applicable Laws governing such Foreign
Post-Retirement Plans, have been paid or accrued as required, and (ii) the
present value of all benefits vested under each Foreign Post-Retirement Plan
determined as of the most recent valuation date in respect thereof does not
exceed the value of the assets of such Foreign Post-Retirement Plan except, in
each case, as would not have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
3.11 Taxes. (a) All Tax Returns required to be filed by the Company or
any Subsidiary of the Company and all Tax Returns of any consolidated, combined
or unitary group which includes the Company or any Subsidiary of the Company
have been timely and properly filed (other than, in the case of jurisdictions
outside the United States, where such failures to timely and properly file would
not, either individually or in the aggregate, have a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole).
(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Letter or as previously disclosed to the HFCP Investors, all Taxes which are due
and payable or which are required to be paid or withheld by the Company or any
Subsidiary of the Company have been duly paid or reserved for in accordance with
generally accepted accounting principles on the Company Financial Statements
through the dates thereof or, if they first become due and payable after June
30, 1996, are reserved for on the books and records of the Company or any
Subsidiary of the Company and neither the Company nor any Subsidiary of the
Company has, or will have, any liability for Taxes materially in excess of the
amounts so paid or so reserved.
(c) Except as set forth in Section 3.11(c) of the Company Disclosure
Letter, (i) all Tax Returns with respect to Taxes that have been filed by or
with respect to the Company or any Subsidiary of the Company have been audited
by the Internal Revenue Service or the appropriate Governmental Authority or the
period for assessment of the Taxes in respect of which such Tax
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Returns were required to be filed has expired (except, in the case of Tax
Returns filed outside the U.S., as would not, either individually or in the
aggregate, have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole), (ii) all deficiencies asserted or assessments made as a
result of such examinations have been paid in full, (iii) no issues that have
been raised by the relevant Governmental Authority in connection with the
examination of any such Tax Returns are currently pending and (iv) no waivers of
statutes of limitation have been given or requested by or with respect to any
Taxes of the Company or any Subsidiary of the Company.
(d) Except as set forth in Section 3.11(d) of the Company Disclosure
Letter, there are no federal, state or local Tax liens upon any property or
assets of the Company or any Subsidiary of the Company (other than, in the case
of jurisdictions outside of the U.S., such liens as would not, either
individually or in the aggregate, have a Material Adverse Effect on the Company
and its Subsidiaries, taken as a whole).
(e) For purposes of this Section 3.11, "Tax Returns" shall mean all
returns, amended returns, declarations, reports, estimates, information returns
and statements required or permitted to be filed under any Law relating to Taxes
by, or including, the Company or any Subsidiary of the Company.
3.12 Compliance with Laws. (a) Except as set forth in Section 3.12(a)
of the Company Disclosure Letter: (i) the conduct of the business of each of the
Company and its Subsidiaries complies with all Laws and Orders applicable
thereto and (ii) none of the Company or any of its Subsidiaries has received any
written communication from a Governmental Authority that alleges that the
Company or any of its Subsidiaries is not in compliance with, or may be liable
under, any Law or Order applicable thereto, other than in the case of each of
clauses (i) and (ii), such violations of Laws or Orders as would not,
individually or in the aggregate, have a Material Adverse Effect on the Company
and its Subsidiaries, taken as a whole.
(b) Except as set forth in Section 3.12(b) of the Company Disclosure
Letter: (i) the Company and each of its Subsidiaries have duly secured and
possess, on the date hereof, all necessary Licenses and Authorizations from, and
have filed all material required registrations, applications, reports and other
documents with any Governmental Authority exercising jurisdiction over the
Company or any Subsidiary of the Company, and (ii) such Licenses and
Authorizations are valid and in full force and effect without adverse conditions
except for such conditions as are generally applicable to holders of such
Licenses and Authorizations except, in the case of each of clauses (i) and (ii),
where the failure to obtain, or invalidity of, such Licenses and Authorizations
would not, either individually or in the aggregate, have a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole.
(c) Except as set forth in Section 3.12(c) of the Company Disclosure
Letter, none of the Company or any of its Subsidiaries has caused or taken any
action that is expected to result in, and none of them is subject to, any
liability or obligation under any Environmental Law relating to (i) the
environmental conditions on, under, or about any real property currently or
formerly owned, leased or operated by the Company or its Subsidiaries, including
any contamination of soil or groundwater at such properties, or (ii) the past or
present use,
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management, handling, transport, treatment, generation, storage, or release of
any Hazardous Materials by the Company or its Subsidiaries, other than in the
case of each of clauses (i) and (ii), liabilities or obligations which, either
individually or in the aggregate, would not have a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole.
3.13 Compliance with Charter and Contracts. (a) Neither the Company nor
any Subsidiary of the Company is in violation of any term of its certificate of
incorporation, by-laws or other organizational documents.
(b) Section 3.13 of the Company's Disclosure Letter contains an
accurate and complete listing, as of the date hereof, of all contracts (other
than client contracts), agreements and understandings to which the Company or
any of its Subsidiaries is a party or may be bound that would be required to be
filed under Regulation S-K Item 601(b)(10) promulgated by the Securities and
Exchange Commission, as if the Company were a registrant subject to such
regulation (each, a "Material Contract"). A complete and accurate copy of (i)
each such Material Contract, (ii) each contract with the clients listed in
Section 3.15(b) of the Company Disclosure Letter and (iii) each Lease has
previously been provided to the HFCP Investors. Except as set forth in Section
3.13 of the Company Disclosure Letter, each Material Contract is in full force
and effect and (i) none of the Company or its Subsidiaries, or, to the Company's
knowledge, any other party thereto, has breached or is in default thereunder in
any material respect, (ii) no event has occurred which, with the passage of time
or the giving of notice, would constitute such a material breach or default,
(iii) no claim of material default thereunder has been asserted, or to the
Company's knowledge, threatened, and (iv) none of the Company or its
Subsidiaries, or, to the Company's knowledge, any other party thereto is seeking
the renegotiation thereof in any material respect or substitute performance
thereunder in any material respect.
3.14 Litigation. Except as set forth in Section 3.14 of the Company
Disclosure Letter, there are no Actions pending or, to the knowledge of the
Company, threatened by or before any Governmental Authority against the Company
or any of its Subsidiaries (or any Benefit Plan), or any property of the Company
or any of its Subsidiaries (including Intellectual Property) that are reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole, or that prohibit or are
reasonably likely to delay or hinder consummation of any of the transactions
contemplated by this Agreement, the Merger Agreements or the Closing Agreements.
As of the date of this Agreement, the statements contained in Section 3.14 of
the Company Disclosure Letter are, in all material respects, accurate
descriptions of the matters discussed therein and do not omit any material
information which is necessary in order to make such information set forth
therein not misleading. There are no Orders against the Company or any of its
Subsidiaries or any of their respective properties or businesses that are
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole, or that
prohibit or are reasonably likely to delay or hinder consummation of any of the
transactions contemplated by this Agreement, the Merger Agreements or Closing
Agreements.
3.15 Client Relations. Section 3.15 of Company Disclosure Letter
contains an accurate and complete listing for the Company and the Subsidiaries,
taken as a whole, of (a) the 20 largest clients (measured by commissions and
fees generated, where "client" for purposes of
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this Section 3.15 shall include all Subsidiaries and Affiliates of any client)
for the year ended December 31, 1995, and the commissions and fees from each
such client and from all clients (in the aggregate) for the year ended December
31, 1995 and (b) the clients projected, as of the date hereof, to be the 20
largest clients (measured by commissions and fees) based on the Company's
current 1996 plan for the fiscal year ending December 31, 1996, together with
the estimated commissions and fees for each such client and all clients (in the
aggregate) for such fiscal year. Except as set forth on Section 3.15 of the
Company Disclosure Letter, as of the date hereof, no current client of the
Company or any Subsidiary which in 1995 generated commissions and fees in excess
of $4,000,000 (exclusive of any performance based bonus), or in 1996 is
estimated to generate commissions and fees in excess of $4,000,000 (exclusive of
any performance-based bonus), has, since January 1, 1996, advised the Company or
any Subsidiary of the Company that it is not continuing, or is terminating or
placing "in review", the handling of its business by the Company or any
Subsidiary of the Company, as a whole or in respect of any material product,
project or service, or will reduce its future spending with the Company or any
Subsidiary in any material manner.
3.16 Accounts Receivable; Work-in-Process; Accounts Payable. The amount
of all work-in-process, accounts receivable, expenditures billable to clients
and other debts due or recorded in the records and books of account of the
Company and its Subsidiaries as being due to the Company or its Subsidiary and
reflected in the Company Financial Statements as of and for the year ended
December 31, 1995 or in the Interim Statements arose from bona fide transactions
in the ordinary course of business and each of the Company and its Subsidiaries
has made such provisions, reserves or similar adjustments in such records and
books of account as its management has estimated in good faith and believes to
be appropriate for such accounts receivable or other debts that may not be good
and collectible in full. There has been no change since December 31, 1995 in the
amount or aging of the work-in-process, accounts receivable, expenditures
billable to clients or other debts due to the Company or its Subsidiaries or the
reserves with respect thereto, or accounts payable of the Company or its
Subsidiaries, that would, either individually or in the aggregate, have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
3.17 Affiliated Transactions. Section 3.17 of the Company Disclosure
Letter contains an accurate and complete listing of all material contracts,
agreements or understandings, in effect on the date hereof and by which the
Company or any of its Subsidiaries is bound, other than Benefit Plans, that
involve an Interested Party Transaction, and complete and accurate copies of
such agreements have been provided to the HFCP Investors.
3.18 Brokers and Finders. Except for the fees and expenses payable (a)
to Bear, Stearns & Co. Inc., which fees and expenses have been disclosed to the
HFCP Investors, (b) U.S. Trust Company of California, N.A., independent
fiduciary of the Profit Sharing Plan and the Savings Plan, (c) Duff & Phelps
LLC, financial advisor to the independent fiduciary of the Profit Sharing Plan
and the Savings Plan, and (d) the investor representative for non-accredited
investors, neither the Company nor any of its Subsidiaries has employed any
investment banker, broker, finder, consultant or intermediary in connection with
the transactions contemplated by this Agreement which would be entitled to any
investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
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3.19 Disclosure Documents. (a) None of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in the
Disclosure Documents will at the time (i) they are distributed to offerees of
the respective Company Offer and Partnership Offer or (ii) withdrawal rights
under the Company Offer and the Partnership Offer, respectively, expire and the
Offers are consummated, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading. If, at any time prior to the consummation of the Company
Offer or the Partnership Offer, as the case may be, the Company becomes aware of
the occurrence of any event with respect to the Company, any of its
Subsidiaries, or its directors, officers, employees or holders of Equity Units
which is required to be described in the Disclosure Documents (or in any
amendment of, or supplement to, the Disclosure Documents) as described above,
the Company shall notify the HFCP Investors and Holdings, and the Company shall
cooperate with the HFCP Investors and Holdings in promptly preparing an
appropriate amendment or supplement in which such event shall be so described
and disseminated to the holders of Equity Units, and the Company shall provide
all reasonable assistance to enable such amendment or supplement to comply with
all provisions of applicable law.
(b) None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in the Private Placement Memorandum
will, at the time the Private Placement Memorandum is distributed to the
potential Initial Management Investors, or at the time of the Closing, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. If at any time prior to the Closing, the Company becomes
aware of the occurrence of any event with respect to the Company or any of the
Company's Subsidiaries which is required to be described in the Private
Placement Memorandum (or in any amendment of, or supplement to, the Private
Placement Memorandum) so as to maintain the accuracy and completeness of the
Private Placement Memorandum, the Company shall notify the HFCP Investors and
Holdings, the Company shall cooperate with the HFCP Investors and Holdings in
promptly preparing an appropriate amendment or supplement in which such event
shall be so described and disseminated to the potential Initial Management
Investors, and the Company shall provide all reasonable assistance to enable
such amendment or supplement to comply with all provisions of applicable law.
(c) The offering and sale of Holdings Shares and the issuance of
Roll-Over Options in the Equity Roll-Over shall be exempt from registration
under the Securities Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND Y&R DEL
Holdings and Y&R DEL represent and warrant to the Company and the HFCP
Investors that:
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4.1 Organization of Holdings and Y&R DEL. Each of Holdings and Y&R DEL
is (and, at the time of the Closing, will be) a corporation duly organized,
validly existing and in good standing under the laws of the States of New York
and Delaware, respectively, and has all requisite corporate or other power and
authority to own or lease and operate its properties, to carry on its business
as now conducted, to enter into this Agreement, the Merger Agreements and the
Closing Agreements to which it is a party and to carry out the provisions of
this Agreement, the Merger Agreements and such Closing Agreements and consummate
the transactions contemplated hereby and thereby. Each of Holdings and Y&R DEL
is duly qualified and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary, except where the failures to be so
qualified would not, individually or in the aggregate, have a Material Adverse
Effect on Holdings and its Subsidiaries, taken as a whole.
4.2 Authorization of Agreements. (a) This Agreement, the Merger
Agreements and each of the Closing Agreements to which Holdings or Y&R DEL is a
party, and the consummation of the transactions contemplated hereby and thereby,
have been approved by the Board of Directors of each of Holdings and Y&R DEL and
have been duly authorized by all other necessary corporate action on the part of
Holdings and Y&R DEL except for the approval of Holdings' shareholders
contemplated by the Holdings Merger Agreement or by Section 2.4(c) hereof.
Holdings and Y&R DEL have delivered to the Company and the HFCP Investors true
and correct copies of resolutions adopted by the Board of Directors of each of
Holdings and Y&R DEL approving this Agreement, the Merger Agreements and each of
the Closing Agreements to which it is a party.
(b) This Agreement has been duly executed and delivered by a duly
authorized officer of each of Holdings and Y&R DEL and constitutes a valid and
binding agreement of each of Holdings and Y&R DEL enforceable against Holdings
and Y&R DEL in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application which may affect the enforcement of creditors' rights
generally, by general equitable principles and by implied covenants of good
faith and fair dealing.
(c) When executed, the Merger Agreements and each of the Closing
Agreements to which Holdings and Y&R DEL is a party will have been duly executed
and delivered by a duly authorized officer of Holdings and Y&R DEL, as the case
may be, and will constitute a valid and binding agreement of Holdings and Y&R
DEL, as the case may be, enforceable against it in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally, by general equitable principles and
by implied covenants of good faith and fair dealing.
4.3 Capitalization. (a) The authorized capital stock of Holdings
consists of 1,000 shares of Holdings Common Stock, of which 100 shares are
outstanding and owned fifty percent each by Stephanie W. Abramson and Philip U.
Hammarskjold. The authorized capital stock of Y&R DEL consists of 1,000 shares
of Y&R DEL Common Stock, of which 100 shares are
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outstanding and owned by Holdings. Upon issuance as contemplated herein and
therein, the HFCP Issued Shares and the Holdings Shares (which, following the
Mergers, will become shares of Y&R Common Stock) issuable upon exercise of the
HFCP Options will be duly authorized, validly issued, and, subject to Section
630 of the NYBCL, fully paid and nonassessable.
(b) Except as set forth herein, in the Merger Agreements or in any
Closing Agreement, on the date hereof, there are no outstanding Derivative
Securities of Holdings or Y&R DEL. Holdings does not own, directly or
indirectly, any shares of capital stock of, or other equity interest in, any
Person other than Y&R DEL. Y&R DEL does not own, directly or indirectly, any
shares of capital stock of, or other equity interests in, any Person.
(c) Except as set forth herein, in the Merger Agreements or in any
Closing Agreement, there are no (i) agreements to which Holdings or Y&R DEL is a
party that will restrict the transfer of, or affect the voting rights of, any
holder of Holdings Shares or shares of Y&R DEL Common Stock when such Holdings
Shares or shares of Y&R DEL Common Stock are issued as contemplated herein, (ii)
preemptive or anti-dilutive rights on the part of any holder or prospective
holder of any capital stock of Holdings or Y&R DEL or (iii) rights with respect
to registration under the Securities Act of any security of Holdings or Y&R DEL.
4.4 Compliance with Other Instruments. (a) The execution, delivery and
performance of this Agreement, the Merger Agreements and the Closing Agreements
to which Holdings or Y&R DEL is a party and the consummation of the transactions
contemplated hereby and thereby in accordance with the terms hereof and thereof
will not result in any violation of or conflict with any term of (i) the
certificate of incorporation, by-laws or other organizational documents of
Holdings or Y&R DEL or (ii) assuming the receipt of all Authorizations,
consents, approvals and waivers set forth in the Company Disclosure Letter, any
Law or Order, by which Holdings or Y&R DEL may be bound.
(b) The Company Disclosure Letter lists (i) all Authorizations that are
required to be made, filed, given or obtained by Holdings or Y&R DEL with, to or
from any Governmental Authority in connection with the transactions contemplated
to occur by this Agreement, the Merger Agreements and the Closing Agreements and
(ii) all consents, approvals and waivers required to be given by, or obtained
from, any other Persons to or by Holdings or Y&R DEL in connection with the
consummation of the transactions contemplated to occur by this Agreement, the
Merger Agreements and the Closing Agreements.
4.5 Brokers and Finders. Except as set forth in Section 3.18, neither
Holdings nor Y&R DEL has employed any investment banker, broker, finder,
consultant or intermediary in connection with the transactions contemplated by
this Agreement which would be entitled to any investment banking, brokerage,
finder's or similar fee or commission in connection with this Agreement or the
transactions contemplated hereby.
4.6 No Prior Activities. Neither Holdings nor Y&R DEL has incurred,
directly or indirectly, any liabilities or obligations, except those incurred in
connection with its incorporation and capitalization or with the negotiation of
this Agreement and the Senior Bank Facility and the consummation of the
transactions contemplated hereby and thereby. Neither Holdings
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nor Y&R DEL has engaged, directly or indirectly, in any business or activity of
any type or kind, or entered into any agreement or arrangement with any Person,
and is not subject to or bound by any liability, obligation or undertaking, that
is not contemplated by or in connection with their incorporation and
capitalization or this Agreement and the transactions contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE HFCP INVESTORS
The HFCP Investors represent and warrant to the Company, the
Partnership, Holdings and Y&R DEL that:
5.1 Organization of the HFCP Investors. Each of the HFCP Investors
(which is not an individual) is (and, at the time of the Closing, will be) a
partnership duly organized and validly existing under the laws of the
jurisdiction of its organization and has all requisite power and authority to
own or lease and operate its properties, to carry on its business as now
conducted, to enter into this Agreement and the Closing Agreements to which it
is a party and to carry out the provisions of this Agreement and such Closing
Agreements and consummate the transactions contemplated hereby and thereby.
5.2 Authorization of Agreements. (a) This Agreement and each of the
Closing Agreements to which the HFCP Investors are parties, and the consummation
of the transactions contemplated hereby and thereby, have been duly authorized
by all necessary action on the part of the HFCP Investors. Each of the HFCP
Investors (which is not an individual) has delivered to the Company and Holdings
true and correct copies of resolutions approving this Agreement and each of the
Closing Agreements to which it is a party.
(b) This Agreement has been duly executed and delivered by each of the
HFCP Investors and constitutes a valid and binding agreement of each such HFCP
Investor enforceable against such HFCP Investor in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally, by general equitable principles and
by implied covenants of good faith and fair dealing.
(c) When executed, each of the Closing Agreements to which any HFCP
Investor is a party will have been duly executed and delivered by such HFCP
Investor, and will constitute a valid and binding agreement of such HFCP
Investor, enforceable against it in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application which may affect the enforcement of
creditors' rights generally, by general equitable principles and by implied
covenants of good faith and fair dealing.
5.3 Compliance with Other Instruments. (a) The execution, delivery and
performance of this Agreement, the Merger Agreements and Closing Agreements and
the
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consummation of the transactions contemplated hereby and thereby in accordance
with the terms hereof and thereof will not result in any violation of or
conflict with, constitute a default (with or without notice or the lapse of
time) under, or give rise to a right of termination, cancellation, acceleration
of, or a right to put, or compel a tender offer for, outstanding securities
under, or result in the imposition of any Encumbrance under, or require any
consent under, any term of (i) the agreement of limited partnership or other
organizational documents of any HFCP Investor (which is not an individual), or
(ii) any note, bond, debt instrument, mortgage, indenture or other agreement or
instrument or, assuming the receipt of all Authorizations, consents, approvals
and waivers set forth in the Company Disclosure Letter, any Law or Order, by
which any HFCP Investor may be bound, except for such violations, conflicts,
defaults, rights of termination, cancellation, acceleration, put or tender
offer, Encumbrances and consents which would not, either individually or in the
aggregate, have a material adverse effect on the ability of the HFCP Investors
to consummate the transactions contemplated by, and perform their obligations
under, this Agreement and the Closing Agreements.
(b) The HFCP Investors Disclosure Letter lists (i) all Authorizations
that are required to be made, filed, given or obtained by any HFCP Investor
with, to or from any Governmental Authority in connection with the transactions
contemplated to occur by this Agreement, the Merger Agreements and Closing
Agreements and (ii) all consents, approvals and waivers required to be given by,
or obtained from, any other Persons to or by any HFCP Investor in connection
with the consummation of the transactions contemplated to occur by this
Agreement, the Merger Agreements and the Closing Agreements.
5.4 Brokers and Finders. None of the HFCP Investors has employed any
investment banker, broker, finder, consultant or intermediary in connection with
the transactions contemplated by this Agreement which would be entitled to any
investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
5.5 Investment Intent. The HFCP Investors are acquiring the HFCP Issued
Shares and the HFCP Options hereunder for their own accounts with the present
intention of holding them for investment purposes and with no present intention
of distributing or selling such HFCP Issued Shares (or, following the Mergers,
the shares of Y&R Common Stock), HFCP Options, or the Holdings Shares (or,
following the Mergers, the shares of Y&R Common Stock) issuable upon exercise
thereof. None of the HFCP Investors will sell or otherwise dispose of any of
such securities unless such sale or other disposition has been registered or is
exempt from registration under the Securities Act. Each of the HFCP Investors is
an "accredited investor", as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act, and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the investments to be made by it hereunder.
5.6 HFCP Investors Disclosure. (a) None of the information supplied or
to be supplied by any of the HFCP Investors for inclusion or incorporation by
reference in the Disclosure Documents will at the time (i) the Disclosure
Documents are distributed to offerees of the respective Company Offer and
Partnership Offer or (ii) withdrawal rights under the Company Offer and the
Partnership Offer, respectively, expire and the Offers are consummated, contain
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any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
If at any time prior to the consummation of the Company Offer or the Partnership
Offer, as the case may be, any of the HFCP Investors becomes aware of the
occurrence of any event with respect to the HFCP Investors which is required to
be described in the Disclosure Documents (or in any amendment of, or supplement
to, the Disclosure Documents) as described above, such HFCP Investor shall
notify the Company and Holdings, and such HFCP Investor shall cooperate with the
Company and Holdings in promptly preparing an appropriate amendment or
supplement in which such event shall be so described and disseminated to the
holders of Equity Units and such HFCP Investor shall provide all reasonable
assistance to enable such amendment or supplement to comply with all provisions
of applicable law.
(b) None of the information supplied or to be supplied by any of the
HFCP Investors for inclusion or incorporation by reference in the Private
Placement Memorandum will, at the time the Private Placement Memorandum is
distributed to the potential Initial Management Investors, or at the time of the
Closing, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. If at any time prior to the Closing, any of
the HFCP Investors becomes aware of the occurrence of any event with respect to
the HFCP Investors which is required to be described in the Private Placement
Memorandum (or in any amendment of, or supplement to, the Private Placement
Memorandum), so as to maintain the accuracy and completeness of the Private
Placement Memorandum, such HFCP Investor shall notify the Company and Holdings,
and such HFCP Investor shall cooperate with the Company and Holdings in promptly
preparing an appropriate amendment or supplement in which such event shall be so
described and disseminated to the potential Initial Management Investors and
such HFCP Investor shall provide all reasonable assistance to enable such
amendment or supplement to comply with all provisions of applicable law.
5.7 Plan Assets. The HFCP Issued Shares and the HFCP Options will not
be "plan assets" within the meaning of U.S. Department of Labor Regulation 29
C.F.R. Section 2510.3-101.
5.8 Section 280G Requirement. None of the Company, Holdings or Y&R
shall cease to meet the requirement set forth in Section 280G(b)(5)(A)(ii)(I) of
the Code as a result of the acquisition of the HFCP Issued Shares and the HFCP
Options hereunder.
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
6.1 Interim Conduct of Business of the Company. Except as contemplated
by this Agreement or as set forth in the Company Disclosure Letter, during the
period from the date of this Agreement to the Closing Date, (a) each of the
Company and the Partnership shall, and shall cause each of their Subsidiaries
to, conduct its operations according to its ordinary course of
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business consistent with past practice, (b) to the extent consistent with the
foregoing, each of the Company and the Partnership shall seek to preserve intact
its current business, keep available the service of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it with the objective that their goodwill and
ongoing businesses shall be unimpaired on the Closing Date and (c) the Company
and the Partnership shall not, without the prior written consent of the HFCP
Investors, take any action, or permit or suffer to be taken any action, which is
represented in Section 3.7 not to have been taken since December 31, 1995.
6.2 Access to Information. (a) From and after the execution hereof and
following the Closing, upon reasonable notice, each of the Company, the
Partnership, Holdings and Y&R DEL shall and shall cause each of their
Subsidiaries to, afford to officers, employees, counsel, accountants and other
authorized representatives of the HFCP Investors ("HFCP Representatives")
access, during normal business hours throughout the period prior to, on and
after the Closing Date until the termination of this Agreement, to its
properties, books and records and, during such period, shall (and shall cause
each of its Subsidiaries to) furnish promptly to such HFCP Representatives all
information concerning its business, properties and personnel as may reasonably
be requested. The parties acknowledge and agree that no investigation, pursuant
to this Section 6.2 shall affect or be deemed to modify any of the respective
representations or warranties made by the Company, the Partnership, Holdings or
Y&R DEL.
(b) From and after the Closing and until such time as the HFCP
Investors hold less than 5% of the then outstanding shares of Y&R Common Stock,
Y&R shall deliver to the HFCP Investors: (i) annual audited consolidated
financial statements of Y&R as soon as practicable following the end of each Y&R
fiscal year but in no event later than 90 days following the end of such fiscal
year (provided that, for the year ended December 31, 1996, such annual financial
statements shall be delivered no later than 120 days following the end of such
fiscal year); (ii) quarterly unaudited consolidated financial statements as soon
as practicable following the end of each Y&R fiscal quarter but in no event
later than 45 days following the end of such fiscal quarter (provided that, for
the quarter ended March 31, 1997, such quarterly financial statements shall be
delivered no later than 90 days following the end of such fiscal quarter); (iii)
following the end of each six-month period ending June 30 and December 31, and
within 55 days and 90 days, respectively, a statement setting forth the details
of the reserve and allowance accounts, including the beginning balances,
additions thereto and deductions therefrom and other changes therein affecting
Proportionate EBITA, and the ending balances, and an explanation of the changes
in reasonable detail (A) on a consolidated basis, (B) for each line of business,
and (C) for the Y&R corporate level; (iv) monthly management reports within 20
days following the end of each month; (v) annual business plans and preliminary
budgets for any fiscal year of Y&R within 30 days following the start of such
fiscal year; (vi) a final budget for any fiscal year of Y&R within 90 days
following the start of such fiscal year; and (vii) all correspondence between
Y&R and any of its Subsidiaries and the Senior Bank Lenders relating to the
Senior Bank Facility (other than notices of borrowing and repayment and similar
mechanical items) as soon as practicable following the date of such
correspondence.
(c) Subject to the requirements of law, the HFCP Investors will keep
confidential all information and documents obtained pursuant to this Section 6.2
(or heretofore furnished to
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them by the Company in connection with the Recapitalization) except as otherwise
consented to by the other party; provided, however, that the HFCP Investors
shall not be precluded from making any disclosure which (based on advice of
counsel) they deem required by law. In the event any HFCP Investor is required
to disclose any information or documents pursuant to the immediately preceding
sentence, such HFCP Investor shall promptly give written notice of such
disclosure that is proposed to be made to Y&R so that the parties can work
together to limit the disclosure to the greatest extent possible and, in the
event that any party is legally compelled to disclose any information, to seek a
protective order or other appropriate remedy or both. This Section 6.2
supersedes the Confidentiality Agreement dated May 20, 1996 by and between the
Company and HFCP, and, as of the date hereof, such Confidentiality Agreement
shall be terminated and shall be null and void and be of no further force or
effect.
6.3 Further Assurances. The parties shall and shall use all reasonable
best efforts to cause their respective Subsidiaries to: (a) promptly make all
filings and seek to obtain all Authorizations required under all applicable Laws
with respect to the transactions contemplated hereby and by the Merger
Agreements and Closing Agreements and cooperate with each other in all
reasonable respects with respect thereto; (b) use all reasonable efforts to
promptly take, or cause to be taken, all other actions and do, or cause to be
done, all other things necessary, proper or appropriate to satisfy the
conditions set forth in Article VII and to consummate and make effective the
transactions contemplated by this Agreement, the Merger Agreements and the
Closing Agreements on the terms and conditions set forth herein and therein as
soon as practicable (including seeking to remove promptly any injunction or
other legal barrier that may prevent such consummation); and (c) not take any
action (including facilitating, effecting or agreeing to effect or announcing an
intention or proposal to effect, any acquisition, business combination or other
transaction) which would reasonably be expected to impair the ability of the
parties to consummate the transactions contemplated by this Agreement at the
earliest practicable time including any action which would impair efforts to
secure any required Authorizations for such transactions (regardless of whether
such action would otherwise be permitted or not prohibited hereunder).
6.4 Offers and Mergers. (a) As soon as practicable, (i) Holdings shall
make an offer to purchase for cash all outstanding Company Shares (the "Company
Offer") and (ii) the Company shall make an offer to purchase for cash all
outstanding LPU's (the "Partnership Offer"), upon the terms and subject to the
conditions set forth herein. The Offers shall be at a price of $115 per Company
Share or LPU, minus the amount (if any) of (A) the principal and interest of any
outstanding Company Common Stock or LPU holder loans with respect to such Equity
Unit, which loans will be deemed repaid and (B) (in the case of the Partnership
Offer) the original principal amount of any Exchange Notes and the aggregate of
all Reductions relating to LPU's. LPU's issued in the 1988 reorganization of the
Company must be surrendered together with the related Exchange Notes (which will
be repaid net of loans) in the Partnership Offer. In connection with the Offers,
Holdings and the Company shall distribute to the holders of Company Shares and
LPU's the Disclosure Documents, setting forth the terms and conditions of the
Offers and information concerning the Company and the Partnership, it being
understood that the obligation of Holdings and the Company to commence the
Offers and to accept for payment
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and to pay for any Company Shares or LPU's surrendered pursuant to the Offers,
shall be subject to the conditions set forth in Exhibit 11 hereto.
(b) In conjunction with the Offers, the respective employers of holders
of outstanding Company Options and Partnership Options (in each case, whether or
not vested or exercisable) and rights with respect to GPU's shall propose to
such holders that they surrender for cancellation (i) their Company Options and
their Partnership Options for total aggregate compensation totalling $115 per
share of Company Common Stock or LPU subject to such Options less an amount
equal to the number of shares of Company Common Stock or LPU's subject to such
Options multiplied by the exercise price per share of Company Common Stock or
LPU and (ii) their rights with respect to GPU's for total aggregate compensation
totalling $115 per GPU. Such proposals for surrender of Company Options and
Partnership Options and rights with respect to GPU's by such employees in
expectation of cash consideration (and any modifications thereto agreed upon
pursuant to Section 6.6 hereof), together with the consent of such employees to
the Recapitalization, are collectively referred to herein as the "Special
Compensation Arrangements." Holders of Company Options, Partnership Options and
rights with respect to GPU's shall be asked to agree to such surrender by
executing a consent to that effect no later than the scheduled expiration of the
Offers. Except as otherwise agreed pursuant to Section 6.6 hereof, payments with
respect to Company Options, Partnership Options and rights with respect to GPU's
to be made to employees of non-U.S. Affiliates of the Company will be made at
Closing, concurrently with the consummation of the Offers. Payments with respect
to Company Options, Partnership Options and rights with respect to GPU's to be
made to employees of the Company, the Partnership, or U.S. Affiliates of the
Company or the Partnership, will be made (whether or not such person is still
employed) on March 17, 1997, or as soon thereafter as possible under the Senior
Bank Facility, together with interest on such payments from the Closing Date at
the rate of the Eurodollar Base Rate for a three month period (as defined in the
draft dated September 12, 1996 of the credit agreement providing for the Senior
Bank Facility) plus 1%.
(c) The holders of record of shares of Company Preferred Stock shall
vote to (i) approve (A) the acceleration of vesting of certain Equity Units in
connection with the Equity Roll-Over under the Stock Subscription Agreement and
(B) the vesting and cash settlement of Company Options, Partnership Options and
GPU's contemplated by Section 6.4(b) hereof and (ii) approve the Holdings
Merger. In conjunction with the Offers, (i) Holdings will obtain proxies from
the holders of record of shares of Company Common Stock (effective upon
consummation of the Company Offer) for a meeting of the Company's shareholders
to be held on the date of consummation of the Company Offer (the "Company
Shareholders' Meeting") for the purpose of approving the Holdings Merger and
(ii) the Company will obtain proxies from the holders of record of LPU's
(effective upon consummation of the Partnership Offer) for the purpose of
approving the Partnership Merger. The Company will take all necessary steps (A)
under the NYBCL to call and convene the Company Shareholders' Meeting on the
date of consummation of the Company Offer and (B) to secure the vote of holders
of LPU's approving the Partnership Merger.
(d) Holdings shall accept for payment Company Shares pursuant to the
Company Offer, and the Company shall accept for payment LPU's pursuant to the
Partnership Offer, in
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each case as soon as legally permissible, and pay for all such Company Shares
and LPU's as promptly as practicable thereafter, following the later of (i) the
20th Business Day following commencement of the Offers and (ii) the satisfaction
or waiver of the conditions set forth in Exhibit 11 hereto.
(e) Holdings shall not amend the Company Offer, nor waive any of the
conditions of the Company Offer, without the consent of the HFCP Investors and
the Company. The Company shall not amend the Partnership Offer, nor waive any of
the conditions of the Partnership Offer, without the consent of the HFCP
Investors. The terms of the Special Compensation Arrangements shall not be
amended by the Company or any of its Subsidiaries without the consent of the
HFCP Investors.
(f) The parties shall take all steps necessary to commence and
consummate the Offers and the Mergers, and perform their other obligations, in
each case, in accordance with this Agreement and the Merger Agreements and
subject to the respective terms and conditions contained herein and therein. No
provision of the Merger Agreements may be amended or waived without the consent
of the HFCP Investors.
6.5 Brand Asset(R) Valuator. The HFCP Investors acknowledge that the
Company intends to invest an additional $5-6 million in Brand Asset(R) Valuator,
and that such additional investment will not be taken into account in
determining the Bonus Pool in 1996.
6.6 Amendments to Preserve Tax Treatment. The parties shall amend this
Agreement and shall agree to such amendments to the Merger Agreements and to the
Closing Agreements to which they are a party, and to the Offers and to the
Special Compensation Arrangements, as are necessary to incorporate such changes
in the structure of the Recapitalization as the parties reasonably determine to
be necessary so that the Recapitalization has substantially the tax and other
consequences described in Section 7.1(k), or so as to avoid adverse tax
consequences to holders of Equity Units outside the United States; provided that
the parties shall not be obligated to approve such changes unless they (a) do
not affect the economic terms of the Recapitalization in a manner adverse to any
such party without such party's consent and (b) comply with applicable law.
6.7 NYBCL Section 912 and DGCL Section 203. Holdings, the Company and
Y&R DEL shall take such corporate actions as may be necessary so that the
receipt of the HFCP Issued Shares, the Holdings Shares or shares of Y&R Common
Stock subject to the HFCP Options, and any other Holdings Shares which may be
acquired by the HFCP Investors in accordance with the provisions of the
Stockholders' Agreement subsequent to the Closing, shall be exempt from the
provisions of NYBCL Section 912 and DGCL Section 203, and the HFCP Investors
shall not be "interested shareholders" or "interested stockholders" for purposes
of such provisions.
6.8 Indemnification for Certain Claims. Holdings shall indemnify all
individuals who were members of the Board of Directors of the Company or
Holdings at any time on or after August 11, 1996 through the date of this
Agreement to the full extent permitted by law for any
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and all claims by any holder of Equity Units (other than the Management
Investors) relating to the fairness of the Offers, the Special Compensation
Arrangements or the Mergers.
6.9 Plan Assets. So long as an HFCP Investor shall own Y&R Common
Stock, such HFCP Investor shall ensure that such shares of stock are not "plan
assets" within the meaning of U.S. Department of Labor Regulation 29 C.F.R.
Section 2510.3-101.
6.10 Waiver of Nonlapse Restrictions. Holdings, the Company, the
Partnership and the HFCP Investors agree that the waiver of restrictions set
forth in the LP Agreement and the Existing Stockholders' Agreement with respect
to LPU's and Company Common Stock in order to consummate the transactions
contemplated hereby constitute noncompensatory waivers of nonlapse restrictions
within the meaning of Section 83 of the Code and the regulations promulgated
thereunder and that neither Holdings nor the Company nor any other party shall
take any U.S. income tax deduction with respect thereto. Holdings, the Company
and the Partnership agree to furnish each holder of Company Common Stock or
LPU's with the statement required by Treas. Reg. Section 1.83-5(b)(2), if so
requested.
6.11 Amendment of Disclosure Letters. The Company, Holdings and the
HFCP Investors may amend their respective Disclosure Letters after the date of
this Agreement and prior to the Closing to add disclosure concerning any event
occurring after the date of this Agreement over which the party so amending such
Disclosure Letter had no control. Any such amendment (a) shall be effective to
make the representations and warranties contained in Articles III, IV and V true
and accurate for purposes of Article IX hereof, but (b) shall be disregarded for
purposes of Article VII such that if, in the absence of such amendment, a party
would have the right not to consummate the transactions contemplated hereby by
virtue of the occurrence of such event, such right not to consummate shall
continue notwithstanding such amendment to the Disclosure Letter.
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligations. The respective obligations
of each party to consummate the transactions contemplated by this Agreement are
subject to the fulfillment on or prior to the Closing Date of each of the
following conditions, any or all of which may be waived in whole or in part by
the party being benefitted thereby, to the extent permitted by applicable law:
(a) Financing. A definitive agreement in a form satisfactory to the
HFCP Investors and the Company shall have been executed by Holdings, Y&R DEL,
the Company, the Partnership and the Senior Bank Lenders with respect to the
Senior Bank Facility and the Senior Bank Lenders shall be prepared to fund
simultaneously with the Closing.
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(b) Stock Subscription Agreement. All of the conditions to consummation
of the transactions contemplated by the Stock Subscription Agreement shall have
been satisfied.
(c) Closing Agreements. The Company and the HFCP Investors shall have
agreed upon the forms of the Amended and Restated Certificate of Incorporation
of Holdings, the Amended and Restated By-laws of Holdings, the Executive Option
Agreements, the HFCP Voting Trust Agreement, the Restricted Stock Agreements,
the Roll-Over Option Agreements, and the Registration Rights Agreement. The
parties to the Closing Agreements shall have executed and delivered each of the
Closing Agreements to the other respective parties thereto, other than such
Closing Agreements to be delivered at the Closing pursuant to Section 2.3(b).
(d) Successful Offers. All of the conditions to the Offers set forth in
Exhibit 11 hereto shall have been satisfied in accordance with their terms
(without amendment or waiver except as mutually agreed by the parties hereto)
and only the acceptance for payment of the Equity Units tendered into the Offers
and surrendered pursuant to the Special Compensation Arrangements shall remain
for consummation of the Offers.
(e) No Conditions to the Mergers. All of the conditions to the
consummation of the Mergers contemplated by the Company Merger Agreement, the
Holdings Merger Agreement and the Partnership Merger Agreement, respectively,
other than the consummation of the Company Offer and the Partnership Offer,
respectively, the consummation of the Special Compensation Arrangements, and the
Equity Unit holder approval of the Mergers thereafter, shall have been
satisfied.
(f) Government Consents, Etc. All (i) Authorizations specified in the
Company Disclosure Letter and the HFCP Investors Disclosure Letter and (ii)
other Authorizations required in connection with the execution and delivery of
this Agreement, the Merger Agreements and the Closing Agreements and the
performance of the obligations hereunder and thereunder shall have been made or
obtained, in each case, without limitation or restriction, except where the
failure to have obtained such Authorizations would not (A) have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole, or (B) be
reasonably likely to delay or impair the ability of the parties to perform their
obligations under this Agreement, the Merger Agreements or any of the Closing
Agreements.
(g) No Injunction. There shall not be in effect any Order restraining,
enjoining or otherwise preventing consummation of the transactions contemplated
by this Agreement, the Merger Agreements or the Closing Agreements or permitting
such consummation only subject to any condition or restriction unacceptable to
either the HFCP Investors, or the Company, in their respective reasonable
judgment.
(h) Third-Party Consents. All required authorizations, consents or
approvals of any third party (other than a Governmental Authority), shall have
been obtained, except where the failure to have obtained such authorizations,
consents or approvals would not (A) have a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole, or (B) be reasonably likely to
materially impair the ability of the parties to perform their obligations under
this
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Agreement, the Merger Agreements or any of the Closing Agreements. All members
of the Executive Committee of the Company's Board of Directors as of the date
hereof shall have agreed to terminate, and waive all rights under, the Executive
Committee Plans.
(i) Company Fairness Opinion. The Board of Directors of the Company
shall have received an opinion from Bear, Stearns & Co. Inc., dated the date
hereof, to the effect that, as of the date thereof, the consideration to be
received by the holders of Equity Units, other than the Initial Management
Investors, in the Offers, the Mergers and the Special Compensation Arrangements,
is fair to such holders from a financial point of view (the "Company Fairness
Opinion").
(j) Savings Plan/Profit Sharing Plan Fairness Opinion. U.S. Trust
Company of California, N.A., as independent fiduciary of the Savings Plan and
the Profit Sharing Plan, shall have received an opinion from Duff & Phelps, LLC,
financial advisor to the independent fiduciary, to the effect that (i) the
consideration to be paid to the Savings Plan and the Profit Sharing Plan is
equal to or greater than "adequate consideration" as defined under Title I of
ERISA and (ii) the terms and conditions of the Recapitalization are fair and
reasonable to the Savings Plan and the Profit Sharing Plan from a financial
point of view (the "Savings Plan/Profit Sharing Plan Fairness Opinion").
(k) Tax Consequences. The Company and the HFCP Investors shall be
reasonably satisfied that, based on current law, the Recapitalization will have
the following tax consequences (except as results from any modifications
approved under Section 6.6 hereof):
(i) the Contribution and the Equity Roll-Over shall be tax-free under
U.S. law other than with respect to the treatment of loans against Equity
Units exchanged or cancelled in the Equity Roll-Over;
(ii) the Recapitalization transaction shall generate approximately
$51.5 million of assets which are deductible or amortizable for tax
purposes;
(iii) the exchange of Equity Units for cash in the Offers, Mergers and
Special Compensation Arrangements shall generate a total of approximately
$204 million in compensation deductions in 1996 and 1997 (with up to an
additional $30 million (less any deductions unavailable due to Section 280G
of the Code) in compensation deductions with respect to certain previously
repurchased Equity Units);
(iv) the exercise of Roll-Over Options by U.S. taxpayers shall generate
further deductions upon exercise based on the difference between the then
fair market value of the underlying shares of Y&R Common Stock and the
exercise price of the Roll-Over Option;
(v) the vesting of the shares of Y&R Common Stock held by the
Management Investors who are U.S. taxpayers under the Restricted Stock Trust
shall generate
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further deductions based on the then fair market value of the shares of Y&R
Common Stock; and
(vi) neither the Company nor any Subsidiary of the Company will be
obligated as a result of the transactions in connection with the
Recapitalization to be consummated at Closing to make a payment that would
be a material "excess parachute payment" to a "disqualified individual," as
those terms are defined in Section 280G of the Code except as disclosed in
Section 3.4(b) of the Company Disclosure Letter.
(l) Shareholder Approval. If the parties reasonably determine that
approval by the holders of Company Preferred Stock is necessary in order to
satisfy the condition contained in subsection (k)(vi) above, then such approval
shall have been obtained.
(m) Corporate Proceedings. Holdings shall have filed an Amended and
Restated Certificate of Incorporation and adopted Amended and Restated By-laws,
as contemplated by Section 2.2.
7.2 Conditions to Obligations of the HFCP Investors. The obligations of
the HFCP Investors to consummate the transactions contemplated by this Agreement
are subject to the fulfillment at or prior to the Closing of each of the
following conditions, any or all of which may be waived in whole or part by the
HFCP Investors, to the extent permitted by applicable law:
(a) Representations and Warranties True. Without regard to any
amendment to the Company's Disclosure Letter permitted under Section 6.11, the
representations and warranties of each of the Company, the Partnership, Holdings
and Y&R DEL shall have been true and accurate when made and shall be true and
accurate at the time of the Closing with the same effect as though such
representations and warranties had been made at such time, except (i) for
changes resulting from the consummation of the transactions contemplated by this
Agreement, the Merger Agreements and the Closing Agreements, (ii) for changes
consented to by the HFCP Investors pursuant to Section 6.1 and (iii) for
representations and warranties that speak as of a specific date other than the
Closing Date (which need only be correct as of such date).
(b) Performance. Each of the Company, the Partnership, Holdings and Y&R
DEL shall have performed or complied with all agreements and conditions
contained herein or in the Merger Agreements required to be performed or
complied with by it prior to or at the time of the Closing.
(c) No Material Adverse Change. Since December 31, 1995, there shall
have been no material adverse change in the Business Condition of the Company
and its Subsidiaries, taken as a whole.
(d) Current Management. The following employees of the Company shall
continue to hold the positions and offices they hold with the Company as of the
date hereof: Thomas Bell, Peter Georgescu, Mitchell Kurz, John McGarry and
Edward Vick.
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(e) Compliance Certificate. The Company shall have delivered to the
HFCP Investors a certificate, dated the date of the Closing, signed by or on
behalf of the Company by the Chairman or any Vice Chairman, certifying as to the
fulfillment of the conditions specified in Sections 7.2(a) and (b) with respect
to the Company and the Partnership and the conditions specified in Sections
7.2(c) and 7.2(d).
(f) Proceedings. All corporate proceedings taken by the Company and its
Subsidiaries and Holdings and Y&R DEL in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in all respects to the HFCP Investors, and the HFCP Investors shall
have received all such counterpart originals or certified or other copies of
such documents as it may reasonably request.
(g) Appraisal Rights. The holders of more than 20% of the Equity Units
shall not have sought appraisal or dissenters' rights or otherwise objected to
the Offers or the Mergers.
(h) Absence of Litigation. No Action shall be pending or threatened
which relates to the transactions contemplated by this Agreement and (i) seeks
to enjoin such transactions or impose any remedy, condition or restriction with
respect thereto or (ii) could have a material adverse effect on the Business
Condition of the Company and its Subsidiaries, taken as a whole.
(i) Equity Roll-Over. The composition of the Initial Management
Investors as participants in the Equity Roll-Over, and the Net Equity Value
Rolled by each Initial Management Investor identified in Section 7.2(d), shall
be substantially as heretofore disclosed to the HFCP Investors.
(j) Repayment of Loans. The Company shall have made arrangements
satisfactory to the HFCP Investors, in their reasonable judgment, for the
repayment by holders of Equity Units of substantially all loans or advances
(other than relocation loans) from the Company or its Subsidiaries, and the
release of substantially all guarantees by the Company or its Subsidiaries of
loans by third parties to holders of Equity Units, to the extent not offset
against Equity Units contributed or surrendered (i) under the Stock Subscription
Agreement or (ii) in the Offers, the Mergers or the Special Compensation
Arrangements.
7.3 Conditions to Obligations of the Company. The obligations of the
Company to consummate the transactions contemplated by this Agreement are
subject to the fulfillment at or prior to the Closing of each of the following
conditions, any or all of which may be waived in whole or in part by the Company
to the extent permitted by applicable law:
(a) Representations and Warranties True. The representations and
warranties of the HFCP Investors shall have been true and accurate when made and
shall be true and accurate at the time of the Closing with the same effect as
though such representations and warranties had been made at such time, except
for (i) changes resulting from the consummation of the transactions contemplated
by this Agreement, the Merger Agreements and the Closing Agreements and (ii)
representations and warranties that speak as of a specific date other than the
Closing Date (which need only be correct as of such date).
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(b) Performance. The HFCP Investors shall have performed or complied
with all agreements and conditions contained herein or in the Merger Agreements
required to be performed or complied with by them prior to or at the time of the
Closing.
(c) Compliance Certificate. The HFCP Investors shall have delivered to
the Company a certificate, dated the date of the Closing, signed by an officer
of the Ultimate General Partner, certifying as to the fulfillment of the
conditions specified in Sections 7.3(a) and 7.3(b).
(d) Proceedings. All corporate and partnership proceedings taken by the
HFCP Investors in connection with the transactions contemplated hereby and all
documents incident thereto shall be reasonably satisfactory in all respects to
the Company, and the Company shall have received all such counterpart originals
or certified or other copies of such documents as it may reasonably request.
ARTICLE VIII
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be terminated and
transactions contemplated hereby may be abandoned at any time prior to the
Closing by the mutual written consent of the HFCP Investors and the Company.
8.2 Termination by Either the HFCP Investors or the Company. This
Agreement may be terminated (upon notice from the terminating party to the other
parties) and the transactions contemplated hereby may be abandoned by action of
the Board of Directors of either the Ultimate General Partner or the Company if
(a) the Closing shall not have been consummated by December 31, 1996 (provided
that the right to terminate this Agreement under this clause (a) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of the Closing to
occur on or before such date) or (b) any Governmental Authority shall have
issued an Order permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby and such Order shall have become final and
nonappealable.
8.3 Effect of Termination and Abandonment. In the event of termination
of this Agreement and other transactions contemplated hereby pursuant to this
Article VIII, no party hereto (or any of its directors or officers) shall have
any liability or further obligation to any other party to this Agreement, except
as provided in Article IX and Section 10.2 hereof, and in the Stockholders'
Agreement, and except that nothing herein will relieve any party from liability
for any breach of this Agreement occurring prior to such termination.
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ARTICLE IX
INDEMNIFICATION
9.1 Indemnification Relating to the Agreement. (a) The Restricted
Stock Trust shall indemnify and hold harmless the HFCP Investors and each
director, officer, successor and assign of the HFCP Investors, the Ultimate
General Partner and its Subsidiaries (together, the "Indemnitees"), to the
extent and in the manner provided for in the Restricted Stock Trust Agreement
and this Article IX, from and against any and all losses, liabilities, claims,
damages (including punitive, consequential or treble damages), obligations,
liens, assessments, judgments, awards and fines (including those arising out of
any pending or threatened Action, including any settlement or compromise
thereof) and any reasonable out-of-pocket costs and expenses (including
reasonable attorneys' fees and expenses incurred in connection with any pending
or threatened Action) ("Losses") resulting or arising from:
(i) after giving effect to any amendment to the Company Disclosure
Letter permitted under Section 6.11, the failure of the representations and
warranties of the Company and the Partnership set forth in Sections 3.1 through
3.4 (inclusive) to be true and correct when made and at the time of Closing
(except (A) for changes resulting from the consummation of the transactions
contemplated by this Agreement, the Merger Agreements and the Closing
Agreements, (B) for changes consented to by the HFCP Investors pursuant to
Section 6.1 and (C) to the extent such representations and warranties speak as
of a specific date, then such representations and warranties need be true only
as of such date); or
(ii) after giving effect to any amendment to the Company Disclosure
Letter permitted under Section 6.11, the failure of the representations and
warranties of the Company and the Partnership set forth Sections 3.5 through
3.20 (inclusive) to be true and correct to the knowledge of the Board of
Directors of the Company when made and at the time of Closing (except (A) for
changes resulting from the consummation of the transactions contemplated by this
Agreement, the Merger Agreements and the Closing Agreements, (B) for changes
consented to by the HFCP Investors pursuant to Section 6.1 and (C) to the extent
such representations and warranties speak as of a specific date, then such
representations and warranties need be true only as of such date); or
(iii) any failure of the Company and the Partnership to comply with,
or nonfulfillment of, any covenant or agreement of the Company and the
Partnership, respectively, set forth in Sections 6.1, 6.4 or 6.7 of this
Agreement to be performed by it prior to Closing; or
(iv) any direct or indirect liability (including by reason of any
indemnity paid to any Person who is or was a member of the Board of Directors of
the Company or Holdings, as contemplated by Section 6.8 or otherwise) for
damages to a current holder of an Equity Unit (other than such a holder who
becomes an Initial Management Investor) relating to the fairness of the amount
received by such holder in the Offers or the Mergers, or as a result of the
Special Compensation Arrangements, as the case may be, provided that the
fairness claim by such holder was asserted prior to the earlier of (A) the
filing of a registration statement relating to an Initial
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Public Offering (as defined in the Stockholders' Agreement) or (B) the approval
of a Change of Control (as defined in the Stock Option Plan) by the HFCP
Investors and the Management Voting Trust; or
(v) any direct or indirect liability as a result of the indemnity by
the Company of the Voting Trustees pursuant to Section 5 of the Management
Voting Trust Agreement where the indemnity of the Voting Trustees relates solely
to a dispute among the Voting Trustees, or an Action by one or more Voting
Trustees against one or more other Voting Trustees.
(b) To the extent that the Company or Y&R incurs a Loss resulting or
arising from the items specified in subsections (i) through (v) of subsection
(a) of this Section 9.1, the HFCP Investors shall be deemed to have incurred a
corresponding Loss in an amount that represents the same percentage of the Loss
suffered by the Company or Y&R as the percentage of the Outstanding Shares (as
defined in the Stockholders' Agreement) then owned by the HFCP Investors. The
amount of any Losses in respect of which indemnity may be sought hereunder shall
be (i) net of any amounts recovered or recoverable by the Indemnitee under
insurance policies, (ii) net of the amount of any reserve specifically allocated
to the matter giving rise to the indemnity which is reflected in the Company
Financial Statements and (iii) net of the present value of net tax benefits that
would accrue to the Company.
(c) The Restricted Stock Trust shall in no event release shares of
Restricted Stock to Management Investors in accordance with the terms of the
Restricted Stock Plan prior to the later of (i) delivery to the HFCP Investors
of the Company's audited financial statements for the year ending December 31,
1997 and (ii) with respect to shares of Restricted Stock having an aggregate
Public Market Value (as of the date of the Regular Valuation (as defined in the
Stockholders' Agreement) preceding, and closest in time to, the date of the
applicable Claim Notice) equal to the amount subject to any Claim Notice then
pending and unpaid, the earlier of the date such pending claim for
indemnification is (A) paid to the HFCP Investors, (B) determined pursuant to a
final Order not to be payable or (C) the HFCP Investors and the Management
Voting Trust otherwise agree. The Restricted Stock Trust shall in no event
release shares of Restricted Stock with respect to the Indemnitees hereunder,
and no such shares shall be subject to hold-back as provided in clause (ii) of
this subsection (c) unless the date of the Claim Notice with respect thereto is
prior to the later of (x) the delivery to the HFCP Investors of the Company's
audited financials for the year ending December 31, 1997 and (ii) an Initial
Public Offering or a Change of Control (as such terms are defined in the
Stockholders' Agreement and the Stock Option Plan, respectively).
Section 9.2 Notice of Potential Claims. (a) The Indemnitee shall
deliver written notice (a "Potential Indemnity Notice") to the Restricted Stock
Trust and the Management Voting Trust within the earlier of ten (10) days of
receipt of written notice of a third-party claim, or thirty (30) days from
discovery of any other matters, which may give rise to a claim for
indemnification or reimbursement under this Agreement. A Potential Indemnity
Notice shall set forth in reasonable detail to the extent then available the
facts concerning the action, suit, proceeding, claim, or loss and the basis on
which the indemnified party believes this indemnity applies. The failure to give
such Potential Indemnity Notice shall not affect the right of the Indemnitee to
indemnity hereunder unless such failure has materially and adversely affected
the
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rights of the indemnitor; provided, however, that in the case of indemnity
sought under Section 9.1(a)(i) or 9.1(a)(ii) hereof, there shall be no right to
indemnity as to any matter for which no Potential Indemnity Notice is given
during the period for which such representations and warranties survive, as set
forth in Section 10.1.
(b) In the event the Potential Indemnity Notice relates to a third
party claim against the Indemnitees or with respect to which the Indemnitees
could seek indemnity hereunder, at any time after thirty (30) days from the
giving of such Potential Indemnity Notice, the Indemnitees may, at their option,
contest, settle or otherwise compromise, or pay such claim, unless they shall
have received notice from the Management Voting Trust that the Management Voting
Trust intends to assume the defense of any such matter, in which case the
Indemnitees shall have the right, at no cost or expense to the Restricted Stock
Trust, to participate in such defense. If the Management Voting Trust assumes
the defense of such matter, (i) it shall keep the Indemnitees fully apprised at
all times as to the status of the defense and (ii) the Company shall advance the
cost of such defense to the Management Voting Trust on behalf of the Restricted
Stock Trust, subject to the Indemnitees' right to indemnification for a portion
of such costs incurred by the Company in the event that the Indemnitees incur a
Loss (other than solely as a result of such expenses) with respect to such third
party claim as contemplated by Section 9.1 hereof.
(c) If the Management Voting Trust does not assume the defense of
such matter, and in any event until the Management Voting Trust states in
writing that it will assume the defense, the Company shall advance all costs of
the Indemnitees arising out of the defense until the defense is assumed, subject
to the Indemnitees' right to indemnification for a portion of such costs
incurred by the Company in the event that the Indemnitees incur a Loss (other
than solely as a result of such expenses) with respect to such third party claim
as contemplated by Section 9.1 hereof; provided, however, that the Indemnitees
shall consult with the Management Voting Trust and obtain the consent of the
trustees thereunder, which shall not be unreasonably withheld or delayed, to any
payment or settlement of any such claim. The Indemnitees shall take all
appropriate action to permit and authorize the Restricted Stock Trust fully to
participate, to the extent provided above, in the defense of any such claim and
to keep the Management Voting Trust apprised at all times as to the status of
the defense.
Section 9.3 Indemnification Procedures. (a) In the event any
Indemnitee suffers direct or indirect Losses resulting or arising from any of
the events set forth in subsections (a)(i) through (a)(v) of Section 9.1 hereof,
such Indemnitee shall promptly submit a formal claim for indemnification to the
Restricted Stock Trust and the Management Voting Trust hereunder; provided
however, that the first such notice of claim shall not be given unless and until
the aggregate amount of such Losses exceeds $5,000,000. Each such notice of
claim shall contain a reasonable description of the basis for indemnification
and the amount of the Losses (which, in the case of the first such notice, shall
exclude the initial $5,000,000) for which indemnification is sought (a "Claim
Notice").
(b) Subject to subsection (c) hereof, upon the later of (i) five
Business Days following receipt of a Claim Notice, and (ii) delivery of (A)
written instructions from both the
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HFCP Investors and the Management Voting Trust or (B) an Order (which need not
be final) that indemnification is required, the Restricted Stock Trust shall
deliver to Y&R a copy of the Claim Notice, together with a certificate or
certificates (with accompanying stock powers effecting a transfer of such shares
to the Indemnitees) representing a number of shares of Y&R Common Stock equal to
or greater than a fraction, the numerator of which is the amount of Losses set
forth in the Claim Notice, written instructions or Order, as the case may be,
and the denominator of which is the Public Market Value per share (as defined in
the Stockholders' Agreement) as of the date of the Regular Valuation (as defined
in the Stockholders' Agreement) preceding, and closest in time to, the date of
the Claim Notice (or if prior to the first Regular Valuation, $115); provided,
however, that in no event shall the Restricted Stock Trust be required to
deliver certificates representing a number of shares of Y&R Common Stock in
excess of the number of shares of Y&R Common Stock it then holds (such fraction,
after rounding, and after giving effect to the proviso, the "Indemnification
Number"). Within five Business Days thereafter, Y&R shall (i) deliver to the
Indemnitees a duly issued certificate (or certificates in the denominations
designated by the Indemnitees in the Claim Notice) representing the number of
shares of Y&R Common Stock equal to the Indemnification Number and (ii) if
necessary due to the delivery to Y&R under this Section 9.3(b) of certificates
representing a number of shares of Y&R Common Stock in excess of the
Indemnification Number, deliver to the Restricted Stock Trust a duly issued
certificate representing the number of shares of Y&R Common Stock equal to such
excess. Notwithstanding anything to the contrary in this Section 9.3(b), if Y&R
has delivered any certificates representing Y&R Common Stock to any Indemnitees
pursuant to this Section 9.3(b) which the Restricted Stock Trust delivered to
Y&R pursuant to any Order (other than a final Order) pursuant to subsection
(ii)(B) of this Section 9.3(b), then, to the extent that there shall be a final
Order thereafter that all or part of such indemnification is not required, any
such Indemnitees shall be required to immediately deliver the portion of such
certificates to which they are not entitled to the Restricted Stock Trust.
(c) In the event of any dispute arising with respect to a claim for
indemnity hereunder, prior to commencing any litigation, the parties will
attempt to resolve the matter through good faith consultations and negotiations.
If those attempts fail, any Indemnitee or the Management Voting Trust may demand
non-binding mediation by written notice to the other party. Within 15 days of
receipt of the mediation notice, the party receiving such notice shall, by
written notice to the other party, propose a mediator. The party seeking
mediation may not unreasonably withhold consent to such selection of a mediator,
and the cost of mediation shall be borne by the Company and shall not be deemed
a Loss under Section 9.1(a). Such parties may also agree to replace mediation
with some other form of alternative dispute resolution, such as neutral fact
finding or mini trial. If any dispute cannot be resolved by the parties through
negotiation, non-binding mediation or some other form of alternative dispute
resolution within 60 days of the mediation notice, the dispute may be submitted
to a Delaware court for resolution. The use of any alternative dispute
resolution procedures will not be construed under the doctrine of laches, waiver
or estoppel to adversely affect the rights of any party. Nothing in this Section
9.3(c) will prevent either party from commencing formal litigation proceedings
if (i) good faith efforts to resolve the dispute under these procedures have
been unsuccessful, or (ii) any delay resulting from efforts to mediate such
dispute could result in serious and irreparable injury to such party. The costs
and expenses of each party in such alternative dispute resolution shall be
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borne by the Company and shall not be deemed a Loss under Section 9.1(a). The
Indemnitees shall not be entitled to interest on the amount subject to the Claim
Notice.
9.4 Remedies. The indemnity provided in this Article IX shall be
satisfied solely out of the assets of the Restricted Stock Trust. The remedies
provided in this Article IX shall be the exclusive remedy under this Agreement
with respect to Losses arising out of the matters set forth in subsections
(a)(i) through (a)(v) of Section 9.1 hereof, but shall not preclude assertion by
an Indemnitee of any causes of action that may exist, not based on breach of
contract, for willful, knowing fraud (but not based on recklessness) against any
Person.
ARTICLE X
MISCELLANEOUS AND GENERAL
10.1 Survival. For purposes of Article IX, the representations and
warranties of the Company and the Partnership shall survive the Closing until 30
days following the date the audit of Y&R by Y&R's independent auditors is
completed and delivered for the year ended December 31, 1997; provided, however,
that for purposes of Article IX, the representations and warranties of the
Company contained in Sections 3.1 through 3.4 (inclusive) shall survive without
limitation, and the representations and warranties of the Company contained in
Section 3.10 and 3.11 shall survive until the applicable statute of limitations
has expired. Except as set forth in the preceding sentence, the representations
and warranties of the parties hereto set forth in this Agreement shall not
survive the Closing. The covenants of the parties contained in this Agreement,
the Merger Agreements and the Closing Agreements that contemplate or may involve
actions to be taken (a) prior to the Closing shall not survive the Closing, and
(b) after the Closing shall survive until such actions shall have been taken or
performed in accordance with their terms.
10.2 Expenses. Except as specifically set forth in this Agreement,
each party shall bear its own expenses, including the fees and expenses of any
attorneys, accountants, investment bankers, brokers, finders or other
intermediaries or other Persons engaged by it, incurred in connection with the
Reorganization; provided, however, that if (a) the Recapitalization is not
consummated because the Company enters into an agreement with another potential
purchaser or other person or entity interested in an acquisition of all or part
of the Company or its assets, or a recapitalization, merger or similar
transaction, (b) the Recapitalization is not consummated for any reason other
than a material breach by the HFCP Investors of this Agreement, or (c) the
Recapitalization is consummated, the Company will reimburse HFCP for its costs
and expenses in connection with the Reorganization (including the fees and
expenses of HFCP's accountants, attorneys and other advisors).
10.3 Notices, Etc. (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
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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
with a copy to: Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Facsimile: (212) 225-3999
If to Holdings or Y&R DEL: Young & Rubicam Holdings Inc.
c/o Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.
Facsimile: (212) 210-5454
with copies to: Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Facsimile: (212) 225-3999
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
Facsimile: (212) 403-2000
If to the Restricted Stock Young & Rubicam Restricted Stock
Trust: Trust
c/o Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.
Facsimile: (212) 210-5454
with a copy to: Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
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New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Facsimile: (212) 225-3999
If to the HFCP Investors: H&F Investors III, Inc.
One Maritime Plaza
12th Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
with a copy to: Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
Facsimile: (212) 403-2000
or to such other address as such party shall have designated by notice so given
to each other party.
(b) Whenever this Agreement contemplates delivery to, or action
(such as consent, approval or waiver) by, the HFCP Investors, delivery to, or
action (evidenced in writing) by, the Ultimate General Partner shall bind the
HFCP Investors.
10.4 Amendments, Waivers, Etc. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified except by an
instrument in writing signed by the party against whom enforcement is sought.
10.5 No Assignment. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns; provided that, except as otherwise expressly set forth
in this Agreement, neither the rights nor the obligations of any party may be
assigned or delegated without the prior written consent of the other party,
except the rights and obligations of the HFCP Investors to contribute all or a
portion of the Contribution Amount to Holdings and/or receive Holdings Shares
shall be assignable by the HFCP Investors to Affiliates of HFCP if and only if
such Affiliates of HFCP shall, by a written instrument reasonably satisfactory
to Holdings and the Company, agree to be bound by all of the terms and
conditions of this Agreement and the Closing Agreements to which the HFCP
Investors are parties.
10.6 Entire Agreement. Except as otherwise provided herein, this
Agreement and the agreements referenced herein and contemplated hereby embody
the entire agreement and understanding between the parties relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement (including the Company Disclosure Letter
and the HFCP
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Investors Disclosure Letter and the Exhibits hereto), the Merger Agreements, the
Closing Agreements, the two letters dated October 30, 1996, and any writings
expressly required hereby.
10.7 Specific Performance. The parties acknowledge that money
damages are not an adequate remedy for violations of this Agreement, and that
any party may, in its sole discretion, apply to a court of competent
jurisdiction for specific performance or injunctive or such other relief as such
court may deem just and proper in order to enforce this Agreement or prevent any
violation hereof and, to the extent permitted by applicable law and to the
extent the party seeking such relief would be entitled on the merits to obtain
such relief, each party waives any objection to the imposition of such relief.
10.8 No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
10.9 No Third Party Beneficiaries. This Agreement is not intended to
be for the benefit of and shall not be enforceable by any Person who or which is
not a party hereto (other than, in the case of the indemnification provisions
set forth in Section 6.8 and Article IX, each Person entitled to indemnification
thereunder) or a permitted assign or successor to such party.
10.10 Public Announcements. The HFCP Investors, Holdings, Y&R DEL
and the Company shall consult with and provide reasonable cooperation to the
others in connection with the issuance of press releases or other public
documents describing the transactions contemplated by this Agreement.
10.11 Governing Law. Except as otherwise specified herein, this
Agreement and all disputes hereunder shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York (without
regard to conflicts of law principles); provided that with respect to all
covenants and agreements which require performance following the Company Merger,
then this Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of Delaware (without regard to conflicts of law
principles).
10.12 Counterparts. This 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 one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
10.13 Knowledge. The term "knowledge" and any derivatives thereof
when applied to any party to this Agreement shall refer only to the actual
knowledge of the members of that party's Board of Directors (or in the case of
the HFCP Investors, the Board of Directors of the Ultimate General Partner), and
no information known by any other employee of such party shall be imputed to
such party.
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10.14 Interpretation. (a) The word "including" and words of similar
import when used in this Agreement shall mean "including, without limitation,"
unless the context otherwise requires or unless otherwise specified;
(b) the word "or" shall not be exclusive; and
(c) provisions shall apply, when appropriate, to successive
events and transactions.
10.15 Company Disclosure Letter. Information disclosed in any
section of the Company Disclosure Letter (or pursuant to any document delivered
with respect thereto) or the schedules and exhibits thereto (or pursuant to any
document delivered with respect thereto) shall not be deemed, by virtue of such
disclosure, to be material to the Business Condition of the Company or any of
its Subsidiaries or be claimed by any party hereto to constitute evidence of
such materiality or to be evidence that such information was required to be
disclosed in such Company Disclosure Letter.
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IN WITNESS WHEREOF, this Contribution Agreement has been executed
and delivered by the parties set forth below.
YOUNG & RUBICAM INC.,
a New York corporation
By____________________________________
Name: Stephanie W. Abramson
Title: Executive Vice President and
General Counsel
YOUNG & RUBICAM L.P.
By its Managing General Partner,
YOUNG & RUBICAM INC.,
a New York Corporation
By____________________________________
Name: Stephanie W. Abramson
Title: Executive Vice President and
General Counsel
YOUNG & RUBICAM HOLDINGS INC.
By____________________________________
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
YOUNG & RUBICAM INC.,
a Delaware corporation
By____________________________________
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
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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
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<PAGE> 64
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
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<PAGE> 65
IN WITNESS WHEREOF, this counterpart to the Contribution Agreement
dated October 30, 1996 has been executed and delivered by the party set forth
below.
____________________________________
H. Irving Grousbeck
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<PAGE> 66
IN WITNESS WHEREOF, this counterpart to the Contribution Agreement
dated October 30, 1996 has been executed and delivered by the party set forth
below.
AMERICAN MEDIA MANAGEMENT, INC.
By:____________________________________
Name:
Title:
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<PAGE> 67
IN WITNESS WHEREOF, this counterpart to the Contribution Agreement
dated October 30, 1996 has been executed and delivered by the party set forth
below.
YOUNG & RUBICAM RESTRICTED STOCK
TRUST
By THE BANK OF NEW YORK, Trustee
By:____________________________________
Name:
Title:
FORM OF
HFCP OPTION AGREEMENTS
This Stock Option Agreement (this "Agreement"), is made and entered
into this day of , 199 , by and between YOUNG & RUBICAM HOLDINGS INC., a New
York corporation ("Holdings"), YOUNG & RUBICAM INC., a New York corporation (the
"Company"), YOUNG & RUBICAM INC., a Delaware corporation and a wholly-owned
subsidiary of Holdings ("Y&R DEL"), and HELLMAN AND FRIEDMAN CAPITAL PARTNERS
III, L.P., a California limited partnership (the "Purchaser").(1)
- ----------
The same form of agreement will be used for the other HFCP Investors.
(2) The aggregate number included for all HFCP Investors will equal to the
product of (1) .33, (2) the Base Roll-Over Shares (as defined herein) and (3)
the Reduction Fraction (as defined herein). The "Base Roll-Over Shares" will
equal the sum of the products of (a) the number of Equity Units subject to each
outstanding Company Option or Partnership Option being contributed to Holdings
and (b) the Spread (as defined herein) for such outstanding Option divided by
115. The "Spread" for each Option will equal the difference between $115 and the
exercise price per Equity Unit thereunder. The numerator of the Reduction
Fraction will be a number equal to the number of Shares of Company Common Stock
held by the HFCP Investors as of the Closing (excluding shares issuable on the
Option). The denominator of the Reduction Fraction will be a number equal to the
number of Shares of Company Common Stock held by Management as of the Closing on
a partially diluted basis (assuming ownership of all shares held in the
Restricted Stock Trust, all Base Roll-Over Shares and the shares issuable on
exercise of non-performance based Executive Options, but not on exercise of
performance-based Executive Options). The allocation of this aggregate number of
shares to the options to be held by each HFCP Investor will be as directed by
HFCP prior to Closing.
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<PAGE> 68
RECITALS
1. The parties hereto have entered into a Contribution Agreement
dated as of October [___], 1996 (the "Contribution Agreement"). All capitalized
terms not defined herein have the meanings ascribed to them in the Contribution
Agreement.
2. Pursuant to the Contribution Agreement, Holdings has agreed to
grant to the Purchaser an option to purchase certain shares of Holdings' common
stock, par value $.01 per share (the "Holdings Common Stock"), on the terms and
subject to the conditions set forth below.
3. Immediately following consummation of the transactions
contemplated by the Contribution Agreement, Holdings will merge with and into
the Company (the "Holdings Merger"). In such merger, all outstanding shares of
Holdings Common Stock will become and thereafter represent shares of common
stock, par value $.25 per share, of the Company ("Company Common Stock").
Thereafter, the Company will merge with and into Y&R DEL (the "Company Merger").
In such merger, all outstanding shares of Company Common Stock will become and
thereafter represent shares of common stock, par value $.01 per share, of Y&R
DEL ("Y&R DEL Common Stock"). Upon the effectiveness of each such merger, the
surviving corporation will assume all obligations of the other constituent
corporation under this Agreement, and all references to the "Company" and
"Company Common Stock" herein shall be deemed to refer to (a) Holdings and
Holding Common Stock prior to the Holdings Merger, (b) the Company and the
Company Common Stock thereafter until the Company Merger and (c) following the
Company Merger, to Y&R DEL and the Y&R DEL Common Stock, respectively, without
any further action by any party hereto.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and the Purchaser agree as follows:
1.1 Grant of Option. The Company hereby grants to the Purchaser an
exclusive and irrevocable option (the "Option") to purchase from the Company 2
authorized but unissued shares of Company Common Stock (collectively, the
"Option Shares") at a cash price per share of $115 (the "Exercise Price")
subject to adjustment as provided in Section 1.6 hereof.
1.2 Exercise of the Option. (a) (i) Subject to the conditions set
forth in Section 1.3 hereof, the Option may be exercised by the Purchaser, in
whole or in part, at any time or from time to time after the date hereof for
cash or Company Common Stock.
(ii) The Company shall not, prior to the termination of the Option,
take any action which would have the effect of preventing or disabling the
Company from delivering the
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<PAGE> 69
Option Shares to the Purchaser upon exercise of the Option or otherwise
performing the Company's obligations under this Agreement.
(b) In the event the Purchaser elects to exercise the Option, the
Purchaser shall give a written notice to the Company specifying the number of
the Option Shares the Purchaser will purchase and the place and date (not later
than ten Business Days, nor earlier than one Business Day, from the date such
notice is mailed, but not earlier than the expiration of any applicable waiting
period under the HSR Act) for the closing of such purchase.
1.3 Payment and Delivery of Certificate(s) upon Exercise of
Option. (a) At any closing of any purchase of any of the Option Shares
hereunder:
(i) the Purchaser shall (1) if exercising the Option for cash, pay
to the Company the aggregate price for the Option Shares so purchased by
certified or cashier's check or by wire transfer, and (2) if exercising
the Option for Company Common Stock, deliver to the Company a certificate
or certificates representing the number of shares of Company Common Stock
equal to the number of Option Shares so purchased multiplied by a
fraction, the numerator of which is 115 and the denominator of which is
the Public Market Value per share of Company Common Stock (as defined in
the Stockholders' Agreement) as of the most recent Regular Valuation (as
defined therein) preceding the date of notice of exercise pursuant to
Section 2.04(b) of the Stockholders' Agreement (or, if prior to the first
Regular Valuation, $115); provided that the Company Common Stock so used
to exercise must meet then applicable eligibility criteria under GAAP;
(ii) the Company shall deliver to the Purchaser a duly issued
certificate (or certificates in the denominations designated by the
Purchaser in its notice of exercise) representing the number of the Option
Shares purchased (or if necessary due to the delivery under clause (i)(2)
of this Section 1.3(a) by the Purchaser of certificate for a number of
shares of Company Common Stock in excess of the number of shares required
to be delivered under clause (i)(2) of this Section 1.3(a), the Company
shall deliver to the Purchaser a duly issued certificate (or certificates
in the denominations designated by the Purchaser in its notice of
exercise) representing the number of the Option Shares purchased plus the
number of shares of Company Common Stock represented by the certificate
delivered to the Company by the Purchaser minus the number of shares of
Company Common Stock required to be delivered by the Purchaser under
clause (i)(2) of this Section 1.3(a)); and
(iii) the number of Option Shares subject to the Option shall be
reduced by the number of shares of Company Common Stock acquired by the
Purchaser at such closing.
(b) The obligation of the Company to deliver Option Shares at such
closing shall be subject to the conditions that no preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, shall be in effect which would prohibit such sale and delivery, and
any applicable waiting period under the HSR Act shall have expired.
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<PAGE> 70
1.4 Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
(a) Due Authorization, Etc. This Agreement has been duly authorized
by all necessary corporate action on the part of the Company, has been duly
executed by a duly authorized officer of the Company and is valid, binding and
enforceable against the Company in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application which may affect the enforcement of
creditors' rights generally, by general equitable principles and by implied
covenants of good faith and fair dealing.
(b) Option Shares. The Company has taken all necessary corporate
action to authorize and reserve for issuance, upon exercise of the Option, the
Option Shares. The Option Shares, upon purchase by the Purchaser, will be duly
authorized, validly issued, fully paid and nonassessable, and delivered to the
Purchaser free and clear of all claims, liens, charges, security interests or
encumbrances of any kind, including, without limitation, any preemptive or
similar rights other than those set forth in the Closing Agreements.
(c) No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in any breach or violation of, be in conflict with, or will constitute a
default under, the Amended and Restated Certificate of Incorporation or the
Amended and Restated By-laws of the Company or any indenture, loan or credit
agreement or any other agreement or instrument to which the Company is a party,
or by which the Company or any of its subsidiaries may be affected or is bound,
which would have a Material Adverse Effect upon the Company.
1.5 Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Due Authorization. This Agreement has been duly authorized by
all necessary action on the part of the Purchaser and has been duly executed by
a duly authorized officer of the Ultimate General Partner, and is valid, binding
and enforceable against the Purchaser in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application which may affect the enforcement
of creditors' rights generally, by general equitable principles and by implied
covenants of good faith and fair dealing.
(b) Distribution. Any shares of Company Common Stock to be acquired
upon exercise of the Option will not be acquired by the Purchaser with a view to
the public distribution thereof, and will not be transferred, except in a
transaction registered or exempt from registration under the Securities Act and
permitted by this Agreement.
(c) No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in any breach or violation of,
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<PAGE> 71
be in conflict with, or will constitute a default under, the limited partnership
agreement of the Purchaser or any indenture, loan or credit agreement or any
other agreement or instrument to which the Purchaser is a party, or by which the
Purchaser or any of its subsidiaries may be affected or is bound, which would
have a Material Adverse Effect upon the Purchaser.
1.6 Adjustment Upon Changes in Capitalization. In the event of any
change in, or affecting, the issued and outstanding Company Common Stock by
reason of any dividend, stock split, merger, recapitalization, combination,
conversion, exchange of shares or other change in the corporate or capital
structure of the Company, the number and kind of shares or securities subject to
the Option and the Exercise Price shall be appropriately and equitably adjusted
(with adjustments being cumulative if more than one of such events shall have
occurred) so that the Purchaser shall receive, upon exercise of the Option, the
number and class of shares of Company Common Stock or other securities or
property that the Purchaser would have received in respect of Option Shares if
the Option had been exercised immediately prior to such event.
1.7 Ownership of Option Shares. The Purchaser shall hold the Option
Shares subject to the terms of the Stockholders' Agreement.
1.8 Specific Performance. The Company and the Purchaser acknowledge
that the Option and the Option Shares are unique and that neither party hereto
will have an adequate remedy at law if the other breaches any covenant contained
herein or fails to perform any of its obligations under this Agreement.
Accordingly, each party agrees that the other shall have the right, in addition
to any other rights which it may have, to specific performance and equitable
injunctive relief if the other party shall fail or threaten to fail to perform
any of its obligations under this Agreement.
1.9 Expiration. (a) If on the fifth anniversary of the Closing, the
number of Option Shares exceeds 50% of the initial number of Option Shares (as
adjusted pursuant to Section 1.6), then on such anniversary, the number of
Option Shares shall be reduced to 50% of the initial number of Option Shares (as
adjusted pursuant to Section 1.6).
(b) The Option shall expire on the earlier to occur of (i) the date
on which the number of Option Shares is reduced to zero, and (ii) the seventh
anniversary of the Closing.
1.10 Miscellaneous. (a) Assignability. (i) The rights and
obligations of the Purchaser with respect to all or a portion of the Option
shall be assignable by the Purchaser to and only to any Affiliate of the
Purchaser, if and only if such Affiliate shall, by a written instrument
reasonably satisfactory to the Company, agree to assume all of the Purchaser's
obligations hereunder and to be bound by all of the terms and conditions of this
Agreement and the Stockholders' Agreement.
(ii) The obligations of the Company shall not be assignable without
the prior written consent of the Purchaser, and any purported assignment without
such prior written consent shall be null and void.
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(b) Third Parties. Nothing expressed or implied in this Agreement is
intended or shall be construed to confer upon or give to any third party any
rights or remedies by virtue of this Agreement or any exercise or non-exercise
of the Option granted hereby.
(c) Amendments. This Agreement may not be modified, amended, altered
or supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
(d) Notices. Except as otherwise expressly provided herein, all
notices, requests, claims, demands and other communications hereunder 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, to
the parties at the addresses set forth below:
If to the Company: Young & Rubicam Holdings Inc. and
Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.
Facsimile: (212) 210-5544
with a copy to: Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Facsimile: (212) 225-3999
If to the Purchaser: H&F Investors III, Inc.
One Maritime Plaza
12th Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
with a copy to: Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
Facsimile: (212) 403-2000
The addresses set forth above may be changed by any party upon furnishing to the
other party a notice of change of address in accordance with the terms of this
paragraph.
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(e) Governing Law. Prior to the Company Merger, this Agreement shall
be governed by and construed in accordance with the law of the State of New
York; provided, however, that following the Company Merger, this Agreement shall
be governed by and construed in accordance with the law of the State of
Delaware.
(f) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same Agreement.
(g) Effect of Headings. The section and paragraph headings herein
are for convenience only and shall not affect the construction hereof.
(h) Time of the Essence. The parties agree that time shall be of the
essence in the performance of obligations hereunder.
(i) Survival of Representations and Warranties. The representations,
warranties, covenants and agreements shall survive any closing pursuant to this
Agreement.
(j) Expenses. Subject to subsection (m) below, each of the parties
hereto shall pay all fees and expenses it incurs in connection with this
Agreement.
(k) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(l) Entire Agreement. This Agreement and the other agreements
referenced herein constitute the entire agreement between the Company and the
Purchaser with respect to the matters covered herein and supersede any prior
negotiations, understandings or agreements with respect to the matters
contemplated hereby.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties set forth below.
YOUNG & RUBICAM HOLDINGS INC.
By /s/
-----------------------------------
Name:
Title:
YOUNG & RUBICAM INC.,
a New York corporation
By /s/
-----------------------------------
Name:
Title:
YOUNG & RUBICAM INC.,
a Delaware corporation
By /s/
---------------------------------
Name:
Title:
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 /s/
-----------------------------------
Name:
Title:
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<PAGE> 75
EXHIBIT 11
TO CONTRIBUTION AGREEMENT
CONDITIONS TO THE OFFERS AND THE
SPECIAL COMPENSATION ARRANGEMENTS
All capitalized terms not defined herein have the meanings ascribed
to them in the Contribution Agreement. As used herein, "Non-Participating
Employees" means holders of Equity Units who will not, immediately after the
transactions contemplated in the Contribution Agreement (the "Recapitalization
Transactions"), own shares of Holdings Common Stock or Roll-Over Options.
Notwithstanding any other provision of the Offers or the Special
Compensation Arrangements, Holdings and the Company shall not be required to
accept for payment, purchase or pay for any Equity Units tendered, or to make
any payments pursuant to the Special Compensation Arrangements, and Holdings and
the Company may, subject to the terms and conditions of the Contribution
Agreement, terminate or amend the Offers or the Special Compensation
Arrangements as to any Equity Units not then accepted for payment, shall not be
required to accept for payment or pay for any Equity Units or make payments
pursuant to the Special Compensation Arrangements, or may delay the acceptance
for payment of Equity Units tendered or surrendered, if (i) the Contribution
Agreement shall have been terminated or amended to so provide or (ii) at the
expiration of the Offers (as they may be extended at the discretion of the
Company and Holdings, subject to the Contribution Agreement), any of the
following conditions are not satisfied:
(a) a majority of the shares of Company Common Stock held by
Non-Participating Employees (including the Savings Plan and the Profit
Sharing Plan) shall have been tendered pursuant to the Company Offer
(including the tender of a sufficient number of shares of Company Common
Stock so that, together with Company Common Stock exchanged pursuant to
the Equity Roll-Over, Holdings will, upon acceptance for payment of such
shares, own not less than two-thirds of the outstanding shares of Company
Common Stock), and the holders thereof by so tendering shall have
consented to the Recapitalization Transactions;
(b) a majority of the LPU's held by Non-Participating Employees
shall have been tendered pursuant to the Partnership Offer (including the
tender of a sufficient number of LPU's so that, together with LPU's
exchanged pursuant to the Equity Roll-Over, the Company and Holdings will,
upon acceptance for payment, together own not less than two-thirds of the
outstanding LPU's), and the holders thereof by so tendering shall have
consented to the Recapitalization Transactions;
(c) the holders of at least 80% of the aggregate number of Equity
Units that will not be contributed to Holdings, or surrendered for
cancellation, in the Equity Roll-Over, shall have tendered their shares of
Company Common Stock or LPU's pursuant to the Offers, or surrendered their
Company Options, Partnership Options or rights with respect to GPU's in
connection with the Special Compensation Arrangements, and by so tendering
or surrendering shall have consented to the Recapitalization Transactions;
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(d) United States Trust Company of California, N.A., as independent
fiduciary of the Savings Plan and the Profit Sharing Plan, shall have
tendered all shares of Company Common Stock owned by the Savings Plan and
the Profit Sharing Plan pursuant to the Company Offer;
(e) the Initial Management Investors shall have executed the Stock
Subscription Agreement agreeing to the Equity Roll-Over for at least $201
million of Holdings Shares (valued at $115 per share) and Roll-Over
Options (valued at $115 per share subject to the Roll-Over Option less the
exercise price therefor) (including a sufficient number of LPU's so that
the holders thereof, together with the HFCP Investors and the Director
Investors, will own at least 80% of the Y&R Common Stock outstanding
immediately following the Recapitalization Transactions); and
(f) each of the other conditions to the Contribution shall have been
satisfied (other than to the extent subject to consummation of the Offers
or to consummation of other aspects of the Recapitalization, if the other
conditions with respect thereto have been satisfied), and the other
aspects of the Recapitalization to be consummated concurrently with or
immediately following consummation of the Offers shall be capable of being
so consummated.
The Company or Holdings may assert any of the foregoing conditions if it, in its
sole judgment (subject to the terms of the Contribution Agreement), in any case,
and regardless of the circumstances (including any action or inaction by any
party to the Contribution Agreement or any of their Affiliates giving rise to
the non-satisfaction of any such condition), determines that as a result thereof
it is inadvisable to proceed with the Recapitalization Transactions.
The foregoing conditions are for the sole benefit of the Company and
Holdings and may be asserted regardless of the circumstances (including any
action or inaction by the Company or Holdings or any of their Affiliates giving
rise to the non-satisfaction of any such condition) or waived by the Company or
Holdings in whole or in part at any time or from time to time in its discretion
subject to the terms and conditions of the Contribution Agreement, except that
conditions (a), (b) and (d) shall not be waivable. The failure of the Company or
Holdings at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any such right, and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time. Subject to the
Contribution Agreement, any determination by the Company or Holdings concerning
the events described above will be final and binding on all parties.
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<PAGE> 1
Exhibit 10.4
YOUNG & RUBICAM HOLDINGS INC.
RESTRICTED STOCK PLAN
1. Purpose of the Plan
The purpose of the Young & Rubicam Holdings Inc. Restricted
Stock Plan is to promote the interests of the Company and its
stockholders by providing the key employees of the Company and
its Affiliates with an appropriate incentive to encourage them to
continue in the employ of the Company and its Affiliates and to
improve the growth and profitability of the Company.
2. Definitions
As used in this Plan, the following capitalized terms shall
have the following meanings:
(a) "Account" shall mean any account established in the
Trust pursuant to Section 4.3 herein to represent an Award.
(b) "Affiliate" shall mean any entity (whether or not
incorporated) which, by reason of its relationship with the
Company, is required to be aggregated with the Company under
Section 414(b), 414(c), 414(m) or 414(o) of the Code, and any
joint venture or partnership 10% or more of the profits or
capital interest of which is owned by the Company or an
Affiliate.
(c) "Additional Award" shall have the meaning set forth in
Section 4.2 herein.
(d) "Award" shall mean any award of Common Stock to an
Eligible Employee in the manner provided in Section 4 herein.
(e) "Beneficial Ownership" shall have the meaning set forth
in the Stockholders' Agreement.
<PAGE> 2
(f) "Board" shall mean the Board of Directors of the Company.
(g) "Cause" shall have the meaning set forth in the
Stockholders' Agreement.
(h) "CEO" shall mean the chief executive officer of the Company.
(i) "Change of Control" shall mean (i) a transfer by the
HFCP Investors of Beneficial Ownership of shares of Common Stock
to any person (including a group, within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act) representing
at least 30% of the then Outstanding Shares; or (ii) so long as
the Management Voting Trust owns at least 20% of the then
Outstanding Shares, (A) the acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act), other than the HFCP Investors and
their Affiliates and the Management Voting Trust (and the Voting
Trustees thereof), of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Securities Exchange Act) of
shares representing both (x) more than one-third of the
Outstanding Shares and (y) more shares than the number of
Outstanding Shares then held by the Management Voting Trust, or
(B) the Management Voting Trust and the HFCP Investors no longer
collectively owning both a majority of the Outstanding Shares and
a majority of the Fully Diluted Shares, or (C) approval by the
shareholders of the Company of a reorganization, merger,
consolidation, share exchange or similar transaction (a "Business
Combination"), in each case, with respect to which all or
substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Shares, the Fully
Diluted Shares and the voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors (the "Company Voting Securities") immediately prior to
such Business Combination do not in the aggregate, immediately
following such Business Combination, beneficially own, directly
or indirectly, more than two-thirds of, respectively, the then
Outstanding Shares, the then Fully Diluted Shares and the voting
power of the then outstanding Company Voting Securities, as the
case may be, of the corporation resulting from
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such Business Combination or its ultimate parent corporation
in substantially the same proportion as their ownership
immediately prior to such Business Combination of the
Outstanding Shares, the Fully Diluted Shares and the voting power
of the Company Voting Securities, as the case may be, or (D) (x)
a complete liquidation or dissolution of the Company or (y) sale
or other disposition of all or substantially all of the assets of
the Company other than into or to a corporation with respect to
which, immediately following such liquidation, dissolution, sale
or disposition, more than two-thirds of, respectively, the then
Outstanding Shares, the then Fully Diluted Shares and the voting
power of the then outstanding Company Voting Securities is then
beneficially owned, directly or indirectly, in the aggregate by
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Shares,
the Fully Diluted Shares and the voting power represented by the
Company Voting Securities immediately prior to such liquidation,
dissolution, sale or disposition in substantially the same
proportion as their ownership of the Outstanding Shares, the
Fully Diluted Shares and the voting power represented by the
Company Voting Securities, as the case may be, immediately prior
to such liquidation, dissolution, sale or disposition.
(j) "Claim Notice" shall have the meaning set forth in the
Contribution Agreement.
(k) "Closing" shall have the meaning set forth in the
Contribution Agreement.
(l) "Closing Awards" shall have the meaning set forth in
Section 4.1 herein.
(m) "Closing Date" shall have the meaning set forth in the
Contribution Agreement.
(n) "Code" shall have the meaning set forth in the
Contribution Agreement.
(o) "Committee" shall mean the Compensation Committee
appointed by the Board pursuant to the bylaws of the Company and,
to the extent then in effect, the Stockholders' Agreement.
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(p) "Common Stock" shall have the meaning set forth in the
Stockholders' Agreement. Shares of Common Stock shall also
include Voting Trust Certificates representing shares of Common
Stock, as the context may require.
(q) "Company" shall mean Young & Rubicam Holdings Inc., a
New York corporation, and its successors.
(r) "Company Merger" shall have the meaning set forth in
the Stockholders' Agreement.
(s) "Consent Period" shall mean the period during which the
HFCP Investors shall have the right to approve transactions
pursuant to Section 5.04(b) of the Stockholders' Agreement.
(t) "Contribution Agreement" shall mean the Contribution
Agreement, dated October 30, 1996, by and among the HFCP
Investors, the Company, Young & Rubicam Inc., a Delaware
corporation, the "Restricted Stock Trust" (as defined therein)
and Y&R, as it may be amended from time to time.
(u) "Eligible Employee" shall mean any Employee who is a
director or key executive of the Company or an Affiliate or who,
in the judgment of the CEO, should be eligible to participate in
the Plan due to the services he performs on behalf of the Company
or an Affiliate. Directors who are not Employees of the Company
or its Affiliates shall not be eligible to participate in the
Plan.
(v) "Employment" shall mean active employment with the
Company or any Affiliate or any predecessor thereof. Employment
shall also include work by any Person as an independent
contractor for the Company or any Affiliate or any predecessor
thereof, as the Committee may determine. "Employee" and
"Employed" shall have correlative meanings.
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(w) "Fully Diluted Shares" shall have the meaning set forth
in the Stockholders' Agreement.
(x) "Grant" shall mean a grant of an Award under the Plan
and evidenced by a Restricted Stock Agreement.
(y) "HFCP Investors" shall have the meaning set forth in
the Contribution Agreement.
(z) "Hold-Back" shall have the meaning set forth in Section
5 herein.
(aa) "Hold-Back Amount" shall have the meaning set forth in
Section 5 herein.
(bb) "Indemnitees" shall have the meaning set forth in the
Contribution Agreement.
(cc) "Initial Public Offering" shall have the meaning set
forth in the Stockholders' Agreement. For purposes of the Plan,
an Initial Public Offering shall occur on the closing date of
such Initial Public Offering.
(dd) "Management Designee" shall have the meaning set forth
in the Stockholders' Agreement.
(ee) "Management Voting Trust" shall mean the voting trust
created under the Management Voting Trust Agreement.
(ff) "Management Voting Trust Agreement" shall mean the
Management Voting Trust Agreement entered into as of December 12,
1996, by and among the Company, Young & Rubicam Inc., a New York
corporation, Young & Rubicam Inc., a Delaware corporation, the
"Management Investors" and the "Voting Trustees" (each as defined
therein), as it may be amended or supplemented from time to time.
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(gg) "Order" shall have the meaning set forth in the
Contribution Agreement.
(hh) "Outstanding Shares" shall have the meaning set forth
in the Stockholders' Agreement.
(ii) "Participant" shall mean an Eligible Employee to whom
a Grant of an Award under the Plan has been made.
(jj) "Permanent Disability" shall have the meaning set
forth in the Stockholders' Agreement.
(kk) "Permitted Transferee" shall have the meaning set
forth in Section 7.2 herein.
(ll) "Person" shall have the meaning set forth in the
Contribution Agreement.
(mm) "Plan" shall mean the Young & Rubicam Holdings Inc.
Restricted Stock Plan, as it may be amended from time to time.
(nn) "Public Market Value" shall have the meaning set forth
in the Stockholders' Agreement.
(oo) "Qualified Retirement" shall have the meaning set
forth in the Stockholders' Agreement.
(pp) "Registration Rights Agreement" shall have the meaning
set forth in the Contribution Agreement.
(qq) "Regular Valuation" shall have the meaning set forth
in the Stockholders' Agreement.
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(rr) "Restricted Stock Agreement" shall mean an agreement
entered into by each Participant and the Company evidencing the
Grant of an Award pursuant to the Plan.
(ss) "Securities Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(tt) "Stockholders' Agreement" shall mean the stockholders'
agreement dated December 12, 1996, by and among the Stockholders
(as defined therein), the Company, Young & Rubicam Inc., a New
York corporation, and Young & Rubicam Inc., a Delaware
corporation, as it may be amended from time to time.
(uu) "Transfer" shall have the meaning set forth in Section
7.1 herein.
(vv) "Trust" shall mean the trust established pursuant to
the Plan.
(ww) "Trustee" shall mean the trustee of the Trust in its
capacity as such trustee.
(xx) "Trust Instrument" shall mean the instrument
establishing the Trust as provided in Section 3.5.
(yy) "Ultimate General Partner" shall have the meaning set
forth in the Contribution Agreement.
(zz) "Unallocated Account" shall mean the account
established under the Trust in which all unallocated shares of
Common Stock held by the Trust shall be held.
(aaa) "Vesting Event" shall mean (i) the date of the
six-month anniversary of an Initial Public Offering, (ii)
Qualified Retirement during the six-month period after an Initial
Public Offering, (iii) involuntary termination of Employment by
the Company without Cause during the six-month period after an
Initial Public Offering, (iv) voluntary termination of Employment
by the Participant with the Company's prior written approval
during the six-month period after
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<PAGE> 8
an Initial Public Offering, (v) termination of Employment
by reason of death or Permanent Disability during the six-month
period after an Initial Public Offering, (vi) a Change of Control
or (vii) with the written consent of the HFCP Investors during
the Consent Period, to the extent the event occurs prior to an
Initial Public Offering, and the Management Voting Trust, the
occurrence of any other event as may be determined by the
Committee.
(bbb) "Voting Trust Certificate" shall have the meaning set
forth in the Management Voting Trust Agreement.
(ccc) "Y&R" shall mean, collectively, Young & Rubicam Inc.,
a New York corporation (and its wholly-owned subsidiary, Y&R
Partner Two Inc.), and Young & Rubicam L.P., a Delaware limited
partnership, and their respective subsidiaries and predecessors.
3. Administration of the Plan
The Committee shall administer the Plan. No member of the
Committee shall be disqualified from participating in any act or
decision by reason of the fact that it may affect any Award
Granted to such member hereunder, except to the extent that such
act or decision relates specifically and exclusively to such
Award Granted to such member. Unless otherwise specified herein,
any act or decision of the Committee shall be made by a majority
of the members of the Committee.
3.1 Powers of the Committee. Subject to the provisions of
the Plan, in addition to the other powers granted to the
Committee under the Plan, the Committee shall have the power: (a)
to Grant Awards; (b) to consult with the CEO regarding which
Eligible Employees should receive Grants of Additional Awards,
the time or times when such Grants should be made and the number
of shares of Common Stock subject to each such Additional Award;
(c) to accelerate the vesting of any or all Awards and consequent
release of the shares of Common Stock held in any or all Accounts
(provided, that such action shall be effective only with the
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<PAGE> 9
written consent of the HFCP Investors during the Consent Period
to the extent such action would result in an Award vesting prior
to an Initial Public Offering); (d) to prescribe the form of any
instrument evidencing an Award; (e) to adopt, amend and rescind
such rules and regulations as, in its opinion, may be advisable
for the administration of the Plan; (f) to construe and interpret
the Plan, such rules and regulations and the instruments
evidencing Awards; (g) to make all other determinations necessary
or advisable for the administration of the Plan; and (h) to
determine which Company or Affiliate shall be the grantor of any
Award.
3.2 Determinations of the Committee. Any Grant,
determination, prescription or other act of the Committee shall
be final and conclusively binding upon all Persons.
3.3 Indemnification of the Committee. No member of the
Committee or the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any
Grant. To the full 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 Committee.
3.4 Compliance with Applicable Law. Notwithstanding
anything herein to the contrary, the Company shall not be
required to Grant any Award or issue or deliver any certificates
evidencing shares of Common Stock pursuant to the vesting of any
Award, (a) unless and until the Committee has determined, with advice
of counsel, that Grant of such Award or the issuance and delivery
of such certificates is in compliance with all applicable laws,
regulations of governmental authorities and, if applicable, the
requirements of any exchange on which the shares of Common Stock
are listed or traded, and (b) prior to the Initial Public
Offering or a registered public offering pursuant to the
Registration Rights Agreement, if the effect of such Grant or
issuance or delivery would be to require the Company to register
any class of any securities of the Company under the Securities
Exchange Act. The Company
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<PAGE> 10
shall in no event be obligated to register such shares of
Common Stock or to take any other action in order to comply with
any such law, regulation or requirement with respect to the Grant
of such Award or the issuance and delivery of such certificates.
In addition to the terms and conditions provided herein, the
Committee may require that a Participant or Permitted Transferee
make such covenants, agreements and representations as the
Committee, in its sole discretion, deems necessary in order to
comply with any such laws, regulations or requirements.
3.5 Trust. The Trust shall be administered by the Trustee
pursuant to the Trust Instrument, which shall contain such terms
and conditions as the Board shall approve. The Plan and any
Awards Granted thereunder shall be subject to the terms and
conditions of the Trust Instrument applicable to such Awards as
if the same were incorporated herein. The Trustee shall be
selected by, and serve at the pleasure of, the Board and shall
not be the Company or any director, officer or employee of the
Company. The Board may at any time replace the Trustee with
another Trustee selected by the Board.
4. Awards
Subject to the provisions of this Plan (including any
adjustment as provided in Section 12.3), the Committee may Grant
to Participants Awards of Common Stock of the Company which, in
the aggregate, do not exceed 739,130 shares of Common Stock. To
the extent Awards Granted under the Plan become vested, the
shares of Common Stock covered thereby will be unavailable for
future Grants under the Plan. To the extent that any Awards
Granted under the Plan are forfeited prior to vesting, Additional
Awards may be Granted with respect to the shares of Common Stock
covered thereby.
4.1 Closing Awards. The Committee shall, at the Closing,
Grant Awards in an aggregate amount of up to 443,478 shares of
Common Stock to such Eligible Employees and in
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<PAGE> 11
such amounts per each such Eligible Employee's Award as may
be recommended by the CEO with the approval of the HFCP
Investors. Awards Granted pursuant to this Section 4.1 shall be
known as "Closing Awards." If the aggregate number of shares of
Common Stock subject to Closing Awards is less than 443,478, any
such remaining shares of Common Stock shall be available for
issuance pursuant to Additional Awards in accordance with Section
4.2 herein.
4.2 Additional Awards. (a) The Committee may, at any time
after the Closing, Grant Awards in an aggregate amount of up to
295,652 shares of Common Stock (plus any remaining shares of
Common Stock which were not subject to Closing Awards as set
forth in Section 4.1 and such additional shares of Common Stock
as may become available for Grant as Additional Awards through
the forfeiture of unvested Awards) to such Eligible Employees and
in such amounts per each such Eligible Employee's Award as may be
recommended by the CEO in consultation with the Committee.
(b) With respect to any Award Granted after the occurrence
of an Initial Public Offering or a Change of Control, the
Committee may revise the definition of Vesting Event as it may
determine; provided, however, that at least one Management
Designee on such Committee votes in favor of such action. The
Committee may provide, at the time of the Grant of an Additional
Award, that such Additional Award will not vest upon the
occurrence of any or all of the events listed in clauses (i)
through (vi), inclusive, of the definition of Vesting Event if
such event occurs within six months after the Grant of such
Additional Award.
(c) To the extent that Awards have not been Granted with
respect to all of the shares of Common Stock available for the
Grant of Awards to Participants under the Plan prior to the sixth
anniversary of the Closing Date, the Management Voting Trust may
Grant the remaining Additional Awards (plus such Additional
Awards as may become available for Grant through the forfeiture
of unvested Awards on or after the six-year anniversary of the
Closing Date) to
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such Eligible Employees and in such amounts per each such
Eligible Employee's Award and with such terms and
conditions as it may determine in its sole discretion.
(d) Awards Granted pursuant to this Section 4.2 shall be
known as "Additional Awards."
4.3 Establishment of Accounts. Upon the Granting of any
Award, an Account shall be established in the Trust for the
Participant to whom such Award was Granted with respect to such
Award, and such Award shall be made by an allocation of shares of
Common Stock held in the Unallocated Account of the Trust to the
Participant's Account in the number set forth in the Restricted
Stock Agreement. Such shares of Common Stock shall be held in
such Participant's Account and in the Trust until released or
forfeited pursuant to Section 5 and 6 or Sections 7 and 8,
respectively, hereof or pursuant to the terms of the Trust
Instrument and such shares of Common Stock held in each such
Account shall, until released, be registered in the name of the
Trustee or its nominee or a nominee of a depository selected by
the Trustee.
4.4 Restricted Stock Agreement. Each Award shall be
evidenced by a written agreement executed by the Company and the
Participant to whom such Award was Granted (each, a "Restricted
Stock Agreement"). Such Restricted Stock Agreement shall contain
the terms and conditions, including the Vesting Events, with
respect to such Award.
5. Distribution in Connection with Indemnification.
Pursuant to Article IX of the Contribution Agreement and
the terms of the Trust Instrument with respect to certain
indemnity provisions, distributions of shares of Common Stock and
other property may be made to the Company by the Trustee out of
the Trust for the purpose of further distribution by the Company
to the Indemnitees. The Trustee shall in no event distribute
amounts held in the Participants' Accounts to Participants in
accordance with the Plan prior to the later of (i) delivery to
the HFCP Investors of the Company's audited
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financial statements for the year ending December 31, 1997
and (ii) with respect to shares of Common Stock having an
aggregate Public Market Value (as of the date of the Regular
Valuation preceding, and closest in time to, the date of the
applicable Claim Notice) equal to the amount subject to any Claim
Notice then pending and unpaid, the earlier of the date such
pending claim for indemnification is (A) paid to the Indemnitee
or Indemnitees, (B) determined pursuant to a final Order not to
be payable or (C) the HFCP Investors and the Management Voting
Trust otherwise agree (such restriction on distribution, a
"Hold-Back" and the shares of Common Stock subject to such a
Hold-Back, the "Hold-Back Amount"). Any such distributions with
respect to Indemnitees or Hold-Back shall be made from or applied
to the assets of the Trust as follows until such claims are
satisfied or such Hold-Back Amount is satisfied: (a) first, from
any shares of Common Stock held in the Unallocated Account (or
any such shares represented by Voting Trust Certificates held in
the Unallocated Account), (b) second, from any shares of Common
Stock held in the Participants' Accounts (or any such shares
represented by Voting Trust Certificates held in such Accounts),
(c) third, from any other property (pursuant to valuation
procedures to be agreed between the HFCP Investors and the
Management Voting Trust) held in the Unallocated Account and (d)
fourth, from any other property (pursuant to valuation procedures
to be agreed between the HFCP Investors and the Management Voting
Trust) held in the Participants' Accounts; provided, however,
that no such shares or other property shall be subject to
distribution with respect to Indemnitees or Hold-Back, unless the
date of the Claim Notice with respect thereto is prior to the
later of (i) the receipt by the HFCP Investors of the Company's
audited financial statements for the year ending December 31,
1997 and (ii) the occurrence of an Initial Public Offering or
Change of Control. With respect to any distributions made from
(or any Hold-Back Amount restricted from being distributed out
of) Participants' Accounts, each such Account shall be reduced
(or shall be subject to Hold-Back) pro rata with respect to
shares of Common Stock under clause (b) above and then pro rata
with respect to any other property under clause (d) above. The
Company shall not be obligated to contribute any cash, shares of
Common Stock or other
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property to the Trust to compensate for any such reductions
to (or Hold-Back on) Participant's Accounts as a result of this
Section 5. Upon the occurrence of a Vesting Event, Participants
shall be entitled to receive only the shares of Common Stock held
in their Accounts at the time of such Vesting Event which are not
subject to any Hold-Back and shall have no further claim against
the Company or the Trust as a result of any reduction of (or
Hold-Back on) such Accounts under this Section 5 unless and to
the extent any Hold-Back is subsequently released or shares of
Common Stock are subsequently returned to the Trust by the
Indemnitees.
6. Vesting
6.1 Vesting Event. Subject to Section 5 of the Plan, upon
the occurrence of a Vesting Event, the shares of Common Stock
then held in each Account of each Participant shall be released,
and, as soon as practicable following such Vesting Event, the
Trustee shall deliver certificates of shares of Common Stock
(legended as provided in Section 6.03 of the Stockholders'
Agreement), duly endorsed for transfer, or, if the Management
Voting Trust Agreement is still in effect, Voting Trust
Certificates (legended as provided in Section 2.1 of the
Management Voting Trust Agreement), evidencing such shares to
each such Participant or Permitted Transferee; provided, however,
that to the extent that the release of such shares of Common
Stock would result in an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code being payable to any
Participant, such release, to the extent necessary to avoid such
"excess parachute payment," of such shares shall, if the Company
then meets the requirement set forth in Section
280G(b)(5)(A)(ii)(I) of the Code, be subject to approval by
shareholders of the Company in accordance with Section
280G(b)(5)(B) of the Code.
6.2 Withholding. At the time of a Vesting Event, a
Participant or Permitted Transferee may request, subject to the
approval of the Committee, that the Trustee withhold and remit to
the Company a number of the shares of Common Stock that are to be
distributed to the Participant or Permitted Transferee the value
of which would be sufficient to satisfy the
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<PAGE> 15
applicable withholding taxes or other similar charges incurred
in connection with the receipt of such shares, or, if
the Committee consents, the value of which would be sufficient to
satisfy the estimated total taxes and charges that would be
incurred by the Participant or Permitted Transferee as a result
of the receipt of such shares. Otherwise, the Participant or
Permitted Transferee either must (a) pay to the Company in cash
an amount sufficient to satisfy such withholding taxes or other
similar charges or (b) subject to the approval of the Committee,
deliver (i) shares of Common Stock already owned by such
Participant or Permitted Transferee in a number the value of
which would be sufficient to satisfy such withholding taxes or
other similar charges or, if the Committee consents, the value of
which would be sufficient to satisfy the estimated total taxes
and charges that would be incurred by the Participant or
Permitted Transferee as a result of such exercise or (ii) with
the written consent of the HFCP Investors during the Consent
Period, a recourse note to the Company with such terms and
conditions as the Committee may require, including any pledge of
the related shares. Shares of Common Stock either withheld or
delivered to satisfy withholding taxes or other similar charges
pursuant to this Section 6.2 shall be valued at the same value as
the shares of Common Stock received pursuant to the Plan are
valued by the Company at that time for purposes of determining
applicable withholding taxes or other similar charges. For
purposes of this Section 6.2, a Participant or Permitted
Transferee shall be deemed to have delivered shares of Common
Stock held in the Management Voting Trust by delivering his
Voting Trust Certificate to the Management Voting Trust which
Voting Trust Certificate shall be returned to such Participant or
Permitted Transferee after having been adjusted to reflect the
delivery of such shares in accordance with Section 3.4 of the
Management Voting Trust Agreement.
7. Transfer Restrictions
7.1 General. No Participant may directly or indirectly
sell, transfer, assign, pledge, hypothecate or otherwise encumber
or dispose of (each, a "Transfer") any shares of Common
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<PAGE> 16
Stock held in any Account for such Participant, and no Transfer by
any Participant of any such shares, whether voluntary or involuntary,
by operation of law or otherwise, shall vest the transferee with
any interest or right in such shares and such Transfer shall be
null and void. If any Participant shall attempt to Transfer any
such shares, or if any Participant shall fail to comply with any
of the terms or conditions of the Plan or any Restricted Stock
Agreement executed by such Participant pursuant to Section 4.4
and such failure shall not be remedied within ten days after such
Participant has received notice of such failure from the
Committee, the Committee may, in its sole discretion, declare any
of the shares of Common Stock held in any Account for such
Participant to be forfeited without payment of any consideration
therefor.
7.2 Transfer Upon Death. Notwithstanding any other
provision of the Plan, any shares of Common Stock which are to be
released from any Account of a Participant as a result of the
death of such Participant during the six-month period after an
Initial Public Offering may be Transferred to a transferee by
will or the laws of intestate succession (a "Permitted
Transferee"); provided, however, that no such Transfer shall be
effective to bind the Company unless (a) the Committee shall have
been furnished with written notice thereof and with a copy of the
will and/or such evidence as the Committee may deem necessary to
establish the validity of the Transfer and (b) such Permitted
Transferee (i) agrees in writing to be bound by the Plan and the
Restricted Stock Agreement, as if he had been an original
signatory thereto, and (ii) executes and delivers to the
Committee such documents as may be requested by the Committee
from time to time, including without limitation, any voting trust
or stockholders' agreement or supplement thereto as the Committee
may prescribe.
8. Termination of Employment
In the event that a Participant's Employment is terminated
for any reason prior to a Vesting Event, any Award of such
Participant and all of the Common Stock held at the time of
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<PAGE> 17
such termination in any Account for such Participant shall be
forfeited on the date of such termination without payment of any
consideration therefor.
9. Unallocated Shares
9.1 General. Upon the execution and delivery of the Trust
Instrument, the Company shall deliver to the Trustee $7,391.30.
Promptly after the execution and delivery of the Trust
Instrument, the Company shall deliver 739,130 shares of Common
Stock in exchange for such cash. The delivery of such shares of
Common Stock by the Company to the Trustee shall constitute a
deemed representation by the Company to the Trustee that, subject
to Section 630 of the New York Business Corporation Law, such
shares are validly issued, fully paid, nonassessable and
outstanding. The shares of Common Stock delivered to the Trustee
shall be held in the Unallocated Account until allocated to an
Account pursuant to Section 4 herein. Any unallocated shares of
Common Stock held by the Trust shall be held in the Unallocated
Account, including any shares of Common Stock forfeited by a
Participant pursuant to Section 7 or 8 herein, until allocated to
an Account pursuant to Section 4 herein.
10. Dividends
10.1 Participants' Accounts. Subject to Section 5 of the
Plan, each dividend payable solely in cash with respect to any
shares of Common Stock held in any Account for any Participant
shall be remitted to such Participant from time to time as the
Committee, in its sole discretion, shall determine; provided,
however, that the Trustee shall deduct from such dividend and
remit to the Company an amount equal to the aggregate amount of
any taxes or other charges the Company is required by applicable
law to withhold with respect to the remittance of such dividend.
Except as the Committee may otherwise provide, each dividend not
payable solely in cash, and any cash (other than cash distributed
in a dividend payable solely in cash), stock, securities or other
property, received with respect to or in exchange for
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<PAGE> 18
any shares of Common Stock held in any Account shall be held
in the Trust in such Account and shall be treated for the
purposes hereof as though such dividend, cash, stock, securities
or other property were part of such shares of Common Stock held
in such Account; provided, however, that any such cash held in
any such Account may be invested by the Trustee for the benefit
of such Account in accordance with investment guidelines
prescribed by the Committee.
10.2 Unallocated Account. Each dividend and any capital
stock (or other securities) of the Company, cash, stock,
securities or other property received with respect to or in
exchange for any unallocated shares of Common Stock held in the
Unallocated Account of the Trust shall be held in the Unallocated
Account and shall be treated for the purposes hereof as though
such dividend, cash, stock, securities or other property were
part of such unallocated shares; provided, however, that any cash
held in the Unallocated Account may be invested by the Trustee
for the benefit of the Unallocated Account in accordance with
investment guidelines prescribed by the Committee.
11. Voting
The Restricted Stock Trust is a party to the Management
Voting Trust Agreement and is bound thereby. While the Management
Voting Trust Agreement is still in effect, it shall govern with
respect to the voting of shares of Common Stock held in the
Trust. After the Management Voting Trust Agreement is no longer
in effect, the provisions of this Section 11 shall govern with
respect to the voting of shares of Common Stock held in the
Trust. Each Participant shall be entitled to instruct the Trustee
as to the voting of any shares of Common Stock held in any
Account for such Participant. The Company shall, at the time of
mailing notice of any annual or special meeting of the
stockholders of the Company, send to the Trustee a copy for the
records of the Trustee and a copy for each Participant of such
notice and of all proxy solicitation material relating to such
meeting, and the Trustee shall promptly
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forward a copy of such notice and material to each Participant.
Each Participant may instruct the Trustee in writing how
the shares of Common Stock held in any Account for such
Participant shall be voted for such meeting, and the Trustee
shall vote the shares of Common Stock held in any Account for any
Participant in accordance with such instructions as such
Participant may give the Trustee in a timely manner. Shares of
Common Stock held in any Account with respect to which no such
instructions are so given and unallocated shares of Common Stock
held in the Unallocated Account shall be voted by the Trustee pro
rata in accordance with the vote of the allocated shares of
Common Stock as to which such instructions are so given.
12. Administration of the Plan and Awards
12.1 Termination of the Plan and Awards. No Awards shall be
Granted under the Plan after the tenth anniversary of the Closing
Date. The Committee, with the written consent of the HFCP
Investors during the Consent Period and the Management Voting
Trust, may at any time terminate the Plan and may at any time
terminate any Awards then outstanding, whether or not vested;
provided, however that no such action will, without the consent
of a Participant, adversely affect his rights under an
outstanding Award; and provided, further, that upon any such
termination of the Plan or of an outstanding Award, the Committee
may, with the written consent of the HFCP Investors during the
Consent Period and the Management Voting Trust, either (a)
declare a Vesting Event to have occurred at the time of such
termination and release shares of Common Stock to Participants in
accordance with the Plan or (b) in full consideration of
termination of an Award, cause the Company to pay to a
Participant an amount in cash equal to the value of the shares of
Common Stock subject to such Award (and any cash or other
property held in such Account), minus any applicable withholding
taxes or other similar charges; and provided, further, that upon
any such termination of the Plan, the Committee shall distribute
any unallocated shares of Common Stock remaining in the
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<PAGE> 20
Unallocated Account within two years after such termination
to such Eligible Employees as the Committee may designate. For
purposes of this Section 12.1, the value of such shares of Common
Stock and other property shall be determined as the value at
which the Company would have valued such shares or other property
had a Vesting Event occurred at that time for purposes of
determining applicable withholding taxes or other similar
charges. Notwithstanding any provision herein to the contrary, in
no event shall any shares of Common Stock revert to the Company
as a result of the termination of the Plan or the Trust.
12.2 Amendment of Plan and Awards. The Committee may, with
the written consent of the HFCP Investors during the Consent
Period and the Management Voting Trust, at any time revise or
amend the Plan or the terms and conditions of the Awards in any
respect whatsoever; provided, however, that in either case any
such amendment shall not impair the Participants' rights under
any outstanding Awards without such Participants' consent.
12.3 Adjustment Upon Changes in Company Stock.
(a) Changes in Capitalization. The Committee shall, in its
absolute discretion, adjust any outstanding Awards to reflect any
dividend, stock split, recapitalization, merger, consolidation,
combination, exchange of shares or similar corporate change as
the Committee may deem appropriate to prevent the enlargement or
dilution of rights of Participants under the Awards. In the event
of any change in the number of shares of Common Stock outstanding
by reason of an event or change as set forth in the prior sentence,
the maximum aggregate number of shares of Common Stock with
respect to which Awards may be Granted under the Plan shall be
appropriately adjusted by the Committee.
(b) No Other Rights. Except as expressly provided in the
Plan or the Restricted Stock Agreements evidencing the Awards,
the Participants shall not have any rights by reason of any
subdivision or consolidation of shares of Common Stock or shares
of stock of any class, the
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<PAGE> 21
payment of any dividend, any increase or decrease in the
number of shares of Common Stock or shares of stock of any class
or any dissolution, liquidation, merger or consolidation of the
Company or any other corporation. Except as expressly provided in
the Plan or the Restricted Stock Agreements evidencing the
Awards, no issuance by the Company of shares of Common Stock or
shares of stock of any class, or securities convertible into
shares of Common Stock or shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with
respect to, the number of shares of Common Stock subject to such
Awards.
12.4 Rights as Stockholders. Except as otherwise expressly
provided herein, the Participants shall not have any rights as
stockholders with respect to any shares of Common Stock covered
by or relating to the Awards Granted pursuant to the Plan or held
in any Accounts in the Trust until the date such shares are
released to such Participants from the Trust as provided herein.
12.5 No Special Employment Rights. Nothing contained in the
Plan shall confer upon the Participants any right with respect to
the continuation of their Employment or interfere in any way with
the right of the Company or an Affiliate, subject to the terms of
any separate Employment agreements to the contrary, at any time
to terminate such Employment or to increase or decrease the
compensation of the Participants from the rate in existence at
the time of the Grant of the Awards.
12.6 Delivery of Documents. As a condition to the Grant of any
Award to an Eligible Employee under the Plan, such Eligible
Employee shall execute and deliver to the Committee such
documents as may be requested by the Committee from time to time,
including without limitation, any voting trust or stockholders'
agreement or supplement thereto as the Committee may prescribe.
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<PAGE> 22
13. Restrictions on Common Stock
The shares of Common Stock held by the Trust and the rights
and obligations of the Participants and their Permitted
Transferees with respect to shares of Common Stock obtained
through release pursuant to this Plan shall be governed by the
terms and conditions of the Stockholders' Agreement and the
Management Voting Trust Agreement while such Agreements are in
effect. Notwithstanding any other provision of this Plan, no
Person shall be Granted an Award unless he has theretofore
become, or concurrently becomes, a party to the Stockholders'
Agreement and the Management Voting Trust Agreement while such
Agreements are in effect.
14. Miscellaneous
14.1 Notices. (a) All notices, requests, demands or other
communications required by or otherwise with respect to the Plan
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 Participant:
To the address shown on the Restricted Stock
Agreement.
If to the Company:
Young & Rubicam Holdings Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.
Facsimile: (212) 210-5544
If to the Management Voting Trust:
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Management Voting Trust
c/o Young & Rubicam Holdings Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq., Voting
Trustee Representative
Facsimile: (212) 210-5544
If to the HFCP Investors:
H&F Investors III, Inc.
One Maritime Plaza
12th Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
(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 14.1 shall be deemed delivered as of
the date posted in the United States mail.
(b) Whenever the Plan contemplates delivery to, or action
(such as consent, approval or waiver) by, (i) the HFCP Investors,
delivery to, or action (evidenced in writing) by, the Ultimate
General Partner shall bind the HFCP Investors or (ii) the
Management Voting Trust, delivery to, or action (evidenced in
writing) by, the Voting Trustee representative (set forth in
subsection(a) of this Section 14.1) shall bind the Management
Voting Trust.
(c) Whenever the Plan requires delivery to, or action (such
as consent, approval or waiver) by, the Management Voting Trust,
such delivery or action shall only be required while the
Management Voting Trust is extant.
14.2 Descriptive Headings. The headings in the Plan are for
convenience of reference only and shall not limit or otherwise
affect the meaning of the terms contained herein.
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<PAGE> 24
14.3 Severability. In the event that any one or more of the
provisions, subdivisions, words, clauses, phrases or sentences
contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability
of any such provision, subdivision, word, clause, phrase or
sentence in every other respect and of the remaining provisions,
subdivisions, words, clauses, phrases or sentences hereof shall
not be in any way impaired, it being intended that all rights,
powers and privileges of the Company, the HFCP Investors,
Participants and Permitted Transferees shall be enforceable to
the fullest extent permitted by law.
14.4 Expenses and Receipts. The expenses of the Plan shall
be paid by the Company.
14.5 Gender. All references herein to the masculine gender
shall include the feminine.
14.6 Governing Law. Prior to the Company Merger, the Plan
shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York without regard to
the principles of conflict of laws; provided, however, that,
following the Company Merger, (a) then with respect to any
question of construction arising after such Company Merger, the
Plan 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 (b) each Participant and
Permitted Transferee and each of the HFCP Investors 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 the
Plan. Service of process on each Participant and Permitted
Transferee and each of the HFCP Investors and the Company in any
action arising out of or relating to the Plan shall be effective
if served upon such Person by mail in accordance with Section
14.1.
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<PAGE> 1
Exhibit 10.5
YOUNG & RUBICAM HOLDINGS INC.
MANAGEMENT STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the Young & Rubicam Holdings Inc. Management
Stock Option Plan is to promote the interests of the Company and
its stockholders by providing key employees of the Company and
its Affiliates with an appropriate incentive to encourage them to
continue in the employ of the Company and its Affiliates and to
improve the growth and profitability of the Company.
2. Definitions
As used in this Plan, the following capitalized terms shall
have the following meanings:
(a) "Additional Options" shall have the meaning set forth in
Section 4.5 herein.
(b) "Affiliate" shall mean any entity (whether or not
incorporated) which, by reason of its relationship with the
Company, is required to be aggregated with the Company under
Section 414(b), 414(c), 414(m) or 414(o) of the Code, and any
joint venture or partnership 10% or more of the profits or
capital interest of which is owned by the Company or an
Affiliate.
(c) "Beneficial Ownership" shall have the meaning set forth
in the Stockholders' Agreement.
(d) "Board" shall mean the Board of Directors of the
Company.
(e) "Business Day" shall have the meaning set forth in the
Contribution Agreement.
(f) "CEO" shall mean the chief executive officer of the
Company.
<PAGE> 2
(g) "Change of Control" shall mean (i) a transfer by the
HFCP Investors of Beneficial Ownership of shares of Common Stock
to any person (including a group, within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act) representing
at least 30% of the then Outstanding Shares; or (ii) so long as
the Management Voting Trust owns at least 20% of the then
Outstanding Shares, (A) the acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act), other than the HFCP Investors and
their Affiliates and the Management Voting Trust (and the Voting
Trustees thereof), of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Securities Exchange Act) of
shares representing both (x) more than one-third of the
Outstanding Shares and (y) more shares than the number of
Outstanding Shares then held by the Management Voting Trust, or
(B) the Management Voting Trust and the HFCP Investors no longer
collectively owning both a majority of the Outstanding Shares and
a majority of the Fully Diluted Shares, or (C) approval by the
shareholders of the Company of a reorganization, merger,
consolidation, share exchange or similar transaction (a "Business
Combination"), in each case, with respect to which all or
substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Shares, the Fully
Diluted Shares and the voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors (the "Company Voting Securities") immediately prior to
such Business Combination do not in the aggregate, immediately
following such Business Combination, beneficially own, directly
or indirectly, more than two-thirds of, respectively, the then
Outstanding Shares, the then Fully Diluted Shares and the voting
power of the then outstanding Company Voting Securities, as the
case may be, of the corporation resulting from such Business
Combination or its ultimate parent corporation in substantially
the same proportion as their ownership immediately prior to such
Business Combination of the Outstanding Shares, the Fully Diluted
Shares and the voting power of the Company Voting Securities, as
the case may be, or (D)(x) a complete liquidation or dissolution
of the Company or (y) sale or other disposition of all or
substantially all of the assets of the Company other
2
<PAGE> 3
than into or to a corporation with respect to which, immediately
following such liquidation, dissolution, sale or disposition,
more than two-thirds of, respectively, the then Outstanding
Shares, the then Fully Diluted Shares and the voting power of the
then outstanding Company Voting Securities is then beneficially
owned, directly or indirectly, in the aggregate by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Shares, the
Fully Diluted Shares and the voting power represented by the
Company Voting Securities immediately prior to such liquidation,
dissolution, sale or disposition in substantially the same
proportion as their ownership of the Outstanding Shares, the
Fully Diluted Shares and the voting power represented by the
Company Voting Securities, as the case may be, immediately prior
to such liquidation, dissolution, sale or disposition.
(h) "Closing" shall have the meaning set forth in the
Contribution Agreement.
(i) "Closing Date" shall have the meaning set forth in the
Contribution Agreement.
(j) "Closing Option" shall have the meaning set forth in
Section 4.2 herein.
(k) "Code" shall have the meaning set forth in the
Contribution Agreement.
(l) "Committee" shall mean the Compensation Committee
appointed by the Board pursuant to the bylaws of the Company and,
to the extent then in effect, the Stockholders' Agreement.
(m) "Common Stock" shall have the meaning set forth in the
Stockholders' Agreement.
(n) "Company" shall mean Young & Rubicam Holdings Inc., a
New York corporation, and its successors.
3
<PAGE> 4
(o) "Company Merger" shall have the meaning set forth in the
Stockholders' Agreement.
(p) "Consent Period" shall mean the period during which the
HFCP Investors shall have the right to approve transactions
pursuant to Section 5.04(b) of the Stockholders' Agreement.
(q) "Contribution Agreement" shall mean the Contribution
Agreement, dated October 30, 1996, by and among the HFCP
Investors, the Company, Young & Rubicam Inc., a Delaware
corporation, the "Restricted Stock Trust" (as defined therein)
and Y&R, as it may be amended from time to time.
(r) "Eligible Employee" shall mean any Employee who is a
director or key executive of the Company or an Affiliate or who,
in the judgment of the CEO, should be eligible to participate in
the Plan due to the services he performs on behalf of the Company
or an Affiliate. Directors who are not Employees of the Company
or its Affiliates shall not be eligible to participate in the
Plan.
(s) "Employment" shall mean active employment with the
Company or any Affiliate or any predecessor thereof. Employment
shall also include work by any Person as an independent
contractor for the Company or any Affiliate or any predecessor
thereof, as the Committee may determine. "Employee" and
"Employed" shall have correlative meanings.
(t) "Executive Options" shall mean, collectively, the
Closing Options, the 1998 Performance Options, the 2000
Performance Options and the Additional Options.
(u) "Exercise Date" shall have the meaning set forth in
Section 8.2 herein.
(v) "Exercise Notice" shall have the meaning set forth in
Section 8.2 herein.
4
<PAGE> 5
(w) "Exercise Price" shall mean the exercise price per share
of Common Stock of each Option Granted under the Plan as set
forth in the Plan or in the Stock Option Agreement evidencing
such Option.
(x) "Extended Consent Period" shall mean the period during
which either the HFCP Investors shall have the right to approve
transactions pursuant to Section 5.04(b) of the Stockholders'
Agreement or the HFCP Investors shall own at least 20% of the
then Outstanding Shares.
(y) "Fiscal Year" shall mean, with respect to the Company,
the twelve-month period beginning on January 1 and ending on
December 31 of each year.
(z) "Fully Diluted Shares" shall have the meaning set forth
in the Stockholders' Agreement.
(aa) "Grant" shall mean a grant of an Option under the Plan
and evidenced by a Stock Option Agreement.
(bb) "Grant Date" shall mean the date an Option is Granted
as set forth in this Plan or in the Stock Option Agreement
evidencing such Option.
(cc) "HFCP Investors" shall have the meaning set forth in
the Contribution Agreement.
(dd) "Initial Public Offering" shall have the meaning set
forth in the Stockholders' Agreement. For purposes of the Plan,
an Initial Public Offering shall occur on the closing date of
such Initial Public Offering.
5
<PAGE> 6
(ee) "Incentive Stock Option" shall mean an Option which is
an "incentive stock option" within the meaning of Section 422 of
the Code and which is identified as an Incentive Stock Option in
the Stock Option Agreement by which it is evidenced.
(ff) "Management Designee" shall have the meaning set forth
in the Stockholders' Agreement.
(gg) "Management Voting Trust" shall mean the voting trust
created under the Management Voting Trust Agreement.
(hh) "Management Voting Trust Agreement" shall mean the
Management Voting Trust Agreement entered into as of December 12,
1996, by and among the Company, Young & Rubicam Inc., a New York
corporation, Young & Rubicam Inc., a Delaware corporation, the
"Management Investors" and the "Voting Trustees" (each as defined
therein), as it may be amended or supplemented from time to time.
(ii) "Non-Qualified Stock Option" shall mean an Option
which is not an Incentive Stock Option and which is identified as
a Non-Qualified Stock Option in the Stock Option Agreement by
which it is evidenced.
(jj) "Option" shall mean the option to purchase shares of
Common Stock Granted to a Participant under the Plan.
(kk) "Outstanding Shares" shall have the meaning set forth
in the Stockholders' Agreement.
(ll) "Participant" shall mean an Eligible Employee to whom
a Grant of an Option under the Plan has been made.
(mm) "Permitted Transferee" shall have the meaning set
forth in Section 6.1 herein.
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<PAGE> 7
(nn) "Person" shall have the meaning set forth in the
Contribution Agreement.
(oo) "Plan" shall mean the Young & Rubicam Holdings Inc.
Management Stock Option Plan, as it may be amended from time to
time.
(pp) "Proportionate EBITA" shall have the meaning set forth
in the Contribution Agreement.
(qq) "Registration Rights Agreement" shall have the meaning
set forth in the Contribution Agreement.
(rr) "Roll-Over Option" shall have the meaning set forth in
Section 5.1 herein.
(ss) "Securities Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(tt) "Stock Option Agreement" shall mean an agreement
entered into by each Participant and the Company evidencing the
Grant of an Option pursuant to the Plan.
(uu) "Stock Subscription Agreement" shall have the meaning
set forth in the Stockholders' Agreement.
(vv) "Stockholders' Agreement" shall mean the stockholders'
agreement dated December 12, 1996, by and among the Stockholders
(as defined therein), the Company, Young & Rubicam Inc., a New
York corporation, and Young & Rubicam Inc., a Delaware
corporation, as it may be amended from time to time.
(ww) "Transfer" shall have the meaning set forth in Section
6.1 herein.
(xx) "Ultimate General Partner" shall have the meaning set
forth in the Contribution Agreement.
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<PAGE> 8
(yy) "Vesting Event" shall mean (i) an Initial Public
Offering or (ii) a Change of Control.
(zz) "Voting Trust Certificate" shall have the meaning set
forth in the Management Voting Trust Agreement.
(aaa) "Y&R" shall mean, collectively, Young & Rubicam Inc.,
a New York corporation (and its wholly-owned subsidiary, Y&R
Partner Two Inc.), and Young & Rubicam L.P., a Delaware limited
partnership, and their respective subsidiaries and predecessors.
(bbb) "1998 Performance Options" shall have the meaning set
forth in Section 4.3 herein.
(ccc) "2000 Performance Options" shall have the meaning set
forth in Section 4.4 herein.
3. Administration of the Plan
The Committee shall administer the Plan. No member of the
Committee shall be disqualified from participating in any act or
decision by reason of the fact that it may affect any Option
Granted to such member hereunder, except to the extent that such
act or decision relates specifically and exclusively to such
Option Granted to such member. Unless otherwise specified herein,
any act or decision of the Committee shall be made by a majority
of the members of the Committee.
3.1 Powers of the Committee. Subject to the provisions of
this Plan, in addition to the other powers granted to the
Committee under the Plan, the Committee shall have the power: (a)
to Grant Options; (b) to consult with the CEO regarding which of
the Eligible Employees should receive Grants of certain Options;
(c) to consult with the CEO regarding the time or times when Grants
of Additional Options should be made, the number of shares of
8
<PAGE> 9
Common Stock subject to each such Grant and to determine the
exercisability, term and Exercise Price for such Additional
Options; (d) to accelerate the right to exercise any or all
Options (provided, that such action shall be effective only with
the written consent of the HFCP Investors during the Extended
Consent Period except to the extent such acceleration involves
only the waiver of any terms or conditions not expressly provided
for by the Plan); (e) to prescribe the form of any instrument
evidencing a Grant; (f) to adopt, amend and rescind such rules
and regulations as, in its opinion, may be advisable for the
administration of the Plan; (g) to construe and interpret the
Plan, such rules and regulations and the instruments evidencing
Options; (h) to make all other determinations necessary or
advisable for the administration of the Plan; (i) to determine
which Company or Affiliate shall be the grantor of any Option;
and (j) to make good faith adjustments to the Proportionate EBITA
targets described in Sections 4.3 and 4.4 of the Plan in
accordance with the definition of Proportionate EBITA.
3.2 Determinations of the Committee. Any Grant,
determination, prescription or other act of the Committee shall
be final and conclusively binding upon all Persons.
3.3 Indemnification of the Committee. No member of the
Committee or the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any
Grant. To the full 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 Committee.
3.4 Compliance with Applicable Law. Notwithstanding anything
herein to the contrary, the Company shall not be required to
Grant any Option or issue or deliver any certificates evidencing
shares of Common Stock pursuant to the exercise of any Options,
(a) unless and until the Committee has determined, with advice of
counsel, that the Grant of such
9
<PAGE> 10
Option or issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of governmental
authorities and, if applicable, the requirements of any exchange
on which the shares of Common Stock are listed or traded, and (b)
prior to the Initial Public Offering or a registered public
offering pursuant to the Registration Rights Agreement, if the
effect of such Grant or issuance or delivery would be to require
the Company to register any class of any securities of the
Company under the Securities Exchange Act. The Company shall in
no event be obligated to register such shares of Common Stock or
to take any other action in order to comply with any such law,
regulation or requirement with respect to the Grant of such
Option or the issuance and delivery of such certificates. In
addition to the terms and conditions provided herein, the
Committee may require that a Participant or Permitted Transferee
make such covenants, agreements and representations as the
Committee, in its sole discretion, deems necessary in order to
comply with any such laws, regulations or requirements.
4. Executive Options
Subject to the provisions of this Plan (including
adjustment as provided in Section 9.3), the Committee may Grant
to Participants Executive Options to purchase shares of Common
Stock of the Company which, in the aggregate, do not exceed
1,090,000 shares of Common Stock. To the extent Executive Options
Granted under the Plan are exercised, the shares of Common Stock
covered thereby will be unavailable for future Grants under the
Plan. Except as otherwise provided herein with respect to the
1998 Performance Options and the 2000 Performance Options, to the
extent that Executive Options Granted under the Plan terminate,
expire or are canceled without having been exercised, Additional
Options may be Granted with respect to the shares of Common Stock
covered thereby.
10
<PAGE> 11
4.1 Identification of Executive Options. Each Executive
Option Granted under the Plan shall be clearly identified in the
Stock Option Agreement evidencing such Executive Option as either
an Incentive Stock Option or as a Non-Qualified Stock Option.
4.2 Closing Options.
(a) Grant. The Committee shall, at the Closing, Grant
Options to purchase up to an aggregate of 408,750 shares of
Common Stock to such Eligible Employees and in such amounts per
each such Eligible Employee's Option as may be recommended by the
CEO with the approval of the HFCP Investors and reflected in
Stock Option Agreements. Options Granted pursuant to this Section
4.2 shall be known as "Closing Options." If the aggregate number
of shares of Common Stock subject to Closing Options is less than
408,750, any such remaining shares of Common Stock shall be
available for issuance pursuant to Additional Options in
accordance with Section 4.5 herein.
(b) Grant Date. The Grant Date of each Closing Option shall
be the Closing Date.
(c) Vesting. With respect to each Closing Option Granted to
a Participant, such Closing Option will become exercisable (i)
upon its Grant Date, with respect to 40% of the shares of Common
Stock subject to such Closing Option, (ii) upon the third
anniversary of its Grant Date, with respect to another 30% of
such shares, and (iii) upon the fifth anniversary of its Grant
Date, with respect to the remaining 30% of such shares.
(d) Exercise Price. The Exercise Price per share of each
Closing Option shall be $115.00.
4.3 1998 Performance Options.
(a) Grant. In the last quarter of Fiscal Year 1997, or such
other time as the Committee may choose, the Committee shall Grant
Options to purchase shares of Common Stock to such
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<PAGE> 12
Eligible Employees and in such amounts per each such Eligible
Employee's Option as may be recommended by the CEO and approved
by the Committee, and reflected in Stock Option Agreements, in an
aggregate number of shares of Common Stock not to exceed 272,500
shares of Common Stock. Options Granted pursuant to this Section
4.3 shall be known as "1998 Performance Options."
(b) Grant Date. The Grant Date of the 1998 Performance
Options shall be the date as of which the 1998 Performance
Options are Granted by the Committee pursuant to Section 4.3(a)
above.
(c) Vesting. The 1998 Performance Options Granted shall
become exercisable only as follows: (i) if the Company achieves
Proportionate EBITA of $190 million or higher in Fiscal Year
1998, then the 1998 Performance Options shall become exercisable
with respect to an aggregate of 272,500 shares of Common Stock;
and (ii) if the Company fails to achieve Proportionate EBITA of
$190 million in Fiscal Year 1998 by $10 million or less, then the
1998 Performance Options shall become exercisable with respect to
an aggregate number of shares of Common Stock equal to (x) the
difference between the Company's Proportionate EBITA for Fiscal
Year 1998 and $180 million, divided by (y) $10 million, with the
result multiplied by (z) 272,500; provided, however, that no such
1998 Performance Option shall become exercisable prior to the
later to occur of (A) a Vesting Event and (B) the date of the
issuance of a certificate by the Company's independent auditor
specifying Proportionate EBITA with respect to Fiscal Year 1998;
and provided, further, that to the extent that the satisfaction
of the conditions of the right to exercise any 1998 Performance
Option would result in an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code being payable to any
Participant, such right to exercise, to the extent necessary to
avoid such "excess parachute payment", such 1998 Performance Option
shall, if the Company then meets the requirement set forth in Section
280G(b)(5)(A)(ii)(I) of the Code, be subject to approval by
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<PAGE> 13
shareholders of the Company in accordance with Section
280G(b)(5)(B) of the Code. The aggregate number of shares of
Common Stock with respect to which 1998 Performance Options
become exercisable in the event that the Company's Proportionate
EBITA for Fiscal Year 1998 is between $180 million and $190
million and a Vesting Event has occurred is herein referred to as
the "Pro Rata 1998 Performance Option Shares."
In addition, with respect to each Participant, the
exercisability of any 1998 Performance Option with respect to any
number of shares of Common Stock underlying such 1998 Performance
Option may also be subject to such additional terms and
conditions as the CEO in consultation with the Committee may deem
appropriate and as may be reflected in the Stock Option Agreement
evidencing such 1998 Performance Option. In the event that the
Company's Proportionate EBITA for Fiscal Year 1998 is between
$180 million and $190 million and a Vesting Event has occurred,
the Committee shall (I) determine which Participants holding
outstanding 1998 Performance Options have satisfied the
additional terms and conditions set forth in their Stock Option
Agreements, (II) cause each such Participant's 1998 Performance
Option to become exercisable with respect to an aggregate number
of shares of Common Stock equal to (aa) the difference between
the Company's Proportionate EBITA for Fiscal Year 1998 and $180
million, divided by (bb) $10 million, with the result multiplied
by (cc) the number of shares of Common Stock subject to such 1998
Performance Option, and (III) shall determine which of such
Participants' 1998 Performance Options may become exercisable
with respect to additional numbers of shares of Common Stock in
an aggregate amount not to exceed the Pro Rata 1998 Performance
Option Shares less the aggregate number of shares with respect to
which such Participants' 1998 Performance Options have become
exercisable pursuant to clause (II) of this sentence.
To the extent the 1998 Performance Options would not become
exercisable as a result of the Company's Proportionate EBITA for
Fiscal Year 1998, such 1998 Performance Options
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<PAGE> 14
(or portions thereof) shall be canceled and the shares of Common
Stock subject thereto will not be available for issuance pursuant
to Additional Options in accordance with Section 4.5 herein. If
any 1998 Performance Option Granted to a Participant (or portion
thereof) does not become exercisable due to such Participant's
failure to satisfy any further terms and conditions as may be set
forth in his Stock Option Agreement, such 1998 Performance Option
(or portion thereof) shall be canceled and the shares of Common
Stock subject thereto will be available for issuance pursuant to
Additional Options in accordance with Section 4.5 herein.
(d) Exercise Price. The Exercise Price per share of each
1998 Performance Option shall be $115.00.
4.4 2000 Performance Options.
(a) Grant. In the last quarter of Fiscal Year 1999, or such
other time as the Committee may choose, the Committee shall Grant
Options to purchase shares of Common Stock to such Eligible
Employees and in such amounts per each such Eligible Employee's
Option as may be recommended by the CEO and approved by the
Committee, and reflected in Stock Option Agreements, in an
aggregate number of shares of Common Stock not to exceed 272,500
shares of Common Stock. Options Granted pursuant to this Section
4.3 shall be known as "2000 Performance Options."
(b) Grant Date. The Grant Date of the 2000 Performance
Options shall be the date as of which the 2000 Performance
Options are Granted by the Committee pursuant to Section 4.4(a)
above.
(c) Vesting. The Committee shall determine the aggregate
number of shares of Common Stock with respect to which the
2000 Performance Options shall potentially become
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<PAGE> 15
exercisable as follows: (A) if the Company achieves Proportionate
EBITA of $230 million or higher in Fiscal Year 2000, then the
2000 Performance Options shall potentially become exercisable
with respect to an aggregate of 272,500 shares of Common Stock;
and (B) if the Company fails to achieve Proportionate EBITA of
$230 million in Fiscal Year 2000 by $20 million or less, then the
2000 Performance Options shall potentially become exercisable
with respect to an aggregate number of shares of Common Stock
equal to (x) the difference between the Company's Proportionate
EBITA for Fiscal Year 2000 and $210 million, divided by (y) $20
million, with the result multiplied by (z) 272,500. The aggregate
number of shares of Common Stock with respect to which 2000
Performance Options potentially become exercisable in the event
that the Company's Proportionate EBITA for Fiscal Year 2000 is
between $210 million and $230 million is herein referred to as
the "Pro Rata 2000 Performance Option Shares."
In addition, with respect to each Participant, the
potential exercisability of any 2000 Performance Option with
respect to any number of shares of Common Stock underlying such
2000 Performance Option may also be subject to such further terms
and conditions as the CEO in consultation with the Committee may
deem appropriate and as may be reflected in the Stock Option
Agreement evidencing such 2000 Performance Option. In the event
that the Company's Proportionate EBITA for Fiscal Year 2000 is
between $210 million and $230 million, the Committee shall (I)
determine which Participants holding outstanding 2000 Performance
Options have satisfied the additional terms and conditions set
forth in their Stock Option Agreements, (II) determine that each
such Participant's 2000 Performance Option may potentially become
exercisable with respect to an aggregate number of shares of
Common Stock equal to (aa) the difference between the Company's
Proportionate EBITA for Fiscal Year 2000 and $210 million,
divided by (bb) $20 million, with the result multiplied by (cc)
the number of shares of Common Stock subject to such 2000
Performance Option, and (III) shall determine which of such
Participants' 2000 Performance Options may potentially become
exercisable with respect to additional numbers of shares of
Common Stock in an aggregate amount not to exceed the Pro Rata
2000 Performance Option Shares less the aggregate number
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<PAGE> 16
of shares with respect to which such Participants' 2000
Performance Options have potentially become exercisable pursuant
to clause (II) of this sentence.
To the extent that each 2000 Performance Option Granted to
a Participant is potentially exercisable pursuant to the
preceding paragraphs of this Section 4.4(c), such 2000
Performance Option will become exercisable (i) upon the date of
the issuance of a certificate by the Company's independent
auditor specifying Proportionate EBITA with respect to Fiscal
Year 2000, with respect to 40%, (ii) upon the second anniversary
of such issuance date, with respect to another 30%, and (iii)
upon the third anniversary of such issuance date, with respect to
the remaining 30%.
To the extent the 2000 Performance Options would not become
exercisable as a result of the Company's Proportionate EBITA for
Fiscal Year 2000, such 2000 Performance Options (or portions
thereof) shall be canceled and the shares of Common Stock subject
thereto will not be available for issuance pursuant to Additional
Options in accordance with Section 4.5 herein. If any 2000
Performance Option Granted to a Participant (or portion thereof)
does not become exercisable due to such Participant's failure to
satisfy any further terms and conditions as may be set forth in
his Stock Option Agreement, such 2000 Performance Option (or
portion thereof) shall be canceled and the shares of Common Stock
subject thereto will be available for issuance pursuant to
Additional Options in accordance with Section 4.5 herein.
(d) Exercise Price. The Exercise Price per share of each
2000 Performance Option shall be $115.00.
4.5 Additional Options.
(a) Grant. (i) The Committee may, at any time after the Closing,
Grant Options to purchase up to an aggregate of 136,250 shares of
Common Stock (plus any remaining shares of Common Stock which were
not subject to Closing Options as set forth in Section 4.2(a) and
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<PAGE> 17
such additional shares of Common Stock as may become available
for Grant as Additional Options through the expiration,
termination or cancellation of unexercised Executive Options in
accordance with terms of the Plan or any Stock Option Agreement)
to such Eligible Employees and in such amounts per each such
Eligible Employee's Option as may be recommended by the CEO and
approved by the Committee and reflected in Stock Option
Agreements. To the extent an unexercised Option is settled by
means of the deemed repurchase of the shares of Common Stock
issuable thereunder, such shares shall not be available for
Additional Options even though such Options were "unexercised."
(ii) To the extent that Options have not been Granted with
respect to all of the shares of Common Stock available for the
Grant of Options to Participants under the Plan prior to the
ninth anniversary of the Closing Date, the Management Voting
Trust may Grant the remaining Additional Options (plus such
Additional Options as may become available for Grant through the
expiration, termination or cancellation of unexercised Options on
or after the nine-year anniversary of the Closing Date) to such
Eligible Employees and in such amounts per each such Eligible
Employee's Additional Option and with such terms and conditions
as it may determine in its sole discretion.
(iii) Options Granted pursuant to this Section 4.5 shall be
known as "Additional Options."
(b) Grant Date. The Grant Date of any Additional Option
shall be the date as of which such Additional Option is Granted
by the Committee pursuant to Section 4.5(a) above.
(c) Vesting. Any Additional Option Granted by the Committee
shall become exercisable as determined by the Committee and
specified in the Stock Option Agreement evidencing such
Additional Option; provided, however, that the terms upon which
any Additional Option Granted as a result of the expiration,
termination or cancellation of an
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<PAGE> 18
unexercised Closing Option, 1998 Performance Option or 2000
Performance Option may be exercised shall be no more favorable to
the Participant than such terms would have been had such
Participant been Granted a Closing Option, 1998 Performance
Option or 2000 Performance Option, respectively.
(d) Exercise Price. The Exercise Price per share of any
Additional Option which is a Non-Qualified Stock Option shall be
such price as the Committee shall determine on the Grant Date of
such Non-Qualified Stock Option. The Exercise Price per share of
any Additional Option which is an Incentive Stock Option shall be
not less than 100% of the fair market value of a share of Common
Stock on the Grant Date of such Incentive Stock Option. The
Exercise Price per share of any Additional Option shall be
determined by the Committee and specified in the Stock Option
Agreement evidencing such Additional Option; provided, however,
that the Exercise Price per share of any Additional Option
Granted as a result of the expiration, termination or
cancellation of an unexercised Closing Option, 1998 Performance
Option or 2000 Performance Option shall not exceed $115.00.
4.6 Executive Option Term. Each Executive Option Granted
under this Section 4 shall not be exercisable after the later to
occur of (a) the expiration of ten years from such Executive
Option's Grant Date or (b) with respect to the 1998 Performance
Options only, the second anniversary of the Vesting Event
triggering exercisability.
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4.7 Limitations on Grant of Incentive Stock Options.
(a) $100,000 Limitation. The aggregate fair market value of
shares of Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by a Participant
during any calendar year under the Plan and any other stock
option plan of the Company or an Affiliate (or any "subsidiary
corporation" of the Company as such term is defined in Section
424 of the Code) shall not exceed $100,000. Such fair market
value shall be determined as of the Grant Date of each such
Incentive Stock Option. In the event that the aggregate fair
market value of shares of Common Stock with respect to such
Incentive Stock Options exceeds $100,000, then Incentive Stock
Options Granted hereunder to such Participant shall, to the
extent and in the order in which they were Granted, automatically
be deemed to be Non-Qualified Stock Options, but all other terms
and provisions of such Incentive Stock Options shall remain
unchanged.
(b) Ten Percent Owner Limitation. No Incentive Stock Option
may be Granted to an individual if, at the time of the proposed
Grant, such individual owns stock possessing more than ten
percent of the total combined voting power of all classes of
stock of the Company or any of its "subsidiary corporations"
(within the meaning of Section 426 of the Code), unless (i) the
Exercise Price per share of such Incentive Stock Option is at
least one hundred and ten percent of the fair market value of a
share of Common Stock at the time such Incentive Stock Option is
Granted and (ii) such Incentive Stock Option is not exercisable
after the expiration of five years from its Grant Date.
(c) Grant Date Limitation. Each Incentive Stock Option must
be Granted within ten years from the date the Plan is adopted or
the date the Plan is approved by stockholders of the Company,
whichever is earlier.
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5. Roll-Over Options
5.1 Grant. Subject to the provisions of this Plan
(including adjustment as provided in Section 9.3), the Committee
shall at the Closing Grant Options to purchase in the aggregate
1,121,571 shares of Common Stock to certain Eligible Employees in
such amounts per each such Eligible Employee's Option and subject
to such conditions as may be set forth in the Stock Subscription
Agreement applicable to such Eligible Employees and reflected in
Stock Option Agreements. Options Granted pursuant to this Section
5 shall be known as "Roll-Over Options." To the extent Roll-Over
Options Granted under the Plan are exercised or otherwise
terminate, expire or are canceled, the shares of Common Stock
covered thereby will not be available for future Grants under the
Plan.
5.2 Grant Date. The Grant Date of each Roll-Over Option
shall be the Closing Date.
5.3 Vesting. Each Roll-Over Option will be exercisable upon
its Grant Date with respect to 100% of the shares of Common Stock
subject to such Roll-Over Option.
5.4 Exercise Price. The Exercise Price per share of each
Roll-Over Option shall be $28.75, or such other Exercise Price
per share greater than $28.75 as may be set forth in the Stock
Option Agreement evidencing such Roll-Over Option.
5.5 Term. Each Roll-Over Option shall expire with respect
to 50% of the shares of Common Stock subject to such Roll-Over
Option upon the fifth anniversary of its Grant Date and shall
expire with respect to the remaining 50% of such shares upon the
seventh anniversary of its Grant Date.
5.6 Identification of Roll-Over Options. All Roll-Over
Options subject to this Plan shall be Non-Qualified Stock
Options.
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<PAGE> 21
6. Transfer Restrictions
6.1 General. Subject to Section 6.2, no Option, or right to
exercise any Option, shall directly or indirectly be sold,
transferred, assigned, pledged, hypothecated or otherwise
encumbered or disposed of (each, a "Transfer") other than to a
transferee by will or the laws of intestate succession (a
"Permitted Transferee"), and no such Transfer shall be effective
to bind the Company unless (a) the Committee shall have been
furnished with written notice thereof and with a copy of the will
and/or such evidence as the Committee may deem necessary to
establish the validity of the Transfer and (b) such Permitted
Transferee (i) agrees in writing to be bound by the Plan and the
Stock Option Agreement, as if he had been an original signatory
thereto, and (ii) executes and delivers to the Committee such
documents as may be requested by the Committee from time to time,
including without limitation, any voting trust or stockholders'
agreement or supplement thereto as the Committee may prescribe.
6.2 Incentive Stock Options. During the lifetime of a
Participant, each Incentive Stock Option Granted to him shall be
exercisable only by him. No Incentive Stock Option shall be
Transferred to a Permitted Transferee otherwise than by will or
by the laws of descent and distribution.
7. Termination of Employment
In the event that a Participant's Employment is terminated
for any reason (a) the portion of any Option granted to such
Participant that was exercisable at the time of such termination
shall remain exercisable until the expiration of thirty (30) days
after the termination of such Participant's Employment, at which
time all Options Granted to such Participant shall expire, and
(b) the portion of any Option granted to such Participant that
was not exercisable at the time of such termination shall expire
at the close of business on the date of such termination;
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<PAGE> 22
provided, however, that no Option shall be exercisable after the
expiration of its term as set forth herein or in the Stock Option
Agreement evidencing such Option.
8. Exercise of Options
8.1 General. A Participant or his Permitted Transferee may
exercise any Option in whole or in part by serving an Exercise
Notice on the Company as provided in Section 8.2 hereto;
provided, however, that no partial exercise of an Option shall be
for an aggregate Exercise Price of less than $1,000. The
Participant or Permitted Transferee may pay the Exercise Price
(a) in cash or by certified check, bank cashier's check or wire
transfer, and/or (b) subject to the approval of the Committee, by
delivering (i) shares of Common Stock already owned by such
Participant or Permitted Transferee (such shares to be valued at
the same value as the shares of Common Stock received pursuant to
the exercise of such Option are valued by the Company at that
time for purposes of determining the applicable withholding taxes
or other similar charges incurred) or (ii) with the written
consent of the HFCP Investors during the Consent Period, a
recourse note to the Company with such terms and conditions as
the Committee may require, including any pledge of the related
shares. For purposes of Sections 8.1 and 8.4, a Participant or
Permitted Transferee shall be deemed to have delivered shares of
Common Stock held in the Management Voting Trust by delivering
his Voting Trust Certificate to the Management Voting Trust which
Voting Trust Certificate shall be returned to such Participant or
Permitted Transferee after having been adjusted to reflect the
delivery of such shares in accordance with Section 3.6 of the
Management Voting Trust Agreement.
8.2 Method of Exercise. An Option shall be exercised by
delivery of written notice to the Company's principal office (the
"Exercise Notice"), to the attention of its Secretary, no less
than two Business Days in advance of the effective date of the
proposed exercise (the "Exercise Date"). Such notice shall be
accompanied by the Stock Option Agreement evidencing the Option
and shall (a) specify the number of shares of Common Stock with
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<PAGE> 23
respect to which the Option is being exercised, the Exercise Date
and any requests with respect to the form of payment and
withholding taxes or other similar charges as provided in
Sections 8.1 and 8.4, respectively, and (b) be signed by the
Participant or Permitted Transferee, as the case may be. The
partial exercise of an Option shall not cause the expiration,
termination or cancellation of the remaining portion thereof.
Upon the partial exercise of an Option, the Stock Option
Agreement evidencing such Option, marked with any notations
deemed appropriate by the Committee, shall be returned to the
Participant or Permitted Transferee exercising such Option
together with the delivery of the certificates described in
Section 8.3 hereof.
8.3 Certificates of Shares. Upon the exercise of an Option,
certificates of shares of Common Stock, legended as provided in
Section 6.03 of the Stockholders' Agreement, shall be issued as
soon as practicable following the Exercise Date, either (a) if
the Management Voting Trust has been terminated in accordance
with its terms, in the name of the Participant or his Permitted
Transferee, as the case may be, and delivered to such Participant
or Permitted Transferee, as the case may be, or (b) if the
Management Voting Trust has not been terminated in accordance
with its terms, in the name of the Management Voting Trust and
delivered to the Management Voting Trust, pursuant to Section 1.2
of the Management Voting Trust Agreement, and Voting Trust
Certificates with respect thereto shall be delivered by the
Management Voting Trust to such Participant or Permitted
Transferee. Shares of Common Stock issued under the Plan may be
either newly issued shares or treasury shares, at the discretion
of the Committee.
8.4 Withholding Taxes. At the time that a Participant or
Permitted Transferee exercises his Option in whole or in part by
delivery of the Exercise Notice, such Participant or Permitted
Transferee may request, subject to the approval of the Committee,
that the Company withhold a number of the shares of Common Stock
that are to be distributed to the Participant
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<PAGE> 24
or Permitted Transferee the value of which would be sufficient to
satisfy the applicable withholding taxes or other similar charges
incurred in connection with the exercise of the Option or, if the
Committee consents, the value of which would be sufficient to
satisfy the estimated total taxes and charges that would be
incurred by the Participant or Permitted Transferee as a result
of such exercise. Otherwise, the Participant or Permitted
Transferee either must (a) pay to the Company in cash an amount
sufficient to satisfy such withholding taxes or other similar
charges or (b) subject to the approval of the Committee, deliver
(i) shares of Common Stock already owned by such Participant or
Permitted Transferee in a number the value of which would be
sufficient to satisfy such withholding taxes or other similar
charges or, if the Committee consents, the value of which would
be sufficient to satisfy the estimated total taxes and charges
that would be incurred by the Participant or Permitted Transferee
as a result of such exercise or (ii) with the written consent of
the HFCP Investors during the Consent Period, a recourse note to
the Company with such terms and conditions as the Committee may
require, including any pledge of the related shares. Shares of
Common Stock either withheld or delivered to satisfy such
withholding taxes or other similar charges pursuant to this
Section 8.4 shall be valued at the same value as the shares of
Common Stock received pursuant to the exercise of such Option are
valued by the Company at that time for purposes of determining
the applicable withholding taxes or other similar charges.
9. Administration of the Plan and Options
9.1 Termination of the Plan and Options. No Options shall
be Granted under the Plan after the tenth anniversary of the
Closing Date. The Committee, with the written consent of the HFCP
Investors during the Extended Consent Period and the Management
Voting Trust, may at any time terminate the Plan and may at any
time, without amendment to the Plan or any relevant Stock Option
Agreement, terminate the Options then outstanding, whether or not
exercisable; provided, however, that no such action will, without
the consent of a Participant,
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adversely affect his rights under an outstanding Option; and
provided, further, that the Company, in full consideration of the
termination of any Option, pays to each Participant an amount in
cash for each share of Common Stock subject to such Option equal
to (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, minus (b) the
Exercise Price per share of such Option and (c) applicable
withholding taxes and other similar charges.
9.2 Amendment of Plan and Options. The Committee may, with
the written consent of the HFCP Investors during the Consent
Period (and during the Extended Consent Period with respect to
any amendment accelerating the right to exercise any or all
Options or any other amendment improving the terms of such
Options, except to the extent such acceleration or amendment
involves the waiver or amendment of any terms or conditions not
expressly provided for by the Plan) and the Management Voting
Trust, revise or amend the Plan and the terms and conditions of
the Options in any respect whatsoever; provided, however, that in
either case any such amendment shall not impair the Participants'
rights under any outstanding Options without such Participants'
consent; and provided, further, that without approval of the
stockholders of the Company no revision or amendment shall (a)
increase the aggregate number of shares of Common Stock which may
be issued pursuant to Options Granted under this Plan, other than
in accordance with Section 9.3 of this Plan, or (b) change the
definition of Eligible Employee.
9.3 Adjustment Upon Changes in Company Stock.
(a) Increase or Decrease in Issued Shares Without
Consideration. Subject to any required action by the stockholders
of the Company, in the event of any increase or decrease in the
number of issued shares of Common Stock resulting from a
subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the shares of
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<PAGE> 26
Common Stock), or any other increase or decrease in the number of
such shares effected without receipt of consideration by the
Company, the Committee shall proportionally adjust the number of
shares of Common Stock subject to each Option and the Exercise
Price per share of each such Option. In the event of any change
in the number of shares of Common Stock outstanding by reason of
an event or change as set forth in the prior sentence, the
maximum aggregate number of shares of Common Stock with respect
to which Options may be Granted under the Plan shall be
appropriately adjusted by the Committee.
(b) Certain Mergers. Subject to any required action by the
stockholders of the Company, in the event that the Company shall
be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the
holders of shares of Common Stock receive securities of another
corporation and/or property, including cash), the Options
outstanding on the date of such merger or consolidation shall
pertain to and apply to the securities which a holder of the
number of shares of Common Stock subject to such Options would
have received in such merger or consolidation.
(c) Certain Other Transactions. In the event of (i) a
dissolution or liquidation of the Company, (ii) a sale of all or
substantially all of the Company's assets, (iii) a merger,
consolidation or share exchange involving the Company in which
the Company is not the surviving or acquiring corporation or (iv)
a merger or consolidation involving the Company in which the
Company is the surviving corporation but the holders of shares of
Company Stock receive securities of another corporation and/or
other property, including cash, the Committee shall, in its
absolute discretion, have the power to:
(A) provide for the exchange of each Option
outstanding immediately prior to such event (whether or not
then exercisable) for an option on or stock appreciation
right with respect to, as appropriate, some or all of the
property for which such Options are exchanged and, incident
thereto, make an equitable adjustment, as determined by the
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<PAGE> 27
Committee in its absolute discretion, in the exercise price
of the options, or the number of shares or amount of
property subject to the options or, if appropriate, provide
for a cash payment to the Participants in partial
consideration for the exchange of the Options; or
(B) by a unanimous vote of its members, cancel,
effective immediately prior to the occurrence of such
event, the Options outstanding immediately prior to such
event (whether or not then exercisable), and, in full
consideration of such cancellation, pay to the Participants
an amount in cash, for each share of Common Stock subject
to the Option, equal to the excess of (1) the value, as
determined by the Board in its absolute discretion, of the
property (including cash) received by the holder of a share
of Common Stock as a result of such event over (2) the
Exercise Price per share of such Option; provided, however,
that after the occurrence of an Initial Public Offering,
such action may be taken pursuant to this Section 9.3(c)(B)
by a majority of the members of the Committee but only if
at least one Management Designee on such Committee votes in
favor of such action.
(d) Other Changes. In the event of any change in the
capitalization of the Company or a corporate change other than
those specifically referred to in Sections 9.3(a), (b) or (c)
hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Options
outstanding on the date on which such change occurs and in the
Exercise Price per share of each such Option as the Committee may
consider appropriate to prevent dilution or enlargement of
rights. In the event of any change in the number of shares of
Common Stock outstanding by reason of an event or change as set
forth in the prior sentence, the maximum aggregate number of
shares of Common Stock with respect to which Options may be
Granted under the Plan shall be appropriately adjusted by the
Committee.
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(e) No Other Rights. Except as expressly provided in the
Plan or the Stock Option Agreements evidencing the Options, the
Participants shall not have any rights by reason of any
subdivision or consolidation of shares of Common Stock or shares
of stock of any class, the payment of any dividend, any increase
or decrease in the number of shares of Common Stock or shares of
stock of any class or any dissolution, liquidation, merger or
consolidation of the Company or any other corporation. Except as
expressly provided in the Plan or the Stock Option Agreements
evidencing the Options, no issuance by the Company of shares of
Common Stock or shares of stock of any class, or securities
convertible into shares of Common Stock or shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be
made with respect to, the number of shares of Common Stock
subject to the Options or the Exercise Price of such Options.
9.4 Rights as Stockholders. The Participants shall not have
any rights as stockholders with respect to any shares of Common
Stock covered by or relating to the Options Granted pursuant to
the Plan until the date the Participants or the Management Voting
Trust become the registered owners of such shares. Except as
otherwise expressly provided in Sections 9.2 and 9.3 hereof, no
adjustment to the Options shall be made for dividends or other
rights for which the record date occurs prior to the date such
stock certificate is issued.
9.5 No Special Employment Rights. Nothing contained in the
Plan shall confer upon the Participants any right with respect to
the continuation of their Employment or interfere in any way with
the right of the Company or an Affiliate, subject to the terms of
any separate employment agreements to the contrary, at any time
to terminate such Employment or to increase or decrease the
compensation of the Participants from the rate in existence at
the time of the grant of the Options.
9.6 No Obligation to Exercise. The Grant to the Participants
of the Options shall impose no obligation upon the Participants
to exercise such Options.
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9.7 Delivery of Documents. As a condition to the Grant of
any Option to an Eligible Employee under the Plan, such Eligible
Employee shall execute and deliver to the Committee such
documents as may be requested by the Committee from time to time,
including without limitation, any voting trust or stockholders'
agreement or supplement thereto as the Committee may prescribe.
10. Restrictions on Common Stock
The rights and obligations of the Participants and their
Permitted Transferees with respect to Common Stock obtained
through the exercise of the Options provided in the Plan shall be
governed by the terms and conditions of the Stockholders'
Agreement and the Management Voting Trust Agreement while such
Agreements are in effect. Notwithstanding any other provision of
this Plan, no Person shall be Granted an Option unless he has
theretofore become, or concurrently becomes, a party to the
Stockholders' Agreement and the Management Voting Trust Agreement
while such Agreements are in effect.
11. Miscellaneous
11.1 Notices. (a) All notices, requests, demands or other
communications required by or otherwise with respect to the Plan
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 Participant:
To the address shown on the Stock Option
Agreement.
If to the Company:
Young & Rubicam Holdings Inc.
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285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.
Facsimile: (212) 210-5544
If to the Management Voting Trust:
Management Voting Trust
c/o Young & Rubicam Holdings Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.,
Voting Trustee Representative
Facsimile: (212) 210-5544
If to the HFCP Investors:
H&F Investors III, Inc.
One Maritime Plaza
12th Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
(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 11.1 shall be deemed delivered as of
the date posted in the United States mail.
(b) Whenever the Plan contemplates delivery to, or action
(such as consent, approval or waiver) by, (i) the HFCP Investors,
delivery to, or action (evidenced in writing) by, the Ultimate
General Partner shall bind the HFCP Investors or (ii) the
Management Voting Trust, delivery to, or action (evidenced in
writing) by, the Voting Trustee representative (set forth in
subsection(a) of this Section 11.1) shall bind the Management
Voting Trust.
(c) Whenever the Plan requires delivery to, or action (such
as consent, approval or waiver) by, the Management Voting Trust,
such delivery or action shall only be required while the
Management Voting Trust is extant.
30
<PAGE> 31
11.2 Descriptive Headings. The headings in the Plan are for
convenience of reference only and shall not limit or otherwise
affect the meaning of the terms contained herein.
11.3 Severability. In the event that any one or more of the
provisions, subdivisions, words, clauses, phrases or sentences
contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability
of any such provision, subdivision, word, clause, phrase or
sentence in every other respect and of the remaining provisions,
subdivisions, words, clauses, phrases or sentences hereof shall
not be in any way impaired, it being intended that all rights,
powers and privileges of the Company, the HFCP Investors,
Participants and Permitted Transferees shall be enforceable to
the fullest extent permitted by law.
11.4 Expenses and Receipts. The expenses of the Plan shall
be paid by the Company. Any proceeds received by the Company in
connection with any Options will be used for general corporate
purposes.
11.5 Gender. All references herein to the masculine gender
shall include the feminine.
11.6 Governing Law. Prior to the Company Merger, the Plan
shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York without regard to
the principles of conflict of laws; provided, however, that,
following the Company Merger, (a) then with respect to any
question of construction arising after such Company Merger, the
Plan 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 (b) each Participant and
Permitted Transferee and each of the HFCP Investors agrees to
submit to personal jurisdiction and to waive any objection as to
venue of the Court of Chancery in the
31
<PAGE> 32
State of Delaware in connection with any action arising out of or
relating to the Plan. Service of process on each Participant and
Permitted Transferee and each of the HFCP Investors and the
Company in any action arising out of or relating to the Plan
shall be effective if served upon such Person by mail in
accordance with Section 11.1.
32
<PAGE> 1
Exhibit 10.7
SELECT EXECUTIVE RETIREMENT INCOME PLAN
This agreement (this "Agreement") made December 19, 1997, by and
between Young & Rubicam Inc., a company organized under the laws of the State of
Delaware (herein the "Company") and Peter A. Georgescu (the "Employee").
In consideration of the agreement hereinafter contained, the
parties agree as follows:
1. The Employee agrees to serve the Company and each business
entity at least 10% of the value of which is owned, directly or indirectly, by
the Company ("Affiliates" and, together with the Company, "Y&R") in such
capacity as the Board of Directors of the Company may designate from time to
time during a period commencing on the date hereof and continuing until
terminated by either party in accordance with the terms of the Management Voting
Trust Agreement, dated as of December 12, 1996, executed by the Employee or, if
said agreement is no longer in effect, then on six months' notice. Nothing
contained herein shall be construed as conferring upon the Employee the right to
continue in the employ of Y&R as an executive or in any other capacity beyond
the notice period provided for above.
2. During the term of his employment, the Employee shall devote
his full business time, attention, skill and effort to the performance of his
duties for Y&R.
3. During the term of his employment, Y&R shall pay the Employee
such salary, other compensation and benefits payable as Y&R may from time to
time determine. In addition, the Employee shall be entitled to amounts payable
pursuant to the Select Executive Retirement Income Plan ("SERIP") as provided
below.
4. The benefits to be paid pursuant to SERIP (unless they are
forfeited by the occurrence of any of the events of forfeiture specified in
paragraph 5 below) are as follows:
A. The Company shall pay to the Employee a cash amount each
calendar year (an "Annual Payment") equal to the lesser of (x) 75% of
the average annualized cash compensation received by the Employee from
Y&R during the three calendar years preceding the calendar year in which
payment hereunder commences or (y) $650,000 each calendar year for the
rest of his life, as soon as administratively feasible after January 1st
of each such calendar year, commencing upon the later to occur of (i)
the January 1st of the calendar year following the calendar year in
which his active full-time employment with Y&R ceases or (ii) the
January 1st following the date he reaches 60 (except in the event of
death or disability as described in subparagraphs 4.B and 4.C below).
B. If the Employee should die before payment pursuant to SERIP
commences, ten Annual Payments shall be made to the Employee's
designated beneficiary, the first such payment commencing as soon as
administratively feasible after the Company has received notification of
death. If the Employee should die after payment pursuant to SERIP has
commenced but before he has received ten Annual Payments, the Company
shall continue to pay to the Employee's designated beneficiary Annual
Payments until the
<PAGE> 2
total number of Annual Payments to the Employee and his designated
beneficiary equals ten. The Employee shall designate his beneficiary
hereunder to the Company in writing; in the event the Employee does not
so designate a beneficiary hereunder, such designated beneficiary shall
be the Employee's estate.
C. If the Employee becomes disabled, Annual Payments pursuant to
SERIP shall begin as soon as administratively feasible after a
determination of disability has been made. The Employee shall be deemed
to become disabled for purposes hereof if the Company shall find, on the
basis of medical evidence satisfactory to the Company, that the Employee
is disabled, mentally or physically, so as to be prevented from
performing the duties he was performing for Y&R at the time of
disability and such disability appears to be permanent or of
long-standing duration.
5. Notwithstanding anything contained herein to the contrary, no
payment of any then unpaid Annual Payments pursuant to SERIP shall be made and
all rights under this Agreement of the Employee to receive payment thereof shall
be forfeited if there shall be a breach of the following conditions:
A. The Employee shall not, during the term of his employment or at
any time prior to the second anniversary of the date of the termination
of his employment with Y&R, directly or indirectly, (i) solicit any of
the clients who were or had been served by the Company or any of its
Affiliates at the time of such termination or during the six months
prior thereto, (ii) own, operate, join, control, engage in, or
participate in the ownership, management, operation or control of, or be
a director or an employee of, or a business consultant to, any business,
firm or corporation which is similar to or competes with the business of
the Company or any of its Affiliates as conducted on the date of such
termination of employment or during the six months prior thereto;
provided, however, that the provisions of this subparagraph shall not
apply to investments by the Employee in shares of stock traded on a
national market which shall constitute less than one percent of the
outstanding shares of such stock, or (iii) solicit for purposes of
employment any employee of the Company or its Affiliates, or induce any
such employee to terminate his or her employment.
B. During the period commencing on the date of the termination of
the employment of Employee with Y&R and ending on the second anniversary
of the date of such termination, the Employee shall perform such
consulting and advisory services for Y&R as shall from time to time be
reasonably assigned to him by the Board of Directors of the Company;
provided, however, that such services shall be rendered at such place or
places and at such time or times as the Employee shall determine, and in
no event shall the Company require the Employee to devote more than
three days per month in performing such services. The Company shall give
the Employee reasonable notice of the times when it will require the
Employee's consulting or advisory services and the Employee will have
reasonable time after receipt of such notice to render such services.
The Company shall reimburse the Employee for reasonable expenses
incurred by the Employee in connection with the rendition of such
services in accordance with the Company's policies.
2
<PAGE> 3
6. Nothing contained in this Agreement and no action taken
pursuant to the provisions of this Agreement shall create or be construed to
create a trust or any kind of fiduciary relationship between the Company and the
Employee, or any other person. The Company's obligations under SERIP and this
Agreement shall be unfunded and any benefits to the Employee hereunder shall be
paid out of the general assets of the Company. The Company shall have no
obligation to set aside or segregate assets with respect to such benefits. The
Employee's rights to benefits hereunder shall be those of an unsecured general
creditor of the Company.
7. A. The Employee, by acceptance of the benefits of SERIP,
covenants and agrees that anything herein to the contrary notwithstanding, any
benefits due to such Employee hereunder shall be subordinate and junior to the
extent and manner hereinafter set forth, to the principal of and premium (if
any) and interest on any and all Senior Indebtedness as defined in subparagraph
7.C below whether now outstanding or hereafter incurred or assumed:
1. In the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar
proceedings, whether voluntary or involuntary, relating to the
Company or to its creditors, as such, or to its property, then the
holders of Senior Indebtedness shall be entitled to receive
payment in full of all principal, premium (if any) and interest on
all Senior Indebtedness before any Employee is entitled to receive
any payment hereunder, and, accordingly, the holders of Senior
Indebtedness shall be entitled to receive for application in
payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may be
payable or deliverable in any such proceedings in respect hereof;
and
2. Without in any way limiting the effect of the foregoing
provisions, during the continuance of any default on any Senior
Indebtedness, no payment hereunder shall be made if (A) notice of
such default in writing or by telegram or telefax has been given
to the Company by any holder or holders of any Senior
Indebtedness, (B) judicial proceedings shall be pending in respect
of such default or (C) judgment is obtained against the Company by
the holders of the Senior Indebtedness or any one of them if as a
result of such default it shall remain unsatisfied; and
3. Should any payment hereunder be received by the Employee in
violation of the subordination provisions contained in this
Paragraph 7, such Employee agrees to hold such payment in trust
and as trustee for the account of the holders of Senior
Indebtedness.
B. The above provisions in regard to subordination are solely for
the purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Employee on the other hand, and
nothing herein shall impair, as between the Company and the Employee,
the obligation of the Company, which is unconditional and absolute, to
pay to the Employee all amounts due hereunder in accordance with its
terms.
C. For purposes of this Agreement, "Senior Indebtedness" shall
mean (i) any Indebtedness (as hereinbelow defined) of the Company to any
bank, financial institution
3
<PAGE> 4
or third party lender, any guarantee by the Company of any Indebtedness
of an Affiliate to a bank, financial institution or other third party
lender and any guarantee by the Company of Indebtedness or other
obligations of an Affiliate to any person, firm or entity in respect of
advertisements placed by or on behalf of such Affiliate, whether such
Indebtedness, obligation or guarantee is now outstanding or hereafter
incurred or assumed, and any refinancing, extensions, renewal or
increases thereof, and (ii) the Company's Indebtedness or other
obligations (including any refinancing, extension, renewal or increase
thereof) to third parties in connection with or arising out of the
issuance by employees of the Company or any Affiliate of promissory
notes ("Employee Notes") in connection with the financing of the
purchase by such employees of the common stock of the Company or the
financing of the purchase of Employee Notes, including without
limitation, obligations of the Company to banks, financial institutions
or other third party lenders to purchase either (1) common stock of the
Company held as collateral by such parties; (2) Employee Notes; or (3)
promissory notes evidencing loans to the Company or any Affiliate. For
the purposes of this definition, Indebtedness or other obligations of
the Company (1) to affiliated or special purpose entities formed for the
purpose of facilitating the obtaining or administration of financing (a)
for the Company or an Affiliate, (b) for the purchase by employees of
the Company or an Affiliate of the common stock of the Company, or (c)
for the purchase of Employee Notes or (2) to banks, financial
institutions or other third party lenders which provide financing for
such affiliated or special purpose entities, shall be deemed to be
included within the term Senior Indebtedness.
As used herein "Indebtedness" shall mean (i) any obligation or
indebtedness for borrowed money or evidenced by bonds, notes, debentures
or similar instruments or letters of credit (or reimbursement agreements
in respect thereof) or representing the balance deferred and unpaid of
the purchase price of any property originally financed on a long term
basis (including pursuant to capital leases), (ii) any obligation under
any contract providing for the making of loans or advances and (iii)
guarantees (and other obligations under any other contracts which are
substantially equivalent to guarantees), endorsements and other
contingent liabilities (whether direct or indirect) in connection with
the foregoing. In addition, the term "Indebtedness" shall be construed
to include any "indebtedness" as such term may be defined in any credit
facility or agreement to which the Company is a party from time to time.
8. The right of the Employee or any other person to Annual
Payments pursuant to SERIP or other benefits under the Agreement shall not be
assigned, transferred, pledged, or encumbered.
9. This Agreement shall be binding upon and inure to the benefit
of the Company, its successors and assigns, and the Employee.
10. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York.
4
<PAGE> 5
YOUNG & RUBICAM INC.
/s/ Alan J. Sheldon
By: _____________________
/s/ Peter A. Georgescu
______________________
Employee
/s/ Stephanie W. Abramson
________________________________
Attest
Executive Vice President,
General Counsel
5
<PAGE> 1
Exhibit 10.8
SELECT EXECUTIVE RETIREMENT INCOME PLAN
This agreement made January 1, l995 by and between Young & Rubicam Inc., a
company organized under the laws of the State of New York (herein the "Company")
and Peter Georgescu (the "Employee").
In consideration of the agreement hereinafter contained, the parties agree as
follows:
1. The Employee agrees to serve the Company in such capacity as the Board of
Directors of the Company may designate from time to time during a period
commencing on the date hereof and continuing until terminated by either
party in accordance with the terms or Employee's Preferred Shareholders
Agreement, or, if said agreement is no longer in effect, then on six
months' notice. Nothing contained herein shall be construed as conferring
upon the Employee the right to continue in the employ of the Company as an
executive or in any other capacity beyond the notice period provided for
above
2. During the term of his employment, the Employee shall devote his full
business time, attention, skill and effort to the performance of his
duties for the Company.
3. During the term of his employment, the Company shall pay the Employee such
salary, other compensation and benefits payable as the Company may from
time to time determine. In addition Employee shall be entitled to amounts
payable pursuant to the Select Executive Retirement Income Plan ("SERIP")
as provided below.
4. The benefits to be paid pursuant to SERIP (unless they are forfeited by
the occurrence of any of the events of forfeiture specified in paragraph 5
below) are as follows:
A. If the Employee's full-time employment hereunder is terminated on or
after 12/31/96, the Company shall pay to him $275,000 per year each
year for the rest of his life, as soon as administratively feasible
after January 1st of each year, commencing either the year following
the year his full-time employment ceases or the January 1st
following the date he reaches 60, whichever is the last to occur,
(except in the event of death or disability as described in
subparagraphs 4.C. and 4.D. below); however, in no event will
payment commence prior to the January 1st following the date on
which the Employee ceases to be an active full-time employee of the
Company.
B. The amount payable pursuant to SERIP will vest during the Employee's
employment by the Company according to the attached Schedule A. If
the Employee's employment with the Company ceases, the vesting
period shall terminate as of the date of termination of employment.
If the Employee's employment with the Company ceases for any reason
other than death or disability, the portion which has not become
vested shall be forfeited. If the Employee's employment ceases by
reason of death or disability as set forth below, he shall be deemed
to be fully vested as of the date of death or disability.
<PAGE> 2
C. If the Employee should die before payments pursuant to SERIP
commence, ten annual payments shall be made to the Employee's
designated beneficiary commencing as soon as administratively
feasible after the Company has received notification of death. If
the Employee should die after payments pursuant to SERIP have
commenced but before he has received ten payments, the Company shall
continue to pay to the Employee's designated beneficiary annual
payments until the total number of payments to the Employee and his
designated beneficiary equals ten.
D. The Employee shall be deemed to become disabled for purpose of
subparagraph 4.C. above if the Company shall find, on the basis of
medical evidence satisfactory to the Company, that the Employee is
disabled, mentally or physically, so as to be prevented from
performing the duties he was performing for the Company at the time
of disability and such disability appears to be permanent or of
long-standing duration. If the Employee becomes disabled, annual
payments pursuant to SERIP shall begin as soon as administratively
feasible after a determination of disability has been made.
E. In the event that the Employee leaves the employ of the Company
prior to attaining age 60, whether voluntarily or involuntarily, the
amount pursuant to SERIP will be paid to the Employee in annual
installments commencing on or about the January 1st following the
date on which the Employee attains age 60.
5. Notwithstanding anything contained herein to the contrary, no payment of
any then unpaid SERIP installments shall be made and all rights under this
Agreement of the Employee, to receive payments thereof shall be forfeited
if there shall be a breach of the following conditions:
A. The Employee shall not, during the term of his employment or at any
time prior to the second anniversary of the date of the termination
of his employment with the Company, directly or indirectly, (i)
solicit any of the clients who were or had been served by the
Company or any of its subsidiaries or affiliates at the time of such
termination or during the six months prior thereto, (ii) own,
operate, join, control, engage in, or participate in the ownership,
management, operation or control of, or be a director or an employee
of, or a business consultant to, any business, firm or corporation
which is similar to or competes with the business of the Company or
any of its subsidiaries or affiliates as conducted on the date of
such termination or during the six months prior thereto; provided,
however, that the provisions of this subparagraph shall not apply to
investments by the Employee in shares of stock traded on a national
market which shall have an aggregate market value, at the time of
acquisition, of less than $50,000 and which shall constitute less
than one percent of the outstanding shares of such stock, or (iii)
solicit for purposes of employment any employee of the Company, its
subsidiaries or affiliates, or induce any such employee to terminate
his employment.
-2-
<PAGE> 3
B. During the period commencing on the date of the termination of the
employment of the Employee with the Company and ending on the second
anniversary of the date of such termination, the Employee shall
perform such consulting and advisory services for the Company as
shall from time to time be reasonably assigned to him by the Board
of Directors of the Company; provided, however, that such services
shall be rendered at such place or places and at such time or times
as the Employee shall determine, and in no event shall the Company
require the Employee to devote more than three days per month in
performing such services. The Company shall give the Employee
reasonable notice of the times when it will require the Employee's
consulting or advisory services and the Employee will have
reasonable time after receipt of such notice to render such
services. The Company shall reimburse the Employee for reasonable
expenses incurred by the Employee in connection with the rendition
of such services in accordance with the Company's policies.
6. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a
trust or any kind of fiduciary relationship between the Company and the
Employee, or any other person.
7. A. The Employee, by acceptance of the benefits of SERIP, covenants and
agrees that anything herein to the contrary notwithstanding, any
payments due to such Employee hereunder shall be subordinate and
junior to the extent and manner hereinafter set forth, to the
principal of and premium (if any) and interest on any and all Senior
Indebtedness as defined in subparagraph 7.C. below whether now
outstanding or hereafter incurred or assumed:
1. In the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar
proceedings, whether voluntary or involuntary, relating to the
Company or to its creditors, as such, or to its property, then
the holders of Senior Indebtedness shall be entitled to
receive payment in full of all principal, premium (if any) and
interest on all Senior Indebtedness before any Employee is
entitled to receive any payment hereunder, and, accordingly,
the holders of Senior Indebtedness shall be entitled to
receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash or
property or securities, which may be payable or deliverable in
any such proceedings in respect hereof; and
2. Without in any way limiting the effect of the foregoing
provisions, during the continuance of any default on any
Senior Indebtedness, no payment hereunder shall be made if (A)
notice of such default in writing or by telegram has been
given to the Company by any holder or holders of any Senior
Indebtedness, (B) judicial proceedings shall be pending in
respect of such default or (C) judgment is obtained against
the Company by the
-3-
<PAGE> 4
holders of Senior Indebtedness or any one of them if as a
result of such default it shall remain unsatisfied; and
3. Should any benefit hereunder be received by the Employee in
violation of the subordination provisions contained in this
Paragraph 7, such Employee agrees to hold such benefits in
trust and as trustee for the account of the holders of Senior
Indebtedness.
B. The above provisions in regard to subordination are solely for the
purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Employee on the other hand, and
nothing herein shall impair, as between the Company and the
Employee. the obligation of the Company, which is unconditional and
absolute, to pay to the Employee all amounts due hereunder in
accordance with its terms.
C. For purposes of this Agreement, "Senior Indebtedness" shall mean (i)
any Indebtedness (as hereinbelow defined) of the Company to any
bank, financial institution or third party lender, any guarantee by
the Company of any Indebtedness of an Affiliate (as hereinbelow
defined) to a bank, financial institution or other third party
lender and any guarantee by the Company of Indebtedness or other
obligations of an Affiliate to any person, firm or entity in respect
of advertisements placed by or on behalf of such Affiliate, whether
such Indebtedness, obligation or guarantee is now outstanding or
hereafter incurred or assumed, and any refinancing, extensions,
renewal or increases thereof, and (ii) the Company's Indebtedness or
other obligations (including any refinancing, extension, renewal or
increase thereof) to third parties in connection with or arising out
of the issuance by employees of the Company or any Affiliate of
promissory notes ("Employee Notes") in connection with financing of
the purchase by such employees of either limited partnership units
of Young & Rubicam L.P. or the common stock of the Company or the
financing of the purchase of Employee Notes, including without
limitation, obligations of the Company to banks, financial
institutions or other third party lenders to purchase either (1)
limited partnership units of Young & Rubicam L.P. or common stock of
the Company held as collateral by such parties; (2) Employee Notes;
or (3) promissory notes evidencing loans to the Company or any
Affiliate. For the purposes of this definition, Indebtedness or
other obligations of the Company (1) to affiliated or special
purpose entities formed for the purpose of facilitating the
obtaining or administration of financing (a) for the Company or an
Affiliate, (b) for the purchase by employees of the Company or an
Affiliate of either limited partnership units of Young & Rubicam
L.P. or the common stock of the Company, or (c) for the purchase of
Employee Notes or (2) to banks, financial institutions or other
third party lenders which provide financing for such affiliated or
special purpose entities, shall be deemed to be included within the
term Senior Indebtedness.
-4-
<PAGE> 5
As used herein "Affiliate" shall mean Young & Rubicam L.P. and any
business entity at least 10% of the value of which is owned,
directly or indirectly, by the Company.
As used herein "Indebtedness" shall mean (I) any obligation or
indebtedness for borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property
originally financed on a long term basis (including pursuant to
capital leases), (ii) any obligation under any contract providing
for the making of loans or advances and (iii) guarantees (and other
obligations under any other contracts which are substantially
equivalent to guarantees), endorsements and other contingent
liabilities (whether direct or indirect) in connection with the
foregoing.
8. The right to the Employee or any other person to payment pursuant to SERIP
or other benefits under the Agreement shall not be assigned, transferred,
pledged, or encumbered.
9. This Agreement shall be binding upon and inure to the benefit of the
Company, its successors and assigns, and the Employee.
10. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York.
By: Young & Rubicam Inc.
----------------------
/s/ Peter A. Georgescu
----------------------
Employee
/s/ Illegible
- -------------------
Attest
-5-
<PAGE> 6
SCHEDULE A
<TABLE>
<CAPTION>
Annual Payment
Commencing at Age 60
or Upon Retirement
Termination Whichever is Later
- ----------- -------------------
<S> <C>
12/31/95 $137,500
12/31/96 $275,000
</TABLE>
<PAGE> 1
Exhibit 10.9
SELECT EXECUTIVE RETIREMENT INCOME PLAN
This agreement made January 1, 1986, by and between Young & Rubicam Inc., a
company organized under the laws of the State of New York (herein the "Company")
and Peter A. Georgescu (the "Employee").
In consideration of the agreement hereinafter contained, the parties agree as
follows:
1. The Employee agrees to serve the Company in such capacity as the Board of
Directors of the Company may designate from time to time during a period
commencing on the date hereof and continuing until terminated by
retirement or by either party on at least 60 days' prior written notice.
Nothing contained herein shall be construed as conferring upon the
Employee the right to continue in the employ of the Company as an
executive or in any other capacity.
2. During the term of his employment, the Employee shall devote his full
business time, attention, skill and effort to the performance of his
duties for the Company.
3. During the term of his employment, the Company shall pay the Employee such
salary, other compensation and benefits payable as the Company may from
time to time determine. In addition, the Employee shall be entitled to
amounts payable pursuant to the Select Executive Retirement Income Plan
("SERIP") as provided below.
4. The benefits to be paid pursuant to SERIP (unless they are forfeited by
the occurrence of any of the events of forfeiture specified in paragraph 5
below) are as follows:
A. If the Employee's full-time employment hereunder is terminated on or
after five years from the date hereof, the Company shall pay to him
$125,000 per year each year for the rest of his life, on or about
January 1st of each year, commencing either the year following the
year his full-time employment ceases or the January 1st following
the date he reaches 60, whichever is the last to occur (except in
the event of death or disability as described in subparagraphs 4.C.
and 4.D. below); however, in no event will payment commence prior to
the January 1st following the date on which the Employee ceases to
be an active full-time employee of the Company.
B. If the Employee's employment with the Company ceases for any reason
other than death or disability prior to five years from the date
hereof, all rights hereunder shall be forfeited. If the Employee's
employment ceases by reason of death or disability as set forth
below, he shall be deemed to have been fully employed for five years
from the date hereof as required in subparagraph 4.A. above.
C. If the Employee should die before payments pursuant to SERIP
commence, ten annual payments shall be made to the Employee's
designated beneficiary
<PAGE> 2
commencing as soon as administratively feasible after the Company
has received notification of death. If the Employee should die after
payments pursuant to SERIP have commenced but before he has received
ten payments, the Company shall continue to pay to the Employee's
designated beneficiary annual payments until the total number of
payments to the Employee and his designated beneficiary equals ten.
D. The Employee shall be deemed to become disabled for purpose of
subparagraph 4.B. above if the Company shall find, on the basis of
medical evidence satisfactory to the Company, that the Employee is
disabled, mentally or physically, so as to be prevented from
performing the duties he was performing for the Company at the time
of disability and such disability appears to be permanent or of
long-standing duration. If the Employee becomes disabled, annual
payments pursuant to SERIP shall begin as soon as administratively
feasible after a determination of disability has been made.
E. In the event that the Employee leaves the employ of the Company
prior to attaining age 60, whether voluntarily or involuntarily, the
amount payable pursuant to SERIP will be paid to the Employee in
annual installments commencing on or about the January 1st following
the date on which the Employee attains age 60.
5. Notwithstanding anything contained herein to the contrary, no payment
of any then unpaid SERIP installments shall be made and all rights
under this Agreement of the Employee, his designated beneficiary,
executors, administrators, heirs, or any other person, to receive
payments thereof shall be forfeited if there shall be a breach of the
following conditions:
A. The Employee shall not, during the term of his employment or at any
time prior to the second anniversary of the date of the termination
of his employment with the Company, directly or indirectly, (i)
solicit any of the clients who were or had been served by the
Company or any of its subsidiaries or affiliates at the time of such
termination or during the six months prior thereto, (ii) own,
operate, join, control, engage in, or participate in the ownership,
management, operation or control of, or be a director or an employee
of, or a business consultant to, any business, firm or corporation
which is similar to or competes with the business of the Company or
any of its subsidiaries or affiliates as conducted on the date of
such termination or during the six months prior thereto; provided,
however, that the provisions of this subparagraph shall not apply to
investments by the Employee in shares of stock traded on a national
market which shall have an aggregate market value, at the time of
acquisition, of less than $50,000 and which shall constitute less
than one percent of the outstanding shares of such stock, or (iii)
solicit for purposes of employment any employee of the Company, its
subsidiaries or affiliates, or induce any such employee to terminate
his employment.
-2-
<PAGE> 3
B. During the period commencing on the date of the termination of the
employment of the Employee with the Company and ending on the second
anniversary of the date of such termination, the Employee shall
perform such consulting and advisory services for the Company as
shall from time to time be reasonably assigned to him by the Board
of Directors of the Company; provided, however, that such services
shall be rendered at such place or places and at such time or times
as the Employee shall determine, and in no event shall the Company
require the Employee to devote more than three days per month in
performing such services. The Company shall give the Employee
reasonable notice of the times when it will require the Employee's
consulting or advisory services and the Employee will have
reasonable time after receipt of such notice to render such
services. The Company shall reimburse the Employee for reasonable
expenses incurred by the Employee in connection with the rendition
of such services in accordance with the Company's policies.
6. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a
trust or any kind of fiduciary relationship between the Company and the
Employee, his designated beneficiary or any other person.
7. A. The Employee, by acceptance of the benefits of SERIP, covenants and
agrees that anything in SERIP to the contrary notwithstanding, any
payments due to such Employee hereunder shall be subordinate and
junior to the extent and manner hereinafter set forth, to the
principal of and premium (if any) and interest on any and all Senior
Indebtedness as defined in subparagraph 7.C. below whether now
outstanding or hereafter incurred or assumed:
1. In the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar
proceedings, whether voluntary or involuntary, relating to the
Company or to its creditors, as such, or to its property, then
the holders of Senior Indebtedness shall be entitled to
receive payment in full of all principal, premium (if any) and
interest on all Senior Indebtedness before any Employee is
entitled to receive any payment under SERIP, and, accordingly,
the holders of Senior Indebtedness shall be entitled to
receive for application in payment thereof any payment or
distribution of any kind of character, whether in cash or
property or securities, which may be payable or deliverable in
any such proceedings in respect of SERIP; and
2. Without in any way limiting the effect of the foregoing
provisions, during the continuance of any default on any
Senior Indebtedness, no payment under SERIP shall be made if
(A) notice of such default in writing or by telegram has been
given to the Company by any holder or holders of any Senior
Indebtedness, (B) judicial proceedings shall be pending in
respect of such default or (C) judgment is obtained against
the Company by the
-3-
<PAGE> 4
holders of the Senior Indebtedness or any one of them if as a
result of such default it shall remain unsatisfied; and
3. Should any benefit under SERIP be received by the Employee in
violation of the subordination provisions contained in this
Paragraph 7, such Employee agrees to hold such benefits in
trust and as trustee for the account of the holders of Senior
Indebtedness.
B. The above provisions in regard to subordination are solely for the
purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Employee on the other hand, and
nothing herein shall impair, as between the Company and the
Employee, the obligation of the Company, which is unconditional and
absolute, to pay to the Employee all amounts due under SERIP in
accordance with its terms.
C. For purposes of this Agreement, Senior Indebtedness shall mean any
liability or obligation to any bank, insurance company or other
institutional lender for money borrowed by the Company or by any of
its Subsidiaries and guaranteed by the Company.
8. The beneficiary referred to in this Agreement may be designated or changed
by the Employee without the consent of any prior beneficiary on a form
provided by the Company and delivered to the Company at any time prior to
death. If no such beneficiary shall survive the Employee, the death
benefit payable under paragraph 4 above shall be payable to the Employee's
estate.
9. The right of the Employee or any other person to payment pursuant to SERIP
or other benefits under the Agreement shall not be assigned, transferred,
pledged, or encumbered except by will or by the laws of descent and
distribution or by the Employee's designation of a beneficiary in the
manner provided for in this Agreement.
10. This Agreement shall be binding upon and inure to the benefit of the
Company, its successors and assigns, and the Employee and his heirs,
executors, administrators, and legal representatives and designated
beneficiaries under this Agreement.
-4-
<PAGE> 5
11. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York.
YOUNG & RUBICAM INC.
Alex S. Kroll
By: _____________________
/s/ Peter A. Georgescu
_____________________
Employee
/s/ Illegible
___________________
Secretary
-5-
<PAGE> 1
Exhibit 10.10
SELECT EXECUTIVE RETIREMENT INCOME PLAN
This agreement (this "Agreement") made December 19, 1997, by and
between Young & Rubicam Inc., a company organized under the laws of the State of
Delaware (herein the "Company") and John P. McGarry, Jr. (the "Employee").
In consideration of the agreement hereinafter contained, the
parties agree as follows:
1. The Employee agrees to serve the Company and each business
entity at least 10% of the value of which is owned, directly or indirectly, by
the Company ("Affiliates" and, together with the Company, "Y&R") in such
capacity as the Board of Directors of the Company may designate from time to
time during a period commencing on the date hereof and continuing until
terminated by either party in accordance with the terms of the Management Voting
Trust Agreement, dated as of December 12, 1996, executed by the Employee or, if
said agreement is no longer in effect, then on six months' notice. Nothing
contained herein shall be construed as conferring upon the Employee the right to
continue in the employ of Y&R as an executive or in any other capacity beyond
the notice period provided for above.
2. During the term of his employment, the Employee shall devote
his full business time, attention, skill and effort to the performance of his
duties for Y&R.
3. During the term of his employment, Y&R shall pay the Employee
such salary, other compensation and benefits payable as Y&R may from time to
time determine. In addition, the Employee shall be entitled to amounts payable
pursuant to the Select Executive Retirement Income Plan ("SERIP") as provided
below.
4. The benefits to be paid pursuant to SERIP (unless they are
forfeited by the occurrence of any of the events of forfeiture specified in
paragraph 5 below) are as follows:
A. The Company shall pay to the Employee a cash amount each
calendar year (an "Annual Payment") equal to the lesser of (x) 75% of
the average annualized cash compensation received by the Employee from
Y&R during the three calendar years preceding the calendar year in which
payment hereunder commences or (y) $50,000 each calendar year for the
rest of his life, as soon as administratively feasible after January 1st
of each such calendar year, commencing upon the later to occur of (i)
the January 1st of the calendar year following the calendar year in
which his active full-time employment with Y&R ceases or (ii) the
January 1st following the date he reaches 60 (except in the event of
death or disability as described in subparagraphs 4.B and 4.C below).
B. If the Employee should die before payment pursuant to SERIP
commences, ten Annual Payments shall be made to the Employee's
designated beneficiary, the first such payment commencing as soon as
administratively feasible after the Company has received notification of
death. If the Employee should die after payment pursuant to SERIP has
commenced but before he has received ten Annual Payments, the Company
shall continue to pay to the Employee's designated beneficiary Annual
Payments until the total number of Annual Payments to the Employee and
his designated beneficiary equals
<PAGE> 2
ten. The Employee shall designate his beneficiary hereunder to the
Company in writing; in the event the Employee does not so designate a
beneficiary hereunder, such designated beneficiary shall be the
Employee's estate.
C. If the Employee becomes disabled, Annual Payments pursuant to
SERIP shall begin as soon as administratively feasible after a
determination of disability has been made. The Employee shall be deemed
to become disabled for purposes hereof if the Company shall find, on the
basis of medical evidence satisfactory to the Company, that the Employee
is disabled, mentally or physically, so as to be prevented from
performing the duties he was performing for Y&R at the time of
disability and such disability appears to be permanent or of
long-standing duration.
5. Notwithstanding anything contained herein to the contrary,
no payment of any then unpaid Annual Payments pursuant to SERIP shall be made
and all rights under this Agreement of the Employee to receive payment thereof
shall be forfeited if there shall be a breach of the following conditions:
A. The Employee shall not, during the term of his employment or at
any time prior to the second anniversary of the date of the termination
of his employment with Y&R, directly or indirectly, (i) solicit any of
the clients who were or had been served by the Company or any of its
Affiliates at the time of such termination or during the six months
prior thereto, (ii) own, operate, join, control, engage in, or
participate in the ownership, management, operation or control of, or be
a director or an employee of, or a business consultant to, any business,
firm or corporation which is similar to or competes with the business of
the Company or any of its Affiliates as conducted on the date of such
termination of employment or during the six months prior thereto;
provided, however, that the provisions of this subparagraph shall not
apply to investments by the Employee in shares of stock traded on a
national market which shall constitute less than one percent of the
outstanding shares of such stock, or (iii) solicit for purposes of
employment any employee of the Company or its Affiliates, or induce any
such employee to terminate his or her employment.
B. During the period commencing on the date of the termination of
the employment of Employee with Y&R and ending on the second anniversary
of the date of such termination, the Employee shall perform such
consulting and advisory services for Y&R as shall from time to time be
reasonably assigned to him by the Board of Directors of the Company;
provided, however, that such services shall be rendered at such place or
places and at such time or times as the Employee shall determine, and in
no event shall the Company require the Employee to devote more than
three days per month in performing such services. The Company shall give
the Employee reasonable notice of the times when it will require the
Employee's consulting or advisory services and the Employee will have
reasonable time after receipt of such notice to render such services.
The Company shall reimburse the Employee for reasonable expenses
incurred by the Employee in connection with the rendition of such
services in accordance with the Company's policies.
2
<PAGE> 3
6. Nothing contained in this Agreement and no action taken
pursuant to the provisions of this Agreement shall create or be construed to
create a trust or any kind of fiduciary relationship between the Company and the
Employee, or any other person. The Company's obligations under SERIP and this
Agreement shall be unfunded and any benefits to the Employee hereunder shall be
paid out of the general assets of the Company. The Company shall have no
obligation to set aside or segregate assets with respect to such benefits. The
Employee's rights to benefits hereunder shall be those of an unsecured general
creditor of the Company.
7. A. The Employee, by acceptance of the benefits of SERIP,
covenants and agrees that anything herein to the contrary notwithstanding, any
benefits due to such Employee hereunder shall be subordinate and junior to the
extent and manner hereinafter set forth, to the principal of and premium (if
any) and interest on any and all Senior Indebtedness as defined in subparagraph
7.C below whether now outstanding or hereafter incurred or assumed:
1. In the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar
proceedings, whether voluntary or involuntary, relating to the
Company or to its creditors, as such, or to its property, then the
holders of Senior Indebtedness shall be entitled to receive
payment in full of all principal, premium (if any) and interest on
all Senior Indebtedness before any Employee is entitled to receive
any payment hereunder, and, accordingly, the holders of Senior
Indebtedness shall be entitled to receive for application in
payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may be
payable or deliverable in any such proceedings in respect hereof;
and
2. Without in any way limiting the effect of the foregoing
provisions, during the continuance of any default on any Senior
Indebtedness, no payment hereunder shall be made if (A) notice of
such default in writing or by telegram or telefax has been given
to the Company by any holder or holders of any Senior
Indebtedness, (B) judicial proceedings shall be pending in respect
of such default or (C) judgment is obtained against the Company by
the holders of the Senior Indebtedness or any one of them if as a
result of such default it shall remain unsatisfied; and
3. Should any payment hereunder be received by the Employee in
violation of the subordination provisions contained in this
Paragraph 7, such Employee agrees to hold such payment in trust
and as trustee for the account of the holders of Senior
Indebtedness.
B. The above provisions in regard to subordination are solely for
the purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Employee on the other hand, and
nothing herein shall impair, as between the Company and the Employee,
the obligation of the Company, which is unconditional and absolute, to
pay to the Employee all amounts due hereunder in accordance with its
terms.
C. For purposes of this Agreement, "Senior Indebtedness" shall
mean (i) any Indebtedness (as hereinbelow defined) of the Company to any
bank, financial institution
3
<PAGE> 4
or third party lender, any guarantee by the Company of any Indebtedness
of an Affiliate to a bank, financial institution or other third party
lender and any guarantee by the Company of Indebtedness or other
obligations of an Affiliate to any person, firm or entity in respect of
advertisements placed by or on behalf of such Affiliate, whether such
Indebtedness, obligation or guarantee is now outstanding or hereafter
incurred or assumed, and any refinancing, extensions, renewal or
increases thereof, and (ii) the Company's Indebtedness or other
obligations (including any refinancing, extension, renewal or increase
thereof) to third parties in connection with or arising out of the
issuance by employees of the Company or any Affiliate of promissory
notes ("Employee Notes") in connection with the financing of the
purchase by such employees of the common stock of the Company or the
financing of the purchase of Employee Notes, including without
limitation, obligations of the Company to banks, financial institutions
or other third party lenders to purchase either (1) common stock of the
Company held as collateral by such parties; (2) Employee Notes; or (3)
promissory notes evidencing loans to the Company or any Affiliate. For
the purposes of this definition, Indebtedness or other obligations of
the Company (1) to affiliated or special purpose entities formed for the
purpose of facilitating the obtaining or administration of financing (a)
for the Company or an Affiliate, (b) for the purchase by employees of
the Company or an Affiliate of the common stock of the Company, or (c)
for the purchase of Employee Notes or (2) to banks, financial
institutions or other third party lenders which provide financing for
such affiliated or special purpose entities, shall be deemed to be
included within the term Senior Indebtedness.
As used herein "Indebtedness" shall mean (i) any obligation or
indebtedness for borrowed money or evidenced by bonds, notes, debentures
or similar instruments or letters of credit (or reimbursement agreements
in respect thereof) or representing the balance deferred and unpaid of
the purchase price of any property originally financed on a long term
basis (including pursuant to capital leases), (ii) any obligation under
any contract providing for the making of loans or advances and (iii)
guarantees (and other obligations under any other contracts which are
substantially equivalent to guarantees), endorsements and other
contingent liabilities (whether direct or indirect) in connection with
the foregoing. In addition, the term "Indebtedness" shall be construed
to include any "indebtedness" as such term may be defined in any credit
facility or agreement to which the Company is a party from time to time.
8. The right of the Employee or any other person to Annual
Payments pursuant to SERIP or other benefits under the Agreement shall not be
assigned, transferred, pledged, or encumbered.
9. This Agreement shall be binding upon and inure to the benefit
of the Company, its successors and assigns, and the Employee.
10. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York.
4
<PAGE> 5
YOUNG & RUBICAM INC.
By: /s/ Peter A. Georgescu
--------------------------
/s/ John P. McGarry, Jr.
--------------------------
Employee
/s/ Stephanie W. Abramson
- --------------------------------
Attest Executive Vice President
General Counsel
5
<PAGE> 1
Exhibit 10.11
SELECT EXECUTIVE RETIREMENT INCOME PLAN
This agreement made January 1, l986, by and between Young & Rubicam Inc., a
company organized under the laws of the State of New York (herein the "Company")
and John P. McGarry (the "Employee").
In consideration of the agreement hereinafter contained, the parties agree as
follows:
1. The Employee agrees to serve the Company in such capacity as the Board of
Directors of the Company may designate from time to time during a period
commencing on the date hereof and continuing until terminated by
retirement or by either party on at least 60 days' prior written notice.
Nothing contained herein shall be construed as conferring upon the
Employee the right to continue in the employ of the Company as an
executive or in any other capacity.
2. During the term of his employment, the Employee shall devote his full
business time, attention, skill and effort to the performance of his
duties for the Company.
3. During the term of his employment, the Company shall pay the Employee such
salary, other compensation and benefits payable as the Company may from
time to time determine. In addition Employee shall be entitled to amounts
payable pursuant to the Select Executive Retirement Income Plan ("SERIP")
as provided below.
4. The benefits to be paid pursuant to SERIP (unless they are forfeited by
the occurrence of any of the events of forfeiture specified in paragraph 5
below) are as follows:
A. If the Employee's full-time employment hereunder is terminated on or
after five years from the date hereof, the Company shall pay to him
$100,000 per year each year for the rest of his life, on or about
January 1st of each year, commencing either the year following the
year his full-time employment ceases or the January 1st following
the date he reaches 60, whichever is the last to occur (except in
the event of death or disability as described in subparagraphs 4.C.
and 4.D. below); however, in no event will payment commence prior to
the January 1st following the date on which the Employee ceases to
be an active full-time employee of the Company.
B. If the Employee's employment with the Company ceases for any reason
other than death or disability prior to five years from the date
hereof, all rights hereunder shall be forfeited. If the Employee's
employment ceases by reason of death or disability as set forth
below, he shall be deemed to have been fully employed for five years
from the date hereof as required in subparagraph 4.A. above.
C. If the Employee should die before payments pursuant to SERIP
commence, ten annual payments shall be made to the Employee's
designated beneficiary commencing as soon as administratively
feasible after the Company has received
<PAGE> 2
notification of death. If the Employee should die after payments
pursuant to SERIP have commenced but before he has received ten
payments, the Company shall continue to pay to the Employee's
designated beneficiary annual payments until the total number of
payments to the Employee and his designated beneficiary equals ten.
D. The Employee shall be deemed to become disabled for purpose of
subparagraph 4.B. above if the Company shall find, on the basis of
medical evidence satisfactory to the Company, that the Employee is
disabled, mentally or physically, so as to be prevented from
performing the duties he was performing for the Company at the time
of disability and such disability appears to be permanent or of
longstanding duration. If the Employee becomes disabled, annual
payments pursuant to SERIP shall begin as soon as administratively
feasible after a determination of disability has been made.
E. In the event that the Employee leaves the employ of the Company
prior to attaining age 60, whether voluntarily or involuntarily, the
amount payable pursuant to SERIP will be paid to the Employee in
annual installments commencing on or about the January 1st following
the date on which the Employee attains age 60.
5. Notwithstanding anything contained herein to the contrary, no payment of
any then unpaid SERIP installments shall be made and all rights under this
Agreement of the Employee, his designated beneficiary, executors,
administrators, heirs, or any other person, to receive payments thereof
shall be forfeited if there shall be a breach of the following conditions:
A. The Employee shall not, during the term of his employment or at any
time prior to the second anniversary of the date of the termination
of his employment with the Company, directly or indirectly, (i)
solicit any of the clients who were or had been served by the
Company or any of its subsidiaries or affiliates at the time of such
termination or during the six months prior thereto, (ii) own,
operate, join, control, engage in, or participate in the ownership,
management, operation or control of, or be a director or an employee
of, or a business consultant to, any business, firm or corporation
which is similar to or competes with the business of the Company or
any of its subsidiaries or affiliates as conducted on the date of
such termination or during the six months prior thereto; provided,
however, that the provisions of this subparagraph shall not apply to
investments by the Employee in shares of stock traded on a national
market which shall have an aggregate market value, at the time of
acquisition, of less than $50,000 and which shall constitute less
than one percent of the outstanding shares of such stock, or (iii)
solicit for purposes of employment any employee of the Company, its
subsidiaries or affiliates, or induce any such employee to terminate
his employment.
2
<PAGE> 3
B. During the period commencing on the date of the termination of the
employment of the Employee with the Company and ending on the second
anniversary of the date of such termination, the Employee shall
perform such consulting and advisory services for the Company as
shall from time to time be reasonably assigned to him by the Board
of Directors of the Company; provided, however, that such services
shall be rendered at such place or places and at such time or times
as the Employee shall determine, and in no event shall the Company
require the Employee to devote more than three days per month in
performing such services. The Company shall give the Employee
reasonable notice of the times when it will require the Employee's
consulting or advisory services and the Employee will have
reasonable time after receipt of such notice to render such
services. The Company shall reimburse the Employee for reasonable
expenses incurred by the Employee in connection with the rendition
of such services in accordance with the Company's policies.
6. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a
trust or any kind of fiduciary relationship between the Company and the
Employee, his designated beneficiary or any other person.
7. A. The Employee, by acceptance of the benefits of SERIP, covenants and
agrees that anything in SERIP to the contrary notwithstanding, any
payments due to such Employee hereunder shall be subordinate and
junior to the extent and manner hereinafter set forth, to the
principal of and premium (if any) and interest on any and all Senior
Indebtedness as defined in subparagraph 7.C. below whether now
outstanding or hereafter incurred or assumed:
1. In the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar
proceedings, whether voluntary or involuntary, relating to the
Company or to its creditors, as such, or to its property, then
the holders of Senior Indebtedness shall be entitled to
receive payment in full of all principal, premium (if any) and
interest on all Senior Indebtedness before any Employee is
entitled to receive any payment under SERIP, and, accordingly,
the holders of Senior Indebtedness shall be entitled to
receive for application in payment thereof any payment or
distribution of any kind of character, whether in cash or
property or securities, which may be payable or deliverable in
any such proceedings in respect of SERIP; and
2. Without in any way limiting the effect of the foregoing
provisions, during the continuance of any default on any
Senior Indebtedness, no payment under SERIP shall be made if
(A) notice of such default in writing or by telegram has been
given to the Company by any holder or holders of any Senior
Indebtedness, (B) judicial proceedings shall be pending in
respect of such default or (C) judgment is obtained against
the Company by the
3
<PAGE> 4
holders of the Senior Indebtedness or any one of them if as a
result of such default it shall remain unsatisfied; and
3. Should any benefit under SERIP be received by the Employee in
violation of the subordination provisions contained in this
Paragraph 7, such Employee agrees to hold such benefits in
trust and as trustee for the account of the holders of Senior
Indebtedness.
B. The above provisions in regard to subordination are solely for the
purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Employee on the other hand, and
nothing herein shall impair, as between the Company and the
Employee, the obligation of the Company, which is unconditional and
absolute, to pay to the Employee all amounts due under SERIP in
accordance with its terms.
C. For purposes of this Agreement, Senior Indebtedness shall mean any
liability or obligation to any bank, insurance company or other
institutional lender for money borrowed by the Company or by any of
its Subsidiaries and guaranteed by the Company.
8. The beneficiary referred to in this Agreement may be designated or changed
by the Employee without the consent of any prior beneficiary on a form
provided by the Company and delivered to the Company at any time prior to
death. If no such beneficiary shall survive the Employee, the death
benefit payable under paragraph 4 above shall be payable to the Employee's
estate.
9. The right of the Employee or any other person to payment pursuant to SERIP
or other benefits under the Agreement shall not be assigned, transferred,
pledged, or encumbered except by will or by the laws of descent and
distribution or by the Employee's designation of a beneficiary in the
manner provided for in this Agreement.
10. This Agreement shall be binding upon and inure to the benefit of the
Company, its successors and assigns, and the Employee and his heirs,
executors, administrators, and legal representatives and designated
beneficiaries under this Agreement.
11. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York.
YOUNG & RUBICAM INC.
By: /s/ Alex S. Kroll
________________________
/s/ John P. McGarry, Jr.
________________________
Employee
/s/ Illegible
_____________________
Secretary
4
<PAGE> 1
Exhibit 10.12
SELECT EXECUTIVE RETIREMENT INCOME PLAN
This agreement made December 31, 1994, by and between Young & Rubicam Inc., a
company organized under the laws of the State of New York (herein the Company)
and John P. McGarry (the Employee).
In consideration of the agreement hereinafter contained, the parties agree as
follows:
1. The Employee agrees to serve the Company in such capacity as the Board of
Directors of the Company may designate from time to time during a period
commencing on the date hereof and continuing until terminated by
retirement or by either party on at least 60 days prior written notice.
Nothing contained herein shall be construed as conferring upon the
Employee the right to continue in the employ of the Company as an
executive or in any other capacity.
2. During the term of his employment, the Employee shall devote his full
business time, attention, skill and effort to the performance of his
duties for the Company.
3. During the term of his employment, the Company shall pay the Employee such
salary, other compensation and benefits payable as the Company may from
time to time determine. In addition, Employee shall be entitled to amounts
payable pursuant to the Select Executive Retirement Income Plan ("SERIP")
as provided below.
4. The benefits to be paid pursuant to SERIP (unless they are forfeited by
the occurrence of any of the events of forfeiture specified in paragraph 5
below) are as follows:
A. If the Employee's full-time employment hereunder is terminated on or
after three years from the date hereof, the Company shall pay to him
$50,000 per year each year for the rest of his life, as soon as
administratively feasible after January 1st of each year, commencing
either the year following the year his full-time employment ceases
or the January 1st following the date he reaches 60, whichever is
the last to occur (except in the event of death or disability as
described in subparagraphs 4.C. and 4.D. below); however, in no
event will payment commence prior to the January 1st following the
date on which the Employee ceases to be an active full-time employee
of the Company.
B. If the Employee's employment with the Company eases for any reason
other than death or disability prior to three years from the date
hereof, all rights hereunder shall be forfeited. If the Employee's
employment ceases by reason of death or disability as set forth
below, he shall be deemed to have been fully employed for three
years from the date hereof as required in subparagraph 4.A. above.
<PAGE> 2
C. If the Employee should die before payments pursuant to SERIP
commence, ten annual payments shall be made to the Employee's
designated beneficiary commencing as soon as administratively
feasible after the Company has received notification of death. If
the Employee should die after payments pursuant to SERIP have
commenced but before he has received ten payments, the Company shall
continue to pay to the Employee's designated beneficiary annual
payments until the total number of payments to the Employee and his
designated beneficiary equals ten.
D. The Employee shall be deemed to become disabled for purposes of
subparagraph 4.B. above if the Company shall find, on the basis of
medical evidence satisfactory to the Company, that the Employee is
disabled, mentally or physically, so as to be prevented from
performing the duties he was performing for the Company at the time
of disability and such disability appears to be permanent or of
longstanding duration. If the Employee becomes disabled, annual
payments pursuant to SERIP shall begin as soon as administratively
feasible after a determination of disability has been made.
E. In the event that the Employee leaves the employ of the Company
prior to attaining age 60, whether voluntarily or involuntarily, the
amount payable pursuant to SERIP will be paid to the Employee in
annual installments commencing on or about the January 1st following
the date on which the Employee attains age 60.
5. Notwithstanding anything contained herein to the contrary, no payment of
any then unpaid SERIP installments shall be made and all rights under this
Agreement of the Employee, his designated beneficiary, executors,
administrators, heirs, or any other person, to receive payments thereof
shall be forfeited if there shall be a breach of the following conditions:
A. The Employee shall not, during the term of his employment or at any
time prior the second anniversary of the date of the termination of
his employment with the Company, directly or indirectly, (i) solicit
any of the clients who were or had been served by the Company or any
of its subsidiaries or affiliates at the time of such termination or
during the six months prior thereto, (ii) own, operate, join,
control, engage in, or participate in the ownership, management,
operation or control of, or be a director or an employee of, or a
business consultant to, any business, firm or corporation which is
similar to or competes with the business of the Company or any of
its subsidiaries or affiliates as conducted on the date of such
termination or during the six months prior thereto; provided,
however, that the provisions of this subparagraph shall not apply to
investments by the Employee in shares of stock traded on a national
market which shall have an
2
<PAGE> 3
aggregate marked value, at the time of acquisition, of less than
$50,000 and which shall constitute less than one percent of the
outstanding shares of such stock, or (iii) solicit for purposes of
employment any employee of the Company, its subsidiaries or
affiliates, or induce any such employee to terminate his employment.
B. During the period commencing on the date of the termination of the
employment of the Employee with the Company and ending on the second
anniversary of the date of such termination, the Employee shall
perform such consulting and advisory services for the Company as
shall from time to time be reasonably assigned to him by the Board
of Directors of the Company; provided, however, that such services
shall be rendered at such place or places and at such time or times
as the Employee shall determine, and in no event shall the Company
require the Employee to devote more than three days per month in
performing such services. The Company shall give the Employee
reasonable notice of the times when it will require the Employee's
consulting or advisory services and the Employee will have
reasonable time after receipt of such notice to render such
services. The Company shall reimburse the Employee for reasonable
expenses incurred by the Employee in connection with the rendition
of such services in accordance with the Company's policies.
6. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a
trust or any kind of fiduciary relationship between the Company and the
Employee, his designated beneficiary or any other person.
7. A. The Employee, by acceptance of the benefits of SERIP, covenants and
agrees that anything herein to the contrary notwithstanding, any
payments due to such Employee hereunder shall be subordinate and
junior to the extent and manner hereinafter set forth, to the
principal of and premium (if any) and interest on any and all Senior
Indebtedness as defined in subparagraph 7.C. below whether now
outstanding or hereafter incurred or assumed:
1. In the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar
proceedings, whether voluntary or involuntary, relating to the
Company or to its creditors, as such, or to its property, then
the holders of Senior Indebtedness shall be entitled to
receive payment in full of all principal, premium (if any) and
interest on all Senior Indebtedness before any Employee is
entitled to receive any payment hereunder, and, accordingly,
the holders of Senior Indebtedness shall be entitled to
receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash or
property or
3
<PAGE> 4
securities, which may be payable or deliverable in any such
proceedings in respect hereof; and
2. Without in any way limiting the effect of the foregoing
provisions, during the continuance of any default on any
Senior Indebtedness, no payment hereunder shall be made if (A)
notice of such default in writing or by telegram has been
given to the Company by any holder or holders of any Senior
Indebtedness, (B) judicial proceedings shall be pending in
respect of such default or (C) judgment is obtained against
the Company by the holders of Senior Indebtedness or any one
of them if as a result of such default it shall remain
unsatisfied; and
3. Should any benefit hereunder be received by the Employee in
violation of the subordination provisions contained in this
paragraph 7, such Employee agrees to hold such benefits in
trust and as trustee for the account of the holders of Senior
Indebtedness.
B. The above provisions in regard to subordination are solely for the
purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Employee on the other hand, and
nothing herein shall impair, as between the Company and the
Employee, the obligation of the Company, which is unconditional and
absolute, to pay to the Employee all amounts due hereunder in
accordance with its terms.
C. For purposes of this Agreement, "Senior Indebtedness" shall mean (i)
any Indebtedness (as hereinbelow defined) of the Company to any
bank, financial institution or third party lender, any guarantee by
the Company of any Indebtedness of an Affiliate (as hereinbelow
defined) to a bank, financial institution or other third party
lender and any guarantee by the Company of Indebtedness or other
obligations of an Affiliate to any person, firm or entity in respect
of advertisements placed by or on behalf of such Affiliate, whether
such Indebtedness, obligation or guarantee is now outstanding or
hereafter incurred or assumed, and any refinancing, extensions,
renewal or increases thereof, and (ii) the Company's Indebtedness or
other obligations (including any refinancing, extension, renewal or
increase thereof) to third parties in connection with or arising out
of the issuance by employees of the Company or any Affiliate of
promissory notes ("Employee Notes") in connection with financing of
the purchase by such employees of either limited partnership units
of Young & Rubicam L.P. or the common stock of the Company or the
financing of the purchase of Employees Notes, including, without
limitation, obligations of the Company to banks, financial
institutions or other third party lenders to purchase either (1)
limited
4
<PAGE> 5
partnership units of Young & Rubicam L.P. or common stock of the
Company held as collateral by such parties; (2) Employee Notes; or
(3) promissory notes evidencing loans to the Company or any
Affiliate. For the purposes of this definition, Indebtedness or
other obligations of the Company (1) to affiliated or special
purpose entities formed for the purpose of facilitating the
obtaining or administration of financing (a) for the Company or an
Affiliate, (b) for the purchase by employees of the Company or an
Affiliate of either limited partnership units of Young & Rubicam
L.P. or the common stock of the Company, or (c) for the purchase of
Employee Notes or (2) to banks, financial institutions or other
third party lenders which provide financing for such affiliated or
special purpose entities, shall be deemed to be included within the
term Senior Indebtedness.
As used herein "Affiliate" shall mean Young & Rubicam L.P. and any
business entity at least 10% of the value of which is owned,
directly or indirectly, by the Company.
As used herein "Indebtedness" shall mean (i) any obligation or
indebtedness for borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property
originally financed on a long term basis (including pursuant to
capital leases), (ii) any obligation under any contract providing
for the making of loans or advances and (iii) guarantees (and other
obligations under any other contracts which are substantially
equivalent to guarantees), endorsements and other contingent
liabilities (whether direct or indirect) in connection with the
foregoing."
8. The beneficiary referred to in this Agreement may be designated or changed
by the Employee without the consent of any prior beneficiary on a form
provided by the Company and delivered to the Company at any time prior to
death. If no such beneficiary shall survive the Employee, the death
benefit payable under paragraph 4 above shall be payable to the Employee's
estate.
9. The right to the Employee or any other person to payment pursuant to SERIP
or other benefits under this Agreement shall not be assigned, transferred,
pledged or encumbered except by will or by the laws of descent and
distribution or by the Employee's designation of a beneficiary in the
manner provided for in this Agreement.
10. This Agreement shall be binding upon and inure to the benefit of the
Company, its successor and assigns, and the Employee and his heirs,
executors, administrators, and legal representatives and designated
beneficiaries under this Agreement.
5
<PAGE> 6
11. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York.
YOUNG & RUBICAM INC.
By: /s/ Peter A. Georgescu
--------------------------------
/s/ John P. McGarry
--------------------------------
Employee
/s/ Alan J. Sheldon
- --------------------------------
Acting Secretary
6
<PAGE> 1
Exhibit 10.13
SELECT EXECUTIVE RETIREMENT INCOME PLAN
This agreement (this "Agreement") made December 19, 1997, by and
between Young & Rubicam Inc., a company organized under the laws of the State of
Delaware (herein the "Company") and Edward H. Vick (the "Employee").
In consideration of the agreement hereinafter contained, the
parties agree as follows:
1. The Employee agrees to serve the Company and each business
entity at least 10% of the value of which is owned, directly or indirectly, by
the Company ("Affiliates" and, together with the Company, "Y&R") in such
capacity as the Board of Directors of the Company may designate from time to
time during a period commencing on the date hereof and continuing until
terminated by either party in accordance with the terms of the Management Voting
Trust Agreement, dated as of December 12, 1996, executed by the Employee or, if
said agreement is no longer in effect, then on six months' notice. Nothing
contained herein shall be construed as conferring upon the Employee the right to
continue in the employ of Y&R as an executive or in any other capacity beyond
the notice period provided for above.
2. During the term of his employment, the Employee shall devote
his full business time, attention, skill and effort to the performance of his
duties for Y&R.
3. During the term of his employment, Y&R shall pay the Employee
such salary, other compensation and benefits payable as Y&R may from time to
time determine. In addition, the Employee shall be entitled to amounts payable
pursuant to the Select Executive Retirement Income Plan ("SERIP") as provided
below.
4. The benefits to be paid pursuant to SERIP (unless they are
forfeited by the occurrence of any of the events of forfeiture specified in
paragraph 5 below) are as follows:
A. The Company shall pay to the Employee a cash amount each
calendar year (an "Annual Payment") equal to the lesser of (x) 75% of
the average annualized cash compensation received by the Employee from
Y&R during the three calendar years preceding the calendar year in which
payment hereunder commences or (y) $200,000 each calendar year for the
rest of his life, as soon as administratively feasible after January 1st
of each such calendar year, commencing upon the later to occur of (i)
the January 1st of the calendar year following the calendar year in
which his active full-time employment with Y&R ceases or (ii) the
January 1st following the date he reaches 60 (except in the event of
death or disability as described in subparagraphs 4.B and 4.C below).
B. If the Employee should die before payment pursuant to SERIP
commences, ten Annual Payments shall be made to the Employee's
designated beneficiary, the first such payment commencing as soon as
administratively feasible after the Company has received notification of
death. If the Employee should die after payment pursuant to SERIP has
commenced but before he has received ten Annual Payments, the Company
shall continue to pay to the Employee's designated beneficiary Annual
Payments until the
<PAGE> 2
total number of Annual Payments to the Employee and his designated
beneficiary equals ten. The Employee shall designate his beneficiary
hereunder to the Company in writing; in the event the Employee does not
so designate a beneficiary hereunder, such designated beneficiary shall
be the Employee's estate.
C. If the Employee becomes disabled, Annual Payments pursuant to
SERIP shall begin as soon as administratively feasible after a
determination of disability has been made. The Employee shall be deemed
to become disabled for purposes hereof if the Company shall find, on the
basis of medical evidence satisfactory to the Company, that the Employee
is disabled, mentally or physically, so as to be prevented from
performing the duties he was performing for Y&R at the time of
disability and such disability appears to be permanent or of
long-standing duration.
5. Notwithstanding anything contained herein to the contrary, no
payment of any then unpaid Annual Payments pursuant to SERIP shall be made and
all rights under this Agreement of the Employee to receive payment thereof shall
be forfeited if there shall be a breach of the following conditions:
A. The Employee shall not, during the term of his employment or at
any time prior to the second anniversary of the date of the termination
of his employment with Y&R, directly or indirectly, (i) solicit any of
the clients who were or had been served by the Company or any of its
Affiliates at the time of such termination or during the six months
prior thereto, (ii) own, operate, join, control, engage in, or
participate in the ownership, management, operation or control of, or be
a director or an employee of, or a business consultant to, any business,
firm or corporation which is similar to or competes with the business of
the Company or any of its Affiliates as conducted on the date of such
termination of employment or during the six months prior thereto;
provided, however, that the provisions of this subparagraph shall not
apply to investments by the Employee in shares of stock traded on a
national market which shall constitute less than one percent of the
outstanding shares of such stock, or (iii) solicit for purposes of
employment any employee of the Company or its Affiliates, or induce any
such employee to terminate his or her employment.
B. During the period commencing on the date of the termination of
the employment of Employee with Y&R and ending on the second anniversary
of the date of such termination, the Employee shall perform such
consulting and advisory services for Y&R as shall from time to time be
reasonably assigned to him by the Board of Directors of the Company;
provided, however, that such services shall be rendered at such place or
places and at such time or times as the Employee shall determine, and in
no event shall the Company require the Employee to devote more than
three days per month in performing such services. The Company shall give
the Employee reasonable notice of the times when it will require the
Employee's consulting or advisory services and the Employee will have
reasonable time after receipt of such notice to render such services.
The Company shall reimburse the Employee for reasonable expenses
incurred by the Employee in connection with the rendition of such
services in accordance with the Company's policies.
2
<PAGE> 3
6. Nothing contained in this Agreement and no action taken
pursuant to the provisions of this Agreement shall create or be construed to
create a trust or any kind of fiduciary relationship between the Company and the
Employee, or any other person. The Company's obligations under SERIP and this
Agreement shall be unfunded and any benefits to the Employee hereunder shall be
paid out of the general assets of the Company. The Company shall have no
obligation to set aside or segregate assets with respect to such benefits. The
Employee's rights to benefits hereunder shall be those of an unsecured general
creditor of the Company.
7. A. The Employee, by acceptance of the benefits of SERIP,
covenants and agrees that anything herein to the contrary notwithstanding, any
benefits due to such Employee hereunder shall be subordinate and junior to the
extent and manner hereinafter set forth, to the principal of and premium (if
any) and interest on any and all Senior Indebtedness as defined in subparagraph
7.C below whether now outstanding or hereafter incurred or assumed:
1. In the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar
proceedings, whether voluntary or involuntary, relating to the
Company or to its creditors, as such, or to its property, then the
holders of Senior Indebtedness shall be entitled to receive
payment in full of all principal, premium (if any) and interest on
all Senior Indebtedness before any Employee is entitled to receive
any payment hereunder, and, accordingly, the holders of Senior
Indebtedness shall be entitled to receive for application in
payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may be
payable or deliverable in any such proceedings in respect hereof;
and
2. Without in any way limiting the effect of the foregoing
provisions, during the continuance of any default on any Senior
Indebtedness, no payment hereunder shall be made if (A) notice of
such default in writing or by telegram or telefax has been given
to the Company by any holder or holders of any Senior
Indebtedness, (B) judicial proceedings shall be pending in respect
of such default or (C) judgment is obtained against the Company by
the holders of the Senior Indebtedness or any one of them if as a
result of such default it shall remain unsatisfied; and
3. Should any payment hereunder be received by the Employee in
violation of the subordination provisions contained in this
Paragraph 7, such Employee agrees to hold such payment in trust
and as trustee for the account of the holders of Senior
Indebtedness.
B. The above provisions in regard to subordination are solely for
the purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Employee on the other hand, and
nothing herein shall impair, as between the Company and the Employee,
the obligation of the Company, which is unconditional and absolute, to
pay to the Employee all amounts due hereunder in accordance with its
terms.
C. For purposes of this Agreement, "Senior Indebtedness" shall
mean (i) any Indebtedness (as hereinbelow defined) of the Company to any
bank, financial institution
3
<PAGE> 4
or third party lender, any guarantee by the Company of any Indebtedness
of an Affiliate to a bank, financial institution or other third party
lender and any guarantee by the Company of Indebtedness or other
obligations of an Affiliate to any person, firm or entity in respect of
advertisements placed by or on behalf of such Affiliate, whether such
Indebtedness, obligation or guarantee is now outstanding or hereafter
incurred or assumed, and any refinancing, extensions, renewal or
increases thereof, and (ii) the Company's Indebtedness or other
obligations (including any refinancing, extension, renewal or increase
thereof) to third parties in connection with or arising out of the
issuance by employees of the Company or any Affiliate of promissory
notes ("Employee Notes") in connection with the financing of the
purchase by such employees of the common stock of the Company or the
financing of the purchase of Employee Notes, including without
limitation, obligations of the Company to banks, financial institutions
or other third party lenders to purchase either (1) common stock of the
Company held as collateral by such parties; (2) Employee Notes; or (3)
promissory notes evidencing loans to the Company or any Affiliate. For
the purposes of this definition, Indebtedness or other obligations of
the Company (1) to affiliated or special purpose entities formed for the
purpose of facilitating the obtaining or administration of financing (a)
for the Company or an Affiliate, (b) for the purchase by employees of
the Company or an Affiliate of the common stock of the Company, or (c)
for the purchase of Employee Notes or (2) to banks, financial
institutions or other third party lenders which provide financing for
such affiliated or special purpose entities, shall be deemed to be
included within the term Senior Indebtedness.
As used herein "Indebtedness" shall mean (i) any obligation or
indebtedness for borrowed money or evidenced by bonds, notes, debentures
or similar instruments or letters of credit (or reimbursement agreements
in respect thereof) or representing the balance deferred and unpaid of
the purchase price of any property originally financed on a long term
basis (including pursuant to capital leases), (ii) any obligation under
any contract providing for the making of loans or advances and (iii)
guarantees (and other obligations under any other contracts which are
substantially equivalent to guarantees), endorsements and other
contingent liabilities (whether direct or indirect) in connection with
the foregoing. In addition, the term "Indebtedness" shall be construed
to include any "indebtedness" as such term may be defined in any credit
facility or agreement to which the Company is a party from time to time.
8. The right of the Employee or any other person to Annual
Payments pursuant to SERIP or other benefits under the Agreement shall not be
assigned, transferred, pledged, or encumbered.
9. This Agreement shall be binding upon and inure to the benefit
of the Company, its successors and assigns, and the Employee.
10. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York.
4
<PAGE> 5
YOUNG & RUBICAM INC.
By: /s/ Peter A. Georgescu
----------------------
/s/ Edward H. Vick
-----------------------
Employee
/s/ Stephanie W. Abramson
- -------------------------
Attest
Executive Vice President,
General Counsel
5
<PAGE> 1
Exhibit 10.14
SELECT EXECUTIVE RETIREMENT INCOME PLAN
This agreement made January 1, 1995 by and between Young & Rubicam Inc., a
company organized under the laws of the State of New York (herein the "Company")
and Edward H. Vick (the "Employee").
In consideration of the agreement hereinafter contained, the parties agree as
follows:
1. The Employee agrees to serve the Company in such capacity as the Board of
Directors of the Company may designate from time to time during a period
commencing on the date hereof and continuing until terminated by either
party in accordance with the terms of Employee's Preferred Shareholders
Agreement, or, if said agreement is no longer in effect, then on six
months' notice. Nothing contained herein shall be construed as conferring
upon the Employee the right to continue in the employ of the Company as an
executive or in any other capacity beyond the notice period provided for
above.
2. During the term of his employment, the Employee shall devote his full
business time, attention, skill and effort to the performance of his
duties for the Company.
3. During the term of his employment, the Company shall pay the Employee such
salary, other compensation and benefits payable as the Company may from
time to time determine. In addition Employee shall be entitled to amounts
payable pursuant to the Select Executive Retirement Income Plan ("SERIP")
as provided below.
4. The benefits to be paid pursuant to SERIP (unless they are forfeited by
the occurrence of any of the events of forfeiture specified in paragraph 5
below) are as follows:
A. If the Employee's full-time employment hereunder is terminated on or
after 12/31/99, the Company shall pay to him $100,000 per year each
year for the rest of his life, as soon as administratively feasible
after January 1st of each year, commencing either the year following
the year his full-time employment ceases or the January 1st
following the date he reaches 60, whichever is the last to occur,
however, in no event will payment commence prior to the January 1st
following the date on which the Employee ceases to be an active
full-time employee of the Company.
B. The amount payable pursuant to SERIP will vest during the Employee's
employment by the Company according to the attached Schedule A. If
the Employee's employment with the Company ceases, the vesting
period will terminate as of the date of termination of employment
and the portion which has not become vested shall be forfeited.
C. In the event that the Employee leaves the employ of the Company
prior to attaining age 60, whether voluntarily or involuntarily, the
amount payable pursuant to SERIP which has become vested in
accordance with the attached Schedule A
<PAGE> 2
will be paid to the Employee in annual installments commencing as
soon as administratively feasible after January 1st following the
date on which the Employee attains age 60.
5. Notwithstanding anything contained herein to the contrary, no payment of
any then unpaid SERIP installments shall be made and all rights under this
Agreement of the Employee, to receive payments thereof shall be forfeited
if there shall be a breach of the following conditions:
A. The Employee shall not, during the term of his employment or at any
time prior to the second anniversary of the date of the termination
of his employment with the Company, directly or indirectly, (i)
solicit any of the clients who were or had been served by the
Company or any of its subsidiaries or affiliates at the time of such
termination or during the six months prior thereto, (ii) own,
operate, join, control, engage in, or participate in the ownership,
management, operation or control of, or be a director or an employee
of, or a business consultant to, any business, firm or corporation
which is similar to or competes with the business of the Company or
any of its subsidiaries or affiliates as conducted on the date of
such termination or during the six months prior thereto; provided,
however, that the provisions of this subparagraph shall not apply to
investments by the Employee in shares of stock traded on a national
market which shall have an aggregate market value, at the time of
acquisition, of less than $50,000 and which shall constitute less
than one percent of the outstanding shares of such stock, or (iii)
solicit for purposes of employment any employee of the Company, its
subsidiaries or affiliates, or induce any such employee to terminate
his employment.
B. During the period commencing on the date of the termination of the
employment of the Employee with the Company and ending on the second
anniversary of the date of such termination, the Employee shall
perform such consulting and advisory services for the Company as
shall from time to time be reasonably assigned to him by the Board
of Directors of the Company; provided, however, that such services
shall be rendered at such place or places and at such time or times
as the Employee shall determine, and in no event shall the Company
require the Employee to devote more than three days per month in
performing such services. The Company shall give the Employee
reasonable notice of the times when it will require the Employee's
consulting or advisory services and the Employee will have
reasonable time after receipt of such notice to render such
services. The Company shall reimburse the Employee for reasonable
expenses incurred by the Employee in connection with the rendition
of such services in accordance with the Company's policies.
6. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a
trust or any kind of fiduciary relationship between the Company and the
Employee, or any other person.
-2-
<PAGE> 3
7. A. The Employee, by acceptance of the benefits of SERIP, covenants and
agrees that anything herein to the contrary notwithstanding, any
payments due to such Employee hereunder shall be subordinate and
junior to the extent and manner hereinafter set forth, to the
principal of and premium (if any) and interest on any and all Senior
Indebtedness as defined in subparagraph 7.C. below whether now
outstanding or hereafter incurred or assumed:
1. In the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar
proceedings, whether voluntary or involuntary, relating to the
Company or to its creditors, as such, or to its property, then
the holders of Senior Indebtedness shall be entitled to
receive payment in full of all principal, premium (if any) and
interest on all Senior Indebtedness before any Employee is
entitled to receive any payment hereunder, and, accordingly,
the holders of Senior Indebtedness shall be entitled to
receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash or
property or securities, which may be payable or deliverable in
any such proceedings in respect hereof; and
2. Without in any way limiting the effect of the foregoing
provisions, during the continuance of any default on any
Senior Indebtedness, no payment hereunder shall be made if (A)
notice of such default in writing or by telegram has been
given to the Company by any holder or holders of any Senior
Indebtedness, (B) judicial proceedings shall be pending in
respect of such default or (C) judgment is obtained against
the Company by the holders of Senior Indebtedness or any one
of them if as a result of such default it shall remain
unsatisfied; and
3. Should any benefit hereunder be received by the Employee in
violation of the subordination provisions contained in this
Paragraph 7, such Employee agrees to hold such benefits in
trust and as trustee for the account of the holders of Senior
Indebtedness.
B. The above provisions in regard to subordination are solely for the
purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Employee on the other hand, and
nothing herein shall impair, as between the Company and the
Employee, the obligation of the Company, which is unconditional and
absolute, to pay to the Employee all amounts due hereunder in
accordance with its terms.
C. For purposes of this Agreement, "SENIOR INDEBTEDNESS" shall mean (i)
any Indebtedness (as hereinbelow defined) of the Company to any
bank, financial institution or third party lender, any guarantee by
the Company of any Indebtedness of an Affiliate (as hereinbelow
defined) to a bank, financial institution or other third party
lender and any guarantee by the Company of Indebtedness or
-3-
<PAGE> 4
other obligations of an Affiliate to any person, firm or entity in
respect of advertisements placed by or on behalf of such Affiliate,
whether such Indebtedness, obligation or guarantee is now
outstanding or hereafter incurred or assumed, and any refinancing,
extensions, renewal or increases thereof, and (ii) the Company's
Indebtedness or other obligations (including any refinancing,
extension, renewal or increase thereof) to third parties in
connection with or arising out of the issuance by employees of the
Company or any Affiliate of promissory notes ("Employee Notes") in
connection with financing of the purchase by such employees of
either limited partnership units of Young & Rubicam L.P. or the
common stock of the Company or the financing of the purchase of
Employees Notes, including without limitation, obligations of the
Company to banks, financial institutions or other third party
lenders to purchase either (1) limited partnership units of Young &
Rubicam L.P. or common stock of the Company held as collateral by
such parties; (2) Employee Notes; or (3) promissory notes evidencing
loans to the Company or any Affiliate. For the purposes of this
definition, Indebtedness or other obligations of the Company (1) to
affiliated or special purpose entities formed for the purpose of
facilitating the obtaining or administration of financing (a) for
the Company or an Affiliate, (b) for the purchase by employees of
the Company or an Affiliate of either limited partnership units of
Young & Rubicam L.P. or the common stock of the Company, or (c) for
the purchase of Employee Notes or (2) to banks, financial
institutions or other third party lenders which provide financing
for such affiliated or special purpose entities, shall be deemed to
be included within the term Senior Indebtedness.
As used herein "Affiliate" shall mean Young & Rubicam L.P. and any
business entity at least 10% of the value of which is owned,
directly or indirectly, by the Company.
As used herein "Indebtedness" shall mean (I) any obligation or
indebtedness for borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property
originally financed on a long term basis (including pursuant to
capital leases), (ii) any obligation under any contract providing
for the making of loans or advances and (iii) guarantees (and other
obligations under any other contracts which are substantially
equivalent to guarantees), endorsements and other contingent
liabilities (whether direct or indirect) in connection with the
foregoing.
8. The right of the Employee or any other person to payment pursuant to SERIP
or other benefits under the Agreement shall not be assigned, transferred,
pledged, or encumbered.
9. This Agreement shall be binding upon and inure to the benefit of the
Company, its successors and assigns, and the Employee.
-4-
<PAGE> 5
10. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York.
YOUNG & RUBICAM INC.
By: /s/ Alan J. Sheldon
-------------------
/s/ Edward H. Vick
-------------------
Employee
/s/ Illegible
- ----------------------
Secretary
-5-
<PAGE> 6
SCHEDULE A
<TABLE>
<CAPTION>
Annual Payment
Commencing at Age 60
or Upon Retirement
Termination Whichever is Later
- ----------- ------------------
<S> <C>
Contract Date - 0 -
12/31/97 $ 50,000
12/31/98 $ 75,000
12/31/99 $100,000
</TABLE>
<PAGE> 1
Exhibit 10.15
SELECT EXECUTIVE RETIREMENT INCOME PLAN
This agreement (this "Agreement") made December 19, 1997, by and
between Young & Rubicam Inc., a company organized under the laws of the State of
Delaware (herein the "Company") and Alan J. Sheldon (the "Employee").
In consideration of the agreement hereinafter contained, the
parties agree as follows:
1. The Employee agrees to serve the Company and each business
entity at least 10% of the value of which is owned, directly or indirectly, by
the Company ("Affiliates" and, together with the Company, "Y&R") in such
capacity as the Board of Directors of the Company may designate from time to
time during a period commencing on the date hereof and continuing until
terminated by either party in accordance with the terms of the Management Voting
Trust Agreement, dated as of December 12, 1996, executed by the Employee or, if
said agreement is no longer in effect, then on six months' notice. Nothing
contained herein shall be construed as conferring upon the Employee the right to
continue in the employ of Y&R as an executive or in any other capacity beyond
the notice period provided for above.
2. During the term of his employment, the Employee shall devote
his full business time, attention, skill and effort to the performance of his
duties for Y&R.
3. During the term of his employment, Y&R shall pay the Employee
such salary, other compensation and benefits payable as Y&R may from time to
time determine. In addition, the Employee shall be entitled to amounts payable
pursuant to the Select Executive Retirement Income Plan ("SERIP") as provided
below.
4. The benefits to be paid pursuant to SERIP (unless they are
forfeited by the occurrence of any of the events of forfeiture specified in
paragraph 5 below) are as follows:
A. The Company shall pay to the Employee a cash amount each
calendar year (an "Annual Payment") equal to the lesser of (x) 75% of
the average annualized cash compensation received by the Employee from
Y&R during the three calendar years preceding the calendar year in which
payment hereunder commences or (y) $250,000 each calendar year for the
rest of his life, as soon as administratively feasible after January 1st
of each such calendar year, commencing upon the later to occur of (i)
the January 1st of the calendar year following the calendar year in
which his active full-time employment with Y&R ceases or (ii) the
January 1st following the date he reaches 60 (except in the event of
death or disability as described in subparagraphs 4.B and 4.C below).
B. If the Employee should die before payment pursuant to SERIP
commences, ten Annual Payments shall be made to the Employee's
designated beneficiary, the first such payment commencing as soon as
administratively feasible after the Company has received notification of
death. If the Employee should die after payment pursuant to SERIP has
commenced but before he has received ten Annual Payments, the Company
shall continue to pay to the Employee's designated beneficiary Annual
Payments until the
<PAGE> 2
total number of Annual Payments to the Employee and his designated
beneficiary equals ten. The Employee shall designate his beneficiary
hereunder to the Company in writing; in the event the Employee does not
so designate a beneficiary hereunder, such designated beneficiary shall
be the Employee's estate.
C. If the Employee becomes disabled, Annual Payments pursuant to
SERIP shall begin as soon as administratively feasible after a
determination of disability has been made. The Employee shall be deemed
to become disabled for purposes hereof if the Company shall find, on the
basis of medical evidence satisfactory to the Company, that the Employee
is disabled, mentally or physically, so as to be prevented from
performing the duties he was performing for Y&R at the time of
disability and such disability appears to be permanent or of
long-standing duration.
5. Notwithstanding anything contained herein to the contrary, no
payment of any then unpaid Annual Payments pursuant to SERIP shall be made and
all rights under this Agreement of the Employee to receive payment thereof shall
be forfeited if there shall be a breach of the following conditions:
A. The Employee shall not, during the term of his employment or at
any time prior to the second anniversary of the date of the termination
of his employment with Y&R, directly or indirectly, (i) solicit any of
the clients who were or had been served by the Company or any of its
Affiliates at the time of such termination or during the six months
prior thereto, (ii) own, operate, join, control, engage in, or
participate in the ownership, management, operation or control of, or be
a director or an employee of, or a business consultant to, any business,
firm or corporation which is similar to or competes with the business of
the Company or any of its Affiliates as conducted on the date of such
termination of employment or during the six months prior thereto;
provided, however, that the provisions of this subparagraph shall not
apply to investments by the Employee in shares of stock traded on a
national market which shall constitute less than one percent of the
outstanding shares of such stock, or (iii) solicit for purposes of
employment any employee of the Company or its Affiliates, or induce any
such employee to terminate his or her employment.
B. During the period commencing on the date of the termination of
the employment of Employee with Y&R and ending on the second anniversary
of the date of such termination, the Employee shall perform such
consulting and advisory services for Y&R as shall from time to time be
reasonably assigned to him by the Board of Directors of the Company;
provided, however, that such services shall be rendered at such place or
places and at such time or times as the Employee shall determine, and in
no event shall the Company require the Employee to devote more than
three days per month in performing such services. The Company shall give
the Employee reasonable notice of the times when it will require the
Employee's consulting or advisory services and the Employee will have
reasonable time after receipt of such notice to render such services.
The Company shall reimburse the Employee for reasonable expenses
incurred by the Employee in connection with the rendition of such
services in accordance with the Company's policies.
2
<PAGE> 3
6. Nothing contained in this Agreement and no action taken
pursuant to the provisions of this Agreement shall create or be construed to
create a trust or any kind of fiduciary relationship between the Company and the
Employee, or any other person. The Company's obligations under SERIP and this
Agreement shall be unfunded and any benefits to the Employee hereunder shall be
paid out of the general assets of the Company. The Company shall have no
obligation to set aside or segregate assets with respect to such benefits. The
Employee's rights to benefits hereunder shall be those of an unsecured general
creditor of the Company.
7. A. The Employee, by acceptance of the benefits of SERIP,
covenants and agrees that anything herein to the contrary notwithstanding, any
benefits due to such Employee hereunder shall be subordinate and junior to the
extent and manner hereinafter set forth, to the principal of and premium (if
any) and interest on any and all Senior Indebtedness as defined in subparagraph
7.C below whether now outstanding or hereafter incurred or assumed:
1. In the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar
proceedings, whether voluntary or involuntary, relating to the
Company or to its creditors, as such, or to its property, then the
holders of Senior Indebtedness shall be entitled to receive
payment in full of all principal, premium (if any) and interest on
all Senior Indebtedness before any Employee is entitled to receive
any payment hereunder, and, accordingly, the holders of Senior
Indebtedness shall be entitled to receive for application in
payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may be
payable or deliverable in any such proceedings in respect hereof;
and
2. Without in any way limiting the effect of the foregoing
provisions, during the continuance of any default on any Senior
Indebtedness, no payment hereunder shall be made if (A) notice of
such default in writing or by telegram or telefax has been given
to the Company by any holder or holders of any Senior
Indebtedness, (B) judicial proceedings shall be pending in respect
of such default or (C) judgment is obtained against the Company by
the holders of the Senior Indebtedness or any one of them if as a
result of such default it shall remain unsatisfied; and
3. Should any payment hereunder be received by the Employee in
violation of the subordination provisions contained in this
Paragraph 7, such Employee agrees to hold such payment in trust
and as trustee for the account of the holders of Senior
Indebtedness.
B. The above provisions in regard to subordination are solely for
the purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Employee on the other hand, and
nothing herein shall impair, as between the Company and the Employee,
the obligation of the Company, which is unconditional and absolute, to
pay to the Employee all amounts due hereunder in accordance with its
terms.
C. For purposes of this Agreement, "Senior Indebtedness" shall
mean (i) any Indebtedness (as hereinbelow defined) of the Company to any
bank, financial institution
3
<PAGE> 4
or third party lender, any guarantee by the Company of any Indebtedness
of an Affiliate to a bank, financial institution or other third party
lender and any guarantee by the Company of Indebtedness or other
obligations of an Affiliate to any person, firm or entity in respect of
advertisements placed by or on behalf of such Affiliate, whether such
Indebtedness, obligation or guarantee is now outstanding or hereafter
incurred or assumed, and any refinancing, extensions, renewal or
increases thereof, and (ii) the Company's Indebtedness or other
obligations (including any refinancing, extension, renewal or increase
thereof) to third parties in connection with or arising out of the
issuance by employees of the Company or any Affiliate of promissory
notes ("Employee Notes") in connection with the financing of the
purchase by such employees of the common stock of the Company or the
financing of the purchase of Employee Notes, including without
limitation, obligations of the Company to banks, financial institutions
or other third party lenders to purchase either (1) common stock of the
Company held as collateral by such parties; (2) Employee Notes; or (3)
promissory notes evidencing loans to the Company or any Affiliate. For
the purposes of this definition, Indebtedness or other obligations of
the Company (1) to affiliated or special purpose entities formed for the
purpose of facilitating the obtaining or administration of financing (a)
for the Company or an Affiliate, (b) for the purchase by employees of
the Company or an Affiliate of the common stock of the Company, or (c)
for the purchase of Employee Notes or (2) to banks, financial
institutions or other third party lenders which provide financing for
such affiliated or special purpose entities, shall be deemed to be
included within the term Senior Indebtedness.
As used herein "Indebtedness" shall mean (i) any obligation or
indebtedness for borrowed money or evidenced by bonds, notes, debentures
or similar instruments or letters of credit (or reimbursement agreements
in respect thereof) or representing the balance deferred and unpaid of
the purchase price of any property originally financed on a long term
basis (including pursuant to capital leases), (ii) any obligation under
any contract providing for the making of loans or advances and (iii)
guarantees (and other obligations under any other contracts which are
substantially equivalent to guarantees), endorsements and other
contingent liabilities (whether direct or indirect) in connection with
the foregoing. In addition, the term "Indebtedness" shall be construed
to include any "indebtedness" as such term may be defined in any credit
facility or agreement to which the Company is a party from time to time.
8. The right of the Employee or any other person to Annual
Payments pursuant to SERIP or other benefits under the Agreement shall not be
assigned, transferred, pledged, or encumbered.
9. This Agreement shall be binding upon and inure to the benefit
of the Company, its successors and assigns, and the Employee.
10. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York.
4
<PAGE> 5
YOUNG & RUBICAM INC.
By: /s/ Peter A. Georgescu
----------------------
/s/ Alan J. Sheldon
----------------------
Employee
/s/ Stephanie W. Abramson
- --------------------------------
Attest Executive Vice President,
General Counsel
5
<PAGE> 1
Exhibit 10.16
SELECT EXECUTIVE RETIREMENT INCOME PLAN
This agreement made January 1, 1995, by and between Young & Rubicam Inc., a
company organized under the laws of the State of New York (herein the Company)
and Alan J. Sheldon (the Employee).
In consideration of the agreement hereinafter contained, the parties agree as
follows:
1. The Employee agrees to serve the Company in such capacity as the Board of
Directors of the Company may designate from time to time during a period
commencing on the date hereof and continuing until terminated by retirement
or by either party on a least 60 days' prior written notice. Nothing
contained herein shall be construed as conferring upon the Employee the
right to continue in the employ of the Company as an executive or in any
other capacity.
2. During the term of his employment, the Employee shall devote his full
business time, attention, skill and effort to the performance of his duties
for the Company.
3. During the term of his employment, the Company shall pay the Employee such
salary, other compensation and benefits payable as the Company may from
time to time determine. In addition, Employee shall be entitled to amounts
payable pursuant to the Select Executive Retirement Income Plan ("SERIP")
as provided below.
4. The benefits to be paid pursuant to SERIP (unless they are forfeited by the
occurrence of any of the events of forfeiture specified in paragraph 5
below) are as follows:
A. If the Employee's full-time employment hereunder is terminated on or
after the date hereof, the Company shall pay to him $50,000 per year
each year for the rest of his life, as soon as administratively
feasible after January 1st of each year, commencing either the year
following the year his full-time employment ceases or the January 1st
following the date he reaches 60, whichever is the last to occur
(except in the event of death or disability as described in
subparagraphs 4.B. and 4.C. below); however, in no event will payment
commence prior to the January 1st following the date on which the
Employee ceases to be an active full-time employee of the Company.
B. If the Employee should die before payments pursuant to SERIP commence,
ten annual payments shall be made to the Employee's designated
beneficiary commencing as soon as administratively feasible after the
Company has received notification of death. If the Employee should die
after payments pursuant to SERIP have commenced but
<PAGE> 2
before he has received ten payments, the Company shall continue to pay
to the Employee's designated beneficiary annual payments until the
total number of payments to the Employee and his designated
beneficiary equals ten.
C. The Employee shall be deemed to become disabled for purposes of
subparagraph 4.B. above if the Company shall find, on the basis of
medical evidence satisfactory to the Company, that the Employee is
disabled, mentally or physically, so as to be prevented from
performing the duties he was performing for the Company at the time of
disability and such disability appears to be permanent or of
longstanding duration. If the Employee becomes disabled, annual
payments pursuant to SERIP shall begin as soon as administratively
feasible after a determination of disability has been made.
D. In the event that the Employee leaves the employ of the Company prior
to attaining age 60, whether voluntarily or involuntarily, the amount
payable pursuant to SERIP will be paid to the Employee in annual
installments commencing on or about the January 1st following the date
on which the Employee attains age 60.
5. Notwithstanding anything contained herein to the contrary, no payment of
any then unpaid SERIP installments shall be made and all rights under this
Agreement of the Employee, his designated beneficiary, executors,
administrators, heirs, or any other person, to receive payments thereof
shall be forfeited if there shall be a breach of the following conditions:
A. The Employee shall not, during the term of his employment or at any
time prior the second anniversary of the date of the termination of
his employment with the Company, directly or indirectly, (i) solicit
any of the clients who were or had been served by the Company or any
of its subsidiaries or affiliates at the time of such termination or
during the six months prior thereto, (ii) own, operate, join, control,
engage in, or participate in the ownership, management, operation or
control of, or be a director or an employee of, or a business
consultant to, any business, firm or corporation which is similar to
or competes with the business of the Company or any of its
subsidiaries or affiliates as conducted on the date of such
termination or during the six months prior thereto; provided, however,
that the provisions of this subparagraph shall not apply to
investments by the Employee in shares of stock traded on a national
market which shall have an aggregate marked value, at the time of
acquisition, of less than $50,000 and which shall constitute less than
2
<PAGE> 3
one percent of the outstanding shares of such stock, or (iii) solicit
for purposes of employment any employee of the Company, its
subsidiaries or affiliates, or induce any such employee to terminate
his employment.
B. During the period commencing on the date of the termination of the
employment of the Employee with the Company and ending on the second
anniversary of the date of such termination, the Employee shall
perform such consulting and advisory services for the Company as shall
from time to time be reasonably assigned to him by the Board of
Directors of the Company; provided, however, that such services shall
be rendered at such place or places and at such time or times as the
Employee shall determine, and in no event shall the Company require
the Employee to devoted more than three days per month in performing
such services. The Company shall give the Employee reasonable notice
of the times when it will require the Employee's consulting or
advisory services and the Employee will have reasonable time after
receipt of such notice to render such services. The Company shall
reimburse the Employee for reasonable expenses incurred by the
Employee in connection with the rendition of such services in
accordance with the Company's policies.
6. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a trust
or any kind of fiduciary relationship between the Company and the Employee,
his designated beneficiary or any other person.
7. A. The Employee, by acceptance of the benefits of SERIP, covenants and
agrees that anything herein to the contrary notwithstanding, any
payments due to such Employee hereunder shall be subordinate and
junior to the extent and manner hereinafter set forth, to the
principal of and premium (if any) and interest on any and all Senior
Indebtedness as defined in subparagraph 7.C. below whether now
outstanding or hereafter incurred or assumed:
1. In the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar
proceedings, whether voluntary or involuntary, relating to the
Company or to its creditors, as such, or to its property, then
the holders of Senior Indebtedness shall be entitled to receive
payment in full of all principal, premium (if any) and interest
on all Senior Indebtedness before any Employee is entitled to
receive any payment hereunder, and, accordingly, the holders of
Senior Indebtedness shall be entitled to receive for application
in
3
<PAGE> 4
payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may
be payable or deliverable in any such proceedings in respect
hereof; and
2. Without in any way limiting the effect of the foregoing
provisions, during the continuance of any default on any Senior
Indebtedness, no payment hereunder shall be made if (A) notice of
such default in writing or by telegram has been given to the
Company by any holder or holders of any Senior Indebtedness, (B)
judicial proceedings shall be pending in respect of such default
or (C) judgment is obtained against the Company by the holders of
Senior Indebtedness or any one of them if as a result of such
default it shall remain unsatisfied; and
3. Should any benefit hereunder be received by the Employee in
violation of the subordination provisions contained in this
paragraph 7, such Employee agrees to hold such benefits in trust
and as trustee for the account of the holders of Senior
Indebtedness.
B. The above provisions in regard to subordination are solely for the
purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Employee on the other hand, and
nothing herein shall impair, as between the Company and the Employee,
the obligation of the Company, which is unconditional and absolute, to
pay to the Employee all amounts due hereunder in accordance with its
terms.
C. For purposes of this Agreement, "SENIOR INDEBTEDNESS" shall mean (i)
any Indebtedness (as hereinbelow defined) of the Company to any bank,
financial institution or third party lender, any guarantee by the
Company of any Indebtedness of an Affiliate (as hereinbelow defined)
to a bank, financial institution or other third party lender and any
guarantee by the Company of Indebtedness or other obligations of an
Affiliate to any person, firm or entity in respect of advertisements
placed by or on behalf of such Affiliate, whether such Indebtedness,
obligation or guarantee is now outstanding or hereafter incurred or
assumed, and any refinancing, extensions, renewal or increases
thereof, and (ii) the Company's Indebtedness or other obligations
(including any refinancing, extension, renewal or increase thereof) to
third parties in connection with or arising out of the issuance by
employees of the Company or any Affiliate of promissory notes
("EMPLOYEE NOTES") in connection with financing of the purchase by
such employees of
4
<PAGE> 5
either limited partnership units of Young & Rubicam L.P. or the
common stock of the Company or the financing of the purchase of
Employees Notes, including, without limitation, obligations of
the Company to banks, financial institutions or other third party
lenders to purchase either (1) limited partnership units of Young
& Rubicam L.P. or common stock of the Company held as collateral
by such parties; (2) Employee Notes; or (3) promissory notes
evidencing loans to the Company or any Affiliate. For the
purposes of this definition, Indebtedness or other obligations of
the Company (1) to affiliated or special purpose entities formed
for the purpose of facilitating the obtaining or administration
of financing (a) for the Company or an Affiliate, (b) for the
purchase by employees of the Company or an Affiliate of either
limited partnership units of Young & Rubicam L.P. or the common
stock of the Company, or (c) for the purchase of Employee Notes
or (2) to banks, financial institutions or other third party
lenders which provide financing for such affiliated or special
purpose entities, shall be deemed to be included within the term
Senior Indebtedness.
As used herein "AFFILIATE" shall mean Young & Rubicam L.P. and
any business entity at least 10% of the value of which is owned,
directly or indirectly, by the Company.
As used herein "INDEBTEDNESS" shall mean (i) any obligation or
indebtedness for borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property
originally financed on a long term basis (including pursuant to
capital leases), (ii) any of loans or advances and (iii)
guarantees (and other obligations under any other contracts which
are substantially equivalent to guarantees), endorsements and
other contingent liabilities (whether direct or indirect) in
connection with the foregoing."
8. The beneficiary referred to in this Agreement may be designated or
changed by the Employee without the consent of any prior beneficiary
on a form provided by the Company and delivered to the Company at any
time prior to death. If no such beneficiary shall survive the
Employee, the death benefit payable under paragraph 4 above shall be
payable to the Employee's estate.
9. The right to the Employee or any other person to payment pursuant to
SERIP or other benefits under this Agreement
5
<PAGE> 6
shall not be assigned, transferred, pledged or encumbered except by
will or by the laws of descent and distribution or by the Employee's
designation of a beneficiary in the manner provided for in this
Agreement.
10. This Agreement shall be binding upon and inure to the benefit of the
Company, its successor and assigns, and the Employee and his heirs,
executors, administrators, and legal representatives and designated
beneficiaries under this Agreement.
11. This Agreement shall be construed in accordance with and governed by
the laws of the State of New York.
YOUNG & RUBICAM INC.
By: /s/
-------------------------------
/s/ Alan J. Sheldon
-------------------------------
Employee
/s/
- ---------------------------
Acting Secretary
<PAGE> 1
Exhibit 10.17
SELECT EXECUTIVE RETIREMENT INCOME PLAN
This agreement made January 1, 1988, by and between Young & Rubicam Inc., a
company organized under the laws of the State of New York (herein the Company)
and Alan Sheldon (the Employee).
In consideration of the agreement hereinafter contained, the parties agree as
follows:
1. The Employee agrees to serve the Company in such capacity as the Board
of Directors of the Company may designate from time to time during a
period commencing on the date hereof and continuing until terminated by
retirement or by either party on at least 60 days' prior written notice.
Nothing contained herein shall be construed as conferring upon the
Employee the right to continue in the employ of the Company as an
executive or in any other capacity.
2. During the term of his employment, the Employee shall devote his full
business time, attention, skill and effort to the performance of his
duties for the Company.
3. During the term of his employment, the Company shall pay the Employee
such salary, other compensation and benefits payable as the Company may
from time to time determine. In addition Employee shall be entitled to
amounts payable pursuant to the Select Executive Retirement Income Plan
("SERIP") as provided below.
4. The benefits to be paid pursuant to SERIP (unless they are forfeited by
the occurrence of any of the events of forfeiture specified in paragraph
5 below) are as follows:
A. If the Employee's full-time employment hereunder is terminated on or
after eight years from the date hereof, the Company shall pay to him
$100,000 per year each year for the rest of his life, as soon as
administratively feasible after January 1st of each year, commencing
either the year following the year his full-time employment ceases or
the January 1st following the date he reaches 60, whichever is the
last to occur (except in the event of death or disability as
described in subparagraphs 4.C. and 4.D. below); however, in no event
will payment commence prior to the January 1st following the date on
which the Employee ceases to be an active full-time employee of the
Company.
<PAGE> 2
-2-
B. The amount payable pursuant to SERIP will vest during the Employee's
employment by the Company according to the attached Schedule A. If the
Employee's employment with the Company ceases, the vesting period
shall terminate as of the date of termination of employment. If the
Employee's employment with the Company ceases for any reason other
than death or disability, the portion which has not become vested
shall be forfeited. If the Employee's employment ceases by reason of
death or disability as set forth below, he shall be deemed to be fully
vested as of the date of death or disability.
C. If the Employee should die before payments pursuant to SERIP commence,
ten annual payments shall be made to the Employee's designated
beneficiary commencing as soon as administratively feasible after the
Company has received notification of death. If the Employee should die
after payments pursuant to SERIP have commenced but before he has
received ten payments, the Company shall continue to pay to the
Employee's designated beneficiary annual payments until the total
number of payments to the Employee and his designated beneficiary
equals ten.
D. The Employee shall be deemed to become disabled for purpose of
subparagraph 4.B. above if the Company shall find, on the basis of
medical evidence satisfactory to the Company, that the Employee is
disabled, mentally or physically, so as to be prevented from
performing the duties he was performing for the Company at the time of
disability and such disability appears to be permanent or of
longstanding duration. If the Employee becomes disabled, annual
payments pursuant to SERIP shall begin as soon as administratively
feasible after a determination of disability has been made.
E. In the event that the Employee leaves the employ of the Company prior
to attaining age 60, whether voluntarily or involuntarily, the amount
pursuant to SERIP which has become vested in accordance with attached
Schedule A will be payable to the Employee in annual installments
commencing as soon as administratively feasible after the January 1st
following the date on which the Employee attains age 60.
5. Notwithstanding anything contained herein to the contrary, no payment of
any then unpaid SERIP installments shall be made and all rights under this
Agreement of the Employee, his designated beneficiary,
<PAGE> 3
executors, administrators, heirs, or any other person, to receive payments
thereof shall be forfeited if there shall be a breach of the following
conditions:
A. The Employee shall not, during the term of his employment or at any
time prior to the second anniversary of the date of the termination
of his employment with the Company, directly or indirectly, (i)
solicit any of the clients who were or had been served by the Company
or any of its subsidiaries or affiliates at the time of such
termination or during the six months prior thereto, (ii) own,
operate, join, control, engage in, or participate in the ownership,
management, operation or control of, or be a director or an employee
of, or a business consultant to, any business, firm or corporation
which is similar to or competes with the business of the Company or
any of its subsidiaries or affiliates as conducted on the date of
such termination or during the six months prior thereto: provided,
however, that the provisions of this subparagraph shall not apply
to investments by the Employee in shares of stock traded on a
national market which shall have an aggregate market value, at the
time of acquisition, of less than $50,000 and which shall constitute
less than one percent of the outstanding shares of such stock, or
(iii) solicit for purposes of employment any employee of the Company,
its subsidiaries or affiliates, or induce any such employee to
terminate his employment.
B. During the period commencing on the date of the termination of the
employment of the Employee with the Company and ending on the second
anniversary of the date of such termination, the Employee shall
perform such consulting and advisory services for the Company as
shall from time to time be reasonably assigned to him by the Board
of Directors of the Company; provided, however, that such services
shall be rendered at such place or places and at such time or times
as the Employee shall determine, and in no event shall the Company
require the Employee to devote more than three days per month in
performing such services. The Company shall give the Employee
reasonable notice of the times when it will require the Employee's
consulting or advisory services and the Employee will have reasonable
time after receipt of such notice to render such services. The
Company shall reimburse the Employee for reasonable expenses incurred
by the Employee in connection with the rendition of such services in
accordance with the Company's policies.
<PAGE> 4
-4-
6. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a trust
or any kind of fiduciary relationship between the Company and the Employee,
his designated beneficiary or any other person.
7. A. The Employee, by acceptance of the benefits of SERIP, covenants and agrees
that anything in SERIP to the contrary notwithstanding, any payments due
to such Employee hereunder shall be subordinate and junior to the extent
and manner hereinafter set forth, to the principal of and premium (if any)
and interest on any and all Senior Indebtedness as defined in subparagraph
7.C. below whether now outstanding or hereafter incurred or assumed:
1. In the event of any insolvency, bankruptcy, receivership, liquidation,
dissolution, reorganization or other similar proceedings, whether
voluntary or involuntary, relating to the Company or to its creditors,
as such, or to its property, then the holders of Senior Indebtedness
shall be entitled to receive payment in full of all principal, premium
(if any) and interest on all Senior Indebtedness before any Employee is
entitled to receive any payment under SERIP, and, accordingly, the
holders of Senior Indebtedness shall be entitled to receive for
application in payment thereof any payment or distribution of any kind
of character, whether in cash or property or securities, which may be
payable or deliverable in any such proceedings in respect of SERIP: and
2. Without in any way limiting the effect of the foregoing provisions,
during the continuance of any default on any Senior Indebtedness, no
payment under SERIP shall be made if (A) notice of such default in
writing or by telegram has been given to the Company by any holder or
holders of any Senior Indebtedness, (B) judicial proceedings shall be
pending in respect of such default or (C) judgment is obtained against
the Company by the holders of the Senior Indebtedness or any one of
them if as a result of such default it shall remain unsatisfied: and
<PAGE> 5
-5-
3. Should any benefit under SERIP be received by the Employee in
violation of the subordination provisions contained in this Paragraph
7, such Employee agrees to hold such benefits in trust and as trustee
for the account of the holders of Senior Indebtedness.
B. The above provisions in regard to subordination are solely for the
purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand and the Employee on the other hand, and
nothing herein shall impair, as between the Company and the Employee,
the obligation of the Company, which is unconditional and absolute, to
pay to the Employee all amounts due under SERIP in accordance with its
terms.
C. For purposes of this Agreement, Senior Indebtedness shall mean any
liability or obligation to any bank, insurance company or other
institutional lender for money borrowed by the Company or by any of its
Subsidiaries and guaranteed by the Company.
8. The beneficiary referred to in this Agreement may be designated or changed
by the Employee without the consent of any prior beneficiary on a form
provided by the Company and delivered to the Company at any time prior to
death. If no such beneficiary shall survive the Employee, the death benefit
payable under paragraph 4 above shall be payable to the Employee's estate.
9. The right of the Employee or any other person to payment pursuant to SERIP
or other benefits under the Agreement shall not be assigned, transferred,
pledged, or encumbered except by will or by the laws of descent and
distribution or by the Employee's designation of a beneficiary in the
manner provided for in this Agreement.
10. This Agreement shall be binding upon and inure to the benefit of the
Company, its successors and assigns, and the Employee and his heirs,
executors, administrators, and legal representatives and designated
beneficiaries under this Agreement.
<PAGE> 6
-6-
11. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York.
YOUNG & RUBICAM INC.
By: /s/ Peter A. Georgescu
--------------------------
/s/ Alan J. Sheldon
--------------------------
Employee
/s/ illegible
- ---------------------
Secretary
<PAGE> 7
-7-
SCHEDULE A
<TABLE>
<CAPTION>
Annual Payment
Commencing at Age 60
or Upon Retirement
Termination Whichever is Later
- ----------- ------------------
<S> <C>
Contract Date -0-
One Year Thereafter -0-
Two Years Thereafter -0-
Three Years Thereafter $25,000
Four Years Thereafter $40,000
Five Years Thereafter $55,000
Six Years Thereafter $70,000
Seven Years Thereafter $85,000
Eight Years Thereafter $100,000
</TABLE>
<PAGE> 1
Exhibit 10.18
REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 12, 1996
BY AND AMONG
YOUNG & RUBICAM
HOLDINGS INC.
YOUNG & RUBICAM INC.,
A NEW YORK CORPORATION
YOUNG & RUBICAM INC.,
A DELAWARE CORPORATION
HELLMAN & FRIEDMAN
CAPITAL PARTNERS III, L.P.,
H&F ORCHARD PARTNERS III, L.P.
H&F INTERNATIONAL PARTNERS III, L.P.
CERTAIN OTHER PARTIES LISTED HEREIN
AND
THE MANAGEMENT VOTING TRUST
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is
entered into as of December 12, 1996 by and among Young & Rubicam Holdings Inc.,
a New York corporation ("Holdings"), Young & Rubicam Inc., a New York
corporation ("Y&R NY"), Young & Rubicam Inc., a Delaware corporation ("Y&R
DEL"), Hellman & Friedman Capital Partners III, L.P., a California limited
partnership ("HFCP"), H&F Orchard Partners III, L.P., a California limited
partnership, H&F International Partners III, L.P., a California limited
partnership, American Media Management, Inc. and H. Irving Grousbeck (such
California partnerships and other entity and individual, collectively with HFCP,
the "HFCP Investors"), and the Management Voting Trust (the "Management Voting
Trust") established as of the date hereof between certain individuals and Peter
Georgescu, Alan Sheldon, Stephanie Abramson, Tom Bell, Mike Dolan, Mitch Kurz,
John McGarry and Ed Vick as voting trustees. Capitalized terms used in this
Agreement without separate definition shall have the respective meanings
accorded to them in the Contribution Agreement.
WHEREAS, Holdings, Y&R NY, Y&R DEL, Young & Rubicam L.P., a
Delaware limited partnership (the "Partnership"), and the HFCP Investors have
entered into a Contribution Agreement, dated October 30, 1996 (the "Contribution
Agreement"), setting forth the terms and conditions of an investment by the HFCP
Investors in the common stock, par value $0.01, of Holdings (the "Holdings
Common Stock") in connection with the recapitalization of Y&R NY and the
Partnership (such investment and recapitalization and the other transactions
contemplated by the Contribution Agreement being referred to herein as the
"Recapitalization Transactions");
WHEREAS, as part of the Recapitalization Transactions, (a)
certain individuals have entered into Stock Subscription Agreements (as defined
in the Contribution Agreement) pursuant to which such individuals (i) subscribed
for shares of Holdings Common Stock, and (ii) agreed to deposit such shares of
Holdings Common Stock in the Management Voting Trust and (b) all stockholders of
Holdings have agreed concurrently with the closing of the Recapitalization
Transactions to enter into a Stockholders' Agreement in the form of Exhibit 9 to
the Contribution Agreement (the "Stockholders' Agreement");
WHEREAS, immediately following the closing of the acquisition
of shares of Holdings Common Stock under the Contribution Agreement and the
Stock Subscription Agreements, Holdings will be merged with and into Y&R NY (the
"Holdings Merger"), with Y&R NY as the surviving corporation in such merger, and
all outstanding shares of Holdings Common Stock will become shares of common
stock, par value $.25 per share, of Y&R NY ("Y&R NY Common Stock");
WHEREAS, following the Holdings Merger, upon the terms and
subject to the conditions set forth in the Contribution Agreement, Y&R NY will
be merged with and into Y&R DEL (the "Y&R DEL Merger"), with Y&R DEL as the
surviving corporation in such merger, and all outstanding shares of Y&R NY
Common Stock will become shares of common stock, par value $0.01 per share of
Y&R DEL ("Y&R DEL Common Stock") (Holdings, and its successors by merger, Y&R NY
and Y&R DEL, upon the occurrence of such mergers, are referred to collectively
herein as the "Company", and the shares of Holdings Common Stock which become
shares of Y&R NY Common Stock and then become
<PAGE> 3
shares of Y&R DEL Common Stock, upon the occurrence of such mergers, are
hereinafter referred to collectively as "Common Stock");
WHEREAS, the Company, the HFCP Investors and the Management
Voting Trust wish to make certain arrangements with respect to the rights of the
parties hereto to dispose of the Common Stock in public offerings of the Common
Stock; and
WHEREAS, the execution and delivery of this Agreement is a
material inducement and consideration to the HFCP Investors to enter into the
Contribution Agreement and the Management Investors to enter into the
Subscription Agreements, and each of them to consummate the Recapitalization
Transactions contemplated by such agreements and the other agreements related
thereto.
NOW, THEREFORE, in consideration of the foregoing premises and
the representations, warranties, and covenants set forth in this Agreement, the
Contribution Agreement, the Subscription Agreements and the Stockholders'
Agreement, the HFCP Investors, the Management Voting Trust and the Company
hereby agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings set forth in the Contribution Agreement.
The following capitalized terms shall have the following definitions:
"Adverse Disclosure" means public disclosure of
material non-public information relating to a Significant Transaction,
which disclosure (i) would, in the good faith judgment of the Board of
Directors of the Company (the "Board"), after consultation with outside
counsel, be required to be made in any registration statement filed
with the Commission by the Company so that such registration statement
would not be materially misleading; (ii) would not, in the good faith
judgment of the Board, after consultation with outside counsel, be
required to be made but for the filing of such a registration
statement; and (iii) could, in the good faith judgment of the Board,
have a material adverse effect on the Company's ability to complete
such Significant Transaction, or on the terms upon which such
Significant Transaction can be completed.
"Agreement" has the meaning set forth in the
Preamble.
"Available Portion" has the meaning set forth in
Section 3.2(b).
"Commission" means the Securities and Exchange
Commission.
"Company Indemnitee" has the meaning set forth in
Section 5.2.
"Company Registration" has the meaning set forth in
Section 3.1.
"Contribution Agreement" has the meaning set forth in
the Recitals.
-2-
<PAGE> 4
"Demand Registration" has the meaning set forth in
Section 2.1.
"HFCP" has the meaning set forth in the Preamble
hereof.
"HFCP Investors" has the meaning set forth in the
Preamble.
"Holdings" has the meaning set forth in the Preamble.
"Holdings Common Stock" has the meaning set forth in
the Recitals.
"Holdings Merger" has the meaning set forth in the
Recitals.
"Initial Public Offering" has the meaning set forth
in the Stockholders' Agreement.
"Management Voting Trust" has the meaning set forth
in the Preamble.
"Partnership" has the meaning set forth in the
Recitals.
"Permitted Transfer" has the meaning set forth in the
Stockholders' Agreement.
"Piggyback Notice" has the meaning set forth in
Section 3.1.
"Recapitalization Transactions" has the meaning set
forth in the Recitals.
"Register," "Registered" and "Registration" refer to
a registration effected by the preparing and filing of a registration
statement on an appropriate form with the Commission in compliance with
the Securities Act.
"Registrable Shares" means shares of Common Stock
acquired by the HFCP Investors and/or their Affiliates, the Management
Voting Trust, or, in either case, their transferees in a Permitted
Transfer from time to time pursuant to the terms, and not in violation,
of the Contribution Agreement, the HFCP Option Agreements, the
Subscription Agreements, the Stock Option Plan, the Restricted Stock
Plan, and the Stockholders' Agreement. All Registrable Shares shall
cease to be Registrable Shares (a) when sold to a third party in a
registered public offering or in accordance with Rule 144 promulgated
by the Commission under the Securities Act, or (b) when held by holders
who are not Affiliates of the Company who are permitted to sell shares
in accordance with Rule 144(k); provided that, in connection with the
first Demand Registration requested by the Management Voting Trust
subsequent to an Initial Public Offering, Registrable Shares shall
include all shares of Common Stock to be sold by the Management Voting
Trust to permit Management Investors to pay taxes as a result of the
exercise by such Management Investors of Roll-Over Options or Executive
Options or the vesting of Restricted Stock awarded to such Management
Investors, whether or not such shares are eligible to be sold pursuant
to Rule 144(k).
-3-
<PAGE> 5
"Registration Expenses" means all expenses, except
Selling Expenses, incurred by the Company in complying with this
Agreement, including, without limitation, all registration,
qualification, and filing fees, printing expenses, escrow fees, fees
and disbursements of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident to or required by
any such registration, expenses of all marketing and promotional
efforts reasonably requested by the managing underwriter and the
reasonable fees and reasonable disbursements of one counsel for the
selling stockholders.
"Registration Notice" has the meaning set forth in
Section 3.1.
"Securities Act" means the Securities Act of 1933, as
amended, and the regulations promulgated thereunder.
"Selling Expenses" means all underwriting discounts,
selling commissions, and stock transfer taxes applicable to the sale of
the Registrable Shares.
"Significant Transaction" means a pending or imminent
material acquisition, disposition, or other business combination or
divestiture, or financing, transaction.
"Stockholders' Agreement" has the meaning set forth
in the Recitals.
"Y&R DEL" has the meaning set forth in the Preamble.
"Y&R DEL Merger" has the meaning set forth in the
Recitals.
"Y&R NY" has the meaning set forth in the Preamble.
"Y&R NY Common Stock" has the meaning set forth in
the Recitals.
ARTICLE 2
DEMAND REGISTRATIONS
Section 2.1 Request for Registration. At any time and from
time to time after the earlier to occur of the sixth anniversary of the Closing
and the Initial Public Offering, (a) the HFCP Investors may request that the
Company effect the registration of Registrable Shares, and (b) the Management
Voting Trust may request that the Company effect the registration of such number
of Registrable Shares as is necessary to permit Management Investors to pay
taxes as a result of the exercise by such Management Investors of Rollover
Options or Executive Options or the vesting of Restricted Stock awarded to such
Management Investors; provided, however, that in the case of the Management
Voting Trust no such request shall be made without the consent of the Company
(any such request permitted under clauses (a) or (b), a "Demand Registration").
Upon receipt of such demand, the Company shall use its best efforts to effect
such Demand Registration as soon as practicable and, in any event, to file
within 60 days of receipt of such request, a registration statement under the
1933 Act covering the Registrable Securities subject to such request, subject to
-4-
<PAGE> 6
the limitations set forth in Section 2.2. The Company may include in any Demand
Registration any other shares of Common Stock (including issued and outstanding
shares of Common Stock as to which the holders thereof have contracted with the
Company for "piggyback" registration rights) so long as the inclusion in such
registration of such shares will not, in the reasonable judgment of the managing
underwriter(s), if any, interfere with the timing, pricing or marketing in
accordance with the intended method of sale or other disposition of all the
Registrable Shares sought to be registered. If it is determined as provided
above that there will be such interference, the shares of Common Stock sought to
be included pursuant to such piggyback registration rights shall be excluded to
the extent deemed appropriate by the managing underwriter(s).
Section 2.2 Limitations on Demand Registrations. Subject to
Section 2.4, the Company's obligation to effect a Demand Registration requested
pursuant to Section 2.1 shall be subject to the following limitations:
(a) The Company shall not be required to effect any
Demand Registration unless the expected aggregate market value of the
shares of Common Stock to be offered is at least $100 million.
(b) The Company shall not be required to effect any
Demand Registration (i) by the HFCP Investors within 6 months of the
effectiveness of a Registration of Registrable Shares registered
pursuant to the previous Demand Registration effected by the Company
pursuant to a demand by the HFCP Investors, and (ii) by the Management
Voting Trust within 6 months of the effectiveness of a Registration of
Registrable Shares registered pursuant to the previous Demand
Registration effected by the Company pursuant to a demand by the
Management Voting Trust.
(c) The Company may defer its obligations to effect a
Demand Registration if, in the good faith judgment of the Board, filing
a registration statement with the Commission at the time a Demand
Registration is requested would require Adverse Disclosure, provided
that such deferral may not extend beyond the earlier to occur of (i) 60
days after the date upon which such filing would otherwise be required
pursuant to Section 2.1, or (ii) the date that filing of a registration
statement with the Commission would not require disclosure that would
constitute Adverse Disclosure therein.
(d) The Company shall not be required to effect more
than four (4) Demand Registrations by the HFCP Investors on the one
hand and two (2) Demand Registrations on behalf of the Management
Investors.
A Demand Registration shall not be deemed to have been
effected, nor shall it be sufficient to reduce the number of Demand
Registrations available to the HFCP Investors or the Management Investors, as
the case may be, unless the registration statement becomes effective pursuant to
the 1933 Act; provided that no Demand Registration shall be deemed to have been
effected, nor shall it reduce the number of Demand Registrations available under
this Section 2.2, if (i) such registration is interfered with by any stop order,
injunction or other order or requirement of the Securities and Exchange
Commission (the "Commission") or other governmental authority for any reason
other than an act or omission of the holder making the request for such
registration; (ii) the conditions to closing
-5-
<PAGE> 7
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied by the Company other than by
reason of an act or omission by the holder making the request for such
registration; or (iii) the holder making the request for such registration shall
have withdrawn such request for registration on the basis that there has been a
material adverse change in the business, condition or prospects of the Company
or in general market conditions from that known to the holder making the request
for such registration at the time of the request which makes the proposed
offering unwarranted in the good faith judgment of such holder.
Section 2.3 Holdback. Subject to Section 2.4, if requested
(pursuant to a timely written notice) by the managing underwriter(s) of an
underwritten offering of shares of Common Stock or the initial purchaser(s) in
any offering of shares of Common Stock being resold pursuant to Rule 144A under
the Securities Act by the Company, the HFCP Investors and the Management Voting
Trust shall agree on the same terms applicable to officers and directors of the
Company not to effect any public sale or distribution of any of the Registrable
Shares (other than (a) shares to be sold in such offering or (b) shares
transferred to the Company or the HFCP Investors pursuant to the Stockholders'
Agreement as to which notice of a put or call has been given) 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.
Section 2.4 Minimum Sale Availability. The limitations on the
Company's obligations to effect Demand Registrations set forth in Section 2.2(c)
and the obligation of the HFCP Investors and the Management Voting Trust under
Section 2.3 shall not be applicable to the HFCP Investors or the Management
Voting Trust to the extent that such limitations would result in the HFCP
Investors or the Management Voting Trust, as the case may be, not having a
period of at least 180 consecutive days within any 12-month period during which
Registrable Shares are not prevented from being sold by the HFCP Investors or
the Management Voting Trust, as the case may be, under a Registration effected
pursuant to the provisions hereof, by reason of Sections 2.2(c) or 2.3.
Section 2.5 Selection of Underwriter. Any Demand Registration
and related offering shall be managed by the HFCP Investors or the Management
Voting Trust as follows: subject to the approval of the Company (which shall not
be unreasonably withheld), the party exercising the Demand Registration right
(the HFCP Investors or the Management Voting Trust, as the case may be) shall
have the right to select the managing underwriter(s) for such offering and
shall, in consultation with the managing underwriter(s) have the right to
determine the aggregate number of Registrable Shares to be included in such
registration and offering (subject to applicable limitations set forth herein),
the offering price per Registrable Share, the underwriting discounts and
commissions per Registrable Share, the terms of the underwriting agreement, the
timing of the registration and related offering (subject to applicable
limitations set forth herein), counsel to the party exercising such Demand
Registration right, and all other administrative matters related to the
registration and related offering. The Company shall enter into an underwriting
agreement in customary form with the underwriter(s) selected by the HFCP
Investors or the Management Voting Trust, as the case may be, and shall enter
into such other customary agreements and take all such other customary actions
as may reasonably be requested to facilitate the disposition of the Registrable
Shares.
-6-
<PAGE> 8
ARTICLE 3
PIGGYBACK REGISTRATIONS
3.1 Request for Registration. At any time that the Company
proposes to register any Common Stock for sale solely for cash, for its own
account, for the account of a stockholder or stockholders, or both (a "Company
Registration"), the Company shall give the HFCP Investors and the Management
Voting Trust written notice of its intention to do so and of the intended method
of sale (the "Registration Notice") not fewer than 25 days prior to the
anticipated filing date of the registration statement effecting such Company
Registration. The HFCP Investors and the Management Voting Trust may request
inclusion of any Registrable Shares in such Company Registration by delivering
to the Company, within 15 days after receipt of the Registration Notice, a
written notice (the "Piggyback Notice") stating the number of Registrable Shares
proposed to be included (provided that, in the case of the Management Voting
Trust, the number of Registrable Shares shall be limited to the number necessary
to permit Management Investors to pay taxes as a result of the exercise by such
Management Investors of Rollover Options or Executive Options or the vesting of
Restricted Stock awarded to such Management Investors) and that such shares are
to be included in any underwriting only on the same terms and conditions as the
shares of Common Stock otherwise being sold through underwriters under such
Registration. The Company shall use its best efforts to cause all Registrable
Shares specified in the Piggyback Notice to be included in the Company
Registration and any related offering, all to the extent requisite to permit the
sale by the HFCP Investors and the Management Voting Trust, as the case may be,
of such Registrable Shares in accordance with the method of sale applicable to
the other shares of Common Stock included in the Company Registration.
3.2 Limitations on Piggyback Registrations. The Company's
obligation to include Registrable Shares in the Company Registration pursuant to
Section 3.1 shall be subject to the following limitations:
(a) The Company shall not be obligated to include any
Registrable Shares in a registration statement (i) filed on Form S-4 or
Form S-8 or such other similar successor forms then in effect under the
Securities Act, (ii) pursuant to which the Company is offering to
exchange its own securities, or (iii) relating solely to dividend
reinvestment plans.
(b) If the managing underwriter(s), if any, of an
offering related to the Company Registration determines in its
reasonable judgment that marketing factors require a limitation of the
number of shares of Common Stock that can be included in such offering,
the managing underwriter(s) may exclude the appropriate number of
shares of Common Stock held by the stockholders of the Company,
including the HFCP Investors and the Management Voting Trust, from such
registration. If the managing underwriter(s) determines to exclude from
such offering any Registrable Shares that the HFCP Investors or the
Management Voting Trust desire to include, or any shares of Common
Stock that other Company stockholders with applicable registration
rights desire to include, the HFCP Investors, the Management Voting
Trust and such other Company stockholders, if any (except for such
person or persons, if any, upon whose demand such Registration is being
made) shall share pro rata in the portion of such offering available to
them (the "Available Portion"),
-7-
<PAGE> 9
with the HFCP Investors, the Management Voting Trust and each such
other Company stockholder (if any) entitled to include in such Company
Registration and related offering a number of shares of Common Stock
equal to the product of (i) the Available Portion and (ii) a fraction,
the numerator of which is the total number of Registrable Shares (in
the case of the HFCP Investors and the Management Voting Trust) or
shares of Common Stock entitled to inclusion in such Company
Registration (if any) (in the case of other Company stockholders
desiring inclusion), and the denominator of which is the total of the
number of Registrable Shares plus the number of shares of Common Stock
entitled to inclusion in such Company Registration owned by the Company
stockholders, other than the HFCP Investors and Management Voting
Trust, desiring inclusion.
3.3 Selection of Underwriter. Any Company Registration and
related offering shall be managed by the Company; the Company shall have the
power to select the managing underwriter(s) for such offering, and shall in
consultation with the managing underwriter(s) have the power to determine the
offering price, the underwriting discounts and commissions, the terms of the
underwriting agreement, the timing of the registration and related offering,
counsel to the Company, and all other administrative matters related to the
registration and related offering. To the extent that the HFCP Investors or the
Management Voting Trust participates in a Company Registration and related
offering pursuant to Section 3.1, the HFCP Investors and the Management Voting
Trust, as the case may be, shall enter into, and sell their Registrable Shares
only pursuant to, the underwriting arranged by the Company, and shall either
commit to attend the closing of the offering and take such other actions as may
be reasonably necessary to effect the HFCP Investors' and Management Voting
Trust's respective participation in the offering and to provide any assurances
reasonably requested by the Company and the managing underwriter(s) in that
regard, or shall deliver to the Company in custody certificates representing all
Registrable Shares to be included in the registration and shall execute and
deliver to the Company a custody agreement and a power of attorney, each in form
and substance appropriate for the purpose of effecting the HFCP Investors' and
Management Voting Trust's respective participation in the Company Registration
and related offering and otherwise reasonably satisfactory to the Company. If
the HFCP Investors or the Management Voting Trust disapproves of the features of
the Company Registration and related offering, the HFCP Investors or the
Management Voting Trust, as the case may be, may elect to withdraw therefrom (in
whole or part) by written notice to the Company and the managing underwriter(s)
delivered no later than three (3) days prior to the effectiveness of the
applicable registration statement and the Registrable Shares of the HFCP
Investors or the Management Voting Trust, as the case may be, shall thereupon be
withdrawn from such registration.
3.4 Other Registration Rights. Notwithstanding anything in
this Article 3 to the contrary, the HFCP Investors and the Management Voting
Trust shall be entitled to participate in any Company Registration and related
offering upon terms at least as favorable as those upon which any other Company
stockholder is entitled to participate therein, subject to Section 3.2(b).
-8-
<PAGE> 10
ARTICLE 4
REGISTRATION PROCEDURES AND EXPENSES
4.1 Registration Procedures. If and whenever the Company is
required pursuant to this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares, the HFCP Investors and the
Management Voting Trust shall furnish in writing such information regarding the
HFCP Investors and their Affiliates and the Management Voting Trust,
respectively, the Registrable Shares being registered and offered, and the
intended method of distribution of such Registrable Shares as is reasonably
requested by the Company for inclusion in the registration statement relating to
such offering pursuant to the Securities Act and the rules of the Commission
thereunder, and the Company shall, as expeditiously as reasonably practicable:
(a) prepare and file with the Commission a
registration statement (including a prospectus therein) with respect to
such securities and use its best efforts to cause such registration
statement to become and remain effective for such period as may be
necessary to permit the successful marketing of such securities, but
not exceeding 120 days for an offering in connection with a Demand
Registration, or, with regard to an offering in connection with a
Company Registration, for the period associated with such offering;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith and use its best efforts to
cause each such amendment to become effective, as may be necessary to
comply with the Securities Act and the rules of the Commission
thereunder; and to keep such registration statement effective for that
period of time specified in Section 4.1(a);
(c) furnish to the HFCP Investors and the Management
Voting Trust such number of prospectuses and preliminary prospectuses
in conformity with the requirements of the Securities Act, and such
other documents as the HFCP Investors or the Management Voting Trust
may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Shares being sold;
(d) in the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement,
in usual and customary form, with the managing underwriter of such
offering (with each stockholder participating in such underwriting also
entering into and performing its obligations under such an agreement,
including furnishing any opinion of counsel or entering into a lock-up
agreement pursuant to Section 2.3 reasonably requested by the managing
underwriter);
(e) notify each holder of Registrable Shares
promptly, and, if requested by such holder, confirm such advice in
writing, (i) when a registration statement has become effective and
when any post-effective amendments and supplements thereto become
effective, (ii) of the issuance by the Commission or any other
securities authority of any stop order, injunction or other order or
requirement suspending the effectiveness of a registration statement or
the initiation of any proceedings for that purpose, (iii) if, between
the effective date of a registration statement
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<PAGE> 11
and the closing of any sale of securities covered thereby pursuant to
any agreement to which the Company is a party, the representations and
warranties of the Company contained in such agreement cease to be true
and correct in all material respects or if the Company receives any
notification with respect to the suspension of the qualification of the
Registrable Shares for sale in any jurisdiction or the initiation of
any proceeding for such purpose or (iv) of the happening of any event
during the period a registration statement is effective as a result of
which such registration statement or the related prospectus contains
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading; and use all reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement at the earliest possible time;
(f) upon written request by any underwriters of the
offering, and subject to applicable rules and guidelines, cause its
certified public accountants and attorneys, as applicable, to furnish
to the HFCP Investors or the Management Voting Trust, as the case may
be, a signed counterpart, addressed to the HFCP Investors or the
Management Voting Trust, as the case may be, and the underwriters, if
any, of (i) a letter from the independent certified public accountants
of the Company in the form customarily furnished to underwriters in
firm commitment underwritten offerings providing substantially that
such accountants are independent certified public accountants within
the meaning of the Securities Act and that in the opinion of such
accountants, the financial statements and other financial data of the
Company included in the registration statement and the prospectus, and
any amendment or supplement thereto, comply as to form in all material
respects with the applicable accounting requirements of the Securities
Act, and additionally covering such other financial matters (including
information as of the date of such letter) with respect to the
registration in respect of which such letter is being given as the
underwriters may reasonably request; and (ii) an opinion of outside
legal counsel to the Company, dated the effective date of the
registration statement, covering substantially the same matters with
respect to the registration statement and the prospectus included
therein as are customarily covered (at the time of such registration)
in the opinions of issuer's counsel delivered to the underwriters in
comparable underwritten public offerings;
(g) use its best efforts to register or qualify the
Registrable Shares covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the HFCP Investors
or the Management Voting Trust, as the case may be, or their
underwriters, if any, shall reasonably request, and do any and all
other acts and things which may be necessary or desirable to consummate
the disposition of the securities in such jurisdiction; provided,
however, that the Company shall not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified, or
to take any action that would subject it to general service of process
in any such jurisdiction where it is not then so subject, or subject
the Company to any tax in any such jurisdiction where it is not then so
subject;
(h) use its best efforts to list the Registrable
Shares on the principal securities exchange on which shares of Common
Stock are then listed or (if not listed on an exchange) seek approval
for quotation of the Registrable Shares on the automated quotation
system through which shares of Common Stock are then quoted
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<PAGE> 12
or, if the shares of Common Stock are neither listed or quoted at such
time, shall seek such listing or quotation on such exchange or through
such quotation system as shall be selected by the Company;
(i) provide a transfer agent and registrar for all
such Registrable Shares not later than the effective date of such
registration statement;
(j) make available for inspection by the HFCP
Investors and the Management Investors and their respective attorneys,
and any participating underwriter, accountant or other agent retained
by the HFCP Investors or the Management Voting Trust and any
participating underwriter in a Demand Registration, all financial and
other records, pertinent documents and properties of the Company, and
cause the Company's Affiliates, employees, and agents to (i) supply all
information, (ii) otherwise use their best efforts to obtain all legal
opinions, auditors' consents and comfort letters and (iii) participate
in such road shows and similar marketing efforts, in each case as may
reasonably requested by the HFCP Investors or the Management Voting
Trust, as the case may be, and any such underwriter, attorney,
accountant or agent in connection with the preparation of such
registration statement and the sale of such securities.
4.2 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
that the selling stockholders shall furnish to the Company such information
regarding themselves or the Registrable Shares held by them, and the intended
method of disposition of such securities, as shall be reasonably requested by
the Company in order to effect the registration of their Registrable Shares.
4.3 Expenses. The Company shall pay all Registration Expenses,
except as may be required to update any registration statement kept effective
for more than the period of time required by Section 4.1(a). The HFCP Investors
and the Management Voting Trust shall pay all Selling Expenses in proportion to
the number of Registerable Shares each is selling in the given registered sale.
ARTICLE 5
INDEMNIFICATION
Section 5.1 Indemnification by the Company. In the event of a
registration of any Registrable Shares pursuant to this Agreement, the Company
shall indemnify and hold harmless each seller of Registrable Shares who is an
HFCP Investor or a Permitted Transferee of an HFCP Investor holding Registrable
Shares, and each person, if any, who controls such seller, and each officer,
director, employee and advisor of each of the foregoing (each a "Seller
Indemnitee"), against any expenses, losses, claims, damages or liabilities,
joint or several, to which such Seller Indemnitee may become subject under the
Securities Act, any other securities law or otherwise, including any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
insofar as such expenses, losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such shares are registered under the Securities Act, any
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<PAGE> 13
preliminary prospectus or final prospectus contained therein, any summary
prospectus used in connection with any securities being registered, or any
amendment or supplement thereto; or (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and (subject to Section 5.4) shall reimburse each such
Indemnitee for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such expense, loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
said preliminary prospectus or said prospectus or summary prospectus or said
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the HFCP Investors or
any underwriter specifically for use in the preparation thereof; and provided,
further, that if any expenses, losses, claims, damages or liabilities arise out
of or are based upon an untrue statement, alleged untrue statement, omission or
alleged omission contained in any preliminary prospectus which did not appear in
the final prospectus, the Company shall not have any liability with respect
thereto to any Seller Indemnitee if any Seller Indemnitee delivered a copy of
the preliminary prospectus to the person alleging such expenses, losses, claims,
damages or liabilities and failed to deliver a copy of the final prospectus as
amended or supplemented if it has been amended or supplemented and if such final
prospectus was made available to it for such delivery, to such person at or
prior to the written confirmation of the sale to such person.
Section 5.2 Indemnification by the HFCP Investors. In the
event of a registration of any Registrable Shares pursuant to this Agreement,
the HFCP Investors shall jointly and severally indemnify and hold harmless the
Company and each person, if any, who controls the Company within the meaning of
the Securities Act, each officer of the Company who signs the registration
statement, each director of the Company and each underwriter and each person who
controls any underwriter within the meaning of the Securities Act (each a
"Company Indemnitee"), against any and all such expenses, losses, claims,
damages or liabilities referred to in Section 5.1 if the statement, alleged
statement, omission or alleged omission in respect of which such expense, loss,
claim, damage or liability is asserted was made in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of an HFCP Investor which is a holder of Registrable Shares specifically for use
in connection with the preparation of such registration statement, preliminary
prospectus, prospectus, summary prospectus, amendment or supplement; provided,
however, that if any expenses, losses, claims, damages or liabilities arise out
of or are based upon an untrue statement, alleged untrue statement, omission or
alleged omission contained in any preliminary prospectus which did not appear in
the final prospectus, the HFCP Investors shall not have any such liability with
respect thereto to any Company Indemnitee if any Company Indemnitee delivered a
copy of the preliminary prospectus to the person alleging much expenses, losses,
claims, damages or liabilities and failed to deliver a copy of the final
prospectus, as amended or supplemented if it has been amended or supplemented
and if such final prospectus was made available to it for such delivery, to such
person at or prior to the written confirmation of the sale to such person.
Section 5.3 Contribution. If the indemnification provided for
in Sections 5.1 or 5.2 above is unavailable to an indemnified party in respect
of any losses, claims, damages or liabilities referred to therein, then in lieu
of indemnifying such indemnified
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<PAGE> 14
party thereunder, the indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities, in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified parties on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party, or by the indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Article 5 were determined by pro rata allocation
or by any other method of allocation which does not take into account 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 and liabilities or actions in respect thereof referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Article 5, no holder of
Registrable Shares (other than a person who controls the Company within the
meaning of the Securities Act) shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable Shares
sold by it exceeds the amount of any damages which such holder 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 misrepresentations
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Section 5.4 Indemnification Procedures. (a) Promptly after
receipt by an indemnified party of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Article 5 or to the extent that it has not been
prejudiced as a proximate result of such failure. In case any such action shall
be brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
Company, the indemnified party or parties shall have the right to select
separate counsel to assert such legal defenses (in which case the indemnifying
party shall not have the right to direct the defense of such action on behalf of
the indemnified party or parties). Upon the permitted assumption by the
indemnifying party of the defense of such action, and approval by the
indemnified party of counsel, the indemnifying party shall not be liable to such
indemnified party under this Article 5 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof (other than reasonable costs or
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<PAGE> 15
investigation) unless (i) the indemnified party shall have employed separate
counsel in connection with the assertion of legal defenses in accordance with
the proviso to the next preceding sentence, (ii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time, (iii) the indemnifying party and its
counsel do not actively and vigorously pursue the defense of such action or (iv)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
(b) No indemnifying party shall consent to entry of judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim. No indemnifying party shall
be liable for any settlement of any action or proceeding entered into without
its prior consent, which consent shall not be unreasonably withheld.
ARTICLE 6
MISCELLANEOUS
6.1 Remedies. The Company agrees that monetary damages
(including the liquidated damages contemplated hereby) would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agree to waive the defense in any action for
specific performance that a remedy at law would be adequate.
6.2 No Inconsistent Agreements. The Company has not and will
not on or after the date of this Agreement enter into any agreement with respect
to the Common Stock that is inconsistent with the rights granted to the HFCP
Investors and the Management Voting Trust in this Agreement or otherwise
conflicts with the provisions hereof. In particular, the Company covenants and
agrees that, so long as any stockholder holds any Registrable Shares in respect
of which any of its rights of registration provided for in this Agreement shall
continue, the Company shall not, directly or indirectly, grant to any person or
entity or agree to or otherwise become obligated in respect of any rights of
registration of securities of the Company with priority over those set forth in
this Agreement without the prior written consent of such stockholders. The
rights granted to the HFCP Investors and the Management Voting Trust hereunder
do not in any way conflict with and are not inconsistent with the rights granted
to the holders of the Company's Common Stock under any agreement in effect on
the date hereof.
6.3 Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless the Company has
obtained the written consent of the HFCP Investors and the Management Voting
Trust.
6.4 Notices. (a) All notices and other communications provided
for or permitted hereunder shall be made in the manner provided for and to the
respective addresses specified in, or updated pursuant to, Section 10.3 of the
Contribution Agreement.
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<PAGE> 16
(b) Whenever this Agreement contemplates delivery to, or
action (such as consent, approval or waiver) by (i) the HFCP Investors or their
permitted transferees, delivery to, or action (evidenced in writing) by, the
Ultimate General Partner shall bind the HFCP Investors or (ii) the Management
Voting Trust or its permitted transferees, delivery to, or action (evidenced in
writing) by the Voting Trustee representative (set forth in Section 6.11(a) of
the Stockholders' Agreement) shall bind the Management Voting Trust. Whenever
the consent, approval or waiver of the HFCP 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 this Section.
6.5 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
without the need for an express assignment.
Without limiting the foregoing:
(a) The registration rights of the HFCP Investors and the
Management Voting Trust under this Agreement may be transferred to any
transferee who acquires Registrable Securities in a Transfer permitted under the
Stockholders' Agreement, provided; however, that the Company is given written
notice by the transferor at the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being assigned and provided further that the
transferee agrees in writing to acquire and hold such securities subject to the
provisions of this Agreement as if such transferee were the transferor thereof.
(b) The provisions of this Agreement shall apply, to the full
extent set forth herein with respect to the Registrable Shares, to any and all
securities or capital stock of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise) which
may be issued in respect of, in exchange for, or in substitution of such
Registrable Shares, by reason of any dividend, split, issuance, reverse split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise.
6.6 Counterparts. This Agreement may be executed in any number
of counterparts and by the 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.
6.7 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
6.8 Governing Law. Except as otherwise specified herein, this
Agreement and all disputes hereunder shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware (without
regard to conflicts of law principles); provided that with respect to all
covenants and agreements which require performance prior to the Y&R DEL Merger,
then this Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of New York (without regard to conflicts of law
principles).
6.9 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other
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<PAGE> 17
respect and of the remaining provisions contained herein shall not be affected
or impaired thereby.
6.10 Entire Agreement. This Agreement together with the
Contribution Agreement (and the other agreements listed as exhibits thereto) is
intended by the parties as a final expression of their agreement and intended to
be a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein, and supersedes
all prior agreements and understandings between the parties with respect to such
subject matter.
6.11 Termination. This Agreement shall terminate upon the
earlier to occur of the fifteenth anniversary of the date hereof and the date on
which there are no longer any Registrable Shares outstanding.
-16-
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Registration Rights Agreement as of the date first above written.
YOUNG & RUBICAM INC.,
a New York corporation
By /s/ Stephanie W. Abramson
----------------------------------------------------
Name: Stephanie W. Abramson
Title: Executive Vice President and General Counsel
YOUNG & RUBICAM HOLDINGS INC.
By /s/ Stephanie W. Abramson
----------------------------------------------------
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
YOUNG & RUBICAM INC.,
a Delaware corporation
By /s/ Stephanie W. Abramson
----------------------------------------------------
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
-17-
<PAGE> 19
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 /s/ Philip U. Hammarskjold
-------------------------------
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: /s/ Philip U. Hammarskjold
-------------------------------
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: /s/ Philip U. Hammarskjold
-------------------------------
Name: Philip U. Hammarskjold
Title: Vice President
-18-
<PAGE> 20
YOUNG & RUBICAM MANAGEMENT VOTING TRUST
By /s/ Stephanie W. Abramson
------------------------------
Name: Stephanie W. Abramson,
as Voting Trustee Representative
AMERICAN MEDIA MANAGEMENT, INC.
By /s/ Philip U. Hammarskjold
------------------------------
Philip U. Hammarskjold,
as attorney in fact
H. Irving Grousbeck
By /s/ Philip U. Hammarskjold
------------------------------
Philip U. Hammarskjold,
as attorney in fact
-19-
<PAGE> 1
Exhibit 10.19
[Young & Rubicam Inc. Letterhead]
October 16, 1997
Mr. Michael J. Dolan
50 East 89th Street
Apartment 27F
New York, New York 10128
Dear Mike:
Your employment agreement, dated June 28, 1996, provided that if prior to August
1, 1998, the Company were to complete a significant recapitalization, the
Company would grant to you the right to purchase a number of equity units of
the recapitalized company such that the difference between the book value per
unit of the recapitalized company as then proposed and the estimated initial
public offering price per unit used internally in connection with such
recapitalization would be $1.5 million. In furtherance of that obligation, the
Company awarded to you shares of stock ("restricted stock") and options to buy
common stock. Both the restricted stock and the options have future vesting
provisions.
The purpose of this letter is to confirm that, if you should die while in the
employ of the Company prior to the completion of an initial public offering of
the Company's common stock and the difference between the exercise price of
your vested options and their value at the time of your death is less than $1.5
million, the Company will treat as vested such additional options and/or shares
of restricted stock to the extent necessary to make such difference $1.5
million.
Very truly yours,
/s/ Alan J. Sheldon
Alan J. Sheldon
Vice Chairman, Managing Director
<PAGE> 1
Exhibit 10.20
Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6486
Tel. (212) 210-3000
Fax. (212) 490-9073
June 28, 1996
Mr. Michael Dolan
50 East 89th Street
Apartment 27F
New York, New York 10128
Dear Mike:
I am writing to confirm the principal terms of employment we have
offered to you.
Our understanding is as follows:
Among other duties and areas of responsibilities which may be
assigned to you by the Chief Executive Officer, or by the Board of Directors,
you will have primary responsibility for financial matters for Young & Rubicam
Inc. (the "Company") worldwide. You will have the titles of Chief Financial
Officer and Vice Chairman of the Company. You will be elected to the Board of
Directors of the Company as soon as administratively feasible after July 15,
1996 and thereafter you will be a member of the Executive Committee and the
Finance Committee of the Board of Directors. The Chief Executive Officer may ask
you to serve on additional committees of the Board of Directors from time to
time.
Your base salary will be $450,000 per annum. You will be eligible
for a bonus under the Y&R Key Corporate Managers Program. Your target bonus for
1997 under that Plan will be $200,000 and for 1996 your bonus will be prorated
from July 1, 1996 (the effective date of your employment) based on this $200,000
target.
You will be eligible to receive the perquisites and benefits which
employees of the Company of the same rank receive, including, without
limitation, participation in pension, 401(k) or similar plans and payment or
reimbursement for all or part of premiums for life, health and disability
insurance and reimbursements of employment-related expenses, all in accordance
with the Company's policies.
<PAGE> 2
Young & Rubicam Inc
Mr. Michael Dolan
June 28, 1996
Page 2
The Company will grant to you on August 1, 1996 vested options to
buy 10,000 limited partnership units in Young & Rubicam L.P. at an exercise
price equal to the book value per unit as of January 1, 1996.
If, prior to August 1, 1998, the Company should complete a
significant recapitalization along the lines we have previously discussed with
you, the Company will provide you with the right to purchase an equity interest
in the Company as recapitalized. Such equity interest shall take substantially
the same form as the interests acquired by the senior executives of the Company
who make an equity investment in the recapitalized entity. The number of units
that would make up your equity interest shall be such that the difference
between the book value per unit of the recapitalized entity and the estimated
initial public offering (IPO) price per unit (both determined at the time the
definitive recapitalization agreement is executed) is $1.5 million. The
estimated IPO price shall be determined by the investment bank retained by the
Company in connection with the recapitalization.
The Company further agrees that the book value of the 10,000
limited partnership units in Young & Rubicam L.P. for which the Company has
granted you options shall increase by at least $500,000 after the
recapitalization, and that any shortfall between the book value per unit as of
January 1, 1996 and the book value per unit post-recapitalization and the above
mentioned $500,000 will be paid to you in cash by Young & Rubicam L.P. as soon
as administratively feasible after such recapitalization. Thereafter, options in
the Company may be granted to you as and when appropriate.
If for any reason a recapitalization does not occur prior to
August 1, 1997, the Company shall grant to you in August, 1997 fully vested
options to buy an additional 40,000 limited partnership units in Young & Rubicam
L.P. at an exercise price equal to the book value per unit as of January 1,
1997. In addition, should a recapitalization not occur prior to August 1, 1997,
Young & Rubicam L.P. agrees to pay you a special bonus of $200,000, payable on
August 1, 1997.
You represent that you have the legal right to execute and perform
the terms of employment in this letter agreement and that your execution and
performance of the terms of this letter agreement do not and will not violate
any other agreement or understanding binding on you
<PAGE> 3
Young & Rubicam Inc
Mr. Michael Dolan
June 28, 1996
Page 3
or the rights of any third parties and you understand that in the event of a
breach of this representation we will not have any obligation to you under this
letter agreement.
If this letter sets forth your understanding of the offer of
employment we have made to you, please indicate your agreement and acceptance by
signing in the place provided below.
Very truly yours,
Young & Rubicam Inc.
By: Alan J. Sheldon
-------------------------------
Name: Alan J. Sheldon
Title: Executive Vice President
Accepted and Agreed to:
/s/ Michael Dolan
_____________________________
Michael Dolan
<PAGE> 1
Exhibit 10.22
OPTION AGREEMENT
This Stock Option Agreement (this "Agreement"), is made and entered
into this 12th day of December, 1996, by and between YOUNG & RUBICAM HOLDINGS
INC., a New York corporation ("Holdings"), YOUNG & RUBICAM INC., a New York
corporation (the "Company"), YOUNG & RUBICAM INC., a Delaware corporation and a
wholly-owned subsidiary of Holdings ("Y&R DEL"), and HELLMAN & FRIEDMAN CAPITAL
PARTNERS III, L.P., a California limited partnership (the "Purchaser").
RECITALS
1. The parties hereto have entered into a Contribution Agreement
dated as of October 30, 1996 (the "Contribution Agreement"). All capitalized
terms not defined herein have the meanings ascribed to them in the Contribution
Agreement.
2. Pursuant to the Contribution Agreement, Holdings has agreed to
grant to the Purchaser an option to purchase certain shares of Holdings' common
stock, par value $0.01 per share (the "Holdings Common Stock"), on the terms and
subject to the conditions set forth below.
3. Immediately following consummation of the transactions
contemplated by the Contribution Agreement, Holdings will merge with and into
the Company (the "Holdings Merger"). In such merger, all outstanding shares of
Holdings Common Stock will become and thereafter represent shares of common
stock, par value $0.01 per share, of the Company ("Company Common Stock").
Thereafter, the Company will merge with and into Y&R DEL (the "Company Merger").
In such merger, all outstanding shares of Company Common Stock will become and
thereafter represent shares of common stock, par value $0.01 per share, of Y&R
DEL ("Y&R DEL Common Stock"). Upon the effectiveness of each such merger, the
surviving corporation will assume all obligations of the other constituent
corporation under this Agreement, and all references to the "Company" and
"Company Common Stock" herein shall be deemed to refer to (a) Holdings and
Holding Common Stock prior to the Holdings Merger, (b) the Company and the
Company Common Stock thereafter until the Company Merger and (c) following the
Company Merger, to Y&R DEL and the Y&R DEL Common Stock, respectively, without
any further action by any party hereto.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and the Purchaser agree as follows:
1.1. Grant of Option. The Company hereby grants to the Purchaser an
exclusive and irrevocable option (the "Option") to purchase from the Company
152,598 authorized but unissued shares of Company Common Stock (collectively,
the "Option Shares") at a cash price per share of $115 (the "Exercise Price")
subject to adjustment as provided in Section 1.6 hereof.
<PAGE> 2
1.2. Exercise of the Option. (a) (i) Subject to the conditions set
forth in Section 1.3 hereof, the Option may be exercised by the Purchaser, in
whole or in part, at any time or from time to time after the date hereof for
cash or Company Common Stock.
(ii) The Company shall not, prior to the termination of the
Option, take any action which would have the effect of preventing or disabling
the Company from delivering the Option Shares to the Purchaser upon exercise of
the Option or otherwise performing the Company's obligations under this
Agreement.
(b) In the event the Purchaser elects to exercise the Option, the
Purchaser shall give a written notice to the Company specifying the number of
the Option Shares the Purchaser will purchase and the place and date (not later
than ten Business Days, nor earlier than one Business Day, from the date such
notice is mailed, but not earlier than the expiration of any applicable waiting
period under the HSR Act) for the closing of such purchase.
1.3. Payment and Delivery of Certificate(s) upon Exercise of Option.
(a) At any closing of any purchase of any of the Option Shares hereunder:
(i) the Purchaser shall (1) if exercising the Option for cash,
pay to the Company the aggregate price for the Option Shares so purchased
by certified or cashier's check or by wire transfer, and (2) if exercising
the Option for Company Common Stock, deliver to the Company a certificate
or certificates representing the number of shares of Company Common Stock
equal to the number of Option Shares so purchased multiplied by a
fraction, the numerator of which is 115 and the denominator of which is
the Public Market Value per share of Company Common Stock (as defined in
the Stockholders' Agreement) as of the most recent Regular Valuation (as
defined therein) preceding the date of notice of exercise pursuant to
Section 2.04(b) of the Stockholders' Agreement (or, if prior to the first
Regular Valuation, $115); provided that the Company Common Stock so used
to exercise must meet then applicable eligibility criteria under GAAP;
(ii) the Company shall deliver to the Purchaser a duly issued
certificate (or certificates in the denominations designated by the
Purchaser in its notice of exercise) representing the number of the Option
Shares purchased (or if necessary due to the delivery under clause (i)(2)
of this Section 1.3(a) by the Purchaser of a certificate for a number of
shares of Company Common Stock in excess of the number of shares required
to be delivered under clause (i)(2) of this Section 1.3(a), the Company
shall deliver to the Purchaser a duly issued certificate (or certificates
in the denominations designated by the Purchaser in its notice of
exercise) representing the number of the Option Shares purchased plus the
number of shares of Company Common Stock represented by the certificate
delivered to the Company by the Purchaser minus the number of shares of
Company Common Stock required to be delivered by the Purchaser under
clause (i)(2) of this Section 1.3(a)); and
(iii) the number of Option Shares subject to the Option shall
be reduced by the number of shares of Company Common Stock acquired by the
Purchaser at such closing.
(b) The obligation of the Company to deliver Option Shares at such
closing shall be subject to the conditions that no preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, shall be in effect which would prohibit such sale and delivery, and
any applicable waiting period under the HSR Act shall have expired.
-2-
<PAGE> 3
1.4. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
(a) Due Authorization, Etc. This Agreement has been duly authorized
by all necessary corporate action on the part of the Company, has been duly
executed by a duly authorized officer of the Company and is valid, binding and
enforceable against the Company in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application which may affect the enforcement of
creditors' rights generally, by general equitable principles and by implied
covenants of good faith and fair dealing.
(b) Option Shares. The Company has taken all necessary corporate
action to authorize and reserve for issuance, upon exercise of the Option, the
Option Shares. The Option Shares, upon purchase by the Purchaser, will be duly
authorized, validly issued, fully paid and nonassessable, and delivered to the
Purchaser free and clear of all claims, liens, charges, security interests or
encumbrances of any kind, including, without limitation, any preemptive or
similar rights other than those set forth in the Closing Agreements.
(c) No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in any breach or violation of, be in conflict with, or will constitute a
default under, the Amended and Restated Certificate of Incorporation or the
Amended and Restated By-laws of the Company or any indenture, loan or credit
agreement or any other agreement or instrument to which the Company is a party,
or by which the Company or any of its subsidiaries may be affected or is bound,
which would have a Material Adverse Effect upon the Company.
1.5. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Due Authorization. This Agreement has been duly authorized by
all necessary action on the part of the Purchaser and has been duly executed by
a duly authorized officer of the Ultimate General Partner, and is valid, binding
and enforceable against the Purchaser in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application which may affect the enforcement
of creditors' rights generally, by general equitable principles and by implied
covenants of good faith and fair dealing.
(b) Distribution. Any shares of Company Common Stock to be acquired
upon exercise of the Option will not be acquired by the Purchaser with a view to
the public distribution thereof, and will not be transferred, except in a
transaction registered or exempt from registration under the Securities Act and
permitted by this Agreement.
(c) No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in any breach or violation of, be in conflict with, or will constitute a
default under, the limited partnership agreement of the Purchaser or any
indenture, loan or credit agreement or any other agreement or instrument to
which the Purchaser is a party, or by which the Purchaser or any of its
subsidiaries may be affected or is bound, which would have a Material Adverse
Effect upon the Purchaser.
1.6. Adjustment Upon Changes in Capitalization. In the event of any
change in, or affecting, the issued and outstanding Company Common Stock by
reason of any dividend, stock split, merger, recapitalization, combination,
conversion, exchange of shares or other change in the corporate or capital
structure of the Company, the number and
-3-
<PAGE> 4
kind of shares or securities subject to the Option and the Exercise Price shall
be appropriately and equitably adjusted (with adjustments being cumulative if
more than one of such events shall have occurred) so that the Purchaser shall
receive, upon exercise of the Option, the number and class of shares of Company
Common Stock or other securities or property that the Purchaser would have
received in respect of Option Shares if the Option had been exercised
immediately prior to such event.
1.7. Ownership of Option Shares. The Purchaser shall hold the Option
Shares subject to the terms of the Stockholders' Agreement.
1.8. Specific Performance. The Company and the Purchaser acknowledge
that the Option and the Option Shares are unique and that neither party hereto
will have an adequate remedy at law if the other breaches any covenant contained
herein or fails to perform any of its obligations under this Agreement.
Accordingly, each party agrees that the other shall have the right, in addition
to any other rights which it may have, to specific performance and equitable
injunctive relief if the other party shall fail or threaten to fail to perform
any of its obligations under this Agreement.
1.9. Expiration. (a) If on the fifth anniversary of the Closing, the
number of Option Shares exceeds 50% of the initial number of Option Shares (as
adjusted pursuant to Section 1.6), then on such anniversary, the number of
Option Shares shall be reduced to 50% of the initial number of Option Shares (as
adjusted pursuant to Section 1.6).
(b) The Option shall expire on the earlier to occur of (i) the date
on which the number of Option Shares is reduced to zero, and (ii) the seventh
anniversary of the Closing.
1.10. Miscellaneous. (a) Assignability. (i) The rights and
obligations of the Purchaser with respect to all or a portion of the Option
shall be assignable by the Purchaser to and only to any Affiliate of the
Purchaser, if and only if such Affiliate shall, by a written instrument
reasonably satisfactory to the Company, agree to assume all of the Purchaser's
obligations hereunder and to be bound by all of the terms and conditions of this
Agreement and the Stockholders' Agreement.
(ii) The obligations of the Company shall not be assignable
without the prior written consent of the Purchaser, and any purported assignment
without such prior written consent shall be null and void.
(b) Third Parties. Nothing expressed or implied in this Agreement is
intended or shall be construed to confer upon or give to any third party any
rights or remedies by virtue of this Agreement or any exercise or non-exercise
of the Option granted hereby.
(c) Amendments. This Agreement may not be modified, amended, altered
or supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
(d) Notices. Except as otherwise expressly provided herein, all
notices, requests, claims, demands and other communications hereunder 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, to
the parties at the addresses set forth below:
-4-
<PAGE> 5
If to the Company: Young & Rubicam Holdings Inc. and
Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.
Facsimile: (212) 210-5544
with a copy to: Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Facsimile: (212) 225-3999
If to the Purchaser: H&F Investors III, Inc.
One Maritime Plaza
12th Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
with a copy to: Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
Facsimile: (212) 403-2000
The addresses set forth above may be changed by any party upon furnishing to the
other party a notice of change of address in accordance with the terms of this
paragraph.
(e) Governing Law. Prior to the Company Merger, this Agreement shall
be governed by and construed in accordance with the law of the State of New
York; provided, however, that following the Company Merger, this Agreement shall
be governed by and construed in accordance with the law of the State of
Delaware.
(f) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same Agreement.
(g) Effect of Headings. The section and paragraph headings herein
are for convenience only and shall not affect the construction hereof.
(h) Time of the Essence. The parties agree that time shall be of the
essence in the performance of obligations hereunder.
(i) Survival of Representations and Warranties. The representations,
warranties, covenants and agreements shall survive any closing pursuant to this
Agreement.
(j) Expenses. Subject to subsection (m) below, each of the parties
hereto shall pay all fees and expenses it incurs in connection with this
Agreement.
(k) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable,
-5-
<PAGE> 6
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
(l) Entire Agreement. This Agreement and the other agreements
referenced herein constitute the entire agreement between the Company and the
Purchaser with respect to the matters covered herein and supersede any prior
negotiations, understandings or agreements with respect to the matters
contemplated hereby.
-6-
<PAGE> 7
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties set forth below.
YOUNG & RUBICAM INC.,
a New York corporation
By /s/ Stephanie W. Abramson
--------------------------------------------
Name: Stephanie W. Abramson
Title: Executive Vice President and General
Counsel
YOUNG & RUBICAM HOLDINGS INC.
By /s/ Stephanie W. Abramson
--------------------------------------------
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
YOUNG & RUBICAM INC.,
a Delaware corporation
By /s/ Stephanie W. Abramson
--------------------------------------------
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
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
-7-
<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties set forth below.
YOUNG & RUBICAM INC.,
a New York corporation
By__________________________________________
Name: Stephanie W. Abramson
Title: Executive Vice President and General
Counsel
YOUNG & RUBICAM HOLDINGS INC.
By__________________________________________
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
YOUNG & RUBICAM INC.,
a Delaware corporation
By__________________________________________
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
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 /s/ Philip U. Hammarskjold
--------------------------------------------
Name: Philip U. Hammarskjold
Title: Vice President
-7-
<PAGE> 1
Exhibit 10.23
OPTION AGREEMENT
This Stock Option Agreement (this "Agreement"), is made and entered
into this 12th day of December, 1996, by and between YOUNG & RUBICAM HOLDINGS
INC., a New York corporation ("Holdings"), YOUNG & RUBICAM INC., a New York
corporation (the "Company"), YOUNG & RUBICAM INC., a Delaware corporation and a
wholly-owned subsidiary of Holdings ("Y&R DEL"), and H&F ORCHARD PARTNERS III,
L.P., a California limited partnership (the "Purchaser").
RECITALS
1. The parties hereto have entered into a Contribution Agreement
dated as of October 30, 1996 (the "Contribution Agreement"). All capitalized
terms not defined herein have the meanings ascribed to them in the Contribution
Agreement.
2. Pursuant to the Contribution Agreement, Holdings has agreed to
grant to the Purchaser an option to purchase certain shares of Holdings' common
stock, par value $0.01 per share (the "Holdings Common Stock"), on the terms and
subject to the conditions set forth below.
3. Immediately following consummation of the transactions
contemplated by the Contribution Agreement, Holdings will merge with and into
the Company (the "Holdings Merger"). In such merger, all outstanding shares of
Holdings Common Stock will become and thereafter represent shares of common
stock, par value $0.01 per share, of the Company ("Company Common Stock").
Thereafter, the Company will merge with and into Y&R DEL (the "Company Merger").
In such merger, all outstanding shares of Company Common Stock will become and
thereafter represent shares of common stock, par value $0.01 per share, of Y&R
DEL ("Y&R DEL Common Stock"). Upon the effectiveness of each such merger, the
surviving corporation will assume all obligations of the other constituent
corporation under this Agreement, and all references to the "Company" and
"Company Common Stock" herein shall be deemed to refer to (a) Holdings and
Holding Common Stock prior to the Holdings Merger, (b) the Company and the
Company Common Stock thereafter until the Company Merger and (c) following the
Company Merger, to Y&R DEL and the Y&R DEL Common Stock, respectively, without
any further action by any party hereto.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and the Purchaser agree as follows:
1.1. Grant of Option. The Company hereby grants to the Purchaser an
exclusive and irrevocable option (the "Option") to purchase from the Company
11,218 authorized but unissued shares of Company Common Stock (collectively, the
"Option Shares") at a cash price per share of $115 (the "Exercise Price")
subject to adjustment as provided in Section 1.6 hereof.
<PAGE> 2
1.2. Exercise of the Option. (a) (i) Subject to the conditions set
forth in Section 1.3 hereof, the Option may be exercised by the Purchaser, in
whole or in part, at any time or from time to time after the date hereof for
cash or Company Common Stock.
(ii) The Company shall not, prior to the termination of the
Option, take any action which would have the effect of preventing or disabling
the Company from delivering the Option Shares to the Purchaser upon exercise of
the Option or otherwise performing the Company's obligations under this
Agreement.
(b) In the event the Purchaser elects to exercise the Option, the
Purchaser shall give a written notice to the Company specifying the number of
the Option Shares the Purchaser will purchase and the place and date (not later
than ten Business Days, nor earlier than one Business Day, from the date such
notice is mailed, but not earlier than the expiration of any applicable waiting
period under the HSR Act) for the closing of such purchase.
1.3. Payment and Delivery of Certificate(s) upon Exercise of Option.
(a) At any closing of any purchase of any of the Option Shares hereunder:
(i) the Purchaser shall (1) if exercising the Option for cash,
pay to the Company the aggregate price for the Option Shares so purchased
by certified or cashier's check or by wire transfer, and (2) if exercising
the Option for Company Common Stock, deliver to the Company a certificate
or certificates representing the number of shares of Company Common Stock
equal to the number of Option Shares so purchased multiplied by a
fraction, the numerator of which is 115 and the denominator of which is
the Public Market Value per share of Company Common Stock (as defined in
the Stockholders' Agreement) as of the most recent Regular Valuation (as
defined therein) preceding the date of notice of exercise pursuant to
Section 2.04(b) of the Stockholders' Agreement (or, if prior to the first
Regular Valuation, $115); provided that the Company Common Stock so used
to exercise must meet then applicable eligibility criteria under GAAP;
(ii) the Company shall deliver to the Purchaser a duly issued
certificate (or certificates in the denominations designated by the
Purchaser in its notice of exercise) representing the number of the Option
Shares purchased (or if necessary due to the delivery under clause (i)(2)
of this Section 1.3(a) by the Purchaser of a certificate for a number of
shares of Company Common Stock in excess of the number of shares required
to be delivered under clause (i)(2) of this Section 1.3(a), the Company
shall deliver to the Purchaser a duly issued certificate (or certificates
in the denominations designated by the Purchaser in its notice of
exercise) representing the number of the Option Shares purchased plus the
number of shares of Company Common Stock represented by the certificate
delivered to the Company by the Purchaser minus the number of shares of
Company Common Stock required to be delivered by the Purchaser under
clause (i)(2) of this Section 1.3(a)); and
(iii) the number of Option Shares subject to the Option shall
be reduced by the number of shares of Company Common Stock acquired by the
Purchaser at such closing.
(b) The obligation of the Company to deliver Option Shares at such
closing shall be subject to the conditions that no preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, shall be in effect which would prohibit such sale and delivery, and
any applicable waiting period under the HSR Act shall have expired.
-2-
<PAGE> 3
1.4. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
(a) Due Authorization, Etc. This Agreement has been duly authorized
by all necessary corporate action on the part of the Company, has been duly
executed by a duly authorized officer of the Company and is valid, binding and
enforceable against the Company in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application which may affect the enforcement of
creditors' rights generally, by general equitable principles and by implied
covenants of good faith and fair dealing.
(b) Option Shares. The Company has taken all necessary corporate
action to authorize and reserve for issuance, upon exercise of the Option, the
Option Shares. The Option Shares, upon purchase by the Purchaser, will be duly
authorized, validly issued, fully paid and nonassessable, and delivered to the
Purchaser free and clear of all claims, liens, charges, security interests or
encumbrances of any kind, including, without limitation, any preemptive or
similar rights other than those set forth in the Closing Agreements.
(c) No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in any breach or violation of, be in conflict with, or will constitute a
default under, the Amended and Restated Certificate of Incorporation or the
Amended and Restated By-laws of the Company or any indenture, loan or credit
agreement or any other agreement or instrument to which the Company is a party,
or by which the Company or any of its subsidiaries may be affected or is bound,
which would have a Material Adverse Effect upon the Company.
1.5. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Due Authorization. This Agreement has been duly authorized by
all necessary action on the part of the Purchaser and has been duly executed by
a duly authorized officer of the Ultimate General Partner, and is valid, binding
and enforceable against the Purchaser in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application which may affect the enforcement
of creditors' rights generally, by general equitable principles and by implied
covenants of good faith and fair dealing.
(b) Distribution. Any shares of Company Common Stock to be acquired
upon exercise of the Option will not be acquired by the Purchaser with a view to
the public distribution thereof, and will not be transferred, except in a
transaction registered or exempt from registration under the Securities Act and
permitted by this Agreement.
(c) No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in any breach or violation of, be in conflict with, or will constitute a
default under, the limited partnership agreement of the Purchaser or any
indenture, loan or credit agreement or any other agreement or instrument to
which the Purchaser is a party, or by which the Purchaser or any of its
subsidiaries may be affected or is bound, which would have a Material Adverse
Effect upon the Purchaser.
1.6. Adjustment Upon Changes in Capitalization. In the event of any
change in, or affecting, the issued and outstanding Company Common Stock by
reason of any dividend, stock split, merger, recapitalization, combination,
conversion, exchange of shares or other change in the corporate or capital
structure of the Company, the number and
-3-
<PAGE> 4
kind of shares or securities subject to the Option and the Exercise Price shall
be appropriately and equitably adjusted (with adjustments being cumulative if
more than one of such events shall have occurred) so that the Purchaser shall
receive, upon exercise of the Option, the number and class of shares of Company
Common Stock or other securities or property that the Purchaser would have
received in respect of Option Shares if the Option had been exercised
immediately prior to such event.
1.7. Ownership of Option Shares. The Purchaser shall hold the Option
Shares subject to the terms of the Stockholders' Agreement.
1.8. Specific Performance. The Company and the Purchaser acknowledge
that the Option and the Option Shares are unique and that neither party hereto
will have an adequate remedy at law if the other breaches any covenant contained
herein or fails to perform any of its obligations under this Agreement.
Accordingly, each party agrees that the other shall have the right, in addition
to any other rights which it may have, to specific performance and equitable
injunctive relief if the other party shall fail or threaten to fail to perform
any of its obligations under this Agreement.
1.9. Expiration. (a) If on the fifth anniversary of the Closing, the
number of Option Shares exceeds 50% of the initial number of Option Shares (as
adjusted pursuant to Section 1.6), then on such anniversary, the number of
Option Shares shall be reduced to 50% of the initial number of Option Shares (as
adjusted pursuant to Section 1.6).
(b) The Option shall expire on the earlier to occur of (i) the date
on which the number of Option Shares is reduced to zero, and (ii) the seventh
anniversary of the Closing.
1.10. Miscellaneous. (a) Assignability. (i) The rights and
obligations of the Purchaser with respect to all or a portion of the Option
shall be assignable by the Purchaser to and only to any Affiliate of the
Purchaser, if and only if such Affiliate shall, by a written instrument
reasonably satisfactory to the Company, agree to assume all of the Purchaser's
obligations hereunder and to be bound by all of the terms and conditions of this
Agreement and the Stockholders' Agreement.
(ii) The obligations of the Company shall not be assignable
without the prior written consent of the Purchaser, and any purported assignment
without such prior written consent shall be null and void.
(b) Third Parties. Nothing expressed or implied in this Agreement is
intended or shall be construed to confer upon or give to any third party any
rights or remedies by virtue of this Agreement or any exercise or non-exercise
of the Option granted hereby.
(c) Amendments. This Agreement may not be modified, amended, altered
or supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
(d) Notices. Except as otherwise expressly provided herein, all
notices, requests, claims, demands and other communications hereunder 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, to
the parties at the addresses set forth below:
-4-
<PAGE> 5
If to the Company: Young & Rubicam Holdings Inc. and
Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: Stephanie W. Abramson, Esq.
Facsimile: (212) 210-5544
with a copy to: Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Facsimile: (212) 225-3999
If to the Purchaser: H&F Investors III, Inc.
One Maritime Plaza
12th Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
with a copy to: Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
Facsimile: (212) 403-2000
The addresses set forth above may be changed by any party upon furnishing to the
other party a notice of change of address in accordance with the terms of this
paragraph.
(e) Governing Law. Prior to the Company Merger, this Agreement shall
be governed by and construed in accordance with the law of the State of New
York; provided, however, that following the Company Merger, this Agreement shall
be governed by and construed in accordance with the law of the State of
Delaware.
(f) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same Agreement.
(g) Effect of Headings. The section and paragraph headings herein
are for convenience only and shall not affect the construction hereof.
(h) Time of the Essence. The parties agree that time shall be of the
essence in the performance of obligations hereunder.
(i) Survival of Representations and Warranties. The representations,
warranties, covenants and agreements shall survive any closing pursuant to this
Agreement.
(j) Expenses. Subject to subsection (m) below, each of the parties
hereto shall pay all fees and expenses it incurs in connection with this
Agreement.
(k) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable,
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<PAGE> 6
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
(l) Entire Agreement. This Agreement and the other agreements
referenced herein constitute the entire agreement between the Company and the
Purchaser with respect to the matters covered herein and supersede any prior
negotiations, understandings or agreements with respect to the matters
contemplated hereby.
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<PAGE> 7
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties set forth below.
YOUNG & RUBICAM INC.,
a New York corporation
By /s/ Stephanie W. Abramson
--------------------------------------------
Name: Stephanie W. Abramson
Title: Executive Vice President and General
Counsel
YOUNG & RUBICAM HOLDINGS INC.
By /s/ Stephanie W. Abramson
--------------------------------------------
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
YOUNG & RUBICAM INC.,
a Delaware corporation
By /s/ Stephanie W. Abramson
--------------------------------------------
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
H&F ORCHARD 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
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<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties set forth below.
YOUNG & RUBICAM INC.,
a New York corporation
By__________________________________________
Name: Stephanie W. Abramson
Title: Executive Vice President and General
Counsel
YOUNG & RUBICAM HOLDINGS INC.
By__________________________________________
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
YOUNG & RUBICAM INC.,
a Delaware corporation
By__________________________________________
Name: Stephanie W. Abramson
Title: Secretary and Assistant Treasurer
H&F ORCHARD 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 /s/ Philip U. Hammarskjold
--------------------------------------------
Name: Philip U. Hammarskjold
Title: Vice President
-7-
<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 finanical 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 headings "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
New York, New York
February 26, 1998
